• Earnings tumbled 43.2% to US$2.5m in the third quarter
  • Net sales dropped 7.5% to $111.5m without Kentucky Derby license
  • Manufacturing efficiencies helped expand gross margin to 22.4%

Delta Apparel says it completed a "solid" third-quarter, despite recording declines in both earnings and sales due to continued weakness in the retail environment and the absence of a key license.

The US clothing business saw earnings tumble 43.2% to US$2.5m in the three months ended 2 July, from $120.5m in the year ago period. It also incurred a pre-tax charge of $1.6m in the quarter related to manufacturing realignment, and $2m in manufacturing efficiencies. 

Gross margin expanded 150 basis points to 22.4% thanks to a stronger product mix and continued manufacturing efficiencies. Net sales dropped 7.5% to $111.5m, negatively impacted by the weak retail environment and the absence of the Kentucky Derby license, which the company didn't renew. 

"Delta Apparel has completed yet another quarter of solid profitability despite persistent softness in the retail apparel marketplace," says CEO Robert Humphreys. "Our intense focus on efficiency, cost savings and bottom-line growth that began nearly two years ago with various strategic initiatives has positioned us to compete from a position of strength even when the marketplace is weak.  

"Our continued focus on those areas has resulted in a rigorous manufacturing realignment that is expected to significantly reset our manufacturing cost structure and carry an annual savings of approximately $8m, or $0.70 per diluted share, beginning in the first half fiscal 2017 and becoming fully annualised by our 2017 fiscal year-end."

To facilitate the realignment, Delta is expanding its Honduran textile and sewing operations and has consolidated its sewing facilities in Mexico. In July, the company closed its domestic textile operation in Maiden, North Carolina and is currently in negotiations to sell the real estate and certain equipment.