Rocky Brands Inc. reported sales dipped 11.6 percent in the third quarter due to factory disruptions from Hurricanes Maria and Irma as well as “modest shortfalls” for all its brands, but earnings improved significantly on higher margins.

Third quarter net sales were $64.7 million compared to $73.2 million in the third quarter of 2016. The company reported third quarter net income of $2.2 million, or 30 cents per diluted share, compared to net income of $0.4 million, or 6 cents per diluted share, in the third quarter of 2016. Adjusted net income for the third quarter of 2017 was $2.8 million, or 39 cents per diluted share compared to adjusted net income of $1.2 million, or 16 cents per diluted share in the prior year period.

Net sales for the first nine months of 2017 were $186.2 million compared to $193.3 million for the first nine months of 2016. The company reported net income of $5.2 million, or 70 cents per diluted share compared to a net loss of $1.5 million, or (20 cents) per diluted share for the nine months ended September 30, 2017 and 2016, respectively. Adjusted net income for the first nine months of 2017 was $5.8 million, or 79 cents per diluted share compared to an adjusted net loss of $0.8 million, or (10 cents) per diluted share in the prior year period.

Jason Brooks, president and chief executive officer, commented, “We are pleased to have achieved another quarter of strong earnings growth. Our ability to drive enhanced profitability despite softer top-line trends highlights our improved operating structure and focus on increasing margins. As we previously announced, approximately $1.7 million of military footwear shipments shifted from the third quarter to the fourth quarter due to the temporary shutdown of our Puerto Rico facility in the wake of Hurricane Maria. On top of this, wholesale sales were below expectations as each of our brands posted modest shortfalls versus plan. We believe this was due to a combination of factors including lower discounting as we’ve placed a greater emphasis on full-price selling and retailers buying closer to the holiday season compared with previous years. We were able to offset a portion of these challenges through the expansion of our direct channel as we continue to sign new accounts to our Lehigh Outfitters CustomFit program. Looking ahead, we are cautiously optimistic about our growth prospects beginning in the fourth quarter as wholesale sales trends have recently accelerated and our military manufacturing has resumed normal operations. We remain confident that our current strategies have the company well positioned to deliver increased value to shareholders over the long-term.”

Third Quarter Review
Net sales for the third quarter decreased 11.7 percent to $64.7 million compared to $73.2 million a year ago. Wholesale sales for the third quarter decreased 12.9 percent to $46 million compared to $52.9 million for the same period in 2016. Retail sales for the third quarter increased 7.8 percent to $11.1 million compared to $10.3 million for the same period last year. Military segment sales for the third quarter were $7.6 million compared to $10.1 million in the third quarter of 2016.

Gross margin in the third quarter of 2017 was $19.5 million, or 30.2 percent of sales, compared to $19.8 million, or 27 percent of sales, for the same period last year. The 320 basis point increase was driven by a significant improvement in both wholesale segment and military segment margins. Third quarter 2017 gross margin includes approximately $1 million of additional expenses related to payroll and overhead costs that could not be capitalized in inventory due to lower than usual production volumes at the company’s Puerto Rico manufacturing facility because of the disruption from Hurricanes Maria and Irma. Excluding the additional expenses, adjusted gross margin was 31.7 percent.

Selling, general and administrative (SG&A) expenses decreased to $16 million, or 24.8 percent of net sales, for the third quarter of 2017 compared to $18.9 million, or 25.8 percent of net sales, a year ago. Third quarter 2016 SG&A expenses included an approximately $1.2 million charge related to reorganizational activities. Excluding the charge, the $1.7 million decrease in SG&A expenses was primarily related to lower compensation expense following the workforce reductions in the second half of 2016.

Income from operations for the quarter was $3.5 million, or 5.4 percent of net sales compared to income from operations of $0.9 million, or 1.2 percent of net sales a year ago.

Interest expense was $110,000 for the third quarter of 2017, versus $181,000 for the same period last year.
During the third quarter 2017, the company repurchased 48,616 shares of its common stock at an average price of $13.35.

The company’s funded debt decreased $19.3 million, or 62.5 percent to $11.6 million at September 30, 2017 versus $31 million at September 30, 2016.

Inventory at September 30, 2017 decreased 3.8 percent to $76.9 million compared to $79.9 million on the same date a year ago.

The company’s brands include Rocky, Georgia Boot, Durango, Lehigh, Creative Recreation, and the licensed brand Michelin.