Delta Apparel, Inc. (PPAI 188431) released its fiscal 2017 first quarter results on Monday, reporting net sales of $85.3 million for the quarter ending December 31, 2016, down $4.8 million, or 5.4 percent, from $90.2 million for the 2016 first quarter. The Greenville, South Carolina-based supplier reports that Art Gun and e-commerce showed strong revenue growth but overall sales for the quarter were hindered by the impact of Hurricane Matthew, the closure of a large sports retailer, lower sales in Junkfood’s specialty channel due to the difficult retail environment, and inventory destocking at major retail licensing accounts in the Delta catalog business.
“A few things that were out of our control hampered sales in our first quarter—Hurricane Matthew, atypically warm weather and The Sports Authority closure, to name a few,” says Robert W. Humphreys, Delta Apparel, Inc.’s chairman and CEO. “These should not, however, have a lasting effect on the future growth of Delta Apparel. We remain focused on those activities that have a continuing positive impact on our top and bottom lines, and on measures that will improve efficiency and service for our customers while expanding our gross margins. The results of our efforts are already becoming apparent.”
The company also reports that its overall gross margins, at 20.6 percent, are down only slightly from the 20.9 percent of the prior year’s first quarter. Delta Apparel’s operating income was $469,000, compared with $2.2 million for the 2016 first quarter, and it experienced a net loss for the quarter of $607,000, versus net income in the prior-year quarter of $681,000.
The basics segment turned in 2017 first-quarter net sales of $60.8 million, down 1.1 percent from the 2016 first quarter’s $61.5 million. The financial report states that the decline was due to a 3.1-percent drop in Delta Activewear sales driven by slower business with retail license accounts, as mass channel retailers destocked inventory during the quarter. Other Delta Activewear channels showed strong growth, with ad specialty up 35 percent and sales into regional screen-printers up four percent. Sales of higher-margin fashion basics products grew by more than 50 percent, a trend the company expects to continue during 2017 as new fashion basics products are introduced, while its private-label business saw sales tracking those in the prior-year period. Delta Apparel also expects private label demand to rise as major brands increasingly require the specialized vertical manufacturing capabilities and compliance programs that are characteristic of our manufacturing platform.
Net sales for the branded segment were $24.5 million in the fiscal 2017 first quarter compared with $28.7 million in the prior-year period. Delta Apparel noted several factors contributed to the sales decline. Soffe’s sales were down approximately $1.5 million but would have generally tracked last year’s first quarter absent the negative impacts of The Sports Authority closure and a winter product return. Junkfood, without the benefit of sales momentum generated in the prior-year first quarter from a large-scale movie release, also experienced comparatively lower sales due to declines at brick-and-mortar retailers. Salt Life achieved record first-quarter profit on 3.8-percent quarter-over-quarter sales growth with expanded margins. Overall margins for the branded segment expanded 160 basis points for the quarter compared to the prior-year period.
Humphreys adds, “While we see the challenging retail environment continuing, we believe fiscal 2017 will be a year of growth and improved profitability for Delta Apparel. We entered the year with exciting new products, have lowered our manufacturing and distribution costs, and are adopting innovative ways to serve our customers. We believe that Art Gun’s virtual inventory model and our ecommerce platforms represent the wave of the future, and provide synergies benefitting all of our business units. This is a formula that we believe will drive significant growth for Delta Apparel as we move forward.”
