Rocky Brands Inc. reported earnings of $4.4 million, or 59 cents per share, rebounding from a loss of $0.6 million, or 9 cents, a year ago. Sales were flat as declines in military sales offset gains in wholesale and retail sales.

Fourth Quarter 2017 Sales and Income

Fourth quarter net sales were $67.0 million versus net sales of $67.0 million in the fourth quarter of 2016. The company reported fourth quarter net income of $4.4 million, or $0.59 per diluted share, compared to a fourth quarter net loss of $0.6 million, or 9 cents per diluted share in the year ago period.

The fourth quarter of 2017 included an after-tax charge of $1.6 million associated with the loss on the sale of the Creative Recreation brand. Due to the recently enacted tax reform in the fourth quarter of 2017, the Tax Cuts and Jobs Act (TCJA), they recognized a one-time income tax benefit in the fourth quarter of 2017 of $3.2 million. The benefit is primarily a result of the new lower domestic federal tax rate applied to our current and deferred tax liability position, which was partially offset by a one-time toll charge related to the repatriation of earnings from our Dominican Republic operations. As a result of these one-time charges due to the TCJA, we recorded a $2.9 million benefit in the fourth quarter of 2017. Excluding the charges and impact of tax reform, fourth quarter 2017 adjusted net income was $2.8 million, or 37 cents per diluted share. The fourth quarter of 2016 included a non-cash impairment charge related to the Creative Recreation brand of $2.0 million, after-tax. Excluding this charge, fourth quarter 2016 net income was $1.3 million, or 18 cents per diluted share.

Fiscal Year 2017 Sales and Income

For fiscal year 2017, net sales were $253.2 million versus net sales of $260.3 million in fiscal year 2016. The company reported net income of $9.6 million, or $1.29 per diluted share, for fiscal year 2017, compared with a net loss of $2.1 million, or 29 cents per diluted share, for fiscal 2016.

Excluding $0.6 million after-tax of hurricane-related expenses the company recorded in the third quarter of 2017 and the aforementioned expenses and charges related to the sale of the Creative Recreation brand and the impact of tax reform, 2017 adjusted net income was $8.6 million, or $1.16 per diluted share. Excluding the $0.8 million after-tax reorganizational charge the company recorded in the third quarter 2016 and the aforementioned non-cash impairment charge related to the Creative Recreation brand, fiscal 2016 net income was $0.6 million, or $0.08 per diluted share.

Jason Brooks, president and chief executive officer, commented, “We concluded a productive 2017 with a very solid fourth quarter performance, which was highlighted by mid-single digit growth for both our wholesale and retail divisions. The product, marketing and distribution strategies we’ve recently implemented aimed at increasing full-price selling for our branded work, western and outdoor footwear businesses are contributing to better top and bottom line results. At the same time, we continue to successfully grow our direct sales operations through the expansion of our Lehigh Outfitters CustomFit program. This includes signing new accounts and driving higher volumes with existing accounts fueled by improved execution and an enhanced merchandise offering. With respect to our military segment, 2017 marked a record year in terms of revenue and margins despite the challenges that our employees and production facility and the entire island of Puerto Rico faced following the impact of Hurricane Maria.”

Brooks continued, “While we face some headwinds in 2018 from expiring contracts and changes in market dynamics for our military business and the sale of Creative Rec, we are cautiously optimistic about the prospects for growth in our wholesale and direct channels. The positive impact on gross margins from the continuation of improved full-price selling and the change in sales mix by segment compared with 2017, combined with the benefit from recent tax reform, has the company well-positioned to deliver increased profitability on lower overall revenue and continue generating value for shareholders.”

Fourth Quarter Review

Net sales for the fourth quarter were $67.0 million compared to $67.0 million a year ago. Wholesale sales for the fourth quarter increased 4.7 percent to $44.4 million compared to $42.4 million for the same period in 2016. Retail sales for the fourth quarter increased 4.9 percent to $14.4 million compared to $13.7 million for the same period last year. Military segment sales for the fourth quarter were $8.2 million compared to $10.9 million in the fourth quarter of 2016.

Gross margin in the fourth quarter of 2017 was $23.3 million, or 34.8 percent of sales, compared to $21.8 million, or 32.5 percent of sales, for the same period last year. The 230 basis point increase was driven by higher wholesale and military margins combined with a lower percentage of military sales, which carry lower gross margins than wholesale and retail.
Selling, general and administrative (SG&A) expenses were $19.6 million, including $0.3 million of transaction expenses related to the sale of the Creative Recreation brand, compared to $19.9 million a year ago. SG&A as a percent of sales decreased 50 basis points to 29.3 percent of net sales compared to 29.8 percent sales last year.

Income from operations was $3.7 million compared to an operating loss of $1.2 million in the year ago period. On an adjusted basis, operating income was $4.0 million, or 6.0 percent of net sales, compared to $1.8 million, or 2.8 percent of net sales a year ago.

Interest expense was $109,000, compared to $157,000 for the fourth quarter of 2016.

The company’s funded debt decreased 84.9 percent or $12.4 million to $2.2 million at December 31, 2017 versus $14.6 million at December 31, 2016.

Inventory decreased 5.1 percent, or $3.5 million, to $65.6 million at December 31, 2017 compared with $69.2 million on the same date a year ago.

Rocky Brands makes footwear and apparel under brand names including Rocky, Georgia Boot, Durango, Lehigh and the licensed brand Michelin.

Photo courtesy of Rocky Boots