Rocky Brands, Inc. saw net sales for the third quarter ended Sept. 30, 2008 of $72.5 million versus net sales of $82.3 million in the third quarter of 2007. The company reported net income of $2.4 million, or 43 cents per diluted share versus net income of $1.1 million or 21 cents per diluted share a year ago.

Third Quarter Results

Net sales for the third quarter were $72.5 million compared to $82.3 million a year ago. Wholesale sales for the third quarter were $55.6 million compared to $64.1 million for the same period in 2007. The company said decline in wholesale sales is primarily attributable to supply chain disruptions combined with the difficult economic conditions.

Retail sales for the third quarter were $15.3 million compared to $18.2 million for the same period in 2007. According to the company, retail sales were negatively impacted by customer decisions to close plants, reduce headcount, and defer safety shoe purchases as the result of the challenging economy. Military segment sales for the third quarter were $1.6 million versus no comparable sales in the same period in 2007.

Gross margin in the third quarter was $27.1 million, or 37.4% of sales, compared to $29.3 million or 35.6% of sales, for the same period last year.

Wholesale gross margin for the third quarter was $19.7 million, or 35.4% of net sales, compared to $20.0 million, or 31.3% of net sales, in the same period last year.
 
The 410 basis point increase reflects an increase in sales price per unit, as well as a decrease in manufacturing costs resulting from increased operating efficiencies. Retail gross margin for the third quarter was $7.3 million, or 47.5% of net sales, compared to $9.2 million, or 50.8% of net sales, for the same period in 2007. Military gross margin for the third quarter was $0.1 million, or 8.2% of net sales.
 
Mike Brooks, chairman and CEO, said “Our ability to successfully execute our strategy is reflected in the 410 basis point increase in wholesale gross margins and the $3.1 million or 12.5% reduction in our operating expenses compared with a year ago. We move ahead optimistic about our opportunity to drive improved profitability on a year-over-year basis during the fourth quarter.”

Selling, general and administrative (SG&A) expenses decreased 12.5% or $3.1 million to $22.0 million, or 30.3% of sales, for the third quarter of 2008 compared to $25.1 million, or 30.5% of sales, a year ago. The decrease in SG&A expenses is primarily the result of reductions in compensation, distribution and advertising expenses.

Income from operations increased 200 basis points to $5.1 million or 7.1% of net sales compared to $4.2 million, or 5.1% of net sales, in the prior year.

Income tax expense for the third quarter included a $0.6 million benefit compared to a $0.3 million benefit in the same period last year.

Funded Debt and Interest Expense

The company’s funded debt decreased $15.2 million, or 12.4% to $107.6 million at Sept. 30, 2008 versus $122.8 million at Sept. 30, 2007. Interest expense decreased to $2.3 million for the third quarter of 2008 versus $2.9 million for the same period last year. The decrease in interest expense was due to reduced borrowings under the company’s line of credit as well as lower interest rates compared to the same period last year.

Inventory

Inventory decreased $1.8 million to $83.3 million at Sept. 30, 2008 compared with $85.1 million on the same date a year ago.

Condensed Consolidated Statements of Operations

(Unaudited)

   
Three Months Ended Nine Months Ended
September 30, September 30,

2008

  2007 2008   2007
NET SALES $ 72,500,603 $ 82,308,547 $ 193,492,740 $ 202,763,235
 
COST OF GOODS SOLD   45,414,533     53,030,023     116,060,912     123,477,571  
 
GROSS MARGIN 27,086,070 29,278,524 77,431,828 79,285,664
 
SELLING, GENERAL AND

 

ADMINISTRATIVE EXPENSES   21,961,032     25,108,505     65,897,978     70,222,025  
 
INCOME FROM OPERATIONS 5,125,038 4,170,019 11,533,850 9,063,639
 
OTHER INCOME AND (EXPENSES):

Interest expense

(2,285,051 ) (2,943,139 ) (7,101,237 ) (8,786,060 )

Other – net

  34,254     131,365     31,385     95,364  

Total other – net

(2,250,797 ) (2,811,774 ) (7,069,852 ) (8,690,696 )
 
INCOME/(LOSS) BEFORE INCOME TAXES 2,874,241 1,358,245 4,463,998 372,943
 
INCOME TAX EXPENSE/(BENEFIT)   500,000     209,000     1,056,000     (155,000 )
 
NET INCOME/(LOSS) $ 2,374,241   $ 1,149,245   $ 3,407,998   $ 527,943  
 
NET INCOME/(LOSS) PER SHARE

Basic

$ 0.43 $ 0.21 $ 0.62 $ 0.10

Diluted

$ 0.43 $ 0.21 $ 0.62
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