Although Rocky Brands’ distribution capabilities remain intact, a lack of demand brought on by store closures related to the coronavirus pandemic stripped away the company’s earnings in the first quarter.
In a Nutshell: To mitigate the viral outbreak’s impact, the work, outdoor and military footwear and apparel firm reduced annual operating expenses by $1.5 million and drew down $20 million from its credit facility to improve liquidity.
Rocky Brands also reopened its manufacturing facilities in Puerto Rico and the Dominican Republic at a reduced capacity, and its 200,000-square-foot distribution center in Logan, Ohio, has remained open throughout.
Despite the continued integrity of its manufacturing and distribution channels, the company was still significantly impacted by shutdowns across its wholesale partners.
“Today, we estimate approximately a third of our wholesale partners’ doors are currently closed,” Rocky Brands CEO and president Jason S. Brooks said during the company’s quarterly conference call. “Fortunately, roughly two-thirds were designated essential businesses by their respective state governments and they serve consumers who must remain on jobs to either fight the virus, protect our citizens or execute functions that need to be maintained during this crisis.”
Rocky Brands said it has begun to adjust future receipts from third-party suppliers in light of this situation and will work down its inventory position over the coming quarters. About 70 percent of its inventory is “core product” and will remain relevant going forward, the company said.
Regardless, the Rocky has delayed or canceled approximately $15 million in purchase orders over the next few months.
Sales: In the first quarter, net sales totaled $55.7 million, dropping from the comparable period’s $65.9 million. Wholesale revenue, more than half of Rocky’s total sales, fell to $35 million from the $42.4 million in the prior-year period.
Retail sales rose 9.4 percent to $16.9 million in the first quarter while the military segment declined to $3.8 million from $8.1 million year over year.
Brooks said Rocky Brands began to see an increase in demand for its wholesale e-commerce channel, which dropships customer orders from the company’s distribution center, at the start of the second quarter. Much of this demand was focused on western and work footwear, Brooks said.
“We actually signed up hundreds of new smaller accounts over the past month, as the current circumstances have driven an increased need for safety shoes, in several professions and our online business model provides an easy and safe way for employees to outfit their workforces with the required footwear,” Brooks said.
Rocky Boots, Georgia Boot and Durango Boots all posted double-digit e-commerce increases.
Earnings: Rocky Brands reported first-quarter net income of $1.2 million. Including $2 million in expenses related to COVID-19, adjusted diluted earnings per share fell to 27 cents, below the 47 cents estimated by Wall Street analysts.
CEOs Take: “Over the past several weeks, we’ve experienced an acceleration in sales on our e-commerce sites as well as an uptick in new account growth for our online Lehigh CustomFit safety shoe business as many of our consumers work in critical industries that are keeping America running during this crisis,” Brooks said. “As Rocky Brands has done in the past, I am confident that we will weather this storm and emerge in a position to resume delivering sustained growth, increased profitability and enhanced value for our shareholders.”