Q2 2022 Delta Apparel Inc Earnings Call
Please standby we're about to begin thank you and good afternoon to everyone participating in Delta apparel 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 Delta apparel with executives.
Such projections and statements suggest predictions 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 Form 10-K and Form 10-Qs.
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 Humphreys. Thank you you may begin.
Thank you good afternoon, and thank you for your interest in Delta apparel, we're 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 9000 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 <unk>, 2022, or $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 62 cents per diluted share.
Our strong second quarter results reflect continued broad based demand for our products with the Delta Group segment C and 22% growth year over year in 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 higher direct to consumer sales as we continue to invest in manufacturing capacity.
Equipment, we were 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 cost.
Our Delta group segment experienced 22% sales growth over the prior year second quarter, mostly driven by unit sales growth increased value added services in our continued ability to update our pricing in the marketplace to offset higher input cost within the activewear business, we support our customers from.
Product development to shipment of their branded products with many products being so fully decorated and ready for the retail shelf.
This business saw sales increase over 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 <unk> per week and in our previous history.
Within the Delta Group segment, our digital print business <unk> to go solve 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 own 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 our fourth facility or.
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 continued 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 second quarter with sales increasing 14%.
Salt life branded retail footprint was further expanded with the opening of <unk> locations during the quarter in Sarasota and Fort Lauderdale, Florida.
During April we opened an additional two stores installed the Alabama in 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.
Additionally, we are seeing strong wholesale demand along with consumer interest in our E Commerce channel.
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 is 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 solar 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 GTT to go locations and are soon expanding two of <unk>.
<unk> 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.
<unk>.
Thank you.
Throughout fiscal 2022nd quarter, we delivered sales of $131 $7 million at 21% increase over the prior year second quarter.
Performance is 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%.
Gross 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 efficiency process improvement.
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.
Compared to $94 2 million in the prior year second quarter.
Alright was driven by broad based demand for activewear apparel, particularly in our retail licensing and brand to make sales channels with 24% from prior year.
J P T.
<unk> continued to grow year over year with a 12% increase in sales compared to prior year.
For the Delta Great net sales for the first six months of 2022 with $217 3 million and 19% improvement.
Gross margins were 21, 6% for the March 2022 quarter, an improvement from the prior year March quarter gross margins of 19, 5%.
Gross margins were positively impacted by increased selling prices to offset increasing input costs. In addition to continued production efficiencies.
Gross margin 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.
Segment's second quarter revenue grew 14% to $16 4 million.
Compared to $14 $4 million in the prior year period.
This segment's growth was driven by a 20% increase in wholesale channel sales along with continued retail still correct.
For the first six months of 2022 net sales with $25 2 million up $3 7 million from the prior year net sales of 21 $5 million.
The Salt Life Group segment gross margins improved 52, 4% compared to 44, 7% in the prior year second quarter, resulting from a favorable mix of sales, including increased salt life branded retail store sales.
For the first six months of fiscal 2022 gross margins grew to 52, 7% sales from 46, 5% in the prior year.
Selling general and administrative expenses were $19 $7 million.
10% 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 cost 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 with $5 million.
Primarily made up of profits related to <unk> equity method investment of $3 million and valuation changes in our contingent consideration liabilities of $5 million.
Offset by a loss on disposal of assets of <unk> $4 million.
Interest was $1 8 million in the second quarter of fiscal 2022, consistent with the prior year's 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.
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.
It was 62 cents per diluted share in the prior year.
This is 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 March quarter aimed.
Inventory turns were one eight times down from two two times last year.
We have increased our manufacturing output and <unk>.
Now producing at record manufacturing metals.
Increased inventory is also a reflection of increasing input costs, resulting from raw materials transportation and labor costs.
Todd.
<unk> increased $31 $6 million from September 2021 to $153 3 million.
At March 2022.
Cash on hand, and availability under our U S revolving credit facility totaled $35 $1 million at March 2020 to $10 $2 million decrease from September 2021.
The 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 and 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 printing equipment to support our <unk> business. In addition to expansion of our manufacturing capacity for our activewear business and continued retail store openings to supported shaping our target of at least 20 salt life retail stores opened by the end of fiscal 2020.
Okay.
And second we continue to repurchase shares.
In the second quarter of fiscal 2022 under the previously announced share repurchase program. The company purchased 28015 shares for $8 million, bringing the total amount repurchased to 55 5 million gallons.
At the end of the second quarter of fiscal 2022, the company had $4 $5 million of remaining repurchase capacity.
It's existing authorization.
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 breakthrough that if this market offering.
Importantly, we continue to manage our bottom line as we faced 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.
Thanks, Simona I continue to be impressed by the resiliency of our organization and the strong financial performance, we have seen as a company despite labor shortages inflationary pressures and supply chain disruption.
We have started the year meeting internal expectations and are positioned well to deliver on our full year targets.
Our five focus go to market strategies Delta direct retail direct global brands and BTG to go in the Delta segment complemented by the Salt life segment and supported by our vertical supply chain are enjoying strong demand across all the channels, we serve and we continue to see the results of our inverse.
<unk> through both increased manufacturing capacity and consumer demands.
Throughout the entire company, we have been able to manage the current economic environment through price increases production efficiencies and cost controls that have led to strong bottom line results.
Looking out into the second half of fiscal 2022, we are well placed for further top line growth and profitability.
On our last earnings call, we discussed our anticipated double digit revenue growth and record earnings for the full year. After a strong first half fiscal 2022 results. We feel that we are positioned well to reach our full year objectives and now operator, you can open up the call for questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Dana Telsey with Telsey Advisory Group. Please proceed with your question.
Good afternoon, and congratulations on the nice progress.
Would love to get some more color as you think about the Delta group.
Nice increases unit growth we're.
Or are you in terms of the order trends and being able to satisfy demand and what are you looking for as we move through the balance of the year in terms of price increases and then some more color on salt life in terms of the product sell through their price increases and how youre thinking of store openings. Thank you.
Sure.
Okay. So.
We are seeing units go up in the high single digits in the Delta group.
Units sold and then higher selling prices through the things we talked about value adding.
Processes.
Higher costs being passed along in the supply chain. So we obviously had.
<unk> demand during the quarter.
We're able to ship ship that I'd say the service levels are improving.
For us in the industry as a whole.
I think that's probably true.
So that's processing along well our output has certainly helped and we've got new equipment really being.
Final installation then going live this week and next week. So we should be able to continue to slightly increase our manufacturing output.
Still are not fully in stock. So for example, we might not have black extra large basic T shirts or something like that so it still takes more work and more planning and more execution to be fully in stock, where we can support our customers in their everyday at once business like we would like to.
You can see from salt life margins.
I think we've done a nice job of managing it.
Input cost sourcing being vertical one.
About 50% of the units that we sell and salt life.
Has all helped we have taken some price increases at salt life is reflected in the.
Resulting retail price and.
We will be making more decisions on that in the next week or so in future seasons.
But anyway, so far so good on those fronts and I would say the other thing is salt life, you can see the leverage that we're getting by more units going through that business and how that helps drive margins and lowered our SG&A cost.
Got it and then inventory levels.
Where do you see inventory levels going forward.
What do you see as the appropriate levels as we move into the back half of the fiscal year.
So on a unit basis.
We're probably getting close to what we would consider our peak inventories might go up another period or two.
And we are in the strong shipping time of year for and decorated Tees and so those will be starting to contract.
As we get through the rest of this calendar year and then we'll start rebuilding for next fiscal year, we have a very strong business in.
Our our delta brands and our retail direct and so those businesses are growing and we will be growing some inventory levels that ship out once we have orders completed so.
And just lastly, the strength of the Delta group wholesale businesses, particularly impressive new customers or existing customers, where are you seeing the strength coming from.
So I think we look at that as a number of different channels within that business and what we're seeing now.
Really for the first time I would say this quarter is all of those channels are kind of back to the demand level they were pre pandemic.
Coming out of the pandemic there were some channels that really came back first.
It was very helpful for us to get things right.
Started in our manufacturing and sunlight corporate spending were laggards, but those are coming back strong now. So we really are back to a very balanced business there.
Got it and then just as I look at the operating margin in particular for the Delta Group, which I think this quarter sat here at around 12, 5% level, which is certainly a very nice uptick.
Is this sustainable in that operating margin what do you see as some of the key drivers.
So.
There is two or three key drivers of why is that high right now and one is leveraging our fixed cost and so.
So you can see that on our SG&A line.
You can see it on our gross margin line, where we're getting more product through.
Our fixed overhead costs and it.
It just helps drop to the bottom line, so our higher units going through our helping I think.
Some cases, we've gotten higher input cost.
In our pricing prior to hitting.
Our cost of goods sold.
So we will continue to be working on that as we get through the balance of the quarters in this fiscal year because input costs continue to rise so.
We and Delta apparel and I think the.
Apparel business in general and probably the country. It's not finished with that yet is seeing higher costs higher labor costs, our transportation costs.
Coming into cost of goods sold yet to rollout.
And with the uptick in the operating margin of soft salt life any of the key drivers there that you see as sustainable there.
Yes, I think.
They are sustainable.
So a couple of key things are some price increases, but they'll really.
Affect us more in the back half of the year of our selling prices.
But higher unit.
Growth in that business is same thing is leveraging our fixed costs. Our sourcing cost are planning cost our accounting cost our distribution cost. So all of those things have been really nice to see how that ultimate gross margin and operating margin and salt life.
Continues to improve.
Thank you.
Our next question comes from Paul Johnson, a private Investor. Please proceed with your question.
The results.
Just want to understand your competitive positioning.
To go area.
Who would you see out there.
As the technology and the capability also capacity at your level I think.
It didn't correlate used to supply.
You guys with some of the technology or they are no longer supply or are they a direct competitor who else is out there.
So coordinate supplies digital print equipment, and we have a good bit of it and we run it every day.
And there are some additional technology that we've deployed in the last 12 months that.
It's better on some types of product we believe in today's marketplace. So we use it for specific types of products and specific customer.
Request in their go to market strategies.
I think as we sit here today, we are the only.
Supplier that has both of those in this marketplace.
Sure.
And we have some specialized internal technology that helps us manage the processes and manage the quality and Ma.
The R&D on that so.
There'll be there'll be more of different types of equipment out there, but I think we are.
Ahead of the game right now for the markets that we serve.
So some of some of the equipment is from Kearney and some of the equipment you develop on your own more recently.
So we didnt develop the equipment necessarily we were the R&D side for the development of the equipment.
We have installed a significant amount of that over the <unk>.
Last nine months and have some more owned site being installed today.
Okay. Thank you.
Regarding.
Sure.
The margins.
Certainly nice uptick there, although some of that maybe due to your FIFO accounting.
Can you can you talk about that and also whether you hedge.
Cotton I think it was like $1 60, a pound or something crazy like that.
How do you manage the hedging of that.
Well.
Cotton is always an interesting journey, so we do hedge cotton.
We consume cotton in the future. So in theory, we're always short cotton, but we really don't disclose our hedging strategies because once you do you really not hedging anymore.
Okay.
What about the margins relating to the way you.
FIFO accounting.
Well I think if you think about margin for the current quarter and then you think about the rest of the year we have been.
Been active in taking price increases across the first six months of the year and so you would expect that there'll be some price increases and some costs that we'll have slight timing differences across the quarter.
Expect to see that impact margins in the quarters following.
Okay.
Okay.
And then finally.
It's impressive what youre doing in terms of the sales growth and the margins and all that but you still have a fair amount of debt.
What is the plan to first of all what does that debt costing you in terms of an interest rate right now roughly and what is the plan to pay that down.
Well, if you've watched us for long.
We've got decades of having that some people think not enough some think too much.
Relatively low cost debt and pretty flexible probably average cost today in the maybe 445% range, we have a little bit of offshore that the parent does not guarantee but.
We are generating.
North of.
10% return on every dollar we use in the company. So if we can Barry probably today, 30% of what we're using 35, 40%.
Four 5% it helps lever the overall return on capital employed is really.
Earning money for shareholders.
Fair enough.
And then finally on <unk>.
<unk> can you talk a little bit more about that business and by the way does that include the new printing.
Technology that you've.
Develop more recently.
So, yes, we can and <unk>.
Kinetics with side by side with us developing that technology, and most importantly, the quality and expectations they had for their customer base and.
Hi, there.
They set high standards for what they want and is fun to work with them. They are energetic and they know what they're talking about and so that was.
The basis behind a lot of that development and how we went about it.
Is ongoing as we speak and.
That's the only equipment, we use to make fanatics product.
That's great. Thank you so much.
Okay.
Our next question comes from Sam Douglas with Marrow River capital. Please proceed with your question.
Hi, congratulations on the quarter.
I had a quick question around the digital business I just wanted to see if you could give any more metrics around the new digital business and then also.
If you could give any additional information to help help us scope how big.
And the retail business can get over the next several years.
Yes, I'm, just I'm trying to think of something that would.
Some information for you so.
We're going to have.
Basically a third more equipment.
Yes.
<unk> deployed here in the next 60 days, so that will increase our capacity.
We've.
<unk> grown our output.
Debt to continue to grow.
In the ensuing quarters this fiscal year.
Cause of the nature of the business is going to make our <unk> business less seasonal and not rely as heavy on the holiday shipping season that will still be the.
The strongest time of year.
But we will have more year round business there.
And we would expect this business to continue to grow.
At least double digit rate.
Fourth quarters to come just based on the demand that's sitting there today that we have to get to.
And so just in addition to that.
Say besides fanatics.
A number of other household brands.
People with IP or branded apparel that are coming on to this platform.
We're doing it at a slower pace than what fanatics is just by the nature of their business.
And how they are positioning that in their overall offering to consumers, but we do see.
This business maturing into a new level of business, where we're supporting major retailers, our major brands and major IP holders. Unlike historically and will still support this but the majority of the business was really in the E retailer, where people were putting art and graphics onsite.
And collecting consumers directly to buy that versus having the brand go to market.
Okay, and then I guess just margins on this business.
Okay.
The retail business compared to the Delta group overall do you expect that to be.
Fairly accretive to the overall group.
I think it will over time in the last six months, we spent a lot of money on development in R&D.
We actually.
Closed a small facility this past quarter that had older equipment in at the Reno. It was not within one of our distribution centers and the lease was up so we disposed of some equipment. There. So we will keep our equipment modern.
With current leading edge technology.
But anyway, we do expect it to generate.
Low double digit operating margins at least in that business when it's running full.
Okay. Thank you.
Our next question is from Jamie Wilson with Wil and management. Please proceed with your question.
Wonderful quarter, adding to the questions on fanatics how much of.
You announced.
We're coming on in the middle of the quarter, how much of the increase in this quarter was due to fanatics or are they rolling in relatively gradually or do they come out full force in your first quarter.
Well.
I don't like to speak for our customers but.
I will say because this is public information fanatics had a fairly large digital print facility of their own in Jacksonville, Florida that was had coordinates Senate and during the quarter they closed that facility down.
So.
Because they were still running that facility obviously they were running some of their own now really all of that type of product. We're.
We're running in our facility on the new equipment. So it was a ramp up since really the holiday season.
We continue to own and it continues one as we speak today.
And really we're expecting that to just grow sequentially during the.
Quarters coming up, peaking during the December quarter with holiday.
<unk>.
It will be small and before then.
Okay, and you've talked about the do your increasing inventory now of increased capacity, but can you keep up with demand everywhere are you able to.
Have as high an internalization rate given the growth in the digital business.
Can you satisfy all customer.
Demand for T shirts, and the various businesses.
Well not in all the businesses. So that's a good question.
And so as we've talked about.
For several years now actually but certainly a lot.
Pandemic is there is a growing demand for a product made in this hemisphere and we make it across a number of channels of distribution, but particularly with our brand direct and retail direct businesses that demand is strong and people are asking for more and we can't make that right now.
<unk>.
Bob.
And so we have to figure out over time, how to make more in how we manage that versus having our at once.
T shirt business.
Fully stocked and available to sell to because we have seen over time, having all those channels and servicing them well allows us flexibility in different economic times or shocks to the system. So we want to keep servicing all of that but we have.
<unk>.
As we speak reached new record outputs in production we have.
New equipment, starting up in our textile plant.
And in Honduras, as we speak today.
And we have additional sewing and screen print equipment being installed and are.
Settling and screen print plants in El Salvador.
So anyway, we are.
Inc.
Increasing our output.
<unk> in place to increase it further.
Got you.
And Bob as far as increasing prices I am sure Youre not the only one doing it out.
Out on a limb I assume you are kind of following the industry.
We're leading the industry of your price increases similar to other people.
Yes, I would say.
If you went back maybe three or four quarters ago.
Had some price increases and it probably got us a little bit ahead there.
But obviously.
Everybody is selling product for reasonably similar price if they have it in stock and that at once business.
Got you and lastly, Bob on the new Salt life stores, you had some existing ones that were incredibly productive how would you rate the new ones that have come out are they similar too.
Your historical numbers.
Within the new stores.
So theyre not all incredibly productive and I would say that's true.
For the newest too, but we are seeing some that look like they're going to be incredibly productive.
Hilton has just opened recently in this off to a really strong start.
Most of the others are off to a very good start.
Our Texas store has been a little bit slow to our expectations, but.
We've had some weather issues, there and cruise ship issues so anyway.
We're excited about all the new locations we got.
Couple of more that have just recently opened up and.
Feel good about it.
Okay, and what's the objective over time, how many stores would you like to open each year.
Well, we're going to take Paul's at different levels and see how this is going.
And can we find the right productive locations just to your point, but certainly feel like we ought to be able to do four to six stores a year for the next number of years.
Excellent nice job fellows. Thanks.
Thank you.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Our next question comes from Bill Fogle with DBA Advisors. Please proceed with your question.
Hello can you hear me.
Yes, Phil.
Okay, great great job.
I think we could hope for more than.
When you guys put in now we just have to hope the market starts to pay attention.
But I wanted to try to frame the DTA.
<unk> kind of opportunity up fanatics and.
Yes, some of the other.
So players like.
For instance.
I think it would be useful if you guys broke it out going forward because.
Obviously, we're hoping for hundreds of millions eventually in revenues from this business, but now it was leading the kinetics expects something like $5 billion in revenues. This year, how much of those revenues are addressable to your solution.
Yes.
I don't know that I can speak to that for fanatics, but.
So a significant amount that could be addressed.
And there is some real service matrix that they are expecting and we're working on and making really good progress on.
And you can just see when you can sell a product and you haven't invested in it yet.
And youre going to get paid immediately and your partners going to print it and package it and all of the labeling this required for whichever Sports League.
And.
Put it.
And a container to ship to a customer within 24 to 30 hours and Thats a pretty good business model.
So I think as long as we can continue to demonstrate success in doing that and expand our capabilities of the type of products that we can make and ship that meet their quality standards and wash ability in long term care. Then we can continue to gain more of that market share in.
What they do sale and again, it's just a great economic model for us and for them when we can make that work together.
Great.
And then in terms of other potential.
<unk> customers.
You talked about the hearing in conversations with.
What's kind of the timing on that and do you have capacity for them or are you going to have to start opening new joint facilities or independent facilities should we think of that.
So we are we have started production with a number of new.
Household names some of them have chosen to start as a slower pace than others and some at a different pace, obviously, then and fanatics and so.
We have capacity in place to serve them today.
Through the next quarter or two but we will have to continue to invest in digital print equipment to satisfy the demand that we think will be out there and.
We will continue to.
Looking at our distribution footprint, and where we have equipment, where we might want equipment and.
Continue to manage that to service certainly the U S market.
And one and two day deliveries and there is opportunities to go into other markets as well with these partners.
How fast can you grow revenues and BTG to go based on your capacity and build out.
What's the maximum trajectory assuming.
All of these players are ordering in size.
Yes.
I don't know that Theres, a maximum as a matter of capital and time.
So we're still right now.
Yes, and then for this year and for next.
How quick can we wrap up.
Yes production. So I think we'll continue to grow at probably about a 15% rate.
In the next quarter or two with that is celebrating the following fiscal year.
Okay.
I guess from everything I'm gathering.
The 14% growth rate was good this quarter, but that wasn't incorporating fanatics or any of these new players in any meaningful way. So we should see tremendous growth going forward.
Yes.
It began the incorporation of the fanatics business.
Okay.
Great. So so critical.
So you could see some further progress on them. Thank you very much for your time.
Okay. Thank you.
We have reached the end of the question and answer session I would now like to turn the call back over to Bob Humphreys for closing comments.
Well thanks for your interest in Delta apparel I appreciate the questions and feedback and we will look forward to talking to you in about three months on another quarter. Thank you.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Okay.