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Rocky Brands, Inc. Announces Record Fourth Quarter 2014 Results

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Rocky Brands, Inc. (NASDAQ:RCKY) today announced financial results for its fourth quarter and year ended December 31, 2014.

Fourth Quarter 2014 Sales and Income

Fourth quarter net sales increased 28.2% to a record $78.9 million versus net sales of $61.6 million in the fourth quarter of 2013. The Company reported record fourth quarter net income of $4.5 million, or $0.59 per diluted share as compared to net income of $1.8 million, or $0.24 per diluted share in the fourth quarter of 2013. Excluding all expenses and income related to Creative Recreation, fourth quarter 2013 net income was $2.2 million, or $0.29 per diluted share. (See below for a reconciliation of fourth quarter 2013 income per diluted share on a GAAP basis to a non-GAAP basis).

Fiscal Year 2014 Sales and Income

For fiscal year 2014, net sales increased 16.9% to $286.2 million versus net sales of $244.9 million in fiscal year 2013. The Company reported net income of $9.8 million, or $1.30 per diluted share, for fiscal year 2014, compared with net income of $7.4 million, or $0.98 per diluted share, for fiscal 2013. Excluding the aforementioned expenses and income related to Creative Recreation, fiscal year 2013 net income was $7.9 million, or $1.04 per diluted share. (See below for a reconciliation of fiscal year 2013 income per diluted share on a GAAP basis to a non-GAAP basis).

David Sharp, President and Chief Executive Officer, commented, “Our record fourth quarter performance represents a great finish to a strong year for our company. Sales growth accelerated to its highest level of 2014 in the fourth quarter fueled by consumer demand for our compelling collections of Work, Western, Hunting and Commercial Military footwear. At the same time, Creative Recreation has started to become a more meaningful contributor to our profitability following the work we’ve done to improve the brand’s supply chain.”

“Our fourth quarter and full year results demonstrate the earnings power of our business model. We were able to increase profitability at a faster rate than sales by leveraging the leaner, more efficient operating expense structure we’ve put in place,” continued Mr. Sharp. “We are confident that the combination of our product and marketing strategies, diverse portfolio of authentic brands, and our strong retail relationships, provides us with continued growth opportunities in 2015 and beyond.”

Fourth Quarter Review

Net sales for the fourth quarter increased 28.2% to $78.9 million compared to $61.6 million a year ago. Wholesale sales for the fourth quarter increased 30.0% to $62.0 million including $3.3 million in Creative Recreation branded sales as compared to $47.7 million for the same period in 2013. Retail sales for the fourth quarter increased 6.6% to $13.7 million compared to $12.9 million for the same period last year. Military segment sales for the fourth quarter increased to $3.2 million compared to $1.0 million in the fourth quarter of 2013.

Gross margin in the fourth quarter of 2014 was $27.6 million, or 35.0% of sales, compared to $21.8 million, or 35.4% of sales, for the same period last year. The 40 basis point decrease was driven by higher military sales which carry lower gross margins than wholesale and retail.

Selling, general and administrative (SG&A) expenses were $20.7 million compared to $18.5 million a year ago. The $2.2 million increase in SG&A expenses was due to higher compensation expense, higher variable expenses associated with the increase in sales and additional expenses associated with the Creative Recreation brand, which was acquired in December 2013. As a percent of sales, SG&A improved 330 basis points to 26.2% of net sales compared to 29.9% sales last year.

Income from operations was $7.0 million, or 8.8% of net sales, compared to $3.4 million, or 5.6% of net sales a year ago which excludes expenses associated with the acquisition of Creative Recreation.

Interest expense was $0.2 million for the fourth quarter of 2014 and 2013.

The Company’s funded debt was $36.3 million at December 31, 2014 versus $38.4 million at December 31, 2013.

Inventory increased 9.0%, or $7.1 million, to $85.2 million at December 31, 2014 compared with $78.2 million on the same date a year ago.

Conference Call Information

The Company’s conference call to review fourth quarter 2014 results will be broadcast live over the internet today, Thursday, February 12, 2015 at 4:30 p.m. 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 growth opportunities (paragraph 4). 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), June 30, 2014 (filed July 30, 2014), and September 30, 2014 (filed October 29, 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

December 31, 2014 December 31, 2013
Unaudited Audited
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 4,616,694 $ 4,215,617
Trade receivables – net 55,807,103 49,069,668
Other receivables 476,480 325,888
Inventories 85,237,042 78,171,670
Income tax receivable 242,228
Deferred income taxes 1,291,907 1,104,050
Prepaid expenses 2,553,442 2,529,407
Total current assets 149,982,668 135,658,528
FIXED ASSETS – net 26,264,641 26,205,080
IDENTIFIED INTANGIBLES 36,681,644 36,807,099
OTHER ASSETS 299,490 354,051
TOTAL ASSETS $ 213,228,443 $ 199,024,758
LIABILITIES AND SHAREHOLDERS’ EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 15,116,131 $ 11,486,473
Accrued expenses:
Taxes – other 532,470 901,116
Income tax payable 2,687,535
Other 6,873,604 5,028,850
Total current liabilities 25,209,740 17,416,439
LONG TERM DEBT 36,270,373 38,388,198
DEFERRED INCOME TAXES 12,928,048 11,750,718
DEFERRED LIABILITIES 472,364 255,906
TOTAL LIABILITIES 74,880,525 67,811,261
SHAREHOLDERS’ EQUITY:
Common stock, no par value;

25,000,000 shares authorized; issued and outstanding December 31, 2014 – 7,550,126; December 31, 2013 – 7,536,448

70,460,672 70,153,570
Retained earnings 67,887,246 61,059,927
Total shareholders’ equity 138,347,918 131,213,497
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 213,228,443 $ 199,024,758

Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

Three Months Ended Year Ended
December 31, December 31,
2014 2013 2014 2013
Unaudited Unaudited Unaudited Audited
NET SALES $ 78,906,687 $ 61,559,288 $ 286,242,169 $ 244,870,731
COST OF GOODS SOLD 51,258,565 39,737,764 189,881,444 161,328,280
GROSS MARGIN 27,648,122 21,821,524 96,360,725 83,542,451
OPERATING EXPENSES
Selling, general and administrative expenses 20,677,128 18,548,044 80,597,934 71,351,688
Acquisition related expenses 1,028,526 1,172,047
Total operating expenses 20,677,128 19,576,570 80,597,934 72,523,735
INCOME FROM OPERATIONS 6,970,994 2,244,954 15,762,791 11,018,716
OTHER INCOME AND (EXPENSES):
Interest expense (246,210 ) (211,621 ) (943,154 ) (688,502 )
Gain on bargain purchase 601,975 601,975
Other – net (52,832 ) (189,938 ) (78,455 ) (116,665 )
Total other – net (299,042 ) 200,416 (1,021,609 ) (203,192 )
INCOME BEFORE INCOME TAXES 6,671,952 2,445,370 14,741,182 10,815,524
INCOME TAX EXPENSE 2,200,410 671,186 4,895,884 3,442,768
NET INCOME $ 4,471,542 $ 1,774,184 $ 9,845,298 $ 7,372,756
INCOME PER SHARE
Basic $ 0.59 $ 0.24 $ 1.30 $ 0.98
Diluted $ 0.59 $ 0.24 $ 1.30 $ 0.98
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic 7,550,088 7,520,361 7,544,936 7,517,364
Diluted 7,550,088 7,520,361 7,544,936 7,517,364

Reconciliation of Income per Diluted Share on a GAAP Basis to a Non-GAAP Basis

Three Months Ended December 31, 2013
(Unaudited)

GAAP
Basis

Acquisition
Related
Expenses and
Income

Creative
Recreation
December
Operations

Non GAAP
Basis

NET SALES $ 61,559,288 $ $ $ 61,559,288
COST OF GOODS SOLD 39,737,764 39,737,764
GROSS MARGIN 21,821,524 21,821,524
OPERATING EXPENSES
Selling, general and administrative expenses 18,548,044 172,418 18,375,626
Acquisition related expenses 1,028,526 1,028,526
Total operating expenses 19,576,570 1,028,526 172,418 18,375,626
INCOME FROM OPERATIONS 2,244,954 (1,028,526 ) (172,418 ) 3,445,898
OTHER INCOME AND (EXPENSES):
Interest expense (211,621 ) (211,621 )
Gain on bargain purchase 601,975 601,975
Other – net (189,938 ) (189,938 )
Total other – net 200,416 601,975 (401,559 )
INCOME BEFORE INCOME TAXES 2,445,370 (426,551 ) (172,418 ) 3,044,339
INCOME TAX EXPENSE 671,186 (149,293 ) (60,346 ) 880,825
NET INCOME $ 1,774,184 $ (277,258 ) $ (112,072 ) $ 2,163,514
INCOME PER DILUTED SHARE $ 0.24 $ (0.04 ) $ (0.01 ) $ 0.29
Reconciliation of Income per Diluted Share on a GAAP Basis to a Non-GAAP Basis
Year Ended December 31, 2013
(Unaudited)

GAAP
Basis

Acquisition
Related
Expenses and
Income

Creative
Recreation
December
Operations

Non GAAP
Basis

NET SALES $ 244,870,731 $ $ $ 244,870,731
COST OF GOODS SOLD 161,328,280 161,328,280
GROSS MARGIN 83,542,451 83,542,451
OPERATING EXPENSES
Selling, general and administrative expenses 71,351,688 172,418 71,179,270
Acquisition related expenses 1,172,047 1,172,047
Total operating expenses 72,523,735 1,172,047 172,418 71,179,270
INCOME FROM OPERATIONS 11,018,716 (1,172,047 ) (172,418 ) 12,363,181
OTHER INCOME AND (EXPENSES):
Interest expense (688,502 ) (688,502 )
Gain on bargain purchase 601,975 601,975
Other – net (116,665 ) (116,665 )
Total other – net (203,192 ) 601,975 (805,167 )
INCOME BEFORE INCOME TAXES 10,815,524 (570,072 ) (172,418 ) 11,558,014
INCOME TAX EXPENSE 3,442,768 (199,525 ) (60,346 ) 3,702,639
NET INCOME $ 7,372,756 $ (370,547 ) $ (112,072 ) $ 7,855,375
INCOME PER DILUTED SHARE $ 0.98 $ (0.05 ) $ (0.01 ) $ 1.04

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