Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rocky Brands Inc (RCKY, Financial) experienced double-digit growth for its Durango and XTRATUF brands in the US, highlighting the strength of its multiband, multichannel operating model.
- The company achieved over 100 basis points of gross margin improvement due to less promotional activity.
- Retail sales increased by 11.8% to $26.8 million, driven by strong performance from XTRATUF and Durango sites.
- Rocky Brands Inc (RCKY) successfully added more than 200 new accounts in its B2B business, indicating a positive shift in recent trends.
- The company is making strategic investments in its brands to capitalize on momentum and reach a broader consumer audience, positioning for improved top-line performance in 2025.
Negative Points
- Rocky Brands Inc (RCKY) faced inventory shortages and delivery delays, particularly affecting the XTRATUF brand, leading to missed sales opportunities.
- The company experienced a warm, dry fall, negatively impacting sales for weather-dependent products like Muck boots.
- Wholesale sales were down 9.7% to $84 million, reflecting challenges in certain segments.
- Operating expenses increased to $33.6 million, or 29.3% of net sales, due to higher brand and marketing investments.
- Net income decreased to $5.3 million, or $0.70 per diluted share, compared to $6.8 million, or $0.93 per diluted share, in the third quarter of 2023.
Q & A Highlights
Q: Can you elaborate on the inventory shortages and your initiatives to address them in Q4 and early next year?
A: The demand for XTRATUF outpaced our forecasts, leading to inventory shortages. The longer lead times for rubber-based products have contributed to this issue. We are working on increasing capacity with our sourcing partners to catch up. For other brands like Durango, demand was high, and we are addressing capacity needs to ensure we are better prepared moving forward.
Q: How do you reconcile being less promotional with a cautious consumer environment?
A: Last year, we were more aggressive with promotions due to our debt structure and inventory levels. This year, our inventory is in a better place, and we didn't feel the need to be as promotional. Retailers are selling products well, and we are taking a longer-term view on the business, focusing on essential and need-based products.
Q: What are your updated thoughts on wholesale growth for the second half, and how do you view changes in the marketplace?
A: The warmer, dry third quarter impacted the Muck brand, and we couldn't capture all sales for XTRATUF. We expect to be at the lower end of our guidance, around $450 million. Retail sales are expected to grow slightly more than anticipated, while wholesale is expected to be relatively flat.
Q: Can you provide insight into your expectations for cash generation in Q4, particularly regarding inventory and debt levels?
A: Inventory levels are dynamic, with a decrease from last year but an increase in in-transit inventory to meet demand. We expect inventory to be down by seven figures by year-end. Q4 is a strong cash flow quarter, and we anticipate paying down $10 million to $12 million in debt.
Q: What is your visibility for the first half of 2025, especially for brands that are trending well?
A: We have good visibility for Q1, with strong bookings for XTRATUF and Durango. We are taking a more aggressive stance on inventory to meet demand. For other brands, we continue to invest in product mix and consumer engagement, aiming for long-term growth and profitability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
