DLA - Earnings call transcript Q1 2018

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Operator

Thank you and good afternoon to everyone participating in Delta Apparel's Fiscal 2018 First Quarter Earnings Conference Call.

Joining us from management are Bob Humphreys, Chairman and Chief Executive Officer; and Deb Merrill, Chief Financial Officer and President, Delta Basics.

Before we begin, I'd like to remind everyone that during the course of this conference call, projections or other forward-looking statements may be made by Delta Apparel's Executives. Such projections and statements suggest prediction and involve risk and uncertainty and actual results may differ materially. Please refer to the periodic reports filed with the Securities and Exchange Commission, including the Company's most recent Form 10-K. factors those cause or contained important differ results forward-looking identifies from materially in document that actual could to statements. This the projections as even as will that today, to Company projected update note any results any statements not becomes commit made Please forward-looking apparent revise statements, any forward-looking does not realized. and it by required only except or law, if the be are of that an Executive the turn Delta's over of Officer, Bob results. call for Chief now I'll Chairman Humphrey, to overview Apparel's Delta and go ahead. Please

Robert Humphreys

Good afternoon. our Delta really us call Thank first year. you your in interest our We during business all on Apparel in for of like today. saw fiscal quarter joining and we the what for XXXX the

is due Achieving with the is slowest As brands many the of traditionally this growth in of our product each strength to line. of product business line. seasonality our you year of XX% our sales sales growth quarter during units quarter of double-digit know, and of the first evidence our our

as top year profit prior we threefold growth, almost the line also the operating increased from period. important As

While behind for during not the holiday some a were environment retail certainly season they external quarter. our story apparel strong positive factors, performance the the consumer in whole improvement were the pickup in demand and during

bottom were and Our initiatives top a much very success business, on our improve dropping rationalize of both our efforts part for our to market growth operational efficiencies, engagement the in execute our line and quarter.

Gun's to vertical for growth production manufacturing capabilities competitors from drove year-over-year. seamless to Activewear integrates new successful level us fully the differentiated was fulfillment and provide several customers recent operating season its including our excellence unit a holiday and garment customers. sales, with our record a first of record well server the milestones important in as Delta solution quarter Gun's shipped, Art Gun, sales move XX% a during that period allows as Art of full execution For facility Art profit. record launch

dynamic. fully growth excited about Life's new shop well had in Beach, the Huntington strong prospect service Looking seeing also Coast and Beach going to times. ahead, East accounts its inventory is with expand Art to a the its as selling from shops and the Coast the potential the and fairly the XX.X% particularly in categories West experience San retail quarter E-commerce season Life's additional the door Salt Salt year growth evenly stores also Gun from Florida believe the regional a Life's positioned Daytona retail are with The retail been new Life in leverage facilities more branded store. California we web continue also good uniquely and channels this the Salt shipping seamless us sales to of of shopping and growing with market progresses. about provides national benefits at distribution Art sales strength doors. accelerating had performed California optimistic through this brand's virtual quarter. doors and spring Life new to to online most the its extremely Salt have Salt market. with across growth businesses of adding positioning line shorter customers throughout the year model product coupled and retail retail into will We're Salt drew growth additional of its Life's on was in the spread branded Gun More and to doors geographic Clemente footprint and stores to top year-over-year. significantly retail

quarter it we move XXXX. as and us fiscal further spot bright is gaining for during a into momentum was the solid believe we Soffe

the XX% year FunTees. take inventory Catalog's Platinum allowed store at retail Catalog allowed our advantage of the programs periods utilization fashion in us more Sales These capitalize Delta believe operate unfolds. benefited efficiently and improvements about was units which of and for during new consumers Soffe to in drivers retail on goods profitability in across solid the Activewear, achieve of with the Jacksonville, in to with a Carolina military any steps call in Activewear to other the the margin selling as some taken demand position Strong should in ongoing also Catalog quarter shipped key U.S during issued with businesses. product other Delta with line for were up along and other the the fourth sales strong recent growth higher the from Soffe in over Soffe business prices market. first in increase We're increases the that conditions military year-over-year, sales which year and expansion. drove sporting will lower team Soffe's its along and graphic of market quarter. channel was growth of increased by success excited and improving XX% our channels the manufacturing well Soffe. the and with this both XX% opening The initiatives licensing quarter had top our programs strong profit North in it it the and costs and to the position sales these quarter and strategic improvement. products period. continue operations the strongest with prior military year-over-year. operational performance basics also improved the channels well-balanced in increased line product structure resonate the Double-digit the year-over-year strong of great success

attract we’ve performance manufacturing quarter product. allow sophisticated platform the similar a to Overall, business brands with our the years our within able saw driven for us efforts was apparel in forward. investments within source holiday see and the base call to to opportunities us private-label strength and to flexibility the may seeking pleased the recent diversification our provide expand held made we rationalization and that strong reliable and customer Activewear over The continue leading first turn private-label of improving I'll capabilities Our and we're team from brands undertaken to advantage service. strategic we to ready environment our The are growth take we Deb market demand, well-positioned specifics quarter. in to of accomplish. for to what results going materialize financial and more now the our on we've believe

Deborah Merrill

Bob. Thank you,

$XX.X our clothing in prior of business For in fiscal $X.X of million, the our $XX.X XXXX, or an we million year of of year. of after sales quarter excluding prior Junkfood XX% achieved the first net the sales that million from $XX.X first million sales quarter increase from quarter

reminder, a quarter second the end business -- Junkfood of sold we As our last year's second last quarter. year's at

within XX.X% year strong business with growth our in the As across all prior Bob were of double-digit units XX.X%, the board. the Overall, down mentioned, quarter quarter the was during period. for from gross demand margins

the from of While branded was XX.X% significantly through the a improved offset XX.X% segment XX.X% gross flowing to higher XXXX. quarter, general, by due administrative XX.X% the to from Selling, fiscal basics raw material this XX.X% decline expanding segment margins gross in from to and quarter in of increase to first XX.X% in margin sale. cost sales costs improved prior expenses year of

the a of quarter $XXX,XXX a of income prior structure $XXX,XXX reform on the improvements repatriated the tax $X.XX to we foreign discrete related connection the which a our included cumulative pay tax led quarter. recognized million In the expense which the deferred loss subsidiaries recent We recorded earnings $X.X tax year significantly estimated eight quarter, of we impacted years. earnings. in of the U.S impact asset, $X.X legislation, share. for and net XXX% over to earnings strong increase. tax per This first profit the expense million our which legislation sales compared non-cash $X.X pre-tax net $XX.X This and deemed transition operating is led a to million, which results revaluation which year-over-year new item the to next will Our related million of our to our cost in is of by the quarter, with impacted of

of or information recording we of tax After is per of impact offset on reasonable of becomes year diluted the and million and tax diluted more may we discrete transition Adjusting flow to to impact per during legislation the as per the $X.XX prior the change benefit future net tax available. of net $X.XX loss quarter share share. the a payment expense, estimate reported cash for expect tax federal we based of minimal $X.XX rate share income diluted had impact achieved the net as our The new us. compared tax the loss period. $X.XX reform, in of a tax lower of expense to this this We have

that both $XXX with was first full $X.X year compared ended $XX Looking $XXX.X despite material We our the capital higher Total the at of at Total for million carryover a levels the and in costs XXXX. December of raw quarter for million, a in debt XXXX comp earlier. year-over-year inventory and year-ago. the than to to anticipate quarter. facility approximately million including print debt from some declined at strong spending million and approximately position spending principally our digital as the million Depreciation initiatives. capital down fiscal a year sheet, be XX. first spending the non-cash quarter and direct-to-consumer million end we million year-over-year Inventory quarter levels $X.X was $XXX amortization will long-term fiscal was end quarter related financial equipment including expansion to balance $X.X

Board or for cost XXXX continue share. repurchase. of total million and shareholder stock to will end first of look X.X opportunities to an During quarter, of the improve million our our XXX,XXX had be $XX.XX repurchases $X a for quarter, average important shares first we as the we at repurchased share we authorization an per consideration Share common cost approximately for value. capital on At of us allocate remaining the

to turn the call comments. I'll for over back final some Bob Now

Robert Humphreys

profit good quarter, proud Apparel achievements line seasonally is for pre-tax Thanks, a start growth Deb. top Delta off XXXX. and our a slowest to our fiscal team is our of. during Strong

apparel quarter a be Even year for will increase reason fiscal growth believe Our retailers, demand and performance give feel improved to XXXX general consumer for Delta about and another year we solid quarter that for of first in good ahead. traditional the us profitability the environment during Apparel. the in challenging

XXXX fiscal our free support generate that during repurchase or help flows can expect that may We strong to debt, acquisition opportunities share to used program, fund be paydown cash arise.

try glad be to to will you answer have. might questions we any Now

the call So, Stephanie, open-up can for you question.

Operator

ahead. [Operator Absolutely. we'll first go King Dave ROTH from take Please Capital. our And Instructions] from question

David King

Thanks. quarter. nice and Good afternoon

Deborah Merrill

you. Thank

David King

in versus growth importantly more each guess, of growth sporting how the I guess, guess military is we first over on that look at overall the off categories of do much then, two goods course sustainable the Soffe, that out think I year? as of those And how and in growth XX% was both channel? I you the

Robert Humphreys

to did the so of goods our driven military, of we growth most areas, in strongest Made other programs. channels. channels, growth excited in traction new strategic We some some category Well, America get capability programs were was in slightly sporting we flat graphic the other see were our well. up in tee continuing We and that military as about and particularly by and

the achieve right have don’t growth of the for XX% the growth we see every So but in year. to quarter, now rest we capacity

David King

Okay, of programs, then? to now are or start new first great. programs of in terms ramp side ramping those those the since retail in just And they quarter the did

Robert Humphreys

really that some quarter to had T-shirt turns up first we and the nice No, programs. we were graphic some short on able some ramp big achieve in quick

David King

operating timeframe Bob, sort try and Okay. what I be like up -- you then, you gross it guess of get gross then, were are mean, think I generating should sounds those where guess, guess there? and at the what sort reasonable of margins there of and materially. Soffe fairly And now? And what’s I sort I margins do to

Robert Humphreys

a mouthful. That's

like need a we in XX expect single-digit low-single-digit the operating Soffe to quarters. at Soffe a would now, can X and to think some cost, next So to we're X we at our mid-to-high volume months, help to that back the margin and operating regain get more we so to we XX next lever do fixed to over to that within

David King

Great.

Then Okay. …

Robert Humphreys

Soffe's get domestic capacity lowering can Dave, doing that by continuing as people, -- We we that cash way more up. see we’re and generating selling the our along make hire inventory.

some unique have a a there there We of management good over good go-to-market have the point a Soffe. We think obviously have is at things really team I so position, great focused up year to come think. things and here progress to leverage and we play, good last

David King

unit on to way in the the just versus the to much pressures, about commodity of of of think side, And the to again -- what's then, expect us way growth gears terms you the and Okay, when Switching ASPs great. what’s basic price that right there growth? abate? you in driving remind how those can terms

Robert Humphreys

don’t to going I they’re when Well, abate. know

there's clearly delivery cotton, materials, system now, supply going raw up costs in is cost are think with transportation I inflation apparel power costs, up. higher around right and demand principally issue the but by driven globe costs, transportation those the also driving

definitely increases there's cost higher increases to but also So there wages, coming, the system. moved domestic price getting is

more in inventories So there, price growth on this us we which during build so see we will calendar we and really be we’d pushing undecorated tees pipeline. the inventory because give Traditionally, rolling increases we December price the the quarter, through well through for and nice with spring had entering spring did inflation constitutional will decorated the strong and year. season selling out fleece shape market sales not

So we’ve price We've strong growth. unit increases. had some had

new resonating size that Our quality on and and private-label is and corner. customer checks scale our are scope base. with products Good the well not delivery sustainability and and and on production compliance on-time every boxes all

I and strong that we’ve demand as of platform there for uniquely so we're come. our off to we so private-label positioned think good capabilities, manufacturing things And well, had think

David King

think for Deb. Okay, great. I question then, a And

I think that you much do so can could bring bring a In of where should that much can think the you how then, can line the to you or terms about guess, much comment, we million moved that you debt inventory, selling of the the towards And think we -- or what’s similarly down? spring you it's right of, $XXX on expect as along get million how end debt -- in or I use I currently? Bob's where the so $XXX year season, do through how guess, think versus the way

Deborah Merrill

Sure.

this we our buildup call see in big just getting as then And do So, through had as mentioned quarter we did March into that we when and inventory we certainly when is expect through March as September mentioned. typically decline. into season of now we’re a buildup spring about lower year, we season we June at as be, and through the selling quarter. selling believe and while to actually even year-end inventory December see And that head than it inventory earnings that a remaining and that that then the head the flat we typically inventory see Bob quite quarter we we

be last lower anticipate end last the bit we'd will quite on was at it and So of inventory than than it September that a was September. lower

where price as growth, be in that's those our good sitting to buying especially see March kind share of go we to think debt to that say, a the are to back as investments for as some let they debt we expect year. increase strong as similarly far investment debt stock don't is doing we a and shares. that then with would is And whether we of big mentioned, cash hinder use not opportunities repurchases, we we or As We concerned, our But arise. flow as internally acquisition see head should through that a our if we in as paydown investments we our always nice that's of through speak.

David King

for the the for my taking Thanks good color rest for year. there. questions all and Thanks the luck of

Deborah Merrill

you. Thank

Operator

Please will ahead. Furst Furst to We from move on now Joe Associates. go

Joe Furst

you was about question. you stock the cotton you’re have to prices? that you. X product repurchase. going answered to that, at quarter do putting but any Do kind you what on likely to they're all. you thoughts and the just next the over question months? Thank thoughts good What my X about ask answered Very I of Any on

Robert Humphreys

and what's time so I its been Joe, And quality -- constitution tough way to in a the far. and -- cotton so harvested graded amount. think X is strong the a only harvested crop There's or kind there's one issues in on have that out the other. now, of some

general maybe a much to supply market can slight going There's the the and I expect So market, But that now. it always hard softening hedge money in so some it's as we selloff. but think market is transcend speculative that we'd big see -- demand. in into

for of a time a feel it's So kind hard good that. get to

Joe Furst

do but Okay, you’re you hedge on saying? that,

Robert Humphreys

Yes, we based and -- market expectation ways on managing of commit, forward then overall hedge we risk. what both our our the and

table the off swing big a P&L. our taken So, hitting from

Joe Furst

quick Life? question. expand then you. one other on Salt thoughts for you a And your expectation little and Can Thank bit

Robert Humphreys

lot which saying rewarding My got beat It for for the we’ve their primary Well, the is another market, our But until expect. pre-booked would But December what we when and growth record me Salt sales a hurricanes roof. we've deferred to quarter I on in through having Florida, shipments Expo during we of we would always was this good going to later Texas three two general to finished had that time been that. business solid. really were a probably kind Life. or counsel all one -- ever so and say on -- the customers would e-commerce you reordering think things have come in had within generally booked of just and particularly that the the busiest unable about, we're strong and at had and during have Surf who growth quarter have

activity and existing us, where to at can really but our to the that new doors don't that wanting we come given customer seen. height add So, we've the is booth, around a all customers really have talk position ever the

on product we’re that at we product we’ve in we while see don't can have where e-commerce, available to out West and good events sells there, available So about sponsoring, wholesale Life a it distribution yet, through robustly. continue product we're Coast feeling the Salt good

So continue be that. to encouraged we on

Joe Furst

appreciate you. Thank good the work. Great. Keep up it. We

Robert Humphreys

Thank you.

Deborah Merrill

you. Thank

Operator

[Operator Sally go EPOCH next Financial. ahead. Please Instructions] on We from Wallick our will to move caller,

Sally Wallick

Thank me Management and to ask Hi, of couldn’t he it you. Jamie asked Bob. in you Wilen he in call do about couldn’t Wilen Hi, today since several quarter his be place. on Deb. the questions the person,

Bob, be have is this expect you it’s I indirectly full-year? to Soffe. you think Do The Soffe the answered one about may for first profitable for you previously, and

Robert Humphreys

and expect we profitable Soffe It’s seasonal profitable we do. is quarter, Yes, the which weakest quarter, be flow our do to positive. in so cash

Sally Wallick

Very Okay. good.

Gun, XXXX feel like December capacity to is enough have this need you Secondly you XX Will prior quarter, on year? capacity the for Art that do add the quarter question capacity? you to

Deborah Merrill

Yes, that Sally. for the the And end that day of the quarter, out strong past capacity this we quarter. December had we sold

fully As expansion better West throughout and mention, that East existing service would will locations probably And further that added and the with Coast to expanding what support Art will geographically expansion in get we we order strong do we in then XXXX. December we're that other we Coast with made Gun service, to quarter next our anticipate to be year. the another facility,

Sally Wallick

then growth it's of And general expansion, is us great. final a a whether Salt relates at drivers geographic Life. bit increased doors, sales sense where just more to the the Can currently strength in color provide can at or across-the-board? on give you existing question, Okay, doors, you increased this Salt Life,

Robert Humphreys

Yes.

So, think we've now same several elevated it's strategy of products. had having I for the that years

I We’ve product will out when designer We few buying, it we more we asking on actually accessories, a more outerwear, be our for for a rolling customers more so have ago expansive to more get are specifically there months accessories. continue box fleece. brought last established announcing additional So will board do we than there. so that And definitely The customers product got regional think and on we stores the We doors. then doors adding Other more big about talked call. adding both smaller categories We’ve people some too. are we're out Buckle, new be soon.

it’s really of all a So combination that.

the You some prior had end of offset this growth. headwinds year, weather that bankruptcies up of that we've the year with the that

growth cover brand end confidence which vehicle, Life is the the really to customers is Salt great business we’re our from fastest lot there. every to places a trying probably our And of rural anyway of So a e-commerce vote out different get week. all-in-all

… So

Sally Wallick

much. All very right. Thank you

Deborah Merrill

Thanks, Sally.

Operator

questions. And further there at are are this [Operator no further queue And there in the questions no time. Instructions]

the to I’d Humphreys over to closing Mr. back any call turn for So remarks. like Bob

Robert Humphreys

us and months second and call with Okay. afternoon you for just quarter our rest few this Well, joining speaking the much. thank forward so about quarter we in year. Thank on talk you and first a you all of look the to

Delta Apparel (DLAPQ) 5 Feb 182018 Q1 Earnings call transcript