Delta Apparel, Inc. reported second-quarter revenues improved 1.2 percent in the second quarter ended Dec. 29, to $106.8 million from $105.5 million a year ago.
Net income for the 2013 second quarter was $46 thousand, or $0.01 per
diluted share, compared with a loss in the 2012 second quarter of $13.6
million, or $1.61 per diluted share. As previously reported, net income
for the fiscal 2012 second quarter and first half was negatively
impacted by a one-time inventory markdown of $16.2 million resulting
from record high cotton costs combined with selling price decreases in
Delta's line of basic undecorated t-shirts.
For the first six
months of fiscal 2013, sales increased 3.4 percent to $236.9 million
compared to $229.0 million for the first six months of fiscal 2012. Net
income for the first six months of fiscal 2013 was $3.6 million, or
$0.42 per diluted share, compared to a loss of $9.2 million, or $1.09
per share, in the prior-year six-month period. Fiscal 2013 first half
net income was affected by a one-time charge of $1.2 million related to
the previously reported Audit Committee internal investigation completed
in September 2012 that reduced 2013 first quarter earnings per share by
The Company's second quarter benefitted from solid
year-over-year sales growth in its Delta Catalog, Junkfood, The Game and
Art Gun businesses. This growth was offset somewhat by continued
softness in the Company's Soffe business and lower selling prices within
its FunTees and Delta Catalog businesses due to lower priced cotton.
Basics Segment Review
quarter 2013 sales in the basics segment rose to $58.8 million, a 2.2
percent increase over the comparable 2012 period. The increase resulted
from a 13.1 percent rise in basics segment volume, which was offset
somewhat by lower average selling prices in both the Delta Catalog and
FunTees businesses. The addition of new customers in the blank and
private-label business was the principal driver of the volume increase.
Delta Catalog experienced a 15 percent increase in unit volume, driving
7.8 percent sales growth. Due to lower pricing, FunTees experienced a
net sales decline of 7.3 percent despite a 6 percent increase in volume.
Efficient use of new print programs using Delta Catalog blanks and the
success of Delta's Six Sigma initiatives in reducing manufacturing costs
bolstered revenue and provided improved margins for the basics segment.
Branded Segment Review
segment sales for the second quarter were $47.9 million, up slightly
from the prior year second quarter. Junkfood, The Game and Art Gun each
experienced double-digit net sales growth, which was offset by continued
weakness in the Soffe business. While Soffe's strategic sporting goods
channel gained new distribution and better product placement, its
independent sporting goods business remained slow. Soffe's juniors
business with mid-tier department stores also remained slow but various
girls and "missy" college programs performed well in that channel.
Junkfood continued to add specialty retail customers and new
design-for-fee business, and its professional sports license business
continues to grow, largely through e-commerce channels. The Game
continues to show good growth, led by Salt Life, which is experiencing
strong buy-in from customers. Salt Life will start shipping its new
footwear line in the March quarter. Art Gun grew net sales 83 percent in
the second quarter and has been profitable throughout the first half.
Driving its growth were several new e-commerce sites and
direct-to-garment fulfillment opportunities that were added to the Art
Gun platform since the beginning of the 2013 fiscal year.
W. Humphreys, Delta Apparel's Chairman and Chief Executive Officer,
commented that while the Company's second quarter was not as strong as
expected, it is still on track to meet its full-year guidance. "During
the second quarter we completed several projects that are designed to
reduce costs and leverage customer relationships. The Game's basic tee
products now employ a completely vertical production model extending
from textiles through screen printing. This provides a low cost
structure and facilitates rapid product replenishment. The Salt Life
brand continues to gain in popularity. Our Fall 2013 line received an
excellent reaction from buyers at the recent Surf Expo in Orlando,
Florida, and we are making good headway in establishing the brand on the
"Delta made good progress in bringing all of our
bookstore business under The Game's operation and we expect to complete
the consolidation by the end of this fiscal year. This will help us
leverage our bookstore relationships and reduce our selling, general and
administrative costs going forward."
"In the second quarter, we
added additional equipment to our Art Gun business and went to a
twenty-four/seven operation to support holiday growth and provide
quicker shipping to customers spread across more than 65 countries. We
also continued to expand sales on our own e-commerce sites, which grew
71 percent over last year's first half. While e-commerce is a very small
part of our business, it is an area of exceptional growth that will
continue to gain importance to our
Soffe business offers one of our biggest challenges as well as one of
our biggest opportunities. In this regard, we are addressing Soffe's
cost structure to bring it in line with that of our other business
units. Beyond that, we are seizing a number of opportunities to leverage
customer relationships through new, more creative sales and marketing
programs to coincide with and enhance the rapidly evolving marketing
strategies of mid-tier retailers and independent sporting goods
Mr. Humphreys concluded, "While the economic outlook
in the U.S. continues to lack certainty, current demand for our products
is firm and we believe we can meet our sales and earnings expectations
in each of the two remaining quarters of fiscal 2013."
Fiscal 2013 Guidance
Company continues to believe that the guidance previously provided for
fiscal 2013 can be achieved. Based on anticipated net sales growth and
higher unit volume leveraging fixed costs, the Company believes that it
will reach record revenues in the range of $500 to $510 million for
fiscal 2013 or about a 3 percent increase over 2012. Net income is
expected to be in a range of $1.65 to $1.80 per diluted share.