Second Quarter Sales Increased 23.1% to
$162.0 Million
Rocky Brands, Inc. (NASDAQ: RCKY) today announced financial
results for its second quarter ended June 30, 2022.
Second Quarter 2022
Overview
- Net sales increased 23.1% to $162.0 million
- Wholesale segment sales increased 29.7%; Retail segment sales
increased 16.4%
- Operating income was $5.6 million, or $7.7 million on an
adjusted basis
- Net income was $0.9 million, or $0.12 per diluted share
- Adjusted net income was $2.5 million, or $0.34 per diluted
share
“We continued to experience solid demand for our portfolio of
leading brands during the second quarter,” said Jason Brooks,
Chairman, President and Chief Executive Officer. “Our focus on
developing innovative, functional footwear at accessible price
points is driving share gains across multiple markets led by work,
western and outdoor. While we didn’t experience any noticeable
sales slowdown due to growing inflation and general economic
uncertainty during the first half of 2022, our results were
negatively impacted by higher than expected costs throughout our
supply chain. We took actions early in the year to address certain
cost pressures, and recently enacted price increases to help offset
additional margin headwinds that emerged over the past couple of
months. We are confident these steps will yield improvements in the
coming quarters, which along with our previously announced expense
synergy savings, positions the Company to deliver sustained,
profitable growth over the long-term.”
Second Quarter Review
Second quarter net sales increased 23.1% to $162.0 million
compared with $131.6 million in the second quarter of 2021.
Wholesale sales for the second quarter increased 29.7% to $131.2
million compared to $101.1 million for the same period in 2021.
Retail sales for the second quarter increased 16.4% to $26.0
million compared to $22.3 million for the same period last year.
Contract Manufacturing segment sales, which include contract
military sales and private label programs, were $4.9 million in the
second quarter of 2022 compared to $8.1 million in the prior year.
The decrease in Contract Manufacturing sales was due to expiring
contracts with U.S. Military.
Gross margin in the second quarter of 2022 was $53.8 million, or
33.2% of net sales, compared to $49.2 million, or 37.4% of net
sales, for the same period last year. Adjusted gross margin in the
second quarter of 2021, which excluded a $2.3 million inventory
purchase accounting adjustment, was $51.4 million, or 39.1% of net
sales. The decrease in gross margin was mainly attributable to
increases in product costs, inbound freight costs and other
shipping and logistics costs compared with the year ago period.
(See below for a reconciliation of GAAP financial measures to
non-GAAP financial measures).
Operating expenses were $48.2 million for the second quarter of
2022 compared to $40.7 million for the same period a year ago.
Excluding $2.1 million of acquisition related amortization,
integration expenses and restructuring costs in the second quarter
of 2022 and $2.3 million of acquisition related expenses in the
second quarter of 2021, adjusted operating expenses were $46.0
million in the current year period and $38.5 million in the year
ago period. The increase in operating expenses was driven primarily
by higher outbound freight expense and higher variable expenses
associated with the increase in sales. As a percentage of net
sales, adjusted operating expense improved 80-basis points to 28.4%
in the second quarter 2022 compared with 29.2% in the year ago
period.
Income from operations for the second quarter of 2022 was $5.6
million, or 3.5% of net sales compared to $8.4 million, or 6.4% of
net sales, for the same period a year ago. Adjusted operating
income for the second quarter of 2022 was $7.7 million, or 4.8% of
net sales compared to adjusted operating income of $13.0 million,
or 9.9% of net sales a year ago.
Interest expense for the second quarter of 2022 was $4.3 million
compared with $3.4 million a year ago.
The Company reported second quarter 2022 net income of $0.9
million, or $0.12 per diluted share compared to net income of $3.9
million, or $0.52 per diluted share in the second quarter of 2021.
Adjusted net income for the second quarter of 2022, was $2.5
million, or $0.34 per diluted share compared to adjusted net income
of $7.4 million, or $0.99 per diluted share in the second quarter
of 2021.
Balance Sheet Review
Cash and cash equivalents were $5.8 million at June 30, 2022
compared to $8.4 million on the same date a year ago.
Total debt at June 30, 2022 was $284.6 million which includes
$125.9 million of senior term loan and borrowings under the
Company's senior secured asset-backed credit facility.
Inventories at June 30, 2022 were $287.8 million compared to
$143.5 million on the same date a year ago and $289.2 million at
March 31, 2022. The year-over-year change in inventories was driven
by the distribution and fulfillment challenges experienced in the
second half of 2021 and overall cost increases and strong sales
growth, combined with additional inventory on hand as the result of
increased transit times. Compared with March 31, 2022, inventories
are down slightly including a $45 million reduction in in-transit
inventory, and the Company plans to further realign inventory
levels with sales growth and inventory purchasing strategies over
the coming quarters.
Conference Call
Information
The Company's conference call to review second quarter 2022
results will be broadcast live over the internet today, Tuesday,
August 2, 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 continue to develop innovative, functional
footwear at accessible prices (Paragraph 2), the ability to
continue to drive share gains across multiple markets, including
work, western, and outdoor (Paragraph 2), yield improvements in
coming quarters through recent price increases and actions taken
earlier in the year to address certain cost pressures (Paragraph
2), and the Company’s position to deliver sustained, profitable
growth 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 15,
2022) and the quarterly report on Form 10-Q for the quarter ended
March 31, 2022 (filed May 3, 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)
June 30,
December 31,
June 30,
2022
2021
2021
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents
$
5,802
$
5,909
$
8,358
Trade receivables – net
115,794
126,807
79,963
Contract receivables
-
1,062
2,017
Other receivables
224
242
235
Inventories – net
287,817
232,464
143,516
Income tax receivable
6,360
4,294
2,290
Prepaid expenses
5,216
4,507
4,772
Total current assets
421,213
375,285
241,151
LEASED ASSETS
10,376
11,428
2,626
PROPERTY, PLANT & EQUIPMENT – net
61,352
59,989
55,956
GOODWILL
50,246
50,641
48,375
IDENTIFIED INTANGIBLES – net
124,740
126,315
127,904
OTHER ASSETS
911
917
879
TOTAL ASSETS
$
668,838
$
624,575
$
476,891
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable
130,246
$
114,632
$
67,224
Contract liabilities
-
1,062
2,017
Current Portion of Long-Term Debt
3,250
3,250
3,250
Accrued expenses:
Salaries and wages
4,869
3,668
4,363
Taxes - other
1,674
849
536
Accrued freight
2,290
1,798
2,670
Commissions
1,428
2,447
1,068
Accrued duty
12,144
5,469
6,534
Accrued interest
2,705
2,133
2,197
Other
5,693
4,828
5,115
Total current liabilities
164,299
140,136
94,974
LONG-TERM DEBT
281,365
266,794
184,121
LONG-TERM TAXES PAYABLE
169
169
169
LONG-TERM LEASE
7,636
8,809
1,867
DEFERRED INCOME TAXES
10,293
10,293
8,272
DEFERRED LIABILITIES
609
519
392
TOTAL LIABILITIES
464,371
426,720
289,795
SHAREHOLDERS' EQUITY:
Common stock, no par value;
25,000,000 shares authorized; issued and
outstanding June 30, 2022 - 7,313,075; December 31, 2021 -
7,302,199; June 30, 2021 - 7,283,434
68,680
68,061
67,210
Retained earnings
135,787
129,794
119,886
Total shareholders' equity
204,467
197,855
187,096
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
$
668,838
$
624,575
$
476,891
Rocky Brands, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations
(In thousands, except share
amounts)
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
NET SALES
$
162,039
$
131,602
$
329,063
$
219,268
COST OF GOODS SOLD
108,288
82,448
212,486
134,976
GROSS MARGIN
53,751
49,154
116,577
84,292
OPERATING EXPENSES
48,155
40,717
97,785
69,275
INCOME FROM OPERATIONS
5,596
8,437
18,792
15,017
INTEREST EXPENSE AND OTHER EXPENSES
(4,323
)
(3,378
)
(8,230
)
(4,125
)
INCOME BEFORE INCOME TAX EXPENSE
1,273
5,059
10,562
10,892
INCOME TAX EXPENSE
353
1,164
2,304
2,506
NET INCOME
$
920
$
3,895
$
8,258
$
8,386
INCOME PER SHARE
Basic
$
0.13
$
0.53
$
1.13
$
1.15
Diluted
$
0.12
$
0.52
$
1.12
$
1.13
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic
7,313
7,283
7,310
7,271
Diluted
7,389
7,439
7,400
7,402
Rocky Brands, Inc. and
Subsidiaries
Reconciliation of GAAP
Measures to Non-GAAP Measures
(In thousands, except share
amounts)
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
GROSS
MARGIN
GROSS MARGIN, AS REPORTED
$
53,751
$
49,154
$
116,577
$
84,292
ADD: INVENTORY FAIR VALUE ADJUSTMENT
-
2,292
-
2,623
ADJUSTED GROSS MARGIN
$
53,751
$
51,446
$
116,577
$
86,915
OPERATING
EXPENSES
OPERATING EXPENSES, AS REPORTED
$
48,155
$
40,717
$
97,785
$
69,275
LESS: ACQUISITION-RELATED INTEGRATION
EXPENSES
132
1,348
397
6,541
LESS: ACQUISITION-RELATED AMORTIZATION
782
912
1,564
912
LESS: RESTRUCTURING COSTS
1,201
-
1,201
-
ADJUSTED OPERATING EXPENSES
46,040
38,457
94,623
61,822
INCOME FROM
OPERATIONS, ADJUSTED
$
7,711
$
12,989
$
21,954
$
25,093
OTHER
EXPENSES
$
(4,323
)
$
(3,378
)
$
(8,230
)
$
(4,125
)
NET
INCOME
NET INCOME, AS REPORTED
$
920
$
3,895
$
8,258
$
8,386
ADD: TOTAL NON-GAAP ADJUSTMENTS
2,115
4,552
3,162
10,076
LESS: TAX IMPACT OF ADJUSTMENTS
(487
)
(1,047
)
(690
)
(2,318
)
ADJUSTED NET INCOME
$
2,548
$
7,400
$
10,730
$
16,144
NET INCOME PER SHARE, AS REPORTED
BASIC
$
0.13
$
0.53
$
1.13
$
1.15
DILUTED
$
0.12
$
0.52
$
1.12
$
1.13
ADJUSTED NET INCOME PER SHARE
BASIC
$
0.35
$
1.02
$
1.47
$
2.22
DILUTED
$
0.34
$
0.99
$
1.45
$
2.18
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC
7,313
7,283
7,310
7,271
DILUTED
7,389
7,439
7,400
7,402
Use of Non-GAAP Financial
Measures
In addition to GAAP financial measures, we present the following
non-GAAP financial measures: “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.
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.
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/20220802005869/en/
Company Contact: Tom Robertson Chief Financial Officer (740)
753-9100
Investor Relations: Brendon Frey ICR, Inc. (203) 682-8200
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