news release February 11, 2015 NASDAQ: THST 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. Direct to Consumer (“DTC”) up 27% to $1.4 million. o 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 Wholesale net sales were impacted by a $0.6 million loss contingency accrual related to returns of out-of-date Paper Boy product (1) .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 While we believe we have no contractual liability for costs associated with destruction of out-of-date inventory, we anticipate providing limited financial support to certain of our largest distributors.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. Truett-Hurst, Inc. • 125 Foss Creek Circle • Healdsburg, CA 95448 • tel: 707.431.4436 • fax: 707.431.4402 • email: ir@truetthurstinc.com
Truett-Hurst, Inc. Announces Second Quarter Fiscal 2015 Financial Results 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 FY 15, 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. Direct to Consumer (“DTC”) up 21% to $2.4 million. o 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.
Truett-Hurst, Inc. Announces Second Quarter Fiscal 2015 Financial Results 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.” Earnings Call Truett-Hurst, Inc .’s management will host a conference call today, February 11, 2015, at 1:30 p.m. PST (4:30 p.m. EST) to discuss the Company's financial results. To listen to the conference call, dial in approximately ten minutes before the scheduled call to 1.888.347.6082 or international at 1.412.902.4286 and request Truett-Hurst Second
Truett-Hurst, Inc. Announces Second Quarter Fiscal 2015 Financial Results Quarter Fiscal 2015 Results Call or visit our webcast link: http://www.videonewswire.com/event.asp?id=101446. A replay of the call will be available, to listen to the replay, dial US Toll Free: 1.877.344.7529 or International Toll: 1.412.317.0088 and enter conference number: 101446. The call will be available one hour after the end of the conference call through February 18, 2015 at 9:00 am ET.
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