Helped by vibrant sales at its higher-margin retail segment and steps to improve efficiencies at company-operated manufacturing facilities, Rocky Brands Inc. reported earnings on an adjusted basis rose 28.6 percent in the fourth quarter ended December 31.

Net income came to $3.6 million, or 48 cents per share, in the period compared to adjusted earnings of $2.8 million, or 37 cents, a year ago. ESP topped Wall Street’s consensus estimate of 44 cents.

Year-ago net earnings were $4.4 million, or 59 cents, after one-time benefits due to tax reform as well as charges related to the repatriation of earnings from its Dominican Republic operations and a loss on the sale of the Creative Recreation brand.

Sales in the latest quarter inched up 0.3 percent to $67.2 million. Solid gains in its retail and wholesale segments offset expected declines in contract military sales.

Wholesale sales increased 3.4 percent to $45.9 million, in line with previously stated long-term targets for the segment. Retail sales increased 14.6 percent to $16.5 million and military sales were $4.8 million versus $8.2 million for the same period in 2017.

Gross margins improved 100 basis points to 35.9 percent. The increase was driven by higher military margins due to improved efficiencies in its Puerto Rican manufacturing facility and a lower percentage of military sales, which carry lower gross margins than wholesale and retail.

SG&A expenses was down slightly to $19.3 million from $19.6 million last year. Excluding approximately $300,000 of transaction expenses related to the sale of Creative Recreation in Q417, SG&A was flat year-over-year.

Operating income improved 32.4 percent to $4.9 million. Excluding the Creative Recreation charge, operating income increased 21 percent and operating margin expanded 120 basis points.

For the year, adjusted net income surged 62.7 percent to $14.0 million, or $1.88. Reported earnings came to $14.6 million, or $1.95, up from $9.6 million, or $1.29, the prior year. Revenues eased 0.2 percent to $252.7 million.

On a conference call with analysts, Jason Brooks, president and CEO, said the company basically executed on plans outlined at the beginning of last year that built on progress made over the prior year after he first returned to lead the company. The initiatives included exciting consumers with great products, increasing brand awareness and stimulate demand through improved marketing with an emphasis on digital, providing strong retail support and expand distribution with key brick-and-mortars and e-tail partners, accelerating expansions of the Lehigh CustomFit program, and utilizing internal production capabilities on growing number of commercial military opportunities and improve factory efficiencies.

Brooks said, “I’m very pleased that, as an organization, we have successfully executed on each of these fronts and consistently delivered improved results. While there will always be some movement in how sales flow by quarter from one year to the next due to the nature of some of our businesses, on an annual basis, I’m confident we can build on our recent momentum by staying the course we’ve outlined.”

Among segments for the year, wholesale revenues increased 4 percent or 7 percent excluding Creative Recreation.

Georgia Boot was up mid-single digits in 2018, fueled by new product introductions, investments in POS materials and select door and shelf space expansion at existing accounts. Standout products for Georgia Boot included the Carbo-Tec Work Western collection and the new Logger collection of boots for the Farm & Ranch channel. Consumers also responded favorably to the new styles within the brand’s popular Athens Work line.

“We supported the introductions of these innovative new features with enhanced in-store point-of-purchase materials as well as social media programs aimed at driving traffic to our participating retail partners and georgiaboot.com,” said Brooks. “We were very pleased with the effectiveness of these campaigns.”

Durango’s sales for the year were also up mid-single digits. The Rebel series for both men and women and new styles, such as the Maverick Western Work series, sold well at mid specialty retailers such as Rural King, Work Ware Safety Shoes and Tyson Supply. Stronger growth was seen at smaller field accounts. A recent release of a Rebel Pro collection at the National Finals Rodeo in December saw a “very encouraging” response, “leading to incremental shelf space and good momentum at retail to start the new year,” said Brooks.

The Rocky brand had “an exceptional 2018” with sales up mid-teens. The brand benefited from the reconfiguration of the brand sales force during the first half of the year that improved service levels and cross-sell opportunities across categories. Some key product introductions, such as the Sport Pro Rubber hunting boot with stretched neoprene and the XO-Toe, fueled “a very strong second half for the brand,” said Brooks.

The top performing wholesale business was the commercial military business. The popular S2V boot was able to capitalize on a recent surge in demand for tactical equipment.

In its retail segment, sales for the year grew 10 percent, fueled by strong gains in both its Lehigh CustomFit and B2B business and its direct-to-consumer channel.

Lehigh saw key account growth, improved participation and retention rates at existing accounts. Investments in personal and marketing, including social media, helped reach new customers. Upgrades to the CustomFit interface and the addition of new brands to Lehigh’s offering helped improve user engagement and sell-through.

The company’s branded e-commerce websites benefited from recent investments to increase traffic and conversion and enhance the consumer experience.

Finally, military segment sales for the year were down about 30 percent, as expected, to $26 million. Gross profit dollars for the segment were up slightly as gross margins improved 700 basis points. Excess capacity was used to expand its commercial military production.

Inventory at December 31 increased 11.0 percent. Cash and cash equivalents increased to $10.2 million at year end from $3.7 million on the same date a year ago. The company had no long-term debt at year end.

For 2019, Rocky Brands expects revenues to increase in the low single-digit range over 2018 levels, led by its retail division, followed by wholesale. Following the industry headwinds faced this past year, the military segment has stabilized and sales in the segment are expected to be flat on a year-over-year basis.

Thomas Robertson, EVP and CFO, said that that Rocky Brands plans to reinvest a portion of its cash position in the business, primarily in additional marketing to support its brands.

In the Q&A session, Brooks said all its key wholesale brands, citing Rocky, Georgia and Durango, areexpected to show sales increases in the low-single digit range.

Said Brooks, “It seems to come at different times in different places. So our outdoor business, as you saw, in the fall was very strong, and some of the other brands may be not as strong. But we’re seeing some things happening in Q1 that are offsetting — outdoor maybe not as strong, but Georgia is stronger. So I think we’re really comfortable again. We’re in some pretty basic businesses, and I just don’t see a huge increase coming in the high single to low double digits. I think it’s going to be in that mid area.”

Image courtesy Georgia Boot