10-Q 1 dla20240219_10q.htm FORM 10-Q dla20240219_10q.htm
0001101396 DELTA APPAREL, INC false --09-30 Q2 2024 115 119 0.01 0.01 2,000,000 2,000,000 0 0 0 0 0.01 0.01 15,000,000 15,000,000 9,646,972 9,646,972 7,051,153 7,001,020 2,595,819 2,645,952 0.9 5 10,000,000 0 150,000,000 10,000,000 5 5 5 2 3 0 20 10 10 15 4 0.6 false false false false In fiscal 2021, the Delta Group operating earnings included $1.3 million of expense, reported within "Other loss (income), net", related to two catastrophic hurricanes that disrupted operations during the December 2020 quarter. 00011013962023-10-012024-03-30 xbrli:shares 00011013962024-05-07 iso4217:USD 00011013962024-03-30 00011013962023-09-30 iso4217:USDxbrli:shares 00011013962023-12-312024-03-30 00011013962023-01-012023-04-01 00011013962022-10-022023-04-01 0001101396us-gaap:CommonStockMember2023-09-30 0001101396us-gaap:AdditionalPaidInCapitalMember2023-09-30 0001101396us-gaap:RetainedEarningsMember2023-09-30 0001101396us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-09-30 0001101396us-gaap:TreasuryStockCommonMember2023-09-30 0001101396us-gaap:NoncontrollingInterestMember2023-09-30 0001101396us-gaap:CommonStockMember2023-10-012023-12-30 0001101396us-gaap:AdditionalPaidInCapitalMember2023-10-012023-12-30 0001101396us-gaap:RetainedEarningsMember2023-10-012023-12-30 0001101396us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-10-012023-12-30 0001101396us-gaap:TreasuryStockCommonMember2023-10-012023-12-30 0001101396us-gaap:NoncontrollingInterestMember2023-10-012023-12-30 00011013962023-10-012023-12-30 0001101396us-gaap:CommonStockMember2023-12-30 0001101396us-gaap:AdditionalPaidInCapitalMember2023-12-30 0001101396us-gaap:RetainedEarningsMember2023-12-30 0001101396us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-30 0001101396us-gaap:TreasuryStockCommonMember2023-12-30 0001101396us-gaap:NoncontrollingInterestMember2023-12-30 00011013962023-12-30 0001101396us-gaap:CommonStockMember2023-12-312024-03-30 0001101396us-gaap:AdditionalPaidInCapitalMember2023-12-312024-03-30 0001101396us-gaap:RetainedEarningsMember2023-12-312024-03-30 0001101396us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-312024-03-30 0001101396us-gaap:TreasuryStockCommonMember2023-12-312024-03-30 0001101396us-gaap:NoncontrollingInterestMember2023-12-312024-03-30 0001101396us-gaap:CommonStockMember2024-03-30 0001101396us-gaap:AdditionalPaidInCapitalMember2024-03-30 0001101396us-gaap:RetainedEarningsMember2024-03-30 0001101396us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-03-30 0001101396us-gaap:TreasuryStockCommonMember2024-03-30 0001101396us-gaap:NoncontrollingInterestMember2024-03-30 0001101396us-gaap:CommonStockMember2022-10-01 0001101396us-gaap:AdditionalPaidInCapitalMember2022-10-01 0001101396us-gaap:RetainedEarningsMember2022-10-01 0001101396us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-10-01 0001101396us-gaap:TreasuryStockCommonMember2022-10-01 0001101396us-gaap:NoncontrollingInterestMember2022-10-01 00011013962022-10-01 0001101396us-gaap:CommonStockMember2022-10-022022-12-31 0001101396us-gaap:AdditionalPaidInCapitalMember2022-10-022022-12-31 0001101396us-gaap:RetainedEarningsMember2022-10-022022-12-31 0001101396us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-10-022022-12-31 0001101396us-gaap:TreasuryStockCommonMember2022-10-022022-12-31 0001101396us-gaap:NoncontrollingInterestMember2022-10-022022-12-31 00011013962022-10-022022-12-31 0001101396us-gaap:CommonStockMember2022-12-31 0001101396us-gaap:AdditionalPaidInCapitalMember2022-12-31 0001101396us-gaap:RetainedEarningsMember2022-12-31 0001101396us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-31 0001101396us-gaap:TreasuryStockCommonMember2022-12-31 0001101396us-gaap:NoncontrollingInterestMember2022-12-31 00011013962022-12-31 0001101396us-gaap:CommonStockMember2023-01-012023-04-01 0001101396us-gaap:AdditionalPaidInCapitalMember2023-01-012023-04-01 0001101396us-gaap:RetainedEarningsMember2023-01-012023-04-01 0001101396us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-04-01 0001101396us-gaap:TreasuryStockCommonMember2023-01-012023-04-01 0001101396us-gaap:NoncontrollingInterestMember2023-01-012023-04-01 0001101396us-gaap:CommonStockMember2023-04-01 0001101396us-gaap:AdditionalPaidInCapitalMember2023-04-01 0001101396us-gaap:RetainedEarningsMember2023-04-01 0001101396us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-04-01 0001101396us-gaap:TreasuryStockCommonMember2023-04-01 0001101396us-gaap:NoncontrollingInterestMember2023-04-01 00011013962023-04-01 xbrli:pure 0001101396dla:HonduranEquityMethodInvestmentMember2024-03-30 0001101396dla:HonduranEquityMethodInvestmentMember2023-10-012024-03-30 0001101396dla:HonduranEquityMethodInvestmentMember2022-10-022023-04-01 0001101396dla:CeibaTextilesManufacturingFacilityMember2023-10-012024-03-30 0001101396dla:CeibaTextilesManufacturingFacilityMember2022-10-022023-04-01 0001101396us-gaap:RetailMember2023-12-312024-03-30 0001101396us-gaap:RetailMember2023-01-012023-04-01 0001101396dla:EcommerceMember2023-12-312024-03-30 0001101396dla:EcommerceMember2023-01-012023-04-01 0001101396dla:WholesaleMember2023-12-312024-03-30 0001101396dla:WholesaleMember2023-01-012023-04-01 0001101396us-gaap:RetailMember2023-10-012024-03-30 0001101396us-gaap:RetailMember2022-10-022023-04-01 0001101396dla:EcommerceMember2023-10-012024-03-30 0001101396dla:EcommerceMember2022-10-022023-04-01 0001101396dla:WholesaleMember2023-10-012024-03-30 0001101396dla:WholesaleMember2022-10-022023-04-01 0001101396dla:DeltaGroupMember2023-12-312024-03-30 0001101396us-gaap:RetailMemberdla:DeltaGroupMember2023-12-312024-03-30 0001101396dla:EcommerceMemberdla:DeltaGroupMember2023-12-312024-03-30 0001101396dla:WholesaleMemberdla:DeltaGroupMember2023-12-312024-03-30 0001101396dla:SaltLifeGroupMember2023-12-312024-03-30 0001101396us-gaap:RetailMemberdla:SaltLifeGroupMember2023-12-312024-03-30 0001101396dla:EcommerceMemberdla:SaltLifeGroupMember2023-12-312024-03-30 0001101396dla:WholesaleMemberdla:SaltLifeGroupMember2023-12-312024-03-30 0001101396dla:DeltaGroupMember2023-01-012023-04-01 0001101396us-gaap:RetailMemberdla:DeltaGroupMember2023-01-012023-04-01 0001101396dla:EcommerceMemberdla:DeltaGroupMember2023-01-012023-04-01 0001101396dla:WholesaleMemberdla:DeltaGroupMember2023-01-012023-04-01 0001101396dla:SaltLifeGroupMember2023-01-012023-04-01 0001101396us-gaap:RetailMemberdla:SaltLifeGroupMember2023-01-012023-04-01 0001101396dla:EcommerceMemberdla:SaltLifeGroupMember2023-01-012023-04-01 0001101396dla:WholesaleMemberdla:SaltLifeGroupMember2023-01-012023-04-01 0001101396dla:DeltaGroupMember2023-10-012024-03-30 0001101396us-gaap:RetailMemberdla:DeltaGroupMember2023-10-012024-03-30 0001101396dla:EcommerceMemberdla:DeltaGroupMember2023-10-012024-03-30 0001101396dla:WholesaleMemberdla:DeltaGroupMember2023-10-012024-03-30 0001101396dla:SaltLifeGroupMember2023-10-012024-03-30 0001101396us-gaap:RetailMemberdla:SaltLifeGroupMember2023-10-012024-03-30 0001101396dla:EcommerceMemberdla:SaltLifeGroupMember2023-10-012024-03-30 0001101396dla:WholesaleMemberdla:SaltLifeGroupMember2023-10-012024-03-30 0001101396dla:DeltaGroupMember2022-10-022023-04-01 0001101396us-gaap:RetailMemberdla:DeltaGroupMember2022-10-022023-04-01 0001101396dla:EcommerceMemberdla:DeltaGroupMember2022-10-022023-04-01 0001101396dla:WholesaleMemberdla:DeltaGroupMember2022-10-022023-04-01 0001101396dla:SaltLifeGroupMember2022-10-022023-04-01 0001101396us-gaap:RetailMemberdla:SaltLifeGroupMember2022-10-022023-04-01 0001101396dla:EcommerceMemberdla:SaltLifeGroupMember2022-10-022023-04-01 0001101396dla:WholesaleMemberdla:SaltLifeGroupMember2022-10-022023-04-01 0001101396us-gaap:RevolvingCreditFacilityMemberdla:AmendedCreditAgreementMember2018-10-08 0001101396us-gaap:RevolvingCreditFacilityMemberdla:AmendedCreditAgreementMember2019-11-19 0001101396us-gaap:RevolvingCreditFacilityMemberdla:AmendedCreditAgreementMember2019-11-192019-11-19 utr:M 0001101396us-gaap:LetterOfCreditMemberdla:AmendedCreditAgreementMember2020-04-272020-04-27 0001101396us-gaap:LetterOfCreditMemberdla:AmendedCreditAgreementMember2020-04-27 0001101396us-gaap:LetterOfCreditMemberdla:AmendedCreditAgreementMembersrt:MinimumMember2020-04-27 utr:D 0001101396us-gaap:LetterOfCreditMemberdla:AmendedCreditAgreementMember2020-08-282020-08-28 0001101396us-gaap:LetterOfCreditMemberdla:AmendedCreditAgreementMember2020-08-28 0001101396us-gaap:RevolvingCreditFacilityMemberdla:AmendedCreditAgreementMemberdla:OneMonthSofrMember2022-06-022022-06-02 0001101396us-gaap:RevolvingCreditFacilityMemberdla:AmendedCreditAgreementMemberdla:ThreeMonthSofrMember2022-06-022022-06-02 0001101396us-gaap:RevolvingCreditFacilityMemberdla:AmendedCreditAgreementMember2022-06-02 utr:Y 0001101396us-gaap:RevolvingCreditFacilityMemberdla:AmendedCreditAgreementMember2022-06-022022-06-02 0001101396us-gaap:RevolvingCreditFacilityMemberdla:AmendedCreditAgreementMember2023-01-03 0001101396us-gaap:RevolvingCreditFacilityMemberdla:AmendedCreditAgreementMember2023-02-03 0001101396us-gaap:RevolvingCreditFacilityMemberdla:EleventhAmendmentCreditAgreementMember2023-10-062023-10-06 0001101396us-gaap:RevolvingCreditFacilityMemberdla:EleventhAmendmentCreditAgreementMember2023-10-06 0001101396us-gaap:RevolvingCreditFacilityMemberdla:TwelfthAmendmentCreditAgreementMember2023-12-05 0001101396us-gaap:RevolvingCreditFacilityMemberdla:ThirteenthAmendmentCreditAgreementMember2023-12-27 0001101396us-gaap:RevolvingCreditFacilityMemberdla:AmendedCreditAgreementMember2024-03-30 0001101396us-gaap:LetterOfCreditMemberdla:AmendedCreditAgreementMember2024-03-30 0001101396us-gaap:RevolvingCreditFacilityMemberdla:AmendedCreditAgreementMember2023-12-312024-03-30 0001101396us-gaap:LetterOfCreditMemberdla:AmendedCreditAgreementMember2018-10-082018-10-08 0001101396us-gaap:RevolvingCreditFacilityMemberdla:AmendedCreditAgreementMember2023-10-062023-10-06 0001101396us-gaap:RevolvingCreditFacilityMemberdla:AmendedCreditAgreementMember2023-10-06 0001101396us-gaap:LetterOfCreditMemberdla:AmendedCreditAgreementMember2023-09-30 0001101396dla:BancoFicohsaMemberdla:TermLoanEstablishedDecember2020Member2020-12-012020-12-31 0001101396us-gaap:RevolvingCreditFacilityMemberdla:BancoFicohsaMemberus-gaap:LineOfCreditMember2020-12-012020-12-31 0001101396dla:BancoFicohsaMemberdla:TermLoanEstablishedDecember2020Member2022-05-012022-05-31 0001101396dla:BancoFicohsaMemberdla:TermLoanEstablishedDecember2020Member2022-05-31 0001101396dla:BancoFicohsaMemberdla:TermLoanEstablishedDecember2020Member2024-03-30 0001101396dla:BancoFicohsaMemberdla:TermLoanEstablishedSeptember2022Member2022-09-012022-09-30 0001101396dla:BancoFicohsaMemberdla:TermLoanEstablishedSeptember2022Member2022-09-30 0001101396us-gaap:RevolvingCreditFacilityMemberdla:BancoFicohsaMemberus-gaap:LineOfCreditMember2024-03-30 0001101396dla:TermLoanEstablishedDecember2020Member2024-03-30 0001101396dla:TermLoanEstablishedMay2022Member2024-03-30 0001101396dla:TermLoanEstablishedSeptember2022Member2024-03-30 0001101396us-gaap:RestrictedStockUnitsRSUMember2023-10-012023-12-30 0001101396us-gaap:RestrictedStockUnitsRSUMember2023-12-312024-03-30 0001101396dla:PerformanceStockUnitsMember2023-10-012023-12-30 0001101396dla:PerformanceStockUnitsMember2023-12-312024-03-30 0001101396dla:The2020StockPlanMember2024-03-30 0001101396dla:The2020StockPlanMember2023-10-012024-03-30 0001101396dla:YarnMember2024-03-30 0001101396dla:FinishedFabricMember2024-03-30 0001101396dla:FinishedProductsMember2024-03-30 0001101396us-gaap:OperatingSegmentsMemberdla:DeltaGroupMember2023-12-312024-03-30 0001101396us-gaap:OperatingSegmentsMemberdla:DeltaGroupMember2023-01-012023-04-01 0001101396us-gaap:OperatingSegmentsMemberdla:DeltaGroupMember2023-10-012024-03-30 0001101396us-gaap:OperatingSegmentsMemberdla:DeltaGroupMember2022-10-022023-04-01 0001101396us-gaap:OperatingSegmentsMemberdla:SaltLifeGroupMember2023-12-312024-03-30 0001101396us-gaap:OperatingSegmentsMemberdla:SaltLifeGroupMember2023-01-012023-04-01 0001101396us-gaap:OperatingSegmentsMemberdla:SaltLifeGroupMember2023-10-012024-03-30 0001101396us-gaap:OperatingSegmentsMemberdla:SaltLifeGroupMember2022-10-022023-04-01 0001101396us-gaap:OperatingSegmentsMember2023-12-312024-03-30 0001101396us-gaap:OperatingSegmentsMember2023-01-012023-04-01 0001101396us-gaap:OperatingSegmentsMember2023-10-012024-03-30 0001101396us-gaap:OperatingSegmentsMember2022-10-022023-04-01 0001101396us-gaap:CorporateNonSegmentMember2023-12-312024-03-30 0001101396us-gaap:CorporateNonSegmentMember2023-01-012023-04-01 0001101396us-gaap:CorporateNonSegmentMember2023-10-012024-03-30 0001101396us-gaap:CorporateNonSegmentMember2022-10-022023-04-01 0001101396us-gaap:OperatingSegmentsMemberdla:DeltaGroupMember2024-03-30 0001101396us-gaap:OperatingSegmentsMemberdla:DeltaGroupMember2023-09-30 0001101396us-gaap:OperatingSegmentsMemberdla:SaltLifeGroupMember2024-03-30 0001101396us-gaap:OperatingSegmentsMemberdla:SaltLifeGroupMember2023-09-30 0001101396us-gaap:CorporateNonSegmentMember2024-03-30 0001101396us-gaap:CorporateNonSegmentMember2023-09-30 0001101396dla:DeferredTaxAssetInventoryMember2024-03-30 00011013962022-10-022023-09-30 00011013962019-09-28 00011013962019-09-292024-03-30 0001101396dla:DeltaGroupMember2024-03-30 0001101396dla:DeltaGroupMember2023-09-30 0001101396dla:SaltLifeGroupMember2024-03-30 0001101396dla:SaltLifeGroupMember2023-09-30 0001101396us-gaap:TrademarksAndTradeNamesMember2024-03-30 0001101396us-gaap:TrademarksAndTradeNamesMember2023-09-30 0001101396us-gaap:TrademarksAndTradeNamesMembersrt:MinimumMember2024-03-30 0001101396us-gaap:CustomerRelationshipsMember2024-03-30 0001101396us-gaap:CustomerRelationshipsMember2023-09-30 0001101396us-gaap:TechnologyBasedIntangibleAssetsMember2024-03-30 0001101396us-gaap:TechnologyBasedIntangibleAssetsMember2023-09-30 0001101396us-gaap:LicensingAgreementsMember2024-03-30 0001101396us-gaap:LicensingAgreementsMember2023-09-30 0001101396us-gaap:LicensingAgreementsMembersrt:MinimumMember2024-03-30 0001101396us-gaap:NoncompeteAgreementsMember2024-03-30 0001101396us-gaap:NoncompeteAgreementsMember2023-09-30 0001101396us-gaap:NoncompeteAgreementsMembersrt:MinimumMember2024-03-30 00011013962010-10-032011-10-01 0001101396dla:DTG2GoMember2023-12-312024-03-30 utr:acre 0001101396dla:SalesLeasebackOfKnoxvillePropertyMember2023-12-28 utr:sqft 0001101396dla:SalesLeasebackOfKnoxvillePropertyMember2023-12-282023-12-28 thunderdome:item
 

 

Table of Contents

 



 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 30, 2024

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission File Number 1-15583

 

DELTA APPAREL, INC.


(Exact name of registrant as specified in its charter)

 

Georgia

 

58-2508794

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification No.)

 

 

 

2750 Premier Parkway, Suite 100

 

 

Duluth, Georgia

 

30097

(Address of principal executive offices)

 

(Zip Code)

 

(678775-6900

 


(Registrant’s telephone number, including area code)

 


(Former name, former address and former fiscal year, if changed since last report.)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, par value $0.01

 

DLA

 

NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

 

Large accelerated filer ☐

 

Accelerated filer

 

Non-accelerated filer ☐

 

Smaller reporting company

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☑

 

As of May 7, 2024, there were outstanding 7,051,153 shares of the registrant’s common stock, par value of $0.01 per share, which is the only class of outstanding common or voting stock of the registrant.

 



 

 

 

TABLE OF CONTENTS

 

 

 

Page

PART I.

Financial Information

 

 

 

 

Item 1.

Financial Statements (unaudited):

 

 

 

 

 

Condensed Consolidated Balance Sheets — March 2024 and September 2023

3

 

 

 

 

Condensed Consolidated Statements of Operations — Three and Six Months ended March 2024 and March 2023

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss — Three and Six Months ended March 2024 and March 2023

5

 

 

 

 

Condensed Consolidated Statements of Shareholders Equity — Three and Six Months ended March 2024 and March 2023

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows — Six Months ended March 2024 and March 2023

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

8

 

Note A—Basis of Presentation and Description of Business

8

  Note B—Accounting Policies 9
  Note C—New Accounting Standards 9
  Note D—Revenue Recognition 9
  Note E—Inventories 10
  Note F—Debt 10
  Note G—Selling, General and Administrative Expense 12
  Note H—Stock-Based Compensation 12
  Note I—Purchase Contracts 13
  Note J—Business Segments 13
  Note K—Income Taxes 14
  Note L—Fair Value Measurements 14
  Note M—Legal Proceedings 15
  Note N—Repurchase of Common Stock 15
  Note O—Goodwill and Intangible Assets 15
  Note PSale-Leaseback Transaction 15
  Note Q—Subsequent Events 15
     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

     

Item 4.

Controls and Procedures

20

 

 

 

PART II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

21

 

 

 

Item 1A. Risk Factors 21
     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

21

 

 

 

Item 5.

Other Information

21

 

 

 

Item 6.

Exhibits

21

 

 

 

Signatures

 

22

 

 

 

Exhibits

 

 

EX-31.1

 

EX-31.2

 

EX-32.1

 

EX-32.2

 

 

 

Cautionary Note Regarding Forward-Looking Statements

 

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. We may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the SEC, in our press releases, and in other reports to our shareholders. All statements, other than statements of historical fact, which address activities, events or developments that we expect or anticipate will or may occur in the future are forward-looking statements, including statements about our ability to continue as a going concern, our ongoing discussions with our lenders regarding non-compliance with covenant requirements under our U.S. revolving credit facility, and the potential to seek relief under applicable bankruptcy laws. The words “plan,” “estimate,” “project,” “forecast,” “outlook,” “anticipate,” “expect,” “intend,” “remain,” “seek,” “believe,” “may,” “should” and similar expressions, and discussions of strategy or intentions, are intended to identify forward-looking statements.

 

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current expectations and are necessarily dependent upon assumptions, estimates and data that we believe are reasonable and accurate but may be incorrect, incomplete or imprecise. Forward-looking statements are subject to a number of business risks and inherent uncertainties, any of which could cause actual results to differ materially from those set forth in or implied by the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in forward-looking statements include, among others, the following:

 

  our ability to continue as a going concern;
  continued operating losses and restrictions on our ability to borrow capital or service our indebtedness;
  the inability or refusal of suppliers or other third-parties, including those related to transportation, to fulfill the terms of their contracts with us;
  the general U.S. and international economic conditions;
 

the impact of the COVID-19 pandemic and government/social actions taken to contain its spread on our operations, financial condition, liquidity, and capital investments, including recent labor shortages, inventory constraints, and supply chain disruptions;

 

significant interruptions or disruptions within our manufacturing, distribution or other operations;

 

deterioration in the financial condition of our customers and suppliers and changes in the operations and strategies of our customers and suppliers;

 

the volatility and uncertainty of cotton and other raw material prices and availability;

 

the competitive conditions in the apparel industry;

 

our ability to predict or react to changing consumer preferences or trends;

 

our ability to successfully open and operate new retail stores in a timely and cost-effective manner;

  the ability to successfully implement our strategic plans and achieve our business strategies;
 

the ability to grow, achieve synergies and realize the expected profitability of acquisitions;

 

changes in economic, political or social stability at our offshore locations or in areas in which we, or our suppliers or vendors, operate;

 

our ability to attract and retain key management;

 

the volatility and uncertainty of energy, fuel and related costs;

 

material disruptions in our information systems related to our business operations;

 

compromises of our data security;

 

significant changes in our effective tax rate;

 

significant litigation in either domestic or international jurisdictions;

 

recalls, claims and negative publicity associated with product liability issues;

 

the ability to protect our trademarks and other intellectual property;

 

changes in international trade regulations;

 

our ability to comply with trade regulations;

 

changes in employment laws or regulations or our relationship with employees;

 

negative publicity resulting from violations of manufacturing standards or labor laws or unethical business practices by our suppliers and independent contractors;

 

interest rate fluctuations increasing our obligations under our variable rate indebtedness;

 

the ability to raise additional capital;

 

the impairment of acquired intangible assets;

 

foreign currency exchange rate fluctuations;

 

the illiquidity of our shares; and

 

price volatility in our shares and the general volatility of the stock market.

 

A detailed discussion of significant risk factors that have the potential to cause actual results to differ materially from our expectations is set forth in Part 1 under the subheading “Risk Factors” in our Annual Report on Form 10-K for fiscal 2023, filed with the SEC, and updates to certain of those risk factors and additional risk factors are contained in Item 1A of Part II of this Quarterly Report on Form 10-Q. Any forward-looking statements in this Quarterly Report on Form 10-Q do not purport to be predictions of future events or circumstances and may not be realized. Further, any forward-looking statements are made only as of the date of this Quarterly Report on Form 10-Q, and we do not undertake to publicly update or revise the forward-looking statements, except as required by the federal securities law.

 

 

 
 

 

PART 1.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share amounts and per share data)

(Unaudited)

 

  

March 2024

  

September 2023

 

Assets

        

Cash and cash equivalents

 $705  $187 

Accounts receivable, less allowances of $115 and $119, respectively

  35,206   45,130 

Other receivables

  562   1,350 

Income tax receivable

  1,365   1,388 

Inventories, net

  156,894   212,365 

Prepaid expenses and other current assets

  3,298   2,542 

Total current assets

  198,030   262,962 
         

Property, plant and equipment, net

  59,741   65,611 

Goodwill

  19,917   28,697 

Intangibles, net

  20,556   21,694 

Deferred income taxes

  -   7,822 

Operating lease assets

  54,534   55,464 

Equity method investment

  10,052   10,082 

Other assets

  3,069   2,906 

Total assets

 $365,899  $455,238 
         

Liabilities and Equity

        

Liabilities:

        

Accounts payable

 $58,306  $62,085 

Accrued expenses

  16,395   18,236 

Income taxes payable

  869   710 

Current portion of finance leases

  7,880   8,442 

Current portion of operating leases

  9,886   9,124 

Current portion of long-term debt

  103,026   16,567 

Total current liabilities

  196,362   115,164 
         

Long-term income taxes payable

  1,184   2,131 

Long-term finance leases

  10,250   14,029 

Long-term operating leases

  45,837   47,254 

Long-term debt

  5,757   126,465 

Deferred income taxes

  559   - 

Total liabilities

 $259,949  $305,043 
         

Shareholder's equity:

        

Preferred stock - $0.01 par value, 2,000,000 shares authorized, none issued and outstanding

  -   - 

Common stock - $0.01 par value, 15,000,000 authorized, 9,646,972 shares issued, and 7,051,153 and 7,001,020 shares outstanding as of March 2024 and September 2023, respectively

  96   96 

Additional paid-in capital

  60,916   61,315 

Retained earnings

  88,566   133,387 

Accumulated other comprehensive income

  -   - 

Treasury stock - 2,595,819 and 2,645,952 shares as of March 2024 and September 2023, respectively

  (42,909)  (43,896)

Equity attributable to Delta Apparel, Inc.

  106,669   150,902 

Equity attributable to non-controlling interest

  (719)  (707)

Total equity

  105,950   150,195 

Total liabilities and equity

 $365,899  $455,238 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations 

(Amounts in thousands, except per share data)

(Unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

March 2024

   

March 2023

   

March 2024

   

March 2023

 
                                 

Net sales

  $ 78,936     $ 110,335     $ 158,869     $ 217,630  

Cost of goods sold

    75,580       94,126       146,767       187,798  

Gross profit

    3,356       16,209       12,102       29,832  
                                 

Selling, general and administrative expenses

    17,961       19,298       36,576       38,168  

Loss on impairment of goodwill

    8,780       -       8,780       -  

Other loss (income), net

    1,051       2,265       (3,870 )     (356 )

Operating loss

    (24,436 )     (5,354 )     (29,384 )     (7,980 )
                                 

Interest expense, net

    3,471       3,723       7,047       6,613  

Loss before benefit from income taxes

    (27,907 )     (9,077 )     (36,431 )     (14,593 )

Provision for (benefit from) income taxes

    8,393       (2,079 )     8,403       (3,996 )

Consolidated net loss

  $ (36,300 )   $ (6,998 )     (44,834 )     (10,597 )

Net loss attributable to non-controlling interest

    (6 )     (6 )     (12 )     (40 )

Net loss attributable to shareholders

  $ (36,294 )   $ (6,992 )   $ (44,822 )   $ (10,557 )
                                 

Basic loss per share

  $ (5.15 )   $ (1.00 )   $ (6.38 )   $ (1.51 )

Diluted loss per share

  $ (5.15 )   $ (1.00 )   $ (6.38 )   $ (1.51 )
                                 

Weighted average number of shares outstanding

    7,051       7,001       7,027       6,978  

Dilutive effect of stock awards

    -       -       -       -  

Weighted average number of shares assuming dilution

    7,051       7,001       7,027       6,978  

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(Amounts in thousands)

(Unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

March 2024

   

March 2023

   

March 2024

   

March 2023

 
                                 

Net loss attributable to shareholders

  $ (36,294 )   $ (6,992 )   $ (44,822 )   $ (10,557 )

Other comprehensive (loss) income related to unrealized (loss) gain on derivatives, net of income tax

    -       (30 )     -       39  

Consolidated comprehensive loss

  $ (36,294 )   $ (7,022 )   $ (44,822 )   $ (10,518 )

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(Amounts in thousands, except share amounts)

(Unaudited)

 

                                   

Accumulated

                                 
                   

Additional

           

Other

                   

Non-

         
    Common Stock     Paid-In     Retained     Comprehensive     Treasury Stock     Controlling          
   

Shares

   

Amount

   

Capital

   

Earnings

   

Income (Loss)

   

Shares

   

Amount

   

Interest

   

Total

 

Balance as of September 2023

    9,646,972     $ 96     $ 61,315     $ 133,387     $ -       2,645,952     $ (43,896 )   $ (707 )   $ 150,195  
                                                                         

Net loss

    -       -       -       (8,527 )     -       -       -       -       (8,527 )

Net loss attributable to non-controlling interest

    -       -       -       -       -       -       -       (6 )     (6 )

Vested stock awards

    -       -       (1,112 )     -       -       (50,133 )     987       -       (125 )

Stock based compensation

    -       -       440       -       -       -       -       -       440  

Balance as of December 2023

    9,646,972     $ 96     $ 60,643     $ 124,860     $ -       2,595,819     $ (42,909 )   $ (713 )   $ 141,977  
                                                                         

Net loss

    -       -       -       (36,294 )     -       -       -       -       (36,294 )

Net loss attributable to non-controlling interest

    -       -       -       -       -       -       -       (6 )     (6 )

Stock based compensation

    -       -       273       -       -       -       -       -       273  

Balance as of March 2024

    9,646,972     $ 96     $ 60,916     $ 88,566     $ -       2,595,819     $ (42,909 )   $ (719 )   $ 105,950  

 

                                   

Accumulated

                                 
                   

Additional

           

Other

                   

Non-

         
   

Common Stock

   

Paid-In

   

Retained

   

Comprehensive

   

Treasury Stock

   

Controlling

         
   

Shares

   

Amount

   

Capital

   

Earnings

    Income (Loss)    

Shares

   

Amount

   

Interest

   

Total

 

Balance as of September 2022

    9,646,972     $ 96     $ 61,961     $ 166,600     $ 141       2,731,309     $ (45,420 )   $ (656 )   $ 182,722  
                                                                         

Net loss

    -       -       -       (3,565 )     -       -       -       -       (3,565 )

Other comprehensive income

    -       -       -       -       69       -       -       -       69  

Net loss attributable to non-controlling interest

    -       -       -       -       -       -       -       (34 )     (34 )

Vested stock awards

    -       -       (2,067 )     -       -       (85,357 )     1,524       -       (543 )

Stock based compensation

    -       -       665       -       -       -       -       -       665  

Balance as of December 2022

    9,646,972     $ 96     $ 60,559     $ 163,035     $ 210       2,645,952     $ (43,896 )   $ (690 )   $ 179,314  
                                                                         

Net income

    -       -       -       (6,992 )     -       -       -       -       (6,992 )

Other comprehensive income

    -       -       -       -       (30 )     -       -       -       (30 )

Net loss attributable to non-controlling interest

    -       -       -       -       -       -       -       (6 )     (6 )

Stock based compensation

    -       -       353       -       -       -       -       -       353  

Balance as of March 2023

    9,646,972     $ 96     $ 60,912     $ 156,043     $ 180       2,645,952     $ (43,896 )   $ (696 )   $ 172,639  

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

 

   

Six Months Ended

 
   

March 2024

   

March 2023

 

Operating activities:

               

Consolidated net loss

  $ (44,834 )   $ (10,597 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

               

Depreciation and amortization

    7,153       7,642  

Amortization of deferred financing fees

    278       268  

Provision for (benefit from) deferred income taxes

    8,381       (3,986 )

Change in inventory market reserves

    (712 )     (3,540 )

Non-cash stock compensation

    713       1,018  

Gain on sale of property, plant and equipment

    (5,321 )     -  

Loss on disposal of equipment

   

-

     

69

 

Loss on impairment of equipment

    -       860  

Loss on impairment of goodwill

    8,780       -  

Other, net

    (621 )     (390 )

Changes in operating assets and liabilities:

    -          

Accounts receivable

    10,712       6,472  

Inventories, net

    56,183       8,911  

Prepaid expenses and other current assets

    (360 )     (1,609 )

Other non-current assets

    457       2,019  

Accounts payable

    (3,149 )     (17,657 )

Accrued expenses

    (1,481 )     (8,659 )

Net operating lease liabilities

    276       169  

Income taxes

    (765 )     (129 )

Net cash provided by (used in) operating activities

    35,690       (19,139 )

Investing activities:

               

Purchases of property and equipment, net

    (1,723 )     (2,495 )

Proceeds from equipment under finance leases

   

-

     

4,417

 

Proceeds from the sale of property, plant and equipment

   

6,286

     

-

 

Net cash provided by investing activities

    4,563       1,922  

Financing activities:

               

Proceeds from long-term debt

    147,339       254,103  

Repayment of long-term debt

    (181,588 )     (231,476 )

Repayment of capital financing

    (4,342 )     (4,543 )

Payment of deferred financing costs

    (660 )     -  

Payment of withholding taxes on stock awards

    (484 )     (542 )

Net cash (used in) provided by financing activities

    (39,735 )     17,542  

Net increase in cash and cash equivalents

    518       325  

Cash and cash equivalents at beginning of period

    187       300  

Cash and cash equivalents at end of period

  $ 705     $ 625  
                 

Supplemental cash flow information

               

Cash paid during the period for interest

  $ 6,728     $ 6,663  

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

Delta Apparel, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note A— Description of Business and Basis of Presentation

 

Delta Apparel, Inc. (collectively with DTG2Go, LLC; Salt Life, LLC; M.J. Soffe, LLC; and other subsidiaries, “Delta Apparel,” “we,” “us,” “our,” or “the Company”) is a vertically integrated, international apparel company with approximately 6,000 employees worldwide. We design, manufacture, source, and market a diverse portfolio of core activewear and lifestyle apparel products under our primary brands of Salt Life®, Soffe®, and Delta. We are a market leader in the on-demand, digital print and fulfillment industry, bringing DTG2Go’s proprietary technology and innovation to our customers’ supply chains. We specialize in selling casual and athletic products through a variety of distribution channels and tiers, including outdoor and sporting goods retailers, independent and specialty stores, better department stores and mid-tier retailers, mass merchants, eRetailers, and through our business-to-business digital platform. Our products are also made available direct-to-consumer on our ecommerce sites and in our branded retail stores. Our diversified go-to-market strategy allows us to capitalize on our strengths to provide our activewear and lifestyle apparel products to a broad and evolving customer base whose shopping preferences may span multiple retail channels.


We design and internally manufacture the majority of our products, with more than 90% of the apparel units that we sell sewn in our own facilities. This allows us to offer a high degree of consistency and quality, leverage scale efficiencies, and react quickly to changes in trends within the marketplace. We have manufacturing operations located in the United States, El Salvador and Honduras (our Mexico operations ceased in the second quarter of our 2024 fiscal year in connection with our decision to close our sewing and screenprint facilitiess there), and we may use domestic and foreign contractors as additional sources of production. Our distribution facilities are strategically located throughout the United States to better serve our customers with same-day shipping on our catalog products and weekly replenishments to retailers.


We were incorporated in Georgia in 1999, and our headquarters is located in Duluth, Georgia. Our common stock trades on the NYSE American stock exchange under the symbol “DLA.” We operate on a 52- or 53-week fiscal year ending on the Saturday closest to September 30. Our 2024 fiscal year is a 52-week year and will end on September 28, 2024 (“fiscal 2024”). Accordingly, this Quarterly Report on Form 10-Q presents our results for our second quarter of fiscal 2024. Our 2023 fiscal year was a 52-week year and ended on September 30, 2023 (“fiscal 2023”).

 

For presentation purposes herein, all references to period ended relate to the following fiscal years and dates:

 

Period EndedFiscal YearDate Ended
December 2022Fiscal 2023 December 31, 2022
March 2023

Fiscal 2023

April 1, 2023
June 2023Fiscal 2023 July 1, 2023
September 2023Fiscal 2023 September 30, 2023
December 2023Fiscal 2024 December 30, 2023
March 2024Fiscal 2024 March 30, 2024

 

We prepared the accompanying interim Condensed Consolidated Financial Statements in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. We believe these Condensed Consolidated Financial Statements include all normal recurring adjustments considered necessary for a fair presentation. Operating results for the initial three-month and six-month periods of each of our fiscal years are not necessarily indicative of the results that may be expected for our full fiscal year. Although our various product lines are sold on a year-round basis, the demand for specific products or styles reflects some seasonality. By diversifying our product lines and go-to-market strategies over the years, we have reduced the overall seasonality of our business. Consumer demand for apparel is cyclical and dependent upon the overall level of demand for soft goods, which may or may not coincide with the overall level of discretionary consumer spending. These levels of demand change as regional, domestic and international economic conditions change. Therefore, the distribution of sales by quarter in fiscal 2024  may not be indicative of the distribution in future years. These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and footnotes included in our Annual Report on Form 10-K for our fiscal 2023, filed with the United States Securities and Exchange Commission (“SEC”).

 

Our Condensed Consolidated Financial Statements include the accounts of Delta Apparel and its wholly-owned and majority-owned domestic and foreign subsidiaries. The Company’s financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

We apply the equity method of accounting for our investment in 31% of the outstanding capital stock of a Honduran company that owns and operates the industrial park where our Ceiba Textiles manufacturing facility is located. During the six months ended March 2024 and March 2023, we received dividends from this investment of $0.6 million and $1.2 million, respectively. Our Ceiba Textiles manufacturing facility is leased under an operating lease arrangement with this Honduran company. During the six months ended March 2024 and March 2023, we paid approximately $0.9 million in rent under this arrangement.

 

We make available copies of materials we file with, or furnish to, the SEC free of charge at https://ir.deltaapparelinc.com. The information found on our website is not part of this, or any other, report that we file with, or furnish to, the SEC. In addition, we will provide upon request, at no cost, paper or electronic copies of our reports and other filings made with the SEC. Requests should be directed to: Investor Relations Department, Delta Apparel, Inc., 2750 Premiere Parkway, Suite 100, Duluth, Georgia 30097. Requests can also be made by telephone to 864-232-5200, or via email at investor.relations@deltaapparel.com.

 

Going Concern

 

In January 2024, we were notified by certain of our suppliers that they would no longer allow extended credit in amounts or terms to the extent previously allowed and our ability to obtain raw materials from other suppliers became more limited. As such, we have since been unable to purchase quantities of production inputs necessary to allow our manufacturing facilities to run at the levels required to meet our business plans. One or more of the financial covenants contained in our U.S. revolving credit facility required our financial results to improve at a rate faster than we experienced during the second quarter and at a faster rate than we expect to experience over the next 12 months. As a result, the Company became non-compliant during the second quarter, and continues to be non-compliant, with one or more of the financial covenants in our U.S. revolving credit facility, which constitutes a breach of that agreement and an event of default. Such default allows the lenders under that credit facility to declare the principal and all other amounts owed to be immediately due and payable, but our lenders have elected not to do so to date. Thus, the debt under our U.S. revolving credit facility is classified as current. In the event that the lenders do call such debt during the next 12 months as the result of a covenant breach, the Company does not forecast to have the readily available funds to repay the debt, which raises substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance date of the second quarter fiscal 2024 Condensed Consolidated Financial Statements. The Company has been and continues to be in communication with its lenders about its non-compliance and potential options to address concerns related to meeting the covenant requirements in our U.S. revolving credit facility over the next 12 months. Management cannot, however, predict the results of such communications and related negotiations. If the Company is not able to address such concerns, it may seek relief under applicable bankruptcy laws.

 

8

 

 

 

Note B—Accounting Policies

 

Our accounting policies are consistent with those described in our Significant Accounting Policies in our Annual Report on Form 10-K for our fiscal 2023, filed with the SEC. See Note C for consideration of recently issued accounting standards.

 

Note C—New Accounting Standards

 

Adopted Standards

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on the entity's estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify the implementation guidance. These standards have been collectively codified within ASC Topic 326, Credit Losses (“ASC 326”). As a smaller reporting company as defined by the SEC, the provisions of ASC 326 are effective as of the beginning of our fiscal 2024. The provisions of ASC 326 did not have a material effect on our financial condition, results of operations, cash flows, and disclosures.

 

Accounting Guidance Not Yet Adopted

 

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280)Improvements to Reportable Segment Disclosures, which enhances reportable segment disclosure requirements, including significant segment expenses and interim disclosures. The guidance allows for disclosure of multiple measures of a segment’s profit or loss, and it requires that public entities with a single reportable segment provide all disclosures required by the ASU and all existing disclosures in Topic 280. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, or our fiscal 2025. The amendments are to be applied retrospectively, and early adoption is permitted. The Company is currently assessing the impact of this update.

 

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740)Improvement to Income Tax Disclosures, to update income tax disclosure requirements primarily by requiring specific categories and greater disaggregation within the rate reconciliation and disaggregation of income taxes paid by jurisdiction. The amendments in the ASU also remove disclosures related to certain unrecognized tax benefits and deferred taxes. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, or our fiscal 2026. The amendments may be applied prospectively or retrospectively with early adoption permitted. The Company is currently assessing the impact of this update.

 

Note D—Revenue Recognition

 

Our Condensed Consolidated Statements of Operations include revenue streams from retail sales at our branded retail stores; direct-to-consumer ecommerce sales on our consumer-facing websites; and sales from wholesale channels, which include our business-to-business ecommerce and DTG2Go sales. The table below identifies the amount and percentage of net sales by distribution channel (in thousands):

 

  

Three Months Ended

 
  

March 2024

  

March 2023

 

Retail

 $3,729   5% $3,156   3%

Direct-to-consumer ecommerce

  1,392   1%  1,163   1%

Wholesale

  73,815   94%  106,016   96%

Net sales

 $78,936   100% $110,335   100%

 

  

Six Months Ended

 
  

March 2024

  

March 2023

 

Retail

 $7,895   5% $6,611   3%

Direct-to-consumer ecommerce

  2,840   2%  2,672   1%

Wholesale

  148,134   93%  208,347   96%

Net sales

 $158,869   100% $217,630   100%

 

The table below provides net sales by reportable segment and the percentage of net sales by distribution channel for each reportable segment (in thousands):

 

  

Three Months Ended March 2024

 
  

Net Sales

  

Retail

  

Direct-to-consumer ecommerce

  

Wholesale

 

Delta Group

 $63,401   0.0%  0.2%  99.8%

Salt Life Group

  15,535   23.9%  8.1%  68.0%

Total

 $78,936             

 

  

Three Months Ended March 2023

 
  

Net Sales

  

Retail

  

Direct-to-consumer ecommerce

  

Wholesale

 

Delta Group

 $91,344   0.0%  0.2%  99.8%

Salt Life Group

  18,991   16.5%  5.1%  78.4%

Total

 $110,335             

 

  

Six Months Ended March 2024

 
  

Net Sales

  

Retail

  

Direct-to-consumer ecommerce

  

Wholesale

 

Delta Group

 $133,004   0.0%  0.2%  99.8%

Salt Life Group

  25,865   30.4%  10.0%  59.6%

Total

 $158,869             

 

  

Six Months Ended March 2023

 
  

Net Sales

  

Retail

  

Direct-to-consumer ecommerce

  

Wholesale

 

Delta Group

 $188,354   0.1%  0.2%  99.7%

Salt Life Group

  29,276   22.3%  7.8%  69.9%

Total

 $217,630             

 

9

 
 

Note E—Inventories

 

Inventories, net of reserves of $15.1 million and $15.8 million as of March 2024 and September 2023, respectively, consisted of the following (in thousands):

 

  

March 2024

  

September 2023

 

Raw materials

 $13,181  $20,262 

Work in process

  8,673   17,695 

Finished goods

  135,040   174,408 
  $156,894  $212,365 

 

Raw materials include finished yarn and direct materials for the Delta Group, undecorated garments for the DTG2Go business, and direct embellishment materials for the Salt Life Group.

 

Note F—Debt

 

Credit Facility

 

On May 10, 2016, we entered into a Fifth Amended and Restated Credit Agreement (as further amended, the “Amended Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as Administrative Agent, the Sole Lead Arranger and the Sole Book Runner, and the financial institutions named therein as Lenders, which are Wells Fargo, PNC Bank, and Regions Bank. Our subsidiaries M.J. Soffe, LLC, Culver City Clothing Company (f/k/a Junkfood Clothing Company), Salt Life, LLC, and DTG2Go, LLC (f/k/a Art Gun, LLC) (collectively, the “Borrowers”), are co-borrowers under the Amended Credit Agreement. The Borrowers entered into amendments to the Amended Credit Agreement with Wells Fargo and the other lenders on November 27, 2017, March 9, 2018, October 8, 2018, November 19, 2019, April 27, 2020, August 28, 2020, June 2, 2022, January 3, 2023, February 3, 2023, March 3, 2023,  October 6, 2023, December 5, 2023, and December 27, 2023.

 

On November 19, 2019, the Borrowers entered into a Consent and Fourth Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo and the other lenders set forth therein (the “Fourth Amendment”). The Fourth Amendment, among other things, (i) increased the borrowing capacity under the Amended Credit Agreement from $145 million to $170 million (subject to borrowing base limitations), (ii) extended the maturity date from May 21, 2021 to November 19, 2024, (iii) reduced pricing on the revolver and first-in last-out “FILO” borrowing components by 25 basis points, and (iv) added 25% of the fair value of eligible intellectual property to the borrowing base calculation. In addition, the Fourth Amendment amended the definition of Fixed Charge Coverage Ratio to exclude up to $10 million of capital expenditures incurred by the Borrowers in connection with the expansion of their distribution facility located within the Town of Clinton, Anderson County, Tennessee.


On April 27, 2020, the Borrowers entered into a Fifth Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo Bank (the “Agent”) and the other lenders set forth therein (the “Fifth Amendment”). The Fifth Amendment, among other things, amends the financial covenant provisions from the amendment date through September 2020, including effectively lowering the minimum availability thresholds and removing the requirement that our Fixed Charge Coverage Ratio (“FCCR”) for the preceding 12-month period must not be less than 1.1 to 1.0. The Fifth Amendment also, among other things, (i) allowed for an additional 30 days of aged receivables from customers in the borrowing base through August 1, 2020, (ii) ceased amortization of real estate and machinery and equipment assets in the borrowing base through August 1, 2020, (iii) postponed amortization of trademark assets in the borrowing base until October 4, 2020; (iv) amends the definition of Fixed Charge Coverage Ratio to reference the monthly amortization of the borrowing bases that were amended as part of the Fourth Amendment to the Fifth Amended and Restated Credit Agreement on November 19, 2019, (v) amends the LIBOR rate definition to include a floor rate of 1.0%, and (vi) required weekly reporting of accounts receivable to the Agent through October 3, 2020.


On August 28, 2020, the Borrowers entered into a Sixth Amendment to the Fifth Amended and Restated Credit Agreement with the Agent and the other lenders set forth therein (the “Sixth Amendment”). The Sixth Amendment, among other things, (i) maintained lower minimum availability thresholds from the amendment date through July 3, 2021, (ii) allowed for an additional 30 days of aged receivables from customers in the borrowing base through April 3, 2021, (iii) increased the advance rate to 70% of real estate assets in the borrowing base and commences amortization on October 4, 2020, (iv) ceased amortization of machinery and equipment assets in the borrowing base through April 3, 2021, (v) postponed amortization of trademark assets in the borrowing base until April 4, 2021, (vi) required the Applicable Margin to be set at Level III through July 3, 2021 and increased the Applicable Margin by 50 basis points across all Levels within the Applicable Margin table for the remaining term of the Amended Credit Agreement, and (vii) required continued weekly reporting of accounts receivable to the Agent through July 3, 2021.


On June 2, 2022, the Borrowers entered into a Seventh Amendment to the Fifth Amended and Restated Credit Agreement with the Agent and the other lenders set forth therein (the “Seventh Amendment”). The Seventh Amendment, among other things, (i) removes LIBOR based borrowing and utilizes SOFR (Secured Overnight Financing Rate) as the primary pricing structure, (ii) amends the pricing structure based on SOFR plus a CSA (Credit Spread Adjustment) defined as 10 bps for 1 month and 15 bps for 3-month tenors, (iii) sets the SOFR floor to 0 bps, (iv) reloads the fair market value of real estate and intellectual property within the borrowing base calculation and resets their respective amortization schedules, (v) sets the maturity date to 5 years from the closing date, and (vi) updates the requirement for our FCCR for the preceding 12-month period to not be less than 1.0 (previously 1.1).


On January 3, 2023, the Borrowers entered into an Eighth Amendment to the Fifth Amended and Restated Credit Agreement with the Agent and the other lenders set forth therein (the “Eighth Amendment”). The Eighth Amendment essentially clarifies the Amended Credit Agreement’s provisions regarding the inclusion of eligible in transit inventory in the borrowing base and amends the definition of Increased Reporting Event to include 12.5% of the lesser of the borrowing base and the maximum revolver amount as opposed to 12.5% of the line cap.


On February 3, 2023, the Borrowers entered into a Ninth Amendment to the Fifth Amended and Restated Credit Agreement with the Agent and the other lenders set forth therein (the “Ninth Amendment”). The Ninth Amendment, among other things, adds an Accommodation Period beginning on the amendment date and continuing through the date following September 30, 2023, upon which Borrowers satisfy minimum availability thresholds and during which: (i) the minimum borrowing availability thresholds applicable to the Amended Credit Agreement are (a) through (and including) April 1, 2023, $7,500,000, (b) on and after April 2, 2023 through (and including) June 4, 2023, $9,000,000, (c) on and after June 5, 2023, through the date following September 30, 2023, upon which Borrowers satisfy minimum availability thresholds, $10,000,000; and (d) at all times thereafter, $0; (ii) the covenant requiring that our FCCR (as defined in our credit agreement) for the preceding 12-month period must not be less than 1.0 if the availability under our credit facility falls below the amounts specified in our credit agreement is suspended; (iii) Borrowers must maintain specified minimum EBITDA levels for trailing three-month periods starting March 4, 2023; (iv) the Applicable Margin with respect to loans under the Amended Credit Agreement is increased by 50 basis points; and (v) a Cash Dominion Trigger Event occurs if availability is less than $2,000,000.

 

10

 

On March 23, 2023, the Borrowers entered into a Tenth Amendment to the Fifth Amended and Restated Credit Agreement with the Agent and the other lenders set forth therein to account for specified costs and expenses in calculating EBITDA for purposes of the Amended Credit Agreement.

 

On October 6, 2023, the Borrowers entered into an Eleventh Amendment to the Fifth Amended and Restated Credit Agreement (the “Agreement”) with Wells Fargo Bank (the “Agent”) and the other lenders set forth therein (the “Eleventh Amendment”). The definitions of capitalized terms, if not so defined herein, may be found in the Agreement or the Eleventh Amendment. The Eleventh Amendment, among other things, extends the Accommodation Period established in the Ninth Amendment to the Agreement through the later of (x) November 4, 2023, and (y) the date upon which the Borrowers show Availability, as well as Average Availability for the preceding thirty (30) consecutive days, equal to or more than the greater of (i) seventeen and one-half percent (17.5%) of the lesser of (A) the Borrowing Base or (B) the Maximum Revolver Amount and (ii) $25,000,000. The Eleventh Amendment also, among other things, (i) requires the Borrowers to maintain a Fixed Charge Coverage Ratio of 1.00 to 1.00 for the immediately preceding twelve (12) month period as of the fiscal month ending November 4, 2023, and continuing with respect to the end of every fiscal month thereafter and (ii) eliminated the minimum EBITDA requirements established in the Ninth Amendment to the Agreement for the month ending September 2, 2023, and thereafter.


On December 5, 2023, the Borrowers entered into a Twelfth Amendment to the Agreement with the Agent and other lenders set forth therein (the “Twelfth Amendment”). The definitions of capitalized terms, if not so defined herein, may be found in the Agreement or the Twelfth Amendment. The Twelfth Amendment, among other things: (i) modifies the Applicable Margin during the period commencing on December 5, 2023, and ending on the date after certain real estate transactions have been consummated in accordance with the terms thereof; (ii) modifies the Availability Block upon consummation of certain real estate transactions and receipt of proceeds there from; (iii) reduces the Maximum Revolver Amount to $150,000,000; and (iv) provides that commencing with the fiscal month ending December 30, 2023, and as of the end of each fiscal month thereafter, if at any time (a) Availability (calculated without giving effect to the Availability Block) is less than $17,500,000 or (b) a Default or Event of Default exists or has occurred and is continuing, Borrowers will maintain a Fixed Charge Coverage Ratio, measured on a fiscal month-end basis for the immediately preceding 12 consecutive fiscal months, of not less than 1.00 to 1.00.

 

On December 27, 2023, the Borrowers entered into a Thirteenth Amendment to the Agreement with the Agent and other lenders set forth therein (the “Thirteenth Amendment”). The definitions of capitalized terms, if not so defined herein, may be found in the Agreement or the Thirteenth Amendment. The Thirteenth Amendment (i) modifies the Availability Block such that (a) on and after the Ninth Amendment Date through and including April 1, 2023, it shall be $7,500,000, (b) on and after April 2, 2023 through and including June 4, 2023, it shall be $9,000,000, (c) on and after June 5, 2023 through and including December 4, 2023, it shall be $10,000,000, (d) on and after December 5, 2023 through and including January 18, 2024, it shall be $7,000,000, (d) on and after January 19, 2024 through and including and February 15, 2024, it shall be $8,500,000, and (e) on and after February 16, 2024 and at all times thereafter, it shall be $10,000,000; (ii) requires that, commencing with the fiscal month ending June 29, 2024, the Company must maintain a Fixed Charge Coverage Ratio for the immediately preceding 12 consecutive fiscal months of not less than 1.00 to 1.00 if (a) Availability is less than $17,500,000 or (b) a Default or Event of Default exists; and (iii) requires that Borrowers maintain specified minimum EBITDA levels measured on a cumulative month-to-date basis through the end of the fiscal month ending March 2, 2024, and for trailing three-month periods starting March 30, 2024. The Thirteenth Amendment also, among other things, removes the requirement that certain real estate transactions be consummated and also removes the occurrence of an Event of Default in the event such transactions are not consummated by certain dates. As of March 2024, we were not in compliance with the applicable minimum EBITDA level for the month-to-date requirement.

 

At March 2024, the Amended Credit Agreement allowed us to borrow up to $150 million (subject to borrowing base limitations), including a maximum of $25 million in letters of credit. Provided that no event of default exists, we have the option to increase the maximum credit to $200 million (subject to borrowing base limitations), conditioned upon the Administrative Agent’s ability to secure additional commitments and customary closing conditions. The Amended Credit Agreement contains a “springing” lockbox arrangement (as defined in ASC 470, Debt) whereby remittances from customers will be forwarded to our general bank account and will not reduce the outstanding debt until and unless a specified event or an event of default occurs. The Company became non-compliant during the second quarter, and continues to be non-compliant, with one or more of the financial covenants in our U.S. revolving credit facility, which constitutes a breach of that agreement and an event of default. Such default allows the lenders under that credit facility to declare the principal and all other amounts owed to be immediately due and payable, but our lenders have elected not to do so to date. Thus, the debt under our U.S. revolving credit facility is classified as current.

 

At March 2024, we had $95.8 million outstanding under the Amended Credit Agreement at an average interest rate of 9.1%. Our cash on hand combined with the availability under the Amended Credit Agreement totaled $11.8 million (subject to minimum availability thresholds as referred to above).


Proceeds of the loans made pursuant to the Amended Credit Agreement may be used for permitted acquisitions (as defined in the Amended Credit Agreement), general operating expenses, working capital, other corporate purposes, and to finance credit facility fees and expenses. Pursuant to the terms of the Amended Credit Agreement, we are allowed to make cash dividends and stock repurchases if (i) as of the date of the payment or repurchase and after giving effect to the payment or repurchase, we have availability on that date of not less than 15% of the lesser of the borrowing base or the commitment, and average availability for the 30-day period immediately preceding that date of not less than 15% of the lesser of the borrowing base or the commitment; and (ii) the aggregate amount of dividends and stock repurchases after May 10, 2016, does not exceed $10 million plus 50% of our cumulative net income (as defined in the Amended Credit Agreement) from the first day of the third quarter of fiscal year 2016 to the date of determination. Notwithstanding the foregoing, the Amended Credit Agreement currently restricts us from making cash dividends or stock repurchases until the date upon which (a) our availability (as defined in the Amended Credit Agreement) and (b) our average availability (as defined in the Amended Credit Agreement) for the immediately preceding 30 consecutive days, is equal to or more than the greater of (i) 17.50% of the lesser of (a) our borrowing base (as defined in the Amended Credit Agreement) or (b) the maximum revolver amount (as defined in the Amended Credit Agreement) and (ii) $25,000,000 and upon which we provide certification that (x) our FCCR is equal to or greater than 1.00:1.00 for the trailing 12-month period and (y) as of such date, no default (as defined in the Amended Credit Agreement) or event of default exists. For purposes of this definition, availability and average availability will be calculated (x) after giving effect to the Availability Block (as defined in the Amended Credit Agreement) and (y) without giving effect to the application of the net cash proceeds from certain sale-leaseback transactions. Absent the restrictions referenced in the preceding two sentences, at March 2024, and September 2023, there was $0.0 million and $8.3 million, respectively, of retained earnings free of restrictions to make cash dividends or stock repurchases.

 

Honduran Debt

 

Since March 2011, we have entered into term loans and a revolving credit facility with Banco Ficohsa, a Honduran bank, to finance both the operations and capital expansion of our Honduran facilities. In December 2020, we entered into a new term loan and revolving credit facility with Banco Ficohsa, both with five-year terms, and simultaneously settled the prior term loans and revolving credit facility with outstanding balances at the time of settlement of $1.1 million and $9.5 million, respectively. In May 2022, we entered into a new term loan with a five-year term with a principal amount of $3.7 million. Each of these loans are secured by a first-priority lien on the assets of our Honduran operations and are not guaranteed by our U.S. entities. These loans are denominated in U.S. dollars, and the carrying value of the debt approximates its fair value. The revolving credit facility permits us to re-borrow funds up to the amount repaid, subject to certain objective covenants. While we intend to re-borrow funds, subject to those covenants, consistent with ASC 470 we have classified the explicit repayment amounts included within the loan agreement as long-term if due more than a year after March 30, 2024. Therefore, we have classified $7.0 million as short-term and $5.7 million as long-term.

 

11

 

El Salvador Debt

 

In September 2022 we entered into a new term loan with a five-year term with a principal amount of $3.0 million with Banco Ficohsa, a Panamanian bank, to finance our El Salvador operations. This loan is secured by a first-priority lien on the assets of our El Salvador operations and is not guaranteed by our U.S. entities. The loan is denominated in U.S. dollars, and the carrying value of the debt approximates its fair value. Information about this loan and the outstanding balance as of March 2024 are listed as part of the long-term debt schedule below.

 

Additional information about these loans and the outstanding balances and interest rates as of March 2024 is as follows (in thousands):

 

  

March 2024

 

Revolving credit facility with Banco Ficohsa, a Honduran bank, with interest at 9.0%, due August 2025

 $4,156 

Term loan with Banco Ficohsa, a Honduran bank, interest at 9.0%, quarterly installments which began September 2021 and are due through December 2025.

  3,551 

Term loan with Banco Ficohsa, a Honduran bank, interest at 8.75%, quarterly installments which began March 2023 and are due through May 2027.

  2,760 

Term loan with Banco Ficohsa, a Panamanian bank, interest at the prevailing market rate within the Panamanian Banking Market (interest at 9.8% on March 2024), monthly installments which began October 2022 and are due through August 2027.

  2,251 

 

 

Note G—Selling, General and Administrative Expense

 

We include in selling, general and administrative (“SG&A”) expenses the costs incurred subsequent to the receipt of finished goods at our distribution facilities, such as the cost of stocking, warehousing, picking, packing, and shipping goods for delivery to our customers. Distribution costs included in SG&A expenses totaled $5.2 million and $5.7 million for the March 2024 and March 2023 quarters, respectively. For the six-month periods ended March 2024 and 2023, distribution costs included in SG&A expenses were $10.1 million and $11.2 million, respectively. In addition, SG&A expenses include costs related to sales associates, administrative personnel, advertising and marketing expenses, retail store build-outs, and other general and administrative expenses.  

 

Note H—Stock-Based Compensation

 

On February 6, 2020, our shareholders approved the Delta Apparel, Inc. 2020 Stock Plan (“2020 Stock Plan”) to replace the 2010 Stock Plan, which was previously re-approved by our shareholders on February 4, 2015, and was scheduled to expire by its terms on September 14, 2020. The purpose of the 2020 Stock Plan is to continue to give our Board of Directors and its Compensation Committee the ability to offer a variety of compensatory awards designed to enhance the Company’s long-term success by encouraging stock ownership among its executives, key employees and directors. Under the 2020 Stock Plan, the Compensation Committee of our Board of Directors has the authority to determine the employees and directors to whom awards may be granted, and the size and type of each award and manner in which such awards will vest. The awards available under the plan consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, stock performance units, and other stock and cash awards. While employed by the Company or serving as a director, unvested awards become fully vested under certain circumstances as defined in the 2020 Stock Plan. Such circumstances include, but are not limited to, the participant’s death or disability. The Compensation Committee is authorized to establish the terms and conditions of awards granted under the 2020 Stock Plan, to establish, amend and rescind any rules and regulations relating to the 2020 Stock Plan, and to make any other determinations that it deems necessary. Similar to the 2010 Stock Plan, the 2020 Stock Plan limits the number of shares that may be covered by awards to any participant in a given calendar year and also limits the aggregate awards of restricted stock, restricted stock units and performance stock granted in a given calendar year. Shares are generally issued from treasury stock upon the vesting of the restricted stock units, performance units or other awards under the 2020 Stock Plan. On August 2, 2023, our Board of Directors, upon the recommendation of its Compensation Committee, approved a Declaration of Amendment to the 2020 Stock Plan that requires that all equity awards granted under the 2020 Stock Plan after August 2, 2023, contain a “double trigger” vesting provision such that vesting will require both a change-in-control and an additional event such as termination or other adverse employment action.

 

Compensation expense is recorded within SG&A in our Condensed Consolidated Statements of Operations over the vesting periods. During the March 2024 and March 2023 quarters, we recognized $0.1 million and 0.4 million, respectively, in stock-based compensation expense. For the six-month periods ended March 2024 and March 2023, we recognized $0.7 million and $1.0 million, respectively, in stock-based compensation expense. Associated with the compensation cost are income tax benefits recognized of $33 thousand and $0.2 million, respectively, for each of the three months ended March 2024 and March 2023. Income tax benefits of $0.2 million and $0.3 million, respectively, were recognized for each of the six months ended March 2024 and March 2023.

 

During the December 2023 quarter, restricted stock units representing 70,150 shares of our common stock were issued and are scheduled to vest with the filing of our Annual Report on Form 10-K for the fiscal year ended September 2025. Of these restricted stock units, one-half are payable in common stock and one-half are payable in cash. There were no restricted stock units issued during the March 2024 quarter.

 

During the December 2023 quarter, performance stock units representing 70,150 shares of our common stock were issued and are scheduled to vest with the filing of our Annual Report on Form 10-K for the fiscal year ended September 2025. Of these performance stock units, one-half are payable in common stock and one-half are payable in cash. There were no performance stock units issued during the March 2024 quarter.

 

During the December 2023 quarter, restricted stock units representing 67,063 shares of our common stock vested with the filing of our Annual Report on Form 10-K for fiscal 2023 and were issued in accordance with their respective agreements. Of these vested awards, all were payable in common stock. There were no restricted stock units issued in the March 2024 quarter.

 

During the December 2023 quarter, performance stock units representing 34,812 shares of our common stock were forfeited due to the Companys failure to meet certain threshold requirements. During the March 2024 quarter, restricted stock units representing 1,200 shares of our common stock and performance stock units representing 1,200 shares of our common stock were forfeited due to employee resignation. 

 

As of March 2024, there was $1.0 million of total unrecognized compensation cost related to unvested awards granted under the 2020 Stock Plan. This cost is expected to be recognized over a period of 1.7 years.

 

12

 
 

Note I—Purchase Contracts

 

We have entered into agreements, and have fixed prices, to purchase yarn, finished fabric, and finished apparel and headwear products. At March 2024, minimum payments under these contracts were as follows (in thousands):

 

Yarn

 $13,361 

Finished fabric

  2,905 

Finished products

  8,779 

Total inventories, net

 $25,045 

  

 

Note J—Business Segments

 

Our operations are managed and reported in two segments, Delta Group and Salt Life Group, which reflect the manner in which the business is managed and results are reviewed by the Chief Executive Officer, who is our chief operating decision maker.

 

The Delta Group is comprised of the following business units, which are primarily focused on core activewear styles: DTG2Go and Delta Activewear.

 

DTG2Go is a market leader in the on-demand, direct-to-garment digital print and fulfillment industry, bringing technology and innovation to the supply chains of our many customers. Our ‘On-Demand DC’ digital solution provides retailers and brands with immediate access to utilize DTG2Go’s broad network of print and fulfillment facilities, while offering the scalability to integrate digital fulfillment within the customer’s own distribution facilities. We use highly-automated factory processes and our proprietary software to deliver on-demand, digitally printed apparel direct to consumers on behalf of our customers. Via our fulfillment facilities throughout the United States, DTG2Go offers a robust digital supply chain, shipping custom graphic products within 24 to 48 hours to consumers in the United States and to many countries worldwide. DTG2Go has made significant investments in its “digital-first” retail model providing digital graphic prints that meet the high-quality standards required for brands, retailers and intellectual property holders. In fiscal year 2023, we continued to invest in our proprietary software and research and development initiatives related to the setups, formulas and processes needed to serve our customers. Through integration with Delta Activewear, DTG2Go also services the eRetailer, ad-specialty, promotional and screen print marketplaces, among others.

 

Delta Activewear is a preferred supplier of activewear apparel to direct-to-retail and wholesale markets. In connection with an ongoing review of its Delta Activewear business, the Company recently decided to reduce the scope and complexity of that business and allocate available capital and resources to only two of its three primary customer channels. Delta Activewear will no longer emphasize the Global Brands channel and instead re-organize around two key customer channels – Delta Direct and Retail Direct – that are distinct in their go-to-market strategies and how their respective customer bases source their various apparel needs. Our Delta Direct channel services the screen print, promotional, and eRetailer markets as well as retail licensing customers that sell through to many mid-tier and mass market retailers. Delta Direct products include a broad portfolio of apparel and accessories under the Delta, Delta Platinum, and Soffe brands. Our fashion basics line includes our Platinum Collection, which offers fresh, fashionable silhouettes with a luxurious look and feel, as well as versatile fleece offerings. We offer innovative apparel products including the Delta Dri line of performance shirts built with moisture-wicking material to keep athletes dry and comfortable; ringspun garments with superior comfort, style and durability; and Delta Soft, a collection with an incredible feel and price. We also offer our heritage, mid- and heavier-weight Delta Pro Weight® and Magnum Weight® tee shirts.  The iconic Soffe brand offers activewear for spirit makers and record breakers and is widely known for the original “cheer short” with the signature roll-down waistband. Soffe carries a wide range of activewear for the entire family. Soffe’s heritage is anchored in the military and its men’s assortment features the tagline “anchored in the military, grounded in training”. Our Soffe products are also available direct to consumers at www.soffe.com.

 

Our Retail Direct channel serves brick and mortar and online retailers by providing our portfolio of Delta, Delta Platinum, and Soffe products directly to the retail locations and ecommerce fulfillment centers of a diversified customer base including sporting goods and outdoor retailers, specialty and resort shops, farm and fleet stores, department stores, and mid-tier retailers.

 

As a key element of the integrated Delta Group segment, each of Activewear’s primary channels offer a seamless solution for small-run decoration needs with on-demand digital print services, powered by DTG2Go.

 

Salt Life is an authentic, aspirational lifestyle brand that represents a passion for the ocean, the salt air, and, more importantly, a way of life and all it offers, from surfing, fishing, and diving to beach fun and sun-soaked relaxation. Our apparel takes you from the boat to the beach and is constantly evolving to fit our customers’ needs. The Salt Life brand combines function and fashion with a tailored fit for the active lifestyles of those that “live the Salt Life.” With increased worldwide appeal, Salt Life has continued to provide the cotton graphic tees and logo decals that originally drove awareness for the brand and also expanded into performance apparel, swimwear, board shorts, sunglasses, bags, and accessories.

 

Our Salt Life business is organized around three Salt Life omnichannel markets - wholesale, ecommerce, and branded retail stores – that are distinct in their go-to-market strategies and how their respective customer bases source their various apparel needs. Salt Life’s wholesale channel allows consumers to seamlessly experience the Salt Life brand through one of our retail partners, which include surf shops, specialty stores, department stores, and outdoor merchants. Salt Life’s ecommerce channel allows customers to purchase merchandise by accessing our Salt Life ecommerce site at www.saltlife.com. Salt Life’s branded retail store channel allows customers to purchase merchandise at retail stores owned and operated by Salt Life. Salt Life’s branded retail store footprint now includes 28 locations spanning across the U.S. coastline from Southern California to Key West and up the eastern seaboard to New York.

 

13

 

Our chief operating decision maker and management evaluate performance and allocate resources based on profit or loss from operations before interest, income taxes and special charges (“segment operating earnings”). Our segment operating earnings may not be comparable to similarly titled measures used by other companies. The accounting policies of our reportable segments are the same as those described in Note 2 in our Annual Report on Form 10-K for fiscal 2023, filed with the SEC. Intercompany transfers between operating segments are transacted at cost and have been eliminated within the segment amounts shown in the following table (in thousands):

 

  

Three Months Ended

  

Six Months Ended

 
  

March 2024

  

March 2023

  

March 2024

  

March 2023

 

Segment net sales:

                

Delta Group

 $63,401  $91,344  $133,004  $188,354 

Salt Life Group

  15,535   18,991   25,865   29,276 

Total net sales

 $78,936  $110,335  $158,869  $217,630 
                 

Segment operating (loss) income:

                

Delta Group

 $(22,350) $(7,487) $(21,860) $(7,363)

Salt Life Group

  197   4,649   (1,933)  4,866 

Total segment operating loss

 $(22,153) $(2,838) $(23,793) $(2,497)

 

The following table reconciles the segment operating loss to the consolidated earnings before benefit from income taxes (in thousands):

 

  

Three Months Ended

  

Six Months Ended

 
  

March 2024

  

March 2023

  

March 2024

  

March 2023

 

Segment operating loss

 $(22,153) $(2,838) $(23,793) $(2,497)

Unallocated corporate expenses

  2,283   2,516   5,591   5,483 

Unallocated interest expense

  3,471   3,723   7,047   6,613 

Consolidated loss before provision for (benefit from) income taxes

 $(27,907) $(9,077) $(36,431) $(14,593)

 

 

     As of 
  March 2024   September 2023 
Total assets by segment:       
Delta Group$262,906  $345,965 
Salt Life Group 98,673   97,934 
Corporate 4,320   11,339 
Total assets$365,899  $455,238 
 

Note K—Income Taxes

 

The Tax Cuts and Jobs Act of 2017 (the “2017 Tax Legislation”) was enacted on December 22, 2017, and significantly revised the U.S. corporate income tax code by, among other things, lowering federal corporate income tax rates, implementing a modified territorial tax system and imposing a repatriation tax (“transition tax”) on deemed repatriated cumulative earnings of foreign subsidiaries which will be paid over eight years. In addition, new taxes were imposed related to foreign income, including a tax on global intangible low-taxed income (“GILTI”) as well as a limitation on the deduction for business interest expense (“Section 163(j)”). GILTI is the excess of the shareholder’s net controlled foreign corporations (“CFC”) net tested income over the net deemed tangible income. The Section 163(j) limitation does not allow the amount of deductible interest to exceed the sum of the taxpayer’s business interest income or 30% of the taxpayer’s adjusted taxable income. We have included in our calculation of our effective tax rate the estimated impact of GILTI and Section 163(j), which were effective for us beginning fiscal year 2019. We have elected to account for the tax on GILTI as a period cost and, therefore, do not record deferred taxes related to GILTI on our foreign subsidiaries.

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. During the current quarter, the Company established a valuation allowance of $8.4 million on its previously recorded deferred tax assets.

 

Our effective income tax rate on operations for the six months ended March 2024 was (23.1%) compared to a rate of 27.5% in the same period of the prior year, and an effective rate of 23.8% for fiscal year 2023. The change in the effective rate relative to prior periods is primarily related to the recording of a valuation allowance on the deferred tax assets and the losses generated.

 

Note L—Fair Value Measurements

 

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Assets and liabilities measured at fair value are grouped in three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:

 

 

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

   
 

Level 2 – Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are less active.

   
 

Level 3 – Unobservable inputs that are supported by little or no market activity for assets or liabilities and includes certain pricing models, discounted cash flow methodologies and similar techniques.

 

At March 2024 and September 2023, book value for fixed rate debt approximates fair value based on quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities (a Level 2 fair value measurement).

 

14

 
 

Note M—Legal Proceedings

 

At times, we are party to various legal claims, actions and complaints. We currently believe that, as a result of legal defenses, insurance arrangements, and indemnification provisions with parties believed to be financially capable, such actions should not have a material adverse effect on our operations, financial condition, or liquidity. 

 

 

Note N—Repurchase of Common Stock

 

As of September 28, 2019, our Board of Directors authorized management to use up to $60.0 million to repurchase stock in open market transactions under our Stock Repurchase Program. We did not purchase any shares of our common stock during the March 2024 quarter. Through March 2024, we have purchased 3,735,114 shares of our common stock for an aggregate of $56.4 million under our Stock Repurchase Program since its inception. All purchases were made at the discretion of management and pursuant to the safe harbor provisions of SEC Rule 10b-18. As of March 2024, $3.6 million remained available for future purchases under our Stock Repurchase Program, which does not have an expiration date.

 

Note O—Goodwill and Intangible Assets

 

Components of intangible assets consist of the following (in thousands):

 

  

March 2024

  

September 2023

     
  

Cost

  

Accumulated Impairment Losses

  

Net Value

  

Cost

  

Accumulated Impairment Losses

  

Net Value

  

Economic Life

 
                             

Goodwill:

                            

Delta Group

 $18,592  $(18,592) $-  $18,592  $(9,812) $8,780   N/A 

Salt Life Group

  19,917   -   19,917   19,917   -   19,917   N/A 

Total goodwill, net

 $38,509  $(18,592) $19,917  $38,509  $(9,812) $28,697     
                             
  March 2024  September 2023     
   Cost   Accumulated Amortization   Net Value   Cost   Accumulated Amortization   Net Value     

Intangibles:

                            

Tradename/trademarks

 $16,000  $(5,650) $10,350  $16,000  $(5,384) $10,616  

20 – 30 yrs

 

Customer relationships

  7,400   (4,323)  3,077   7,400   (3,953)  3,447  

10 yrs

 

Technology

  10,083   (3,959)  6,124   10,083   (3,509)  6574  

10 yrs

 

License agreements

  2,100   (1,095)  1,005   2,100   (1,043)  1,057  

15 – 30 yrs

 

Non-compete agreements

  1,657   (1,657)  -   1,657   (1,657)  -  

4 – 8.5 yrs

 

Total intangibles, net

 $37,240  $(16,684) $20,556  $37,240  $(15,546) $21,694     

 

Goodwill represents the acquired goodwill net of the cumulative impairment losses recorded in fiscal years 2024, 2023 and 2011 of $8.8 million, $9.2 million and $0.6 million, respectively.

 

In the second quarter of fiscal year 2024, the Company recorded a goodwill impairment charge of $8.8 million associated with the DTG2Go reporting unit. This impairment resulted from an interim assessment of DTG2Go goodwill, which we were required to perform in the second quarter of fiscal year 2024 due to the adverse impact of market conditions on our current year profitability and estimated future business results and cash flows, as well as the significant decrease in our market capitalization because of a sustained decline in our common stock price. In order to determine the fair value of the DTG2Go reporting unit, we utilized discounted cash flow methodology to determine the present value of future discounted cash flows. 

 

Depending on the type of intangible assets, amortization is recorded under cost of goods sold or SG&A expenses. Amortization expense for intangible assets was $0.6 million for both the March 2024 and March 2023 quarters. Amortization expense for intangible assets was $1.1 million and $1.2 million, respectively, for the six months ended March 2024 and March 2023. Amortization expense is estimated to be approximately $2.3 million for the year ending September 2024, approximately $2.2 million for the years ending September 2025 and 2026, approximately $2.0 million for the year ending September 2027, and approximately $1.5 million for the year ending September 2028.

 

Note P—Sale-Leaseback Transaction

 

On December 28, 2023, the Company completed a sale-leaseback agreement providing for the sale and long-term leaseback of the Company’s approximately 25-acre property in Knoxville, Tennessee area with approximately 164,000 square feet of distribution space utilized in the Company’s Delta Activewear business. The sales price for the Knoxville, Tennessee area property was $6.5 million and the Company recorded a gain on sale of $5.4 million. The Company utilized the net proceeds to repay outstanding borrowings under its U.S. asset-based revolving credit facility. The Company plans to continue operations at the Knoxville, Tennessee area property uninterrupted and entered into a lease agreement with the buyer with an initial term of 6 years.

 

Note Q—Subsequent Events

 

In May 2024, the Company received notice that the largest customer on DTG2Go’s digital first model no longer intends to source production from this platform. Accordingly, impairment indicators  may exist for long-lived assets. We are unable to estimate the amount of any potential impairment to be recorded in the third quarter of fiscal 2024, as the Company is still evaluating the potential impact of the loss of the customer on forecasts of current and future years business performance.