Rocky Brands' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Rocky Brands, Inc. ( RCKY)

Q4 2011 Earnings Conference Call

February 15, 2012 4:30 PM ET

Executives

Brendon Frey – Investor Relations, ICR

David Sharp – President and Chief Executive Officer

Jim McDonald – Chief Financial Officer

Analysts

Mitch Kummetz – Robert W. Baird

Sam Bergman – Bayberry Asset Management

Mark Cooper – Pacific Ridge

Presentation

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rocky Brands fourth quarter and fiscal 2011 yearend earnings conference call. At this time all participants are in 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 for questions. (Operator Instructions) I would like to remind everyone that this conference call is being recorded.

And will 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, 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, 2010.

I’ll now turn the call over to Mr. David Sharp, President and Chief Executive Officer of Rocky Brands.

David Sharp

Thank you. Good afternoon and thanks for joining us. With me on the call today is Jim McDonald our Chief Financial Officer. We are very pleased with our fourth quarter performance. We ended the quarter on plan which given the mild weather throughout much of the country in December was an encouraging end to 2011.

Sales trends were very similar to the first three quarters of the year mainly was driven by demand for our new product introductions in the work, hunting and western categories. We continued to experience increased sales velocity under our fast growing commercial military segment. To properly evaluate sales in our fourth quarter and full year we believe it is prudent to include our non-recurring operations namely our military segment this is the big business invested by the departments of defense and also excludes the Dickies license business, because that was discontinued at the end of 2010.

To the point of reference, we reported military segment sales of $17 million in 2010 versus $2.2 million in 2011. Dickies sales were $7.6 million in 2010 moving on to just $200,000 in sales of Dickies in 2011. I should note that after dramatically improving our balance sheet and significantly reducing our expense structure we have more recently been able to free up resources and once again put more emphasis on growing our top line. While we have identified several long-term growth vehicles that I will discuss later in the call the initial phase of expansion centered on leveraging our core strength and product innovation to develop new and compelling footwear that feels of our brands for customers.

So let’s focus on our own wholesale brands Georgia, Rocky and Durango and our retail division. During the long history, our brands have established leadership positions in the respected categories by consistently being at the forefront of innovation and delivering the latest in durability, comfort and functionality. Due to the internal and external challenges we faced a few years ago including integrating two sides of the organizations I believe less focus and brought to market some inspiring collections during that time.

With that said, I’m confident with the operational changes we’ve implemented, which included new product development system have made our R&D platform stronger than ever and this is reflected in the lease and performance of our new products. To underscore this point approximately 28% wholesale sales this past year came from products introduced in the last two years. A few of the standings included our redesign of improved blizzards or cold weather boots that despite the unfavorable warm winter sold well in the sporting goods channel at national and regional players like Dick's Sporting Goods, Caballus, Wholesale Sports and (Inaudible).

Our Georgia boot brand continued to gain overall shelf space during the most part like sales of our new cross ridge styles, the hiker inspired work collection featuring the vibrant moving out sole that also performs well in the rugged out course. Sales have been particularly strong in the North West for the Georgia brand where we saw solid gains in the farm and ranch channel at locations like coastal fireman home and multi store work wear accounts like whistle work wear.

In Western it was women’s fashion product as well as our new little Durango kid’s line of boots that has allowed us to increase business at whole market multi store retailers like Cavender's Boot City and RCC Western. We also changed production whole year on our newly launched Rocky branded fun range collection. Many of our key retailers experienced expanding unforecasted demand for the line throughout the year including in the sporting goods channel as well as western stores at accounts like West Pro Shops.

At the same time we have seen a great response for the fully drainable boot we developed for the U.S. Navy Seals and a height and light weight boots that people just like to wear on base when they are traveling in uniform. As a reminder, this is a high margin business and should not be confused with our whole margin government contracts that we received from time to time, which we report as our military segment. This higher margin business segment is going to be very significant. Sales were almost $20 million in 2011 versus $8.6 million in 2010. There is still upside here, which I will discuss later.

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