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Battling Hurricanes and Port Congestion, Delta Apparel Now ‘Firing on All Cylinders’

With inventories and costs down, Delta Apparel’s CEO said the company has “high demand…in our pipeline.”

In a Nutshell: Delta Apparel Inc., a manufacturer of core activewear and lifestyle apparel products, said despite headwinds from inventory constraints, hurricane-related disruptions in Central America and freight carrier limitations during the holiday season, its first-quarter results were bolstered by strong order demand and manufacturing and operational execution.

Delta Apparel said total inventory through December was $148.5 million, down $48.8 million from a year ago. Stronger-than-anticipated quarterly sales, along with the temporary hurricane disruptions, slowed the normal seasonal build-up of inventory during the quarter. The company said it has already ramped up production at an accelerated pace in January and expects to be producing at “all-time record levels in the back half of the year.”

Selling, general and administrative (SG&A) expenses decreased $2 million, or 11.3 percent, from cost reductions implemented during the pandemic that have continued, including lower personnel costs, reduced travel expenses and a more digitally focused sales and marketing strategy.

Total net debt increased $7.6 million from September to $129.8 million. Cash on hand and availability under the company’s U.S. revolving credit facility totaled $43.7 million due primarily to seasonal working capital build. The company spent approximately $6.9 million on capital expenditures during the quarter compared to $2.5 million a year ago.

Sales: Net sales for the first quarter ended Jan. 2 were down slightly to $94.7 million from $95.9 million in the prior-year period, with the Delta Group segment down 1.5 percent, partially offset by 2.3 percent growth in the Salt Life Group segment.

Wholesale orders in activewear were strong in the quarter, the company reported, but delivery was hindered by inventory shortages and the impact of two major hurricanes in Central America. DTG2Go’s orders were down to begin the quarter, but quickly returned to strong growth in November, only to be hampered by “freight carrier constraints” during the holiday season, Delta Apparel said. Sales growth at Salt Life Group was driven by a 60 percent increase in overall direct-to-consumer sales, with growth in e-commerce and traditional retail sales.

Earnings: Net income for the quarter was essentially flat at $900,000, or 13 cents per diluted share. Adjusting for a 15 cents per diluted share impact of hurricane-related disruptions, adjusted net income for the first quarter of fiscal 2021 was $2 million, or 28 cents per diluted share, a 115 percent improvement compared to the prior year.

Operating income for the quarter increased 16 percent to $3.1 million, or 3.2 percent of sales, compared to $2.6 million, or 2.8 percent of sales, in the prior year. Excluding the $1.3 million pre-tax expense related to the impact of two hurricanes that disrupted the company’s Honduran manufacturing facilities, adjusted operating income was $4.4 million, or 4.7 percent of sales, an increase of $1.8 million, or 67 percent, from the prior year.

Gross margins improved 70 basis points from the prior year to 21.4 percent of sales. Gross margins expanded in both business segments driven by favorable product mix, lower raw material costs and manufacturing efficiencies and process improvements within the Delta Group segment, and a stronger mix of direct-to-consumer sales in the Salt Life Group.

CEO’s Take: Robert W. Humphreys, chairman and CEO, said: “Fiscal 2021 is off to a strong start with our first quarter sales and profitability results well ahead of our internal expectations. We were particularly pleased with the accelerating success of our retail model within the DTG2Go digital print business. DTG2Go gained significant traction during the quarter, with traditional retailers utilizing our on-demand, seamless supply chain to expand their business.

“We also capitalized on market opportunities that fueled growth and expanded profitability in our activewear business, overcoming the challenges caused by inventory constraints,” Humphreys added. “Our business is firing on all cylinders as we continue to ramp our manufacturing output to record levels to keep up with the high demand we have in our pipeline. Our strong first quarter results and solid balance sheet have positioned us well to deliver against our goals for the fiscal year.”

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