Rocky Brands’ Q2 Earnings Climb on Healthier Margins

Second quarter 2011 net income improved to $2.3 million or 30 cents per share versus net income of $0.5 million, or 8 cents, in the year ago period. Excluding one-time charges of $0.6 million, net of tax, associated with the early repayment of a portion of the company’s senior term loan, second quarter 2010 net income was $1.1 million, 17 cents per diluted share. The earnings per share improvement was attained even with 933,000, or 14.2 percent more weighted average common shares outstanding as a result of the company’s follow-on common stock offering in May 2010.

Gross margin improved 480 basis points to 39.4 percent compared to 34.6 percent last year. Net sales were $52.3 million for the second quarter versus net sales of $55.2 million in the second quarter of 2010, due to reduced sales under military contracts.

David Sharp, president and chief executive officer, commented, “We are very pleased to report our eighth consecutive quarter of improved profitability on a year-over-year basis. The increase in our bottom line over the past 24 months has primarily been achieved through increased operating efficiencies, higher gross margins and more recently reduction in interest expense. As a result of our stronger balance sheet and the restructuring of our retail division behind us, we are positioned to drive future earnings gains through top-line growth in our wholesale and retail segments. We continue to be confident that our portfolio of brands has the potential to expand into other categories and new markets internationally and we are pursuing strategies to capitalize on these opportunities. We will also look to take further advantage of our internal manufacturing capabilities to improve in-stock positions on popular styles, increase our speed to market, and reduce costs.”

Second Quarter Review

Net sales for the second quarter were $52.3 million compared to $55.2 million a year ago. Wholesale sales for the second quarter increased 6.0 percent to $40.8 million compared to $38.5 million for the same period in 2010. Retail sales for the second quarter were $10.9 million compared to $11.0 million for the same period last year. Military segment sales for the second quarter decreased $5.1 million to $0.6 million compared to $5.7 million in the same period in 2010.

Gross margin in the second quarter of 2011 was $20.6 million, or 39.4 percent of sales compared to $19.1 million, or 34.6 percent for the same period last year. The 480 basis point improvement in gross margin as a percentage of sales was primarily attributable to the decrease in sales in our military segment which carry lower gross margins than our retail and wholesale segments coupled with higher average selling prices. In addition, we benefited from a 290 basis point increase in our wholesale segment and a 250 basis point increase in our retail segment driven by higher average selling prices and improved manufacturing efficiencies.

Selling, general and administrative (SG&A) expenses were $16.9 million or 32.2 percent of sales, for the second quarter of 2011 compared to $16.2 million, or 29.3 percent of sales a year ago. The increase was primarily attributable to an increase in planned advertising expenses.

Income from operations was $3.8 million, or 7.2 percent of net sales, compared to 2.9 million, or 5.3 percent of net sales, in the prior year period.

Interest expense decreased $1.8 million to $0.3 million for the second quarter of 2011 versus $2.1 million for the same period last year which included one-time fees of approximately $0.9 million, pre-tax, associated with the early repayment of a portion of the company’s senior term loan. Excluding the one-time fees from a year ago, 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 funded debt was $39.5 million at June 30, 2011 versus $36.9 million at June 30, 2010.

Inventory increased 20.4 percent to $74.4 million at June 30, 2011 compared with $61.8 million on the same date a year ago. The increase in inventory was primarily the result of an increase in cost per unit.

Rocky Brands sells footwear under the Rocky, Georgia Boot, Durango, Lehigh names as well as the licensed brands Michelin and Mossy Oak.

Rocky Brands, Inc. and Subsidiaries