Rocky Shoes & Boots, Inc. reported that net income frp the 2003 fourth quarter increased 34.1% to a record $2.1 million, or $0.44 per diluted share, compared to $1.6 million, or $0.34 per diluted share, the prior year. The weighted average number of diluted shares outstanding for the fourth quarter 2003 was 4.9% above the fourth quarter 2002 due to the increase in the company's share price and the exercise of stock options in the fourth quarter 2003.
Net income more than doubled to $6.0 million for the year ended December 31, 2003 from $2.8 million a year ago. Net income per diluted share rose 113% to $1.32 for the year 2003 from $0.62 last year.
Mike Brooks, Chairman and Chief Executive Officer, stated, “The strategic decisions we made two years ago to leverage our brand into apparel and additional footwear categories contributed to the record financial results for 2003. Last April we completed our first acquisition, the GATES(R) brand, which also contributed to our improved performance and offers solid growth opportunities. We will continue to implement our growth strategy of leveraging our brands in clothing and footwear in 2004.”
Fourth Quarter Results
Net sales increased 14.2% to a record $29.2 million for the three months ended December 31, 2003 from $25.6 million last year. The fourth quarter 2003 results benefited from a 13.5% increase in branded sales, led by growth in the ROCKY(R) Work and Outdoor categories and GATES(R) products. Additionally, $0.4 million of boots were manufactured for shipment to the U.S. military in the fourth quarter 2003 versus $0.1 million for the same period in 2002. These shipments are part of a $6.1 million non-cancelable contract awarded to the Company in September 2003. The remaining $5.7 million of boots to be manufactured under this contract are expected to be shipped by the end of April 2004.
Gross profit rose to $9.5 million, a record 32.5% of net sales for the fourth quarter 2003, from $7.3 million, or 28.6% of net sales, for the same period last year. The 390 basis point increase in fourth quarter 2003's gross profit margin was attributable to sales mix and sourced product sales, which rose to 68% from 56% a year ago. Historically, sourced products result in higher gross margin than the Company's manufactured products.
Selling, general and administrative (“SG&A”) expenses were $6.5 million, or 22.1% of net sales, for the quarter ended December 31, 2003 compared to $5.1 million, or 20.1% of net sales, a year ago. The growth in net sales resulted in higher commissions paid and additional distribution costs during the fourth quarter 2003 versus a year ago.
Income from operations improved 40% to $3.0 million or 10.4% of net sales for the fourth quarter 2003 from $2.2 million or 8.5% of net sales the prior year.
Year 2003 Results
Net sales, net income and net income per diluted share achieved record levels for the year ended December 31, 2003.
Net sales rose 19.3% to $106.2 million for the year ended December 31, 2003 from $89.0 million the prior year. This was due to a 28% increase in branded product sales, primarily attributable to the Work, Outdoor and ROCKY Gear(R) categories as well as GATES(R) products. Shipments of boots to the U.S. military for the year ended December 31, 2003 were $6.1 million below the prior year. These sales fluctuate in response to specific contracts to produce boots for the U.S. military.
Gross margin improved to $32.8 million, or 30.9% of net sales, for the year ended December 31, 2003 from $23.4 million, or 26.3% of net sales, last year. This increase was attributable to sales mix and sourced product sales, which rose to 66% of net sales for the year ended December 31, 2003 compared to 49% a year ago and $6.1 million less in sales of military footwear in 2003.
SG&A expenses were $23.3 million, or 21.9% of net sales, for the year ended December 31, 2003 versus $18.7 million, or 21.4% of net sales, the prior year. The increase in SG&A expenses for the year ended December 31, 2003 is due to higher commissions paid, additional distribution costs, and higher incentive compensation. All of these factors are attributable to the increase in net sales, and profitability, compared to the prior year.
Income from operations doubled to $9.5 million or 9.0% of net sales for the year ended December 31, 2003 from $4.8 million or 5.4% of net sales in 2002.
The Company's funded debt at December 31, 2003 was $18.0 million versus $11.0 million on the same date a year ago. The year-over-year increase in funded debt was principally due to borrowings for the purchase of certain assets of Gates-Mills, Inc., the repurchase of 483,500 of the Company's common shares during 2003, and a higher level of inventory to support sales growth.
Inventory was $38.1 million at December 31, 2003 compared with $23.2 million on the same date last year. The increase in inventory is primarily to support sales of branded products, including line extensions of footwear and apparel during the past twelve months as well as additional inventory to support sales of GATES(R) branded products.
Net sales for the year ended December 31, 2004 are anticipated to be approximately $122 million, which is 15% above the year 2003. This growth is expected to be primarily achieved through increased sales of branded footwear, clothing and accessories, and, to a lesser extent, $5.7 million of sales related to the manufacture of boots for the U.S. military.
If the Company achieves net sales of at least $122 million for the year ended December 31, 2004, then net income is anticipated to be approximately $1.54 per diluted share for the year ended December 31, 2004 compared to $1.32 for the year ended December 31, 2003. The Company cautions investors that the net sales and earnings outlook for the year ended December 31, 2004 is based on current market conditions and management's expectations. If net sales do not reach $122 million, then actual earnings may be less than this guidance.
Rocky Shoes & Boots, Inc. and Subsidiaries Condensed Consolidated Income Statements Three Months Ended Year Ended December 31, December 31, 2003 2002 2003 2002 (Unaudited) (Unaudited) NET SALES $29,196,840 $25,561,519 $106,164,753 $88,958,721 COST OF GOODS SOLD 19,701,519 18,261,655 73,383,128 65,528,213 GROSS MARGIN 9,495,321 7,299,864 32,781,625 23,430,508 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,454,566 5,126,146 23,278,449 18,661,730 INCOME FROM OPERATIONS 3,040,755 2,173,718 9,503,176 4,768,778 OTHER INCOME AND (EXPENSES): Interest expense (431,272) (366,062) (1,378,131) (1,404,496) Other -- net 187,089 162,821 348,448 432,018 Total other -- net (244,183) (203,241) (1,029,683) (972,478) INCOME BEFORE INCOME TAX 2,796,572 1,970,477 8,473,493 3,796,300 INCOME TAX 698,174 405,253 2,434,250 953,000 NET INCOME $2,098,398 $1,565,224 $6,039,243 $2,843,300 NET INCOME PER SHARE Basic $0.50 $0.35 $1.44 $0.63 Diluted $0.44 $0.34 $1.32 $0.62