Rocky Brands Inc (NASDAQ:RCKY) is a leading designer, manufacturer, and marketer of premium quality footwear and apparel marketed under a portfolio of well-recognized brand names. With a history spanning over 80 years, the company has navigated various challenges, demonstrated its resilience, and is now focused on building a more diversified, sustainable, and profitable business.
Business Overview and History Rocky Brands was founded in 1932 in Nelsonville, Ohio, initially focused on the production of hunting and outdoor boots. Over the decades, the company has expanded its portfolio to include brands such as Georgia Boot, Durango, XTRATUF, Lehigh, Ranger, and the licensed brand Michelin. These brands target various market segments, including outdoor, work, duty, commercial military, military, and western.
In the 1980s, Rocky Brands began to expand its brand portfolio, acquiring the Georgia Boot and Durango brands. This strategic move allowed the company to reach a broader range of customers and markets, including the work, western, and outdoor segments. The acquisition of these established brands strengthened Rocky Brands' market presence and reinforced its position as a leading footwear provider.
During the 1990s and early 2000s, Rocky Brands continued its growth trajectory through additional brand acquisitions, including XTRATUF, Lehigh, and Muck. These acquisitions further diversified the company's product offerings and expanded its reach into new markets, such as the fishing, safety, and outdoor recreation industries.
One of the major challenges Rocky Brands faced was the 2008-2009 financial crisis, which had a significant impact on the retail industry. The company navigated this challenging economic environment by focusing on cost-cutting measures, streamlining operations, and strengthening its core brands. Through these efforts, Rocky Brands was able to emerge from the crisis in a stronger position.
In recent years, Rocky Brands has undertaken strategic initiatives to enhance its business model. In 2023, the company divested its Servus brand to focus on its more profitable core brands and allocate resources towards growth and development opportunities. This divestiture allowed the company to streamline its operations and concentrate on brands with stronger growth potential.
Financial Performance and Ratios Rocky Brands has demonstrated resilience in its financial performance, even amidst challenging market conditions. For the fiscal year 2023, the company reported total revenue of $461.83 million and net income of $10.43 million. The company's gross profit margin for the year was 38.6%, reflecting its ability to maintain pricing power and operational efficiency. Operating cash flow for 2023 was $73.58 million, while free cash flow stood at $69.66 million.
In the most recent quarter (Q3 2024), Rocky Brands reported revenue of $114.54 million, down 8.8% year-over-year. The decrease was primarily due to a decline in Wholesale segment sales, partially offset by increases in Retail and Contract Manufacturing segment sales. Net income for Q3 2024 was $5.28 million, down from $6.83 million in Q3 2023. The decrease was primarily due to lower net sales and higher operating expenses, partially offset by an increase in gross margin. Operating cash flow for Q3 2024 was $4.50 million, with free cash flow at $3.46 million.
Liquidity The company's balance sheet remains strong, with a current ratio of 2.79 and a quick ratio of 0.93 as of September 30, 2024. This indicates a healthy liquidity position, which is crucial for navigating market uncertainties. Rocky Brands' debt-to-equity ratio stands at 0.66, suggesting a balanced capital structure that provides financial flexibility. As of September 30, 2024, the company had $3.71 million in cash and $50.10 million available under its $175 million ABL Facility.
Segment Performance Rocky Brands operates in three main product segments: Wholesale, Retail, and Contract Manufacturing.
The Wholesale segment, which is the largest part of Rocky Brands' business, saw a 7.6% decrease in net sales for the first nine months of 2024 compared to the prior year period. This decline was primarily due to the sale of the Servus brand in March 2023, the change to a distributor model in Canada, and temporarily elevated commercial military footwear sales to a single customer in 2023. However, Wholesale gross margins improved, increasing to 37.0% of net sales in the first nine months of 2024, up from 35.5% in the same period of 2023.
The Retail segment experienced a 5.3% increase in net sales for the first nine months of 2024 compared to the prior year period, driven by growth in the Lehigh CustomFit platform. Retail gross margins were 46.5% of net sales in the first nine months of 2024, down slightly from 48.5% in the same period of 2023.
The Contract Manufacturing segment saw an 86.8% increase in net sales for the first nine months of 2024 compared to the prior year period, primarily due to a new multi-year contract awarded with the U.S. Military in the fourth quarter of 2023. Contract Manufacturing gross margins improved to 11.0% of net sales in the first nine months of 2024, up from 7.3% in the same period of 2023.
Overall, Rocky Brands' net sales decreased 3.0% to $325.7 million in the first nine months of 2024 compared to the same period in 2023, while gross margins increased to 38.6% of net sales, up from 38.1% in the prior year.
Recent Developments and Outlook In the fourth quarter of 2023, Rocky Brands was awarded a new multi-year contract with the U.S. Military, which is expected to contribute to the company's Contract Manufacturing segment. This new contract underscores the company's ability to secure strategic partnerships and diversify its revenue streams.
Looking ahead, Rocky Brands is focused on making strategic investments in its Durango and XTRATUF brands to capitalize on their momentum and reach a broader consumer audience. The company is also taking a more value-driven approach for its other brands, aiming to drive higher volumes and gain market share.
Despite facing near-term challenges, such as unfavorable weather conditions and a cautious consumer environment, the company remains optimistic about its growth prospects. Rocky Brands' order book points to a strong start in 2025, and the company is working to enhance its manufacturing and sourcing capabilities to ensure it is properly positioned to capture future demand.
For the full year 2024, Rocky Brands now anticipates sales to be at the low end of their initial range of $450 million to $460 million. The company expects 2024 gross margins to be similar to the 2023 adjusted gross margins of 38.9%. Rocky Brands is spending slightly more as a percentage of sales in 2024 to invest in additional brand marketing programs to drive long-term growth. However, this is being more than offset by a $5 million reduction in interest expense versus 2023 due to debt paydown and refinancing.
For 2025, Rocky Brands is targeting a low-single-digit growth rate for the Wholesale business and a mid to high-single-digit growth rate for the Retail segment.
Risks and Challenges As with any business, Rocky Brands faces a range of risks and challenges. The company operates in a competitive industry, where it must navigate evolving consumer preferences, macroeconomic conditions, and supply chain disruptions. Additionally, the company's success is partially dependent on the performance of its key brands, any underperformance of which could impact its overall financial results.
Furthermore, Rocky Brands is exposed to currency fluctuations, as it operates in international markets, which could affect its profitability. The company must also maintain strong relationships with its retail partners and adapt to changing distribution channels, such as the growing importance of e-commerce.
Conclusion Rocky Brands has a long and storied history, and the company is now focused on building a more diversified, sustainable, and profitable business. With its strategic investments in key brands, value-driven approach, and enhanced manufacturing and sourcing capabilities, the company is well-positioned to capitalize on growth opportunities and navigate the challenges ahead. As Rocky Brands continues to execute on its strategic initiatives, investors will be closely watching the company's ability to deliver consistent financial performance and generate long-term shareholder value.