First Quarter Sales Increased to $167.0
Million
Rocky Brands, Inc. (NASDAQ: RCKY) today announced financial
results for its first quarter ended March 31, 2022.
First Quarter 2022
Overview
- Net sales increased 90.5% to $167.0 million
- Wholesale segment sales increased 126.2%; Retail segment sales
increased 19.3%
- Operating income increased 100.5% to $13.2 million
- Adjusted operating income increased 17.7% to $14.2 million
- Net income increased 63.4% to $7.3 million, or $0.99 per
diluted share
- Adjusted net income decreased 6.8% to $8.2 million, or
$1.10 per diluted share
“The year has started off well with demand for our brands
remaining very strong,” said Jason Brooks, Chairman, President and
Chief Executive Officer. “We have built a powerful brand portfolio
featuring innovative footwear that is resonating with consumers
across multiple categories led by work, western and outdoor. To
better support growth and improve the organization’s ability to
capitalize on market opportunities, we have invested in additional
distribution and fulfillment capacity and hired more personnel to
help execute these critical functions. The combination of the
current cost environment and tight labor market has resulted in
higher temporary spending to bring our new facility up to speed. We
are making good progress and anticipate gaining further
efficiencies as the year proceeds, enabling us to translate our
top-line strength into enhanced profitability. At the same time, we
expect to manage inventories down to more normalized levels, which
will be another source of cash utilized to reduce debt. We are
excited about the near and long-term prospects for Rocky Brands and
are focused on continuing to create value for all of our
stakeholders.”
First Quarter Review
First quarter net sales increased 90.5% to $167.0 million
compared with $87.7 million in the first quarter of 2021. First
quarter 2022 net sales include $64.0 million in Boston Group net
sales compared with $6.5 million in the same period last year. The
Boston Group is defined as The Original Muck Boot Company, XTRATUF,
Servus, NEOS and Ranger brands acquired from Honeywell
International Inc. on March 15, 2021.
Wholesale sales for the first quarter increased 126.2% to $134.0
million compared to $59.2 million for the same period in 2021.
Retail sales for the first quarter increased 19.3% to $28.6 million
compared to $24.0 million for the same period last year. Contract
manufacturing segment sales, which include contract military sales
and private label programs, were $4.4 million in the first quarter
of 2022 and 2021.
Gross margin in the first quarter of 2022 was $62.8 million, or
37.6% of net sales, compared to $35.1 million, or 40.1% of net
sales, for the same period last year. The decrease in gross margin
was mainly attributable to the increase in inbound freight costs
coupled with the delayed impact of our price increases and a lower
mix of retail segment sales compared with the year ago period,
which carry higher gross margins than the wholesale and contract
manufacturing segments.
Operating expenses were $49.6 million, or 29.7% of net sales,
for the first quarter of 2022 compared to $28.6 million, or 32.6%
of net sales, for the same period a year ago. Excluding $1.0
million in acquisition related amortization and integration
expenses in the first quarter of 2022 and $5.2 million in
acquisition related expenses in the first quarter of 2021,
operating expenses were $48.6 million or 29.1% of net sales in the
current year period and $23.4 million, or 26.7% of net sales in the
year ago period. The increase in operating expenses was driven
primarily by the expenses associated with the acquired brands and
higher logistics and fulfillment costs including temporary spending
associated with the opening of the new distribution facility in
Reno, Nevada. (See below for a reconciliation of GAAP financial
measures to all non-GAAP financial measures used in this
release).
Income from operations for the first quarter of 2022 was $13.2
million, or 7.9% of net sales compared to $6.6 million or 7.5% of
net sales for the same period a year ago. Adjusted operating income
for the first quarter of 2022 was $14.2 million, or 8.5% of net
sales compared to adjusted operating income of $12.1 million, or
13.8% of net sales a year ago.
Interest expense for the first quarter of 2022 was $3.9 million
compared with $0.7 million a year ago. The increase reflected
interest payments on the senior term loan and credit facility used
to finance the Boston Group acquisition.
The Company reported first quarter 2022 net income of $7.3
million, or $0.99 per diluted share compared to net income of $4.5
million, or $0.61 per diluted share in the first quarter of 2021.
Adjusted net income for the first quarter of 2022, was $8.2
million, or $1.10 per diluted share compared to adjusted net income
of $8.7 million, or $1.19 per diluted share in the first quarter of
2021.
Balance Sheet Review
Cash and cash equivalents were $15.0 million at March 31, 2022
compared to $8.9 million on the same date a year ago.
Total debt at March 31, 2022 was $267.7 million which includes
$126.8 million of senior term loan and borrowings under the
Company's senior secured asset-backed credit facility.
Inventories at March 31, 2022 increased to $289.2 million
compared to $125.1 million on the same date a year ago. The change
in inventories was driven by overall cost increases and strong
sales growth, combined with additional inventory on hand as the
result of increased transit times and the distribution and
fulfillment challenges experienced in the second half of 2021. The
Company plans to realign inventory levels with sales growth and
inventory purchasing strategies by the end of 2022.
As of March 31, 2021 the amount of Goodwill arising from our
Acquisition was not yet determined and therefore was included in
Identified Intangible assets. Upon finalizing our purchase price
accounting, Goodwill was valued and separated from intangible
assets in the balance sheet.
Conference Call
Information
The Company's conference call to review first quarter 2022
results will be broadcast live over the internet today, Tuesday,
May 3, 2022 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®, NEOS® 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 gain further efficiencies as the year proceeds
enabling the Company to translate top-line strength into enhanced
profitability (Paragraph 2), the expectation that inventory levels
will come down to normalized levels (Paragraph 2), and the
Company’s near and long-term prospects (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 15, 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)
March 31,
December 31,
March 31,
2022
2021
2021
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents
$
14,950
$
5,909
$
8,892
Trade receivables – net
123,387
126,807
84,050
Contract receivables
268
1,062
2,171
Other receivables
260
242
231
Inventories – net
289,230
232,464
125,133
Income tax receivable
2,338
4,294
-
Prepaid expenses
5,875
4,507
4,116
Total current assets
436,308
375,285
224,593
LEASED ASSETS
10,696
11,428
1,696
PROPERTY, PLANT & EQUIPMENT – net
60,958
59,989
51,150
GOODWILL
50,246
50,641
-
IDENTIFIED INTANGIBLES – net
125,528
126,315
170,930
OTHER ASSETS
938
917
715
TOTAL ASSETS
$
684,674
$
624,575
$
449,084
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable
$
156,890
$
114,632
$
45,077
Contract liabilities
268
1,062
2,927
Current Portion of Long-Term Debt
3,250
3,250
3,250
Accrued expenses:
Salaries and wages
3,715
3,668
3,005
Taxes - other
2,054
849
618
Accrued freight
1,735
1,798
1,479
Commissions
1,689
2,447
1,185
Accrued duty
18,873
5,469
6,953
Accrued interest
-
2,133
-
Income tax payable
-
-
2,357
Other
8,014
4,828
5,343
Total current liabilities
196,488
140,136
72,194
LONG-TERM DEBT
264,486
266,794
183,019
LONG-TERM TAXES PAYABLE
169
169
169
LONG-TERM LEASE
8,200
8,809
1,178
DEFERRED INCOME TAXES
10,293
10,293
8,271
DEFERRED LIABILITIES
584
519
386
TOTAL LIABILITIES
480,220
426,720
265,217
SHAREHOLDERS' EQUITY:
Common stock, no par value;
25,000,000 shares authorized; issued and
outstanding March 31, 2022 - 7,311,059; December 31, 2021 -
7,302,199; March 31, 2021 7,280,711
68,454
68,061
66,856
Retained earnings
136,000
129,794
117,011
Total shareholders' equity
204,454
197,855
183,867
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
$
684,674
$
624,575
$
449,084
Rocky Brands, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations
(In thousands, except share
amounts)
Three Months Ended
March 31,
2022
2021
NET SALES
$
167,025
$
87,667
COST OF GOODS SOLD
104,198
52,528
GROSS MARGIN
62,827
35,139
OPERATING EXPENSES
49,630
28,558
INCOME FROM OPERATIONS
13,197
6,581
INTEREST EXPENSE AND OTHER EXPENSES
(3,907
)
(747
)
INCOME BEFORE INCOME TAX EXPENSE
9,290
5,834
INCOME TAX EXPENSE
1,951
1,342
NET INCOME
$
7,339
$
4,492
INCOME PER SHARE
Basic
$
1.00
$
0.62
Diluted
$
0.99
$
0.61
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic
7,306
7,258
Diluted
7,410
7,348
Rocky Brands, Inc. and
Subsidiaries
Reconciliation of GAAP
Measures to Non-GAAP Measures
(In thousands, except share
amounts)
Three Months Ended
March 31,
2022
2021
GROSS MARGIN
GROSS MARGIN, AS REPORTED
$
62,827
$
35,139
ADD: INVENTORY FAIR VALUE ADJUSTMENT
-
331
ADJUSTED GROSS MARGIN
$
62,827
$
35,470
OPERATING
EXPENSES
OPERATING EXPENSES, AS REPORTED
$
49,630
$
28,558
LESS: ACQUISITION-RELATED INTEGRATION
EXPENSES
265
5,193
LESS: ACQUISITION-RELATED AMORTIZATION
782
-
ADJUSTED OPERATING EXPENSES
48,583
23,365
INCOME FROM
OPERATIONS, ADJUSTED
$
14,244
$
12,105
OTHER
EXPENSES
$
(3,907
)
$
(747
)
NET
INCOME
NET INCOME, AS REPORTED
$
7,339
$
4,492
ADD: TOTAL NON-GAAP ADJUSTMENTS
1,047
5,524
LESS: TAX IMPACT OF ADJUSTMENTS
(236
)
(1,271
)
ADJUSTED NET INCOME
$
8,150
$
8,745
NET INCOME PER SHARE, AS REPORTED
BASIC
$
1.00
$
0.62
DILUTED
$
0.99
$
0.61
ADJUSTED NET INCOME PER SHARE
BASIC
$
1.12
$
1.20
DILUTED
$
1.10
$
1.19
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC
7,306
7,258
DILUTED
7,410
7,348
Use of Non-GAAP Financial
Measures
In addition to GAAP financial measures, we present the following
non-GAAP financial measures: “non-GAAP Non-GAAP Adjusted gross
margin,” “Non-GAAP Adjusted operating expenses,” “Non-GAAP Adjusted
net income,” and “Non-GAAP Adjusted earnings 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
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 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
integration expenses for purposes of calculating certain non-GAAP
measures because these costs do not reflect our current operating
performance. 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
expense 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220503006039/en/
Company: Tom Robertson Chief Financial Officer (740) 753-9100
Investor Relations: Brendon Frey ICR, Inc. (203) 682-8200
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