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Rocky Brands, Inc. Announces Third Quarter 2014 Results

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Rocky Brands, Inc. (NASDAQ:RCKY) today announced financial results for its third quarter ended September 30, 2014.

Third Quarter 2014 Sales and Income

Third quarter net sales increased 3.6% to $72.7 million versus net sales of $70.2 million in the third quarter of 2013. The Company reported third quarter net income of $3.1 million, or $0.42 per diluted share as compared to net income of $2.9 million, or $0.39 per diluted share in the third quarter of 2013.

David Sharp, President and Chief Executive Officer, commented, “Following a strong first half of the year, our sales growth moderated during the third quarter. We believe consumer interest in our innovative product lines remains high; however, sell-through was hampered by a warm, dry September across much of the U.S. In addition, our wholesale dealers are now buying closer to their need which is shifting sales for our insulated and waterproof cold weather boots into the fourth quarter. With regard to Creative Recreation, we experienced improved results as the business has started to benefit from the supply chain initiatives we’ve implemented over the past several months and we are optimistic the brand will contribute to profitability in the near future. We remain confident that our diversified brand portfolio, innovative product strategies and multi-channel distribution will drive consistent growth and increased shareholder value over the long-term.”

Third Quarter Review

Net sales for the third quarter increased 3.6% to $72.7 million compared to $70.2 million a year ago. Wholesale sales for the third quarter increased 8.3% to $62.1 million including $4.4 million in Creative Recreation branded sales as compared to $57.4 million for the same period in 2013. Retail sales for the third quarter were $9.5 million compared to $9.6 million for the same period last year. Military segment sales for the third quarter decreased to $1.1 million compared to $3.2 million in the third quarter of 2013.

Gross margin in the third quarter of 2014 was $24.3 million, or 33.4% of sales, compared to $22.7 million, or 32.4% of sales, for the same period last year. The 100 basis point increase was driven by higher wholesale margins which were attributable to improved operating efficiencies in the Company’s owned manufacturing facilities. This was partially offset by lower retail gross margin in our B to B business than a year ago resulting from the completed transition to a web based retail platform which carries lower gross margin and lower operating expenses compared to the previous mobile store structure.

Selling, general and administrative (SG&A) expenses were $19.4 million, or 26.6% of net sales, for the third quarter of 2014 compared to $18.3 million, or 26.1% of net sales, a year ago. The $1.1 million increase in SG&A expenses was due to the additional expenses associated with the Creative Recreation brand, which was acquired in December 2013, partially offset by a $0.4 million decrease in SG&A expenses associated with the Company’s legacy brands.

Income from operations was $4.9 million, or 6.8% of net sales, compared to $4.4 million, or 6.3% of net sales, a year ago.

Interest expense was $0.3 million for the third quarter of 2014, versus $0.2 million for the same period last year.

The Company’s funded debt was $50.7 million at September 30, 2014 versus $42.4 million at September 30, 2013. The majority of the increase was related to additional borrowings to fund the acquisition of Creative Recreation in the fourth quarter of 2013.

Inventory increased 14.2%, or $11.2 million, to $90.1 million at September 30, 2014 compared with $78.9 million on the same date a year ago. Inventory at September 30, 2014 included approximately $2.9 million associated with the acquisition of Creative Recreation. Based on current sales projections the Company expects inventory comparisons on a year-over-year basis to be lower at December 31, 2014 than at September 30, 2014.

Conference Call Information

The Company’s conference call to review third quarter 2014 results will be broadcast live over the internet today, Wednesday, October 22, 2014 at 4:30 pm Eastern Time. The broadcast will be hosted at http://www.rockybrands.com.

About Rocky Brands, Inc.

Rocky Brands, Inc. is a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names including Rocky(R), Georgia Boot(R), Durango(R), Lehigh(R), Creative Recreation(R), and the licensed brand Michelin(R).

Safe Harbor Language

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, all statements regarding intent, beliefs, expectations, projections, forecasts, and plans of the Company and its management, and include statements in this press release regarding consumer interest, profitability, growth and shareholder value (paragraph 3) and inventory (paragraph 10). These forward-looking statements involve numerous risks and uncertainties, including, without limitation, the various risks inherent in the Company’s business as set forth in periodic reports filed with the Securities and Exchange Commission, including the Company’s annual report on Form 10-K for the year ended December 31, 2013 (filed March 6, 2014) and quarterly reports on Form 10-Q for the quarters ended March 31, 2014 (filed May 1, 2014) and June 30, 2014 (filed July 30, 2014). One or more of these factors have affected historical results, and could in the future affect the Company’s businesses and financial results in future periods and could cause actual results to differ materially from plans and projections. Therefore there can be no assurance that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the Company, or any other person should not regard the inclusion of such information as a representation that the objectives and plans of the Company will be achieved. All forward-looking statements made in this press release are based on information presently available to the management of the Company. The Company assumes no obligation to update any forward-looking statements.

Rocky Brands, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

September 30, 2014

December 31, 2013

September 30, 2013

Unaudited Audited Unaudited
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 4,327,710 $ 4,215,617 $ 4,580,425
Trade receivables – net 61,650,439 49,069,668 60,620,981
Other receivables 503,371 325,888 358,717
Inventories 90,115,460 78,171,670 78,900,140
Income tax receivable 242,228
Deferred income taxes 1,137,429 1,104,050 1,223,479
Prepaid expenses 2,577,123 2,529,407 2,259,419
Total current assets 160,311,532 135,658,528 147,943,161
FIXED ASSETS – net 27,266,880 26,205,080 24,978,962
IDENTIFIED INTANGIBLES 36,707,473 36,807,099 30,511,954
OTHER ASSETS 267,040 354,051 291,862
TOTAL ASSETS $ 224,552,925 $ 199,024,758 $ 203,725,939
LIABILITIES AND SHAREHOLDERS’ EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 18,829,421 $ 11,486,473 $ 13,099,826
Accrued expenses:
Taxes – other 443,172 901,116 654,143
Income tax payable 882,770 1,027,176
Other 6,453,809 5,028,850 5,326,055
Total current liabilities 26,609,172 17,416,439 20,107,200
LONG TERM DEBT 50,687,596 38,388,198 42,366,415
DEFERRED INCOME TAXES 12,448,842 11,750,718 11,096,260
DEFERRED LIABILITIES 255,906 255,906 255,906
TOTAL LIABILITIES 90,001,516 67,811,261 73,825,781
SHAREHOLDERS’ EQUITY:
Common stock, no par value;

25,000,000 shares authorized; issued and outstanding September 30, 2014 – 7,546,654; December 31, 2013 – 7,536,448; September 30, 2013 – 7,516,448

70,380,692 70,153,570 69,862,770
Retained earnings 64,170,717 61,059,927 60,037,388
Total shareholders’ equity 134,551,409 131,213,497 129,900,158
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 224,552,925 $ 199,024,758 $ 203,725,939

Rocky Brands, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations

Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
NET SALES $ 72,729,678 $ 70,176,216 $ 207,335,482 $ 183,311,443
COST OF GOODS SOLD 48,455,886 47,436,546 138,622,879 121,590,516
GROSS MARGIN 24,273,792 22,739,670 68,712,603 61,720,927

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

19,363,984 18,341,247 59,920,806 52,947,165
INCOME FROM OPERATIONS 4,909,808 4,398,423 8,791,797 8,773,762
OTHER INCOME AND (EXPENSES):
Interest expense (252,972) (200,129) (696,944) (476,881)
Other – net (25,855) 73,484 (25,623) 73,273
Total other – net (278,827) (126,645) (722,567) (403,608)
INCOME BEFORE INCOME TAXES 4,630,981 4,271,778 8,069,230 8,370,154
INCOME TAX EXPENSE 1,492,474 1,337,582 2,695,474 2,771,582
NET INCOME $ 3,138,507 $ 2,934,196 $ 5,373,756 $ 5,598,572
INCOME PER SHARE
Basic $ 0.42 $ 0.39 $ 0.71 $ 0.74
Diluted $ 0.42 $ 0.39 $ 0.71 $ 0.74

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

Basic 7,546,617 7,516,448 7,543,199 7,516,354
Diluted 7,546,617 7,516,448 7,543,199 7,516,354

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