After recording heavy losses in 2016, Rocky Brands has been implementing several cost-cutting measures, while updating its manufacturing capabilities. It has now turned a corner, with profits rocketing in the second quarter of this year: net income jumped by 73.3 percent from the year-ago quarter to $2.65 million.
The management attributed the improved profitability to its focus on introducing innovative new products and on enhancing its use of digital advertising, which it said is driving increased direct sales of the current offerings under its Georgia Boot, Durango and Rocky labels at higher gross margins. The company also benefited from the new Tax Act, which reduced its effective tax rate to 20.5 percent from 34.0 percent in the year-ago period.
The management also pointed out that its strengthened internal manufacturing capabilities are providing it with a great opportunity to expand its commercial military operations both in the U.S. and overseas. It also highlighted the ongoing success of Lehigh - its differentiated direct business-to-business model - which continues to grow by winning new key accounts, along with increased participation with and retention of existing accounts.
The group's overall sales inched down by 0.4 percent to $58.2 million in the quarter, weighed down by weak revenues in the military segment, which declined by 34.9 percent to $6.7 million due to several contracts expiring in late 2017.
However, wholesale revenues jumped by 7.3 percent to $39.8 million. Excluding the sales of Creative Recreation, the casual footwear brand that was sold in the fourth quarter of 2017, wholesale revenues were up by 9.8 percent. The segment benefited from strategies implemented to drive improved full price selling across its core work, western and outdoor categories. Examples of recent product introductions that have sold well include the Rocky XO-Toe, Durango Mustang and Georgia Carbo Tec LT.
Retail sales jumped by 6.7 percent to $11.7 million. The Lehigh business generated strong growth, notably through the expansion of its CustomFit program. Meanwhile, the direct to consumer business grew by double digits, boosted by recent investments aimed at increasing traffic and conversion while enhancing the consumer experience. This included shifting investments from Rocky's traditional advertising format to more digital programs, while broadening the product offering and introducing web-only styles.
Overall, the gross margin rose by 2.5 percentage points to 33.6 percent, driven by higher wholesale and retail margins combined with a lower percentage of military sales, which carry lower gross margins.