Rock Brands, Inc's CEO Discusses Second Quarter Results - Earnings Call Transcript

Rock Brands, Inc (RCKY)

Q2 2012 Earnings Call

July 24, 2012, 01:30 pm ET

Executives

Brendon Frey – IR

David Sharp – President, CEO

Jim McDonald - CFO

Analysts

Mitch Kummetz – Robert W. Baird

John Sullivan – Olstein Capital Management

Presentation

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rock Brands second quarter fiscal 2012 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 and 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 Securities and Exchange Commission, including Rocky's Form 10-K for the year ended December 31, 2011.

I will now turn the conference over to Mr. David Sharp, President and Chief Executive Officer of Ricky Brands.

David Sharp

Thanks, Brendon. Good afternoon and thanks for joining us. With me on the call is Jim McDonald, our Chief Financial Officer. At the end of the second quarter, we faced a significant challenge as severe storms moved through Ohio and knocked out power to much of the state including our distribution center in (Logan).

As a result, we were unable to ship product for several days in late June and early July, which had a material impact on our second quarter results.

Approximately $2.5 million of wholesale and retail orders moved into the third quarter costing the second quarter approximately $0.06 in diluted earnings per share. Our team did a great job of getting those orders shipped once power was restored to make sure we didn't lose any sales.

Outside of this disruption, our second quarter performance was generally in line with our expectations, consistent with recent quarters in terms of what's driving our business.

We continued to experience gains in our wholesale business driven by demand for new western and commercial military products, which were more than offset by softness in our hunting segment.

With regard to our hunting category, as we said on the last call, we were pleased with the level of (pre book) coming off of a very mild winter. We've seen good response to new product introductions, most notably our new Rocky Athletic Mobility, or RAM, product line that targets a younger, more athletic demographic.

What we are finding out, though, is that many of our key outdoor retailers are taking product close to the start of the hunting season which shifted some sales out of the second quarter and into the third quarter compared with past years.

As the hunting retail landscape continues to consolidate and we have fewer small and medium-sized hunting boot customers, we believe our ability to enjoy meaningful sales in the category during the second quarter will continue to diminish.

With that emphasis on capabilities around inventory management, big box retailers do not have the appetite to take hunting products in advance of the season.

Having said that, should we experience a more normalized winter, that is if it is colder and wetter than last year, we think there is additional upside to the category later in the year.

Now to other categories where we are enjoying the success; as we detailed on last quarter's call, we recently began a new program with Tractor Supply, one of our largest national accounts, that included expanding to roughly 1100 doors with four styles, each of which is on a weekly auto replenishment program.

After the initial set, their footwear sales suffered from the drought conditions in the United States. But since the start of the recent rain storm patterns that have been sweeping across the Midwest, we have seen our sell through improve.

Over the past two weeks, our comp store unit sales have increased 17.3% versus the same period last year. We expect momentum to build in the second half of this year. The product mix is skewed to wet, muddy conditions and the all-store distribution will improve our brand awareness.

An area of our business that continues to see considerable improvement in demand is (Western). This is being driven by our Durango brand. And, in particular, in new products under our more fashion forward city collection, which is creating new distribution opportunities and lead to more shelf space with existing accounts where we already are experiencing results at retail.

Based on extremely strong bookings ahead of the fall season, we project ourselves in the brand to grow approximately 30% this year. Therefore, we expect the brands for management retail to build over the back half of the year and continue into 2013 when we introduce broader fashion (alliance) for Durango.

Another fast-growing area for us is our commercial military business. Building on the strength and popularity of our (F2V) product series, we are developing a larger sales base through product light extensions such as steel toe versions and wider distribution within the armed forces retail network of exchanged base stores with 151 locations globally.

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