Business news : Delta Apparel Posts Loss in Fiscal Year

Delta Apparel, Inc. reported sales increased 3.0 percent in its fiscal oyear ended June 30, to $489.9 million from $475.2 million in fiscal 2011. Fiscal 2012 includes the second quarter $16.2 million inventory markdown in the Basics segment, which resulted in a net loss for the year of $2.4 million or 29 cents per diluted share.

This compares with net income for fiscal 2011 of $17.3 million or $1.98 per diluted share.

Net sales for the 2012 fiscal year increased approximately 3.0 percent to
Gains in net sales for the year, which occurred in both of Delta's business segments, were driven primarily by record revenues in The Game, Junkfood, FunTees and Art Gun businesses. This was somewhat offset by Delta's catalog business, which continued to feel the effects of cotton price volatility and customer destocking. While net income continued to recover in the 2012 fourth quarter, it wasn't enough to offset the affects of Delta's second quarter inventory markdown which was necessitated by unprecedented increases in cotton prices.

For the fiscal 2012 fourth quarter, net sales were $135.4 million, compared with $137.6 million in the 2011 fourth quarter. Net income for the 2012 fourth quarter was $4.8 million or $0.55 per diluted share, compared to $8.5 million or $0.97 per diluted share in the fourth quarter of 2011.

While cotton prices continued their return to more normal levels in the fourth quarter, some residual affects still remained. Increased retail prices, reflecting the high cost of cotton earlier in the year, hampered sell-through, and department store inventories have not reduced as rapidly as expected. Therefore, replenishment orders were lower than anticipated, primarily in the Company's Soffe product line.

Branded Segment Review

Branded segment sales for fiscal 2012 advanced to $235.2 million, a 6.1 percent increase over 2011 sales of $221.7 million. The Game registered another strong performance with a sales increase of 26.3 percent over the previous year. The Junkfood brand followed closely with a 25.8 percent increase, and Art Gun, while currently representing less than $4 million of revenue, grew 207 percent year-over-year. Revenues in our Soffe brand fell off 8.6 percent as a result of customer destocking, which continued through the fourth quarter.

For the 2012 fourth quarter, sales in the Branded segment were $57.9 million versus $60.6 million in the 2011 fourth quarter. The gains experienced by The Game, Junkfood and Art Gun in the 2012 fourth quarter were offset by the previously mentioned softness that continued in the Soffe line.

Basics Segment Review

Net sales for Delta's Basics Segment were $254.7 million in fiscal 2012, compared with $253.5 million in fiscal 2011. The slight increase was driven by the Company's FunTees business, which grew 19.7 percent during 2012, offset by a 7.5 percent decrease in the Delta Catalog business during the fiscal year. The improved performance of FunTees, which had a significant improvement in operating profit, was due primarily to an increase in new customers and improved manufacturing performance. Cotton price volatility and destocking, which negatively affected net sales in the Delta Catalog business, also caused significant margin erosion in this business. Despite this, 2012 fourth quarter unit shipments of Delta Tees were up 8.0 percent over the same period in 2011, although average selling prices declined 15.1 percent from the prior year fourth quarter.

For the 2012 fourth quarter, the Basics segment net sales were up slightly to $77.5 million compared with $77.1 million in the 2011 fourth quarter. The results were due to excellent gains in the FunTees business offset by lower selling prices in the catalog business.

Robert W. Humphreys, Delta Apparel's Chairman and Chief Executive Officer, commented, "We are pleased Delta Apparel, Inc. was able to deliver yet another record-sales year. Unfortunately, the volatility in cotton prices and disruption this caused in wholesale and retail markets, and ultimately consumer demand, did not allow us to meet our profit objectives for the year. As these conditions return to normal, resulting in a more stable retail environment, we anticipate renewed growth and stronger margins in 2013. Various strategies have been initiated and other aggressive plans are under evaluation to better leverage our businesses and accelerate growth.

"We are encouraged with the performance our new Salt Life store that opened in March of this year. It is performing well and meeting our objectives to have an environment to show case the Salt Life brand to consumers and our retail partners. We have recently hired a sales and marketing manager for Salt Life on the West Coast, with the objective of assisting retailers with the marketing and promotion of Salt Life products, further expanding the geographical reach of the brand.

"Our belief is that cotton prices have stabilized to some degree; but at current levels we are remaining short on future cotton commitments in order to give the Company the most flexibility on future material costs. We also anticipate additional margin improvement as we gain traction with our strategies of leveraging our creative talent and retail relationships across our operating units. We plan to spend about $7 million for capital improvements in 2013, most of which will focus on screen print modernization and expansion, branding, and point of sales displays for branded products.

Humphreys concluded, "Delta Apparel is poised for additional organic growth in both of our business segments in 2013. Our product development, merchandising and marketing initiatives, combined with our diverse customer base across many channels of distribution should be the catalyst for achieving that goal and drive us toward our tenth consecutive year of record sales."

Fiscal 2013 Guidance
From Delta's perspective, 2013 looks like a year in which we could make further sales gains and improvement in profitability. While there are many unknowns that are outside of our sphere of control, we remain cautiously optimistic about the opportunities ahead. The Company believes that it will achieve sales in the range of $500 to $510 million for fiscal 2013, or about a 3.0 percent increase over 2012. Net income should be in a range of $1.65 to $1.80 per diluted share.

Delta Apparel's operating subsidiaries include: M. J. Soffe, LLC, Junkfood Clothing Company, To The Game, LLC and Art Gun, LLC.