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Can Delta Apparel (DLA) Spring a Surprise in Q2 Earnings?

Delta Apparel Inc.DLA is set to report second-quarter fiscal 2017 results after market closes on May 8. The question lingering in investors' minds is, whether this vertical manufacturer of knitwear products will be able to post a positive earnings surprise in the to-be-reported quarter. The company's earnings exceeded the Zacks Consensus Estimate in three of the trailing four quarters, but posted an average miss of 69.7%.

Let us see how things are shaping up for this announcement.

What Does the Zacks Model Unveil?

Our proven model does not conclusively show that Delta Apparel to beat earnings estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Delta Apparel has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 44 cents. Although the company's Zacks Rank #3 increases the predictive power of ESP, its 0.00% ESP makes surprise prediction difficult.

Which Way are Estimates Treading?

Let's look at the estimate revisions in order to get a clear picture of what analysts are thinking about the company right before earnings release. The Zacks Consensus Estimate for second quarter and fiscal 2017 has been stable over the last 30 days. In fact, the current Zacks Consensus Estimate of 44 cents and $1.75 for second quarter and fiscal 2017 reflect year-over-year growth of 2.3% and 24.1%, respectively. Further, analysts polled by Zacks expect revenues of $107.2 million for the said quarter, down 1.8% from the year-ago period. For fiscal 2017, Zacks consensus revenue is pegged at $422.9 million, reflecting 0.6% year-over-year decline.

Delta Apparel, Inc. Price, Consensus and EPS Surprise

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

Factors to Consider

Delta Apparel features a diverse portfolio of lifestyle basic and branded activewear apparel and headwear. The company specializes in selling casual and athletic products across distribution tiers, including specialty stores, department stores, mid-tier and mass chains, and the U.S. military.

During first-quarter fiscal 2017, the company posted year-over-year decline in revenues due to the impact of Hurricane Matthew, closure of a large sports retailer, lower sales in Junkfood's specialty channel owing to a difficult retail environment and declines at brick-and-mortar retailers, and inventory destocking at major retail licensing accounts in the Delta catalog business.

As a result, the company sold its Junkfood Clothing Company on Apr 1, which is expected to help the company to lower its debt levels, continue its share repurchase program and provide capital for further investments in strategic growth opportunities, including the Salt Life brand and Art Gun.

It is encouraging that Delta Apparel continues to focus on high-margin products to boost profits. Sales of higher-margin fashion basics products grew by more than 50% in the preceding quarter and this trend is expected to continue in 2017 as new fashion basics products are introduced. The private label business is also gaining momentum as these brands require specialized vertical manufacturing capabilities which the company provides. This in turn will boost demand of these products.

The share price movement has inspired optimism among investors. Over the past six months, shares of this retailer rallied 13.9%, compared to a decline of 9.8% in the Zacks categorized Textile-Apparel industry.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat:

Central Garden & Pet Company CENT has an Earnings ESP of +4.69% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

H&R Block, Inc. HRB has an Earnings ESP of +3.15% and a Zacks Rank #1.

JAKK Pacific, Inc. JAKK has an Earnings ESP of +7.41% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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