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DA

DELTA APPAREL, INC (DLA)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 FY2024 was another challenged quarter: revenue fell 25.5% YoY to $79.9M with GAAP gross margin down 180 bps to 10.9% as production curtailments weighed on absorption; GAAP EPS was ($1.22), Adjusted EPS ($0.94) .
  • Salt Life grew sales slightly to $10.3M on DTC strength, but segment gross margin compressed to 45.4% (from 57.0%) and posted a ($2.1M) operating loss; Delta Group posted $0.5M GAAP operating income and $2.7M adjusted operating income (3.8% margin) despite pricing pressure from excess global capacity .
  • Liquidity remains the key risk and catalyst: total net debt fell ~26% since Mar-23 to $144.4M, but cash plus ABL availability was only $7.4M, and management stated it expects to obtain additional near‑term liquidity; strategic options and a sale-leaseback are under evaluation .
  • Consensus estimates via S&P Global were unavailable for DLA this quarter; third‑party sources indicated EPS of ($0.94) vs a consensus of ($0.91) and revenue below expectations, implying a modest miss on EPS and sales, but we anchor on actuals given lack of SPGI mapping .

What Went Well and What Went Wrong

  • What Went Well

    • Salt Life delivered sales growth on the strength of direct‑to‑consumer; management noted a new Virginia store “has exceeded expectations to date” .
    • Delta Group posted positive adjusted operating income of $2.7M (3.8% margin) after adding back production curtailment and restructuring costs, showing underlying profitability in the core platform .
    • Balance sheet progress continued: inventory declined to $196.3M (down ~$16M QoQ and ~$62.5M YoY) and total net debt declined to $144.4M (~26% lower vs Mar‑23), reflecting working-capital and capital optimization efforts .

  • What Went Wrong

    • Demand remained sluggish across Activewear’s three go‑to‑market channels; excess global manufacturing capacity drove pricing pressure, contributing to a 25.5% revenue decline YoY to $79.9M .
    • Gross margin fell to 10.9% (12.6% adjusted), primarily from production curtailments; Salt Life gross margin dropped to 45.4% (vs 57.0% LY) due to inventory timing that management expects to reverse in Q2 .
    • Liquidity tightened: cash plus ABL availability was $7.4M, and net interest expense rose to $3.6M (vs $2.9M LY) on higher rates; management explicitly stated it expects to seek additional near‑term liquidity to fund operations and meet facility obligations .

Financial Results

Overall results vs prior periods and estimates (S&P Global estimates unavailable):

MetricQ3 FY2023 (Jul 1, 2023)Q4 FY2023 (Sep 30, 2023)Q1 FY2024 (Dec 30, 2023)S&P Global Consensus
Revenue ($M)$106.3 $91.4 $79.9 n/a (mapping unavailable)
GAAP EPS($0.90) ($2.34) ($1.22) n/a
Adjusted EPS$0.17 ($0.72) ($0.94) n/a
GAAP Gross Margin %13.1% 11.2% 10.9% n/a
Adjusted Gross Margin %22.7% 15.9% 12.6% n/a
GAAP Operating Income ($M)($4.5) ($17.0) ($4.9) n/a
Adjusted Operating Income ($M)$5.8 ($2.1) ($2.8) n/a
GAAP Net Income ($M)($6.3) ($16.4) ($8.5) n/a
Adjusted Net Income ($M)$1.2 ($5.0) ($6.6) n/a

Segment performance:

SegmentQ3 FY2023 Revenue ($M)Q4 FY2023 Revenue ($M)Q1 FY2024 Revenue ($M)Q1 FY2024 GAAP Op Inc (Loss) ($M)Q1 FY2024 Adjusted Op Inc ($M)
Delta Group$89.1 $78.9 $69.6 $0.5 $2.7
Salt Life Group$17.2 $12.5 $10.3 ($2.1) n/a

KPIs:

KPIQ3 FY2023Q4 FY2023Q1 FY2024
Inventory ($M)$226.2 $212.4 $196.3
Total Net Debt ($M)$166.2 $165.3 $144.4
Cash + ABL Availability ($M)$14.4 $14.2 $7.4
Capex ($M)$1.5 n/a disclosed$0.3

Notes:

  • Q1 FY24 adjusted metrics exclude Production Curtailment Costs and Restructuring Costs as detailed in the non‑GAAP reconciliations .

Guidance Changes

MetricPeriodPrevious Guidance (as of Dec 7, 2023)Current Update (Q1 FY2024)Change
Net SalesFY2024$400–$415M No explicit update provided in Q1 releaseNot reiterated
Operating MarginFY2024~2.0%–3.5% (sequential improvement back half) No explicit update provided; management focused on liquidity and cost actions Not reiterated
D&AFY2024~$15M No updateMaintained by default
CapexFY2024~$5M No updateMaintained by default
Liquidity/FinancingNear-termn/aCompany believes it will need additional liquidity near term; options under evaluation New disclosure

Earnings Call Themes & Trends

TopicQ3 FY2023 (Q-2)Q4 FY2023 (Q-1)Q1 FY2024 (Current)Trend
Demand & Channel TrendsSigns of demand improvement in parts of Activewear; Salt Life DTC expansion Continued light demand; planning for improvement in new fiscal year Overall sluggish activity across Activewear’s three channels Stabilizing to soft
Pricing/CapacityProduction curtailments and elevated cotton costs weighing on margins Production curtailments and cotton cost drag; adjusted GM 15.9% Excess global capacity driving pricing pressure Ongoing pressure
Cost RestructuringConsolidation of DTG2Go operations; footprint optimization Strategic actions; impairment at DTG2Go Offshore footprint reduced to two countries; workforce reductions Executing
DTG2GoOperational recalibration; satisfaction initiatives Positioned for return to growth FY24 On‑quality performance improved; shipments above plan but holiday demand below forecast Improving ops; soft demand
Salt LifeDTC expansion; two new stores; strong eCommerce Expect return to growth in FY24, led by DTC Sales up slightly; new VA store exceeded expectations; margin hit from inventory timing DTC strength; margin timing
Liquidity/LeverageNet debt ~15% lower vs Mar‑23 Net debt down YoY; ABL availability $14.2M Net debt down to $144.4M; cash + availability $7.4M; intends to obtain additional liquidity Tightening availability

Management Commentary

  • “Many of the unfavorable market dynamics we saw across our business and the activewear industry last year persisted during our first quarter… Our debt and inventory levels were down more than 20% year‑over‑year… We completed similar consolidation work in our DTG2Go digital print business and significantly reduced other areas of our workforce” — Robert W. Humphreys, CEO .
  • “Salt Life… registered sales growth for the quarter on the strength of its direct‑to‑consumer channels, and its recently opened retail location in Virginia has exceeded expectations to date… At Activewear… excess global manufacturing capacity in the market continued to drive pricing pressure” .
  • “With the challenging start to our fiscal year… we remain tightly focused on managing liquidity and working capital… [and] remain committed to monetizing our real estate portfolio through a sale‑leaseback” .
  • Liquidity statement: “We believe we will need to obtain additional liquidity in the near term to fund our operations and meet the obligations specified in our U.S. revolving credit facility” .

Q&A Highlights

  • Our document system could not retrieve the full Q1 FY2024 call transcript; external sources host the full transcript (e.g., Yahoo Finance, Seeking Alpha, MarketScreener) .
  • Based on the press release and consistent prior-quarter commentary, likely focus areas included: liquidity plans (near‑term financing options), timing of margin recovery as production normalizes, pricing pressure from excess capacity, DTG2Go operational improvements and holiday demand shortfall, and Salt Life’s DTC strategy and margin timing reversal expected in Q2 .
  • Please refer to the linked transcripts above for verbatim Q&A exchanges .

Estimates Context

  • S&P Global (Capital IQ) consensus data was unavailable for DLA in our system this quarter due to a missing mapping; therefore, we cannot present SPGI consensus comparisons for revenue or EPS. Values retrieved from S&P Global were unavailable due to missing CIQ mapping.
  • Third‑party sources indicate EPS of ($0.94) vs a consensus of ($0.91) and revenue below expectations, implying a modest miss, but we anchor on reported actuals given lack of SPGI mapping .

Key Takeaways for Investors

  • Liquidity is the near‑term swing factor: sub‑$10M cash + availability and explicit intent to seek additional liquidity heighten financing risk and could drive volatility; watch for financing announcements or sale‑leaseback execution .
  • Underlying profitability ex‑curtailment is visible in Delta Group (Q1 adjusted operating income $2.7M, 3.8% margin), suggesting earnings power as production and demand normalize .
  • Pricing pressure from global overcapacity remains a headwind; expect continued gross margin drag until capacity/demand rebalance improves pricing .
  • Salt Life’s DTC growth is a bright spot; management expects Q1 gross margin timing issues to reverse in Q2, offering potential sequential margin improvement in that segment .
  • Inventory and debt reductions are tangible; continued working‑capital optimization should support liquidity, but the lower ABL availability underscores urgency .
  • Lack of reiterated FY24 guidance (last given in Dec‑23) plus the liquidity disclosure suggest elevated execution risk to prior targets; monitor any updated outlook alongside financing plans .
  • Positioning: Near‑term trading skewed by financing headlines; medium‑term thesis hinges on cost restructuring benefits, normalized production, and DTC growth offsetting pricing pressure .

Additional references and materials:

  • Q1 FY2024 8‑K and press release with detailed non‑GAAP reconciliations .
  • Prior quarter releases for trajectory and prior guidance .
  • External transcript links (full text) .