Rocky Brands, Inc. reported earnings were down in the second quarter ended June 30 due to lower gross margins tied to supply-chain challenges. Sales grew 23 percent.

Second Quarter 2022 Overview

  • Net sales increased 23.1 percent to $162.0 million;
  • Wholesale segment sales increased 29.7 percent;
  • Retail segment sales increased 16.4 percent;
  • Operating income was $5.6 million, or $7.7 million on an adjusted basis;
  • Net income was $0.9 million, or $0.12 per diluted share; and
  • Adjusted net income was $2.5 million, or $0.34 per diluted share.

“We continued to experience solid demand for our portfolio of leading brands during the second quarter,” said Jason Brooks, Chairman, President and CEO. “Our focus on developing innovative, functional footwear at accessible price points is driving share gains across multiple markets led by work, western and outdoor. While we didn’t experience any noticeable sales slowdown due to growing inflation and general economic uncertainty during the first half of 2022, our results were negatively impacted by higher-than-expected costs throughout our supply chain. We took actions early in the year to address certain cost pressures, and recently enacted price increases to help offset additional margin headwinds that emerged over the past couple of months. We are confident these steps will yield improvements in the coming quarters, which along with our previously announced expense synergy savings, positions the company to deliver sustained, profitable growth over the long-term.”

Second Quarter Review
Second quarter net sales increased 23.1 percent to $162.0 million compared with $131.6 million in the second quarter of 2021. Wholesale sales for the second quarter increased 29.7 percent to $131.2 million compared to $101.1 million for the same period in 2021. Retail sales for the second quarter increased 16.4 percent to $26.0 million compared to $22.3 million for the same period last year. Contract Manufacturing segment sales, which include contract military sales and private label programs, were $4.9 million in the second quarter of 2022 compared to $8.1 million in the prior year. The decrease in Contract Manufacturing sales was due to expiring contracts with U.S. Military.

Gross margin in the second quarter of 2022 was $53.8 million, or 33.2 percent of net sales, compared to $49.2 million, or 37.4 percent of net sales, for the same period last year. Adjusted gross margin in the second quarter of 2021, which excluded a $2.3 million inventory purchase accounting adjustment, was $51.4 million, or 39.1 percent of net sales. The decrease in gross margin was mainly attributable to increases in product costs, inbound freight costs and other shipping and logistics costs compared with the year-ago period.

Operating expenses were $48.2 million for the second quarter of 2022 compared to $40.7 million for the same period a year ago. Excluding $2.1 million of acquisition-related amortization, integration expenses and restructuring costs in the second quarter of 2022 and $2.3 million of acquisition-related expenses in the second quarter of 2021, adjusted operating expenses were $46.0 million in the current year period and $38.5 million in the year-ago period. The increase in operating expenses was driven primarily by higher outbound freight expenses and higher variable expenses associated with the increase in sales. As a percentage of net sales, adjusted operating expense improved 80 basis points to 28.4 percent in the second quarter of 2022 compared with 29.2 percent in the year-ago period.

Income from operations for the second quarter of 2022 was $5.6 million, or 3.5 percent of net sales compared to $8.4 million, or 6.4 percent of net sales, for the same period a year ago. Adjusted operating income for the second quarter of 2022 was $7.7 million, or 4.8 percent of net sales compared to adjusted operating income of $13.0 million, or 9.9 percent of net sales a year ago.

Interest expense for the second quarter of 2022 was $4.3 million compared with $3.4 million a year ago.

The company reported a second-quarter 2022 net income of $0.9 million, or $0.12 per diluted share compared to a net income of $3.9 million, or $0.52 per diluted share in the second quarter of 2021. Adjusted net income for the second quarter of 2022, was $2.5 million, or $0.34 per diluted share compared to adjusted net income of $7.4 million, or $0.99 per diluted share in the second quarter of 2021.

Balance Sheet Review
Cash and cash equivalents were $5.8 million at June 30, 2022 compared to $8.4 million on the same date a year ago.

Total debt at June 30, 2022 was $284.6 million which includes $125.9 million of senior term loans and borrowings under the company’s senior secured asset-backed credit facility.

Inventories at June 30, 2022 were $287.8 million compared to $143.5 million on the same date a year ago and $289.2 million at March 31, 2022. The year-over-year change in inventories was driven by the distribution and fulfillment challenges experienced in the second half of 2021 and overall cost increases and strong sales growth, combined with additional inventory on hand as the result of increased transit times. Compared with March 31, 2022, inventories are down slightly including a $45 million reduction in in-transit inventory, and the company plans to further realign inventory levels with sales growth and inventory purchasing strategies over the coming quarters.

Photo courtesy Rocky Brands