Delta Apparel, Inc.’s (PPAI 188431) second quarter financial results, which ended March 30, show sales up compared to the year-ago period. Net sales of $102.8 million were up almost three percent from the same period last year, while net sales for the first half of its 2019 fiscal year of $204.5 million were up 7.4 percent from the first half of 2018.
“We were pleased to deliver another quarter of top-line growth despite challenges from unseasonable weather in key markets and this year’s later spring break selling period,” says Robert W. Humphreys, the supplier’s chairman and chief executive officer. “Our Delta Group segment posted a nice sales increase for the quarter and our fast-growing digital print business, DTG2Go, was once again a bright spot, with sales growth of 177 percent.”
Humphreys adds, “Both our Delta Group and Salt Life Group segments achieved top-line growth for the first half of the year and we are off to a strong start to the second half. We see exciting opportunities for growth and increased profitability across all of our businesses as we leverage our investments in manufacturing technology and distribution and expand into additional sales channels. We continue to believe Delta Apparel is uniquely positioned to succeed in today’s dynamic retail environment.”
Looking at the second quarter’s performance, net sales in the Delta Group segment increased almost four percent over the prior year period, while and net sales in the Salt Life Group segment declined approximately four percent, compared to second quarter fiscal 2018. The company’s gross margin improved 10 basis points from the first quarter to 18.4 percent in the second quarter but declined compared to 22.2 percent in the prior year second quarter.
It attributes a decline in gross profit to $18.9 million from $22.2 million in the prior year period to anticipated transition costs from changes in the private label product mix and higher-cost raw materials in the Delta Group segment, along with higher than expected digital print acquisition integration expenses and delayed spring sales in the Salt Life Group segment. These cost impacts also drove a decline in operating income for the quarter to $2.8 million compared to $5.6 million in the prior year second quarter, with Delta Group segment operating income declining $2.4 million and Salt Life Group segment operating income declining $0.1 million. The company notes that the majority of these cost impacts are now behind it and it expects gross profit and profitability to improve in the back half of the year as it enters its traditionally strong selling season with an expanding product mix and better balance between selling prices and raw material costs. Net income for the quarter was $0.9 million, or $0.13 per diluted share, compared to $3.6 million, or $0.48 per diluted share, in the prior year period.
In fiscal 2019’s first half, net sales in the Delta Group segment increased 8.2 percent over the prior year and net sales in the Salt Life Group segment increased 1.5 percent over the prior year, while gross profit was $37.5 million, down 2.9 percent from $38.6 million in the comparable period last year. Gross margin was 18.3 percent compared to 20.3 percent in the first half of fiscal 2018.
Delta Apparel’s operating income was $2.9 million compared to $7.4 million in the comparable period last year, with the majority of the decrease attributable to a discrete expense of $2.5 million taken during the first quarter in connection with the resolution of litigation stemming from The Sports Authority’s March 2016 bankruptcy. Delta Group segment operating income was impacted by the litigation expense and declined $4.1 million over the prior year, while Salt Life Group segment operating income was relatively flat compared to the prior year. The company experienced a net loss for the period of $209,000, or $0.03 per diluted share, an improvement over the prior year period’s net loss of $6.3 million, or $0.87 per diluted share. Excluding the above-referenced $2.5 million litigation expense, the company achieved net income of $1.9 million, or $0.27 per diluted share, for the six months ended March 30.
