Rocky Brands, Inc. (RCKY)

Q3 2010 Earnings Call

October 21, 2010 04:30 pm ET

Executives

TST Recommends

Brendon Frey - IR, ICR

Mike Brooks - Chairman & CEO

David Sharp - President & COO

Jim McDonald - EVP, CFO & Treasurer

Analysts

Mitch Kummetz - Robert W. Baird

Reed Anderson - D.A. Davidson

Presentation

Operator

Compare to:
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(Inaudible) Earnings Conference Call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question and answer session. Instructions will be provided at that time for you to queue up the questions. (Operator instructions). I would like to remind everyone that this conference call is being recorded.

And we’ll now turn the conference over to Brendon Frey of ICR.

Brendon Frey

Thanks. Before we begin please note that today’s discussion including the Q&A period may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Such statements are based on information and assumptions available at this time and are subject to change, risk and uncertainties which may cause actual results to differ materially. We assume no obligation to update such statements. For our complete discussion of the risk and uncertainties, please refer today’s press release and reports filed with Securities and Exchange Commission including Rocky’s Form 10-K for the year ended December 31, 2009.

I’ll now turn the conference over to Mr. Mike Brooks, Chairman and Chief Executive Officer of Rocky Brands.

Mike Brooks

Thank you and thanks everyone for joining us this afternoon. With me on toady’s call are David Sharp, President and Chief Operating Officer and Jim McDonald Chief Financial Officer and Treasurer.

We are very pleased with our third quarter results which followed a much improved first half of 2010. Over the past two years, we have detailed the number of changes we have made through our operating platform which has helped drive our enhanced profitability and report our best earning results in more than 16 quarters.

These have included restructuring our retail business, rightsizing our headcount and improving the efficiency of our company operated manufacturing facilities. During this time, we also undertook the task of recapitalizing the company. A process included a successful secondary offerings in May from which we used proceeds to pay down in portion of our high interest senior term loan and just yesterday we finalized our new credit agreements with PNC Bank. Jim will go into more detail on this shortly, but this will complete the current recapitalization and significantly reduce our interest expense going forward.

While a good deal of attention has been focused on cost side of a business, we have and we will continue to invest the time and resources to expand our top line. I think, something that has gone lost this past few years as everyone has been focused on expenses, given the challenging economic conditions; there is a powerful portfolio of brand we continue to operate.

David will discuss growth plans in more detail shortly. But I want to spend a few moments reviewing what drove our solid sales increase this past quarter. Within our wholesale division we experienced strong gains in our work segment led by our GEORGIA BOOT and our Rocky Brands. These increases were driven by better weekly sell through rates of our product lines throughout our strong network of independent accounts and national retail chains.

In 2010, we have introduced several new and innovative work products into the market and the response from customers have been very positive. We have been successful at leveraging GEORGIA BOOT and Rocky’s long history of authenticity to gain market share with updated boots that are lighter, more comfortable and more durable.

These are very important features when our targeted consumers are evaluating their footwear needs and purchases. Our duty segment also posted solid growth in the third quarter as we continue to win business outside the base business Centralized Military Procurement System. Demand for our Special Forces Rocky S2V boot continues to grow and we have quickly added resources to capitalize on this new sales channel which includes the Army and Air Force exchange services for a while.

Lastly, our western segment are only up modestly this quarter. We are encouraged by the early reach on our recent brand extensions under our Durango, line. Utilizing our efficiency in creating light weight footwear we have developed what we believe is the lightest western boot in the market and we are excited about the future potential of this compelling new collection. As we move into the fourth quarter and look up to 2011 we expect the recent sales trend we experienced will continue to drive our top line expansion. Jim will now review the financials and David will discuss our growth plans in more detail. Jim?

Jim McDonald

Thanks Mike. Net sales for the third quarter increased 12.3% to $74.8 million compared to $66.6 million for the corresponding period a year ago. Wholesale sales for the third quarter increased 9% to $59.4 million compared to $54.5 million last year. The sales increase was driven by a 15.5% gain in our work categories with our ultra brands Georgia boots and Rocky increasing 12% and 56% respectively, partially offset by a 35% decline in our licensed brand Dickies.

Our Duty sales also grew nicely, up 18% in the third quarter, while our western sales increased 2% and our Hunting sales decreased 6%. Retail sales for the third quarter were $11.1 million compared to $11.5 million a year ago. Finally, military segment sales were $4.3 million versus $600,000 for the same period in 2009. The increase in military sales was driven by shipments of footwear under our contract with the GSA that was announced in August 2009 and began shipping late in the third quarter of last year.

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