Rocky Brands, Inc. reported net sales for the second quarter ended June 30 increased 7.9% to $55.2 million versus net sales of $51.2 million in the second quarter of 2009. The company reported net income of $500,000, or 8 cents per diluted share versus a net loss of $1.4 million, or (25 cents) per diluted share a year ago.
Mike Brooks, Chairman and Chief Executive Officer, commented, “There were several highlights from the second quarter, most notably the dramatic improvement in our bottom line. The combination of sales growth, a 370 basis point improvement in wholesale gross margin, and meaningful operating expense leverage, allowed us to recover from a loss in the year ago period and deliver profitability that was well above plan. We also made significant progress in improving our capital structure during the second quarter. We paid off the majority of our high interest, senior term loan using proceeds from our successful equity offering and availability under our existing credit facility. As a result, we cut our debt level at the end of the second quarter by more than half and will considerably reduce our interest expense going forward. We are very pleased with the progress we have made towards building a more efficient organization and we look forward to taking advantage of our improved position to better capitalize on the growth opportunities that are ahead.”
Second Quarter Review
Net sales for the second quarter increased 7.9% to $55.2 million compared to $51.2 million a year ago. Wholesale sales for the second quarter increased to $38.5 million compared to $37.9 million for the same period in 2009. Retail sales for the second quarter were $11.0 million compared to $12.3 million for the same period last year.
Gross margin in the second quarter of 2010 was $19.1 million, or 34.6% of sales compared to $17.7 million, or 34.6% for the same period last year. Wholesale gross margin was up 370 basis points driven by increased manufacturing efficiencies in the Company’s factories. This was offset by lower retail gross margin as a result of the ongoing transition to more Internet driven transactions and the increase in sales to the Military which carry lower gross margin than the wholesale and retail businesses.
Selling, general and administrative (SG&A) expenses decreased $2.0 million or 10.8% to $16.2 million, or 29.3% of sales for the second quarter of 2010 compared to $18.1 million, or 35.4% of sales a year ago. The decrease in SG&A expenses was primarily the result of a reduction in salaries & benefits, bad debt expense, advertising costs, and Lehigh store expenses.
Income from operations was $2.9 million, or 5.3% of net sales for the period compared to an operating loss of $0.4 million in the prior year.
Interest expense increased to $2.1 million for the second quarter of 2010 versus $1.9 million for the same period last year. The increase was attributable to one-time fees of approximately $0.9 million associated with the early repayment of a portion of the Company’s senior term loan.
The company’s funded debt decreased $50.6 million, or 57.8% to $36.9 million at June 30, 2010 versus $87.5 million at June 30, 2009.
Inventory decreased $17.5 million, or 22.0%, to $61.8 million at June 30, 2010 compared with $79.3 million on the same date a year ago.
The company’s accounts receivable decreased $3.7 million, or 8.2% to $40.8 million at June 30, 2010 versus $44.5 million at June 30, 2009.
Rocky Brands, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) | ||||||||||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
| NET SALES | $ | 55,223,054 | $ | 51,188,615 | $ | 111,302,040 | $ | 101,253,176 | ||||||||||||||||
| COST OF GOODS SOLD | 36,123,970 | 33,470,943 | 73,446,107 | 63,443,016 | ||||||||||||||||||||
| GROSS MARGIN | 19,099,084 | 17,717,672 | 37,855,933 | 37,810,160 | ||||||||||||||||||||
| SELLING, GENERAL AND | ||||||||||||||||||||||||
| ADMINISTRATIVE EXPENSES | 16,163,354 | 18,119,173 | 34,188,041 | 38,065,301 | ||||||||||||||||||||
| INCOME/(LOSS) FROM OPERATIONS | 2,935,730 | (401,501 | ) | 3,667,892 | (255,141 | ) | ||||||||||||||||||
| OTHER INCOME AND (EXPENSES): | ||||||||||||||||||||||||
| Interest expense | (2,121,552 | ) | (1,936,490 | ) | (3,766,143 | ) | (3,710,420 | ) | ||||||||||||||||
| Other net | 3,432 | 158,023 | 40,117 | 33,457 | ||||||||||||||||||||
| Total other – net | (2,118,120 | ) | (1,778,467 | ) | (3,726,026 | ) | (3,676,963 | ) | ||||||||||||||||
| INCOME/(LOSS) BEFORE INCOME TAXES | 817,610 | (2,179,968 | ) | (58,134 | ) | (3,932,104 | ) | |||||||||||||||||
| INCOME TAX EXPENSE/(BENEFIT) | 294,000 | (785,000 | ) | (21,000 | ) | (1,416,000 | ) | |||||||||||||||||
| NET INCOME/(LOSS) | $ | 523,610 | ||||||||||||||||||||||
