Rocky Brands reported sales grew 6.1 percent in the second quarter, adjusted for the divestiture of the Servus brand. Double-digit gains at the Durango western boot brand and Xtratuf fishing boot brand offset weakness in its work and hunt categories and at Muck.
Higher gross margins and lower expenses helped lower the loss in the quarter ended June 30.
“Our second quarter results modestly exceeded our expectations as we continue to effectively navigate an unprecedented consumer environment,” said Rocky Brands Chairman, President and CEO Jason Brooks on an analyst call.
In the quarter, sales decreased 1.6 percent to $98.3 million. Excluding certain non-recurring sales related to the manufacturing of Servus products following the divestiture of the Servus brand, the change to a distributor model in Canada in November 2023, and temporarily elevated commercial military footwear sales to a single customer throughout 2023, sales increased 6.1 percent.
Wholesale sales were $68.3 million, down 4.5 percent year over year, or up 2.3 percent, excluding non-recurring sales. Retail increased by 4.1 percent, or 6.1 percent, excluding the non-recurring sales related to the change in the Canada distribution model, to $26.1 million. Contract manufacturing sales, including contract military sales and private label programs, were $3.9 million compared to $3.3 million in the prior year, or up $2.6 million excluding non-recurring sales.
Gross margin improved 110 basis points to 38.7 percent due to an increase of 200 basis points in wholesale gross margins and a higher percentage of retail net sales, which carry higher gross margins than the company’s wholesale and contract manufacturing segments.
Operating expenses were reduced to $33.5 million, or 34.1 percent of sales, from $35.4 million, or 35.4 percent, for the same period a year ago.
Income from operations was $4.5 million, up from $2.2 million a year ago. Adjusted operating income was $5.2 million, down from $5.7 million a year ago.
The company reported a second-quarter net loss of $1.2 million, or 17 cents per share, compared to a net loss of $2.7 million, or 37 cents, a year ago. Adjusted net income was $1.3 million, or 17 cents, compared to break-even results in the year-ago period.
Brand Performance
Brooks said the Durango western boot brand delivered strong double-digit sales gains this quarter. He said, “We experienced continued strength in bookings across key accounts and Farm & Ranch partners, along with an acceleration in at-once business. The team is working to supply chain with more of the brand’s core in-demand products, which along with a positive response to the fall 2024 line, sets Durango up to build upon its strong first half over the remainder of the year.”
Xtratuf maintained its strong momentum from early in the year with strong demand for its legacy outdoor products and again outperformed expectations with a strong double-digit gain in the second quarter. Brooks said, “Deliveries for spring 2024 were very healthy, and we also filled numerous replenishment orders for existing products as customers’ appetite for Xtratuf continues to expand rapidly.”
Xtratuf also saw a positive reception for new colors and collaborations with the launch of its 2024 spring line. Brooks said, “The brand continues to see strong demand across a number of niche outdoor verticals, such as sport fishing and outdoor recreation that are leading not only in increased sales but increased distribution with large retailers that position Xtratuf for continued success. Moving forward, the team remains focused on securing new bookings for its upcoming spring 2025 line and filling in replenishment aggressively this year while maintaining efforts to source sufficient inventory to fulfill the strong and growing demand for the brand.”
Muck saw unfavorable spring weather patterns in several areas of the country lead to slower retail turns, resulting in slower-than-anticipated restocks late in the quarter. Brooks said, “Retail partners are making progress in working through the inventory, and we anticipate getting back into a more normal restock cadence. Even with the lack of adequate weather to drive demand, we continue to see strong engagement with customers throughout our new website, enhanced marketing campaign, highlighting the brand’s heritage and influencer partnerships that are amplifying visibility. As a result, we continue to add to Muck’s account base and anticipate a rebound heading into the important fall season.”
Brooks said the company’s work footwear brands faced a “challenging” quarter. Georgia Boot continued to see more over-inventory pressure from smaller accounts, although the brand managed mid-single-digit increases with its key accounts business, which has largely resumed its normal order cadence following pandemic-related supply chain disruptions.
Similarly, Rocky Work regained momentum in the latter part of the quarter.
Brooks said, “Following a difficult April and May, we saw a notable uptick with June, up nicely versus a year ago period. The late quarter rebound fueled by new and innovative product introductions in the last 12 months, leaves us optimistic that Rocky Work can continue to trend positively in the second half of the year. In fact, the brand continued to expand distribution with key national suppliers as well as with catalog and direct-to-consumer sites this quarter, positioning the brand for a stronger reach going forward.”
At the Rocky brand’s Western business, the repositioning to more of a value-driven product at more competitive price points continues but it has taken longer than planned to move sell-through higher-priced inventory in the channel, impacting sell-in. Brooks said, “That said, we are encouraged by the initial reception of our new, more affordable product and remain confident that our current strategy for Rocky Western will continue to gain traction with consumers and retailers over the coming quarters.”
At the Rocky Outdoor Hunting Boot business, last year’s poor hunting season is limiting the typical bulk shipments that typically occur in the second quarter, ahead of the start to the new season this fall. Brooks said, “While the hunting market overall remains challenging, we saw our nonhunting footwear led by rugged casual styles trend positively this quarter. This is helping to expand the brand’s retail partner base and reach a broader consumer audience.”
The company’s Commercial Military and Duty segment was down in line with expectations, as it completed the 2023 military blanket purchase agreement in the first quarter. A delay in the military budget release for 2024 is also impacting sales cadence versus last year. Brooks said, “Solid gains in our duty fire collection and our postal business helped to partially offset the current military headwinds.”
In retail, the company’s branded e-commerce sites “continue to trend nicely positive,” led by double-digit revenue gains from its Xtratuf, Durango, Georgia and Rocky e-commerce sites. The company used its websites to clear some inventories in the quarter ahead of restocking large wholesale channels with many of each brand’s bestsellers.
The B2B Lehigh business was flat compared to the second quarter of 2023, although key customer account spending improved for Q1, and an improved sales pipeline, are expected to help Lehigh return to growth in the second half.
Inventories at the end of the quarter were $175 million, up slightly compared to $169.2 million at the end of 2023 and down 20 percent compared to $218.3 million a year ago.
Outlook
Looking ahead, Rocky Brands still expects sales to be toward the high end of its initial range of $450 million to $460 million for the year. Gross margins, however, are now expected to be to be slightly less than last year’s 38.9 percent adjusted gross margin versus its prior guidance of a slight improvement due to rising ocean freight rates and increased volumes shipped within its wholesale channel to more larger key accounts.
Brooks concluded, “While the operating environment remains a challenge, I am pleased to see our efforts with top-line expansion and expense management, along with our improved balance sheet, deliver positive results and begin to translate into value for our shareholders. As we look to the second half of 2024, I am cautiously optimistic that we can continue to build on our momentum and drive continued success.”
Image courtesy Durango