Rocky Shoes & Boots, Inc. net sales for the first quarter were $57.5 million, down from $61.5 million for the corresponding period a year ago. Net income was $0.9 million versus net income of $1.1 million and diluted earnings per share was 16 cents versus 20 cents last year. Net income for the first quarter of fiscal 2006 includes approximately $94,000 in stock compensation expense required by current accounting standards compared with no stock compensation expense in the first quarter of fiscal 2005. Excluding the stock compensation expense, diluted earnings per share for the first quarter of fiscal 2006 would have been 18 cents.
Mike Brooks, Chairman and Chief Executive Officer of Rocky Shoes & Boots, stated, “Our first quarter results were driven by double digit gains in our western footwear category, coupled with improvements in our work and retail segments. We continue to make meaningful progress leveraging our sales relationships in order to further penetrate our current account base and gain important shelf space for our entire portfolio of brands. As we approach the summer and fall selling seasons, we are focused on executing our business plan and remain optimistic about our prospects for the remainder of the year.”
First Quarter Results
Net sales for the first quarter decreased to $57.5 million compared to $61.5 million a year ago. The decrease in sales is primarily attributable to the decline in footwear sales to the military, which were $0.9 million in the first quarter of 2006 compared to $3.7 million in the first quarter of 2005. Sales were also impacted by lower than expected results in our outdoor footwear category during the first quarter of fiscal 2006.
Gross margin in the first quarter of 2006 was $24.9 million, or 43.3% of sales, compared to $24.2 million or 39.4% of sales, for the same period last year. The 390 basis point increase was primarily due to the decrease in shipments to the U.S. military in the first quarter of fiscal 2006 compared to the first quarter of fiscal 2005. Military boots are sold at lower gross margins than branded products.
Selling, general and administrative (SG&A) expenses were $21.8 million, or 37.9% of sales for the first quarter of 2006 compared to $20.7 million, or 33.6% of sales, a year ago. The increase in SG&A expenses is partially related to a one-time charge of approximately $0.6 million related to the curtailment of the Company's defined benefit pension plan which occurred during the first quarter of fiscal 2006.
Income from operations was $3.1 million or 5.5% of net sales for the period from $3.5 million or 5.8% of net sales in the prior year. Excluding the aforementioned one-time charge of approximately $0.6 million, income from operations for the first quarter of fiscal 2006 was $3.7 million, or 6.5% of net sales.
Interest expense increased to $2.4 million for the quarter ended March 31, 2006 versus $1.9 million for same period last year, primarily due higher interest rates than a year ago.
Other income in the first quarter of 2006 included a one-time gain of approximately $0.7 million related to the sale of Company owned property.
Inventory
Inventory increased to $83.0 million at March 31, 2006 compared with $69.3 million on the same date a year ago primarily to support growth in the company's western and work footwear segments.
Outlook
The company stated it remains comfortable with its previously updated guidance for fiscal 2006. The company expects revenues to be in the range of $287 million to $292 million, and diluted earnings per share to be in the range of $2.28 to $2.38, including a non-cash charge of approximately 7 cents per share related to stock option expensing. Excluding stock option expensing, the company expects diluted earnings per share to be in the range of $2.35 to $2.45. It is important to note that the company's guidance for fiscal 2006 does not include any footwear sales to the military compared to approximately $27.7 million in fiscal 2005.
Mr. Brooks concluded, “Our ability to expand distribution and further leverage the strength of our brands through new product introductions and additional category extensions should set the stage for future growth. Our strategy is in place and we look forward to capitalizing on the many opportunities that are still ahead of us.”
Rocky Shoes & Boots, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
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2006 2005
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NET SALES $57,525,164 $61,498,084
COST OF GOODS SOLD 32,609,207 37,290,212
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GROSS MARGIN 24,915,957 24,207,872
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 21,779,739 20,661,683
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INCOME FROM OPERATIONS 3,136,218 3,546,189
OTHER INCOME AND (EXPENSES):
Interest expense (2,369,033) (1,878,592)
Other - net 652,045 (9,248)
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Total other - net (1,716,988) (1,887,840)
INCOME BEFORE INCOME TAXES 1,419,230 1,658,349
INCOME TAX EXPENSE 526,000 563,895
----------- -----------
NET INCOME $ 893,230 $ 1,094,454
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NET INCOME PER SHARE
Basic $ 0.17 $ 0.21
Diluted $ 0.16 $ 0.20
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic 5,362,953 5,163,371
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Diluted 5,615,942 5,588,753
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