Washington, D.C. 20549
FORM
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from________to ________
Commission File Number
DELTA APPAREL, INC.
Georgia | 58-2508794 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) | |
2750 Premier Parkway, Suite 100 | ||
Duluth, Georgia | 30097 | |
(Address of principal executive offices) | (Zip Code) |
(678) 775-6900
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, par value $0.01 | DLA | NYSE American |
Indicate by check mark whether the
registrant (1) hasIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
Indicate by check mark whether
the registrant is a largeaccelerated filer, an accelerated filer, a non-acceleratedfiler, a smaller reporting company, or an emerginggrowthLarge accelerated filer ☐ | Accelerated filer ☑ | Non-accelerated filer ☐ | Smaller reporting company ☑ | Emerging growth company ☐ |
If an emerging
growth company,indicate by checkmark if theregistrant has electednot to usethe extended transitionperiod for complyingwith any newor revisedIndicate by check mark whether the registrant is a shell company
As of January 27,August 4, 2023,
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share amounts and per share data)
(Unaudited)
June 2023 | September 2022 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 296 | $ | 300 | ||||
Accounts receivable, less allowances of $98 and $109, respectively | 41,733 | 68,215 | ||||||
Other receivables | 889 | 1,402 | ||||||
Income tax receivable | 1,898 | 1,969 | ||||||
Inventories, net | 226,196 | 248,538 | ||||||
Prepaid expenses and other current assets | 4,221 | 2,755 | ||||||
Total current assets | 275,233 | 323,179 | ||||||
Property, plant and equipment, net of accumulated depreciation of $115,383 and $108,534, respectively | 69,040 | 74,109 | ||||||
Goodwill | 37,897 | 37,897 | ||||||
Intangibles, net | 22,264 | 24,026 | ||||||
Deferred income taxes | 3,105 | 1,342 | ||||||
Operating lease assets | 54,054 | 50,275 | ||||||
Equity method investment | 9,356 | 9,886 | ||||||
Other assets | 2,020 | 2,967 | ||||||
Total assets | $ | 472,969 | $ | 523,681 | ||||
Liabilities and Equity | ||||||||
Liabilities: | ||||||||
Accounts payable | $ | 63,897 | $ | 83,553 | ||||
Accrued expenses | 17,424 | 27,414 | ||||||
Income taxes payable | 695 | 379 | ||||||
Current portion of finance leases | 8,942 | 8,163 | ||||||
Current portion of operating leases | 8,980 | 8,876 | ||||||
Current portion of long-term debt | 10,180 | 9,176 | ||||||
Total current liabilities | 110,118 | 137,561 | ||||||
Long-term income taxes payable | 2,131 | 2,841 | ||||||
Long-term finance leases | 15,871 | 16,776 | ||||||
Long-term operating leases | 46,664 | 42,721 | ||||||
Long-term debt | 131,461 | 136,750 | ||||||
Deferred income taxes | - | 4,310 | ||||||
Total liabilities | $ | 306,245 | $ | 340,959 | ||||
Shareholder's equity: | ||||||||
Preferred stock - $0.01 par value, 2,000,000 shares authorized, none issued and outstanding | - | - | ||||||
Common stock - $0.01 par value, 15,000,000 authorized, 9,646,972 shares issued, and 7,001,020 and 6,915,663 shares outstanding as of June 2023 and September 2022, respectively | 96 | 96 | ||||||
Additional paid-in capital | 61,448 | 61,961 | ||||||
Retained earnings | 149,756 | 166,600 | ||||||
Accumulated other comprehensive income | 21 | 141 | ||||||
Treasury stock - 2,645,952 and 2,731,309 shares as of June 2023 and September 2022, respectively | (43,896 | ) | (45,420 | ) | ||||
Equity attributable to Delta Apparel, Inc. | 167,425 | 183,378 | ||||||
Equity attributable to non-controlling interest | (701 | ) | (656 | ) | ||||
Total equity | 166,724 | 182,722 | ||||||
Total liabilities and equity | $ | 472,969 | $ | 523,681 |
See accompanying Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
June 2023 | June 2022 | June 2023 | June 2022 | |||||||||||||
Net sales | $ | 106,319 | $ | 126,875 | $ | 323,949 | $ | 369,319 | ||||||||
Cost of goods sold | 92,384 | 96,182 | 280,181 | 282,100 | ||||||||||||
Gross profit | 13,935 | 30,693 | 43,768 | 87,219 | ||||||||||||
Selling, general and administrative expenses | 18,491 | 22,416 | 56,658 | 59,613 | ||||||||||||
Other (income), net | (95 | ) | (1,018 | ) | (452 | ) | (1,947 | ) | ||||||||
Operating (loss) income | (4,461 | ) | 9,295 | (12,438 | ) | 29,553 | ||||||||||
Interest expense, net | 4,049 | 1,971 | 10,662 | 5,370 | ||||||||||||
(Loss) earnings before (benefit from) provision for income taxes | (8,510 | ) | 7,324 | (23,100 | ) | 24,183 | ||||||||||
(Benefit from) provision for income taxes | (2,218 | ) | 1,087 | (6,214 | ) | 4,149 | ||||||||||
Consolidated net (loss) earnings | (6,292 | ) | 6,237 | (16,886 | ) | 20,034 | ||||||||||
Net (loss) income attributable to non-controlling interest | (5 | ) | (3 | ) | (45 | ) | 11 | |||||||||
Net (loss) earnings attributable to shareholders | $ | (6,287 | ) | $ | 6,240 | $ | (16,841 | ) | $ | 20,023 | ||||||
Basic (loss) earnings per share | $ | (0.90 | ) | $ | 0.90 | $ | (2.41 | ) | $ | 2.87 | ||||||
Diluted (loss) earnings per share | $ | (0.90 | ) | $ | 0.88 | $ | (2.41 | ) | $ | 2.84 | ||||||
Weighted average number of shares outstanding | 7,001 | 6,946 | 6,985 | 6,966 | ||||||||||||
Dilutive effect of stock awards | - | 119 | - | 95 | ||||||||||||
Weighted average number of shares assuming dilution | 7,001 | 7,065 | 6,985 | 7,061 |
See accompanying Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Amounts in thousands)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
June 2023 | June 2022 | June 2023 | June 2022 | |||||||||||||
Net (loss) earnings attributable to shareholders | $ | (6,287 | ) | $ | 6,240 | $ | (16,841 | ) | $ | 20,023 | ||||||
Other comprehensive (loss) income related to unrealized (loss) gain on derivatives, net of income tax | (159 | ) | 186 | (121 | ) | 779 | ||||||||||
Consolidated comprehensive (loss) income | $ | (6,446 | ) | $ | 6,426 | $ | (16,962 | ) | $ | 20,802 |
See accompanying Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Shareholders’ Equity
(Amounts in thousands, except share amounts)
(Unaudited)
Accumulated | ||||||||||||||||||||||||||||||||||||
Additional | Other | Non- | ||||||||||||||||||||||||||||||||||
Common Stock | Paid-In | Retained | Comprehensive | Treasury Stock | Controlling | |||||||||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income (Loss) | Shares | Amount | Interest | Total | ||||||||||||||||||||||||||||
Balance as of September 2022 | 9,646,972 | $ | 96 | $ | 61,961 | $ | 166,600 | $ | 141 | 2,731,309 | $ | (45,420 | ) | $ | (656 | ) | $ | 182,722 | ||||||||||||||||||
Net loss | - | - | - | (3,565 | ) | - | - | - | - | (3,565 | ) | |||||||||||||||||||||||||
Other comprehensive income | - | - | - | - | 69 | - | - | - | 69 | |||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | (34 | ) | (34 | ) | |||||||||||||||||||||||||
Vested stock awards | - | - | (2,067 | ) | - | - | (85,357 | ) | 1,524 | - | (543 | ) | ||||||||||||||||||||||||
Stock based compensation | - | - | 665 | - | - | - | - | - | 665 | |||||||||||||||||||||||||||
Balance as of December 2022 | 9,646,972 | $ | 96 | $ | 60,559 | $ | 163,035 | $ | 210 | 2,645,952 | $ | (43,896 | ) | $ | (690 | ) | $ | 179,314 | ||||||||||||||||||
Net loss | - | - | - | (6,992 | ) | - | - | - | - | (6,992 | ) | |||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | (30 | ) | - | - | - | (30 | ) | |||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | (6 | ) | (6 | ) | |||||||||||||||||||||||||
Stock based compensation | - | - | 353 | - | - | - | - | - | 353 | |||||||||||||||||||||||||||
Balance as of March 2023 | 9,646,972 | $ | 96 | $ | 60,912 | $ | 156,043 | $ | 180 | 2,645,952 | $ | (43,896 | ) | $ | (696 | ) | $ | 172,639 | ||||||||||||||||||
Net loss | - | - | - | (6,287 | ) | - | - | - | - | (6,287 | ) | |||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | (159 | ) | - | - | - | (159 | ) | |||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | (5 | ) | (5 | ) | |||||||||||||||||||||||||
Stock based compensation | - | - | 536 | - | - | - | - | - | 536 | |||||||||||||||||||||||||||
Balance as of June 2023 | 9,646,972 | $ | 96 | $ | 61,448 | $ | 149,756 | $ | 21 | 2,645,952 | $ | (43,896 | ) | $ | (701 | ) | $ | 166,724 |
Accumulated | ||||||||||||||||||||||||||||||||||||
Additional | Other | Non- | ||||||||||||||||||||||||||||||||||
Common Stock | Paid-In | Retained | Comprehensive | Treasury Stock | Controlling | |||||||||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income (Loss) | Shares | Amount | Interest | Total | ||||||||||||||||||||||||||||
Balance as of September 2021 | 9,646,972 | $ | 96 | $ | 60,831 | $ | 146,860 | $ | (786 | ) | 2,672,312 | $ | (42,149 | ) | $ | (658 | ) | $ | 164,194 | |||||||||||||||||
Net income | - | - | - | 3,645 | - | - | - | - | 3,645 | |||||||||||||||||||||||||||
Other comprehensive income | - | - | - | - | 212 | - | - | - | 212 | |||||||||||||||||||||||||||
Net income attributable to non-controlling interest | - | - | - | - | - | - | - | 25 | 25 | |||||||||||||||||||||||||||
Purchase of common stock | - | - | - | - | - | 74,232 | (2,143 | ) | - | (2,143 | ) | |||||||||||||||||||||||||
Vested stock awards | - | - | (1,766 | ) | - | - | (76,460 | ) | 674 | - | (1,092 | ) | ||||||||||||||||||||||||
Stock based compensation | - | - | 140 | - | - | - | - | - | 140 | |||||||||||||||||||||||||||
Balance as of December 2021 | 9,646,972 | $ | 96 | $ | 59,205 | $ | 150,505 | $ | (574 | ) | 2,670,084 | $ | (43,618 | ) | $ | (633 | ) | $ | 164,981 | |||||||||||||||||
Net income | - | - | - | 10,137 | - | - | - | - | 10,137 | |||||||||||||||||||||||||||
Other comprehensive income | - | - | - | - | 381 | - | - | - | 381 | |||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | (11 | ) | (11 | ) | |||||||||||||||||||||||||
Vested stock awards | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Purchase of common stock | - | - | - | - | - | 28,015 | (846 | ) | - | (846 | ) | |||||||||||||||||||||||||
Stock based compensation | - | - | 714 | - | - | - | - | - | 714 | |||||||||||||||||||||||||||
Balance as of March 2022 | 9,646,972 | $ | 96 | $ | 59,919 | $ | 160,642 | $ | (193 | ) | 2,698,099 | $ | (44,464 | ) | $ | (644 | ) | $ | 175,356 | |||||||||||||||||
Net income | - | - | - | 6,240 | - | - | - | - | 6,240 | |||||||||||||||||||||||||||
Other comprehensive income | - | - | - | - | 186 | - | - | - | 186 | |||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | (3 | ) | (3 | ) | |||||||||||||||||||||||||
Purchase of common stock | - | - | - | - | - | 33,934 | (968 | ) | - | (968 | ) | |||||||||||||||||||||||||
Stock based compensation | - | - | 903 | - | - | - | - | - | 903 | |||||||||||||||||||||||||||
Balance as of June 2022 | 9,646,972 | $ | 96 | $ | 60,822 | $ | 166,882 | $ | (7 | ) | 2,732,033 | $ | (45,432 | ) | $ | (647 | ) | $ | 181,714 |
See accompanying Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Nine Months Ended | ||||||||
June 2023 | June 2022 | |||||||
Operating activities: | ||||||||
Consolidated net (loss) earnings | $ | (16,886 | ) | $ | 20,034 | |||
Adjustments to reconcile net (loss) earnings to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 11,397 | 11,272 | ||||||
Amortization of deferred financing fees | 519 | 244 | ||||||
Provision for inventory market reserves | (3,707 | ) | 1,484 | |||||
Change in reserves for allowances on accounts receivable | (11 | ) | (160 | ) | ||||
(Benefit from) provision for deferred income taxes | (6,033 | ) | 488 | |||||
Non-cash stock compensation | 1,554 | 1,756 | ||||||
Loss on disposal of equipment | 135 | 348 | ||||||
Loss on impairment | 831 | - | ||||||
Other, net | (710 | ) | (2,263 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 27,006 | (1,251 | ) | |||||
Inventories | 26,049 | (67,452 | ) | |||||
Prepaid expenses and other current assets | (1,985 | ) | 602 | |||||
Other non-current assets | 2,023 | 199 | ||||||
Accounts payable | (19,524 | ) | 23,390 | |||||
Accrued expenses | (9,816 | ) | (1,737 | ) | ||||
Net operating lease liabilities | 268 | 409 | ||||||
Income taxes | (323 | ) | 264 | |||||
Other liabilities | - | (1,049 | ) | |||||
Net cash provided by (used in) operating activities | 10,787 | (13,422 | ) | |||||
Investing activities: | ||||||||
Purchases of property and equipment | (3,551 | ) | (10,931 | ) | ||||
Proceeds from sale/leaseback | 4,417 | - | ||||||
Proceeds from sale of equipment | 19 | 33 | ||||||
Cash paid for intangible asset | - | (132 | ) | |||||
Cash paid for business | - | (583 | ) | |||||
Net cash used in investing activities | 885 | (11,613 | ) | |||||
Financing activities: | ||||||||
Proceeds from long-term debt | 363,438 | 411,600 | ||||||
Repayment of long-term debt | (367,723 | ) | (383,919 | ) | ||||
Repayment of finance lease obligations | (6,849 | ) | (5,604 | ) | ||||
Payment of deferred financing cost | - | (850 | ) | |||||
Repurchase of common stock | - | (3,934 | ) | |||||
Payment of withholding taxes on stock awards | (542 | ) | (1,092 | ) | ||||
Net cash (used in) provided by financing activities | (11,676 | ) | 16,201 | |||||
Net decrease in cash and cash equivalents | (4 | ) | (8,834 | ) | ||||
Cash and cash equivalents at beginning of period | 300 | 9,376 | ||||||
Cash and cash equivalents at end of period | $ | 296 | $ | 542 | ||||
Supplemental cash flow information | ||||||||
Finance lease assets exchanged for finance lease liabilities | $ | 6,708 | $ | 10,381 | ||||
Operating lease assets exchanged for operating lease liabilities | $ | 11,039 | $ | 6,869 |
See accompanying Notes to Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Delta Apparel, Inc. (collectively with DTG2Go, LLC, Salt Life, LLC, M.J. Soffe, LLC, and other subsidiaries, "Delta Apparel," "we," "us," "our," or the "Company") is
We design and internally manufacture the majority
of our products, with morethan 90% of the apparelunits that we sell sewnin our own facilities.This allows us toofferWe operate on a
For presentation purposes herein, all references to period
ended relate to the following fiscal years and dates:Period Ended | Fiscal Year | Date Ended |
June 2022 | Fiscal 2022 | July 2, 2022 |
September 2022 | Fiscal 2022 | October 1, 2022 |
December 2022 | Fiscal 2023 | December 31, 2022 |
March 2023 | Fiscal 2023 | April 1, 2023 |
June 2023 | Fiscal 2023 | July 1, 2023 |
We prepared the accompanying interim Condensed Consolidated
Financial Statements in accordancewith the instructions for FormOur Condensed Consolidated Financial Statements include the accounts of Delta
Apparel and its wholly-owned and majority-owned domestic and foreign subsidiaries.We make
available copies of materials we filewith, or furnish to, the SEC freeof charge at https://ir.deltaapparelinc.com.The information found on our website isnotStandards Not Yet Adopted
In June 2016, the FASB
issued ASU No.Our Condensed Consolidated Statements of Operations
include revenue streams from retail salesat our branded retail stores; direct-to-consumerecommerce sales on ourThree Months Ended | ||||||||||||||||
June 2023 | June 2022 | |||||||||||||||
Retail | $ | 4,830 | 5 | % | $ | 4,412 | 3 | % | ||||||||
Direct-to-consumer ecommerce | 1,870 | 2 | % | 1,145 | 1 | % | ||||||||||
Wholesale | 99,619 | 93 | % | 121,318 | 96 | % | ||||||||||
Net sales | $ | 106,319 | 100 | % | $ | 126,875 | 100 | % |
Nine Months Ended | ||||||||||||||||
June 2023 | June 2022 | |||||||||||||||
Retail | $ | 11,441 | 4 | % | $ | 9,685 | 3 | % | ||||||||
Direct-to-consumer ecommerce | 4,542 | 1 | % | 3,199 | 1 | % | ||||||||||
Wholesale | 307,966 | 95 | % | 356,435 | 96 | % | ||||||||||
Net sales | $ | 323,949 | 100 | % | $ | 369,319 | 100 | % |
The table below provides net sales by reportable segment and
the percentage of net sales by distribution channel foreach reportable segment (in thousands):Three Months Ended June 2023 | ||||||||||||||||
Net Sales | Retail | Direct-to-consumer ecommerce | Wholesale | |||||||||||||
Delta Group | $ | 89,118 | 0.0 | % | 0.4 | % | 99.6 | % | ||||||||
Salt Life Group | 17,201 | 28.0 | % | 8.9 | % | 63.1 | % | |||||||||
Total | $ | 106,319 |
Three Months Ended June 2022 | ||||||||||||||||
Net Sales | Retail | Direct-to-consumer ecommerce | Wholesale | |||||||||||||
Delta Group | $ | 106,020 | 0.1 | % | 0.4 | % | 99.5 | % | ||||||||
Salt Life Group | 20,855 | 20.8 | % | 3.4 | % | 75.8 | % | |||||||||
Total | $ | 126,875 |
Nine Months Ended June 2023 | ||||||||||||||||
Net Sales | Retail | Direct-to-consumer ecommerce | Wholesale | |||||||||||||
Delta Group | $ | 277,471 | 0.1 | % | 0.3 | % | 99.6 | % | ||||||||
Salt Life Group | 46,478 | 24.4 | % | 8.2 | % | 67.4 | % | |||||||||
Total | $ | 323,949 |
Nine Months Ended June 2022 | ||||||||||||||||
Net Sales | Retail | Direct-to-consumer ecommerce | Wholesale | |||||||||||||
Delta Group | $ | 323,276 | 0.1 | % | 0.3 | % | 99.6 | % | ||||||||
Salt Life Group | 46,043 | 20.3 | % | 5.0 | % | 74.7 | % | |||||||||
Total | $ | 369,319 |
June 2023 | September 2022 | |||||||
Raw materials | $ | 20,500 | $ | 22,603 | ||||
Work in process | 18,684 | 23,501 | ||||||
Finished goods | 187,012 | 202,434 | ||||||
$ | 226,196 | $ | 248,538 |
Raw materials include finished
yarn and direct materials forthe Delta Group, undecoratedgarments for the DTG2Gobusiness, and direct embellishmentmaterials for theCredit Facility
On May 10,2016,we entered into
a Fifth Amendedand Restated Credit AgreementOn June 2,2022, the Borrowers entered into athe Seventh Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo Bankand the other lenders set forth therein (the “Agent”“Seventh Amendment”). The Seventh Amendment, (i) removes LIBOR based borrowing and the
On January 3, 2023, the Borrowers entered into the Eighth Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo and the other lenders set forth therein (the “Eighth Amendment”).
On February 3, 2023, the Borrowers entered into the Ninth Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo and the other lenders set forth therein (“Ninth Amendment”). The Ninth Amendment adds an Accommodation Period beginning on the amendment date and continuing through the date following September 30, 2023, upon which Borrowers satisfy minimum availability thresholds and during which: (i) the minimum borrowing availability thresholds applicable to the Amended Credit Agreement are (a) through (and including) April 1, 2023, $7,500,000, (b) on and after April 2, 2023 through (and including) June 4, 2023, $9,000,000, (c) on and after June 5, 2023, through the date following September 30, 2023, upon which Borrowers satisfy minimum availability thresholds, $10,000,000; and (d) at all times thereafter, $0; (ii) the FCCR covenant is suspended; (iii) Borrowers must maintain specified minimum EBITDA levels for trailing three-month periods starting March 4, 2023; (iv) the Applicable Margin with respect to loans under the Amended Credit Agreement is increased by 50 basis points; and (v) a Cash Dominion Trigger Event occurs if availability is less than $2,000,000.
On March 23, 2023, the Borrowers entered into the Tenth Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo and the other lenders set forth therein to account for specified costs and expenses in calculating EBITDA for purposes of the Amended Credit Agreement.
The Amended Credit Agreement allows us to borrow
up toAs of December 2022, June 2023, we had
Honduran Debt
Since March 2011, we have
entered into term loans and arevolving credit facility with Banco Ficohsa, aHonduran bank, to finance investments in boththe operationsEl Salvador Debt
In September 2022, we entered into
a new term loan withaAdditional information about these loans and the outstanding balances
as ofJune 2023 | ||||
Revolving credit facility with Banco Ficohsa, a Honduran bank, with interest at 7.9%, due August 2025 | $ | 3,909 | ||
Term loan with Banco Ficohsa, a Honduran bank, interest at 7.75%, quarterly installments which began September 2021 and are due through December 2025. | 5,072 | |||
Term loan with Banco Ficohsa, a Honduran bank, interest at 7.75%, quarterly installments which began March 2023 and are due through May 2027. | 3,308 | |||
Term loan with Banco Ficohsa, a Panamanian bank, interest at the prevailing market rate within the Panamanian Banking Market, monthly installments which began October 2022 and are due through August 2027. | 2,627 |
We include in selling, general and administrative ("SG&A") expenses the costs incurred subsequent to the receipt of finished goods at our distribution facilities, such as
On February 6,2020, our shareholders approved the Delta Apparel, Inc. 2020 Stock Plan ("("2020Stock Plan") to replace the 2010 Stock Plan,
Compensation expense is
recorded within SG&Ain ourCondensed Consolidated Statementsof Operationsover thevesting periods.During theDuring the December 2022 andDecember 2021.
During the
December 2022 quarter,performance stock unitsand restricted stockunits representing 5,000and 18,000shares of ourcommon stock, respectively,wereAs of December
Yarn | $ | 19,123 | ||
Finished fabric | 1,952 | |||
Finished products | 7,542 | |||
$ | 28,617 |
Our operations are managed and reported in
The Delta Group is comprised of the following business
units, which are primarily focused on core activewear styles:DTG2Go and Delta Activewear.DTG2Go is a
market leader in theon-demand, direct-to-garment digital printand fulfillment industry,bringing technology and innovationto the supplychains of ourDelta Activewear is a preferred supplier of
activewear apparel to regional and globalbrands as well asThe iconic Soffe brand offers activewear for spirit
makers and record breakers andis widely known for the original "cheershort" with the signature roll-down waistband.Our Global
Brands channelserves as akey supply chainpartner tolarge multi-nationalbrands, major brandedsportswear companies, trendyregional brands, andallOur Retail Direct
channel serves brickand mortar andonline retailers byproviding our portfolioof Delta, DeltaPlatinum, andSoffe products directlyto the retaillocationsThe Salt Life Group is
comprised of our Salt Life business, whichis built on the authentic, aspirational Salt Lifelifestyle brand that represents a passion forthe ocean,Our Chief Operating Decision Makerchief operating decision maker and management evaluate performance
Three Months Ended | Nine Months Ended | |||||||||||||||
June 2023 | June 2022 | June 2023 | June 2022 | |||||||||||||
Segment net sales: | ||||||||||||||||
Delta Group | $ | 89,118 | $ | 106,020 | $ | 277,471 | $ | 323,276 | ||||||||
Salt Life Group | 17,201 | 20,855 | 46,478 | 46,043 | ||||||||||||
Total net sales | $ | 106,319 | $ | 126,875 | $ | 323,949 | $ | 369,319 | ||||||||
Segment operating earnings: | ||||||||||||||||
Delta Group | $ | (3,616 | ) | $ | 10,701 | $ | (10,974 | ) | $ | 33,557 | ||||||
Salt Life Group | 1,642 | 3,574 | 6,509 | 7,037 | ||||||||||||
Total segment operating (loss) earnings | $ | (1,974 | ) | $ | 14,275 | $ | (4,465 | ) | $ | 40,594 |
The following table reconciles the segment operating (loss) earnings
to the consolidatedThree Months Ended | Nine Months Ended | |||||||||||||||
June 2023 | June 2022 | June 2023 | June 2022 | |||||||||||||
Segment operating (loss) earnings | $ | (1,974 | ) | $ | 14,275 | $ | (4,465 | ) | $ | 40,594 | ||||||
Unallocated corporate expenses | 2,487 | 4,980 | 7,973 | 11,041 | ||||||||||||
Unallocated interest expense | 4,049 | 1,971 | 10,662 | 5,370 | ||||||||||||
Consolidated (loss) earnings before (benefit from) provision for income taxes | $ | (8,510 | ) | $ | 7,324 | $ | (23,100 | ) | $ | 24,183 |
The Tax
Cuts and JobsAct of 2017Our effective income tax rate on operations for the three-months
From time to time, we may use interest rate swaps or other instruments to manage our interest rate exposure and reduce the impact of future interest rate changes. These
Notional | ||||||||
Effective Date | Amount | Fixed LIBOR Rate | Maturity Date | |||||
Interest Rate Swap | July 25, 2018 | $20.0 million | 3.18% | July 25, 2023 |
The following table summarizes the fair value and presentation in the Condensed Consolidated
Balance Sheets for derivatives related to our interest swap agreements asJune 2023 | September 2022 | |||||||
Deferred tax assets | $ | (7 | ) | $ | (48 | ) | ||
Other assets | 28 |
| 189 |
| ||||
Accumulated other comprehensive gain | $ | 21 |
| $ | 141 |
|
From time to time, we may purchase
cotton option contracts to economicallyhedge the risk related to market fluctuationsin the cost of cotton used inour operations. WeASC 820,Fair ValueMeasurements and Disclosures (“ASC
820”), defines fair value,establishes a framework for measuringfair value and expandsdisclosures about○ | Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. | |
○ | Level 2 – Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are less active. | |
○ | Level 3 – Unobservable inputs that are supported by little or no market activity for assets or liabilities and includes certain pricing models, discounted cash flow methodologies and similar techniques. |
The following financial liabilities are measured at fair
value on a recurring basis (in thousands):Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Period Ended | Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Interest Rate Swaps | ||||||||||||||||
June 2023 | $ | 21 | — | $ | 21 | — | ||||||||||
September 2022 | $ | 141 | — | $ | 141 | — | ||||||||||
The fair value
of the interest rateswap agreements wasderived from a discountedcash flow analysisbased on theterms of the contractand the forwardinterest rate curvesAt times,
we areparty to variouslegal claims,actions andcomplaints. We believethat, asa resultof legaldefenses, insurancearrangements, andindemnification provisionsAs of September 28,2019,our Board of
Directors authorized management touse up toJune 2023 | September 2022 | |||||||||||||||||||||||||
Cost | Accumulated Amortization | Net Value | Cost | Accumulated Amortization | Net Value | Economic Life | ||||||||||||||||||||
Goodwill | $ | 37,897 | $ | — | $ | 37,897 | $ | 37,897 | $ | — | $ | 37,897 | N/A | |||||||||||||
Intangibles: | ||||||||||||||||||||||||||
Tradename/trademarks | $ | 16,000 | $ | (5,251 | ) | $ | 10,749 | $ | 16,000 | $ | (4,851 | ) | $ | 11,149 | 20 – 30 yrs | |||||||||||
Customer relationships | 7,400 | (3,768 | ) | 3,632 | 7,400 | (3,213 | ) | 4,187 | 20 yrs | |||||||||||||||||
Technology | 10,083 | (3,284 | ) | 6,799 | 10,083 | (2,610 | ) | 7473 | 10 yrs | |||||||||||||||||
License agreements | 2,100 | (1,017 | ) | 1,083 | 2,100 | (940 | ) | 1,160 | 15 – 30 yrs | |||||||||||||||||
Non-compete agreements | 1,657 | (1,656 | ) | 1 | 1,657 | (1,600 | ) | 57 | 4 – 8.5 yrs | |||||||||||||||||
Total intangibles | $ | 37,240 | $ | (14,976 | ) | $ | 22,264 | $ | 37,240 | $ | (13,214 | ) | $ | 24,026 |
Goodwill represents the acquired goodwill net of
theDepending on the type
of intangible asset, amortization isrecorded under cost of goodssold or selling, general andadministrative expenses. Amortization expense forNone.
Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-lookingstatements made by or on behalfof the Company. We may from time toForward-looking statements
are neitherhistorical factsnor assurancesof futureperformance. Instead,they arebased onour currentexpectations andare necessarily● | the general U.S. and international economic conditions; | |
● | the impact of the COVID-19 pandemic and government/social actions taken to contain its spread on our operations, financial condition, liquidity, and capital investments, including recent labor shortages, inventory constraints, and supply chain disruptions; |
● | significant interruptions or disruptions within our manufacturing, distribution or other operations; |
● | deterioration in the financial condition of our customers and suppliers and changes in the operations and strategies of our customers and suppliers; |
● | the volatility and uncertainty of cotton and other raw material prices and availability; |
● | the competitive conditions in the apparel industry; |
● | our ability to predict or react to changing consumer preferences or trends; |
● | our ability to successfully open and operate new retail stores in a timely and cost-effective manner; |
● | the ability to grow, achieve synergies and realize the expected profitability of acquisitions; |
● | changes in economic, political or social stability at our offshore locations or in areas in which we, or our suppliers or vendors, operate; |
● | our ability to attract and retain key management; |
● | the volatility and uncertainty of energy, fuel and related costs; |
● | material disruptions in our information systems related to our business operations; |
● | compromises of our data security; |
● | significant changes in our effective tax rate; |
● | 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; |
● | changes in international trade regulations; |
● | our ability to comply with trade regulations; |
● | changes in employment laws or regulations or our relationship with employees; |
● | negative publicity resulting from violations of manufacturing standards or labor laws or unethical business practices by our suppliers and independent contractors; |
● | the inability of suppliers or other third-parties, including those related to transportation, to fulfill the terms of their contracts with us; | |
● | restrictions on our ability to borrow capital or service our indebtedness; |
● | interest rate fluctuations increasing our obligations under our variable rate indebtedness; |
● | the ability to raise additional capital; |
● | the impairment of acquired intangible assets; |
● | foreign currency exchange rate fluctuations; |
● | the illiquidity of our shares; and |
● | price volatility in our shares and the general volatility of the stock market. |
A detailed discussion
of significant riskfactors that havethe potential tocause actual resultsto differ materiallyfrom our expectations isset forth inPart 1 undertheWe were pleased to start our 2023 fiscal year
During our third quarter we were able to work through much of the associated manufacturing
We expect to cyclecomplete a significant strategic initiative before the end of our fiscal year involving the transition of our more expensive offshore production capacity into our lower cost Central American platform. This initiative, along with several other recent restructuring activities, should generate annual cost savings of up to $6 million. We also made substantial progress during the quarter on inventory and debt reduction initiatives intended to counteract the challenging operating environment seen in recent periods, including an approximately 20% reduction in inventory and an approximately 15% reduction in long-term debt from our most recent high points. We expect further inventory and debt reductions as we move through most of that higher-priced cotton in our
Our Salt Life business continued to expand its direct-to-consumer footprint during the flexibilityquarter, opening its 24th and 25th retail locations across the country. Salt Life’s branded retail footprint now extends across nine states including California, Texas, Alabama, Georgia, Florida, South Carolina, Delaware, New Jersey and, most recently, two locations in New York. In addition, Salt Life’s ecommerce business grew over 100% during the June quarter and achieved significant gains across key metrics including site traffic and conversion rates. Salt Life’s four new retail locations in the Northeast U.S. market are a great example of our
Our DTG2Go business recently achieved a variety of key milestones, including the recalibration of our entire “Digital First” technology fleet, a consumer satisfaction initiative involving the rationalization of size and color offerings within our “Digital First” channel, and the launch of a proprietary online portal geared towards quick reaction programs not suited for traditional decoration platforms. The gains flowing from these initiatives and the near-term demand creation opportunities from the new portal should provide a solid foundation for improved operating results and double-digit sales growth at DTG2Go going forward. Moreover, DTG2Go is targeting
With two very significant cost-driving trends now moving behind us and a streamlined cost structure in place moving ahead, Delta Apparel is in an excellent position to take advantage of favorable changes in demand as they arise across our five go-to-market channels. We expect to see steady improvement in our overall operating results as we close out our fourth quarter and move into our next fiscal
year. For fiscal yearResults of Operations
Financial results included herein have been presented on a generally accepted accounting principles ("GAAP") basis.
Net sales were $107.3$106.3 million in the firstthird quarter of fiscal
Net sales in the Delta Group segment declined 4.8%16% to $97.0$89.1 million in the firstthird quarter of fiscal 2023 compared to $101.9$106.0 million in the prior year firstthird quarter.
Net sales in our Delta Direct
Gross margins were 12.7%13.1% for the firstthird quarter of fiscal 2023, declining
The Delta Group segment gross margins were 8.0%
The Salt Life Group segment gross margins improved to 57.0%were 50.5% in the firstthird quarter of fiscal 2023, an improvement of 37030 basis points compared to 53.3%50.2% in the
Selling, general, and administrative expenses ("SG&A") were $18.9$18.5 million in the first
Other income for the 2023 and 2022 firstthird fiscal quarters includes
Operating loss in the third quarter of fiscal 2023 was $2.6 million.
The Delta Group segment hadexperienced an operating incomeloss of $0.1$3.6 million in the firstthird fiscal quarter of 2023, or 0.1%(4.1%) of net sales, compared to $8.4operating profit of $10.7 million,
The Salt Life Group segment hadachieved operating income of $0.3$1.6 million in the firstthird fiscal
Net interest expense for the third quarters of fiscal year 2023 and
Our effective tax rate on operations for the three-monthnine-month period ended December 2022June 2023 was 35.0%27.0%. This compares
Net loss attributable to shareholders for the third fiscal quarter of 2023 was $6.3 million, or $0.90 per diluted share, compared to net income of $6.2 million, or $0.88 per diluted share, in the prior year. Excluding the Production Curtailment & Cotton Costs, third quarter adjusted net income was $1.2 million, or $0.17 per diluted share. Net loss attributable to shareholders for the first nine months of fiscal quarter of 2023
Accounts receivable were $57.8$41.7 million
Net inventory as of December 2022June 2023 was
Total net debt, including capital lease financing and cash on hand,
wasNon-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 margins, operating income and net income 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 or our results as reported under U.S. GAAP. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.
Reconciliation of GAAP gross margins to non-GAAP gross margins, GAAP operating income to non-GAAP operating income, and GAAP net income to non-GAAP net income are presented below. A description of the amounts excluded on a non-GAAP basis are provided in conjunction with the below information. Non-GAAP gross margin, non-GAAP operating income, and non-GAAP net income should be evaluated in light of the Company's financial statements prepared in accordance with GAAP.
Reconciliation of Gross Margin, Operating Income and Net Income to Non-GAAP Measures Adjusted Gross Margin, Adjusted Operating Income, and Adjusted Net Income
Unaudited
(in thousands)
Three Months Ended | Nine Months Ended | ||||||||||||||||
June 2023 | June 2022 | June 2023 | June 2022 | ||||||||||||||
| |||||||||||||||||
Gross Margin | $ | 13,935 | $ | 30,693 | $ | 43,768 | $ | 87,219 | |||||||||
Production Curtailment Costs (1) | 3,340 | - | 7,589 | - | |||||||||||||
Cotton Costs (2) | 6,906 | - | 22,027 |
| - | ||||||||||||
Adjusted Gross Margin | $ | 24,181 | $ | 30,693 | $ | 73,384 | $ | 87,219 | |||||||||
Percent of Sales | 22.7% | 24.2% | 22.7% | 23.6% | |||||||||||||
Operating (Loss) Income | $ | (4,461) | $ | 9,295 | $ | (12,438) | $ | 29,553 | |||||||||
Production Curtailment Costs (1) | 3,340 | - | 7,589 | - | |||||||||||||
Cotton Costs (2) | 6,906 | - | 22,027 | - | |||||||||||||
Restructuring Costs (3) | 32 | - | 3,344 |
| - | ||||||||||||
Adjusted Operating Income | $ | 5,817 | $ | 9,295 | $ | 20,522 | $ | 29,553 | |||||||||
Net (Loss) Income | $ | (6,287) | $ | 6,240 | $ | (16,841) | $ | 20,023 | |||||||||
Production Curtailment Costs (1) | 3,340 | - | 7,589 | - | |||||||||||||
Cotton Costs (2) | 6,906 | - | 22,027 | - | |||||||||||||
Restructuring Costs (3) | 32 | - | 3.344 | - | |||||||||||||
Tax Impact | (2,775) | - | (8,950) |
| - | ||||||||||||
Adjusted Operating Income | $ | 1,216 | $ | 6,240 | $ | 7,169 | $ | 20,023 |
Reconciliation of Delta Group Segment Gross Margin and Operating Income to Delta Group Segment Adjusted Gross Margin and Adjusted Operating Income
Unaudited
(in thousands)
Three Months Ended | Nine Months Ended | ||||||||||||||||
June 2023 | June 2022 | June 2023 | June 2022 | ||||||||||||||
| |||||||||||||||||
Gross Margin | $ | 5,254 | $ | 20,227 | $ | 18,013 | $ | 63,470 | |||||||||
Production Curtailment Costs (1) | 3,340 | - | 7,589 | - | |||||||||||||
Cotton Costs (2) | 6,906 | - | 22,027 |
| - | ||||||||||||
Adjusted Gross Margin | $ | 15,500 | $ | 20,227 | $ | 47,629 | $ | 63,470 | |||||||||
Percent of Sales | 17.4% | 19.1% | 17.2% | 19.6% | |||||||||||||
Operating (Loss) Income | $ | (3,621) | $ | 10,701 | $ | (10,979) | $ | 33,557 | |||||||||
Production Curtailment Costs (1) | 3,340 | - | 7,589 | - | |||||||||||||
Cotton Costs (2) | 6,906 | - | 22,027 | - | |||||||||||||
Restructuring Costs (3) | 32 | - | 3,344 |
| - | ||||||||||||
Adjusted Operating Income | $ | 6,657 | $ | 10,701 | $ | 21,981 | $ | 33,557 | |||||||||
Percent of Sales | 7.5% | 10.1% | 7.9% | 10.4% |
(1) Production Curtailment Costs consist of unabsorbed fixed costs, temporary unemployment benefit payments, and other expense items resulting from the Company's decision to reduce production levels to better align with the significantly reduced demand across the activewear industry due to high inventory levels stemming from the heavy replenishment activity following pandemic-related supply chain challenges.
(2) Cotton Costs consist of the amount of the cotton component of the Company's cost of sales in excess of the average price per pound of cotton over a recent 10-year period ($0.78 per pound) as well as a reasonable estimate of the additional cost for what the industry refers to as "basis" typically required to be purchased in connection with the delivery of cotton ($0.15 per pound). As such, Cotton Costs consist of the cotton component of the Company's cost of sales in excess of $0.93 per pound.
(3) Restructuring Costs consist of employee severance benefits paid in connection with the transition of our more expensive Mexico manufacturing capacity to our more efficient Central America manufacturing platform, employee severance benefits paid in connection of leadership restructuring, expenses incurred in connection with the closure of a legacy facility we acquired via acquisition and the absorption of the print capacity at that facility into our nationwide network of dual purpose digital print and blank garment distribution facilities, and additional cost items incurred from restructuring activities.
Liquidity and Capital Resources
Operating Cash Flows
Operating activities resulted in a cash usage
Investing Cash Flows
Cash outflows for capital expenditures were $2.1$3.5 million during the first threenine months of 2023 compared to $1.8$11.6 million in the same period in the prior year. During the
Financing Activities
During the threenine months ended December 2022,June 2023, cash provided byused in financing
Future Liquidity and Capital Resources
See Note F – Debt to the Condensed
Consolidated Financial Statements forOur credit facility, as well as cash flows
from operations, are intendedto fund our day-to-day workingcapital needs, and along withcapital lease financing arrangements,We currently believe that our results could
Share Repurchase Program
We did not
purchase any shares underour previously announced sharerepurchase program in theCritical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which were prepared
A
detailed discussionofcriticalaccounting policiesiscontained intheSignificantAccounting PoliciesincludedinNote 2totheAudited ConsolidatedFinancialEnvironmental and Other Regulatory Matters
We
are subjectto variousfederal, stateand localenvironmental lawsand regulationsconcerning, amongother things,wastewater discharges,storm waterflows, airThe environmental and other regulations applicable to our business are becoming increasingly
stringent, and we incur capital and other expenditures annually to achieveDisclosure controls and procedures are controls and other procedures
that are designed to reasonably assure that informationrequired to be disclosed in the reports thatOur management, with the
participation of our ChiefExecutive Officer and principalaccounting officer, hasevaluated the effectiveness of ourdisclosure controls andChanges in Internal Control Over Financial Reporting
There were no changes during the December
OTHER INFORMATION |
Legal Proceedings |
See Note M—Legal Proceedings, in Part I, Item 1, which
is incorporated herein by reference.See Note N—Repurchase of Common Stock, Part I, in Item
1, which is incorporated herein by reference.On August 2, 2023 (“Effective Date”), Salt Life,
The Seventh Amendment
The foregoing summary of the Ninth Amendment and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference
10.1 | Exhibit 10.1 Declaration of Amendment of Delta Apparel, Inc. 2020 Stock Plan. | |
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |
104 | Cover Page Interactive Data File - (formatted as Inline XBRL and contained in Exhibit 101) |
Eighth AmendmentSIGNATURES
Pursuant to Fifth Amended and Restated Credit Agreement, datedJanuary 3, 2023, among Delta Apparel, Inc., M.J. Soffe,LLC, Culver City
DELTA APPAREL, INC. (Registrant) | |||
Date | August 9, 2023 | By: | /s/ Nancy P. Bubanich |
Nancy P. Bubanich |