McRae Industries, Inc. Reports Earnings For The First Quarter Of Fiscal 2021

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Dec 14, 2020, 14:12 ET

MOUNT GILEAD, N.C., Dec. 14, 2020 /PRNewswire/ -- McRae Industries, Inc. (Pink Sheets: MCRAA and MCRAB) reported consolidated net revenues for the first quarter of fiscal 2021 of $18,939,000 as compared to $22,674,000 for the first quarter of fiscal 2020. Net earnings for the first quarter of fiscal 2021 amounted to $494,000, or $0.21 per diluted Class A common share as compared to $992,000, or $0.42 per diluted Class A common share, for the first quarter of fiscal 2020.

FIRST QUARTER FISCAL 2021 COMPARED TO FIRST QUARTER FISCAL 2020

Consolidated net revenues totaled $18.9 million for the first quarter of fiscal 2021 as compared to $22.7 million for the first quarter of fiscal 2020. Sales related to our western/lifestyle boot products for the first quarter of fiscal 2021 totaled $12.1 million as compared to $13.9 million for the first quarter of fiscal 2020. This 13% decrease can be attributed to the effects of the coronavirus pandemic. Revenues from our work boot products decreased approximately 22%, from $9.0 million for the first quarter of fiscal 2020 to $7.0 million for the first quarter of fiscal 2021. This is primarily a result of decreased military boot sales offset by an increase in our Dan Post work boot sales.

Consolidated gross profit for the first quarter of fiscal 2021 amounted to approximately $5.0 million as compared to $5.7 million for the first quarter of fiscal 2020. Gross profit as a percentage of net revenues was up from 25.0% for the first quarter of fiscal 2020 to 26.6% for the first quarter of fiscal 2021. This is primarily attributable to our lower margin military boot sales making up a smaller percentage of total sales.

Consolidated selling, general and administrative ("SG&A") expenses totaled approximately $4.4 million for the first quarter of fiscal 2021 as compared to $4.5 million for first quarter of fiscal 2020.

As a result of the above, the consolidated operating profit for the first quarter of fiscal 2021 amounted to $0.7 million as compared to $1.2 million for the first quarter of fiscal 2020.

Financial Condition and Liquidity

Our financial condition remained strong at October 31, 2020 as cash and cash equivalents totaled $19.1 million as compared to $21.0 million at August 1, 2020. Our working capital increased from $57.5 million at August 1, 2020 to $57.9 million at October 31, 2020.

We currently have two lines of credit totaling $6.75 million, all of which were fully available at October 31, 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.

Net cash used in operating activities for the first quarter of fiscal 2021 amounted to $1.1 million. Net earnings, as adjusted for depreciation, contributed approximately $0.8 million of cash. Accounts receivable used approximately $4.8 million of cash as first quarter sales outpaced customer payments, while a decrease in inventory provided approximately $3.0 million.

Net cash provided by investing activities for the first quarter of fiscal 2021 totaled approximately $0.1 million, primarily due to the maturity of short-term investments.

Net cash used in financing activities for the first quarter of fiscal 2021 totaled $0.8 million, which was primarily used for dividend payments and the repurchase of common stock.

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 2021.

For the first quarter of fiscal 2021, Dan Post Boot Company year over year comparisons continue to improve. Sales for August were at -24.8%, September at -7.6%, and October at -1.4%. Total sales for the quarter were 10% less than the same quarter last year. Orders for August were at +10.8%, September at

-21.1%, and October at +46.1%. Total orders for the quarter increased 11.4% over the same quarter last year. This trend continues into November, as sales increased 17.7% when compared to the same month last year, while orders increased by 26.5% for the same period.

These increases continue to be driven by increased sales in e-commerce accounts (including danpostboots.com), farm and ranch stores, and larger western lifestyle retailers. While we do not know if this trend will continue, we are encouraged by this turn of events. Because of this unexpected increase in orders in the midst of the COVID-19 pandemic, we are beginning to experience out of stock positions on some of our more popular styles. This will negatively affect shipments in the second, and possibly third, quarter. We are working with our vendors to rectify this situation as soon as possible.

Stock Repurchase Program

In December 2020, our Board of Directors approved a repurchase program under which we may repurchase up to $1,000,000 of shares of McRae Industries common stock. We intend to purchase shares periodically through privately negotiated transactions or in the open market. The actual timing, number and value of shares repurchased under the program will be determined by management in its discretion and will depend on a number of factors, including the market price of the shares, general market and economic conditions, applicable legal requirements and other conditions.

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 31, 2020	August 1, 2020
	October 31, 2020	August 1, 2020
ASSETS
Current assets:

Cash and cash equivalents	$19,119	$20,959

Equity investments	$4,174	$4,131

Debt securities	9,977	9,750

Accounts and notes receivable, net	12,808	8,027

Inventories, net	15,288	18,255

Income tax receivable	758	979

Prepaid expenses and other current assets	540	858

Total current assets	62,664	62,959

Property and equipment, net	5,898	6,060

Other assets:

Deposits	14	14

Real estate held for investment	3,242	3,784

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

Trademarks	2,824	2,824

Total other assets	8,368	8,910

Total assets	$76,930	$77,929

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

	October 31, 2020	August 1, 2020
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:

Accounts payable	$2,968	$3,871

Accrued employee benefits	500	400

Accrued payroll and payroll taxes	431	457

Other	844	692

Total current liabilities	4,743	5,420

Deferred tax liabilities	692	692

Total liabilities	5,435	6,112

Shareholders' equity:
Common Stock:
Class A, $1 par value; authorized 5,000,000 shares issued and outstanding, 1,938,301 and 1,957,142 shares, respectively	1,938	1,957

Class B, $1 par value; authorized 2,500,000 shares; issued and outstanding, 367,433 and 373,233 shares, respectively	367	373

Retained earnings	69,190	69,487

Total shareholders' equity	71,495	71,817

Total liabilities and shareholders' equity	$76,930	$77,929

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

	Three Months Ended
	October 31,	November 2,
	2020	2019

Net revenues	$18,939	$22,674

Cost of revenues	13,904	17,016

Gross profit	5,035	5,658

Selling, general and administrative expenses	4,357	4,469

Operating profit	678	1,189

Other income	50	198

Earnings before income taxes	728	1,387

Provision for income taxes	234	395

Net earnings	$494	$992




Earnings per common share:

Diluted earnings per share:
Class A	0.21	0.42
Class B	NA	NA

Weighted average number of common shares outstanding:
Class A	1,949,583	1,967,559
Class B	368,835	373,675
Total	2,318,418	2,341,234

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


	Common Stock, $1 par value				Accumulated Other
	Class A		Class B		Comprehensive	Retained
	Shares	Amount	Shares	Amount	Income (Loss)	Earnings
Balance, August 1, 2020	1,957,142	$1,957	373,233	$373	$0	$69,487

Stock Buyback	-21,141	-21	-3,500	-4		-490

Conversion of Class B to Class A Stock	2,300	2	-2,300	(2)		-

Cash Dividend ($0.13 per Class A common stock)						-253

Cash Dividend ($0.13 per Class B common stock)						-48

Net earnings						494
Balance, October 31, 2020	1,938,301	$1,938	367,433	$367	$0	$69,190

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

	Three Months Ended
	October 31,	November 2,
	2020	2019

Net cash used in operating activities	-1,094	-1,020

Cash Flows from Investing Activities:

Proceeds from sale of assets	591	-

Purchase of land for investment	-160	-3

Capital expenditures	-98	-108

Purchase of securities	-5,118	-33

Proceeds from sale of securities	4,855	2,265

Net cash provided by investing activities	70	2,121

Cash Flows from Financing Activities:

Repurchase company stock	(515)	-

Dividends paid	-301	-304

Net cash used in financing activities	-816	-304

Net (Decrease) Increase in Cash and Cash equivalents	-1,840	797

Cash and Cash Equivalents at Beginning of Year	20,959	12,799

Cash and Cash Equivalents at End of Year	$19,119	$13,596