Friday, November 15, 2013

McRae Industries Income Up 55% in 2013

McRea Industries reported great earnings for the fiscal year 2013. Net income was up 55%. Their first paragraph says it all:

Consolidated net revenues for fiscal 2013 amounted to approximately $97.1 million as compared to $75.7 million for fiscal 2012. This 28% increase in net revenues was primarily attributable to strong performance in both of our boot product segments. Our western/lifestyle products business grew from $52.5 million for fiscal 2012 to $62.8 million for fiscal 2013 as demand for both men and women's products continued to be heavy.

The report also mentioned the fourth quarter was the biggest contributor to the year's results. This could be a good holiday shopping season in US overall

I originally bought McRea as a simple value play (see my original post here). In the following 1¼ year, its operations have also grown beyond expectations. And the stock is up 65%. That's the beauty of a margin of safety, low expectations means any surprise will most likely be on the upside.

I have read or heard many great investors say that when you score in investing it isn't all your doing. A lot of luck plays into it. And the converse is also true, when you lose, it isn't always your fault. In the case of McRea, the company is doing well now because it is riding a mature bull market. Consumer confidence has risen in the last few years as housing and employment have stabilized. This has meant more demand for the luxury and fashionable items such as women's cowboy boots. This is definitely a cyclical event.

McRea also is doing well in the military boots department. McRea is has focused on this for fifty years and that is still its bread and butter. The stock jumped 13% yesterday on the earnings. However, it is still trading at 6 times earnings! I am drooling at the potential 33% gain if the stock were to go to just 8 times earnings!


  1. Hi,

    Prior to today's 10% pop, the stock was $30 and EPS was $3. More like 10x P/E. How did you arrive at 6 P/E? Even ex cash was 8x P/E or so..

  2. Good question, Adib.

    I think this is the reason. At the time of publication the stock was at around $27. I believe I was just thinking of the reported diluted earnings per A share which was $3.79. But even then that results in 27/3.79 = 7x rounded figure. So I was mistaken, I think I meant 7. However, as you are probably aware as am I this number $3.79 is very confusing and therefore calculating the PE is subject to debate. But you and I probably should treat class A and B shares as having equal claim on ownership, in that case your EPS of 3 is correct and the PE was 9x. And it is now 11x.

    for discussion on McRae EPS see: