Delta Apparel narrows fiscal 2009 outlook
Delta Apparel Inc reported financial results for its third fiscal quarter ended March 28, 2009.
Third Quarter Results
Net sales for the three months ended March 28, 2009, were a record $85.7 million, an increase of $10.3 million, or 13.7%, from the prior year's third quarter. The sales growth was driven by a 32.1% sales increase in the activewear segment partially offset by a 7.6% decrease in retail-ready sales. Gross margins were 19.6% compared to 20.8% in the prior year third quarter. The decrease in gross margins was driven primarily from an increase in activewear sales as a percentage of the Company's total sales, impacting gross margins by approximately 260 basis points.
This was partially offset by improved margins in the activewear segment due to higher pricing in the private label business and overall improved manufacturing results. In addition, the prior year third quarter included $0.9 million of restructuring related expenses, lowering the gross margin in that quarter by approximately 115 basis points. Net income for the current year third quarter was $1.2 million, or $0.14 per diluted share compared to a net loss of $0.4 million, or ($0.05) per diluted share, inclusive of ($0.07) per diluted share of restructuring related expenses, in the third quarter of the prior year.
Robert W. Humphreys, the Company's President and Chief Executive Officer, commented, “We are pleased to have achieved our fourth consecutive quarter of organic sales growth in what remains a very challenging marketplace. Our improved manufacturing operations and the execution of several strategic initiatives have built profitable growth that should drive continued value for our shareholders in the future. We believe the strength of our brands, expanding license agreements, creative graphic talent, and unique manufacturing and distribution capabilities, all combined with our diverse channels of distribution, are allowing us to build market share in a difficult apparel marketplace.”
Effective March 29, 2009, the Company acquired substantially all of the assets of Gekko Brands, a premier supplier of licensed and decorated headwear sold under the brands of The Game and Kudzu. Our new wholly-owned subsidiary, To The Game, LLC, will continue the business of providing innovatively designed, high quality headwear. The Game and Kudzu have extensive license agreements including most major colleges and universities, motorsports properties, Churchill Downs, and various resort properties.
The Company purchased associated inventory, accounts receivables, and fixed assets of the business, and assumed certain liabilities. No goodwill or intangibles will be recorded on the Company's financial statements in connection with the acquisition. The acquisition was financed through the Company's asset-based secured revolving credit facility.
In conjunction with the acquisition, the Company exercisedthe $10 million accordion feature under its existing credit facility, bringing the total line of credit to $110 million, subject to borrowing base limitations. Delta Apparel expects To The Game, LLC to add approximately $27 million in annual sales to its business and to be marginally profitable, with opportunities for improved profitability in the future. This business should allow the Company to increase sales of branded and licensed products and become a more important partner with many key license holders.
The retail-ready segment, comprised of the Soffe and Junkfood businesses, had sales of $32.3 million, a 7.6% decline from the prior year third quarter. The Junkfood and Soffe businesses both experienced reduced sales as retailers reduced orders to lower their inventory investment after the weak holiday season and with continued expectation of reduced consumer spending in the future.
The Soffe business also declined in its military business, as the prior year included sales from the introduction of the new Navy PT uniform, which resulted in a spike in military sales in the third and fourth fiscal quarters of 2008. Operating income in the retail-ready segment was $2.8 million for the third fiscal quarter of 2009, a decline of $1.9 million from the prior year third quarter due primarily to the lower sales and deleveraged fixed costs in the businesses.