Delta Apparel Reports Second Quarter Fiscal 2023 Results

Rhea-AI Summary

Delta Apparel, Inc. reports double-digit sales growth in Q2 2023, driven by Salt Life and DTG2Go businesses. Salt Life achieves record sales and profitability, expands license portfolio. DTG2Go sees nearly 20% topline expansion. Net sales for Q2 2023 were $110.3 million, compared to $131.7 million in Q2 2022. Gross margins declined to 14.7% from 25.5% due to production curtailments and inflationary costs. Operating income declined from $14.3 million to a loss of $5.4 million. Net income declined from $10.1 million to a loss of $7.0 million. Net inventory decreased by $15.7 million from December 2022. Total net debt increased to $194.3 million. The Company spent $2.0 million on capital expenditures in Q2 2023.

Positive

• Delta Apparel reports double-digit sales growth in Q2 2023, driven by Salt Life and DTG2Go businesses. Salt Life achieves record sales and profitability, expands license portfolio. DTG2Go sees nearly 20% topline expansion.

Negative

• Gross margins declined to 14.7% from 25.5% due to production curtailments and inflationary costs. Operating income declined from $14.3 million to a loss of $5.4 million. Net income declined from $10.1 million to a loss of $7.0 million. Total net debt increased to $194.3 million.

Record Sales Pace and Double-Digit Growth at Salt Life and DTG2Go Continue

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 2023 second quarter ended April 1, 2023.

Chairman and Chief Executive Officer Robert W. Humphreys commented, “Our second quarter performance highlights the durability and inherent advantages in our multi-market strategy during uneven demand cycles. We achieved double-digit sales growth across three of our five go-to-market channels and saw strength in areas where we provide decorated ‘consumer ready’ products directly to end-users or close to the point-of-sale.

Our Salt Life business continues to capitalize on the growing popularity of its lifestyle brand domestically and internationally, achieving both record sales and profitability during the quarter. The growth at Salt Life included double-digit increases across its branded retail and eCommerce channels as well as healthy growth at wholesale. Salt Life also expanded the scope of its license portfolio through a new partnership in the multi-billion-dollar home furnishings market that we expect to generate significant future royalty revenue.

Our DTG2Go business also continued its high growth trend during the quarter with nearly 20% topline expansion over the prior year. We continue to see a multi-decade growth runway in digital print as players in the traditional decorated apparel markets increasingly recognize its speed-to-customer and other advantages. The benefits of on-demand strategies in reducing inventory investment are even more apparent in the current high interest rate environment.

The apparel markets remain dynamic. As expected, our Delta Direct and Global Brands channels were impacted by the well-publicized high inventory levels and associated slower demand in the supply chains they serve, while our Retail Direct channel saw double-digit sales growth in the quarter.

Mr. Humphreys concluded, “We remain keenly focused on managing our working capital, reducing inventory and debt levels, and leveraging the many opportunities across our business to provide higher-margin and quicker-turn ‘consumer ready’ products. Executing on these initiatives and working through the remainder of last year’s high-price cotton inventory sets the stage for improved operating results as we move through the second half of our fiscal year and positions us to capitalize on accelerations in demand.”

For the second quarter ended April 1, 2023:

• Net sales were $110.3 million compared to prior year second quarter net sales of $131.7 million. Salt Life Group segment net sales grew over 16% to $19.0 million from prior year second quarter net sales of $16.4 million. Net sales in the Delta Group segment were $91.3 million compared to $115.3 million in the prior year second quarter.

• Gross margins were 14.7% compared to 25.5% in the prior year, driven by production curtailments intended to match manufacturing output with market demand as well as inflationary cotton and other raw material costs.

• Selling, general, and administrative expenses (SG&A) were $19.3 million, or 17.5% of sales, compared to $19.7 million, or 15.0% of sales, in the prior year second quarter. The increase in SG&A as a percentage of sales was driven by the further expansion of Salt Life’s branded retail store footprint and the deleveraging effect of overall lower sales relative to the prior year period.

• Operating income declined year-over-year from $14.3 million, or 10.9% of sales, to an operating loss of $5.4 million, or (4.9%) of sales.

• Net income declined from $10.1 million, or $1.44 per diluted share, to a loss of $7.0 million, or ($1.00) per diluted share.

• Net inventory as of April 1, 2023, was $243.2 million, a sequential decrease of $15.7 million from December 2022 and a year-over-year increase of $45.5 million from March 2022. The decrease from December 2022 stemmed primarily from efforts to manage inventory levels through production curtailments intended to match manufacturing output with demand.

• Total net debt, including capital lease financing and cash on hand, was $194.3 million as of April 1, 2023, an increase of $9.1 million from December 2022 and $40.9 million from March 2022. Cash on hand and availability under the Company’s U.S. revolving credit facility totaled $12.8 million as of April 1, 2023, a decrease of $14.4 million from December 2022 and $22.4 million from March 2022, with the decrease from December 2022 principally driven by investments in the business to support working capital needs.

• The Company spent approximately $2.0 million on capital expenditures during the second quarter compared to $10.5 million during the prior year second quarter, with the expenditures focused on Salt Life retail store build-outs as well as facility, information technology and manufacturing enhancements.

Conference Call

After the market close on May 4, 2023, financial results for the Company’s fiscal year 2023 second quarter ended April 1, 2023, will be released and, at 4:30 p.m. ET, the Company’s senior management will hold a conference call to discuss its financial results and business outlook. The Company invites you to join the call by dialing 888-886-7786. If calling from outside the United States, please dial 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 June 4, 2023. 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 06112508.

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 7,000 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, 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 of suppliers or other third-parties, including those related to transportation, to fulfill the terms of their contracts with us; 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								Six Months Ended
		March 2023				March 2022				March 2023				March 2022
Net Sales		$	110,335			$	131,698			$	217,630			$	242,444
Cost of Goods Sold			94,126				98,176				187,798				185,919
Gross Profit			16,209				33,522				29,832				56,525
Selling, General and Administrative Expenses			19,298				19,714				38,168				37,197
Other Expense (Income), Net			2,265				(533	)			(356	)			(929	)
Operating (Loss) Income			(5,354	)			14,341				(7,980	)			20,257
Interest Expense, Net			3,723				1,801				6,613				3,399
(Loss) Earnings Before (Benefit From) Provision For Income Taxes			(9,077	)			12,540				(14,593	)			16,858
(Benefit From) Provision For Income Taxes			(2,079	)			2,414				(3,996	)			3,062
Consolidated Net (Loss) Earnings			(6,998	)			10,126				(10,597	)			13,796
Net Loss (Income) Attributable to Non-Controlling Interest			6				11				40				(14	)
Net (Loss) Earnings Attributable to Shareholders		$	(6,992	)		$	10,137			$	(10,557	)		$	13,782
Weighted Average Shares Outstanding
	Basic		7,001				6,953				6,978				6,976
	Diluted		7,001				7,040				6,978				7,063
Net (Loss) Earnings per Common Share
	Basic	$	(1.00	)		$	1.46			$	(1.51	)		$	1.98
	Diluted	$	(1.00	)		$	1.44			$	(1.51	)		$	1.95

		March 2023				September 2022				March 2022
Current Assets
	Cash	$	625			$	300			$	428
	Receivables, Net		64,825				71,586				78,258
	Inventories, Net		243,167				248,538				197,691
	Prepaids and Other Assets		4,096				2,755				3,698
Total Current Assets			312,713				323,179				280,075
Noncurrent Assets
	Property, Plant & Equipment, Net		70,739				74,109				73,208
	Goodwill and Other Intangibles, Net		60,731				61,923				63,101
	Deferred Income Taxes		1,342				1,342				1,069
	Operating Lease Assets		56,174				50,275				45,785
	Investment in Joint Venture		9,036				9,886				10,027
	Other Noncurrent Assets		2,239				2,967				2,079
Total Noncurrent Assets			200,261				200,502				195,269
Total Assets		$	512,974			$	523,681			$	475,344
Current Liabilities
	Accounts Payable and Accrued Expenses	$	84,652			$	110,967			$	90,661
	Income Taxes Payable		671				379				1,754
	Current Portion of Contingent Consideration		-				-				1,397
	Current Portion of Finance Leases		8,843				8,163				7,447
	Current Portion of Operating Leases		8,861				8,876				8,377
	Current Portion of Long-Term Debt		8,962				9,176				7,277
Total Current Liabilities			111,989				137,561				116,913
Noncurrent Liabilities
	Long-Term Taxes Payable		2,131				2,841				2,841
	Deferred Income Taxes		337				4,310				-
	Long-Term Finance Leases		17,483				16,776				16,592
	Long-Term Operating Leases		48,804				42,721				39,427
	Long-Term Debt		159,591				136,750				122,438
	Other Noncurrent Liabilities		-				-				1,777
Total Noncurrent Liabilities			228,346				203,398				183,075
	Common Stock		96				96				96
	Additional Paid-In Capital		60,912				61,961				59,919
	Equity Attributable to Non-Controlling Interest		(696	)			(656	)			(644	)
	Retained Earnings		156,043				166,600				160,642
	Accumulated Other Comprehensive Gain (Loss)		180				141				(193	)
	Treasury Stock		(43,896	)			(45,420	)			(44,464	)
Total Equity			172,639				182,722				175,356
Total Liabilities and Equity		$	512,974			$	523,681			$	475,344

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230504005908/en/

Company Contact:

Justin Grow, 864-232-5200 x6604

investor.relations@deltaapparel.com



Investor Relations and Media Contact:

ICR, Inc.



Investors:

Tom Filandro, 646-277-1235



Media:

Jessica Liddell, 203-682-8208

DLAPR@icrinc.com

Source: Delta Apparel, Inc.

FAQ

What were the net sales for Delta Apparel in Q2 2023?

The net sales for Delta Apparel in Q2 2023 were $110.3 million.

What was the gross margin for Delta Apparel in Q2 2023?

The gross margin for Delta Apparel in Q2 2023 was 14.7%.

What was the operating income for Delta Apparel in Q2 2023?

The operating income for Delta Apparel in Q2 2023 was a loss of $5.4 million.

What was the net income for Delta Apparel in Q2 2023?

The net income for Delta Apparel in Q2 2023 was a loss of $7.0 million.

What was the change in net inventory for Delta Apparel from December 2022 to April 2023?

The net inventory decreased by $15.7 million from December 2022.

What was the total net debt for Delta Apparel as of April 1, 2023?

The total net debt for Delta Apparel as of April 1, 2023, was $194.3 million.

How much did Delta Apparel spend on capital expenditures in Q2 2023?

Delta Apparel spent $2.0 million on capital expenditures in Q2 2023.