Rocky Brands, Inc. said net sales increased 12.0% for the first quarter ended March 31, 2010 to $56.1 million versus net sales of $50.1 million in the first quarter of 2009.


The company reported a net loss of $600,000, or 10 cents per diluted share versus a net loss of $1.1 million, or 20 cents per diluted share a year ago.


Our first quarter results were above internal and external projections driven by higher sales in our wholesale and military segments combined with improved operating expense leverage,” said Mike Brooks, Chairman and Chief Executive Officer. “Our performance was also highlighted by a significant reduction in our debt levels, which, at the end of the first quarter, were down 46%, or $39.5 million versus the same date a year ago. With regard to our bottom line, the seasonality of our business makes it difficult to realize positive earnings during the first quarter which is typically our lowest volume sales quarter. However, we are confident that the steps we have taken to right size both our wholesale and retail platforms, combined with our initiatives aimed at expanding revenues will result in improved profitability year-over-year during the remainder of this year.


First Quarter Review


Net sales for the first quarter increased 12.0% to $56.1 million compared to $50.1 million a year ago. Wholesale sales for the first quarter increased 5.2% to $37.9 million compared to $36.0 million for the same period in 2009. The increase in wholesale sales was primarily driven by increases in our work and categories. Retail sales for the first quarter were $12.9 million compared to $13.7 million for the same period last year.


The company said the decline in retail sales was the result of the ongoing transition to more Internet driven transactions and the decision to remove a portion of our Lehigh mobile stores from operations to help lower costs as discussed below.

 

Military segment sales for the first quarter increased to $5.2 million versus $300,000 for the same period in 2009.

Gross margin in the first quarter of 2010 was $18.8 million, or 33.4% of sales compared to $20.1 million, or 40.1% for the same period last year.


The company said the decrease in gross margin as a percentage of sales was primarily attributable to lower wholesale gross margins due to increased manufacturing costs versus a year ago, and an increase in sales in our military segment which carry lower gross margins than our retail and wholesale segments. We currently project gross margins to increase sequentially over the next three quarters as costs per pair in our factories decrease as a result of increased production schedules.

Selling, general and administrative (SG&A) expenses decreased $1.9 million or 9.6% to $18.0 million, or 32.1% of sales for the first quarter of 2010 compared to $19.9 million, or 39.8% of sales a year ago. The decrease in SG&A expenses was primarily the result of a reduction in salaries & benefits, bad debt expense and Lehigh store expenses.


Income from operations was $700,000, or 1.3% of net sales for the period compared to $100,000, or 0.3% of net sales, in the prior year.


Interest expense decreased 7.3% to $1.6 million for the first quarter of 2010 versus $1.8 million for the same period last year. The decrease is primarily the result of a reduction in average borrowings.


The companys funded debt decreased $39.5 million, or 45.8% to $46.7 million at March 31, 2010 versus $86.2 million at March 31, 2009.


Inventory decreased $25.3 million, or 32.3%, to $53.1 million at March 31, 2010 compared with $78.4 million on the same date a year ago.


The companys accounts receivable decreased $7.5 million, or 15.8% to $40.0 million at March 31, 2010 versus $47.5 million at March 31, 2009.