Profits at Rocky Brands, Inc. rose 29.4 percent in the fourth quarter ended December 31 on a 93.4 percent sale gain.

Fourth Quarter 2021 Overview

  • Net sales increased 93.4 percent to $169.5 million;
  • Wholesale segment sales increased 124.9 percent. Retail segment sales increased 12.6 percent;
  • Operating income increased 41.1 percent to $18.2 million;
  • Net income increased 29.1 percent to $12.5 million, or $1.69 per diluted share; and
  • Adjusted net income increased 34.3 percent to $13.8 million, or $1.86 per diluted share

Full Year 2021 Overview

  • Net sales increased 85.4 percent to $514.2 million;
  • Wholesale segment sales increased 110.8 percent. Retail segment sales increased 29.9 percent;
  • Operating income increased 32.4 percent to $36.0 million;
  • Net income of $20.6 million, or $2.77 per diluted share; and
  • Adjusted net income increased 40.9 percent to $32.5 million, or $4.39 per diluted share.

“There were many highlights from 2021 led by the sustained demand for our brands and products and a transformational acquisition that significantly enhanced our size and brand portfolio,” said Jason Brooks, chairman, president and chief executive officer. “For the majority of the year, we were able to fully meet demand and expand our share in multiple footwear categories including Western, Work and Outdoor. While we encountered fulfillment challenges starting in the third quarter that pressured margins and hindered our ability to deliver a portion of orders on time, we have since made good progress regaining efficiencies in our Ohio distribution center and bringing our new Reno, Nevada distribution center online. We also accomplished the critical step of migrating the acquired business to our ERP system. With the integration of our two organizations complete, our focus now shifts to identifying synergies and cost-saving opportunities and driving operational excellence throughout our newly combined company. We move forward in a solid position to take better advantage of our enviable inventory position and leverage our North American-based manufacturing facilities to drive profitable growth and generate greater shareholder value.”

Fourth Quarter Review
Fourth-quarter net sales increased 93.4 percent to $169.5 million compared with $87.6 million in the fourth quarter of 2020. Fourth-quarter 2021 net sales include $79.3 million in Boston Group net sales. The Boston Group is defined as The Original Muck Boot Company, XtraTuf, Servus, NEOS, and Ranger brands acquired from Honeywell International, Inc. on March 15, 2021.

Wholesale sales for the fourth quarter increased 124.9 percent to $134.8 million compared to $59.9 million for the same period in 2020. Retail sales for the fourth quarter increased 12.6 percent to $26.5 million compared to $23.5 million for the same period last year. Contract Manufacturing segment sales, which now include contract military sales and private label programs, increased 95.5 percent to $8.1 million compared to $4.2 million in the fourth quarter of 2020.

Gross margin in the fourth quarter of 2021 was $63.3 million, or 37.3 percent of net sales, compared to $36.1 million, or 41.2 percent of net sales, for the same period last year. The decrease in gross margin was mainly attributable to the increase in inbound freight costs coupled with the delayed impact of our price increases and a lower mix of retail segment sales compared with the year-ago period, which carry higher gross margins than the wholesale and contract manufacturing segments.

Operating expenses were $45.1 million, or 26.6 percent of net sales, for the fourth quarter of 2021 compared to $23.2 million, or 26.5 percent of net sales, for the same period a year ago. Excluding $1.6 million in acquisition-related amortization and integration expenses, fourth quarter 2021 operating expenses were $43.5 million, or 25.7 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 fourth quarter of 2021 was $18.2 million, or 10.7 percent of net sales compared to $12.9 million or 14.7 percent of net sales for the same period a year ago. Adjusted operating income for the fourth quarter of 2021 was $19.8 million, or 11.7 percent of net sales compared to adjusted operating income of $13.6 million, or 15.5 percent of net sales a year ago.

Interest expense for the fourth quarter of 2021 was $3.2 million compared with $95,000 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 a fourth-quarter net income of $12.5 million, or $1.69 per diluted share compared to net income of $9.7 million, or $1.33 per diluted share in the fourth quarter of 2020. Adjusted net income for the fourth quarter of 2021, was $13.8 million, or $1.86 per diluted share compared to adjusted net income of $10.3 million, or $1.41 per diluted share in the fourth quarter of 2020.

Full Year Review
Full-year 2021 net sales increased 85.4 percent to $514.2 million compared with $277.3 million in 2020. Full-year 2021 net sales include $179.0 million, or just over nine months, in net sales from the Boston Group.

Wholesale sales for 2021 increased 110.8 percent to $391.1 million compared to $185.6 million in 2020. Retail sales for the year increased 29.9 percent to $94.7 million compared to $72.9 million for the same period last year. Contract Manufacturing segment sales, which now include contract military sales and private label programs, increased 51.0 percent to $28.5 million compared to $18.9 million in 2020.

Gross margin in 2021 was $194.5 million, or 37.8 percent of net sales, compared to $104.7 million, or 37.8 percent of net sales, for 2020. Adjusted gross margin for 2021, which excludes a $3.5 million inventory purchase accounting adjustment, was $198.0 million, or 38.5 percent of net sales. Adjusted gross margin for 2020, which excluded approximately $1.9 million in expenses related to the closure of the company’s manufacturing facilities due to COVID-19, was $106.7 million, or 38.5 percent of net sales. While gross margins were consistent year-over-year, 2021 wholesale gross margins were negatively impacted by an increase in inbound freight costs coupled with the delayed impact of our price increases.

Operating expenses were $158.6 million, or 30.8 percent of net sales, for 2021 compared to $77.6 million, or 28.0 percent of net sales, for 2020. Excluding $11.9 million in acquisition-related amortization and integration expenses, 2021 operating expenses were $146.6 million, or 28.5 percent of net sales. The increase in operating expenses was driven primarily by the expenses associated with the acquired brands.

Income from operations for 2021 was $36.0 million, or 7.0 percent of net sales compared to $27.2 million or 9.8 percent of net sales for 2020. Adjusted operating income for 2021 was $51.4 million, or 10.0 percent of net sales compared to adjusted operating income of $29.8 million, or 10.8 percent of net sales a year ago.

Interest expense for 2021 was $10.6 million compared with $0.2 million in 2020. The increase reflected interest payments on the senior term loan and credit facility used to finance the Boston Group acquisition.

The effective tax rate for 2021 decreased to 19.0 percent compared to 22.3 percent for the full year 2020.

The company reported 2021 net income of $20.6 million, or $2.77 per diluted share compared to net income of $21.0 million, or $2.86 per diluted share in 2020. Adjusted net income for 2021, was $32.5 million, or $4.39 per diluted share compared to adjusted net income of $23.1 million, or $3.14 per diluted share in 2020.

Balance Sheet Review
Cash and cash equivalents were $5.9 million at December 31, 2021 compared to $28.4 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 December 31, 2021 was $270.0 million consisting of $127.6 million senior term loan and borrowings under the company’s senior secured asset-backed credit facility.

Inventory at December 31, 2021 increased to $232.5 million compared to $77.6 million on the same date a year ago. The $154.9 million increase includes approximately $101.1 million in inventory related to the Boston Group.

Photo courtesy Rocky Brands