Rocky Brands Inc (RCKY) 2008 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rocky Brands fiscal 2008 first-quarter earnings conference call. At this time all participants are in a listen-only remote. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (OPERATOR INSTRUCTIONS) I would like to remind everyone that this conference call is being recorded today Thursday, April 24, 2008.

Now I will turn the conference over to Mr. Brendon Frey of Integrated Corporate Relations. Please go ahead, sir.

Thanks. Before we begin, please note that today's discussion including the Q&A period may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Such statements are based on information and assumptions available at this time and are subject to change, risks and uncertainties which may cause actual results to differ materially. We assume no obligation to outdate such statements. For a complete discussion of the risks and uncertainties, please refer to today's press release and reports filed with the Securities and Exchange Commission including Rocky's Form 10-K for the year ended December 31, 2007.

I will now turn the conference over to Mr. Mike Brooks, Chairman and Chief Executive Officer of Rocky Brands.

Thank you, Brendan. And thanks to everyone for joining us this afternoon to review our fiscal 2008 first-quarter results. With me today on the call are David Sharp, President and Chief Operating Officer, and Jim McDonald, our Chief Financial Officer and Treasurer.

We are encouraged by our start to the year as our first-quarter results were on plan with our intended projections. While our top line was down slightly versus a year ago, our Lehigh Division posted its fourth consecutive quarter of double-digit sales growth which is particularly gratifying given the challenging retail environment and difficult economic conditions facing today's consumer.

As we discussed in our 2007 year-end call in early March, we have begun to take a number of steps toward improving our profitability beginning in 2008. This is included identifying ways to expand our margins as well as removing certain expenses from our SG&A line. We did see some progress on these initiatives during the first quarter as gross margin in our wholesale business is increased over 300 basis points and as we move into our peak selling season, we expect to experience more meaningful operating expense leverage during our higher sales volume quarters.

Despite the current valuation in the marketplace, we continue to be confident in our ability to drive improving earnings power in 2008 and beyond.

I will now turn the call over to David who will review each of our operating segments in more detail.

Thanks, Mike. For the quarter, wholesale sales were $39.7 million compared to $44.6 million in the corresponding period a year ago. Sales in our work segment which includes work footwear brand in Georgia and Rocky and our licensed brands Dickies and Michelin, decreased slightly to $22.6 million in the first quarter compared with $22.9 million in the prior year period. The positive momentum in our Dickies business continued during the first quarter as sales increased 6.2% to $2.6 million.

Over the past twelve months we have secured a solid high-profile retail base where we are performing well and enjoy replenishment orders of steel toe workboots. We are expanding these assortments to include slip resistance footwear. Sales of Georgia Boot distributed mainly in the farm and ranch channel were $16 million, flat with a year ago.

Turning to our Western segment, first-quarter sales were $8.1 million versus $10.2 million a year ago. The decrease was attributable to a decline in sales of our Durango brand as we struggled to match inventories to demand. We anticipate that our inventories will be properly balanced later in the current quarter.

Our duty footwear sales were $3.9 million versus $4.6 million a year ago due to the same problem of matching inventory supplies to demand. The large portion of these sales are from product produced in our own facility located in Puerto Rico and we did not produce enough goods before our long holiday shutdown to service the increasing demand in the first quarter.

We purposely ended last year with cleaner and lower inventories of hunting boots and apparel. Subsequently sales of our hunting footwear decreased to $2.7 million versus sales of $3.5 million in the prior year's first quarter. And hunting apparel decreased from $1.4 million to $1.1 million. However, these sales were at much improved margins.

Regarding Zumfoot, we have now shipped 89 dealers their spring sample assortments. Starting in early March, we kicked off a grass-roots marketing promotion in Ashland, Oregon and it was met with good response. Similar promotions are planned for Cincinnati, Atlanta, Chattanooga, Minneapolis, Denver, and Burlington, Vermont. While still a small business, there is increasing interest and support for the brand in the independent shoe store channel. Further, we are encouraged by commitments from women's and men's upscale catalogs. You will start to see the brand featured there by midsummer.

Now to our retail division. First-quarter sales rose 11.4% or $1.9 million to $18.9 million versus $17 million in the first quarter a year ago. We're very pleased with Lehigh's recent performance and their management is securing additional sales in this competitive environment. We're pleased to see the benefits of the significant investments that we've been making in this business over the past two years.

Finally, during the first quarter, we reported approximately $1.8 million of sales to the military as we began the initial shipments of the $6.4 million contract we announced in July of 2007. As a reminder, during the second quarter, we will also begin shipping footwear under the additional $5 million contract we received in January of this year.

I will now turn the call over to Jim to review the financials.

Thanks, David. Net sales for the first quarter decreased 1.9% to $60.5 million compared to $61.7 million for the corresponding period a year ago. Gross profit was $25.9 million or 42.9% of sales compared with gross profit of $26.1 million or 42.3% of sales a year ago. As a reminder, gross profit a year ago included a onetime pretax reimbursement from the military of $700,000. Excluding the benefit of the reimbursement, gross margin would have been 41.2% in the first quarter of 2007.

On an apples-to-apples basis, the 170 basis point improvement in gross margin was primarily due to an increase in sales price per unit and a decrease in manufacturing cost.

Selling, general and administrative expenses were $23.1 million for the first quarter of 2008 compared to $22.3 million in the prior year. Expressed as a percentage of net sales, SG&A expenses increased to 38.1% for the quarter from 36.2% last year. The slight increase on SG&A expenses was driven by the additional selling and distribution expenses to support our retail division that we began to implement in the back half of last year. We do expect to experience operating expense leverage as we move into our higher sales volume quarters, namely Q3 and Q4.

Income from operations was $2.9 million or 4.8% of net sales for the first quarter compared to $3.8 million or 6.6% of net sales in the prior year period. Excluding the $700,000 reimbursement from the military, income from operations last year was $3.1 million or 5% of sales.

For the quarter, we reported net income of $300,000 or $0.05 per diluted share compared to -- with net income of $800,000 or $0.14 per diluted share a year ago. It's important to note that our year-ago earnings included an after-tax benefit of $400,000 or $0.07 per diluted share related to the military reimbursement.

Funded debt as of March 31, 2008 was $94.1 million compared to $103.5 million at December 31, 2007 and $89.9 million at March 31, 2007. Interest expense decreased slightly to $2.4 million for the quarter -- first quarter of 2008 versus $2.5 million in the prior year. Inventory increased $8 million or 11.2% to $79.8 million at March 31, 2008 compared to $71.8 million on the same date last year.

The increase is due to additional inventory to support the anticipated growth of our retail division and additional raw materials required to fulfill our contract with the U.S. military. We feel comfortable with our inventory levels at this time.

I will now turn the call back to Mike for some closing comments.

Thanks, Jim. After a difficult year for the company in 2007, we are pleased to begin 2008 with a solid first quarter. We believe each of our brands is holding its own in what appears to be a challenging retail environment for footwear and apparel in some time. Importantly, with Lehigh and Dickies, we are capturing meaningful marketshare during the period of instability.

We continue to be cautious about our near-term growth prospects due to the microeconomic trends here in the U.S. However, we do believe we have sized our cost structure accordingly which should allow us to improve our annual earnings in a down market.

Long-term, we feel are brand portfolio provides us with many opportunities to expand our business both domestically and internationally. And our entire organization is committed to capitalizing on our full potential and returning greater value to our shareholders.

Operator, we are now ready to take questions.

(OPERATOR INSTRUCTIONS) Gentlemen, there are no questions at this time. I will turn it back to you for any closing remarks.

Thank you very much for listening on the conference. And we look forward to speaking to you in about another three months. Thank you, Vince.

Thank you, sir. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using ACT Teleconferencing. You may now disconnect.