Delta Apparel, Inc.

Thank you and good afternoon to everyone participating in Delta Apparel's fiscal 2022 second quarter earnings conference call. Please note that today's call is being recorded. Joining us from management are Bob Humphreys, Chairman and Chief Executive Officer, and Simone Walsh, Chief Financial Officer and Treasurer. Before we begin, I'd like to remind everyone that during the course of this conference call, projections or other forward-looking statements may be made by Delta Apparel's executives. Such projections and statements suggest prediction and involve risks and uncertainty, and actual results may differ materially. Please refer to the periodic report filed with the Securities and Exchange Commission, including the company's most recent Form 10-K and Form 10-Qs. These documents identify important factors that could cause actual results to differ materially from those contained in the projections or forward-looking statements. Please note that any forward-looking statements are made only as of today and except as required by law. The company does not commit to update or revise any forward-looking statements, even if it becomes apparent that any projected results will not be realized. As a reminder, today's conference call is being recorded. I'll now turn the call over to Delta's Chairman and Chief Executive Officer, Bob Humphries. Thank you, you may begin.

Thank you, good afternoon, and thank you for your interest in Delta Apparel. We are pleased to be with you today to discuss our second quarter results, which met the high end of our expectations and are advancing us towards our revenue and earnings goals for fiscal 2022. I would like to give a special thank you to our nearly 9,000 employees throughout Mexico, Honduras, El Salvador, and the United States who continue to work hard to service our customers in the many markets we serve. As reported in our earnings release, Sales for our second quarter ended April 2, 2022, for $131.7 million, our strongest March-ever quarter, and represents 21% growth from the prior year March quarter. Our net income was $10.1 million, or $1.44 per diluted share, more than double our prior year March quarter results of $0.62 per diluted share. Our strong second quarter results reflect continued broad-based demand for our products, with the Delta Group segment seeing 22% growth year-over-year and the Salt Life Group segment seeing 14% growth year-over-year. This performance is being driven by strong customer demand driving unit growth in the high single-digit range. Increased value-adding services, such as screen printing and retail packaging, and hire direct-to-consumer sales. As we continue to invest in manufacturing capacity and print equipment, we are also able to increase output, positioning ourselves for ongoing growth in future quarters. Our practice of operational discipline also continues to contribute to our success as we deliver exceptional service to our customers while leveraging our fixed costs. Our Delta Group segment experienced 22% sales growth over the prior year's second quarter, mostly driven by unit sales growth, increased value-added services, and our continued ability to update our pricing in the marketplace to offset higher input costs. Within the activewear business, we support our customers from product development to shipment of their branded products, with many products being sold fully decorated and ready for the retail shelf. This business all sells increase of the prior year in each reporting unit with increased manufacturing capacity keeping up with strong customer demand across the business. We have been able to continue to combat inflationary pressures with price increases and focus on production efficiencies and are very proud of the growth in our activewear business despite supply chain constraints. We are well positioned at this point in the year and continue to produce more garments per week than in our previous history. Within the Delta Group segment, our digital print business, DTG2Go, saw sales growth year-over-year in the second quarter as a result of both higher unit sales and higher average selling prices. During the quarter, we publicly disclosed our partnership with Fanatics to highlight our on-demand, digital-first solution. The digital print technology has been installed in three of our existing facilities. and will allow customer orders produced, packaged, and shipped to the end consumer within 24 hours of order placement. We are currently installing this digital print technology in a fourth facility. Our continued investment in digital print machinery and equipment in addition to the proprietary technology that allows us to provide an improved customer experience and manage inventory planning has driven higher unit growth and allowed us to meet the growing demand for our customers. We additionally continue to leverage our vertically integrated supply chain in our own demand model with usage of the Delta Direct blanks, which creates efficient operations with lower working capital needs for the business. The Salt Life segment also registered strong growth over the prior year's second quarter, with sales increasing 14%. The Salt Life branded retail footprint was further expanded with the opening of two new locations during the quarter in Sarasota and Fort Lauderdale, Florida. During April, we opened an additional two stores in Foley, Alabama and Hilton Head, South Carolina, bringing the number of retail doors to 18 locations across six states. Our recent Salt Life retail location openings have met our internal initial sales expectations which validates the strength of the Salt Life brand and our go-to-market strategy. Additionally, we are seeing strong wholesale demand along with consumer interest in our e-commerce channel. While we are seeing strong sales performance, we are also actively managing inflationary pressures across all areas of our business. As you can see from our bottom-line results, we have been successful in staying ahead of these rising costs and this will be an area of focus throughout the second half of fiscal 2022. We are deploying further capital in our business, most notably by installing additional equipment in our textile and sewing facilities in Central America, which have resulted in record manufacturing output. As previously mentioned, we have installed new digital print technology in three of our DTG2GO locations and are soon expanding to our fourth location. For Salt Life, we continue to open retail locations and plan to exceed our target of 20 retail stores opened by the end of fiscal 2022. Our results showcase the strong performance throughout our business, and we are excited by the many opportunities we see for continued top and bottom line growth. Now let me turn the call over to Simone, who will review our second quarter financial results, and then I will rejoin the call prior to opening for questions. Simone?

Thank you, Bob. For our fiscal 2022 second quarter, we delivered sales of $131.7 million, a 21% increase over the prior year second quarter. The performance was driven by double-digit growth across both of our business segments, with the Delta Group segment up 22% and the Salt Life Group segment up 14%. Growth margins improved from the prior year second quarter by 270 basis points to 25.5% for the second quarter of fiscal 2022. This improvement was driven by higher selling prices, manufacturing efficiencies, process improvements and leveraging fixed costs offset by inflationary cost pressures. Specifically, The Delta Group had a strong performance in the second quarter with net sales growing 22% to $115.3 million compared to $94.2 million in the prior year second quarter. This growth was driven by broad-based demand for activewear apparel, particularly in our retail licensing and brand direct sales channels with 24% growth from prior year. DTG2Go continued to grow year over year with a 12% increase in sales compared to prior year. For the Delta Group, net sales for the first six months of 2022 were $217.3 million, a 19% improvement over the prior year. Gross margins were 21.6% for the March 2022 quarter. an improvement from the prior year March quarter growth margins of 19.5%. Growth margins were positively impacted by increased selling prices to offset increasing input costs, in addition to continued production efficiencies. Growth margins for the first six months of fiscal 2022 improved from 19.3% in the prior year to 19.9% of sales. The Salt Life Group segment's second quarter revenue grew 14% to $16.4 million, compared to $14.4 million in the prior year period. The segment's growth was driven by over 20% increase in wholesale channel sales, along with continued retail store growth. For the first six months of 2022, net sales were $25.2 million, up over $3.7 million from the prior year net sales of $21.5 million. The Salt Life Group segment growth margins improved 52.4% compared to 44.7% in the prior year second quarter, resulting from a favourable mix of sales, including increased Salt Life branded retail store sales. For the first six months of fiscal 2022, growth margins grew 52.7% of sales from 46.5% in the prior year. Selling, general and administrative expenses were $19.7 million or 15% of sales compared to $17.1 million or 15.7% of sales in the prior year second quarter. These savings are a result of leveraging fixed costs against higher sales in the second quarter as compared to the second quarter in the prior fiscal year. Other income for the second quarter of 2022 was $0.5 million This is primarily made up of profits related to our Honduran equity method investment of $0.3 million and valuation changes in our contingent consideration liabilities of $0.5 million, offset by a loss on disposal of assets of $0.4 million. Interest was $1.8 million in the second quarter of fiscal 2022, consistent with the prior year second fiscal quarter interest expense of $1.8 million. Our effective tax rate was 18.2%, down from 27.6% in the prior year. We anticipate our tax rate for the full year to be approximately 20%. Operating profit in the second quarter increased to $14.4 million, up from the prior year second quarter, $7.7 million of operating profit. We achieved net earnings for the March 2022 quarter of $10.1 million or $1.44 per diluted share compared to $4.4 million or $0.62 per diluted share in the prior year. This was an increase of 131% compared to the second quarter of 2021. At the end of the quarter, inventories were $197.7 million up $36 million from September 2021 and $49.2 million from the prior March quarter end. Inventory turns were 1.8 times, down from 2.2 times last year. We have increased our manufacturing output and are now producing at record manufacturing levels. Our increased inventory value is also a reflection of increasing input costs resulting from raw material transportation and labour costs. Total net debt increased $31.6 million from September 2021 to $153.3 million at March 2022. Cash on hand and availability under our US revolving credit facility totaled $35.1 million at March 2022, a $10.2 million decrease from September 2021. This decrease in availability is principally driven by investments in the business to increase our manufacturing output, expand our digital print technology and working capital needs. Overall, we are positioned well financially to further invest in our growth while providing cash flow for other strategic initiatives. I will turn now to capital allocation. Our long-term strategy remains unchanged in how we think about deploying capital. First and foremost, we will invest in our business. During the second quarter, we invested approximately $10.5 million back into our business in the form of capital expenditures. This capital spending has been mainly focused on print equipment to support our DTG2CO business, in addition to expansion of our manufacturing capacity for our activewear business and continued retail store openings to support achieving our target of at least 20 Salt Life retail stores opened by the end of fiscal 2022. And second, we continue to repurchase shares. In the second quarter of fiscal 2022, under the previously announced share repurchase program, the company purchased 28,015 shares for $0.8 million, bringing the total amount repurchased to $55.5 million. At the end of the second quarter of fiscal 2022, the company had $4.5 million of remaining repurchase capacity under its existing authorisation. As we reflect on the first half of fiscal 2022, we are pleased with our strong sales and bottom line performance, demonstrating ongoing emphasis on meeting customer demand and operating excellence. We additionally are encouraged with the consistent strong performance across both segments of our business, reflecting the success of the breadth of our diverse market offerings. Importantly, we continue to manage our bottom line as we face inflationary pressures across our business. We plan to further invest in digital print, manufacturing expansion and Salt Life retail location openings and anticipate spending approximately $20 million in capital for fiscal 2022. I will now turn the call back over to Bob.