Business news :Delta Apparel's Q1 Profits Slide on Revenue Decline

Delta Apparel Reports Fiscal 2013 First Quarter Results
Record first-quarter revenue puts Company on track to achieve full year goals
 GREENVILLE, S.C.--(BUSINESS WIRE)-- Delta Apparel, Inc. (NYSE MKT: DLA) today reported that it achieved record revenue for its fiscal 2013 first quarter ended September 30, 2012.

Net sales for the fiscal 2013 first quarter were $130.1 million, a 5.3 percent increase over 2012 first quarter sales of $123.5 million. Net income for the 2013 first quarter was $3.6 million, or $0.41 per diluted share, compared with $4.4 million, or $0.50 per diluted share, in the prior year quarter. Net income for the fiscal 2013 first quarter was affected by a one-time charge of $1.2 million related to the previously disclosed internal investigation completed by the Company's Audit Committee in September, which reduced first quarter earnings per share by $0.10. Excluding this one-time charge, net income would have been a first quarter record.

Delta’s first quarter performance was primarily driven by strong organic growth and improved margins in the basics segment as well as in the branded segment’s Art Gun business. The higher revenues were offset somewhat by lower average selling prices resulting from cotton price declines and product mix changes.
Basics Segment Review

Fiscal 2013 first-quarter net sales for Delta’s basics segment rose 26.6 percent to $66.5 million, compared with $52.6 million in the prior year period. The increase was led by the Company’s FunTees business, which enjoyed a 48 percent rise in unit volume and 41.5 percent net sales growth during the quarter. The Delta Catalog business experienced a 35 percent increase in unit volume and 20 percent net sales growth. The higher unit volumes leveraged against fixed manufacturing costs, coupled with lower cotton costs in inventory, enabled Delta to reduce pricing while maintaining acceptable margins in its basics segment. In addition, the market for undecorated t-shirts was stable during the first quarter, with overall market demand keeping pace with inventories.
Branded Segment Review
Branded segment sales for the fiscal 2013 first quarter were $63.5 million, versus $70.9 million for the comparable 2012 quarter. The shortfall primarily resulted from lower net sales in the Soffe, Junkfood and The Game businesses, which were only slightly offset by sales growth at Art Gun. Soffe’s revenue was down due to weak department store business with low replenishment orders, but Soffe did experience solid growth in the military and sporting goods channels. The decline in Junkfood sales was primarily driven by product mix changes and early shipping of fall merchandise. However, that business did see growth in its core Junk Food brand within the boutique, specialty chain and high-end department store channels and maintained strong margins during the quarter. Slower sales in collegiate products lead to The Game's revenue decline for the quarter, but solid growth in its Salt Life and motorsports lines is anticipated for the remainder of the year. Art Gun followed its strong showing over the past several quarters with a net sales increase of nearly 230 percent over last year’s first quarter.

Robert W. Humphreys, Delta Apparel’s Chairman and Chief Executive Officer, said that Delta’s solid first quarter put the Company in position to meet its full year financial goals. “We are now on the downside of the cotton price spike that hampered business during the previous fiscal year and can currently offer more competitive pricing while simultaneously improving margins. The market share gains realized in our basics segment during the first quarter are encouraging and our expectation is to build on this large base as the year progresses. We anticipate revenue growth at Junkfood, The Game and Art Gun during the remainder of the year, offset to some degree by sales declines in Soffe branded product at department stores.

“While we believe Delta will achieve a tenth consecutive year of record revenue growth, we also expect continued margin improvement driven by lower materials and energy costs and increased manufacturing efficiencies. Excellent progress has been made in leveraging our creative talent and retail relationships across all of our operating units. We are currently evaluating several strategies to better leverage our Soffe brand assets to accelerate growth, and have recently added a strong business-to-business platform aimed at gaining market position in the sporting goods channel. Our continued focus on information technology initiatives are designed to streamline business operations and enhance service levels to our customers.

“In addition to improving our profitability during the quarter, we took action to improve the Company’s balance sheet. We reduced debt by nearly $12 million compared to fiscal year-end 2012 and improved our days sales outstanding and inventory turns from the prior year. During the quarter, we repurchased nearly 73 thousand shares of Delta common stock, which we believe currently is an effective use of funds, especially since the stock has been trading below what we believe is its intrinsic value.”

Mr. Humphreys concluded, “We consider our fiscal 2013 first quarter an important start to meet our goals for the year. While there is a lot yet to be accomplished, we believe we are well positioned for further revenue growth and improved earnings.”
Fiscal 2013 Guidance

The Company believes that the guidance previously provided for fiscal 2013, inclusive of the previously mentioned $1.2 million first quarter charge, can be achieved. Based on anticipated net sales growth and higher unit volume leveraging fixed costs, the Company expects to reach record revenues in the range of $500 to $510 million for fiscal 2013, or about a three percent increase over 2012. Net income is expected to be in a range of $1.65 to $1.80 per diluted share.

About Delta Apparel, Inc.
Delta Apparel, Inc., along with its operating subsidiaries, M. J. Soffe, LLC, Junkfood Clothing Company, To The Game, LLC and Art Gun, LLC, is an international design, marketing, manufacturing, and sourcing company that features a diverse portfolio of lifestyle branded activewear apparel and headwear, and produces high quality private label programs. The Company specializes in selling casual and athletic products across distribution tiers and in most store types, including specialty stores, boutiques, department stores, mid-tier and mass chains. From a niche distribution standpoint, the Company also has strong distribution at college bookstores and the U.S. military. The Company’s products are made available direct-to-consumer on its websites at www.soffe.com, www.junkfoodclothing.com, www.saltlife.com and www.deltaapparel.com. Additional products can be viewed at www.2thegame.com and www.thecottonexchange.com. The Company's operations are located throughout the United States, Honduras, El Salvador, and Mexico, and it employs approximately 7,200 people worldwide. Additional information about the Company is available at www.deltaapparelinc.com.
Statements and other information in this press release that are not reported financial results or other historical information are forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. These are based on our expectations and are necessarily dependent upon assumptions, estimates and data that we believe are reasonable and accurate but may be incorrect, incomplete or imprecise. Forward-looking statements are also subject to a number of business risks and uncertainties, any of which could cause actual results to differ materially from those set forth in or implied by the forward-looking statements. The risks and uncertainties include, among others, the general U.S and international economic conditions; the ability to grow, achieve synergies and realize the expected profitability of recent acquisitions; the volatility and uncertainty of raw material, transportation and energy prices and the availability of these products and services; changes in consumer confidence, consumer spending, and demand for apparel products; the ability of our brands and products to meet consumer preferences within the prevailing retail environment; significant interruptions in our distribution network or information systems; the financial difficulties encountered by our customers and higher credit risk exposure; the competitive conditions in the apparel and textile industries; changes in environmental, tax, trade, employment and other laws and regulations; changes in the economic, political and social stability of our offshore locations; significant litigation in either domestic or international jurisdictions, the relative strength of the United States dollar as against other currencies; and other risks described from time to time in our reports filed with the Securities and Exchange Commission. Accordingly, any forward-looking statements do not purport to be predictions of future events or circumstances and may not be realized. Further, any forward-looking statements are made only as of the date of this press release and we do not undertake publicly to update or revise the forward-looking statements even if it becomes clear that any projected results will not be realized.

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