Rocky Brands (RCKY) 5 Nov 222022 Q3 Earnings call transcript

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rocky Brands Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for your questions. like recorded. everyone would call this I being is Instructions] to that remind conference [Operator now the will I turn of Brendon ICR. Frey conference over to

and you, thanks everyone us Thank to today. joining

the may are as defined at and which the note and today's actual please XXXX. begin, Act Litigation assumptions subject this by to differ risks may based Such uncertainties, we statements session, available statements Private Before are including to results forward-looking changes, contain Q&A We to cause Reform that and of no assume Securities time update period information on statements. such materially. obligation

XX-K a today's the XX, December I'll the press Brands. For with Executive year risks now to our XXXX. conference over Rocky of turn and Chief please Jason? our reports Brooks, filed refer Exchange of to for discussion release Officer and Jason the ended and complete Securities the uncertainties, including Commission,

operational With to to that as Tom working Officer, new should much in his me am for Chief looking here Operating to efficiencies. we drive is in Officer us role allow in quarter. on was call congratulating Tom Thank today me with replacement. I promotion him Chief his glad I'm by and you, on forward gains this But start while Financial for profitability Brendon. to search today's the that to with his very like company have announced further I'd serving even Robertson, Tom

headwinds is even key functional results. diversified microeconomic continue the of of for U.S. way affordable the provider consumer our of durable and the third to the portfolio pressure a life our footwear millions by and as the quarter quarter, demand this to We that work of were to Americans. now encouraged core again consumer, Turning brands for as

that demand footwear We of brands from more experiencing. currently afforded softness have a degree are the insulation apparel discretionary been and

into the as in the the our quarter. facilities cost enhanced line The allowed to to distribution revenue capitalize past more to done actions able to our profitability. flow address more were efficiencies of the strength demand we improve efficiently pressures to quarter, we've allowed line operational our we've work This translate on performance to us bottom taken us year top over this

were efficient we spend, more driving leverage marketing demand. Additionally, impacting further much consumer our with without

appetite in spend Before the strongest minutes the discussing to quarter results positive Tom as of detail, the performance third we Durango. brands another the Durango expansion be for saw demand want the continue with been this quarter. of brand a covers the in resilient I Consumer to footwear. of quarter. to were this one of drive in financials our Starting has each We continues brand Western to and names few pleased see year

popular of constraints fueled like this has weren't a there which normal retailers, Westward and gains key solid While collections. many several channel when last experienced Durango higher the competitors our on year to the led struggled and sales with Rebel our level to source inventory inventory by in still product, of of has year. than ship men's

market brand. a expecting for uncertainty holidays, solid year about despite finish retail the heading ahead, general the Durango's and momentum Looking feel some the at are we to good into

that feeling slow having items. Turning a is that and a to during strength Georgia. Northwest season. strong compared quarter, September. market styles restocked farm important the of key Meanwhile, consumer holiday demand in confidence pockets its Sales brand July, the from retailers low August were Pacific a in spend region is more of our some year. year, the exhibited inventoried After point pressure when accelerated up over was to is nicely on in last slightly The to upcoming but at essential for field and business ahead was where start consumer account ranch and

independent the well spans and strength western, was of the Finally, hunting partners. difficult season. the through results to for flat our this across in mixed, third cautiously segments. online of Rocky fall categorize heading military strong I'd despite with we in commercial Overall, continues which retail months improving and the are optimistic sell year. quarter retailers certain quarter the in comparisons of area state progressed, some final but of work into the as with together farm current were start the ranch duty many outdoor trends work, of QX outdoor, and footwear Outdoor brand, overall Georgia very winter and ahead footwear is The an

all-new moved the Worksmart Rocky boot QX. also like with New gap. entire releases this In our post-pandemic This the quarter, comparison the for category. against will steam. a but from this, a only The by impacted was in year year. up a quarter with large continues as few into that this anticipate orders a key leader work, product release in nearly new Rocky down fall was reoccur USA up category not Rocky products to a dealers slightly is become to fueled the in and had the Western was increases made outdoors gain of one-time portion program we XXXX difficult collection retail growth Despite hunting down trend that the a new our last be sales factors. as did of early quarter Work the a last

respect in the Commercial desperate was with category new experienced of a retail advantage of a fire business demand. sales position quarter due had retail to a and notable proper planning, forecasting, retailers service chain to of product exceptional public due strength inventory public of -- well-planned Additionally availability to terrific put had partners number XXXX, from of and QX our increased in disruption Rocky and us public service the products. mixed position to many our and inventory in one-time Military the division, limited our take service that order supply for Booty product we competitor With

in driver shortfall. military strong management it service, of results was in the drove the in commercial public inventory sizes lack key of was the inventory July that While primary

portion made we in of coupled inventory lost orders August poor XXXX and quarter, year-over-year decline a non-repeated the up resulted in the September, of in sales the difficult While the government rebounded in with comparison start some to a those to in business.

farm, brands outdoor fall Muck, in channel. of and to posted the also Our solid from performed quarter. sporting outdoor XTRATUF momentum, brand see XTRATUF in Muck great our continues gains and Servus a all especially very positive good with The retail the level strongly partners. bookings key third

we've enhancing the efficiency to drive last our demand, than we done to the Reno more a For quarter, work doubled testament center. of year's distribution shipments, the

we Deck Additionally, are the low improvements low sales. to kids of digit inventories with keeping to are The Auna and product -- to engaged, increases leading drive sizes Servus, launched sales key to levels sandal make customers product increases XTRATUF to new distribution this the or leading seeing to continued the respect Ankle and continue ADBs year. in With digit year Boots for demand. better corresponding lead

shopper maintain products, These environment. and Turning operating starting focus challenging now and on efforts to optimizing storytelling marketing conversion compelling The continues our have us channel. retail tactics. with brand team to direct-to-consumer allowed segments despite to journeys, rates efficient the our

spend tactics convert driving search the do we to SEO, on which our platforms. when traffic we thanks are to on are media more having performance advertising, improved the first-party And social with automated ad paid compared social. returns, we marketing as with make or to such large marketing organic We progress efficiently and our programs content selectively success continue seeing paid new typically the data tactics,

very of third which increased both a Lastly, business amounts quarter, new existing subsidies customers good have price growth helped our across Lehigh many industry, for by increasing retail footwear meaningful their driven the our performance. employees, accounts. top fuel line again had our BXB has With and with

our as beginning events tool we've to with as Additionally, gaining safety demand drive iFit brands. for which wide view portfolio seen accounts. abate to higher retention. Overall, of many continued offering able revenue products, I'm drive are been safety such And accounts concerns orthotics Lehigh of compression SMS additional footwear, with rates, COVID providing durable driving have combined has rates. socks increasing pace, is revenue its penetration pleased to with organically is strategy account to our existing a account participation With e-mail and as employee of our number the the and very on-site and PPE

and as weighed positions and to factors inflation on turn the resilience, enhance value to Even I'll gaining now the our increased to with coupled over for generating continue have other the done Tom? consumer. call Tom. work share us well This U.S. shareholders. profitability we've

Thanks, Jason.

reported a retail increased and outlined, wholesale resilient segment, X.X% for for quarter increased drove to the to $XXX.X $XXX.X By on million. million, profitability Jason sales demand solid $X.X to and Rocky. increased sales sales net Reported million, quarter were improved another $XX.X year-over-year XX.X% third As XX.X% manufacturing sales contract million. basis,

on announced X, we NEOS brand. divested As October the we

part As inventory we sale new NEOS remaining the owners. sold to of the our process,

rules, one-time our large asset sale accounting on the the a recognize we portion For as inventory of sale must the P&L.

the adjusted XXXX of million. quarter this transaction, Excluding for net third $XXX.X sales were

profit. Turning to gross

of year. the to of or For period sales gross million, the XX.X% last XX.X% $XX third quarter, compared $XX.X sales to profit XX.X% million increased in or same

compared gross wholesale basis year for up sales. period. and ago, and third last decrease XX.X% basis purchase year-over-year this freight net and year margins million, $XXX,XXX adjusted gross was net the NEOS Manufacturing quarter gross of XX.X% XX.X% were reported Contract increases but XXX in the a sales down of costs sold $XX.X the profit, accounting net third shipping XX.X% inventory the considering On profit margins down costs, attributable cost adjusted XX.X% goods logistics margins basis in QX during QX of just adjustment the was compared for sales down was $XX.X the were XX.X%, a third the a XXXX quarter XX.X% in divestiture expenses to Adjusted these from from or year or product were million, XX.X% or compared points year. and XXXX XXXX, from gross excluded to basis quarter, of points of sales. to Operating to other Excluding inbound year. a Retail million, of were The gross profit a related brand quarter XX costs points ago. which $XX.X ago mainly XXX $XX.X million, net gross or to adjustments basis, of points to XXX

year $X.X million in assets a the center disposition in distribution third million quarter improved decrease expenses the and operating to efficiencies ago were period. operating expenses period. the million $XX.X year primarily in current driven with coupled in compared and was the ago with decrease expenses, The in amortization in expenses by year expenses the discretionary in and related this the $XX.X $X.X acquisition Adjusted acquisition quarter million related the of XXXX. Excluding related of

related Adjusted percentage of or or of expenses from a million, the expenses the charges operations and adjusted in As operating ago. million, operating sales third year was $XX.X which Income points million, XXXX to was quarter to of year adjusted XXX to X.X% X.X% net both income to XX.X% sales basis in the in sales the million, net compared excludes periods XX.X% third to $X.X or X.X% improved $XX.X quarter acquisition net income, compared or sales, $X.X compared of sales of X.X% net ago of of the period. a XXXX. in operating net of restructuring

net diluted compared or third $X.XX income quarter compared $X.X the the million On compared share a or to third or XXXX per income year-ago the the a loss was million XXXX. of of period. net was $X.XX of million For diluted year share $X.X in a per reported ago $X.X to interest in or the diluted Adjusted $X.X of million quarter per million share share to net adjusted income in of per net basis $X.XX in GAAP period. loss diluted of $X.XX $X.X quarter, third we $X.X expense million,

third $XXX backed and facility. sheet. Turning term consisting of asset the our cash credit debt at under loan quarter, million, to million, our totaled and million our million balance $XXX.X senior secured stood of secured $XXX and our borrowings end $X.X At the senior of equivalents facility cash

quarter of on had period credit our along growth June year $XXX.X was sales in second inventory challenges and are and distribution of facility. third experienced in As compared we we current ago $XXX.X prior The with inventories XXXX September in down the at XX, in for cost fulfillment the driven increases XX, the million. the borrowing increase overall million XXXX, XXXX, June $XX.X by million million Inventory and to XX, XXXX. at $XX.X year. $XXX.X half of with year the Compared availability of was end million strong

a coming further our XXXX. purchasing are with strategies macroeconomic and the for outlook, Looking growth view quarters. more respect to we a ahead, inventory slightly quarter challenging a levels and based over we on fourth difficult plan align With inventory comparison, combined to sales backdrop, cautious more adopting

We are expect now approximately XXXX gross now and full of a changed. hasn't over margins year XX% our -- net we sales view increase on

We XX% expecting of for the gross XX% under fourth still just overall approximately quarter or are margins the year. for

we expense reduction points, approximately we are in That leverage basis for In XXX targeting now prepared SG&A, versus concludes of achieving target reflecting of now are adjusted approximately our ready prior modest terms our remarks. over questions. XX revenue. projected our of XXXX, Operator, points basis levels

question Komp Thank now from Baird. our go Jonathan ahead. Please you. [Operator take Instructions] of We first can

I'll first, the Maybe Yeah. update. start with Hi. Good guidance Thanks. afternoon.

just for what confirm for as fourth quarter, quarter? specifically the line just you were some there revenue and pieces? You point, more in the between expecting fourth maybe just what a third maybe And to Tom, understand of any thinking shared, you're you're starting could shifts top

Yes. Hey, John.

So a up in decrease against we're year, quarter. sales overall incredibly fourth for XX% which the But for an we're of guiding decline tough again, would a comparisons. growth going imply -- the to

ran Third when of into distribution quarter we XXXX post challenges acquisition. is our

was should got quarter the of in XXXX Does of line top very quarter that sales that have this difficult shipped the And so creating portion? comparison. originally third XXXX there ultimately shipped clarify fourth that the help in of a lot

bit what quarter just so this year-over-year on more be want on basis, even is guiding. like down Yeah. a fourth clarify, quite to looks will quarter year? it I a a XX% will -- And below year-over-year basis, you're just sequential then than third And be

sorry, Yeah. though slightly accurate. sales some just less there's year. quarter I would than third that's the say I'm I or quarter our pretty this fourth -- would -- say sales,

be But you're yes, to going LY in the from down fourth quarter.

on of ability I'm but to your broader on And next for brands, context and what with you're color different terms any and sure Okay. seeing consumer the of in to orders across demand the sense environment, general any then it's year that engage start -- environment? your broader just accounts wholesale book consumer

It's Yeah. Sure, John. I'll on. take this one Jason.

the talked need that I definitely we are little that's and on bit a want. some of going products still So more the marketplace. our think hearing and feeling stuff seeing the a about I in a than fact are of

marketplace. hearing And so feeling and maybe we're I don't types aggressive of quite believe as it other as that some footwear in the

And They're Georgia is at so a about to bit. brands. brand still feel we're information. good, think bit where different we good that well. doing I levels little The that. well the down doing a talked checking about little retail our of Durango I slow still able really is get really

very still is and brand Muck Our strong XTRATUF.

feel still just today. interest we at look Feds So good, again rates the but raised the

reasonable. bookings next those what last for feel or a of year that are see the navigate We where acquisition in still rest continue look hard in thing that believe through strong to bookings place be brands year we over. as So XXXX. went we'll a does and the year It's as and fell we But this our the finish that quarter. to transfers we'll good able orders in and drive this really the

John. Yeah,

some little booking more much coming brands. seeing them on noise of of I tale or add of XXXX. -- aggressive Just think where what kind it But we're think kind into to I two between accounts And saw called more positions There's out you different a I much aggressive a bit. mean we take positions behaviors. to the is

accounts down more one that that them rely seeing so than slow bit more maybe on business. a the little We’re

a kind two matter But retailers seeing and through we're of And a positions really so turnover. tale retail inventory the good it's at check news of is behaviors. different of inventory. of still took working larger that things these kind that just It's

But forward to production How orders your as just if then more, you're going about the don't decline. how on to the a color inventory, you and think balance? back sequential any modeling should work you we you Understood. managing of couple down I've mind. highlighted got going continue inventory

inventory We get to John. the down, got

Yeah.

a is $XX pay and we second our about we style. obtainable beauty So inventory the a cash source very product we're that guided of million inventory plan of tell by with to use see a is doesn't to the million managing the step is direction that quarter. down you our it's in from or would of carries very decrease out more to debt. to year-end. things $XX I to in It -- how work that decrease as in at It's for from had And we're can. of from year last inventory We $XX standpoint, a took that in call big go million even But going fashionable. still retail. a year. not We'll over our aim if the

And sourcing our so production down inventory think of just gotten now the that it continue in part And manufacturing time managing it been hard partners we've to our to or for and down our facilities. come with and the purchases is our we've moderating we come matter. managing for through

a orders of more like came how if John, hey, times now been and get well, looking hard a the have know and got your can time things into, have relationships back placing last and and we're add, challenging stuff really everybody half, -- we back people as to through then any do are sourcing made sudden, I of more sourcing use at, maintain really with and could our them the year all the COVID would and there you we Yes. we a I don't our when with year And ordering were over partners more. interesting I and logistics. and through able transportation just it's the orders started

we're brown so boots. black a said, And think have pretty Tom and I place. Like we in good

we're And not too so worried.

a -- it. high, down, But I are being own Puerto and we're take We the good navigate and Illinois, the Rock do we think bit inventory a to and really our little the to get place to partners that in going Rock different able Island, too talk it and Dominican. we're our we've got in about Rico to in time manufacturing. We're Island, then with

and got in and it a we to QX. we're do moves some good made good right but to monitor think I in So continue things, place the

Got it. in your then credit just where more the you leverage the currently? paying at the Tom. you're there at end quarter? leverage one question, And think balance forward of any terms bringing of is your and dividend a share risk flexibility or about sheet going to that where down ratio Could should And we how financial defined is

Yeah. Good question, John.

And so the all close in our we with lenders are discussions time.

neighbor us in the loans, do we've sure here not are trigger obviously. we so quarter amending agreements I the our cushion, the of loan don't the anything. in ample that We fourth term fall make anticipate got to

dividend, the to reduce all As it dividends. We eliminate discussions that. paying no or the will or have at relates to we plans anticipate keep we

think in I takeaway will and the down. tipping coming debt. out cash is inventory starting here, the door with the it seen the we've that the is here down be with coming inventory pay we're important to The point and

goal the get headed and $XXX here the the direction. will is perspective, from inventory sales, inventory. XX% Ultimately, call in to see balance by decreasing guys to the imagine, fourth down, debt million-ish it sheet of in a I quarter you the So right

be take second in $XX from debt million of to good away. that the decrease will cash so the And all a quarter source inventory concerns

heavy bring operating pointing get the on just do you Speakers] new back? think that that CFO operating in maybe trying thoughts Maybe be your the this do baseline time margin your or the looks done. like get what to in the margin The then somewhere range, just some will And being of then. direction or will an confirm sounds have from lifting low you year, all easy and there you're one sort person Just that? last going the [Multiple for significant It forward? whenever to like on expect new of you are then building thoughts gradually to -- savings X%

Yeah.

had I if conversations at at right. the guidance lot a XXXX. pretty we inventory say we've these Reno, XXXX, and and Jason certainly, up the to you're I lot we'll distribution center setting next to a about in goal to its of very give relates conversations lot with is when it forward on, logistics here the think a had costs highest last think that our meaningful team nine of spot more which I a as earnings call a new not of of about XXXX, costs, reality swell Rockies moving had and our So months, would lot the But port back associated of expectations. were levels. have

that months, so lot a nine And there's things we'll and continue to have improved over of the last improve.

pain And tie to so showed we continue expense to way. of of incremental myself leverage. of right. as behind anticipate operating XXXX. We growth income given us lot showing operating I and I'm here, XXXX, we up inventory that, each point. representative improving not steps forward. was we're margins the this QX think that trying are in showed right move going to from growth at QX We the quarter make going And operating a kind just points in And

to XX to take continue that XX direction next the steps months. we'll over So in months

for Yeah. since took and while, I now and been you've would in Rocky And XXXX. Tom ever John, Tom following I -- just a around over you've with been that been you've add I and

our time. operational And business, improve on and ways to building continue good so the cadence grow of going we back our to stay focused a get on going income find that just would that get We're to into to you, but it, think excellence operational want call well. I cadence, back on, the we're block, to as take a tell core

can believe the do past, know have you us do think we and And we it that so and in that I again. seen

for answering of my Thanks all Best questions. luck. Great. Yeah.

it. Appreciate Jon. Thanks,

the back no questions hand this now at call for Brooks to closing have time. like Jason We to comments. I'd further

thank much. call the to making investors I and Rocky really you efforts help Brands all to like that the best thank and everybody I thank are become to would Thank employees company on Brands our the the very Rocky they want we today. I our not we we're I to would this let's want at. thank and been personally XXXX And year able and doing that employees, be great this can upwards. it keep where finish and to for onward and you do everything out Without become. quarter, you've

So thank you today. very much for and that's it

This concludes today's your Thank for call. you participation.

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