Delta Apparel, Inc. reported net sales rose 11.6% to $60.6 million for the fiscal first quarter ended October 1, compared to $54.3 million in the prior year's first quarter. The increase was driven by the inclusion of Junkfood Clothing, which was acquired on August 22,as well as by increased sales in all key product areas at Soffe.

Gross margins improved 950 basis points to 30.9% compared to 21.3% in the prior year first quarter. First quarter operating income increased 400 basis points to $6.0 million compared to $3.1 million in the prior year.

Net income for the first quarter was $3.4 million, or 40 cents per basic share, compared to $1.4 million, or 17 cents per basic share in the prior year period. This is a one cent improvement over the Company's previously announced basic earnings per share expectation of 36 cents to 39 cents.

Robert W. Humphreys, President and CEO, commented, “Our business is off to a great start for the fiscal year and we are very pleased to have achieved record sales, increased margins, and record earnings in our first quarter. We achieved significant margin improvements in our core Delta Apparel business, our Soffe business grew as retail orders remained solid in each of our key product categories, and demand remained strong for the Junkfood product offering.”

Mr. Humphreys continued, “As we continue to grow our organization, we are working to enhance our operational infrastructure, expand our customer base, and increase sales and profits. We are in the process of consolidating our West Coast distribution center and believe the integration of our Delta and Soffe distribution facilities into one larger location will better serve our customers. This move will expand our Activewear Apparel capacity which should lower our stock outages and enhance sales in the West Coast region. The development of our expanded spring product line in our Retail-Ready businesses remains on track and should provide us with additional sales opportunities in the months ahead.”

Activewear Apparel

This segment, which includes the core Delta Apparel business, reported sales of $29.6 million for the three months ended October 1, 2005 compared to $33.0 million in the prior year quarter. Operating income for the first quarter of 2006 increased to $2.0 million compared to $9 thousand in the prior year, primarily related to less expensive raw materials and lower manufacturing costs flowing through cost of sales, partially offset by higher selling, general and administrative costs. Selling, general and administrative expenses increased compared to the prior year due to higher distribution costs associated with the addition of the New Jersey distribution center that opened in last year's third quarter, higher management incentive costs associated with the improved operating results, and the expensing of stock options.

Retail-Ready Apparel

This segment, which includes the Soffe and Junkfood businesses, reported a sales increase of 45.4% to $31.0 million for the first quarter of fiscal year 2006 compared to $21.3 million in the prior year. The first quarter of fiscal year 2006 included six weeks of operations from Junkfood Clothing Company, that was acquired on August 22, 2005. Operating income for the first quarter increased 24.4% to $3.9 million compared to $3.1 million in the prior year.

The Company acquired substantially all of the assets of Liquid Blaino Designs, Inc. d/b/a Junkfood Clothing on August 22, 2005. The purchase price for the transaction consisted of $24.3 million of cash, a $2.5 million seller promissory note, and contingent payments with respect to each of the four fiscal years following closing, payable if certain performance targets are met. Based upon a preliminary allocation of the purchase price, the Company has $19.7 million of goodwill and other intangibles on its balance sheet associated with the acquisition of Junkfood Clothing Company.

Fiscal 2006 Guidance

For the second fiscal quarter ended December 31, 2005, the Company expects sales to be in the range of $54 to $58 million and basic earnings to be in the range of 26 cents to 30 cents per share. This compares to the prior year second fiscal quarter actual sales of $49.2 million and basic earnings of 14 cents per share. Based on the first quarter results, the Company is increasing its earnings expectations for the 2006 fiscal year. For the twelve months ended July 1, 2006, the Company continues to expect sales to be in the range of $265 to $275 million, and is increasing its expectation of basic earnings to the range of $1.71 to $1.80 per share. This is a four cent per share increase from the previously announced fiscal 2006 guidance of basic earnings of $1.67 to $1.76 per share issued on August 23, 2005. When comparing fiscal 2006 estimates to fiscal 2005 results, the following chart highlights the Company's fiscal year 2005 basic earnings per share, adjusted for the impact of the sale of its Edgefield, South Carolina yarn spinning facility and adjusted for the reversal of the tax liability associated with the Company's decision to permanently reinvest its foreign earnings in Honduras. 

Actual FY05 Basic Earnings Per Share              $1.35
Sale of Edgefield Plant                           (0.26)
Reversal of Foreign Earnings Tax Liability        (0.08)
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Adjusted FY05 Basic Earnings per Share            $1.01

Mr. Humphreys concluded, “We are encouraged by the strength of our business and are pleased to be increasing our earnings guidance for fiscal year 2006. The Activewear Apparel segment is meeting our expectations and we are taking steps in our distribution network to grow the sales in this segment in the second half of the year. Our Retail-Ready segment is enjoying strong demand in the Soffe and Junkfood businesses. We continue with our cost savings initiatives across the entire Company and expect these savings to positively impact our results in the second half of the year.”

Dividend Payment

The Board of Directors declared a dividend of four cents per common share of stock payable on November 28, 2005 to shareholders of record as of the close of business on November 16, 2005. This dividend was declared pursuant to the Company's previously announced quarterly dividend program, which the Company may amend or terminate at any time.