Rocky Brands
Annual Report 2020

Plain-text annual report

2020 ANNUAL REPORT halves. The impact COVID-19 had on physical retail during spring and early summer was substantial, and we were not immune as partners cancelled orders and reduced receipts across their account base to preserve liquidity. However, as the country started to reopen midway through the year, the strong appeal of our product offering was evident by how quickly demand rebounded. Our work category led by Georgia Boot and our western category led by Durango posted double-digit percentage gains in the third quarter and that momentum carried through to the end of the year, while the Rocky brand in total grew at similar rates over the last six months of 2020. es•sen•tial /ə’sen(t)SHəl/ adjective 1. absolutely necessary; extremely omprotant. Similar: crucial, key, vital, needed, indispensible, required noun 1. a thing tht is absolutely necessary Similar: necessity, prerequisite, requirement Dear Shareholders: It is truly a pleasure to be addressing you once again. Much has happened over the past year as the global health pandemic brought on by COVID-19 created challenges and opportunities for our business. As significant parts of the U.S. economy were required to start shutting down in late March to help stop the spread of the virus, there was a tremendous amount of uncertainly about our near-term future. Fortunately, we soon found out that our operations were deemed essential to keeping the country running. Essential is a great way to describe our people, as they are the reason we were able to deliver record financial results in 2020. I am incredible proud of what we accomplished, especially as we faced significant changes in consumer behavior and dealt with unfamiliar working conditions. Our outstanding performance underscores the fortitude of our organization and speaks to the powerful portfolio of brands and enhanced fulfillment capabilities we have developed over the past several years. We came into 2020 with good momentum resulting from many operational initiatives in digital, distribution, marketing and manufacturing in 2019. We had a sound plan in place to build on our success but as COVID hit the U.S. those plans were initially disrupted, and all things pointed to 2020 potentially being one of the worst years in our Company’s 89 year history. That clearly did not end up being the case as we quickly pivoted and leaned heavily into our ecommerce channel and our distribution center remaining open to capitalize on the accelerated shift to online spending. As the year progressed, and brick and mortar retail reopened and store traffic picked up, we relied on the strength of our internal manufacturing capabilities and inventory investments in order to get product to our wholesale partners quickly. The speed at which we were able to execute fulfillment resulted in additional shelf space for our brands, strong sell-through at retail and ultimately market share gains. “ESSENTIAL is a great way to describe our people, as they are the reason we were able to deliver record financial results in 2020.” Our focus on our long-term strategic initiatives was a constant in a year of significant change. While the way we went about our business in 2020 was different due to government and health related restrictions and regulations, we didn’t lose sight of what put the company in such a strong position prior to the pandemic. This meant exciting our consumers with great product and increasing brand awareness and stimulating demand through improved marketing with an emphasis on digital. It also involved providing excellent retail support and expanding distribution with our key brick and mortar and e-tail partners, accelerating expansion of our direct businesses through investments in technology and personnel, and taking advantage of our internal production to capitalize on the growing number of commercial military opportunities and improve the efficiency of our factories. Our e-commerce channel had a fantastic 2020, propelling our retail division to double digit growth for the third consecutive year. The upgrades we made to the front and backend of our branded desktop and mobile sites and our growing presence on e-marketplaces, particularly Amazon, put us in a great position to capitalize on the surge in digital commerce that was initially fueled by widespread lockdowns and store closures. We’ve been building more direct relationships between our brands and consumers for some time and the events of the past year have helped further strengthen these important connections. Not surprisingly, our business-to-business Lehigh Custom Fit division struggled at times this past year as many of its customers slowed spending and operated with reduced workforces early in the pandemic. The good news is that sales trends picked up as the year progressed as did new account acquisition, providing the business with good momentum for 2021. to response Rocky Brands the challenges of 2020 reinforced my belief that our people are as reliable and durable as the footwear we make. I want to thank our employees for their dedication and determination in supporting each other during a year of uncertainty. We should all be very proud of what we have been able to accomplish. The result of our collective efforts meant we began 2021 in a very strong financial position, which allowed us the execute the transformative acquisition of Honeywell’s lifestyle footwear business early in the new year. We are incredibly excited about the near and long- term prospects for our combined entities and I’m confident we have the right teams in place to execute on the many opportunities that lie ahead. On behalf of the entire Rocky organization, including the Board of Directors, I thank you for your investment and ongoing support. Sincerely, We delivered extremely solid growth across our brands, categories and channels in 2020. For wholesale, the largest segment of our business, it was truly a year of two Jason Brooks Chief Executive Office 2 ROCKY BRANDS ANNUAL REPORT 2020 LETTER TO SHAREHOLDERS ESSENTIAL ROCKY BRANDS ANNUAL REPORT 2020 3 FINANCIAL HIGHLIGHTS 2020 WAS THE BEST EPS YEAR EVER $277.3 $270.4 $1.29 $260.3 $253.2 $252.7 $2.86 $2.35 $1.95 INCOME STATEMENT DATA ($000, except per share data) 2020 2019 2018 2017 2016 2016 2017 2018 2019 2020 Net sales Gross margin Income from Operations Net income $277,309 $270,408 $252,694 $253,197 $ 260,259 37.8% 9.8% 36.1% 8.2% 34.4% 7.1% 31.9% 4.7% 29.5% -1.2% $20,964 $17,462 $14,553 $9,586 $ (2,139) Net Sales ($millions) Net Income Per Diluted Share 9.8% 8.2% 7.1% $(0.29) 2016 2017 2018 2019 2020 Net income per diluted share $2.86 $2.35 $1.95 $1.29 $ (0.29) 4.7% BALANCE SHEET Inventories Total assets Total debt $77,576 $76,731 $72,822 $65,622 $ 69,168 229,091 205,826 184,663 173,479 178,939 - - - 2,199 14,584 -1.2% 2016 2017 2018 2019 2020 2016 2017 2018 2019 $14.6 $2.2 $- $- $- 2020 Shareholders’ equity 179,505 164,656 151,575 141,093 135,093 Income from operations as a % of net sales Total Debt ($millions) 3.4% INCREASE IN WHOLESALE 12.4% INCREASE IN RETAIL The expansion of our Distribution Center in Logan, Ohio took our capacity from 1.2m pairs to 1.8m pairs. 260 BPS INCREASE IN *ADJUSTED GROSS MARGIN 39.7% INCREASE IN *ADJUSTED OPERATING INCOME 38.3% INCREASE IN *ADJUSTED DILUTED EPS 4 ROCKY BRANDS ANNUAL REPORT 2020 FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS ROCKY BRANDS ANNUAL REPORT 2020 5 *Adjusted Gross Margin, Operating Income and Diluted EPS include approximately $2 million dollars in manufacturing expenses related to COVID-19 facility closures and approximately $.7 million in operating expenses related to entering a definitive agreement to acquire the performance and lifestyle footwear business of Honeywell International, Inc. 15.2% GROWTH focused on sell-through We with retailer specific POP and social media, introduced a new WorkSmart apparel line, and increased our online presence during COVID with sponsorships and compelling content. LEA S P • E R E E S TAND H E R E • P L EAS H STAND E 21.2% GROWTH In a year filled with adversity, Georgia Boot had a unique opportunity to engage with our core consumers on a much deeper level and strengthen our unity as a team. 1 Removable Comfort Core® Next Gen memory foam insole with individual shock absorbing pillars 2 EVA cushion layer molds to the contours of your foot 3 Non-Woven inner sole provides great lateral stability and support 4 Fiberglass shank for all day comfort and stability 5 Compression molded EVA midsole absorbs the shock of each step to guard against foot fatigue 6 TPU Anchor Disk provides added arch support and stability 7 Heat, chemical, abrasion and slip-resistant dual-density EVA and Carbo-Tec rubber outsole 1 2 3 4 5 6 7 6 ROCKY BRANDS ANNUAL REPORT 2020 ROCKY GEORGIA BOOT ROCKY BRANDS ANNUAL REPORT 2020 7 u 41% GROWTH The record increase is due to a combination of a lot of moving parts working to provide increased experience, brand perception, access, and value to our consumers. together The Lehigh Safety Pledge follows all health guidelines for Ordering & Wellness Events with our 3D foot scanner. The initiation of enhanced provision programs and communication channels ensured continued essential service to all accounts, while also opening our Program to companies whose other options had shut down. Initiation of new email and SMS service platform to communicate directly with our account’s employees. 8 ROCKY BRANDS ANNUAL REPORT 2020 DURANGO LEHIGH ROCKY BRANDS ANNUAL REPORT 2020 9 Virtual Ordering Events will utilize kiosks and a live online customer service assistant. BOARD OF DIRECTORS Mike Brooks Chairman of the Board Glenn E. Corlett Retired Dean and Philip J. Gardner, Jr. Leadership Professor, College of Business at Ohio University Michael L. Finn Chairman, Power Distributors, LLC President, Chesapeake Realty Company G. Courtney Haning Former Chairman and Chief Executive Officer Peoples National Bancshares, Inc. Curtis A. Loveland Secretary Partner, Porter, Wright, Morris & Arthur LLP James L. Stewart Proprietor, Rising Wolf Ranch, Inc. William L. Jordan Chief Growth Officer, DSW Inc. Robert B. Moore, Jr. Former CEO, Bhartiya International, Ltd. Tracie Winbigler Executive Vice President and Chief Financial Officer, Amtrack Robyn R. Hahn President, Westfield Insurance, Small Business Division OFFICERS Jason Brooks President and Chief Executive Officer Tom Robertson EVP, Chief Financial Officer and Treasurer Richard Simms President, Operations Byron Wortham President, Core Brands Sales, Marketing, and Product Development David Dixon President, Manufacturing/Sourcing Operations Corporate Offices 39 East Canal Street, Nelsonville, Ohio 45764 (740) 753-1951 Independent Registered Public Accounting Firm Schneider Downs & Co., Inc. Columbus, Ohio Legal Counsel Porter, Wright, Morris & Arthur LLP Columbus, Ohio Transfer Agent and Registrar Communications regarding changes of address, transfer of shares, and lost certificates should be directed to the company’s stock transfer and registrar: Computershare Investor Services Attn: Shareholder Services P.O. Box 30170 College Station, TX 77842-3170 (800) 962-4284 www-us.computershare.com/investor/Contact Stock Listing NASDAQ Stock Market Symbol: RCKY Form 10-K Copies of the signatures, exhibit index and exhibits contained therein as filed with the Securities and Exchange Commission are available without charge upon written request to: Tom Robertson EVP, Chief Financial Officer and Treasurer Rocky Brands, Inc. 39 East Canal Street Nelsonville, Ohio 45764 Investor Information Corporate and investor information is available on the company’s website at www.rockybrands.com 

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