Delta Apparel Inc Reports Operating Results (10-Q)
DELTA APPAREL is a vertical manufacturer of knitwear products for the entire family. Our company purchases cotton direct from the field and through a stringently controlled process produces finished apparel for the domestic and international market place. The products we manufacture are sold under our brands of Delta Pro-Weight Delta Magnum Weight Healthknit and Quail Hollow Sportswear. In addition Delta Apparel Inc. also produces finished products for America's leading retailers corporate industry programs and sports licensed apparel marketers. Delta Apparel Inc has a market cap of $26.36 million; its shares were traded at around $4.25 with a P/E ratio of 17.3 and P/S ratio of 0.08. Highlight of Business Operations:Net sales for our second quarter of fiscal year 2009 were a record $73.4 million, an increase of $4.6 million from the second quarter of the prior year. The sales growth was driven by a 17% sales increase in the retail-ready segment with sales in our activewear segment consistent with the prior year quarter. Earnings were $0.07 per diluted share, inclusive of a $0.04 per share tax benefit from the reversal of a tax valuation allowance. This compares to a net loss of ($0.33) per share in the prior year second quarter, inclusive of ($0.15) per share of restructuring related expenses. We are pleased to have achieved sales growth and a profit in our historically weakest quarter. We believe the strength of our brands combined with our diverse channels of distribution gives us a platform for growth in the apparel marketplace. While we remain concerned about consumer demand for apparel and the health of many apparel retailers, we believe we have the opportunity to earn additional business from strong retailers and activewear brands. We continue to look at new business strategies in each of our operations to fuel organic growth in the future.
For the fiscal year ending June 27, 2009, we continue to expect for net sales to be in the range of $340 to $360 million and earnings to be in the range of $0.70 to $0.90 per diluted share. This compares to our fiscal year 2008 sales of $322 million and a loss of ($0.06) per diluted share, inclusive of ($0.39) of costs associated with the textile restructuring plan.
Net sales for the second quarter of fiscal year 2009 increased 6.7% to $73.4 million compared to $68.8 million for the second quarter of the prior year. Sales in our retail-ready segment, which is comprised of Soffe and Junkfood, were $32.4 million, a 17.0% increase from the prior year second quarter. The sales increase was driven primarily by a 43.5% increase in the Junkfood business, the seventh consecutive quarter of double-digit sales growth. Junkfood is driving growth through its new licenses and continued success with its co-branded products with GapKids and babyGap. In addition, Junkfood has continued its international growth primarily in the United Kingdom and Japan. Sales in the Soffe business for the second quarter of fiscal year 2009 increased 4.7% in comparison to the same period of the previous year. This increase was driven by growth in its military business, partially offset by sales declines with the smaller sporting goods stores. The activewear segment, which is comprised of the Delta and FunTees businesses, reported sales of $41.0 million for the three months ended December 27, 2008, consistent with the prior year second quarter sales of $41.1 million. Sales in the FunTees business increased 2.8%, driven by increased orders and a higher percentage of decorated programs. As the quarter began, sales of the Delta basic tees were ahead of the prior year, but slowed considerably in December, driving the second quarter sales down 2.1% from the prior year quarter.
Operating income for the second quarter of fiscal year 2009 was $1.5 million, an increase of $4.1 million from an operating loss of $2.6 million in the second quarter of the prior year, which included $2.0 million of restructuring related expenses. The first six months of fiscal year 2009 generated $3.9 million in operating income, an increase of $7.7 million over the same period for fiscal year 2008. The operating loss for the first six months of fiscal 2008 included restructuring related expenses of $4.0 million.
Net interest expense for the second quarter of fiscal year 2009 was $1.2 million, a reduction of $0.4 million in comparison to the second quarter of fiscal year 2008. Through the first six months of fiscal 2009, we incurred $2.6 million in net interest expense, a $0.4 million reduction from the first six months of fiscal year 2008. Although our average debt level for the second quarter and first six months of fiscal year 2009 was higher than for the same periods last year, reduced interest rates on our variable rate debt resulted in lower interest expense.
Capital expenditures in the second quarter of fiscal year 2009 were $1.0 million compared to $5.1 million in the second quarter of the prior year. Expenditures for the second quarter of fiscal year 2009 were primarily for continued improvements in our information technology in our retail-ready segment and capital expenditures intended to lower costs in our manufacturing facilities in our activewear segment. Total capital expenditures for the first six months of fiscal year 2009 were $2.0 million compared to $9.8 million over the same period last year. Capital expenditures in the second quarter and first six months of fiscal year 2008 primarily related to purchasing new equipment for our Honduran textile facility. Total capital expenditures are expected to range between $3 million and $4 million for fiscal year 2009.
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