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
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David SharpThanks, 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.Read the rest of this transcript for free on seekingalpha.com