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DA

DELTA APPAREL, INC (DLA)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 FY2023: Net sales $106.3M; gross margin 13.1%; operating loss ($4.5M); diluted EPS ($0.90). On an adjusted basis excluding Production Curtailment & Cotton Costs, adjusted gross margin was 22.7%, adjusted operating income $5.8M, and adjusted diluted EPS $0.17 .
  • Management signaled normalization: cotton inflation and retail inventory overhang receding; initiated cost restructuring and debt/inventory reduction. Introduced FY2024 guidance: net sales $410–$425M and operating profit margin 3.25%–4.25%, with sequential improvement in gross margin/operating profit and back-half topline growth .
  • Salt Life resilience: gross margin expanded to 50.5% (+30 bps y/y); continued brand reach expansion (two new NY stores) and strong eCommerce growth .
  • Balance sheet focus: inventory reduced to $226.2M; total net debt cut to $166.2M; capex restrained to $1.5M in Q3 .

What Went Well and What Went Wrong

What Went Well

  • Salt Life gross margin expanded to 50.5% (from 50.2% y/y), supported by direct-to-consumer strength; brand footprint expanded with two new NY stores and strong eCommerce growth .
  • DTG2Go recalibration completed and proprietary customer order portal launched, aimed at catalyzing industry migration to digital and increasing market share .
  • SG&A fell to $18.5M (from $22.4M y/y) and SG&A/sales improved to 17.4%, reflecting cost discipline amid softer demand .

What Went Wrong

  • Gross margin compressed to 13.1% (vs 24.2% y/y) due to unabsorbed fixed costs from production curtailments and elevated cotton prices; Delta Group gross margin fell to 5.9% (vs 19.1% y/y) .
  • Profitability deteriorated: operating loss ($4.5M) vs operating income $9.3M y/y; net loss ($6.3M) vs net income $6.2M y/y .
  • Liquidity/interest burden: cash/availability at $14.4M and interest expense rose to $4.049M in Q3, reflecting higher rates and working capital needs .

Financial Results

Quarterly P&L (trend view)

MetricQ1 2023Q2 2023Q3 2023
Net Sales ($USD Millions)$107.295 $110.335 $106.319
Gross Margin (%)12.7% 14.7% 13.1%
Operating (Loss) Income ($USD Millions)($2.626) ($5.354) ($4.461)
Net (Loss) Earnings ($USD Millions)($3.599) ($6.998) ($6.292)
Diluted EPS ($USD)($0.51) ($1.00) ($0.90)

Year-over-year comparison (Q3 FY2023 vs Q3 FY2022)

MetricQ3 2022Q3 2023
Net Sales ($USD Millions)$126.875 $106.319
Gross Margin (%)24.2% 13.1%
Operating Income ($USD Millions)$9.295 ($4.461)
Diluted EPS ($USD)$0.88 ($0.90)

Adjusted results (Q3 FY2023)

MetricGAAP Q3 2023Adjusted Q3 2023
Gross Margin (%)13.1% 22.7%
Operating (Loss) Income ($USD Millions)($4.461) $5.817
Net (Loss) Earnings ($USD Millions)($6.287) $1.216
Diluted EPS ($USD)($0.90) $0.17

Segment sales and margins

SegmentQ1 2023 Sales ($M)Q2 2023 Sales ($M)Q3 2023 Sales ($M)Q3 2022 Sales ($M)Q3 2023 GM (%)Q3 2022 GM (%)
Delta Group$97.0 $91.3 $89.1 $106.0 5.9% 19.1%
Salt Life Group$10.3 $19.0 $17.2 $20.9 50.5% 50.2%

KPIs and balance sheet

KPIQ1 2023Q2 2023Q3 2023
Net Inventory ($USD Millions)$258.891 $243.167 $226.196
Total Net Debt incl. leases & cash ($USD Millions)$185.0 $194.3 $166.2
Cash on hand & U.S. revolver availability ($USD Millions)$27.2 $12.8 $14.4
Capex ($USD Millions)$2.1 $2.0 $1.5
Net Interest Expense ($USD Millions)$2.890 $3.723 $4.049

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($USD Millions)FY2024Not provided $410–$425 Introduced
Operating Profit Margin (%)FY2024Not provided 3.25%–4.25% Introduced
Gross MarginFY2024Not provided Sequential improvement expected Qualitative improvement
Operating Profit (sequential)FY2024Not provided Sequential improvement expected Qualitative improvement
Topline Growth TimingFY2024Not provided Back-half growth expected Introduced

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Cotton inflation & production curtailmentInflationary raw material costs and production curtailment drove pressure; manufacturing shutdowns to recalibrate output Elevated cotton pricing and curtailments materially impacted results; signs of normalization emerging Improving normalization
Demand and channel mixDouble-digit growth in Salt Life and DTG2Go; Retail Direct grew; Global Brands/Delta Direct pressured by high retail inventories Demand improvement in parts of Activewear (mass/mid-tier), Salt Life expanding reach and eCommerce growth Mixed but improving in select channels
DTG2Go strategy/technologyRecord sales and “Digital First” advantages; hyper-local fulfillment Fleet recalibration completed; launch of proprietary customer order portal to catalyze digital migration Strategic execution advancing
Cost restructuringWorking capital and inventory reduction focus; capex moderation “Needle-moving” cost restructuring; debt/inventory reduction continued Ongoing cost actions
Salt Life brand expansionRecord sales/profitability; retail/eCommerce growth; licensing expansion Two new NY stores; continued eCommerce strength; 50.5% GM Sustained brand momentum

Management Commentary

  • “Two major trends… elevated cotton pricing and demand destruction from high inventory levels… are receding and we are moving into a more normalized operating environment.” — Robert W. Humphreys, Chairman & CEO .
  • “We… executed on strategies to counteract them, including significant reductions in inventory and debt as well as several needle-moving cost restructuring initiatives.” — CEO .
  • “DTG2Go… completed a comprehensive recalibration… and… launched a proprietary customer order portal that… will catalyze more industry migration to digital and increase our market share.” — CEO .
  • “For fiscal year 2024, we anticipate net sales in a range of $410 to $425 million generating operating profit margins of 3.25% to 4.25%...” — CEO .

Q&A Highlights

  • The company scheduled its Q3 earnings call with replay available; transcript access via our document tool was inconsistent. Key clarifications in prepared remarks and release focused on normalization of cotton/input costs, the impact of production curtailments on margins, and FY2024 guidance framing sequential improvement and back-half growth . External transcript sources: Seeking Alpha and GuruFocus host the Q3 call transcript .

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 FY2023 EPS and revenue was unavailable due to a CIQ mapping issue for DLA; we attempted retrieval and could not obtain values. As a result, we cannot provide a formal actual vs. consensus comparison grounded in S&P Global data [SpgiEstimatesError].
MetricQ3 2023 ActualQ3 2023 Consensus (S&P Global)
Revenue ($USD Millions)$106.319 Unavailable (S&P Global mapping issue)
Diluted EPS ($USD)($0.90) Unavailable (S&P Global mapping issue)

Key Takeaways for Investors

  • Operating environment is normalizing: cotton inflation and retail inventory overhang easing; expect sequential margin/operating profit improvement into FY2024, with back-half revenue acceleration .
  • Core headwinds remain visible in Delta Group margins; the adjusted metrics show underlying profitability when excluding curtailment/cotton, but absorption risks persist until full normalization .
  • Salt Life offers defensiveness and brand-led growth (50.5% GM, store/eCommerce expansion), partially offsetting Activewear softness; continue to monitor wholesale dynamics and DTC leverage .
  • Balance sheet actions are tangible: inventory down ~$17M since Q2 and ~$(33)M since December; net debt cut to $166.2M; capex moderated, supporting liquidity preservation in a higher-rate backdrop .
  • DTG2Go digital pivot is strategic: fleet recalibration and new portal can drive share gains as on-demand migration accelerates; watch throughput/cycle times and customer adoption KPIs .
  • FY2024 guidance ($410–$425M sales; 3.25%–4.25% OPM) sets a base; execution on SG&A efficiency and gross margin recovery will be critical to achieving targets in a still-mixed demand environment .
  • Near-term trading catalyst: confirmation of sequential margin improvement and evidence of demand recovery at mass/mid-tier retailers; risk skew from interest expense and absorption costs if normalization stalls .