In its reporting of its fiscal 2018 second quarter and six-month results, supplier Delta Apparel, Inc. (PPAI 188431) notes both organic sales growth and acquisition activity. The Greenville, South Carolina, company’s net sales for the quarter, at $100 million, were up two percent over the prior year’s first quarter. Looking back at the past six months, net sales climbed nine percent year-over-year to $190.3 million. Both figures exclude the company’s since-divested Junkfood Clothing business.
Delta Apparel reports net income for the second quarter of $3.6 million, or 48 cents per diluted share, an increase over the prior year period’s 47 cents per diluted share after excluding the approximately 11 cents per share gain realized in the prior year period on the sale of the Junkfood Clothing business. Gross margin expansion in the branded segment and the DTG2Go business (previously Art Gun) was offset by a gross margin decline in the Activewear business attributable to higher raw material and other input costs, resulting in overall gross margins of 22.2 percent compared to 23.3 percent in the prior year period.
“Our fiscal 2018 second quarter was both productive and profitable, with year-over-year organic sales and earnings growth in market conditions that remained challenging,” says Robert W. Humphreys, Delta Apparel, Inc.’s chairman and chief executive officer. “The combination of our Art Gun business with the recently-acquired digital print business is a game-changer from our perspective. The combined business, which we now market under the DTG2Go trade name, gives us the most comprehensive on-demand solution in the high-growth digital print space. DTG2Go’s multi-location footprint offers customers quick-turn shipments to any part of the United States as well as market-leading international shipping competency.”
In the first six months of fiscal year 2018, a discrete provisional tax expense of $10.6 million associated with the recent U. S. tax reform legislation drove a net loss for the fiscal year 2018 first half of $6.3 million, or 87 cents per diluted share. Excluding its impact, first half earnings were $4.2 million, or 56 cents per diluted share, a 12 percent increase over the same period last year and a 36 percent increase over the prior year excluding gains on the sale of Junkfood Clothing.
The company’s Basics segment revenue increased by $2.9 million, or four percent, to $73.7 million for the fiscal 2018 second quarter. Activewear sales increased two percent for the quarter, with 15 percent growth in catalog sales offset by a decline in private label sales impacted by requests from customers in the December quarter to pull forward shipments to meet holiday demand. Catalog sales benefited from demand across all sales channels, with particularly strong demand in the retail license and regional screen print channels. The growth in Catalog’s high-margin fashion basics t-shirt and fleece products seen in prior periods continued during the quarter, especially in the premium Delta Platinum line, with sales more than doubling year-over-year.
The company’s digital print and fulfillment business, DTG2Go, acquired on March 9, achieved sales growth of nearly 60 percent over the prior year period, including approximately 20 percent organic growth. DTG2Go’s holiday service levels led to strong growth with nearly all customers during the March quarter. Gross margins strengthened within the DTG2Go business through improved efficiencies and the leveraging of increased sales volumes across the DTG2Go platform.
The Branded segment in second quarter was $26.3 million compared to $33.3 million in the prior year period, although this included sales from Junkfood Clothing. Salt Life revenue increased almost seven percent for the quarter, with sales growth in most channels. Soffe sales for the quarter declined slightly to $12.4 million from $12.8 million in the prior year period, but its sales for the first six months were up approximately 10 percent year over year.
Humphreys adds, “Despite an uneven retail environment and cost pressures in a number of areas, our overall first-half performance was solid, and our team is focused on strategies that should meaningfully impact both the top and bottom lines. We expect to see incremental benefits from our new products and category extensions, broadening customer base, and investments in the digital print and fulfillment model. Our manufacturing platform continues to operate efficiently, and we are excited about our opportunities to increase volumes and further capitalize on our additional capacity and functionality. All things considered, we believe that Delta Apparel is well-positioned for more organic growth and a strong finish to fiscal year 2018.”
