Rocky Shoes & Boots, Inc. reported net income increased to $0.1 million, or one penny per diluted share, for the first quarter of 2004 compared to a net loss of $0.6 million, or 14 cents per diluted share, the prior year. The improvement in net income per share was achieved despite a 14% increase in the weighted average number of diluted shares outstanding for the first quarter 2004 compared to the first quarter 2003. This resulted from the increase in the Company's share price during the past year.
Mike Brooks, Chairman and Chief Executive Officer, commented, “Our record first quarter results benefited from a 24% increase in branded sales and from the shipment of boots for delivery to the U.S. military. Importantly, these results reflect a solid increase in sales of work footwear, which is sold throughout the year. During the first quarter 2004 we introduced apparel for the work market as part of our head-to-toe growth strategy. We are pleased with initial bookings and believe these initiatives represent a significant opportunity to leverage our brands and, over time, contribute to reducing the seasonality of our business.”
Mr. Brooks continued, “In March 2004 we announced a $16.4 million subcontract agreement to produce boots for the U.S. military. Shipment of these boots will begin in June 2004 and continue at the rate of approximately $1.6 million per 30-day period. While our growth strategy is not focused on the military market, we are pleased to produce these boots when manufacturing capacity is available at our factory in Puerto Rico. We anticipate there may be additional opportunities to produce branded boots for the U.S. military in the future.”
Net sales increased to a first quarter record $21.9 million compared to $13.8 million for the same period in 2003. This 59.1% increase was led by higher branded sales and shipments of boots to the U.S. military, which rose $3.1 million and $5.0 million, respectively. Substantial growth was achieved in the ROCKY(R) Work footwear as well as the Outdoor apparel and footwear categories. Sales of GATES(R) products, a brand that was acquired in the second quarter 2003, also contributed to the first quarter 2004 net sales increase.
Gross profit increased to $5.6 million, or 25.7% of net sales for the first quarter 2004 from $3.5 million, or 25.2% of net sales, the prior year. First quarter 2004 gross margin was influenced by the boots produced for delivery to the U.S. military and an increase in sourced product sales. The Company manufactures military boots at lower gross margin than its branded products, while sourced products result in higher gross margin than the Company's overall average. Sourced product sales were 49.6% of net sales for the first quarter 2004 compared to 49.1% for the same period last year.
Selling, general and administrative (“SG&A”) expenses were $5.3 million, or 24.3% of net sales, for the quarter ended March 31, 2004 compared to $4.3 million, or 30.9% of net sales, the prior year. The increase in SG&A expenses was primarily due to higher commissions and distribution costs associated with the growth in branded product sales, and industry trade show expense compared to a year ago.
Income from operations was $0.3 million for first quarter 2004 versus a loss from operations of $0.8 million for the same period last year.
The Company reduced its funded debt $3.5 million to $14.5 million at March 31, 2004 compared to year-end 2003. Funded debt was $10.8 million at March 31, 2003 and since that date the Company increased borrowings to purchase certain assets of Gates-Mills, Inc., repurchased 483,500 of the Company's common shares in the second quarter 2003, and increased inventory to support sales growth.
Inventory declined $3.0 million to $35.1 million at March 31, 2004 from $38.1 million at December 31, 2003. The $6.8 million increase in inventory since March 31, 2003 was primarily to support increased sales of branded products, including new line extensions of footwear and apparel for the ROCKY(R) and GATES(R) brands.
The Company is increasing its earnings guidance for the year 2004 due to the first quarter 2004 results and the accretive impact of the previously announced subcontract agreement to produce boots for the U.S. military.
Net sales are anticipated to be approximately $133 million for the year 2004, which is $11 million higher than previous guidance and $27 million above net sales for the year 2003. This sales growth is attributable to solid increases in branded products, footwear, apparel and accessories, 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 2004 compared to previous guidance of $1.54 per diluted share and $1.32 per diluted share for the year 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 $133 million, then actual earnings may be less than this guidance.
Rocky Shoes & Boots, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
2004 2003
(Unaudited) (Unaudited)
NET SALES $21,882,089 $13,754,941
COST OF GOODS SOLD 16,263,485 10,289,413
GROSS MARGIN 5,618,604 3,465,528
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,327,691 4,250,606
INCOME/(LOSS) FROM OPERATIONS 290,913 (785,078)
OTHER INCOME AND (EXPENSES):
Interest expense (258,573) (196,180)
Other - net 74,206 91,873
Total other - net (184,367) (104,307)
INCOME/(LOSS) BEFORE INCOME TAX 106,546 (889,385)
INCOME TAX EXPENSE/(BENEFIT) 34,095 (266,816)
NET INCOME/(LOSS) $72,451 $(622,569)
NET INCOME/(LOSS) PER SHARE
Basic $0.02 $(0.14)
Diluted $0.01 $(0.14)
