Rocky Brands Q4 Sales Slipped on Lower Military, Licensing Sales

The decrease in sales was due to reduced sales under military contracts and the discontinuation of the Dickies license which expired Dec. 31, 2010. Fourth quarter included military segment sales of $0.4 million versus $1.8 million in the fourth quarter a year ago and no sales from the discontinued Dickies license versus $1.9 million in the prior year. These decreases were partially offset by increased sales from other product lines in our wholesale business.

Fourth quarter net income of $300,000, or 4 cents per diluted share, including a one-time, non-operational charge of $3.7 million, net of tax, associated with the termination of its defined benefit pension plan (as disclosed in our third quarter earnings release dated October 26, 2011). Excluding the charge, net income was $3.9 million, or 52 cents per diluted share versus net income of $3.0 million, or 41 cents per diluted share, for the fourth quarter of 2010.

For fiscal year 2011, net sales were $239.6 million versus net sales of $252.8 million in fiscal year 2010. Fiscal year 2011 included military segment sales of $2.2 million versus $17.0 million in fiscal year 2010 and sales from the discontinued Dickies license of $0.2 million versus $7.6 million in the prior year. These decreases were partially offset by increased sales from other product lines in our wholesale business.

“Our fourth quarter operating performance represents a solid finish to a productive year,” commented David Sharp, president and CEO. “The strategic initiatives aimed at growing our core wholesale business yielded positive results as the year progressed and provide us with good momentum to begin 2012. At the same time our retail division hit an important inflection point during the second half of the year. Sales via our internet/direct ship model surpassed our legacy mobile store platform which helped drive operating profits in both the third and fourth quarters. We are confident the wholesale and retail trends we experienced in 2011 will continue to benefit our future results. In addition, the new strategies we’ve implemented to extend our brands into new categories and new channels of distribution are gaining traction.”

Fourth Quarter Review
Net sales for the fourth quarter were $64.0 million compared to $66.7 million a year ago. Wholesale sales for the fourth quarter were $51.7 million compared to $52.5 million for the same period in 2010. Retail sales for the fourth quarter were $11.8 million compared to $12.4 million for the same period last year. Military segment sales for the fourth quarter were $0.4 million compared to $1.8 million in the same period in 2010.

Gross margin in the fourth quarter of 2011 was $22.5 million, or 35.1% of sales compared to $24.3 million, or 36.5% for the same period last year. The 140 basis point decrease was primarily driven by an inventory adjustment resulting from our annual physical inventory.

Selling, general and administrative (SG&A) expenses decreased 11.7% to $16.7 million or 26.2% of net sales, for the fourth quarter of 2011 compared to $19.0 million, or 28.4% of net sales a year ago. The $2.2 million decrease is primarily due to lower compensation expense, professional fees and operating costs of our retail business.

Income from operations, excluding the aforementioned charge associated with the termination of the defined benefit pension plan, was $5.7 million, or 8.9% of net sales, compared to $5.4 million, or 8.1% of net sales, in the prior year period.

Interest expense decreased to $0.2 million for the fourth quarter of 2011 versus $1.7 million for the same period last year, which included a non-cash charge of approximately $1.0 million associated with deferred financing costs relating to the extinguishment of a previous credit facility and term loans. The remaining decrease is attributable to lower interest rates versus the year ago period.

The company ’s funded debt was $35.0 million at December 31, 2011 versus $35.1 million at December 31, 2010.

Inventory increased 10.5% to $65.0 million at December 31, 2011 compared with $58.9 million on the same date a year ago. The increase in inventory was the result of an increase in cost per unit partially offset by a decrease in units of footwear.