Rocky Brands, Inc. reported that first-quarter net sales decreased 33.9 percent to $110.4 million compared with $167.0 million in the first quarter of 2022. Wholesale sales for the first quarter decreased 40.2 percent to $80.1 million, compared to $134.0 million for the comparable period in 2022. Retail sales for the first quarter increased 3.1 percent to $29.5 million, compared to $28.6 million in Q1 last year. Contract Manufacturing sales, which include contract military sales and private label programs, were $0.9 million in the first quarter of 2023 compared to $4.4 million in the prior-year period. The decrease in Contract Manufacturing sales was due to the expiration of certain contracts with the U.S. Military.
“Consumer demand for our brands remains healthy and our gross margins are up significantly year-over-year despite some industry headwinds that are pressuring our top line,” said Jason Brooks, chairman, president and CEO of Rocky Brands, Inc. “We experienced positive sell-through with many of our key accounts during the first quarter. Unfortunately, our Wholesale performance didn’t translate into increased sell-in as many of our retail partners are in the process of working down elevated inventory levels and have recently adopted a more cautious approach to reorders due to the current economic backdrop.”
Gross margin in the first quarter of 2023 was 39.6 percent of net sales, compared to 37.6 percent of net sales for the same period last year. The increase in gross margin as a percentage of net sales was due to the realization of pricing actions taken in 2022, as well as decreases in inbound logistics costs. Rocky said it experienced an increased mix of Retail segment sales which carry higher gross margins than the Wholesale and Contract Manufacturing segments.
Operating expenses were $39.6 million, or 35.9 percent of net sales, for the first quarter of 2023 compared to $49.6 million, or 29.7 percent of net sales, for the comparable period a year ago. Excluding $0.8 million of acquisition-related amortization in the first quarter of 2023 and $1.0 million in acquisition-related amortization and integration expenses in the first quarter of 2022, adjusted operating expenses were $38.8 million in the current year period and $48.6 million in the year-ago period. The decrease in operating expenses was driven primarily by a decrease in variable expenses associated with lower sales and improved distribution center efficiencies compared with the year-ago period. As a percentage of net sales, adjusted operating expenses were 35.2 percent in the first quarter of 2023 compared with 29.1 percent in the year-ago period.
Income from operations for the first quarter of 2023 was $4.2 million, or 3.8 percent of net sales, compared to $13.2 million, or 7.9 percent of net sales, for the year-ago period. Adjusted operating income for the first quarter was $4.9 million, or 4.5 percent of net sales, compared to adjusted operating income of $14.2 million, or 8.5 percent of net sales, in Q1 last year.
Interest expense for the first quarter of 2023 was $6.1 million compared with $3.9 million a year ago. The increase reflected increased interest rates on interest payments on the senior term loan and credit facility.
The company reported a first-quarter net loss of $0.4 million, or a loss of 5 cents per diluted share, compared to net income of $7.3 million, or 99 cents per diluted share, in the first quarter of 2022. Adjusted net loss for the first quarter of 2023 was $0.8 million, or a loss of 12 cents per diluted share, compared to adjusted net income of $8.2 million, or $1.10 per diluted share, in the year-ago period.
Brooks continued, “In response to more challenging market conditions, we are taking actions to reduce expenses and protect profitability. We also generated over $2 million in annualized interest expense savings by utilizing the proceeds from our sale of the Servus brand in March to pay down more than $17 million on our senior term loan and credit facility. While the year has started slower than expected, we are confident that the strength of our brand portfolio has the company positioned to accelerate growth once the operating environment improves.”
Recent Developments
In April 2022, Rocky Brands received a three-year contract to produce “Hot Weather” combat boots for the U.S. Military with a total value of $45.0 million. The company expects to begin fulfilling orders in the fourth quarter of 2023.
Balance Sheet Review
Cash and cash equivalents were $4.9 million at March 31, 2023 compared to $15.0 million on the same date a year ago.
Total debt at March 31, 2023 was $219.8 million consisting of $95.8 million senior term loan and $126.6 million of borrowings under the Company’s senior secured asset-backed credit facility. During the first quarter of 2023, the company paid down $20.5 million of its senior term loan. Compared with March 31, 2022 and December 31, 2022, total debt at March 31, 2023 was down 17.9 percent and 14.4 percent, respectively.
Inventories at March 31, 2023 were $224.1 million, down 22.5 percent compared to $289.2 million on the same date a year ago and down 4.8 percent compared with $235.4 million at December 31, 2022.
Photo courtesy Rocky Brands
