Rocky Brands saw fourth-quarter net sales decrease 18 percent to $138.9 million on net income of $6.5 million, or 89 cents per diluted share.
The owner of Rocky, Georgia Boot, Durango, Lehigh, The Original Muck Boot Company and Xtratuf expects a down revenue year in 2023. It expects net sales of $560 million to $570 million, well below 2022’s $615.5 million, or a 7.4 percent to 9 percent decrease.
Rocky Brands also expects 40 percent adjusted gross margin in 2023—an improvement over last year’s 36.6 percent mark—after it raised prices last fall and freight and logistics costs are on the decline.
In a Nutshell: CEO Jason Brooks blamed the sales decline on challenging year-over-year comps.
“There was a significant shift in orders out of the third quarter [of 2021] into both fourth quarter of 2021 and the first quarter of 2022 as a result of temporary logistics challenges we encountered in our distribution center,” Brooks told analysts Thursday on a conference call.
Brooks said the “resilient” work boots category showed “modest” growth in the fourth quarter and drove about 42 percent of the company’s total sales. The Rocky brand itself grew in the “strong double-digits,” and Georgia had a “solid” quarter despite some larger customers slowing orders to manage their inventory issues.
“New growth with field customers and further penetration into the farm and ranch segment more than made up for the shortfall,” he added.
Rocky Brands doesn’t have any committed military contracts this year, according to executive vice president, chief financial officer and treasurer Tom Robertson. The contract manufacturing segment reported $15 million in 2022 revenue.
The earnings report came a week after the company inked a licensing agreement with Status Accessories to design and distribute belts and wallets under the Durango and Rocky Boots brands. The first collection will launch in winter 2023 at specialty retailers, independent retailers and key accounts.
Rock Brands will have a new chief financial officer and treasurer in mid-March with the appointment of Sarah O’Connor, after which Robertson will transition to the new role of chief operating officer.
The company finished the year with $235.4 million in inventory, 1.2 percent higher than $232.5 million a year earlier. On a sequential basis, inventories were down 11.2 percent from the third quarter.
Robertson expects Rocky Brands will clear through $45 million worth of inventory before 2024.
Gross margin in the fourth quarter of 2022 was $56.7 million, or 40.8 percent of net sales, compared to $63.3 million, or 37.3 percent of net sales, for the same period last year.
A tariff refund yielded $2.4 million in the fourth quarter. higher mix of retail segment sales which carry higher gross margins than the wholesale and contract manufacturing segments also helped.
When normalizing for the temporary tax benefit, adjusted fourth-quarter gross margins were 39.1 percent.
The company closed 2022 with $5.7 million in cash and cash equivalents, compared to $5.9 million a year ago.
Total year-end debt was $256.9 million, including $116.3 million senior term loan and borrowings under a senior secured asset-backed credit facility. Compared with Dec. 31, 2021 and Sept. 30, 2022, total debt was down 4.9 percent and 9.8 percent, respectively.
Net Sales: Fourth-quarter net sales fell 18.0 percent to $138.9 million compared with $169.5 million in the fourth quarter of 2021.
Wholesale segment sales for the fourth quarter were down 26.6 percent to $98.9 million, from $134.8 million for the same period in 2021.
Retail segment sales for the fourth quarter increased 40.8 percent to $37.3 million, up from $26.5 million for the same period last year.
Contract manufacturing segment sales, which include contract military sales and private-label programs, plummeted 66.6 percent to $2.7 million compared to $8.1 million in the fourth quarter of 2021. That’s because some of the company’s U.S. military contracts expired.
Full-year net sales rose 19.7 percent to $615.5 million compared with $514.2 million in 2021. Net sales include $3.6 million of inventory net sales related to the divestiture of the Neos brand during the third quarter of 2022.
Wholesale sales for 2022 increased 24 percent to $484.8 million, up from $391.1 million in 2021. Retail segment sales for the year increased 21.9 percent to $115.4 million compared to $94.7 million in the year-ago period.
Contract manufacturing sales dropped 46.2 percent to $15.3 million compared to $28.5 million in 2021.
Net Earnings: Rocky Brands reported fourth quarter net income of $6.5 million, or 89 cents per diluted share, compared to net income of $12.6 million, or $1.69 per diluted share, in the fourth quarter of 2021.
Adjusted net income for the fourth quarter of 2022, was $7.9 million, or $1.08 per diluted share, compared to adjusted net income of $13.8 million, or $1.86 per diluted share, in the fourth quarter of 2021.
The company reported 2022 net income of $20.5 million, or $2.78 per diluted share compared to net income of $20.6 million, or $2.77 per diluted share in 2021.
Adjusted net income for the full-year was $24.1 million, or $3.27 per diluted share compared to adjusted net income of $32.5 million, or $4.39 per diluted share in the year prior.
CEO’s Take: When questioned about the risks about the current promotional environment or even dropping prices after raising them twice last year, Brooks said he doesn’t see any price changes ahead even as container prices fall.
“We’re at a place that we’re going to see [prices] stick. I think we will not see a lot of promotion in our brands,” Brooks said. “If we have obsolete inventory, we’ll work through that and get out of it. But, we still look at our product and say ‘It’s a functional, cool type product, and the guy or gal is going to buy it when they need it.’ So we’re going keep the prices where they’re at.”