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Delta Apparel Reports Earnings Decline

Supplier firm Delta Apparel (asi/49172) announced that net sales were $111.6 million in its fiscal third quarter of 2016, which ended July 2, down from $120.5 million in the prior year third quarter, a decline of about 7.4%.

For the first nine months of fiscal 2016, net sales were $310.9 million compared with $328.9 million in the prior year period, which included $13 million in sales attributed to the since-divested The Game business and the discontinued Kentucky Derby license. Despite continued weakness in the retail environment, the company reported that continued strong gross margins resulted in a year-over-year margin expansion of 150 basis points.

“Delta Apparel has completed yet another quarter of solid profitability despite persistent softness in the retail apparel marketplace,” Robert W. Humphreys, chairman and CEO of Delta Apparel, said in a press release. “Our intense focus on efficiency, cost savings and bottom-line growth that began nearly two years ago with various strategic initiatives has positioned us to compete from a position of strength even when the marketplace is weak.”

Delta also reported that net sales in its basics segment dropped 8.8% to $72.1 million, from $79 million reported in the prior year’s third quarter. The decrease resulted from a 10% decline in activewear sales due to lower unit sales of basic tees and a $1.8 million reduction in private label sales. The company said that declines were somewhat offset by more than 100% growth in fashion basics and nearly 50% growth in catalog full-package products.

As for the company’s Salt Life brand, sales grew 45% over the prior year period, continuing its double-digit growth trend. Salt Life’s ecommerce site experienced 80% growth and its distribution center handled record-high shipment levels during the third quarter. The company said that build-out for the new Salt Life store in San Clemente, CA, is underway and the store is expected to open in September.

Humphreys said the company is undergoing a “rigorous manufacturing realignment” that is expected to reset manufacturing cost structure and carry an annual savings of approximately $8 million, beginning in the first half of fiscal 2017 and becoming fully annualized by the end of fiscal 2017. In conjunction with the realignment, the company is expanding its Honduran textile and sewing operations and have consolidated sewing facilities in Mexico. In July, the company closed its domestic textile operation in Maiden, NC, and is in negotiations on a contract to sell the real estate and certain equipment used in that operation.

“We believe Delta Apparel will continue to make solid progress over the next several quarters,” Humphreys said. “While our recent initiatives have focused a great deal on improving margins and strengthening our bottom line, we are confident that the strength of our on-trend, high-quality products and solid marketing programs will bring renewed vigor to our top line as well. We are looking forward to a strong fourth quarter and continued success in 2017.”