Despite a dip in sales in its fiscal third quarter, Delta Apparel got a nice bottom line lift from improving gross margins and operating margins in the period ended April 2. Net sales for the period dipped less than 1% to $58.3 million from $58.8 million in the prior year period, but net income jumped 42.8% to $5.4 million, or 64 cents per diluted share, compared to $3.8 million, or 46 cents per diluted share, in the third quarter last year. The per share comparison reflects a 2-for-1 stock split effective May 31, 2005.
The parent company to MJ Soffe saw a nice improvement in gross margins, which increased 80 basis points to 25.3% of sales in Q3, compared to 24.5% in Q3 last year, due in large part to price increases in core apparel styles, a more favorable mix of higher margin goods, as well as improvements in manufacturing processes. But operating margin got an even bigger boost from the sale of South Carolina yarn-spinning facility that added about 430 basis points to operating margins to roughly 13.7% of sales.
DLA will continue to work on cost reductions in the Soffe business and will continue to transition domestic sewing production to offshore facilities. Management said they will “maintain appropriate levels of sewing production” in the U.S. to support various military programs.
The Delta business saw a 0.8% sales decline in the period to $36.0 million, a dip they attributed to the move of a distribution center in Tennessee. Operating income jumped 135% to $6.1 million, with $3.6 million of the gain coming from the sale of the Edgefield, SC plant. Excluding the gain from the sale, operating income would have been down about 4.0% for the period.
The Soffe business grew 1.6% for the quarter, adding about $22.9 million in sales to the top line versus $22.5 million in the year-ago period. An increase on close-out product sales in the quarter hurt both margins and sales as the company moved to clean up inventory. Operating income for the Soffe business declined 25% to $2.1 million in the fiscal third quarter.
Inventory decreased $4.6 million to $105.2 million at quarter-end, with $3.7 million of that decline coming from the Soffe business.