Weakness in Oil-Dependent Regions Dips Rocky Brands

By Thomas J. Ryan

Rocky Brands Inc. (Nasdaq:RCKY) reported a loss in the second quarter on a sharp decline in wholesales due to weak economies in regions impacted by low oil and commodities prices.

David Sharp, Rocky Brands’ president and CEO, said similar to the first quarter, elevated inventories in the western, work and hunting channels negatively impacted sales and margins in its wholesale business. The company’s stock price fell more than six percent following the news July 29, hovering around $11 per share.

“Softening of local economies, especially those where oil and gas exploration had been significant and weak store traffic across retail contributed to our poor performance,” Sharp said. The company’s brands include Rocky, Georgia Boot, Durango, Lehigh, Creative Recreation and the licensed Michelin brand.

The wholesales decline was partially offset by a significant gain in military sales. Added Sharp, “However, our need to ramp up our internal production capabilities to meet the increase in military footwear demand resulted in additional costs, including labor and training, that have temporarily pressured gross margins.”

The net loss came to $1.8 million, or 23 cents per share, compared to net income of $2 million, or 26 cents, in the second quarter of 2015. Revenues fell to $62.6 million from $68.6 million a year ago. Wholesales tumbled 23 percent to $41.5 million. Retail sales improved 2 percent to $10.4 million while military segment sales more than doubled to $10.7 million from $4.5 million in the same period a year ago.

Gross margins eroded to 26 percent of sales from 32.9 percent a year ago.The 700 basis point decrease was primarily driven by increased costs related to the ramp-up in production capabilities to meet the increased military footwear demand. Military segment sales carry lower initial gross margins than wholesale and retail segments; therefore the increase in military segment sales in the quarter reduced the overall blended margin. SG&A expenses increased to 30.1 percent of sales from 28.3 percent in the year-ago quarter primarily related to lower variable expenses associated with the decrease in wholesale sales.

Concluded Sharp, “While we are disappointed in our recent results, we continue to be confident that the strategic course we’ve set for the company will lead to improved profitability and greater shareholder value over the long term.”

Photo courtesy of Rocky Brands.