Rocky Brands, Inc. (NASDAQ: RCKY) today announced financial
results for its fourth quarter and year ended December 31,
2022.
Fourth Quarter 2022
Overview
- Net sales decreased 18.0% to $138.9 million
- Wholesale segment sales decreased 26.6%; Retail segment sales
increased 40.8%
- Operating income decreased 25.2% to $13.6 million
- Net income decreased 48.1% to $6.5 million, or $0.89 per
diluted share
- Adjusted net income decreased 42.4% to $7.9 million, or $1.08
per diluted share
Full Year 2022 Overview
- Net sales increased 19.7% to $615.5 million
- Wholesale segment sales increased 24.0%; Retail segment sales
increased 21.9%
- Operating income increased 22.4% to $44.0 million
- Net income remained flat at $20.5 million, or $2.78 per diluted
share
- Adjusted net income decreased 26.0% to $24.1 million, or $3.27
per diluted share
“We completed a very solid year of growth with fourth quarter
results that exceeded expectations,” said Jason Brooks, Chairman,
President and Chief Executive Officer. “Strong gains in our direct
channels helped partially offset anticipated challenges in our
Wholesale segment due to a difficult comparison and an
over-inventoried selling environment. The consistent consumer
demand we experienced in 2022 across multiple footwear categories
led by work, outdoor and western reflects the strength of our brand
portfolio, the appeal of our products, and the loyalty we’ve built
with our target audiences. In order to best capitalize on the
market opportunities that we believe exist for our business, we
have invested in expanding and upgrading our distribution and
fulfillment capabilities, evolved and increased our marketing
programs, and fortified our leadership team. While we are cautious
about near-term trends given the heightened macroeconomic
uncertainty, I am more confident than ever that we have the right
foundation in place to drive profitable growth and enhanced
shareholder value over the long-term.”
Fourth Quarter Review
Fourth quarter net sales decreased 18.0% to $138.9 million
compared with $169.5 million in the fourth quarter of 2021.
Wholesale segment sales for the fourth quarter decreased 26.6% to
$98.9 million compared to $134.8 million for the same period in
2021. Retail segment sales for the fourth quarter increased 40.8%
to $37.3 million compared to $26.5 million for the same period last
year. Contract Manufacturing segment sales, which include contract
military sales and private label programs, decreased 66.6% to $2.7
million compared to $8.1 million in the fourth quarter of 2021. 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 2022 was $56.7 million, or
40.8% of net sales, compared to $63.3 million, or 37.3% of net
sales, for the same period last year. The 350 basis point increase
in gross margin was attributable to a tariff refund with a net
impact of approximately $2.4 million received in the fourth quarter
2022 and a higher mix of Retail segment sales which carry higher
gross margins than the Wholesale and Contract Manufacturing
segments.
Operating expenses were $43.1 million, or 31.0% of net sales,
for the fourth quarter of 2022 compared to $45.1 million, or 26.6%
of net sales, for the same period a year ago. Excluding $1.7
million of acquisition-related amortization and restructuring costs
in the fourth quarter of 2022 and $1.6 million in
acquisition-related amortization and integration expenses in the
fourth quarter of 2021, adjusted operating expenses were $41.4
million for the fourth quarter of 2022 and $43.5 million for the
same period a year ago. The decrease in operating expenses was
driven primarily by a decrease in discretionary spending and
improved distribution center efficiencies compared with the year
ago period. As a percentage of net sales, adjusted operating
expenses were 29.8% in the fourth quarter 2022 compared with 25.7%
in the year ago period.
Income from operations for the fourth quarter of 2022 was $13.6
million, or 9.8% of net sales, compared to $18.2 million or 10.7%
of net sales for the same period a year ago. Adjusted operating
income for the fourth quarter of 2022 was $15.3 million, or 11.0%
of net sales, compared to adjusted operating income of $19.8
million, or 11.7% of net sales, for the same period a year ago.
Interest expense for the fourth quarter of 2022 was $5.9 million
compared with $3.2 million a year ago. The increase reflected
increased interest rates on interest payments on the senior term
loan and credit facility.
The Company reported fourth quarter 2022 net income of $6.5
million, or $0.89 per diluted share compared to net income of $12.6
million, or $1.69 per diluted share, in the fourth quarter of 2021.
Adjusted net income for the fourth quarter of 2022, was $7.9
million, or $1.08 per diluted share, compared to adjusted net
income of $13.8 million, or $1.86 per diluted share, in the fourth
quarter of 2021.
Full Year Review
Full year 2022 net sales increased 19.7% to $615.5 million
compared with $514.2 million in 2021. Full year 2022 net sales
include $3.6 million of inventory net sales related to the
divestiture of the NEOS brand during the third quarter of 2022.
Full year 2021 net sales include $179.0 million, or just over nine
months, in net sales from the Acquired Brands. The Acquired Brands
is defined as The Original Muck Boot Company, XTRATUF, Servus, NEOS
and Ranger brands acquired from Honeywell International Inc. on
March 15, 2021.
Wholesale segment sales for 2022 increased 24.0% to $484.8
million compared to $391.1 million in 2021. Retail segment sales
for the year increased 21.9% to $115.4 million compared to $94.7
million for the same period last year. Contract Manufacturing
segment sales, which includes contract military sales and private
label programs, decreased 46.2% to $15.3 million compared to $28.5
million in 2021.
Gross margin in 2022 was $225.2 million, or 36.6% of net sales,
compared to $194.5 million, or 37.8% of net sales, for 2021.
Adjusted gross margin for 2022, which excludes $1.1 million related
to the divestiture of the NEOS brand, was $224.1 million, or 36.6%
of adjusted net sales. Adjusted gross margin for 2021, which
excluded approximately $3.5 million related to an inventory fair
value adjustment, was $198.0 million, or 38.5% of net sales.
Operating expenses were $181.2 million, or 29.4% of net sales,
for 2022 compared to $158.6 million, or 30.8% of net sales, for
2021. Excluding $5.7 million of acquisition-related amortization
and integration costs, restructuring costs and disposition of
assets in 2022 and $11.9 million in acquisition-related
amortization and integration expenses in 2021, adjusted operating
expenses were $175.5 million in the current year and $146.6 million
in the prior year.
Income from operations for 2022 was $44.0 million, or 7.2% of
net sales, compared to $36.0 million or 7.0% of net sales for 2021.
Adjusted operating income for 2022 was $48.6 million, or 7.9% of
adjusted net sales, compared to adjusted operating income of $51.4
million, or 10.0% of net sales, a year ago.
Interest expense for 2022 was $18.3 million compared with $10.6
million in 2021. The increase reflected an increase in interest
rates on interest payments on the senior term loan and credit
facility.
The effective tax rate for 2022 increased to 20.6% compared to
19.0% for the full year 2021.
The Company reported 2022 net income of $20.5 million, or $2.78
per diluted share compared to net income of $20.6 million, or $2.77
per diluted share in 2021. Adjusted net income for 2022, was $24.1
million, or $3.27 per diluted share compared to adjusted net income
of $32.5 million, or $4.39 per diluted share in 2021.
Balance Sheet Review
Cash and cash equivalents were $5.7 million at December 31, 2022
compared to $5.9 million on the same date a year ago.
Total debt at December 31, 2022 was $256.9 million consisting of
$116.3 million senior term loan and borrowings under the Company's
senior secured asset-backed credit facility. Compared with December
31, 2021 and September 30, 2022, total debt at December 31, 2022
was down 4.9% and 9.8%, respectively.
Inventory at December 31, 2022 was $235.4 million compared to
$232.5 million on the same date a year ago. Compared with June 30,
2022 and September 30, 2022, inventories at December 31, 2022 were
down 18.2% and 11.2%, respectively.
Conference Call
Information
The Company's conference call to review fourth quarter 2022
results will be broadcast live over the internet today, Thursday,
February 23, 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®, Servus® 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 capitalize on market opportunities (Paragraph 2),
the ability of the Company to successfully implement and recognize
benefits from the expansion of, and upgrades to, its distribution
and fulfillment capabilities, as well as changes to its marketing
programs and leadership team (Paragraph 2), and the Company’s
ability to drive profitable growth and enhance shareholder value
over the long-term (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, 2021 (filed March 16, 2022),
and quarterly reports on Form 10-Q for the quarters ended March 31,
2022 (filed May 9, 2022), June 30, 2022 (filed August 9, 2022) and
September 30, 2022 (filed November 8, 2022). 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,
2022
2021
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents
$
5,719
$
5,909
Trade receivables – net
94,953
126,807
Contract receivables
-
1,062
Other receivables
908
242
Inventories – net
235,400
232,464
Income tax receivable
-
4,294
Prepaid expenses
4,067
4,507
Total current assets
341,047
375,285
LEASED ASSETS
11,014
11,428
PROPERTY, PLANT & EQUIPMENT – net
57,359
59,989
GOODWILL
50,246
50,641
IDENTIFIED INTANGIBLES – net
121,782
126,315
OTHER ASSETS
942
917
TOTAL ASSETS
$
582,390
$
624,575
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable
$
69,686
$
114,632
Contract liabilities
-
1,062
Current Portion of Long-Term Debt
3,250
3,250
Accrued expenses:
Salaries and wages
1,253
3,668
Taxes – other
1,325
849
Accrued freight
2,413
1,798
Commissions
1,934
2,447
Accrued duty
6,764
5,469
Accrued interest
2,822
2,133
Income tax payable
1,172
-
Other
5,675
4,828
Total current liabilities
96,294
140,136
LONG-TERM DEBT
253,646
266,794
LONG-TERM TAXES PAYABLE
169
169
LONG-TERM LEASE
8,216
8,809
DEFERRED INCOME TAXES
8,006
10,293
DEFERRED LIABILITIES
586
519
TOTAL LIABILITIES
366,917
426,720
SHAREHOLDERS' EQUITY:
Common stock, no par value;
25,000,000 shares authorized; issued and
outstanding December 31, 2022 - 7,339,011; December 31, 2021 -
7,302,199
69,752
68,061
Retained earnings
145,721
129,794
Total shareholders' equity
215,473
197,855
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
$
582,390
$
624,575
Rocky Brands, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (In
thousands, except share amounts)
Three Months Ended
Year Ended
December 31,
December 31,
2022
2021
2022
2021
NET SALES
$
138,926
$
169,452
$
615,475
$
514,227
COST OF GOODS SOLD
82,214
106,169
390,256
319,691
GROSS MARGIN
56,712
63,283
225,219
194,536
OPERATING EXPENSES
43,092
45,082
181,181
158,564
INCOME FROM OPERATIONS
13,620
18,201
44,038
35,972
INTEREST AND OTHER EXPENSES
(5,859
)
(3,238
)
(18,270
)
(10,603
)
INCOME BEFORE INCOME TAX EXPENSE
7,761
14,963
25,768
25,369
INCOME TAX EXPENSE
1,246
2,417
5,303
4,810
NET INCOME
$
6,515
$
12,546
$
20,465
$
20,559
INCOME PER SHARE
Basic
$
0.89
$
1.72
$
2.80
$
2.82
Diluted
$
0.89
$
1.69
$
2.78
$
2.77
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic
7,329
7,300
7,317
7,283
Diluted
7,345
7,405
7,369
7,409
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,
2022
2021
2022
2021
NET SALES
NET SALES, AS REPORTED
$
138,926
$
169,452
$
615,475
$
514,227
DISPOSITION OF INVENTORY ASSETS
-
-
(3,569
)
-
ADJUSTED NET SALES
$
138,926
$
169,452
$
611,906
$
514,227
COST OF GOODS SOLD
COST OF GOODS SOLD, AS REPORTED
$
82,214
$
106,169
$
390,256
$
319,691
LESS: DISPOSITION OF INVENTORY ASSETS
-
-
(2,444
)
-
LESS: INVENTORY FAIR VALUE ADJUSTMENT
-
-
-
(3,504
)
ADJUSTED COST OF GOODS SOLD
$
82,214
$
106,169
$
387,812
$
316,187
GROSS
MARGIN
GROSS MARGIN AS REPORTED
$
56,712
$
63,283
$
225,219
$
194,536
ADJUSTED GROSS MARGIN
$
56,712
$
63,283
$
224,094
$
198,040
OPERATING
EXPENSES
OPERATING EXPENSES, AS REPORTED
$
43,092
$
45,082
$
181,181
$
158,564
LESS: ACQUISITION-RELATED AMORTIZATION
(764
)
(782
)
(3,110
)
(2,476
)
LESS: DISPOSITION OF ASSETS
-
-
(33
)
-
LESS: ACQUISITION-RELATED INTEGRATION
EXPENSES
-
(803
)
(397
)
(9,445
)
LESS: RESTRUCTURING COSTS
(927
)
-
(2,128
)
-
ADJUSTED OPERATING EXPENSES
$
41,401
$
43,497
$
175,513
$
146,643
INCOME FROM
OPERATIONS, ADJUSTED
$
15,311
$
19,786
$
48,581
$
51,397
INTEREST AND OTHER
EXPENSES
$
(5,859
)
$
(3,238
)
$
(18,270
)
$
(10,603
)
NET
INCOME
NET INCOME, AS REPORTED
$
6,515
$
12,546
$
20,465
$
20,559
TOTAL NON-GAAP ADJUSTMENTS
1,691
1,585
4,543
15,425
TAX IMPACT OF ADJUSTMENTS
(271
)
(357
)
(935
)
(3,471
)
ADJUSTED NET INCOME
$
7,935
$
13,774
$
24,073
$
32,513
NET INCOME PER SHARE, AS REPORTED
BASIC
$
0.89
$
1.72
$
2.80
$
2.82
DILUTED
$
0.89
$
1.69
$
2.78
$
2.77
ADJUSTED NET INCOME PER SHARE
BASIC
$
1.08
$
1.89
$
3.29
$
4.46
DILUTED
$
1.08
$
1.86
$
3.27
$
4.39
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC
7,329
7,300
7,317
7,283
DILUTED
7,345
7,405
7,369
7,409
- The non-GAAP adjustments relate to our U.S. and foreign
business and as such, the income tax charge is calculated using the
effective tax rate for each period presented.
Use of Non-GAAP Financial
Measures
In addition to GAAP financial measures, we present the following
non-GAAP financial measures: “adjusted gross margin,” “adjusted
operating expenses,” “adjusted operating income,” “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
relate to the sale of inventory and related cost of goods sold in
connection with the divestiture 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.
Inventory fair value
adjustments
Inventory fair value adjustments
are costs related to the fair value markup of inventory purchased
with the acquisition of the performance and lifestyle footwear
business of Honeywell International Inc. as required by business
combination accounting rules.
We excluded adjustments related
to the inventory fair value markup for purposes of calculating
certain non-GAAP measures because these costs do not reflect the
manufactured or sourced cost of the inventory of the acquired
business. 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.
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 assets relate
disposals of non-financial assets. This includes the disposal of
non-financial assets and corresponding expenses related to the
divestiture 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 exclude acquisition-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.
Restructuring Costs
Restructuring costs represent
severance expenses associated with headcount reductions and the
closing of the Westwood office following the integration of the
acquired performance and lifestyle footwear business of Honeywell
International Inc.
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230223005857/en/
Company:
Tom Robertson Chief Operating Officer, Chief Financial Officer,
and Treasurer (740) 753-9100
Investor Relations:
Brendon Frey ICR, Inc. (203) 682-8200
Grafico Azioni Rocky Brands (NASDAQ:RCKY)
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