Executive Summary

Net sales were $110.3M (-16% y/y) with a consolidated gross margin of 14.7% and diluted EPS of -$1.00; softness in Delta Direct and Global Brands weighed on results while Salt Life and DTG2Go delivered record quarters .
Salt Life grew net sales 16% to $19.0M with gross margin expansion to 59.0% and higher operating income, reflecting stronger direct-to-consumer mix .
DTG2Go revenue increased ~18–20% y/y, supported by “digital-first” adoption and network consolidation; management highlighted a Q3 launch of an on-demand B2B portal to capture small-run demand .
Inventory decreased sequentially to $243.2M while total net debt rose to $194.3M and availability declined to $12.8M; focus remains on working capital reduction and cycling high-cost cotton to improve second-half margins .
External sources show Q2 EPS (-$1.00) missed by ~$0.52 and revenue ($110.34M) missed by ~$$14.37M; S&P Global consensus data was unavailable via our system and thus not used .

What Went Well and What Went Wrong

What Went Well
- Salt Life achieved record quarterly sales and profitability with gross margin expanding to 59.0% on higher direct-to-consumer mix; “record sales pace” with double-digit growth across retail and eCommerce channels .
- DTG2Go posted ~18–20% topline growth y/y, benefiting from digital-first adoption and network optimization; management sees “multi-decade growth runway” in digital print .
- Retail Direct delivered double-digit sales growth, aligning with nearshore trends and consumer-ready product strategy .
What Went Wrong
- Delta Group gross margin fell to 5.5% (adjusted ~6.5% excluding $0.9M plant curtailment costs), and consolidated gross margin compressed to 14.7% due to inflationary input costs and production curtailments .
- Operating income swung to a loss of $5.4M, with net loss of $7.0M; interest expense rose to $3.7M amid higher rates and borrowings .
- Availability under the revolver declined to $12.8M while net debt rose to $194.3M; sequential inventory reduction continues but levels remain elevated vs prior year .

Financial Results

Metric	Q2 2022	Q1 2023	Q2 2023
Revenue ($USD Millions)	$131.7	$107.3	$110.3
Gross Margin %	25.5%	12.7%	14.7%
Operating (Loss) Income ($USD Millions)	$14.3	($2.6)	($5.4)
Net (Loss) Income ($USD Millions)	$10.1	($3.6)	($7.0)
Diluted EPS ($USD)	$1.44	($0.51)	($1.00)

Segment Net Sales and Margins

Metric	Q2 2022	Q2 2023
Delta Group Net Sales ($USD Millions)	$115.3	$91.3
Salt Life Net Sales ($USD Millions)	$16.4	$19.0
Salt Life Gross Margin %	52.4%	59.0%

Key KPIs

KPI	Q2 2022	Q1 2023	Q2 2023
Inventory ($USD Millions)	$197.7	$258.9	$243.2
Total Net Debt incl. leases & cash ($USD Millions)	— (press release cites +$40.9M y/y)	$185.0	$194.3
Cash + U.S. Revolver Availability ($USD Millions)	—	$27.2	$12.8
CapEx ($USD Millions)	$10.5 (prior-year Q2)	$2.1	$2.0

Note: Prior-year net debt figure not disclosed numerically in Q2 2023 release; only y/y change provided .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Consolidated Revenue	FY 2023	Not provided	Not provided	Maintained (no quantitative guidance)
Gross Margin	FY 2023 H2	Not provided	Expect sequential improvement as high-cost cotton cycles out and curtailments subside	Qualitative improvement commentary
CapEx	FY 2023	Not provided	Lower than 2022; focus on Salt Life retail, IT, manufacturing efficiencies	New qualitative framework
Liquidity/Availability	FY 2023	Minimum availability thresholds per Ninth Amendment	Not quantified beyond compliance status	Maintained (covenant framework disclosed)

Management did not issue quantitative ranges; the 10-Q and press release provided qualitative outlook emphasizing inventory reduction, margin recovery, and working capital discipline .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2022 and Q1 2023)	Current Period (Q2 2023)	Trend
Digital Print (DTG2Go)	Double-digit FY growth; demand exceeds capacity; plan to reduce basic tee production to manage costs	~18% y/y growth; consolidation into dual-purpose facilities; new B2B portal launching in Q3 to capture small-run orders	Strengthening growth and capability expansion
Salt Life brand	Record Q1 sales (+17% y/y); retail and eCommerce acceleration	Record Q2 sales (+16% y/y), gross margin 59%; licensing added Salt Life Home to expand royalties; 23rd store opened in NJ	Strengthening brand momentum and margin mix
Supply chain/inventory	Production curtailments, high input costs and unabsorbed fixed costs; inflationary cotton impact	Continued inventory overhang in industry; sequential inventory decrease; working capital focus; cycling through high-priced cotton	Gradual improvement expected H2
Nearshoring/retail direct	Interest from brands in nearshore solutions; Retail Direct strategy highlighted	Double-digit sales growth in Retail Direct; emphasis on consumer-ready products near point-of-sale	Positive momentum
Financing/covenants	Revolver amended (SOFR-based); FCCR adjustments; later Ninth/Tenth Amendments	Ninth/Tenth Amendments suspend FCCR during accommodation period and adjust EBITDA add-backs; availability thresholds disclosed	Increased flexibility under credit facility

Management Commentary

“Our second quarter performance highlights the durability and inherent advantages in our multi-market strategy during uneven demand cycles.” — Robert W. Humphreys, CEO .
“Our Salt Life business continues to capitalize on the growing popularity of its lifestyle brand… achieving both record sales and profitability during the quarter.” .
“We continue to see a multi-decade growth runway in digital print… players in the traditional decorated apparel markets increasingly recognize its speed-to-customer and other advantages.” .
“We plan to prioritize higher-margin and quicker-turn ‘consumer ready’ products… and working through the remainder of last year’s high-price cotton inventory sets the stage for improved operating results as we move through the second half.” .
Call remarks emphasized DTG2Go portal launch timing and adoption of digital-first strategies to capture small-run and replenishment orders .

Q&A Highlights

Analysts probed demand softness in Delta Direct and the timing/impact of margin recovery as high-cost cotton cycles out; management reiterated sequential margin improvement expectations in H2 .
Discussion on DTG2Go’s B2B portal opportunity targeting ad specialty/promotional markets to capture small-run orders with faster fulfillment .
Clarifications around Salt Life licensing expansion and direct-to-consumer mix driving margin gains .

Estimates Context

S&P Global consensus estimates were unavailable via our system for DLA in Q2 2023 and thus are not included here.
External sources indicate Q2 EPS of -$1.00 missed by ~$0.52 and revenue of ~$110.34M missed by ~$$14.37M; these are not S&P Global figures and are provided for context only .

Key Takeaways for Investors

Salt Life momentum and mix shift toward DTC are structurally accretive to margins; continued store openings and licensing (Salt Life Home) add diversified revenue and royalty streams .
DTG2Go remains a growth engine; portal launch and integrated blank tee supply should capture incremental small-run demand and improve conversion/utilization .
H2 margin recovery hinges on cycling high-cost cotton, normalized production cadence, and continued inventory reduction; monitor gross margin trajectory and operating leverage .
Liquidity and leverage bear watching: net debt increased and availability fell; covenant flexibility via Ninth/Tenth Amendments provides runway but underscores need for working capital discipline .
Retail Direct and nearshore capabilities align with macro supply-chain shifts; expect sustained traction in consumer-ready, decorated product channels near point-of-sale .
Short-term: trading catalysts include margin inflection in H2, DTG2Go portal execution, and Salt Life licensing updates; medium-term: thesis rests on mix shift to higher-margin channels and improved cash conversion as inventory normalizes .

Citations:
Press release and selected financial data: .
10-Q and MD&A: .
Q1 2023 press release: .
Q4 2022 press release: .
Earnings call transcript excerpts: .
Credit amendments: .

DELTA APPAREL, INC (DLA)·Q2 2023 Earnings Summary