Delta Apparel, Inc. (DLA) on Q3 2021 Results - Earnings Call Transcript
Operator: Please stand by. Thank you and good afternoon for everyone participating in Delta Apparel’s Fiscal 2021 Third Quarter Earnings Call. Joining us from management are Bob Humphreys, Chairman and Chief Executive Officer; Deb Merrill, Chief Financial Officer and President of the 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 and Form 10-Q filed today. 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. As a reminder, today’s call will -- is being recorded. And I would now turn the call over to Delta’s Chairman and Chief Executive Officer, Bob Humphreys.
Bob Humphreys: Good afternoon. And thank you for joining us on our fiscal 2021 third quarter earnings call. As you saw in our press release this afternoon, we are very pleased to have delivered record earnings for our shareholders, with diluted EPS of $1.14 per share. I want to thank all of our teams for their hard work and dedication, which has led us to our continued strong performance throughout the year. I am particularly pleased with the adaptability and flexibility our teams have demonstrated as we have successfully streamlined our organization and continue to integrate new and innovative technology into our business. Our teams overcame many challenges, including inventory constraints and U.S. labor shortages, and delivered solid topline revenue and double-digit operating margins. Over the last several years, consumer trends have been favorable towards active apparel from athletic wear to athleisure. In the most recent pandemic has only accentuated the trend was more people working from home and enjoying the outdoors. Add to this recent tariff policies and international trade uncertainties, along with supply chain disruptions and the result as more companies are seeking onshore and near-shore sourcing strategies than ever before. Global and regional brands, as well as retailers are looking for the full package supply chain that we can provide with our Western Hemisphere manufacturing platform. Over the past 10 years, we have continued to invest in our manufacturing platform to increase the flexibility of our manufacturing capabilities and expand our capacity. And most recently, we are producing more product than ever before. As we see the market trends with demand outpacing capacity, we have already made investment commitments to further increase production capacity and expect this new production to be online in the back half of fiscal 2022. Our performance during the quarter highlights the benefits of our broad channels of distribution, the demand in the market for the unique products and services we offer, and the efficiencies we can achieve with our vertical integration operations. We believe the strong foundation we have in place, coupled with our ongoing strategic initiatives, positions as well for continued growth in strong operating margin performance going forward. Let me now turn the call over to Deb Merrill who will review our third quarter business highlights and financial results. I’ll then rejoin when we open the call up to questions. Deb?
Deb Merrill: Thank you, Bob. To echo Bob’s comments, we are certainly very proud of our third quarter results and the great strides we have made within the business to position as well for long-term success. For the third quarter we delivered growth of 65% compared to the prior year, when our operations were significantly disrupted by the COVID-19 pandemic. However, we believe it is more meaningful that our sales grew 9% compared to the March quarter and were relatively flat compared to the same June quarter in fiscal 2019, despite the supply chain and labor challenges we have faced this year. Our Salt Lake business exceeded all expectations with growth of over 35% compared to the same quarter in fiscal 2019, importantly with 150% growth in our direct-to-consumer channels. This was an extraordinary quarter across many fronts and it reflects the culmination of our multiyear strategic initiatives coming to realization. Profitability on our current year sales has greatly expanded, driven by our margin moving sales strategies, manufacturing efficiencies and continued spending controls. We deliver diluted earnings per share of $1.14, a record quarter for Delta Apparel, representing over 60% growth in EPS compared to our 2019 June quarter with $0.70 earnings per share. We are entering fiscal 2022, a streamlined organization with a Delta Group segment operating as a fully integrated Activewear business powered by our DTG2Go digital fulfillment solutions. Our Activewear business is now organized around our key customer channels, operating as Delta Direct, formerly our Catalog business, and Global Brands and Retail Direct formerly discussed as our Private Label or FunTees business. Customers seeking our portfolio of Delta, Delta Platinum, Soffe and our source branded products can purchase them directly from our Delta Direct business. In Delta Direct, we cater to a broad range of distribution channels, spanning regional screen printers at specialty and promotional, e-retailers and resort and team dealers. Delta Direct also services the retail licensing channel, where our customers are servicing mid-tier and mass retailers, with this channel driving strong sales in our June quarter, as well as earlier in the year. As a reminder, our June quarter is typically our seasonally strongest quarter for Delta Direct. We entered the season with $49 million or about 25% less inventory than in the prior year, which constrained our ability to service the strong demand we saw on the market. However, even with 25% less inventory, our sales results were only slightly below our 2019 June quarter results. Although, we remain inventory constrained in the near-term in this at-once business, we are working diligently to serve our customers needs, and ultimately, rebuild our inventory levels for future opportunities. As discussed on previous calls, our manufacturing teams have done an amazing job in increasing production output and we continue to produce at record levels within our manufacturing platform. As we progress through fiscal 2022, we’re planning capital investments to further increase production capacity, but also provide additional capabilities to further expand the flexibility of our manufacturing operation, allowing us to offer more innovative products to our customers. In our Global Brands and Retail Direct business we our supply chain partner to Global Brands from development of custom garments to shipment of their branded products, with the majority of products being sold with value-added services. We also serve as global retailers by providing our portfolio of Delta, Delta Platinum and Soffe products directly to the retail stores and through their e-commerce channels. The strength of our Global Brands and Retail Direct business is demonstrated by the growth in sales compared to the pre-pandemic June 2019 quarter and are on track to deliver all-time record sales in this business in fiscal 2021. This refreshed organizational structure, which includes the integration of our Soffe business into Activewear has led to a more customer centric sales and support team, a more proactive manufacturing inventory planning and distribution network, and a streamlined back office support function. While we incurred one-time cost this year to facilitate this integration of approximately $0.08 per share of which $0.03 was incurred in the June quarter, we anticipate annual benefits from this integration initiatives in the range of $0.12 per diluted share to $0.15 per diluted share beginning in fiscal 2022. Our Digital Print business, DTG2Go remains a competitive force in the digital print and fulfillment market, which is poised to expand rapidly in the coming years. We believe we are differentiated in this market considering our vertically integrated supply chain, broad geographic network for fulfillment and distribution, proprietary technology, and broad and diverse customer relationships. We continue to see the interest of retailers and brands, many of whom are current Delta Group customers to move to an on demand digital fulfillment model. In fact, DTG2Go saw growth in the June quarter of over 70% in the traditional retail channel compared to the prior year. As a testament to the strategic advantage of DTG2Go being a vertically integrated apparel supplier, we fulfilled 56% of digitally printed orders utilizing a Delta garment. This is significantly above the 30% Delta blank fulfillment in the prior year third quarter and ahead of the 50% Delta utilization in the March 2021 quarter. This trend is promising as it creates a more efficient operation, reduces garment costs for our customers and lowers working capital needs in this business. DTG2Go started the quarter strong with new customers coming on board to the platform and increased production from existing customers. We experienced temporary disruptions as a result of labor shortages to meet the surge in orders received, resulting at a 4% decrease in units produced compared to the June quarter of fiscal 2019. Following the implementation of additional incentive pay programs during the quarter, we anticipate a better balance of production labor to service the demand we see in the market. We also continue to add more technology tools to streamline the fulfillment process, increase efficiencies and better serve our customers. With these tools and the additional equipment we plan to add, we anticipate being able to service about 30% more orders than a year ago. Turning to Salt Life, enthusiasts continue to actively engage with our brand. Showing Salt Life’s true omnichannel strength, sales grew over 35% compared to the 2019 June quarter, with at least double-digit growth for each of our wholesale, retail and e-commerce channels. Direct-to-consumer sales now make up approximately one-third of total sales, making great progress towards our goal of two-thirds topline contributions from direct-to-consumer channels. Sales at our branded Salt Life retail doors grew over 250% compared to the 2019 June quarter, with particular strength in key vacation destinations. This is even more impressive considering in certain locations we are having to reduce the hours the stores are open because of labor shortages. With such positive momentum in our retail performance, we will soon be opening our new Salt Life stores in Myrtle Beach, South Carolina, as well as our first store in Texas, which will be near Galveston. We’re excited to be accelerating our retail strategic initiatives, with plans to now open at least five new Salt Life retail locations in 2022. Salt Life enthusiasts were also actively engaged with the brand through all of our online channels during the quarter. We have harnessed not just the capabilities of our internal marketing team, but also the authentic experiences of our Salt Life team members who are some of the best fishing, diving and surfing athletes, who truly live the Salt Life every day. We produce new content for social media for our 1.5 million strong followers. Viewership of Salt Lake content on our YouTube channel increased about 30% for the June quarter this year, compared to the March quarter, with minutes watched increasing 40%, as we have extended our video lengths while growing viewership. Following the launch of the Daily Salt online publication in March on our Salt Life website, we have since increased the frequency of content publications, as well as launched a weekly podcast above and below. This engaging social, email and web content ecosystem helped drive over 65% of e-commerce sales in the June quarter compared to fiscal 2019. Now I’ll go through a more detailed review of our third quarter financial results. For our fiscal 2021 June quarter, we delivered sales of $118.7 million, an increase of 65% compared to our third quarter of fiscal 2020. Given the impact of COVID-19 on our business in fiscal 2020, I’ll focus the discussion on our results compared to the June -- compared to the June 2019 quarter. June 2021 quarter sales were relatively flat compared to the June 2019 quarter, driven by a 36% increase in net sales in the Salt Lake group, which was particularly -- which was partially offset by a 5% decline in net sales in the Delta Group, with both segments exceeding internal sales expectations. Gross profit for the period was $30.2 million, a 22% increase from $24.8 million in the third quarter of fiscal 2019. Gross margin increased 470 basis points to 25.5% versus 20.8% in 2019, driven by the stronger mix of direct-to-consumer sales in Salt Life and the benefit of higher selling prices in advance of higher product costs flowing through cost of sales. Selling, general and administrative expenses were $19.9 million or 16.8% of sales, compared to $17.9 million in the third quarter of fiscal 2019 or 15% of sales. The increase in SG&A primarily relates to higher incentive pay expense consistent with increases in profitability. Operating income for the quarter increased 42.8% to $11.9 million or 10% of sales, compared to $8.3 million or 7% of sales in the third quarter of fiscal 2019. The third quarter fiscal 2021 results included $1.2 million of amount related to the reduction of fair value of the contingent earned out liability from the DTG2Go acquisition. The third quarter fiscal 2019 results included a gain of $1.3 million related to the settlement of a commercial litigation matter. Net income for the quarter was $8.2 million or $1.14 per diluted share, compared to $4.9 million or $0.70 per share in the third quarter of fiscal 2019. Adjusted earnings per diluted share for the third quarter fiscal 2021 was $1.01, an increase of 68%, compared to the adjusted EPS of $0.60 in the third quarter of 2019. Our balance sheet remains strong, with total inventory of $152.3 million as of June 2021, down $5.7 million from a year ago and up $3.8 million from March 2021. As previously noted, we are manufacturing at all-time record levels to build the inventory to service the market demand for our products. With the inventory constraints, we have learned over the last several quarters how to operate more efficiently and with less inventory. With that said, with our increased production, we see our inventory position improving each quarter and expect to reach our new normalized levels by spring 2022. Total net debt including capital lease financing and cash on hand was $132.3 million as of June 2021, representing a $4.8 million increase in net debt levels a year ago and a $2.9 million decrease from net debt levels in March of 2021. We spent approximately $3.2 million on capital expenditures during the third quarter of fiscal 2021 and continue to expect total capital expenditures in fiscal 2021 to be about $20 million. Looking to our September quarter, as a reminder, the prior year September quarter had an additional week as 2020 was a 53 weeks fiscal year. After adjusting for the prior year additional week of sales, we would anticipate our 2021 September quarter to see growth of mid-single digits. We believe demand for our products will be much higher, but inventory will not be available to meet these demands. As mentioned in prior calls, our September quarter will have higher product costs flowing through cost of sales. While this will put pressure on our gross margins compared to our recent quarter, we believe that our margin enhancing strategies, coupled with being a more efficient company should allow operating margins to remain strong and approximate that of the March 2021 quarter. In summary, we’re very pleased with our performance to-date and believe despite ongoing macro headwinds, we -- that we can continue to be well-positioned for growth and improved profitability in fiscal 2022 and beyond. And now we’ll be glad to open up the call for any questions.
Operator: Thank you. We’ll take a question from Dana Telsey with Telsey Group. Please go ahead.
Dana Telsey: Hi. Good afternoon, everyone, and nice to see the solid progress on Salt Life. And just wanted to unpack the Delta Group a little bit more, it sounds like inventory shortages are leading to the inability to meet demand. When do you see inventory right sizing itself, so you will be able to? I just want to make sure I understand it clearly. Are you saying that the operating margin in the September quarter will be similar to the 7% operating margin of March 20 -- March second quarter 2021?
Deb Merrill: So, Dana, yeah, I will take those two questions. So, yes, on your second question, that’s exactly what we’re saying, is that the September should approximate the March, which was 7%. So you’re right on that. And then as far as inventory is concerned, yes, we would be saying exactly that, that we think throughout this fiscal year inventory has constrained the ability to grow sales in the Delta Group stronger than we have been able to achieve because of that. We are now producing at an all-time record production levels, but of course that has to flow back into the U.S. and then be available for sale. We’ve had strong sales, despite having 25% less inventory to just maintain the sales that we’ve been doing. We’re hoping to be gaining on our inventory levels and replenishing those each quarter. So, hopefully, each quarter that passes, we will be on better inventory position with the goal of being back to a normalized, which would be our new normalized level to start the spring 2022 selling season, which means really having that inventory in place by March to begin that spring selling season.
Dana Telsey: Got it. And could you just give us an update on what you’re seeing on the inflationary cycle? How you’re thinking about pricing, how that’s changing?
Bob Humphreys: Yeah. Like most every business right now, I’m sure in America, we’re seeing inflation. It really started before the pandemic, and we talked about that with wages and transportation costs. We’re seeing it in all areas of our business, slowdowns in shipping time, time on the water and what have you. So we have had a number of price increases in the last six months and we would expect to see further increases in our selling prices if these trends continue.
Dana Telsey: Got it. Just and any color by channel, what you’re seeing wholesale? That sounds like Salt Life in their own retail stores has been doing very well. Any further update there on the channel performance?
Bob Humphreys: So the Salt Life business channel performance has been strong in all three channels, wholesale, e-commerce and retail. The demand for the brand is really strong. I think we have enough retail stores. Now that people are seeing the product being really well merchandised, our same-store sales are growing rapidly over the prior year and so it’s really been nice to see to have our product out there and telling our story and see how the omnichannels really work. Our wholesale bookings for spring are up about 50% from what we saw this year. So still really strong demand in the wholesale market, too.
Dana Telsey: Thank you.
Operator: All right. We have a question from Jamie Wilen with Wilen Management.
Jamie Wilen: I think that was excellent quarter. A couple of different areas, when you mentioned Soffe that it was going to be $0.08 of costs, have we already -- we had $0.03 in this quarter. Have we taken the other $0.05 or is that coming in the fourth quarter?
Deb Merrill: No. That’s already been incurred in the first and second quarter. So we have now completed that initiative and on -- should be having some amount of benefit in the fourth quarter, but really starting to flow all the way through, starting in fiscal 2022 with that $0.12 to $0.15 odd increase in profitability from that initiative.
Jamie Wilen: So that’s going to start flowing through $0.03 to $0.04 quarter beginning with the first quarter or is that back-end loaded?
Deb Merrill: Correct. Yeah. No, no, no. I would -- a little bit will be back end, because, of course, some of it relates to distribution and the distribution costs, but there will be increases each quarter.
Jamie Wilen: Okay. The inventory shortage that you have, basically most of this product is made in the Honduras. Is that correct?
Bob Humphreys: Well, yeah, Mexico, Honduras and to some extent, El Salvador. Although, most of that goes directly to a retailer or brand, so there’s not an at-once inventory there.
Jamie Wilen: It seems like people were having difficulty getting inventory from China, but how does this flow through to the United States to get to you?
Bob Humphreys: So none of that…
Jamie Wilen: And why do you indeed have a shortage?
Bob Humphreys: Yeah. So none of that comes from China of what we’re talking about. We’re manufacturing over 90% of all the garments that we sell. And so we’re making more than we ever have. It’s just we can sell more than we ever have. And so it’s a demand driven shortage to some degree. But then the supply chain to us, yarn, for example, is in very tight supply, driven by lack of workers in the U.S. But things like labels, sewing threads, boxes, everything that you can think of that ultimately comes into this are in tight supplies. And then the shipping time from Central America to the U.S. has about doubled over the last eight weeks or so. So while we have made more product, we have a bubble going through our shipping that will be coming in and it has been coming in, but that is extra inventory kind of stagnant that we can’t get out to our consumers with the same velocity that we have come to know.
Jamie Wilen: Do you have the capability of increasing the manufacturing production in Central America and by how much and will that be enough to satisfy your needs as you look at 2022 and 2023?
Bob Humphreys: Yes. We will be able to, as Deb talked about, we already have commitments for additional equipment coming in. It’s going to probably add 5% to 7% unit production in basic tees and fleece and that sort of thing. I think we got to see what post-pandemic, whenever that is and whenever we figure we are in post-pandemic, what that demand is. But I think we have seen some structural changes in the marketplace and consumer behavior. And so I’m probably more bullish now than I’ve ever been about the forward-looking demand for the type of products that we make and for our supply chain to major retailers and major brands. And the fact that while we’re very tight on product, we have stayed in production. We’ve stayed being able to service our customers. And our direct to brands and retailer service has been very high. And so I think it’s differentiated us in the marketplace to some degree. And as we’ve been saying really for a couple of years now, these trends started before. And so major brands, major retailers, we’re trying to bring more production into this hemisphere. And we started that, and we’re the leader with a lot of really named brands in apparel. And so this is only accelerating that. And then you add on top of it, the various concerns over a lot of areas in Asia, whether it’s the pandemic or work rules or human rights or what have you, I think this is a trend that is going to be with us for some time and a small trend, it’s a big wave when it gets to us, so.
Jamie Wilen: Got it. On DTG2Go, now that you’ve - have under Autoscale under your wing, could you describe a little bit more about what opportunities you see that it can bring to the business?
Deb Merrill: Yes. And as you said, we’ve got it fully integrated in with our DTG2Go business and are out marketing that. We expect to launch some customers on it this fourth quarter and then into the next year. And really what it is to provide a tool for them to be able to monetize the graphics that they have in their art libraries, by giving them the tools to bring those graphics to consumers. And so a lot of times people are interested in that, but then they don’t know how to get their art libraries to market. And so, this will allow them and give them the technology to be able to do that seamlessly and then have that seamlessly integrated into our DTG2Go production so that we can service those sales that they generate. So we’re excited to get that launched in this fourth quarter and then to continue to see that grow and bring new opportunities to DTG2Go.
Jamie Wilen: Got it. You mentioned you brought on some additional traditional retail chains. Could you quantify how many chains of respectable size you’ve brought on?
Deb Merrill: So, yes, as far as servicing different retailers, I mean, we’ve probably doubled what we are servicing. So we probably doubled the quantity, which has then what generated that 70%, not just the increase, but the increase in the existing ones plus the new ones that have now generated that 70% increase.
Jamie Wilen: Okay. And in relationship with Hot Topic, can you talk about the evolution there and where it now stands?
Deb Merrill: Absolutely. That continues to grow on and in and of itself and supporting that growth that we mentioned on their own business. We are in the process of doubling the capacity that we have in that integrated site based upon the performance that they’re seeing and the initiatives that they have to utilize that. As a reminder, they not only utilized the capacity that we put in the integrated facility, but then they also take advantage of the other the network of facilities that we have across the country. So they get the benefits of the full network, plus the benefits of the integrated facility that we have with them.
Jamie Wilen: Are the other traditional retailers looking to copy that model? Go on, sorry, Bob.
Bob Humphreys: Yeah. I would just add to what Deb was saying there on the Hot Topic model. When we first started with what’s now DTG2Go about 10 years ago. That was really our vision as these retailers, both for their e-commerce business, which was starting to grow at the time and then for in-store fulfillment, in-store shipments. That was our vision for the future. And we booked business along with e-retailers and other types of vendors as we were working on getting these big box players on Board, because they sell in all entities. And so we are now seeing these channels really start to be integrated. Deb talked about the growth we saw in this quarter. But I think there’s a lot more of that to come, and it’s really the market that is selling an awful lot of T-shirts. So we’re excited to have that coming along.
Jamie Wilen: So the other traditional retailers are kind of moving the same path, the same kind of model that Hot Topic is utilizing now?
Bob Humphreys: Yeah. I don’t know that any one copies one exact model. Sometimes, it’s their systems, their strategy, where their distribution centers are located. But I think most major retailers are either already or starting to embark on selling product, particularly through their e-commerce channel that are produced on digital printing. And there’s more and more conversations and some additional technology that we have and R&D that we have done that we think will lead to more in-store replenishment of a digital printing as well.
Jamie Wilen: Fantastic. Great quarter. That’s it.
Deb Merrill: Thank you.
Bob Humphreys: Thank you.
Operator: We’ll take our next question from Shawn Boyd with Next Mark Capital.
Shawn Boyd: Thanks for taking my question. Can you hear me okay?
Bob Humphreys: Yes, sir.
Shawn Boyd: Great. Just want to go back to one of the comments -- I think one of the last comments in the script, as we’re talking about the inventory shortages and the quarter we are now in. You talked about growth of mid-single digits. Is that sequential or is that versus September 2019 quarter?
Deb Merrill: Yeah. That’s actually compared to -- you’ve got to take our fiscal 2020 quarter just as past year’s year-over-year quarter and adjust that quarter for it having an additional week in the quarter and then from that, we would have mid single-digit growth. Correct, and yeah, then in -- the reminder -- as a reminder as well, fiscal 2020 quarter for the September quarter was much stronger than our fiscal 2019 quarter. So we saw nice strong growth in that quarter last year and so that would then, of course, put -- even adjusting for that week, we’ll put our fiscal 2021 September quarter stronger than our 2019 quarter.
Shawn Boyd: Okay. So it’s adjusted for that week of production or that one extra week last year, it’s a year-over-year comparison?
Deb Merrill: That is correct.
Shawn Boyd: Okay. Got it. So now we are working through this inventory shortage or the inventory constraints, I should say, into December -- into the December quarter. So can you give us a preliminary look as to what this looks like out into FY 2022? And I’ll kind of go back to, I think, in the past, we’ve talked about sort of high single-digit growth, 7% to 10% kind of annual growth from the company on an overall basis. Could you speak to that a little bit or maybe even pull out Salt Life and just talk about Delta Group given that, that’s where the shortages or the constraints should be occurring?
Deb Merrill: Yeah. And as opposed to kind of breaking that out, we would just say that we would expect to see growth at least in that range that you mentioned each quarter, but we do expect as we go through fiscal 2022, that every quarter, we will be able to see growth as compared to fiscal 2021 in those upper single- to low double-digit growth rates.
Shawn Boyd: Got it. Okay. Very helpful. On the labor shortage or, excuse me, the tight labor issues that you had. Is that something that you’ve pretty much resolved at this point and that’s where we’ve got the lower margin for this quarter and then we progress from there or is that something that sticks around for a little while?
Bob Humphreys: Yeah. Well, it’s not resolved yet for sure and so it’s a little bit hard to tell. I mean, we see it in our distribution centers in the U.S. We see it in our retail stores, where they’re really being held back. We’ll have -- most of our retail stores are not being able to open seven days a week, because we can’t get them staffed for seven days a week, so and even with that, having really strong growth. So we’re being held back by just people to operate our DCs, people to operate our DTG2Go equipment and our retail stores. We’re hoping in the fall as kids get back in school, hopefully, and stimulus checks run out and extra -- unemployment people will be more motivated to go back to work. And it’s really not affecting the gross margins, although, if we had more product, we’d be levered in our costs, so that would ultimately help that a little bit. But gross margins as a function of higher cost products starting to flow through inventory and the timing of price increases in different channels of distribution, but still strong gross margins for us, but not quite as strong as we achieved this past quarter.
Shawn Boyd: Got it. Got it. Okay. Last one from me is just focusing on Salt Life for a second. It seems like we’re at kind of ramming speed, so to speak. This is really kind of breaking out a little bit. The business was, I don’t know, high 30s last year and that was a pandemic year. So maybe we need to back up to 2019, $43 million business. You’re going to be exceeding that substantially here this year. Where are we going? How big does this look to you all kind of a couple of years down the road? How big is it in terms of retail stores? What percentage of the business would be direct common directed consumer e-commerce? Just trying to understand a little bit more on Salt Life in particular?
Bob Humphreys: So, if you look back two years and we had about 35% growth. So it kind of slightly above that rate that we’ve been saying that we -- our goal was to grow Salt Life at 10% a year, and obviously, we had a pandemic year in there. But looking back, we’ve obviously done that. I think the most deciding thing or a very exciting thing is, we’ve got the proof-of-concept now of our retail store rollout. And so our first few stores were marketing pieces. We did a store in Jacksonville, Florida, which is where the brand started as a part of our original acquisition. That’s a nice store. It’s growing and making money, but it’s not like our big branded stores that we are doing now. We’ve got a good model and we’ve got a team to roll them out. And in the last three months or four months, we’ve got a pace behind us now of finding locations and signing leases. So we’ll open, we believe, at least five stores next fiscal year. If we got one more that will get open this fiscal year. And so we would expect a pace like that, which just adds probably on average for us now $800,000 a year per store. We’ve got some performing well in excess of $1 million. So that would be a big driver of Salt Life growth. But as I mentioned earlier, our pre-book business, so Salt Life runs on a pre-book, we -- wholesale business. We go to our customers, we show our lines and we take orders ahead of time and bring that inventory in. So we’re not bringing inventory a big way in just to go try to sell. Anyway, that pre-book business is up about 50% from this time last year. We serviced that well. We serviced it well through the pandemic and the same thing. Customers are going in there and looking for Salt Life product. And our Salt Life e-commerce is doing well. Obviously, the pandemic quarter, we had a big spike last year. We won’t have that spike this year. When you take that quarter out, we’re still growing that business nicely. And what’s really exciting is our social media channels are growing even faster and really punching above the weight of Salt Life sales today, which just goes to show the consumer engagement and their desire for living the Salt Life. And as we say, if they’re not at the beach, thinking they’d want to be at the beach. So we do feel good about that and it does seem like we’re getting to a pace of growth now that’s getting it to the next level.
Deb Merrill: And I would just roll that all together to say, as Bob mentioned, we had targeted this business to be at a compounded double digits, so 10% topline growth. With the new doors that we’re adding in 2022 already, that should allow us to even exceed that in a 2022 fiscal year. And then to equate all of the strong growth in the retail direct-to-consumer channel, both e-comm and at the retail doors that also nicely expands the gross margins in that business as well and then obviously drops to the bottomline and operating margins. So all of those things added up certainly allows us to get to that goal of the 10% topline and even exceed that in fiscal 2022.
Shawn Boyd: Got it. Got it. Well, thank you very much for the color and then congratulates on a great result in a very difficult operating environment.
Deb Merrill: Thank you.
Bob Humphreys: Thank you.
Operator: And there are no further questions at this time. I would like to turn the call over to Bob Humphreys for any additional or closing remarks.
Bob Humphreys: Okay. Well, thank you very much for your time and interest in Delta Apparel, and we only got about eight weeks to go to finish the fiscal year. It’s hard to believe how fast they click by. But we’ll look forward to updating you in a few months on the full year results in our fourth quarter. Thanks for your interest.
Operator: And that does conclude today’s presentation. Thank you for your participation. You may now disconnect.
