Rocky Brands, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results; dollar figures below are in millions unless otherwise noted. Rocky designs, manufactures and markets footwear, apparel and accessories across Wholesale, Retail and Contract Manufacturing. Q1 2021 comparisons include only a partial period after the March 15, 2021 acquisition of Honeywell’s performance and lifestyle footwear business.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $167.0 | $87.7 | +90.5% |
| Gross profit / margin | $62.8 / 37.6% | $35.1 / 40.1% | Profit +78.8%; margin down 2.5 percentage points |
| Operating income / margin | $13.2 / 7.9% | $6.6 / 7.5% | Income roughly doubled; margin up 0.4 points |
| Interest and other expense | $3.9 | $0.7 | Increased $3.2 |
| Net income | $7.3 | $4.5 | +63.4% |
| Diluted EPS | $0.99 | $0.61 | Up $0.38 |
| Cash from operations | $13.8 | $2.9 | Up $10.9 |
Segment sales were Wholesale $134.0 million (+126.2%), Retail $28.6 million (+19.3%), and Contract Manufacturing $4.4 million (approximately flat). Wholesale gross margin was 36.0%, down from 37.6%; Retail was 48.4%, up from 48.1%; Contract Manufacturing was 16.2%, down from 29.9%.
Balance sheet, debt and liquidity
- At March 31, 2022, cash was $15.0 million, total current assets $436.3 million, and current liabilities $196.5 million. Inventory was $289.2 million, up from $232.5 million at year-end 2021 and $125.1 million a year earlier.
- Total debt before unamortized issuance costs was $271.1 million; debt net of those costs was $267.7 million, including $3.3 million due within one year. Long-term debt reported on the balance sheet was $264.5 million.
- ABL borrowing capacity available was $30.6 million. The company reported compliance with its credit facility covenants and said cash from operations and the ABL facility were expected to fund operations and debt obligations for at least 12 months, subject to operating performance, cash flows and covenant compliance.
- Operating cash flow benefited from higher accounts payable and accrued liabilities, partly offset by a $56.4 million inventory cash outflow. Investing cash use was $1.2 million; financing cash use was $3.5 million. Cash increased $9.0 million during the quarter.
Changes, outlook and risks
- The Honeywell acquisition contributed $64.4 million of Q1 2022 sales and $2.0 million of net income. Acquired brands represented about $60.1 million of Wholesale sales and $4.3 million of Retail sales. The acquisition makes reported year-over-year growth less comparable.
- Management attributed sales growth to strong brand demand, inventory availability and additional fulfillment capacity. Retail growth included strength in Lehigh as businesses reopened.
- Gross margin declined mainly because of higher capitalized manufacturing and sourcing costs, including inbound freight, and delayed effects of price increases. Contract Manufacturing margin also reflected inefficiencies at the Puerto Rico facility. Operating expenses rose in dollars, including variable selling costs and temporary logistics and fulfillment spending to operationalize the Reno distribution center; expenses were lower as a percentage of sales.
- No specific revenue or earnings guidance was provided. Management said it could not predict the pandemic’s ultimate effects. Disclosed risks include consumer demand and seasonality, weather, competition, suppliers and international trade, manufacturing or distribution disruptions, cybersecurity, foreign exchange and broader economic conditions.
- Acquisition-related costs were $1.0 million in Q1 2022 versus $5.2 million in Q1 2021. The company reported no ABL covenant-triggering event in either quarter and no material change in market-risk disclosures. Its share repurchase program expired March 4, 2022.
Important facts for investors to verify
- Whether inventory growth converts into sales and cash, and whether elevated inventory or freight and sourcing costs pressure margins.
- Whether acquisition-related growth, integration benefits and Reno distribution-center costs develop as management expects.
- Debt costs, ABL availability and covenant headroom, particularly given the increase in interest expense and the seasonal working-capital cycle.
- The scale and persistence of Puerto Rico manufacturing inefficiencies and the decline in Contract Manufacturing gross margin.
- Any subsequent updates to demand, pandemic-related disruption, supply-chain risks or formal financial guidance; none is quantified in this filing.