2023 Year-end Inventories down $66.2 Million
or 28.1% and Debt Levels down $83.8 Million or 32.6%
Rocky Brands, Inc. (NASDAQ: RCKY) today announced financial
results for its fourth quarter and year ended December 31,
2023.
Fourth Quarter 2023
Overview
- Net sales decreased 9.3% to $126.0 million
- Wholesale segment sales decreased 13.3%; Retail segment sales
increased 1.5%
- Operating income increased 8.2% to $14.7 million
- Net income increased 3.0% to $6.7 million, or $0.91 per diluted
share
- Adjusted net income decreased 8.3% to $7.3 million, or $0.98
per diluted share
Full Year 2023 Overview
- Net sales decreased 25.0% to $461.8 million
- Wholesale segment sales decreased 30.5%; Retail segment sales
increased 1.4%
- Operating income decreased 19.7% to $35.4 million
- Net income decreased 49.1% to $10.4 million, or $1.41 per
diluted share
- Adjusted net income decreased 40.8% to $14.3 million, or $1.93
per diluted share
"We are encouraged with our fourth quarter performance as we
navigated top-line headwinds and delivered operating income that
was ahead of our expectations," said Jason Brooks, Chairman,
President and Chief Executive Officer. "Despite market softness
towards the end of December, the late arrival of certain materials
that pushed back our manufacturing and shipment schedules, and the
transition to a distributor model in Canada in early November, net
sales improved from the third quarter with year-over-year declines
moderating to their lowest levels in 2023."
Mr. Brooks continued, "While it was a challenging year from a
sell-in perspective as many of our wholesale accounts worked to
rebalance their overall inventory levels, retail sell-through and
the performance of our own ecommerce websites underscores that
consumer demand for our brands remains solid. Equally important, we
made great progress strengthening our balance sheet throughout 2023
highlighted by a $66.2 million reduction in inventories and an
$83.8 million decline in our debt levels compared with the end of
2022. This work has put us in a great position to invest in our
business to drive profitable growth and increased shareholder value
over the near and long-term."
Fourth Quarter Review
Fourth quarter net sales in 2023 decreased 9.3% to $126.0
million compared with $138.9 million in the fourth quarter of 2022.
Wholesale segment sales for the fourth quarter of 2023 decreased
13.3% to $85.8 million compared to $98.9 million for the same
period in 2022. Retail segment sales for the fourth quarter of 2023
increased 1.5% to $37.8 million compared to $37.3 million for the
same period last year. Contract Manufacturing segment sales, which
include contract military sales and private label programs,
decreased 14.9% to $2.3 million for the fourth quarter of 2023
compared to $2.7 million in the fourth quarter of 2022. The
decrease in Contract Manufacturing sales was due to the expiration
of certain contracts with the U.S. Military.
Gross margin in the fourth quarter of 2023 was $50.7 million, or
40.3% of net sales, compared to $56.7 million, or 40.8% of net
sales, for the same period last year. The 50-basis point decrease
in gross margin was attributable to a tariff refund with a net
impact of approximately $2.4 million received in the fourth quarter
2022 partially offset by a higher mix of Retail segment sales in
the fourth quarter of 2023, which carry higher gross margins than
the Wholesale and Contract Manufacturing segments.
Operating expenses were $36.0 million, or 28.6% of net sales,
for the fourth quarter of 2023 compared to $43.1 million, or 31.0%
of net sales, for the same period a year ago. Excluding $0.7
million of acquisition-related amortization expense and $0.1
million of expenses related to the closure of a manufacturing
facility in the fourth quarter of 2023 and $1.7 million in
acquisition-related amortization and restructuring costs in the
fourth quarter of 2022, adjusted operating expenses were $35.2
million for the fourth quarter of 2023 and $41.4 million for the
same period a year ago. The decrease in operating expenses was
largely attributable to cost-saving reviews and operational
efficiencies achieved through strategic restructuring initiatives
implemented over the past year. As a percentage of net sales,
adjusted operating expenses were 27.9% in the fourth quarter of
2023 compared with 29.8% in the year ago period.
Income from operations for the fourth quarter of 2023 was $14.7
million, or 11.7% of net sales, compared to $13.6 million or 9.8%
of net sales for the same period a year ago. Adjusted operating
income for the fourth quarter of 2023 was $15.5 million, or 12.3%
of net sales, compared to adjusted operating income of $15.3
million, or 11.0% of net sales, for the same period a year ago.
Interest expense for the fourth quarter of 2023 was $5.3 million
compared with $5.9 million a year ago. The decrease was driven by
lower debt levels in the fourth quarter of 2023 compared with the
fourth quarter of 2022.
The effective tax rate for the fourth quarter of 2023 increased
to 29.0% compared to 16.1% a year ago. The year-over-year increase,
which was higher than initially projected, was driven primarily by
a return to provision adjustment resulting from foreign tax credits
recognized in the fourth quarter of 2023.
The Company reported fourth quarter 2023 net income of $6.7
million, or $0.91 per diluted share, compared to net income of $6.5
million, or $0.89 per diluted share, in the fourth quarter of 2022.
Adjusted net income for the fourth quarter of 2023, was $7.3
million, or $0.98 per diluted share, compared to adjusted net
income of $7.9 million, or $1.08 per diluted share, in the fourth
quarter of 2022.
Full Year Review
Full year 2023 net sales decreased 25.0% to $461.8 million
compared with $615.5 million in 2022. Adjusted net sales, which
exclude returns associated with a supplier-related dispute in the
second quarter of 2023 and the sale of inventory related to the
divesture of the NEOS brand during the third quarter of 2022,
decreased 24.3%. Wholesale segment sales for 2023 decreased 30.5%
to $337.0 million compared to $484.8 million in 2022. Retail
segment sales for the year increased 1.4% to $117.0 million
compared to $115.4 million for the same period last year. Contract
Manufacturing segment sales, which includes contract military sales
and private label programs, decreased 48.4% to $7.9 million
compared to $15.3 million in 2022.
Gross margin in 2023 was $178.6 million, or 38.7% of net sales,
compared to $225.2 million, or 36.6% of net sales, for 2022. On an
adjusted basis to exclude returns associated with a
supplier-related dispute in the second quarter of 2023 and the sale
of inventory related to the divesture of the NEOS brand in the
third quarter of 2022, gross margins were 38.9% of adjusted net
sales in 2023 compared to 36.6% of adjusted net sales in 2022. The
230-basis point improvement in gross margin was driven primarily by
a higher mix of Retail segment sales which carry higher gross
margins than the Wholesale and Contract Manufacturing segments,
combined with a 140-basis point improvement in Wholesale segment
gross margins.
Operating expenses were $143.2 million, or 31.0% of net sales,
for 2023 compared to $181.2 million, or 29.4% of net sales, for
2022. Excluding $4.8 million of acquisition-related amortization
expense, expenses related to the closure of a manufacturing
facility and restructuring costs in 2023 and $5.7 million of
acquisition-related amortization and integration costs,
restructuring costs and disposition of assets in 2022, adjusted
operating expenses were $138.4 million, or 29.9% of adjusted net
sales in the current year and $175.5 million, or 28.7% of adjusted
net sales in the prior year.
Income from operations for 2023 was $35.4 million, or 7.7% of
net sales, compared to $44.0 million or 7.2% of net sales for 2022.
Adjusted operating income for 2023 was $41.9 million, or 9.0% of
adjusted net sales, compared to adjusted operating income of $48.6
million, or 7.9% of adjusted net sales, a year ago.
Interest expense for 2023 was $22.7 million compared with $18.3
million in 2022. The increase is due to an increase in interest
rates on the senior term loan and credit facility, partially offset
by lower debt levels in 2023 compared with 2022.
The effective tax rate for 2023 increased to 26.3% compared to
20.6% for the full year 2022 driven largely by the aforementioned
return to provision adjustment resulting from foreign tax credits
recognized in the fourth quarter of 2023.
The Company reported 2023 net income of $10.4 million, or $1.41
per diluted share, compared to net income of $20.5 million, or
$2.78 per diluted share, in 2022. Adjusted net income for 2023 was
$14.3 million, or $1.93 per diluted share, compared to adjusted net
income of $24.1 million, or $3.27 per diluted share, in 2022.
Balance Sheet Review
Cash and cash equivalents were $4.5 million at December 31, 2023
compared to $5.7 million on the same date a year ago.
Total debt at December 31, 2023 was $175.0 million, consisting
of $77.9 million senior term loan and $97.1 million of borrowings
under the Company's senior secured asset-backed credit facility.
Compared with December 31, 2022 and September 30, 2023, total debt
at December 31, 2023 was down 32.6% and 19.1%, respectively.
Inventory at December 31, 2023 was $169.2 million compared to
$235.4 million on the same date a year ago. Compared with December
31, 2022 and September 30, 2023, inventories at December 31, 2023
were down 28.1% and 13.1%, respectively.
Conference Call
Information
The Company's conference call to review fourth quarter 2023
results will be broadcast live over the internet today, Wednesday,
February 28, 2024 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 ability
of the Company to invest in its business to drive profitable growth
and increase shareholder value over the near and long-term
(Paragraph 3). 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 quarterly
reports on Form 10-Q for the quarters ended March 31, 2023 (filed
May 10, 2023), June 30, 2023 (filed August 9, 2023) and September
30, 2023 (filed November 8, 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)
December 31,
December 31,
2023
2022
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents
$
4,470
$
5,719
Trade receivables – net
77,028
94,953
Contract receivables
927
-
Other receivables
1,933
908
Inventories – net
169,201
235,400
Income tax receivable
1,253
-
Prepaid expenses
3,361
4,067
Total current assets
258,173
341,047
LEASED ASSETS
7,809
11,014
PROPERTY, PLANT & EQUIPMENT – net
51,976
57,359
GOODWILL
47,844
50,246
IDENTIFIED INTANGIBLES – net
112,618
121,782
OTHER ASSETS
965
942
TOTAL ASSETS
$
479,385
$
582,390
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable
$
49,840
$
69,686
Contract liabilities
927
-
Current Portion of Long-Term Debt
2,650
3,250
Accrued expenses:
Salaries and wages
1,204
1,253
Taxes – other
925
1,325
Accrued freight
2,284
2,413
Commissions
904
1,934
Accrued duty
5,440
6,764
Accrued interest
2,104
2,822
Income tax payable
-
1,172
Other
5,251
5,675
Total current liabilities
71,529
96,294
LONG-TERM DEBT
170,480
253,646
LONG-TERM TAXES PAYABLE
169
169
LONG-TERM LEASE
5,461
8,216
DEFERRED INCOME TAXES
7,475
8,006
DEFERRED LIABILITIES
716
586
TOTAL LIABILITIES
255,830
366,917
SHAREHOLDERS' EQUITY:
Common stock, no par value;
25,000,000 shares authorized; issued and
outstanding December 31, 2023 - 7,412,480; December 31, 2022 -
7,339,011
71,973
69,752
Retained earnings
151,582
145,721
Total shareholders' equity
223,555
215,473
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
$
479,385
$
582,390
Rocky Brands, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations
(In thousands, except share
amounts)
Three Months Ended
Year Ended
December 31,
December 31,
2023
2022
2023
2022
NET SALES
$
125,952
$
138,926
$
461,833
$
615,475
COST OF GOODS SOLD
75,223
82,214
283,235
390,256
GROSS MARGIN
50,729
56,712
178,598
225,219
OPERATING EXPENSES
35,993
43,092
143,226
181,181
INCOME FROM OPERATIONS
14,736
13,620
35,372
44,038
INTEREST EXPENSE AND OTHER – net
(5,276
)
(5,859
)
(21,218
)
(18,270
)
INCOME BEFORE INCOME TAX EXPENSE
9,460
7,761
14,154
25,768
INCOME TAX EXPENSE
2,748
1,246
3,728
5,303
NET INCOME
$
6,712
$
6,515
$
10,426
$
20,465
INCOME PER SHARE
Basic
$
0.91
$
0.89
$
1.42
$
2.80
Diluted
$
0.91
$
0.89
$
1.41
$
2.78
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic
7,385
7,329
7,363
7,317
Diluted
7,405
7,345
7,381
7,369
Rocky Brands, Inc. and
Subsidiaries
Reconciliation of GAAP
Measures to Non-GAAP Measures
(In thousands, except share
amounts)
Three Months Ended
Year Ended
December 31,
December 31,
2023
2022
2023
2022
NET SALES
NET SALES, AS REPORTED
$
125,952
$
138,926
$
461,833
$
615,475
ADD: RETURNS RELATING TO SUPPLIER
DISPUTE
-
-
1,542
-
LESS: DISPOSITION OF INVENTORY ASSETS
-
-
-
(3,569
)
ADJUSTED NET SALES
$
125,952
$
138,926
$
463,375
$
611,906
COST OF GOODS
SOLD
COST OF GOODS SOLD, AS REPORTED
$
75,223
$
82,214
$
283,235
$
390,256
LESS: SUPPLIER DISPUTE INVENTORY
ADJUSTMENT
-
-
(181
)
-
LESS: DISPOSITION OF INVENTORY ASSETS
-
-
-
(2,444
)
ADJUSTED COST OF GOODS SOLD
$
75,223
$
82,214
$
283,054
$
387,812
GROSS
MARGIN
GROSS MARGIN, AS REPORTED
$
50,729
$
56,712
$
178,598
$
225,219
ADJUSTED GROSS MARGIN
$
50,729
$
56,712
$
180,321
$
224,094
OPERATING
EXPENSES
OPERATING EXPENSES, AS REPORTED
$
35,993
$
43,092
$
143,226
$
181,181
LESS: ACQUISITION-RELATED AMORTIZATION
(692
)
(764
)
(2,840
)
(3,110
)
LESS: DISPOSITION OF ASSETS
-
-
-
(33
)
LESS: CLOSURE OF MANUFACTURING
FACILITY
(100
)
-
(498
)
-
LESS: ACQUISITION-RELATED INTEGRATION
EXPENSES
-
-
-
(397
)
LESS: RESTRUCTURING COSTS
-
(927
)
(1,486
)
(2,128
)
ADJUSTED OPERATING EXPENSES
$
35,201
$
41,401
$
138,402
$
175,513
INCOME FROM
OPERATIONS, ADJUSTED
$
15,528
$
15,311
$
41,919
$
48,581
INTEREST EXPENSE AND OTHER – net, AS
REPORTED
$
(5,276
)
$
(5,859
)
$
(21,218
)
$
(18,270
)
LESS: GAIN ON SALE OF BUSINESS
-
-
(1,341
)
-
ADJUSTED INTEREST EXPENSE AND OTHER –
net
(5,276
)
(5,859
)
(22,559
)
(18,270
)
NET
INCOME
NET INCOME, AS REPORTED
$
6,712
$
6,515
$
10,426
$
20,465
TOTAL NON-GAAP ADJUSTMENTS
792
1,691
5,206
4,543
TAX IMPACT OF ADJUSTMENTS
(230
)
(271
)
(1,371
)
(935
)
ADJUSTED NET INCOME
$
7,274
$
7,935
$
14,261
$
24,073
NET INCOME PER SHARE, AS REPORTED
BASIC
$
0.91
$
0.89
$
1.42
$
2.80
DILUTED
$
0.91
$
0.89
$
1.41
$
2.78
ADJUSTED NET INCOME PER SHARE
BASIC
$
0.98
$
1.08
$
1.94
$
3.29
DILUTED
$
0.98
$
1.08
$
1.93
$
3.27
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC
7,385
7,329
7,363
7,317
DILUTED
7,405
7,345
7,381
7,369
Use of Non-GAAP Financial
Measures
In addition to GAAP financial measures, we present the following
non-GAAP financial measures: "adjusted net sales," "adjusted cost
of goods sold," "adjusted gross margin," "adjusted operating
expenses," "adjusted operating income" (or "income from operations,
adjusted")," "adjusted net income," and "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
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 relating
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 relating
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 the
Servus Brand 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 Servus brand. 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/20240228101632/en/
Company: Tom Robertson Chief Operating Officer, Chief Financial
Officer, and Treasurer (740) 753-9100 Investor Relations: Brendon
Frey ICR, Inc. (203) 682-8200
Rocky Brands (NASDAQ:RCKY)
Historical Stock Chart
From Apr 2024 to May 2024
Rocky Brands (NASDAQ:RCKY)
Historical Stock Chart
From May 2023 to May 2024