Shares in Delta Apparel slumped after the company announced it would make a US$16m markdown of inventory in its fiscal second quarter.

The US company’s stock price dropped by more than 20% after the announcement, which Delta blamed on a combination of record high cotton prices and selling price discounts.

The action, it added, would only affect inventory of basic undecorated t-shirts, negatively impacting second quarter earnings by $1.20 per share.

Delta said its second quarter results would also be affected by lower sales volumes in branded products, caused by price increases to retailers leading to lower demand.

The company now expects second quarter revenue of about $105m, marginally up on last year, and a second quarter loss per share of $1.58-1.62, versus earnings per share of $0.16 a year ago.

“The company is taking the entire amount of the markdown in the second quarter to put it cleanly behind us, giving us the rest of the year to focus on our goals for 2012 and 2013,” said Robert Humphreys, Delta Apparel chairman and CEO.

“While we continue to view the volatile cotton market as a risk, we believe we have taken the appropriate action for the immediate term.

“We will continue to work on ways to leverage our costs and adjust our price structure to best benefit the company in the long term.”

Delta Apparel now expects fiscal 2012 revenue to be in the $480-500m range, with earnings per share of $0.50-0.60.