Q1 2024 Delta Apparel Inc Earnings Call

Operator: Thank you and good afternoon to everyone participating in Delta Apparel Inc.'s Fiscal Year 2024 First Quarter Earnings Conference Call. Joining us from management are Beb Humphreys, Chairman and Chief Executive Officer, Justin Grow, Executive Vice President and Chief Administrative Officer, and Nancy Bubanich, Vice President and Chief Accounting Officer. Before we begin, I'd like to remind everyone that during the course of this conference call, projections or other forward-looking statements may be made by Delta Apparel's executives. Such projections and statements suggest prediction and involve risks and uncertainty, and actual results may differ materially.

Thank you and good afternoon to everyone participating in Delta Apparel, Inc. Fiscal year 2024 first quarter earnings conference call joining us from management are Bob Humphreys, Chairman and Chief Executive.

Officers, Justin Carroll Executive Vice President and Chief administrative officer, and actually Bubonic, 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 prediction and involve risks and uncertainties and actual results may differ materially.

Operator: 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 realized. I'll now turn the call over to Mr. Humphreys. Thank you. Please go ahead.

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. This 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 bundle. The company does that can be to update or revise any forward looking statements. Even if it becomes apparent that any projected results will not be realized.

I will turn the call over to Mr. Humphreys. Thank you. Please go ahead.

Robert W. Humphreys: Good afternoon. Thank you for joining us today and for your interest in Delta Apparel. Before we review our first quarter results, I would like to once again express gratitude to our teams throughout the various countries in which we operate our business for their hard work, flexibility, and dedication through what remains a challenging period for our company as well as our industry. As we highlighted on our fiscal 2023 year-end call, we were faced with uniquely unfavorable market dynamics throughout most of last year, and many of those dynamics continue to impact our business in the first quarter of Our teams have approached these prolonged, difficult business conditions with determination and taken decisive and effective action to shore up our balance sheet and significantly reduce our debt, working capital, and cost structure. The plan we initiated during fiscal year 2023 to optimize our cost structure and streamline operations is now substantially completed.

Good afternoon. Thank you for joining us today and for your interest in Delta apparel.

Before we review our first quarter results I would like to once again express gratitude to our teams throughout the various countries in which we operate our business for their hard work flexibility and dedication through what remains a challenging period for our company as well as our industry.

As we highlighted on our fiscal 2023 year end call. We were faced with uniquely unfavorable market dynamics throughout most of last year and many of those dynamics continue to impact our business in the first quarter of 2020 for fiscal year.

Our teams have approach these prolonged difficult business conditions with determination and taken decisive and effective action to shore up our balance sheet and significantly reduce our debt working capital and cost structure.

The plan, we initiated during fiscal year 2023 to optimize our cost structure and streamline operations is now substantially completed.

Robert W. Humphreys: At a high level, our plan included exiting Mexico and reducing our offshore manufacturing footprint from three countries to two, and from six facilities to four. As a part of that restructuring, we transitioned our Mexico filling and screen print capacity, as well as the more expensive third-party fabric production we had to source in Mexico into our more efficient Central American manufacturing platform. When we can ramp up our manufacturing volumes back to a more normalized level, we expect this restructuring to generate approximately $6 million in annual run rate savings. Our plan included similar consolidation activity in our DTG-to-Go digital print business, where we closed a legacy print facility in Clearwater, Florida, and absorbed its capacity into our more efficient on-demand DC footprint throughout the United States, combining our DTG-to-Go and Delta Direct business under the same roof

At a high level, our plan included exiting Mexico, and reducing our offshore manufacturing footprint from three countries to two and from six facilities to four.

As a part of that restructuring, we transitioned our Mexico sewing and screen for capacity as well as the more expensive third party fabric production, we had to source of Mexico into our more efficient central American manufacturing platform with.

But we can ramp up our manufacturing volumes back to a more normalized level. We expect this restructuring to generate approximately $6 million in annual run rate savings.

Our plan included similar consolidation activity in our <unk> to go digital print business, where we closed a legacy print facility in Clearwater, Florida and absorb its capacity into our more efficient on demand DC footprint throughout the United States, combining our BTG to go and Delta direct business under the <unk>.

Same roof.

Robert W. Humphreys: In addition, we significantly reduced other areas of our U.S. workforce, as well as our workforce across our Central American manufacturing platform, to better align with the lower demand we continue to see across most of our businesses. All told, after these actions, we reduced our overall workforce by over 20% and took approximately $20 million out of our cost structure in annualized labor savings.

In addition, we significantly reduced other areas of our U S workforce as well as our workforce across our central American manufacturing platform to better align with the lower demand we continue to see across most of our business.

All told after these actions we've reduced our overall workforce by over 20% and took approximately $20 million out of our cost structure in annualized labor savings. This heavy lifting across our company was challenging but it was necessary for us to become a leaner organization better positioned to navigate the tough opt.

Robert W. Humphreys: This heavy lifting across our company was challenging, but it was necessary for us to become a leaner organization, better positioned to navigate the tough operating environment we continue to see across our business. Despite our success in executing on these important restructuring initiatives, we were disappointed in our overall results for the first fiscal quarter of 2024, which, as a reminder, is typically our slowest overall quarter due to the seasonality of our various businesses. The immediate demand we saw across most of our activewear business markets in fiscal year 2023 continued during the quarter, which pressured inventory turn.

<unk> environment, we continue to see across our business.

Despite our success in executing on these important restructuring initiatives, we were disappointed in our overall results for the first fiscal quarter of 2024, which as a reminder is typically our slowest overall quarter due to the seasonality of our various businesses.

The immediate demand we saw across most of our activewear business markets in fiscal year 2023 continued during the quarter, which pressured inventory turns.

Robert W. Humphreys: Although it appears that many of our customers have destocked to more normalized inventory levels, the activewear supply ecosystem as a whole still has some ground to cover to return to pre-pandemic activity levels. These market dynamics impacted both our top-line and bottom-line performance for the quarter and unfortunately resulted in more below-capacity production volume in our Central American manufacturing platform and more deleveraging of our significant fixed-cost structures in these countries. In light of the challenging start to our new fiscal year, we continue to take steps to reduce our working capital and focus resources on our core business, where we can generate positive cash flows. We are also looking at other areas where we can create cost efficiencies and potentially further streamline our operations. In addition, we continue to evaluate all of our strategic assets across the organization.

Although it appears that many of our customers have destock to more normalized inventory levels, the active where supply ecosystem as a whole still have some ground to cover to return to pre pandemic activity levels.

These market dynamics impacted both our topline and bottom line performance for the quarter and Unfortunately resulted in more below capacity production volume in our central American manufacturing platform and more deleveraging of our significant fixed cost structures in these countries.

In light of the challenging start to our new fiscal year, we continued to take steps to reduce our working capital and focus resources in our core business, where we can generate positive cash flows.

Also looking at other areas, where we can create cost efficiencies and potentially further streamline our operations.

In addition, we continue to evaluate all of our strategic assets across the organization.

Robert W. Humphreys: We are committed to fully exploring opportunities to monetize our own real estate portfolio and recently completed the sale and lease back of our distribution center in the Knoxville, Tennessee area. This transaction generated gross proceeds of approximately $6.2 million, and we believe that a sale-leaseback transaction involving our manufacturing and distribution campus in Fayetteville, North Carolina, should generate additional gross proceeds between $20 and $23 million in the current environment for industrial properties of that size and scope in the Sunbelt Market. We are currently in serious discussions with a potential buyer for our Fayetteville campus and believe we have the potential to monetize that asset and continue our operations there uninterrupted going forward. As you know, we received an unsolicited offer to purchase our Salt Life business back in October.

We are committed to fully exploring opportunities to monetize our own real estate portfolio and recently completed the sale and leaseback of our distribution center in the Knoxville, Tennessee area.

This transaction generated gross proceeds of approximately $6 2 million.

Leave that a sale leaseback transaction involving our manufacturing and distribution campus in Fayetteville, North Carolina should generate additional gross proceeds between 20 and $23 million in the current environment for industrial properties of that size and scope and sunbelt markets. We're currently in serious discussions with a potential buyer.

For our Fayetteville campus and believe we have the potential to monetize that asset and continue our operations there.

Going forward.

As you know we received an unsolicited offer to purchase our salt life business back in October.

Robert W. Humphreys: Our Board of Directors recently concluded a thorough review of our strategic options for Salt Life and decided to continue negotiations with a selected entity. I can assure you that our board is committed to maximizing value for shareholders and taking the course of action we believe is in their best interest with respect to our Salt Life business. We look forward to updating you once these negotiations conclude.

Our board of Directors recently concluded a thorough review of our strategic options for Salt life and decided to continue negotiations with our selected entity.

I can assure you that our board is committed to maximizing value for shareholders and taken the course of action. We believe is in their best interest with respect to our Salt life business. We look forward to updating you. Once these negotiations conclude.

Robert W. Humphreys: With the start to our fiscal year more difficult than originally anticipated, we are keenly focused on managing our working capital and costs across all aspects of our business on a day-to-day basis. Our overall debt was down 22% year-over-year at the end of our first quarter, and we have made more progress on that front to start our second quarter. Similarly, our inventory levels were down 24% year over year, and we will continue to prudently manage the business with a heightened focus on liquidity while evaluating our assets and making investments in the area that position us to generate returns for our shareholders. Nancy will provide more detail on our results in a moment, but I will 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.

With the start to our fiscal year more difficult than originally anticipated. We are keenly focused on managing our working capital and costs across all aspects of our business on a day to day basis. Our overall debt was down 22% year over year at the end of our first quarter and we have made more progress on that front to start our <unk>.

Quarter. Similarly, our inventory levels were down 24% year over year, and we will continue to prudently manage the business with a heightened focus on liquidity, while evaluating our assets and making investments in area that positioned us to generate returns for our shareholders.

We will provide more detail on our results in a moment, but let me now turn the call over to Justin to walk you through our business highlights in more detail.

Ill join them at the end of the call to open up for questions Justin.

Justin Marshall Grow: Thanks, Bob. Our Salt Life business registered year-over-year sales growth during the first quarter, which is traditionally a slower quarter due to the seasonality of that business, and is also tracking to achieve sales growth for the full year. The recent softness in Salt Life's wholesale channel continued during the quarter, but was counterbalanced to some degree by more year-over-year growth in Salt Life's direct-to-consumer retail and e-commerce channels. Salt Lab recently expanded its branded retail footprint with the opening of its first location in Virginia, and the new store in Williamsburg has exceeded expectations to date.

Thanks, Bob our salt life business registered year over year sales growth during the first quarter, what is traditionally a slower quarter due to the seasonality of that business.

And it is also tracking to achieve sales growth for the full year.

The recent softness in Salt life wholesale channel continued during the quarter, but was counterbalanced to some degree been more year over year growth in salt life's direct to consumer retail and e-commerce channels.

Salt life recently expanded its branded retail footprint with the opening of its first location in Virginia, and the new store in Williamsburg has exceeded expectations debate.

Justin Marshall Grow: The brand's retail footprint now consists of 28 stores, including 16 full-price stores and 12 outlet stores across the country. However, same-store sales across all spotlight stores for the first quarter were down approximately 2% from the prior-year quarter, with the drop due to more sporadic travel activity as well as colder and wetter conditions in the coastal areas where our stores are located. Salt Life stores continue to consistently achieve solid performance across retail KPIs such as conversion rates, which were up relative to the prior year quarter, and average transaction value. Sales on Salt Life's e-commerce website continued to grow during the quarter, and its performance across other key metrics such as conversion, units per transaction, and average order value were all up favorably over the prior year period. We were also pleased to see several states in the Northeast market, as well as several inland states, continue to be among the top ten markets for Salt Life's e-commerce chain.

The brand's retail footprint now consists of 28 stores, including 16 full price stores and 12 outlet stores across the country.

Same store sales across all salt life stores for the first quarter were down approximately 2% from the prior year quarter with the drop even more sporadic travel activity as well as colder and wetter conditions in the coastal areas, where our stores are located.

Salt life stores continue to consistently achieve solid performance across retail kpis, such as conversion rates, which were up relative to the prior year quarter and average transaction value.

Sales on Salt life ecommerce website continued to grow during the quarter and its performance across other key metrics such as conversion units per transaction and average order value were all up favorably over the prior year period.

We were also pleased to see several states in the northeast market as well as several inland states continue to be among the top 10 markets for salt life ecommerce channel.

Justin Marshall Grow: Turning to our activewear business, we continue to see sluggish overall demand across its three go-to-market channels, and the general industry expectation is for activewear demand to remain relatively flat throughout the year. Given these market conditions, we continue to run our vertical manufacturing platform at below-capacity levels, which, as Bob mentioned, reduces our fixed-cost absorption rates and generates unfavorable manufacturing variances. In the Delta Direct channel, where we provide blank garments on demand to a variety of supply chains, overall units sold were up year over year, but the amount of underutilized manufacturing capacity across this channel resulted in more price deterioration, particularly on core styles, which impacted overall sales dollars. Demand in Delta Direct's largest verticals, retail license, and regional screen print, continues to be inconsistent relative to pre-pandemic levels, while the Excess global manufacturing capacity also continues to drive pricing pressure in our global brands channel, where we provide custom-decorated activewear to major brands in the U.S. military, with much of that pressure coming from producers in Asia.

Turning to our activewear business, we continue to see sluggish overall demand across its three go to market channels and the general industry expectation is for activewear demand to remain relatively flat throughout the year.

Given these market conditions, we continue to run our vertical manufacturing platform at below capacity levels, which as Bob mentioned reduces our fixed cost absorption rates and generate unfavorable manufacturing variances.

And the Delta direct channel, where we provide blank garments on demand through a variety of supply chain overall units sold were up year over year.

But the amount of underutilized manufacturing capacity across this channel resulted in more price deterioration, particularly on core styles, which impacted overall sales dollars.

Demand in Delta direct channels largest verticals retail license and regional screen print continue to be inconsistent relative to pre pandemic levels, while the E retail and promotional channels continue to strengthen our performance while year over year.

<unk> Global manufacturing capacity also continued to drive pricing pressure in our global brands channel, while we provide custom decorated activewear to major brands in the U S military.

With much of that pressure coming from producers in Asia.

Justin Marshall Grow: In addition, inventory levels at retail continue to impact demand in the first quarter as expected in this channel, and global brand sales came in well below last year's record first quarter sales. We saw similar dynamics in performance in our retail direct channel, where we provide decorated apparel fully ready for the retail floor to brick and mortar and online retail.

Additionally, the inventory levels at retail continued to impact demand in the first quarter as expected in this channel and global brand sales came in well below last year's record first quarter sales.

We saw similar dynamics and performance in our retail direct channel, while we provide decorated apparel fully ready for the retail floor to brick and mortar and online retailers.

Justin Marshall Grow: Despite the challenging business conditions across our activewear business in the first quarter, the team continued to make substantial progress in reducing inventory levels, and its efforts were instrumental in the success of our plans to reduce overall working capital and debt and streamline our operations. Turning to our DTG-to-go business, we continue to take meaningful strides in improving our on-quality performance, on-time delivery, and labor efficiency rates during the quarter, and shipments to our digital-first customer base exceeded our internal plan. However, overall demand during the holiday season came in below forecast.

Despite the challenging business conditions across our activewear business in the first quarter. The team continued to make substantial progress in reducing inventory levels and its efforts were instrumental in the success of our plans to reduce overall working capital and debt and streamline our operations.

Turning to our GTT to go business, we continued to take meaningful strides in improving our own quality performance on time delivery and labor efficiency rates during the quarter and shipments to our digital first customer base exceeded our internal plan.

However, overall demand during the holiday season came in below forecast in.

Nancy P. Bubanich: In addition, we continue to see some downward pressure on pricing, particularly on basic products, which, along with highly elevated U.S. labor costs compared to only a few years ago, impacted profitability during the quarter. I will now pass it over to Nancy for a detailed review of our financial results. Thank you, Jeff.

In addition, we continue to see some downward pressure on pricing, particularly on basic products, which along with highly elevated U S labor cost compared to only a few years ago impacted profitability during the quarter.

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

Thank you Jonathan.

Nancy P. Bubanich: Please note that we will discuss a variety of financial measures that are adjusted to account for the cost impacts of production, retailing activities, and the Strategic Cost Optimization Initiatives Bob referenced earlier. We believe these measures may be useful in evaluating our operating results for the quarter in light of the impacts of these unique events. We will also discuss non-GAAP measures, such as earnings before interest, taxes, depreciation, and amortization, or EBITDA, and adjusted EBITDA, which are measures that we believe can allow analysts and investors to better understand the financial performance of the company by computing earnings from core business operations without including the effects of capital, structure, tax rates, and depreciation. Listeners may access a reconciliation of these non-GAAP measures to gross margin The most directly comparable gap measures are on the investor relations page of our website at www. DeltaApparelInc.com.

Please note that we will discuss a variety of financial measures very adjusted to account for the cost impact of production curtailment activities and strategic cost optimization initiatives Bob referenced earlier.

We believe these measures may be useful in evaluating our operating results for the quarter in light of the impact of the excuse me.

Goodbye.

We will also discuss non-GAAP measures such as Ernie.

Our interest taxes, depreciation and amortization or EBITDA and adjusted EBITDA.

Which our measures that we believe can allow analysts and investors to better understand the financial performance of the company by competing Ernie.

Our business operation without including the effects of capital structure tax rate and depreciation.

Listeners may access a reconciliation of these non-GAAP measures to gross margin operating income and net income.

The most directly comparable GAAP measures on the Investor Relations page of our website at Www Dot Delta Apparel, Inc. Dot com.

Nancy P. Bubanich: For the first quarter ended December 30, 2023, net sales were $79.9 million compared to the prior year first quarter sales of $107.3 million. Salt Life Group segment net sales were $10.3 million, and up slightly compared to the prior year first quarter net sales. Net sales in the adult and group segments were $69.6 million compared to $97 million in the prior year's first quarter. Gross margins were 10.9% compared to 12.7% in the prior year's first quarter, driven primarily by production curtailment, adjusted for these costs, and the impacts of the. Production curtailment, the first quarter growth margins were 12.6%. [inaudible] Salt Life Group segment gross margins for the quarter were 45.4% versus 57% in the prior year period. Salt Life's gross margins for the quarter were negatively impacted to some degree by the timing of inventory receipts, which should reverse in the second quarter. Selling, general, and administrative expenses decreased from $18.9 million in the prior year's first quarter to $18.6 million, while SG&A, as a percentage of sales, increased over the prior year period to 23.3%. SG&A was negatively impacted by higher audit and professional service fees as compared to the prior year.

For the first quarter ended December 30, <unk> 2023, net sales were $79 9 million compared to prior year first quarter sales of $173 million.

Salt Life Group segment, net sales were $10 3 million and up slightly compared to the prior year first quarter net sales.

Net sales in adult group segment were $69 6 million compared to $97 million in the prior year first quarter.

Gross margins were 10, 9% compared to $12 seven.

First quarter, driven primarily by production curtailment.

Adjusted for these cost impacts.

Production curtailments, the first quarter gross margins for 12 point.

Delta Group segment gross margins for the quarter were five 8% compared to 8% in the prior year period.

Adjusted for the production curtailment costs impact Delta Group segment gross margins were 8%.

Salt Life Group segment gross margins for the quarter were 45, 4% versus 57% in the prior year period.

Salt life's gross margins for the quarter were negatively impacted.

<unk> to some degree by the timing of inventory receipts, which should reverse in the second quarter.

Selling general and administrative expenses decreased from $18 9 million in the prior year first quarter to $18 6 million.

SG&A as a percentage of sales increased over the prior year period to 23, 3%.

SG&A was negatively impacted by higher audit and professional service fees as compared to the prior year.

Nancy P. Bubanich: Other income for the first quarter included a $5.4 million gain on the sale and leaseback of our Knoxville, Tennessee area distribution facility, as well as income of $300,000 related to our Green Valley Industrial Park Equity Method investment. However, operating income declined year over year from an operating loss of $2.6 million to an operating loss of $4.9 million. Adjusting for the production, curtailment, and strategic initiative cost impacts, the first quarter operating loss was $2.8 million.

Other income for the first quarter included a $5 4 million gain on the sale and leaseback of our Knoxville, Tennessee area distribution facility as well as income.

300000 related to our Green Valley Industrial Park equity method investment.

Operating income declined year over year for an operating loss of $2 6 million to an operating loss of $4 9 million.

Adjusting for the production curtailment strategic initiative cost impacts first quarter operating loss was $2 8 million.

Nancy P. Bubanich: Delta Group segment offering income from the quarter improved from $100,000 to $500,000. Adjusting for the production, curtailment, and strategic initiative cost impact, Delta Group segment operating income was $2.7 million, or 3.8% of sales. The Salt Lake Group segment experienced an operating loss for the quarter of $2.1 million compared to operating income of $300,000 in the prior year period. Net interest expense for the quarter was $3.6 million compared to $2.9 million in the prior year first quarter. This increase in interest expense is primarily due to the elevated interest rate environment, offset by lower borrowing.

The Delta group segment operating income from the quarter improved crop.

100000 to 500000.

Adjusting for the production curtailment strategic initiative cost impacts Delta Group segment operating income was $2 7 million or three 8% of sales.

The Salt life group segment experienced an operating loss for the quarter at $2 1 million compared to operating income of 300000 in the prior year period.

Net interest expense for the quarter was $3 6 million compared to $2 9 million in the prior year first quarter.

This increase in interest expense is primarily due to the elevated interest rate environment.

I love where borrowing.

Nancy P. Bubanich: Keep it up for the first quarter with a loss of $1.3 million. Adjusted for the production, curtailment, and strategic initiative cost impacts, first quarter EBITDA was positive at $853,000. Delta Group Segment EBITDA for the first quarter was $3.5 million, adjusted for the production, curtailment, and strategic initiative cost impacts. Delta Group Segment EBITDA was $5.7 million.

EBITDA for the first quarter with a loss of $1 3 million.

I'll separate the production curtailment and strategic initiative cost impacts first quarter EBITDA was positive at 853000.

Delta Group segment EBITDA for the first quarter was $3 5 million.

Just afraid that production curtailment strategic initiative cost impacts.

Also group segment EBITDA was $5 7 million.

Nancy P. Bubanich: Salt Life Group, Segment EBITDA with a loss of $1.6 million. Net income decreased to a loss of $8.5 million, or $1.22 per share, from a loss of $3.6 million, or $0.51 per share, in the prior year period. Projected for the production, curtailment, and strategic initiative cost impacts, the first quarter net loss was $6.6 million, or $0.94 per share. Net income for the quarter was also significantly impacted by the elevated interest rate environment, with our interest expense for the quarter increasing significantly over the prior year quarter. Net inventory as of December 30, 2023 was $196.3 million, a sequential decrease of almost $16 million or 8% from September 2023, and a year-over-year decrease of $62.5 million or 24% from December 2022. The inventory decrease was a result of our team's continuing excellent execution on an ongoing high-priority working capital efficiency initiative.

Salt Life Group segment EBITDA was a loss of one 6 million.

Net income decreased to a loss of eight 5 million or $1 22 per share from a loss of $3 6 million or <unk> 51 per share in the prior year period.

Yes.

Adjusted for the production curtailment and strategic initiative cost impacts first quarter net loss was $6 6 million or <unk> 94 per share.

Net income for the quarter was also significantly impacted by the elevated interest rate environment with our interest expense for the quarter, increasing significantly over the prior year quarter.

Net inventory as of December 32023, with $196 3 million sequential decrease of almost $16 million or 8% from September 2023.

The year over year decrease of $62 5 million or 24% from December 2022.

The inventory decrease this is a product of our team's continuing excellent execution ongoing high priority working capital efficiency initiatives.

Nancy P. Bubanich: The debt outstanding under our U.S. Revolving Credit Facility was $110.8 million at December 30, 2023, a reduction of $31.5 million from the prior year and $42.3 million from March 2023. Capital Lease Financing totaled $20.3 million at December 30, 2023, a decline of $6.8 million from December 2022 and $6.1 million from March 2023. Our other debt, which is secured by certain assets in Central America, totaled $13.7 million at December 2023, a decline of $2.4 million from December 2022 and $1.7 million from March 2023. Our total net debt, including capital lease financing and cash on hand, was $144.4 million at December 30, 2023.

The debt outstanding under our U S revolving credit facility with $110 8 million at December 32023, a reduction of $31 5 million from the prior year December and $42 3 million from March 2023.

Capital lease financing totaled $23 million at December 30, <unk> 2023, a decline of $6 8 million from December 2022, and $6 1 million for March 2023.

Our other debt, which is secured by certain assets in Central America totaled $13 7 million at December 2023, a decline of $2 4 million from December 2022, and $1 7 million from March 2023.

Our total net debt, including capital lease financing and cash on hand was $144 4 million at December 32023, and approximate 26% reduction from $194 3 million at March 2023.

Robert W. Humphreys: An approximate 26% reduction from $194.3 million in March 2023 and an approximate 22% reduction from $185.2 million in December 2022. Cash on hand and availability under a U.S. revolving credit facility totaled $7.4 million as of December 30, 2023, a decrease of $19.8 million from December 2022 and $6.8 million from September 2023, with the decrease from December 2022 principally driven by investments in the business to support working capital needs as well as higher interest expense. Capital spending was $300,000 during the quarter compared to $2.1 million during the prior year's first quarter.

<unk>, 22% reduction from $185 2 million at December 2022.

Cash on hand, and availability under our U S revolving credit facility totaled $7 4 million as of December 32023, a decrease of $19 8 million from December 2022, and $6 8 million from September 2023, with the decreased from December 2022.

Principally driven by investments in the business to support working capital needs as well as higher interest expense.

Capital spending was 300000 during the quarter compared to $2 1 million during the prior year first quarter now I will turn the call back over to Bob.

<unk>.

Thanks, Nancy following our execution on significant structural changes across our business in fiscal 2023 and to start fiscal 2024, we have made substantial progress in streamlining our organization and creating a more efficient operating platform concurrently we have made steady progress on work.

Operator: Now I'll turn the call back over to Bob. Thanks, Nancy. Following our execution of significant structural changes across our business in fiscal 2023 and to start fiscal 2024, we have made substantial progress in streamlining our organization and creating a more efficient operating platform. Concurrently, we have made steady progress on working capital and cost structure optimization and in reducing both our debt and inventory levels. That said, we know that we are facing an uncertain environment and will remain steadfast in our commitment to further streamline our operations, identify more efficiencies, and fully explore opportunities to unlock value across our strategic assets. Given the headwinds in our business, and particularly the limited access to capital that we currently have available to us, we believe we will need to obtain additional liquidity in the near term to fund our operations and meet the obligations specified in our U.S. credit agreement going forward

Capital and cost structure optimization, and then reducing both our debt and inventory levels.

We know that we are facing an uncertain environment and we will remain steadfast in our commitment to further streamline our operations identify more efficiencies and fully explore opportunities to unlock value across our strategic assets.

Given the headwinds in our business and particularly the limited access to capital that we currently have available to US. We believe we will need to obtain additional liquidity in the near term to fund our operations and meet the obligations specified in our U S credit agreement going forward.

We are currently exploring a variety of options towards that end. Please refer to the company's next quarterly report on Form 10-Q to be filed with the SEC for further details. We will continue to be laser focused on managing all operating aspects of our business segments with a focus on improving our liquidity position and investing in areas.

Operator: We are currently exploring a variety of options towards that end. Please refer to the company's next quarterly report on Form 10-Q, to be filed with the SEC, for further details. We will continue to be laser-focused on managing all operating aspects of our business segments with a focus on improving our liquidity position and investing in areas that position us to maximize value for our shareholders. And now, Operator, you can open up the call to any questions we may have. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Then, should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please leave the handset before pressing any key.

That positions us to maximize value for our shareholders and now operator, you can open up the call for any questions. We may have.

Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your telephone keypad.

Telecom acknowledging your request questions will be taken in the order received it should you wish to cancel your request. Please press the star followed with you if youre using a speaker phone. Please lift the handset before pressing any keys. Once again that is star and wanted to ask a question here.

Your first question comes from the line of Liana Telsey from Telsey Group. Please go ahead.

Hi, good afternoon, everyone.

Given the priority of debt pay down that is ongoing how are you thinking about the end of the second quarter and third quarter and are there any specific markers that we should be watching for as we move through this upcoming quarter and then I have a couple of follow ups. Thank you.

Operator: Once again, that is the star and one to ask a question. Your first question comes from Diana Telsey from the Telsey Group. Please go ahead. Hi. Good afternoon, everyone.

Dana I am not sure I understand your question are you talking about debt levels or yes debt levels mhm.

Dana Lauren Telsey: Given the priority of debt paydown that is ongoing, how are you thinking about the end of the second quarter and the third quarter? And are there any specific markers that we should be watching for as we move through this upcoming quarter? Then, I have a couple of follow-ups.

No.

Okay.

I think more to come on that as we just work through the options that are assessable to us and worked with our lenders and other sources of liquidity.

Robert W. Humphreys: Thank you. Dana, I'm not sure I understand your question, but are you talking about debt levels or not? Yes, debt levels. I think more to come on that as we just work through the options that are accessible to us and, you know, work with our lenders and other sources of liquidity. Got it. And then on the active wear business.

Got it and then on the Activewear business.

Where does the demand profile stand relative to maybe how it was three months ago or six months ago is it at all changing in terms of what youre seeing out of the industry and how does cotton prices impact.

Robert W. Humphreys: Where does the demand profile stand relative to maybe how it was three months ago or six months ago? Is it at all changing in terms of what you're seeing out of the industry? And how will cotton prices impact margins going forward? So I would say the basic demand for active wear is overall close to where it was a year ago, which was not overly strong. I think the channels of distribution have changed somewhat.

Margins go forward.

So I would say the basic demand inactive where is <unk>.

Overall close to where it was a year ago, which was not overly strong I think channels of distribution have changed somewhat you can see where <unk>.

Different types of retailers have reduced inventory in the order flow was more structured and ordinary.

Robert W. Humphreys: You can see where different types of retailers have reduced inventory, and the order flow is more structured and ordinary. On other channels of distribution, people are still dealing with heightened inventory. We see that more in our branded customers than mass market customers. And so, you know, we see that continuing. Cotton prices got back to what we considered a normalized range since their peak 18 months ago or so, and we have our forward commitments committed at what we consider market cotton positions. In the last maybe 60 days, cotton prices have appreciated again.

And other channels of distribution people are still do dealing with heightened inventory probably see that more in our branded customers then.

Mass market customers.

Sure.

And so we see that continuing.

Cotton prices.

Got back to what we considered a normalized.

Range.

Since their peak 18 months ago, or so and we have our forward commitments.

Committed at what we consider.

Sure.

Market market cotton positions.

In the last maybe 60 days cotton prices have appreciated again, and while they're not nearly to the levels. They were 18 months ago. They are up 12% to 15% from the lows that we saw.

Robert W. Humphreys: And while they're not nearly at the levels they were 18 months ago, they are up 12 to 15% from the lows that we saw, you know, just a couple of months ago. And then on salt life with the gross margin at 45.4%. You mentioned timing of inventory receipts. How do you think of that timing for this upcoming quarter and how are you thinking about the Salt Life business? Thank you. Yeah, Salt Life, you know, had some organic growth in the first quarter, so that was encouraging given market demand dynamics. We're seeing our retail stores have better results than most of what we see published out there in the communities that are following that will be up two or three percent, same store sales, you know, for a week or two, sometimes followed by down two or three percent.

Just a couple of months ago.

Got it and then on Salt life with the gross margin at.

At 45, 4% you mentioned timing of inventory receipts, how do you think of that timing in this upcoming quarter and how you're thinking about the salt life business. Thank you.

Yes, so salt life had some organic growth in the first quarter. So that was encouraging given market demand dynamics, we're seeing our retail stores.

Have better results than most of what we see published out there in the communities that are that are following that we will be up 2% to 3% same store sales.

For a week or two sometimes followed by down to a 3% somewhat timing with holidays.

Robert W. Humphreys: Somewhat timing with holidays and, you know, the stuff that we all know from following this. The way our accounting works on Salt Life procurement, there are costs allocated to inventory for merchandising and planning and distribution, and when those actually are receipted into our inventory, then we actually have a pick-up on earnings from having that product go through its cycle and back in. So it's a little bit more of an accounting timing situation, and inventory this quarter came in a little later than it did last quarter.

Stuff that we all know from following this.

The way our accounting works on Salt life procurement, there are cost allocated to inventory for our merchandising and planning and distribution and windows.

Actually our receded into.

Our inventory then we actually have a pick up.

On an earnings from having that product go through its cycle and backend. So it's a little bit more of an accounting.

<unk> situation in inventory.

This quarter came in a little lighter than it did last quarter. So that should reverse itself in our second quarter, where those inventories are receded into our ownership.

Robert W. Humphreys: So that should reverse itself in our second quarter, where those inventories are receded into our ownership. Got it. And then, just lastly, on the efficiencies that you've been talking about, that there could be more things that you look at, what's the scope of that? What could the magnitude be in terms of those efficiencies?

Got it and then just lastly on the efficiencies that you've been talking about that there could be more things that you will look at you look at what's the scope of that what could the magnitude D. In terms of those efficiencies.

Robert W. Humphreys: Well, uh... As we get to be a leaner operation, we'll have less employees, which we have already reduced a significant amount of employees. So I think quicker decision-making, less overhead, but we're really in the early throes of our next level of analysis on that compared to what we completed in our last fiscal year. [inaudible] Thank you. Best of luck. Thank you. Once again, if you have a question, please press star 10, the number 1 on your telephone. There are no further questions at this time. Okay. Well, thank you all very much for joining us today, and we'll look forward to another update in about three months. Thank you. Thank you, that does conclude our conference for today. Thank you all for participating. You may now disconnect.

Well.

As we get to be a leaner operation will have.

Less employees, which we have already reduced a significant amount of employees. So I think quicker decision, making less overhead.

We're really in the early.

Throws of our next level of analysis on that compared to what we completed in our last fiscal year. So more work to be done there, but we know we have to be a leaner more nimble company to continue to navigate in the marketplaces that we're currently participating in.

Thank you best of luck.

Okay.

Thank you once again, if you have a question. Please press Star then the number one on your telephone keypad.

Yes.

There are no further question at this time. Please proceed.

Okay, well. Thank you all very much for joining us today, and we will look forward to another update in about three months. Thank you.

Thank you that does conclude our conference for today. Thank you all for participating you may all disconnect.

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