Morrow Snowboards Q2
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Morrow Snowboards Q2
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(FOOL CONFERENCE CALL
SYNOPSIS)* By Debora Tidwell (MF Debit)
Morrow Snowboards Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MRRW)") else Response.Write("(NASDAQ: MRRW)") end if %> UNION CITY, Ca., August 7, 1996/FOOLWIRE/ --- Morrow Snowboards released Q2 1996 earnings after the market close yesterday. Net sales for Q2 were just over $2 million, consistent with last year's Q2 totals. While the totals are the same the mix is very different. They made a strategic decision in 1996 to de-emphasize the sale of OEM snowboards and concentrate on building Morrow-branded products. Last year in Q2, OEM snowboards made up 78% of sales and Morrow-branded snowboards made up only 2% of sales. This year, Morrow-branded snowboards made up 85% of sales, their OEM snowboard sales were less than 1%. Shipments during the quarter were mainly to international customers.
Snowboard sales were $1,729,000, up 5% from $1,641,000 a year ago. Binding sales were $280,000 compared to $367,000 a year ago due to the move away from OEMs. Boot sales were $10,000 compared to $3,000 -- a big percentage gain, but the numbers are relatively insignificant.
Gross margin was 31.9% compared with 30.7% in last year's Q2. They are expecting an increase in the percentage in the second half of the year as they ship higher volumes of domestic branded products.
R&D spending was $186,000, up 7% from last year and about equal to Q1 1996. They anticipate this level for the remainder of the year.
Sales and marketing expenses in the quarter were $721,000, up 35% from $535,000 a year ago. With their 77% sales growth last year, and a 34% increase in their pre-season orders this year, this growth rate is on target for them.
Q2 is also well below the $893,000 for Q1 because of the major industry trade shows in Q1. On a seasonal basis the level of sales and marketing expenses increase in Q3 and Q4. Q3 and Q4 contain their domestic sales which carry a 7.5% sales commission, plus they kick into high gear with advertising and promotions.
G&A expenses were $587,000, up 48% from last year. While the growth rate is a rapid one, the totals are in line with their plans. The increase is caused by the cost of being a public company and the steps they have taken to support and improve their infrastructure.
Their loss from operations for the quarter was $843,000 compared with a loss of $482,000 a year ago, reflecting the increased marketing and administrative expenses.
Below the line, interest expense was $38,000, down from $222,000 a year ago. Interest income was $107,000 compared with $4,000 a year ago. Both of those changes are the result of the $18.5 million raised in their public offering. Other income was substantially flat at $15,000. The net result, after income tax benefits was a loss of $474,000 or -$0.08 per share compared with a $417,000 loss or -$0.11 per share a year ago. Those numbers are in line with their plans, and they believe with Street expectations.
Looking at the balance sheet, Morrow had a cash balance of $4.5 million. Receivables at $2.3 million have begun to move back up as they begin shipping 1996 and 1997 products. They have a limited amount of receivables left over from last year with a limited amount of credit risk on those.
Inventories have grown to $10.4 million from $2.7 million at the end of December and $6.4 million at the end of Q1. Of the $10.4 million in inventory, finished goods represent $7.3 million of the balance. Last year at this time they had $4.2 million in inventory, of which $1.6 million was finished goods. This reflects their strategy of building Morrow products earlier in the season and shipping those in the second half of the year. They have begun shipping significant volumes of this inventory in July and expect significant shipments in August.
Other items on the balance sheet don't show much change except for a big drop in their current week liabilities. They completed the purchase of their manufacturing plant in Q1 as planned.
As was true for their March quarterly numbers, the actual sales and earnings for the latest quarter did not tell a great deal about the outlook for the business or what their year will be like, the company said. This is due to the seasonal nature of their business. Where they take in a very substantial portion of their year's orders by the first of May each year, they do not ship those boards, boots, or bindings until Q3 and Q4. The latest results are on track with the plans they have had all year.
They believe that a more significant way to look at their performance this time of the year is to look at their open orders which are mainly received by the first of May, plus sales to date. For 1996 they have 6-month sales of $2.7 million and open orders for another $26 million for a total of about $28.7 million. Last year they had 6 month sales of $4.8 million and open orders of $16.5 million for a total of $21.3 million. That is an increase of almost 35%. Their open orders are subject to cancellation, but so far this year they have seen no significant cancellations. Normally reorders don't start until later in the year.
They think those numbers reflect both the strength of their business as well as their efforts to position Morrow as an outstanding performance and technology leader. As the industry continues to consolidate and new entrants such as the ski companies appear, they think this is the place to be in their market. The leadership position also puts them in good shape to weather any situation caused by oversupply of boards in the marketplace. There does appear to be some oversupply out there at the low end of the market. Within their own product line this year, their high-end boards have been ahead of plan, offsetting somewhat slower growth at their lower price points.
As far as pre-season orders geographically, they added 3 new sales reps this year -- one in the Midwest, one in the East, and one in the Rockies. Everything indicates that they are doing a stronger job in those areas based on the additional strength of the sales force there.
They also picked up some good news during this quarter from a survey by a major market research firm looking at the snowboard industry. The survey looked at about 8 categories of importance to the retailer. Morrow was the only company among the major brands to be in the top 3 brands mentioned in all 8 of those categories and the only company to show improvement in all 8 categories deep in the season.
They have seen no significant change in their market. They think the total market may be growing at somewhat less than the 30% rate they estimated last year, based on industry reports. But the opportunity is still there for faster growing and stronger players as the industry consolidates.
In summary, the quarter shows them to be on track with their plans for the year. They are entering the busy season with a lot of boards going out every day. Right now it looks like they are on the same solid course they were on a year ago.
The company was asked if they are seeing any shifts as far as timing of deliveries versus what they were expecting at the end of Q1 and they indicated that they haven't seen any significant change. They spend Q2 shipping to international business, specifically getting things off to Japan on time. Everything appears to be on time. This will be the first time that they will have the opportunity to provide customers with their products earlier in the season and they hope that is going to help support them and, long term, improve sales for Morrow. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |