USA:Delta Apparel gross margin hit by higher raw material prices

Delta Apparel Inc reported financial results for its third fiscal quarter ended March 29, 2008.
Net sales for the three months ended March 29, 2008, were $75.4 million compared to $85.0 million in the prior year’s third quarter. The decrease was due to lower sales in the activewear segment offset by increased sales in the retail-ready segment.
Gross margins declined 360 basis points to 20.8% compared to 24.4% in the prior year third quarter primarily as a result of textile restructuring related costs, higher raw material prices, increased energy and transportation costs and sales of a more basic mix in the catalog tee business.
The Company previously announced on July 18, 2007, an overall restructuring plan which included the closing of its Fayette, Alabama manufacturing facility, the expensing of excess manufacturing costs with the FunTees integration and the expensing of start-up costs stemming from the opening of its Honduran textile facility.
In the third quarter of fiscal 2008, the Company expensed $0.9 million, or $0.07 per diluted share, predominantly related to start-up costs from the opening of its Honduran textile facility. We expect that these third quarter restructuring costs will be the final charges relating to the Company’s textile restructuring plan announced on July 18, 2007.
Net loss for the third quarter, inclusive of the textile restructuring charges, was $0.4 million, or ($0.05) per diluted share, compared to the prior year’s net income of $2.8 million, or $0.32 per diluted share.

Robert W. Humphreys, President and Chief Executive Officer, commented, “We are pleased that during the quarter we completed our previously announced textile restructuring plan. Our new, state-of-the-art textile facility in Honduras continues to increase its production of first-quality dyed fabric and is on pace to reach our initial goal of producing over 500,000 pounds of fabric per week in our fiscal fourth quarter.
Based on our experience to date, we continue to believe this facility can provide our activewear business with annual pre-tax savings of $7 million when producing at the one million pound per week production level. We remain focused on continued cost savings and quality improvement in our manufacturing operations.”
Mr. Humphreys continued, “While we did not meet our initial expectations for the quarter, we are continuing to see positive aspects in our businesses. The sell-through of our Soffe product line at retail met our expectations despite the slowing in consumer spending. We continue to see double-digit sales growth in our Soffe college bookstore distribution channel and our Intensity Athletics business.
Our Junkfood business had its fourth consecutive quarter of sales growth, resulting from both its traditional customers as well as its new partnership with GapKids. In our activewear segment, we believe we are servicing our private label customers well and are seeing the rewards with new, additional programs for shipment inthe upcoming seasons.
Unfortunately, retailers are taking a more cautious approach with their re-orders and inventory positions due to the slowdown of the general economy and weakness in consumer spending, which is offsetting our results more than we originally expected.”