Rocky Brands, Inc. (NASDAQ: RCKY) today announced financial
results for its third quarter ended September 30, 2023.
Third Quarter 2023
Overview
- Net sales were $125.6 million, a decrease of 14.8% (or 12.7% on
an adjusted basis)
- Wholesale segment sales decreased 17.4% (or 14.9% on an
adjusted basis)
- Retail segment sales increased 4.7%
- Gross margin as a percentage of net sales increased 180 basis
points to 37.0%
- Operating income increased 22.8% to $14.3 million and increased
39.8% to $15.8 million on an adjusted basis
- Net income increased 20.0% to $6.8 million or $0.93 per diluted
share
- Adjusted net income increased 47.6% to $8.0 million or $1.09
per diluted share
- Inventories decreased 26.5% year-over-year
- Total debt at September 30, 2023 was down 24.9% compared with
September 30, 2022
Jason Brooks, Chairman, President and Chief Executive Officer,
said, “Our quarterly performance saw meaningful improvement on a
sequential basis as demand for our product improved, resulting in
further reduced channel inventory levels and an acceleration in
at-once orders from many of our key wholesale partners. Despite the
difficult start to 2023, we were confident that our results for the
first half of 2023 reflected macroeconomic headwinds and industry
dynamics more than the strength and desirability of our brand
portfolio. While current market conditions remain challenging, the
pace of our sales picked up in the third quarter driven by improved
retailer inventory positions and ongoing consumer demand for our
durable, innovative and accessibly priced work, western and outdoor
footwear. At the same time, the work we’ve done to enhance our
distribution and fulfillment capabilities and reduce operating
expenses translated into significantly higher quarterly
profitability year-over-year, which along with lower inventories
allowed us to pay down debt by nearly 25% over the same time
period. Looking ahead, we believe we are well positioned to improve
on recent trends in the fourth quarter and begin 2024 with an
improved balance sheet and good momentum across our business.”
Third Quarter 2023
Review
Third quarter net sales decreased 14.8% to $125.6 million
compared with $147.5 million in the third quarter of 2022. Adjusted
net sales, which exclude the sale of inventory related to the
divesture of the NEOS brand during the third quarter of 2022,
decreased 12.7%. Wholesale segment sales for the third quarter
decreased 17.4% to $99.7 million compared to $120.7 million for the
same period in 2022. Retail segment sales for the third quarter
increased 4.7% to $24.5 million compared to $23.4 million for the
same period last year. Contract Manufacturing segment sales, which
include contract military sales and private label programs, were
$1.4 million in the third quarter of 2023 compared to $3.3 million
in the prior year period. The decrease in Contract Manufacturing
segment sales was due to the expiration of certain contracts with
the U.S. Military.
Gross margin in the third quarter of 2023 was $46.5 million, or
37.0% of net sales, compared to $51.9 million, or 35.2% of net
sales, for the same period last year. Excluding the cost of goods
sold related to the NEOS brand inventory sold during the year ago
period, adjusted gross margin for the third quarter 2022 was $50.8,
million, or 35.3%. The 170-basis point increase in adjusted gross
margin as a percentage of net sales was driven by higher Wholesale
segment gross margins from the realization of pricing actions taken
in the second half of 2022, as well as decreases in in-bound
logistics costs, and a higher mix of Retail segment sales which
carry higher gross margins than sales from Wholesale and Contract
Manufacturing segments.
Operating expenses were $32.3 million, or 25.7% of net sales,
for the third quarter of 2023 compared to $40.3 million, or 27.3%
of net sales, for the same period a year ago. Adjusted operating
expenses were $30.7 million in the current year period compared to
adjusted operating expenses of $39.5 million in the year ago
period. The decrease in operating expenses was driven primarily by
a decrease in out-bound freight expense and other variable expenses
associated with lower sales and improved distribution center
efficiencies compared with the year ago period. As a percentage of
adjusted net sales, adjusted operating expenses improved 290 basis
points to 24.5% in the third quarter of 2023 compared with 27.4% in
the year ago period.
Income from operations for the third quarter of 2023 was $14.3
million, or 11.4% of net sales, compared to $11.6 million or 7.9%
of net sales for the same period a year ago. Adjusted operating
income for the third quarter of 2023 was $15.8 million, or 12.6% of
adjusted net sales, compared to adjusted operating income of $11.3
million, or 7.9% of adjusted net sales a year ago.
Interest expense for the third quarter of 2023 was $5.8 million
compared with $4.2 million a year ago. The increase reflected
increased interest rates on the senior term loan and credit
facility.
The Company reported third quarter 2023 net income of $6.8
million, or $0.93 per diluted share, compared to net income of $5.7
million, or $0.77 per diluted share, in the third quarter of 2022.
Adjusted net income for the third quarter of 2023 was $8.0 million,
or $1.09 per diluted share, compared to adjusted net income of $5.5
million, or $0.74 per diluted share in the year ago period.
Balance Sheet Review
Cash and cash equivalents were $4.2 million at September 30,
2023 compared to $7.3 million on the same date a year ago.
Total debt at September 30, 2023 was $213.9 million consisting
of $88.6 million on our senior term loan and $127.4 million of
borrowings under the Company's senior secured asset-backed credit
facility. Compared with September 30, 2022 and December 31, 2022,
total debt at September 30, 2023 was down 24.9% and 16.7%,
respectively.
Inventories at September 30, 2023 were $194.7 million, down
26.5% compared to $265.1 million on the same date a year ago and
down 17.3% compared with $235.4 million at December 31, 2022.
Conference Call
Information
The Company's conference call to review third quarter 2023
results will be broadcast live over the internet today, Wednesday,
November 1, 2023 at 4:30 pm Eastern Time. Investors and analysts
interested in participating in the call are invited to dial (877)
704-4453 (domestic) or (201) 389-0920 (international). The
conference call will also be available to interested parties
through a live webcast at www.rockybrands.com. Please visit the
website and select the “Investors” link at least 15 minutes prior
to the start of the call to register and download any necessary
software.
About Rocky Brands, Inc.
Rocky Brands, Inc. is a leading designer, manufacturer and
marketer of premium quality footwear and apparel marketed under a
portfolio of well recognized brand names. Brands in the portfolio
include Rocky®, Georgia Boot®, Durango®, Lehigh®, The Original Muck
Boot Company®, XTRATUF®, and Ranger®. More information can be found
at RockyBrands.com.
Safe Harbor Language
This press release contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of
1934, as amended, which are intended to be covered by the safe
harbors created thereby. Those statements include, but may not be
limited to, all statements regarding intent, beliefs, expectations,
projections, forecasts, and plans of the Company and its management
and include statements in this press release regarding the
positioning of the Company's business for improvement based on
recent trends in the fourth quarter (Paragraph 2) and beginning
2024 with a strong balance sheet and good momentum across the
Company's business (Paragraph 2). These forward-looking statements
involve numerous risks and uncertainties, including, without
limitation, the various risks inherent in the Company’s business as
set forth in periodic reports filed with the Securities and
Exchange Commission, including the Company’s annual report on Form
10-K for the year ended December 31, 2022 (filed March 10, 2023)
and the quarterly report on Form 10-Q for the quarters ended March
31, 2023 (filed May 10, 2023), and June 30, 2023 (filed August 9,
2023). One or more of these factors have affected historical
results, and could in the future affect the Company’s businesses
and financial results in future periods and could cause actual
results to differ materially from plans and projections. Therefore
there can be no assurance that the forward-looking statements
included in this press release will prove to be accurate. In light
of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information
should not be regarded as a representation or warranty by the
Company or any other person that the objectives and plans of the
Company will be achieved. All forward-looking statements made in
this press release are based on information presently available to
the management of the Company. The Company assumes no obligation to
update any forward-looking statements.
Rocky Brands, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (In thousands,
except share amounts) (Unaudited)
September 30,
December 31,
September 30,
2023
2022
2022
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents
$
4,240
$
5,719
$
7,277
Trade receivables – net
97,844
94,953
118,193
Contract receivables
2,990
-
-
Other receivables
2,207
908
490
Inventories – net
194,734
235,400
265,082
Income tax receivable
2,445
-
1,633
Prepaid expenses
4,985
4,067
4,360
Total current assets
309,445
341,047
397,035
LEASED ASSETS
7,982
11,014
9,971
PROPERTY, PLANT & EQUIPMENT – net
53,124
57,359
60,271
GOODWILL
47,844
50,246
50,246
IDENTIFIED INTANGIBLES – net
113,321
121,782
122,552
OTHER ASSETS
1,015
942
878
TOTAL ASSETS
$
532,731
$
582,390
$
640,953
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable
$
62,733
$
69,686
$
101,683
Contract liabilities
2,990
-
-
Current Portion of Long-Term Debt
2,704
3,250
3,250
Accrued expenses:
Salaries and wages
2,685
1,253
3,667
Taxes – other
832
1,325
1,784
Accrued freight
2,707
2,413
3,842
Commissions
823
1,934
1,619
Accrued duty
6,395
6,764
8,051
Accrued interest
2,280
2,822
2,314
Income tax payable
-
1,172
-
Other
5,553
5,675
5,486
Total current liabilities
89,702
96,294
131,696
LONG-TERM DEBT
211,190
253,646
281,515
LONG-TERM TAXES PAYABLE
169
169
169
LONG-TERM LEASE
5,715
8,216
7,394
DEFERRED INCOME TAXES
8,006
8,006
10,293
DEFERRED LIABILITIES
1,179
586
558
TOTAL LIABILITIES
315,961
366,917
431,625
SHAREHOLDERS' EQUITY:
Common stock, no par value;
25,000,000 shares authorized; issued and
outstanding September 30, 2023 - 7,366,201; December 31, 2022 -
7,339,011; September 30, 2022 - 7,322,232
70,757
69,752
68,986
Retained earnings
146,013
145,721
140,342
Total shareholders' equity
216,770
215,473
209,328
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
$
532,731
$
582,390
$
640,953
Rocky Brands, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (In
thousands, except share amounts) (Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2023
2022
2023
2022
NET SALES
$
125,614
$
147,486
$
335,881
$
476,549
COST OF GOODS SOLD
79,076
95,556
208,012
308,042
GROSS MARGIN
46,538
51,930
127,869
168,507
OPERATING EXPENSES
32,259
40,305
107,233
138,089
INCOME FROM OPERATIONS
14,279
11,625
20,636
30,418
INTEREST EXPENSE AND OTHER – net
(5,649
)
(4,181
)
(15,943
)
(12,411
)
INCOME BEFORE INCOME TAX EXPENSE
8,630
7,444
4,693
18,007
INCOME TAX EXPENSE
1,803
1,753
980
4,057
NET INCOME
$
6,827
$
5,691
$
3,713
$
13,950
INCOME PER SHARE
Basic
$
0.93
$
0.78
$
0.50
$
1.91
Diluted
$
0.93
$
0.77
$
0.50
$
1.89
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic
7,366
7,319
7,355
7,313
Diluted
7,375
7,349
7,374
7,382
Rocky Brands, Inc. and Subsidiaries
Reconciliation of GAAP Measures to Non-GAAP Measures (In
thousands, except share amounts) (Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2023
2022
2023
2022
NET SALES
NET SALES, AS REPORTED
$
125,614
$
147,486
$
335,881
$
476,549
ADD: RETURNS RELATING TO SUPPLIER
DISPUTE
-
-
1,542
-
LESS: DISPOSITION OF INVENTORY ASSETS
-
(3,569
)
-
(3,569
)
ADJUSTED NET SALES
$
125,614
$
143,917
$
337,423
$
472,980
COST OF GOODS
SOLD
COST OF GOODS SOLD, AS REPORTED
$
79,076
$
95,556
$
208,012
$
308,042
LESS: SUPPLIER DISPUTE INVENTORY
ADJUSTMENT
-
-
(181
)
-
LESS: DISPOSITION OF INVENTORY ASSETS
-
(2,444
)
(2,444
)
ADJUSTED COST OF GOODS SOLD
$
79,076
$
93,112
$
207,831
$
305,598
GROSS
MARGIN
GROSS MARGIN, AS REPORTED
$
46,538
$
51,930
$
127,869
$
168,507
ADJUSTED GROSS MARGIN
$
46,538
$
50,805
$
129,592
$
167,382
OPERATING
EXPENSES
OPERATING EXPENSES, AS REPORTED
$
32,259
$
40,305
$
107,233
$
138,089
LESS: ACQUISITION-RELATED AMORTIZATION
(692
)
(782
)
(2,148
)
(2,346
)
LESS: DISPOSITION OF ASSETS
-
(33
)
-
(33
)
LESS: CLOSURE OF MANUFACTURING
FACILITY
(398
)
-
(398
)
-
LESS: ACQUISITION-RELATED INTEGRATION
EXPENSES
-
-
-
(397
)
LESS: RESTRUCTURING COSTS
(453
)
-
(1,486
)
(1,201
)
ADJUSTED OPERATING EXPENSES
$
30,716
$
39,490
$
103,201
$
134,112
ADJUSTED OPERATING
INCOME
$
15,822
$
11,315
$
26,391
$
33,270
INTEREST EXPENSE AND
OTHER – net
INTEREST EXPENSE AND OTHER – net , AS
REPORTED
$
(5,649
)
$
(4,181
)
$
(15,943
)
$
(12,411
)
LESS: GAIN ON SALE OF BUSINESS
-
-
(1,341
)
-
ADJUSTED INTEREST EXPENSE AND OTHER –
net
(5,649
)
(4,181
)
(17,284
)
(12,411
)
NET
INCOME
NET INCOME, AS REPORTED
$
6,827
$
5,691
$
3,713
$
13,950
TOTAL NON-GAAP ADJUSTMENTS
1,543
(310
)
4,414
2,852
TAX IMPACT OF ADJUSTMENTS
(322
)
73
(922
)
(643
)
ADJUSTED NET INCOME
$
8,048
$
5,454
$
7,205
$
16,159
NET INCOME PER SHARE, AS REPORTED
BASIC
$
0.93
$
0.78
$
0.50
$
1.91
DILUTED
$
0.93
$
0.77
$
0.50
$
1.89
ADJUSTED NET INCOME PER SHARE
BASIC
$
1.09
$
0.75
$
0.98
$
2.21
DILUTED
$
1.09
$
0.74
$
0.98
$
2.19
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC
7,366
7,319
7,355
7,313
DILUTED
7,375
7,349
7,374
7,382
Use of Non-GAAP Financial
Measures
In addition to GAAP financial measures, we present the following
non-GAAP financial measures: "non-GAAP adjusted net sales",
"non-GAAP adjusted cost of goods sold," "non-GAAP adjusted gross
margin", "non-GAAP adjusted operating expenses," "non-GAAP adjusted
operating income," "non-GAAP adjusted interest expense and other
income/(expense) - net," "non-GAAP adjusted net income," and
"non-GAAP adjusted net income per share." Adjusted results exclude
the impact of items that management believes affect the
comparability or underlying business trends in our consolidated
financial statements in the periods presented. We believe that
these non-GAAP measures are useful to management and investors and
other users of our consolidated financial statements as an
additional tool for evaluating operating performance. We believe
they also provide a useful baseline for analyzing trends in our
operations.
Investors should not consider these non-GAAP measures in
isolation from, or as a substitute for, financial information
prepared in accordance with GAAP. See "Reconciliation of GAAP
Measures to Non-GAAP Measures" accompanying this press release.
Non-GAAP
adjustment or
measure
Definition
Usefulness to management and
investors
Disposition of Inventory Assets
Disposition of inventory assets relate to
the sale of inventory and related cost of goods sold in connection
with the divesture of the NEOS brand.
We exclude the disposition of inventory
assets for purposes of calculating certain non-GAAP measures
because the sale and related cost of goods sold does not reflect
our normal business operations. These adjustments facilitate a
useful evaluation of our current operating performance and
comparisons to past operating results and provide investors with
additional means to evaluate cost trends.
Returns relating to supplier dispute
Returns relating to supplier dispute
consist of returns of product produced by a manufacturing
supplier.
We excluded these returns for calculating
certain non-GAAP measures because these returns are inconsistent in
size with our normal course of business and are unique to the
on-going dispute with the manufacturing supplier. These adjustments
facilitate a useful evaluation of our current operating performance
and comparison to past operating performance and provide investors
with additional means to evaluate net sales trends.
Supplier dispute inventory adjustment
Supplier dispute inventory adjustment
consists of an inventory adjustment to cost of goods sold for
product produced by a manufacturing supplier.
We excluded this inventory adjustment to
cost of goods sold for calculating certain non-GAAP measures
because this adjustment is noncustomary and is unique to the
on-going dispute with the manufacturing supplier. This adjustment
facilitates a useful evaluation of our current operating
performance and comparison to past operating performance and
provides investors with additional means to evaluate net cost of
goods sold trends.
Acquisition-related amortization
Amortization of acquisition-related
intangible assets consists of amortization of intangible assets
such as brands and customer relationships acquired in connection
with the acquisition of the performance and lifestyle footwear
business of Honeywell International Inc. Charges related to the
amortization of these intangibles are recorded in operating
expenses in our GAAP financial statements. Amortization charges are
recorded over the estimated useful life of the related acquired
intangible asset, and thus are generally recorded over multiple
years.
We excluded amortization charges for our
acquisition-related intangible assets for purposes of calculating
certain non-GAAP measures because these charges are inconsistent in
size and are significantly impacted by the valuation of our
acquisition. These adjustments facilitate a useful evaluation of
our current operating performance and comparison to past operating
performance and provide investors with additional means to evaluate
cost and expense trends.
Disposition of Assets
Disposition of fixed assets relate
disposals of non-financial assets. This includes the disposal of
non-financial assets and corresponding expenses related to the
divesture of the NEOS brand and other long-lived assets at our
manufacturing facilities.
We exclude the disposition of
non-financial assets and related expenses for purposes of
calculating certain non-GAAP measures because the loss does not
accurately reflect our current operating performance and
comparisons to past operating results and provide investors with
additional means to evaluate cost trends.
Acquisition-related integration
expenses
Acquisition-related integration expenses
are expenses including investment banking fees, legal fees,
transaction fees, integration costs and consulting fees tied to the
acquisition of the performance and lifestyle footwear business of
Honeywell International Inc.
We excluded acquisition-related expenses
for purposes of calculating certain non-GAAP measures because the
charges do not accurately reflect our current operating performance
and comparisons to past operating results and provide investors
with additional means to evaluate cost trends.
Restructuring Costs
Restructuring costs represent severance
expenses associated with headcount reductions following the
integration of the acquired performance and lifestyle footwear
business of Honeywell International Inc in 2022 and the sale of
Servus in 2023.
We excluded restructuring costs for
purposes of calculating non-GAAP measures because these costs do
not reflect our current operating performance. These adjustments
facilitate a useful evaluation of our current operations
performance and comparisons to past operating results and provide
investors with additional means to evaluate expense trends.
Closure of Manufacturing Facility
Closure of manufacturing facility relates
to the expenses and overhead incurred associated with closing our
Rock Island manufacturing facility.
We exclude costs associated with the
closure of our manufacturing facility for purposes of calculating
non-GAAP measures because these costs do not reflect our current
operating performance. These adjustments facilitate a useful
evaluation of our current operations performance and comparison to
past operating results and provide investors with additional means
to evaluate expense trends.
Gain on Sale of Business
Gain on sale of business relates to the
sale of the brand Servus. This includes the disposal of
non-financial assets and corresponding expenses relating to the
sale of the brand along with assets held at our Rock Island
manufacturing facility.
We excluded the disposition of
non-financial assets and related expenses for purposes of
calculating certain non-GAAP measures because the gain does not
accurately reflect our current operating performance and
comparisons to past operating results and provide investors with
additional means to evaluate cost trends.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231101188550/en/
Company Contact: Tom Robertson Chief Operating Officer, Chief
Financial Officer and Treasurer (740) 753-9100
Investor Relations: Brendon Frey ICR, Inc. (203) 682-8200
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