Truett-Hurst Inc, today reported fiscal year 2014 financial results for its third quarter and nine months ended March 31, 2014.
"Our net sales continue to grow, increasing 44% for the quarter and 36% year-to-date compared to the same periods last year. Margins held steady at 34%, representing a slight improvement year over year. Our revolutionary new brand introductions including the evocative wraps, California Square® and PaperBoy® are gaining traction in the marketplace and evolving from an introductory retailer exclusive program to national and international distribution in the broad market. These brands, in conjunction with expanded new retailer exclusive listings, our broader portfolio and future innovations, will continue to drive Truett-Hurst's growth," said Phillip L. Hurst, Truett-Hurst's CEO.
Sales: Strong growth was seen in all sales channels. Wholesale net sales increased 54% and 36% for the third quarter and nine months ended March 31, 2014 compared to the prior-year periods and was attributable to continued sales throughout the portfolio, including California Square®, Colby Red® and the Evocative Wraps.
Direct to consumer net sales through our Truett-Hurst and VML tasting rooms increased 17% and 28% for the third quarter and nine months ended March 31, 2014 compared to the prior-year periods and was attributable to wine club sales and tasting room traffic. Internet net sales increased 46% and 58% for the third quarter and nine months ended March 31, 2014 compared to the prior-year periods (The Wine Spies LLC was acquired in August, our first quarter of fiscal 2013) due to increased website traffic and sales mix, including higher priced, limited production wines.
International net sales, Canada and Mexico, were $0.4 million and $1.1 for the third quarter and nine-months of FY14 compared to $0.01 million and $0.2 million for the prior year periods.
Gross Margins: We achieved gross profit margins of 34.0% and 34.2% of net sales for the quarter and nine months ended March 31, 2014, respectively. Compared to the prior-year periods, quarter over quarter margins decreased 330 basis points due to sales mix between the three channels, but year-to-date margins increased 60 basis points.
The wholesale channel margins compared to the prior-year periods, excluding the effect of a $0.08 million inventory write-down in the quarter, improved 70 basis points for the quarter and 190 basis points year-to-date.
The direct to consumer channel gross margins increased 500 and 380 basis points, respectively, and were attributable to sales mix, reduced discounting, and selected price increases associated with certain vintage transitions.
The internet channel gross margins decreased 1,490 and 920 basis points, respectively, as we continue to emphasize and achieve gross profit goals over gross margin by offering higher priced wines.
Operating Loss: The fiscal 2014 net loss for the quarter and nine months ended March 31, 2014, before H.D.D. LLC's non-controlling interest totaled $0.6 million for each period which included the disclosed provision for loss on deposit of $0.4 million from our former paper bottle supplier's filing of administration in the UK compared to $0.3 million and $0.5 million for the prior-year periods.
Sales and marketing expense as a percentage of net sales improved for the quarter from 28.1% to 24.3% and slightly for the year, compared to the prior-year periods. General and administrative expense as a percentage of net sales improved for the quarter from 16.0% to 14.3% and was flat for the year compared to the prior-year periods.
James D. Bielenberg, CFO of Truett-Hurst, Inc., states, "As we build out infrastructure in personnel and systems, including those costs associated with being a public company, we are beginning to realize leverage in operating expenses as a percentage of sales. Further progress should continue as we grow the top line. "
Mr. Bielenberg concluded, "Based upon our third quarter results and current projections we believe we are in line with our revised fiscal 2014 annual guidance of March 6, 2014 furnished on Form 8-K, which assumes there's no deterioration in the U.S. economy."
We assume no obligation to update our fiscal 2014 annual guidance. The absence of any statement by us in the future should not be presumed to represent an affirmation of this earnings guidance.
