Rocky Brands (NYSE: RCKY) is not a flashy name nor a wicked hot growth story. It is a solid, blue-chip quality small-cap player in the footwear industry with a safe and attractive dividend. The company suspended the payout for a single quarter during the pandemic, but core strength, the COVID rebound, and ongoing improvement in operations have allowed them to bring it back.
Now, 3 years later, the dividend is above the prepandemic level, and the company is in an excellent position to increase it very soon. In this light, the 2.3% dividend yield is a value trading at 9.4X earnings, and it could see an influx of investment dollars given the latest PCE price reading. The PCE price index came in hot and accelerated on all counts, keeping the Fed's rising rates and the outlook for S&P 500 earnings moving lower.
Rocky Brands Thriving In Tough Times
Rocky Brands did not have an easy quarter or even produce growth, but it did outperform expectations on the top line, controlled margin shrinkage, and improved the balance sheet. The company reported $138.9 million in revenue, down 18.1% versus last year but beat the consensus estimate by more than 600 basis points.
The strength was driven by mix, wholesales fell by 26% due to the over-inventoried retail environment, but retail sales grew by 40.8%. This shift in mix helped drive a 350 basis point improvement in the gross margin that helped to drive solid results on the bottom line.
The only bad news in the report is that operating expenses fell on a YOY basis but increased as a percentage of sales. Deleveraging led operating income to a 25% decline compared to the -18% top-line decline but this is much better than expected. The adjusted earnings are down 42% but beat by $0.46, and the dividend is in an excellent position. T
he company’s cash balance remained relatively flat versus last year while debt was reduced. The company’s debt leverage ratio is below 2.0X equity, and the dividend payout ratio is only 18%. This means ample cash flow exists to sustain operations, invest in the business and increase the dividend.
“Strong gains in our direct channels helped partially offset anticipated challenges in our Wholesale segment due to a difficult comparison and an over-inventoried selling environment. The consistent consumer demand we experienced in 2022 across multiple footwear categories led by work, outdoor and western reflects the strength of our brand portfolio, the appeal of our products, and the loyalty we’ve built with our target audiences … we have invested in expanding and upgrading our distribution and fulfillment capabilities, evolved and increased our marketing programs, and fortified our leadership team,” said Jason Brooks, Chairman, President and Chief Executive Officer.
Sell-Siders Like Rocky Brands
The analyst's activity in Rocky Brands is light, but the few who’ve rated the stock over the last year view it as a firm Hold and see it trading about 50% above the current price action. This sentiment is echoed by the institutions which own 75% of the company and have been adding to their positions over the last year.
Their activity has helped to put a bottom in the price action that results are helping to send into reversal. The post-release action has the stock up 10% and confirming support at the 150-day EMA. The 15-day EMA is consistent with pre-pandemic price levels and may become a launch pad for price action in 2023.
