Salt Life Parent Company Reports Quarterly Earnings
Delta Apparel Reports Second Quarter Fiscal 2020 Results
Earnings per share growth of 46% bolstered by strong gross profit
Revolving credit facility bridge amendment secured providing additional financial flexibility
GREENVILLE, S.C., April 30, 2020 (GLOBE NEWSWIRE) — Delta Apparel, Inc. (NYSE American: DLA), a leading provider of core activewear and lifestyle apparel products, today announced financial results for its second quarter and six months ended March 28, 2020.
Robert W. Humphreys, the Company’s Chairman and Chief Executive Officer, commented, “Our second quarter earnings reflect our continued focus on driving profitability despite topline challenges faced late in the quarter due to COVID-19. Our vertically-integrated business model with diversified sales channels and broad geographic reach is allowing us to not only continue to operate and generate sales in the current environment, but has also created an opportunity for Delta Apparel to support our existing customers and onboard new customers in select channels.”
Mr. Humphreys continued, “In light of COVID-19, we continue to prudently manage all aspects of our business with a focus on conserving capital and maintaining strong financial flexibility. We are in a solid financial position to weather the current storm, and I am confident we will emerge from this pandemic stronger, ready to profitably grow our business and continue to provide value for all of our stakeholders.”
For the second quarter ended March 28, 2020:
Net sales were $96.7 million, a decrease of 6.0% from $102.8 million in the prior year second quarter. Prior to the March impact of COVID-19, the Company was on pace to achieve sales growth of approximately 9% for the quarter. During March 2020, the closure of retail stores throughout the U.S. dramatically halted revenue during the final month of the quarter. Net sales in the Delta Group segment and Salt Life Group segment decreased 6.0% and 6.3%, respectively, from the prior year period.
Gross profit was $20.6 million, an 8.8% increase from $18.9 million in the prior year second quarter. Gross margin increased 290 basis points to 21.3% versus 18.4% in the prior year and increased 60 basis points compared to the first quarter of fiscal 2020. Second quarter gross profit was reduced by $1.9 million, or 200 basis points, from plant curtailments caused by government-mandated country closures in El Salvador and Honduras in March 2020.
Adjusting for these plant curtailment expenses, gross margins would have been 23.3% during the March 2020 quarter, an improvement of 490 basis points from the prior year and 260 basis points from the fiscal 2020 December quarter. This margin expansion was attributable to continued efficiencies and process improvements within the Delta Group segment’s integrated vertical manufacturing platform.
Selling, general and administrative (“SG&A”) expenses were $17.9 million in the March 2020 quarter compared to $17.1 million in the prior year second quarter. The increase in SG&A expenses principally resulted from distribution network expansion investments.
Operating income increased to $3.6 million compared to $2.7 million in the prior year second quarter as a result of the strong gross margin expansion more than offsetting the lower sales levels and higher distribution network expenses.
Net income for the quarter was $1.3 million, or $0.19 per diluted share, compared to $0.9 million, or $0.13 per diluted share, in the prior year period. When adjusted for the $1.9 million pre-tax, or $0.20 per diluted share, of plant curtailment expenses, net earnings per diluted share for the 2020 fiscal second quarter was $0.39, which represents a 200% increase over the prior year.
For the six months ended March 28, 2020:
Net sales were $192.6 million, a decrease of 5.8% from $204.5 million in the comparable period last year. Net sales in the Delta Group segment and Salt Life Group segment decreased 5.9% and 5.8%, respectively, from the prior year period.
Gross margin increased 270 basis points to 21.0% compared to 18.3% in the prior year period. Adjusting for the fiscal 2020 second quarter plant curtailment expenses, gross margins would have been 22.0%, an improvement of 370 basis points from the prior year first six months.
SG&A expenses as a percentage of sales were 18.7%, compared to 16.5% in the prior year period as fixed costs were not leveraged on the lower revenue.
Operating income increased by $3.5 million to $6.2 million compared to $2.7 million in the prior year period. Adjusting fiscal year 2020 for the $1.9 million in plant curtailment expenses, and adjusting fiscal year 2019 for the $2.5 million discrete expense in the December quarter in connection with a 2016 customer bankruptcy, operating income in fiscal 2020 would have been $8.1 million, a $2.9 million improvement over $5.2 million in the prior year period. Operating margin improvement resulted from significantly stronger gross margins, being partially offset by lower sales and higher distribution expenses.
Net income for the period was $2.2 million, or $0.32 per diluted share, compared to a net loss of $0.2 million, or $0.03 per diluted share loss, in the prior year period. When adjusted for the $1.9 million pre-tax expense, or $0.20 per diluted share, of plant curtailment expenses, adjusted net earnings for the first six months of fiscal 2020 were $0.52 per diluted share. When adjusted for the discrete $2.5 million pre-tax expense, or $0.30 per diluted share, net earnings for the first six months of fiscal 2019 were $1.9 million, or $0.27 per diluted share.
During the quarter, the Company spent approximately $4.1 million on capital expenditures and $2.0 million to repurchase 99,971 shares of its stock. Total debt, including capital lease financing, as of March 28, 2020 was $167.9 million, up $32.8 million from September 28, 2019 due principally to seasonally higher working capital and maintaining over $9 million of cash on hand.
Since September 28, 2019, inventory increased $18.2 million to $197.3 million at March 28, 2020 primarily from the build of inventory to support the spring selling season. The increase in inventory from the year ago level of $186.5 million resulted from the expansion of product categories and the lower than anticipated sales in the current year quarter due to the COVID-19 pandemic. As of quarter-end, the Company had liquidity access to over $30 million considering its cash on hand and availability under its U.S. revolving credit facility.
As previously announced, due to the current environment and the impact of COVID-19, the Company has taken aggressive actions to strengthen its financial position, preserve cash, and improve liquidity beyond its current levels. On April 27, 2020, the Company secured a bridge amendment to its U.S. revolving credit facility with its lenders. The amendment provides additional flexibility to tap into the availability provided under the Company’s asset- based lending arrangement.
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®, COAST®, Soffe®, and Delta. The Company is a market leader in the direct-to-garment digital print and fulfillment industry, bringing DTG2Go technology and innovation to the supply chain of its customers. 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 at its branded retail stores and on its websites at www.saltlife.com, www.coastapparel.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 8,400 people worldwide. Additional information about the Company is available at www.deltaapparelinc.com.