Rocky Brands, Inc. reported third quarter net sales increased 3.6 percent to $72.7 million versus net sales of $70.2 million in the third quarter of 2013. The company reported third quarter net income of $3.1 million, or 42 cents per diluted share as compared to net income of $2.9 million, or 39 cents, in the third quarter of 2013, a gain of 6.9 percent.
David Sharp, president and chief executive officer, commented, Following a strong first half of the year, our sales growth moderated during the third quarter. We believe consumer interest in our innovative product lines remains high; however, sell-through was hampered by a warm, dry September across much of the U.S. In addition, our wholesale dealers are now buying closer to their need which is shifting sales for our insulated and waterproof cold weather boots into the fourth quarter. With regard to Creative Recreation, we experienced improved results as the business has started to benefit from the supply chain initiatives weve implemented over the past several months and we are optimistic the brand will contribute to profitability in the near future. We remain confident that our diversified brand portfolio, innovative product strategies and multi-channel distribution will drive consistent growth and increased shareholder value over the long-term.
Third Quarter Review
Net sales for the third quarter increased 3.6 percent to $72.7 million compared to $70.2 million a year ago. Wholesale sales for the third quarter increased 8.3 percent to $62.1 million including $4.4 million in Creative Recreation branded sales as compared to $57.4 million for the same period in 2013. Retail sales for the third quarter were $9.5 million compared to $9.6 million for the same period last year. Military segment sales for the third quarter decreased to $1.1 million compared to $3.2 million in the third quarter of 2013.
Gross margin in the third quarter of 2014 was $24.3 million, or 33.4 percent of sales, compared to $22.7 million, or 32.4 percent of sales, for the same period last year. The 100 basis point increase was driven by higher wholesale margins which were attributable to improved operating efficiencies in the companys owned manufacturing facilities. This was partially offset by lower retail gross margin in our B to B business than a year ago resulting from the completed transition to a web based retail platform which carries lower gross margin and lower operating expenses compared to the previous mobile store structure.
Selling, general and administrative (SG&A) expenses were $19.4 million, or 26.6 percent of net sales, for the third quarter of 2014 compared to $18.3 million, or 26.1 percent of net sales, a year ago. The $1.1 million increase in SG&A expenses was due to the additional expenses associated with the Creative Recreation brand, which was acquired in December 2013, partially offset by a $0.4 million decrease in SG&A expenses associated with the companys legacy brands.
Income from operations was $4.9 million, or 6.8 percent of net sales, compared to $4.4 million, or 6.3 percent of net sales, a year ago.
Interest expense was $0.3 million for the third quarter of 2014, versus $0.2 million for the same period last year.
The companys funded debt was $50.7 million at September 30, 2014 versus $42.4 million at September 30, 2013. The majority of the increase was related to additional borrowings to fund the acquisition of Creative Recreation in the fourth quarter of 2013.
Inventory increased 14.2 percent, or $11.2 million, to $90.1 million at September 30, 2014 compared with $78.9 million on the same date a year ago. Inventory at September 30, 2014 included approximately $2.9 million associated with the acquisition of Creative Recreation. Based on current sales projections the company expects inventory comparisons on a year-over-year basis to be lower at December 31, 2014 than at September 30, 2014.
Rocky Brands, Inc. is a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names including Rocky, Georgia Boot, Durango, Lehigh, Creative Recreation, and the licensed brand Michelin.
