By Eric Smith

Military sales boosted Rocky Brands Inc.’s second-quarter revenue thanks to a timely purchase agreement from the Defense Logistics Agency and some accelerated shipments that were pulled forward because of a Department of Defense contract ending early.

“With respect of our commercial military business, we had a good quarter here in the U.S. as all the military exchanges experienced positive gains led by AAFES, the Army and Air Force Exchange Services,” CEO Jason Brooks said on Wednesday afternoon’s earnings call. “We also enjoyed a very positive start to our relationship with the Navy and Coast Guard exchanges, which are proving to be excellent selling environments for the Rocky Brand.”

But while both of those events helped the Nelsonville, OH-based company post a revenue beat for Q2, the military segment could be a drag on third-quarter performance before picking up again, executives said.

“In terms of our military segment, sales will be down in Q3 due to the accelerated shipments … , which pulled sales into the second quarter and then returning to growth as we begin shipping product from our recent contract win,” CFO Thomas Robertson said on the call.

Click here to read more about Rocky Brands’ Q2 earnings.

That “recent contract win,” as Robertson described it, should indeed provide a nice bump for Rocky Brands, whose shares closed the day Thursday up $1.10, or 3.7 percent, to $30.81.

The company in May announced that it had received a purchase agreement from the Defense Logistics Agency to produce general-purpose safety boots for the U.S. Navy.

Under the terms of the purchase agreement, the Defense Logistics Agency has the right to purchase approximately $27 million of these boots through May 2022. The first shipment from this agreement is expected to occur in the third quarter of 2019, with all of these boots manufactured in the company’s Moca, Puerto Rico, factory.

As Brooks said at the time: “We are very pleased to have been awarded this contract to produce safety boots for the U.S. Navy. This order is on top of our existing agreements and will add approximately $2 million in incremental military segment sales this calendar year. Importantly, with the increased operating efficiencies in our company-operated manufacturing facility from the growth in our commercial military business, we expect gross margins for this most recent contract to be in-line with recent segment trends.”

Jonathan Komp of Baird listed military sales under the heading of “risks and caveats” in the note he wrote to investors. “The company’s military sales can vary significantly due to changes in regulations and federal spending,” he wrote.

Overall, however, Komp called Rocky Brands’ quarter “solid” with Baird raising its full-year estimates for the company. “Q2 results reflected continued solid performance, as healthy revenue growth within wholesale and Retail plus better-than-expected gross margin performance drove a $0.06 EPS beat,” he wrote.

Companywide, Rocky Brands reported net income for its second quarter ended June 30 of $3.2 million, up from $2.6 million, while diluted earnings per share increased 20 percent to 42 cents a share, topping analysts’ expectations by 6 cents.

Military segment sales for Q2 grew 8.4 percent to $7.2 million from $6.7 million in the second quarter of 2018, which was a solid contributor to Rocky Brands’ overall Q2 revenue of $62 million. That total for the quarter marked a 6.4 percent increase from $58.2 million in the second quarter of 2018 and beat Wall Street’s estimates by $1.6 million.

Looking at the other segments, wholesale sales for the second quarter edged up 2.1 percent to $40.6 million compared to $39.8 million for the same period in 2018, while the standout performer was retail sales, which jumped 20.2 percent to $14.1 million compared to $11.7 million for the same period last year.

That performance from retail sales—which carry higher gross margins than wholesale and military sales—helped Rocky Brands’ Q2 gross margin rise 100 basis points to $21.4 million, or 34.6 percent of sales, from $19.5 million, or 33.6 percent of sales, for the same period last year.

For the first six months, Rocky Brands reported net income of $6.8 million, or 91 cents per diluted share, up from net income of $5.9 million, or 79 cents per diluted share for the six months ended June 30, 2018.

Revenue for the first six months of 2019 increased 6.9 percent to $127.9 million compared with $119.6 million for the first six months of 2018.

The Rocky Brands family of brands includes owned brands Rocky, Georgia Boot, Durango and Lehigh, and the licensed brand Michelin Footwear.

Photo courtesy Rocky Brands Inc.