McRae Industries, Inc. Reports Earnings For The Fourth Quarter And Full Year Fiscal 2020
MOUNT GILEAD, N.C., Sept. 23, 2020 /PRNewswire/ -- McRae Industries, Inc. (Pink Sheets: MCRAA and MCRAB) reported consolidated net revenues for the fourth quarter of fiscal 2020 ending on August 1, 2020 of $12,020,000 as compared to $22,209,000 for the fourth quarter of fiscal 2019. The company experienced a net loss for the fourth quarter of fiscal 2020 in the amount of $1,178,000, or ($0.50) per diluted Class A common share as compared to net earnings of $808,000, or $0.34 per diluted Class A common share, for the fourth quarter of fiscal 2019.
Consolidated net revenues for fiscal 2020 totaled $69,311,000 as compared to $82,154,000 for fiscal 2019. Net losses for fiscal 2020 amounted to $114,000, or ($0.05) per diluted Class A common share, as compared to net earnings of $2,118,000, or $0.89 per diluted Class A common share, for fiscal 2019.
FOURTH QUARTER FISCAL 2020 COMPARED TO FOURTH QUARTER FISCAL 2019
Consolidated net revenues totaled $12.0 million for the fourth quarter of fiscal 2020 as compared to $22.2 million for the fourth quarter of fiscal 2019. Sales related to our western/lifestyle boot products were $7.1 million for the fourth quarter of fiscal 2020 as compared to $12.0 million for the fourth quarter of fiscal 2019. This was primarily driven by a decline across all brands due to the effects of the coronavirus pandemic as described below. Revenues from our work boot products decreased from $10.2 million for the fourth quarter of fiscal 2019 to $4.9 million for the fourth quarter of fiscal 2020. This was primarily a result of decreased sales in our military boots due to the impacts of the coronavirus pandemic described below. There was also a decrease in John Deere boot sales as we exited that brand, offset by an increase in our Dan Post brand.
Consolidated gross profit for the fourth quarter of fiscal 2020 amounted to approximately $2.1 million as compared to $5.2 million for the fourth quarter of fiscal 2019. This drop was driven by the decline in sales, as well as the production inefficiencies created by the coronavirus.
Consolidated selling, general and administrative ("SG&A") expenses have decreased from $4.4 million for the fourth quarter of fiscal 2019 to $3.7 million for the fourth quarter of fiscal 2020. This resulted from decreased spending in a number of areas, including advertising, travel and entertainment, and salaries.
As a result of the above, the consolidated operating loss for the fourth quarter of fiscal 2020 amounted to $1.5 million as compared to an operating profit of $0.8 million for the fourth quarter of fiscal 2019.
FISCAL 2020 COMPARED TO FISCAL 2019
Consolidated net revenues for fiscal 2020 totaled $69.3 million as compared to $82.2 million for fiscal 2019. Our western and lifestyle product sales totaled $40.1 million for fiscal 2020 as compared to $46.2 million for fiscal 2019. This was primarily driven by a decline across all brands due to the effects of the coronavirus pandemic as described below, as well as a decrease in the John Deere sales due to the exit of that brand. Net revenues from our work boot business decreased from $35.6 million for fiscal 2019 to $29.0 million for fiscal 2020. This decrease resulted primarily from lower military boot due to the effects of the coronavirus pandemic as described below. There was also a decrease due to the exit of the John Deere brand, offset by increased sales of Dan Post work boots.
Consolidated gross profit totaled $15.5 million for fiscal 2020 as compared to $19.3 million for fiscal 2019. Gross profit attributable to our western and lifestyle products totaled $13.5 million for fiscal 2020, down from $14.9 million for fiscal 2019. This decrease was directly correlated with the decrease in sales. Our work boot products gross profit decreased from $4.2 million for fiscal 2019 to $1.9 million for fiscal 2020. This decline was mainly driven by the lower military boots and John Deere brand sales, as well as the production inefficiencies experienced in the third and fourth quarter.
Consolidated selling, general, and administrative ("SG&A") expenses have decreased from $17.0 million for fiscal 2019 to $16.0 million for fiscal 2020. This resulted from lower commissions, as well as decreased spending on travel and entertainment, and professional services.
As a result of the above, the consolidated operating loss amounted to $0.4 million for fiscal 2020 as compared to an operating profit of $2.3 million for fiscal 2019.
Financial Condition and Liquidity
Our financial conditions remain strong at August 1, 2020 as cash and cash equivalents totaled $21.0 million as compared to $12.8 million at August 3, 2019. Our working capital decreased from $54.5 million at August 3, 2019 to $53.4 million at August 1, 2020.
We currently have two lines of credit totaling $6.75 million, all of which was fully available at August 1, 2020. One credit line totaling $1.75 million (which is restricted to one hundred percent of the outstanding receivables due from the Government) expires in January 2021. Our $5.0 million line of credit, which also expires in January 2021, 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 coming year.
For fiscal 2020, operating activities provided approximately $6.8 million of cash. Net earnings, as adjusted for depreciation, contributed approximately $1.0 million of cash. A reduction in inventory and accounts receivables provided approximately $6.9 million of cash. Other assets and employee related expenses, along with accrued income taxes used approximately $1.5 million.
Net cash provided by investing activities totaled approximately $2.8 million, which was primarily due to the sale of securities offset by purchases of securities.
Net cash used in financing activities totaled approximately $1.5 million, which was used primarily for dividend payments and stock buybacks.
COVID-19 Developments
The COVID-19 pandemic has affected people throughout our nation and the entire world. Our hearts go out to those whose lives and families have been affected by this unprecedented situation.
For McRae Industries, Inc., the COVID-19 has had a dramatic effect on our production, sales, and profitability during fiscal 2020.
Dan Post Boot Company experienced a decrease in sales of 37% and orders of 31% for the fourth quarter of fiscal 2020 when compared to the same quarter last year. These decreases were primarily attributable to the COVID-19 pandemic. Monthly year over year comparisons improved during the quarter with shipments for May at -49%, June at -30%, and July at -33%. Orders for May were at -57%, June at -6%, and July at -11%. Sales for August 2020 decreased by 25% when compared to the same month last year while orders increased by 14% when compared to the same month last year.
The improvement in sales and orders is primarily the result of increased e-commerce sales and increased sales by the farm and ranch retailers. Many of our western retailers continue to suffer from a lack of events such as rodeos and music concerts which drive a considerable portion of their western boot sales.
While we have seen some improvement in sales and orders at Dan Post Boot Company over the past several months, we still expect fiscal 2021 to be a challenging year. We believe that COVID-19 poses the biggest risk to our financial performance as it continues to have a negative impact on our retailers, consumers, and vendors.
McRae Footwear's revenue suffered greatly during the fourth quarter of fiscal 2020 due to absenteeism and other issues related to COVID-19. Our sales decreased by 60% when compared to the same quarter last year. During the month of August, we began having employees return to work and hope to be at a pre-COVID-19 level of production by the end of the first quarter of fiscal 2021.
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: uncertainties associated with COVID-19 or coronavirus, including its possible effects on our operations, supply chain, and the demand for our products and services, 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.
McRae Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
August 1, August 3,
2020 2019
ASSETS
Current assets:
Cash and cash
equivalents $20,959 $12,799
Short term
securities 9,750 13,209
Accounts and
notes
receivable, net 8,027 12,975
Inventories, net 18,255 19,761
Income tax
receivable 954 406
Prepaid expenses
and other
current assets 858 634
Total current
assets 58,803 59,784
Property and
equipment, net 6,060 6,612
Other assets:
Deposits 14 14
Long term
securities 4,131 4,032
Real estate held
for investment 3,784 3,800
Amounts due from
split-dollar
life insurance 2,288 2,288
Trademarks 2,824 2,824
Total other
assets 13,041 12,958
Total assets $77,904 $79,354
McRae Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
August 1, August 3,
2020 2019
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $3,871 $3,403
Accrued employee benefits 400 460
Accrued payroll and payroll taxes 457 713
Other 692 751
Total current liabilities 5,420 5,327
Deferred tax liabilities 704 704
Total liabilities 6,124 6,031
Shareholders' equity:
Common Stock:
Class A, $1 par value; authorized
5,000,000 shares 1,957 1,967
issued and outstanding, 1,957,142 and
1,967,559
shares, respectively
Class B, $1 par value; authorized
2,500,000 shares; 373 374
issued and outstanding, 373,233 and
373,675 shares,
respectively
Unrealized gains(losses) on
investments, net of tax (12)
Retained earnings 69,450 70,994
Total shareholders' equity 71,780 73,323
Total liabilities and shareholders'
equity $77,904 $79,354
McRae Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
Three Months Ended Year Ended
August 1, August 3, August 1, August 3,
2020 2019 2020 2019
---
Net revenues $12,020 $22,209 $69,311 $82,154
Cost of revenues 9,890 16,980 53,763 62,851
Gross profit 2,130 5,229 15,548 19,303
Selling, general
and administrative
expenses 3,671 4,428 15,973 17,005
Operating profit
(loss) (1,541) 801 (425) 2,298
Other income 58 217 562 651
Unrealized gains
(losses) on
investments (59) (59) -
Earnings before
income taxes (1,542) 1,018 78 2,949
Provision for
income taxes (364) 210 192 831
Net earnings (loss) $(1,178) $808 $(114) $2,118
Earnings (loss) per common share:
Diluted earnings (loss) per share:
Class A $(0.50) $0.34 $(0.05) $0.89
Class B
NA
NA
NA
NA
Weighted average number of common shares
outstanding:
Class A 1,962,120 2,017,093 1,965,652 2,018,940
Class B 373,233 373,740 373,517 374,064
Total 2,335,353 2,390,833 2,339,169 2,393,004
McRae Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
Common Stock, $1 par value
Accumulated Other
Class A Class B
Comprehensive Retained
Shares Amount Shares Amount
Income (Loss) Earnings
Balance, August 3, 2019 1,967,559 $1,967 373,675 $374 ($12) $70,994
Unrealized gains on
investments, net of tax (2)
Cash Dividend ($0.13 per
Class A common stock) (256)
Cash Dividend ($0.13 per
Class B common stock) (49)
Net earnings 992
---
Balance, November 2, 2019 1,967,559 $1,967 373,675 $374 ($14) $71,682
Stock Buyback (1,033) (1) (25)
Unrealized gains on
investments, net of tax 42
Cash Dividend ($0.13 per
Class A common stock) (256)
Cash Dividend ($0.13 per
Class B common stock) (48)
Net earnings 576
---
Balance, February 1, 2020 1,966,526 $1,966 373,675 $374 $28 $71,929
Stock Buyback (1,882) (2) (442) (1) (51)
Unrealized gains on
investments, net of tax (281)
Cash Dividend ($0.13 per
Class A common stock) (256)
Cash Dividend ($0.13 per
Class B common stock) (49)
Net earnings (504)
---
Balance, May 2, 2020 1,964,644 $1,964 373,233 $373 ($253) $71,070
Stock Buyback (7,502) (7) (126)
Unrealized gains on
investments, net of tax 253 (13)
Cash Dividend ($0.13 per
Class A common stock) (254)
Cash Dividend ($0.13 per
Class B common stock) (48)
Net earnings (loss) (1,178)
---
Balance, August 1, 2020 1,957,142 $1,957 373,233 $373 $0 $69,450
McRae Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
Common Stock, $1 par value
Accumulated Other
Class A Class B
Comprehensive Retained
Shares Amount Shares Amount
Income (Loss) Earnings
Balance, July 28, 2018 2,019,974 $2,020 374,272 $375 ($28) $72,622
Stock Buyback (325) (76) (12)
Unrealized gains on
investments, net of tax (99)
Cash Dividend ($0.63 per
Class A common stock) (1,272)
Cash Dividend ($0.63 per
Class B common stock) (235)
Net earnings 856
---
Balance, October 27, 2018 2,019,649 $2,020 374,196 $375 ($127) $71,959
Stock Buyback (563) (1) (12)
Unrealized gains on
investments, net of tax 2
Cash Dividend ($0.13 per
Class A common stock) (262)
Cash Dividend ($0.13 per
Class B common stock) (49)
Net earnings 68
---
Balance, January 26, 2019 2,019,086 $2,019 374,196 $375 ($125) $71,704
Conversion of Class B to
Class A Stock 212 (212)
Stock Buyback (890) (1) (209) (1) (26)
Unrealized gains on
investments, net of tax 92
Cash Dividend ($0.13 per
Class A common stock) (262)
Cash Dividend ($0.13 per
Class B common stock) (48)
Net earnings 386
---
Balance, April 27, 2019 2,018,408 $2,018 373,775 $374 ($33) $71,753
Stock Buyback (50,849) (51) (100) (1,257)
Unrealized gains on
investments, net of tax 21
Cash Dividend ($0.13 per
Class A common stock) (262)
Cash Dividend ($0.13 per
Class B common stock) (48)
Net earnings 808
---
Balance, August 3, 2019 1,967,559 $1,967 373,675 $374 ($12) $70,994
McRae Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
August 1, August 3,
2020 2019
Net cash provided by operating
activities $6,806 $395
Cash Flows from Investing
Activities:
Proceeds from sale of land 15 153
Purchase of land for investment (4) (44)
Capital expenditures (525) (396)
Sale of securities 13,371 274
Purchase of securities (10,075) (11,389)
Net cash used in investing
activities 2,782 (11,402)
Cash Flows from Financing
Activities:
Repurchase of company stock (213) (1,360)
Dividends paid (1,215) (2,439)
Net cash used in financing
activities (1,428) (3,799)
Net (Decrease) Increase in Cash and
Cash equivalents 8,160 (14,806)
Cash and Cash Equivalents at
Beginning of Year 12,799 27,605
Cash and Cash Equivalents at End of
Period $20,959 $12,799
The accompanying notes are an
integral part of these
consolidated financial statements.
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SOURCE McRae Industries, Inc.
