Delta Apparel Reports First Quarter Fiscal 2024 Results

Rhea-AI Summary

Delta Apparel, Inc. (DLA) reports financial results for Q1 FY 2024 with a focus on cost restructuring and capital optimization. Net sales declined to $79.9 million from $107.3 million YoY. Gross margins were 10.9%, impacted by production curtailments. Operating loss increased to $4.9 million. EBITDA was a loss of $1.3 million. Net loss rose to $8.5 million. Debt decreased to $110.8 million. The company plans to streamline operations and manage liquidity.

Positive

• Focus on cost restructuring and capital optimization to improve balance sheet.
• Net sales decreased to $79.9 million from $107.3 million YoY.
• Gross margins at 10.9%, impacted by production curtailments.
• Operating loss increased to $4.9 million.
• EBITDA was a loss of $1.3 million.
• Net loss rose to $8.5 million.
• Debt outstanding decreased to $110.8 million.
• Company plans to streamline operations and manage liquidity.

Negative

• Gross margins declined to 10.9% from 12.7% YoY.
• Operating loss increased to $4.9 million.
• Net loss increased to $8.5 million.
• Debt outstanding decreased to $110.8 million.

Insights

Financial Analyst

The recent financial results from Delta Apparel, Inc. indicate a significant year-over-year decline in net sales, from $107.3 million to $79.9 million. This decline is a critical indicator of the company's performance and could potentially affect investor confidence. The decrease in gross margins from 12.7% to 10.9% suggests that the company is facing cost pressures, likely attributed to production curtailments. However, the adjusted gross margins of 12.6%, when accounting for these curtailments, offer a slightly more positive perspective on the underlying profitability of the company.

From an operational standpoint, the reduction in debt and inventory levels by over 20% is a positive sign of the company's commitment to improving its balance sheet. This could be seen as a proactive strategy to enhance financial flexibility, particularly as the company explores additional liquidity options. The increased net loss, from $3.6 million to $8.5 million, is concerning and warrants close monitoring as it reflects the company's struggle to maintain profitability amidst challenging market conditions.

The capital optimization efforts, including the sale-leaseback transaction for the real estate portfolio, are strategic moves that could unlock value for shareholders. However, the operating loss, increased net interest expenses due to higher rates and the overall negative EBITDA highlight the need for the company to intensify its cost restructuring efforts to navigate the flat demand forecasted for its markets.

Market Research Analyst

Delta Apparel's performance in the activewear sector reflects broader market dynamics, where sluggish demand and excess global manufacturing capacity are creating a challenging environment. The company's specific mention of pricing pressure due to these factors indicates an industry-wide issue that may continue to affect businesses in this space. This context is crucial for stakeholders to understand the competitive landscape and the external pressures impacting Delta Apparel's financials.

Despite the overall decline, the Salt Life business segment's sales growth and the success of its direct-to-consumer channels, including a new retail location, are bright spots. These segments could represent a strategic pivot point for the company, emphasizing the importance of direct-to-consumer models in the current retail market. The differentiation of the Salt Life brand and its higher gross margins, despite a temporary setback due to inventory timing, suggest potential for resilience and growth within this niche.

Legal Expert

Delta Apparel's announcement of continued cost restructuring and the consolidation of its offshore manufacturing footprint is a significant operational change that may have legal implications. Such restructuring could involve complex legal processes, including the renegotiation of contracts, compliance with international trade regulations and potential labor issues. The company's focus on managing liquidity and working capital, coupled with the need to secure additional liquidity, suggests that it is navigating a tight financial situation, which may lead to further legal considerations related to its credit facilities and debt covenants.

Furthermore, the planned sale-leaseback transaction for the real estate portfolio is a complex legal arrangement that will require careful structuring to ensure it aligns with the company's strategic goals and provides the anticipated financial benefits without exposing the company to undue risk.

Focus on Cost Restructuring and Capital Optimization Continues

DULUTH, Ga.--(BUSINESS WIRE)-- Delta Apparel, Inc. (NYSE American: DLA), a leading provider of core activewear, lifestyle apparel, and on-demand digital print strategies, today announced financial results for its fiscal year 2024 first quarter ended December 30, 2023.

Chairman and Chief Executive Officer Robert W. Humphreys commented, “Many of the unfavorable market dynamics we saw across our business and the activewear industry last year persisted during our first quarter. We continued to take decisive action to improve our balance sheet and streamline our cost structure and operations. Our debt and inventory levels were down more than 20% year-over-year and we are very near completion of our plan to reduce our offshore manufacturing footprint down to two countries and consolidate production in our more efficient Central American platform. We completed similar consolidation work in our DTG2Go digital print business and significantly reduced other areas of our workforce to better align our cost structure with the lower demand we continue to see across much of our business.

Our Salt Life business registered sales growth for the quarter on the strength of its direct-to-consumer channels, and its recently opened retail location in Virginia has exceeded expectations to date. At Activewear, we continued to see sluggish overall activity across its three go-to-market channels and the excess global manufacturing capacity in the market continued to drive pricing pressure. On-quality performance and other operational metrics in our DTG2Go business continued to improve and shipments in our digital first business were above our internal plan, but overall demand during the holiday season came in below original forecasts.”

Mr. Humphreys concluded, “With the challenging start to our fiscal year and demand across most of our markets generally expected to be flat relative to last year, we remain tightly focused on managing liquidity and working capital across all aspects of our business and will continue to look for areas where we can generate efficiencies and further streamline operations. We will also continue to evaluate strategic options with the best interest of our shareholders in mind and remain committed to monetizing our real estate portfolio through a sale-leaseback transaction for the right value proposition.”

For the first quarter ended December 30, 2023:

• Net sales were $79.9 million compared to prior year period net sales of $107.3 million. Salt Life Group segment net sales were $10.3 million and up slightly compared to the prior year period. Net sales in the Delta Group segment were $69.6 million compared to $97.0 million in the prior year period.
• Gross margins were 10.9% compared to 12.7% in the prior year period, driven primarily by production curtailments. Adjusted for the cost impacts of these product curtailments (“Production Curtailment Costs”), first quarter gross margins were 12.6%. Delta Group segment gross margins were 5.8% compared to 7.8% in the prior year period. Adjusted for the Production Curtailment Costs, Delta Group segment gross margins were 8%. Salt Life Group segment gross margins were 45.4% versus 57.0% in the prior year period. Salt Life’s gross margins for the quarter were negatively impacted to some degree by the timing of inventory receipts, which should reverse in the second quarter.
• Selling, general, and administrative expenses (“SG&A”) decreased from $18.9 million in the prior year period to $18.6 million, while SG&A as a percentage of sales increased over the prior year period to 23.3%.
• Operating loss increased from $2.6 million in the prior year period to an operating loss of $4.9 million. Adjusting for the Production Curtailment Costs and costs associated with the restructuring of our offshore manufacturing footprint down to two countries and related initiatives (“Restructuring Costs”), operating loss was $2.8 million. Delta Group segment operating income improved from $0.1 million to $0.5 million. Adjusted for the Production Curtailment Costs and Restructuring Costs, Delta Group segment operating income was $2.7 million, or 3.8% of sales. The Salt Life Group segment experienced an operating loss of $2.1 million, compared to operating income of $0.3 million in the prior year period.
• Net interest expense was $3.6 million compared to $2.9 million in the prior year period, with the increase driven by the elevated interest rate environment partially offset by lower borrowings.
• Earnings before interest, taxes, depreciation and amortization (“EBITDA”) was a loss of $1.3 million. Adjusted for the Production Curtailment Costs and Restructuring Costs, EBITDA was positive at $853 thousand. Delta Group segment EBITDA was $3.5 million. Adjusted for the Production Curtailment Costs and Restructuring Costs, Delta Group segment EBITDA was $5.7 million. Salt Life Group segment EBITDA was a loss of $1.6 million.
• Net loss increased to $8.5 million, or $1.22 per share, from a loss of $3.6 million, or $0.51 per share. Adjusted for the Production Curtailment Costs and Restructuring Costs, net loss was $6.6 million, or $0.94 per share.
• Net inventory as of December 30, 2023, was $196.3 million, a sequential decrease of almost $16 million, or 8%, from September 2023 and a year-over-year decrease of $62.5 million, or 24%, from December 2022.
• Debt outstanding under our U.S. revolving credit facility was $110.8 million at December 30, 2023, a reduction of $31.5 million from the prior year December and $42.3 million from March 2023. Total net debt, including capital lease financing and cash on hand, was $144.4 million as of December 30, 2023, an approximately 26% reduction from $194.3 million at March 2023 and an approximately 22% reduction from $185.2 million at December 2022.
• Cash on hand and availability under our U.S. revolving credit facility totaled $7.4 million as of December 30, 2023, a decrease of $19.8 million from December 2022 and $6.8 million from September 2023. We believe we will need to obtain additional liquidity in the near term to fund our operations and meet the obligations specified in our U.S. revolving credit facility, and we are currently exploring a variety of options toward that end.
• Capital spending was $300 thousand during the first quarter compared to $2.1 million during the prior year first quarter.

Conference Call

On February 12, 2024, at 4:30 p.m. ET, the Company’s senior management will hold a conference call to discuss its financial results. The Company invites you to join the call by dialing 888-886-7786. If calling from outside the United States, the dial-in number is 416-764-8658. A live webcast of the conference call will be available at www.deltaapparelinc.com. Please visit the website at least 15 minutes early to register for the teleconference webcast and download any necessary software. A replay of the call will be available through March 12, 2024. To access the telephone replay, participants should dial toll-free 844-512-2921. International callers can dial 412-317-6671. The access code for the replay is 35636211.

Non-GAAP Financial Measures

Reconciliations of GAAP gross margins to non-GAAP gross margins, GAAP operating income to non-GAAP operating income, GAAP net income to non-GAAP net income, GAAP net income to non-GAAP EBITDA, GAAP net income to non-GAAP adjusted EBITDA, and GAAP operating income to non-GAAP EBITDA and adjusted EBITDA are presented in tables accompanying the selected financial data included in this release and provide useful information to evaluate the Company’s operational performance. A description of the amounts excluded on a non-GAAP basis are provided in conjunction with these tables. Non-GAAP gross margin, non-GAAP operating income, non-GAAP net income, non-GAAP EBITDA and non-GAAP adjusted EBITDA should be evaluated in light of the Company’s financial statements prepared in accordance with GAAP.

About Delta Apparel, Inc.

Delta Apparel, Inc., along with its operating subsidiaries DTG2Go, LLC, Salt Life, LLC, and M.J. Soffe, LLC, is a vertically-integrated, international apparel company that designs, manufactures, sources, and markets a diverse portfolio of core activewear and lifestyle apparel products under the primary brands of Salt Life®, Soffe®, and Delta. The Company is a market leader in the direct-to-garment digital print and fulfillment industry, bringing proprietary DTG2Go technology and innovation to customer supply chains. The Company specializes in selling casual and athletic products through a variety of distribution channels and tiers, including outdoor and sporting goods retailers, independent and specialty stores, better department stores and mid-tier retailers, mass merchants and e-retailers, the U.S. military, and through its business-to-business e-commerce sites. The Company’s products are also made available direct-to-consumer on its websites at www.saltlife.com, www.soffe.com and www.deltaapparel.com as well as through its branded retail stores. The Company’s operations are located throughout the United States, Honduras, El Salvador, and Mexico, and it employs approximately 6,600 people worldwide. Additional information about the Company is available at www.deltaapparelinc.com.

Cautionary Note Regarding Forward-Looking Statements

This press release may contain “forward-looking” statements that involve risks and uncertainties. Any number of factors could cause actual results to differ materially from anticipated or forecasted results, including, but not limited to, our ability to access capital or that it will be available on terms acceptable to us or at all; the general U.S. and international economic conditions; the impact of the COVID-19 pandemic and government/social actions taken to contain its spread on our operations, financial condition, liquidity, and capital investments, including recent labor shortages, inventory constraints, and supply chain disruptions; significant interruptions or disruptions within our manufacturing, distribution or other operations; deterioration in the financial condition of our customers and suppliers and changes in the operations and strategies of our customers and suppliers; the volatility and uncertainty of cotton and other raw material prices and availability; the competitive conditions in the apparel industry; our ability to predict or react to changing consumer preferences or trends; our ability to successfully open and operate new retail stores in a timely and cost-effective manner; the ability to grow, achieve synergies and realize the expected profitability of acquisitions; changes in economic, political or social stability at our offshore locations or in areas in which we, or our suppliers or vendors, operate; our ability to attract and retain key management; the volatility and uncertainty of energy, fuel and related costs; material disruptions in our information systems related to our business operations; compromises of our data security; significant changes in our effective tax rate; significant litigation in either domestic or international jurisdictions; recalls, claims and negative publicity associated with product liability issues; the ability to protect our trademarks and other intellectual property; changes in international trade regulations; our ability to comply with trade regulations; changes in employment laws or regulations or our relationship with employees; negative publicity resulting from violations of manufacturing standards or labor laws or unethical business practices by our suppliers and independent contractors; the inability or refusal of suppliers or other third-parties, including those related to transportation, to fulfill the terms of their contracts with us; continued operating losses and restrictions on our ability to borrow capital or service our indebtedness; interest rate fluctuations increasing our obligations under our variable rate indebtedness; the ability to raise additional capital; the impairment of acquired intangible assets; foreign currency exchange rate fluctuations; the illiquidity of our shares; price volatility in our shares and the general volatility of the stock market; and the other factors set forth in the "Risk Factors" contained in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and as updated in our subsequently filed Quarterly Reports on Form 10-Q. Except as may be required by law, Delta Apparel, Inc. expressly disclaims any obligation to update these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

SELECTED FINANCIAL DATA:
(In thousands, except per share amounts)		Three Months Ended
		December 2023				December 2022
Net Sales		$	79,934			$	107,295
Cost of Goods Sold			71,187				93,672
Gross Profit			8,747				13,623
Selling, General and Administrative Expenses			18,614				18,870
Other Income, Net			(4,921	)			(2,621	)
Operating Loss			(4,946	)			(2,626	)
Interest Expense, Net			3,577				2,890
Loss Before Provision For (Benefit From) Income Taxes			(8,523	)			(5,516	)
Provision For (Benefit From) Income Taxes			10				(1,917	)
Consolidated Net Loss			(8,533	)			(3,599	)
Net Loss Attributable to Non-Controlling Interest			6				34
Net Loss Attributable to Shareholders		$	(8,527	)		$	(3,565	)
Weighted Average Shares Outstanding
Basic			7,003				6,954
Diluted			7,003				6,954
Net Loss per Common Share
Basic		$	(1.22	)		$	(0.51	)
Diluted		$	(1.22	)		$	(0.51	)

		December 2023				September 2023				December 2022
Current Assets
Cash		$	377			$	187			$	327
Receivables, Net			34,488				47,868				61,514
Inventories, Net			196,348				212,365				258,891
Prepaids and Other Assets			3,526				2,542				4,114
Total Current Assets			234,739				262,962				324,846
Noncurrent Assets
Property, Plant & Equipment, Net			62,598				65,611				72,771
Goodwill and Other Intangibles, Net			49,822				50,391				61,324
Deferred Income Taxes			7,822				7,822				1,342
Operating Lease Assets			56,909				55,464				49,313
Investment in Joint Venture			9,751				10,082				9,045
Other Noncurrent Assets			3,263				2,906				2,800
Total Noncurrent Assets			190,165				192,276				196,595
Total Assets		$	424,904			$	455,238			$	521,441
Current Liabilities
Accounts Payable and Accrued Expenses		$	77,308			$	80,321			$	100,652
Income Taxes Payable			700				710				321
Current Portion of Finance Leases			8,246				8,442				8,603
Current Portion of Operating Leases			9,741				9,124				8,585
Current Portion of Long-Term Debt			117,275				16,567				9,514
Total Current Liabilities			213,270				115,164				127,675
Noncurrent Liabilities
Long-Term Taxes Payable			2,131				2,131				2,841
Deferred Income Taxes			-				-				2,232
Long-Term Finance Leases			12,007				14,029				18,465
Long-Term Operating Leases			48,259				47,254				42,015
Long-Term Debt			7,260				126,465				148,899
Total Noncurrent Liabilities			69,657				189,879				214,452
Common Stock			96				96				96
Additional Paid-In Capital			60,643				61,315				60,559
Equity Attributable to Non-Controlling Interest			(713	)			(707	)			(690	)
Retained Earnings			124,860				133,387				163,035
Accumulated Other Comprehensive Gain (Loss)			-				-				210
Treasury Stock			(42,909	)			(43,896	)			(43,896	)
Total Equity			141,977				150,195				179,314
Total Liabilities and Equity		$	424,904			$	455,238			$	521,441

Reconciliations of GAAP Net Loss to Non-GAAP Measures Earnings Before Interest Taxes Depreciation and Amortization ("EBITDA"), Adjusted Net Loss, and Adjusted EBITDA
Unaudited
(in thousands)
Reconciliation of GAAP Measure Net Loss to Non-GAAP Measures EBITDA, Adjusted Net Loss, and Adjusted EBITDA – Unaudited
		Three Months Ending
		December 2023
Net Loss		$	(8,527	)
Interest Expense, Net			3,577
Provision For Income Taxes			10
Delta Group Segment Depreciation and Amortization			3,041
Salt Life Group Segment Depreciation and Amortization			534
Unallocated Depreciation and Amortization			57
EBITDA			(1,308	)
Production Curtailment Costs (1)			1,348
Restructuring Costs (2)			813
Tax Impact			(216	)
Adjusted Net Loss			(6,582	)
Interest Expense, Net			3,577
Provision For Income Taxes			226
Delta Group Segment Depreciation and Amortization			3,041
Salt Life Group Segment Depreciation and Amortization			534
Unallocated Depreciation and Amortization			57
Adjusted EBITDA		$	853
Reconciliation of GAAP Measure Delta Group Segment Operating Income to Non-GAAP Measures Delta Group Segment EBITDA, Adjusted Delta Group Segment Operating Income, and Adjusted Delta Group Segment EBITDA – Unaudited
		Three Months Ending
		December 2023
Delta Group Segment Operating Income		$	492
Delta Group Segment Depreciation and Amortization			3,041
Delta Group Segment EBITDA			3,533
Production Curtailment Costs (1)			1,348
Restructuring Costs (2)			813
Adjusted Delta Group Segment Operating Income			2,653
Delta Group Segment Depreciation and Amortization			3,041
Adjusted Delta Group Segment EBITDA		$	5,694
Reconciliation of GAAP Measure Salt Life Group Segment Operating Loss to Non-GAAP Measure Salt Life Group Segment EBITDA – Unaudited
		Three Months Ending
		December 2023
Salt Life Group Segment Operating Loss		$	(2,130	)
Salt Life Group Segment Depreciation and Amortization			534
Salt Life Group Segment EBITDA		$	(1,596	)
(1) Production Curtailment Costs consist of unabsorbed fixed costs, temporary unemployment benefit payments, and other expense items resulting from the Company’s decision to reduce production levels to better align with the significantly reduced demand across the activewear industry due to high inventory levels stemming from the heavy replenishment activity following pandemic-related supply chain challenges.
(2) Restructuring Costs consist of employee severance benefits paid in connection with the transition of our more expensive Mexico manufacturing capacity to our more efficient Central America manufacturing platform, employee severance benefits paid in connection with leadership restructuring, and additional cost items incurred from restructuring activities.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240212240772/en/

Company Contact:

Justin Grow, 864-232-5200 x6604

investor.relations@deltaapparel.com



Investor Relations Contact:

ICR, Inc.



Investors:

Tom Filandro, 646-277-1235

Source: Delta Apparel, Inc.

FAQ

What were Delta Apparel's (DLA) net sales for Q1 FY 2024?

Delta Apparel reported net sales of $79.9 million for Q1 FY 2024, down from $107.3 million YoY.

What was the gross margin percentage for Delta Apparel in Q1 FY 2024?

Delta Apparel's gross margins were 10.9% in Q1 FY 2024, impacted by production curtailments.

What was Delta Apparel's operating loss in Q1 FY 2024?

Delta Apparel's operating loss increased to $4.9 million in Q1 FY 2024.

What was Delta Apparel's EBITDA for Q1 FY 2024?

Delta Apparel reported an EBITDA loss of $1.3 million for Q1 FY 2024.

How did Delta Apparel's net loss change in Q1 FY 2024 compared to the previous year?

Delta Apparel's net loss increased to $8.5 million in Q1 FY 2024.

What was the debt outstanding under Delta Apparel's U.S. revolving credit facility as of December 30, 2023?

Delta Apparel had debt outstanding of $110.8 million under its U.S. revolving credit facility as of December 30, 2023.