Rocky Brands, Inc. (NASDAQ: RCKY) today announced financial
results for its first quarter ended March 31, 2023.
First Quarter 2023
Overview
- Net sales decreased 33.9% to $110.4 million
- Wholesale segment sales decreased 40.2%
- Retail segment revenue increased 3.1%
- Gross margin increased 200 basis points to 39.6%
- Operating income was $4.2 million, or $4.9 million on an
adjusted basis
- Net loss was $0.4 million, or $(0.05) per diluted share
- Inventories decreased 22.5% year-over-year
- Total debt at March 31, 2023 was down 17.9% compared with March
31, 2022
“Consumer demand for our brands remains healthy and our gross
margins are up significantly year-over-year despite some industry
headwinds that are pressuring our top-line,” said Jason Brooks,
Chairman, President and Chief Executive Officer. “We experienced
positive sell-through with many of our key accounts during the
first quarter. Unfortunately, our Wholesale performance didn’t
translate into increased sell-in as many of our retail partners are
in the process of working down elevated inventory levels and have
recently adopted a more cautious approach to reorders due to the
current economic backdrop.”
Brooks continued, “In response to more challenging market
conditions, we are taking actions to reduce expenses and protect
profitability. We also generated over $2 million in annualized
interest expense savings by utilizing the proceeds from our sale of
the Servus brand in March to pay down more than $17 million on our
senior term loan and credit facility. While the year has started
slower than expected, we are confident that the strength of our
brand portfolio has the Company positioned to accelerate growth
once the operating environment improves.”
First Quarter 2023
Review
First quarter net sales decreased 33.9% to $110.4 million
compared with $167.0 million in the first quarter of 2022.
Wholesale sales for the first quarter decreased 40.2% to $80.1
million compared to $134.0 million for the same period in 2022.
Retail sales for the first quarter increased 3.1% to $29.5 million
compared to $28.6 million for the same period last year. Contract
Manufacturing sales, which include contract military sales and
private label programs, were $0.9 million in the first quarter of
2023 compared to $4.4 million in the prior year period. The
decrease in Contract Manufacturing sales was due to the expiration
of certain contracts with the U.S. Military.
Gross margin in the first quarter of 2023 was $43.8 million, or
39.6% of net sales, compared to $62.8 million, or 37.6% of net
sales, for the same period last year. The increase in gross margin
as a percentage of net sales was due to the realization of pricing
actions taken in 2022, as well as decreases in in-bound logistics
costs. We experienced an increased mix of Retail segment sales
which carry higher gross margins than the Wholesale and Contract
Manufacturing segments.
Operating expenses were $39.6 million, or 35.9% of net sales,
for the first quarter of 2023 compared to $49.6 million, or 29.7%
of net sales, for the same period a year ago. Excluding $0.8
million of acquisition-related amortization in the first quarter of
2023 and $1.0 million in acquisition-related amortization and
integration expenses in the first quarter of 2022, adjusted
operating expenses were $38.8 million in the current year period
and $48.6 million in the year ago period. The decrease in operating
expenses was driven primarily by a decrease in variable expenses
associated with lower sales and improved distribution center
efficiencies compared with the year ago period. As a percentage of
net sales, adjusted operating expenses were 35.2% in the first
quarter of 2023 compared with 29.1% in the year ago period.
Income from operations for the first quarter of 2023 was $4.2
million, or 3.8% of net sales compared to $13.2 million or 7.9% of
net sales for the same period a year ago. Adjusted operating income
for the first quarter of 2023 was $4.9 million, or 4.5% of net
sales compared to adjusted operating income of $14.2 million, or
8.5% of net sales a year ago.
Interest expense for the first quarter of 2023 was $6.1 million
compared with $3.9 million a year ago. The increase reflected
increased interest rates on interest payments on the senior term
loan and credit facility.
The Company reported a first quarter net loss of $0.4 million,
or $(0.05) per diluted share compared to net income of $7.3
million, or $0.99 per diluted share in the first quarter of 2022.
Adjusted net loss for the first quarter of 2023 was $0.8 million,
or $(0.12) per diluted share, compared to adjusted net income of
$8.2 million, or $1.10 per diluted share in the year ago
period.
Recent Developments
In April 2022, Rocky Brands received a three-year contract to
produce “Hot Weather” combat boots for the U.S. Military with a
total value of $45.0 million. The Company expects to begin
fulfilling orders in the fourth quarter of 2023.
Balance Sheet Review
Cash and cash equivalents were $4.9 million at March 31, 2023
compared to $15.0 million on the same date a year ago.
Total debt at March 31, 2023 was $219.8 million consisting of
$95.8 million senior term loan and $126.6 million of borrowings
under the Company's senior secured asset-backed credit facility.
During the first quarter of 2023, the Company paid down $20.5
million of its senior term loan. Compared with March 31, 2022 and
December 31, 2022, total debt at March 31, 2023 was down 17.9% and
14.4%, respectively.
Inventories at March 31, 2023 were $224.1 million, down 22.5%
compared to $289.2 million on the same date a year ago and down
4.8% compared with $235.4 million at December 31, 2022.
Conference Call
Information
The Company's conference call to review first quarter 2023
results will be broadcast live over the internet today, Tuesday,
May 2, 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 management's
confidence in the strength of the Company's brand profile
(Paragraph 3), and the Company's position to accelerate growth once
the operating environment improves (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). 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)
March 31,
December 31,
March 31,
2023
2022
2022
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents
$
4,946
$
5,719
$
14,950
Trade receivables – net
73,650
94,953
123,387
Contract receivables
-
-
268
Other receivables
2,235
908
260
Inventories – net
224,124
235,400
289,230
Income tax receivable
-
-
2,338
Prepaid expenses
5,619
4,067
5,875
Total current assets
310,574
341,047
436,308
LEASED ASSETS
10,153
11,014
10,696
PROPERTY, PLANT & EQUIPMENT – net
54,666
57,359
60,958
GOODWILL
47,844
50,246
50,246
IDENTIFIED INTANGIBLES – net
114,716
121,782
125,528
OTHER ASSETS
1,028
942
938
TOTAL ASSETS
$
538,981
$
582,390
$
684,674
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable
$
66,783
$
69,686
$
156,890
Contract liabilities
-
-
268
Current Portion of Long-Term Debt
2,823
3,250
3,250
Accrued expenses:
Salaries and wages
1,816
1,253
3,715
Taxes – other
857
1,325
2,054
Accrued freight
2,098
2,413
1,735
Commissions
706
1,934
1,689
Accrued duty
6,642
6,764
18,873
Accrued interest
2,311
2,822
-
Income tax payable
1,052
1,172
-
Other
5,902
5,675
8,014
Total current liabilities
90,990
96,294
196,488
LONG-TERM DEBT
216,973
253,646
264,486
LONG-TERM TAXES PAYABLE
169
169
169
LONG-TERM LEASE
7,501
8,216
8,200
DEFERRED INCOME TAXES
8,006
8,006
10,293
DEFERRED LIABILITIES
1,053
586
584
TOTAL LIABILITIES
324,692
366,917
480,220
SHAREHOLDERS' EQUITY:
Common stock, no par value;
25,000,000 shares authorized; issued and
outstanding March 31, 2023 - 7,346,650; December 31, 2022 -
7,339,011; March 31, 2022 - 7,311,059
70,107
69,752
68,454
Retained earnings
144,182
145,721
136,000
Total shareholders' equity
214,289
215,473
204,454
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
$
538,981
$
582,390
$
684,674
Rocky Brands, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations
(In thousands, except share
amounts)
(Unaudited)
Three Months Ended
March 31,
2023
2022
NET SALES
$
110,445
$
167,025
COST OF GOODS SOLD
66,686
104,198
GROSS MARGIN
43,759
62,827
OPERATING EXPENSES
39,604
49,630
INCOME FROM OPERATIONS
4,155
13,197
INTEREST EXPENSE AND OTHER INCOME –
net
(4,664
)
(3,907
)
(LOSS) INCOME BEFORE INCOME TAX
EXPENSE
(509
)
9,290
INCOME TAX (BENEFIT) EXPENSE
(111
)
1,951
NET (LOSS) INCOME
$
(398
)
$
7,339
(LOSS) INCOME PER SHARE
Basic
$
(0.05
)
$
1.00
Diluted
$
(0.05
)
$
0.99
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic
7,346
7,306
Diluted
7,346
7,410
Rocky Brands, Inc. and
Subsidiaries
Reconciliation of GAAP
Measures to Non-GAAP Measures
(In thousands, except share
amounts)
(Unaudited)
Three Months Ended
March 31,
2023
2022
OPERATING
EXPENSES
OPERATING EXPENSES, AS REPORTED
$
39,604
$
49,630
LESS: ACQUISITION-RELATED AMORTIZATION
(764
)
(782
)
LESS: ACQUISITION-RELATED INTEGRATION
EXPENSES
-
(265
)
ADJUSTED OPERATING EXPENSES
$
38,840
$
48,583
ADJUSTED OPERATING
INCOME
$
4,919
$
14,244
INTEREST EXPENSE AND
OTHER INCOME – net
INTEREST EXPENSE AND OTHER INCOME, AS
REPORTED
$
(4,664
)
$
(3,907
)
LESS: GAIN ON SALE OF BUSINESS
(1,341
)
-
ADJUSTED INTEREST EXPENSE AND OTHER INCOME
– net
(6,005
)
(3,907
)
NET (LOSS)
INCOME
NET (LOSS) INCOME, AS REPORTED
$
(398
)
$
7,339
TOTAL NON-GAAP ADJUSTMENTS
(577
)
1,047
TAX IMPACT OF ADJUSTMENTS
126
(236
)
ADJUSTED NET (LOSS) INCOME
$
(849
)
$
8,150
NET (LOSS) INCOME PER SHARE, AS
REPORTED
BASIC
$
(0.05
)
$
1.00
DILUTED
$
(0.05
)
$
0.99
ADJUSTED NET (LOSS) INCOME PER SHARE
BASIC
$
(0.12
)
$
1.12
DILUTED
$
(0.12
)
$
1.10
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC
7,346
7,306
DILUTED
7,346
7,410
Use of Non-GAAP Financial
Measures
In addition to GAAP financial measures, we present the following
non-GAAP financial measures: "non-GAAP adjusted operating
expenses," "non-GAAP adjusted operating income," "non-GAAP adjusted
interest and other income," "non-GAAP adjusted net (loss) income,"
and "non-GAAP adjusted net (loss) 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
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.
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
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.
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 exclude 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/20230502005949/en/
Company Contact: Tom Robertson Chief Operating Officer (740)
753-9100
Investor Relations: Brendon Frey ICR, Inc. (203) 682-8200
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