Delta Apparel (DLA) Q1 Earnings: Stock Likely To Disappoint?

Delta Apparel Inc. DLA is set to report first-quarter fiscal 2017 results on Feb 6, after the closing bell. Last quarter, the company posted a positive earnings surprise of 5.26%. Moreover, the company has delivered positive surprises in the trailing four quarters with an average beat of 36.80%.

Let's see how things are shaping up for this announcement.

Factors to Consider

We note that Delta Apparel has been posting decent results in the past few quarters on the back of its strategic initiatives to boost sales as well as margins. The high-margin products that the strategy focuses on should favor fiscal first-quarter margins as well.

During the fiscal fourth quarter 2016, the company’s Honduran textile facility – Ceiba Textiles – became operational. The use of open-width fabrics reduced the company’s reliance on fabric purchased from outside, helping it expand product offerings. Such initiatives are expected to boost the top line in the to-be-reported quarter.

Delta Apparel, Inc. Price and EPS Surprise

Delta Apparel, Inc. Price and EPS Surprise | Delta Apparel, Inc. Quote

Further, the company retrenched work force and shut down underperforming facilities to reduce cost. These efforts should boost margins in the quarter. Investors are buoyed by the company’s initiatives which is evident from the share price movement. In the past one year, the shares of this retailer have gained 50.2%, outperforming the Zacks categorized Textile-Apparel industry which has witnessed a fall of 21%.

However, challenging operating environment, macroeconomic uncertainty and unfavorable inventory level may pose problems for the company in the to-be-reported quarter.

Further, the company’s junk food category has been reporting soft results for the past few quarters. The trend is anticipated to continue in fiscal 2017 as well.

Earnings Whispers

Our proven model does not conclusively show that Delta Apparel is likely to beat on earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to surpass earnings estimates. However, that is not the case here as you will see below:

Zacks ESP: The company’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate both are pegged at a loss of 2 cents.

Zacks Rank: Delta Apparel holds a Zacks Rank #3. Although a favorable Zacks Rank increases the predictive power of ESP, the company’s negative Earnings ESP makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the broader consumer discretionary space that have the right combination of elements to post an earnings beat this quarter:

MGM Resorts International MGM with an Earnings ESP of +26.67% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Callaway Golf Co. ELY with an Earnings ESP of +3.23% and a Zacks Rank #3.

Lululemon Athletica Inc. LULU with an Earnings ESP of +0.99% and a Zacks Rank #3.

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