Rocky Brands, Inc. reported a profit against a loss in the third quarter that ended September 30 as sales grew 17.5 percent and expenses were sharply reduced year-over-year.

Third Quarter 2022 Overview

  • Net sales increased 17.5 percent to $147.5 million and 14.7 percent to $143.9 million on an adjusted basis;
  • Wholesale segment sales increased 25.8 percent. Retail segment sales increased 7.3 percent;
  • Income from operations increased $8.9 million, or 322.3 percent to $11.6 million, and increased $4.8 million, or 73.6 percent, to $11.3 million on an adjusted basis;
  • Net income improved to $5.7 million, or $0.77 per diluted share; and
  • Adjusted net income increased 116.7 percent to $5.5 million, or $0.74 per diluted share.

“The third quarter was highlighted by strong sales growth compared to the year-ago period even as the macroeconomic headwinds pressuring consumer discretionary spending intensified,” said Jason Brooks, chairman, president and chief executive officer. “Our top-line performance underscores the strength of our brand portfolio, the desirability of our innovative, functional footwear, and the important relationships we’ve established with our consumers and retail partners. These important aspects of our business, combined with actions we’ve already taken to address cost pressures and reduce expenses, have the company in a good position to weather this challenging operating environment. While projecting near-term demand trends is currently more difficult than usual, we are confident that our growth strategies will continue to drive sustained market share gains and increase shareholder value.”

Third Quarter 2022 Review
Third-quarter net sales increased 17.5 percent to $147.5 million compared with $125.5 million in the third quarter of 2021. Adjusted net sales, which exclude the sale of inventory related to the divesture of the NEOS brand during the third quarter of 2022, increased 14.7 percent to $143.9 million. Wholesale sales for the third quarter increased 25.8 percent to $120.7 million compared to $96.0 million for the same period in 2021. Retail sales for the third quarter increased 7.3 percent to $23.4 million compared to $21.8 million for the same period last year. Contract Manufacturing sales, which include contract military sales and private label programs, were $3.3 million in the third quarter of 2022 compared to $7.7 million in the prior year. The decrease in Contract Manufacturing sales was due to the expiration of certain contracts with the U.S. Military.

Gross margin in the third quarter of 2022 was $51.9 million, or 35.2 percent of net sales, compared to $47.0 million, or 37.4 percent of net sales, for the same period last year. Excluding the cost of goods sold related to the NEOS brand inventory sold during the quarter, the adjusted gross margin for the third quarter 2022 was $50.8 million, or 35.3 percent of adjusted net sales. Adjusted gross margin for the third quarter 2021, which excluded a $0.9 million inventory purchase accounting adjustment, was $47.8 million, or 38.1 percent of net sales. The decrease in gross margin as a percentage of adjusted net sales 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 $40.3 million, or 27.3 percent of net sales, for the third quarter of 2022 compared to $44.2 million, or 35.2 percent of net sales, for the same period a year ago. Excluding $0.9 million of acquisition-related amortization and disposition of assets in the third quarter of 2022 and $2.9 million in acquisition-related amortization and integration expenses in the third quarter of 2021, adjusted operating expenses were $39.5 million in the current year period and $41.3 million in the year-ago period. The decrease in operating expenses was driven primarily by a decrease in discretionary spending and improved distribution center efficiencies compared with the year-ago period. As a percentage of adjusted net sales, adjusted operating expense improved 549-basis points to 27.4 percent in the third quarter 2022 compared with 32.9 percent in the year-ago period.

Income from operations for the third quarter of 2022 was $11.6 million, or 7.9 percent of net sales compared to $2.8 million, or 2.2 percent of net sales, for the same period a year ago. Adjusted operating income for the third quarter of 2022 was $11.3 million, or 7.9 percent of net sales compared to adjusted operating income of $6.5 million, or 5.2 percent of net sales a year ago.

Interest expense for the third quarter of 2022 was $4.2 million compared with $3.2 million a year ago.

The company reported third-quarter net income of $5.7 million, or $0.77 per diluted share compared to a net loss of ($0.4) million, or $(0.05) per diluted share in the third quarter of 2021. Adjusted net income for the third quarter of 2022 was $5.5 million, or $0.74 per diluted share, compared to adjusted net income of $2.5 million, or $0.34 per diluted share in the year-ago period.

Balance Sheet Review
Cash and cash equivalents were $7.3 million at September 30, 2022 compared to $12.9 million on the same date a year ago.

Total debt at September 30, 2022 was $284.8 million which includes $122.1 million of senior term loan and $165.6 million of borrowings under the company’s senior secured asset-backed credit facility.

Inventories at September 30, 2022 were $265.1 million compared to $202.2 million on the same date a year ago and $287.8 million at June 30, 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 June 30, 2022, inventories are down $22.7 million and the company plans to further realign inventory levels with sales growth and inventory purchasing strategies over the coming quarters.

Photo courtesy Rocky Brands