Clothed for success

By Dick Hughes  

JANUARY 27, 2011 3:59 p.m. (0)

You can’t beat this for brand loyalty: The young women who wear colorful Soffe shorts for, say, cheerleading or jogging like to wear them with the waistband turned over to display the label.

Delta Apparel, the Greenville company that makes M.J. Soffe sportswear and other popular active wear, saw a good thing and did the logical.

“We ship them that way now,” said Robert Humphreys, chairman and chief executive officer.

Turning the waistband on shorts is a long way from the blank T-shirt business Delta Apparel was left with 12 years ago when it was spun off from bankrupt Delta Woodside, the corporate shell that ran Delta Mills, Delta Apparel and Duck Head Apparel.

Duck Head of the iconic khaki pant has suffered through bankruptcy after bankruptcy of other companies and today is in limbo as a product.

But Delta Apparel not only has survived, it has thrived and in ways not envisioned in 1999.

Humphreys and Deborah Merrill, vice president and chief financial officer, talked about how Delta Apparel emerged from that failed textile manufacturing business to become a profitable and prominent player in the active wear market.

“Initially, we focused just on T-shirts, that’s the business we inherited,” said Humphreys.  “We were able to take that unprofitable business and get it profitable pretty quickly, even before we got the spin off.”

From that basic T-shirt, Delta Apparel today sells 2.8 million garments a week under a variety of playfully named brands: Soffe, The Cotton Exchange, Junk Food, The Game, Fun Tees, Intensity, Realtree Outfitters and Salt Life.

That unadorned tee remains at the core, supplying small t-shirt screeners doing custom work and companies that add decoration to sell at major retailers. To convert that bland tee into something special, Delta’s Art Gun division sells the tools needed to design and create the art.

The move that propelled Delta from a blank T-shirt company into a major casual clothing company was the purchase in 2003 of Soffe, a Fayetteville, N.C., company founded in 1946 that had a strong base in sports and active wear – and in licensing rights – on college campuses and military bases.

“It almost doubled our size,” said Humphreys of the acquisition that cost close to $72 million. “We had to go back in debt in a big way, but it did a couple of things.  It gave us a brand so we started seeing the power of that brand, and it gave us those college licenses and these different channels of distribution.”

Delta had found its niche, casual clothing for young active people.

“It is a huge, huge business, and you have demographics on your side,” said Humphreys.

Delta acquired Junkfood Clothing and Intensity Athletics in 2005 and Fun Tees in 2006, Art Gun and The Game in 2009 and The Cotton Exchange in 2010.  It also won exclusive rights to market Realtree Outfitters in 2009 and Salt Life just last month.

To produce its garments, each week the company buys 1.3 million pounds of cotton and 150,000 pounds of other fabric material.  It ships apparel to “more than 15,000 customers, some of which have 1,000 or more stores.”

One of the company’s strengths, Humphrey and Merrill said, are these broad channels of distribution with “a lot of different customers” within each channel and “no one customer making up more than 10 percent of our revenue.”

Humphreys said this gives Delta an advantage against competitors of its size that typically are “in a segment or maybe a couple of segments” and are more exposed to the fickleness of the marketplace and downs in the economy.

“We think those things to come degree insulated us against the recession,” said Humphreys. “We saw some people who compete with us with revenues down 15-20 percent for some of those years.”

Humphrey cites average revenue growth of 15 percent over the past 10 years.  Revenue on branded products grew from $134 million to $198 million in 2010 and the total for all sales grew from $317 million to $355 million.

While it had a net loss in the fiscal year ended July 2008, Delta had net income of $6.5 million in the 2008-09 fiscal year and doubled that to $12 million in 2009-10.

“If you look at where our products are sold at retail, it is very broad,” Humphreys said.  “It is high-end department stores. It is specialty stores. It is the outdoor market. It is direct to screen printers.  It’s the military. Where there’s a PX, there’s going to be Soffe products.”

The company has licenses to use school names and images with just about every college and university in the country. “We can use their name – we pay a royalty – so now if it is orange and we print Tigers on the butt, we are pretty hard to compete with,” said Humphreys.

Junkfood even has a rare NFL license to sell “vintage-looking” team-identified shirts at high-end stores and at all stadiums.

Delta also sells $160 million in garments through its catalogue and online store in Duluth, Ga., which had been headquarters for Delta Woodside.

Delta manufactures fabric in a company-owned plant in Maiden, N.C., and in a leased facility in Honduras. About 70 percent of garments are cut and sewn in company-owned plants in Fayetteville and Rowland, N.C., and in leased plants in El Salvador, Mexico and Honduras. The remainder is sewn by outside contractors.

Humphreys and Merrill said having North and Central American plants means Delta can get orders to store floors much faster “than if you are ordering from China or Vietnam.”

“Those people are selling our products daily, and they weekly reorder,” said Humphrey.  “When we get that order that week, we are going to ship it that week.”

To keep pace with changing design tastes and keep products fresh, said Merrill, “Junkfood will come out with a new catalogue every six to eight weeks with new graphics to put on those tees to be sold into retailers.“

As an illustration of the company’s transformation from a commodity business to a consumer-affinity apparel business, today it employs six art directors and more than 75 artists. In 2003, it had none.

All told, Delta employs 7,000 people full time, about 1,400 in the United States.  Working conditions for its majority Central American workforce “meet or exceed” government standards, the company said.

Humphreys, who started with Delta Woodside 24 years ago, and Merrill, who joined 12 years ago, have gone through the bankruptcy, the spinoff, taking the company public in 2000, the refocus as a casual wear apparel company, organic growth and game-changing acquisitions.

They are confident of the future.  They said Delta is “fast approaching” its goal of increasing revenue to $500 million by 2013, improving its gross margin from mid 20 percent to 30 percent and nearly double its earnings per share to $3.