In its announcement of financial results for its fiscal year 2018 first quarter, which ended December 30, 2017, supplier Delta Apparel (PPAI 188431) reported net sales of $90.3 million—an increase of $14.4 million or 19 percent, from the same period last year.
“With double-digit growth across the board and improved operating earnings, we are pleased with our results in what is usually our most challenging seasonal quarter,” commented Robert W. Humphreys, Delta Apparel, Inc.’s Chairman and Chief Executive Officer. “While the pickup in holiday demand for apparel was an encouraging development, we believe the time and effort our team devotes to marketing and omni-channel strategies, operational improvements and cost-control initiatives were also key success drivers for us during the quarter.”
Each of Delta Apparel’s business units achieved double-digit sales growth over the same quarter in fiscal 2017, led by increases of 28 percent and 26 percent at Soffe and Art Gun, respectively, and 20 percent growth at Activewear. Also, the fiscal 2018 first quarter net sales figure excludes the $9.4 million of sales from its since-divested Junkfood business. Net sales for the fiscal year 2018 first quarter increased by $5 million, or 5.9 percent, from the $85.3 million reported for the same quarter last year that includes sales from the Junkfood business.
Delta Apparel reports that gross margins improved significantly within the branded segment, expanding to 37.2 percent from 31.1 percent. It notes, however, that this increase was offset by a decline in basics segment gross margins due to higher raw material costs, resulting in overall gross margins of 18.1 percent compared to 20.6 percent. Significant improvement in selling and reductions in general and administrative expenses contributed to year-over-year increases in profitability. Delta Apparel achieved operating profit of $1.7 million for the quarter, a 271 percent increase over the prior year period’s operating profit of $0.5 million, and also achieved a pre-tax profit of $0.4 million compared to a pre-tax loss of $0.8 million in the prior year period.
In first quarter, Delta Apparel recognized a tax expense of $10.6 million associated with the recent U.S. tax reform legislation, which impacted the company’s earnings by $1.45 per share. Included in the $10.6 million is $1.1 million of expense related to the revaluation of the company’s net deferred tax assets, which is a non-cash item, and $9.5 million of expense related to the transition tax on deemed repatriated cumulative earnings of the company’s foreign subsidiaries, which will be paid over the next eight years. Delta Apparel expects that the reduction of the federal tax rate from 34 percent to 21 percent will offset the future payments of the transition tax, resulting in minimal cash flow impact.
Delta Apparel’s basics segment’s net sales in the quarter were $73.2 million, up 20 percent from $60.8 million last year. Activewear sales grew 20 percent over the prior year quarter, with significant increases at both Catalog and FunTees. The company reports that Catalog growth was supported by rebounding conditions in the retail licensing channel and strong demand within other channels, while the FunTees growth drew on the strength of private-label sales to strategic brands. The marked growth in Catalog fashion basics products seen in recent periods continued during the quarter.
Net sales in the branded segment were $17.2 million for the quarter, up 14 percent year over year after excluding sales from the Junkfood business. Soffe sales for the quarter increased 28 percent over the prior year period. Delta Apparel notes that strength in the military channel from successes with “pride” graphic programs and military issue programs drove Soffe’s sales momentum, as did successful graphic programs with strategic sporting goods retailers. Soffe gross margins expanded year over year and, coupled with its cost-control efforts, drove significant profitability improvement at Soffe during the quarter. Salt Life sales increased 12.4 percent over the prior year period with growth across the majority of its distribution channels. New product categories along with additional retail doors contributed to the expansion. Salt Life’s ecommerce sales remained on their double-digit growth path during the quarter, and its new retail store in Daytona Beach, Florida continued to perform extremely well.
