Rocky Brands Inc. reported earnings rose 28.6 percent in the fourth quarter on an adjusted basis. The gains reflect improved gross margins due to segment mix, increased manufacturing efficiencies and improved full priced selling. Wholesale sales increased 3.4 percent.
Fourth Quarter 2018 Sales and Income
Fourth quarter net sales were $67.2 million versus net sales of $67.0 million in the fourth quarter of 2017.
The company reported fourth quarter net income of $3.6 million, or 48 cents per diluted share. Excluding the impact of tax reform and two special charges, fourth quarter 2017 adjusted net income was $2.8 million, or 37 cents per share.
Net earnings in the year-ago quarter came to $4.4 million, or 59 cents per diluted share, in the year ago period. The fourth quarter of 2017 included a one-time income tax benefit of $3.2 million due to the enactment of the Tax Cuts and Jobs Act, which lowered the domestic federal tax rate applied to the company’s current and deferred tax liability position, partially offset by a one-time toll charge related to the repatriation of earnings from its Dominican Republic operations. The fourth quarter of 2017 also included an after-tax charge of $1.6 million associated with the loss on the sale of the Creative Recreation brand.
Fiscal Year 2018 Sales and Income
For fiscal year 2018, net sales were $252.7 million versus net sales of $253.2 million in fiscal year 2017. The company reported net income of $14.6 million, or $1.95 per diluted share, for fiscal year 2018, compared with a net income of $9.6 million, or $1.29 per diluted share, for fiscal 2017. Adjusted net income for fiscal 2018 was $14.0 million, or $1.88 per diluted share, compared to an adjusted net income of $8.6 million, or $1.16 per diluted share in 2017.
Jason Brooks, president and chief executive officer, commented, “Our fourth quarter sales performance was fueled by mid-teens growth of our retail segment as our Lehigh CustomFit program continues to gain traction with existing and new accounts. At the same time, our wholesale business posted a solid gain driven primarily by robust demand for our hunting and commercial military categories. The significant improvement in profitability for both the fourth quarter and full year demonstrates the progress we’ve made enhancing our gross margins through segment mix, increased manufacturing efficiencies and improved full priced selling combined with tightly managing operating expenses. Looking ahead, we see an opportunity to accelerate top-line growth by reinvesting a portion of our recent earnings in additional marketing support for our portfolio of authentic brands and differentiated direct business-to-business model. We believe we have the right strategies in place to build on our recent momentum and continue generating increased value for our shareholders over the long-term.”
Fourth Quarter and Full Year Review
Wholesale sales for the fourth quarter increased 3.4 percent to $45.9 million compared to $44.4 million for the same period in 2017. Retail sales for the fourth quarter increased 14.6 percent to $16.5 million compared to $14.4 million for the same period last year. Military segment sales for the fourth quarter were $4.8 million compared to $8.2 million in the fourth quarter of 2017.
Gross margin in the fourth quarter of 2018 increased 3.4 percent to $24.1 million, or 35.9 percent of sales, compared to $23.3 million, or 34.8 percent of sales, for the same period last year. The 110 basis point increase was driven by a lower percentage of military sales, which carry lower gross margins than wholesale and retail sales, and higher military segment margins versus the same period last year.
Operating expenses were $19.3 million, or 28.7 percent of net sales, for the fourth quarter of 2018 compared to $19.6 million, or 29.3 percent of net sales, a year ago.
Income from operations for the fourth quarter of 2018 increased 30.5 percent to $4.9 million, or 7.2 percent of net sales compared to $3.7 million for the same period a year ago, or 5.5 percent of net sales.
For 2018, wholesale sales increased 3.9 percent to $173.1 million compared to $166.7 million for 2017. Retail sales increased 10.1 percent to $53.2 million compared to $48.4 million for the same period last year. Military segment sales were $26.4 million compared to $38.2 million in 2017.
Gross margin for 2018 increased 7.8 percent to $87.0 million, or 34.4 percent of sales, compared to $80.8 million, or 31.9 percent of sales, for the same period last year.
Operating expenses were $69.0 million, or 27.3 percent of net sales, for 2018 compared to $68.9 million, or 27.2 percent of net sales, a year ago.
Income from operations for 2018 increased to $18.1 million, or 7.1 percent of net sales compared to $11.8 million for the same period a year ago, or 4.7 percent of net sales.
Balance Sheet Review
Cash and cash equivalents increased $6.5 million or 176.4 percent to $10.2 million at December 31, 2018 compared to $3.7 million on the same date a year ago.
Inventory at December 31, 2018 increased 11.0 percent to $72.8 million compared to $65.6 million on the same date a year ago.
The company had no long-term debt at December 31, 2018 compared $2.2 million at December 31, 2017.
Rocky Brands include Rocky, Georgia Boot, Durango, Lehigh, and the licensed brand Michelin.
Image courtesy Rocky