David Sharp, President and Chief Executive Officer, commented, “2014 is off to a strong start driven by robust gains across our wholesale business. Each of our major categories, Work, Western, and Hunting posted strong double digit sales increases on a percentage basis as consumer response to our enhanced product offering combined with favorable weather fueled demand.
At the same time, commercial military and duty sales rebounded nicely as we’ve moved beyond some of the government headwinds that impacted these categories last year. We are also pleased with the initial performance of the Creative Recreation brand which provides us with a viable platform to penetrate the broader casual footwear market. We are committed to investing in our brands to drive sustainable growth.
This includes initiatives that impacted first quarter profitability. Foremost, we supported a seeding program with a key retail partner, funded additional advertising to promote our legacy brands and experienced start-up expenses to support Creative Recreation. We are confident that our strategies will yield improved profitability starting in the second half of the year and beyond.”
First Quarter Review
Net sales for the first quarter increased 22.5 percent to $65.8 million compared to $53.7 million a year ago. Wholesale sales for the first quarter increased 26.4 percent to $53.1 million compared to $42.0 million for the same period in 2013. This included a 16.8 percent increase in wholesale sales of the company’s legacy brands. Retail sales for the first quarter increased to $11.1 million compared to $10.8 million for the same period last year. Military segment sales for the first quarter increased to $1.6 million compared to $0.9 million in the first quarter of 2013.
Gross margin in the first quarter of 2014 was $21.9 million, or 33.2 percent of sales, compared to $18.7 million, or 34.8 percent of sales, for the same period last year. The 160 basis point decrease was driven by the combination of lower wholesale margins due primarily to costs associated with the aforementioned seeding program, the increase in military segment sales which carry lower gross margins than our wholesale and retail segments, and lower retail gross margin than a year ago resulting from the completed transition to a web based retail platform which carries lower gross margin and lower operating expenses compared to the previous mobile store structure.
Selling, general and administrative (SG&A) expenses were $20.5 million, or 31.2 percent of net sales, for the first quarter of 2014 compared to $17.2 million, or 32.0 percent of net sales, a year ago. The $3.3 million increase in SG&A expenses was primarily related to the additional expenses associated with the Creative Recreation brand, which was acquired in December 2013, higher variable selling expenses related to the increase in sales, and higher advertising expenses to market and promote our brands. The 80 basis point improvement in SG&A as a percent of net sales was driven by leveraging expenses on higher sales.
Income from operations was $1.3 million, or 2.0 percent of net sales, compared to $1.5 million, or 2.8 percent of net sales, a year ago.
Interest expense was $0.2 million for the first quarter of 2014, versus $0.1 million for the same period last year.
The company’s funded debt was $36.6 million at March 31, 2014 versus $20.3 million at March 31, 2013. The majority of the increase was related to additional borrowings to fund the acquisition of Creative Recreation in the fourth quarter of 2013.
Inventory increased 14.7 percent, or $10.1 million, to $78.3 million at March 31, 2014 compared with $68.3 million on the same date a year ago. Inventory at March 31, 2014 included approximately $2.5 million associated with the acquisition of Creative Recreation. Based on current sales trends and the fall order book, the company remains comfortable with its current inventory position.
By press release
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