Delta Apparel Reports Fourth Quarter and Full Year Fiscal 2018 Results
Staff Report From Greenville CEO
Friday, November 16th, 2018
Delta Apparel, Inc., a leading provider of core activewear and lifestyle apparel and related accessories, announced financial results for its fourth quarter and full fiscal year 2018 ended September 29, 2018.
Robert W. Humphreys, Delta Apparel, Inc.’s Chairman and Chief Executive Officer, commented, “We are pleased to have delivered fourth quarter sales growth of 2% along with solid bottom line performance despite significant weather interruptions at two of our major distribution centers. Our DTG2Go digital print business and our Activewear business drove strong top and bottom-line performance in our re-aligned Delta Group segment. While our Salt Life business was impacted by the hurricanes this quarter, the Salt Life brand continues to grow its lifestyle presence and expand its market reach. We remain extremely optimistic about that business going forward.”
Mr. Humphreys continued, “Fiscal 2018 was an important year for Delta Apparel. We grew our sales year-over-year and, excluding the impacts of the recent tax reform legislation, significantly increased our profitability. We also made important strides in building our DTG2Go business with an acquisition in March and a follow-on acquisition in October, solidifying our industry-leading position in the digital print and fulfillment space. Finally, we continued to increase consumer awareness of our Salt Life brand through our expansion into additional product categories, and growth with national and regional retailers and in our own direct-to-consumer channels. We believe that the strategic actions we have taken over the past year position us well to capitalize on the many growth opportunities we see ahead for our Company.”
To better reflect Delta Apparel, Inc.’s current operating model, the Company has re-aligned its reporting segments and now refers to them as the Delta Group and the Salt Life Group. The Delta Group is comprised of the Company’s DTG2Go digital print business as well as its Delta Activewear business and Soffe brand. The Salt Life Group is comprised of the Salt Life and Coast lifestyle brands. The fourth quarter and full year results reflect these changes to the Company’s reporting segments.
For the fourth quarter ended September 29, 2018:
-- Net sales were $92.9 million, up 2% from $91.3 million in the prior year fourth quarter. The Delta Group drove the sales increase, with revenue up 4%, partially offset by lower sales in the Salt Life Group. -- Gross profit was $19.2 million, up 15% from $16.7 million in the prior year fourth quarter. Gross margin improved 240 basis points to 20.6% compared to 18.2% in the prior year period. -- Selling, general and administrative (“SG&A”) expenses increased $2.4 million to $17.3 million, or 18.6% of sales, compared to $14.9 million, or 16.3% of sales, in the prior year fourth quarter. The prior year fourth quarter included benefit from the earlier than anticipated exit from certain lease liabilities in California. -- Operating income was $3.5 million, up 50% from $2.3 million in the prior year fourth quarter. Delta Group operating income was $6.8 million, up 81% from $3.7 million in the prior year fourth quarter. Salt Life Group operating income was $0.5 million, down 38% from $0.7 million in the prior year fourth quarter. -- Net income was $3.1 million, an increase of $1.0 million from $2.1 million in the prior year fourth quarter. -- Diluted earnings per share increased 59% to $0.43 from $0.27 in the prior year fourth quarter.
For the full year ended September 29, 2018:
-- Net sales were $395.5 million, up 3% from $385.1 million in fiscal year 2017. Excluding $15.6 million of sales in the prior fiscal year from the Junkfood Clothing business, which was sold in March 2017, net sales increased 7% compared to the prior year. Delta Group net sales were $356.0 million, up 9% from $326.6 million in fiscal year 2017. Salt Life Group net sales were $39.4 million compared to $58.5 million in the prior year, with the decline due to the since-divested Junkfood business and other strategic shifts in non-core business. Sales in our Salt Life brand were up 2.4% for the year, driven from the recent wins with national retailers and our direct-to-consumer business, partially offset by softness with independent retailers, which were hurt by the hurricanes a year ago and again this year. -- Gross profit was $82.0 million, up 2% from $80.7 million in fiscal year 2017. Gross margins improved in both the Delta Group and Salt Life Group, but declined 30 basis points overall from the stronger mix of Delta Group sales. -- SG&A expenses improved to 16.9% of sales, or $67.0 million, compared to 17.5% of sales, or $67.4 million in fiscal year 2017. -- Operating income was $17.5 million, up 8% from $16.2 million in fiscal year 2017. Delta Group operating income was $26.1 million, up 12% from $23.3 million in fiscal year 2017 and Salt Life Group operating income was comparable with the prior year at $4.8 million. -- Net income was $1.3 million in fiscal year 2018 but, adjusted for the $10.7 million tax expense associated with the recent tax reform legislation, was $12.0 million, compared to $10.5 million in fiscal year 2017, which included the gain on the sale of the Junkfood business realized in the second quarter of fiscal year 2017. -- Diluted earnings per share were $0.18 compared to $1.33 in fiscal year 2017. Adjusting for the $1.44 per share impact of tax reform in fiscal 2018 and for the $0.11 benefit on the sale of Junkfood in the prior year, adjusted earnings per diluted share were $1.62, a 33% improvement from the $1.22 adjusted earnings per diluted share in fiscal year 2017.
The Company improved its operating cash flow by nearly $7 million to $20.9 million in fiscal year 2018. Total inventory at the end of fiscal year 2018 remained relatively flat with a year ago at $175 million, with lower units on hand partially being offset by higher cost per unit inventory resulting from inflationary increases. During fiscal year 2018, the Company spent $13.3 million on capital expenditures, $16.4 million on the digital print acquisition, and $9.0 million on share repurchases. Total debt, including capital lease financing, at the end of fiscal year 2018 was $111.8 million compared to $96.2 million at the end of the prior year.