Rocky Brands' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Rocky Brands, Inc. (RCKY)

Q1 2012 Results Earnings Call

April 19, 2012 4:30 PM ET

Executives

Brendon Frey – ICR, IR

David Sharp – President and CEO

Jim McDonald – Chief Financial Officer

Analysts

Mitch Kummetz – Robert Baird

Dorsey Gardner – Keslo Management

Presentation

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rocky Brands First Quarter Fiscal 2012 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 I’ll now turn the conference over to Brendon Frey of ICR.

Brendon Frey

Thank you. 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, 2011.

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

David Sharp

Thanks, Brendon. Good afternoon, and thanks for join us. With me on the call is Jim McDonald, our Chief Financial Officer. We’re off to a solid start in 2012, with first quarter sales and earnings that was slightly ahead of our expectations. Our overall performance was consistent with recent quarters. The year-over-year improvement was driven by sales again in our wholesale segment and better operating performance from our retail division.

The first quarter is primarily a re-order period for many of our basic work product lines. In light of the mild temperatures that continued many parts of the country, we are pleased with the level of demand that we experienced. This underscores our belief that the innovative product we brought to market are resonating with consumers and further distinguishing us in the competitive environment.

Our focus on innovation is leading to greater distribution for our brands, both with new accounts and existing customers where, we are gaining sales space and adding doors. The biggest growth driver in quarter though came from our expansion within Tractor supply, already one of our largest national accounts.

In 2011, we were in approximately 700 of their outdoors with between two to six styles of our basic Georgia Boot work product depending on the location. We are now in all 119 locations with full best performing core products, all of which are on the weekly order replenishment program.

This had a very positive impact on Q1 sales, and should continue to positively affect our topline as we move through the year. However, this initial rollout negatively impacted gross margins due to temporary price concessions, [CD] expansion and the high concentration of sales to these large accounts in the quarter. Our initial markups are typically lower Tractor supply as a result of their annual volumes.

As sales to them return to more normalized levels as a percentage of our total sales, we expect to drive our margins to the much less pronounced.

This first quarter of the year is also when we receive initial commitments from retailers for our new fall lines. In addition to growing our core work Western and Hunting an area of focus for us has been on extending our brand into new categories and opening up new channels of distribution.

Much of our recent work around this initiative was centered on our Durango brand. Building on the brand’s authentic position within the Western market. We developed more fashion-forward footwear to appeal to wide commercial orient, particularly in urban centers, where the potential consumer population are obviously much larger.

Some of these products are already at retail where they are performing quite well, which validate that our product is trend right. For example, our zaffels.com, where we enjoy substantial business, our shipment to the accounts were up 23% and our bookings were up 120% year-to-date.

We also encouraged with new accounts that we’ll have Durango in their fall assortment, major retail such as DSW.com, Title IX and Famous Footwear. Further we have seen many of our current Durango accounts, accounts like Shoe Show, Shoe Carnival, increasing their order and placing the new Durango city collection.

Fall pre-books for our outdoor and hunting category are up nicely despite coming off a very mild wet season. Like our Western business, booking has been driven by new product introductions, including our new inspired Rocky Athletic Mobility product line that targets a younger demographic and has led to increase sales base with retails like West Pro Shops, Gander Mountain and Academy Sports.

We also introduced several new core value price products that booked very well with our independent account base.

Lastly, within our wholesale segment, our commercial military business maintained it strong growth trajectory during the first quarter sales increase more than 29% year-over-year. We continued to capitalize on the growing popularity of S2V and C4T Trainer product series by developing our distribution and introducing new style such as a steel toe version to create additional demand.

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