Delta Apparel, known for activewear brands like Salt Life and Soffe, has faced a tough year due to high cotton prices and low demand. Delta Apparel's (DLA) latest earnings transcript shows a focus on cost reduction and cautious optimism, but a hidden gem emerges: Salt Life's licensing business.

While Delta Apparel's activewear segment struggles, Salt Life's licensing segment offers a glimmer of hope. The Q4 2023 transcript reveals Salt Life's license royalty revenue is projected to "more than double this fiscal year" thanks to a new home furnishings line.

Licensing allows Salt Life to leverage its brand without manufacturing or distribution costs. Salt Life licenses its brand, a third party manufactures and sells the products, and Salt Life receives a royalty, creating a high-margin revenue stream.

This strategy mirrors successful apparel giants like Ralph Lauren and Calvin Klein, suggesting Salt Life's brand strength extends beyond apparel. This opens opportunities for licensing deals in outdoor gear, fishing equipment, and boating accessories, further diversifying revenue and boosting profitability.

Hypothetical Impact of Licensing on Salt Life's Operating Income

Let's assume licensing brought in $1 million in FY 2023. If it doubles in FY 2024, that's $2 million in new revenue. With a conservative 50% margin, operating income would increase by $1 million.

This $1 million, a 16% increase, is just the beginning. Expanding licensing to other categories offers compelling growth potential.

While activewear is turbulent, Salt Life's licensing is a narrative of growth and profitability, potentially unlocking significant value for Delta Apparel in the years to come.

"Fun Fact: The term "royalty" originates from medieval times, referring to the share of profits owed to a monarch from mining or other activities on their land. Today, it reflects the share of income a brand receives for licensing its intellectual property."