Shares of Rocky Brands jumped $6.00, or 23.2 percent, to $31.85 after the boot maker delivered earnings that ran past Wall Street’s targets. Georgia Boot, Durango and Rocky Boot all delivered robust growth in the quarter at healthy margins.
In the period ended June 30, net income rose 73.3 percent to $2.6 million, or 35 cents per share, versus Wall Street’s consensus estimate of 21 cents. Revenues dipped 0.5 percent to $58.2 million. Excluding the divested Creative Recreation brand, sales were up 1.4 percent.
On a conference call with analysts, Jason Brooks, president and CEO, said the decision to divest Creative Recreation in late 2017 has been a headwind to top line growth year-to-date while benefiting bottom line results.
“Our success has been driven by our commitment to strengthening our consumer connections, introducing innovative new products, supporting our retail partners and striving for operational excellence across the organization,” said Brooks.
By segment, wholesale sales increased 7.3 percent to $39.8 million and expanded 9.8 percent, excluding Creative Recreation. Brooks said the segment overall is benefitting from recent product introductions, enhanced marketing programs, improved collaboration with retail partners and inventory investments to capitalize on opportunities.
By brand in the wholesale segment, Georgia Boot experienced strong sell-through in reorders on the brand’s Carbo-Tec work western collection, which debuted earlier this year. The second quarter was also highlighted by the successful launch of a new logger collection of boots into the farm and ranch channel as well as an expansion of its popular Athens work line.
“We continued to see positive results as we shift our marketing spend from broad-spectrum national campaigns to more digital grassroots initiatives that bring us closer to our customers,” said Brooks of Georgia Boot. “Looking ahead, the combination of select door expansion and increased shelf space at key accounts such as Tractor Supply and Boot Barn have Georgia Boot well-positioned for a very strong finish to the year.”
Brooks said Durango’s sales increased “nicely” in Q2, led by the Rebel series for both men and women and new styles such as the Maverick western work series, “which booked extremely well.”
Brooks added, “The brand has been on a great run with large retail partners such as Cavender’s, Boot Barn and Cabela’s as well as smaller field accounts, all increasing their assortments due to the strength of the new products. And based on our current bookings, we expect to see continued strong sell results for Durango over the remainder of the year.”
The Rocky Boot brand is benefiting from a reconfiguration of its sales force to enables reps to sell the entire footwear and apparel range. The change is helping cross-sell categories, especially in the independent channels, provide better service to retail partners. Said Brooks, “With this transition now complete, we are starting to see the early benefits of the new structure in the form of increased second half bookings for Rocky Western work, outdoor and apparel lines.
Second-quarter growth for the Rocky brand was highlighted by the largest quarter ever for its commercial military division, as sales increased 55 percent over the prior year period. In the U.S., sales were up 20-plus percent while international growth was even stronger. Said Brooks, “Our ongoing investment in commercial military inventory, particularly our popular S2V boot, has allowed us to take advantage of the recent surge in demand for tactical equipment as the U.S., and its allies continued to bolster their military strength.”
The public service business for the Rocky brand is also seeing “some positive developments” that will boost 2019 growth. These include the addition of three independent sales reps focused solely on public service and the introduction of two United States Postal Service-certified styles along with a Code Blue line of athletically inspired shoes and boots targeting police forces, EMS and private security.
In other segments, retail sales increased 6.7 percent to $11.7 million while military sales decreased to $6.7 million versus $10.3 million for the same period in 2017.
The Lehigh retail business was driven by key account growth and improved participation and retention with existing accounts as well as the signing of a multiyear agreement with the New York Transit Authority. Direct-to-consumer across its branded websites posted a double-digit sales gain.
The military segment decline was expected due to a few contracts expiring in late 2017, but gross margins improved significantly due to improved efficiencies in its Puerto Rican factory.
Companywide gross margin improved to 33.6 percent compared to 31.1 percent. The improvement was driven by higher wholesale and retail margins combined with a lower percentage of military sales, which carry lower gross margins than wholesale and retail sales.
Operating expenses were up slightly to 27.8 percent of sales from 27.2 percent a year ago. Operating earnings reached $3.4 million compared to $2.3 million for the same period a year ago.
In the Q&A session, Brooks said the company is seeing momentum across brands in the wholesale channel.
“We’re seeing across every branding category increases, some higher, some lower,” said Brooks. “But all the brands are kicking along pretty nice right now. Durango is seeing some really interesting things. Georgia has got some nice things going and then even Rocky is doing well. The outdoor category in Rocky looks really strong for this fall. The bookings we’ve got for this fall in all the categories look pretty good. So all the categories are looking pretty strong right now.”
Photo courtesy Rocky Boot
