Delta Apparel, Inc. reported net sales for the fourth quarter ended June 28, 2008 increased 14.7% to $105.3 million. Both the activewear and retail-ready segments had record sales driven by sales growth in all business units. Gross margins increased 330 basis points to 23.9% compared to 20.6% in the prior years fourth quarter. The prior years fourth quarter included $5.4 million, or 700 basis points, of restructuring related charges in cost of sales.
The company incurred higher bad debt expense in the fourth fiscal quarter compared to the prior year quarter due to the bankruptcy filings of two customers, resulting in an increase in accounts receivable reserves of $0.8 million. Net income for the fourth quarter was $4.3 million, or 50 cents per diluted share, inclusive of 6 cents per diluted share related to higher receivable reserves from the customer bankruptcy filings.
This exceeds the companys previously announced expectations of 45 cents to 49 cents per diluted share. This compares to the prior year fourth quarter net income of $0.7 million, or 8 cents per diluted share, inclusive of 51 cents per diluted share of restructuring related expenses.
When asked during Fridays earnings conference call Delta Apparels plans to prevent any more bankruptcy expenses, president and CEO Bob Humphreys remarked, “I would say [the company is] monitoring the situation more closely. There has been a couple of a bit unusual circumstances. Goodies we had worked through when it didnt look good for Goodies back eight or nine months ago, and had quit shipping them, and had collected our receivables. Then they got a significant cash infusion, and we did start shipping them again. We were caught a bit off guard by the speed that they went through that cash.
The Steve & Barry’s bankruptcy, we saw that coming and had greatly reduced our risk in that business over the years, and had a minor expense there in our Soffe business and none on our tee-shirt business, who used to have a significant amount of business with them You cant really take anybody for granted right now from a credit situation.” The retail-ready segment, comprised of the Soffe and Junkfood businesses, reported a 14.6% sales increase to $49.6 million for the fourth quarter of fiscal year 2008 compared to $43.3 million in the prior year fourth quarter. The higher sales were driven primarily by a 63.9% increase in Junkfood sales, its fifth consecutive quarter of double-digit sales growth. Fourth quarter revenue in the Soffe business increased 1.4% compared to the prior year fourth quarter, driven by increased sales in the military and college bookstore distribution channels offset by lower sales in the retail and sporting goods channels.
The activewear segment, comprised of the Delta and FunTees businesses, reported sales of $55.7 million for the three months ended June 28, 2008, a 14.9% increase from the prior year fourth quarter. Sales in the FunTees business increased 11.5% and sales in the Delta business increased 16.4%. Demand for the traditional Delta catalog products was strong during the fourth quarter as the additional production from Ceiba Textiles allowed the company to improve its inventory position to service its customers better. The activewear segment generated an operating loss of $1.8 million for the year. The fourth quarter of fiscal year 2007 included $6.9 million in restructuring related expenses.
Delta Apparel, Inc. reported net sales for the fourth quarter ended June 28, 2008 increased 14.7% to $105.3 million. Both the activewear and retail-ready segments had record sales driven by sales growth in all business units. Gross margins increased 330 basis points to 23.9% compared to 20.6% in the prior years fourth quarter. The prior years fourth quarter included $5.4 million, or 700 basis points, of restructuring related charges in cost of sales. Excluding the effect of the prior years restructuring related charges, higher raw material prices, increased energy and transportation costs, along with changes in the mix of products sold lowered the overall margins. The company incurred higher bad debt expense in the fourth fiscal quarter compared to the prior year quarter due to the bankruptcy filings of two customers, resulting in an increase in accounts receivable reserves of $0.8 million. Net income for the fourth quarter was $4.3 million, or 50 cents per diluted share, inclusive of 6 cents per diluted share related to higher receivable reserves from the customer bankruptcy filings. This exceeds the companys previously announced expectations of 45 cents to 49 cents per diluted share. This compares to the prior year fourth quarter net income of $0.7 million, or 8 cents per diluted share, inclusive of 51 cents per diluted share of restructuring related expenses.
Fiscal Year 2008 Results
Fiscal year 2008 net sales increased 3.1% to a record $322.0 million compared to $312.4 million in the prior year. The prior year included results from the FunTees business since its acquisition on October 2, 2006. Gross margin for the year ended June 28, 2008 declined to 20.1% compared to 23.4% in the prior year due primarily to higher raw material, energy and transportation prices. For fiscal year 2008, the company reported a net loss of $0.5 million, or 6 cents per diluted share, which included a 39 cents per diluted share impact from the restructuring related charges and 6 cents bad debt expense associated with the bankruptcy filings of two customers. This compares to net income for fiscal year 2007 of $6.3 million, or 73 cents per diluted share, including restructuring related charges of 51 cents per diluted share and a benefit 8 cents per diluted share resulting from the extraordinary gain associated with the final earn-out payment made to the former M. J. Soffe shareholders.
Robert W. Humphreys, president and CEO, commented, “Overall we were pleased with our fourth quarter results and the operational improvements we made during the year. Demand for our apparel products exceeded expectations during the quarter resulting in record fourth quarter and full year revenues. We continued to improve the productivity of the sewing and printing facilities acquired in the FunTees acquisition, while also lowering our costs in our other offshore sewing facilities. Our new Honduran state-of-the-art textile plant, Ceiba Textiles, met its production goal of 500,000 pounds per week and is continuing to increase production. We will remain focused on cost savings and quality improvements in our manufacturing operations in the upcoming year.”
Retail-Ready Apparel
The retail-ready segment, comprised of the Soffe and Junkfood businesses, reported a 14.6% sales increase to $49.6 million for the fourth quarter of fiscal year 2008 compared to $43.3 million in the prior year fourth quarter. The higher sales were driven primarily by a 63.9% increase in Junkfood sales, its fifth consecutive quarter of double-digit sales growth. Junkfood revenue was positively impacted by sales of the new co-branded products with GapKids and babyGap, increased foreign sales, and new boutique customers. Fourth quarter revenue in the Soffe business increased 1.4% compared to the prior year fourth quarter, driven by increased sales in the military and college bookstore distribution channels offset by lower sales in the retail and sporting goods channels. Operating income in the retail-ready segment was $9.4 million for the fourth fiscal quarter of 2008, an increase of $0.8 million from the prior year fourth quarter due primarily to the increased sales and leveraged fixed costs in the Junkfood business.
Activewear Apparel
The activewear segment, comprised of the Delta and FunTees businesses, reported sales of $55.7 million for the three months ended June 28, 2008, a 14.9% increase from the prior year fourth quarter. Sales in the FunTees business increased 11.5% and sales in the Delta business increased 16.4%. After completion of the manufacturing integration, FunTees quality and on-time deliveries returned to normal and customers placed additional programs with FunTees. This resulted in increased FunTees fourth quarter shipments and is expected to drive additional business in fiscal year 2009. Demand for the traditional Delta catalog products was strong during the fourth quarter as the additional production from Ceiba Textiles allowed the company to improve its inventory position to service its customers better. Although pricing increased during the quarter in the catalog business, these increases were offset by higher cotton, energy and transportation costs. The activewear segment generated an operating loss of $1.8 million for the fourth fiscal quarter, an improvement of $5.7 million over the same quarter last year. The fourth quarter of fiscal year 2007 included $6.9 million in restructuring related expenses.
Fiscal 2009 Guidance
For the 2009 fiscal year ending June 27, 2009, the company expects net sales to be in the range of $340 million to $360 million and earnings to be in the range of 70 cents to 90 cents per diluted share. This compares to fiscal year 2008 sales of $322.0 million and a loss of 6 cents per diluted share, inclusive of 39 cents per diluted share of costs associated with the textile restructuring plan.
The company remains concerned about the general slowdown of the U.S. economy and consumer demand for apparel. The difficult retail climate has led to higher than normal bankruptcy rates by apparel retailers. This, coupled with weaker consumer demand and volatile raw material, energy and transportation prices, is an ongoing concern for the company in fiscal year 2009. In determining its expectations for the upcoming year the company believes it has taken into consideration these heightened risk factors; however, further deterioration in the economy may negatively impact the companys ability to achieve its expectations.
Mr. Humphreys concluded, “In our opinion, fiscal year 2009 will be an exciting year for our company. We ended fiscal year 2008 with our inventories properly balanced to serve our customers needs and are well positioned to continue the organic growth we experienced over the past several months. At the same time, we believe the many initiatives recently completed this past year have better positioned our Company for the long-term and should allow us to deliver top-line growth, improved profitability, and increased shareholder value in the future.”
SELECTED FINANCIAL DATA:
(In thousands, except per share amounts)
Three Months Ended
Twelve Months Ended
Jun 28, 2008
Jun 30, 2007
Jun 28, 2008
Jun 30, 2007
Net Sales
$
105,328
$
91,796
$
322,034
$
312,438
Cost of Goods Sold
80,197
72,872
257,381
239,365
Gross Profit
25,131
18,924
64,653
73,073
Selling, General and Administrative
17,603
17,699
59,836
59,187
Restructuring Costs
–
–
62
1,498
Other Income (Expense), Net
74
(164
)
132
(89
)
Operating Income
7,602
1,061
4,887
12,299
Interest Expense, Net
1,339
1,344
6,042
5,157
Income (Loss) Before Provision (Benefit) for Income Taxes and
