On Tuesday, R.G Barry (DFZ), the small-cap company most well known for Dearfoams slippers, reported Q1 2012 earnings. Big changes have occurred at the company as of late with the acquisition of a handbag company (Baggallini) and a premium insoles company (Foot Petals) earlier this calendar year, turning the company from a pure play slipper company into a multifaceted enterprise. Here are some of the highlights from the first three months of the company’s fiscal year:
Net sales increased 38.5% from a year ago ($36.3 million) to just over $50 million; after backing out $8.1 million in sales from the accessories segment, which wasn’t part of the company in Q1 2011, sales increased more than 16% on a comparable basis to $42.2 million. This increase is entirely accounted for by the company’s only other segment besides accessories, footwear.
The large increase in sales in the footwear segment resulted in a 270 basis point increase in gross profit as a percentage of net sales to 41.8%; in the Accessories segment, gross margins came in at 57.2%, and helped drive margins higher (as expected): gross margins on a company wide basis increased 520 basis points to 44.3% of sales, with the elimination of costs related to expediting goods to retailers in Q1 2011 also playing a part in the year over year change.
At the end of the quarter, the company had more than $77 million in current assets, compared to $24 million in current liabilities. Under non-current liabilities, the company holds $23.5 million in long term debt, which was undertaken as part of financing the acquisitions and resulted in a $250,000 interest expense in the quarter compared to a $30,000 gain in Q1 2011.
Operating profit increased 77% in the quarter, and came in at more than $11 million. Due to the interest expense mentioned above, net earnings grew at a slightly slower rate (68%); diluted EPS was up 65% to $0.61, meaning that the company is currently trading at 20 times this quarter’s earnings (although it is important to remember that the business is still seasonal due to the significant percentage of the business dependent upon footwear for the time being).
Considering that the recent acquisitions are fully integrated and the company has a current ratio of more than 3.0, President and CEO Greg Tunney commented that additional M&A will be pursued if the right opportunity presents itself:
"Based upon our current view of fiscal 2012 and the successful integration of our recent acquisitions, we will continue our search later this fiscal year for appropriate businesses to purchase. We will continue using the disciplined filter that guided our acquisitions of Foot Petals and baggallini; and we will continue seeking out and identifying only profitable, growing businesses that can help us diversify our business model and expand our portfolio of accessories brands."
After hitting a high of more than $13 per share in April of this year, DFZ has been hit with consistent volatility and touched a low point of $8.15 in the middle of August; at the close of trading, the stock was up more than 13%, and is currently priced at $12.57 per share.
About the author:
As it relates to portfolio construction, my goal is to make a small number of meaningful decisions. In the words of Charlie Munger, "Patience followed by pretty aggressive conduct."
I run a concentrated portfolio, with a handful of positions accounting for the majority of my equity holdings (currently two). From the perspective of a businessman, I believe this is adequate diversification.