Delta Apparel had three out of five of its market channels register double-digit growth year over year in its second fiscal quarter despite its overall topline performance falling below expectations.
In a Nutshell: The activewear and lifestyle apparel company reported a $7 million loss in its fiscal second quarter but saw strength in its Salt Life Group division.
“Our second quarter performance highlights the durability and inherent advantages in our multi-market strategy during uneven demand cycles,” Robert W. Humphreys, chairman and CEO of Delta Apparel, said. “We achieved double-digit sales growth across three of our five go-to-market channels and saw strength in areas where we provide decorated ‘consumer ready’ products directly to end-users or close to the point-of-sale.”
Salt Life achieved record sales and profitability during the quarter as it “continues to capitalize on the growing popularity of its lifestyle brand domestically and internationally,” the Duluth, Ga.-based company said. The brand’s e-commerce site grew 24 percent during the quarter as well. In March the brand expanded into a new category with the launch of Salt Life Home, which will be developed and marketed through a licensing deal with Magnussen Home, the furniture designer and manufacturer. The collection will include “coastal-inspired” living, dining, entertainment, office, and sleep products, the company said.
DTG2Go, a contract direct-to-garment apparel printing and fulfillment subsidiary, also saw a high-growth trend during the quarter with nearly 20 percent topline expansion year-over-year. Players in the traditional apparel markets are progressively acknowledging the speed-to-customer, among other bonuses, of digital print, the company said.
“The apparel markets remain dynamic,” the company said. “As expected, our Delta direct and global brands channels were impacts by the well-publicized high inventory levels and associated slower demand in the supply chains they serve, while our retail direct channel saw double-digit sales growth this quarter.”
Sales: Net sales dropped to $110.3 million, compared to last year’s second-quarter net sales of $131.7 million. The Salt Life segment’s net sales grew to $19 million, up over 16 percent from the prior year’s $16.4 million. Net sales in the Delta Group segment were $91.3 million, compared to $115.3 million in last year’s second quarter.
Earnings: Net income declined from $10.1 million ($1.44 per diluted share) to a loss of $7 million ($1.00 per diluted share). Operating income fell year-over-year from $14.3 million (10.9 percent of sales) to an operating loss of $5.4 million (4.9 percent of sales).
Gross margins were 14.7 percent compared to 25.5 percent the year prior. The company attributed this to “production curtails intended to match manufacturing output with market demand” as well as inflated cotton and raw material prices.
CEO’s Take: “We remain keenly focused on managing our working capital, reducing inventory and debt levels, and leveraging the many opportunities across our business to provide higher-margin and quicker-turn’ consumer ready’ products,” Humphreys said. “Executing on these initiatives and working through the remainder of last year’s high-price cotton inventory sets the stage for improved operating results as we move through the second half of our fiscal year and positions us to capitalize on accelerations in demand.”