McRae Industries, Inc. Reports Earnings For The Fourth Quart

|Sep 23|magazine33 min read

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,
2020


August 3,
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,
2020


August 3,
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
   issued and outstanding, 1,957,142 and 1,967,559
   shares, respectively


1,957


1,967






Class B, $1 par value; authorized 2,500,000 shares;
   issued and outstanding, 373,233 and 373,675 shares,
   respectively


373


374






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.