Delta Apparel, Inc.

Thank you and good afternoon to everyone participating in Delta Apparel Inc. Fiscal Year 2024 First Quarter Earnings Conference Call. Joining us from Management are Beb Humphries, Chairman and Chief Executive Officer, Justin Groh, Executive Vice President and Chief Administrative Officer, and Nancy Babanik, Vice President and Chief Accounting Officer. 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 reports filed with the Securities and Exchange Commission, including the company's most recent annual report on Form 10-K and quarterly reports on Form 10-Q. 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 accept 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. I'll now turn the call over to Mr. Humphries. Thank you. Please go ahead.

Good afternoon. Thank you for joining us today and for your interest in Delta Apparel. Before we review our first quarter results, I would like to once again express gratitude to our teams throughout the various countries in which we operate our business for their hard work, flexibility, and dedication through what remains a challenging period for our company as well as our industry. As we highlighted on our fiscal 2023 year end call, we were faced with uniquely unfavorable market dynamics throughout most of last year. And many of those dynamics continue to impact our business in the first quarter of our 2024 fiscal year. Our teams have approached these prolonged difficult business conditions with determination and taken decisive and effective action to shore up our balance sheet and significantly reduce our debt working capital, and cost structure. The plan we initiated during fiscal year 2023 to optimize our cost structure and streamline operations is now substantially completed. At a high level, our plan included exiting Mexico and reducing our offshore manufacturing footprint from three countries to two and from six facilities to four. As a part of that restructuring, we transitioned our Mexico sewing and screen print capacity as well as the more expensive third-party fabric production we had to source in Mexico into our more efficient Central American manufacturing platform. When we can ramp up our manufacturing volumes back to a more normalized level, we expect this restructuring to generate approximately $6 million in annual run rate savings. Our plan included similar consolidation activity in our DTG2Go digital print business, where we closed a legacy print facility in Clearwater, Florida, and absorb its capacity into our more efficient on-demand DC footprint throughout the United States, combining our DTG2Go and Delta Direct business under the same roof. In addition, we significantly reduced other areas of our U.S. workforce as well as our workforce across our Central American manufacturing platform to better align with the lower demand we continue to see across most our business. All told, after these actions, we reduced our overall workforce by over 20% and took approximately $20 million out of our cost structure in annualized labor savings. This heavy lifting across our company was challenging, but it was necessary for us to become a leaner organization better positioned to navigate the tough operating environment we continue to see across our business. Despite our success in executing on these important restructuring initiatives, we were disappointed in our overall results for the first fiscal quarter of 2024, which as a reminder is typically our slowest overall quarter due to the seasonality of our various businesses. The immediate demand we saw across most of our activewear business markets in fiscal year 2023 continued during the quarter, which pressured inventory turns. Although it appears that many of our customers have destocked to more normalized inventory levels, the activewear supply ecosystem as a whole still has some ground to cover to return to pre-pandemic activity levels. These market dynamics impacted both our top line and bottom line performance for the quarter and unfortunately resulted in more below capacity production volume in our Central American manufacturing platform and more deleveraging of our significant fixed cost structures in these countries. In light of the challenging start to our new fiscal year, we continue to take steps to reduce our working capital and focus resources in our core business where we can generate positive cash flows. We are also looking at other areas where we can create cost efficiencies and potentially further streamline our operations. In addition, we continue to evaluate all of our strategic assets across the organization. We are committed to fully exploring opportunities to monetize our own real estate portfolio and recently completed the sale and lease back of our distribution center in the Knoxville, Tennessee area. This transaction generated gross proceeds of approximately $6.2 million, and we believe that a sell-leaseback transaction involving our manufacturing and distribution campus in Fayetteville, North Carolina, should generate additional gross proceeds between $20 and $23 million in the current environment for industrial properties of that size and scope in Sunbelt markets. We are currently in serious discussions with a potential buyer for our Fayetteville campus and believe we have the potential to monetize that asset and continue our operations there uninterrupted going forward. As you know, we received an unsolicited offer to purchase our Salt Life business back in October. Our board of directors recently concluded a thorough review of our strategic options for Salt Life and decided to continue negotiations with a selected entity. I can assure you that our board is committed to maximizing value for shareholders and taken the course of action we believe is in their best interest with respect to our Salt Life business. We look forward to updating you once these negotiations conclude. With the start to our fiscal year more difficult than originally anticipated, we are keenly focused on managing our working capital and costs across all aspects of our business on a day-to-day basis. Our overall debt was down 22% year-over-year at the end of our first quarter. and we have made more progress on that front to start our second quarter. Similarly, our inventory levels were down 24% year over year, and we will continue to prudently manage the business with a heightened focus on liquidity while evaluating our assets and making investments in the area that position us to generate returns for our shareholders. Nancy will provide more detail on our results in a moment, but let me now turn the call over to Justin to walk you through our business highlights in more detail. I'll join them at the end of the call to open up for questions. Justin? Thanks, Bob.

Our Salt Life business registered year-over-year sales growth during the first quarter in what is traditionally a slower quarter due to the seasonality of that business and is also tracking to achieve sales growth for the full year. The recent softness in Salt Life's wholesale channel continued during the quarter but was counterbalanced to some degree by more year-over-year growth in Salt Life's direct-to-consumer retail and e-commerce channels. Salt Life recently expanded its branded retail footprint with the opening of its first location in Virginia, and the new store in Williamsburg has exceeded expectations to date. The brand's retail footprint now consists of 28 stores, including 16 full-price stores and 12 outlet stores across the country. Same-store sales across all Salt Life stores for the first quarter were down approximately 2% from the prior year quarter. with the drop due to more sporadic travel activity as well as colder and wetter conditions in the coastal areas where our stores are located. Salt Life stores continue to consistently achieve solid performance across retail KPIs such as conversion rates, which were up relative to the prior year quarter, and average transaction value. Sales on Salt Life e-commerce website continued to grow during the quarter, and its performance across other key metrics such as conversion, units per transaction, and average order value were all up favorably over the prior year period. We were also pleased to see several states in the Northeast market, as well as several inland states, continue to be among the top 10 markets for Salt Life e-commerce channels. Turning to our activewear business, we continue to see sluggish overall demand across its three go-to-market channels, and the general industry expectation is for activewear demand to remain relatively flat throughout the year. Given these market conditions, we continue to run our vertical manufacturing platform at below-capacity levels, which, as Bob mentioned, reduces our fixed-cost absorption rates and generates unfavorable manufacturing variances. In the Delta Direct channel, where we provide blank garments on demand to a variety of supply chains, overall units sold were up year over year. But the amount of underutilized manufacturing capacity across this channel resulted in more price deterioration, particularly on core styles, which impacted overall sales dollars. Demand in Delta Direct channel's largest verticals, retail license and regional screen print, continued to be inconsistent relative to pre-pandemic levels. while the e-retail and promotional channels continue to strengthen and perform well year over year. Excess global manufacturing capacity also continues to drive pricing pressure in our global brands channel, where we provide custom-decorated activewear to major brands in the U.S. military, with much of that pressure coming from producers in Asia. In addition, the inventory levels at retail continue to impact demand in the first quarter as expected in this channel, and global brand sales came in well below last year's record first quarter sales. We saw similar dynamics in performance in our retail direct channel, where we provide decorated apparel fully ready for the retail floor to brick-and-mortar and online retailers. Despite the challenging business conditions across our activewear business in the first quarter, the team continued to make substantial progress in reducing inventory levels, and its efforts were instrumental in the success of our plans to reduce overall working capital and debt and streamline our operations. Turning to our DTG2Go business, we continued to take meaningful strides in improving our own quality performance, on-time delivery, and labor efficiency rates during the quarter, and shipments to our digital-first customer base exceeded our internal plan. However, overall demand during the holiday season came in below forecast. In addition, we continued to see some downward pressure on pricing, particularly on basic products, which along with highly elevated U.S. labor costs compared to only a few years ago, impacted profitability during the quarter. Let me now pass it over to Nancy for a detailed review of our financial results.