Earnings call transcript Q1 2023

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Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rocky Brands First Quarter 2023 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. Instructions]. [Operator to this like being call everyone recorded. remind would conference that, is I

turn to conference ICR will the I now over go [ph]. ahead. Cody Please of McAllister

Cody McAllister

joining Thank today. to and everyone you, thanks us

and note that forward-looking time and Reform which assumptions on differ contain defined uncertainties, Act Before we XXXX. as changes, are begin, today's including subject statements period statements Securities the Private materially. the actual this information Such cause available and results session, to by of at may Q&A Litigation risks, may based please are to

assume statements. We no obligation such to update

For risks reports December to filed refer discussion for Commission, a our Securities XX, today's XXXX. the XX-K complete ended Exchange and of and uncertainties, year with and including the press release our please the

to the Brooks, Rocky turn Officer of over Jason? now Executive conference Brands. Chief Jason I'll

Jason Brooks

Thank Operating Chief questions. Sarah prepared call to be you, Officer Financial on After happy Tom remarks, Tom With Cody. Officer, today's Chief I's and will O'Connor. and is me we Robertson, take

Marketing through difficult our line we sell conditions the And tough headwinds, comparison discussed quarter through. brands XXXX. the were year sites Despite e-commerce of start key earnings than positive reporting levels our demand accounts year this more call, with and sales more on ago our in and of challenging we consumer and our much broader at anticipated. with remains year-over-year industry macroeconomic during last than for the direct solid nearly many of first

a and increased of adopted more down retail are process partners translate recently Unfortunately, Working reorders. approach our to our wholesale levels, inventory in performance sell-in cautious as of into many didn't elevated the have

a brand us slower-than-expected, the confident started that accelerate improves. the strength are in of to portfolio, our While position once environment growth, the operating year has puts good we

saving in taking on to in annualized from of and million generated cost $X prudent it's profitability. brand utilizing protect think year, more the measures the savings are sales loan. These and senior are for top of to conservative our we we than outlook a million adopt to March meantime, by the down interest reduce of actions service expense our pay the the remainder more term proceeds the of In $XX expenses

over portfolio wanted it more starting expected by of Rocky, Work category with spend minutes the reviewing a hand cover performance, brand this largest category of work numbers we of top-line I in Tom a details, to a driven brands. our to portfolio to Muck, Before XTRATUF. some where the segment our drivers first I factors. recent our that quarter compete few Georgia, than slower is a with and Together, includes wide few had

difficulties cycle to share has accommodate fill quarter. the of to have at This driven we lengthened marketplace. activity a coupled and reordering with to accounts demand key led sales to positions our leading today, first which months, past to inventory wholesalers of price product, in XX able in our a brands competitors' some gains that over the securing competitive in large dampened retained While are better ordered when quarter over the much XXXX, of compared earned more

there Despite bright of of in were this evolving dynamic, our the Work market for a brands quarter. spots each number

environment forecast have Georgia year our positioned compared as a brand, year constant. initial with the higher our to along full as remains for outperform long demand consumer bookings ago, to current Solid brand the

seasonal landscape believe number coming We the have that and the in of trend releases will a quarters. competitive on are very focused we positively

generated. the for our response sell expect as strong very to have our have number in success product due Rocky good we 'XX We the spring quarter first also strong partners of were saw solid with key first in the for Work Pre-books driving well, solid through Rocky a quarter volume our Work and campaigns product.

farm product, year-over-year Work certain this the ended improving key rubber-based quarter quarter, the And sporting regions. trends up accounts cautiously ranch Muck. for the field important Despite our also and despite and in focus the brand channels increased in in goods accounts to channel. Muck with of us optimistic has being down store our the hardware remainder the and year saw Shifting on new slow with start

the Turning now a impacted are the business. to our at led to Western. year business Demand build has level. sluggish also steady to been consumer the inventory impacting that Work This Western Though Durango for brand. the start our

the To due pressure, which some $X two XXXX. the has the tough the comparisons challenged accounts within holdover areas new team offset XXXX from of QX our million to nearly and control: cost intermediate-term efficiencies. first into to were sales Durango business help focused in of to Additionally, quarter demand shifted XXXX on in products wholesale

date, new To accounts doors for Durango these and a XX the great added brand we to off are start. have

we partners. identified wholesale demand our the On drive point pass opportunities has frequency. plan increase with replenishment cost attractive order factories. to the in to resulted have team We help a cost more opening that along price consumer measurable front, incremental These and will Durango to accounts reduction efforts anticipate our our

a quarter. collection see color solid in textured women's sales the Rocky at leathers Western perspective, the key the along silhouettes saw brand similar gains contributed some did as new the across activity pressures bright new to spots Though Additionally, quarter. solid in added some Western were product the there and from with country, retailers

saw the activity Turning being toward us, under quarter. the sales This segment has some was a as tough retail season to which Rocky, the remains pandemic-era heading experienced the improvement impacted over led quarter outpace progressed and a has to Outdoor, into for brands. entire with the strong XTRATUF brand Outdoor strong. to has peak reorders, as category spring lost our that unique most styles Despite which segment inventory. selling conditions, channel slowdown Not the include the continuing momentum, trend demand XTRATUF indicator outdoor the Muck which is to the

With including with and a we help trends in saw and mitigate to to retailer, and products our respect business online duty level category Commercial quarter. to growth. with initiatives Military, that, anticipating Meanwhile, AFI's trended some the normalized Commercial uniforms duty With on saw a of the postal adding booking to implementing is program to headwinds footwear, current our are our Military increased stores. we positively ahead, once inventories retail will along of new this police sales renewed the large the Looking activity facing, bid partner we return positive quarter. our strength Outdoor first

segment, driven despite for BXB pushed as some retention out and to to by up getting business embrace PPE This trend, growth bright the once and spot. we the driving ahead. Shifting our expect to account employers we our socks see in second additions. deliveries such continued labor been third the employee is quarters, employee quarters orthotics, retention to tight our Lehigh Retail as this year-over-year, in X%, strength both was extremely Lehigh, BXB well-positioned on improve has and a again Sales continued and continue method business market. compression to this footwear, capitalize new in

trends e-commerce mentioned I slightly sales year start a direct-to-consumer As were softer branded the despite at ago, versus of the websites category. across spending call, through just down the our

been quarter, to respect there DLA, in Combat three-year weather but manufacturing, awarded Army Hot recently wasn't Finally, a to first have contract we the new activity contract. were pleased with much

dates with this the We first proud World our support a expect we fourth military. to history year that War manufacturing start of US are contract this to under military to in shipping quarter order the very II,

first factors confident broader resilient factors am despite economic retailers I including manage quarter demand focused our the Overall, for efficiencies. management, within that by from the our through our level, control, the the and consumer of in impact retail work cost, their and seen landscape I'm current ability portfolio and results. the operational encouraged we've inventory brands on this coming environment current inventory our to at through weighed on positions will remain quarters the as

our Our resonate on ability to along business to once continued heights these work wholesale with returns. positions our fronts reach consumers, demand new with brand's

Tom. call I'll over to Tom? the turn now

Tom Robertson

Thanks, Jason.

our by products to fulfilling to within date steady selling decreased overshadowed we in the discussed, first the $X.X early the $XXX.X of portfolio for due push and year-over-year some our call of sales fourth has the our million, on Retail consumer sales $XX.X were quarter XXXX Jason net XXXX. basis, increased Reported year XX.X% shipments million X.X% a reported for been from in late sales we're And first pressure against disruption demand quarter half on to inventory-related contract delay sales in quarter. a we As as centers wholesale February, our to $XX.X million. decreased million. segment channel XX.X% XXXX sales manufacturing in tough comparison this as by distribution wholesale outlined in up to into

mainly million, in $XX.X profit gross percentage million contract year. a than same gross of quarter or gross and manufacturing of to period sales gross wholesale segment the wholesale segment or retail as to of the first gross was carry margins margin, for and an $XX.X compared segments. the sales, retail XX.X% XXX-basis The to mix XX.X% profit point increase sales of last increased margin which in and was sales increased higher attributable Turning

retail XX.X%. Operating by of XXXX to of XX-basis and up first X.X% XX.X% million compared sales points whereas points down XX.X% margins net from or to XX.X%, million quarter XX.X%, to sales expenses in $XX.X segment year. last contract XX-basis up follows: the manufacturing Gross wholesale net to or were of $XX.X

of and quarter this million in period. acquisition-related from $XX.X integration million the a were of XX.X% period, year or amortization amortization, expenses or year $XX.X and XX.X% XXXX, acquisition-related of of in $XXX,XXX current ago expenses first operating a Excluding and quarter million sales net the

to sales was which of Income of in or period. improved or in ago periods related X.X% variable the efficiencies, the of net compared operating associated sales decrease compared net expenses decrease $XX.X in expenses net expenses a operations $XX.X by or was ago. of million income period. a million X.X% with excludes year $X.X acquisition sales ago year and both million of operating the income, adjusted center million sales to year compared X.X% operating from net a or sales with lower Adjusted The was to the X.X% driven distribution $X.X in

a $X.X in net of $X.XX the the per XXXX. first $X.XX of diluted share million delivered share quarter per diluted -- or compared for of to net first or income was loss of XXXX quarter quarter XX this a share rates first X.X interest -- On in reflects on or interest the credit $X.X increase compared expense per with increased For reported net basis, the facility million ago million payments million $X.X year, $X.X our $X.XX of the GAAP loss and on million year loan or Adjusted ago. net a we interest $X.XX million share The compared per facility. the term adjusted diluted to income period. was of of senior interest $X.X a quarter year

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

term paid of senior compared borrowings to were Inventory quarter During $XXX.X the million our down million, to the million XXX.X million the XXXX. X.X% at loan of first $XX.X our down a and and is the $XX.X year XX.X% first in facility. quarter, we end credit of end compared ago, under down

adjusting coming economic to With approximately the our sale our projected of million million. lower expect given in the headwinds, of by wholesale $XXX the approximately with Partially modest of view sales brand amount be with and overall first guidance. our brand more reduction sales of on The net sales are $XXX of service roughly results, current industry represents in and respect March, million based fourth categories. of quarter. XXXX with to the a full-year outlook we year, outlook, service quarter We contract remainder military remainder now previous our the the cautious $XX the offset our the a compared across sale of

With the deleverage year we cost margins in to gross expenses to adjustments mix XX.X% have some margins sales regard are lower sales higher We XXXX overall to already as made retail the approximately SG&A, be from projected outlook. software the in QX, gross adjusted currently we to prior the expense additional evaluating is still of to of the compared expect response offsetting XX% and savings. in

are compared on some start are of additional deleverage we top this to said, That we of the year. XXXX modest expecting deleverage the planning at now

guidance of of $XX XXXX, Finally, million debt thanks interest in expenses prior be in our down, million more coming down QX, paying $XX $XX.X achieved our the 'XX. is down from to expensive million. term expense now senior we loan reduction Interest to projected including by

That questions. are concludes now our prepared remarks. Operator, ready we for

Operator

Instructions]. [Operator you. Thank

ahead. of The go the first question is is from Jonathan line Please on. Jonathan, Komp Baird.

Jonathan Komp

hear you Can you. me? Thank

Jason Brooks

Hey, we John. got Yes, you.

Jonathan Komp

A of the delay questions. there. Sorry couple for

ask to it consumer level growth the you what maybe segment just X% way report the XX% you at your business, from I and First, are about more seeing flowed growth. down like to the Retail looks

trend? how just the and that are So step-down you are want change that's that different driving maybe consumer about when demand you And maybe talk seeing reconcile to then seeing and in just growth clarify you in to the that than, retail segment? what's

Jason Brooks

Yes. were that, did that regular navigate higher kind off through at have that able speak been levels happen. Tom cadence a over-inventory of about And in retail talk I'll they maybe really our XXXX, working and inventory in. and fill as end now. we anticipated wholesale start of still are that business, and get is add we can John the QX. into even would the to we The back what positions When learned had have that not we the to partners

at seeing So, have they the large of our we product through. or they needing outdoor Western about think they and as ranch is have retailers of sell just enough those are are that where fill retailer, and even locations. if some But they in us selling inventory large showing they well to reports or you are stores the maybe some and back reports, farm not

back inventory cases. either normal So hopefully, we on most about to biweekly get wholesale from cadence get in are And needing flushed a or regards to in that from through. of then standpoint weekly that's was really talking they'll whatever filling what that a cadence in

Tom Robertson

particularly And question then business, you e-commerce. John, had so the think around just to add on, I a retail kind of

and I think to XXXX, be you outdoor about back to think challenges and I'm QX much able of or consumers the sorry, for insulated still had and so, orders kind Thinking were not QX, active And in as XXXX we e-commerce QX more our execute for working particularly in they our had well e-commerce XXXX. that tend we we brands, -- to distribution are products. if through those ship of were in in we and we as our XXXX

quarter. easier comp an an had we so, And last from e-com perspective

moved we we're seeing sales in to we As where XXXX, positive planned They're e-commerce websites. our coming for into originally them. had

in continue will well. to of see half we the the grow that optimistic e-commerce here as last we're So, year

was we talk people our end spins saw also then and some wellness of the Lehigh at And Lehigh year business in had use doing their, campaigns wins as email that that business retail as years we're employee the category, some vouchers. that And the that new utilize about in the and additional the end right that their some calendar And the space. at talked the of and programs drove sales in about well. we SMS

of type And so, XXXX to the end of at we we're as those going campaigns, continue campaign well. and

Jonathan Komp

insight your that partners you're last, purchasing you long any the experiencing, consumer might any we to of Okay. how any your how helpful. risk about a And then think share incremental destocking can or That’s follow-up timeline lows? really actually on experience, that if just past Thanks. and maybe should wholesale from

Tom Robertson

to we've Great, asking had up The they through week, question, we thought of has And if tough hoping a not QX much it. and happened. Jon. last QX going bit. pretty day, end communication our this be gotten loosens comp year probably not a was every we that every That – little is keep maybe would've quarter were initial is still

little better QX and into going for QX us. represent view bookings Our a

not I very you went think Sean, as are we're being prepared a would in into as the cautious. indicated different opinion. year, think quite We concerning. those so the agree we And notes, I But in

so, being And cautious. are we very

are very retailers the cautious over think get again. I to being not inventory

going what -- But going drive the to And be the wait to think so, on continue try to another best have going think is job they're and count that our to our we going to down, to to we're have and QX to try is be here to and balance in quarter. do willing but to inventory challenging be I inventories challenging us fall.

Jonathan Komp

are for engineering made your comment or first, two to Maybe price ones the want had approach you might prices, what any just Are follow-up different last you new at products understand that rolling just dynamic? a on pricing implemented back you value competitive point, lower And have a you brands do price that to me. any there. sense increases competitor given be doing? you But other

Tom Robertson

the product. with you buying turned everybody and if we as back, hit, overwhelmed starving. factories and COVID then on And have everybody what the then And started found back And factories stopped think were producing orders. so were

So price didn't that increases to. any no option we take were to all factories able have say those really to

back capacity are much now And so place orders so into lower our we're own or world, capacity. factories to factories need the even producing around at rate, this a their fill where need they they

to able overall. been raw to go better negotiate just at and materials, those we've better So, prices, better factories back

to And we've so cost. the able reduce been therefore,

been have maybe than We price really very a issue may more and where be that there those in retail. we're have We've looking orders and doing styles see and that styles down we that feel some targeted fill at specific lower that that slowed well. inventory other at pick-up and as been help that turn therefore able help hoping to of some and it will we'll

So, I miss…

Jason Brooks

is mean, of larger from that's, we No, generally kind that the are some I and some we that accounts. accounts the data of of I have our gist field using that's think selling our

certain these south styles. Jason's that taking provided we've source and we're is hey, we're our able to back to, information So, And and type been partners of there that success impacting some point, meeting some going we and price that some the get saying, had to perspective. And of we've for aren't accordingly. expectations from cost and from styles pricing our work our a down, MSRP adjusting map or through to first

Tom Robertson

asked lot knew in a The have smaller very with it's you seen remember, second of reduce some it's business regards pinpointed, types of some And part Jon, other and part we was to the there a if some reduction, prices? you been so again, a products. price Lehigh of does been business that question Will than seen couple so competitors very we us, but brands, I have competitors. much specific other

they and that increases been some then retail, price haven't their some there's reductions. seen And wholesalers sorry, or took any we

our how to strategic to maintain I and that to again and do be to that around So, margins approach will shared. where these be think try continue we

I XX%, think the XX%. they were in

So, to drive we higher want the to as continue margins well.

Jonathan Komp

of -- So margin just given given the the just what's gross at and rationale changes above thinking well product the some dynamic the forgetting Any should or acquisition, I'm pre-pandemic just of the levels right some me, the maybe but the just of margin gross implied segment stay on maybe correct level. wholesale kind mix level through discussed. thoughts why you

Jason Brooks

wholesale slightly our Yes, gross the pre-acquisition. would well higher carry -- I than say acquire legacy margin a in the post-acquisition brands, brands

And just gross tar like there we're wholesale going this range, margins those guiding, get to they're work to upper margins could XXXX but getting to lead and gross be that long-term for XXXX. target clear, We're try so, XX% to guiding we into into XX%. to would to XX% year, get there

think we move continue we to that, there room those here. as will expand time But through margins be to

at year, higher we this working logistics position the got still are inbound we inventory inventory cost. that last Given some into was through

year. We seen in But through last inventory has. sell came that relief to we the certainly everybody that like have have else

Jonathan Komp

sneak But or for for it for the since the the the like sounds of margin. comments if It some Great. Maybe operating you thinking just Tom X% maybe I I adjustments. cost in, could here, for through guess. close last holding inherit some the given Sarah me it's year, operating maybe pieces to maybe still gave the she'll and one of margin

grow operating I we should then So this maybe if to how the had more that specificity any margin year, you what's know and think don't just needed about overtime? on

Tom Robertson

Yes.

think I John. estimate still, fair pretty that's a

as And if over we certainly of they retailers the are and guess QX We in next work see to that. and into or through cost-saving measures I inventories. positive target to coming through in try quarter are work QX above we through some positive as those going sell to these sell able

operating you I think familiar our top-line with really seen able grow growth. some income are and for leverage us sales us you to have very operating or being

capitalize be moment. will we on So, waiting that to

Jonathan Komp

Okay. taking questions. Thanks for the all

Operator

is question from Janie go next of The ahead. Please Stichter BCRG.

Janie Stichter

Hi, everyone. afternoon. Good

they commentary First, and around Is seeing clarify what are you just farm I are ranch the they retailers. in there based stores want in to it on on any of the large based is of them from change Western sell terms feel the on the some through inventory? kind environment, just purely posturing, of more they like fact conservative hearing or a enough the just have

Tom Robertson

Yes.

you they tell going are inventory would have they I that through telling QX. So, that, enough us

may brands are it conservative. to There this a in them, imbalance as they But they inventory be with may we little creating be could bit still hoping categories continue being even And or are concerned even be learning we We some are for are issue work challenge. QX them. other a that inventory more are cases, not that our that other with. of

said, it little QX what should it into have year really has selling are we move then a had they They have. they just are conservative maybe of up January, being So, not. more that and I in and and but opened of that, we through last anticipated would back like

Jason Brooks

once, that retailer can has I the meaning doing is shifted would Janie, XX%, think that, that bookings. down be the at were historically, couple Working behavior to, they on number of the ways the of last percent crept through one business we XX% years, call XX% about more brand being XX%, the our depending once. it, at tell of

the doing years. once But total, compared than prior more they in to more booking are in bookings. at We were

ordering to it, inventory. are we of one's they numbers this As more shows as right at on mark, XX% start you we time they're replenishing crept need that the year, look the seeing that which

the to the onto books. as to our inventory working little on the to going on have to need rely replenish that's us their rely impression of -- in having shift they so, going And of they're going a burden levels. the they're inventory to bit And inventory

So, we their a once, move the shifted, so be closely has we through that and number at very next to quarters. we're watching think behavior going as couple

Janie Stichter

the you I into Any at think brands cautious color new can to similar there? doors. just opportunities that are business, mentioned Durango offset on you're environment going more you And seeing? give other then then And the there

Jason Brooks

Absolutely.

brand, the that So, with product western I Durango moving is success market. And seeing more had or that that the seen what which kind stores found maybe into some think, environment. in along some really and we success more new work right? lot farm with a stores around in stores. through of new But we've inland is versus brand more extra We've just we're there sense of popular makes inland, maybe also there water. ranch then So and coasts, lakes tough some opportunities

So, there. we're some success seeing

Tom Robertson

we've more reports around are the alone, perspective. we I run the this tough, charge count all and opened extra point, know and Yeah, than doors Durango this and we're we from But a door leading to Jason's brands. across positive doors mean, that year I think not

Janie Stichter

me one for then is And just a inventory. on last

towards this you that you And think plan? said million still Is, that put had year. $XX paydown? I will down the debt is

Tom Robertson

down be of to use so, down the proceeds plan year. to million And approximately for targets maintaining the Yeah, to pay $XXX those end debt. in that our million, will by to get the we're inventory sales $XXX

Operator

go Next Jeff question ahead. of Financials. from Lick Riley Please B.

Jeff Lick

your I on just if where's one XX I'm So, the biggest it hit? the days, by you surprised any, days what question, be you guidance spoke, these curious million build about pick took would was last -- just of that, could to since curious kind that's upside? most down you the to the in X looks which of downside $XX then where most, the service. and And surprised area you like if one to you kind XX bucks it

Tom Robertson

Jeff. hey, So,

continue I data, on at could their the looking through And not levels into we So, coming the think I visibility for that we think, get them -- key area we little but inventory inventory, biggest harp down. moving we to account, is were their the -- us the see do right? to

think anticipated Jason's bigger come down, And conservative. to their very some still those of fulfillment retailers, And being so, and seen replenishments even they're orders. I point, though, we we've incredibly inventory

said earlier, on categories. that Jason in our as products. hearing, slightly they filling be over-inventoried it's in could And other just still we're branded And

The other fell area a in bit was e-commerce surprised that me at March. least little off

recovered in April scratching little It e-commerce was recovered also has fortunately, bit. days. that last us, the XX but unanticipated And since a for in has it's April, perspective, an heads us our but that also in from

Jason Brooks

a new Yes. positive the general, add has I me store that me just surprised would rubber this being And business surprised boot think in in most down. probably way. XTRATUF in is I the And then opening the same breath,

excited see that. to I'm So,

got broadens the horizon now. this it for right We inventory to brand. think I stuff that just navigate

Tom Robertson

to we're once just meetings of key cautious. and a more think passed out lot be we've partners, had that of hearing year I every stuff management like -- with them get in, our everybody -- we got once to past management and

to of mirror And for be cautious and our we're I of more going the so, for kind think is mindset the outlook done. that what year, we've rest which

Jeff Lick

Yes.

of Just you there a little you on it just if in curious to of and as you'd characterize trending? along how bouncing when what back quarter note Is is bottom left or low quarter is the of a going QX, the out a transpired alluded it was quarter went April fair in follow-up, to into of a a bounce March. e-com just bit the you think say kind Tom, I any better. being kind about as we the

Tom Robertson

-- e-commerce? talking question total? sales your question answer just you to referring mean, in Or you your to I are are correctly? general in about Was

Jeff Lick

general. in Just

Tom Robertson

Yes.

going I $XXX but think QX probably we're to into that to down and recovering QX Jason has I look in to and flattish to said, in be QX, cautious, as get million So, QX, mean, we that slightly as number. we have sales

a in seeing just partners a and that, going really our but regularly. little see is to of think wait I on cautious... And filling it bit retail more we're we're start be still when

Operator

call at no to questions hand are the ahead, time. to closing There now over comments. like back further I sir. this Please would Jason go Brooks,

Jason Brooks

best much. have to very just that here, but team we do for best we XXXX for all Rocky fight challenging can. year thank you make fight continue the QX, to can that and get I we I am Thank the the to XXXX worked and we will hard to want entire out the positive a of

much, on you very to the and our call analysts you thank thank today... our and So, investors

Operator

today's joining concludes you, for us. That conference. Thank

disconnect You may lines. now your

Rocky Brands (RCKY) 2 May 232023 Q1 Earnings call transcript