Boosted by strong gross margins and lower expenses, Rocky Brands Inc. reported profits rose 32.5 percent in the second quarter, to $2.0 million, or 26 cents a share, from $1.51 million, or 20 cents a year ago.
Sales reached $68.6 million, slightly down from $68.8 million in the second quarter of 2014. Wholesale sales decreased 4.9 percent to $53.9 million. Retail sales inched up 1.2 percent to $10.2 million while military segment sales expanded to $4.5 million versus $2 million for the same period in 2014.
Gross margin improved 20 basis points to 33.0 percent. The increase was driven by higher wholesale and retail gross margins, partially offset by the increase in military segment sales, which carry lower gross margins than wholesale and retail.
SG&A expenses were reduced to 28.3 percent of sales from 29.1 percent in the year-ago period, primarily attributable to lower incentive compensation expense.
On a conference call with analysts, David Sharp, president and CEO, said the quarter marked the company’s third consecutive quarter of double-digit earnings growth on a year-over-year basis. The improvement reflected the payback from adjustments made to its operating structure over the past several years.
Sharp said the top line was challenged by tough comparisons with some “large, one time selling events in the quarter last year,” including a seeding program with Tractor Supply and large onetime shipment to a foreign country for military boots. Changes in U.S. Army authorized footwear regulations also impacted growth of its commercial military business.
On the bright side, Rocky Brands saw strong double-digit growth in hunting boots, more than doubled its contract military sales and continued to see strong growth with its Durango brand.
Among segments, work, its largest category, saw flat sales as strength with Georgia Boot at many of its core independent accounts was offset by softer than expected sales with several larger national accounts. Sharp pointed to several reports of national chains experiencing weak traffic. On the positive side, cold winter throughout the eastern half of the U.S. led to “very clean” inventories, especially in insulated work boots.
In Western boots, Durango sales increased by high-single digits, which came on top of the mid 20 percent gain in the year ago quarter. Its Rebel, Lady Rebel and Little Durango lines also saw solid sell throughs at key retailers like Boot Barn, Academy and Cabela's. Overall Western sales were impacted by the seeding program with Tractor Supply in the prior year and a slight decline in the Rocky brand western footwear, which was also up against a tough comparison due to a sizeable closeout order a year ago. The hunting segment has begun selling to Bealls Department Stores. Rocky’s new fall holiday 2015 collection has also “been very positive,” with the majority shipping in Q4.
Hunting sales jumped 19 percent. Sharp said the cold weather earlier in the year helped drive sell through of insulated water proof boots “setting us up for a solid restocking situation ahead of the fall season.” With hunting season just starting, Rocky’s hunt segment is “well positioned with new products and traditional best sellers to meet demand and chase re-orders in season for key accounts such as Bass Pro, Cabella’s and Boot Barn,” he added.
Creative Recreation, a sneaker brand, is being helped by a new sales force that has expanded relationships at Nordstrom and Journeys and tested new accounts including Express and DSW this fall.
“The spring 2015 product line is performing well, led by The Santos, a new style that is selling through on a weekly basis in excess of 50 percent to several key retailers,” said Sharp. “Looking ahead, the early reactions of the Spring 2016 line which will begin shipping in Q4 is providing us with increased optimism about the top line opportunities we believe exist for this business.”
The decline in the commercial military segment reflects changes in the Army’s wear and appearance regulations on its C4 and C5 Lightweight boots.
Looking ahead, Sharp said the company is poised for accelerated growth, with sales expected to increase in the mid-single digits over the second half. Said Sharp, “The good news is that the temporary headwinds that we recently faced are now behind us and our top line comparisons get easier as we head into the second half of the year.”
