Delta Apparel (DLAPQ) 3 May 202020 Q2 Earnings call transcript

Good afternoon to everyone participating in Delta Apparel Fiscal 2020 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 of Delta Group.

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 by with the Securities and Exchange Commission, including the company’s most recent Form 10-K and Form 10-Q filed today. factors those cause or contained important differ results forward-looking identify from materially in documents that actual could to statements. These 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

go Executive the turn Delta’s over Officer, Bob call Please Chief now I’ll Chairman Humphreys. to ahead. and

and call. our afternoon how quarter impacted been and business on will business for our fiscal us highlight COVID-XX. I Good by pandemic. the I also thank our joining that I’ll with the you have XXXX how COVID-XX of the we’re through not second business earnings managing discuss current briefly results, parts

for stakeholders. fact, drive in through prevail and US difficult And confidence us accelerating for our additional the given CFO, value asset-based Apparel of facility. all including will results amendment on continue have our that to Deb an update financial which facility, are our actions our strengthen an more will discussion Delta our we call Merrill over period, I and the growth position, to taking to then financial flexibility to return to turn this momentum detailed within provides credit a our lending of

to on I navigate few through health situation, would serve. our take our into highlights our the dive and our of the discussed Call XXth. unique business results, as a I moment this to on I like employees, Business communities we we reiterate top Before focused safety Update a to priority want April our also reaffirm and on remains we customers that

retail these we’ve states have with stay able business to is retail where our store we operations. state been with our and initiatives, guidelines place local and many safer-at-home doors. guidelines reopen in operate monitoring to to in local, We compliance federal XX implemented branded orders. in be for did locations and it our are retailers, open While and appropriate Like when close mid-March in compliance shelter retail most determine to and statewide

we week, protocols and Coast Life and protect Greenville, our our South our enhanced in stores Carolina South with store Charleston, Salt Carolina, opened to employees. Last the safety customers

We also expect stores Life in Life Monday. and Salt in to store Florida open on Georgia the Columbus, Salt three tomorrow

it will monitor We continue in Salt is to California Florida, to the of Life reopen Carolina when to stores. North retail Soffe developments and our remainder determine appropriate and

of US and and customers digital staffed our printing X of needs the been continue and consumers. facilities centers to distribution our all and our have X of be All operational service to

distancing schedules they reduced to remained and social locations open, in many While all guidelines with with are have levels. local at more limited order comply business current staffing operating

decoration sell in start cut, the US facilities of Mexico the and been Our in since the New operating manufacturing have pandemic. also

in yet to reopen El to Our Honduras facilities word Honduras May, has scheduled in allowed on have due and be El when Currently, early and in come reopen. is Salvador temporarily since mandated government mid-March country closed to been shutdowns. no will Salvador

waiting production number to facilities the also of limit employees protocols in We’re which place, distancing and could of our may be level when other in learn allowed what social begins.

masks government of local groups in utilize facility as to distribution the producing on In well of which coronavirus, small in in purpose. Honduras Health the for masks being all and provisions sole both Services the face and have our Fayetteville, work we are this The Americans Department to as El sold North to for in Carolina, needs. our hospitals Salvador, US are the Human front as of support of healthcare workers facilities and battling line, well the spread

selling and for us to masks of also allows revenue actively face and producing cover ups coverings grade an Mexico and non-medical facilities, stream. and additional keep production the to workers the production our addition masks the government, are of face more In US in the employed we provides

of we be operate in on have in Given at business the model continue strength our our product inventory to orders, our business of and our sales as footprint our distribution and unique once centers. majority been based in combined a across geographic as business with diversification position Central capabilities. US-based remains our The anchored that US, we channels of located well good Mexico, with America broad the the

certain has approximately of hurt been Importantly, in been by XX% business and channels. in not our has growing COVID-XX, fact,

revenue branches of of Coast at the The particularly product board, military throughout Army, Navy including the across military, crisis. Our our our businesses. and X% Guard are We in channel Marines seeing and produce and the has performance consistent experienced strength all Marine over for Navy,

our Delta digital are brands channels, our printing sold websites, our of DTGXGo. XX% Apparel’s Over through and being partners, various business, sales retail the e-commerce consumer generated branded e-commerce sites our including of through

XXX% Life both year. consumer and last track to from are their than with Salt ago, in increasing fact, our Soffe saltlife.com In April, about from year more sites business double on a

emotional In also saltlife.com seeing our for coming Soffe in seeing carry to other site, the improved growth we’re products. is from strength and addition that sale our Soffe on The Soffe e-commerce products sites and only can clear a sites Soffe stream stores signal Life but soffe.com with have that until not a the Salt open, brick-and-mortar revenue strong connection brands consumers. nice it’s provide a

become exciting in disruption, the model the advantages of DTGXGo unique clearer and also marketplace. business, on trends seeing DTGXGo’s to shopping habits, this of traditional our supply integrated proprietary and it’s we’re in business chain time have with even the restrictions technology consumer fully But

seamless print solution tremendous only vertical a footprint with platform, fulfillment world with providing a advantage. manufacturing is a the broad and customers geographic in Being integrated competitive digital supplier the

is rapidly pandemic. customers, levels customers to daily more as disrupted have current received well Our business their from supply chain the during have DTGXGo been new April in existing receiving orders celebrated to holiday as onboarding season. that similar in

blank compared to year’s penetration usage XX% last jumped further in in the quarter experienced business, XX% and in XX% acceleration quarter. usage catalog which also the second We to of December DTGXGo Delta the in

to our output, six-foot facilities implemented as curfews and are distancing production we’ve the certain with Although in social guideline the limited comply is somewhat local backlog had make to by order governments. tremendous, adjustments in our we

In only its operating about has XX% addition, been on our facility output at in of in based normal Reno area. restrictions that

in on-demand encouraged However, we’re we meaningfully the post seeing future positive remain pandemic, this digital chain will trends throughout very companies rates model by and evaluate ongoing model for supply adoption their increase printing as believe business the for COVID-XX. the

to with of a are begins as growth. While well business we positioned off larger this US the to for believe uniquely we up, exit and anticipate pandemic base positioned a business do of open that leveling continued we

business in outside Catalog experienced involved the gathering were is non-existent. orders of Delta as Our canceled, an and retail driven business nearly from by events branding, much retail, traditional was closed and event as as people COVID-XX the mid-to-late corporate pandemic, virtually that impact every March

We businesses apparel return are disciplined replenish inventory are a slowly seeing as beginning in mass way. retailers to

to as t-shirts, in well our modestly times. to businesses priced including during a ad reopen, the see recessionary as purchase begin well certain decorated which our situations. starts catalog promotional have crisis US We we specialty done consumers business Overall, make to historically feel products, post does will that believe allows and times, good during product pick up tough

and range Callaway model nationally with of a Original exclusives, including brands of new product launched our our we January, Jack Nicklaus golfwear. customers categories with recognized providing broader lines wholesaler and products, distributor In Penguin,

new We continue view long-term a stream. this to as revenue additional distributor model

will produced believe cover a be As our needed selling ups, item which mentioned we and Delta earlier, we face are by small also distances. now staple larger

one-stop shop that make model them happy as We purchases. for our distributor be are their they apparel to also with

Our from on customer years. that for quarter FunTees the past been working business we’ve with as double-digit sales we ended the benefited diversification second our growth, two

supply manufacturing flexible and along the supply we services market full distribution offer in the As to importantly, with retail-ready United service and compliant, chain it partner, close platform, can products coverage. and our which chain nationwide States with provide technology the management is

launched we began that grow. the as are which broad fall, the to retail while direct business see soon our we’ll confident direct also continue currently as with partners customers, Along shipping by reopen, programs, shutdown, we retail retail impacted successfully our this to

were segments. act quickly prior COVID-XX manage forced to prudently. to experiencing we business across us based and strength To has of all broad our COVID-XX, summarize,

foundation of which approximately portion We’re a XX% operating during is our a of solid on business by times. actually significant COVID-XX, with accelerating these not hurt being

in sites a return We about position branded are uniquely pandemic quickly excited the to DTGXGo are momentum is on and positioned in to seeing and Delta this exit Apparel growth. profitability to business. our we our

Deb results our turn review detail. now more to discussion the Deb? over in I’ll to financial

Thank you, Bob.

strong drove by last gross sales XX%. COVID-XX the quarter two with we ago, month for decline solid weeks the results performance quarter, the of sales earnings our our share negatively and discussed than while were more As earnings the per in during impacted offset our second margin quarter with diluted up preliminary

despite Turning deliver to $XX.X our to curtailment year-over-year growth quarter-over-quarter costs. a we sales of with temporary approximately with our results, provided our profit headwind quarter X% the little track in in bit more We update. quarter preliminary another on to registering achieved business to results margin growth fiscal of million the gross sales are we second results down were and XXXX line gross Prior plant and X%. strong unplanned detail, COVID-XX, of

integration efficiencies. process performance was margin healthy improvements gross The manufacturing driven and by

increase quarter compared prior for $X.XX $X over EPS EPS of came curtailment compared Our a at or to pre-tax year. quarter, of the year EPS share non-GAAP adjusted which XX% million $X.XX for We of $X.XX, plant second costs. represents XXX% the nearly to increase achieved prior adjusting $X.XX, of the the approximate in in per

Group represents by declines the Group quarter, than quarter. March by Delta were during For and of business our as Delta second growth sales our in FunTees the XX% our catalog in of the was both month our business sales, Within to strong COVID. more both decline roughly registered Group, the in our approximately related which they impacted X%, Life final Salt the COVID-XX second quarter of offset

in was growth. to March we are Life shutdown. XX% quarter strong deliver March, doors in strong retail early Prior Life and business in our before growth and the March on the to apparel Salt track seeing retail nearly experienced Salt the sales activewear sales growth e-commerce

to basis prior XX quarter the results. XXX and versus basis XX.X% Gross XX.X% to in margins points compared first year, increased point increase our a

costs, gross compared the material XX.X% XXXX efficiency quarter. raw and been for March fiscal points margins the to expenses that from basis year a the the XXXX points we spoke of cost would lower the from improvement conversion plant to increase Adjusting curtailment benefited we during prior prior basis and from the addition XXX December year. have XXX quarter In about,

significantly the SG&A quarter. $XXX,XXX to in to with given the year investments XX.X% primarily prior year, SG&A percentage lower $XX.X compared of as our the base in to expenses a were compared sales sales related the expenses million, expenses quarter, XX.X% increase increased an incremental prior distribution second in which representing of that expansion, to

increased income by Delta and in million the lower to $X.X margin $X.X prior million strong the Group’s higher attributable $X.X offset expansion, year partially distribution to in expenses. second is operating gross income increase compared quarter. million to Operating sales The the

For the and enacted the $X.X goods, to current income this earn-out the operating imported as compared to primarily newly attributable year. with from coupled prior Group the well to liability million declined adjustments Life contingent in lower Salt the segments, sales, the income tariff on year lower as the

the the prior million in compared share, diluted diluted to or year or $X.XX per for $XXX,XXX income was quarter $X.XX $X.X period. share per Net

closure manufacturing diluted prior the the of were net XXX% increase costs over been quarter would the share represents income Excluding $X.XX, temporary expensed fiscal have the the per XXXX year. second the for which that quarter, during

the US of what remains fully year. steepness great expect will crisis. curve. negatively will overall deal prior Looking ahead, be dramatically we discussed, across we the to continue regarding be and reopen the A The the than impacts our retail. of sales is quarter when performance to by of expected the recovery None and be segments do lower of as the begin COVID-XX us our recovery level third the to have uncertainty knows at already to level impacted

our under orders the government in to difficult in El determine. Also, of shutdown degree plants remain is temporary as Honduras Bob mentioned, Salvador and this and impact

means to navigate these this we’re So we results, all rest assured times. can all our that are give what we difficult forward while unable to through of prudently details taking actions on

US, suspending areas, Those temporarily included, approximately employees or credits size and non-critical furloughing payroll taking permanently tax spending reducing in our our capital XXX under deferrals afforded fixed the repurchases actions and to of the CARES have terminating companies costs, the in of Act. reducing share advantage

over including amendment lenders. $XX credit additional over million March facility the revolving into the million hand. $X I’m company’s that for with provides bridge earlier funds week, with the to We into secured availability lending of this a quarter tap to flexibility our ended available we pleased of the business, The amendment US on arrangement. to asset-based cash report our provided

The among financial approximately effectively of to other and amendment, XXXX utilize year ratio of to million through fiscal us $XX and between now charge availability the This eight provisions business the covenant to threshold fiscal end million passes. remove the our things, adjusts in $X fixed additional gives the lower of year. end coverage effectively funds minimum the covenant

terms afternoon. bridge financial in found be the statements, Additional can of filed details this our amendment the were quarterly of which

options financing in may gives near-term, necessary believe we we the looking are prudent. us this amendment be While other our operate to debt business also at the that available flexibility

in the margins to reduce our even of the higher believe our recent in It’s costs, be seen profitable. our we’ve June quarter expect year. fixed current with to As steps the we’ve June less mentioned revenue quarter not prior dramatically we we quarters and will gross than taken be trend earlier, that

million reopen. and Honduras with As March to manufacturing in incurred a these reminder, facilities two Salvador costs curtailments in quarter, El of and weeks in are associated about we $X our yet

this. While will recent weeks is navigate well company to be and we typical, the through the coming positioned months believe

We to get operate us opportunities of gain continue through profitably once great in COVID-XX. the of front market impact to and share have we

we Let to the before questions. me for now over up call turn back Bob open

Deb. Thanks,

uncertain period. business the prudently, this operating managing through are We

business but garner in and fully sales, sales and allowing to certain diversified for model opportunity expand reach Our operate us channels. with Delta new only to and has continue also is to created generate an existing customers not our customers integrated Apparel

this a I storm thank are difficult who emerge hard to business. the weather employees for that We ready and profitably have in of been truly our pandemic and financial want and this I’m from their patience stronger good position confident and our current Board throughout grow we’ll amazing Directors to work period. to

up for to be open questions we’ll the glad Operator, call now.

now of Advisory Yes, Dana Telsey thank Group. our Please go We’ll question Instructions] first Telsey you. ahead. [Operator from take

the very for insightful afternoon, thank Bob Deb, and you Good much information.

and just this. level think the that the to manufacturing through? everything And As burn how cadence? think see do of I you little would XXX% you back? operation. think you. this do Because as that of the the the more you year coming you and the how the you a come love orders given facilities do think you move fiscal flow through time unpacking not of period, fact balance through of How and context cash automatically bit comes back of the Thank How of

the know, of lot important then that’s with as and of a April address and as jump same availability Deb let it information well important some But, and in well. you Okay, questions, started. gone I’ll we through we’ve

that, but we very to So manage through that. burn again, way Deb speak little, more was I cash the there our let

facility we We Mexico print operating, our that facility fill still it use in think important print package can our private-label in to. Mexico realize is programs to and can need we and through sole and to retail-ready. is and so them also have levels inventory that as do I

situation. So manufacturing the us our think a is bit this diversification, in I helping

is and when would And and start We up to will be an sooner later. other so to that open manufacturing facilities. our be Salvador producing than El thing we call the product interesting I able important think in next how like

garner in We you there know it. can now from run have product that sales and we

those inventory are make picking distribution programs, two the produce how some our decision then blank and and us so. to US how and when to our And what as do look then mostly business we and and levels centers see so up allows Honduras and government in will our up our is plants private-label in inventory on a facilities open

us, cash that, and particularly Also that’s about availability. as Deb burn positive more on highly that and reducing but to I’ll talk cash we burn, the sell our inventory existing let when we’re cash

Bob. thanks, Okay

I’ll just Dana to, outs call bit some a little color know, a give on and You it. alluded more but couple Bob of

know, really has month we not But We growing increases see week-to-week. thing now gone went a about ago. as April. great is the single revenues revenue from XX% of as our are And April, at said year every we impacted that certainly been through has seeing basically business You of in April. through some that we of we about are areas the that are XX% is, by during week month our

beginning And starting of see just open now to areas so we’re the up. country to

reaccelerating that country May. increase the would And in potentially and open more see continuing so weekly we to of to as begins hope

So things are open growth and hopefully that think week-by-week for set and the the areas in I kind to tone as the should I happening of start country. where up that think things

as our the with end of cash $XX million A I It’s have couple things report on liquidity liquidity, credit between available and facility. to under did availability the had hand approximately on the of still million that we to liquidity great $XX of March, about we mentioned us. we said that briefly,

So really any we’ve these navigate is five not been through able weeks, to of last that. through going

mentioned, flow of we can very part not is know, become and our it business. as replacing you positive that, cash as the to inventory we’re sell So Bob that

see that we month. And happening through the upcoming so we to would expect as navigate

Mexico as operations operations we begin, book from El generate would manufacture Bob an that. to that that to is, able online products our with also can mentioned have our have that do can our like we back Salvador especially order that certainly and been that sales have news and be business. good private-label is bringing that for obviously, support manufacturing we The we

can had, please the let that that, think answered I follow-up you us But you if different once, we’d know. sections Dana. So with that

follow-ups. quick two Just

new SG&A, customer Can You’re the this margin are is hold how And fixed lately, versus think wins do that gross to for margin? brings and the you much in costs? those ability costs just manage variable? onboarding you And on SG&A of others customers how And how think after about having and promotions the do on to Thank encouraging. inventory gross your you backlog crisis? you. which your of

Sure –

that say you let I’ll Deb one.

gaining now. Yeah, that with technology that’s the of with is great our not in that because cost jump news because is is customers there technology-driven I’ll we’re right we that great business, have. a business, that. such onboarding you DTGXGo really know, The significant and And that where

new garnered and more that have We a us partner are number of up with that in customers wanting have currently now. to

We customers of at I would continue business that thing that onboard. during business their as that we not will think are wanting have expect DTGXGo also current at, realistically, supply said, disrupted, all its the at think where new did we positive for But off is still to onboard level been the have some. support ones that. level, been to there current we that it has But is we that their chains that I the to level

exiting at geographic a are take benefits, and people as benefit COVID-XX, the really have at look going realize what think networks are, and DTGXGo their have with to to everybody we locations. those I supply the And including seven fulfillment the come that heart of starts the what chain their

not a we to to and do through have been that lot remain places to So we in able been able have there’s where open that. have those navigate of locations

supply supply support able the has we for But then with and And have, – in Delta reasons, to been know, maintain own distribution you chain blank our various of through with our again, that. that have the sundry to we with garments times facilities of been centers that even you these the blank we’ve integrated and our impacted. that couple

to future advantages So believe a to come that light, businesses have disruptions have, think that that we they we will how would could and backstop to powerful those sure want occur. continue have to they I for strategic those any are really like that as make

exit continue about and positive for feel positive we path a growth and how So we’re strong nice we’ll what with DTGXGo. achieving about

are taken you we that’s times you of fixed talked about of costs asking to things SG&A, cost, what you Lots was a know, while we versus actually have figure and steps tough about lower costs As kind obviously as a did really might of thought in I that fixed there. to mentioning the it question, feel out scenario able fixed that you become cost, the in mean well. like it because and fixed percentages again, you you those are lot a lots that you’re a think and don’t are people were variable variable we’ve costs need reduce then cost

at end this took absolutely worked So, action could reduce. things I and the the the of you we that mean, day, have on through

through thought We out also are that on the happens. additional depending levers the there how recovery

have those obviously we that the eliminate continue that evaluate taken level in going to expenses reduce we our have that short-term those forward. forefront, so and to and prudent but actions business we’ll believe And now to of had we we the unnecessary

Thank you.

We’ll Please ahead. question now at take go Jamie our next Wilen Wilen from Management.

nice results of questions Rather the midst couple fellows of this. DTGXGo. about all A there. Hi, in

talk basically difficulties levels some your because you of Are now? levels capacity some to at plants which spacing running at You about hiring running running right at you have in that probably the requirements inefficiencies, people. labor be plants and of have various holiday

are we the get I what and output mean areas. overnight by based we we we holiday that will capacity the comply curfews the we at are call, is Yes, new during the again, period upon are so not, and for in at because different hours running we’re XX/X that we that capacity working, running have that we it what run time new can season, what with that not

what different and get. for that can we we that the are, output capacity were are opened the times facilities the at we So at max

employees as produce working every orders, exceeding we Right ability those still We backlog is can, keeping safe which our our while are increasing are certainly now means our incoming and to much get as output our But day. to running there. orders we we are have. know, we say that full bit on working of out now ways that as production right guidelines and restrictions can you more just under are every through get the with the complying this I’d

ballpark Can for you us your business this that to you a be expect volume what in give might year?

not giving that a are back but like I not I right mean, say whole growth it and in – we’re no, in based on the the the to would certainly carry of order you and the fiscal all book June through, know, I that business see outlook, mode expect strong we Well for year. you know, would way growth we’re through end now really,

but know, these know, think we should Delta production coupled that Delta So we the utilizing be back been about the shortened on growth half I’d which, quarters you higher calendar with to been we’re in trend the growth season, back that with be we’ve and the on about, that we say that of and path went there, double-digit talking our you year, growth before, garments. would the we garments last challenges back the talking with know, expect the two pace through much had holiday you rate

require capital for expenditures this Will more new equipment?

At equipment the have, open the timeframes the as this the in support have. should again, we can up business that that facility we we rest we point of think time,

season. how to we we any there but would again, to summer expenditures, go the if requirements holiday the we’ll short-term through we end before anticipate So see any see don’t be

retail? Okay. percentage Over to from now Life What opposed side. of Salt to sales online your as Salt are the Life sales coming

the vast majority. really it’s Well

retail now. because right our closed so of know, know, has customer you much base, You

two, small the and shipping anticipate and up Florida, know, right them starting Carolinas So a some or in retailers still wholesale business are there to know, but week in there’s you the coming we not you lot now. of open

of I changed. have What And you know, – inventory. industry margins a their cotton state with – reduce and trying prices look and forward? at everybody’s you how pricing industry know, everybody’s to And moving pricing mean, Okay. in flux do you

Yeah. But haven’t say in you that would Well there to we seen, too it’s so far. general, soon ordinary or know, anything an out like I discounting tell.

that million making a you’re $XX lastly mask, is masks Okay. on week? the a And –

say didn’t published think Have a we week. I Well $XX million don’t a Deb? we we, number.

not. have we No,

to it’s to that Okay. But run these not profit anyway going employee really you it is I you’re covering more will pay keep care the best difficult during overhead basically would use times, your of some but print keep that to and your have assume. center,

Exactly, particularly in a these, that us. know, the when revenue of and you revenue additional two to next be will there’ll know, piece be you nice obviously is it’ll or meaningful be month challenged,

I to just right have those, it while Honduras that are a we them. to wanted that workgroup manufacturing Salvador Jamie clarify And the El also for utilize we in small permit now, very in and is

that, work that the to of is want don’t it face you I that, to give So workforce allow to the it know, work impression done we majority a minor us now. vast to our of because able is have very group the manufacture right masks

before how seeing much started far there down. that just got you any things and this thing slowed have had you you to model as inventory get Are actually as to the And lastly start? distributor Okay. accumulate traction

Yeah.

know, we not So, a and level inventory invested get at is but a amount. it of you were the of little kind Jamie, really of to to end overall traction, is of really this you as starting a We bit just before hit. marketing rounding number know, in had amount launched that the January February we overall it not inventory significant significant our right only in that started probably

our produced we traction, whole now, after. things there’s providing these coverings as are things So again, kick small think although what one-stop off about going businesses again, that and were any Delta this to interest certainly we face to I two and it, in is tell shop

looking will and path people starting are again, I for pace on get back get think the back once their businesses product.

Nice fellows. Okay. Thanks quarter.

you. Thank

further Instructions] currently turn I’ll presenters. back Please to questions. [Operator And go are no the there ahead. it

look you our to we’ll us for three months joining quarter thank earnings very third the And about well you on in all Thank Okay, results. call forward much today. on you. update

today’s concludes This your call. participation. Thank you for

You disconnect. may now