Delta Apparel Reports Second Quarter Fiscal 2024 Results

Rhea-AI Summary

Delta Apparel, Inc. (NYSE American: DLA) reported its fiscal year 2024 second-quarter results, with net sales of $78.9 million, a decrease from the prior year. The Salt Life Group segment saw net sales of $15.5 million, while the Delta Group segment had $63.4 million in net sales. Gross margins were significantly impacted, with the Delta Group segment at (6.3%) and the Salt Life Group segment at 47.5%. Operating loss increased to $24.4 million, with an adjusted loss of $6.0 million. Earnings before interest, taxes, depreciation, and amortization (EBITDA) showed a loss of $20.9 million. The net loss increased to $36.3 million, or $5.15 per share. Total net debt decreased by approximately 35% to $126.2 million as of March 30, 2024.

Positive

• Decrease in net inventory by 35% year-over-year, showing improved inventory management.

• Reduction in total net debt by approximately 35%, indicating progress in debt management.

• Increase in cash on hand and availability under the U.S. revolving credit facility, providing liquidity.

Negative

• Significant decrease in net sales compared to the prior year, impacting revenue.

• Operating loss increased to $24.4 million, with an adjusted loss of $6.0 million, reflecting operational challenges.

• EBITDA showed a loss of $20.9 million, indicating financial strain.

• Net loss increased to $36.3 million, or $5.15 per share, affecting shareholder value.

Insights

Financial Analyst

Delta Apparel's recent fiscal report indicates a significant downturn in net sales and gross margins. The company's net sales plummeted from $110.3 million to $78.9 million, which is a remarkable year-over-year decline. Gross margins followed suit, falling sharply to 4.3% from 14.7%. Such a substantial contraction in margins might be indicative of increased production costs, inefficient operations, or pricing pressure. A noteworthy element is the gross margin adjustment for Production Curtailment Costs, which, when subtracted, suggest underlying operational issues might be less severe. The high operating loss of $24.4 million, magnified by the $8.8 million non-cash impairment charge, paints a stark picture of current challenges. However, the reduction in net inventory and debt levels signify an attempt to improve liquidity and reduce financial risk. From an investment perspective, the sharp decrease in margin performance and net sales raises concerns for Delta Apparel's short-term fiscal health and could potentially impact investor sentiment negatively.

Market Research Analyst

The apparel industry is fiercely competitive and Delta Apparel's significant reduction in net sales within its Delta Group and Salt Life Group segments may suggest an inability to maintain market share or adapt to shifting consumer demands. The Salt Life Group's gross margins suffered due to price discounting activities, possibly indicating an effort to clear inventory or compete on price in a saturated market. The sector's performance is also sensitive to inventory management and the timing of receipts, as evidenced by the impacts on the company's financials. In the larger context, investors should be mindful of the industry trends, such as the shift towards e-commerce and sustainable fashion, which are reshaping the competitive landscape. If Delta Apparel is not aligning with these trends, it might be at a disadvantage against more agile competitors.

Debt Analyst

Delta Apparel's debt situation offers a mixed but relatively positive perspective. The year-over-year reduction in debt outstanding by $57.4 million and the overall net debt reduction by approximately 35% is a positive sign of the company's commitment to strengthening its balance sheet. Moreover, the decrease in capital spending from $2 million to $200 thousand suggests a more conservative capital management approach during challenging times. Despite the more favorable debt position, the reduced cash availability when compared to September 2023 implies potential liquidity constraints. Investors should balance the improved debt metrics against the broader financial distress indicated in the report, as debt management alone does not assure financial stability, especially in light of deteriorating operational income and margins.

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

For the second quarter ended March 30, 2024:

• Net sales were $78.9 million compared to prior year period net sales of $110.3 million. Salt Life Group segment net sales were $15.5 million compared to prior year period net sales of $18.9 million. Net sales in the Delta Group segment were $63.4 million compared to $91.3 million in the prior year period.

• Gross margins were 4.3% compared to 14.7% in the prior year period, driven primarily by production curtailments in the Delta Group segment. Adjusted for the cost impacts of these product curtailments (“Production Curtailment Costs”), first quarter gross margins were 14.4%. Delta Group segment gross margins were (6.3%) compared to 5.5% in the prior year period. Adjusted for the Production Curtailment Costs, Delta Group segment gross margins were 6.3%. Salt Life Group segment gross margins were 47.5% versus 59% in the prior year period, driven primarily by price discounting activity and the timing of inventory receipts.

• Selling, general, and administrative expenses (“SG&A”) decreased from $19.3 million in the prior year period to $17.9 million, while SG&A as a percentage of sales increased over the prior year period to 22.8%.

• Operating loss increased from $5.3 million in the prior year period to $24.4 million. Adjusting for the Production Curtailment Costs, the costs associated with strategic restructuring actions (the “Restructuring Costs”), and an $8.8 million non-cash impairment charge on the goodwill in our DTG2Go business (the “Impairment Charge”), operating loss was $6.0 million. Delta Group segment operating loss increased from $7.4 million to $22.4 million. Adjusted for the Production Curtailment Costs, Restructuring Costs, and Impairment Charge, Delta Group segment operating loss was $3.9 million. Operating income in the Salt Life Group segment was $197 thousand compared to $4.6 million in the prior year period.

• Net interest expense was $3.5 million compared to $3.7 million in the prior year period, with the decrease driven by lower borrowings partially offset by the elevated interest rate environment.

• Earnings before interest, taxes, depreciation and amortization (“EBITDA”) was a loss of $20.9 million. Adjusted for the Production Curtailment Costs, Restructuring Costs, and Impairment Charge, EBITDA was a loss of $2.4 million. Delta Group segment EBITDA was a loss of $19.4 million. Adjusted for the Production Curtailment Costs, Restructuring Costs, and Impairment Charge, Delta Group segment EBITDA was a loss of $1.0 million. Salt Life Group segment EBITDA was $744 thousand.

• Net loss increased to $36.3 million, or $5.15 per share, from a net loss of $7.0 million, or $1.00 per share. Adjusted for the Production Curtailment Costs, Restructuring Costs, and Impairment Charge, net loss was $17.8 million, or $2.53 per share.

• Net inventory as of March 30, 2024, was $156.9 million, a year-over-year decrease of 35% from inventory of $243.2 million at March 2023 and a sequential decrease of almost 40% from inventory of $258.9 million at December 2022.

• Debt outstanding under our U.S. revolving credit facility was $95.8 million at March 30, 2024, a year-over-year reduction of $57.4 million from March 2023. Total net debt, including capital lease financing and cash on hand, was $126.2 million as of March 30, 2024, an approximately 35% reduction from $194.3 million at March 2023.

• Cash on hand and availability under our U.S. revolving credit facility totaled $11.8 million as of March 30, 2024, an increase of $4.4 million from December 2023 and a decrease of $2.4 million from September 2023.

• Capital spending was $200 thousand during the second quarter compared to $2 million during the prior year second quarter.

No Conference Call

The Company will not be holding a conference call to discuss its financial results for its fiscal year 2024 second quarter.

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 and El Salvador. 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 obtain necessary liquidity and/or access capital or that such liquidity or capital 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								Six Months Ended
		March 2024				March 2023				March 2024				March 2023
Net Sales		$	78,936			$	110,335			$	158,869			$	217,630
Cost of Goods Sold			75,580				94,126				146,767				187,798
Gross Profit			3,356				16,209				12,102				29,832
Selling, General and Administrative Expenses			17,961				19,298				36,576				38,168
Impairment of Goodwill			8,780				-				8,780				-
Other Expense (Income), Net			1,051				2,265				(3,870	)			(356	)
Operating Loss			(24,436	)			(5,354	)			(29,384	)			(7,980	)
Interest Expense, Net			3,471				3,723				7,047				6,613
Loss Before Provision For (Benefit From) Income Taxes			(27,907	)			(9,077	)			(36,431	)			(14,593	)
Provision for (Benefit From) Income Taxes			8,393				(2,079	)			8,403				(3,996	)
Consolidated Net Loss			(36,300	)			(6,998	)			(44,834	)			(10,597	)
Net Loss Attributable to Non-Controlling Interest			6				6				12				40
Net Loss Attributable to Shareholders		$	(36,294	)		$	(6,992	)		$	(44,822	)		$	(10,557	)
Weighted Average Shares Outstanding
Basic			7,051				7,001				7,027				6,978
Diluted			7,051				7,001				7,027				6,978
Net Loss per Common Share
Basic		$	(5.15	)		$	(1.00	)		$	(6.38	)		$	(1.51	)
Diluted		$	(5.15	)		$	(1.00	)		$	(6.38	)		$	(1.51	)
		March 2024				September 2023				March 2023
Current Assets
Cash		$	705			$	187			$	625
Receivables, Net			37,133				47,868				64,825
Inventories, Net			156,894				212,365				243,167
Prepaids and Other Assets			3,298				2,542				4,096
Total Current Assets			198,030				262,962				312,713
Noncurrent Assets
Property, Plant & Equipment, Net			59,741				65,611				70,739
Goodwill and Other Intangibles, Net			40,473				50,391				60,731
Deferred Income Taxes			-				7,822				1,342
Operating Lease Assets			54,534				55,464				56,174
Investment in Joint Venture			10,052				10,082				9,036
Other Noncurrent Assets			3,069				2,906				2,239
Total Noncurrent Assets			167,869				192,276				200,261
Total Assets		$	365,899			$	455,238			$	512,974
Current Liabilities
Accounts Payable and Accrued Expenses		$	74,701			$	80,321			$	84,652
Income Taxes Payable			869				710				671
Current Portion of Finance Leases			7,880				8,442				8,843
Current Portion of Operating Leases			9,886				9,124				8,861
Current Portion of Long-Term Debt			103,026				16,567				8,962
Total Current Liabilities			196,362				115,164				111,989
Noncurrent Liabilities
Long-Term Taxes Payable			1,184				2,131				2,131
Deferred Income Taxes			559				-				337
Long-Term Finance Leases			10,250				14,029				17,483
Long-Term Operating Leases			45,837				47,254				48,804
Long-Term Debt			5,757				126,465				159,591
Total Noncurrent Liabilities			63,587				189,879				228,346
Common Stock			96				96				96
Additional Paid-In Capital			60,916				61,315				60,912
Equity Attributable to Non-Controlling Interest			(719	)			(707	)			(696	)
Retained Earnings			88,566				133,387				156,043
Accumulated Other Comprehensive Gain (Loss)			-				-				180
Treasury Stock			(42,909	)			(43,896	)			(43,896	)
Total Equity			105,950				150,195				172,639
Total Liabilities and Equity		$	365,899			$	455,238			$	512,974

Reconciliation of Gross Margin, Operating Loss, and Net Loss to Non-GAAP Measures Adjusted Gross Margin, Adjusted Operating Loss, and Adjusted Net Loss
Unaudited
(in thousands)
Reconciliation of Gross Margin to Adjusted Gross Margin – Unaudited
		Three Months Ending								Six Months Ending
		March 2024				March 2023				March 2024				March 2023
Gross Margin		$	3,356			$	16,209			$	12,102			$	29,832
Production Curtailment Costs (1)			8,027				879				9,375				4,249
Adjusted Gross Margin		$	11,383			$	17,088			$	21,477			$	34,081
			14.4	%			15.5	%			13.5	%			15.7	%
Reconciliation of Operating Loss to Adjusted Operating Loss – Unaudited
		Three Months Ending								Six Months Ending
		March 2024				March 2023				March 2024				March 2023
Operating Loss		$	(24,436	)		$	(5,354	)		$	(29,384	)		$	(7,980	)
Production Curtailment Costs (1)			8,027				879				9,375				4,249
Restructuring Costs (2)			1,664				813				2,477				813
Goodwill Impairment Charges (3)			8,780				-				8,780				-
Adjusted Operating Loss		$	(5,965	)		$	(3,662	)		$	(8,752	)		$	(2,918	)
Reconciliation of Net Loss to Adjusted Net Loss – Unaudited
		Three Months Ending								Six Months Ending
		March 2024				March 2023				March 2024				March 2023
Net Loss		$	(36,294	)		$	(6,992	)		$	(44,822	)		$	(10,557	)
Production Curtailment Costs (1)			8,027				879				9,375				4,249
Restructuring Costs (2)			1,664				813				2,477				813
Goodwill Impairment Charges (3)			8,780				-				8,780				-
Tax Impact			9				(387	)			12				(1,392	)
Adjusted Net Loss		$	(17,814	)		$	(5,687	)		$	(24,178	)		$	(6,887	)
Reconciliation of Delta Group Segment Gross Margin to Delta Group Segment Adjusted Gross Margin - Unaudited
		Three Months Ending								Six Months Ending
		March 2024				March 2023				March 2024				March 2023
Gross Margin		$	(4,017	)		$	5,000			$	40			$	12,759
Production Curtailment Costs (1)			8,027				879				9,375				4,249
Adjusted Gross Margin		$	4,010			$	5,879			$	9,415			$	17,008
			6.3	%			6.4	%			7.1	%			9.0	%
Reconciliation of Delta Group Segment Operating Loss to Delta Group Segment Adjusted Operating Loss - Unaudited
		Three Months Ending								Six Months Ending
		March 2024				March 2023				March 2024				March 2023
Operating Income		$	(22,350	)		$	(7,487	)		$	(21,860	)		$	(7,363	)
Production Curtailment Costs (1)			8,027				879				9,375				4,249
Restructuring Costs (2)			1,664				813				2,477				813
Goodwill Impairment Charges (3)			8,780				-				8,780				-
Adjusted Operating Loss		$	(3,879	)		$	(5,795	)		$	(1,228	)		$	(2,301	)
(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.
(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 restructuring, and additional cost items incurred from restructuring activities.
(3) Goodwill Impairment Charges consists of non-cash charge associated with our DTG2Go business.

Reconciliations of GAAP Net Loss and GAAP Operating Loss to Non-GAAP Measure Earnings Before Interest Taxes Depreciation and Amortization ("EBITDA") and Adjusted Net Loss and Adjusted Operating (Loss) Income to Adjusted EBITDA
Unaudited
(in thousands)
Reconciliation of Net Loss to EBITDA and Adjusted Net Loss to Adjusted EBITDA – Unaudited
		Three Months Ending				Six Months Ending
		March 2024				March 2024
Net Loss		$	(36,294	)		$	(44,822	)
Interest Expense, Net			3,471				7,047
Provision For Income Taxes			8,393				8,403
Delta Group Segment Depreciation and Amortization			2,916				5,957
Salt Life Group Segment Depreciation and Amortization			547				1,081
Unallocated Depreciation and Amortization			57				115
EBITDA			(20,910	)			(22,219	)
Production Curtailment Costs (1)			8,027				9,375
Restructuring Costs (2)			1,664				2,477
Goodwill Impairment Charges (3)			8,780				8,780
Tax Impact			9				12
Adjusted Net Loss			(17,814	)			(24,178	)
Interest Expense, Net			3,471				7,047
Benefit From Income Taxes			8,384				8,391
Delta Group Segment Depreciation and Amortization			2,916				5,957
Salt Life Group Segment Depreciation and Amortization			547				1,081
Unallocated Depreciation and Amortization			57				115
Adjusted EBITDA		$	(2,439	)		$	(1,587	)
Reconciliation of Delta Group Segment Operating Loss to Delta Group Segment EBITDA and Adjusted Delta Group Segment Operating Loss to Adjusted Delta Group Segment EBITDA – Unaudited
		Three Months Ending				Six Months Ending
		March 2024				March 2024
Delta Group Segment Operating Income		$	(22,350	)		$	(21,860	)
Delta Group Segment Depreciation and Amortization			2,916				5,957
Delta Group Segment EBITDA			(19,434	)			(15,903	)
Production Curtailment Costs (1)			8,027				9,375
Restructuring Costs (2)			1,664				2,477
Goodwill Impairment Charges (3)			8,780				8,780
Adjusted Delta Group Segment Operating Income			(3,879	)			(1,228	)
Delta Group Segment Depreciation and Amortization			2,916				5,957
Adjusted Delta Group Segment EBITDA		$	(963	)		$	4,729
Reconciliation of Salt Life Group Segment Operating Income (Loss) to Salt Life Group Segment EBITDA – Unaudited
		Three Months Ending				Six Months Ending
		March 2024				March 2024
Salt Life Group Segment Operating Income (Loss)		$	197			$	(1,933	)
Salt Life Group Segment Depreciation and Amortization			547				1,081
Salt Life Group Segment EBITDA		$	744			$	(852	)
(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.
(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 restructuring, and additional cost items incurred from restructuring activities.
(3) Goodwill Impairment Charges consists of non-cash charge associated with our DTG2Go business.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240508438976/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 net sales for the second quarter of fiscal year 2024?

Delta Apparel reported net sales of $78.9 million for the second quarter of fiscal year 2024.

What was the net loss per share for Delta Apparel in the second quarter of fiscal year 2024?

Delta Apparel's net loss per share in the second quarter of fiscal year 2024 was $5.15.

How did Delta Apparel's gross margins compare to the prior year period in the second quarter of fiscal year 2024?

Delta Apparel's gross margins were significantly impacted, with the Delta Group segment at (6.3%) and the Salt Life Group segment at 47.5% in the second quarter of fiscal year 2024.