Delta Apparel, the parent of Salt Life, reported that Robert Humphreys, its chairman and CEO since 2009, plans to resign “at the request of the independent directors” and a chief restructuring officer has been hired.

Humphreys’ resignation will be effective June 29, according to a filing with the Securities & Exchange Commission.

Tim Pruban, the founder of Chicago-based Management Group, becomes chief restructuring officer and will be advising Delta Apparel’s Board on succession planning in regards to Humphreys’ departure, according to the brief filing.

In a separate filing from May 14, Delta Apparel noted that Alexander Taylor, II had resigned from its board. Anita Britt, a board member since 2018, was reassigned from the Audit Committee to the Corporate Governance Committee of the Board and appointed to serve as its chair.

The changes come as Delta last October said it had received an unsolicited offer to purchase the Salt Life business unit from an unnamed party and its Board had engaged Baird as its financial advisor.

Delta’s Cash Crunch

The firm also indicated in its recent quarterly filing that as of its fiscal second quarter ended March 30, it was out of compliance with a financial covenant contained in its revolving credit facility. The covenant requires that Delta’s results “improve at a rate faster than we experienced during the second quarter and at a faster rate than we expect to experience over the next 12 months.”

Delta said it has been and continues to be in communication with its lenders about its non-compliance and potential options to address covenant requirements over the next 12 months, although it offered no assurances that negotiations would prove successful. Delta said in the filing, “If the company is not able to address such concerns, it may seek relief under applicable bankruptcy laws.”

Delta has posted losses for seven straight quarters as elevated inventory levels at the mass channel and related destocking efforts have impacted its Delta Direct vertical blank tee platform.

Delta said in its recent quarterly filings that in January 2024, it was notified by certain suppliers that they would no longer extend credit in amounts or terms to the extent previously allowed, leading to constraints in obtaining raw materials. Delta said, “As such, we have since been unable to purchase quantities of production inputs necessary to allow our manufacturing facilities to run at the levels required to meet our business plans.”

Delta’s latest second-quarter filing further indicated that during May 2024, its DTG2Go digital-print business received notice that its largest customer no longer intends to source production from the platform. As such, Delta expects to take an impairment charge related to the business during the third quarter.

Restructuring, Cost Cutting

Delta has taken several restructuring steps to preserve liquidity, including undergoing a significant workforce reduction and consolidating offshore manufacturing facilities as it continues to face sluggish demand in its activewear segment and inventory pressures.

In the second quarter ended March 30, Delta Apparel’s net loss expanded to $36.3 million, or $5.15 a share, from a loss of $7.0 million, or $1.00, in the same period a year ago. Adjusted to exclude non-recurring items related efforts impairment charges, restructuring costs and costs to curtail production, the loss in the latest quarter was $17.8 million, or $2.53.

Sales its core activewear segment, Delta Group, fell 30.6% to $63.4 million. The segment’s operating loss was $22.4 million on a reported basis and $3.9 million excluding non-recurring charges against an operating loss of $7.4 million a year ago.

Q2 Salt Life Sales Decline

Salt Life’s Group segment sales sunk 18% in the second quarter to $15.5 million as growth in direct-to-consumer sales was offset by lower wholesale sales. Salt Life’s operating income was only $197,000 in the quarter compared to income of $4.6 million in the prior-year period. Beyond the sales decline, the reduced income reflects a decline in Salt Life’s gross margins to 47.5% in the latest quarter from 59% due to heightened discounting as well as sales mix.

Salt Life, acquired by Delta for $37 million in 2013, posted sales of $59 million in Delta’s fiscal year ended October 2023 and has particularly benefited from the opening of 28 stores, spanning  the U.S. from Southern California to Key West and up the eastern seaboard to New York. At the time of the acquisition, Salt Life generated $20 million in sales and was mostly reliant on wholesale.

Sales were down slightly in its latest fiscal year from $60 million in fiscal 2022 due to apparel destocking taking place across retail, but have been expanding at a steady double-digit pace in recent years, including up 33.9% in fiscal 2022, 21% in fiscal 2021 and 12.5% in fiscal 2020.

Potential Salt Life Sale

When Delta first announced it had received an unsolicited offer for Salt Life last October, Humphreys said, “Our Board of Directors and management team are committed to maximizing value for Delta Apparel shareholders, and we believe it is in their best interests to conduct a thorough review of strategic options for our Salt Life business given the widespread interest in it. The Salt Life team has done an excellent job in taking what was essentially a small regional brand with a primarily wholesale business when we acquired it in 2013 and growing it into a highly profitable business with over $60 million in revenue, a consumer base stretching across the United States and internationally, and a variety of new go-to-market strategies, product categories and revenue channels. Today, Salt Life products are offered in over 1,700 wholesale doors across 48 states and direct-to-consumer via a growing e-commerce site as well as 25 branded retail stores spanning the U.S. coastline from California to Florida to New York.”

Delta’s second-quarter SEC filing indicated that the company is continuing to explore a sale of Salt Life.

Delta’s other recent comments on a potential Salt Life sale came on February 13 on the company’s first-quarter analyst call. Humphreys said at the time, “Our Board of Directors recently concluded a thorough review of our strategic options for Salt Life and decided to continue negotiations with the selected entity. I can assure you that our Board is committed to maximizing value for shareholders and has taken the course of action we believe is in their better interest with respect to our Salt Life business. We look forward to updating you once these negotiations conclude.”