Significantly Improved Operating Environment
Sets Stage for Return to Growth
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 third quarter ended July 1, 2023.
Chairman and Chief Executive Officer Robert W. Humphreys
commented, “We saw encouraging indications throughout the quarter
that the two major trends impacting both our business and the
entire industry this year - elevated cotton pricing and demand
destruction from high inventory levels in the retail supply chain -
are receding and we are moving into a more normalized operating
environment. I’m extremely proud of the way our team has navigated
these broad-based events and executed on strategies to counteract
them, including significant reductions in inventory and debt as
well as several needle-moving cost restructuring initiatives.
We continue to see some signs of demand improvement in parts of
our Activewear business, including our channel serving mass and
mid-tier retailers, and our Salt Life business continues to expand
its consumer reach with two new branded retail locations in New
York and outstanding growth on its eCommerce site. In our DTG2Go
business, we completed a comprehensive recalibration of our digital
first technology fleet and made substantial headway on consumer
satisfaction initiatives. DTG2Go also reached an exciting milestone
in launching a proprietary customer order portal that we believe
will catalyze more industry migration to digital and increase our
market share.
Mr. Humphreys concluded, “Our decision toward the end of last
year to reduce production levels and purchase less price-inflated
cotton proved to be strategically sound, but the significant
one-time cost impacts of that decision greatly impacted our
operating results this quarter and year-to-date. Looking ahead, we
expect steady improvement in our operating results as we close out
our fourth quarter and move into our next fiscal year. For fiscal
year 2024, we anticipate net sales in a range of $410 to $425
million generating operating profit margins of 3.25% to 4.25%, with
sequentially improving gross margins and operating profit as well
as topline growth in the back half of the year.”
For the third quarter ended July 1, 2023:
- Net sales were $106.3 million compared to prior year third
quarter net sales of $126.9 million. Salt Life Group segment net
sales were $17.2 million compared to prior year third quarter net
sales of $20.9 million, with the year-over-year comparison skewed
by significant sales occurring in the prior year third quarter due
to transportation delays. Net sales in the Delta Group segment were
$89.1 million compared to $106 million in the prior year third
quarter.
- Gross margins were 13.1% compared to 24.2% in the prior year
period, driven primarily by the above-referenced production
curtailments intended to match manufacturing output with lighter
market demand as well as inflationary cotton costs (collectively
“Production Curtailment & Cotton Costs”). Excluding the
Production Curtailment & Cotton Costs, adjusted third quarter
gross margins were 22.7%. Delta Group segment gross margins for the
quarter were 5.9% compared to 19.1% in the prior year period;
however, excluding the Production Curtailment & Cotton Costs,
adjusted gross margins in the Delta Group segment were 17.4%. Salt
Life Group segment gross margins for the quarter increased 30 basis
points to 50.5% from 50.2% in the prior year period.
- Selling, general, and administrative expenses (SG&A)
declined favorably to $18.5 million from $22.4 million in the prior
year third quarter, while SG&A as a percentage of sales was
down favorably to the prior year period at 17.4%.
- Operating income declined year-over-year from $9.3 million, or
7.3% of sales, to an operating loss of $4.5 million, or (4.2%) of
sales. However, excluding the Production Curtailment & Cotton
Costs, adjusted operating income was $5.8 million, or 5.5% of
sales. Delta Group segment operating income for the quarter
declined from $10.7 million to a loss of $3.6 million; however,
excluding the Production Curtailment and Cotton Costs, adjusted
operating income in the Delta Group segment was $6.7 million, or
7.5% of sales. Salt Life Group segment operating income for the
quarter was $1.6 million, or 9.6% of sales, compared to $3.6
million and 17.2% of sales in the prior year period.
- Net income declined from $6.2 million, or $.88 per diluted
share, to a loss of $6.3 million, or ($0.90) per diluted share.
However, excluding the Production Curtailment & Cotton Costs,
third quarter adjusted net income was $1.2 million, or $0.17 per
diluted share.
- Net inventory as of July 1, 2023, was $226.2 million, a
sequential decrease of almost $33 million from December 2022 and
generally flat year-over-year with inventory of $227.6 million at
June 2022.
- Total net debt, including capital lease financing and cash on
hand, was $166.2 million as of July 1, 2023, an approximately 15%
reduction from $194.3 million at March 2023 and a slight increase
from $162.4 million at June 2022. Cash on hand and availability
under the Company’s U.S. revolving credit facility totaled $14.4
million as of July 1, 2023, a decrease of $12.8 million from
December 2022 and $16.4 million from June 2022, with the decrease
from December 2022 principally driven by investments in the
business to support working capital needs as well as higher
interest costs.
- The Company spent approximately $1.5 million on capital
expenditures during the third quarter compared to $5.5 million
during the prior year third quarter, with the expenditures focused
on Salt Life retail store buildouts as well as facility and
information technology enhancements.
For the nine months ended July 1, 2023:
- Net sales were $323.9 million compared to prior year period net
sales of $369.3 million. Salt Life Group segment net sales were
$46.5 million compared to prior year period net sales of $46
million. Net sales in the Delta Group segment were $277.5 million
compared to $323 million in the prior year period.
- Gross margins were 13.5% compared to 23.6% in the prior year
period, driven primarily by the Production Curtailment & Cotton
Costs coupled with costs incurred in connection with restructuring
initiatives (collectively “Restructuring Costs”). Excluding the
Production Curtailment & Cotton Costs and Restructuring Costs,
adjusted gross margins were 22.7%. Delta Group segment gross
margins were 6.5% compared to 19.6% in the prior year period;
however, excluding the Production Curtailment & Cotton Costs
and Restructuring Costs, adjusted gross margins in the Delta Group
segment were 17.2%. Salt Life Group segment gross margins increased
to 55.4% from 51.6% in the prior year period.
- Selling, general, and administrative expenses (SG&A)
declined favorably to $56.7 million from $59.6 million in the prior
year period, while SG&A as a percentage of sales increased from
16.1% to 17.5%.
- Operating income declined year-over-year from $29.5 million, or
8% of sales, to an operating loss of $12.4 million, or (3.8%) of
sales. However, excluding the Production Curtailment & Cotton
Costs and Restructuring Costs, adjusted operating income was $20.5
million, or 6.3% of sales. Delta Group segment operating income
declined from $33.6 million to a loss of $11.0 million; however,
excluding the Production Curtailment & Cotton Costs and
Restructuring Costs, adjusted operating income in the Delta Group
segment was $22.0 million, or 7.9% of sales. Salt Life Group
segment operating income was $6.6 million, or 14.1% of sales,
compared to $7 million, or 15.3% of sales, in the prior year
period.
- Net income declined from $20 million, or $2.84 per diluted
share, to a loss of $16.8 million, or ($2.41) per diluted share.
However, excluding the Production Curtailment & Cotton Costs
and Restructuring Costs, adjusted net income was $7.2 million, or
$1.02 per diluted share, for the nine-month period.
Conference Call
After the market close on August 3, 2023, financial results for
the Company’s fiscal year 2023 third quarter and nine-month period
ended July 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 September 3, 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 21463474.
Non-GAAP Financial Measures
Reconciliations of GAAP gross margins to non-GAAP adjusted gross
margins, GAAP operating income to non-GAAP adjusted operating
income, and GAAP net income to non-GAAP adjusted net income 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 adjusted gross margin, non-GAAP adjusted operating
income, and non-GAAP adjusted net income 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 7,100 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
Nine Months Ended
June 2023
June 2022
June 2023
June 2022
Net Sales
$
106,319
$
126,875
$
323,949
$
369,319
Cost of Goods Sold
92,384
96,182
280,181
282,100
Gross Profit
13,935
30,693
43,768
87,219
Selling, General and Administrative Expenses
18,491
22,416
56,658
59,613
Other (Income), Net
(95
)
(1,018
)
(452
)
(1,947
)
Operating (Loss) Income
(4,461
)
9,295
(12,438
)
29,553
Interest Expense, Net
4,049
1,971
10,662
5,370
(Loss) Earnings Before (Benefit From) Provision For
Income Taxes
(8,510
)
7,324
(23,100
)
24,183
(Benefit From) Provision For Income Taxes
(2,218
)
1,087
(6,214
)
4,149
Consolidated Net (Loss) Earnings
(6,292
)
6,237
(16,886
)
20,034
Net Loss (Income) Attributable to Non-Controlling
Interest
5
3
45
(11
)
Net (Loss) Earnings Attributable to Shareholders
$
(6,287
)
$
6,240
$
(16,841
)
$
20,023
Weighted Average Shares Outstanding
Basic
7,001
6,946
6,985
6,966
Diluted
7,001
7,065
6,985
7,061
Net (Loss) Earnings per Common Share Basic
$
(0.90
)
$
0.90
$
(2.41
)
$
2.87
Diluted
$
(0.90
)
$
0.88
$
(2.41
)
$
2.84
June 2023
September 2022
June 2022
Current Assets Cash
$
296
$
300
$
542
Receivables, Net
44,520
71,586
69,868
Inventories, Net
226,196
248,538
227,671
Prepaids and Other Assets
4,221
2,755
3,798
Total Current Assets
275,233
323,179
301,879
Noncurrent Assets Property, Plant & Equipment,
Net
69,040
74,109
75,144
Goodwill and Other Intangibles, Net
60,161
61,923
62,524
Deferred Income Taxes
3,105
1,342
1,164
Operating Lease Assets
54,054
50,275
47,570
Investment in Joint Venture
9,356
9,886
10,277
Other Noncurrent Assets
2,020
2,967
2,893
Total Noncurrent Assets
197,736
200,502
199,572
Total Assets
$
472,969
$
523,681
$
501,451
Current Liabilities Accounts Payable and
Accrued Expenses
$
81,321
$
110,967
$
102,180
Income Taxes Payable
695
379
666
Current Portion of Contingent Consideration
-
-
563
Current Portion of Finance Leases
8,942
8,163
8,265
Current Portion of Operating Leases
8,980
8,876
8,044
Current Portion of Long-Term Debt
10,180
9,176
7,615
Total Current Liabilities
110,118
137,561
127,333
Noncurrent Liabilities Long-Term Taxes Payable
2,131
2,841
2,841
Long-Term Finance Leases
15,871
16,776
18,802
Long-Term Operating Leases
46,664
42,721
40,940
Long-Term Debt
131,461
136,750
128,230
Other Noncurrent Liabilities
-
4,310
1,591
Total Noncurrent Liabilities
196,127
203,398
192,404
Common Stock
96
96
96
Additional Paid-In Capital
61,448
61,961
60,822
Equity Attributable to Non-Controlling Interest
(701
)
(656
)
(647
)
Retained Earnings
149,756
166,600
166,882
Accumulated Other Comprehensive Loss
21
141
(7
)
Treasury Stock
(43,896
)
(45,420
)
(45,432
)
Total Equity
166,724
182,722
181,714
Total Liabilities and Equity
$
472,969
$
523,681
$
501,451
RECONCILIATION OF GROSS MARGIN,
OPERATING INCOME, AND NET INCOME TO NON-GAAP MEASURES
ADJUSTED GROSS MARGIN, ADJUSTED OPERATING INCOME, AND ADJUSTED NET
INCOME Unaudited (in thousands)
Reconciliation of Gross Margin to Adjusted Gross Margin –
Unaudited
Three Months
Ending
Nine Months
Ending
June 2023
June 2022
June 2023
June 2022
Gross Margin
$
13,935
$
30,693
$
43,768
$
87,219
Production Curtailment Costs (1)
3,340
-
7,589
-
Cotton Costs (2)
6,906
-
22,027
-
Adjusted Gross Margin
$
24,181
$
30,693
$
73,384
$
87,219
22.7
%
24.2
%
22.7
%
23.6
%
Reconciliation of Operating Income to Adjusted
Operating Income – Unaudited
Three Months
Ending
Nine Months
Ending
June 2023
June 2022
June 2023
June 2022
Operating (Loss) Income
$
(4,461
)
$
9,295
$
(12,438
)
$
29,553
Production Curtailment Costs (1)
3,340
-
7,589
-
Cotton Costs (2)
6,906
-
22,027
-
Restructuring Costs (3)
32
-
3,344
-
Adjusted Operating Income
$
5,817
$
9,295
$
20,522
$
29,553
Reconciliation of Net Income to Adjusted Net
Income – Unaudited
Three Months
Ending
Nine Months
Ending
June 2023
June 2022
June 2023
June 2022
Net (Loss) Income
$
(6,287
)
$
6,240
$
(16,841
)
$
20,023
Production Curtailment Costs (1)
3,340
-
7,589
-
Cotton Costs (2)
6,906
-
22,027
-
Restructuring Costs (3)
32
-
3,344
-
Tax Impact
(2,775
)
-
(8,950
)
-
Adjusted Net Income
$
1,216
$
6,240
$
7,169
$
20,023
Reconciliation of Delta Group Segment Gross Margin
to Delta Group Segment Adjusted Gross Margin - Unaudited
Three Months
Ending
Nine Months
Ending
June 2023
June 2022
June 2023
June 2022
Gross Margin
$
5,254
$
20,227
$
18,013
$
63,470
Production Curtailment Costs (1)
3,340
-
7,589
-
Cotton Costs (2)
6,906
-
22,027
-
Adjusted Gross Margin
$
15,500
$
20,227
$
47,629
$
63,470
17.4
%
19.1
%
17.2
%
19.6
%
Reconciliation of Delta Group Segment Operating
Income to Delta Group Segment Adjusted Operating Income -
Unaudited
Three Months
Ending
Nine Months
Ending
June 2023
June 2022
June 2023
June 2022
Operating (Loss) Income
$
(3,621
)
$
10,701
$
(10,979
)
$
33,557
Production Curtailment Costs (1)
3,340
-
7,589
-
Cotton Costs (2)
6,906
-
22,027
-
Restructuring Costs (3)
32
-
3,344
-
Adjusted Operating Income
$
6,657
$
10,701
$
21,981
$
33,557
7.5
%
10.1
%
7.9
%
10.4
%
(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) Cotton Costs
consist of the amount of the cotton component of the Company's cost
of sales in excess of the average price per pound of cotton over a
recent 10-year period ($0.78 per pound) as well as a reasonable
estimate of the additional cost for what the industry refers to as
“basis” typically required to be purchased in connection with the
delivery of cotton ($0.15 per pound). As such, Cotton Costs consist
of the cotton component of the Company's cost of sales in excess of
$0.93 per pound. (3) 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, expenses incurred
in connection with the closure of a legacy facility we acquired via
acquisition and the absorption of the print capacity at that
facility into our nationwide network of dual purpose digital print
and blank garment distribution facilities, and additional cost
items incurred from restructuring activities.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230803615752/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
Delta Apparel (AMEX:DLA)
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Delta Apparel (AMEX:DLA)
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