Bustin' rumors: Montrail not in any kind of trouble

As they often do with rumors, word that Montrail might be in some kind of trouble began filtering into the SNEWS® headquarters by phone and email earlier this week. There was talk of layoffs, numbers so askew that an independent audit had been called for, and a warehouse so full of old stock that it was weighing the normally nimble-footed company down.
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As they often do with rumors, word that Montrail might be in some kind of trouble began filtering into the SNEWS® headquarters by phone and email earlier this week. There was talk of layoffs, numbers so askew that an independent audit had been called for, and a warehouse so full of old stock that it was weighing the normally nimble-footed company down.

We gave Montrail CEO Menno Van Wyk a call to separate fact from fiction.

Layoffs? There have not been layoffs at the company. In fact, only one person, a relatively new hire, had his position eliminated as part of Montrail's effort to streamline its internal processes to better address a few shipping and delivery issues that arose in the last several months. Scott Franklin's contract as a footwear designer was also not renewed, but this had nothing to do with performance and Franklin was never an employee -- he was a contractor. Van Wyk told us that the company would likely use Franklin again on a pro tem basis, but that at this point, he had completed his contract to design a line of climbing shoes for the company.

Financial difficulties? There are quite a few companies that would like to have Montrail's problems -- continued 15 percent compounded growth each year, every year since the company was founded. The reality is, 2004 was Montrail's best year ever in terms of sales and the company's second best year ever in terms of EBITDA and profits. The 2005 first quarter is also up over 2004 and continues to be profitable, and by all indications, the second quarter will also be up over 2004 and, again, profitable.

Independent audit requested? This is true, and it was requested by the company's new bank providing it with the line of credit. Van Wyk states that this is nothing unusual and it is simply a matter of the new bank getting used to Montrail's business by requesting an independent valuation of the company's inventory. The audit has yet to be scheduled and was triggered entirely by the company's overstock position.

Excess overstock? At the end of 2004, Montrail found itself with approximately $1 million worth of what the company would term closeout merchandise -- far too high for either it or the bank, though certainly not a crisis situation. The company reacted immediately to deal with the excess inventory.

By the end of the 2005 first quarter, Van Wyk reports that one-third of that stock had already been liquidated through normal channels -- offering to existing dealers, REIoutlet.com, special promotions for Outward Bound, the company's new bank, etc. That inventory was sold at a positive margin for Montrail. By mid-May, Van Wyk also told us that $200,000 more of the closeout inventory had been sold, again at a positive margin, leaving the company with $500,000 remaining on the books as closeout inventory.

The remaining inventory will be dealt with by liquidating it through additional channels that Van Wyk told us should keep it out of places like Costco and off Ebay.

Looking ahead. Van Wyk tells us that Montrail's relationship with the company's bank is extremely healthy. Montrail has a very healthy line of credit secured at an extremely competitive rate. While closeout stock is a cost of doing business in the footwear and apparel industries, Van Wyk also told us the company has taken steps to ensure that its closeout stock levels are maintained at a level that is considered normal and comfortable by both it and the bank.

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