Fueled by double-digit growth in its Salt Life Group and Delta Group segments, Delta Apparel, Inc. notched a first-quarter sales record as net profits more than tripled.
“We are extremely pleased today to tell you about our outstanding start to fiscal 2022 and strong first-quarter performance, which outpaced our expectations and put us in place to meet if not exceed our revenue and earnings goals for fiscal 2022,” said Delta’s chairman and chief executive officer, Bob Humphreys, on a conference call with analysts.
In the first quarter ended January 1, sales were $110.7 million, increasing 17.0 percent year-over-year. Sales in the Delta Group segment grew 16.3 percent to $101.9 million, while Salt Life segment sales grew 24 percent to $8.8 million.
Delta Apparel on January 10 had pre-announced strong than expected first-quarter sales.
Salt Life Group Sales Expand 24 Percent
Humphreys said Salt Life Group ended the quarter with strong orders for its wholesale channel while at the same time continuing to build direct consumer engagement on its social media platforms. He said those factors “should continue to drive strong growth in our higher-margin direct-to-consumer channels of distribution.”
Salt Life opened one store during the quarter in Texas City, TX, and have already opened a new store in Sarasota, FL in the current quarter with plans to complete store openings in Fort Lauderdale, FL, Foley, AL, Hilton Head, SC, and Boca Raton, FL over the next several months. Discussions are continuing for several additional leases with plans to end this fiscal year with approximately 20 Salt Life retail stores in operation.
Said Humphreys, “For doors opened five quarters or longer, we registered same-store sales growth of 18 percent from the prior-year December quarter. Consumer demand and engagement on our Salt Life e-commerce site has been strong despite going into the quarter with a limited inventory position that became more constrained as the holiday season progressed, limiting our revenue through this channel of distribution.”
To support online growth, Salt Life recently strategically reconfigured space within its existing distribution center in Fayetteville, NC.
Said Humphreys, “Salt Life continues on its journey of strong organic growth and the broad demand that our products have accelerated over the last six quarters, while we continue to navigate supply chain issues that face many in this current environment. As you can see from our sales results, our team has executed magnificently to allow us to deliver strong revenue growth despite these industry challenges. We are shipping our spring wholesale business as we speak and are expecting continued growth and the associated margin expansion with the growth of our direct-to-consumer channel.”
Delta Group Sales Expand 16 Percent
Humphreys said Delta Group is now seeing channels of distribution that have been more heavily impacted by COVID start to normalize, and all channels are now in a growth mode, which is expected to ultimately help the business support its targeted product mix. He added, “Moreover, we continue to see additional retailers and global brands seek increased production from the vertically integrated supply chain that Delta Apparel has to offer.”
Delta Group is installing additional equipment in its textile sewing in spring print locations in Central America, which is expected to increase output as the year progresses.
“The Delta Group, like many in our industry, continues to be impacted by limited suppliers for raw materials, transportation services, and other supply chain bottlenecks,” said Humphreys. “However, to date, we’ve been able to manage through these challenges, further building output by utilizing our vertically integrated manufacturing network. Our ability to meet customer demand has not only resulted in strong top-line performance but allowed us to broaden our services and offerings with both existing and new customers.”
Over the last year, Delta Group increased selling prices on the majority of its products to mitigate most of the inflationary pressures impacting our supply chain. In addition, Delta Group is now providing more value-adding services, such as screen or digital printing and retail-ready services, than any time in the segment’s history, which further increases its average selling prices.
“Our increased unit growth along with a richer mix of services delivered is allowing us to also increase our operating profits by leveraging our fixed cost in our manufacturing and SG&A areas,” said Humphreys.
The DTG2Go business reached a number of significant milestones in the quarter, including a new quarterly revenue record with growth of 17 percent over the prior year.
“We were able to move from a beta test mode to a production environment on our new printing equipment while we continue to take delivery of, and install, additional production equipment through the holiday season. As previously announced, we on-boarded several new customers on the DTG2Go platform during the quarter. This will provide the foundation for growth as the year progresses.”
DTG2Go’s digital-first methodology, which was developed in conjunction with a number of key market participants, was implemented in the quarter and significant investments were made in DTG2Go digital-first retail model.
Said Humphreys, “We believe the quality, look, and feel of the garments created through this process will continue to differentiate us in the marketplace and will be a key driver of the growth we’re expecting in this business. In addition, 55 percent of the DTG2Go units we produced in the December quarter were printed on Delta Garments, creating a more efficient operation, reduced garment costs for our customers, and lower working capital needs in the business.”
Operating Profits Improve 90 Percent
Gross margins were 20.8 percent, contracting 60 basis points. Gross margins were in line with expectations, with the decline largely driven by the pressure of inflationary costs in our manufacturing operations.
SG&A expenses rose to $17.5 million from $16.0 million in the prior-year first quarter due to higher variable selling costs. As a percent of sales, SG&A expenses eroded to 15.8 percent from 16.9 percent of sales due to sales leverage.
Operating income surged 90.1 percent to $5.9 million, or 5.3 percent of sales, from $3.1 million, or 3.3 percent, a year ago.
Net income reached $3.6 million, or 51 cents per share, a hike of 313 percent. The gains were driven by higher operating profits and a lower tax rate.
Net inventory as of December 2021 was $183.1 million, an increase of $21.4 million from September 2021 and $34.6 million from December 2020. The improved inventory levels reflect increased production as the company reached record manufacturing levels during the past year.
Looking ahead, Humphreys said the company continues to face several headwinds, including labor shortages in the United States, supply chain disruptions, and high cotton prices. However, he also feels the opportunities Delta has to grow its top line and further expand profitability “are probably the strongest we have seen in our history.”
He added, “While the current economic conditions present challenges for us, the changing global dynamics are providing many opportunities. Our key go-to-market strategies, Salt Life, Delta Direct, Retail Direct, Global Brands, and DTG2Go, combined with our vertical supply chain network, provide us with a powerful business platform that is in strong demand and provides us with many avenues for further growth.”
