DELTA APPAREL, INC - Quarter Report: 2022 December (Form 10-Q)

dla-20221231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

December 31, 2022

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from

________

to ________

Commission File Number

1-15583

DELTA APPAREL, INC.

______________________________

(Exact name of registrant as specified in its charter)

Georgia

58-2508794

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

2750 Premier Parkway

Suite 100

Duluth

Georgia

30097

(Address of principal executive offices)

(Zip Code)

(

678

)

775-6900

______________________________

(Registrant’s telephone number, including area code)

______________________________

(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01

DLA

NYSE American

Indicate by

check mark

whether the

registrant (1) has

filed all

reports required

to be

filed by

Section 13 or

15(d) of

the Securities

Exchange Act

of 1934

during the

preceding 12 months (or

for such shorter

period that the

registrant was required

to file such

reports), and (2) has

been subject to

such filing requirements

for the past

90 days. Yes

☑

☐

Indicate by check mark whether the

registrant has submitted electronically every Interactive Data File required to

be submitted pursuant to Rule 405 of

Regulation S-T

during the preceding 12 months (or for such shorter period that

the registrant was required to submit such files).

Yes

☑

☐

Indicate by check mark whether

the registrant is a large

accelerated filer, an accelerated filer, a non-accelerated

filer, a smaller reporting company, or an emerging

growth

company. See the definitions

of “large accelerated filer,”

“accelerated filer”,

“smaller reporting company”

and "emerging growth

company" in

Rule 12b-2 of the

Exchange

Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☑

Emerging growth company

☐

If an emerging

growth company,

indicate by check

mark if the

registrant has elected

not to use

the extended transition

period for complying

with any new

or revised

financial accounting standards provided pursuant to Section 13(a)

of the Exchange Act

☐

Indicate by check mark whether the registrant is a shell company

(as defined in Rule 12b-2 of the Exchange Act). Yes

☐

☑

As of January 27, 2023,

there were outstanding

7,001,020

shares of the registrant’s

common stock, par value of $0.01

per share, which is the

only class of outstanding

common or voting stock of the registrant.

TABLE OF CONTENTS

Page

PART

Financial Information

Item 1.

Financial Statements (unaudited):

Condensed Consolidated Balance Sheets — December 2022 and September 2022

Condensed Consolidated Statements of Operations — Three Months Ended December 2022 and December 2021

Condensed Consolidated Statements of Comprehensive (Loss) Income — Three Months Ended December 2022 and December 2021

Condensed Consolidated Statements of Shareholders' Equity — Three Months Ended December 2022 and December 2021

Condensed Consolidated Statements of Cash Flows — Three Months Ended December 2022 and December 2021

Notes to Condensed Consolidated Financial Statements (unaudited)

Note A—Basis of Presentation and Description of Business

Note B—Accounting Policies

Note C—New Accounting Standards

Note D—Revenue Recognition

Note E—Inventories

Note F—Debt

Note G—Selling, General and Administrative Expense

Note H—Stock-Based Compensation

Note I—Purchase Contracts

Note J—Business Segments

Note K—Income Taxes

Note L—Derivatives and Fair Value Measurements

Note M—Legal Proceedings

Note N—Repurchase of Common Stock

Note O—Goodwill and Intangible Assets

Note P—Subsequent Events

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 4.

Controls and Procedures

PART

II.

Other Information

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 5.

Other Information

Item 6.

Exhibits

Signatures

PART 1.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share amounts and per share data)

(Unaudited)

December 2022

September 2022

Assets

Cash and cash equivalents

327

300

Accounts receivable, less allowances of $

and $

109

, respectively

57,755

68,215

Other receivables

2,396

1,402

Income tax receivable

1,363

1,969

Inventories, net

258,891

248,538

Prepaid expenses and other current assets

4,114

2,755

Total current assets

324,846

323,179

Property, plant and equipment, net of accumulated depreciation of $

111,194

and $

108,565

, respectively

72,771

74,109

Goodwill

37,897

Intangibles, net

23,427

24,026

Deferred income taxes

1,342

Operating lease assets

49,313

50,275

Equity method investment

9,045

9,886

Other assets

2,800

2,967

Total assets

521,441

523,681

Liabilities and Equity

Liabilities:

Accounts payable

79,844

83,553

Accrued expenses

20,808

27,414

Income taxes payable

321

379

Current portion of finance leases

8,603

8,163

Current portion of operating leases

8,585

8,876

Current portion of long-term debt

9,514

9,176

Total current liabilities

127,675

137,561

Long-term income taxes payable

2,841

Long-term finance leases

18,465

16,776

Long-term operating leases

42,015

42,721

Long-term debt

148,899

136,750

Deferred income taxes

2,232

4,310

Total liabilities

342,127

340,959

Shareholder's equity:

Preferred stock - $

0.01

par value,

2,000,000

shares authorized, none issued and outstanding

Common stock $

0.01

par value,

15,000,000

authorized,

9,646,972

shares issued, and

7,001,020

and

6,915,663

shares outstanding as of December 2022 and September

2022, respectively

Additional paid-in capital

60,559

61,961

Retained earnings

163,035

166,600

Accumulated other comprehensive income

210

141

Treasury stock -

2,645,952

and

2,731,309

shares as of December 2022 and September 2022,

respectively

(43,896)

(45,420)

Equity attributable to Delta Apparel, Inc.

180,004

183,378

Equity attributable to non-controlling interest

(690)

(656)

Total equity

179,314

182,722

Total liabilities and equity

521,441

523,681

See accompanying Notes to Condensed Consolidated Financial

Statements.

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Amounts in thousands, except per share data)

(Unaudited)

Three Months Ended

December 2022

December 2021

Net sales

107,295

110,746

Cost of goods sold

93,672

87,743

Gross profit

13,623

23,003

Selling, general and administrative expenses

18,870

17,482

Other (income), net

(2,621)

(395)

Operating (loss) income

(2,626)

5,916

Interest expense, net

2,890

1,598

(Loss) earnings before provision for income taxes

(5,516)

4,318

(Benefit from) provision for income taxes

(1,917)

648

Consolidated net (loss) earnings

(3,599)

3,670

Net (loss) income attributable to non-controlling interest

(34)

Net (loss) earnings attributable to shareholders

(3,565)

3,645

Basic (loss) income per share

(0.51)

0.52

Diluted (loss) income per share

(0.51)

0.51

Weighted average number of shares outstanding

6,954

6,999

Dilutive effect of stock awards

Weighted average number of shares assuming dilution

6,954

7,085

See accompanying Notes to Condensed Consolidated Financial

Statements.

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Amounts in thousands)

(Unaudited)

Three Months Ended

December 2022

December 2021

Net (loss) income attributable to shareholders

(3,565)

3,645

Other comprehensive income related to unrealized gain

on derivatives, net of income tax

212

Consolidated comprehensive (loss) income

(3,496)

3,857

See accompanying Notes to Condensed Consolidated Financial

Statements.

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(Amounts in thousands, except share amounts)

(Unaudited)

Accumulated

Additional

Other

Non-

Common Stock

Paid-In

Retained

Comprehensive

Treasury Stock

Controlling

Amount

Capital

Earnings

Income

Amount

Interest

Total

Balance as of

September 2022

9,646,972

61,961

166,600

141

2,731,309

(45,420)

(656)

182,722

Net loss

(3,565)

Other comprehensive

income

Net loss attributable to

non-controlling

interest

(34)

Purchase of common

stock

Vested stock awards

(2,067)

(85,357)

1,524

(543)

Stock based

compensation

665

Balance as of

December 2022

9,646,972

60,559

163,035

210

2,645,952

(43,896)

(690)

179,314

Accumulated

Additional

Other

Non-

Common Stock

Paid-In

Retained

Comprehensive

Treasury Stock

Controlling

Amount

Capital

Earnings

(Loss)

Amount

Interest

Total

Balance as of

September 2021

9,646,972

60,831

146,860

(786)

2,672,312

(42,149)

(658)

164,194

Net income

3,645

Other comprehensive

income

212

Net income attributable

to non-controlling

interest

Purchase of common

stock

74,232

(2,143)

Vested stock awards

(1,766)

(76,460)

674

(1,092)

Stock based

compensation

140

Balance as of December

2021

9,646,972

59,205

150,505

(574)

2,670,084

(43,618)

(633)

164,981

See accompanying Notes to Condensed Consolidated Financial

Statements.

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

Three Months Ended

December 2022

December 2021

Operating activities:

Consolidated net (loss) earnings

(3,599)

3,670

Adjustments to reconcile net (loss) earnings to net cash

used in operating activities:

Depreciation and amortization

3,844

3,629

Amortization of deferred financing fees

(Benefit from) provision for deferred income taxes

(2,101)

754

Change in inventory market reserves

163

851

Non-cash stock compensation

665

140

Gain on disposal of equipment

Other, net

(89)

(390)

Changes in operating assets and liabilities:

Accounts receivable

9,466

1,993

Inventories, net

(10,516)

(22,206)

Prepaid expenses and other current assets

(1,443)

(1,449)

Other non-current assets

1,188

699

Accounts payable

(3,723)

7,584

Accrued expenses

(5,030)

(7,572)

Net operating lease liabilities

(35)

206

Income taxes

(854)

(140)

Other liabilities

(1,050)

Net cash used in operating activities

(11,922)

(13,198)

Investing activities:

Purchases of property and equipment, net

(2,081)

(1,822)

Proceeds from equipment under finance leases

4,417

Cash paid for intangible asset

(51)

Cash paid for business

(583)

Net cash provided by (used in) investing activities

2,336

(2,456)

Financing activities:

Proceeds from long-term debt

133,918

138,543

Repayment of long-term debt

(121,431)

(121,293)

Repayment of capital financing

(2,332)

(1,783)

Repurchase of common stock

(1,718)

Payment of withholding taxes on stock awards

(542)

(1,092)

Net cash provided by financing activities

9,613

12,657

Net increase (decrease) in cash and cash equivalents

(2,997)

Cash and cash equivalents at beginning of period

300

9,376

Cash and cash equivalents at end of period

327

6,379

Supplemental cash flow information

Finance lease assets exchanged for finance lease liabilities

4,461

Operating lease assets exchanged for operating lease liabilities

1,807

1,401

See accompanying Notes to Condensed Consolidated Financial

Statements.

Delta Apparel, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note A— Description of Business and Basis of Presentation

Delta Apparel, Inc. (collectively with DTG2Go, LLC, Salt Life, LLC, M.J. Soffe, LLC, and other subsidiaries, "Delta Apparel," "we," "us," "our," or the "Company") is

a vertically-integrated, international apparel company with approximately

8,500

employees worldwide. We design, manufacture,

source, and market a diverse portfolio

of core activewear and lifestyle apparel products under our primary brands of Salt Life®, Soffe®, and Delta. We are a

market leader in the on-demand, digital print and

fulfillment industry,

bringing DTG2Go's proprietary

technology and innovation

to our customers'

supply chains.

specialize in selling

casual and

athletic products

through a variety of distribution

channels and tiers, including outdoor

and sporting goods retailers,

independent and specialty stores,

better department stores and mid-tier

retailers, mass merchants, eRetailers, the U.S.

military, and through our

business-to-business digital platform. Our products are also

made available direct-to-consumer

on our ecommerce sites

and in our

branded retail stores.

Our diversified go-to-market

strategy allows us

to capitalize on

our strengths in providing

activewear and lifestyle

apparel products to a broad and evolving customer base whose

shopping preferences may span multiple retail channels.

We design and internally manufacture the majority

of our products, with more

than 90% of the apparel

units that we sell sewn

in our own facilities.

This allows us to

offer

a high degree of

consistency and quality, leverage

scale efficiencies, and react quickly

to changes in trends within the

marketplace. We have

manufacturing operations

located in

the United

States, El

Salvador, Honduras,

and Mexico,

and we

use domestic

and foreign

contractors as

additional sources

of production.

Our distribution

facilities are strategically located throughout the United States to better serve our customers with same-day shipping on our catalog products and weekly

replenishments

to retailers. We

were incorporated in Georgia in 1999, and

our headquarters is located in Duluth, Georgia.

Our common stock trades on the NYSE

American under the

symbol “DLA."

We operate on a

52-53 week

fiscal year

ending on

the Saturday

closest to

September 30.

Our 2023 fiscal

year is

a 52-week

year and

will end

on September

30, 2023 ("fiscal

2023"). Accordingly, this Quarterly Report on Form 10-Q presents our results for our first quarter of fiscal 2023. Our 2022 fiscal year was a 52-week year and ended on

October 1, 2022 ("fiscal 2022").

For presentation purposes herein, all references to period

ended relate to the following fiscal years and dates:

Period Ended

Fiscal Year

Date Ended

December 2021

Fiscal 2022

January 1, 2022

March 2022

Fiscal 2022

April 2, 2022

June 2022

Fiscal 2022

July 2, 2022

September 2022

Fiscal 2022

October 1, 2022

December 2022

Fiscal 2023

December 31, 2022

We prepared the accompanying interim Condensed Consolidated

Financial Statements in accordance

with the instructions for Form

10-Q and Article 10 of Regulation S-

X. Accordingly, they do not include all of

the information and footnotes required

by U.S. generally accepted accounting

principles ("U.S. GAAP") for complete

financial

statements.

believe

these

Condensed

Consolidated

Financial

Statements include

all

normal

recurring

adjustments considered

necessary

for

fair

presentation.

Operating results for the three months ended December 2022 are not necessarily indicative of the results that may be expected for our fiscal 2023. Although our various

product lines are

sold on a

year-round basis,

the demand for

specific products or

styles reflects some

seasonality. By

diversifying our product

lines and go-to-market

strategies over

the years,

we have

reduced the

overall seasonality

of our

business. Consumer

demand for

apparel is

cyclical and

dependent upon

the overall

level of

demand for soft goods, which may or may not coincide with the overall level of discretionary consumer spending. These levels of demand change as regional, domestic

and international economic conditions

change. Therefore, the distribution

of sales by quarter in fiscal

2023 may not be indicative

of the distribution in future

years. These

Condensed Consolidated Financial Statements should be

read in conjunction with the

audited Consolidated Financial Statements and

footnotes included in our Annual

Report on Form 10-K for our fiscal 2022, filed with the United

States Securities and Exchange Commission (“SEC”).

Our Condensed Consolidated Financial Statements include the accounts of Delta

Apparel and its wholly-owned and majority-owned domestic and foreign subsidiaries.

We apply the equity method of accounting for our investment

% of the outstanding capital stock

of a Honduran company. During the three months ended December

2022 and December 2021, we received dividends

from this investment of $

0.9

million and $

0.6

million, respectively. Our Ceiba Textiles manufacturing facility is leased

under

operating

lease

arrangement with

this

Honduran

company.

During

the

three

months

ended

December

2022

and

December

2021, we

paid

approximately

0.4

million under this arrangement.

We make

available copies of materials we file

with, or furnish to, the SEC free

of charge at https://ir.deltaapparelinc.com.

The information found on our website is

not

part of this, or any

other, report that we

file with, or furnish to,

the SEC. In addition, we

will provide upon request, at no

cost, paper or electronic copies of our

reports

and other filings

made with the

SEC. Requests should be

directed to: Investor

Relations Department, Delta

Apparel, Inc., 2750 Premiere

Parkway, Suite

100, Duluth,

Georgia 30097. Requests can also be made by telephone to 864-232-5200,

or via email at investor.relations@deltaapparel.com.

Note B—Accounting Policies

Our accounting policies are consistent with those described

in our Significant Accounting Policies in our Annual

Report on Form 10-K for our fiscal 2022, filed with

the

SEC. See Note C for consideration of recently issued

accounting standards.

Note C—New Accounting Standards

Standards Not Yet Adopted

In June 2016, the FASB

issued ASU No. 2016-13,

Financial Instruments - Credit Losses

(Topic 326):

Measurement of Credit

Losses on Financial Instruments

(“ASU

2016-13”), which requires an entity to assess impairment of its

financial instruments based on the entity's estimate of expected credit losses. Since the

issuance of ASU

2016-13, the FASB released several amendments

to improve and clarify

the implementation guidance. These

standards have been collectively

codified within ASC Topic

326,

Credit Losses

(“ASC 326”). As a smaller reporting company as defined by

the SEC, the provisions of ASC 326 are effective

as of the beginning of our fiscal year

2024. We are currently evaluating the impacts of the provisions of ASC 326 on our financial condition,

results of operations, cash flows, and disclosures.

Note D—Revenue Recognition

Our Condensed Consolidated Statements of Operations

include revenue streams from retail sales

at our branded retail stores; direct-to-consumer

ecommerce sales on our

consumer-facing websites; and sales from wholesale channels, which includes our business-to-business ecommerce sales and sales in

our DTG2Go business.

The table

below identifies the amount and percentage of net sales

by distribution channel (in thousands):

Three Months Ended

December 2022

December 2021

Retail

3,455

2,903

Direct-to-consumer ecommerce

1,509

1,345

Wholesale

102,331

106,498

Net sales

107,295

100

110,746

100

The table below provides net sales by reportable segment and

the percentage of net sales by distribution channel for

each reportable segment (in thousands):

Three Months Ended December 2022

Net Sales

Retail

Direct-to-consumer

ecommerce

Wholesale

Delta Group

97,010

0.1

0.2

99.7

Salt Life Group

10,285

33.0

12.7

54.3

Total

107,295

Three Months Ended December 2021

Net Sales

Retail

Direct-to-consumer

ecommerce

Wholesale

Delta Group

101,921

0.2

0.3

99.5

Salt Life Group

8,825

30.4

12.0

57.6

Total

110,746

Note E—Inventories

Inventories, net of reserves of $

17.8

million and $

17.7

million as of December 2022 and September 2022, respectively, consisted of the

following (in thousands):

December 2022

September 2022

Raw materials

22,166

22,603

Work in process

20,352

23,501

Finished goods

216,373

202,434

258,891

248,538

Raw materials include finished

yarn and direct materials for

the Delta Group, undecorated

garments for the DTG2Go

business, and direct embellishment

materials for the

Salt Life Group.

Note F—Debt

Credit Facility

On May 10, 2016,

we entered into

a Fifth Amended

and Restated Credit Agreement

(as further amended,

the “Amended Credit

Agreement”) with Wells

Fargo Bank,

National Association

(“Wells Fargo”), as Administrative

Agent, the Sole

Lead Arranger and

the Sole

Book Runner, and

the financial

institutions named

therein as Lenders,

which are Wells Fargo,

PNC Bank,

and Regions

Bank. Our

subsidiaries M.J.

Soffe, LLC, Culver

City Clothing

Company, Salt Life,

LLC, and

DTG2Go, LLC

(collectively,

the "Borrowers"), are co-borrowers under

the Amended Credit Agreement.

The Borrowers entered into amendments

to the Amended Credit Agreement

with Wells Fargo

and the other lenders on November 27, 2017, March 9, 2018, October

8, 2018, November 19, 2019, April 27, 2020, and August

28, 2020.

On June 2, 2022, the Borrowers entered into a Seventh Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo Bank (the “Agent”) and the

other lenders

set forth

therein (the

“Seventh Amendment”).

The Seventh

Amendment, (i)

removes LIBOR

based borrowing

and utilizes

SOFR (Secured

Overnight

Financing Rate) as the primary pricing structure, (ii) amends the

pricing structure based on SOFR plus a CSA (Credit Spread Adjustment)

defined as

bps for 1 month

and

bps for

3-month tenors, (iii)

sets the

SOFR floor to

bps, (iv)

reloads the fair

market value of

real estate and

intellectual property within

the borrowing base

calculation and resets their respective amortization schedules, (v) sets

the maturity date to

years from the closing date, and

(vi) updates the requirement for our Fixed

Charge Coverage Ratio (“FCCR”) for the preceding 12-month period

must not be less than

1.0

(previously

1.1

The Amended Credit Agreement allows us to borrow

up to $

170

million (subject to borrowing base limitations), including

a maximum of $

million in letters of credit.

Provided that no event of default exists,

we have the option to increase the

maximum credit to $

200

million (subject to borrowing base limitations),

conditioned upon the

Administrative Agent's ability to secure

additional commitments and customary closing conditions. The

Amended Credit Agreement contains a

subjective acceleration

clause and a “springing” lockbox arrangement (as defined

in ASC 470, Debt ("ASC 470")) whereby

remittances from customers will be forwarded to our general

bank

account and

will not

reduce the outstanding

debt until

and unless

a specified event

or an

event of

default occurs. We

classify borrowings under

the Amended

Credit

Agreement as long-term debt with consideration of current

maturities.

As of December 2022, we had

142.3

million outstanding under our U.S. revolving credit facility

at an average interest rate of

6.7

%. Our cash on hand combined with

the availability under the

U.S. credit facility totaled $

27.2

million. At December 2022 and September 2022, there was $

23.1

million and $

24.9

million, respectively, of

retained earnings free of restrictions to make cash dividends

or stock repurchases.

See Note P—Subsequent Events for a discussion of the Eighth and Ninth Amendments to the Fifth Amended and Restated Credit Agreement entered into on January 3,

2023, and February 3, 2023, respectively.

Honduran Debt

Since March 2011, we have

entered into term loans and a

revolving credit facility with Banco Ficohsa, a

Honduran bank, to finance investments in both

the operations

and capital expansion of our

Honduran facilities. In December 2020, we

entered into a new term

loan and revolving credit facility with

Banco Ficohsa, both with

five

year terms, and

simultaneously settled

the prior term

loans and revolving

credit facility with

outstanding balances

at the time

of settlement of

1.1

million and

9.5

million,

respectively. Additionally, in May 2022, we entered

into a new term

loan with a

five

-year term with a

principal amount of $

3.7

million. These loans are

secured by a first-

priority lien on the assets of our Honduran operations and are not guaranteed by our U.S. entities.

These loans are denominated in U.S. dollars, and the carrying value of

the debt approximates its fair value. As the revolving

credit facility permits us to re-borrow funds up

to the amount repaid, subject to certain

objective covenants, and we

intend to re-borrow funds, subject to those covenants,

the amounts borrowed are classified as long-term debt.

El Salvador Debt

In September 2022, we entered into

a new term loan with

five

-year term with a principal amount of

3.0

million with Banco Ficohsa, a Panamanian

bank, to finance

investments in our

El Salvador operations.

This loan is secured

by a first-priority lien

on the assets

of our El Salvador

operations and is

not guaranteed by

our U.S. entities.

The loan is

denominated in U.S.

dollars, and the

carrying value of

the debt approximates

its fair value.

Information about this

loan and

the outstanding balance

as of

December 2022 is listed as part of the long-term debt schedule

above.

Additional information about these loans and the outstanding balances

as of December 2022 is as follows (in thousands):

December 2022

Revolving credit facility with Banco Ficohsa, a Honduran bank,

interest at

7.25

%, due August 2025

3,083

Term loan with Banco Ficohsa, a Honduran bank, interest at

7.5

%, quarterly installments which began September 2021 and

are due through

December 2025

6,086

Term loan with Banco Ficohsa, a Honduran bank, interest at

7.5

%, quarterly installments beginning March 2023 through May

2027

3,656

Term loan with Banco Ficohsa, a Panamanian bank, interest at the prevailing market rate

within the Panamanian Banking Market, monthly

installments which began October 2022 and are due through

August 2027

2,878

Note G—Selling, General and Administrative Expense

We include in selling, general and administrative ("SG&A") expenses the costs incurred subsequent to the receipt of finished goods at our distribution facilities, such as

the cost of stocking,

warehousing, picking, packing,

and shipping goods for

delivery to our customers.

Distribution costs included in

SG&A expenses totaled

5.4

million

and $

5.5

million for the December 2022 and December 2021 quarters, respectively. In addition, SG&A expenses include costs related to sales associates, administrative

personnel, advertising and marketing expenses, retail store

build-outs, and other general and administrative expenses.

Note H—Stock-Based Compensation

On February 6, 2020, our shareholders approved the Delta Apparel, Inc. 2020 Stock Plan ("2020

Stock Plan") to replace the 2010 Stock Plan,

which was previously re-

approved by our shareholders on February 4, 2015,

and was scheduled to expire by its terms

on September 14, 2020. The 2020 Stock Plan is substantially

similar in both

form and substance to the 2010 Stock

Plan. The purpose of the 2020 Stock

Plan is to continue to give our Board

of Directors and its Compensation Committee

the ability

to offer a variety of compensatory awards designed to enhance the Company’s long-term success by encouraging stock ownership among its executives, key employees

and directors. Under the 2020 Stock Plan,

the Compensation Committee of our Board of

Directors has the authority to determine the

employees and directors to whom

awards may be granted, and

the size and type of

each award and manner in

which such awards will vest. The

awards available under the plan

consist of stock options,

stock appreciation rights, restricted stock, restricted

stock units, performance stock, stock performance

units, and other stock and

cash awards. Unvested awards, while

employed by the Company or serving as a director, become fully vested under certain circumstances as defined in the 2020 Stock

Plan. Such circumstances include, but

are not limited to, the

participant’s death or disability. The Compensation Committee

is authorized to establish the

terms and conditions of awards

granted under the 2020

Stock Plan, to

establish, amend and

rescind any rules

and regulations relating

to the 2020

Stock Plan, and

to make any

other determinations

that it deems

necessary. Similar

to the 2010

Stock Plan, the 2020

Stock Plan limits the

number of shares that

may be covered by

awards to any participant

in a given

calendar year and also

limits the

aggregate awards of restricted stock, restricted stock units and performance stock granted in a given calendar year. Shares are generally issued from treasury stock upon

the vesting of the restricted stock units, performance units

or other awards under the 2020 Stock Plan.

Compensation expense is

recorded within SG&A

in our

Condensed Consolidated Statements

of Operations

over the

vesting periods.

During the

December 2022 and

December 2021 quarters,

we recognized $

0.5

million and $

0.4

million in stock-based

compensation expense, respectively.

Associated with this

compensation cost are

income tax benefits recognized of $

0.2

million and $

0.1

million, respectively, for each of the three-month periods ended December 2022 and

December 2021.

During the December 2022 quarter, restricted stock

units representing

105,000

shares of our common stock

vested with the filing of

our Annual Report on Form

10-K for

fiscal 2022 and were issued in accordance with their respective

agreements. Of these vested awards, all were payable in

common stock.

During the

December 2022 quarter,

performance stock units

and restricted stock

units representing 5,000

and 18,000

shares of our

common stock, respectively,

were

forfeited.

As of December

2022, there was $

3.3

million of total

unrecognized compensation cost

related to unvested

awards granted under

the 2020 Stock

Plan. This cost

is expected

to be recognized over a period of

1.9

years.

Note I—Purchase Contracts

have entered into agreements,

and have fixed

prices, to purchase yarn,

finished fabric, and finished

apparel and headwear products.

At December 2022, minimum

payments under these contracts were as follows (in thousands):

Yarn

22,294

Finished fabric

4,435

Finished products

9,517

36,246

Note J—Business Segments

Our operations are managed and reported in

two

segments, Delta Group and Salt Life Group, which reflect the manner in which

the business is managed, and results are

reviewed by the Chief Executive Officer, who is our chief operating decision maker.

The Delta Group is comprised of the following business

units, which are primarily focused on core activewear styles:

DTG2Go and Delta Activewear.

DTG2Go is a

market leader in the

on-demand, direct-to-garment digital print

and fulfillment industry,

bringing technology and innovation

to the supply

chains of our

many customers. Our ‘On-Demand DC’ digital solution provides retailers

and brands with immediate access to utilize DTG2Go’s broad network of print and fulfillment

facilities, while offering

the scalability to integrate

digital fulfillment within the

customer's own distribution facilities.

We use

highly-automated factory processes and

our proprietary software to deliver on-demand,

digitally printed apparel direct to

consumers on behalf of our customers.

Via our multi-facility fulfillment footprint across

the United States, DTG2Go offers

a robust digital supply chain

shipping custom graphic products

within 24 to 48 hours

to consumers in the United

States and to over

100

countries worldwide. DTG2Go has made significant investments in its “digital first” retail model providing digital graphic prints that meet the high-quality standards of

brands, retailers and intellectual property holders.

Through integration with Delta Activewear, DTG2Go also services

the eRetailer, ad-specialty, promotional and screen

print marketplaces, among others.

Delta Activewear is a preferred supplier of

activewear apparel to regional and global

brands as well as direct to retail and

wholesale markets. The Activewear business

organized around three key customer

channels – Delta Direct, Global

Brands, and Retail Direct –

that are distinct in their

go-to-market strategies and how

their respective

customer bases

source their

various apparel

needs. Our

Delta Direct

channel services

the screen

print, promotional,

and eRetailer

markets as

well as

retail licensing

customers that sell through to many mid-tier and mass market retailers. Delta Direct products include a broad portfolio of apparel and accessories under the Delta, Delta

Platinum, and Soffe

brands as well

as sourced

items from

select third

party brands.

Our fashion

basics line

includes our Platinum

Collection, which

offers fresh, fashionable

silhouettes with a luxurious look and feel,

as well as versatile fleece offerings.

We offer innovative

apparel products, including the Delta Dri line of

performance shirts

built with moisture-wicking material

to keep athletes dry

and comfortable; ringspun

garments with superior

comfort, style and durability;

and Delta Soft, a

collection with

an incredible feel and price. We also offer our heritage, mid-

and heavier-weight Delta Pro Weight® and Magnum Weight® tee shirts.

The iconic Soffe brand offers activewear for spirit

makers and record breakers and

is widely known for the original "cheer

short" with the signature roll-down waistband.

Soffe carries a wide range of activewear for the entire family. Soffe's heritage is anchored in the military, and we continue to be a proud supplier to both active duty and

veteran United States

military personnel worldwide.

The Soffe men's assortment

features the tagline

"anchored in the military, grounded

in training" and

offers everything

from physical training

gear certified by

the respective branches of

the military,

classic base layers

that include the

favored 3-pack tees,

and the iconic

"ranger panty."

Complementing the Delta and Soffe

brand apparel, we offer

customers a broad range of

nationally recognized branded products including polos,

outerwear, headwear,

bags and other accessories. Our Soffe products are also available

direct to consumers at

www.soffe.com

Our Global

Brands channel

serves as a

key supply chain

partner to

large multi-national

brands, major branded

sportswear companies, trendy

regional brands, and

all

branches of the United States armed forces,

providing services ranging from custom product development

to the shipment of branded products with “retail-ready”

value-

added services including embellishment, hangtags, and

ticketing.

Our Retail Direct

channel serves brick

and mortar and

online retailers by

providing our portfolio

of Delta, Delta

Platinum, and

Soffe products directly

to the retail

locations

and

ecommerce fulfillment

centers of

diversified customer

base including

sporting goods

and

outdoor retailers,

specialty and

resort shops,

farm and

fleet

stores,

department stores, and

mid-tier and mass

retailers. As a

key element of

the integrated Delta

Group segment, each

of Activewear’s

primary channels offer

a seamless

solution for replenishment strategies, small-run decoration

needs, and quick reaction programs with on-demand digital

print services, powered by DTG2Go.

The Salt Life Group is

comprised of our Salt Life business, which

is built on the authentic, aspirational Salt Life

lifestyle brand that represents a passion for

the ocean,

the salt air, and, more importantly, a way of life and all it offers, from surfing, fishing, and diving to beach fun and sun-soaked relaxation. The Salt Life brand combines

function and fashion with a tailored fit for the active lifestyles of those that “live the Salt Life.” With increased worldwide appeal, Salt Life has continued to provide the

cotton graphic tees and logo decals that originally

drove awareness for the brand, and expanded

into performance apparel, swimwear, board shorts, sunglasses, bags,

and

accessories. Consumers can also seamlessly experience the Salt Life

brand through retail partners including surf shops, specialty stores,

department stores, and outdoor

merchants or by accessing our Salt Life ecommerce site

www.saltlife.com

Our Chief Operating Decision Maker and management evaluate performance

and allocate resources based on profit or loss from operations before

interest, income taxes

and special charges ("segment operating earnings").

Our segment operating earnings may not be

comparable to similarly titled measures used

by other companies. The

accounting policies

of our

reportable segments

are the

same as

those described

in Note

2 in

our Annual

Report on

Form 10-K

for fiscal

2022, filed

with the

SEC.

Intercompany transfers

between operating

segments are

transacted

cost and

have been

eliminated within

the

segment amounts

shown in

the

following table

(in

thousands).

Three Months Ended

December 2022

December 2021

Segment net sales:

Delta Group

97,010

101,921

Salt Life Group

10,285

8,825

Total net sales

107,295

110,746

Segment operating earnings:

Delta Group

123

8,438

Salt Life Group

218

156

Total segment operating earnings

341

8,594

The following table reconciles the segment operating earnings

to the consolidated (loss) income before provision for income

taxes (in thousands):

Three Months Ended

December 2022

December 2021

Segment operating earnings

341

8,594

Unallocated corporate expenses

2,967

2,678

Unallocated interest expense

2,890

1,598

Consolidated (loss) income before provision for income taxes

(5,516)

4,318

Note K—Income Taxes

The Tax

Cuts and Jobs

Act of 2017

(the “2017 Tax

Legislation”) enacted on December 22,

2017, significantly revised the

U.S. corporate income tax

code by,

among

other things, lowering

federal corporate income

tax rates,

implementing a modified

territorial tax

system and imposing

a repatriation tax ("transition

tax") on deemed

repatriated cumulative earnings of foreign subsidiaries

which will be paid over

eight years. In addition, new

taxes were imposed related to

foreign income, including a

tax on global intangible low-taxed income (“GILTI”) as well as a limitation on the deduction for business interest expense (“Section 163(j)"). GILTI is the excess of the

shareholder’s net controlled foreign corporations

("CFC") net tested income over

the net deemed tangible income.

GILTI income is eligible for a deduction of

up to 50%

of the income inclusion,

but the deduction is

limited to the amount

of U.S. adjusted

taxable income.

The Section 163(j) limitation

does not allow

the amount of deductible

interest to

exceed the

sum of the

taxpayer's business interest

income and 30%

of the

taxpayer’s adjusted

taxable income. We

have included in

our calculation of

our

effective tax rate the estimated impact of

GILTI and Section

163(j). In addition, we have elected to account

for the tax on GILTI

as a period cost and, therefore, do

not

record deferred taxes related to GILTI on our foreign subsidiaries.

Our effective income tax rate on operations for the three-months

ended December 2022 was

35.0

% compared to a rate of

15.1

% in the same period of the prior year, and

an effective rate of

17.9

% for fiscal 2022. We

generally benefit from having income in

foreign jurisdictions that are either exempt

from income taxes or have tax

rates

that are lower than those

in the United States.

As such, changes in the

mix of U.S. taxable income compared

to profits in tax-free or

lower-tax jurisdictions can have a

significant impact on our overall effective tax rate.

Note L—Derivatives and Fair Value Measurements

From time to time, we may use interest rate swaps or other instruments to manage our interest rate exposure and reduce the impact of future interest rate changes. These

financial instruments are

not used

for trading

or speculative purposes.

have designated

our interest

rate swap

contracts as

cash flow

hedges of

our future

interest

payments. As a result, the gains

and losses on the swap contracts

are reported as a component

of other comprehensive income and are

reclassified into interest expense as

the related interest payments

are made. As of December

2022, all of our other

comprehensive income was attributable

to shareholders; none related to

the non-controlling

interest.

Outstanding instruments as of December 2022 are as follows:

Effective Date

Notional Amount

Fixed LIBOR

Rate

Maturity Date

Interest Rate Swap

July 25, 2018

20.0

million

3.18%

July 25, 2023

The following table summarizes the fair value and presentation in the Condensed Consolidated

Balance Sheets for derivatives related to our interest swap agreements as

of December 2022 and September 2022 (in thousands):

December 2022

September 2022

Deferred tax assets

(70)

(48)

Other non-current liabilities

280

189

Accumulated other comprehensive loss

210

141

From time to time, we may purchase

cotton option contracts to economically

hedge the risk related to market fluctuations

in the cost of cotton used in

our operations. We

do not receive hedge accounting

treatment for these derivatives. As such,

the realized and unrealized gains and

losses associated with them are

recorded within cost of

goods sold on the Condensed Consolidated Statement of Operations.

No such cotton contracts were outstanding at December

2022 and September 2022.

ASC 820, Fair Value

Measurements and Disclosures (“ASC

820”), defines fair value,

establishes a framework for measuring

fair value and expands

disclosures about

fair value measurements.

Assets and liabilities measured

at fair value

are grouped in

three levels. The

levels prioritize the

inputs used to

measure the fair value

of the

assets or liabilities. These levels are:

Level 1 – Quoted prices (unadjusted) in active markets for

identical assets or liabilities.

Level 2 – Inputs other

than quoted prices that are

observable for assets and

liabilities, either directly or indirectly. These

inputs include quoted prices for

similar

assets or liabilities in active markets and quoted prices for

identical or similar assets or liabilities in markets that are less active.

Level 3 – Unobservable

inputs that are supported

by little or no market

activity for assets or

liabilities and includes certain

pricing models, discounted

cash flow

methodologies and similar techniques.

The following financial liabilities are measured at fair

value on a recurring basis (in thousands):

Fair Value Measurements Using

Quoted Prices

Significant

Active Markets

Other

Significant

for

Observable

Unobservable

Identical Assets

Inputs

Period Ended

Total

(Level 1)

(Level 2)

(Level 3)

Interest Rate Swaps

December 2022

280

September 2022

189

The fair value

of the interest rate

swap agreements was

derived from a discounted

cash flow analysis

based on the

terms of the contract

and the forward

interest rate curves

adjusted for our credit

risk, which fall in

Level 2 of the

fair value hierarchy.

At December 2022 and September 2022,

book value for fixed rate

debt approximated

fair

value based on quoted

market prices for the

same or similar issues

or on the current

rates offered to

us for debt of

the same remaining

maturities (a Level 2

fair value

measurement).

Note M—Legal Proceedings

At times,

we are

party to various

legal claims,

actions and

complaints. We believe

that, as

a result

of legal

defenses, insurance

arrangements, and

indemnification provisions

with parties believed to be financially capable, such actions

should not have a material adverse effect on our operations, financial

condition, or liquidity.

Note N—Repurchase of Common Stock

As of September 28, 2019,

our Board of

Directors authorized management to

use up to

60.0

million to repurchase stock

in open market

transactions under our Stock

Repurchase

Program. We

did

purchase

any

our

common

stock

during

the

December

2022

quarter.

Through

December

2022, we

have

purchased

3,735,114

shares of

our common

stock for

an aggregate

of $

56.4

million under

our Stock

Repurchase Program

since its

inception. All

purchases were

made at

the discretion

of management and pursuant

to the safe harbor provisions

of SEC Rule 10b-18.

As of December 2022, $

3.6

million remained available for future

purchases under our

Stock Repurchase Program, which does not have an expiration

date.

Note O—Goodwill and Intangible Assets

Components of intangible assets consist of the following

(in thousands):

December 2022

September 2022

Accumulated

Net

Accumulated

Net

Economic

Cost

Amortization

Value

Cost

Amortization

Value

Life

Goodwill

37,897

N/A

Intangibles:

Tradename/trademarks

16,000

(4,984)

11,016

16,000

(4,851)

11,149

–

yrs

Customer relationships

7,400

(3,398)

4,002

7,400

(3,213)

4,187

yrs

Technology

10,083

(2,834)

7,249

10,083

(2,610)

7,473

yrs

License agreements

2,100

(966)

1,134

2,100

(940)

1,160

–

yrs

Non-compete

agreements

1,657

(1,631)

1,657

(1,600)

–

8.5

yrs

Total intangibles

37,240

(13,813)

23,427

37,240

(13,214)

24,026

Goodwill represents the acquired goodwill net of

the $

0.6

million impairment losses recorded in fiscal year

2011. As of December 2022, the Delta Group segment assets

include $

18.0

million of goodwill, and the Salt Life Group segment assets

include $

19.9

million.

Depending on the type

of intangible asset, amortization is

recorded under cost of goods

sold or selling, general and

administrative expenses. Amortization expense for

intangible

assets

for

the

December

2022

and

December

2021

quarters

was

0.6

million

and

0.6

million,

respectively.

Amortization

expense

estimated

approximately $

1.4

million for the year ended September 2023,

approximately $

1.4

million for the year ended September 2024,

and approximately $

1.4

million for the

years ended September 2025, 2026, and 2027.

Note P—Subsequent Events

On January 3, 2023, Delta Apparel, Inc. and its

subsidiaries, M.J. Soffe, LLC, Culver City Clothing Company (f/k/a Junkfood Clothing Company), Salt Life,

LLC, and

DTG2Go, LLC (f/k/a Art

Gun, LLC) (collectively, the “Borrowers”)

entered into an Eighth

Amendment to the Fifth

Amended and Restated Credit

Agreement with Wells

Fargo Bank (the

“Agent”) and

the other lenders

set forth therein

(the “Eighth

Amendment”). The Eighth

Amendment essentially

clarifies the Amended

Credit Agreement’s

provisions regarding the inclusion of eligible in-transit inventory in the borrowing base and amends the definition of Increased Reporting Event to include 12.5% of the

lesser of the borrowing base and the maximum revolver

amount as opposed to 12.5% of the line cap.

On February 3, 2023, the

Borrowers entered into a Ninth

Amendment to the Fifth

Amended and Restated Credit

Agreement with the Agent and

the other lenders set forth

therein (the “Ninth Amendment”). The Ninth Amendment adds an Accommodation Period beginning on the amendment date and continuing through the date following

September 30, 2023, upon which Borrowers satisfy minimum availability thresholds and during which: (i)

the minimum borrowing availability thresholds applicable to

the Amended Credit

Agreement are (a)

through (and including)

April 1, 2023,

7,500,000

, (b) on

and after April

2, 2023 through

(and including) June

4, 2023, $

9,000,000

the date following September 30, 2023,

upon which Borrowers satisfy minimum availability

thresholds, $

10,000,000

; and (d) at all

times thereafter, $

; (ii) the Fixed

Charge Coverage Ratio (“FCCR”)

covenant is suspended;

(iii) Borrowers must

maintain specified minimum

EBITDA levels for

trailing

three-month periods starting March 4, 2023; (iv) the Applicable Margin with respect to loans under the Amended Credit Agreement is increased by

basis points; and

(v) a Cash Dominion

Trigger Event occurs if

availability is less

than $

2,000,000

The Ninth Amendment

also, among other

things, (i) amends

the FILO maximum

amount

calculation by reloading

% of eligible accounts receivable (capped at $

3,000,000

) and deferring the applicable amortization schedules to August 1, 2023; (ii) defers

the

monthly amortization payments for

real estate, machinery

and equipment, and intellectual

property assets to August

1, 2023; (iii) requires weekly

reporting of availability

through the date following

September

30, 2023, upon which

Borrowers satisfy minimum availability thresholds;

and (iv) prohibits certain

restricted payments through

the date following September 30, 2023, upon which Borrowers

satisfy minimum availability thresholds.

The foregoing summary of the Eighth and Ninth Amendments and the

transactions contemplated thereby does not purport to be complete and is qualified

in its entirety

by reference to the text of the

Eighth and Ninth Amendments, which are filed herewith as

Exhibits 10.1 and 10.2 to this

Quarterly Report on Form 10-Q and which are

incorporated herein by reference.

expect the Eighth

and Ninth Amendments will

enhance our borrowing base

and allow us to

access more of our

availability under the Amended

Credit Agreement

while easing the financial covenant restrictions for the remainder

of fiscal 2023.

See Part II, Item 5. Other Information for additional

detail regarding the Ninth Amendment.

Item 2. Management's Discussion and Analysis of Financial

Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of

1995 provides a safe harbor for forward-looking

statements made by or on behalf

of the Company. We may from time to

time make written or oral statements that

are “forward-looking,” including statements

contained in this report and other filings

with the SEC, in our press releases,

and in

other reports to our shareholders.

All statements, other than

statements of historical fact,

which address activities, events

or developments that we

expect or anticipate will

or may

occur in the

future are forward-looking

statements. The words

“plan”, “estimate”, “project”,

“forecast”, “outlook”, “anticipate”, “expect”,

“intend”, “remain”,

“seek", “believe”, “may”, “should” and similar expressions, and discussions

of strategy or intentions, are intended to identify forward-looking

statements.

Forward-looking statements

are neither

historical facts

nor assurances

of future

performance. Instead,

they are

based on

our current

expectations and

are necessarily

dependent upon assumptions, estimates and data that we believe are reasonable and accurate but may

be incorrect, incomplete or imprecise. Forward-looking statements

are subject to a number of business risks and inherent uncertainties, any of which could cause actual results to differ materially from those set

forth in or implied by the

forward-looking statements. Therefore,

you should not rely on

any of these forward-looking

statements. Important factors that

could cause our actual results

and financial

condition to differ materially from those indicated in forward-looking

statements include, among others, the following:

●

the general U.S. and international economic conditions;

●

the

impact of

the

COVID-19 pandemic

our

operations,

financial condition,

liquidity,

and

capital investments,

including recent

labor

shortages,

inventory constraints, and supply chain disruptions;

●

significant interruptions or disruptions within our manufacturing,

distribution or other operations;

●

deterioration in the financial condition of our customers and suppliers

and changes in the operations and strategies of our customers

and suppliers;

●

the volatility and uncertainty of cotton and other raw material

prices and availability;

●

the competitive conditions in the apparel industry;

●

our ability to predict or react to changing consumer preferences

or trends;

●

our ability to successfully open and operate new retail stores in

a timely and cost-effective manner;

●

the ability to grow, achieve synergies and realize the expected profitability of acquisitions;

●

changes in economic, political or social stability at

our offshore locations or in areas in which we, or our suppliers

or vendors, operate;

●

our ability to attract and retain key management;

●

the volatility and uncertainty of energy, fuel and related costs;

●

material disruptions in our information systems related to our

business operations;

●

compromises of our data security;

●

significant changes in our effective tax rate;

●

significant litigation in either domestic or international jurisdictions;

●

recalls, claims and negative publicity associated with product

liability issues;

●

the ability to protect our trademarks and other intellectual

property;

●

changes in international trade regulations;

●

our ability to comply with trade regulations;

●

changes in employment laws or regulations or our relationship

with employees; or our ability to attract and retain

employees;

●

negative publicity

resulting from violations

of manufacturing standards

or labor

laws or

unethical business practices

by our

suppliers or independent

contractors;

●

the inability of suppliers or other third-parties, including those providing key equipment, transportation, and other services, to perform their obligations

or fulfill the terms of their contracts with us;

●

restrictions on our ability to borrow capital or service our

indebtedness;

●

interest rate fluctuations increasing our obligations under our

variable rate indebtedness;

●

the ability to raise additional capital;

●

the impairment of acquired intangible assets;

●

foreign currency exchange rate fluctuations;

●

the illiquidity of our shares; and

●

price volatility in our shares and the general volatility of the stock

market.

A detailed discussion

of significant risk

factors that have

the potential to

cause actual results

to differ materially

from our expectations is

set forth in

Part 1 under

the

subheading "Risk Factors" in our

Annual Report on Form 10-K

for fiscal 2022, filed with

the SEC. Any forward-looking statements

in this Quarterly Report on

Form 10-

Q do not purport to be predictions

of future events or circumstances and

may not be realized. Further, any forward-looking

statements are made only as

of the date of this

Quarterly Report on Form 10-Q, and we do not undertake to

publicly update or revise the forward-looking statements,

except as required by the federal securities law.

Business Outlook

We were pleased to start our 2023 fiscal year

with double-digit sales growth across

four of our five go-to-market

channels, including record sales

and almost 20% growth

in our DTG2Go

digital print channel

as well as

record sales

and 17% growth

in our Salt

Life lifestyle

brand channel.

Our topline performance

this quarter

further illustrates

the resiliency of our multi-pronged business

model, which allowed us to overcome

the soft demand for basic

tees impacting the mass retail supply

chain and our Delta

Direct channel for the last several quarters.

The

milestone

sales

our

Delta

Group

segment’s

DTG2Go

channel

highlight the

market’s

growing

interest in

our

digital

and

fulfillment

strategies and

its

appreciation for the reduced working capital

investment; lower inventory risk; faster order-to-porch

cycle; replenishment and quick activation

capability; unlimited color

and design choice; and other

benefits they provide. DTG2Go continues

to effectively leverage two very

unique advantages that differentiate

it in the market

– a multi-

facility footprint facilitating one-to-two day shipping speed to 99% of United States consumers and priority access to our Delta Direct channel’s

low-cost vertical blank

tee and

fleece supply.

DTG2Go’s “Digital

First” strategy continues

to generate substantial

new customer demand

and we are

encouraged with the

productivity gains

achieved on the new technology. Further improvements in

machine efficiency, quality and production rates are

necessary for us to realize our long-term

objectives in this

business.

Our Delta Group segment’s Global Brands channel delivered double-digit sales growth for the quarter and continues to add value to the supply chains of multi-national,

regional and major sportswear brands and the United States armed forces as a preferred supplier of custom decorated products. We also achieved double-digit growth in

our Delta

Group segment’s

Retail Direct

channel where

we provide

decorated and

“retail ready”

products directly

to the

brick and

mortar locations

and eCommerce

fulfillment centers of sporting goods and outdoor retailers,

farm and fleet stores, department stores, and mid-tier

and mass retailers.

The growth in our

Global Brands and

Retail Direct channels was

accelerated by new

business resulting from

the Activewear industry’s burgeoning emphasis

on nearshore

sourcing strategies like those offered

by our vertical platform in

Central America coupled with our

ability to meet the service

and compliance requirements of the

world’s

leading brands and

retailers.

We expect

the focus on

U.S. proximity sourcing strategies

to continue and believe

that both of

these channels are positioned

to generate

growth opportunities across our Delta Group segment over

time.

As expected, our Delta Group segment’s

results for the quarter were impacted by

the reduced demand in the mass retail

supply chain and the associated manufacturing

shutdowns that we, like many

across the industry,

initiated to recalibrate output as

well as elevated raw material, energy

and labor costs.

Although the price of cotton,

one of our key raw materials, has moderated from last year’s notable highs, that high-cost cotton continues to flow through our cost of sales due to production cadences

and pressures margins accordingly.

We expect to cycle through most of that higher-priced cotton in our

second quarter and begin to see the benefit of lower input costs

in our results as

we progress through the

second half of our

fiscal year. We

will continue to leverage

the flexibility of our

vertical manufacturing strategy until we

see

better equilibrium between inventories and demand and also focus on opportunities in higher

margin areas of our Delta Direct channel outside

of the mass retail supply

ecosystem.

The momentum in our Salt Life Group segment continues with this quarter’s record sales

and excellent bottom line performance as it moves into its traditionally strong

Spring selling season. The

escalating growth across

Salt Life’s direct-to-consumer retail

and eCommerce channels

should continue as

it expands its brick

and mortar retail

and digital footprints to

keep pace with the

brand’s consumer base

stretching across the country.

Salt Life is targeting

six to eight new

store openings this fiscal

year,

including debut locations

in New

Jersey and Virginia,

bringing its total

store count to

approximately 30 locations

across nine states

spanning the U.S.

coastline from

California to Florida to New Jersey.

Salt Life’s consumer

eCommerce site,

www.saltlife.com, now ships

to all

50 states,

including significant

order flows

to states outside

of the brand’s

traditional southeastern

base, and its wholesale business also continues to expand.

There are now approximately 1,800 customer retail doors across 48 states and foreign countries offering Salt

Life products.

We continue to see a tremendous runway for growth for the Salt Life brand across the United

States and internationally.

Looking ahead, we

will further rely on

the versatility of

our multiple go-to-market

strategies and focus on

organic growth through

both new customer

acquisition and

expansion of existing relationships. We see outstanding opportunities deriving from our investments in DTG2Go’s

digital technology platform and Salt Life’s authentic

lifestyle brand

positioning. Moreover,

we are

now seeing

some welcome

cost stabilization

in our

Delta Group

segment and

expect these

trends to

positively impact

profitability as we progress

throughout the year.

Along the way,

we will continue to

prudently manage our working capital

and expenses while pursuing

opportunities

generated by our diversified business model.

Results of Operations

Financial results included herein have been presented on a generally accepted accounting principles ("GAAP") basis.

Net sales were $107.3 million in the first quarter of fiscal

2023, a decrease of 3.1% compared to the prior year first quarter net sales

of $110.7 million.

Net sales in the Delta Group segment declined 4.8% to $97.0 million in the first quarter of fiscal 2023 compared to $101.9 million in the prior year first quarter.

We saw record first quarter sales in our DTG2Go business and

growth in our Global Brands and Retail Direct

channels, offset by diminished demand in the mass

retail supply chain driving reduced sales in our Delta Direct

channel.

The Salt Life Group segment first

quarter fiscal 2023 revenue grew

16.5% to $10.3 million compared to

$8.8 million in the prior year

first quarter. The segment’s

record first quarter sales were driven by growth in both direct-to-consumer

and wholesale channels.

Gross margins were 12.7% for the first quarter of fiscal 2023, declining

810 basis points from the prior year first quarter gross margin of 20.8%.

The Delta Group segment gross margins were 8.0%

for the first quarter of fiscal

2023, a decline of 100 basis points

from the prior year first quarter

margins of

18.0%. Gross margins were primarily impacted

by higher inventory costs from inflationary

raw material and other input pricing

in fiscal 2022 flowing through

sales during the quarter, in addition to $3.4 million in plant curtailment costs.

The Salt Life Group segment gross margins improved to 57.0% in the first quarter of fiscal 2023, an improvement of 370 basis points compared to 53.3% in the

prior year first quarter resulting from a favorable mix

of sales, including increased Salt Life branded retail store

and ecommerce sales.

Selling, general, and administrative expenses ("SG&A") were $18.9 million in the first

quarter of fiscal 2023, or 17.6% of sales, compared to $17.5 million,

or 15.8% of

sales, in the prior year first quarter.

The increase in SG&A expenses of $1.3 million compared to the prior year first quarter

was primarily driven by higher selling costs

driven by our expanded Salt Life retail footprint, in addition

to increased distribution and administrative costs.

Other income for the 2023 and 2022 first fiscal quarters includes

profits related to our Green Valley Industrial Park equity method investment. Additionally, in the first

quarter of fiscal 2023, we recognized a discrete gain of

$2.5 million from the settlement of a commercial litigation matter.

Operating loss in the first quarter of fiscal 2023

was $2.6 million.

This compares to operating income of $5.9 million

in the prior year first fiscal quarter.

The Delta Group segment had operating income of $0.1 million in the first fiscal quarter of 2023, or 0.1% of net sales, compared to $8.4 million,

or 8.3% of net

sales, in the

prior year first

quarter. The decrease in

operating profit was

driven by declining

gross margins due

to increased inflationary

costs and plant

curtailment

costs.

The Salt Life Group segment had operating income of $0.3 million in the first fiscal

quarter of 2023, or 2.5% of net sales, compared to $0.1 million,

or 1.5% of

sales, in the prior year first quarter.

The increase in operating profit was driven by higher sales volume and increased gross

margins offset by higher selling and

distribution costs.

Net interest expense for the first quarters of each of fiscal years

2023 and 2022 was $2.9 million and $1.6 million,

respectively.

Our effective tax rate on operations for the three-month period ended December 2022 was 35.0%. This compares

to an effective tax rate of 15.1% for the same period in

the prior year

and 17.9% for

the full fiscal

year 2022. Changes

in the mix

of U.S. taxable

income compared to

profits in tax-free

or lower-tax jurisdictions

drove this

change in our effective tax rate.

Net loss attributable to shareholders for the first fiscal quarter of 2023

was $3.6 million,

or a loss of $0.51 per diluted share, compared to net income of

$3.6 million, or

$0.51 per diluted share, in the prior year.

Accounts receivable were $57.8 million

at December 2022, compared

to $68.2 million as of September

2022. Days sales outstanding ("DSO")

as of December 2022

were

47 days compared to 52 days at September 2022.

Net inventory as of December 2022 was

$258.9 million,

an increase of $10.4 million from September 2022 and

$75.8 million from December 2021. The increase from

September 2022 stemmed primarily from timely Salt Life first

quarter inventory deliveries compared to last year’s supply

chain delays pushing scheduled deliveries into

the second quarter.

Total net debt, including capital lease financing and cash on hand,

was $185.2 million as of December 31, 2022, an increase of $14.6 million from September 2022 and

$39 million from

December 2021. Cash on

hand and availability under

the Company’s

U.S. revolving credit facility

totaled $27.2 million as

of December 31, 2022,

decrease of $7.5 million from

September 2022 and $5.8 million from

December 2021, with the increase from

September 2022 principally driven by investments in the

business to support working capital needs.

Liquidity and Capital Resources

Operating Cash Flows

Operating activities resulted in a cash usage

of $11.9 million for the three

months ended December 2022 compared to $13.2

million of cash used in the

prior year. The

improvement in cash used in operating cash flows in the current year are due to the timing of payments from customers and to vendors, in addition to reduced inventory

in the first quarter of fiscal 2023 compared to the prior

year as a result of reduced customer demand.

Investing Cash Flows

Cash outflows for capital expenditures were $2.1 million during the first three months of 2023 compared to $1.8 million in the same period in the prior year. During the

three-months ended June 2022, there were $0.1 million of capital expenditures

financed under a capital lease arrangement. We

currently expect to spend less on capital

expenditures in 2023 as

compared to 2022, with

our expenditures expected to focus

on digital print equipment,

information technology, manufacturing

efficiency, and

direct-to-consumer investments,

including new Salt Life retail store openings.

Financing Activities

During the three months ended December 2022, cash provided by financing

activities was $9.6 million and primarily related to funding

our operating activities, working

capital needs, and certain capital investments offset by scheduled loan

principal payments.

Future Liquidity and Capital Resources

See Note F – Debt to the Condensed

Consolidated Financial Statements for a discussion

of our various financing arrangements,

including the terms of our revolving U.S.

credit facility.

Our credit facility, as well as cash flows

from operations, are intended

to fund our day-to-day working

capital needs, and along with

capital lease financing arrangements,

to fund our planned capital expenditures. However,

any material deterioration in our results of

operations may result in the loss

of our ability to borrow under

our U.S.

revolving credit facility and to issue letters of credit to suppliers, or may cause the borrowing availability under that facility to be insufficient for our needs. Availability

under our credit facility is primarily a function of the levels of our accounts receivable and inventory. A significant deterioration in our accounts receivable or inventory

levels could restrict

our ability to

borrow additional funds

or service our

indebtedness. Additionally,

a significant deterioration in our

business results could

cause our

availability to

fall below

minimum thresholds, thereby

requiring us

to maintain

the minimum

FCCR specified in

our credit

agreement, which

we may

not be

able to

maintain. Refer to Item 5. Other Information for

further information regarding our current financial covenants. While

our availability at December 2022 was

above the

minimum thresholds

specified in

our credit

agreement, a

significant deterioration

in our

business could

cause our

availability to

fall below

such thresholds,

thereby

requiring us to maintain the minimum FCCR specified in

our credit agreement.

Share Repurchase Program

The Company did not

purchase any shares under

our previously announced share

repurchase program in the

first quarter of fiscal

2023. The total amount

repurchased

during the life of

the program is $56.4 million.

At the end of

the first quarter of

fiscal 2023, the Company had

$3.6 million of remaining repurchase capacity under

its

existing authorization.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which were prepared

in accordance with

U.S. GAAP. The preparation of

our Condensed Consolidated

Financial Statements requires

us to make estimates

and judgments that

affect the reported

amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during

the reporting periods. We base our estimates and judgments on historical experience and various other

factors that we believe to be reasonable under the circumstances,

the results of which form the basis for

making judgments about the carrying values

of assets and liabilities that are

not readily apparent from other sources. Actual

results

may

differ

from these

estimates under

different

assumptions or

conditions. The

most significant

estimates and

assumptions relate

revenue recognition,

accounts

receivable and related reserves, inventory and related reserves,

the carrying value of goodwill, and the accounting for

income taxes.

detailed discussion

critical

accounting policies

contained in

the

Significant

Accounting Policies

included

Note 2

the

Audited Consolidated

Financial

Statements included in our Annual Report

on Form 10-K for fiscal 2022, and

there have been no changes in those

policies since the filing of that Annual

Report on Form

10-K with the SEC.

Environmental and Other Regulatory Matters

are subject

to various

federal, state

and local

environmental laws

and regulations

concerning, among

other things,

wastewater discharges,

storm water

flows, air

emissions and

solid waste

disposal. The

labeling, distribution, importation,

marketing, and

sale of

our products

are subject

to extensive

regulation by various

federal

agencies, including the Federal Trade Commission, Consumer Product Safety Commission and state attorneys general in the United States. Our international operations

are also subject to compliance

with the U.S. Foreign Corrupt Practices Act (the

“FCPA”) and other anti-bribery laws applicable to our operations.

The environmental and other regulations applicable to our business are becoming increasingly

stringent, and we incur capital and other expenditures annually to achieve

compliance with these environmental

standards and regulations. We currently do not

expect that the amount of

expenditures required to comply with

these environmental

standards or other regulatory

matters will have

a material adverse

effect on our operations,

financial condition or

liquidity. There can be no

assurance, however, that future

changes in

federal, state,

local regulations,

interpretations of

existing regulations

the discovery

currently unknown

problems or

conditions will

not

require

substantial additional expenditures. Similarly, while we believe that we are currently in

compliance with all applicable environmental and other regulatory requirements,

the extent of

our liability, if any, for past

failures to comply

with laws, regulations

and permits applicable

to our operations

cannot be determined

and could have

a material

adverse effect on our operations, financial condition and liquidity.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures

that are designed to reasonably assure that information

required to be disclosed in the reports that

we file

or submit

under the

Exchange Act

is recorded,

processed, summarized

and reported

within the

time periods

specified in

the SEC’s

requirements. Disclosure

controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or

submit under

the

Exchange Act

accumulated and

communicated to

our management,

including our

Chief Executive

Officer

and

principal accounting

officer,

appropriate to allow timely decisions regarding required disclosure.

Our management, with the

participation of our Chief

Executive Officer and principal

accounting officer, has

evaluated the effectiveness of our

disclosure controls and

procedures as

of the

end of

period covered by

this quarterly

report ("the

Evaluation Date") and,

based on

their evaluation,

our Chief

Executive Officer

and principal

accounting officer have concluded that these controls and procedures

were effective as of the Evaluation Date.

Changes in Internal Control Over Financial Reporting

There were no changes during the December

2022 quarter that have materially affected, or

are reasonably likely to materially affect,

our internal control over

financial

reporting.

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

See Note M—Legal Proceedings, in Part I, Item 1, which

is incorporated herein by reference.

Item 1A.

Risk Factors

None

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

See Note N—Repurchase of Common Stock, Part I, in Item

1, which is incorporated herein by reference.

Item 5.

Other Information

Ninth Amendment to the Fifth Amended and Restated

Credit Agreement

On February 3, 2023, Delta Apparel, Inc. and its subsidiaries, M.J. Soffe, LLC,

Culver City Clothing Company (f/k/a Junkfood Clothing Company), Salt Life,

LLC, and

DTG2Go, LLC (f/k/a Art Gun, LLC) (collectively, the “Borrowers”) entered into a Ninth Amendment to the Fifth Amended and Restated Credit Agreement with Wells

Fargo Bank (the “Agent”) and the other lenders set forth therein

(“Ninth Amendment”). The Fifth Amended and Restated Credit Agreement, dated as of May 10, 2016,

was filed as

Exhibit 10.1 to

Delta Apparel’s Quarterly

Report on Form

10-Q filed with

the SEC on

May 12, 2016.

The First Amendment

to the Amended

Credit Agreement

was filed as

Exhibit 10.2.5 to

Delta Apparel’s

Annual Report on

Form 10-K filed

with the SEC

on November 28,

2017. The Consent

and Second Amendment

to the

Amended Credit Agreement was filed

as Exhibit 10.1 to

Delta Apparel’s Form 8-K

filed with the SEC

on March 13, 2018.

The Consent and Third Amendment

to the

Amended Credit Agreement was filed as Exhibit 10.1 to Delta

Apparel’s Form 8-K filed with the SEC on

October 9, 2018. The Consent and Fourth Amendment to the

Amended Credit Agreement

was filed as

Exhibit 10.2.8 to

Delta Apparel's Annual

Report on Form

10-K filed with

the SEC on November

21, 2019. The

Fifth Amendment

to the

Amended Credit

Agreement was

filed

as Exhibit

10.1 to

Delta Apparel’s

Quarterly Report

Form 10-Q

filed

with the

SEC on

April 30,

2020.

The Sixth

Amendment to the Amended Credit Agreement was

filed as Exhibit 10.1 to Delta Apparel’s Form 8-K filed with the

SEC on August 31, 2020. The Seventh Amendment

to the Amended Credit Agreement was filed as Exhibit

10.1 to Delta Apparel’s Form 8-K filed with the SEC on June 3, 2022.

The Ninth Amendment adds an

Accommodation Period beginning on the amendment date and

continuing through the date following September 30,

2023, upon which

Borrowers satisfy minimum availability thresholds

and during which: (i)

the minimum borrowing availability thresholds

applicable to the Amended

Credit Agreement

are (a) through (and including) April 1, 2023, $7,500,000,

(b) on and after April 2, 2023 through (and including)

June 4, 2023, $9,000,000, (c) on and after June 5, 2023,

through the date following September 30, 2023, upon which Borrowers satisfy minimum availability thresholds, $10,000,000; and (d) at all

times thereafter, $0; (ii) the

Fixed Charge Coverage

Ratio (“FCCR”)

covenant is

suspended; (iii)

Borrowers must

maintain specified

minimum EBITDA

levels for trailing

three-month periods

starting

March 4, 2023; (iv) the Applicable Margin with respect to loans

under the Amended Credit Agreement is increased by

50 basis points; and (v) a Cash Dominion Trigger

Event occurs if availability

is less than $2,000,000.

The Ninth Amendment also,

among other things, (i)

amends the FILO maximum

amount calculation by reloading

of eligible

accounts receivable

(capped at

$3,000,000) and

deferring the

applicable amortization

schedules to

August 1,

2023; (ii)

defers the

monthly amortization

payments

for real

estate, machinery and

equipment, and

intellectual property assets

to August 1,

2023; (iii)

requires weekly reporting

of availability through

the date

following

September 30, 2023, upon which Borrowers

satisfy minimum availability thresholds;

and (iv) prohibits certain restricted payments

through the date following September

30, 2023, upon which Borrowers satisfy minimum availability

thresholds.

We expect the Ninth Amendment will enhance

our borrowing base and allow

us to access more of

our availability under the Amended

Credit Agreement while easing

the

financial covenant restrictions for the remainder of fiscal 2023.

The foregoing summary of the Ninth Amendment and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference

to the text of the Ninth Amendment, which is filed herewith

as Exhibit 10.2 to this Quarterly Report on Form 10-Q

and which is incorporated herein by reference.

Separate from

the relationship

related to

the

Amended Credit

Agreement, as

amended, certain

lenders thereunder

have engaged