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Rocky Brands CEO Sees ‘Tremendous Upside’ With Muck Boot, Xtratuf on Board

To close what CEO Jason Brooks said was a “year of two halves,” Rocky Brands ended 2020 with a quarterly sales increase of 16.3 percent to $87.6 million and net income that nearly doubled to $9.7 million. With the final quarter results, Rocky Brands was able to salvage positive sales growth for 2020 at 2.6 percent.

But for 2021, much of the hype about the family of footwear brands, which consists of Rocky, Georgia Boot, Durango, Lehigh Outfitters and licensed brand Michelin Footwear, rests on the new faces the company is bringing aboard.

In a Nutshell: In January, Rocky Brands entered into a $230 million definitive agreement to acquire the performance and lifestyle footwear business of Honeywell International, Inc. including The Original Muck Boot Company and Xtratuf footwear brands.

“With innovative and authentic product collections that complement our existing offering with minimal overlap, we will be in a position to strengthen our wholesale relationships and survey our wider consumer audience,” Brooks said in an earnings call. “We believe there is tremendous upside for leveraging our advanced fulfillment capabilities to improve distribution of the new brands to wholesale customers and accelerate direct-to-consumer penetration. Today, these brands are fulfilled from a distribution center that includes numerous other product categories such as hardhats and PPE items. We believe we can meaningfully reduce their fulfillment costs as we’ve integrated our business and begin shipping product out of our DC in Ohio.”

Brooks said that the new brands would immediately be accretive to Rocky Brands’ gross margins. For 2020, sales of the acquired brands totaled approximately $205 million, with an adjusted EBITDA of $24.5 million.

In terms of Rocky Brands’ own manufacturing capabilities, Brooks confirmed that the company’s facilities in both Puerto Rico and the Dominican Republic are running at 100 percent. These facilities manufacture approximately 40 percent of Rocky Brands’ products.

Total inventory increased 1.1 percent to $77.6 million compared to $76.7 million on the same date a year ago.

Rocky Brands’ largest category, work boots, saw sales increase 18 percent, led by Georgia Boot, which saw new collections perform well at retailers such as Tractor Supply, Boot Barn and Coastal Farm & Ranch alongside many other smaller independent accounts.

But the outdoor footwear manufacturer’s Western category actually saw the most growth, boosting fourth quarter sales at a pace of 43 percent year over year, following a 27 percent increase in the third quarter. Rocky’s outdoor business increased 20 percent, despite what Brooks described as “less than optimal weather for hunting across much of the country.”

Gross margin in the quarter increased 27.8 percent to $36.1 million, or 41.2 percent of sales, compared to $28.3 million, or 37.5 percent of sales, for the same period last year. The 370-basis-point increase was primarily attributable to higher wholesale margins driven by increased full-priced selling along with higher retail margins, the company said.

Gross margins by segment were as follows: retail led the way at 48.7 percent, wholesale margins were 39.1 percent of sales and the military category had the weakest margins at 30 percent.

Cash and cash equivalents increased $12.8 million, or 82.7 percent, to $28.4 million, compared to $15.5 million on the same date a year ago.

For 2021 projections, Rocky Brands isn’t including the newly acquired brands yet, as the deal will not close until March. With that in mind, the company is projecting revenues to increase in the mid-single-digit range, led by its retail division and followed by wholesale. With the recent Navy contract that the company was awarded, Rocky Brands expects military segment sales to be flat this year.

Net sales: Fourth-quarter net sales increased 16.3 percent to $87.6 million, up from net sales of $75.3 million in the fourth quarter of 2019. By segment, wholesale sales increased 21.7 percent to $59.9 million, retail sales increased 13.1 percent to $23.5 million and military sales decreased 21.4 percent to $4.2 million.

The Georgia Boot, Rocky and Durango lines all saw double-digit sales growth, while e-commerce sales jumped 33 percent in the quarter.

For fiscal year 2020, net sales increased 2.6 percent to $277.3 million versus net sales of $270.4 million in 2019.

Earnings: Net income in the final quarter leapt 91.1 percent to $9.7 million, or $1.33 per diluted share, compared to $5.1 million, or 68 cents per diluted share in the year ago period. Adjusted net income for the fourth quarter of 2020, which excludes acquisition-related expenses, was $10.3 million, or $1.41 per diluted share.

Income from operations jumped 93.8 percent to $12.9 million, compared to $6.7 million for the same period a year ago. Adjusted operating income for quarter was $13.6 million.

For fiscal 2020, net income increased 20.1 percent to $21 million, or $2.86 per diluted share, compared with a net income of $17.5 million, or $2.35 per diluted share, for fiscal 2019. Adjusted net income for the year was $23.1 million, or $3.14 per diluted share, compared to an adjusted net income of $16.9 million, or $2.27 per diluted share in 2019.

CEO’s Take: “During the back half of the year, we had to adjust productivity to keep up with demand for some key styles and compensate for some of our suppliers who have been constrained due to Covid-related restrictions,” Brooks said. “This ability to dial up and dial down our production schedules in response to the market volatility and speed to market, underscores the benefits of our vertically integrated manufacturing structure, which we believe is a key competitive advantage.”

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