Q4 2023 Delta Apparel Inc Earnings Call

Thank you and good afternoon, everyone. Good afternoon to everyone participating in Delta Apparel in its fiscal year 2023 fourth quarter and full year Earnings Conference Call. Joining us from management are Bob Humphreys, Chairman and Chief Executive Officer, Justin grow, Executive Vice President and Chief Administrative Officer. Yes, he's proven it. 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 executives, such projections and statements suggest predictions and involve risks and uncertainty.

Unknown: Thank you and good afternoon, everyone. Good afternoon to everyone participating in Delta Apparel in its fiscal year 2023 fourth quarter and full year Earnings Conference Call. Joining us from management are Bob Humphreys, Chairman and Chief Executive Officer, Justin grow, Executive Vice President and Chief Administrative Officer and Nancy Bubanich, Vice President and Chief Accounting Officer.

Hey, good afternoon to everyone participating in Delta apparel in fiscal year, 2023 fourth quarter and full year earnings conference call.

Many of US from management are Bob Humphreys, Chairman and Chief Executive Officer, Justin grow Executive Vice President and Chief administrative officer.

Yes, he's proven it.

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 executives, such projections and statements suggest predictions and involve risks and uncertainty.

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 risks and uncertainty and actual results may differ materially.

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.

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.

I'll now turn the call over to Mr. Humphreys.

Robert Humphreys - Chairman & CEO, Delta Apparel Inc.: Good afternoon. Thank you for joining us today. As always we appreciate your interest in Delta Apparel. Before we review our results for the full year and fourth quarter, I want to take a moment to express my gratitude to our teams throughout the various countries in which we operate our business.

This has been a very challenging year for our company, with many of these challenges driven by market dynamics outside of our control. I'm proud of the decisive steps we took across our business with respect to things within our control, such as reducing working capital, controlling costs and above all maintaining the high service levels that have been key to our growth and success over the years.

I'm proud of the decisive steps, we took across our business with respect to things within our control such as reducing working capital controlling costs and above all maintaining the high service levels. They have been key to our growth and success over the years.

Our employees remain steadfast in their commitment to meeting our customers needs each and every day. Thanks to their hard work and flexibility, we were able to navigate what was truly a unique operating environment and enter our 2024 fiscal year better positioned to drive sustainable long-term growth as conditions improve. As you saw in our press release, we registered full fiscal year sales of $415.4 million, a contraction of 14% from our strong performance in the prior year when the apparel industry enjoyed a seller's market full of retailers looking to accumulate inventory in the wake of COVID-related supply chain delays.

Our employees remain steadfast in their commitment to meeting our customers needs each and every day. Thanks to their hard work and flexibility, we were able to navigate what was truly a unique operating environment and enter our 2024 fiscal year better positioned to drive sustainable long-term growth as conditions improve.

Thanks to their hard work and flexibility, we were able to navigate but it was truly a unique operating environment and enter our 2020 for fiscal year better positioned to drive sustainable long term growth as conditions improve as you saw in our press release, we registered full fiscal year sales of 450.

As you saw in our press release, we registered full fiscal year sales of $415.4 million, a contraction of 14% from our strong performance in the prior year when the apparel industry enjoyed a seller's market full of retailers looking to accumulate inventory in the wake of COVID-related supply chain delays.

$15.4 million, a contraction of 14% from our strong performance in the prior year when the apparel industry enjoyed a seller's market pull up retailers looking to accumulate inventory in the wake of Covid related supply chain delays.

As I'm sure most everyone on this call knows, this year, market conditions presented a much different and more difficult picture for both the apparel industry and our company. These conditions were driven primarily by two distinct and thankfully, temporary trends--historically high cotton prices and extremely shallow demand due to high inventory levels across the supply chain.

These conditions were driven primarily by two distinct and thankfully temporary trends historically high cotton prices and extremely shallow demand due to high inventory levels across the supply chain.

When cotton prices trended above historical averages, we made a strategic decision to purchase less cotton and reduce our production levels to align with what we anticipated to be a challenging demand picture in the first half of our fiscal year 2023, particularly in the mass retail supply chain.

We originally expected customer demand to stabilize and improve in the second half of the year. However, when the softness in the mass retail supply chain spread to other channels and exhibited more depth than anticipated, we decided to further curtail our production levels to maintain balance with the declining demands.

However, when the softness in the mass retail supply chain spread to other channels and exhibited more deaths than anticipated, we decided to further curtail our production levels to maintain a balance with the declining demand.

The collective impact of the elevated cotton costs and expenses incurred to reduce production throughout this year is hard for us to overstate. If you compare the average price of cotton over the last decade to what our cost was during the year, the excess amounted to a headwind of approximately $26 million.

If you compare the average price of cotton over the last decade to what our cost was during the year the excess amounted to a headwind of approximately $26 million.

Additive to that, we incurred roughly $8 million in excess costs associated with our production curtailment activities, with most of that being driven by the lower absorption of our fixed costs due to less volume and the payment of temporary unemployment benefits to idled employees that are offshore locations. That's roughly $34 million in additional cost for the year.

$4 million in additional cost for the year.

During the year, we also embarked on a longer-term initiative designed to optimize our cost structure and better position our company to generate high returns on the capital we invest in our business. Many of the decisions we made in connection with this initiative were difficult, but they were the right actions to support the business for the long-term and will result in meaningful annualized savings, as well as a more efficient operating structure.

Many of the decisions we made in connection with this initiative were difficult, but they were the right actions to support the business for the long term and will result in meaningful annualized savings as well as a more efficient operating structure.

Among the actions we took include: transitioning our Mexico sewing operations to our more efficient Central American sewing facilities, absorbing the fabric production we previously had purchased from a third party in Mexico into our textile facility in Central America, transitioning our Mexico screen print operations into our more efficient Central America screen print operations, which we should finalize this month and closing our legacy digital print facility in Clearwater, Florida and absorbing its capacity into our more efficient, on demand DC footprint throughout the United States, combining our DTG2Go in direct Delta business.

Transitioning our Mexico screen print operations into our more efficient Central America screen print operations, which we should finalize this month and.

And closing our legacy digital print facility in Clearwater, Florida, and absorbing as capacity into our more efficient on demand D. C footprint throughout the United States, combining our D. T G to go indirect Delta business.

We expect these actions to generate approximately $6 million in annual run rate savings going forward and better position us to navigate the higher interest rate environment that appears to be here for some time.

We expect these actions to generate approximately $6 million in annual run rate savings going forward and better position us to navigate the higher interest rate environment appears to be here for some time.

Our team has also continued to do a good job of strategically managing our working capital and costs across all aspects of the business on a day-to-day basis. We made substantial progress in reducing our inventory position throughout the year, finishing the year down approximately 18% from our recent high in December of 2022. We anticipate further reductions in fiscal year 2024 and to finish the year nearly 30% below December 2022 levels.

Two.

We anticipate further reductions in fiscal year 2024 into finished the year nearly 30% below December 2022 levels.

Let me spend a moment on our Salt Life business. As you likely saw in our press release we issued in October, we received an unsolicited offer to purchase that business and we are conducting a thorough review of our strategic options. We do not have a specific update on that review process at this time, but I want to reiterate that our board of directors and management team are committed to maximizing value for Delta Apparel shareholders and taking the course of action we believe is in their best interest. We look forward to updating you once our board of directors has completed this process.

Let me spend a moment on our Salt Life business. As you likely saw in our press release we issued in October, we received an unsolicited offer to purchase that business and we are conducting a thorough review of our strategic options.

We do not have a specific update on that review process at this time, but I want to reiterate that our board of directors and management team are committed to maximizing value for Delta Apparel shareholders and taking the course of action we believe is in their best interest. We look forward to updating you once our board of directors has completed this process.

Management team are committed to maximizing value for delta apparel shareholders and taken the course of action. We believe is in their best interest. We look forward to updating you once that our board of directors has completed its process.

I would like to recognize all the hard work put in by the Salt Life team to grow the brand into the highly profitable $60 million business it is today. It's amazing to think that Salt Life was basically a Florida brand with a small wholesale business when we acquired it 10 years ago and now has a growing core of enthusiasts throughout much of the western hemisphere. As well as a comprehensive product line over to us, over 1,700 wholesale doors across the United States and direct to consumer customers via our e-commerce site, shipping to all 50 states and branded retail stores spread across most of the US coastlines.

Much of the western hemisphere, as well as a comprehensive product line over to us over 1700 wholesale doors across the United States and direct consumer customers by our ecommerce site shipping to all 50 states and branded retail stores spread across most of the U S coastlines.

Touching briefly on our fourth quarter performance across Delta Apparel, we saw some indications throughout the quarter that demand in the activewear market is stabilizing and improving in some respects, but our overall business continued to be impacted by the high inventory levels across retail, as well as the higher interest rate environment.

Rate environment.

Importantly, we continue to operate our manufacturing platform and reduce the more consistent levels during the quarter and as I mentioned on our last call, the cost environment for activewear is normalizing. While we continue to see cotton in our sales, there was higher cost than the historical average, our cost is trending down and we expect to steadily move into a more favorable cotton cost picture in the second half of the new fiscal year.

While we continue to see cotton and ourselves there was higher cost than the historical average our cost is trending down and we expect to steadily move into a more favorable cotton cost picture in the second half of the new fiscal year.

Nancy will now provide more detail on our reported and adjusted 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?

Justin Marshall Grow - Executive Vice President and Chief Administrative Officer, Delta Apparel Inc.: Thanks, Bob. Before taking a closer look at our individual business units, I would like to note that in addition to the steady progress across our business during the year and fourth quarter, to streamline our cost structure and reduce inventory, the team also made substantial progress in managing down our debt levels.

[noise] team also made substantial progress in managing down our debt levels.

We finished the year with an approximately 17% reduction from our most recent high in February 2023 and expect to finish fiscal '24 nearly 40% below February levels. We recently entered into agreements to sell and lease back several properties within our real estate portfolio, including our campus in Fayetteville, North Carolina and our distribution center in Clinton, Tennessee.

We recently entered into agreements to sell and lease back several properties within our real estate portfolio, including our campus in Fayetteville, North Carolina, and our distribution Center in Clinton, Tennessee.

The sale leaseback of these properties is something we have seriously considered at various times throughout the years, and we believe the time is optimal to monetize these valuable assets and create value for our shareholders. We expect to realize aggregate gross proceeds of approximately $31.5 million from these transactions, assuming they close in or around January 24 as currently expected. We will simultaneously leaseback these properties from the respective purchasers and continue our operations there uninterrupted as a tenant going forward.

We expect to realize aggregate gross proceeds of approximately $31.5 million from these transactions assuming they close in or around January 24 is currently expected.

We will simultaneously leaseback these properties from the respective purchasers and continue our operations there uninterrupted as a tenant going forward.

Tenants going forward.

Now turning to our activewear business, which is organized around three key go to market channels Delta direct which provides blank garments on demand to a variety of channels. Mobile brands, which provides custom decorated activewear the major brands sportswear players in the U S military and retail direct which provides decorated apparel fully ready for the retail floor to brick and mortar and online retailers.

Mobile brands, which provides custom decorated activewear the major brands sportswear players in the U S military and retail direct which provides decorated apparel fully ready for the retail floor to brick and mortar and online retailers.

Passing layers of the traditional retail supply chain in the process. The market dynamics and excess cost driver as Bob mentioned earlier, the most direct at our activewear business.

The market dynamics and excess cost driver as Bob mentioned earlier, the most direct at our activewear business.

Similarly, most of the working capital optimization and cost structure enhancements, Bob mentioned were executed by our activewear team and when most directly benefit that business.

The activewear team has also been highly instrumental to our success in reducing overall inventory levels and made substantial progress on that front in the fourth quarter.

We continue to carefully manage production rates in activewear vertical manufacturing platform and expect continued reduction in both inventory units and dollars as we progress through fiscal year 'twenty four.

Moreover, with our cotton costs trending down in our production volumes, becoming more consistent we believe our activewear business is poised to take advantage of market improvements and steadily level up its operating performance as we move into the spring selling season.

The two largest channels in activewear as Delta direct business retail license and regional screen, Brad were the hardest hit by last year's demand destruction showed signs of improvement during the fourth quarter and to start the new fiscal year.

However activity in those channels is still generally soft and then consistent relative to pre pandemic levels.

In contrast, delta direct E retail and promotional channels continue to strengthen we are heavily focused on growing market share in those channels.

We see the promotional channel, which is a multibillion dollar market by itself as a strategic growth area, given our unique ability to offer customers Delta directs blank garments and full line of branded headwear jackets call those bags and other items in combination with D. T. G to goes on demand digital print services.

And our therapy channel, we anticipate growth in a variety of areas in fiscal 'twenty four including growth in the higher margin sales in the sofa Dot Com E Commerce website.

In activewear as global brands business, we continue to see lowering demand in the second half of our fiscal year 2023 as expected following the solid first half performance in this channel.

There is still a significant amount of unutilized manufacturing capacity in this channel due to the higher inventory levels at retail this drive more pricing pressure, particularly from Asia producers as we closed out the year.

Nonetheless, our relationships with our core brands remained strong and our business with much of that key customer base has remained relatively stable.

Our business with the U S. Military has been trending favorably with strengthening sales and a profitability profile that continues to improve as more products are authorized to be made on a lower cost offshore platform.

We expect the positive top and bottom line momentum, we're seeing in our military business continue in fiscal year 2024.

The market dynamics in our retail direct channel were similar to those global brands. During the year, we saw signs of improving inventory replenishment needs during the fourth quarter among the retail customer base served in that channel.

Our dollar store off price and farm and fleet retail customers in this channel continued to be a bright spot and outperform relative to other areas.

Looking ahead, we expect both our global brands and retail direct businesses to steadily tick up as we move into the second half of the fiscal year and get past some of the current headwinds from lower demand and excess global manufacturing capacity.

The near and long term prospects for these businesses continued to be solid and we believe our investments in product development and decoration platforms that leverage our vertical blank garment platform. It nearshore speed in the U S market will drive higher margin sales growth going forward.

There are substantial barriers to entry in these businesses and only the most qualified suppliers can do business with the world's largest brands and retailers.

We have provided full package programs to these highly sophisticated customers for almost two decades, now and made the investments required to meet their needs, including adding a retail packaging and readiness platform and systems to facilitate advance ship notifications and other premium logistics services.

Moreover, we always prioritize compliance and ensure that we offer brands and retailers that solution that lends integrity of their to their supply chains.

Turning to salt life.

The business continued to generate significant operating profitability during the year. Despite some recent softness in wholesale stemming from higher inventory levels.

We see this softness is temporary and expect sales growth in salt life in fiscal year, 'twenty, four including more direct to consumer growth in both the branded retail and ecommerce channels.

Salt life continues to expand its branded retail footprint with the recent opening of two new retail doors in Florida, and the brand's first location in Virginia are expected to open in our second fiscal quarter.

Salt life, where finished the calendar year with six new retail stores and a total owned retail footprint comprising 27 stores.

Including 15 full price stores, and 12 outlet stores across the country and over 55000 square feet of retail floor space.

The new location in Pompano Beach, Florida will also housing multimedia content studio and broadcast platform for the saltwater sport fishing championship as part of Salt life's new agreement to serve as the official apparel and sunglasses provider.

Same store sales amongst salt life stores for the fourth quarter were about flat with the prior year quarter and for the year decreased approximately 4% with the dropped due to the choppy retail traffic and the destination locales, where our stores are located as.

As we discussed on our prior call the less than ideal spring and summer weather conditions in these areas, including Hurricanes, making landfall on the West Coast of Florida were a key driver in the Choppiness.

Looking deeper into the numbers, we continue to see consistent gains in key performance metrics.

Such as conversion rate in transaction value, which tells us that salt lifes products and retail presentation are on point and same store sales will pick up commensurate with traffic returning to more normalized levels.

Salt life ecommerce website sales continued to outperform and year over year grew 41% for the quarter and 54% for the year.

We feel very good about our direct to consumer channels at Salt life and will continue to invest in building them out for long term growth.

We believe there is a lot of near term white space for the E Commerce channel to grow as we develop more data analytics sophistication and build more targeted marketing strategies.

We have experienced a similar dynamic in our retail strategy, where we continue to utilize more refined data points to make decisions regarding new markets and locations.

Finally on Salt life, we were pleased to see the initial market interest in salt lifes newly licensed home furnishings line exceed expectations, and we expect salt life license royalty revenue stream to more than double this fiscal year as the new line sells through.

Turning to our D. T G to go business the fourth quarter capped off what can best be described as a foundational year during which we completed a variety of key initiatives that set the stage for profitable growth for years to come.

We completed the planned upgrade and Recalibration of our entire Polaris fleet that drives the higher print quality products offer in our digital first business.

This initiative resulted in some downtime and reduced capacity in the back half of the year that we now have all of our digital first facilities recertified and we are already seeing the consistency and quality gains we expected coming out of this effort.

We continue to remain keenly focused on driving uptime and output rate improvements in our digital first channel.

Our digital first capacity was essentially sold out going into the critical holiday season, and our relationships with our key partners in that channel continued to grow and solidify.

In addition, we recently enhanced the profitability profile of our digital first business, the revised pricing structures and increasing usage rates for delta direct manufacturer environments.

We see significant potential opportunities to expand that business through additional silhouettes in areas outside of E Commerce.

On the traditional side of the DTC to go business, where we serve e-commerce retail promotional brands.

Content companies in a variety of other channels, we recently implemented price increases across most of that customer base and our own quality performance remains at an all time high.

Sales in the traditional E Commerce platform channel remain dynamic and we see some yes again, new business development opportunities there as well as in other channels.

All of these new opportunities will utilize delta direct blank garments, which increases both our profitability profile and our customers due to price point and manufacturing consistency.

We also advanced several foundational R&D initiatives on the product development side at GTT to go in fiscal year 'twenty three the team developed a proprietary fabric optimized for ink reception and other aspects of digital printing that should accelerate customer usage of delta direct blank garments a D. T. G to go beyond the approximately <unk> <unk>.

55% usage rate in fiscal year 'twenty three.

We currently expect that internal blank garment usage rate to increase to as much as 70% in fiscal year 'twenty four.

The team also developed a proprietary textile manufacturing process designed to solve well known quality challenges that digital print process.

We believe that these are potential game changes from both quality and profitability perspective, and should result in a higher quality product for the Inconsumable and a greater competitive advantage for us in the market.

Looking ahead, we believe that our DTC to go business is poised for a return to topline growth in fiscal year 'twenty four with the foundational pieces put in place this year and our digital first offerings uniquely able to meet even the highest customer quality requirements DTA.

<unk> to go is well positioned to increase its share of the overall decorated apparel market.

The digital disruption and decorated apparel is well underway and it's hallmarks of speed to the consumer SKU customization inventory de risking and sustainability are things, we believe more and more apparel players will want to leverage and move some or all of their business away from traditional screen print.

T. G to go was right there to capitalize on that market shift, but its leading print capacity nationwide network and proprietary innovations as well as delta direct blank garment platform let.

Let me now pass it over to Nancy for a detailed review of our financial results.

Thank you Jeff.

Please note that on our call last quarter, we will discuss a variety of financial measure very carefully to account for that class impacts at the inflationary cotton production curtailment activities.

The strategic cost optimization initiatives pop reference earlier. In addition, during the quarter. We concluded that the goodwill associated with our D. T G to go business.

Impaired and we recorded a noncash charge of $9 $2 million in fiscal year 2023, we will discuss non-GAAP measures such as adjusted gross margin adjusted operating income and adjusted net income as we believe it's important to evaluate our operating results this quarter and the.

Full year in light of the impacts of these unique events.

Listeners may access a reconciliation of this measure to gross margin operating income and net income the most directly comparable GAAP measures on the Investor Relations page of our website Www Dot Delta apparel, Inc. Dot com.

For the fourth quarter ended September 32023, net sales were $91 $4 million compared to the prior year fourth quarter net sales of $115 $5 million.

Salt Life Group segment, net sales were $12 $5 million compared to the prior year fourth quarter net sales of $14 million.

Net sales in the Delta group segment were $78 $9 million compared to $101 five.

$5 million in the prior year fourth quarter.

Gross margins were 11, 2% compared to 18, 7% in the prior year fourth quarter, driven primarily by production curtailments in inflationary cotton costs.

Steam for these cost impacts fourth quarter gross margins were 15, 9%.

Delta Group segment gross margin for the quarter for four 8% compared to the 14, 1% in the prior year period.

Adjusted for that production curtailment in cotton cost impacts Delta group segment gross margins were 10, 3%.

Salt Life Group segment gross margins for the quarter were flat at 51, 7% versus 51, 8% in the prior year period.

Selling general and administrative expenses decreased favorable Lee from $19 8 million in the prior year fourth quarter to $17 $1 million, while SG&A as a percentage of sales increased over the prior year period to 18, 7%.

Operating income declined year over year from $2 $2 million or one 9% of sales to an operating loss of $17 million.

Our 18, 6% of sales.

Adjusting for that production.

Curtailment, and cotton cost impacts as well as a noncash impairment charge.

The goodwill and the D. T. G. T go business fourth quarter operating loss was $2 $1 million or two 3% of sales.

Delta Group segment operating income for the quarter declined from four $8 million to a loss of $15 $2 million.

Adjusted for the production curtailment and cotton cost impacts of the noncash impairment charge Delta group segment operating income with a loss of $295000 or <unk> four.

4% of sales.

The Salt life group segment experienced an operating loss for the quarter of $400000 compared to operating income of $1 $2 million in the prior year period.

Net income declined to a loss of $16 $4 million or $2 34 per share from a loss of $281000.

Or four cents per share.

Adjusting for the production curtailment in cotton cost impacts that's all I'll say noncash impairment charge fourth quarter net loss was $5 million or 72 cents per share.

Net income for the quarter was significantly impacted by the elevated interest rate environment with our interest expense for the quarter essentially doubling the prior year quarter.

Net inventory as of September 30th 2023, with $212 $4 million, a sequential decrease of almost $47 million or 18%.

December 2022, and a year over year decrease from inventory at $248 5 million at September 2022.

The inventory decrease by some product at par team's excellent execution on our high priority working capital efficiency initiatives.

Total net debt, including capital lease financing and cash on hand with $165 $3 million.

As of September 32023.

An approximate 15% reduction from $194 3 million at March 2023, and a year over year decrease from $176 million at September 2022.

Cash on hand, and availability under our U S revolving credit facility totaled $14 $2 million as of September 30th 2023, a decrease of $13 million from December 2022, and 24 million dollar.

From September 2022, with the decrease from December 2022, principally driven by investments in the business to support working capital needs as well as the higher interest expense.

We had new capital spending during the fourth quarter compared to $2 $1 million during the prior year fourth quarter.

For the full year ended September 32023, net sales were $415 $4 million compared to the prior year net sales of 484 nine.

$9 million.

Salt Life Group segment, net sales were $59 million compared to the prior year net sales of $60 million.

Net sales in the Delta group segment were.

Our $356 $3 million compared to $424 8 million in the prior year.

Gross margins were 13% compared to 22, 4% in the prior year driven primarily by the production curtailment in cotton cost impacts coupled with the impacts of the strategic actions, we undertook to better optimize our overall cost structure.

Adjusting for the collective cost impacts and that production curtailment cotton is strategic actions gross margins were 21, 2%.

Delta Group segment gross margins were six 1% compared to 18, 3% in the prior year.

It just separate the collective cost impacts of that production curtailment cotton and strategic actions Delta Group segment gross margins were 15, 6%.

Salt Life Group segment gross margins increased to 54, 6% from 51, 6% in the prior year period with the increase driven primarily by a more favorable mix of higher margin direct to consumer sales.

Selling general and administrative expenses decreased Cape rally from $79 $5 million in the prior year to $73 $7 million.

SG&A as a percentage of sales increased from 16, 4% to 17, 8%.

Our equity investment in Green Valley contract sale Park, and Honduras, where our textile facility is located.

Dividends during the year of approximately one $6 million and continues to generate profits recorded in other income that provide an excellent return on our investment there.

Operating income declined year over year from $31 8 million or six 6% of sales to an operating loss of $29 $4 million or seven 1% of sales.

Adjusting for the collective cost impact of production curtailment cotton and strategic actions, it's while it's a noncash impairment charge operating income was $18 4 million or four 4% of sales.

Delta Group segment operating income declined from $37 $5 million to a loss of $26 $2 million.

Adjusted for the collective cost impacts of that production curtailment cotton and strategic actions as well as the non cash impairment charge.

Segment operating income was $21 $7 million or six one.

Of sales.

Salt Life Group segment operating income was $6 $2 million or 10, 4% of sales compared to $8 $2 million or 13, 6% of sales in the prior year.

Net income declined from $19 7 million or $2.80 per diluted share philosophy, $33 2 million or $4.75 per share.

Hey, Joseph for the collective cost impacts of the production curtailment cotton and strategic actions as well as a noncash impairment charge net income was $3 3 million or 47, Pegylated shale for the full year.

Net income for the full year. It was also significantly impacted by the elevated interest rate environment with our interest expense for the period essentially doubling the prior year.

Now I will turn the call back over to Bob.

Thanks Nancy.

<unk> 2023 was a transition year for us in many respects, particularly for our Delta group segment, but it was also very productive if you look across the company and see what we did to streamline our cost structure and better position ourselves in our business for the long term.

Our activewear business is leaner from a fixed cost and working capital perspective, and BTG to go has completed the work necessary to take another step forward in this progression with technology quality and service offerings that are quite unique in the marketplace.

We see those businesses continued to capitalize on the growing synergies this year and for both to grow and gain market share in fiscal 2024.

We also see salt life taken another step forward in fiscal year 2024, and believe that business is poised for continued revenue growth driven by direct to consumer channels.

We will continue to closely manage our costs working capital and debt levels and focus our investments in areas that should return the most value for our shareholders. These efforts along with the structural changes we've made across our business position us for steady operating improvement as we move ahead and market conditions continued to level.

While based on our current view for fiscal year 2024, we anticipate net sales in a range of $400 million to $415 million and operating profit margins between approximately 2% and three 5% with gross margins sequentially increasing into the low to mid twenties.

Improving operating margins beginning in the second quarter and revenue growth in the back half of the year.

And now operator, you can open up the call for any questions. We may have.

Thank you.

Ladies and gentlemen, 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 he would like to remove your question from the queue.

All 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 Group. Please proceed.

Hi, good afternoon, everyone.

Bob as you think about this year and Jason and Nancy as you think about this year and how the fourth quarter ended can you at all give some contextual Jason as to what the level of demand is going forward, even as we go through the first and second quarter from the customer base of Delta group, and how that's shifting or changing and then.

Unpacking, the gross margin given the production curtailment in the cotton costs.

When do we see some normalization or should the magnitude of what the gross margin impact was this quarter does it continue how do you think or how do you think of moving forward and then lastly, as you looked at the expense structure of the business and the changes you've made as we go through 2024, how do you see.

See that operating income and operating margin develop thank you.

Yeah.

So on a demand standpoint in the fourth quarter.

You know our business remain choppy.

Pending on the particular market market segment.

We're seeing some areas that are still strong lock our AD specialty business and our E retailer business in our basic Activewear group, our specialty business is strong and growing and there are other channels that are slower.

And that would include regional spring screen print and retail licensing now having said that.

Our business meetings with our retail licensing customers.

I have indicated that their business is improving over time.

We will be receiving more business as we go into the new fiscal year.

As you saw in our Salt life business, our wholesale business slowed down in the fourth quarter slight we've seen you know with with many of their competitors as well. So it does seem like the consumer is getting a little bit fatigue, and buying where we have customers in our stores. Obviously, we have a lot of data.

The purchase was a customer is there is more product and higher average selling price, but less foot traffic in those retail doors.

As we look into.

Our first quarter, which as you.

Well underway now in general we're seeing the same.

Conditions continue.

We are off to a good start in our D. T G to go business in the quarter and the important holiday season.

Our output is high our quality is good very good and our labor utilization rates or some of the best that we've ever seen in that business. So we got some more to go but are encouraged with our progress.

In our <unk> to go business as we go into the first quarter.

Got it I believe it I believe I believe you asked about the cotton as well, yes, yes and yes.

So we are through most of our higher price cotton and we'll start seeing that impact on our P&L as we move into FY 'twenty four.

Lower price cotton flowing through our cost of sales.

And as far as I think you also asked about.

Production curtailment or did you Oh and.

Yeah, Yeah, yeah yeah.

Yes, so the operating margin will sequentially improve as we go through the fiscal year, we still have some excess cost on our balance sheet that will rollout in the first quarter. Some in the second quarter and that will be behind us.

We expensed those where we can through GAAP into things that have to follow the inventory. Obviously, we will do so and as Nancy spoke to one cotton cotton that we've been bringing into our business for the last.

Several months is what we would call market price cotton, but it still has to roll through cost of sales, which we will start seeing the benefit of that in the second quarter and on out through the rest of the fiscal year.

Thank you.

Yes.

Our next question comes from the line of Jamie Wilen with willing management. Please proceed.

Hey, Phil is when you give out that forecast for revenues for next year.

Hum.

Prior to that you've talked about your expected growth in salt life, and we're expecting growth in <unk> to go but when do those overall numbers come out it doesn't look like.

A major increase for this year can you explain that dichotomy.

Well, we're not expecting strong overall growth at salt life with a current.

Wholesale business.

Environment.

Growth, but not strong growth.

And D. C. G to go we will have growth sequentially in the second third and fourth quarter or first quarter last year was a large deal.

<unk> go revenue quarter that we did not operate efficiently.

And so we took a different stance this year.

And are not operating as many shifts as we have in prior years.

But we think a lot more efficiently it will have.

A strong rebound in operating profit EBITDA in D. T. G to go this fiscal year compared to last year.

Okay on the Salt life wholesale side have you gained or lost any major customers there.

Okay.

We have not gained or lost any major customers. There are accounts that we chose to quit shipping last year when their margin requirements changed or.

Other gift bags that they want it we just didn't feel like it was.

Yes.

You know a business that was additive to the brand and we see more and more.

Lifestyle brands doing that so.

The retailers get under pressure they ask for more and more and if we're not going to make money at it.

To keep our brand integrity that we walk away from that business.

Got you.

Tillman costs that you are a detailed of $8 million how much of that has already been expense and how much will go into 2024.

Yeah. It does have all have been expensed.

Okay, but there is still a little bit more to come.

Yeah, well, there's more stuff to rollout.

In the first quarter.

Okay.

And on the inventory side of the business when you're looking at $400 million of revenues what is the optimal inventory that you should carry to operate efficiently.

We should turn our inventory two five times a year.

And we expect to be at about a two turn by the end of this fiscal year.

In fiscal 'twenty, two I believe we turned our inventory about two four times.

So obviously that deteriorated dramatically as business slowed down.

We've taken steps to.

No. It prove that it has been improving and obviously with our manufacturer and reset and eliminating facilities in Mexico that will allow us to better manage that and we should be able to operate with less inventories both in process and finished goods.

Okay on the sale and leaseback transaction I assume it will close prior to year end and how much of a gain are you looking to record from that.

Hey, Jamie this is Justin so on the sale leaseback were looking at January for both of those transactions. So a second quarter event for both of those properties hopefully.

And looking at aggregate proceeds coming in of about 30% to $31 million.

31, 31 5 million.

And it turns out.

Good.

Yeah without much tax leakage that's correct.

We do not have those on the books for much at all so.

<unk> not.

<unk>.

Now looking at a big tax leakage there.

Okay, and lastly on Salt life, what is the outlook for new store openings over the next 12 months.

So we have one more that will be opened are in.

In Virginia in our second quarter.

We don't have any other leases signed.

So you know we always are looking at locations in negotiating our locations, but there are no other leases signed at this time.

Okay, and one last on salt life from the royalty payments, you're going to get you said youre going to see theyre going to be double in 'twenty 'twenty four but they were in 2023, what other royalty arrangements do you have that you're receiving income on salt life.

So we have.

The restaurants and.

And we have.

Service.

And then now we have the home furnishings.

Okay, and they'll be forced to be recorded in the.

December or March quarter, when do they begin.

Yeah, So we record them each quarter as they come in.

Okay, and then they're starting now.

Well they have begun.

<unk> been ongoing but the new ones will be starting this fiscal year.

Right, Okay. Thanks Fellas.

Uh huh.

Thank you.

No further questions at this time I'd like to turn the call back over to management for closing remarks.

Well. Thank you for your time and attention today, and we will look forward to speaking in just a few months and report on our first quarter results.

Yeah.

This concludes today's conference you may now disconnect your lines up with Paul. Thank you for your participation.

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