Rocky Brands increased net sales by 134.2 percent to $131.6 million in its second quarter on net income of $3.9 million, with the Rocky, Durango and Lehigh boot brand owner getting a major boost from the newcomers in its stable.
In a Nutshell: The record revenues for the footwear manufacturer and seller come as the company continues to integrate the five brands it acquired earlier in 2021 from Honeywell International for $230 million.
These footwear brands—which include The Original Muck Boot Co., fishing boot and deck shoe outfitter Xtratuf, cold and wet weather boot brand Ranger, overshoes label Neos and protective rubber boot brand Servus—saw 47 percent year-over-year sales growth in the second quarter and 46 percent two-year growth.
“The biggest bump that really surprised me and maybe our team is the demand that has come with these brands was stronger than we anticipated,” said Jason Brooks, chairman, president and CEO of Rocky Brands.
Rocky Brands now refers to the acquired brands as its Boston Group, while the company’s original boot brands—Rocky, Georgia Boot, Durango and Lehigh—are called the Ohio Group. The original four brands saw sales increase 44 percent from the 2020 second quarter, and 39 percent over two years ago.
As the labels continue to see high demand, Rocky Brands also is currently dealing with inbound freight costs and container costs from Asia that are twice or three times at higher as they were this time last year, according to chief financial officer Tom Robertson. Rocky Brands sources roughly 65 percent of its annual inventory from Asia, while the remaining 35 percent comes from facilities in Puerto Rico, the Dominican Republic and Rock Island, Ill.
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To mitigate the rising freight rates, the footwear manufacturer is implementing price increases across brands and products that will go into effect during the third quarter. For example, Brooks said kids boots would increase $1 or $2, while adult boots would get a $3 hike.
Inventory as of June 30, 2021 increased to $143.5 million, up 92.6 percent compared to $74.5 million on the same date a year ago. The $69 million increase in inventory includes approximately $55 million associated with the newly acquired brands.
“We started moving the acquired inventory to our state-of-the-art distribution facility in Ohio back in April, and expect the process to be completed by mid-August,” Brooks said in the call. “With the investments we’ve made in technology and people, we are extremely confident we’ll be able to realize important savings over time by meaningfully lowering the fulfillment cost for the new brands.”
Gross margin in the second quarter of 2021 was $49.2 million, or 37.4 percent of net sales, compared to $19.5 million, or 34.6 percent of net sales, for the same period last year. Adjusted gross margin in the second quarter of 2021, which excludes a $2.3 million inventory purchase accounting adjustment, was $51.4 million, or 39.1 percent of net sales.
For the full year, Rocky Brands is now expecting revenue for its Ohio group to grow approximately 24 percent over 2020, up from the company’s most recent guidance of 20 percent.
Rocky Brands maintained that the Boston group will jump approximately 20 percent over the approximate $205 million in revenue the acquired brands generated last year. But combining the high demand for the Boston brands with the current delays out of Southeast Asia, Robertson said he was optimistic that these brands can grow even faster than 20 percent when supply-chain constraints ease up.
The brand portfolio expects 2021 consolidated gross margins to be approximately 39 percent, down slightly from previous estimates of 40 percent, reflecting the higher inbound freight costs and logistics costs.
Cash and cash equivalents totaled $8.4 million at the end of the quarter, compared to $25.8 million on the same date a year ago. The change was driven primarily by the cash used to fund a portion of the Honeywell brands acquisition.
Total debt as of June 30, 2021 was $187.4 million, consisting of $130 million senior term loan and borrowings under the company’s senior secured asset-backed credit facility.
Net Sales: Rocky Brands’ second-quarter net sales increased 134.2 percent to $131.6 million, compared with $56.2 million in the second quarter of 2020. The total includes $50.1 million in net sales from the acquired Boston brands.
Wholesale sales for the quarter increased 195 percent to $101.1 million compared to $34.3 million for the same period in 2020. Retail sales for the second quarter increased 36.8 percent to $22.3 million compared to $16.3 million for the same period last year. Contract manufacturing segment sales, which now include contract military sales and private-label programs, increased 45.6 percent to $8.1 million, up from $5.6 million in the year-ago period.
Net Earnings: The Xtratuf owner generated net income of $3.9 million, or 52 cents per diluted share compared to net income of $2.4 million, or 33 cents per diluted share a year ago.
Adjusted net income for the quarter was $7.4 million, or 99 cents per diluted share, compared to an adjusted net income of $3.2 million, or 45 cents per diluted share, in the second quarter of 2020.
Operating income for the quarter increased 172.2 percent to $8.4 million, or 6.4 percent of net sales compared to $3.1 million or 5.5 percent of net sales for the same period a year ago.
Adjusted operating income for the second quarter of 2021 was $13 million, or 9.9 percent of net sales, up from the $4.1 million, or 7.3 percent of net sales, generated in the 2020 period.
CEO’s Take: While 90 percent of the Muck and Xtratuf brands are sourced from Asia, Brooks said that the company would “absolutely” consider moving more of that product to localized production hubs.
“It is a long process, and a complicated process. And if you don’t do it well, you will find yourself really damaging that brand and its reputation in the marketplace. But the idea is absolutely correct, and we will be looking at that very hard in 2022 and 2023 as we move forward,” said Brooks.