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, including Rocky, The Original Muck Boot Company, Georgia Boot, Durango, XTRATUF, Lehigh, Ranger, and the licensed brand Michelin. Rocky Brands' diverse brand offerings cater to various target markets, including outdoor, work, duty, commercial military, military, and western.
Financials
In the fiscal year 2023, Rocky Brands reported annual net income of $10,426,000, annual revenue of $461,833,000, annual operating cash flow of $73,576,000, and annual free cash flow of $69,658,000. Rocky Brands' diversified brand portfolio and strategic initiatives have enabled it to navigate the challenging operating environment and deliver consistent financial performance.
During the second quarter of 2024, Rocky Brands reported net sales of $98.3 million, down 1.6% compared to $99.8 million in the year-ago period. Excluding certain nonrecurring sales, net sales increased 6.1% year-over-year. Gross profit for the quarter was $38 million, or 38.7% of net sales, compared to $37.6 million, or 37.6% of sales in the same period last year. The 110-basis point increase in gross margin was driven by higher Wholesale gross margins and a higher percentage of Retail net sales, which carry higher gross margins than the Wholesale and Contract Manufacturing segments.
Operating expenses were $33.5 million, or 34.1% of net sales, in the second quarter of 2024 compared with $35.4 million, or 35.4% of net sales last year. On an adjusted basis, operating expenses were $32.8 million, or 33.4% of net sales, compared to $33.6 million, or 33.2% of net sales a year ago. Income from operations was $4.5 million, or 4.6% of net sales, compared to $2.2 million, or 2.2% of net sales in the year-ago period. Adjusted operating income was $5.2 million, or 5.3% of net sales, compared with adjusted operating income of $5.7 million, or 5.6% of net sales a year ago.
Segment Performance
Rocky Brands' Wholesale segment reported net sales of $68.3 million in the second quarter, up 2.3% year-over-year, excluding nonrecurring items. The Retail segment saw a 6.1% increase in net sales to $26.1 million, driven by strong performance in Rocky Brands' direct-to-consumer e-commerce business. The Contract Manufacturing segment reported net sales of $3.5 million, up from $0.9 million in the year-ago period, primarily due to a new multi-year contract with the U.S. Military.
Brand Performance
Durango and XTRATUF, two of Rocky Brands' key brands, continued to deliver strong double-digit growth in the second quarter, offsetting softness in other areas of the business. Durango's strong performance was driven by continued strength in bookings across key accounts and Farm & Ranch partners, as well as an acceleration in at-once business. XTRATUF maintained its momentum from the first quarter, with healthy deliveries for spring 2024 and positive reception for new colors and collaborations.
Rocky Brands' work brands, Georgia and Rocky Work, faced some challenges in the second quarter, with more over-inventory pressure from smaller accounts. However, the team was able to offset much of this pressure with mid-single-digit increases in the key accounts business, which has largely resumed its normal order cadence. The Rocky western brand continued its repositioning with new value-driven products, though it has taken longer than planned to move through higher-priced inventory in the channel.
Rocky Brands' commercial military and duty segment was down in line with expectations, as Rocky Brands completed the 2023 military blanket purchase agreement in the first quarter. A delay in the military budget release for 2024 is also impacting the sales cadence versus the prior year. Solid gains in the duty fire collection and the postal business helped to partially offset the current military headwinds.
E-commerce Performance
Rocky Brands' branded e-commerce sites continued to trend positively, with double-digit revenue gains from the XTRATUF, Durango, Georgia, and Rocky sites leading the way for the digital channel. Rocky Brands also utilized its dot-com business to move some overstock inventory in the quarter ahead of restocking its large wholesale channel.
Outlook
Looking ahead, Rocky Brands expects net sales to be toward the high end of its initial range of $450 million to $460 million for the full year 2024. However, Rocky Brands has revised its gross margin guidance slightly lower due to rising ocean freight rates and the volume shipped within the Wholesale channel to more of its larger key accounts. Rocky Brands anticipates third-quarter gross margins to decrease sequentially from the second quarter before rebounding in the fourth quarter due to a mix of Retail sales.
Conclusion
Rocky Brands' diversified brand portfolio, strategic initiatives, and focus on operational efficiency have enabled the company to navigate the challenging operating environment and deliver consistent financial performance. Rocky Brands' strong brand positioning, growing e-commerce presence, and strategic investments position it well for continued success in the years ahead.