[PART I. Financial Information](index=4&type=section&id=PART%20I.%20Financial%20Information) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the first fiscal quarter [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements and detailed notes for the quarter ended December 29, 2018 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Provides a snapshot of the company's financial position, including assets, liabilities, and equity, at specific dates Condensed Consolidated Balance Sheets (Amounts in thousands) | Item | December 29, 2018 | September 29, 2018 | | :-------------------------------- | :------------------ | :------------------- | | Cash and cash equivalents | $558 | $460 | | Accounts receivable, net | $52,952 | $46,537 | | Inventories, net | $187,653 | $174,983 | | Total current assets | $248,738 | $225,422 | | Total assets | $377,329 | $343,609 | | Accounts payable | $62,184 | $48,008 | | Accrued liabilities | $18,811 | $16,742 | | Total current liabilities | $94,915 | $75,811 | | Total liabilities | $231,974 | $193,491 | | Total equity | $145,355 | $150,118 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Details the company's revenues, expenses, and net loss for the three-month periods Condensed Consolidated Statements of Operations (Amounts in thousands, except per share data) | Item | Three Months Ended December 29, 2018 | Three Months Ended December 30, 2017 | | :-------------------------------------------------- | :----------------------------------- | :----------------------------------- | | Net sales | $101,675 | $90,342 | | Cost of goods sold | $83,105 | $73,972 | | Gross profit | $18,570 | $16,370 | | Selling, general and administrative expenses | $16,784 | $14,979 | | Other expense (income), net | $1,745 | $(347) | | Operating income | $41 | $1,738 | | Interest expense, net | $1,765 | $1,334 | | (Loss) income before (benefit from) provision for income taxes | $(1,724) | $404 | | (Benefit from) provision for income taxes | $(499) | $10,356 | | Consolidated net loss | $(1,225) | $(9,952) | | Net loss attributable to shareholders | $(1,149) | $(9,952) | | Basic loss per share | $(0.17) | $(1.37) | | Diluted loss per share | $(0.17) | $(1.37) | [Condensed Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Presents the net loss and other comprehensive income/loss components for the reporting periods Condensed Consolidated Statements of Comprehensive Loss (Amounts in thousands) | Item | Three Months Ended December 29, 2018 | Three Months Ended December 30, 2017 | | :-------------------------------------------------------------------------------- | :----------------------------------- | :----------------------------------- | | Net loss attributable to shareholders | $(1,149) | $(9,952) | | Other comprehensive (loss) income related to unrealized (loss) gain on derivatives, net of income tax | $(373) | $85 | | Consolidated comprehensive loss | $(1,522) | $(9,867) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Amounts in thousands) | Item | Three Months Ended December 29, 2018 | Three Months Ended December 30, 2017 | | :-------------------------------------- | :----------------------------------- | :----------------------------------- | | Net cash used in operating activities | $(3,966) | $(7,814) | | Net cash used in investing activities | $(2,989) | $(1,161) | | Net cash provided by financing activities | $7,053 | $9,006 | | Net increase in cash and cash equivalents | $98 | $31 | | Cash and cash equivalents at end of period | $558 | $603 | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note A—Basis of Presentation and Description of Business](index=9&type=section&id=Note%20A%E2%80%94Basis%20of%20Presentation%20and%20Description%20of%20Business) Explains the financial statement preparation basis, business operations, and recent acquisition details - The interim Condensed Consolidated Financial Statements are prepared in accordance with Form 10-Q and Article 10 of Regulation S-X, including all normal recurring adjustments[26](index=26&type=chunk) - Operating results for the three-month period ended December 29, 2018, are not necessarily indicative of the full fiscal year ending September 28, 2019, due to **seasonality** (December quarter typically lowest sales)[26](index=26&type=chunk) - Delta Apparel, Inc. is an international apparel design, marketing, manufacturing, and sourcing company with a diverse portfolio of activewear and lifestyle apparel[26](index=26&type=chunk) - It operates as a vertically-integrated manufacturer with operations in the US, El Salvador, Honduras, and Mexico[26](index=26&type=chunk) - On October 8, 2018, the company acquired substantially all assets of Silk Screen Ink, Ltd. d/b/a SSI Digital Print Services, which is integrated into the Delta Group[26](index=26&type=chunk) [Note B—Accounting Policies](index=9&type=section&id=Note%20B%E2%80%94Accounting%20Policies) Confirms consistency of accounting policies with the prior annual report - The company's accounting policies are consistent with those described in its Annual Report on Form 10-K for the fiscal year ended September 29, 2018[27](index=27&type=chunk) [Note C—New Accounting Standards](index=9&type=section&id=Note%20C%E2%80%94New%20Accounting%20Standards) Discusses the adoption and impact of new accounting standards, particularly revenue recognition - The company adopted ASU No. 2014-09, 'Revenue from Contracts with Customers,' using the modified retrospective transition method, effective September 30, 2018[28](index=28&type=chunk) - This changed the presentation of sales returns reserves, estimated chargebacks, and markdowns to accrued liabilities, and associated inventory costs to other current assets[28](index=28&type=chunk) Net Sales by Distribution Channel (in thousands) | Channel | December 29, 2018 ($) | December 29, 2018 (%) | December 30, 2017 ($) | December 30, 2017 (%) | | :-------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Retail | $1,012 | 1% | $884 | 1% | | Ecommerce | $6,826 | 7% | $5,450 | 6% | | Wholesale | $93,837 | 92% | $84,008 | 93% | | Net Sales | $101,675 | 100% | $90,342 | 100% | Effect of ASU 2014-09 Adoption on Balance Sheet (as of December 29, 2018, in thousands) | Item | As Reported | Effect of Standard | Balances without Adoption | | :---------------------------------- | :---------- | :----------------- | :------------------------ | | Accounts receivable, net | $52,952 | $(1,119) | $51,833 | | Prepaid expenses and other current assets | $3,602 | $(160) | $3,442 | | Total Current Assets | $248,738 | $(1,279) | $247,459 | | Total assets | $377,329 | $(1,279) | $376,050 | | Accrued liabilities | $18,811 | $(1,500) | $17,311 | | Total current liabilities | $94,915 | $(1,500) | $93,415 | | Total liabilities | $231,974 | $(1,500) | $230,474 | | Total liabilities and equity | $377,329 | $(1,500) | $375,829 | - The company adopted ASU No. 2016-15, 'Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments,' effective September 30, 2018, with **no impact** on current or prior period cash flows[31](index=31&type=chunk) - The company is evaluating the effects of ASU No. 2017-12 (Hedging), ASU No. 2016-02 (Leases), and ASU 2017-04 (Goodwill Impairment), which will be effective in fiscal years beginning September 29, 2019, and October 4, 2020, respectively[32](index=32&type=chunk) [Note D—Acquisitions](index=11&type=section&id=Note%20D%E2%80%94Acquisitions) Details the acquisition of SSI Digital Print Services, including consideration and initial asset allocation - On October 8, 2018, DTG2Go, LLC acquired substantially all assets of SSI Digital Print Services, a direct-to-garment digital printed products provider, for a total consideration of **$12.529 million**[34](index=34&type=chunk)[35](index=35&type=chunk) SSI Acquisition Consideration Paid (in thousands) | Item | Amount | | :-------------------------------- | :------- | | Cash | $2,000 | | Promissory note | $7,000 | | Capital lease financing | $3,000 | | Provisional working capital adjustment | $529 | | Total consideration | $12,529 | - The initial allocation of consideration included **$3.380 million in goodwill** and **$4.020 million in intangible assets** (subject to final valuation)[34](index=34&type=chunk)[35](index=35&type=chunk) [Note E—Inventories](index=12&type=section&id=Note%20E%E2%80%94Inventories) Provides a breakdown of inventory components and reserves at period-end Inventories, net (in thousands) | Item | December 29, 2018 | September 29, 2018 | | :---------------- | :------------------ | :------------------- | | Raw materials | $13,707 | $9,641 | | Work in process | $14,945 | $18,327 | | Finished goods | $159,001 | $147,015 | | Total Inventories | $187,653 | $174,983 | | Reserves | $10,900 | $10,500 | [Note F—Debt](index=12&type=section&id=Note%20F%E2%80%94Debt) Outlines the company's credit facilities, outstanding balances, and promissory notes - The company operates under a Fifth Amended and Restated Credit Agreement with Wells Fargo Bank, allowing borrowing up to **$145 million** (subject to borrowing base limitations) and maturing on May 10, 2021[42](index=42&type=chunk) - As of December 29, 2018, **$99.0 million was outstanding** under the U.S. revolving credit facility at an average interest rate of **4.8%**, with **$27.3 million** additional borrowing availability[42](index=42&type=chunk) - The Third Amendment (October 8, 2018) consented to the SSI acquisition, added a first-in last-out (FILO) borrowing component, and addressed LIBOR rate discontinuance[41](index=41&type=chunk) - The company has promissory notes related to the Salt Life acquisition (discounted value **$1.7 million** as of Dec 29, 2018) and the SSI acquisition (**$7.0 million** principal amount, 6% interest)[43](index=43&type=chunk)[45](index=45&type=chunk) Honduran Loans Outstanding (in thousands) as of December 29, 2018 | Loan Type | Amount | | :-------------------------------------------------------------------------------- | :------- | | Revolving credit facility (7.5% interest, expiring August 2020) | $5,000 | | Term loan (November 2014, 6.0% interest, six-year term) | $1,250 | | Term loan (June 2016, 6.0% interest, six-year term) | $995 | | Term loan (October 2017, 6.0% interest, six-year term) | $2,752 | [Note G—Selling, General and Administrative Expense](index=15&type=section&id=Note%20G%E2%80%94Selling%2C%20General%20and%20Administrative%20Expense) Details the components and changes in selling, general, and administrative expenses - SG&A expenses include distribution costs, sales and administrative personnel costs, and advertising/marketing[46](index=46&type=chunk) - Distribution costs were **$4.2 million** for the three months ended December 29, 2018, up from **$3.9 million** in the prior year period[46](index=46&type=chunk) [Note H—Stock-Based Compensation](index=15&type=section&id=Note%20H%E2%80%94Stock-Based%20Compensation) Reports stock-based compensation expense and unrecognized costs related to unvested awards - Stock-based compensation expense recognized was **$0.6 million** for the three months ended December 29, 2018, compared to **$0.5 million** in the prior year period[47](index=47&type=chunk) - Under the 2010 Stock Plan, **205,000 restricted stock units** and **42,000 performance units** vested and were issued as common stock during the quarter ended December 29, 2018[48](index=48&type=chunk) - As of December 29, 2018, total unrecognized compensation cost related to unvested awards was **$2.6 million**, expected to be recognized over **2.0 years**[49](index=49&type=chunk) [Note I—Purchase Contracts](index=16&type=section&id=Note%20I%E2%80%94Purchase%20Contracts) Lists minimum payment obligations under various purchase contracts Minimum Payments Under Purchase Contracts (in thousands) as of December 29, 2018 | Item | Amount | | :---------------- | :------- | | Yarn | $39,041 | | Finished fabric | $2,872 | | Finished products | $19,770 | | Total | $61,683 | [Note J—Business Segments](index=16&type=section&id=Note%20J%E2%80%94Business%20Segments) Describes the company's operating segments and their respective financial performance - The company operates in two reportable segments: the Delta Group (Delta Activewear, DTG2Go, Soffe) and the Salt Life Group (Salt Life, Coast)[51](index=51&type=chunk) - The Delta Group focuses on core activewear, manufacturing unembellished knit apparel and providing digital print services[53](index=53&type=chunk) - The Salt Life Group focuses on lifestyle brands, offering apparel, headwear, and accessories[54](index=54&type=chunk) Segment Net Sales and Operating Income (in thousands) | Segment | Three Months Ended December 29, 2018 (Net Sales) | Three Months Ended December 30, 2017 (Net Sales) | Three Months Ended December 29, 2018 (Operating Income) | Three Months Ended December 30, 2017 (Operating Income) | | :---------------- | :----------------------------------------------- | :----------------------------------------------- | :------------------------------------------------------ | :------------------------------------------------------ | | Delta Group | $94,391 | $83,924 | $2,779 | $4,424 | | Salt Life Group | $7,284 | $6,418 | $277 | $223 | | Total | $101,675 | $90,342 | $3,056 | $4,647 | - Delta Group operating income for Q1 FY2019 included **$2.5 million litigation expense**[55](index=55&type=chunk) - Excluding this, operating income would have been **$5.279 million**[55](index=55&type=chunk) - Delta Group segment assets increased by **$29.4 million** to **$313.2 million** due to the SSI acquisition, seasonal inventory build, and higher raw material costs[55](index=55&type=chunk) - Salt Life Group segment assets increased by **$4.3 million** to **$59.3 million** due to higher inventory[55](index=55&type=chunk) [Note K—Income Taxes](index=17&type=section&id=Note%20K%E2%80%94Income%20Taxes) Discusses the effective income tax rate and the impact of tax legislation - The effective income tax rate for the three months ended December 29, 2018, was a **benefit of 28.9%**[57](index=57&type=chunk)[88](index=88&type=chunk) - This compares to a benefit of **46.4%** for the prior year period (excluding the $10.6 million provision related to the New Tax Legislation)[57](index=57&type=chunk)[88](index=88&type=chunk) - The company's estimated annual income tax rate for fiscal year 2019 is expected to be approximately **14%-16%**, benefiting from income in foreign jurisdictions with lower tax rates[57](index=57&type=chunk)[88](index=88&type=chunk) - The transition tax related to the Tax Cuts and Jobs Act of 2017, initially estimated at **$10.6 million** and later adjusted to **$10.7 million**, is no longer considered provisional and will be paid over eight years[57](index=57&type=chunk) [Note L—Derivatives and Fair Value Measurements](index=18&type=section&id=Note%20L%E2%80%94Derivatives%20and%20Fair%20Value%20Measurements) Explains the use of derivatives for hedging and fair value measurements of financial instruments - The company uses interest rate swaps as cash flow hedges to manage interest rate exposure, with gains and losses reported in other comprehensive income[58](index=58&type=chunk) Outstanding Interest Rate Swaps as of December 29, 2018 | Effective Date | Amount | Rate | Maturity Date | | :--------------- | :------------- | :----- | :------------ | | July 19, 2017 | $10.0 million | 1.74% | July 19, 2019 | | July 19, 2017 | $10.0 million | 1.99% | May 10, 2021 | | July 25, 2018 | $20.0 million | 3.18% | July 25, 2023 | - Cotton option contracts are used to economically hedge market fluctuations in cotton costs, with realized and unrealized gains/losses recorded in cost of goods sold[58](index=58&type=chunk) Financial Assets (Liabilities) Measured at Fair Value (in thousands) | Item | Period Ended | Total Fair Value | Level 1 | Level 2 | Level 3 | | :----------------------- | :----------- | :--------------- | :------ | :------ | :------ | | Interest Rate Swaps | Dec 29, 2018 | $(315) | — | $(315) | — | | | Sep 29, 2018 | $183 | — | $183 | — | | Cotton Options | Dec 29, 2018 | $(190) | $(190) | — | — | | | Sep 29, 2018 | $(110) | $(110) | — | — | | Contingent Consideration | Dec 29, 2018 | $(10,282) | — | — | $(10,282) | | | Sep 29, 2018 | $(10,542) | — | — | $(10,542) | - Contingent consideration for the Salt Life acquisition decreased by **$0.5 million** to **$0.8 million** due to decreased sales expectations for calendar year 2019[61](index=61&type=chunk) - Contingent consideration for the DTG2Go acquisition increased by **$0.3 million** to **$9.5 million**[61](index=61&type=chunk) [Note M—Legal Proceedings](index=20&type=section&id=Note%20M%E2%80%94Legal%20Proceedings) Details significant legal settlements and their financial impact - Soffe settled litigation related to The Sports Authority's 2016 bankruptcy, agreeing to pay approximately **$2.5 million**[65](index=65&type=chunk)[67](index=67&type=chunk) - This expense was recorded in other expense, net, for the three-month period ended December 29, 2018[65](index=65&type=chunk)[67](index=67&type=chunk) [Note N—Repurchase of Common Stock](index=22&type=section&id=Note%20N%E2%80%94Repurchase%20of%20Common%20Stock) Reports on common stock repurchases and remaining authorization under the program - During the December quarter of fiscal year 2019, the company repurchased **92,148 shares** of common stock for a total cost of **$1.7 million**[68](index=68&type=chunk) - As of December 29, 2018, **$10.6 million** remained available for future purchases under the Stock Repurchase Program, which has no expiration date[68](index=68&type=chunk) Common Stock Repurchases for Quarter Ended December 29, 2018 | Period | Total Number of Shares Purchased | Average Price Paid per Share | Dollar Value of Shares that May Yet Be Purchased Under the Plans | | :--------------------------------- | :------------------------------- | :--------------------------- | :--------------------------------------------------------------- | | September 30, 2018 to November 3, 2018 | 48,749 | $18.24 | $11.4 million | | November 4, 2018 to December 1, 2018 | 21,600 | $18.89 | $11.0 million | | December 2, 2018 to December 29, 2018 | 21,799 | $18.99 | $10.6 million | | Total | 92,148 | $18.57 | $10.6 million | [Note O—Goodwill and Intangible Assets](index=22&type=section&id=Note%20O%E2%80%94Goodwill%20and%20Intangible%20Assets) Provides a breakdown of goodwill and other intangible assets, including amortization expense Components of Intangible Assets (in thousands) | Item | Cost (Dec 29, 2018) | Accumulated Amortization (Dec 29, 2018) | Net Value (Dec 29, 2018) | Cost (Sep 29, 2018) | Accumulated Amortization (Sep 29, 2018) | Net Value (Sep 29, 2018) | Economic Life | | :----------------------- | :------------------ | :-------------------------------------- | :----------------------- | :------------------ | :-------------------------------------- | :----------------------- | :-------------- | | Goodwill | $36,597 | — | $36,597 | $33,217 | — | $33,217 | N/A | | Tradename/trademarks | $16,090 | $(2,871) | $13,219 | $16,090 | $(2,736) | $13,354 | 20 – 30 yrs | | Customer relationships | $8,500 | $(476) | $8,024 | $4,500 | $(253) | $4,247 | 8 – 10 yrs | | Technology | $1,720 | $(1,150) | $570 | $1,720 | $(1,105) | $615 | 10 yrs | | License agreements | $2,100 | $(552) | $1,548 | $2,100 | $(527) | $1,573 | 15 – 30 yrs | | Non-compete agreements | $1,657 | $(990) | $667 | $1,637 | $(928) | $709 | 4 – 8.5 yrs | | Total intangibles | $30,067 | $(6,039) | $24,028 | $26,047 | $(5,549) | $20,498 | | - Goodwill increased to **$36.6 million** (Delta Group **$16.7 million**, Salt Life Group **$19.9 million**) as of December 29, 2018, primarily due to the SSI acquisition (**$3.4 million** provisionally valued goodwill)[69](index=69&type=chunk) - Amortization expense for intangible assets was **$0.5 million** for the three months ended December 29, 2018, and is estimated to be approximately **$2.0 million** for fiscal year 2019[69](index=69&type=chunk) [Note P—Subsequent Events](index=23&type=section&id=Note%20P%E2%80%94Subsequent%20Events) Confirms the absence of any material subsequent events to report - There were no subsequent events to report[71](index=71&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's analysis of financial performance, condition, business outlook, liquidity, and critical accounting policies for Q1 FY2019 [Cautionary Note Regarding Forward-Looking Statements](index=23&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) Warns that forward-looking statements are subject to risks and uncertainties that may cause actual results to differ - The company's forward-looking statements are subject to business risks and uncertainties that could cause actual results to differ materially, including volatility in raw material prices, economic conditions, competition, and ability to predict consumer trends[72](index=72&type=chunk) [Business Outlook](index=23&type=section&id=Business%20Outlook) Provides management's expectations for future performance, growth strategies, and market opportunities across segments - The company started the fiscal year strong with **double-digit sales growth** in both Delta Group and Salt Life Group segments and is optimistic about continued growth[75](index=75&type=chunk) - The digital print business (DTG2Go) continues accelerated growth, with plans for further geographic expansion and international shipping capabilities, viewing digital printing as a significant global opportunity[76](index=76&type=chunk) - Salt Life business is delivering **double-digit growth**, driven by performance products and expansion into national/regional retailers, with plans to open new branded retail stores and invest in e-commerce[77](index=77&type=chunk) - Delta Activewear is gaining market share, with expectations for growth in more profitable fashion basics and record manufacturing output from the FunTees private label business in the latter part of the year[78](index=78&type=chunk) - Soffe brand saw **double-digit sales growth** in core athletic wear across main channels, despite declines in the military channel, and is focusing on cost structure enhancements[79](index=79&type=chunk) - For the full fiscal year, the company anticipates broad-based sales growth and profitability gains, leveraging investments in technology, go-to-market strategies, and brand expansion[80](index=80&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Analyzes key financial metrics and performance drivers for the reporting period, highlighting significant changes Key Financial Performance (Q1 FY2019 vs Q1 FY2018) | Metric | Q1 FY2019 (Dec 29, 2018) | Q1 FY2018 (Dec 30, 2017) | Change (YoY) | | :-------------------------------- | :----------------------- | :----------------------- | :----------- | | Net Sales | $101.7 million | $90.3 million | +13% | | Gross Margins | 18.3% | 18.1% | +20 bps | | SG&A Expenses (% of sales) | 16.5% | 16.6% | -10 bps | | Other expense (income), net | $1.7 million (expense) | $0.3 million (income) | Significant change due to $2.5M litigation expense | | Net Interest Expense | $1.8 million | $1.3 million | +$0.5 million | | Effective Tax Rate | 28.9% benefit | 46.4% benefit (excl. New Tax Legislation) | | | Consolidated Net Loss | $(1.1) million | $(10.0) million | Reduced loss | | Diluted Loss Per Share | $(0.17) | $(1.37) | Reduced loss | | Accounts Receivable | $56.9 million | $51.0 million | +$5.9 million | | Days Sales Outstanding (DSO) | 45 days | N/A | Improved from 48 days (Sep 29, 2018) | | Net Inventory | $187.7 million | N/A | +$12.7 million from Sep 29, 2018 | | Capital Spending | $1.0 million | $2.2 million | -$1.2 million | | Total Debt (excl. capital leases) | $117.5 million | $106.0 million | +$11.5 million | - Direct-to-consumer retail and e-commerce sales increased **70 basis points**, representing **7.7% of total revenues**, driven by growth in consumer e-commerce sites and Salt Life retail stores[82](index=82&type=chunk) - The net loss for the quarter was significantly impacted by a **$2.5 million expense** from the Sports Authority bankruptcy litigation settlement[86](index=86&type=chunk)[88](index=88&type=chunk) - Adjusting for this, net income was approximately **$0.14 per diluted share**, a **75% increase** over the prior year's adjusted net income[86](index=86&type=chunk)[88](index=88&type=chunk) [Salt Life Group Segment](index=26&type=section&id=Salt%20Life%20Group%20Segment) Reviews the financial performance and growth drivers of the Salt Life Group segment Salt Life Group Segment Performance (Q1 FY2019 vs Q1 FY2018) | Metric | Q1 FY2019 (Dec 29, 2018) | Q1 FY2018 (Dec 30, 2017) | Change (YoY) | | :---------------- | :----------------------- | :----------------------- | :----------- | | Revenue | $7.3 million | $6.4 million | +13.5% | | Gross Margins | 49.0% | 47.2% | +180 bps | | Operating Income | $0.3 million | $0.2 million | +$0.1 million | - Revenue growth was driven by **double-digit increases** in direct-to-consumer sales and growth in national retailers[93](index=93&type=chunk) [Delta Group Segment](index=26&type=section&id=Delta%20Group%20Segment) Examines the financial performance and key initiatives of the Delta Group segment Delta Group Segment Performance (Q1 FY2019 vs Q1 FY2018) | Metric | Q1 FY2019 (Dec 29, 2018) | Q1 FY2018 (Dec 30, 2017) | Change (YoY) | | :---------------- | :----------------------- | :----------------------- | :----------- | | Net Sales | $94.4 million | $83.9 million | +12.5% | | Gross Margins | 15.9% | 15.9% | Flat | | Operating Income | $2.8 million | $4.4 million | -$1.6 million (due to litigation expense) | - The integrated DTG2Go business more than doubled its sales with **250% growth**[94](index=94&type=chunk) - Activewear sales declined about **8%**, offset by strong growth in higher-margin fashion basics and nearly **30% growth** in Activewear's B2B e-commerce site[94](index=94&type=chunk) - Soffe sales were down **$0.2 million** due to lower military sales, despite **double-digit growth** in strategic sporting goods, specialty retailers, and department stores[94](index=94&type=chunk) - Excluding the **$2.5 million litigation expense**, Delta Group operating income improved by **$0.8 million** over the prior year[95](index=95&type=chunk) [Non-GAAP Financial Measures](index=26&type=section&id=Non-GAAP%20Financial%20Measures) Explains the use and limitations of non-GAAP financial measures for performance evaluation - The company provides non-GAAP financial measures, such as adjusted income and earnings per diluted share, to offer additional information for investors and to evaluate underlying performance consistently across periods, acknowledging their limitations as analytical tools[96](index=96&type=chunk)[98](index=98&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses the company's cash needs, sources of funds, and capital allocation strategies - Primary cash needs include working capital, capital expenditures, debt service, and share repurchases[99](index=99&type=chunk) - Operating activities used **$4.0 million cash** in Q1 FY2019, a decrease from **$7.8 million** in Q1 FY2018, primarily due to higher customer collections and favorable timing of supplier payments[100](index=100&type=chunk) - Capital expenditures were **$1.0 million** in Q1 FY2019, mainly for machinery, equipment, and IT enhancements[101](index=101&type=chunk) - Fiscal year 2019 capital expenditures are anticipated to be approximately **$15 million**, focused on digital print equipment and direct-to-consumer enhancements[101](index=101&type=chunk) - Cash provided by financing activities was **$7.1 million** in Q1 FY2019, used to fund the SSI acquisition, operating activities, and share repurchases[102](index=102&type=chunk) - The company believes its credit facility, cash flow from operations, and available funds are sufficient for foreseeable working capital needs, debt service, and planned capital expenditures, but notes that significant deterioration in results could impact borrowing ability[102](index=102&type=chunk) - During Q1 FY2019, the company repurchased **92,148 shares** of common stock for **$1.7 million**, with **$10.6 million** remaining under the Stock Repurchase Program[103](index=103&type=chunk) [Critical Accounting Policies](index=28&type=section&id=Critical%20Accounting%20Policies) Identifies accounting policies requiring significant estimates and judgments, noting any changes - The preparation of financial statements requires estimates and judgments, particularly for revenue recognition, accounts receivable and inventory reserves, goodwill carrying value, and income taxes[104](index=104&type=chunk)[106](index=106&type=chunk) - There have been no changes in critical accounting policies since the last Annual Report on Form 10-K, except for the adoption of the new revenue recognition standard (Note C)[106](index=106&type=chunk) [Environmental and Regulatory Matters](index=30&type=section&id=Environmental%20and%20Regulatory%20Matters) Addresses compliance with environmental regulations and their potential financial impact - The company is subject to various federal, state, and local environmental laws and regulations, incurring capital and other expenditures for compliance[107](index=107&type=chunk) - Currently, these expenditures are not expected to have a material adverse effect on operations, financial condition, or liquidity[107](index=107&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Reports on the effectiveness of disclosure controls and any changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=30&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Confirms management's assessment of the effectiveness of disclosure controls and procedures - Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of December 29, 2018, and concluded they were **effective**[108](index=108&type=chunk) [Changes in Internal Control Over Financial Reporting](index=30&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) States whether any material changes occurred in internal control over financial reporting - There was no change during the first quarter of fiscal year 2019 that materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting[108](index=108&type=chunk) [PART II. OTHER INFORMATION](index=30&type=section&id=PART%20II.%20OTHER%20INFORMATION) Contains additional required disclosures not covered in the financial information section [Item 1. Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) Refers to the detailed discussion of legal proceedings found in the financial statement notes - Legal proceedings information is incorporated by reference from Note M—Legal Proceedings in Item 1[109](index=109&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Refers to information on common stock repurchases and related debt disclosures - Information on repurchases of common stock is incorporated by reference from Note N—Repurchase of Common Stock and Note F—Debt in Item 1[109](index=109&type=chunk) [Item 5. Other Information](index=30&type=section&id=Item%205.%20Other%20Information) Confirms that no additional information is reported in this section - No other information is reported in this section[109](index=109&type=chunk) [Item 6. Exhibits](index=30&type=section&id=Item%206.%20Exhibits) Lists all documents filed as exhibits to the Form 10-Q, including certifications - Exhibits include certifications from the CEO and CFO (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act) and various XBRL taxonomy extension documents[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk) [Signatures](index=31&type=section&id=Signatures) Provides the required executive signatures for the Form 10-Q filing - The report is signed by Deborah H. Merrill, Chief Financial Officer and President, Delta Group, on behalf of Delta Apparel, Inc. on February 4, 2019[112](index=112&type=chunk)[113](index=113&type=chunk)