By Eric Smith
Marketing efforts clearly paid off for Rocky Brands Inc. in the first quarter, with the company reporting a 9.1 percent earnings increase on a 7.4 percent revenue gain, both of which beat Wall Street’s estimates.
Now the Nelsonville, OH-based footwear, apparel, and accessories manufacturer plans to double-down on that strategy by reinvesting some of the profits from last quarter into a revamped and rejuvenated marketing strategy aimed at taking more share across end markets.
“We are seeing a boost from our recent marketing initiatives aimed at increasing brand awareness and driving traffic to our brand in stores and online,” CEO Jason Brooks said on Tuesday afternoon’s earnings call with analysts. “This has been a focus for the past several quarters, and we plan to invest additional funds in programs that allow us to continue taking market share via e-tailers and shelf space in brick-and-mortars.”
Increased marketing is one component of an ongoing, multifaceted growth strategy for Rocky Brands, owner and operator of such brands as Rocky, Georgia Boot and Durango, Lehigh, along with the licensed brand Michelin Footwear.
Specifically, Brooks said, that focus is about “increasing brand awareness and stimulating demand through improved marketing with an emphasis on digital.”
The other strategic levers the company is pulling, he said, are “exciting our consumers with great products; providing excellent retail support and expanding distribution with our key brick-and-mortar and e-tail partners; accelerating expansion of our Lehigh CustomFit program through investments in technology and personnel; and utilizing internal production capacity to capitalize on the growing number of commercial military opportunities and improving the efficiency of our factories.”
Clearly, the company is feeling a tailwind thanks to these initiatives. For the first quarter, the company reported net income of $3.6 million, or 48 cents per diluted share, compared to net income of $3.3 million, or 44 cents, in the first quarter of 2018. Wall Street had projected 42 cents per share.
And Q1 net sales increased 7.4 percent to $65.9 million compared to $61.4 million a year ago and ahead of analysts’ expectations by $3.4 million.
Looking at the breakdown of sales for the company in Q1: Wholesale sales increased 4.8 percent to $42.4 million compared to $40.4 million for the same period in 2018; retail sales increased 18.2 percent to $15.4 million compared to $13.1 million for the same period last year; military segment sales were $8.1 million compared to $7.9 million in the first quarter of 2018.
Additionally, the company’s cash and cash equivalents increased $7.5 million, or 74.3 percent, to $17.6 million on March 31, 2019, compared to $10.1 million on the same date a year ago. And inventory on March 31, 2019 was up 7.3 percent to $69.9 million compared to $65.2 million on the same date a year ago.
Wall Street reacted positively to the company’s quarterly performance. Rocky Brands shares were up $1.33, or 5.4 percent, to $26 at market close Wednesday. All of which should give Rocky Brands even more momentum heading into Q2 and the rest of 2019, Brooks said. Driving that momentum is a heightened emphasis on marketing.
Marketing investments did pad Rocky Brands’ selling, general and administrative expenses in the quarter; SG&A increased to $18.5 million, or 28 percent of sales, for Q1, compared to $16.7 million, or 27.3 percent, in the year-ago period.
“The $1.8 million increase in SG&A expense was driven primarily by increased investments in marketing and personnel to support future growth, as well as higher variable expenses associated with the increase in sales,” CFO Tom Robertson said on the call.
But Rocky Brands is comfortable with that spending increase because of the return on that investment, both Robertson and Brooks noted. The company is planning to use its cash on hand to increase marketing, drive consumer awareness and grow shares across all its brands.
“As we did in the first quarter, we plan to utilize our strong balance sheet and reinvest a portion of our cash position in the business primarily in additional marketing programs to support our portfolio of authentic brands and our unique B2B direct model,” Robertson said.
On the earnings call, Brooks said marketing will include specific initiatives like touting “Durango’s position as a true iconic western brand,” plus more general strategies like increasing visibility in stores and, of course, ramping up digital marketing.
After all, the proof of its value keeps showing in measurable ways, including the top line.
“We can track flow and traffic to the website,” Robertson said. “We can see the traffic is up especially when we’re doing e-commerce marketing ads whether it’s pay-per-click or Google search optimization, but it’s very hard to see an exact relationship. But I will tell you where we’ve invested our marketing dollars, we’ve seen our most significant increases in sales.”
Photo courtesy Rocky Brands Inc.