Rocky Brands Inc. reported third-quarter net sales increased 4.6 percent to $73.2 million compared to $70 million in the third quarter of 2015. The company reported third-quarter net income of $0.4 million, or 6 cents per diluted share, compared to net income of $1.8 million, or 24 cents per diluted share, in the third quarter of 2015. The third quarter of 2016 included a one-time pre-tax charge of $1.2 million, or 10 cents per diluted share after tax, associated with previously announced reorganizational activities.

Mike Brooks, chairman and interim CEO, commented, “We started to see some stabilization in our wholesale business during the third quarter following a difficult 12-month period for the work, western and hunting boot categories. That said, the retail environment for our core product lines continues to face headwinds including weak store traffic and increased promotional activity. In response to the challenging top-line trends and in an effort to boost profitability, we’ve adjusted our operating structure. These actions led to a reduction in our U.S. work force, which will translate into approximately $3.6 million of annualized expense savings. On top of this, the temporary pressure on gross margins from additional investments needed to support the ramp-up in military footwear production in our Puerto Rico facility should begin to abate before year end. This will allow us to deliver the new U.S. military contract we announced last week in a profitable manner. While we are disappointed in our recent performance, we remain confident that our ongoing efforts to reduce our dependence on optimal weather, along with the recent rightsizing of our organization and improved manufacturing efficiencies, should contribute to more profitable growth and greater shareholder value.”

Third Quarter Review
Net sales for the third quarter were $73.2 million compared to $70 million a year ago. Wholesale sales for the third quarter decreased 3.2 percent to $52.9 million compared to $54.7 million for the same period in 2015. Retail sales for the third quarter were $10.3 million compared to $10.3 million for the same period last year. Military segment sales for the third quarter increased to $10.1 million compared to $5.1 million in the third quarter of 2015.

Gross margin in the third quarter of 2016 was $19.8 million, or 27 percent of sales, compared to $22.1 million, or 31.6 percent of sales, for the same period last year. The 460-basis-point decrease was primarily driven by increased costs related to the ramp-up in production capabilities to meet the increased military footwear demand. Also, military segment sales carry lower initial gross margins than wholesale and retail segments, therefore the increase in military segment sales in the quarter reduced the overall blended margin.

Selling, general and administrative (SG&A) expenses were $17.7 million, or 24.2 percent of net sales, for the third quarter of 2016 compared to $19.2 million, or 27.5 percent of net sales, a year ago. The $1.5 million decrease in SG&A expenses was primarily related to a reduction in advertising expenses, lower salaries and lower variable expenses associated with the decrease in wholesale sales.

Income from operations was $0.9 million, or 1.2 percent of net sales, compared to $2.9 million, or 4.1 percent of net sales, a year ago. Excluding the aforementioned reorganizational charge, income from operations was $2 million, or 2.8 percent of net sales, for third quarter 2016.

The company’s funded debt decreased $14.1 million, or 31.2 percent, to $30.9 million at September 30, 2016 compared to $45 million at September 30, 2015.

Inventories decreased $8.1 million, or 9.2 percent, to $79.9 million at September 30, 2016 compared with $88 million on the same date a year ago.

Accounts receivable decreased $11.1 million, or 17.8 percent, to $51.3 million at September 30, 2016 compared with $62.4 million at September 30, 2015. This was achieved during a period when sales increased 4.6 percent.

The company’s brands include Rocky, Georgia Boot, Durango, Lehigh, Creative Recreation and the licensed brand Michelin.