Truett Hurst - News & Media
Truett-Hurst, Inc. Reports Second Quarter Fiscal 2015 Results

Healdsburg, California (February 11, 2015) – Truett-Hurst, Inc. (NASDAQ: THST) today reported results for the second quarter and six-month period of fiscal 2015 (“FY15”), which ended December 31, 2014. Truett-Hurst, Inc. operates an innovative and fast growing super-premium and ultra-premium wine sales, marketing and production company based in the acclaimed Dry Creek and Russian River Valleys of Sonoma County, California.

 

FY15Q2 Vs. FY14Q2

  · Net sales up 9% to $6.6 million from $6.0 million (+$0.6 million):

 

  o Wholesale down 19% to $3.6 million.

 

  o Direct to Consumer (“DTC”) up 27% to $1.4 million.

 

  o Internet up 199% to $1.6 million.

 

Wholesale net sales were impacted by a $0.6 million loss contingency accrual related to returns of out-of-date Paper Boy product (1). Before the impact of the loss contingency accrual, wholesale net sales decreased by $0.2 million or 5% in the second quarter of FY15 compared to the same prior-year quarter period. We continue to expect to see variability in quarter over quarter results for our wholesale business as we bring on new customers and launch new products.

 

The DTC net sales increase was primarily due to our continued growth in wine club membership and tasting room traffic. The internet net sales increase was attributable to increased website traffic, internet marketing and continued expansion of our customer reach through a partnership model.

 

Footnote:

  1. In January 2015, we were notified by a large national retailer that inventory of Paper Boy product on their shelves had partially oxidized.  Our terms of sale provide for limited rights of return only in circumstances where products are not merchantable due to quality deficiencies.  We determined that Paper Boy’s shelf life met the product’s quality specifications, which are consistent with those of other similar products in the market.  However, on a one time basis we agreed to work with the retailer to remove expired product. While we believe we have no contractual liability for costs associated with destruction of out-of-date inventory, we anticipate providing limited financial support to certain of our largest distributors.  Finally, we have reviewed our inventory and have written off the expired Paper Boy finished goods inventory in our warehouse.
 

 

Overall gross margins decreased to 30% from 35% and gross profit decreased $0.1 million to $2.0 million

 

  o Wholesale gross margins decreased 20.1 margin points to 9.3%

 

  o DTC gross margins increased 1.8 margin points to 62.1%

 

  o Internet gross margins increased 15.9 margin points to 49.5%

 

Wholesale gross margins were impacted by the Paper Boy loss contingency accrual of $0.6 million mentioned above as well as an additional $0.2 million inventory impairment for out-of-date Paper Boy inventory that we owned as of December 31, 2014. Before the impact of the Paper Boy related items, wholesale gross margins decreased by 2.2 margin points to 27.2% compared to the same prior-year quarter period of 29.4%. Compared to the first quarter of FY15, wholesale margins, before the impact of the two Paper Boy related items, declined 30 basis points.

 

Both DTC and Internet segments exhibited margin expansion of 1.8 margin points and 15.9 margin points respectively compared to the same prior-year quarter.

 

Operating Expenses:

 

Operating expenses for the second quarter of FY15 were $2.7 million compared to $2.0 million in the prior-year quarter period. Sales and marketing (“S&M”) expense increased $0.5 million due to continued investment in personnel, increased non-cash stock compensation expense as well as variable S&M expenses in our internet segment. General and administrative (“G&A”) expense increased $0.2 million due to increased non-cash stock compensation expense and investment in infrastructure. Versus the first quarter of FY15, G&A expenses decreased $0.1 million.

 

Six Months FY15 Vs. Six Months FY14

 

  · Net sales up 15% to $13.0 million from $11.4 million (+$1.6 million):

 

  o Wholesale down 8% to $7.7 million.

 

  o Direct to Consumer (“DTC”) up 21% to $2.4 million.

 

  o Internet up 197% to $2.9 million.

 

Wholesale net sales were impacted by a $0.6 million loss contingency accrual related to returns of out-of-date Paper Boy product. Before the impact of the loss contingency accrual, wholesale net sales decreased by $0.1 million or 1% for the first six months of FY15 compared to the same six-month period in the prior-year. We continue to expect to see variability in quarter over quarter results for our wholesale business as we bring on new customers and launch new products.

 

The DTC net sales increase was primarily due to our continued growth in wine club membership and tasting room traffic. The internet net sales increase was attributable to increased website traffic, internet marketing and expansion of our customer reach through a partnership model.

 

  · Overall gross margins were level at 34% for six-month periods of FY15 and FY14

 

  o Wholesale gross margins decreased 8.8 margin points to 19.1%

 

  o DTC gross margins increased 3.1 margin points to 63.3%

 

  o Internet gross margins increased 12.0 margin points to 48.6%

 

Wholesale gross margins were impacted by the loss contingency accrual of $0.6 million mentioned above as well as an additional $0.2 million inventory impairment for out-of-date inventory that we owned as of 12/31/2014. Before the impact of the two Paper Boy related items, wholesale gross margins decreased by 60 basis points to 27.2% compared to 27.9% in the same six-month period of the prior-year.

 

Both DTC and Internet segments exhibited margin expansion showing increases of 3.1 margin points and 12.0 margin points, respectively compared to the same six-month period in the prior-year.

 

Consolidated gross margin percentage for the six-month period in FY15, before the impact of the Paper Boy related items, was 38% versus 34% in the same period from the prior-year.

 

Operating Expenses:

 

Operating expenses for the six-month period of FY15 were $5.2 million compared to $3.9 million in the prior six-month period, an increase of $1.3 million. S&M expense increased $0.9 million due to continued investment in our brand related programming, promotions and incentives as well as variable S&M expenses directly related to the growth in sales of our internet segment. G&A expense increased $0.4 million due to increased non-cash stock compensation expense and increased infrastructure costs versus the prior year.

 

Phillip L. Hurst, Truett-Hurst, Inc.’s President and CEO stated, “I’m encouraged that Truett-Hurst was able to show growth for the quarter and the first half of FY15 despite having accrued a large amount of costs for dealing with out-of-date Paper Boy product. Our direct to consumer and internet segments have shown very positive top line growth while continuing to expand margins. I’m excited about the work that we still have ahead of us this fiscal year; launching California Winecraft and Sonoma Ranches with Kroger and starting our national brands relationship with Target.”

Truett-Hurst, Inc. Announces Second Quarter Fiscal 2015 Financial Results

 

TRUETT-HURST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(unaudited)

 

    Three-Month Periods Ended     Six-Month Periods Ended  
    December 31,     December 31,  
    2014     2013     2014     2013  
                         
Sales   $ 6,732     $ 6,141     $ 13,346     $ 11,677  
Less excise tax     (168 )     (145 )     (300 )     (295 )
Net sales     6,564       5,996       13,046       11,382  
                                 
Cost of sales     4,565       3,875       8,612       7,472  
                                 
Gross profit     1,999       2,121       4,434       3,910  
                                 
Operating expenses:                                
Sales and marketing     1,858       1,399       3,423       2,553  
General and administrative     812       588       1,755       1,324  
Bulk wine sales, net gain     -       (1 )     -       (1 )
Loss on disposal of assets     -       -       2       -  
Total operating expenses     2,670       1,986       5,180       3,876  
(Loss) income from operations     (671 )     135       (746 )     34  
Other (expense) income:                                
Interest expense, net     (69 )     (39 )     (133 )     (81 )
Other     (77 )     47       (86 )     30  
Total other (expense) income     (146 )     8       (219 )     (51 )
(Loss) income before income taxes     (817 )     143       (965 )     (17 )
Income tax expense     -       32       2       11  
Net (loss) income before non-controlling interests     (817 )     111       (967 )     (28 )
Net income (loss) attributable to non-controlling interest: The Wine Spies, LLC     49       (37 )     86       (61 )
Net (loss) income attributable to Truett-Hurst, Inc. and H.D.D. LLC     (866 )     148       (1,053 )     33  
Less: Net (loss) income attributable to non-controlling interest: H.D.D. LLC     (392 )     108       (479 )     26  
Net (loss) income attributable to Truett-Hurst, Inc.   $ (474 )   $ 40     $ (574 )   $ 7  
                                 
                                 
Basic net (loss) income per share   $ (0.13 )   $ 0.01     $ (0.15 )   $ 0.00  
Diluted net (loss) income per share   $ (0.13 )   $ 0.01     $ (0.15 )   $ 0.00  
                                 
Basic weighted average shares outstanding     3,786,712       2,700,462       3,768,592       2,700,230  
Diluted weighted average shares outstanding     3,786,712       2,947,390       3,768,592       2,947,158  

 

 
 

 

Truett-Hurst, Inc. Announces Second Quarter Fiscal 2015 Financial Results

 

TRUETT-HURST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

    December 31, 2014     June 30, 2014  
    Unaudited        
ASSETS                
                 
Current assets:                
Cash and cash equivalents   $ 2,913     $ 5,567  
Accounts receivable     2,294       3,300  
Inventories     21,952       17,179  
Bulk wine deposit     -       1,424  
Other current assets     162       161  
Total current assets     27,321       27,631  
                 
Property and equipment, net     5,931       5,553  
Goodwill     134       134  
Intangible assets, net     753       629  
Other assets, net     418       381  
Total assets   $ 34,557     $ 34,328  
                 
LIABILITIES and EQUITY                
                 
Current liabilities:                
Credit facilities   $ 8,457     $ 8,685  
Accounts payable and accrued expenses     3,474       3,194  
Accrual for sales returns     582       -  
Due to related parties     363       56  
Related party note     31       67  
Current maturities of long-term debt     400       333  
Total current liabilities     13,307       12,335  
                 
Deferred rent liability     37       48  
Long-term debt, net of current maturities     3,418       3,527  
Total liabilities     16,762       15,910  
                 
Commitments and contingencies                
                 
Stockholders' equity                
Preferred stock, par value of $0.001 per share, 5,000,000 shares authorized and zero issued and outstanding at December 31, 2014 and June 30, 2014     -       -  
Class A common stock, par value of $0.001 per share, 15,000,000 authorized and 3,847,986 issued and outstanding at December 31, 2014 and 3,750,472 issued and outstanding at June 30, 2014     4       4  
Class B common stock, par value of $0.001 per share, 1,000 authorized and 9 issued and outstanding at December 31, 2014 and  June 30, 2014     -       -  
Additional paid-in capital     14,401       14,057  
Accumulated deficit     (4,569 )     (3,995 )
Total Truett-Hurst, Inc. stockholders' equity     9,836       10,066  
Non-controlling interests     7,959       8,352  
Total equity     17,795       18,418  
Total liabilities and equity   $ 34,557     $ 34,328  

 

 
 

 

Truett-Hurst, Inc. Announces Second Quarter Fiscal 2015 Financial Results

 

TRUETT-HURST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

    Six-Month Periods Ended  
    December 31,  
    2014     2013  
Cash flows from operating activities:                
Net loss before non-controlling interests   $ (967 )   $ (28 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     317       257  
Deferred rent     (11 )     1  
Deferred taxes     -       11  
Loss (gain) on fair value of interest rate swap     49       (48 )
Loss on disposal of asset     2       -  
Stock-based compensation     345       202  
                 
Changes in operating assets and liabilities, net                
Accounts receivable     1,006       259  
Inventories     (4,773 )     (4,128 )
Bulk wine deposit     1,424       -  
Other current assets     (50 )     (365 )
Accounts payable and accrued expenses     280       (372 )
Accrual for sales returns     582       -  
Net cash used in operating activities     (1,796 )     (4,211 )
                 
Cash flows from investing activities:                
Acquisition of property and equipment     (597 )     (465 )
Acquisition of intangible and other assets     (138 )     (126 )
Net cash used in investing activities     (735 )     (591 )
                 
Cash flows from financing activities:                
Net (payments on) proceeds from line of credit     (228 )     383  
Net proceeds from related parties     271       675  
Payments on long-term debt     (166 )     (124 )
Net cash (used in) provided by financing activities     (123 )     934  
                 
Net decrease in cash     (2,654 )     (3,868 )
Cash at beginning of period     5,567       11,367  
Cash at end of period   $ 2,913     $ 7,499  
                 
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ 120     $ 92  
                 
Supplemental disclosure of non-cash transactions                
Seller-financed acquisition of trademark   $ 170     $ -  

 

 
 

 

Truett-Hurst, Inc. Announces Second Quarter Fiscal 2015 Financial Results

 

About Truett-Hurst, Inc.

 

Truett-Hurst, Inc. (NASDAQ: THST, www.truetthurstinc.com) is a holding company and its sole asset is the controlling equity interest in H.D.D. LLC., an innovative and fast-growing super-premium, ultra-premium and luxury wine sales, marketing and production company based in the acclaimed Dry Creek and Russian River Valleys of Sonoma County, California. Truett-Hurst, Inc. is headquartered in Healdsburg, California.

 

Forward-Looking Statements

 

This press release and our earnings conference call for the first quarter of fiscal 2015 ended September 30, 2014 contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, that are made as of the date of this press release based upon our current expectations. All statements, other than statements of historical fact, regarding our strategy, future operations, financial position, estimated revenue, projected costs, prospects, plans, opportunities, and objectives constitute “forward-looking statements.” The words “may,” “will,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “potential” or “continue” and similar types of expressions identify such statements, although not all forward-looking statements contain these identifying words. Such forward-looking statements include expectations regarding revenue, income, expenses, for the fiscal year ending June 30, 2015 and any future periods. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause such differences include, but are not limited to, a reduction in the supply of grapes and bulk wine available to us; significant competition; any change in our relationships with retailers which could harm our business; we may not achieve or maintain profitability in the future; the loss of key employees; a reduction in our access to, or an increase in the cost of, the third-party services we use to produce our wine; credit facility restrictions on our current and future operations; failure to protect, or infringement of, trademarks and proprietary rights; these factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. For additional information, see our Annual Report on Form 10-K filed on September 29, 2014, or our other reports currently on file with the Securities and Exchange Commission, which contain a more detailed discussion of risks and uncertainties that may affect future results. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

 

 
 

 

Truett-Hurst, Inc. Announces Second Quarter Fiscal 2015 Financial Results

 

For more information, contact: For more information, contact:
   
Truett-Hurst, Inc. Truett-Hurst, Inc.’s Investor Relations
   
Paul Forgue, Wil Lindgren, Investor Relations &
   
Chief Financial Officer & Chief Operations Officer Director of Reporting and Finance
   
Phone: 707.431.4423 Phone: 707.431.4436
   
Fax: 707.395.0289 Fax: 707.395.0290
   
Email: paul@truetthurstinc.com Email: ir@truetthurstinc.com