Rocky Brands Grows Q3 Profits 11 Percent on Declining Sales

The makers of boots for the work, hunting and fishing and military markets said its 2011 net income improved to $5.2 million, or 70 cents per diluted share, versus net income of $4.7 million, or 63 cents per diluted share, in the year ago period. Net sales were $71.0 million versus net sales of $74.8 million a year ago. The decrease in sales was due to reduced sales under military contracts and the discontinuation of the Dickies license, which expired Dec. 31, 2010. This was partially offset by increased sales from continuing operations.

“We experienced growth in several areas of our wholesale business during the third quarter,” said David Sharp, president and CEO. “Western sales increased 11% on higher demand for both Durango and Rocky branded product. Our hunting category was also up versus a year ago while gains in our Georgia Boot brand helped to partially offset the loss of the Dickies license in our work segment. We were particularly pleased with the performance of our commercial military business. This sales initiative has surpassed initial expectations as the product line has quickly gained traction within the military community. With regard to our retail division, operating profit improved meaningfully on slightly lower sales compared to a year ago as we continue to benefit from higher gross margins and reduced expenses. We are optimistic about the current pace of our overall business and continue to be excited about the longer-term growth strategies we are developing for our brands.”

Net sales for the third quarter were $71.0 million compared to $74.8 million a year ago. Wholesale sales for the third quarter were $60.2 million compared to $59.4 million for the same period in 2010. Retail sales for the third quarter were $10.3 million compared to $11.0 million for the same period last year. Military segment sales for the third quarter decreased to $0.4 million compared to $4.3 million in the same period in 2010.

Gross margin in the third quarter of 2011 was $25.6 million, or 36.0% of net sales compared to $27.2 million, or 36.4% of net sales for the same period last year. The 40 basis point decrease was primarily due to an increase in product costs.

Selling, general and administrative (SG&A) expenses were $18.0 million or 25.4% of net sales, for the third quarter of 2011 compared to $19.2 million, or 25.6% of net sales a year ago. The $1.2 million decrease is primarily due to lower compensation expense as a result of reduced headcount.

Income from operations was $7.6 million, or 10.6% of net sales, compared to $8.0 million, or 10.8% of net sales, in the prior year period.
Interest expense decreased to $0.3 million for the third quarter of 2011 versus $1.0 million for the same period last year. The decrease is attributable to lower interest rates as the result of the new $70 million revolving credit facility signed in October 2010.

The company’s effective tax rate for the third quarter of 2011 was 29.7% compared to 36.0% in the third quarter of 2010. For fiscal 2011, the company’s effective tax rate is now estimated to be 32.6%, compared to its previous estimate of 35.0%. The lower effective tax rate is the result of additional permanent capital investment in the company’s Dominican Republic operations.

The company’s funded debt was $60.1 million at September 30, 2011 versus $53.4 million at September 30, 2010.

Inventory increased 25.4% to $78.9 million at Sept. 30, 2011 compared with $62.9 million on the same date a year ago. The increase in inventory was the result of an increase in cost per unit as well as an increase in units. The increase in units was the result of lower than anticipated sales in the quarter. Inventory units are expected to be near prior year levels at year end.