For the third quarter of 2013, net sales decreased 3.3% to $70.2 million versus net sales of $72.5 million for the third quarter of 2012. The Company reported net income of $2.9 million, or $0.39 per diluted share, for the third quarter of 2013, versus net income of $5.4 million, or $0.72 per diluted share, for the third quarter of 2012.

For the first nine months of 2013, net sales increased 7.7% to $183.3 million versus net sales of $170.3 million in the first nine months of 2012. The Company reported net income of $5.6 million, or $0.74 per diluted share, for the first nine months of 2013, versus net income of $6.3 million, or $0.84 per diluted share, for the first nine months of 2012.

“While consumers continued to respond favorably to many of our new product innovations, particularly in our western business, sales of our branded work, outdoor and commercial military footwear proved to be more challenging than expected,” said David Sharp, President and Chief Executive Officer. “We remain confident that our wholesale, retail, and military operating segment strategies have us well positioned for the future. That said, despite our execution the combination of macroeconomic headwinds and mild fall temperatures has created a difficult selling environment for areas of our business during the second half of 2013. Therefore we think it is prudent to adopt a more conservative sales outlook for the remainder of this year. As in the past, we will continue to rigorously managing expenses while investing strategically in functions critical to delivering long-term growth and profitability.”

Third Quarter Review

Net sales for the third quarter decreased 3.3% to $70.2 million compared to $72.5 million a year ago. Wholesale segment sales for the third quarter decreased 8.8% to $57.4 million compared to $62.9 million for the same period in 2012 driven primarily by lower outdoor and commercial military sales, partially offset by higher work and western sales. Retail sales were $9.6 million in both the third quarter of 2013 and 2012. Military segment sales for the third quarter increased to $3.2 million compared to no military sales in the third quarter of 2012.

Gross margin for the third quarter of 2013 was $22.7 million, or 32.4% of sales, compared to $26.2 million, or 36.1% of sales, for the same period last year. The 370 basis point decrease in gross margin was primarily driven by increased military segment sales, which carry lower gross margins than our wholesale and retail segments and lower wholesale gross margin than a year ago resulting from  lower margin private label sales.

Selling, general and administrative (SG&A) expenses were $18.3 million, or 26.1% of net sales, for the third quarter of 2013 compared to $18.2 million, or 25.2% of net sales, a year ago. The 90 basis point increase in SG&A as a percent of net sales was driven by lower sales and approximately $100,000 in expenses related to the acquisition of the Creative Recreation trademark.

Income from operations was $4.4 million, or 6.3% of net sales, compared to $7.9 million, or 10.9% of net sales.

The Company`s funded debt increased 1.2% to $42.4 million at September 30, 2013 versus $41.9 million at September 30, 2012.

Inventory increased 8.0% to $78.9 million at September 30, 2013 compared with $73.0 million on the same date a year ago. The inventory increase year over year was attributable to lower than expected sales. The Company remains comfortable with the size and quality of its inventory heading into the fourth quarter.

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Rocky Brands