Delta Apparel Is Reasonably Priced Even After Restructuring Charges

| About: Delta Apparel, (DLA)

Small Cap Watch List member Delta Apparel (NYSEMKT:DLA) announced it will close a plant and take restructuring charges of approximately $10.0 million, or $0.75 per diluted share over the next few quarters. Two thirds of the charge falls into the current quarter. It also took the opportunity to update its guidance:

Fourth Quarter and Fiscal 2007 Preliminary Results

The Company’s sales for its 2007 fourth fiscal quarter are approximately $92 million. This brings sales for the full 2007 fiscal year to approximately $312 million, almost a 16% increase over the prior fiscal year.

Including the $6.9 million, or $0.51 per diluted share, of start-up, excess and impairment charges associated with its textile restructuring, the Company now expects diluted earnings per share for its fourth quarter to be in the range of $0.06 to $0.08 versus its prior expectation of $0.50 to $0.55. As a result, earnings for the full 2007 fiscal year are expected to be in the range of $0.71 to $0.73 per diluted share. This compares to the Company’s previously disclosed expectations of earnings in the range of $1.15 to $1.20 per diluted share prior to the restructuring related charges.

Fiscal 2008 Guidance

For the 2008 fiscal year ending June 28, 2008, the Company expects net sales to be in the range of $335 to $350 million and diluted earnings per share to be in the range of $1.36 to $1.52. This includes the $3.2 million, or $0.23 per diluted share, of anticipated expenses associated with the start-up of the new Honduran textile facility and the shutdown of the Fayette, Alabama facility that will impact results in the first two quarters of fiscal 2008.

Analysts were expecting the company to earn $0.52 in the current quarter, or $0.01 after the charge. For next year they were expecting $1.35, or $1.11 after restructuring charges.

With the new estimates (on an adjusted basis) now significantly higher than the previous consensus, it is probably no surprise that the stock is rallying. I admire the company for issuing the guidance according to GAAP and letting the analysts work out any adjustments they want to make. The true earnings power is probably somewhere between the GAAP and the pre-charge numbers anyway. But even using the GAAP numbers the stock is trading at a fairly reasonable 12x the midpoint of next year’s earnings.

DLA 1-yr chart:

DLA 1-yr chart