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Edited Transcript of DLA earnings conference call or presentation 4-Feb-19 9:30pm GMT

Q1 2019 Delta Apparel Inc Earnings Call

GREENVILLE Feb 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Delta Apparel Inc earnings conference call or presentation Monday, February 4, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Deborah H. Merrill

Delta Apparel, Inc. - CFO, VP & Treasurer

* Robert W. Humphreys

Delta Apparel, Inc. - Chairman & CEO

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Conference Call Participants

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* Chris Colvin

Breach Inlet Capital Management, LLC - Founder & Portfolio Manager

* David Michael King

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* James R. Wilen

Wilen Investment Management Corp. - President and Chief Compliance Officer

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Presentation

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Operator [1]

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Good afternoon to everyone participating in Delta Apparel's Fiscal 2019 First Quarter Earnings Conference Call. Today's conference is being recorded.

Joining us from management are Bob Humphreys, Chairman and Chief Executive Officer of officer; and Deb Merrill, Chief Financial Officer and President, Delta Group.

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. Please refer to the periodic reports filed with the Securities and Exchange Commission, including the company's most recent Form 10-K. This document identifies 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.

It's now my pleasure to turn things over to Delta's Chairman and Chief Executive Officer, Bob Humphreys. Please go ahead, sir.

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Robert W. Humphreys, Delta Apparel, Inc. - Chairman & CEO [2]

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Good afternoon, and thank you for joining us on our fiscal 2019 first quarter earnings call. I'll briefly discuss our business results along with a few key highlights to showcase why we believe Delta Apparel remains well positioned for profitable future growth, and then turn the call over to our CFO, Deb Merrill, for a more detailed discussion of our financial results.

We're pleased to report a strong start to our new fiscal year with overall sales surpassing $101 million and year-over-year growth of 12.5%. Our Delta Group segment results were bolstered by triple digit sales growth in our digital print business, DTG2Go. And our Salt Life Group segment performance was driven by double-digit sales growth in our Salt Life lifestyle brand.

Digging a little deeper into the segment results for the quarter, we achieved 12.5% sales growth in our Delta Group from the strength of 250% sales growth at DTG2Go. DTG2Go executed a strong holiday season during the quarter that followed what was truly a foundational year for our digital print business, including multiple acquisitions and significant investments in new locations, manufacturing capacity and systems. This was the first holiday season that DTG2Go operated as a single integrated business with 6 locations across the country. And its holiday performance further solidified our operating model with customers seeking a flexible multiple location manufacturing and fulfillment partner that can deliver high-quality products on time.

Digital printing continues to revolutionize how garments are printed and delivered to the end consumer. And DTG2Go leads that trend through a seamless nationwide print and fulfillment network of state-of-the-art production capacity now exceeding 70,000 unique prints a day.

In addition, DTG2Go differentiates itself from the rest of the market through its integration with Activewear's vertical manufacturing platform and its reliable low-cost supply of fashion and core basic garments, including not only T-shirts but tanks, fleece and shorts.

Our belief in the digital print market as a huge global opportunity continues to strengthen based on what we're seeing, and we continue to take advantage of our market leadership position. We have more geographic expansion planned for this year that will increase DTG2Go's reach even further and facilitate 1- to 2-day shipping to essentially all U.S. consumers and 1-day shipping to about half of the U.S. consumers.

We entered the second quarter with good momentum to grow the DTG2Go business with existing customers and added new customers across multiple channels, including traditional screen printers, promotional product providers, brick-and-mortar retailers, large brands and others outside of the DTG2Go traditional e-retailer channel. The recent success we've seen with the national brick-and-mortar retailers' adoption of the DTG2Go virtual inventory model is indicative of the white space we see for digital print for in-store consumer purchases in addition to e-commerce purchases. The numbers back up our enthusiasm for digital printing.

We ended fiscal 2018 with DTG2Go revenues of approximately $27 million. And we're off to a fantastic start in the new fiscal year, more than doubling our first quarter business. We remain very confident that our DTG2Go business will quickly grow to $100 million in revenue and generate healthy double-digit operating margins.

Turning to the other parts of our Delta Group segment. We're pleased to deliver solid first quarter results in line with our expectations in those businesses. At Activewear, we saw more growth in our Catalog business, which services customers across the full market spectrum, including regional screen printers, promotional product suppliers and retail licensing channels and offers products ranging from core basic tees to more fashion and performance tees, fleece and other garments. The first quarter was another period of strong double-digit gains for our fashion basics and Delta Platinum collections, which continued to become a larger piece of our overall Catalog sales.

Our Activewear team remains keenly focused on the development of new fashion basic products with on trend color palettes, fabrics and silhouettes.

As I mentioned in our last earnings call, we have moved many of these higher-margin products previously sourced from third parties onto our internal manufacturing platform, taking advantage of cost efficiencies, shorter lead times and faster replenishment service to our customers.

Our FunTees private label business continues to distinguish itself with high-quality garments and on-time delivery performance. And in our view, the dynamics of -- in the private label market remains favorable. FunTees also continues to expand its market reach into new channels of distribution, including direct-to-retail and leveraging other parts of the Delta Group platform, including the new higher-margin Catalog fashion basic products and the DTG2Go digital print capabilities.

The investments we've made to offer brand partners a sophisticated, compliant sourcing strategy, that gets their products to market faster and in retail-ready conditions continue to give us a competitive advantage.

Speed-to-market is something every customer wants. And something we believe we are uniquely positioned to deliver through our manufacturing locations in the United States, Central America and Mexico. Our platform has the flexibility to provide a wide range of garments, all manners of printing and decoration as well as packaging and retail preparation services. And we also have distribution centers strategically located throughout the United States that allow us to provide our customers with exactly what they want, and importantly, when they want it.

In today's market, where the emphasis is on fast fashion strategies, we believe this is a huge advantage that should only increase with the westward shift in supply chain dynamics we are seeing.

During the first quarter, FunTees began to ship several new customers that were onboarded during our prior fiscal year. And we expect to continue to expand these programs with these customers as well as add new customers as the year progresses. Although our first half FunTees results were being impacted by the startup cost associated with the transition to new customer programs, including shift to more youth and infant garments, we anticipate a good year for FunTees in fiscal 2019, with most of the growth in improved profitability occurring in the latter part of the year.

Due to the relatively constant shifts in garment fabrications and silhouettes among our private label customers, which can result in vastly different average selling prices, revenue dollars no longer is the best indication of the true growth of the business. Rather, we look to unit shift as the more appropriate indicator.

We anticipate (inaudible) unit output in our third fiscal quarter and further expanding shipment output in our fourth quarter.

Finally within the Delta Group, our Soffe brand turned in a solid first quarter with sales growth across all major channels of distribution other than the military channel due to the usual fluctuations in that channel that we often speak about. Soffe continues to capitalize on its strength in core Activewear and general market trends favoring the brand's heritage that Soffe enjoys. This is also providing welcome tailwinds to our business at Soffe and increasing consumer awareness of the brand. We see opportunities for growth across the Soffe business, including some exciting new opportunities in the military channel. We are also targeting several new programs involving the iconic Soffe shorts line as well as opportunities to expand our door count with regional retailers.

We are highly encouraged with a double-digit growth on Soffe's B2C and B2B sites during the quarter. In addition, the Soffe team is focused on cost structure enhancements and administrative efficiencies is gaining traction. Overall, we see good things happening in at Soffe. And we are optimistic we will grow the business as this year unfolds.

Moving to the Salt Life Group. Our Salt Life business achieved solid double-digit sales growth in the first quarter. Growth stemmed from increased sales of performance and other high price point products along with higher sales per door from our wholesale partners and higher sales per square foot in our own Salt Life brand at retail locations.

We were also pleased (inaudible) in our sales mix at Salt Life, where sales of women, youth and accessory categories becoming incrementally larger pieces of the overall picture.

In addition, our sales momentum with recently onboarded national retailers continues, and successful test with regional retailers in market outside of Salt Life's traditional strong marketplace gives us even more confidence that the brand has a significant runway for growth. We also continue to focus on opportunities for the brand in International markets, which we see as a longer-term growth driver.

The momentum in our direct-to-consumer channels at Salt Life continued during the quarter. We currently operate 6 brick-and-mortar locations, including 3 in Florida, 2 in California and 1 in Georgia. We expect to open multiple new stores within the existing markets this year, including a new store in Orlando, Florida later this spring. Over the next 3 years, our plans call for approximately 12 new branded retail stores with a focus on expansion within existing geographic regions.

Our saltlife.com e-commerce site delivered another quarter of double-digit growth along with increases in site traffic, shopper conversion and average order size. These are key indicators to us that the brand remains on a positive growth trajectory with both existing and new customers. With over 2 million annual visitors to the saltlife.com site, we regularly ship to consumers in all 50 states. Interestingly, state outside of Salt Life's traditional southeastern market continue to make up the majority of the top 10 states from an e-commerce revenue perspective. This signals not only the broad appeal of Salt Life lifestyle brand but provides valuable insight into potential new retail locations.

We believe we're on track to see our Salt Life e-commerce business grow by more than 20% in fiscal 2019, reaching sales of about $5 million.

Our recent efforts to expand Salt Life's brand lifestyle positioning continues to take shape. Sales of Salt Life Lager, the brand's craft beer, continues to grow with expansion currently underway into several additional southeastern markets, setting the stage for meaningful growth beyond the current 3,000 door placements across the state of Florida. In addition to providing a revenue stream, we firmly believe a distribution of Salt Life Lager enhances and expands the brand's consumer visibility. Retailer interest in the recently introduced Salt Life ladies swimwear line has been encouraging, and we look forward to a positive consumer response this spring.

Finally, we're excited about the third Salt Life food shack restaurant in Fernandina Beach, Florida that recently opened and is having a fantastic start of business.

Looking at our e-commerce business from an overall perspective, we continue to focus in this area and our team has delivered strong growth in the first quarter following what was another great year for our e-commerce sites in fiscal 2018. Each of our sites grew double digits in the first quarter, with sales on our B2B sites collectively up 30% and sales on our B2C site collectively up nearly 15%.

As we have discussed in the past, unlike many other e-commerce businesses that post strong top line growth, our e-commerce sites remain profitable even after being fully loaded with all related costs, and in many cases, are the most profitable sales channels we have for delivering our products.

To summarize, we're very pleased with our fiscal 2019 first quarter performance. We delivered broad-based double-digit sales growth, meaningful bottom line gains, we're off to a great start for the new fiscal year, and believe we are remaining well positioned to compete and grow in today's dynamic retail environment.

I'll now turn the call over to Deb to review our financial results in more detail.

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Deborah H. Merrill, Delta Apparel, Inc. - CFO, VP & Treasurer [3]

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Thank you, Bob. As Bob mentioned, we delivered a strong start to the new fiscal year with double-digit top line and even stronger profitability growth for the first quarter. We made significant progress on a number of fronts during the quarter and achieved solid results across Delta Apparel platform. We're particularly pleased with the growth acceleration in our DTG2Go digital print business and the robust performance of our Salt Life brand. We look forward to capitalizing on the many opportunities we see ahead for our company.

I'll now provide details on our first quarter performance.

Net sales were $101.7 million, up 12.5% from $90.3 million in the first quarter of fiscal 2018. This growth was driven by a 13.5% increase in our Salt Life Group and a 12.5% increase in our Delta Group, which was led by the significant growth in the DTG2Go business.

Gross profit for the first quarter was up 13% to $18.6 million. And gross margins improved 20 basis points to 18.3% compared to 18.1% in the prior year period. These results were driven by strong gross margins in our Salt Life Group, primarily attributable to a favorable sales mix.

SG&A expense, as a percentage of overall sales, was 16.5%, generally flat with the prior year first quarter.

Operating income was $117,000 compared to $1.7 million in the prior year first quarter with the decrease attributable to a discrete expense of $2.5 million taken during the quarter in connection with the resolution of litigation stemming from The Sports Authority March 2016 bankruptcy. Excluding that expense, operating income was $2.6 million, up 49% from the $1.7 million in the prior year.

Delta Group operating income was impacted by this litigation expense and came in at $2.8 million compared to $4.4 million in the prior year first quarter. Excluding that expense, Delta Group operating income improved almost 19% to $5.2 million.

Salt Life Group operating income was $0.4 million, up 58% from $0.2 million in the prior year first quarter.

We experienced a net loss for the quarter of $1.1 million or $0.17 per diluted share, which was an improvement over the prior year first quarter's loss of $10 million or $1.37 per diluted share. Excluding the previously mentioned $2.5 million litigation expense, the company achieved earnings per diluted share of $0.14, a 75% increase over the prior year earnings per share of $0.08 after excluding the discrete tax expense of $10.6 million associated with U.S. tax reform legislation taken in the prior year period.

Turning now to the balance sheet. With regards to CapEx, our total spending for the quarter was $1.8 million and principally related to additional equipment, direct-to-consumer and distribution initiatives and IT system enhancements.

Depreciation and amortization, including noncash comp, was approximately $3.6 million for the quarter.

Regarding our share repurchase activity, during the quarter, we repurchased 92,000 shares of our common stock at an average price of $18.57 per share for a total cost of approximately $1.7 million. As of quarter-end, we had approximately $10.6 million remaining approved for share repurchases under our program.

Finally, cash used by operations during our first fiscal quarter was about $4 million, a $3.8 million improvement over the prior year.

Total inventory at the end of the quarter was $187.7 million, up about $13.1 million compared to the prior year, primarily due to more units on hand from our recent digital print acquisition as well as higher cost per unit inventory due to increases in raw material and other inflationary pressures.

Total debt, including capital lease financing, at the end of the first quarter was $134.1 million, up $22 million from the end of the prior year first quarter due to our recent digital print acquisition offset by the free cash flow generated from our operations.

Before turning the call back to Bob, I wanted to give some insight into our anticipated results for our second quarter. We are looking for our top line growth to continue supported by strong increases at DTG2Go and Salt Life.

Gross margin expanded year-over-year in the first quarter. And while we expect sequential gross margin expansion in quarter 2, we do anticipate some year-over-year retraction as startup costs associated with the customer program shift in our Activewear business and higher cost inventory flows through our results.

As a percentage of sales, SG&A should be in line with the prior year, resulting in operating margins lower than the prior year's second quarter but stronger than our first quarter operating margins. As we move past the second quarter, we do then anticipate profitability to accelerate in the second half to finish the year strong with solid overall top and bottom line growth.

Now I'll turn the call back to Bob for his final comments.

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Robert W. Humphreys, Delta Apparel, Inc. - Chairman & CEO [4]

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Thanks, Deb. We're off to a fantastic start to this fiscal year and believe we're well positioned for growth with our diversified customer base spread across a wide range of distribution channels. Our core Activewear business continues to gain market share and provides a steady profitable platform to support our various higher-growth endeavors. We further solidified our industry-leading position in the digital print and fulfillment space with our DTG2Go business. And our Salt Life brand is expanding its consumer footprint and lifestyle positioning through new product categories as well as growth with national and regional retailers and in our own direct-to-consumer channels. This truly is an exciting time for Delta Apparel.

Before I close, I'd like to thank all of our teams for their hard work and dedication to Delta Apparel. We now have approximately 7,800 associates spread across 4 countries. And above all else, they are the key drivers to our success as a company.

Operator, now I'd like to open up the call to any questions our participants may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll go first to Dave King with Roth Capital.

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David Michael King, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2]

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I guess, first off on DTG2Go. Do you have what SSI added in the quarter? Just trying to get a sense of kind of the organic growth there? And knowing that it's wholly integrated now, maybe if you don't have that, maybe the pro forma growth, I guess, just some context would be helpful.

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Deborah H. Merrill, Delta Apparel, Inc. - CFO, VP & Treasurer [3]

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Yes, and I would say similar to when we added DTG2Go into the mix because it is fully integrated, we really can't separate that out. But as we would take a look at the overall business and the size of the businesses, I mean, we definitely had the addition of the DTG2Go acquisition, the SSI and good solid double-digit organic growth on those businesses. So we feel like we've got exactly what we anticipated with the organic growth plus the addition of the acquisition.

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David Michael King, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [4]

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Okay. That helps. And then as you think about DTG2Go longer-term, I think, Bob, you mentioned $100 million in revenue and healthy double-digit operating margins over time. I guess, just over what sort of time frame do you expect to get there? What -- how do you size up potential market opportunities? What is your market share now? And how much share can you expect to get over time? I guess, some help there would be appreciated.

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Robert W. Humphreys, Delta Apparel, Inc. - Chairman & CEO [5]

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Well, big picture, we think there's organic growth opportunities in the 20%-plus range. It will be sized to some degree our ability to operate more printing facilities, on board customers, what have you. As far as the size of the market is really a huge potential marketplace if you just look at the amount of decorated tees that come into this country or printed in this country. And the whole systems need for speed-to-market and customization. It really offers a great opportunity there. And I think we're onboarding a big national retailer right now, which is an intellectual breakthrough, I think. We're -- they're going to have all of their customers assist people in-store, walking around with iPads and helping their consumers buy product online there in addition to a traditional e-commerce site that they would be operating. So we just see a lot of opportunity for that to expand with these retailers then being able to offer a virtual inventory that gets to the consumer very quickly without having shelves and shelves of printed tees waiting to see what people choose to buy.

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David Michael King, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [6]

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That's great. It makes sense. Switching gears a bit on Soffe. You talked about some of the nice growth that you have there and opportunities going forward. If we think about the margin improvement potential there, I guess, what's the right way to think about that? And then now that you've consolidated that into the Delta Group, just how are you thinking about the potential for cost there? How material could they be, if at all? Just some help there would be appreciated.

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Robert W. Humphreys, Delta Apparel, Inc. - Chairman & CEO [7]

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Well, I'd say right now, our growth outlook at Soffe is accelerating from our thinking a year ago. We've gotten some good traction above -- across most channels of distribution. They're all growing and did in the first quarter. Military was off a little bit, but we actually have a new program there that we're gearing up to. And we'd anticipate maybe about next year some return to growth in the military distribution channel as well. And we're leveraging our sales forces across our business units and distribution. So we're still targeting that low single digit operating -- fully absorbed operating margin over the next 12 to 24 months. But we'll keep working on it.

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David Michael King, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [8]

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Okay. And then to be clear then, it sounds like -- is that more from the top line or is that more from the bottom line cost improvement, if I will?

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Robert W. Humphreys, Delta Apparel, Inc. - Chairman & CEO [9]

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Yes, it will be both. We have taken out further cost. Actually we started that in the fourth quarter of fiscal '18 and continued some in this quarter as well. But we are definitely getting more efficient from an administrative standpoint, from a shipping standpoint and from a selling cost standpoint, which was -- we talked about that probably 8 or 9 months ago that actually the Soffe margins are pretty good compared to the rest of our Activewear business, but our cost of delivering product was much higher. So that's what we've really been focusing on and are definitely seeing some traction there.

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Operator [10]

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We'll hear next from Chris Colvin with Breach Inlet Capital.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [11]

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Back to -- I think it was the first question about organic growth. Just based on our math, we're getting to roughly 3% organic growth. Is that in the ballpark you think?

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Deborah H. Merrill, Delta Apparel, Inc. - CFO, VP & Treasurer [12]

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No. On DTG2Go, I mean, we would take that at about the 20% organic growth on top of the acquisition growth.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [13]

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Oh, I meant for the whole company.

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Deborah H. Merrill, Delta Apparel, Inc. - CFO, VP & Treasurer [14]

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Oh, I haven't done that math that way.

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Robert W. Humphreys, Delta Apparel, Inc. - Chairman & CEO [15]

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It definitely varies by business unit and segment, some in the 20%, some in the mid-teens, some in the low single digit. But I would say overall, if you look at the full fiscal year and you took out acquisitions, we would expect to have in the high single-digit organic growth.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [16]

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Okay. So we're all high single digit this quarter? Or that's the...?

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Deborah H. Merrill, Delta Apparel, Inc. - CFO, VP & Treasurer [17]

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No, and again, I haven't looked at the math that way, but it would certainly appear based off the by business that it's higher than the 3% that you're calculating it to be during this quarter.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [18]

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Okay. Yes, we'll try to -- offline maybe get some more color. And then on gross margin, it was up, I see slightly year-over-year. But it's historically been, over the last 4 years, you've only had 2 or 3 quarters where it's been less than 20% margin, if I'm looking at the right numbers here. What was the reason that it was lower than maybe historically?

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Deborah H. Merrill, Delta Apparel, Inc. - CFO, VP & Treasurer [19]

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I think the principal reason is -- of that is the higher-cost raw materials and other inflationary cost that we've been talking about over the last 18 months or so that are getting impacted in the business. Now we are offsetting a lot of that with different price increases. But those don't always match up on a quarter-to-quarter basis. In addition, when you're looking at the first quarter, our first quarter margins typically are our lower overall margins just due to that being our seasonally slowest quarter in the fixed cost that we have in the business that then get absorbed by lower selling -- sales in the first quarter.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [20]

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Okay. And then on the DTG market, as you all continue to grow in that market, our understanding is Amazon also has been active in that market. Do you see them much when you're, I guess, bidding on business? And how is your positioning compared to Amazon?

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Robert W. Humphreys, Delta Apparel, Inc. - Chairman & CEO [21]

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Well, I'd say, first of all, we don't bid on business in this market. We have a unique one-off platform across the country that's driven by sophisticated systems that help our partner manage their business. So it's not where you're replying to a proposal to bid on the business. And then obviously, Amazon is a large digital printer of products that they sell. Generally speaking, our customers are trying to compete with Amazon, either through their own e-commerce sites or through their retail stores or some combination thereof. And so generally, they're looking for partners outside of Amazon.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [22]

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Okay. That's helpful. And then on the Chinese tariffs, which who knows what's going to happen there, but our understanding, I guess, is you received, kind of, any benefit from that? Is there any fear that could reverse? Or it really had no impact? How should we view that in case China and U.S. do come to some agreement?

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Robert W. Humphreys, Delta Apparel, Inc. - Chairman & CEO [23]

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Well, it is a complicated matter. No doubt about it. We will have a little bit of headwinds on some of our Salt Life product that's sourced in China, depending how things ultimately fall out. And then I would say, in general, major retailers and major International brands have been.

(technical difficulty)

Product has been going on for years as we've been talking about. And I would say, if anything, the current scuffle over China tariffs is accelerating that. And I think generally speaking, it's just adding fuel to the fire of more sourcing in this hemisphere for ultimate consumption by consumers in this hemisphere. So we see that continuing. And I don't see a big change in that one way or the other depending on how this is resolved. So these brands are looking for closer to market, they're looking for labor compliance, environmental compliance, and ultimate consumers are more concerned about the workers, place of work, how they are treated and that always bodes well for us.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [24]

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Okay. And very last question. I missed that you mentioned you're reporting instead revenue units, what was that in reference to?

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Deborah H. Merrill, Delta Apparel, Inc. - CFO, VP & Treasurer [25]

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Just in our FunTees business because of the shift of the different types of programs and the price points of every units, just looking out revenue in that private label business doesn't really give an indication of the growth of the business but rather the units that we're selling is really a better indication of the growth in that business as we are having these major, kind of, shifts in the different programs and flexibility that we're offering in that platform.

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Operator [26]

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(Operator Instructions) We'll move next to Jamie Wilen with Wilen Management.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [27]

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Let's go back to DTG2Go for a second. You're looking for 20% growth. Is that the growth just the industry growth of digital printing? Or are you gaining market share? And are you layering on top of that the retailers that you are picking up that really weren't in the digital printing business before where you were doing the servicing for them?

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Robert W. Humphreys, Delta Apparel, Inc. - Chairman & CEO [28]

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Yes. I think Jamie, what's really happening now is people who were starting to participate in utilizing digital growth or digital print is really growing. And so if you went back a couple of years ago while we were calling on retailers and telling them the value proposition that we could bring forward, our real business was with e-retailers who were out there harvesting the consumer on their e-commerce site and matching up with us to be the back-end and produce that and ship it directly to that consumer. So that business is still there, and it's growing. But it's really just a tiny piece of an overall potential market for digital growth. And so while those people are still growing with us, and we're adding new customers in that space, if you look at the big-picture opportunity, it's really with all these other channels of distribution that we talked about, traditional retailers, current screen printers, promotional products, et cetera, et cetera, that as the cost per print goes down on digital and consumers are more interested in specialized garments and retailers want less inventory that they own and are committed to then it's just going to be a natural progression of more product printed digitally for its ultimate consumption by that consumer.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [29]

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Within the Art Gun segment that you first had, you increased the percentage of garments that were Delta garments. Obviously, you'll print on just about anything. But as you look at the 2 acquisitions made in the last year, are there opportunities to add gross margin and operating margin by gaining a greater percentage of that business being Delta products? And if so, where would that gross margin improvement go into? The Delta products? Or DTG2Go business?

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Robert W. Humphreys, Delta Apparel, Inc. - Chairman & CEO [30]

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Yes. There's definitely opportunity for a lot of growth. Some of those customers that were on these other platforms were speccing Delta Apparel garments and some were speccing others. And so we're fast at working to convert more of that to our own product. Their gross margin will end up on DTG2Go's books the way we transfer product. And the really important thing is beside it being a Delta Apparel garment, which we love and think it's the best one out there for sure, it's just such a better time in the economic model for the -- for our customer, because when you think about it, if they use our product and we're printing in one of our DCs, that product has already been shipped to our DC and that cost is a part of the product. But if it's a competitive product, it would ship to someone else's DC, now you've got to go buy that product, it's got to come out of that DC, it's got to get shipped to our DC and it's got to get prepped. So it's a completely additional step of non-value adding cost that just got added to that garment. And that's something we've been fighting for 20 years now is how do we take non-value adding cost out of the supply chain. And this is just a great example of a step to do that.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [31]

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Got you. And I assume that the spring selling season, you can see pretty well out, I don't know how many months. But can you tell us what it looks like out there for the orders you generated through retailers throughout the country?

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Robert W. Humphreys, Delta Apparel, Inc. - Chairman & CEO [32]

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You're talking about just overall for Delta Apparel, Jamie or a specific business specifically?

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [33]

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Delta and Salt Life, especially.

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Robert W. Humphreys, Delta Apparel, Inc. - Chairman & CEO [34]

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Yes, we feel good about our backlog at Salt Life going into spring. We've probably got -- not probably, we have more consumer engagement than we've ever had. We shipped more last quarter than we ever had for that quarter. And we've gotten January off to a strong start and have a larger backlog for spring shipments than we've ever had in that business. So all the key indicators are there for further growth. And we've had a lot of people clambering to get Salt Life beer in their state. And so we'll continue to roll that out at a mindful pace.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [35]

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Okay. And as far as the national retailers, you have a few, have you expanded the doors or expanded what you're selling with them? And are there others in the near future that you may add in Salt Life?

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Robert W. Humphreys, Delta Apparel, Inc. - Chairman & CEO [36]

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So some of all of that. We do have several truly national retailers, several of them we're adding doors, additional doors for the spring. Several of them are going to give us in-store shops, which we are excited about and have been pushing for a couple of years now. So we'll be rolling some of those out in the spring. We have some new regional retailers, and I say regional, they actually have a nationwide footprint but they're more focused in 1 region or another that I have recently done test with good success and they're going to be starting some door rollouts in the spring and summer as well. So we're continuing to get more business with regional and national retailers, and we're probably to the point that we're not all that interested in adding a lot more new customers there. What we really like is to expand our space within these stores, have a real partnership to grow and expand our footprint, have better merchandising, better product displays in these stores versus being in 5 different retailers in the same mall.

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Operator [37]

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(Operator Instructions) And we have no other questions at this time. I'd like to turn it back to you all for closing remarks.

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Robert W. Humphreys, Delta Apparel, Inc. - Chairman & CEO [38]

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Okay. Thank you all for your interest in our company. And we look forward to updating you on our second quarter results here in just a few months. Thank you.

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Deborah H. Merrill, Delta Apparel, Inc. - CFO, VP & Treasurer [39]

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Thank you.

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Operator [40]

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And that will conclude today's conference, Again, thank you all for joining us.