DLA - Earnings call transcript Q2 2018

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Operator

Thank you, and good afternoon to everyone for participating in Delta Apparel's Fiscal 2018 Second 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 would 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 risks 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 of that note any statements made Please forward-looking as are today. revise the as except not update even any apparent required it law, projected not any And company results statements, forward-looking will by commit does to becomes that if or be realized. Bob now Delta's Chairman Executive Officer, to the and over Humphreys. call turn I will Chief Please go ahead.

Robert Humphreys

of and number initiatives Thank in adjusting quarter up of Apparel and Clothing sale help you. build that year-over-year the year's had second us business. a Delta should solid the a completed future. earnings after strategic shareholder value Junkfood last Both for sales were

slightly for quarter up our XX% is businesses the year-to-date. organic almost of except achieved down for growth but All was sales Soffe, which

our continues can the and print to trade impact space. competitors, business, Art Gun, on DTGXGo which high-growth offering print nearly the our most go the one during its marketplace. quarter, subsidiary, The business DTGXGo, focus the the now under Consistent in team the things results. digital combined size in have of to market Our that acquired with strategy, that primary gives comprehensive, doubled on-demand we us digital most apparel growing name, this on in

to X- additional week. shipping consumers new campus to this scheduled and X-day serving The Northeastern acquisition Florida, in geographic the the important plans Soffe locations for expansion in from Western us gives begin the both United DTGXGo This our accelerates manufacturing has a marketplace. location to multiple in location our accretive an expect be immediately Nevada on perspective. States digital We also sales location and production to acquisition earnings a now print.

the scope platform. expect as see with We provide inventory increase gains cross-selling garments produced vertical migrate more in business manufacturing from opportunities our to on model blank customers to activewear and and efficiency virtual using of our the print size digital the

the we our direct-to-consumer by of results encouraged business. are in channels We are seeing

consumer First XX% half our XX% sites. increased our BXB site and e-commerce XX% on our sales on on site year-over-year, including

in sales of Importantly, somewhat Direct-to-consumer good market also take area. seeing to pride for our success a months sales this both quarter which California is doubled essentially to our direct-to-consumer our six retail strategies in e-commerce the omnichannel stores including in California, grow, Life's and e-commerce the stores, provide retail example of business also consumer in. and gain traction. this operates a the in and Sales something brick-and-mortar XX% channel continue profitably, from we first lot unique XXXX. fiscal the Salt for and of grew we're continue

brand's e-commerce the In the visitors to that addition, penetration Salt for Life conversion these the what were trends up believe California of bode California we well sharply purchases, market. as side the call We well. percentages made in rates, overall

accelerate expand line and Despite continue to base during to quarter Our a Activewear products half the to to addition second strong and Dillard's from including market orders seeing we also we styles print shipments during Its Sales the Hemisphere. are expanding, holiday our benefit fabrication during these the label brands is across headwinds. customer are able April. FunTees uniquely XXX bottom Life's cost-related Daytona, achieve of quarter, out solid started were in continue the we trend this stores The Salt growth in and of as issues, in the spring pull growth during private-label toward also should with for manufacturing late while but solid Private shift was among The regional quarter in in sophistication stores, basics Salt brands and quarter back in sourcing the us of shipments sales to also performed some for quarter strongest welcome the and the products the prior down and more fashion licensed the expect maintaining growth achieved demand business platform doors timing retail and into at year, also to despite was targeted the retail all store our shipments the colors. versatility line our well roll solid performance. seeing top more its is due base. slightly to Buckle newest outlet request for fashion-forward and satisfy Florida, board. platform, quarter customer demand. a March during was we customer demand Florida fall. position Western to the from to Life quarter, channels, a the this

Looking Florida forward of half Life second of to brand the quarter. plans craft introduction the line to in during Salt its lifestyle the beer offering expand the year, a with fourth

also swimwear of titled women's visibility views and our reach its this its a We many show growing, continues Channel to extensions over new interest including its other of Discovery brand. the years. for efforts expressing yet on million airing have of channel. audience million have sponsorship been line expand with several on the expects Salt social XXXX, Salt fiscal Life Internet over the almost licensed a largest later Life's fishing customers reach X.X media of increase to YouTube product presence year. It the in direct television marketing that a through XX is its planned to

its was quarter by performance half double-digit first second encouraged sales. Soffe's growth we in but mixed,

also channels. is in its cheer marketing Soffe brand other through initiatives various aggressively the dance, and

Soffe the expand, will A retail Greenville, recent in partnership branded financial the details Deb provide In our during gives store addition, the for its avenue inventory third second quarter the I'll discussion results. fifth with with of over to DTGXGo another virtual Carolina in the also North footprint now quarter. opening a once to turn again, growth of direct-to-consumer future.

Deborah Merrill

share, from $XXX.X up million Net Apparel. at came the one million, The Delta Thanks, the quarter was $X.X $X or in X% diluted Bob. prior year's fiscal $X.XX $X.XX approximately excluding sale. the from the sales from after million sales per divested for share $X.XX the March. over share $XXX excluding XXXX per quarter period's we the gain business diluted second an prior year per or last after on Clothing we Junkfood Net million increase million of year successful was the realized Junkfood income a $X.X

X% prices While in decline. quarter, from margins year inflationary the Activewear $XX.X raw expanded the XXXX in in our other Basic year. pressures million to sales at declined up and sales Higher of $XX.X second in the drove businesses million prior were during fiscal gross XX.X% most of the overall material net XX.X% cost segment margins from quarter. prior quarter,

As for was print business. our the an quarter Bob indicated, second exciting one digital

XX% DTGXGo the holiday margins nearly momentum DTGXGo organic higher through growth. Our increased growth platform. during season. business drew to efficiencies year-over-year, on from incremental XXX volumes at including improved digital and sales XX.X% benefit XX% of sales by sales of approximately The organic running basis driven Gross the levels our points the strong generated achieved growth and service execution operational

basics prices year. growth fashion DTGXGo and the X% model. better both benefits ever to driven the further our more recognize Fashion We expect proprietary Catalog within sales trend and platform. inventory by sales than continuing win in now as equipment the half of in its doubled sales of customer investments were the up selling in units, the quarter higher velocity business, strong first in in positioned year growth base we traditional increased during virtual leverage the prior channels basics. XX% Activewear in the is new than for to increased that continue sales quarter but quarter. with year-over-year, remained Private-label down over X% the

with e-commerce $XX.X for with momentum the quarter the half back Net across year sales in sold increases, favorable direct-to-consumer in for quarter, expected million business last and Life prior the While gross for most growth increased sales branded the combined sales the the to almost channels, further performance the and of compared with drove revenue Escalating $XX.X channels. of products sales in gross the California. topline and categories, the solid Life strong in were for profitability by divestiture year. quarter, Salt were gross lower consistent Activewear quarter. in March. Salt growth and first demand lower from new million resulting in manufacturing margins margins products efficiencies year-to-date from half XX% the Junkfood other the environment, overall XX% were higher-cost in X% improve to strengthen, mix margins business with Life led to of Salt growth. increasing the drove prior continue price the the a year period the are segment

a result the a are improved second year. quarter cost slightly up sales enhancements the margins structure from Soffe's were Gross product half the points mix. nearly quarter year more basis as XXX first profitable prior of but $X million in and of down

months the prior A six fiscal of sales in first increased to year were year-over-year, and XXXX, sales up X% since million from period $XXX.X the year excluding from prior the net $XXX.X For provisional million million the share. $X.X net reform diluted a half or loss Junkfood for first million drove divested per legislation discrete with the expense of tax business. $XX.X associated of tax XXXX $X.XX

year-to-date the were approximately quarter prior year bringing the of of prior as $X million, including $X.XX the full in related million diluted legislation, year-to-date. you were anticipate machinery over million. sale on year first direct-to-consumer $X.X second million. be or million was impacts expenditures first for XX% stores. and over the million XXXX the the $XX half capital per including XX% exclude to earnings $X.XX Depreciation approximately $X.X Capital We spending well equipment period quarter half to year a the comp, and to the as amortization, total for spending share, the $X.X tax if the second and a Excluding fiscal non-cash reform retail Junkfood. increase increase and the The was primarily $X.X gain investments,

per bringing almost XX,XXX common quarter, purchases our of of purchased of cost at our the for for total price the of shares of share our During share a average $X.X the million. million share approximately repurchases. an price quarter, million, over $XX.XX had first of half we second At average we to total authorization $X.X $XX.XX per at an just shares XXX,XXX total $X.X a cost stock remaining and board of end

compared levels primarily to at million quarter-end suppliers. the the manage second Total prior half to price reflect intrinsic the repurchases and in million $X.X value believe We not of to down At the the year-over-year share in expected increase year payments share efforts business print at our as debt were was accurately our from of The quarter consider stems the does to the due our to inventory of the end, current acquisition $XXX.X continue well improvement with $XX.X digital quarter. we year. will continue million as of inventories the sales. range of timing that company, to end

turn I'll back Now for final Bob to comment. it over a

Robert Humphreys

Deb. second We gross of We fulfillment should areas, year. our upbeat growth a look retail new cost Despite and category first in and profit second still-challenging half organic continue number the a to from pressures performance remain investments half and pleased incremental more driven the about improvements, in the year. the environment customer with benefits Thanks, and products the and we're higher our half of margins fiscal for of XXXX base and print by overall, extensions, model. the of broadening in in digital see the

we're products, move to capitalize third for viewers new we the At functionalities, plan platform to we're we'd back told, of operate fleece we and shareholders move increase be manufacturing our and in-house, grow additional Our half glad to answer All through volumes finding and our - of believe the to our a value quarter. capacity point, might create to to our productions the and opportunities as efficiently during year. the more such this our have. questions on operator, in the any position as continues

Operator

Capital. Dave Roth Certainly. We'll question our [Operator from take Instructions] first King with

Dave King

Good afternoon. Thanks.

Deborah Merrill

Dave. Hey,

Dave King

then, business, leveraging quarter? So of contribution volume some the fixed improved about business, as you have that a you DTGXGo that take in then, if out? - And efficiencies do portion the from was you can able with terms you of in what other forward? you Did Thanks. the the costs synergies, bit? are and already look acquired revenue some of were And already what talk we the the to will, on

Deborah Merrill

Sure.

us million the acquisition So of gave about $X.X revenue.

- on year. a were that even growth up the sales So about prior acquisition, on had we over X% without

owned only weeks during three We business good. that's for year. So the that

those quarter, going not period was did will far as what So combining range certainly, we what opportunity in do across a that functionality reach we of costs fixed structures business time, back-office and But business more print to year, that as taking start ship and as cost really June leverage have the is through able important out, consumers now is full out two the to even we have which as of that progress to in would the we time. then geographic U.S., that the broadest just I to reach say in for we three reach for the the businesses. digital we've through of be entire an there. week in X-day X- a got in

So we're that, the existing new partners opportunities our capability. us grow international for excited about gain to U.S. then has our and the that in shipping partners, and both with

Dave King

early so tell? April as then in, Have a you front seen far, Or a it to and that? too that demand call it, on of any - increased result May May as is

Deborah Merrill

the there that I would out in excitement marketplace. there say is

that that with. new a with they are and That's key that work We aspect with partners we in the very excited existing partners. conversations with seen have our potentially

So our is and the velocity meeting in our at point. expectations that this expectations business exceeding

Dave King

Great. Switching gears.

the do are characterize realizing improvements you get sort don't the what I maybe? to but there you know way are - more is, guess, how What's margins see target? there? it Soffe, me, what cost what And expect you opportunity where importantly should what do that the And I there? as for currently? And right to where the of be? you're

Robert Humphreys

have reductions over from last the Yes. made we've year. been of Cost improvements some headcount the

printing some that. fuller running performance quarter. manufacturing Some showing screen schedules of screen our more in that this areas, was to up in better contributed areas, already performance, printing our in and all Better

to would and now. we've the would year like next we So good previously, at there. margins low would to to do that as It's far still we year single-digit to scale And efficiently to. work as the increase operating military improve running so We and as to today. got see operating we great get expect generating and in the next Soffe we said now, like There's in table the with the opportunity as the right it mid-single-digit and on but see to table dynamics margins the wins what of what based changing that's set, kind with we that opportunities marketplace we as. see the in Made on right on America, into

Dave King

prior growth the how about what driving be it'll And guess, Buckle in I Dillard's like then back. guess, portion, a then bit lastly quarters? you I'll launching me, I And then, sell-through? for looks in? decelerated and business can be you the that? step Salt many is terms performing say talk And from Life, locations the how might of then on did

Robert Humphreys

Yes.

are So our no our And that XX months areas and last along bases fiscal the their when customers cycles quarters. don't really, always geographic storm's customer hurt the with and ordering match over, people ordering. doubt have

getting of the So all have some you back Florida still are just and Keys now that up.

spring and they to miss this business. have certainly, year, the ordering would been in later some what of some we'll So were extent,

retailers where major purchased pressure, product Way our front affects our of it's under business briskly. But that so out some at have consumers, financial Downer in are too. You getting still is and some

already. products this We lot of huge out to are had of sold performance We've a that. for our response year,

So we going at along. good sell about feel The has The how product Buckle. that's well

over store in a XXX initial Dillard's geographic were more those worked would now shipping doors and then all think some lot offerings rollout. as are filling finally in they shipping earn fill-in encouraged business and They were like And we'll started And for space in some we've on of of stuff that. feel location. time each the to time doors Buckle we're their their of got a We doing instructions we I love the to have. be reshipping orders. and expanding locations, and

them So I in think West five of their Coast location.

Life. So customer about base Salt how building really good that is feel in out

You get but when things globally, you look are on it some shocks going the to there. at good system,

Operator

We'll go Wilen Management. Instructions] with [Operator to Wilen Jamie next

Jamie Wilen

How questions. indeed of couple a on follow-up a doors Just does Dillard's Dave's many have?

Robert Humphreys

XXX. it's believe I

Jamie Wilen

Okay. XXX and inventory And June? have have load April a stores those we'll a we full in shipping through - in started

Robert Humphreys

getting times. are different product doors at Different

expand product already considering Some of their base. are them to

to in inventory rollout the from don't give yes, I the is But, will there. load. through So want June the and summer, the idea every getting same and go we'll exact that store be you

Jamie Wilen

Okay.

doing on the to how a doors - the You those get of function out important is direct-to-consumer there? the is people side. more mentioned California and California extremely it that well things watching are more, videos than actual do Is in fishing it's to

Robert Humphreys

a sells it's done of and stores around the things. and that things. Life of sponsorship out there the like paddleboard fishing we When Diego, front Salt it with of done marketplace, think get I San We've our And products. California Well, our with the product well. have well combination communities, games marketing in

and while So doing to - brand and and there over faster, be brand just recognition building up astronomically, I is you'd eyeballs people it's retail I right band are getting it we're the on brand, are sales product. that the traction last and there, year. clearly, think mean, And building door way. the the bigger really, buying and love The

so they put now encouraging. have they're And there, above XX% that's buying buying, clip people really Where and in stake at ground last come year. seen, and the to XX% a and started a we've

Jamie Wilen

Got you.

on how it's company I brewing going work? Is the we're On of fee to company. arrangement, some to regional brewing going assume a get sort royalty that

Robert Humphreys

Yes.

from then venture that we was and joint owned what licensee is joint venture the us. the that we So did XX% of,

partner - from is the Florida. based we'll also joint get a So in the royalty there And venture. our

from in, distribution it's now. I states is currently partner XX Our believe standpoint a

some time the that apparel. for that So will behind the with we're let it starting we'll grow it keep of and the in we Florida growth in idea Florida,

Jamie Wilen

debut that's in Okay, going and the to fall?

Robert Humphreys

That's correct.

Jamie Wilen

Okay.

that how growing? the And space? How big on-demand is acquisition space. is Gun Art quickly and market market the On it

Robert Humphreys

has people it's that to where digital Well, what the that it is, an if looked And tees marketplaces. because look by the a it's, after. big you if look that your $XXX probably today, marketplace, How vast all on it get of seems on think graphic you can go you apparel their it the that into space or we have to like backs so environment wild, would digital long there. million you around can you run at not supplier to it's and we're opportunity the those imagination far, gone at I call really be, revenue can let

e-commerce So really scratched the can It's just consumer. a of how And of a way it's it's like a even investment a buy with we will and printed cost-effective to and benefit now. in retailers be. this be It's think huge efficient service surface the to to it what inventory. benefit able and business and benefit to to they in sites traditional quick no

So of it lot a checks boxes.

Jamie Wilen

on to that - other And do on have product? our the take of on-demand them we how more advantage brands

Robert Humphreys

were that success. we Junkfood some with with doing Well,

of I Salt think point, appropriate Soffe. it was added when We've now, And that be a we in may for right business. it about Life. XX%, at we're that But at online that some their revenue way. sold brand XX% different managing

Robert Humphreys

Delta what's as now divesting And the company on-demand kind Salt more of forward? going Life, Junkfood, digital transformed adding of the more and you've seasonality Okay. with

Deborah Merrill

was quarters of as say base June become with But and that again, of that still than becoming shifts against we it gaining September answer quarter I spring it the out the years, strongest season certainly business up but shift the seasonality the product in have that speed as over last the has quickly bit, our bit June less quarter. strong I mean, in brands are selling, still that we've different does just that a you a - the flattened that's and March but a have quarter. the mean, I seasonality would

Robert Humphreys

is And holiday very, you our sites, affects even fleece our big the That fast-growing our quarter, for obviously, the have DTGXGo shopping. with And still us. which December product also very in growth business. a all category e-commerce

December So that you're see as growth definitely in continued going to a quarter well.

Jamie Wilen

first And half. stronger the be gross bit in the of mentioned Obviously, margins half a little seasonality. you in Okay. back should

business. what on-demand half? But an increase are you for looking the of You've first kind got more versus

Robert Humphreys

think, not I year. So comparison first to half, our really the just the prior it's to

we we to XXX that in so, your point, be, achieved points prior And to expect year. and oh, basis over what seasonality, would XX in to comp the

is system getting have increases and the what happened also affect you, that what's made, of but by So DTGXGo to the you through then parts points that. price it more will

are the we've some our cost. some raw that through continue on with they So and our more of synergy prices and do pressure work got cost we as transportation have businesses, material now we We've on that price increases labor got pricing system. flowed to and seeing cost,

Jamie Wilen

where Okay. it And ability for through? cotton stand on is to pricing-wise, and you price-wise, where industry pass do the everyone the

Robert Humphreys

pricing we Well, and exactly inventory have fixed. our say ever don't where in we what is our cotton

you believe good to is, key in can where far We But and the that has say would and down commodity cotton, in road. marketplace are continue replacement not cotton at cost the all inflation a little look particularly to been up to maybe I increased reasonably has in come down, balance. bad. good or good think the volatility so the And products, shape, that it's we pricing, if reflect I today, and reasonably are through cost so that

Operator

Management. We'll with Wilen [Operator Wilen back Instructions] to Jamie go

Jamie Wilen

Okay, couple other of quickies.

You be this year what to expect around your this tax fiscal point? at rate for

Deborah Merrill

XX%, discrete the of that, about But about there law XX%. item excluding XX%, In of change. the XX% outside tax

Jamie Wilen

costs, the that. units must little more be Okay, Yet and down. even than percentage-wise, with working capital-wise, obviously, cotton higher down inventory a your is bit

Deborah Merrill

be That would correct.

Jamie Wilen

you still And comfortable you inventory it is take in are you lower that your with - environment? ideal an the position can or -

Robert Humphreys

areas. some wish had of of now, So think be inventories products performance on more we say, and I thing. we sort Life Salt hand we inventory would efficient that we in can Right in more yes,

some the to manufacturing months or things inventories. us I always show we've to efficient on work nine how we'll we share that reducing more some are improvements but in are on helping there are platforms - our we and on starting work being implemented that we are as last continue products that So that, with think our six do, But inventories.

Jamie Wilen

mentioned that moving cost to production impact fleece in-house. your going Bob, your Okay. for structure that? you How is

Robert Humphreys

it's ago of Well, sundry this here building to various amounts source on made and some in on our locations there fleece of and in but shorten military. the bits lower We a cost fleece business time X.X Delta a X, and platform, it and started we going little replenishment. also our structure lead years kind for Apparel, was specialty and

are now primarily that So just ordered produce finishing some to we installing equipment we some nice months nappers ago, new fleece. [whip] open

not excited lower on our absorbing will most we importantly shortening overhead our cost for fixed about the replenishment. So of facilities, in it, and is but cost own time lead the we'll thing that we're start only then our probably

Jamie Wilen

And in third and the of decent. half it for and pretty at then I strong better lastly, or last just from I than East fourth September year, seem year, into would should rough bit August Coast, the the third Texas quarters, the was back quarter, you. as assume which we look hurricanes seasonally were certainly the and are fourth a little when recorded quarter second, a the our would with look Okay. And good I be

should last September significantly So as quarter be comparison-wise, year's - better this well? be could year's than

Robert Humphreys

price increased to system. Not through product the we to Yes. but increases quarter the cotton were ship that quarter we with getting starting quarter, the cost moved And prior it. whole remember, year, started in in last during

So...

Operator

like closing to call And I any Deb with over turn in marks. the back queue, Merrill would the no to additional questions or further with

Deborah Merrill

updated June appreciate look Apparel, initiatives we you. we on in we your you interest quarter. Well, Thank and our keeping through forward as the to Delta go

Operator

participation. does for This you We today's thank conference. your conclude

disconnect. may You now

Delta Apparel (DLAPQ) 7 May 182018 Q2 Earnings call transcript