Net income rose 61 percent to $7.34 million from $4.49 million for the period ended March 31, as total sales soared 90.5 percent to $167.03 million from $87.67 million. But the parent of the Durango and Xtratuf brands, among others, admittedly has work to be done cutting expenses and inventories and improving its gross margin level that it wants to increase to 40.0 percent by Q4. Year-over-year operating expenses were up 74 percent to $49.6 million from $28.6 million, a factor attributed to costs related to the acquired Muck and Xtratuf brands and higher fulfillment costs.
First-quarter gross margin fell by 2.5 percent to 37.6 percent from 40.1 percent due to higher temporary labor costs associated with its new distribution center in Reno, NV, and higher outbound freight costs in getting inventory to its wholesale partners. The temporary labor is being phased out. Wholesale gross margin dipped 160 basis points to 36.0 percent but rose by 30 basis points to 48.4 percent in the Retail segment. Wholesale gross margin will be under pressure in H1 but should improve in Q3 as implemented price increases take effect.
Overall wholesale revenues increased by 126 percent to $134 million in Q1. They were fueled by strong demand for the Georgia brand, a double-digit increase for the Durango label and solid gains in outdoor and Western styles within the Rocky brand. Meanwhile, Muck saw high demand for its core styles; and Xtratuf is gaining momentum with its outdoor and fishing partners, including expanded door availability. Retail sales rose 19.3 percent to $28.6 million, including double-digit e-commerce growth for the Rocky and Georgia brands.
Increased transit times, distribution and fulfillment challenges faced by the company in H2/21, overall cost increases and strong sales growth contributed to a 131 percent increase in period-end inventories to $289.2 million versus $125.1 million in the year-ago period. Inventory levels peaked in mid-March. Management said the company intends to reduce the Q1 end inventory level by $40 million by year’s end and utilize that capital to pay down debt.
Rocky Brands continues to experience long lead times worldwide but sees a little bit of relief out of Asia coming. Orders previously received in 90 days have been taking upwards of 120 to 140 days.
The company, which has raised its full-year revenue growth forecast to 22 to 24 percent from 16 to 19 percent previously, is expecting Q2 sales growth despite tough comparisons. And given there won’t be as much backlog this year, Q4 growth will be challenged.
