Top 40 supplier Delta Apparel (asi/49172) says it increased its total company year-over-year sales and operating profit during the first quarter of its fiscal year 2018, which concluded Dec. 30. Nonetheless, the Duluth, GA-based firm reported a decline in overall gross margins and a net loss of $9.95 million, or $1.37 per diluted share. Federal tax reform had an impact on the net loss, the company said.

In an earnings announcement, Delta Apparel said that Q1 net sales rose nearly 6% from the same quarter the prior year to $90.3 million. Executives noted that last year’s Q1 sales included $9.4 million in revenue from Junkfood Clothing, a brand Delta has since divested. Excluding Junkfood’s sales, net sales during the first quarter of 2018 jumped 19%, Delta Apparel reported.

Meanwhile, Delta Apparel stated that overall gross margins fell from 20.6% in the first quarter of fiscal 2017 to 18.1% during Q1 2018. An increase in gross margins in the company’s “branded segment” was offset by a decline in its “basics segment,” a drop that occurred due to higher raw material costs, the supplier stated. The basics segment decline dragged down Delta Apparel’s overall gross margins.

Also, during the quarter, Delta Apparel was affected by a discrete provisional tax expense of $10.6 million associated with recent federal tax reform legislation. This impacted the supplier’s earnings by $1.45 per share, effectively resulting in the $1.37 per share net loss, earnings information showed.

“Included in the $10.6 million is $1.1 million of expense related to the revaluation of the company’s net deferred tax assets, which is a non-cash item, and $9.5 million of expense related to the transition tax on deemed repatriated cumulative earnings of the company’s foreign subsidiaries, which will be paid over the next eight years,” Delta Apparel said. “The company anticipates that the benefit resulting from the reduction of the federal tax rate from 34% to 21% will offset the future payments of the transition tax, resulting in minimal cash flow impact.”

Adjusting for the impact of tax reform, Delta Apparel’s net income for the first quarter of 2018 added up to $0.08 per diluted share, as compared to a loss of $0.08 per diluted share in the prior year period.

Furthermore, Delta Apparel said that improvement in selling, general and administrative expenses contributed to a year-over-year increase in operating profit, which was $1.7 million for the quarter, a reported 271% rise over the prior year period’s operating profit. Delta Apparel also tallied a pre-tax profit of $400,000 compared to a pre-tax loss of $800,000 in the prior year period, executives noted.

“With double-digit growth across the board and improved operating earnings, we are pleased with our results in what is usually our most challenging seasonal quarter,” said Robert W. Humphreys, Delta Apparel’s chairman and CEO. “While the pickup in holiday demand for apparel was an encouraging development, we believe the time and effort our team devotes to marketing and omni-channel strategies, operational improvements and cost-control initiatives were also key success drivers for us during the quarter.”

According to Delta Apparel, Q1 net sales in the company’s basics segment registered $73.2 million, up 20% from $60.8 million in the first quarter of 2017. Notably, activewear sales grew 20% over the prior year’s quarter, with significant increases in the catalog and FunTees channels, the supplier said. “The catalog growth was supported by rebounding conditions in the retail licensing channel and strong demand within most other channels, while the FunTees growth drew on the strength of private-label sales to strategic brands,” Delta Apparel executives said in a statement.

Meanwhile, first quarter net sales in Delta Apparel’s branded segment fell from $24.5 million to $17.2 million. Still, executives noted that this was the result of the Junkfood Clothing divesture. Excluding Junkfood’s sales in Q1 2017, net revenue in Delta Apparel’s branded segment rose 14%, year-over-year, company officials said. In the branded segment, sales for Delta Apparel’s Salt Life line increased 12.4% over the prior year period, with growth across the majority of its distribution channels. Additionally, Delta Apparel was upbeat about its Soffe brand, which had sales that were up by 28%.

“Strength in the military channel from successes with ‘pride’ graphic programs and military issue programs drove Soffe’s sales momentum,” Delta Apparel stated in a release. “Successful graphic programs with strategic sporting goods retailers also contributed to Soffe’s strong top-line growth. Soffe gross margins expanded year-over-year and, coupled with its cost-control efforts, drove significant profitability improvement at Soffe during the quarter.”

Delta Apparel ranks 38th on Counselor’s most recent list of the largest suppliers in the industry after the firm reported 2016 North American promotional products revenue of $45 million.