Delta Apparel (asi/49172) announced fiscal year net sales of $425.2 million, compared to $449.1 million in the 2015 fiscal year, a decrease of 5.3%. Net sales only decreased .5% after accounting for the extra week last year, the sale of The Game business to supplier MV Sport (asi/68318) and the termination of the Kentucky Derby license, which the company did not renew.
The supplier’s net sales for the 13-week fiscal fourth quarter were $114.4 million, which ended October 1, compared to $120.2 million in the prior year’s 14-week fourth quarter. Disregarding the additional week, net sales in fiscal fourth quarter for 2016 increased in the comparable timeframe by 2.5%.
Gross margins for the fourth quarter were 20.9%, compared to 21.9% year-over-year. The company reports that gross margins for this year include costs associated with its manufacturing realignment, which lowered margins by 80 basis points. The strategy includes expansion of its Honduran textile and sew operations, consolidation of its sew facilities in Mexico and updating its screen-print operations in El Salvador. Excluding the $.9 million associated with realignment costs (included in cost of goods sold), gross margins expanded in both the basics and branded segments, though a higher mix of sales in basics resulted in a decrease in overall margins for the fourth quarter. Delta Apparel expects gross margin expansion to continue and strengthen in fiscal 2017, as a result of the completed manufacturing realignment.
“We are pleased with our fourth quarter financial and operational results, and are excited about what our accomplishments mean for the future of the Company,” said Robert W. Humphreys, Delta Apparel’s chairman and CEO. “Over the last two years we have taken decisive action to reduce our fixed cost structure, streamline our business operations, and lower our production costs. By focusing on key growth areas, we successfully navigated through a tough retail environment and our fourth quarter highlights the momentum we have headed into fiscal year 2017.”
Humphreys stated that the company expects the lower cost inventory currently being produced at its manufacturing facilities to positively impact margins at the end of the fiscal 2017 second quarter. “We continue to expand our output, which should allow for inventory levels that better support our growing catalog business this spring,” he said. “We are also producing open-width fabrics, and are meeting our $2 million cost savings goals for this initiative.”
Net sales in the company’s basics segment declined .9% to $73.7 million in the fiscal 2016 fourth quarter, from $74.4 million in the same quarter last year. Accounting for the additional week of sales in the fiscal fourth quarter of 2015, net sales increased 6.7% in the same period this year. Sales increased 5% in Activewear and 34% in the Art Gun division year-over-year. Art Gun is a “virtual art studio” that can be incorporated into e-commerce platforms.
In its branded segment, total net sales fell $5.2 million year-over-year to $40.7 million in the fiscal fourth quarter of this year. The company attributes the decline mainly to a $5.3 million decrease in sales for its Junkfood line that resulted from the additional week of sales in fiscal fourth quarter 2015 as well as a lackluster retail environment that affected distribution channels.
The company has also opened a new third party distribution center in Chicago in order to offer one- to two-day shipping to customers in the Midwest, and completed its acquisition of nautical-inspired lifestyle brand Coast Apparel in August. “We are excited about Coast’s geographic versatility across regional markets, which we believe can be leveraged using the strength of Delta’s infrastructure and expertise,” said Humphreys.