Q4 2022 Delta Apparel Inc Earnings Call
Thank you and good afternoon to everyone participating in Delta apparel is fiscal 2022 fourth quarter and full year earnings conference call. Joining us from management are Bob Humphreys, Chairman and Chief Executive Officer, and Simone Walsh, Chief Financial 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 executives, such projections and statements suggest prediction and involve risk 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 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.
Realize.
I'll now turn the call over to Mr. Humphreys.
Good afternoon, and thank you for your interest in Delta apparel, we are extremely pleased with our performance in fiscal year 2022 as.
As you saw in our press release. This afternoon, we delivered full year sales of $484 $9 million and an operating margin of six 6%, resulting in a $2.80 of earnings per diluted share.
Our ability to navigate the dynamic economic conditions and consumer environment throughout the year and achieved double digit sales growth of 11% and Saddam bought solid bottom line results for our shareholders is a testament to the resiliency and reach of our diversified go to market strategies and of course, our Pea.
People I'm incredibly proud of our entire organization's ability to quickly adapt to change throughout the year, yet remain focused on the execution of our business goals and strategic initiatives.
All five of our primary market channels Delta direct global brands retail direct D. T. G to go and Salt life delivered year over year sales growth.
In fiscal year 2022.
The growth was driven by higher unit, so in most product categories as well as price increases across product lines.
Within our Delta group segment demand between its various market channels shifted as the U S economy continue to evolve in the post pandemic environment with strong early overall demand for our products moderating as the year progressed.
We continue to see strong demand in our D. T G to go channel and our Delta direct channels regional screen print and add specialty businesses. Moreover, the strategic investments we've made in our vertical manufacturing platform immediately adjacent to the U S market and our distribution network across the U S market.
Continued to generate increased demand in our global brands and retail direct channels.
Brand and retailer interest in the near shore and domestic sourcing and fulfillment strategies. Our platform offers is accelerating due not only to U S market proximity in speed, but also to better risk management associated with evolving U S trade relations, social environmental and sustainability priorities.
Inflationary pressures and supply chain disruptions.
These favorable dynamics, coupled with new investment in screen print production and other value, adding ancillary services as well as higher selling prices from our pass through of rising input costs manifested itself in solid sales growth in our Delta Delta Group segment.
We were heavily impacted by strong inflationary pressures throughout our fiscal year like the rest of our industry, but we were able to move quickly to capitalize on the flexibility of our vertically integrated platform and recalibrate, our production to manage inventory levels and mitigate higher input cost our team.
Did a great job of responding to the fluid environment and navigating the challenges brought on by the volatility in raw material pricing the price of cotton one of our key inputs increased almost 50% in a five month period and reached a high of over $1.50 per pound in our third quarter.
We started reducing our Ford cotton purchase commitments as futures prices escalated beyond a level that we believe would be accepted at retail and when we saw declines in overall demand for basic Tees in the fourth quarter, we began reducing manufacturing output to level off our finished goods inventory.
These inflationary input cost of course increase the value of our inventory and put pressure on our gross margins as inventory yourself.
We saw this margin impact in the second half of fiscal 2022 and expect it to continue in the first half of fiscal 2023.
We currently expect to operate some of our production facilities below full capacity until inventories become better aligned with market demand in fiscal year 2023.
Okay.
We've seen our retail partners encounter similar challenges in managing their inventory levels to the fluctuations in consumer demand the.
The overall economic uncertainty going into the holiday season caused by the inflationary environment has happened replenishment orders for activewear from our mass retail partners, but we continue to stay close to our partners and we'll be prepared to support demand as we progressed through the first half of fiscal 2023.
Our D T. G to go business continues to grow and solidify its leadership position in the make on demand digital printing and fulfillment through its digital first strategy.
And year over year increases in both unit sold and sales revenue.
We ended the fiscal year with eight digital print locations six of which also operate as blank garment distribution centers and the latest technology to support D. T. G to go digital first strategy is now in four locations.
More and more customers see the clear benefits of our digital make on demand model versus traditional inventory heavy make the forecast model, particularly when coupled with our unique ability to vertically supply blank delta garments own demand.
Our seamless blank supply reduces not only our customers garment calls, but also risks associated with adding another third party later to their supply chain.
For us this model eliminate non value added costs creates a more efficient operation and lower working capital needs.
While we experienced additional cost and some production delays in fiscal year 2022, as we brought new print equipment online and worked through challenges from the tight U S labor market.
Which depressed our margins, we see both sales and margin growth potential at D. T. G to go going forward as selling prices continued to grow. We also expect to see increased output through productivity gains additional staffing and extending operating schedules to meet demand in this high growth channel for our company.
We saw great success with our lifestyle brand salt life in fiscal year 2022 with over 20% growth from the prior year.
We are pleased with the continued demand for the Salt life brand across all three legs of our Omnichannel go to market strategy.
Our salt life branded retail doors continue to serve as a valuable brand awareness to and drivers of accretive revenue. We ended the year with 21 branded retail doors red along the U S coastline and reached a milestone of eight new doors opened during the year.
Our new location in road with Beach, Delaware is exceeding expectations and we are excited to open another six to eight salt life owned and operated stores in fiscal 2023, including an additional store in long branch, New Jersey to get Salt life, even more visibility in the northeast.
Salt lifes ecommerce business was challenged by supply chain shortages in the first half of the year, but was able to work through them to drive organic growth in this important market segment. During the fourth quarter. In addition, our wholesale customers continue to promote salt life and devote more flows floor space.
And valuable shop in shop opportunities to drive incremental sales and increase brand awareness.
Our other efforts to elevate the salt life brands profile and appeals to drive increased consumer engagement are also paying off.
The Salt life Youtube channel reached $7 1 million views in fiscal 2022 of 37% increase compared to fiscal 2021 larger largely driven by the success of Youtube shorts. These short segment videos are designed to appeal to a broader audience and we target for.
<unk> in two to three shows per week beyond Youtube Salt lifes, social channel net audience grew nearly 85% in fiscal 2022, Spanish Facebook Instagram Twitter linked in and Pinterest.
We also continued to interact with our customers through salt life's online content portal the daily Salt, which includes published articles feature reviews of the best year in the industry how to articles team member travel articles and other content.
Additionally, we continue to produce our salt life podcast above and below hosted by professional surfer and Salt life team member Karen Anderson.
Overall fiscal 2022 was another excellent year for both our Delta group and Salt Life Group segment and the year of robust overall organic growth for our company.
We have built a strong foundation across our business segments and our full year performance highlight the range of our five distinct go to market strategies. The widespread demand for the unique products and services, we offer the flexibility and efficiencies of our vertically integrated operations and first mover advantages in digital printing info.
So, Matt and emotional connection that our lifestyle brand salt life has with a broad range of consumers.
Let me now turn the call over to Simone Walsh, who will review, our fourth quarter and full year business highlights and financial results and I'll join back on when we open the call for questions Simona.
Thank you Bob.
Delta group and Salt life, Great fiscal 2022, with another strong war and we are entering fiscal 2023 positive momentum across many areas of our business.
We delivered strong topline growth of 11% year over year.
Yeah.
<unk> nine 8% in the Delta great and on the 20% right in the Salt life group over the prior year.
Within the Delta Great. Our three key sales channels and active wet delta direct retail demand and global brands.
We'll experience.
Sounds great.
While delta direct with challenged in the second half of fiscal 2022, as a result of scout back orders, particularly from mass channel active.
Retailer, we are pleased with our ability to maintain.
Sounds great in that channel and to achieve double digit sounds great insights to baytown direct and branded channels on increased units and higher selling prices.
As a reminder, in our retail direct and global brand sales channels, we serve as a supply chain partner to global brands.
Clothing, the development of custom branded garments that provision of ancillary value, adding retail ready services.
Shipping logistics these sales channel all sorts of great talent by providing a portfolio with Delta Delta platinum and safety products directly to retail locations and e-commerce fulfillment.
Also within the Delta group, a BPA, Jason may come to mind business experience and.
Selling perhaps right year over year and order flow for our digital first strategy.
Our current capacity.
We are excited to continue to expand our digital first initiatives across all market and plan additional investments in the latest digital print equipment to meet the growing customer demand.
<unk> channel.
Upset a lot mecate felt last engagement with casinos, which drives strong direct to consumer sales to sell by and also enhances the wholesale business as consumers seek out the brand while shopping at Department store outdoor retailer result shop specialty store and other retail outlets.
With the strength of the Salt life brand and growth.
We are experiencing in our direct to consumer channels, we remain extremely excited about the potential in fiscal 2023 and beyond.
Our business is significantly influenced by the price of cotton Houston our.
Factoring operation.
During the fiscal year, the elevated price and volatility negatively impacted the gross margins in that business.
We expect our margins to continue to be depressed in the first half of fiscal 2020 right as we sell through the inventory. We appreciate in the latter half of fiscal 2022, which was impacted by both the higher priced caution and all that elevated input costs.
Although we took action to use less of the higher cost cotton Barrick eating up production, we do expense additional unabsorbed fixed costs from these mission.
The fourth quarter reduction resulted in $1 1 million of Unabsorbed expense, which impacted gross margins by approximately 90 basis points for the quarter.
In addition, we expect to take additional targeted production shutdown and continue to operate some of our facilities a life full capacity until inventories are better aligned with the overall demand.
These adjustments are expected to result in approximately $2 million and $775000 of additional unabsorbed extent in the first and second quarters of fiscal 2023, respectively.
Currently with the price of cotton declining and stabilizing recently from the volatility and peak price in last year's third quarter. We anticipate we will return to margin expansion in the fourth quarter of fiscal 'twenty 'twenty right.
Additionally, we note that our inventory on hand has increased from the prior year.
The increase is a result of the price of inventory escalation each of the rising input and labor cost as a result of inflationary pressures.
Coupled with increasing units on hand, we.
We are closely monitoring inventory levels, and we will continue to monitor them.
Manufacturing output and make adjustments as necessary to align with market condition.
The vast majority about inventory consists of basic delta blank garments that we fully expect to sell through our various channels as demand right.
Now I'll go through a more detailed review of our fourth quarter and full year financial results.
For the fourth quarter net sales were $115 $5 million compared to $114 7 million in the prior year fourth quarter with Delta group itself decreasing one.
And Salt life group up nearly 16% over the prior year quarter.
During the fourth quarter Delta group net sales declined to $101 5 million.
Compared to $102 $6 million in the fourth quarter.
Global brands growth helped to offset softness in our retail channel.
The Salt life group fourth quarter revenue grew 16% to $14 million compared to $12 1 million in the fourth quarter of 2021.
Segment's growth was driven by organic growth across all three of these market town wholesale retail and E com.
Gross margins were 18, 7% overall for the quarter compared to 23, 1% in the prior year fourth quarter.
The 440 basis point decline was driven by high input costs in both our activewear and D. T J to guide businesses as well as on budgeted production curtailments offset by an improvement in the Salt life Group statement.
And the Delta Great gross margins of 14, 1% for the fourth quarter.
Climb from the prior fourth quarters margin of 22%.
Margin from nice clean negatively impacted by higher cost inventory flowing through cost of sales.
Meaning elevated cotton.
Dyes and chemicals freight and labor costs.
As Bob mentioned, we started with <unk> production of basic Tees in the September quarter, which resulted in $1 1 million of Unabsorbed fixed cost.
You know fourth quarter.
Our plan to reduce production during the first half of fiscal 2023 until inventories get in better alignment will result in additional unabsorbed fixed cost impacting our gross margin.
The Salt Life Group segment gross margins improved to 51, 8% in the fourth quarter fiscal 2022 compared to 48% in the prior year fourth quarter, resulting from a favorable mix in sao, including increased salt life branded retail stores.
Selling general and administrative expenses SG&A were $19 8 million in the quarter, increasing 170 basis points to 17, 2% itself.
This increase was primarily driven by a high percentage of our sales coming to the salt life retail stores and increased distribution and labor costs across all of our business operation.
As a result operating profit for $2 2 million.
One, 9% south declining from $10 1 million or eight 8% itself in the prior year quarter.
Other income for the fourth quarter 2022 was <unk> 5 million. This is.
I actually made off the valuation changes in our contingent consideration liability.
<unk> 6 million associated with the acquisition of D. T G I.
In the prior fiscal fourth quarter other income was $1 3 million driven.
Primarily by valuation change in the <unk> contingent consideration liability of $1 2 million.
Interest expense was $2 4 million in the fourth quarter of fiscal 2022 up from the prior year fourth fiscal quarter expense of $1 6 million due primarily to higher debt levels.
As a rule we incurred a net loss for the September 2022 quarter, <unk> 3 million or negative 0.4 cents per diluted share as compared to net income of $6 8 million or 96 cents per diluted share in the prior year.
Now turning to our full fiscal year results for the full 2022 fiscal year net sales increased 11% to $484 $9 million with almost 10% right in the Delta group.
From a 21% growth in the Salt life group over the prior year.
For the Delta group net sales in fiscal 2022 were $424 8 million up from 387 million in the prior year.
Net sales of $60 1 million, a pinpoint $3 million from the prior year net sales of $49 7 million in the comparable period.
Gross profit increased six 8% to $108 8 million with gross margins contracted 90 basis points to 22, 4% of sales driven by a decrease in the Delta group segment of 190 basis point. It was partially offset by an improvement of 370 basis points in this call.
Great.
Within the Delta group gross margins were 18, 3% compared to 22% in the prior year with the decline driven by increasing input and labor cost as well as production curtailments.
In the Salt life segment gross margins grew to 51, 6% itself from 47, 9% in the prior year driven by sales channel mix.
Higher selling prices.
SG&A expenses of $79 5 million in fiscal year, 2022, or 16, 4% itself a decline of 20 basis points from the Pi yet.
Overall, the increased input costs, coupled with slightly increased SG&A expenses resulted in $31 $8 million in operation profit or six 6% operating margin.
In the prior year operating profit was $32 7 million or seven 5% operation margin.
Other income of $2 4 million in 2022 included <unk> 9 million in profits related to our Honduran equity method investments as well as $1 9 million in income from the net reduction in contingent consideration liability.
Offset by a loss on disposal of fixed assets of <unk> 4 million.
In the prior year other income of $1 6 million insulated 0.5 for Neenah.
<unk> equity method investment that's one of the $2 4 million of income from the net reduction in consent pynchon consideration liability, partially offset by $1 3 million of expenses related to hurricane to disrupted our Honduran manufacturing facilities in the prior year December .
Sure.
Interest expense was $7 7 million in fiscal 2022 up from the prior year interest expense of $6 8 million due primarily to higher debt levels.
Our effective tax rate for fiscal 2022 was 17, 9% down from the prior year effective tax rate of 21, 9%.
As a result, our net income for fiscal 2022 was $19 7 million on just under $7 1 million share. These earnings translated to $2 80 per diluted share compared to the prior year net income of $20 $3 million or $2 and 86%.
John This is Chad.
Net debt, including capital lease financing and cash on hand was $117 6 million at year end cash on hand, and availability under our U S revolving credit facility totaled $34 6 million.
Total inventory at year end was $248 5 million compared to $161 $7 million a year ago. When the market was generally in a low inventory position.
The year over year inventory expansion reflects both higher input costs impacting material transportation and labor and an increase in units on hand.
We continue to work across the Delta group to balance our manufacturing output with demand and appropriately manage on hand inventory.
During the fiscal year, we invested approximately $20 million in capital expenditures.
Capital spending was mainly focused on digital print equipment to support Atg type business.
Retail store opening in information technology initiatives.
We have completed our planned manufacturing expansion projects are out there.
Uh huh.
In fiscal 2023, we plan to further invest in salt life retail location openings and continue to focus on improving manufacturing efficiency.
We will also continue to invest in additional digital print capacity.
In fiscal 2022, the company purchased 136181 shares for $4 million under the previously announced share repurchase program, bringing the total amount repurchased to $56 4 million under the license the program at the end of fiscal 2020.
Two the company had $3 $6 million of remaining repurchase capacity under its existing board authorization.
Looking forward to 2023, we expect to pay continued growth in our retail direct and global brand channels, which should be motivation by slow itself and now Delta direct channel in the first half of the year.
Are you primarily to every balancing of replenishment orders for active wear from large mass retailer.
As inventories continue to work their way through the channel.
The active wear business to achieve sales in the first half 2023 comparable to the prior year.
We anticipate growth in the back half of the year as mass market demand strengthened.
As we head into the all important holiday season, we expect to see another year of strong yeah are there yourself right what they teach H gosh.
At Salt life, we expect the growth in our direct to consumer channels to continue and anticipate another year of overall double digit sounds great in fiscal 'twenty 'twenty right.
As referenced earlier with the price of cotton declining and stabilizing recently from the volatility and take pride.
Inc. Q3 fiscal 2022, we currently anticipate a return to margin expansion in the fourth quarter fiscal 2023.
SG&A cost drivers are expected to remain consistent in the first half of fiscal year 2023, commensurate without south expectation and we expect to have greater SG&A leverage in the second half of it.
We look forward to updating you as the year progress it.
I will now turn the call back over to Bob for some final remarks.
Thanks, Simone we're moving into fiscal year 2023 with positive momentum across many aspects of our business, but also with uncertainty across the apparel industry and the economy at large we will continue to leverage the flexibility our vertical manufacturing platform gives us to adjust production level.
To meet demand and expect to manage our working capital and capital expenditures Similarly, as the year progresses.
We have successfully operated through periods of economic ambiguity in the past and believe that our diversified distribution channels and wide range of customer touch points should position us well to take advantage of market opportunities as they may arise, we'll be ready to move quickly decisively and in the best interest of all of our stakeholders.
And now we'll be glad to open up the call for any questions.
At this time, we will be conducting a question and answer session if.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Dana Telsey with Telsey Advisory. Please proceed with your question.
Hey, good afternoon, Bob and Simone as you think about that.
To me going toward a pool okay.
Okay.
First book.
What the tailwind and headwinds could be two potentially.
Yesterday that did well.
Some of it's still caught by the Cosco great Scott.
And can you.
Bucket.
Gross margin and SG&A tailwind and headwinds and frankly going into 'twenty. The following year do we get back to.
The previous level of margins or what do you think the trajectory could be thank you.
Dana we were getting about every other word there would you mind repeating that slowly.
Sure just wondering of the margin trajectory once we go through the year, what would be the tailwind and headwinds and as you look forward past next fiscal year would you be able to attain what your previous years operating margins, where what are the hindrances and the opportunity to meet or exceed that.
Thank you.
So I think as we go through fiscal 'twenty three.
The headwinds are going to be higher price raw materials.
And other input costs that will be flowing through our cost of sales and particularly cotton.
And higher labor cost in particularly our distribution centers <unk> domestic operations.
And I think the tail winds are strong consumer demand for many parts of our business and demand for our service levels that we can provide them blank tee shirts and also on decorated T shirt. So.
Our <unk> to go business is continuing to grow strongly both in unit growth and average selling price.
Out the door.
And I would expect this first quarter of fiscal 'twenty three to be an all time record of revenue.
Four quarter in our <unk> business.
And of course, we saw a strong growth at our salt life business last year and expect that to continue into this year. So I think both of those two things will be tailwind for our company and our revenue and profitability in the years to come.
We do thank you.
Another.
A headwind this year as we are taking production down in our manufacturing facilities and we expense that as we go.
So we did that in the fourth quarter as we just mentioned and we will do more in the second quarter and in all likelihood.
In our third quarter, and then get back to running our manufacturing facilities more full and absorbing more fixed cost and leveraging that fixed costs.
So anyway I think those are the main drivers of those Simone you got anything else you want to add there I'll just add then I think in terms of the supply chain either all we are saying that fuel surcharges have gone away. So that is helpful. I think.
If you look though at fright northbound and southbound from the U S into Central America. They are all still elevated freight costs that we have in the supply chain encouragingly out of Asia those freight costs.
<unk> have come down so that is also helpful.
You referenced the SG&A as well I think that you will say over the course of the year. The biggest driver of dollar cost in our SG&A expense is opening retail stores.
We opened eight stores during the year, and it's still costs and operating costs lease expenses.
In SG&A.
So you will see that all set.
Thank you.
Our next question comes from the line of Peter Johnson, a private Investor. Please proceed with your question.
Yes, good afternoon.
Can you give us a little bit of an update on the fanatics opportunity.
Sure.
We're in our I think our.
Fifth quarter now the beginnings of that with fanatics onboard on our digital first strategy.
We've made good sequential progress each quarter and producing more product and getting it out the door.
We have more equipment running on that.
Now than we ever have in our history.
Our output as we speak as the best that it's been in our history and we see that continuing to grow and then.
No.
Friday will comment about a week and by then we will have a dish additional shifts running to maximize what we can do in that business, but.
I think.
Our third or fourth quarter output was up over 30%.
From the prior year end.
We expect strong unit and selling price growth in that business this quarter, our average unit.
Price out the door. So that's what we're getting paid to deliver the garment and the framework is the highest its ever been so we're seeing some appreciation in that driven by.
Number of print, some garments and government pricing as well.
And and we are the exclusive provider to fanatics by contract for these digitally produced garbage correct.
Yes.
Well I wouldn't say that broadly they certainly have other vendors that were.
A part of things that we can't or don't want to make.
You know I think.
Long term there.
Our demand and geographic footprint.
Beyond what we can or want to do but right now on this type of equipment, we're the only provider.
Okay, and we have are we adding.
Do we need to add a substantial amount of capacity still to meet their demand are we mostly there at this point.
No we have additional equipment on order that.
We will be installing.
Early next calendar year.
<unk>.
So you get to be in.
This time of year.
Going back seats, you 60 days is hard to install new equipment.
Get it started up and get it staff to make a meaningful effort during the holiday period. We've tried that a number of times over the years and have learned to cut off earlier, when we will take on installing additional equipment.
And Simone.
Go ahead, let me just say I mean, where this equipment. We got the first prototype and we got the prototype from the manufacturer out of their facility brought it in to our facility just about five quarters ago.
And so we've gone from one prototype five quarters ago to 13 machines running in four different locations.
Running.
Two holiday, we'll run two shifts and three of those locations one shift and the other and we're running them seven days a week and so.
Fanatics can sell a lot of product and we're cheering you'll know, but we're also working very hard to make product in a fast startup environment is very dynamic.
Yes, its very exciting Simone did you I might've missed this when you were talking about the financials, but what is roughly the gross margin for that kind of business.
Well that business.
Correctly, we have had high levels of gross margin over the last 12 months as we have installed that equipment. As we had said that has depressed how margins, we expect going forward to tight margins back to historic levels.
But youre talking about overall I was just trying to understand for the fanatics.
Yes.
Just speaking.
Havent spoken specifically about with Synaptics business I'm, sorry, I was referencing.
Hey, Jake go at the Hull as talk about that right.
And what would the overall D T G and margins.
Yes, we don't disclose the different margins.
Within this segment.
So and I would just say again, our average selling prices are the highest they've been.
But <unk> to go is not necessarily a high margin business, but there's just very little selling and other costs associated with it and so.
It has margins.
Similar when it's running well to our basic activewear business may be slightly lower but then it has a much lower SG&A component.
Understood. Thank you and just one more question.
With companies, presumably seem the attractiveness of onshoring and faster turn times unless slipping out of it.
Finding a lot of inventory.
Is there are you seeing a shift from some of the major customers that could absorb some of that capacity there isn't being felt right now.
Well, yeah, so one thing thats.
Interesting.
About and understand about this business is it's still a fairly seasonal business you got a big component of it this driven from seasonal merchandise around the holiday periods. So you know our strategy for years has been to work on building this out into a more level business.
And we've tended to make pretty good progress as the years have gone and that is one of the beauties of the fanatics business as well.
It definitely peaks and holidays, but the sports events that they support in the leagues run year round. So it is much more of a year round business. So I think youll see us be more strategic and what types of businesses that we do want to take one where we can continue to work on building our year round business versus just installing more.
Equipment for peak period of time.
Great. Thank you very much for that.
Thank you.
And as a reminder, if you have any questions you May press star one on your telephone keypad. Our next question comes from the line of Jamie Wilen with Wilen management. Please proceed with your question.
Hi, Phil so seasonality wise I assume that the Christmas quarter, the current quarter youll be starting to run flat out at full capacity.
Certainly between Thanksgiving and Christmas.
Yeah, we've already.
<unk> been running flat out for.
Several weeks now.
In the last.
Four or five weeks, we've made some progress on productivity gains one Trey.
Training and adding more people so that we can get more run hours the same equipment.
And then seasonality wise, the fanatics business, while obviously lessen the seasonality but.
What percentage of capacity do you think you'll be able to achieve throughout the remainder of the year not just the Christmas quarter.
Yes.
I don't have a good answer for you.
In front of me to be honest with you.
How you define capacity is.
It is fluid it depends on.
How many shifts you're going to run and how many days a week, you're going to run and so I think.
We will have plenty of capacity.
Once we get past probably.
In the January February I think it will still be running very full on our digital first strategy through that period of time and then we'll.
We'll start slowing up a little bit on output until we start gearing back up for the fall.
The capex that you're going to spend in the business in this fiscal year I assume thats, just on machinery and not additional bricks and mortar.
Exactly.
Okay.
And then moving over to Salt life, we've opened up.
A whole bunch of stores in the past year were they all profitable.
And then could you comment on the same store sales of the existing stores that have already achieved a very decent level of volume and profitability. In it are you actually able to increase the sales of those stores as well.
So thank you Jami. So certainly the same store sales have increased and if you think about some of the flagship stores such as death in Estero, we've spoken before about that.
Being over $1 billion in sales and that has certainly increased as well, which is very pleasing to see Florida as a whole as you know has been hit with some weather challenges. We have opened eight stores in the year. So that's still in growth mode.
But of the stores that have been open.
Have seen saying that growth continue.
So Jamie I would say.
If you want to look forward disappointment in my mind is our store in Texas.
Not yet met our goals.
And there are some some road and work construction around that store that perhaps as part of it.
I would say in general we see stores start out strong and remained strong or do they start out we can you know.
They stay kind of weak now we've seen places like Daytona that have had steady long term five six year growth as the area around them has been built out if people get there and shop, we do very well.
You know being just a destination to attract people is not.
Our cup of tea of retailers like that the most encouraging one to me has been robust.
Delaware that still exceeds every week you know our goal for the stores. So that's been.
Nice to see and.
We're looking forward to see what happens for the Northern New York New Jersey.
Or are you tweaking the model at all now that you have.
A bunch of different geographic locations.
Some with an outlet some pre standing kind of as you move forward how does the model change from how you have historically grown the the store business.
Yes.
I think we like the model of about 2000 square feet.
And.
We want to remain a mix between outlet and what we consider more branding stores from a profitability standpoint right now.
Outlets are more profitable for us we tend to get more revenue to those stores.
But we will remain having a mix there.
And the online business.
We were struggling with the ability to have inventory in the right merchandize there are.
Are we there now and what type of growth are you seeing in that business or do you expect to see now what you'll have full merchandise.
On the website.
So thank you Jami. So certainly yes, if you recall, we at the start of the year well under inventory ability to fulfill on the E. Commerce website as a wholesale sales came through much stronger than expected and we're directing infantry T that wholesale business and we have now.
In the distribution centers identified separate area in terms of e-commerce and have that available available and we have rectified that very pleasingly in Q4, we saw year over year growth in the E Commerce channel as well as well as in retail and wholesale.
And we're very encouraged by the feature of our E. Commerce platform, we have refreshed the website and can see it continues to stay healthy track.
Fast forward to the end of this fiscal year, where would you like your inventory level to be.
So suddenly we have in anticipation of that inventory levels falling through the year.
You think about hiring and training the composition of our inventory does.
This delta direct.
Unadorned paychex, a significant proportion of our inventory down.
About 75% of that inventory is evergreen and so we do expect to sell through that inventory at the time.
And have those elevated inventory levels come down as well.
As.
The Delta direct.
Have a great inventory, we also have more salt life inventory just by having more stores now so that soap back into inventory as we keep increasing the store footprint, we will say I start a small piece of that inventory increase in line data, but that delta direct blank.
Blank evergreen inventory, we do expect Q4, obviously the pool Cynthia.
And could you comment about what your competitors have it.
And the evergreen inventory and how they are.
Addressing their problems that everyone has with too much inventory in at a higher cost of cotton.
So I think it varies by competitor there's a.
A significant amount of production that is currently sitting idle in Central America.
As we've seen happened in the past.
And so they will be reducing inventory I'm sure both.
In units and the value in that inventory, we went into the beginning of this fiscal year.
Under inventoried as an industry Youll recall the first our first couple of quarters of the fiscal year, we were scrambling to fulfill orders.
And in general the industry was so.
It doesn't take too long to start shutting down this production that these inventories get into shape pretty darn quickly.
And hopefully we will do that and have a smooth takeoff and landing where we have the right inventories at the right time and don't have too few or too many to service our customers. So we will remain mindful of that.
Finishing the year with $50 million less inventory a reasonable objective yes.
Okay.
Compensation of.
Lower investment in raw material costs, along with less units investment.
I wanted to just circle back around with you Jamie on the e-commerce piece of Salt life.
As we said a little bit in our prepared remarks.
Salt life has had an outsized e-commerce.
Following.
Maybe not e-commerce with social media following.
For many years now and it gets pointed out in different types of reports and what have you and that really accelerated even further over the last 12 months. So I think our marketing people in the brand and brand awareness and some of the TV shows that we're supporting.
<unk> really done a great job of it and further bill.
Building the Salt life brand value is certainly got a broader geographic footprint. So I think one of the great untapped.
Opportunities in Delta apparel is our salt life ecommerce business. So.
It should be many times the size. It is over the course of the next several years based on the brand awareness in the social media interaction that we have.
And then lastly.
Its margin anyway.
Piece of that business as well.
Alright, your stores Youre going to grow your ecommerce is going to grow what about the wholesale business and salt life has that been able to.
Maintain.
A higher trajectory.
Yes, we had.
Our best year ever last year that was really one of the things that <unk> was pointing out that hurt our e-commerce business those orders come in they get self populate it so it sucks up our inventory to ship those orders and then we didn't have the inventory to support e-commerce. So.
That has been good.
<unk> remained getting good good feedback and.
<unk> being added at a regs.
A regular pace and we.
With.
We expect to have another good year in our regular wholesale business.
Okay. Thanks, very much I appreciate it.
Thank you so much.
And we have reached the end of our question and answer session. I will now turn the call back over to management for closing remarks.
Alright. Thank you for your interest in Delta apparel as always and we'll look forward to updating you on our first quarter results here in <unk>.
Just a couple of months.
Hope everyone has a great holiday season.
And this concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
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Yeah.
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