We closed DLA for a gain of 5%. Relative to other positions, DLA is more illiquid and not as well positioned in an inflationary environment. DLA sells a commodity and with its heavy manufacturing footprint in a sustained inflationary environment, its margins would deteriorate significantly. Even if it can pass increased operating expenses onto the customer, its maintenance capital expenditures would go up considerably. Coupled with management’s recent caginess about its Direct to Garment (DTG) segment – which we believed was the primary value driver in DLA – and reluctance to break out segment performance, we have exited DLA. We will look to re-evaluate when the inflationary environment subsides.
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