Delta Apparel Reports Third Quarter Fiscal 2020 Results

Sales Sequentially Improved as Quarter Progressed

June Quarter EPS Loss of $2.58; Adjusted EPS Loss of $0.01

Generated $32.2 Million in Operating Cash Flows in June Quarter

GREENVILLE, S.C., July 30, 2020 (GLOBE NEWSWIRE) -- Delta Apparel, Inc. (NYSE American: DLA), a leading provider of core activewear and lifestyle apparel products, today announced financial results for its third quarter and nine months ended June 27, 2020.

Robert W. Humphreys, the Company’s Chairman and Chief Executive Officer, commented, “We are thrilled with the momentum experienced across our business segments as the U.S. economy and our customers re-opened for business. With net sales in June tracking at nearly 90% of prior year levels and with further acceleration in July, we are very encouraged by the steep recovery in recent weeks that exceeded our internal expectations. Our DTG2Go business onboarded several new customers and received additional digital print volume from existing customers to deliver over 30% net sales growth for the quarter compared to prior year. In addition, our Catalog and Salt Life businesses returned to growth in June.”

The Company recorded $23.1 million of non-recurring expense associated with impacts from the COVID-19 pandemic during the June 2020 quarter.  These costs primarily related to the curtailment of manufacturing operations, incremental costs to right size production to new forecasted demand, and increased accounts receivable and inventory reserves related to the heightened risks in the market as the U.S. continues its recovery. These costs, of which approximately $11 million are non-cash charges, primarily impacted operating income in the Delta Group segment.

Mr. Humphreys continued, “As we previously communicated, sales and liquidity improved each month as the quarter progressed, enabling us to end the period in a much stronger position than originally anticipated. During the quarter, we generated over $32 million of operating cash flows and improved our liquidity to $46 million, which is a nearly 50% increase from the March levels.”

For the third quarter ended June 27, 2020:

  • Net sales were $71.8 million, or approximately 60% of prior year net sales of $119.3 million. Monthly sales performance sequentially accelerated throughout the third quarter from April sales at 33% of prior year levels to June sales at nearly 90% of prior year levels. Net sales in the Delta Group segment and Salt Life Group segment decreased 39.0% and 47.2%, respectively, from the prior year period.
  • Gross profit was $3.0 million, or 4.2% of net sales, compared to $24.8 million, or 20.8% of net sales, in the prior year third quarter. Adjusted gross margins in the current quarter were 21.6%, an 80 basis point improvement over the prior year and attributable to continued efficiencies and process improvements within the Delta Group segment’s integrated vertical manufacturing platform. 
  • Selling, general and administrative ("SG&A") expenses declined 15.2% to $15.2 million compared to $17.9 million in the prior year third quarter. As a percentage of sales, SG&A was 21.2%, compared to 15.0% in the prior year third quarter.
  • The strong growth in the DTG2Go business drove an increase in the fair value of the contingent earnout liability, resulting in an additional $1.2 million expense within other income/loss.
  • Operating loss was $21.6 million compared to operating profit of $8.3 million in the prior year third quarter. Adjusted operating income in the current fiscal year quarter was $1.5 million compared to adjusted operating income of $7.0 million in the prior year.
  • The majority of the $23.1 million of COVID-19 related expenses in the current quarter were incurred by the Delta Group segment which reported a year over year decline in operating profit of $26.7 million. Salt Life Group segment operating profit fell $1.9 million compared to the prior year third quarter, which was adjusted for the discrete gain from the settlement of a commercial litigation matter.
  • Net loss for the quarter was $17.8 million, or $2.58 per share, compared to net income of $4.9 million, or $0.70 per diluted share, in the prior year period. Adjusted net loss per diluted share for the third quarter fiscal 2020 was $0.01 compared to $0.60 of adjusted net income per diluted share in the prior year.

Total inventory at June declined over 11% to $158.0 million compared with $177.8 million a year ago primarily driven by the curtailment of manufacturing operations and higher than anticipated third quarter sales. Total net debt, including capital lease financing and cash on hand, as of June 2020 was $127.5 million, down $7.0 million from September 2019 and down $21.5 million from a year ago.  As previously announced, on April 27, 2020, the Company secured a bridge amendment to its U.S. revolving credit facility with its lenders. The amendment provides additional flexibility to tap into the availability provided under the Company’s asset-based lending arrangement.

Mr. Humphreys concluded, “I am very proud of our teams and the resiliency Delta Apparel has shown over the past months. With all of our manufacturing plants having resumed production and brick and mortar stores returning to more normalized operating hours, we continue to see positive trends that should allow us to return to profitability in the fourth quarter.”

Conference Call
The Company will hold a conference call with senior management to discuss its financial results today at 4:30 PM ET. The Company invites you to join the call by dialing 800-430-8332.  If calling from outside the United States, please dial 323-289-6581.  A live webcast of the conference call will be available at www.deltaapparelinc.com.  Please visit the website at least 15 minutes early to register for the teleconference webcast and download any necessary software.  A replay of the call will be available through August 30, 2020.  To access the telephone replay, participants should dial toll-free 844-512-2921.  International callers can dial 412-317-6671.  The access code for the replay is 1181871.

About Delta Apparel, Inc.
Delta Apparel, Inc., along with its operating subsidiaries, DTG2Go, LLC, Salt Life, LLC, and M.J. Soffe, LLC, is a vertically-integrated, international apparel company that designs, manufactures, sources, and markets a diverse portfolio of core activewear and lifestyle apparel products under the primary brands of Salt Life®, COAST®, Soffe®, and Delta. The Company is a market leader in the direct-to-garment digital print and fulfillment industry, bringing DTG2Go technology and innovation to the supply chain of its customers. The Company specializes in selling casual and athletic products through a variety of distribution channels and tiers, including outdoor and sporting goods retailers, independent and specialty stores, better department stores and mid-tier retailers, mass merchants and e-retailers, the U.S. military, and through its business-to-business e-commerce sites. The Company’s products are also made available direct-to-consumer on its websites at www.saltlife.com, www.coastapparel.com, www.soffe.com and www.deltaapparel.com as well as through its branded retail stores. The Company’s operations are located throughout the United States, Honduras, El Salvador, and Mexico, and it employs approximately 8,700 people worldwide. Additional information about the Company is available at www.deltaapparelinc.com.

Non-GAAP Financial Measures
We provide all information required in accordance with U.S. GAAP, but we believe that evaluating our ongoing operating results may be difficult if limited to reviewing only U.S. GAAP financial measures. In an effort to provide investors with additional information regarding our results, we also provide non-GAAP information that management believes is useful to investors. We discuss gross margin, SG&A expenses, operating income, net income and earnings per diluted share performance measures that are, for comparison purposes, adjusted to eliminate items or results stemming from discrete events. We do this because management uses these measures in evaluating our underlying performance on a consistent basis across periods. We also believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of our ongoing performance. These non-GAAP measures have limitations as analytical tools, and securities analysts, investors and other interested parties should not consider any of these non-GAAP measures in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.

Cautionary Note Regarding Forward-Looking Statements
This press release may contain “forward-looking” statements that involve risks and uncertainties. Any number of factors could cause actual results to differ materially from anticipated or forecasted results, including, but not limited to, the volatility and uncertainty of cotton and other raw material prices and availability; the general U.S. and international economic conditions; the COVID-19 pandemic impact on our operations, financial condition, liquidity, and capital investments; competitive conditions in the apparel industry; restrictions on our ability to borrow capital or service our indebtedness; deterioration in the financial condition of our customers and suppliers and changes in the operations and strategies of our customers and suppliers; changing consumer preferences or trends; our ability to successfully open and operate new retail stores; changes in economic, political or social stability at our offshore locations; significant interruptions within our manufacturing or distribution facilities or other operations; our ability to attract and retain key management; significant changes in our effective tax rate; interest rate fluctuations increasing our obligations under our variable rate indebtedness; the ability to raise additional capital; the ability to grow, achieve synergies and realize the expected profitability of acquisitions; the volatility and uncertainty of energy, fuel and other costs; material disruptions in our information systems; compromises of our data security; significant litigation in either domestic or international jurisdictions; recalls, claims and negative publicity associated with product liability issues; the ability to protect our trademarks and other intellectual property; the impairment of intangible assets; changes in international trade regulations; our ability to comply with trade regulations; changes in employment laws or regulations or our relationship with employees; foreign currency exchange rate fluctuations; negative publicity resulting from violations of manufacturing standards or labor laws or unethical business practices by our suppliers and independent contractors; the illiquidity of our shares; price volatility in our shares and the general volatility of the stock market; and the other factors set forth in the "Risk Factors" contained in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and as updated in our subsequently filed Quarterly Reports on Form 10-Q. Except as may be required by law, Delta Apparel, Inc. expressly disclaims any obligation to update these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

Company Contact:

Deborah Merrill, 864-232-5200 x6620
investor.relations@deltaapparel.com

Investor Relations and Media Contact:
ICR, Inc.

Investors:
Tom Filandro, 646-277-1235

Media:
Jessica Liddell, 203-682-8208
DLAPR@icrinc.com 

               
               
SELECTED FINANCIAL DATA:              
(In thousands, except per share amounts)              
    Three Months Ended   Nine Months Ended
    Jun 27, 2020   Jun 29, 2019   Jun 27, 2020   Jun 29, 2019
                 
Net Sales $ 71,801     $ 119,260     $ 264,351     $ 323,773  
Cost of Goods Sold   68,819       94,470       220,893       261,505  
Gross Profit   2,982       24,790       43,458       62,268  
                 
Selling, General and Administrative Expenses   15,206       17,931       51,130       51,771  
Other (Income) Loss, Net   9,364       (1,477 )     7,724       (574 )
Operating Income   (21,588 )     8,336       (15,396 )     11,071  
                 
Interest Expense, Net   1,710       1,989       5,320       5,739  
                 
Earnings (Loss) Before Provision For (Benefit From) Income Taxes   (23,298 )     6,347       (20,716 )     5,332  
                 
Provision For (Benefit From) Income Taxes   (5,454 )     1,510       (4,884 )     896  
                 
Consolidated Net Earnings (Loss)   (17,844 )     4,837       (15,832 )     4,436  
                 
Net Loss Attributable to Non-Controlling Interest   63       89       286       283  
                 
Net Earnings (Loss) Attributable to Shareholders $ (17,781 )   $ 4,926     $ (15,546 )   $ 4,719  
                 
Weighted Average Shares Outstanding              
  Basic   6,890       6,928       6,932       6,931  
  Diluted   6,890       7,080       6,932       7,065  
                 
Net Earnings (Loss) per Common Share              
  Basic $ (2.58 )   $ 0.71     $ (2.24 )   $ 0.68  
  Diluted $ (2.58 )   $ 0.70     $ (2.24 )   $ 0.67  

 

 

    Jun 27, 2020   Sep 28, 2019   Jun 29, 2019
    (Unaudited)   (Audited)   (Unaudited)
             
Current Assets          
  Cash $ 14,520     $ 605     $ 371  
  Receivables, Net   51,867       60,887       68,763  
  Inventories, Net   158,015       179,107       177,779  
  Prepaids and Other Assets   3,785       2,999       3,384  
Total Current Assets   228,187       243,598       250,297  
             
Noncurrent Assets          
  Property, Plant & Equipment, Net   61,273       61,404       58,422  
  Goodwill and Other Intangibles, Net   58,238       59,504       59,957  
  Deferred Income Taxes   7,143       1,514       1,053  
  Operating Lease Assets   42,920       -       -  
  Investment in Joint Venture   10,273       10,388       10,038  
  Other Noncurrent Assets   2,398       1,580       1,658  
Total Noncurrent Assets   182,245       134,390       131,128  
             
Total Assets $ 410,432     $ 377,988     $ 381,425  
             
             
Current Liabilities          
  Accounts Payable and Accrued Expenses $ 73,931     $ 73,111     $ 65,662  
  Current Portion of Contingent Consideration   2,685       2,790       2,790  
  Current Portion of Finance Leases   7,099       6,434       6,084  
  Current Portion of Operating Leases   8,720       -       -  
  Current Portion of Long-Term Debt   8,046       6,540       7,040  
Total Current Liabilities   100,481       88,875       81,576  
             
Noncurrent Liabilities          
  Long-Term Taxes Payable   3,585       3,977       3,492  
  Long-Term Contingent Consideration   4,096       6,304       6,604  
  Long-Term Finance Leases   12,934       12,836       13,012  
  Long-Term Operating Leases   35,152       -       -  
  Long-Term Debt   113,939       109,296       123,236  
  Deferred Income Taxes   1,356       1,519       2,036  
  Other Noncurrent Liabilities   2,379       1,293       1,184  
Total Noncurrent Liabilities   173,441       135,225       149,564  
             
  Common Stock   96       96       96  
  Additional Paid-In Capital   60,154       59,855       59,602  
  Equity Attributable to Non-Controlling Interest   (567 )     (281 )     (190 )
  Retained Earnings   121,390       136,937       133,414  
  Accumulated Other Comprehensive (Loss) Income   (1,430 )     (969 )     (887 )
  Treasury Stock   (43,133 )     (41,750 )     (41,750 )
Total Equity   136,510       153,888       150,285  
             
Total Liabilities and Equity $ 410,432     $ 377,988     $ 381,425  

 


                       
                       
                       
SELECTED FINANCIAL DATA:                      
(In thousands, except per share amounts) For the Three Months Ended June 27, 2020   For the Three Months Ended June 29, 2019
    GAAP Measure       Non-GAAP Measure   GAAP Measure       Non-GAAP Measure
    Reported   COVID-related expenses (1)   Adjusted *   Reported   Ligitation Settlements (2)   Adjusted *
                         
Net Sales $ 71,801     $ 500     $ 72,301     $ 119,260     $ -     $ 119,260  
Cost of Goods Sold   68,819       (12,100 )     56,719       94,470       -       94,470  
Gross Profit   2,982       12,600       15,582       24,790       -       24,790  
Gross Margins   4.2 %     17.5 %     21.6 %     20.8 %         20.8 %
                         
Selling, General and Administrative Expenses   15,206       (2,400 )     12,806       17,931       -       17,931  
Other (Income) Loss, Net   9,364       (8,100 )     1,264       (1,477 )     1,306       (171 )
Operating Income   (21,588 )     23,100       1,512       8,336       (1,306 )     7,030  
Operating Income Margins   (30.1 %)     32.2 %     2.1 %     7.0 %     (1.1 %)     5.9 %
                         
Interest Expense, Net   1,710       -     $ 1,710       1,989       -       1,989  
                         
Earnings (Loss) Before Provision For (Benefit From) Income Taxes   (23,298 )     23,100       (198 )     6,347       (1,306 )     5,041  
                         
Provision For (Benefit From) Income Taxes   (5,454 )     5,378     $ (76 )     1,510       (653 )     857  
                         
Consolidated Net Earnings (Loss)   (17,844 )     17,722       (122 )     4,837       (653 )     4,184  
                         
Net Loss Attributable to Non-Controlling Interest   63       -     $ 63       89       -       89  
                         
Net Earnings (Loss) Attributable to Shareholders $ (17,781 )   $ 17,722     $ (59 )   $ 4,926     $ (653 )   $ 4,273  
                         
Diluted Net Earnings (Loss) per Common Share ** $ (2.58 )   $ 2.57     $ (0.01 )   $ 0.70     $ (0.10 )   $ 0.60  
                         
* Adjusted results are financial measures that are not in accordance with GAAP and exclude the above normalized adjustments. See below for a discussion of each of these adjustments.
** Adjustments and adjusted earnings per share are calculated based on diluted weighted average shares of 6,890 thousand shares for the three months ended June 27, 2020 and 7,080 thousand shares for the three months ended June 29, 2019
                         
(1) Approximately $23.1 million of expenses associated with the impacts from the COVID-19 pandemic and primarily related to the curtailment of manufacturing operations ($9.8 million), incremental costs to right size production to new forecasted demand ($2.6 million), increased accounts receivable and inventory reserves related to the heightened risks in the market as the U.S. continues its recovery ($6.6 million), and other expenses ($4.1 million).
                         
(2) Approximately $1.3 million in other income as the result of a favorable litigation settlement in the Salt Life Group segment in the third quarter fiscal year 2019.
                         
                         
                         
                         
SELECTED FINANCIAL DATA: Delta Group segment   Salt Life Group segment
(In thousands, except per share amounts) For the Three Months Ended June 27, 2020   For the Three Months Ended June 27, 2020
    GAAP Measure       Non-GAAP Measure   GAAP Measure       Non-GAAP Measure
    Reported   COVID-related expenses (1)   Adjusted *   Reported   COVID-related expenses (1)   Adjusted *
                         
Net Sales $ 65,543     $ 500     $ 66,043     $ 6,258     $ -     $ 6,258  
                         
Gross Profit   432       12,600       13,032       2,552       -       2,552  
Gross Margins   0.7 %     19.2 %     19.7 %     40.8 %         40.8 %
                         
Operating Income   (17,468 )     23,100       5,632       (628 )     -       (628 )
Operating Income Margins   (26.7 %)     35.2 %     8.5 %     (10.0 %)         (10.0 %)
                         
                         
    For the Three Months Ended June 29, 2019   For the Three Months Ended June 29, 2019
    GAAP Measure       Non-GAAP Measure   GAAP Measure       Non-GAAP Measure
    Reported   Ligitation Settlements (2)   Adjusted *   Reported   Ligitation Settlements (2)   Adjusted *
                         
Net Sales $ 107,409     $ -     $ 107,409     $ 11,851     $ -     $ 11,851  
                         
Gross Profit   19,181       -       19,181       5,611       -       5,611  
Gross Margins   17.9 %         17.9 %     47.3 %         47.3 %
                         
Operating Income   9,247       -       9,247       2,597       (1,306 )     1,291  
Operating Income Margins   8.6 %         8.6 %     21.9 %     (11.0 %)     10.9 %
                         
                         
* Adjusted results are financial measures that are not in accordance with GAAP and exclude the above normalized adjustments. See below for a discussion of each of these adjustments.
                         
(1) Approximately $23.1 million of expenses associated with the impacts from the COVID-19 pandemic and primarily related to the curtailment of manufacturing operations ($9.8 million), incremental costs to right size production to new forecasted demand ($2.6 million), increased accounts receivable and inventory reserves related to the heightened risks in the market as the U.S. continues its recovery ($6.6 million), and other expenses ($4.1 million).
                         
(2) Approximately $1.3 million in other income as the result of a favorable litigation settlement in the Salt Life Group segment in the third quarter fiscal year 2019.
                         
                         
                         
                         
SELECTED FINANCIAL DATA:                      
(In thousands, except per share amounts) For the Nine Months Ended June 27, 2020   For the Nine Months Ended June 29, 2019
    GAAP Measure       Non-GAAP Measure   GAAP Measure       Non-GAAP Measure
    Reported   COVID-related expenses (1)   Adjusted *   Reported   Ligitation Settlements (2)   Adjusted *
                         
Net Sales $ 264,351     $ 500     $ 264,851     $ 323,773     $ -     $ 323,773  
Cost of Goods Sold   220,893       (14,000 )     206,893       261,505       -       261,505  
Gross Profit   43,458       14,500       57,958       62,268       -       62,268  
Gross Margins   16.4 %     5.5 %     21.9 %     19.2 %         19.2 %
                         
Selling, General and Administrative Expenses   51,130       (2,400 )     48,730       51,771       -       51,771  
Other (Income) Loss, Net   7,724       (8,100 )     (376 )     (574 )     (1,158 )     (1,732 )
Operating Income   (15,396 )     25,000       9,604       11,071       1,158       12,229  
Operating Income Margins   (5.8 %)     9.5 %     3.6 %     3.4 %     0.4 %     3.8 %
                         
Interest Expense, Net   5,320       -       5,320       5,739       -       5,739  
                         
Earnings (Loss) Before Provision For (Benefit From) Income Taxes   (20,716 )     25,000       4,284       5,332       1,158       6,490  
                         
Provision For (Benefit From) Income Taxes   (4,884 )     5,820       936       896       294       1,190  
                         
Consolidated Net Earnings (Loss)   (15,832 )     19,180       3,348       4,436       864       5,300  
                         
Net Loss Attributable to Non-Controlling Interest   286       -       286       283       -       283  
                         
Net Earnings (Loss) Attributable to Shareholders $ (15,546 )   $ 19,180     $ 3,634     $ 4,719     $ 864     $ 5,583  
                         
Diluted Net Earnings (Loss) per Common Share ** $ (2.24 )   $ 2.77     $ 0.52     $ 0.67     $ 0.12     $ 0.79  
                         
                         
* Adjusted results are financial measures that are not in accordance with GAAP and exclude the above normalized adjustments. See below for a discussion of each of these adjustments.
** Adjustments and adjusted earnings per share are calculated based on diluted weighted average shares of 6,932 thousand shares for the nine months ended June 27, 2020 and 7,065 thousand shares for the nine months ended June 29, 2019.
                         
(1) Approximately $25.0 million of expenses associated with the impacts from the COVID-19 pandemic and primarily related to the curtailment of manufacturing operations ($11.7 million), incremental costs to right size production to new forecasted demand ($2.6 million), increased accounts receivable and inventory reserves related to the heightened risks in the market as the U.S. continues its recovery ($6.6 million), and other expenses ($4.1 million).
(2) Approximately $2.5 million of unfavorable litigation settlement due to the bankruptcy of a customer in the Delta Group segment in the first quarter fiscal year 2019, partially offset by approximately $1.3 million in other income as the result of a favorable litigation settlement in the Salt Life Group segment in the third quarter fiscal year 2019.
                         
                         
                         
                         
SELECTED FINANCIAL DATA: Delta Group segment   Salt Life Group segment
(In thousands, except per share amounts) For the Nine Months Ended June 27, 2020   For the Nine Months Ended June 27, 2020
    GAAP Measure       Non-GAAP Measure   GAAP Measure       Non-GAAP Measure
    Reported   COVID-related expenses (1)   Adjusted *   Reported   COVID-related expenses (1)   Adjusted *
                         
Net Sales $ 238,685     $ 500     $ 239,185     $ 25,666     $ -     $ 25,666  
                         
Gross Profit   31,948       14,500       46,448       11,517       -       11,517  
Gross Margins   13.4 %     6.1 %     19.4 %     44.9 %         44.9 %
                         
Operating (loss) Income   (5,133 )     25,000       19,867       175       -       175  
Operating Income Margins   (2.2 %)     10.5 %     8.3 %     0.7 %         0.7 %
                         
                         
    Delta Group segment   Salt Life Group segment
    For the Nine Months Ended June 29, 2019   For the Nine Months Ended June 29, 2019
    GAAP Measure       Non-GAAP Measure   GAAP Measure       Non-GAAP Measure
    Reported   Ligitation Settlements (2)   Adjusted *   Reported   Ligitation Settlements (2)   Adjusted *
                         
Net Sales $ 291,325     $ -     $ 291,325     $ 32,448     $ -     $ 32,448  
                         
Gross Profit   46,696       -       46,696       15,579       -       15,579  
Gross Margins   16.0 %         16.0 %     48.0 %         48.0 %
                         
Operating Income   15,392       2,464       17,856       5,609       (1,306 )     4,303  
Operating Income Margins   5.3 %     0.8 %     6.1 %     17.3 %     (4.0 %)     13.3 %
                         
                         
* Adjusted results are financial measures that are not in accordance with GAAP and exclude the above normalized adjustments. See below for a discussion of each of these adjustments.
                         
(1) Approximately $25.0 million of expenses associated with the impacts from the COVID-19 pandemic and primarily related to the curtailment of manufacturing operations ($11.7 million), incremental costs to right size production to new forecasted demand ($2.6 million), increased accounts receivable and inventory reserves related to the heightened risks in the market as the U.S. continues its recovery ($6.6 million), and other expenses ($4.1 million).
(2) Approximately $2.5 million of unfavorable litigation settlement due to the bankruptcy of a customer in the Delta Group segment in the first quarter fiscal year 2019, partially offset by approximately $1.3 million in other income as the result of a favorable litigation settlement in the Salt Life Group segment in the third quarter fiscal year 2019.

 

 

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Source: Delta Apparel, Inc.