Picture 2

ROCKY BRANDS, INC.



Rocky Brands, Inc. Announces 2017 Fourth Quarter and Full Year Results

Fourth Quarter Wholesale Sales Increased 4.7%

2017 Year-End Funded Debt Decreased 84.9% to $2.2 Million



NELSONVILLE, Ohio, February 20, 2018 – Rocky Brands, Inc. (NASDAQ: RCKY) today announced financial results for its fourth quarter and year ended December 31, 2017.



Fourth Quarter 2017 Sales and Income

Fourth quarter net sales were $67.0 million versus net sales of $67.0 million in the fourth quarter of 2016. The Company reported fourth quarter net income of $4.4 million, or $0.59 per diluted share, compared to a fourth quarter net loss of $0.6 million, or ($0.09) per diluted share in the year ago period.



The fourth quarter of 2017 included an after-tax charge of $1.6 million associated with the loss on the sale of the Creative Recreation brand. Due to the recently enacted tax reform in the fourth quarter of 2017,  the Tax Cuts and Jobs Act (TCJA), we recognized a one-time income tax benefit in the fourth quarter of 2017 of $3.2 million.  The benefit is primarily a result of the new lower domestic federal tax rate applied to our current and deferred tax liability position, which was partially offset by a one-time toll charge related to the repatriation of earnings from our Dominican Republic operations. As a result of these one-time charges due to the TCJA, we recorded a $2.9 million benefit in the fourth quarter of 2017. Excluding the charges and impact of tax reform, fourth quarter 2017 adjusted net income was $2.8 million, or $0.37 per diluted share. The fourth quarter of 2016 included a non-cash impairment charge related to the Creative Recreation brand of $2.0 million, after-tax. Excluding this charge, fourth quarter 2016 net income was $1.3 million, or $0.18 per diluted share. (See below for a reconciliation of GAAP financial measures to non-GAAP financial measures).



Fiscal Year 2017 Sales and Income

For fiscal year 2017, net sales were $253.2 million versus net sales of $260.3 million in fiscal year 2016. The Company reported net income of $9.6 million, or $1.29 per diluted share, for fiscal year 2017, compared with a net loss of $2.1 million, or ($0.29) per diluted share, for fiscal 2016.



Excluding $0.6 million after-tax of hurricane related expenses the company recorded in the third quarter of 2017 and the aforementioned expenses and charges related to the sale of the Creative Recreation brand and the impact of tax reform, 2017 adjusted net income was $8.6 million, or $1.16 per diluted share. Excluding the $0.8 million after-tax reorganizational charge the company recorded in the third quarter 2016 and the aforementioned non-cash impairment charge related to the Creative Recreation brand, fiscal 2016 net income was $0.6 million, or $0.08 per diluted share. (See below for a reconciliation of GAAP financial measures to non-GAAP financial measures).



Jason Brooks, President and Chief Executive Officer, commented, “We concluded a productive 2017 with a very solid fourth quarter performance which was highlighted by mid-single digit growth for both our wholesale and retail divisions. The product, marketing and distribution strategies we’ve recently implemented aimed at increasing full-price selling for our branded work, western and outdoor footwear businesses are contributing to better top and bottom line results. At the same time, we continue to successfully grow our direct sales operations through the expansion of our Lehigh Outfitters CustomFit program. This includes signing new accounts and driving higher volumes with existing accounts fueled by improved execution and an enhanced merchandise offering.   With respect to our military segment, 2017 marked a record year in terms of revenue and margins despite the challenges that our employees and production facility and the entire island of Puerto Rico faced following the impact of Hurricane Maria.”

1


 

Brooks continued, “While we face some headwinds in 2018 from expiring contracts and changes in market dynamics for our military business and the sale of Creative Rec, we are cautiously optimistic about the prospects for growth in our wholesale and direct channels. The positive impact on gross margins from the continuation of improved full-price selling and the change in sales mix by segment compared with 2017, combined with the benefit from recent tax reform, has the company well positioned to deliver increased profitability on lower overall revenue and continue generating value for shareholders.”



Fourth Quarter Review

Net sales for the fourth quarter were $67.0 million compared to $67.0 million a year ago. Wholesale sales for the fourth quarter increased 4.7% to $44.4 million compared to $42.4 million for the same period in 2016. Retail sales for the fourth quarter increased 4.9% to $14.4 million compared to $13.7 million for the same period last year. Military segment sales for the fourth quarter were $8.2 million compared to $10.9 million in the fourth quarter of 2016.



Gross margin in the fourth quarter of 2017 was $23.3 million, or 34.8% of sales, compared to $21.8 million, or 32.5% of sales, for the same period last year. The 230 basis point increase was driven by higher wholesale and military margins combined with a lower percentage of military sales which carry lower gross margins than wholesale and retail.



Selling, general and administrative (SG&A) expenses were $19.6 million, including $0.3 million of transaction expenses related to the sale of the Creative Recreation brand, compared to $19.9 million a year ago. SG&A as a percent of sales decreased 50 basis points to 29.3% of net sales compared to 29.8% sales last year.



Income from operations was $3.7 million compared to an operating loss of $1.2 million in the year ago period.  On an adjusted basis, operating income was $4.0 million, or 6.0% of net sales, compared to $1.8 million, or 2.8% of net sales a year ago. (See below for a reconciliation of GAAP financial measures to non-GAAP financial measures).



Interest expense was $109,000, compared to $157,000 for the fourth quarter of 2016.



The Company’s funded debt decreased 84.9% or $12.4 million to $2.2 million at December 31, 2017 versus $14.6 million at December 31, 2016. 



Inventory decreased 5.1%, or $3.5 million, to $65.6 million at December 31, 2017 compared with $69.2 million on the same date a year ago.



Use of Non-GAAP Financial Measures

In addition to GAAP financial measures, we present the following non-GAAP financial measures: “non-GAAP adjusted gross margin,” “non-GAAP adjusted operating expenses,” “non-GAAP adjusted other income and expenses,” “non-GAAP adjusted net income,” and “non-GAAP adjusted net income per share.” Adjusted results exclude the impact of items that management believes affect the comparability or underlying business trends in our consolidated financial statements in the periods presented. We believe that these non-GAAP measures are useful to investors and other users of our consolidated financial statements as an additional tool for evaluating operating performance. We believe they also provide a useful baseline for analyzing trends in our operations. Investors should not consider these non-GAAP measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. See “Reconciliation of GAAP Measures to Non-GAAP Measures” accompanying this press release.



Conference Call Information

The Company’s conference call to review fourth quarter and fiscal 2017 results will be broadcast live over the internet today, Tuesday, February 20, 2018 at 4:30 pm Eastern Time. The broadcast will be hosted at http://www.rockybrands.com.



About Rocky Brands, Inc.
Rocky Brands, Inc. is a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names including Rocky®, Georgia Boot®, Durango®, Lehigh®, and the licensed brand Michelin®.



2


 

Safe Harbor Language

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, all statements regarding intent, beliefs, expectations, projections, forecasts, and plans of the Company and its management. These forward-looking statements involve numerous risks and uncertainties, including, without limitation, the various risks inherent in the Company’s business as set forth in periodic reports filed with the Securities and Exchange Commission, including the Company’s annual report on Form 10-K for the year ended December 31, 2016 (filed March 9, 2017) and quarterly reports on Form 10-Q for the periods ended March 31, 2017 (filed May 5, 2017),  June 30, 2017 (filed August 9, 2017) and September 30, 2017 (filed November 7, 2017).  One or more of these factors have affected historical results, and could in the future affect the Company’s businesses and financial results in future periods and could cause actual results to differ materially from plans and projections.  Therefore, there can be no assurance that the forward-looking statements included in this press release will prove to be accurate.  In light of the significant uncertainties inherent in the forward-looking statements included herein, the Company, or any other person should not regard the inclusion of such information as a representation that the objectives and plans of the Company will be achieved. All forward-looking statements made in this press release are based on information presently available to the management of the Company. The Company assumes no obligation to update any forward-looking statements.





 

Company Contact:

Tom Robertson



Chief Financial Officer



(740) 753-1951



 

Investor Relations: 

Brendon Frey



ICR, Inc.



(203) 682-8200




3


 

Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets





 

 

 

 

 



 

 

 

 

 



 

 

December 31,



 

 

2017

 

2016

ASSETS:

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

3,680,776 

$

4,480,505 

Trade receivables, net

 

 

45,027,002 

 

40,844,583 

Other receivables

 

 

806,468 

 

688,251 

Inventories

 

 

65,622,432 

 

69,168,442 

Income tax receivable

 

 

1,849,237 

 

1,243,678 

Prepaid expenses

 

 

2,199,648 

 

2,354,107 

Total current assets

 

 

119,185,563 

 

118,779,566 

FIXED ASSETS – net

 

 

23,781,001 

 

26,511,493 

IDENTIFIED INTANGIBLES

 

 

30,314,749 

 

33,415,694 

OTHER ASSETS

 

 

197,977 

 

232,509 

TOTAL ASSETS

 

$

173,479,290 

$

178,939,262 



 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY:

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

12,982,535 

$

11,589,040 

Accrued Expenses:

 

 

 

 

 

Salaries and Wages

 

 

1,754,681 

 

949,894 

Taxes - Other

 

 

599,793 

 

842,325 

Accrued Freight

 

 

770,219 

 

534,070 

Commissions

 

 

455,845 

 

446,703 

Accrued Duty

 

 

2,160,847 

 

1,980,598 

Other

 

 

1,301,931 

 

1,377,281 

Total current liabilities

 

 

20,025,851 

 

17,719,911 

LONG TERM DEBT

 

 

2,199,423 

 

14,584,008 

LONG TERM TAXES PAYABLE

 

 

2,286,512 

 

 -

DEFERRED INCOME TAXES

 

 

7,726,234 

 

11,365,800 

DEFERRED LIABILITIES

 

 

148,408 

 

176,219 

TOTAL LIABILITIES

 

 

32,386,428 

 

43,845,938 

SHAREHOLDERS' EQUITY:

 

 

 

 

 

Common stock, no par value;

 

 

 

 

 

25,000,000 shares authorized; issued and outstanding  December 31, 2017 - 7,398,654 and December 31, 2016 - 7,421,455

 

 

68,973,927 

 

69,291,637 

Retained earnings

 

 

72,118,935 

 

65,801,687 

Total shareholders' equity

 

 

141,092,862 

 

135,093,324 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

173,479,290 

$

178,939,262 





4


 

Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

















 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

Three Months Ended

 

Twelve Months Ended



 

December 31,

 

December 31,



 

2017

 

2016

 

2017

 

2016



 

Unaudited

 

Unaudited

 

Audited

 

Audited

NET SALES

$

66,993,982 

$

66,950,298 

$

253,196,972 

$

260,258,584 

COST OF GOODS SOLD

 

43,648,310 

 

45,160,120 

 

172,428,155 

 

183,528,494 

GROSS MARGIN

 

23,345,672 

 

21,790,178 

 

80,768,817 

 

76,730,090 



 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

19,630,063 

 

19,946,312 

 

68,943,561 

 

75,631,490 

Reorganizational charge

 

 -

 

 -

 

 -

 

1,159,527 

Impairment charge

 

 -

 

3,000,000 

 

 -

 

3,000,000 

Total Operating Expenses

 

19,630,063 

 

22,946,312 

 

68,943,561 

 

79,791,017 



 

 

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

 

3,715,609 

 

(1,156,134)

 

11,825,256 

 

(3,060,927)



 

 

 

 

 

 

 

 

OTHER INCOME AND (EXPENSES):

 

 

 

 

 

 

 

 

Interest expense

 

(108,763)

 

(157,336)

 

(389,586)

 

(616,567)

Other – net

 

(19,614)

 

(23,857)

 

15,450 

 

59,020 

Loss on disposition of Creative Recreation

 

(2,089,816)

 

 -

 

(2,089,816)

 

 -

Total other - net

 

(2,218,193)

 

(181,193)

 

(2,463,952)

 

(557,547)



 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

 

1,497,416 

 

(1,337,327)

 

9,361,304 

 

(3,618,474)



 

 

 

 

 

 

 

 

INCOME TAX (BENEFIT) EXPENSE

 

(2,899,362)

 

(703,078)

 

(225,362)

 

(1,479,078)



 

 

 

 

 

 

 

 

NET INCOME (LOSS)

$

4,396,778 

$

(634,249)

$

9,586,666 

$

(2,139,396)



 

 

 

 

 

 

 

 

INCOME (LOSS) PER SHARE

 

 

 

 

 

 

 

 

Basic

$

0.59 

$

(0.09)

$

1.29 

$

(0.29)

Diluted

$

0.59 

$

(0.09)

$

1.29 

$

(0.29)

WEIGHTED AVERAGE NUMBER OF

 

 

 

 

 

 

 

 

COMMON SHARES OUTSTANDING

 

 

 

 

 

 

 

 

Basic

 

7,398,844 

 

7,427,520 

 

7,428,176 

 

7,505,219 

Diluted

 

7,435,980 

 

7,427,520 

 

7,450,312 

 

7,505,219 





5


 

Rocky Brands, Inc. and Subsidiaries

Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

Three Months Ended

 

Twelve Months Ended



 

December 31,

 

December 31,



 

2017

 

2016

 

2017

 

2016

Gross Margin

 

 

 

 

 

 

 

 

Gross margin, as reported

$

23,345,672 

$

21,790,178 

$

80,768,817 

$

76,730,090 

Add: Hurricane related expenses

 

 -

 

 -

 

963,570 

 

 -

Adjusted gross margin

$

23,345,672 

$

21,790,178 

$

81,732,387 

$

76,730,090 



 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

Operating expenses, as reported

$

19,630,063 

$

22,946,312 

$

68,943,561 

$

79,791,017 

Less: Creative Recreation disposition related expenses

 

299,663 

 

 -

 

299,663 

 

 -

Less: Reorganizational charge

 

 -

 

 -

 

 -

 

1,159,527 

Less: Impairment charge

 

 -

 

3,000,000 

 

 -

 

3,000,000 

Adjusted operating expenses

$

19,330,400 

$

19,946,312 

$

68,643,898 

$

75,631,490 



 

 

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS, ADJUSTED

$

4,015,272 

$

1,843,866 

$

13,088,489 

$

1,098,600 



 

 

 

 

 

 

 

 

OTHER INCOME AND (EXPENSES):

 

 

 

 

 

 

 

 

Total other - net, as reported

 

(2,218,193)

 

(181,193)

 

(2,463,952)

 

(557,547)

Less: Loss on disposition of Creative Recreation

 

(2,089,816)

 

 -

 

(2,089,816)

 

 -

Adjusted other - net

 

(128,377)

 

(181,193)

 

(374,136)

 

(557,547)



 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

 

 

 

 

 

 

Net income (loss), as reported

$

4,396,778 

$

(634,249)

$

9,586,666 

$

(2,139,396)

Add: Hurricane related expenses, after tax

 

 -

 

 -

 

635,956 

 

 -

Add: Disposition of Creative Recreation, after tax

 

1,577,056 

 

 -

 

1,577,056 

 

 -

Less: Impact of tax reform (1)

 

(3,208,028)

 

 -

 

(3,208,028)

 

 -

Add: Reorganizational charge, after tax

 

 -

 

 -

 

 -

 

753,693 

Add: Impairment charge, after tax

 

 -

 

1,950,000 

 

 -

 

1,950,000 

Adjusted net income

$

2,765,806 

$

1,315,751 

$

8,591,650 

$

564,297 



 

 

 

 

 

 

 

 

Net income (loss) per share, as reported

 

 

 

 

 

 

 

 

Basic

$

0.59 

$

(0.09)

$

1.29 

$

(0.29)

Diluted

$

0.59 

$

(0.09)

$

1.29 

$

(0.29)



 

 

 

 

 

 

 

 

Adjusted net income per share

 

 

 

 

 

 

 

 

Basic

$

0.37 

$

0.18 

$

1.16 

$

0.08 

Diluted

$

0.37 

$

0.18 

$

1.16 

$

0.08 



 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

Basic

 

7,398,844 

 

7,427,520 

 

7,428,176 

 

7,505,219 

Diluted

 

7,435,980 

 

7,437,888 

 

7,450,312 

 

7,519,414 

        

(1): Due to the recently enacted tax reform, Tax Cuts and Jobs Act (TCJA), we recognized a one-time income tax benefit in the fourth quarter of 2017 of $3.2 million.  The benefit is primarily a result of the new lower domestic federal tax rate applied to our current and deferred tax liability position, which was partially offset by a one-time toll charge related to the repatriation of earnings from our Dominican Republic operations. As a result of these one-time charges we recorded a $2.9 million benefit in the fourth quarter of 2017. The adjusted tax expense without the impact of TCJA was $308,666 and $2,982,666 for the three and twelve months ended December 31, 2017 resulting in an effective tax rate of 20.6% and 31.9% for the respective periods. Our effective tax rate, adjusted for the TCJA, for the fourth quarter, was below historic levels due to the recently passed Bipartisan Budget Act of 2018, which permits a deduction for income attributable to domestic production activities in Puerto Rico through the end of 2017.

6