Each issue of the regular catalog offers certain basic product lines for men and women.
The regular catalog also offers seasonal merchandise. In addition, EarthWear mails two end- of-season clearance catalogs. The Company mails its catalogs to prospective customers who are identified based on lists of magazine subscribers and lists of households meeting certain demographic criteria. In addition, the Company identifies prospective new customers through its national advertising campaign.
In 1991 the Company introduced its first business specialty catalog, which offered its products to groups and companies for corporate incentive programs. EarthWear’s embroidery capabilities allow for the design and monogram of unique logos or emblems for groups and companies. In 2015 the Company mailed five issues of its corporate sales catalogs.
The international business segment includes operations in Japan, Germany, and the United Kingdom, and various Internet sites. Catalogs mailed in those countries are written in the local languages and denominated in local currencies. In the spring of 2011, EarthWear launched local websites in each of these countries in their respective languages and currencies.
customer database A principal factor in the Company’s success has been the development of its own list of active customers. At the end of 2015 the Company’s mailing list consisted of about 21.1 million persons, approximately 7 million of whom were viewed as customers because they had made at least one purchase from the Company within the last 24 months. The Company routinely updates and refines the database before mailing catalogs to monitor customer interest as reflected in criteria such as the recency, frequency, dollar amount, and product type of purchases.
EarthWear believes that its customer database has desirable demographic characteristics and is well suited to the products offered in “the Company’s” catalogs. A survey conducted by the Company in the United States during 2014 indicated that approximately 50 percent of its customers were in the 35–54 age group and had median incomes of $78,000.
The Company advertises nationally to build its reputation and to attract new customers. In 2014 an advertising campaign appeared in about 40 national magazines, as well as on five national cable television networks. In addition, the Company advertises in approximately 75 national, regional, and local publications in Canada, the United Kingdom, Germany, and Japan. EarthWear also advertises on a number of Internet search engines and websites.
product development EarthWear concentrates on clothing and other products that are aimed at customers interested in outdoor activities. The Company’s products are styled and quality crafted to meet the changing tastes of the Company’s customers rather than to mimic the changing fads of the fashion world. At the same time, the Company seeks to maintain customer interest by developing new products, improving existing core products, and reinforcing its value positioning.
The Company continues to incorporate innovations in fabric, construction, and detail that add value and excitement and differentiate EarthWear from the competition. In order to ensure that products are manufactured to the Company’s quality standards at reasonable prices, product managers, designers, and quality assurance specialists develop the Company’s own products.
EarthWear deals directly with its suppliers and seeks to avoid intermediaries. All goods are produced by independent manufacturers except for most of its soft luggage, which is assembled at the Company’s facilities. During 2015 the Company purchased merchandise from approximately 300 domestic and foreign manufacturers. One manufacturer and one intermediary accounted for about 14 and 29 percent of the Company’s received merchandise, respectively, in 2015. In 2015 about 80 percent of the Company’s merchandise was imported, mainly from Asia, Central America, Mexico, and Central America. The Company will continue to take advantage of worldwide sourcing without sacrificing customer service or quality standards.
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Order Entry, Fulfillment, and Delivery EarthWear has toll-free telephone numbers that customers can call 24 hours a day, seven days a week (except Christmas Day) to place orders or to request a catalog. Approximately 90 percent of catalog orders are placed by telephone. Telephone calls are answered by the Company’s well-trained sales representatives, who utilize online computer terminals to enter customer orders and to retrieve information about product characteristics and availability. The Company’s three U.S. telephone centers are located in Boise, Idaho; Reston, Virginia; and Canton, Ohio. International telephone centers are located in London, England; Tokyo, Japan; and Mannheim, Germany.
The Company’s order entry and fulfillment system permits shipment of in-stock orders on the following day, but orders requiring monogramming or inseaming typically require one or two extra days. The Company’s” sales representatives enter orders into an online order entry and inventory control system. Customers using the Company’s Internet site see color photos of the products, their availability, and prices. When ordering a product over the Internet, the customer completes a computer screen that requests information on product code, size, color, and so on. When the customer finishes shopping for products, he or she enters delivery and credit card information into a computer-based form. EarthWear provides assurance through CPA WebTrust SM that the website has been evaluated and tested to meet WebTrust SM principles and criteria. This assurance service is provided by the Company’s independent auditors, Willis & Adams, LLP.
Orders are generally shipped by United Parcel Service (UPS) at various tiered rates that depend on the total dollar value of each customer’s order. Other expedited delivery services are available at additional charge. Domestically, the Company utilizes two-day UPS service at standard rates, enhancing its customer service. Comparable services are offered in international markets.
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merchandise liquidation Liquidations (sales of overstock and end-of-season merchandise at reduced prices) were approximately 12 percent, 11 percent, and 8 percent of net sales in 2015, 2014, and 2013, respectively. Most liquidation sales were made through catalogs and other print media. The balance was sold principally through the Company’s outlet retail stores.
competition The Company’s principal competitors are retail stores, including specialty shops, department stores, and other catalog companies. Direct competitors include Eddie Bauer, Land’s End, L. L. Bean, Patagonia, and Timberland. The Company may also face increased competition from other retailers as the number of television shopping channels and the variety of merchandise offered over the Internet increase. The apparel retail business in general is intensely competitive. EarthWear competes principally on the basis of merchandise value (quality and price), its established customer list, and customer service, including fast order fulfillment and its unqualified guarantee.
trademarks The Company uses the trademarks of “EarthWear” and “EWC” on products and catalogs.
seasonality of business The Company’s business is highly seasonal. Historically, a disproportionate amount of the Company’s net sales and most of its profits have been realized during the fourth quarter. If the Company’s sales were materially different from seasonal norms during the fourth quarter, the Company’s annual operating results could be materially affected. Accordingly, results for the individual quarters do not necessarily indicate results to be expected for the entire year. In 2015, 37 percent of the Company’s total revenue came in the fourth quarter.
employees The Company believes that its skilled and dedicated workforce is one of its key resources. Employees are not covered by collective bargaining agreements, and the Company considers its employee relations to be excellent. As a result of the highly seasonal nature of the Company’s business, the size of the Company’s workforce varies, ranging from approximately 3,500 to 5,300 individuals in 2015. During the peak winter season of 2015, approximately 2,700 of the Company’s 5,300 employees were temporary employees.
executive officers of the company James G. Williams, is chairman of the board and former chief executive officer. Mr. Williams was one of the two original founders of EarthWear. He stepped down as chief executive officer in December 1999.
Calvin J. Rogers, is president and chief executive officer of the Company. Mr. Rogers was one of the two original founders of the Company. He assumed his present position in December 1999.
Dominique DeSantiago, is executive vice president and chief operating officer. Mr. DeSantiago joined the Company as chief operating officer in June 1991. He was promoted to vice president in October 1994. Mr. DeSantiago was previously employed by Eddie Bauer in various capacities.
Linda S. McDaniel, is senior vice president of sales. She joined the Company in July 1996. Ms. McDaniel served as divisional vice president, merchandising, with Patagonia between 1986 and 1990. Ms. McDaniel was the president and chief executive officer for Mountain Goat Sports from 1990 until 1996. She has been serving as a director of the Company since November 1997.
James C. (“JC”) Watts, is senior vice president and chief financial officer. Mr. Watts joined the Company in May 1996, assuming his current position. He was previously employed by Federated Department Stores.
Mary Ellen Tornesello, is senior vice president of operations. Ms. Tornesello joined the Company in 1994 as operations manager. She served as vice president of operations from 1995 until 1997, at which time she assumed her present position.
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Market information The common stock of the Company is listed and traded on NASDAQ under the symbol EWCC. The high and low prices of the Company’s common stock for 2015 were $52.50 and $21.75 per share. The closing price of the Company’s stock on December 31, 2015, was $26.75 per share.
Shareholders As of December 31, 2015, the number of shareholders of record of common stock of the Company was 2,120. This number excludes shareholders whose stock is held in nominee or street name by brokers.
Independent Auditors The Company has been audited by Willis & Adams since incorporation in 1975.
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Net Sales Cost of sales
Gross Profit Selling, general, and administrative expenses Nonrecurring charge (credit)
Income from operations Other income (expense): Interest expense Interest income Other
Total other income (expense), net
Income before income taxes Income tax provision
Net income
Basic earnings per share
Diluted earnings per share
Basic weighted average shares outstanding Diluted weighted average shares outstanding
$ 950,484 546,393
404,091 364,012 ____
40,079
(983) 1,459 (4,798)
(4,322)
35,757 13,230
$ 22,527
1.15
1.14
19,531 19,774
For the period ended December 31
$ 857,885 472,739
385,146 334,994 (1,153)
51,305
(1,229) 573 (1,091)
(1,747)
49,559 18,337
$ 31,222
1.60
1.56
19,555 20,055
$ 891,394 490,530
400,864 353,890 8,190
38,784
(5,027) 10 (1,593)
6,609
32,175 11,905
$ 20,270
1.02
1.01
19,806 19,996
2014 20132015
EARTHWEAR CLOTHIERS Consolidated Statements of Operations
(In thousands, except share data)
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Assets
Current assets: Cash and cash equivalents Receivables, net Inventory Prepaid advertising Other prepaid expenses Deferred income tax benefits
Total current assets
Property, plant, and equipment, at cost Land and buildings Fixtures and equipment Computer hardware and software Leasehold improvements
Total property, plant, and equipment Less accumulated depreciation and amortization
Property, plant, and equipment, net Intangibles, net
Total assets
Liabilities and shareholders’ investment
Current liabilities: Lines of credit Accounts payable Reserve for returns Accrued liabilities Accrued profit sharing Income taxes payable
Total current liabilities
Deferred income taxes
Shareholders’ investment: Common stock, 26,121 shares issued Donated capital Additional paid-in capital Deferred compensation Accumulated other comprehensive income Retained earnings Treasury stock, 6,546 and 6,706 shares at cost
Total shareholders’ investment
Total liabilities and shareholders’ investment
2015 2014
December 31
$ 48,978 12,875 122,337 11,458 6,315 7,132
209,095
70,918 67,513 64,986 3,010
206,426 85,986
120,440 423
$ 329,959
$ 11,011 62,509 5,890 26,738 1,532 8,588
116,268
9,469
261 5,460 20,740 (79) 3,883 317,907 (143,950)
204,222
$ 329,959
$ 49,668 11,539 105,425 10,772 3,780 6,930
188,115
66,804 66,876 47,466 2,894
184,040 76,256
107,784 628
$ 296,527
$ 7,621 48,432 5,115 28,440 1,794 6,666
98,067
5,926
261 5,460 19,311 (153) 1,739 295,380 (129,462)
192,535
$ 296,527
EARTHWEAR CLOTHIERS Consolidated Balance Sheets
(In thousands)
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EARTHWEAR CLOTHIERS Consolidated Statements of Cash Flows
(In thousands)
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