Delta Apparel Inc. reported sales jumped 65.3 percent in the third quarter ended July 3 to $118.7 million. Sales were relatively flat against 2019 third-quarter levels as a 36 percent increase at the Salt Life Group segment helped offset a 5 percent decline in the Delta Group segment. The sales performance was in line with an update provided in mid-July.

June quarter sales grew 9.2 percent from the March 2021 quarter, and sales in both segments exceeded internal expectations.

The strong sales performance in the Salt Life business was driven by double-digit year-over-year growth in its wholesale, e-commerce, and branded retail channels, with Salt Life retail doors driving sales growth of 250 percent versus the 2019 third quarter. Delta Group’s net sales declined as inventory was not available to support the strong order demand, and labor shortages impacted U.S. production and distribution capacity.

Gross margin in the latest quarter improved to 25.5 percent versus 4.2 percent in the prior year, and 20.8 percent in the June 2019 quarter, driven by higher DTC sales and the benefit of strategic pricing initiatives combined with lower product costs still flowing through the cost of sales.

SG&A expenses were reduced to 16.8 percent of sales in the latest quarter compared to 21.2 percent in the prior-year third quarter 15.0 percent in the third quarter of fiscal 2019. The increase in SG&A compared to the third quarter of fiscal 2019 was driven by higher incentive compensation expenses, consistent with the improved profitability.

Operating income in the June 2021 quarter was $11.9 million compared to the prior year’s third-quarter loss of $21.6 million, which included $23.1 million of COVID-19-related adjustments. Operating income increased 40 percent from the same quarter in fiscal 2019.

The June 2021 quarter included a $1.2 million favorable adjustment to the contingent earnout liability from the DTG2Go acquisition. The June 2019 quarter included a $1.3 million gain related to the favorable settlement of a commercial litigation matter.

Net earnings for the June 2021 quarter were $8.2 million, or $1.14 per share, compared to a net loss of $17.8 million, or $2.58, in the June 2020 quarter, which included $17.7 million, or $2.57 per share, of expenses associated with COVID-19. Net earnings climbed 60 percent compared to the same quarter in fiscal 2019.

“Our teams overcame many challenges, including inventory constraints and U.S. labor shortages, and delivered solid topline revenue and double-digit operating margins,” said Bob Humphreys, chairman and CEO, on a conference call with analysts. “Over the last several years, consumer trends have been favorable towards active apparel from athletic wear to athleisure. And the most recent pandemic has only accentuated the trend was more people working from home and enjoying the outdoors. Add to this recent tariff policy and international trade uncertainties, along with supply chain disruptions and the result is more companies are seeking onshore and near-shore sourcing strategies than ever before.”

Humphreys said that given the healthy demand, Delta Apparel has already made investment commitments to further increase production capacity and the new production is projected to be online in the back half of FY22.

“Our performance during the quarter highlights the benefits of our broad channels of distribution, the demand in the market for the unique products and services we offer, and the efficiencies we can achieve with our vertical integration operations,” said Humphreys. “We believe the strong foundation we have in place, coupled with our ongoing strategic initiatives, positions as well for continued growth in strong operating margin performance going forward.”

Total inventory as of June 2021 was down $5.7 million, or 3.6 percent, year over year. Total inventory increased $3.8 million from March 2021 resulting from an increase in raw materials and in-process inventory, partially offset by a $2.9 million decrease in finished goods.

“With the inventory constraints, we have learned over the last several quarters how to operate more efficiently and with less inventory,” said Deb Merrill, CFO and president, Delta Group. “With that said, with our increased production, we see our inventory position improving each quarter and expect to reach our new normalized levels by spring 2022.”

Photo courtesy Delta Apparel/Salt Life