Rocky Brands , Inc. (NASDAQ:RCKY) reported a strong start to the year, with first-quarter results showcasing sales and earnings that surpassed expectations. Highlighted by double-digit growth in key brands and a successful reallocation of cost savings to advertising efforts, the company's strategic initiatives appear to be paying off. With a notable decrease in debt and operational costs, alongside a solid increase in net income compared to a net loss in the previous year, Rocky Brands sets a positive tone for its financial outlook in 2024.
Key Takeaways
- Rocky Brands' first-quarter sales and earnings exceeded market expectations.
- Cost savings were effectively utilized for advertising, spurring growth.
- The Durango and XTRATUF brands achieved double-digit gains.
- Strong performance in the work category, with Georgia boot and Rocky work showing sales increases.
- Gross profit reached $44.1 million, equating to 39.1% of sales.
- Operating expenses saw a decrease thanks to cost savings and operational efficiencies.
- Net income stood at $2.6 million, or $0.34 per diluted share.
- Cash and cash equivalents were reported at $3.1 million.
- Total debt decreased by 29% from the previous year.
- The company signed an improved ABL facility with Bank of America (NYSE:BAC), expected to yield significant interest savings.
- Inventories were down by 26.3% from last year.
- Revenue for the year is projected to hit the higher end of the $450 million to $460 million range, with a slight improvement in margins expected.
Company Outlook
- Rocky Brands anticipates revenue towards the high end of its $450 million to $460 million range.
- Margins are expected to see slight improvements.
- Adjusted interest expense is projected to decrease by approximately $7.9 million from 2023.
Bearish Highlights
- Supply chain challenges continue to impact inventory availability.
Bullish Highlights
- Advertising investments have driven stronger-than-expected brand growth.
- Wholesale, retail, and contract manufacturing sales all increased.
- The company celebrated the Muck brand's 25th anniversary with solid growth in the US market.
Misses
- Despite strong sales, the company is still chasing inventory for certain brands.
Q&A Highlights
- Management discussed increased advertising spend, primarily on the wholesale side, to boost consumer awareness and support retail partners and the company's websites.
- The ability to quickly turn around inventory in March was commended.
- The team is encouraging wholesale partners to place orders earlier to mitigate supply chain issues.
Rocky Brands has demonstrated resilience in the face of supply chain challenges, leveraging cost savings to fuel marketing strategies that have effectively driven consumer demand and supported sales growth. The company's financial health is further evidenced by its reduced debt and prudent inventory management. With a strong first quarter behind it and a promising outlook ahead, Rocky Brands appears well-positioned to navigate the fiscal year with confidence.
InvestingPro Insights
Rocky Brands, Inc. (RCKY) has shown a commendable financial performance in the first quarter of 2024, which is reflected in several key metrics from InvestingPro. With a market capitalization of $191.3 million, the company's valuation indicates a strong free cash flow yield, suggesting that investors may find the stock to be generating a good amount of cash relative to its share price. The P/E ratio, which stands at a moderate 18.54, adjusted down to 15.04 for the last twelve months as of Q4 2023, points towards a reasonable valuation in comparison to earnings.
InvestingPro Tips highlight that Rocky Brands has maintained dividend payments for 12 consecutive years, which is a testament to the company's commitment to returning value to shareholders. Additionally, the company has been profitable over the last twelve months, and analysts predict it will continue to be profitable this year. These factors, combined with the fact that the company's liquid assets exceed short-term obligations, provide a positive picture of Rocky Brands' financial stability and growth prospects.
The company's stock price movements have been quite volatile, which is important for investors to consider, especially those looking for stable returns. However, it's worth noting that there has been a large price uptick over the last six months, indicating a significant investor interest in the stock.
For investors looking to delve deeper into Rocky Brands' financials and future projections, there are additional InvestingPro Tips available. Using the coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription and gain access to a comprehensive list of tips that can further inform investment decisions. There are 6 more InvestingPro Tips listed for Rocky Brands, which provide a detailed analysis of the company's performance and potential.
Rocky Brands' positive start to the year, coupled with its strong financial indicators, presents an opportunity for investors to consider the stock as part of their portfolio. With the insights from InvestingPro, investors can make more informed decisions backed by real-time data and expert analysis.
Full transcript - Rocky Brands (RCKY) Q1 2024:
Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rocky Brands First Quarter 2024 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. [Operator Instructions]. I would like to remind everyone that this conference call is being recorded. And we'll now turn the conference over to Brendon Frey of ICR. Please go ahead, sir.
Brendon Frey: Thank you. And thanks to everyone joining us today. Before we begin, please note that today's session, 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 changes, 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 our reports filed with the Securities and Exchange Commission, including our 10-K for the year ended December 31, 2023. I'll now turn the conference over to Jason Brooks, Chief Executive Officer of Rocky Brands. Jason?
Jason Brooks: Thank you, Brendon. With me on today's call is Tom Robertson, our Chief Operating and Chief Financial Officer. After our prepared remarks, we will be happy to take any questions. We are pleased with our first quarter results as sales and earnings came in ahead of our expectations. Following the implementation of several cost saving initiatives throughout last year, we have reinvested a portion of the savings into additional advertising programs, which fueled stronger-than-anticipated growth and meaningful expensive leverage. I'll go into more detail about the drivers of our top line performance momentarily, but we are encouraged by the momentum we experienced across our business, highlighted by double-digit gains for our Durango and our XTRATUF brands. While the microeconomic outlook remains uncertain, we continue to be cautiously optimistic that the business is well positioned to generate enhanced profitability and increased shareholder value as 2024 unfolds. Before Tom covers the numbers, I'll spend a few minutes going through the first quarter sales performance by category and brand. In our sales channel, the majority of retailers have right-sized their inventories, and reorders are now more closely aligned with sell-through, bringing greater stability to our sell-in cadence to start 2024. While this has benefited the work, Western and outdoor categories to different degrees based on partner inventory levels, we are pleased to see this start to return to normalcy. across the industry. Our work category, which includes our Georgia, Rocky and select styles under the Muck and XTRATUF brands had several bright spots in the quarter. Georgia boot delivered a single-digit sales increase in the quarter, driven by strong demand for our legacy product and several new product launches. Last year, selective price decreases on certain Georgia styles are resonating with consumers, leading to faster sell-through. Importantly, Georgia's sell-through is now better translating to improved sell-in, leading to strong gains with both key accounts and online retail partners. In fact, we saw strong double-digit growth this quarter with several of our large key accounts and the strong growth trajectory with online retail partners has advanced beyond what was established last year. As the industry backdrop improves, we expect Georgia growth to accelerate. While Rocky work remained under some pressure early in the year, as key retail partners work through certain slower selling product, the business is improving and is now in a better position at retail to take receipt of the brand's best sellers. During Q1, we also shipped a new line of Rocky work boots that brings both a value and quality to the competitive work boot market. This new product line made in our own Dominican facility should provide both top line and margin contributions as we move through 2024. Shifting to our rubber work boot business, the first quarter was highlighted by starting the celebration of the Muck brand's 25th anniversary. To support this milestone event, we introduced a redesigned homepage in conjunction with the launch of an enhanced marketing campaign highlighting the Muck's heritage and influencer partnerships that are amplifying visibility. Interest in the legacy Muck product remain solid, especially in the US where brand sales were up mid-single digits as our recent marketing efforts helped to accelerate demand as the first quarter progressed. Turning to our Western category, Durango delivered a very good first quarter lifted by strong bookings across key accounts and farm and ranch partners, along with an acceleration of at-once business. With moderate partner inventory levels, better-than-expected consumer demand for key Durango styles led to some brief and early stock-outs. However, we moved quickly and we were able to fulfill orders late in the quarter and ship additional inventory of in-demand product which should lead to even higher turns for Durango going forward. This, coupled with an improving wholesale climate. and the addition of new distribution channels in late 2023 and early 2024, have positioned Durango to build upon its strong first quarter results. For Rocky western, our focus in the first quarter was on improving inventory health and setting the business up for better full price selling later in the year. Sales were up low-double-digits, driven primarily by discounting of overstock product with key Western promotional retailers. At the same time, we've reduced SKU count and eliminated duplicate styles to better on Rocky western line on its key demographic with more targeted product. Our outdoor category delivered solid growth with a very strong performance from XTRATUF, more than offsetting modest declines in Rocky and Muck. Demand for XTRATUF outdoor styles continue to build with healthy double-digit growth in both our wholesale and direct e-commerce channel. After helping our wholesale customers rebalance inventories last year, bookings and at-once orders for key styles accelerated, leaving us chasing some inventory with higher-than-expected turns on a new spring item and legacy products. Looking ahead, we are focused on securing new bookings and filling in replenishment aggressively while maintaining efforts to source sufficient inventory for XTRATUF. With respect to Rocky and Muck sales, we're pressured by a mild winter throughout the country that limited sales of insulated and rubber footwear. While these outdoor categories remain challenged, casual styles like our Rocky Ridgetop and Outback hikers and the Muck gardening and dog walking boots and shoes have showed very positive results. Going forward, we are introducing new non-hunting, value-driven products in the category that we believe will help improve sales. Lastly, in wholesale, commercial military sales were up meaningful in the first quarter as the team completed its last shipment under an elevated purchase agreement to a customer that supplies to the US Army with footwear and other gear. Shifting to retail, each of our branded e-commerce sites for Rocky, Georgia, Durango, Muck, and XTRATUF posted strong traffic and sales increases this quarter, with total channel sales up double digits compared to Q1 of 2023. We also utilized our websites to move some overstock inventory in the quarter, which was at a higher margin compared to the traditional discount wholesaler channel. Lastly, our reoccurring, custom-fit B2B Lehigh business was up over last year's first quarter as we had several account renewals and onboarded new accounts in the quarter. At the same time, companies refreshed their budgets, increased subsidies, and opened employee eligibility to start the new year, paving the way for continued improvement as we progress through 2024. In addition to the discontinuation of some cruise line programs that offset our custom fit gains in Q1, I want to point out that we recently realigned our sales organization to improve our sales pipeline and provide greater continuation in account setup, rollout, and implementation. While these changes disrupted sales as they were rolled out, we expect that they will positively impact the business in the future quarters. Before I turn the call over to Tom, I want to thank the entire Rocky team for a promising start to 2024. The moderation of partner inventory levels and subsequent return of wholesale demand is allowing a strong sell-through and resilient consumer demand we've seen across the brand portfolio translate into better financial results. This improving industry dynamic, coupled with our continued focus on top line expansion, expense discipline, and balance sheet improvement should provide a strong foundation for favorable results in the year ahead. I'll now turn the call over to Tom to cover the financial details. Tom?
Thomas Robertson: Thanks, Jason. As Jason discussed, we are optimistic about the start of 2024 as the diversity of our product categories and steady consumer demand for our brands has allowed us to adeptly navigate the current retail environment. Reported net sales for the first quarter increased 2.2% year-over-year to $112.9 million. Excluding the service brand net sales from a year-ago period, net sales increased 7.6% or 9.3% when you also factor in the Canadian distribution model change we made in the late 2023. By segment, wholesale sales excluding the service brand and the Canadian distribution model change were up 8.5% to $79.8 million. Retail sales increased 5% to $30.4 million after factoring in the Canadian distribution model change. And contract manufacturing sales were $2.7 million. Turning to gross profit. For the first quarter, gross profit was $44.1 million or 39.1% of sales compared to $43.8 million or 39.6% of sales in the same period last year. Gross margin in the first quarter of 2023 benefited from a net $1.3 million tariff recovery. Minus the recovery, gross margins were up 70 basis points year-over-year, driven by the divestiture of the service brand which carry lower gross margin than the rest of our product portfolio. Reported gross margins by segment were as follows. Wholesale down 20 basis points to 36.4%, retail flat at 48.7%, and contract manufacturing up to 11.7% from 8.1%. Excluding the tariff recovery, wholesale margins were up 140 basis points. Operating expenses were $36.2 million or 32% of net sales in the first quarter of 2024 compared to $39.6 million or 35.9% of net sales last year. On an adjusted basis, operating expenses were $35.5 million this year or 31.4% of net sales and $38.8 million or 35.2% of net sales a year ago. The decrease in operating expenses was largely attributable to cost savings reviews and operational efficiencies achieved through strategic restructuring initiatives implemented in 2023, as well as lower freight expense in the current year. Income from operations was $8 million or 7.1% of net sales compared to $4.2 million or 3.8% of net sales in the year ago period. Adjusted operating income was $8.7 million or 7.7% of net sales compared with adjusted operating income of $4.9 million or 4.5% of net sales a year ago. For the first quarter of this year, interest expense was $4.5 million compared with $6 million in the year-ago period. The decrease reflects lower debt levels in the quarter compared with the first quarter of 2023. On a GAAP basis, we reported net income of $2.6 million or $0.34 per diluted share compared with a net loss of $0.4 million or $0.05 per diluted share in the first quarter of 2023. Adjusted net income for the first quarter of 2024 was $3.1 million or $0.41 per diluted share compared to adjusted net loss of $0.8 million or $0.12 per diluted share a year ago. Turning to our balance sheet, at the end of the first quarter, cash and cash equivalents stood at $3.1 million and our total debt, net of unamortized debt issuance costs, totaled $156 million, a decrease of 29% since March 31st last year. As we announced yesterday, we signed an upsized, amended and extended ABL facility with Bank of America, the new facility which amends and restates our existing revolving $175 million credit facility and is comprised of a $175 million revolving credit facility and a $50 million term facility. We utilize a portion of the proceeds from the refinancing to retire our existing senior secured term loan facility with TCW Asset Management. We project these transactions will generate interest savings of $2.9 million over the remainder of 2024, offset by fees and amortization associated with the retirement of the senior secured term loan facility of approximately $2.6 million. Starting in 2025, these transactions are expected to generate a combined annualized savings of approximately $4.4 million. Inventories at the end of the first quarter were $165.1 million, down 26.3% compared to $224.1 million a year ago and up 2.4% compared to $169.2 million at the end of 2023. With respect to our outlook, based on the first quarter performance, we now expect revenue to be towards the high end of our range of $450 million to $460 million. We still expect margin to remain consistent or to see slight improvements from the 38.9% adjusted gross margins we delivered in 2023, partially offset by SG&A deleverage due to investments in marketing of our brands, as well as performance-based compensation. Finally, the additional $2.9 million in savings from the combined refinancing transactions, we now expect 2024 adjusted interest expense to be down approximately $7.9 million from 2023 versus our prior guidance of approximately $5 million. That concludes our prepared remarks. Operator, we are now ready for questions.
Operator: [Operator Instructions]. Our first question is from Jonathan Komp of Baird.
Jonathan Komp: Tom, first question, if I could follow up just on the guidance commentary. If you look at the underlying growth rate you highlighted, I think in the press release, you indicated up 7%, excluding the non-comparable revenue last year. And the guidance for the year now is the higher end of 4.50 to 4.60, which would be, I think, 4% underlying growth. So any color as you look ahead, if there's something in the first quarter that was unsustainable or what you're building into the outlook in terms of the moderated pace of underlying growth for the year.
Thomas Robertson: I think as we look at Q1, there were a couple opportunities that we took advantage of from a closeout perspective, which is why our margins probably came in slightly under where we had internally forecasted them. And so, I think some of those sales were certainly incremental. If those opportunities arise in the future, we'll continue to take advantage of those to convert inventory to cash. But we don't necessarily bake it into our model. And I think there's just overall just kind of a sense of being cautious here about the future and what it holds for the rest of the year. But we feel good about the higher end of that range that we guided to.
Jason Brooks: I would just add, Jon, that with the election year – election years always seem to be an odd year. So depending on where that kind of ends up as the year goes through, I think we're being cautious and that was one other reason why.
Thomas Robertson: Yeah, one other thing that jumps to my mind too, Jon, is that Jason called out in his remarks that we were at the end of a contract for our commercial military product. And so, we see that – if there's another opportunity, we'll certainly bid on them and try to win those. But that's something that we won't see or we don't have planned in the next three quarters.
Jonathan Komp: If I could follow up on the wholesale performance, is there any way to talk maybe across – maybe there's differences across brands or segments or categories, but how would you characterize the first quarter performance as it relates to underlying consumer demand, any changes that you're seeing in sort of the sell through indications versus really sort of a catch up in the sell-in versus the sell-through and how should we think about those dynamics going forward?
Jason Brooks: That's a great question, Jon. I think it's something that we continue to evaluate, right? I think we talked about this on the last earnings call. We have data that we gather from some of our retail partners about their sell through. And in particular in the Durango brand and the XTRATUF brand, we're seeing really great sell through. So the sell-in then to the retailer is being positive. The work category is probably the one area, right? And that touches Georgia and Rocky. It might even touch Durango a little bit, but it's a phenomenon as Western just seems to be a little more hot right now and then the Muck brand as well. So from a work standpoint, sell through at retail is not as good. And so, I think that's why we're seeing the sell-in not quite as hot. And then the worst category is the outdoor hunting category. And that really just took a – the weather was bad and hopefully we'll see some stronger weather patterns come this year and be able to pick some up there. But I think that covers and hopefully answers your question.
Thomas Robertson: I think the only other call out there that I have is that a meaningful increase that we saw kind of across the board was with key accounts. So key accounts performed very well for us and started to buy back in and, as Jason alluded to earlier, more of that normal cadence. And so, we're starting to see more normalized behavior, which is good for Q1 and hopefully the rest of the year.
Jonathan Komp: Can you remind me, have you given a rough split how much your business is key account oriented versus non-key accounts?
Thomas Robertson: We have not shared that, Jon, before and we'll probably keep that one to ourselves for now.
Jonathan Komp: Last two just modeling questions. Tom, any color Q2 revenue, should we expect it to be the low point? And I think you're cycling a fair amount of non-comparable business yet. So any color there you can offer? And then SG&A, I know you're still talking to de-leverage for the year after achieving pretty big, pretty meaningful leverage in the first quarter. So how should we think about the quarterly progression on the SG&A spend?
Thomas Robertson: From a top line perspective, yeah, we have Q2 being our low point for the year and then, obviously. accelerating in the third and fourth quarter, which are typically our strongest quarters. We have the fourth quarter given what we've seen in the e-commerce space as our largest quarter for 2024. As SG&A spend relates, I think that you'll see kind of a low point from an SG&A spend in the second quarter as well. You'll see a lot of those investments that we've talked about. A lot of that being digital spend. You'll see that when we hit our peak season in Q3 and in Q4 as well. I think we talked about slight deleverage, slightly increased SG&A spend in 2024. One thing I just wanted to make sure we got across on the call is that we are protecting – we're trying to protect our operating income comparability to the prior year. And so, as we see what happens with sales throughout the rest of the year, we'll adjust our plan and we've learned how to flex that muscle like we did last year and we can pull back on discretionary spend to help protect that operating income for 2024.
Operator: The next question is from Janine Stichter of BTIG.
Janine Stichter: A couple from me. First, it sounds like you took some of the cost savings and redirected that into higher advertising spend. Can you just talk a little bit more about that? From our standpoint, it seemed like some of the upside, or most of the upside, was on the wholesale side versus the retail side of the business. I just want to understand if this is something that impacts both channels or how to think about where the benefit is there.
Jason Brooks: Yeah, so I'll start. Tom probably will add on. It is more of a wholesale play. And for us, it's really about just staying in front of the consumers. We want to make sure that the consumers are aware of our brands, are aware of our new products that we're introducing and continuing to drive that business to our retail partners and also drive them to our own websites where obviously we make a little bit better margin. But we feel like we have to continue to drive the brands and support the brands. So investing back in them is important. And it really focuses mainly on wholesale. We put a little bit, from a retail standpoint, from the dot coms, but the budget that we did for Lehigh has really stayed about the same.
Janine Stichter: It sounds like you were chasing in XTRATUF and Durango. You were able to fulfill some of those with at-once orders. But is there any of that spilled over into Q2? And then, I guess, bigger picture how is the fact that you're seeing out of stocks and having to chase, is that encouraging your wholesale partners to place orders earlier? I just had to think about that dynamic of at-once versus upfront orders.
Thomas Robertson: I'll take this one and Jason can certainly add in. I think that there was maybe a slight spillover, but not much into Q2. Particularly proud of the team for getting all the inventory here and getting it turned around towards the end of the quarter. So we saw a phenomenal turn of that inventory in March. Very proud of the team for that. I think what we're seeing is we're stepping on the gas pedal, our in-transit inventory is up, particularly on the styles that we're chasing. And yes, you're dead right. We are telling every account to book it if they want it. I think if you think about what's happened with supply chain over the last few years, with everybody pulling back on inventory, particularly in Asia, over the last year, 18 months, getting these factories back up, getting them restaffed to production levels from two years ago is taking a little bit more time. So we're trying to – particularly for the muck core styles of the tour boot and the XTRATUF and the Durango product, we're trying to get people to book that as aggressively as they can for fall before our busy season.
Operator: Thank you very much. Ladies and gentlemen, we have no further questions in the queue and we'd like to turn the call back to Jason Brooks for some closing remarks.
Jason Brooks: Great. Thank you very much. Just want to again reiterate Tom and I's appreciation to the Rocky team. We are excited about Q1 and 2024 and how we've executed in the first three months of the year. And we look forward to finishing strong and we thank our investors for their commitment. And thank you all so much.
Operator: Thank you very much, sir. Ladies and gentlemen, that then concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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