Rocky Brands Inc. reported first-quarter net sales of $55.7 million, down from $65.9 million in the year-ago period. The company reported first-quarter net income of $1.2 million, or 16 cents per diluted share, compared to net income of $3.6 million, or 48 cents per diluted share, in the first quarter of 2019.
Adjusted net income for the first quarter of 2020, which excludes expenses related to the closure of the company’s manufacturing facilities due to COVID-19, was $2 million, or 27 cents per diluted share.
Jason Brooks, president and CEO, said, “Our business is holding up well despite one of the most difficult operating environments in our company’s long history. We entered 2020 with good momentum thanks to the multi-year execution of strategic initiatives that have enhanced our brands’ positioning in the marketplace, strengthened our relationships with our consumers and retail customers, and fortified our balance sheet.
“While we face challenges due to the COVID-19 pandemic, particularly within our brick and mortar wholesale channel as much of the country continues to shelter-at-home, we have taken decisive actions to capitalize on our digital and distribution center capabilities and increase liquidity. Over the past several weeks, we’ve experienced an acceleration in sales on our e-commerce sites as well as an uptick in new account growth for our online Lehigh CustomFit safety shoe business as many of our consumers work in critical industries that are keeping America running during this crisis. As Rocky Brands has done in the past, I am confident that we will weather this storm and emerge in a position to resume delivering sustained growth, increased profitability and enhanced value for our shareholders.”
Below is a summary of the current status of Rocky Brands’ operations and the actions taken to mitigate the financial impact of COVID-19 and preserve liquidity to-date.
- The company’s 200,000-square-foot distribution center in Logan, OH, has remained open and fully operational.
- The company’s manufacturing facilities in Puerto Rico and the Dominican Republic have reopened following temporary government-mandated shutdowns and are currently operating at a reduced capacity.
- The company has reduced operating expenses by approximately $1.5 million for the year.
- The company has delayed approximately $15 million in planned inventory receipts from third party suppliers.
- The company drew down $20 million on its credit facility as a precautionary measure. As of March 31, 2020, the company had $44.2 million in cash and cash equivalents and $40 million in available borrowings on its credit facility.
- The company has suspended all share repurchases indefinitely.
First Quarter Review
Net sales for the first quarter were $55.7 million compared to $65.9 million a year ago. Wholesale sales for the first quarter were $35 million compared to $42.4 million for the same period in 2019. Retail sales for the first quarter increased 9.4 percent to $16.9 million compared to $15.4 million for the same period last year. Military segment sales for the first quarter were $3.8 million compared to $8.1 million in the first quarter of 2019.
Gross margin in the first quarter of 2020 was $19.3 million, or 34.7 percent of sales, compared to $23 million, or 34.9 percent of sales, for the same period last year. Adjusted gross margin, which excludes approximately $1 million in expenses related to the closure of the company’s manufacturing facilities due to COVID-19, was $20.3 million, or 36.4 percent. The 150 basis point increase in adjusted gross margin was driven primarily by a higher percentage of retail sales, which carry higher gross margins than wholesale and military sales, partially offset by lower wholesale and military margins
Operating expenses were $17.8 million, or 32 percent of net sales, for the first quarter of 2020 compared to $18.5 million, or 28 percent of net sales, a year ago. The decrease in operating expenses was driven primarily by lower variable expenses associated with a decrease in sales.
Income from operations was $1.5 million, or 2.7 percent of net sales compared to income from operations of $4.5 million, or 6.8 percent of net sales a year ago. Adjusted operating income for the first quarter of 2020 was $2.5 million, or 4.5 percent of net sales.
Photo courtesy Rocky Brands