25 Oct Rocky Brands Q3 Impacted By Holiday Orders Shifting Into Q4
Rocky Brands’ earnings significantly improved in the third quarter due to efforts to establish a “more efficient operating structure” over the last year. But sales came in lower than planned due in part to some holiday orders being pushed into the fourth quarter.
Sales in the quarter declined 11.7 percent to $64.7 million.
By segment, wholesale sales for the quarter decreased 12.9 percent to $46 million. The prior-year period included approximately $2.2 million in sales from the private label program that was discontinued. But the decline was greater than planned as all brands saw “modest shortfalls” versus projections.
Said Jason Brooks, president and CEO, on a conference call with analysts, “We believe this was due to a combination of factors, including lower discounting, as we’ve placed a greater emphasis on full price selling as well as the trend of brick-and-mortar buying closer to need as they move more of their business online and don’t need the additional time to flow product to their stores, which is shifting some sales out of Q3 into Q4, near to the holiday season.”
Accelerating growth was seen at its online partners, “which indicates that our recent efforts to increase the size of this channel are gaining traction,” said Brooks.
In its work footwear segment, sales were down slightly with both Georgia Boot brand and Rocky Work off a couple of hundred thousand dollars. Western was likewise off slightly although Durango’s sales were flat and the brand improved product margins by 300 basis points as higher full price selling offset fewer discount sales.
Hunting was “the most challenged in the quarter as warm, dry weather in several regions of the U.S. hurt demand for our insulated, waterproof hunting boots,” stated Brooks. Hunting apparel, although a relatively small business, saw a steep decline and impacted results. Said Brooks, “We are hopeful that a cold snap could help improve these trends as we move through the fourth quarter.”
Finally, commercial military sales were down due largely to one large customer shifting an order it has historically taken in the third quarter to the fourth quarter this year.
Retail sales for the quarter increased 7.8 percent to $11.1 million. The segment continues to find success with its Lehigh outfitters custom fit program, which provides safety footwear to workplaces and recently signed Whirlpool, Fiat, Chrysler and Blue Diamond.
Military sales dropped to $7.6 million versus $10.1 million for the same period in 2016. Approximately $1.7 million of footwear shipments shifted out of the third quarter and into the fourth due to the impact Hurricane Maria on its factory in Puerto Rico. The factory was without power for an extended period of time.
Gross margins in the quarter improved to 30.2 percent from 27 percent. The latest quarter included $1 million of additional expenses related to payroll and overhead costs tied to the disruption at its Puerto Rican facility. Excluding this expense, gross margins increased 470 basis points driven by significant improvements in both wholesale segment and the military segment margins.
Wholesales’s gross margin were 31.1 percent, up 250 basis points, driven by the combination of better full price selling and less discounting.
SG&A expenses decreased 15.2 percent to $16 million, or to 24.8 percent of sales versus 25.8 percent in the year-ago period. The third quarter of 2016 included an approximate $1.2 million charge related to reorganizational activities. Excluding this charge, SG&A decreased $1.7 million year-over-year, primarily related to lower compensation expenses following the workforce reductions made during the third quarter of 2016.
Brooks said he remains “cautiously optimistic about our prospects for growth.” The Lehigh business is positioned well to capitalize on demand for safety footwear in workplaces and the company plans to continue to “aggressively bid” on military contracts.
On the wholesale side, the focus will be on investing in product innovation and marketing, particularly digital, to broaden awareness and drive interest in specific products. A continued push is planned to attain more shelf space at brick & mortar retail, “and even more so online with accounts like Amazon, where our runway for growth is significant.”
But Brooks cautioned that ramping up growth will be challenging with the disruption taking place at retail.
“The marketplace is weird right now,” said Brooks in the Q&A session. “This brick-and-mortar thing and then the e-commerce thing and how fast it is changing over, and then what are the consumers looking for, what are the retailers looking for. So we’re excited about where we’re at. We think we can see some growth, but it’s going to be very modest growth.”