Rocky Brands Inc. (RCKY)
Q1 2010 Earnings Call
April 22, 2010; 04:30pm ET
Mike Brooks - Chairman & Chief Executive Officer
David Sharp - President & Chief Operating Officer
Jim McDonald - Chief Financial Officer & Treasurer
Kevin Ken - Robert W Baird
Reed Anderson – D. A. Davidson & Co
Previous Statements by RCKY
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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, risks and uncertainties, which may cause actual results to differ materially.
We assume no obligation to update such statements. For a complete discussion of the risks and uncertainties, please refer to today’s press release and reports filed with the Securities and Exchange Commission, including Rocky’s Form 10-K for the year ended December 31, 2009.
Now I’ll turn the conference over to Mr. Mike Brooks, Chairman and Chief Executive Officer of Rocky Brands.
Thank you, and I thank everyone for joining us this afternoon. With me on today’s call are David Sharp, President and Chief Operating Officer; Jim McDonald, our Chief Financial Officer and Treasurer.
Today we reported first quarter results that were a significant improvement over the same period a year ago. This included 12% revenue growth, driven by the sales gains in our wholesale and military segments; a 50% reduction in our loss per share. In our wholesale channels we experienced positive reaction to many of our new work lines, which is translated into healthy reorders for several top selling styles.
Over the past year we put greater emphasis on product design, focusing on developing innovative footwear that is comfortable and durable, while at the same time more visually appealing to the consumer, and this has helped us regain important market share.
We’ve also improved our inventory management, and increased our speed to market, which has been critical over the past 12 to 18 months, as retailers are now buying closer to season. This has helped us dramatically lower our borrowing on our credit facility and has reflected in our funded debt levels being down more than $39 million or 46% to $46.7 million at March 31, 2010, from $86.2 million on the same date a year ago.
Our EGL sales were down mostly, however it was the smallest decline in over a year as we continue to successfully transition more accounts to our direct order, direct ship platform. We began this process in Ernest late in 2008, and we were up against tough sales comparisons through 2009, as we took more of our mobile shoe stores off the road. But while sales were down in 2009, expense also came down and as we began 2010 we are well positioned to drive operating leverage in this division.
Finally sales of the footwear to the military increased nearly $5 million compared to a year ago, and shipments under our $29 million contract had accelerated. To-date we received $8 million of the $14.25 million we have received in purchase orders under this contract, but remaining 6.5 million should be shipped during the second and third quarter. We are currently awaiting the delivery schedule for the remaining $14.5 million.
I will now turn the call over to Jim, who will review the financials in more detail.
Thanks Mike. Net sales for the first quarter increased 12% to $56.1 million compared to $50.1 million for the corresponding period a year ago. Wholesale sales for the first quarter increased 5.2% to $37.9 million, compared to $36 million last year.
The sales increase was driven by a 9.4% gain in our work category, with our own brand, Georgia Boot, and Rocky combined increasing 14%, while our license brand Dickies declined 20.6%. In addition sales in our western category increased 13.7%. We also experienced a modest increase in our hunting category, offset by a modest decrease in duty sales.
Detailed sales for the first quarter were $12.9 million, down 5.7% from sales of $13.7 million a year ago. The modest decline was the result of our ongoing transition to a more direct order, direct-shipped platform, and the decision to our Lehigh mobile stores from operating to help lower cost.
Military segment sales were $5.2 million versus $0.3 million for the same period in 2009. Gross profit in the first quarter was $18.8 million or 33.4% of sales compared to $20.1 million or 40.1% of sales for the same period last year.
The decline in gross margin was primarily attributable to lower wholesale margin, due to increased manufacturing cost per pair in our company owned factory, and an increase in sales to the military, which carry lower gross margins than our retail and wholesale divisions. We currently project gross margin to increase sequentially over the next three quarters, as cost pre pair in our factories decreased as a result of increased production schedules.
Selling, general and administrative expenses decreased 9.6% or $1.9 million to $18.0 million or 32.1% of sales for the first quarter of 2010, compared to $19.9 million or 39.8% of sales a year ago. The decrease is primarily the result of reductions in salaries and benefits, bad debt expense and Lehigh mobile store expenses.