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McRae Industries, Inc. Reports Earnings For The First Quarter Of Fiscal 2018

MOUNT GILEAD, N.C., Dec. 27, 2017 /PRNewswire/ -- McRae Industries, Inc. (Pink Sheets: MCRAA and MCRAB) reported consolidated net revenues for the first quarter of fiscal 2018 of $22,399,000 as compared to $29,872,000 for the first quarter of fiscal 2017. Net earnings for the first quarter of fiscal 2018 amounted to $1,292,000, or $0.54 per diluted Class A common share as compared to $1,527,000, or $0.63 per diluted Class A common share, for the first quarter of fiscal 2017.

FIRST QUARTER FISCAL 2018 COMPARED TO FIRST QUARTER FISCAL 2017

Consolidated net revenues totaled $22.4 million for the first quarter of fiscal 2018 as compared to $29.9 million for the first quarter of fiscal 2017. Sales related to our western/lifestyle boot products for the first quarter of fiscal 2018 totaled $13.3 million as compared to $14.5 million for the first quarter of fiscal 2017. This 8% decrease was primarily attributable to the decrease in sales for men's western boots and premium kid's boots. Revenues from our work boot products decreased approximately 41%, from $15.4 million for the first quarter of fiscal 2017 to $9.1 million for the first quarter of fiscal 2018. This is primarily a result of decreased military boot sales. We have been awarded a new contract with the United States Government for hot weather Army combat boots. This contract is for a base year and four option years. However, due to the government's over inventoried position on this product, the first delivery order was less than expected and the delivery time frame was extended. The contract for the temperate weather Army combat boots will not be awarded until January or February of 2018 and these contracts will also be for a base year and four option years. We are in the process of completing our obligations on the existing temperate weather Army combat boot contract. These developments are expected to negatively impact our military boot sales for fiscal 2018.

Consolidated gross profit for the first quarter of fiscal 2018 amounted to approximately $6.2 million as compared to $7.4 million for the first quarter of fiscal 2017. Gross profit as a percentage of net revenues was up from 24.7% for the first quarter of fiscal 2017 to 27.8% for the first quarter of fiscal 2018. This is attributable to the sales mix being more heavily weighted towards higher margin western and work boots.

Consolidated selling, general and administrative ("SG&A") expenses totaled approximately $4.2 million for the first quarter of fiscal 2018 as compared to $5.0 million for the first quarter of fiscal 2017. This decrease in SG&A expenses resulted primarily from decreased expenditures for health insurance, computer and professional services, and salaries.

As a result of the above, the consolidated operating profit for the first quarter of fiscal 2018 amounted to $2.0 million as compared to $2.4 million for the first quarter of fiscal 2017.

Financial Condition and Liquidity

Our financial condition remained strong at October 28, 2017 as cash and cash equivalents totaled $29.2 million as compared to $28.1 million at July 29, 2017. Our working capital increased from $54.3 million at July 29, 2017 to $55.1 million at October 28, 2017.

We currently have two lines of credit totaling $6.75 million, all of which were fully available at October 28, 2017. 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 2018. Our $5.0 million line of credit, which also expires in January 2018, is secured by the inventory and accounts receivable of our Dan Post Boot Company subsidiary.

Net cash provided by operating activities for the first quarter of fiscal 2018 amounted to $2.0. Net earnings, as adjusted for depreciation, contributed approximately $1.6 million of cash. Accounts receivable used approximately $1.6 million of cash as first quarter sales outpaced customer payments. Both of our boot businesses provided approximately $1.0 million of cash as efforts to reduce inventory levels paid off. The timing of payments for employee related expenses and income taxes provided approximately $1.0 million of cash.

Net cash used by investing activities totaled approximately $500,000, primarily for manufacturing machinery and equipment.

Net cash used in financing activities totaled $311,000, which was used for dividend payments.

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 2018.

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.

McRae Industries, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)








October 28,

2017


July 29,

2017


ASSETS





Current assets:










Cash and cash equivalents


$29,200


$28,057






Short term securities


505


505






Accounts and notes receivable, net


13,914


12,331






Inventories, net


17,399


18,273






Income tax receivable


0


329






Prepaid expenses and other current assets


436


550






Total current assets


61,454


60,045






Property and equipment, net


7,566


7,391






Other assets:










Deposits


14


14






Long term securities


3,848


3,804






Real estate held for investment


3,603


3,601






Amounts due from split-dollar life insurance


2,288


2,288






Trademarks


2,824


2,824






Total other assets


12,577


12,531






Total assets


$81,597


$79,967
















McRae Industries, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)








October 28,

2017


July 29,

2017


LIABILITIES AND SHAREHOLDERS' EQUITY





Current liabilities:










Accounts payable


$2,522


$2,510






Accrued employee benefits


1,450


1,144






Accrued payroll and payroll taxes


614


809






Accrued income taxes


1,020


589






Other


778


714






Total current liabilities


6,384


5,766











Shareholders' equity:





Common Stock:





Class A, $1 par value; authorized 5,000,000 shares
issued and outstanding, 2,014,842 and 2,014,842
shares, respectively


2,015


2,015






Class B, $1 par value; authorized 2,500,000 shares;
issued and outstanding, 383,254 and 383,254 shares,
respectively


384


384






Unrealized gains(losses) on investments, net of tax


26


(5)






Retained earnings


72,788


71,807






Total shareholders' equity


75,213


74,201






Total liabilities and shareholders' equity


$81,597


$79,967

McRae Industries, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)








Three Months Ended



October 28,


October 29,

2017

2016






Net revenues


$22,399


$29,872






Cost of revenues


16,162


22,504






Gross profit


6,237


7,368






Selling, general and administrative expenses


4,199


4,963






Operating profit


2,038


2,405






Other income


77


94






Earnings before income taxes


2,115


2,499






Provision for income taxes


823


972






Net earnings


$1,292


$1,527





















Earnings per common share:










Diluted earnings per share:





Class A


0.54


0.63

Class B


NA


NA






Weighted average number of common shares outstanding:










Class A


2,014,842


2,030,658

Class B


383,254


387,629

Total


2,398,096


2,418,287






McRae Industries, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)








Three Months Ended



October 28,


October 29,



2017

2016






Net cash provided by operating activities


1,954


1,475






Cash Flows from Investing Activities:










Purchase of land for investment


(2)


(21)






Capital expenditures


(485)


(100)






Purchase of securities


(13)


(85)






Net cash used in investing activities


(500)


(206)






Cash Flows from Financing Activities:










Dividends paid


(311)


(314)






Net cash used in financing activities


(311)


(314)











Net (Decrease) Increase in Cash and Cash equivalents


1,143


955






Cash and Cash Equivalents at Beginning of Year


28,057


15,673






Cash and Cash Equivalents at End of Year


$29,200


$16,628






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SOURCE McRae Industries, Inc.