Delta Apparel saw considerable strength in its Activewear segment in its fiscal third quarter ended March 28, driven by higher sales of full-package products in its FunTees business. The gains in the Activewear segment, which also includes the Delta brand, more than offset the declines in the companys Retail-Ready segment, represented by the MJ Soffe and Junkfood businesses. The net results was a swing to profit for the company and a double-digit increase in sales.
Overall sales increased 13.7% to $85.7 million in the fiscal third quarter and the company posted net income of $1.2 million, or 14 cents per diluted share, compared to a loss of $0.4 million, or a loss of 5 cents per diluted share, in the year-ago period.
The Retail-Ready segment saw sales decline 7.6% to $32.4 million in the quarter, which management attributed to retailers reducing orders to lower their inventory after the weak holiday season and in anticipation of reduced costumer spending in the future. The Soffe business also declined in its military business, as the prior year included sales from the introduction of the new Navy PT uniform, which resulted in a spike in military sales in the third and fourth fiscal quarters of 2008.
Operating income in the Retail-Ready segment was $2.8 million for the third fiscal quarter of 2009, a decline of $1.9 million from the prior year third quarter due primarily to the lower sales and de-leveraged fixed costs in the businesses.
The company said movement of the Soffe textile production into DLAs Maiden and Ceiba facilities should be complete by fiscal year-end, resulting in lower fabric costs and lower inventories.
The Activewear segment reported sales of $53.3 million for the quarter, an increase of 32.1% over the fiscal 2008 third quarter. Sales in the FunTees business increased 70.7% as it received more programs and a higher percentage of orders for full-package products from its customers as a result of the “improved quality and performance over the last several quarters.” Sales of the Delta basic tees increased 14.7% during the third quarter driven by increased unit sales of 13%.
The Activewear segment had an operating loss of $0.5 million for the third quarter of 2009, compared to an operating loss of $3.6 million in the prior-year third quarter, which included $0.9 million in restructuring related expenses.
Effective March 29, 2009, Delta acquired substantially all of the assets of Gekko Brands, supplier of headwear sold under brands The Game and Kudzu. DLA expects its new wholly-owned subsidiary The Game, LLC to add approximately $27 million in annual sales to its business.
Year-to-date organic growth in each of the companys four business units and the acquisition of The Game is expected to result in fiscal 2009 revenue between $350 million and $360 million and earnings to between 70 cents and 80 cents per diluted share.
Delta continues to closely monitor its inventory levels in this difficult economy. Company President and CEO Bob Humphreys said DLA took “unscheduled down time” in manufacturing units in the third quarter to manage inventory levels and expensed the approximately $800,000 cost, which reduced per-share earnings by approximately 7 cents for the quarter. “Retail inventories appeared lean, but the pipeline of undecorated tees is well supplied and current overall capacity exceeds demand,” said Humphreys.
