Rocky Brands Inc. reported earnings that came in well below Wall Street’s consensus estimate and said its results were hurt by temporary fulfillment challenges in the company’s Ohio distribution center.

Third Quarter 2021 Overview

  • Net sales increased 61.4 percent to $125.5 million;
  • Wholesale segment sales increased 70.3 percent;
  • Retail segment sales increased 35.3 percent;
  • Net loss of $(0.4) million, or $(0.05) per diluted share; and
  • Adjusted net income of $2.5 million, or $0.34 per diluted share.

“We continued to experience robust demand for our portfolio of leading brands during the third quarter,” said Jason Brooks, chairman, president and CEO. “After moving the recently acquired Boston Group’s inventory to our Ohio distribution center in mid-August, and receiving record inbound supply in preparation for a strong finish to the year, we encountered unanticipated fulfillment challenges that are temporarily hindering our ability to deliver a portion of orders on time. We are making good progress towards regaining the full efficiency of our Ohio distribution center, which along with our new distribution center in Reno, Nevada that went live in early October, has improved our shipping capacity ahead of the holiday season.”

“While we are disappointed that our near-term growth potential is being limited by fulfillment headwinds, I am confident we’re positioning the business for further market share gains and increased profitability even as the operating environment remains volatile. Our enviable inventory position and relative insulation from industry-impacting global supply chain issues enabled through our Caribbean-based manufacturing facilities, provide key competitive advantages that are driving shelf space gains and new market opportunities. We are excited to complete the integration of the Boston Group so we can turn our full attention to unlocking the earning power of our combined organizations.”

Boston Group is defined as The Original Muck Boot Company, Xtratuf,, Servus, Neosm and Ranger brands acquired from Honeywell International, Inc on March 15, 2021.

Third Quarter Review
Third quarter net sales increased 61.4 percent to $125.5 million compared with $77.8 million in the third quarter of 2020. Thirdquarter 2021 net sales include $41.6 million in Boston Group net sales.

Sales of $125.5 million were below Wall Street’s consensus estimate of $154.9 million.

Wholesale sales for the third quarter increased 70.3 percent to $96.0 million compared to $56.3 million for the same period in 2020. Retail sales for the third quarter increased 35.3 percent to $21.8 million compared to $16.1 million for the same period last year. Contract Manufacturing segment sales, which now include contract military sales and private label programs, increased 45.1 percent to $7.7 million compared to $5.3 million in the third quarter of 2020.

Gross margin in the third quarter of 2021 was $47.0 million, or 37.4 percent of net sales, compared to $29.8 million, or 38.4 percent of net sales, for the same period last year. Adjusted gross margin in the third quarter of 2021, which excludes a $0.9 million inventory purchase accounting adjustment, was $47.8 million, or 38.1 percent of net sales. The 30-basis point decrease to adjusted gross margin was mainly attributable to lower wholesale segment gross margins due to an increase in capitalized manufacturing and sourcing costs associated with the acquired brands and a lower mix of retail segment sales compared with the year-ago period, which carries higher gross margins than the wholesale and contract manufacturing segments.

Operating expenses were $44.2 million, or 35.2 percent of net sales, for the third quarter of 2021 compared to $20.2 million, or 25.9 percent of net sales, for the same period a year ago. Excluding $2.9 million in acquisition-related amortization and integration expenses, third quarter 2021 operating expenses were $41.3 million, or 32.9 percent of net sales. The increase in operating expenses was driven primarily by the expenses associated with the acquired brands.

Income from operations for the third quarter of 2021 was $2.8 million, or 2.2 percent of net sales compared to $9.7 million or 12.4 percent of net sales for the same period a year ago. Adjusted operating income for the third quarter of 2021 was $6.5 million, or 5.2 percent of net sales.

Interest expense for the third quarter of 2021 was $3.4 million compared with $87,000 a year ago. The increase reflected interest payments on the senior term loan and credit facility used to finance the Boston Group acquisition.

The company reported third-quarter a net loss of $0.4 million, or $(0.05) per diluted share compared to net income of $7.6 million, or $1.04 per diluted share, in the third quarter of 2020. Adjusted net income for the third quarter of 2021, was $2.5 million, or $0.34 per diluted share.

Adjusted EPS of 34 cents was significantly below Wall Street’s consensus estimate of $1.44,

Balance Sheet Review
Cash and cash equivalents were $12.9 million at September 30, 2021 compared to $19.9 million on the same date a year ago. The change in cash and cash equivalents was driven primarily by the use of cash to fund a portion of the Boston Group acquisition.

Total debt at September 30, 2021 was $238.8 million consisting of $130 million senior term loan and borrowings under the company’s senior secured asset-backed credit facility.

Inventory at September 30, 2021 increased to $202.2 million compared to $80.7 million on the same date a year ago. The $121.5 million increase includes approximately $90.9 million in Boston Group inventory and approximately $31 million from orders that did not ship on schedule during the third quarter of 2021.