Rocky Brand’s Fourth Quarter, FY08 Sales Decrease

Rocky Brands, Inc. said net sales for the fourth quarter ended Dec. 31, 2008 were $66.0 million versus net sales of $72.5 million in the fourth quarter of 2007. The company reported a net loss of $2.2 million, or 41 cents per diluted share, versus a net loss of $23.6 million, or $4.31 per diluted share for the fourth quarter of 2007.

Excluding these charges, the company reported net income of $0.7 million, or $0.13 per diluted share in the fourth quarter of 2008, compared to a net loss of $0.1 million, or 2 cents per diluted share in the fourth quarter of 2007. A reconciliation of income per diluted share on a GAAP basis to income per diluted share excluding the non-cash impairment charges is shown below.

Full Year 2008 Results

For the full year 2008, net sales decreased 5.7% to $259.5 million versus net sales of $275.3 million in 2007. The company reported net income of $1.2 million, or 21 cents per diluted share, compared to a net loss of $23.1 million, or $4.22 per diluted share in 2007. Results for fiscal 2008 include non-cash charges of $3.0 million, net of tax benefits, or 54 cents per diluted share, for the write-down of the Lehigh and Gates trademarks. Results for fiscal 2007 include a non-cash charge of $23.5 million, net of tax benefits, or $4.30 per diluted share, for goodwill impairment.

Excluding these charges, the company reported net income of $4.1 million, or 75 cents per diluted share in 2008, compared to net income of $0.4 million, or 8 cents per diluted share in 2007.

Mike Brooks, chairman and CEO, commented, “Our operating results for the fourth quarter were in-line with our expectations and represent a nice finish to a solid year for our company. Given the difficult economic conditions and the challenging consumer retail environment, we are pleased by the progress we made improving the productivity of our company throughout 2008. This included: lowering our operating expenses nearly $9 million, or 9%; improving our wholesale gross margin 180 basis points through increased manufacturing efficiencies and more favorable sales transaction terms; and better inventory management. This allowed us to report a dramatic increase in net income despite a modest sales decline. It also allowed us to reduce borrowings under our credit facility during the year resulting in a $2.3 million, or 20% decrease in annual interest expense payments and a $15.8 million, or 15% decline in our debt levels from a year ago.”

Fourth Quarter Review

Net sales for the fourth quarter were $66.0 million compared to $72.5 million a year ago. Wholesale sales for the fourth quarter were $49.4 million compared to $52.0 million for the same period in 2007. The decline in wholesale sales was primarily the result of supply chain disruptions caused by a dispute with a former vendor combined with the difficult economic conditions. Retail sales for the fourth quarter were $15.4 million compared to $19.0 million for the same period in 2007. Retail sales were negatively impacted by customer decisions to close plants, reduce headcount, and defer safety shoe purchases as the result of the challenging economy. Military segment sales for the fourth quarter were $1.2 million, versus $1.5 million in the same period of 2007.

Gross margin in the fourth quarter was $24.8 million, or 37.6% of sales, compared to $28.7 million or 39.6% of sales, for the same period last year. Wholesale gross margin for the fourth quarter was $16.8 million, or 34.0% of net sales, compared to $19.1 million, or 36.8% of net sales, in the same period last year. Retail gross margin for the fourth quarter was $7.9 million, or 51.0% of net sales, compared to $9.5 million, or 49.9% of net sales, for the same period in 2007. Military gross margin for the fourth quarter was $0.1 million, or 9.5% of net sales, versus $0.1 million, or 8.0% of sales in the fourth quarter a year ago.

Selling, general and administrative (SG&A) expenses decreased 17.5% or $4.6 million to $21.6 million, or 32.7% of sales, for the fourth quarter of 2008 compared to $26.2 million, or 36.1% of sales, a year ago. The decrease in SG&A expenses was primarily the result of reductions in compensation, tradeshow and distribution expenses.

Income from operations, excluding the non-cash intangible impairment charge, was $3.2 million, or 4.9% of net sales for the fourth quarter of 2008, compared to income from operations, excluding the impairment loss on the carrying value goodwill, of $2.5 million or 3.5% of net sales for the fourth quarter of 2007.

The company’s funded debt decreased $15.8 million, or 15.3% to $87.7 million at Dec. 31, 2008 versus $103.5 million at Dec. 31, 2007. Interest expense decreased to $2.2 million for the fourth quarter of 2008 versus $2.9 million for the same period last year. The decrease in interest expense was due to reduced borrowings under the company’s line of credit as well as lower interest rates compared to the same period last year.

Inventory decreased $5.1 million, or 6.8% to $70.3 million at Dec. 31, 2008 compared with $75.4 million on the same date a year ago.

Brooks concluded, “The current financial crisis has obviously created some near-term challenges for the entire consumer industry however we believe our strong portfolio of brands and diverse channels of distribution have us well positioned for long-term success. Importantly, the supply chain disruptions we experienced last year are now behind us and we move forward confident in our ability to better service our accounts and meet demand for our entire product line. At the same time, we are focused on further reducing costs in our retail operations by shifting a greater percentage of that business to our higher operating margin e-commerce platform. We begin 2009 committed to executing our strategy and building on our recent successes in order to return greater value to our shareholders.”