Rocky Brands Inc. on Wednesday announced net sales for its third quarter ended September 30 increased 2 percent to $67.2 million compared to $65.9 million in the third quarter of 2018 but missed analysts’ estimates by $1 million.

The company reported third quarter net income of $5.6 million, or 75 cents per diluted share, compared to net income of $5 million, or 67 cents per diluted share in the third quarter of 2018. Adjusted net income for the third quarter of 2019 was $5 million, or 68 cents per diluted share, compared to adjusted net income of $4.5 million, or 60 cents per diluted share in the prior year period. The company beat EPS estimates by 5 cents.

Net sales for the first nine months of 2019 increased 5.2 percent to $195.1 million compared with $185.5 million for the first nine months of 2018. The company reported net income of $12.4 million, or $1.66 per diluted share and net income of $10.9 million, or $1.47 per diluted share for the nine months ended September 30, 2019 and 2018, respectively. Adjusted net income for the first nine months of 2019 was $11.8 million, or $1.59 per diluted share compared to adjusted net income of $10.4 million, or $1.40 per diluted share for the same period of 2018.

Jason Brooks, president and CEO, commented, “We continue to have success capitalizing on the key growth opportunities we have identified for our company. Our retail division is benefitting from the investments we have made in people as well as systems & processes which are driving strong sales increases across both our Lehigh CustomFit model and ecommerce channels. At the same time, the focus we have placed on product innovation, enhanced consumer engagement, and stronger retail partnerships is fueling consistent gains for our wholesale business led most recently by our western, outdoor and commercial military categories. Importantly, we’ve been able to translate our top-line results into even stronger bottom line performances through gross margin expansion and our commitment to operational excellence. While we now face some near-term headwinds due to the tariff increase on footwear imports from China that went into effect in September, we believe the strength of our brand portfolio, margin enhancing growth prospects and internal manufacturing capabilities have us well positioned to deliver increased profitability over the long-term.”

Third Quarter and Year-to-Date Review

Net sales for the third quarter increased 2 percent to $67.2 million compared to $65.9 million a year ago. Wholesale sales for the third quarter increased 0.4 percent to $47.2 million compared to $47 million for the same period in 2018. Retail sales for the third quarter increased 21.8 percent to $14.5 million compared to $11.9 million for the same period last year. Military segment sales for the third quarter decreased, as expected, to $5.4 million compared to $7 in the third quarter of 2018.

Gross margin in the third quarter of 2019 increased to $25 million, or 37.2 percent of sales, compared to $22.4 million, or 34 percent of sales, for the same period last year. The 320 basis point increase was driven by a higher percentage of retail sales, which carry higher gross margins than wholesale and military sales combined with higher retail, wholesale and military margins. Third quarter 2019 gross margins also benefitted from a hurricane related expense reimbursement, which contributed approximately 100 basis points to the year-over-year improvement. Excluding the hurricane related expense reimbursement, gross margin in the third quarter of 2019 was $24.3 million, or 36.2 percent of sales.

Operating expenses were $18 million, or 26.8 percent of net sales, for the third quarter of 2019 compared to $16.8 million, or 25.5 percent of net sales, a year ago. The increase in operating expenses was primarily attributable to higher variable expenses associated with the growth in retail sales.

Income from operations for the third quarter of 2019 was $7 million, or 10.4 percent of net sales compared to $5.6 million for the same period a year ago, or 8.5 percent of net sales.

For the first nine months of 2019, wholesale sales increased 2.4 percent to $130.3 million compared to $127.2 million for the same period in 2018. Retail sales for the first nine months increased 19.9 percent to $44 million compared to $36.7 million for the same period last year. Military segment sales for the first nine months decreased, as expected, to $20.8 million compared to $21.6 million in the first nine months of 2018.

Gross margin in the first nine months of 2019 increased 10.3 percent to $69.4 million, or 35.6 percent of sales, compared to $62.9 million, or 33.9 percent of sales, for the same period last year. Excluding the hurricane related expense reimbursement gross margin for the first nine months of 2019 was $68.7 million, or 35.2 percent of sales.

Operating expenses were $54 million, or 27.7 percent of net sales, for the first nine months of 2019 compared to $49.7 million, or 26.8 percent of net sales, a year ago.

Income from operations for the first nine months of 2019 increased 16.7 percent to $15.4 million, or 7.9 percent of net sales compared to $13.2 million for the same period a year ago, or 7.1 percent of net sales.

Balance Sheet Review

Cash and cash equivalents increased $2.2 million or 52.4 percent to $6.4 million at September 30, 2019 compared to $4.2 million on the same date a year ago.

Inventory at September 30, 2019 increased 5.7 percent to $82.9 million compared to $78.4 million on the same date a year ago.