Rocky Brands, Inc. reported earnings declined slightly in the fourth quarter but sales grew 5.7 percent in the fourth quarter, to $61.6 million, thanks to cold, snowy conditions that supported both its work and hunting shoe businesses.
Also, with fall 2014 orders ahead in the range of 8 to 9 percent, Rocky Brands expects sales growth in its core business excluding its recent acquisitions of Creative Recreation in the range of mid to high single digits throughout the current year.
In the fourth quarter, adjusted net income fell 12.0 percent in its fourth quarter, to $2.2 million, or 29 cents per share, slightly short of Wall Street’s consensus estimate of 31 cents a share. On a reported basis, net earnings sank 28.0 percent to $1.8 million, or 24 cents per share. The latest quarter included net expenses of $572,000 related to its Creative Recreation acquisition.
Gross margins eroded 60 basis points to 35.4 percent, driven by increased military sales, which carry lower gross margins. SG&A expenses, excluding expenses associated with the ongoing operations of Creative Recreation, grew to 29.9 percent of sales from 28.8 percent a year ago, primarily due to the reversal of incentive compensation accruals in the fourth quarter of 2012.
By segment, Wholesale sales for the quarter rose 3.2 percent to $47.7 million, driven by 9.0 percent increase, in footwear sales partially offset by a $2.3 million decrease in apparel sales. The decrease in apparel sales was the result of the company’s decision to transition some apparel to a licensing model in early 2013.
On a conference call with analysts, David Sharp, president and CEO, said work footwear, its largest category, saw a 20 percent Q4 gain, driven by strong sell through of its Georgia and Rocky brands, combined with a private label program launched in early 2013. He said the work segment “definitely benefited from favorable weather as it was cold or wet in many areas of the country throughout the fourth quarter,” as well as a stronger inventory position that “allowed us to capitalize on pent-up demand for work boots following back-to-back mild winters.”
Rocky Hunting boots were up double-digits, again aided by weather and leaving retailers “in a good position, as we begin planning for the upcoming hunting season.” He did note that Rocky Brands saw “some pressure on our less leather sensitive categories” as the result of weaker than expected store traffic at many retailers this past holiday season.
Among its western styles, Sharp said that despite a difficult holiday season for less weather sensitive footwear categories, Rocky Brands experienced solid demand for the Durango brand with its push to reach a younger, more urban consumer helping add distribution at mainstream footwear retailers such as Amazon and Zappos.
In other segments, Retail sales for the quarter increased 7.5 percent to $12.9 million. Military segment sales increased to $1.0 million compared to no military sales in the year-ago quarter.
Rocky Brands closed on its acquisition of Creative Recreation on Dec. 13, and the quarter didn’t include any sales from the sneaker brand. Sharp reiterated that the acquisition “doesn’t overlap with our existing brands and it provides entry in the much broader casual market and it targets a different consumer.”
Rocky is already fixing supply chain process issues, specifically late deliveries, that the brand incurred due to its recent financial challenges. Sharp said he is encouraged by the commitments in the U.S by chains such as Urban Outfitters, The Buckle and Nordstrom. It expects to drive 50 percent of Creative Recreation’s sales this year outside of the U.S., with a doubling of sales in the U.K.
For the full year, sales increased 7.1 percent to $244.9 million, led by a 21.2 percent gain in Western and an 11.4 percent increase in Work. Net income slid 16.9 percent to $7.4 million, or 98 cents a share. On an adjusted basis, profits were down 11.2 percent to $7.9 million, or $1.04 per share.