Delta Apparel Puts Salt Life on the Market
Salt Life could find itself with a new owner.
Delta Apparel Inc., Salt’s current parent, said Monday that it has received an unsolicited offer to purchase the lifestyle brand. Terms of the offer were not disclosed. Delta has hired financial advisor Baird to review strategic options for the brand.
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“The Salt Life team has done an excellent job in taking what was essentially a small regional brand with a primarily wholesale business when we acquired it in 2013 and growing it into a highly profitable business with over $60 million in revenue, a consumer base stretching across the United States and internationally, and a variety of new go-to-market strategies, product categories and revenue channels,” Bob Humphreys, Delta’s chairman and CEO, said. “Today, Salt Life products are offered in over 1,700 wholesale doors across 48 states and direct-to-consumer via a growing eCommerce site as well as 25 branded retail stores spanning the U.S. coastline from California to Florida to New York.”
Delta paid $15 million in cash to acquire the beach lifestyle brand, plus promissory notes totaling $22 million and an additional payout if certain performance targets were met. The business at the time had annual volume in the $20 million range.
Humphreys said there was no guarantee that the review would result in a transaction, and that the review showed the board’s commitment to “maximizing value for Delta Apparel shareholders” given the “widespread interest” in Salt Life.
Dana Telsey, chief investment officer of Telsey Advisory Group, isn’t convinced selling would be in Delta’s best interest.
“It is not surprising that the company is seeing interest in Salt Life given its strong lifestyle brand appeal and topline and margin expansion potential,” she said. “However, given what we see as its long-term runway for growth and scale opportunity, it is our view that [Delta Apparel] can realize greater ultimate shareholder value creation by retaining ownership of the brand rather than selling it at this early stage of its maturity profile.”
Telsey said Delta has been trying to reduce production, cut overhead costs and shore up working capital. She believes that Delta’s DTG2Go—the “on-demand” direct-to-garment apparel printing and fulfillment network—and Salt Life can drive topline growth in the upcoming fiscal year.
Salt Life domestic and international sales have been important growth driver for Delta, with topline revenue growth of 33.9 percent in Fiscal Year 2021 and 20.7 percent in Fiscal Year 2022, according to Telsey. Current growth trends are in the 4.0 percent range because tourism hasn’t fully bounced back and lackluster wholesale orders reflect channel-wide inventory overhang.
“As the Delta Group has struggled with increased cotton input costs and excess inventory in the activewear supply chain, the Salt Life business has become increasingly important to profitability,” Telsey said.
For the third quarter ended July 1, Delta posted a net loss of $6.3 million on a 16.2 percent decline in net sales to $106.3 million. Humphreys said Salt Life, which contributed $17.2 million in net sales for the quarter, continued to “expand its consumer reach with two new branded retail locations in New York and outstanding growth on its eCommerce site.”
For the second quarter ended April 1, Delta posted a net loss of $7.0 million on a net sales decline of 16.2 percent to $110.3 million. At the time, Humphreys said Salt Life achieved record quarterly sales and profitability. During the quarter, it expanded its license portfolio to offer home products. Humphreys said Delta expects to generate “significant future royalty revenue” from the new partnership in the “multi-billion-dollar home furnishings market.”
The home collection, developed in partnership with Magnussen Home, is expected to launch in 2024. Delta said in March that the line will range from relaxed, breezy linens to wooden furniture. “Salt Life’s consumer-favorite beach apparel serves as an inspiration for the collection, which will feature textures and patterns reminiscent of seaside views and colors ranging from soothing neutrals to bold splashes of ocean blue and sunset red,” the company said.
Salt Life was founded in 2003 by four watermen from Jacksonville Beach, Fla. and grew into a lifestyle collection centered on watersports.
