Rocky Shoes & Boots, Inc. (NASDAQ: RCKY) reported results for the three months and six months ended June 30, 2002.
Net sales were $19.2 million for the three months ended June 30, 2002 compared with $22.0 million the prior year. Net income was $0.1 million for the three months ended June 30, 2002 compared with $0.7 million last year. Net income per diluted share was $0.03 for second quarter 2002 versus $0.16 for the same period a year ago.
Continuation of weak market conditions, particularly in the rugged outdoor segment, resulted in the $2.8 million decline in net sales for second quarter 2002 compared to last year. Despite the shortfall in sales, progress was achieved regarding controllable costs, especially in inventory, selling, general and administrative ("SG&A") expenses, and funded debt.
Mike Brooks, Chairman and CEO stated, "During the second quarter we continued to respond to the weak retail environment by staying in close contact with our customers, actively monitoring production and inventory requirements, and implementing additional cost reductions. The slowdown has caused a number of customers to adjust their normal buying patterns. While the sales outlook remains challenging in the rugged outdoor category, we are making progress in other areas of our business. Initial sales of ROCKY(R) Gear, which includes branded clothing and accessories, have been positive as customers continue to respond favorably to the ROCKY brand."
Second Quarter Results
Increased sales of military boots, Wild Wolf(TM) by ROCKY, and ROCKY(R) Gear were offset by lower shipments of rugged outdoor footwear. Second quarter 2002 net sales included $2.6 million of military boots versus $1.7 million for the same period in 2001.
Gross margin was $4.9 million, or 25.7% of net sales, for second quarter 2002 versus $6.2 million, or 28.0% of net sales, last year. The change in product mix, with military boots representing a higher percentage of net sales in second quarter 2002, negatively impacted the gross margin. Military boots are produced at lower gross margin than footwear in the Company's other categories. Positive contributions are being realized from the manufacturing realignment announced during third quarter 2001 and incremental benefits are expected in future periods.
Selling, general and administrative expenses were $4.5 million for second quarter 2002 versus $4.7 million last year. Cost reduction programs have been implemented during the past 18 months to streamline operations and improve operating efficiency. These savings enhanced the Company's profitability in second quarter 2002 despite the challenging retail environment.
Interest expense declined to $0.3 million for second quarter 2002, which is 47.4% below the $0.6 million for the same period last year. The significant reduction is principally due to lower borrowings, and, to a lesser extent, the decline in interest rates compared with the prior year. Funded debt was $20.5 million at June 30, 2002 compared with $35.7 million on June 30, 2001.
Six Month Results
Net sales were $32.9 million for the six months ended June 30, 2002 versus $38.1 million for the first half of 2001. The weak U.S. economy combined with the inventory impact from the unusually warm 2001-2002 winter season has affected sales throughout the 2002 year-to-date period.
Gross margin was $7.3 million, or 22.1% of net sales, for the first half of 2002 versus $9.3 million, or 24.5% of net sales, the prior year. Similar to the second quarter, higher sales of military boots, which are produced at a lower margin than the Company's branded footwear, impacted product mix and gross margin for the first six months of 2002 compared to last year.
SG&A expenses declined to $8.4 million for the first six months of 2002 from $8.7 million a year ago.
Interest expense was $0.6 million for the first half of 2002, or 49.2% below the comparable period last year.
The Company had a net loss of $1.1 million for the first half of 2002 versus a net loss of $0.2 million a year ago. The net loss per diluted share was $(0.25) and $(0.05) for the six months ended June 30, 2002 and 2001, respectively.
Inventory declined $10.1 million or 24.3% to $31.3 million at June 30, 2002 compared with $41.4 million on the same date last year. Further improvements in forecasting and production control systems as well as a reduction in footwear styles continue to provide benefits. Sales patterns are being closely monitored and management believes that there is sufficient inventory to meet anticipated demand.
Capital expenditures were $0.6 million for the three months ended June 30, 2002 versus $0.3 million for the same period last year. During the second quarter and first half of 2002, the Company made investments in its Puerto Rico factory that enhanced manufacturing capabilities. In addition, projects have been initiated to upgrade sales and customer support capabilities. For the 2002 year-to-date period capital expenditures totaled $1.3 million compared with $0.5 million a year ago.
U.S. Government Contracts
During the second quarter the Company completed final shipments of Intermediate Cold Wet military boots pursuant to its contract with the U.S. Government. A total of $6.4 million of boots were shipped in the first six months of this year, including $2.6 million in the most recent quarter.
The Company has submitted a bid to the U.S. Government for a multi-year military boot contract. It is anticipated that notification of awards will be made later this year.
Provided market conditions do not deteriorate further and sales in the second half of fiscal year are at least consistent with the 13% decrease in sales experienced in the first half of fiscal 2002 compared to 2001, the Company currently projects that net income per diluted share for fiscal 2002 will be $0.47 or more. Reported net income per diluted share was $0.34 for fiscal 2001. The fiscal 2001 results included a restructuring charge to realign the Company's manufacturing operations as well as a tax benefit related to the manufacturing realignment. Excluding the one-time charge and tax benefit, net income per diluted share was $0.47 for fiscal 2001. The Company cautions investors, however, that the fiscal 2002 earnings projection is made on the basis of present market conditions and a projection that sales for the second half of 2002 will be at least $57 million, and if sales do not reach this or a higher level as currently anticipated, actual earnings may be less than the current projection. If sales are higher than $57 million, the Company's earnings may exceed the current projection. Please see the cautionary language at the end of this release for additional factors that may cause actual earnings for fiscal 2002 to differ materially from the current projection.
About Rocky Shoes & Boots, Inc.
Rocky Shoes & Boots, Inc. designs, develops, manufactures and markets premium quality rugged outdoor, occupational, and casual footwear, as well as branded clothing and accessories. The Company's footwear, clothing and accessories are marketed through several distribution channels, primarily under the registered trademark, ROCKY(R).
This press release contains certain forward-looking statements with in the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, all statements regarding intent, beliefs, expectations, projections, forecasts, and plans of the Company and its management, and include statements in this press release regarding: the sales outlook in the rugged outdoor and Rocky(R) Gear categories (paragraph 4); incremental benefits expected in future periods from the previously announced manufacturing realignment (paragraph 6); the sufficiency of current inventory levels (paragraph 14); the anticipation of possible award of a government contract later this year (paragraph 17); and projection of fiscal 2002 net income per diluted share (paragraph 18). These forward-looking statements involve numerous risks and uncertainties, including the risks that sales plans will not be met, that present orders may be cancelled or delayed, that the general economy or consumer spending habits will depress the market for the Company's footwear, that the weather in 2002 is drier and warmer than normal, and all of the other various risks inherent in the Company's business as set forth in periodic reports filed with the Securities and Exchange Commission, including, the Company's annual report on Form 10-K for the year ended December 31, 2001. One or more of these factors have affected, and could in the future affect, the Company's businesses and financial results in future periods and could cause actual results to differ materially from plans and projections. Therefore there can be no assurance that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the Company, or any other person should not regard the inclusion of such information as a representation, that the objectives and plans of the Company will be achieved. All forward-looking statements made in this press release are based on information presently available to the management of the Company. The Company assumes no obligation to update any forward-looking statements.
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