Delta Apparel, Inc. reported financial results for the three-month transition period ended September 28, 2013. The transition period was necessary to accommodate the change in the Company’s fiscal year end from June to September; therefore starting the 2014 fiscal year on September 29, 2013. Transition period comparisons are made against the fiscal 2013 first quarter ended September 29, 2012.
Net sales for the transition period were $122.6 million versus $130.1 million in the comparable prior year period. Net earnings for the transition period were $0.6 million, or $0.07 per diluted share, compared with $3.6 million, or $0.41 per diluted share, in the prior year quarter.
While demand was strong at the start of the period, weakness in retail sales caused a decline in the Company’s basic undecorated tee business as the quarter progressed. This weakness, along with continued softness in Soffe sales, was the primary reason for the decline in revenue and lower profitability.
In addition, the Company’s operating profit was unfavorably impacted in the transition period by a number of unusual items, including costs associated with the shutdown of its Wendell screen print facility, expenses associated with the acquisition of Salt Life, higher than normal bad debt expense and the recording of a contingent liability associated with certain legal matters in California.
Basics Segment Review
During the period, sales for Delta’s basics segment were $62.3 million compared with $66.5 million in the prior year period, a reduction of 6.4%. While sales of undecorated tees started strong in July, slower retail traffic and an earlier than expected build-up of inventories in the retail sector resulted in price discounting to drive volume, and ultimately lower than expected sales of undecorated tees as the quarter progressed.
Sales of private label products were also unfavorably impacted as customers shifted callouts to balance inventory from the lower sales at retail. Operating earnings, inclusive of the additional bad debt expense and legal accruals, for the transition period were $0.2 million compared to $3.2 million in the prior year September quarter.
Branded Segment Review
With the exception of Soffe, all branded segment businesses met or exceeded revenue and profit expectations. Branded segment sales for the period were $60.2 million, down 5.2% from $63.5 million in the comparable prior year period.
The primary reason for the decrease was a 28% decline in Soffe sales, which was somewhat offset by strong revenue growth in the other brands. Junkfood sales increased by 14% with continued strong buy-in from upper-tier retailers and specialty stores.
Art Gun continued its rapid growth pattern with a 115% sales increase over the comparable prior year period. Salt Life revenue growth exceeded expectations, with sales up 44% over the prior September quarter. The branded segment’s operating earnings were $0.4 million for the period compared to $2.7 million for the comparable prior year quarter.