Supplier Delta Apparel, Inc. (PPAI 188431, S9) has announced financial results for its third quarter, which ended June 27 with net sales at $71.8 million, or approximately 60 percent of prior year net sales of $119.3 million. Monthly sales performance accelerated throughout the third quarter, however, with April sales at 33 percent of prior year levels and June sales at nearly 90 percent of prior year levels.

“We are thrilled with the momentum experienced across our business segments as the U.S. economy and our customers re-opened for business,” says Robert W. Humphreys, the company’s chairman and CEO. “With net sales in June tracking at nearly 90 percent of prior year levels and with further acceleration in July, we are very encouraged by the steep recovery in recent weeks that exceeded our internal expectations. Our DTG2Go business onboarded several new customers and received additional digital print volume from existing customers to deliver over 30 percent net sales growth for the quarter compared to prior year. In addition, our catalog and Salt Life businesses returned to growth in June.”

The Greenville, South Carolina-based supplier recorded $23.1 million of non-recurring expenses associated with impacts from the COVID-19 pandemic during the quarter. These costs primarily related to the curtailment of manufacturing operations, incremental costs to right size production to new forecasted demand, and increased accounts receivable and inventory reserves related to the heightened risks in the market as the U.S. continues its recovery. These costs, of which approximately $11 million are non-cash charges, primarily impacted operating income in the Delta Group segment.

Humphreys adds, “As we previously communicated, sales and liquidity improved each month as the quarter progressed, enabling us to end the period in a much stronger position than originally anticipated. During the quarter, we generated over $32 million of operating cash flows and improved our liquidity to $46 million, which is a nearly 50-percent increase from the March levels.”

Gross profit was $3 million, or 4.2 percent of net sales, compared to $24.8 million, or 20.8 percent of net sales, in the same quarter last year. Adjusted gross margins in third quarter were 21.6 percent, an 80-basis point improvement over the prior year and attributed to continued efficiencies and process improvements within the Delta Group segment’s integrated vertical manufacturing platform.

Selling, general and administrative (SG&A) expenses declined 15.2 percent to $15.2 million compared to $17.9 million in the prior year’s third quarter. As a percentage of sales, SG&A was 21.2 percent, compared to 15 percent in 2019, while operating loss was $21.6 million compared to an operating profit of $8.3 million. Adjusted operating income in the current fiscal year’s third quarter was $1.5 million while it was $7 million last year.

The majority of the $23.1 million of COVID-19-related expenses in the current quarter were incurred by the Delta Group segment which reported a year-over-year decline in operating profit of $26.7 million. Salt Life Group segment operating profit fell $1.9 million compared to the prior year third quarter, which was adjusted for the discrete gain from the settlement of a commercial litigation matter. The net loss for the quarter was $17.8 million, or $2.58 per share, compared to net income of $4.9 million, or $0.70 per diluted share. Adjusted net loss per diluted share was $0.01 compared to $0.60 of adjusted net income per diluted share in third quarter 2019.

“I am very proud of our teams and the resiliency Delta Apparel has shown over the past months,” says Humphreys. “With all of our manufacturing plants having resumed production and brick and mortar stores returning to more normalized operating hours, we continue to see positive trends that should allow us to return to profitability in the fourth quarter.”