After recording heavy losses in 2016, Rocky Brands's profits improved significantly in the fourth quarter and the full year. Net income came in at $4.4 million, as compared to a net loss of $634,249 for the year-ago quarter.
The latest quarter included an after-tax charge of $1.6 million associated with the loss on the November sale of casual footwear brand Creative Recreation. Rocky had bought the brand in 2013 for $11 million in an effort to diversify beyond the outdoor, work and military boot businesses. But it has now decided to concentrate on its other brands including Rocky, Georgia Boot, Durango, Lehigh and a line of shoes licensed from France's Michelin. Due to the recently enacted tax reform, Rocky also recognized a one-time income tax benefit of $2.9 million. Excluding these items, adjusted net income was $2.8 million.
Sales for the fourth quarter remained flat at $67 million, but the gross margin rose by 2.3 percentage points to 34.8 percent, thanks to higher wholesale margins due to improved full-price selling and reduced levels of discounting, higher military margins due to better efficiencies in its Puerto Rican manufacturing facility, and a lower percentage of military sales, which still carry lower gross margins.
Wholesale revenues increased by 4.7 percent to $464.4million, fueled by demand for its core work, western and outdoor categories. In the work footwear category, sales grew by 10 percent, led by double-digit improvement in Georgia Boot. The work category also benefited from early selling of certain key spring work styles to meet deadlines on some major voucher programs. In the western category, sales also grew by double-digits in the quarter, led by strong gains for both its Durango and Rocky brands.
Hunting sales increased modestly year-over-year, aided in part by cold weather throughout much of the fourth quarter and a decision earlier last year to implement more aggressive pricing. The commercial military category saw a “challenging year” due to higher channel inventory, following the heavy sell-in late in 2016 due to a U.S. military mandated color change. Finally, military segment sales fell by 24.7 percent due primarily to the impact of Hurricane Maria on its Puerto Rico facilities in September.
For the full year, sales dipped by 2.7 percent to $253.2 million, while the gross margin gained 2.4 percentage points to 31.9 percent. Net income reached $9.6 million, against a loss of $2.1 million for 2016. The management said that the initiatives implemented to expand margins - including driving more full price selling and improving the efficiency of the Puerto Rican manufacturing facility, combined with its expense optimization efforts - allowed it to dramatically improve its profitability.
Looking ahead, the management said the wholesale segment began the year with good momentum, which is contributing to its cautious optimism for continued growth.