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McRae Industries, Inc. Reports Earnings For The Second Quarter And First Six Months Of Fiscal 2014

Companies mentioned in this article: McRae Industries, Inc.

MOUNT GILEAD, N.C., March 20, 2014 /PRNewswire/ -- McRae Industries, Inc. (Pink Sheets MCRAA and MCRAB) reported consolidated net revenues for the second quarter of fiscal 2014 of $26,604,000 as compared to $26,082,000 for the second quarter of fiscal 2013. Net earnings for the second quarter of fiscal 2014 amounted to $1,501,000 or $0.73 per diluted Class A common share as compared to net earnings of $1,867,000, or $1.26 per diluted Class A common share, for the second quarter of fiscal 2013.

Consolidated net revenues for the first six months of fiscal 2014 totaled $58,257,000 as compared to $50,946,000 for the first six months of fiscal 2013. Net earnings for the first six months of fiscal 2014 amounted to $4,546,000, or $2.06 per diluted Class A common share, as compared to net earnings of $3,810,000, or $2.13 per diluted Class A common share, for the first six months of fiscal 2013.

SECOND QUARTER FISCAL 2014 COMPARED TO SECOND QUARTER FISCAL 2013

Consolidated net revenues totaled $26.6 million for the second quarter of fiscal 2014 as compared to $26.1 million for the second quarter of fiscal 2013. Revenues from our western and lifestyle footwear products totaled approximately $17.5 million for both second quarters of fiscal 2014 and 2013 as heavy first quarter sales negatively impacted second quarter revenue growth for this segment. Revenues related to our work boot products, which include our licensed, private label, and military boot products, increased from $8.5 million for the second quarter of fiscal 2013 to $9.0 million for the second quarter of fiscal 2014. This net revenue growth for the work boot segment was primarily attributable to increased military boot sales related to our new Israeli boot contract. Net revenues associated with our other work boot products were down slightly, primarily the result of supplier and shipping delays. We are cautiously optimistic that our western and life style business activity will remain steady for the remainder of fiscal 2014. In addition, we expect our work boot business to gain momentum as the economy and weather improves and our military boot orders remain at their current production levels.

Consolidated gross profit amounted to approximately $7.4 million for the second quarter of fiscal 2014, down slightly from approximately $7.8 million for the second quarter of fiscal 2013. The gross profit associated with our western and lifestyle product sales totaled $5.9 million for the second quarter of fiscal 2014, down from $6.3 million for the second quarter of fiscal 2013. This decline in gross profit was the result of several operating factors which included higher inbound freight charges, the implementation of a customer shipping incentive program, a slight shift away from our premium brand products and the impact of under-absorbed import costs. The gross profit from our work boot product sales was approximately $1.4 million for the second quarter of fiscal 2014 as compared to $1.5 million for fiscal 2013. Lower sales from our branded work boot products offset the gross profit gain associated with the increase in military boot net revenues.

Consolidated operating costs and expenses totaled approximately $4.8 million for both second quarters of fiscal 2014 and fiscal 2013. Increased consolidated operating costs and expenses for advertising and marketing expenses and office related expenditures were offset by reduced sales compensation costs, administrative salaries, and employee benefit charges.

As a result of the above, consolidated operating profit amounted to $2.6 million for the second quarter of fiscal 2014 as compared to $3.0 million for the second quarter of fiscal 2013.

FIRST SIX MONTHS FISCAL 2014 COMPARED TO FIRST SIX MONTHS FISCAL 2013

Consolidated net revenues for the first six months of fiscal 2014 totaled $58.3 million as compared to $50.9 million for the first six months of fiscal 2013. Our western and lifestyle product sales totaled $39.9 million for the first six months of fiscal 2014 as compared to $36.1 million for the first six months of fiscal 2013, as demand for these products remained strong. Net revenues from our work boot business grew nearly 23%, up from $14.8 million for the first six months of fiscal 2013 to $18.3 million for the first six months of fiscal 2014. The increase in work boot products net revenues resulted primarily from higher military boot shipments associated with our U. S. Government and Israeli contracts.

Consolidated gross profit totaled $17.7 million for the first six months of fiscal 2014 as compared to $15.7 million for the first six months of fiscal 2013. Gross profit attributable to our western and lifestyle products totaled $14.4 million for the first six months of fiscal 2014 as compared to $13.1 million for the first six months of fiscal 2013. This increase in gross profit resulted from the 10% increase in net revenues. Gross profit attributable to our work boot products grew from $2.5 million for the first six months of fiscal 2013 to $3.2 million for the first six months of fiscal 2014. This increase in gross profit was primarily attributable to the improvement in net revenues associated with our military boot products.

Consolidated operating costs and expenses amounted to $10.3 million for the first six months of fiscal 2014 as compared to $9.6 million for the first six months of fiscal 2013. This increase in operating costs and expenses resulted primarily from higher outlays for sales compensation costs, office expenses, advertising and marketing costs, computer services, depreciation expense, donations, and employee benefit charges, which were partially offset by reduced expenditures for administrative salaries and group health insurance costs.

As a result of the above, the consolidated operating profit amounted to $7.4 million for the first six months of fiscal 2014 as compared to $6.1 million for the first six months of fiscal 2013.

FINANCIAL CONDITION AND LIQUIDITY

Our financial condition remained strong at February 1, 2014 as cash and cash equivalents totaled approximately $12.6 million as compared to $10.8 million at August 3, 2013. Our working capital amounted to $47.1 million at February 1, 2014 as compared to $43.1 million at August 3, 2013.

At February 1, 2014 we maintained two lines of credit with a bank totaling $6.75 million, all of which was available at the end of the second quarter. One credit line totaling $1.75 million (which is restricted to one hundred percent of the outstanding receivables due from the U. S. Government) expires in January 2015. Our $5.0 million line of credit, which also expires in January 2015, is secured by the inventory and accounts receivable of our Dan Post Boot Company subsidiary.

We believe that our current cash and cash equivalents, cash generated from operations, and available credit lines will be sufficient to meet our capital requirements for the remainder of fiscal 2014.

For the first six months of fiscal 2014, operating activities provided approximately $2.6 million of cash. Net earnings, as adjusted for depreciation, provided $4.9 million of cash. Accounts and notes receivable, as adjusted for valuation allowances, used approximately $709,000 of cash as a result of timing of payments related to increased year to date sales. Reduced inventory levels provided $342,000 of cash. The timing of payments for inventory, employee benefit distributions, accrued payroll and payroll taxes, and income tax payments used approximately $2.0 million of cash.

Investing activities for the first six months of fiscal 2014 used approximately $346,000 of cash. Capital expenditures, primarily for manufacturing equipment and computer related purchases used approximately $345,000 of cash.

Dividend payments used approximately $534,000 of cash for the first six months of fiscal 2014.

Reclassification

Certain amounts in the 2013 financial statements have been reclassified to conform to the 2014 presentation.

Forward-Looking Statements

This press release includes certain forward-looking statements. Important factors that could cause actual results or events to differ materially from those projected, estimated, assumed or anticipated in any such forward-looking statements include: the effect of competitive products and pricing, risks unique to selling goods to the Government (including variation in the Government's requirements for our products and the Government's ability to terminate its contracts with vendors), changes in fashion cycles and trends in the western boot business, loss of key customers, acquisitions, supply interruptions, additional financing requirements, our expectations about future Government orders for military boots, loss of key management personnel, our ability to successfully develop new products and services, and the effect of general economic conditions in our markets. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as the date made. Except as otherwise required by federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectation or any change in events, conditions or circumstances on which any such statement is based.

                                                   McRae Industries, Inc. and Subsidiaries
                                                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                               (In thousands, except share and per share data)
                                                                 (Unaudited)


                                                                                               February 1,      August 3,

                                                                                                           2014         2013
                                                                                                           ----         ----

    ASSETS

    Current assets:

    Cash and cash equivalents                                                                           $12,554      $10,804

    Accounts and notes receivable, net                                                                   16,103       15,394

    Inventories, net                                                                                     22,704       23,046

    Income tax receivable                                                                                 1,249          695

    Prepaid expenses and other current assets                                                               420          482
                                                                                                            ---          ---

    Total current assets                                                                                 53,030       50,421
                                                                                                         ------       ------


    Property and equipment, net                                                                           3,304        3,319
                                                                                                          -----        -----


    Other assets:

    Marketable securities- long term                                                                        953          958

    Real estate held for investment                                                                       3,628        3,626

       Amount due from split-dollar life insurance                                                        2,288        2,288

    Trademarks                                                                                            2,824        2,824

    Total other assets                                                                                    9,693        9,696
                                                                                                          -----        -----


               Total assets                                                                             $66,027      $63,436
                                                                                                        =======      =======

                                                                                    McRae Industries, Inc. and Subsidiaries
                                                                                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                                                                (In thousands, except share and per share data)
                                                                                                  (Unaudited)


                                                                                                                                February 1,      August 3,

                                                                                                                                            2014          2013
                                                                                                                                            ----          ----

    Liabilities and Shareholders' Equity


    Current liabilities:



         Accounts Payable                                                                                                                 $3,328        $4,054


         Accrued employee benefits                                                                                                         1,175         1,707


         Accrued payroll and payroll taxes                                                                                                   965         1,209


         Other accrued liabilities                                                                                                           481           399
                                                                                                                                             ---           ---


              Total current liabilities                                                                                                    5,949         7,369
                                                                                                                                           -----         -----



    Shareholders' equity:


         Common Stock:


         Class A, $1 par; Authorized 5,000,000 shares; Issued                                                                              2,039         2,038

            and outstanding 2,038,543 shares and 2,037,605 shares, respectively


         Class B, $1 par; Authorized 2,500,000 shares; Issued                                                                                392           393

            and outstanding 391,981 shares and 392,919 shares, respectively


         Retained earnings                                                                                                                57,647        53,636
                                                                                                                                          ------        ------


              Total shareholders' equity                                                                                                  60,078        56,067
                                                                                                                                          ------        ------


                 Total liabilities and shareholders' equity                                                                              $66,027       $63,436
                                                                                                                                         =======       =======

                                                        McRae Industries, Inc. and Subsidiaries
                                                    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                    (In thousands, except share and per share data)
                                                                      (Unaudited)


                                                                  Three Months Ended               Six Months Ended

                                                                     February 1,                      January 26,         February 1,         January 26,

                                                                                    2014                             2013                2014                2013
                                                                                    ----                             ----                ----                ----


    Net revenues                                                                 $26,604                          $26,082             $58,257             $50,946

       Cost of revenues                                                           19,187                           18,304              40,539              35,258
                                                                                  ------                           ------              ------              ------

             Gross profit                                                          7,417                            7,778              17,718              15,688


    Less:  Operating costs and expenses:


       Selling, general and administrative expenses                                4,845                            4,779              10,315               9,569
                                                                                   -----                            -----              ------               -----


              Earnings from operations                                             2,572                            2,999               7,403               6,119


       Other income                                                                   76                               56                 153                  94


       Interest expense                                                                0                                0                   0                   0
                                                                                     ---                              ---                 ---                 ---


    Earnings before income taxes                                                   2,648                            3,055               7,556               6,213


    Provision for income taxes                                                     1,147                            1,188               3,010               2,403
                                                                                   -----                            -----               -----               -----


    Net earnings                                                                  $1,501                           $1,867              $4,546              $3,810
                                                                                  ======                           ======              ======              ======


    Earnings per common share:

         Basic earnings per share:

            Class A                                                                $0.87                            $1.51               $2.45               $2.56

            Class B                                                                  .13                              .59                 .22                 .59

         Diluted earnings per share:

            Class A                                                                 0.73                             1.26                2.06                2.13

            Class B                                                                  N/A                              N/A                 N/A                 N/A

    Weighted average number of common shares

         outstanding:

           Class A                                                             2,038,543                        2,034,052           2,038,395           2,032,507

           Class B                                                               391,981                          404,204             392,129             405,832
                                                                                 -------                          -------             -------             -------

                 Total                                                         2,430,524                        2,438,256           2,430,524           2,438,339
                                                                               ---------                        ---------           ---------           ---------

                                                             McRae Industries, Inc. and Subsidiaries
                                                         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                         (In thousands)
                                                                           (Unaudited)


                                                                                                         Six Months Ended

                                                                                                           February 1,       January 26,

                                                                                                                       2014             2013
                                                                                                                       ----             ----


    Net cash provided by operating activities                                                                        $2,630           $1,978
                                                                                                                     ------           ------


    Cash flows from investing activities:


         Proceeds from sales of assets                                                                                    0                4


         Purchase of land for investment                                                                                 (1)             (54)


         Capital expenditures                                                                                          (345)            (439)


         Purchase of securities                                                                                           0           (1,045)



    Net cash used in investing activities                                                                              (346)          (1,534)
                                                                                                                       ----           ------


    Cash flows from financing activities:



         Purchase of company stock                                                                                        0              (14)


         Dividends paid                                                                                                (534)          (1,620)
                                                                                                                       ----           ------


    Net cash used in financing activities                                                                              (534)          (1,634)
                                                                                                                       ----           ------


    Net increase (decrease) in cash and cash equivalents                                                              1,750           (1,190)


    Cash and cash equivalents at beginning of period                                                                 10,804           12,874
                                                                                                                     ------           ------


    Cash and cash equivalents at end of period                                                                      $12,554          $11,684
                                                                                                                    =======          =======

SOURCE McRae Industries, Inc.