Rocky Brands Sees Lower Q4 Sales On Weaker Wholesale Business

Rocky Brands, Inc. reported that fourth quarter net sales decreased 18.0 percent to $138.9 million, compared with $169.5 million in the fourth quarter of 2021.

Wholesale segment sales for the fourth quarter decreased 26.6 percent to $98.9 million compared to $134.8 million for the comparable period in 2021. Retail segment sales for the fourth quarter increased 40.8 percent to $37.3 million compared to $26.5 million for the prior-year comp period. Contract Manufacturing segment sales, which include contract military sales and private label programs, decreased 66.6 percent to $2.7 million in Q4, compared to $8.1 million in the fourth quarter of 2021. The decrease in Contract Manufacturing sales was due to the expiration of certain contracts with the U.S. Military.

Gross margin in the fourth quarter of 2022 40.8 percent of net sales, compared to 37.3 percent of net sales, for the prior-year comp period. The 350 basis point increase in gross margin was attributable to a tariff refund with a net impact of approximately $2.4 million received in the fourth quarter 2022 and a higher mix of Retail segment sales which carry higher gross margins than the Wholesale and Contract Manufacturing segments.

Operating expenses were $43.1 million, or 31.0 percent of net sales, for the fourth quarter of 2022 compared to $45.1 million, or 26.6 percent of net sales, for the prior-year comp period. Excluding $1.7 million of acquisition-related amortization and restructuring costs in the fourth quarter of 2022 and $1.6 million in acquisition-related amortization and integration expenses in the fourth quarter of 2021, adjusted operating expenses were $41.4 million for the fourth quarter of 2022 and $43.5 million for the prior-year comp 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 net sales, adjusted operating expenses were 29.8 percent in the fourth quarter 2022 compared with 25.7 percent in the year-ago period.

Income from operations for Q4 2022 was $13.6 million, or 9.8 percent of net sales, compared to $18.2 million or 10.7 percent of net sales for the prior-year comp period. Adjusted operating income for the fourth quarter of 2022 was $15.3 million, or 11.0 percent of net sales, compared to adjusted operating income of $19.8 million, or 11.7 percent of net sales, for the prior-year comp period.

Interest expense for the fourth quarter of 2022 was $5.9 million compared with $3.2 million a year ago. The increase reflected increased interest rates on interest payments on the senior term loan and credit facility.

RCKY reported fourth quarter 2022 net income of $6.5 million, or 89 cents per diluted share, compared to net income of $12.6 million, or $1.69 per diluted share, in the fourth quarter of 2021. Adjusted net income for the fourth quarter of 2022, was $7.9 million, or $1.08 per diluted share, compared to adjusted net income of $13.8 million, or $1.86 per diluted share, in the fourth quarter of 2021.

“We completed a very solid year of growth with fourth-quarter results that exceeded expectations,” said Jason Brooks, chairman, president and CEO. “Strong gains in our direct channels helped partially offset anticipated challenges in our Wholesale segment due to a difficult comparison and an over-inventoried selling environment. The consistent consumer demand we experienced in 2022 across multiple footwear categories led by work, outdoor and western reflects the strength of our brand portfolio, the appeal of our products, and the loyalty we’ve built with our target audiences. In order to best capitalize on the market opportunities that we believe exist for our business, we have invested in expanding and upgrading our distribution and fulfillment capabilities, evolved and increased our marketing programs, and fortified our leadership team. While we are cautious about near-term trends given the heightened macroeconomic uncertainty, I am more confident than ever that we have the right foundation in place to drive profitable growth and enhanced shareholder value over the long term.”

Rocky’s full-year 2022 net sales increased 19.7 percent to $615.5 million, compared with $514.2 million in 2021. Full-year 2022 net sales include $3.6 million of inventory net sales related to the divestiture of the NEOS brand during the third quarter of 2022. Full-year 2021 net sales include $179.0 million, or just over nine months, in net sales from the Acquired Brands. The Acquired Brands is defined as The Original Muck Boot Company, Xtratuf, Servus, NEOS, and Ranger brands acquired from Honeywell International Inc. on March 15, 2021.

Wholesale segment sales for 2022 increased 24.0 percent to $484.8 million compared to $391.1 million in 2021. Retail segment sales for the year increased 21.9 percent to $115.4 million compared to $94.7 million for the prior-year comp period. Contract Manufacturing segment sales, which includes contract military sales and private label programs, decreased 46.2 percent to $15.3 million compared to $28.5 million in 2021.

Gross margin in 2022 was 36.6 percent of net sales, compared to 37.8 percent of net sales, for 2021. Adjusted gross margin for 2022, which excludes $1.1 million related to the divestiture of the NEOS brand, was 36.6 percent of adjusted net sales. Adjusted gross margin for 2021, which excluded approximately $3.5 million related to an inventory fair value adjustment, was $198.0 million, or 38.5 percent of net sales.

Operating expenses were $181.2 million, or 29.4 percent of net sales, for 2022 compared to $158.6 million, or 30.8 percent of net sales, for 2021. Excluding $5.7 million of acquisition-related amortization and integration costs, restructuring costs and disposition of assets in 2022 and $11.9 million in acquisition-related amortization and integration expenses in 2021, adjusted operating expenses were $175.5 million in the current year and $146.6 million in the prior year.

Income from operations for 2022 was $44.0 million, or 7.2 percent of net sales, compared to $36.0 million or 7.0 percent of net sales for 2021. Adjusted operating income for 2022 was $48.6 million, or 7.9 percent of adjusted net sales, compared to adjusted operating income of $51.4 million, or 10.0 percent of net sales, a year ago.

Interest expense for 2022 was $18.3 million compared with $10.6 million in 2021. The increase reflected an increase in interest rates on interest payments on the senior term loan and credit facility.

The effective tax rate for 2022 increased to 20.6 percent compared to 19.0 percent for the full year 2021.

RCKY reported 2022 net income of $20.5 million, or $2.78 per diluted share, compared to net income of $20.6 million, or $2.77 per diluted share, in 2021. Adjusted net income for 2022, was $24.1 million, or $3.27 per diluted share, compared to adjusted net income of $32.5 million, or $4.39 per diluted share, in 2021.

Cash and cash equivalents were $5.7 million at the year-end 2022 compared to $5.9 million at the year-end 2021.

Total debt at December 31 was $256.9 million, consisting of $116.3 million senior term loan and borrowings under the company’s senior secured asset-backed credit facility. Compared with December 31, 2021 and September 30, 2022, total debt at December 31, 2022 was down 4.9 percent and 9.8 percent, respectively.

Inventory at year-end 2022 was $235.4 million, compared to $232.5 million at the year-end 2021. Compared with June 30, 2022 and September 30, 2022, inventories at December 31, 2022 were down 18.2 percent and 11.2 percent, respectively.