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 $50.9 million; its shares were traded at around $5.99 with a P/E ratio of 7.5 and P/S ratio of 0.2. Highlight of Business Operations:Net sales for our third quarter of fiscal year 2009 were a record $85.7 million, an increase of $10.3 million from the third quarter of the prior year. The sales growth was driven by a 32% sales increase in the activewear segment with sales in our retail-ready segment reflecting a 7.6% decline compared to the prior year quarter. Earnings were $0.14 per diluted share compared to a net loss ($0.05) per share in the prior year third quarter, inclusive of ($0.07) per share of restructuring related expenses. We are pleased with the overall sales growth during the third quarter of this fiscal year given the current economic environment. We believe the strength of our brands, expanding license agreements, creative graphic talent, unique manufacturing and distribution capabilities, combined with our diverse channels of distribution, are allowing us to build market share in a difficult apparel marketplace. 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 have narrowed our expectation for net sales to be in the range of $350 to $360 million and earnings to be in the range of $0.70 to $0.80 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 third quarter of fiscal year 2009 increased 13.7% to $85.7 million compared to $75.4 million for the third quarter of the prior year. The activewear segment, which is comprised of the Delta and FunTees businesses, reported sales of $53.3 million for the three months ended March 28, 2009, an increase of 32.1% over the prior year third quarter sales of $40.3 million. Sales in the FunTees business increased 70.7% as it received more programs and a higher percentage of full-package products from its customers as a result of improved quality and performance over the last several quarters. Sales in our retail-ready segment, which is comprised of Soffe and Junkfood, were $32.4 million, a 7.6% decrease 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 for the third quarter of fiscal year 2009 was $2.3 million, an increase of $1.2 million over the third quarter of the prior year, which included $0.9 million of restructuring related expenses. The first nine months of fiscal year 2009 generated $6.2 million in operating income, an increase of $8.9 million over the same period for fiscal year 2008. The operating loss for the first nine months of fiscal year 2008 included restructuring related expenses of $4.9 million.
Capital expenditures in the third quarter of fiscal year 2009 were $0.7 million compared to $2.9 million in the third quarter of the prior year. Expenditures for the third quarter of fiscal year 2009 were primarily for continued improvements in our information technology in our retail-ready and activewear segments and capital expenditures intended to lower costs in our manufacturing facilities in our activewear segment. Total capital expenditures for the first nine months of fiscal year 2009 were $2.7 million compared to $12.7 million over the same period last year. Capital expenditures in the third quarter and first nine months of fiscal year 2008 primarily related to purchasing new equipment for our Honduran textile facility. Total capital expenditures are expected to be between $3 million and $4 million for fiscal year 2009.
Our credit facility includes the financial covenant that if the amount of availability falls below $10 million, our Fixed Charge Coverage Ratio (as defined in the Amended Loan Agreement) for the preceding 12 month period must not be less than 1.10 to 1.0 and otherwise includes customary conditions to funding, covenants, and events of default. During the quarter ended March 28, 2009, our Fixed Charge Coverage Ratio exceeded the 1.10 to 1.0 requirement allowing access to, if needed, the total amount of availability provided for under the Amended Loan Agreement. As of March 28, 2009, our Fixed Charge Coverage Ratio was 2.50 for the preceding 12 months and we expect to continue to meet the Fixed Charge Coverage Ratio for fiscal year 2009. At March 28, 2009, we had the ability to borrow an additional $9.9 million under the credit facility. In addition, we had $5.7 million of suppressed availability, where our borrowing ability on our assets exceeded our $100 million credit limit.
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