Delta Apparel, Inc. posted a loss for the fiscal second 
quarter ended December 29 versus a small profit in the year-ago quarter, but the loss came in a bit smaller than originally expected. The major contributor to the loss was a 630 basis point decline in gross margins, due primarily to “textile restructuring related costs, higher raw material prices, increased transportation costs and sales of a more basic mix in the t-shirt business.” The company expensed $2.0 million, or 15 cents per diluted share, predominantly related to excess textile manufacturing costs associated with the integration of the acquired FunTees business and start-up costs from the opening of a Honduran textile facility.
The sales increase in the Retail-Ready Apparel business, which includes the M.J. Soffe and Junkfood operations, was driven primarily by a 24.6% increase in the Junkfood business, representing the third consecutive quarter of double-digit sales growth. The Soffe business also grew its sales in the second quarter, driven from its military and bookstore channels, offset partially by lower sales in its retail and sporting goods distribution channels.
The Activewear segment, which is comprised of the Delta and FunTees businesses, saw a sales decline from lower sales in the FunTees business driven by “capacity constraints” experienced during the FunTees textile transition and “reduced callouts due to slower retail demand.” Sales in the Delta business increased slightly from the prior year second quarter, driven by increased volumes, offset by lower average selling prices. The lower average selling prices resulted from selling a mix containing more core basic t-shirt products.
