Delta Apparel, Inc. reported that net sales for the second quarter ended January 1 increased 7.8% to $49.2 million compared to $45.6 million from the prior year. This increase primarily resulted from organic growth in the core Delta business. Net income increased to $1.2 million, or 27 cents per diluted share, compared to a year ago loss of $91,000, or a loss of two cents per diluted share.
Gross margins for the quarter improved 250 basis points to 22.0% compared to 19.5% in the prior year’s quarter. Operating margin increased 390 basis points to 5.5% compared to a year-ago level of 1.6%.
For the six months ending January 1, 2005, net sales increased 35.4% to $103.5 million compared to $76.4 million in the prior year. Net income for the six month period increased 421.7% to $2.6 million, or $0.61 per diluted share, compared to $0.5 million, or $0.12 per diluted share in the same period last year.
Gross margins for the first six months of fiscal year 2005 improved 460 basis points to 21.6% compared to 17.0% in the prior year. Operating margin increased 330 basis points to 5.7% compared to 2.4% in the prior year. The prior year results included the operations of Soffe for three months, as M. J. Soffe Co. was acquired on October 3, 2003.
Robert W. Humphreys, President and CEO, commented, “We are very pleased with our results for the second fiscal quarter. Our focus on expanding our product lines and improving distribution resulted in a unit volume increase for the Delta business during the quarter. Soffe sales were limited by a conservative inventory position in fashion fleece for fall, but we have adjusted our inventory levels to meet expected increased demand. We believe the expanded Soffe product line will achieve sales growth through the spring selling season.”
Mr. Humphreys continued, “During the first half of the year, weve increased our gross margins through an improved mix of higher margin goods as well as improvements to our manufacturing process. In the second half of the fiscal year, we look forward to a strong spring selling season for our core business divisions and expect continued growth in sales and gross margins.”
The Delta business reported sales of $34.0 million for the three months ended January 1, 2005, an all-time record for this business. This was an increase of $5.5 million, or 19.1% from the prior year quarter. This increase stems from increased unit sales and higher average selling prices. Operating income for the quarter ended January 1, 2005, increased to $1.9 million compared to $5 thousand from the prior year quarter. Increased sales of higher margin products and improved manufacturing operations, offset partially by higher raw material costs, drove the improved operating income.
The Soffe business contributed $15.7 million in sales for the second quarter of fiscal year 2005, a $1.4 million decrease, or 8.0%, from sales in the prior year’s quarter. Sales were impacted by a conservative inventory position on fashion fleece. Operating income for the quarter ended January 1, 2005 increased 24.6% to $0.9 million compared to $0.7 million from the prior year quarter.
Accounts receivable increased 17.1%, or $4.0 million, from December 27, 2003 to $27.7 million on January 1, 2005, primarily as a result of the increased sales.
Inventory decreased $4.6 million compared to the prior year. In addition to more efficient inventory utilization in the core Delta business, the Company sold approximately $1.3 million of raw cotton and work in process yarn to Parkdale America, LLC in December.
Delta Apparel also announced that on January 20, 2005, the Board of Directors declared a dividend of seven cents per common share of stock payable on February 28, 2005 to shareholders of record as of the close of business on February 16, 2005. This dividend was declared pursuant to the Company’s previously announced quarterly dividend program, which the Company may amend or terminate at any time.
On January 5, 2005, the Company completed the sale of its yarn manufacturing plant in Edgefield, South Carolina to Parkdale America, LLC for $10 million. This accomplishes the Company’s long-term yarn strategy of obtaining high quality, low cost yarn while reducing its working capital investment and eliminating the need for future capital expenditures in yarn manufacturing. The sale of the Edgefield Plant is expected to result in a pre-tax financial gain of approximately $3.5 million, or after-tax, $0.51 per diluted share. This gain will be recorded in the third fiscal quarter ending April 2, 2005. The Company expects the sale of the facility to lower working capital by approximately $4.0 million.
SELECTED FINANCIAL DATA:
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
Jan 1, Dec 27, Jan 1, Dec 27,
2005 2003 2005 2003
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Net Sales $ 49,195 45,623 $103,495 76,425
Cost of Goods Sold 38,379 36,714 81,102 63,434
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Gross Margin 10,816 8,909 22,393 12,991
SG&A 8,094 8,148 16,540 11,207
Other Expense/(Income) 15 31 5 (50)
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Operating Income 2,707 730 5,848 1,834
Interest Expense 835 892 1,538 1,046
Taxes 718 (71) 1,712 290
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Net Income (Loss) $ 1,154 $ (91) $ 2,598 $ 498
========== ========= ========= =========
Weighted Average Shares
Outstanding
Basic 4,146 4,064 4,144 4,054
Diluted 4,281 4,064 4,280 4,176
Net Income (Loss) per Common
Share
Basic $ 0.28 $ (0.02) $ 0.63 $ 0.12
Diluted $ 0.27 $ (0.02) $ 0.61 $ 0.12
