Rocky Shoes & Boots' net income increased 41% to $4.9 million for the third quarter of 2004 compared to $3.5 million for the third quarter of 2003. Net income per diluted share increased 27% to $0.98 for the third quarter of 2004 from $0.77 a year ago.
Mike Brooks, Chairman and Chief Executive Officer, stated, “The record third quarter results underscore our improved operating leverage as well as our continued success increasing branded product sales through key line extensions and a growing customer base. Sales of occupational footwear achieved double-digit growth while ROCKY(R) apparel sales more than doubled compared to the third quarter of 2003. These sales are less susceptible to seasonal factors, especially weather, and now represent a substantial percentage of the Company's branded sales.”
Third Quarter 2004
Net sales rose 21% to a record $50.1 million for the three months ended September 30, 2004 from $41.4 million for the same period last year. This increase included $5.1 million of boots produced for delivery to the U.S. military, as well as solid increases in branded sales led by rugged outdoor and occupational footwear and ROCKY(R) apparel.
Gross profit increased 22% to $16.0 million for the third quarter of 2004 from $13.1 million a year ago. Gross profit margin rose to 32.0% of net sales for the third quarter from 31.6% of net sales a year ago. This 40 basis point improvement was due to higher gross profit margin for branded products, which more than offset lower gross profit margin on boots produced for delivery to the U.S. military.
Selling, general and administrative (“SG&A”) expenses were $8.3 million for third quarter of 2004 compared to $7.6 million the prior year. This represents a 180 basis point decline to 16.6% of net sales for the third quarter of 2004 from 18.4% of net sales in 2003. This was primarily due to nominal SG&A expenses related to sales of boots for delivery to the U.S. military.
Income from operations rose to a record 15.3% of net sales for the third quarter of 2004 from 13.2% a year ago.
Nine Month Results
Net sales for the nine months ended September 30, 2004 increased 29% to $99.4 million from $77.0 million for the same period last year. For the 2004 year-to-date period, net sales benefited from $12.8 million of boots produced for delivery to the U.S. military as well as solid increases in rugged outdoor and occupational footwear and ROCKY(R) branded apparel. Gross profit for the 2004 year-to-date period was 29.6% of net sales compared to 30.3% of net sales last year. SG&A expenses declined 270 basis points to 19.2% of net sales for the first nine months of 2004 from 21.9% of net sales last year. Income from operations rose 200 basis points to 10.4% of net sales for the nine months ended September 30, 2004 from 8.4% for the same period in 2003. Net income per diluted share increased 48% to $1.30 for the nine months ended September 30, 2004 from $0.88 a year ago.
The Company's funded debt declined 20% or $8.4 million to $32.9 million at September 30, 2004 from $41.3 million on the same date a year ago. Improved cash flow from operations enabled the Company to reduce its seasonal borrowing requirements, which are generally higher during the months of May through October annually to support the Company's sales during this period.
Inventory declined $3.5 million to $38.7 million at September 30, 2004 compared to $42.2 million on the same date last year. Management believes that inventory is adequate to support sales of ROCKY(R) and GATES(R) products, including recent line extensions of footwear, apparel and accessories. Inventory was $38.1 million at year-end 2003 and is expected to be below that amount at December 31, 2004.
The Company reaffirms its net sales and earnings per share guidance for the year 2004. Net sales are anticipated to be approximately $133 million for the year 2004, which is $27 million above net sales for the year 2003. The annual sales growth is due to higher sales of branded footwear and apparel, and shipment of boots for delivery to the U.S. military.
If the Company achieves net sales of at least $133 million for the year 2004, then net income is expected to be approximately $1.75 per diluted share for the year. 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 $133 million for the year 2004, or if expenses are more than currently anticipated for the fourth quarter, then actual earnings may be less than this guidance. The Company's earnings for 2004 are subject to all of the risks set out in the safe harbor statement in this release and are also subject to audit by the Company's independent public accountants, so there can be no assurance that actual earnings for 2004 will be as presently anticipated by the Company.
Rocky Shoes & Boots, Inc. and Subsidiaries Condensed Consolidated Income Statements (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 NET SALES $50,052,894 $41,349,824 $99,368,970 $76,967,913 COST OF GOODS SOLD 34,056,404 28,264,032 69,977,667 53,681,609 GROSS MARGIN 15,996,490 13,085,792 29,391,303 23,286,304 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 8,323,464 7,628,958 19,047,531 16,823,883 INCOME FROM OPERATIONS 7,673,026 5,456,834 10,343,772 6,462,421 OTHER INCOME AND (EXPENSES): Interest expense (422,120) (437,241) (955,561) (946,859) Other - net (54,404) (18,744) 43,984 161,359 Total other - net (476,524) (455,985) (911,577) (785,500) INCOME BEFORE INCOME TAX 7,196,502 5,000,849 9,432,195 5,676,921 INCOME TAX 2,309,143 1,533,254 3,024,563 1,736,076 NET INCOME $4,887,359 $3,467,595 $6,407,632 $3,940,845 NET INCOME PER SHARE Basic $1.06 $0.84 $1.41 $0.94 Diluted $0.98 $0.77 $1.30 $0.88 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING Basic 4,605,800 4,109,147 4,530,867 4,178,942 Diluted 4,992,319 4,512,886 4,943,929 4,459,783