dla-20230401

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

April 1, 2023

☐

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)

(

678

)

775-6900

______________________________

(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

☑

☐

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

☑

☐

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

☐

☑

As of

April 28, 2023,

there were outstanding

7,001,020

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

Financial Information

Item 1.

Financial Statements (unaudited):

Condensed Consolidated Balance Sheets — March 2023 and September 2022

Condensed Consolidated Statements of Operations — Three and Six Months Ended March 2023 and March 2022

Condensed Consolidated Statements of Comprehensive (Loss) Income — Three and Six Months Ended March 2023 and March 2022

Condensed Consolidated Statements of Shareholders' Equity — Three and Six Months Ended March 2023 and March 2022

Condensed Consolidated Statements of Cash Flows — Six Months Ended March 2023 and March 2022

Notes to Condensed Consolidated Financial Statements (unaudited)

Note A—Basis of Presentation and Description of Business

Note B—Accounting Policies

Note C—New Accounting Standards

Note D—Revenue Recognition

Note E—Inventories

Note F—Debt

Note G—Selling, General and Administrative Expense

Note H—Stock-Based Compensation

Note I—Purchase Contracts

Note J—Business Segments

Note K—Income Taxes

Note L—Derivatives and Fair Value Measurements

Note M—Legal Proceedings

Note N—Repurchase of Common Stock

Note O—Goodwill and Intangible Assets

Note P—Subsequent Events

Item 2.

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

Item 4.

Controls and Procedures

PART

II.

Other Information

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 5.

Other Information

Item 6.

Exhibits

Signatures

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 2023

September 2022

Assets

Cash and cash equivalents

625

300

Accounts receivable, less allowances of $

124

and $

109

, respectively

62,020

68,215

Other receivables

1,125

1,402

Income tax receivable

1,680

1,969

Inventories, net

243,167

248,538

Prepaid expenses and other current assets

4,096

2,755

Total current assets

312,713

323,179

Property, plant and equipment, net of accumulated depreciation of $

114,569

and $

108,565

, respectively

70,739

74,109

Goodwill

37,897

Intangibles, net

22,834

24,026

Deferred income taxes

1,342

Operating lease assets

56,174

50,275

Equity method investment

9,036

9,886

Other assets

2,239

2,967

Total assets

512,974

523,681

Liabilities and Equity

Liabilities:

Accounts payable

66,071

83,553

Accrued expenses

18,581

27,414

Income taxes payable

671

379

Current portion of finance leases

8,843

8,163

Current portion of operating leases

8,861

8,876

Current portion of long-term debt

8,962

9,176

Total current liabilities

111,989

137,561

Long-term income taxes payable

2,131

2,841

Long-term finance leases

17,483

16,776

Long-term operating leases

48,804

42,721

Long-term debt

159,591

136,750

Deferred income taxes

337

4,310

Total liabilities

340,335

340,959

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

7,001,020

and

6,915,663

shares outstanding as of March 2023 and September 2022,

respectively

Additional paid-in capital

60,912

61,961

Retained earnings

156,043

166,600

Accumulated other comprehensive income

180

141

Treasury stock -

2,645,952

and

2,731,309

shares as of March 2023 and September 2022,

respectively

(43,896)

(45,420)

Equity attributable to Delta Apparel, Inc.

173,335

183,378

Equity attributable to non-controlling interest

(696)

(656)

Total equity

172,639

182,722

Total liabilities and equity

512,974

523,681

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 2023

March 2022

March 2023

March 2022

Net sales

110,335

131,698

217,630

242,444

Cost of goods sold

94,126

98,176

187,798

185,919

Gross profit

16,209

33,522

29,832

56,525

Selling, general and administrative expenses

19,298

19,714

38,168

37,197

Other expense (income), net

2,265

(533)

(356)

(929)

Operating (loss) income

(5,354)

14,341

(7,980)

20,257

Interest expense, net

3,723

1,801

6,613

3,399

(Loss) income before (benefit from) provision for income taxes

(9,077)

12,540

(14,593)

16,858

(Benefit from) provision for income taxes

(2,079)

2,414

(3,996)

3,062

Consolidated net (loss) income

(6,998)

10,126

(10,597)

13,796

Net (loss) income attributable to non-controlling interest

(6)

(11)

(40)

Net (loss) earnings attributable to shareholders

(6,992)

10,137

(10,557)

13,782

Basic (loss) income per share

(1.00)

1.46

(1.51)

1.98

Diluted (loss) income per share

(1.00)

1.44

(1.51)

1.95

Weighted average number of shares outstanding

7,001

6,953

6,978

6,976

Dilutive effect of stock awards

Weighted average number of shares assuming dilution

7,001

7,040

6,978

7,063

See accompanying Notes to Condensed Consolidated Financial

Statements.

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Amounts in thousands)

(Unaudited)

Three Months Ended

Six Months Ended

March 2023

March 2022

March 2023

March 2022

Net (loss) income attributable to shareholders

(6,992)

10,137

(10,557)

13,782

Other comprehensive (loss) gain related to unrealized (loss)

gain on

derivatives, net of income tax

(30)

381

593

Consolidated comprehensive (loss) income

(7,022)

10,518

(10,518)

14,375

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

Amount

Capital

Earnings

Income

Amount

Interest

Total

Balance as of September

2022

9,646,972

61,961

166,600

141

2,731,309

(45,420)

(656)

182,722

Net loss

(3,565)

Other comprehensive income

Net loss attributable to non-

controlling interest

(34)

Vested stock awards

(2,067)

(85,357)

1,524

(543)

Stock based compensation

665

Balance as of December

2022

9,646,972

60,559

163,035

210

2,645,952

(43,896)

(690)

179,314

Net loss

(6,992)

Other comprehensive loss

(30)

Net loss attributable to non-

controlling interest

(6)

Stock based compensation

353

Balance as of March 2023

9,646,972

60,912

156,043

180

2,645,952

(43,896)

(696)

172,639

Accumulated

Additional

Other

Non-

Common Stock

Paid-In

Retained

Comprehensive

Treasury Stock

Controlling

Amount

Capital

Earnings

(Loss)

Amount

Interest

Total

Balance as of September 2021

9,646,972

60,831

146,860

(786)

2,672,312

(42,149)

(658)

164,194

Net income

3,645

Other comprehensive income

212

Net income attributable to

non-controlling interest

Purchase of common stock

74,232

(2,143)

Vested stock awards

(1,766)

(76,460)

674

(1,092)

Stock based compensation

140

Balance as of December 2021

9,646,972

59,205

150,505

(574)

2,670,084

(43,618)

(633)

164,981

Net income

10,137

Other comprehensive income

381

Net loss attributable to non-

controlling interest

(11)

Purchase of common stock

28,015

(846)

Stock based compensation

714

Balance as of March 2022

9,646,972

59,919

160,642

(193)

2,698,099

(44,464)

(644)

175,356

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 2023

March 2022

Operating activities:

Consolidated net (loss) earnings

(10,597)

13,796

Adjustments to reconcile net (loss) earnings to net cash

used in operating activities:

Depreciation and amortization

7,642

7,434

Amortization of deferred financing fees

268

162

Change in inventory market reserves

(3,540)

1,290

(Benefit from) provision for deferred income taxes

(3,986)

583

Non-cash stock compensation

1,018

854

Loss on disposal of equipment

383

Loss on impairment of equipment

860

Other, net

(390)

(1,180)

Changes in operating assets and liabilities:

Accounts receivable

6,472

(10,524)

Inventories

8,911

(37,278)

Prepaid expenses and other current assets

(1,609)

(66)

Other non-current assets

2,019

1,014

Accounts payable

(17,657)

11,742

Accrued expenses

(8,659)

(3,215)

Change in net operating lease liabilities

169

243

Income taxes

(129)

1,352

Other liabilities

(1,049)

Net cash used in operating activities

(19,139)

(14,459)

Investing activities:

Purchases of property and equipment, net

(2,495)

(7,670)

Proceeds from sale of property and equipment

Proceeds from equipment under financed leases

4,417

Cash paid for intangible asset

(109)

Cash paid for business

(583)

Net cash provided by (used in) investing activities

1,922

(8,329)

Financing activities:

Proceeds from long-term debt

254,103

265,034

Repayment of long-term debt

(231,476)

(243,483)

Repayment of capital financing

(4,543)

(3,630)

Repurchase of common stock

(2,989)

Payment of withholding taxes on stock awards

(542)

(1,092)

Net cash provided by financing activities

17,542

13,840

Net increase (decrease) in cash and cash equivalents

325

(8,948)

Cash and cash equivalents at beginning of period

300

9,376

Cash and cash equivalents at end of period

625

428

Supplemental cash flow information

Finance lease assets exchanged for finance lease liabilities

5,930

5,379

Operating lease assets exchanged for operating lease liabilities

10,991

4,397

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

7,000

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, the U.S.

military, 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 in

providing 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

% 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, Honduras,

and Mexico,

and we

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 under the

symbol “DLA."

We operate on a

52-53 week

fiscal year

ending on

the Saturday

closest to

September 30.

Our 2023 fiscal

year is

a 52-week

year and

will end

on September

30, 2023 ("fiscal

2023"). Accordingly, this Quarterly Report on Form 10-Q presents our results for our second quarter of fiscal 2023. Our 2022 fiscal year was a 52-week year and ended

on October 1, 2022 ("fiscal 2022").

For presentation purposes herein, all references to period

ended relate to the following fiscal years and dates:

Period Ended

Fiscal Year

Date Ended

March 2022

Fiscal 2022

April 2, 2022

June 2022

Fiscal 2022

July 2, 2022

September 2022

Fiscal 2022

October 1, 2022

December 2022

Fiscal 2023

December 31, 2022

March 2023

Fiscal 2023

April 1, 2023

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.

believe

these

Condensed

Consolidated

Financial

Statements include

all

normal

recurring

adjustments considered

necessary

for

fair

presentation.

Operating results

for the

three and six months ended March 2023 are

not necessarily

indicative of

the results

that may

be expected

for our

fiscal 2023.

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

2023 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 2022, 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.

apply the

equity method of

accounting for

our investment in

% of

the outstanding

capital stock

of a

Honduran company.

During the

six months

ended March

2023 and March 2022,

we received dividends

from this investment

of $

1.2

million and $

1.1

million, respectively.

Our Ceiba Textiles

manufacturing facility is

leased

under an operating lease

arrangement with this Honduran

company. During the six months

ended March 2023

and March 2022, we

paid approximately $

0.9

million 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.

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 2022, filed with

the

SEC. See Note C for consideration of recently issued

accounting standards.

Note C—New Accounting Standards

Standards Not Yet Adopted

In June 2016, the FASB

issued 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 year

2024. We are currently evaluating the impacts of the provisions of ASC 326 on our financial condition,

results of operations, cash flows, and disclosures.

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 includes our business-to-business ecommerce sales and sales in our DTG2Go business.

The table

below identifies the amount and percentage of net sales

by distribution channel (in thousands):

Three Months Ended

March 2023

March 2022

Retail

3,157

2,370

Direct-to-consumer ecommerce

1,509

710

Wholesale

105,669

128,618

Net sales

110,335

100

131,698

100

Six Months Ended

March 2023

March 2022

Retail

6,611

5,273

Direct-to-consumer ecommerce

2,672

2,054

Wholesale

208,347

235,117

Net sales

217,630

100

242,444

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 2023

Net Sales

Retail

Direct-to-consumer

ecommerce

Wholesale

Delta Group

91,344

0.0

0.3

99.7

Salt Life Group

18,991

16.5

6.9

76.6

Total

110,335

Three Months Ended March 2022

Net Sales

Retail

Direct-to-consumer

ecommerce

Wholesale

Delta Group

115,335

0.1

99.8

Salt Life Group

16,363

14.1

3.3

82.6

Total

131,698

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

Six Months Ended March 2022

Net Sales

Retail

Direct-to-consumer

ecommerce

Wholesale

Delta Group

217,256

0.1

0.2

99.7

Salt Life Group

25,188

19.8

6.3

73.9

Total

242,444

Note E—Inventories

Inventories, net of reserves of $

14.1

million and $

17.7

million as of March 2023 and September 2022, respectively, consisted of the

following (in thousands):

March 2023

September 2022

Raw materials

18,796

22,603

Work in process

18,574

23,501

Finished goods

205,797

202,434

243,167

248,538

SEC Form 10-Q filed by Delta Apparel Inc.