Q2 2021 Rocky Brands Inc Earnings Call
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Good afternoon, ladies and gentlemen, and thank you for standing by, welcome to the Rocky Branch second quarter of fiscal 2021 earnings conference. Call at this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instruction will rewrite it at that time for you to queue up for questions. If anyone has any difficulties here, read the conference. Please press star zero for operator assistance. At any time I would like to remind everyone that the conference call is being recorded. And now we're turn the conference over to bring them free of icrp.
Thank you. And thanks to everyone joining us today before we begin. Please note that today's session including the Q&A period may contain forward-looking statements as defined by the private Securities. Litigation Reform, Act of 1995 such statements are based on information and assumptions available at this time, and are subject to changes risks and uncertainties which may cause actual results to differ materially, we assume no obligation
To update such statements for a complete discussion of the risks and uncertainties. Please refer to today's press release and our reports filed with the Securities and Exchange Commission, including our 10-K for the year ended, December 31st 2020 and I'll now turn the conference over Jason Brooks Chief Executive Officer of Rocky brands.
Thank you. Brendan with me on today's call is Tom Robertson. Our Chief Financial Officer. We had a fantastic second quarter, which followed a very strong first quarter and second half of 2020 demand for Our Brands and products has been growing over. The past year. In recent Trends have been particularly strong the combination of innovative product introduction.
Enhance consumer engagement, timely fulfillment. In effective Inventory, management, or fueling, share gains in our work Western and outdoor markets.
Our second quarter, twenty Twenty-One top, and bottom line. Results were also bolstered by the addition of the Original Muck Boot Company, extra-tough service NEOS, and Ranger Brands following, our acquisition of the honeywell's, performance and lifestyle Footwear business in March, I'll get into more detail in a moment, but collectively, the acquired brands are also
Warming very well.
Hard with a year ago period adding to our excitement about the growth opportunities for this portfolio especially once we've completed the full integration of our 2 organizations. Tom will go through the numbers in more detail. But here are just a few of the financial highlights, net sales, increased a hundred and thirty-four percent to a hundred and thirty-two Millions.
Adjusted gross margin was up 270 basis points to 39.1% and adjusted earnings per share Rose, a hundred and twenty percent to 99 cents.
Our reported results would have been even better. However, due to very strong demand late in the quarter, we experienced some congestion in our distribution facility, which shifted some orders from second quarter in the third quarter to better understand the underlying strength of the business. I think it is important to 1 provide separate color on what we refer to internally as our Ohio and Boston group.
Or said, another way, our existing and acquired Brands to looking at a results against second quarter of 2019, which eliminates the benefit from the easy comparison, due to COVID-19, r-ohio group grew 44 percent year over year and was up 39 percent compared with 2 years ago while the Boston group wasn't included in our prior year.
Schultz. I'm pleased to share that the business increase, 40, 47 percent and forty 6 percent on a 1 and two-year basis respectively. The recent performance of our Ohio group has been driven by a strong growth in both our wholesale and Retail segments. Beginning with wholesale our Western business, maintain its incredible momentum from the first quarter with second
Order sales, increasing triple, digits the Durango brand remains on fire, as demand for new product. Introductions, especially Western work product and Legacy styles are reaching new highs. We are experiencing strong gains across our wholesale Network, including key and field accounts, especially in the farm and ranch Channel along with te tail partners.
As has been the case, since the start of the pandemic, Durango strong performance at retail, has been boosted by much healthier stock positions relative to the many of its industry peers who have struggled with him and Tory issues. This is led to important shelf, space gains, and new customer Acquisitions for the brand returning to work. Georgia Boot posted another very strong quarter as
Economy more, broadly, Rio.
And the need for work Footwear has surged in addition. The wholesale Channel benefited from the shift back to brick-and-mortar retail as consumers return to in person shopping compared with a year ago, when the buying was more heavily concentrated online due to the pandemic,
This provided a strong boost to sales across large Retail Partners, as well as our robust network of smaller, independent accounts, the rocky brand which spans work outdoor Western and Commercial military had another strong quarter with work. In Western delivering, exceptional growth. The addition of new large programs with key Retail Partners that included both inline styles.
Exclusive new product as well. As a new disruptive winds fueled, the Brand's work business similar to Durango Rocky was able to take advantage of competitor. Supply chain issues to fulfill strong consumer demand in the western category sales were driven by traditional best sellers. Plus the delivery of new premium collections that have been very well received in terms of Rocky.
Doors business. Second quarter growth was a bit more restrained due to the strong sell-through earlier in the year, which depleted our inventory position in several top styles. The good news is demand for rock. You remain strong heading into the key outdoor season including in the non-hunting boot category where we are growing our presence with Innovative new product. Introductions with respect to Rocky
Some military division. Business is accelerated as retail foot traffic has picked up dramatically across key retailers. In this channel that said we've had challenged in terms of Supply as the sales uptick to outpace the manufacturing a raw material availability. We are making adjustments to put us in a better position to capitalize on the growth prospects for this business over the remainder of the year.
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Turning to our retail segment following a triple digit increase in our Ohio group, e-commerce channel in Q2 of 2020. When most of the country will shut down, we are very encouraged that sales remain consistent on a year-over-year basis, as the market environment, further normalizes and comparisons for this channel. He's we expect to see e-commerce sales resume growth fuelled.
Old by the work we've done, enhancing the functionality of our sites and expanding our direct-to-consumer efforts on Market places, particularly Amazon and more recently Target plus and eBay.
Meanwhile.
Our Lehigh Safety Shoe business continues, its recovery with Q2 sales, increasing 30% year over year from the 18 percent gain in q1, as more and more companies have resumed, normalized operations are activity with existing and new accounts, has continued to pick up. Led to a record level of on-site, iFit events. We expect this trend to continue based on our
Point of new accounts in the further loosening of on-site restrictions in the coming quarters. Recent momentum is also being driven by the implementation of a new email and SMS strategy which is improving participation rates across our account base, shifting to our Boston group, the 47 percent sales increase. I cited earlier was driven largely by muck and extra time.
The 2 largest and most popular brands in the portfolio with extra tough. The standout. Meanwhile, we saw strong demand for mutt products in Europe which is translating into healthy forward orders for next year, and we are seeing signs of growing traction for extra tough in the region as well.
On our last call, I outlined that our primary focus for the acquired business. Over the remainder of 2021 is on 3 main areas, people systems and inventory. I'll provide a brief update on each. Starting with people are people are the foundation of Rocky Brands and they are the reason for this success. We've achieved over the years
based on interactions and discussions with Honeywell through the process. The same is true of the people coming over to Rocky as part of the acquisition. We are fully engaged while integrating our 2 great organizations and are harnessing the power of the combined teams to support and drive our Powerhouse brands in terms of systems migrating the acquired business off honeywell's Erp system.
And on the Rockies is underway, this step is critical to providing our newest Brands. Customers and consumers with the world class service. We've been executing It Rocky for years. We still expect this to be completed in the fourth quarter. As we have made significant process over the last couple months. Finally inventory. We started moving the acquired inventory to our state-of-the-art distribution.
In Ohio, back in April and expect the process to be completed by mid-august with the Investments we've made in technology. And people. We are extremely confident, we'll be able to realize important savings over time by meaningfully lowering, the Fulfillment cost for the new brands.
After we execute these critical, First Steps will shift our Focus to leveraging. Our Collective strengths across the powerful brand portfolios. We've assembled to create new growth opportunities for our business. I've never been more excited about the future for Rocky Brands, all results. Before during, and as we are emerging from this pandemic underscore that we have the right strategies and the people in place.
Place to drive increased profitability and greater shareholder value over the near and long-term. I'll now turn the call over to Tom Tom. Thanks Jason S, Jason a line, we had another very strong quarter that's demand for Our Brands field, strong games compared with the second quarter last year, which was negatively impacted by COVID-19, especially our wholesale business. As most of our Retail Partners experience, significantly reduce traffic.
Zero on your telephone keypad.
Or we were, or were first forced to temporarily close. Their doors are overall results. Also reflect the acquisition of the honeywell's performance and lifestyle, Footwear business that we completed in March of this year. Now to the results, net sales for the second quarter, increased 1 hundred and thirty, 4 point, 2 percent year-over-year to 130.1.6 million dollars with wholesale sales, increasing 1 hundred and ninety-five percent to 101.
Point, 1 million.
Retail sales increased 36.8% 220, 2.3 million and contract manufacturing sales were up forty 5 point, 6 percent to a point 1 million.
The second quarter of this year includes approximately 51 million dollars in sales from the acquired brands or Boston group with approximately 47 million find in our wholesale segment and 4 million in retail. A quick note, we were recently engaged to do some private label manufacturing for a couple Retail Partners because of the margin profile of these programs is similar to our contract military business, as is the volatility from year to year. We made the
And to combine them and rename our third segment contract Manufacturing.
Learning to gross profit for the second quarter, gross profit, increase 150, 2.6 percent 2 forty..9 point, 2 million or 37.4 percent of sales compared to nineteen point 5 million for thirty 4 point 6 percent of sales, the same period last year. This year's gross margin includes a 2.3 million dollar inventory purchase accounting adjustment while last year's gross margin includes approximately 1 million dollars in
Is related to the temporary closure of our manufacturing facilities. Due to COVID-19 excluding these items gross margin for the second quarter of this year. And last year for 39.1 percent or thirty 6 point 4 percent respectively,
The 2.
And 70 basis point increase to adjust, a gross margin was primarily attributable to hire, Martin's, higher margins, and all 3 segments with a 480 basis, point Improvement in wholesale, the largest driver of the year over year increase. As we benefited from increased manufacturing synergies and higher volumes experience, less promotional selling and we're up against easier comparison due to higher tariffs in a year-ago quarter,
Gross margins by segment were as follows wholesale, 35.9%, retail 49.7% and contract Manufacturing 21.8%.
Adjusted gross. Margins by segment were as follows wholesale 38.1%, retail 49.7%, and contract, manufacturing 21.8%. Operating expenses were forty point 7 million dollars for thirty point 9 percent of net sales in the second quarter of 2021 compared to sixteen point 4 million or twenty 9 twenty 9 point, 1 percent of that sales last year.
Included in this year's second quarter for approximately 1.3 million dollars of acquisition related expenses and approximately $900,000 and acquisition related. Amortization excluding these expenses operating expenses as a percent of net sales were 29.2% the small. The small increase in the adjusted. Operating expenses was driven primarily by the expenses associated with the Brand's we acquired in March of this year income from operations, increased
1 hundred and seventy 2 point..2 percent to 8 point 4 million or 6 point 4 percent of net sales compared to 3.1 million poor 5.5 percent of net sales in the year ago. Period, adjusted operating income which excludes the inventory purchase kind of adjustment in the acquisition related expenses in Q2.2021 and the expenses from the manufacturing facility shutdowns in Q2 last year was 13.
Ian or 9.9 percent of net sales and 4.1 million or 7.3 percent of net sales respectively.
For the second quarter of this year interest expense was 3.5 million compared with essentially no interest expense in a year ago.
The increase reflects interest payments on the senior term loan and credit facility. We use to fund Honeywell Footwear acquisition net income for the quarter increased..59.5% to 3.9 million or 52 cents per diluted share compared to net income of 2.4 million or 33 cents per diluted share in a year ago period.
Adjusted net income for the second quarter of this year was 7 point 4 million for 99 cents per diluted share and increase of 129 percent compared to adjusted net, income of 3.2 million or 45 cents per diluted share last year turning to our balance sheet. At the end of the second quarter, cash and cash equivalents stood at a point 4 million and our total debt.
1 hundred and eighty 7 point 4 million consisting of our 130 million dollar, senior secured Term Loan facility and borrowings under our senior secured asset-backed credit facility. As of June, 30.2021, we had 71 million dollars of borrowing available under our credit facility with regard to our Outlook. We want to provide some updated thoughts on 2021 based on her strong second quarter performance combined as a good start to the third quarter.
We are now expecting our Ohio group, Standalone revenue for the full.
To increase to approximately 24 percent over 20.20 from our most recent guidance of 20%.
With respect to the Boston group, we are still expecting revenues to increase approximately 20 percent over the approximate 205 million dollars in Revenue, the acquired Brands generated in 2020. As a reminder, we will recognize roughly 80% of the 2021 revenues based on when the transaction closed our revised Revenue projections incorporate, the current disruptions in the global supply chain, particularly in Asia, where we Source roughly 65% of Our Own
While our own manufacturing facilities in Puerto Rico Rock Island Illinois and Dominican Republic provide a clear competitive Advantage versus the rest of the industry. If conditions become more challenging, there is some risk that a portion of our projected Q4 Revenue, which gets into 2022 in terms of margin. We are now expecting Consolidated gross margins for 2021 to be approximately, 39% down slightly from our previous.
This estimate of forty percent reflecting the higher inbound freight cost and Logistics costs that have recently emerged.
That concludes our prepared remarks operator. We are now ready for questions.
Thank you. At this time. We will conduct a question and answer session. If you would like to ask questions, please press star 1 on your telephone keypad. A confirmation tone will indicate your mind is in a question queue. You may press star 2. If you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before parts of the starkey's once again. That's star 1 to ask a question at this time..1 moment while we post our first question,
Our first question comes from. Camilo Lyon with btig, please proceed?
Lead. Thank you. Good afternoon everyone. How are you great? Great results. Here, I wanted to touch on a couple of topics really, as they relate to the gross margin and that if you just give us the supply chain component, how should we think about what you just told us about?
Incremental cost and impact that's having on the Outlook going forward. And also, if there are any offset perhaps from the acquisition of the Boston, group plans, being lazy into the business, I'll start there.
Post acquisition of the Boston group, and particularly the muck brain in particular carry slightly higher margins and then our Ohio group. And so that'll certainly from a mix perspective. Help raise the overall margins. The other, the other natural mix consideration to consider would be that the
Contract Manufacturing.
Business, which is lower margin. Segment of business, has now become a much smaller piece of the total pie. So the overall margins will benefit from that as it relates to the current supply chain and Logistics out of Asia. We're certainly seeing significantly higher freight costs and bound container costs from Asia to 3x. What we were paying this time last year and so you know, that's meaningful when you're talking about.
Upper pair basis. And so we have we've announced price increase in at the beginning of July of this year that will go into effect during during the third quarter. And so will help to help mitigate some of these inbound Freight container prices that we're seeing you know particularly that benefit more in the fourth quarter than the third quarter. But it's definitely a significant issue that I think everybody in the industry is certainly battling and and I think we do benefit as I
My Premiere prepared remarks, we certainly benefit from having a big portion of our business not coming from Asia that..35 percent coming from either, the Dominican Puerto Rico or Rock Island, Illinois which we're not seeing the same increased rate cost for. Yeah, I think I think just to add on that the muck and extra tough brands are probably about 90% those sourced out of the Far East. So
The service brand is coming out of Rock Island and so I just wanted to make sure we were clear on there, still a lot of product on the Boston group brands that are coming across the pond. So,
That that's great color. Talk to Jason, Fowler, and a couple of other questions. It's good to hear that pricing. Is that how much
Yeah. So, as far as the pricing goes, yes, we were consistent across all brands and and so we took our kids boots up. I think it was a couple bucks and our adult boots we took up like 3 dollars. There will be incidents in there where we felt it important to increase.
And more but very few of those incidents. So we try to keep it pretty level across the board, I think the retail partner appreciates that and so we wanted to keep it pretty simple and then your question about looking at different distribution for the other brands. I think that that is a an idea that we will absolutely
absolutely be looking at in the future. It is a long process and a complicated process. And if you don't do it, well you will find yourself really damaging that brand and its reputation in the marketplace. But the idea is absolutely correct and we will be looking at that very hard in 2022 and 2023 as we move forward. Yeah.
Quick add on there to wheat.
With the was it related to the price increase? We took a, we didn't take an aggressive. As a price increase is some of our peers have. And so we think that this will help us help you continue to drive growth for Our Brands and maintain or even grow more market, share that we've already captured over the last year. So we think that'll played our favor. As Jason said, we can we can spread out the the price increase across all brands and really any geography where we produce the boots from. So,
so we think that will continue to play in our favor, given our diverse sourcing
And it's been 1 more bite said, yeah, this call, it was a pretty damn for multiple reasons, not the least of which is getting into a very robust student margin 10 or so, called 10% in which each other how how do you guys think internally to discuss what the long-term opportunity is now that you've got the boss?
Big Brand and we are starting to see the synergistic opportunity to Colombia
Yeah. Another another great question. I think so a word we use right now. Internally, a lot is the word patience because I think every week, the people in the company via the Ohio group people or the Boston group people, we are seeing opportunities that that are going to be so spectacular. It's going to
<unk> to be in the range of 176.
Some time. And as we indicated on the prepared remarks, we're not going to be off the Honeywell Erp system until Q4 and, and we'll be out of their Distribution Center here, you know, sometime this month. And once we're able to really get that done and and start tweaking and, and combining and finding those synergies.
They're there. And the Brand's this group of people that came with the acquisition, they are Footwear people. They're really good Footwear people and and they understand it, the brands are strong. And so, I think there is some really great opportunities and, you know, 2022 and 2023 is as we move forward to really fine-tune it.
Fantastic over there. Thank you, General.
Thank you. Our next question comes from Jonathan. Cop with beard. Please proceed.
Lead.
SM, we lost you.
We still there or is Jonathan gone, Thomas has gone so we'll move to the next question, which is Alex Riley. Please proceed. Hey Jason, hey Tom, thanks for taking my question. It's just just here for the rest of the year. How do you think we should think about the sales mix between wholesale retail and then the contract manufacturing segments?
Yeah. So you know I think we've talked through kind of overall top-line guidance on the call with the that 24% from Ohio group and 20% from Boston group, you know we are seeing you know, strong demand and our Lehigh business which you know, 30% in Q2 which comes through in our our retail segment. We expect Lehigh's momentum to carry on for the rest of the year. We are running against very tough comparison.
From an economic perspective and so that growth will probably be more restrained than then. We'll see what the Lehigh business. From a Boston group perspective, you know, approximately 10% of that, that, that business is in the retail segment as well. The the contract manufacturing business, we'd given some guidance on the military business prior to this and so you know, we we don't anticipate a
Nificant amount of private label business this year. We're just getting this business started and so we kind of given prior guidance to that 16.18 million dollar number for the military business and so with the addition of the private label it would just be incrementally you know a few million dollars more. So I think that will give you a kind of a clear picture for the rest of the year.
That definitely helps. And then just under private label. How do you how big do you think that could be longer term or is that not really a key initiative right now?
Yeah, it is it is not a key initiative right now. It is a very interesting proposition for us. We are taking our time with it in and being very careful with it, as Tom indicated, I think in his remarks, it can come and go pretty quick and
And and so we're going to we're going to go through it, but we're going to take our time. We're our main focus is really on building Our Brands and building our e-commerce and our Lehigh B2B business. And if we're able to help out some of our better Retail Partners and do some of this for them, we see that as a benefit and and I think they see that as a benefit, so
So, it's not going to be a huge Initiative for us.
Okay, that makes sense. And then lastly, I don't know if you've mentioned but how big of the sale shift of wholesale was into 3Q?
And so we feel like it's really just a shift from from Q2 Q3.
But you know, we'll look at what we got it already in Q3 and we will, you know, it's reflected in our overall guidance for the rest of the year.
And then you mentioned the potential for Q shift into 2022. Any highlights, you can share their on the potential risk of that.
That depends on the logistic mess. That's going on around the world right now. For everybody, right? Is if if that gets a little bit better then we'll feel a little bit better. But I think we were just trying to make the point that there's a potential for it to happen because this logistics thing is a logistics nightmare right now, and it's very hard to predict I'm
Sure. Tom mentioned, you know, we're paying, we're seeing quotes to 3 times, maybe even 4 times what we were last year and and even into 2019, right? So, you know, with COVID-19 last year, I think the logistics thing change, but it is really a moving Target every week. That's very frustrating. And, and I don't want to sound like, were the only, the, this is a, it's a problem for everybody, but it is just
Just a very frustrating situation. Yeah, I think the key thing, I think the key is, is that the demand is there, right? And so, just as we've spoken about, you just like everybody else our industry. Everybody's chasing him until he says at this point and we are too. And so, I think that the demand is there, if we can get the boots here, we'll get them out the door. It's just kind of a wait and see if this gets any better from a
Yeah, we definitely seen that. We thank you guys so much and then best of luck throughout the rest of the year.
Thank you. Once again to ask a question that star 1 on your telephone keypad. Our next question is from Jonathan. Karp with bared. Please proceed.
Eat. Yeah, sorry about that. Hopefully I'm coming through. OK, first question I wanted to that's good. Good start. Okay first question just on the Boston business, as you work through the integration, any any surprises or challenges or is that gone smoothly and and how should we think about for that business? You know the the twenty percent growth rate for the year relative to the mid to upper 40s, you just saw in the second quarter just any thoughts?
Yes.
As far as the integration goes, absolutely, we've seen some bumps in the road, right? I doubt there's ever been an integration that's ever gone smoothly, a hundred percent. I think we have navigated those bumps pretty well. The the probably biggest bump that's that's really
He surprised me and maybe our team is the demand that has come with these Brands was stronger than we anticipated. And so the getting that inventory moving that inventory as quickly as possible. And and that's what we kind of talked about with the DC, getting a little clogged at the end of the quarter, that's been a big surprise.
Because the demand for the extra tough brand is is just exceptional right now and we're seeing really good stuff with muck and service. And so I think those are exciting things. And once we're able to get off their Erp system, and once were able to get everything in our DC, it's really going to change the Dynamics of it. So I'm pretty pleased where we're at from an integration standpoint and and I'm sure we'll see some more bumps here.
In the next couple months, but we'll navigate those just fine too. So, for the Boston group, the demand is there an excess of the 20% guidance that we're giving? I think what's really going on is that, you know, when we acquire the Brand's, you know, I don't I think we take a more aggressive inventory position, then the maybe Honeywell historically had and as Jason alluded to earlier in the call.
Mocking extra top product is predominant Source out of Asia. And so the lead times out of Asia particular, what's going on with supply chain right now? It certainly is certainly kept us from from Keeping Up with the little man. So I'm optimistic that these Brands can grow even faster than 20% that that did we signed up for?
Okay. Great very helpful and then maybe switching to the Ohio Brands and the wholesale business. When you when you look compared to 2019, correct me if I'm wrong. It looks like the first half is up about 30% for the wholesale business, for the Ohio Brands. Can you just share a little bit more? What you think is going on with the key categories? What's driving? The consumer demand? Where you see in the strength that retail just any any more color, what you've seen?
In and sort of how we should think about it, continuing going forward. So so as I say, as I stated Jonathan, the Durango brand is really seeing tremendous success right now and has for about 3, almost you almost 4 quarters really. If you look at Q3 of 2020, it started and it just has continued to grow. And, and I believe
it's really.
For multiple reasons, 1, our product is is really great product. We've been able to find new shelf space with that product and I think the consumer is responding well to it again. I'll go back to the fact that we took a more aggressive position on an inventory stance and we were able to have inventory to put on those shelves. His really helped us
As well and we've performed in. So the consumer is said, oh, I like that product. I'll go back and buy it, or I'll recommend it to friend to buy it. We've just seen a tremendous success there. The Georgia brand in the Rocky brand have seen really nice success as well, and I think it goes back to our functional type product, right? It's boots. That people need is tools.
And the people that we sell to not only didn't get furloughed and didn't lose their jobs, but now that we're coming out of this, they we need more people and they're hiring more people, and they're looking for more people. So, I think we were in a really great position from an inventory standpoint. We were in a great position from a product standpoint. You know, good Innovation, quality product, comfort product and and and so I think we were able to
To capitalize on a opportunity and we taken advantage of it.
Any comments 3, what channels within your retail subset you're seeing the, the best performance or where you're seeing the outsized market share opportunities. Yeah, absolutely. I'm sorry about missed the forgot that part. So so you know, Western key large, Western Retail Partners or big doing really. Well, their Farm and Ranch category is doing pretty well outdoor hunting.
We saw a really nice Spike and it seems to have leveled off a little bit but the outdoor market and and we reference outdoor Market more as outdoor hiking camping. Backpacking. And it's a small business for us, but we have introduced some new Styles in the early in the year that have performed pretty well at some large outdoor Retail Partners. And so that's kind of a new category for us.
Us. It's not a big number but it's something that's performing well. And so just to backtrack the Western key retailers are big and Farm and Ranch is really strong.
Okay, great. And then last 1, maybe for me, Tom, I know you provided the update on the revenue Outlook raise, the Ohio Outlook somewhat for that business. I know you didn't guide to earnings or operating margin previously, but are you willing to comment given the gross margin pressure? You outlined has your has your profitability or your earnings Outlook changed. Meaningfully from you know the update after the last quarter.
Yeah. So I mean obviously you know, you know we're we're anticipating selling more than when we're up when we're on this call last quarter. But with the margin, take down down to 39 percent. That's certainly going to, you know, have a negative impact on on our earnings. But I think 1 of the key takeaways that I want to make sure if I model perspective is that we talked about this Boston group having kind of a higher initial margin initial gross margin but the operating expenses, it carries higher operating
Cynthia than before with the Delta variant.
Traditionally has. And so it's Jason talked about, you know, I think we we will see kind of will continue to see a lot of are duplicative costs in in 2021 from operating expense standpoint and then as we get out and get this business, fully integrated middle Q4, you know, we anticipate to start seeing those synergies really get realized and in 2022.
Hope that helps I guess as a follow-up. Would you expect operating margin still to grow versus 2020? I know it's a bit apples to oranges, but just trying to gauge where you think operating margin, directionally may fall and then obviously, there may be more expansion in the out. Here's
Yeah, I know I think we definitely think that they'll be will be some growth. It's just the the growth in our operating margin. This year will be will be smaller than what we anticipated to be in the in the up on years.
Okay, thanks for taking all the questions. Very helpful. Thank you.
Thanks.
Thank you. Looking at the company's inventories at the end of the second quarter they were about a hundred and forty-three million versus about 125 at the end of the first quarter. So it looks like you're, you know, you've been building inventories and not necessarily having trouble sourcing products. Can you discuss that?
Yeah hey thanks Robert. Good to hear from you. Yeah, so if you look at the increase in inventory, there's really a couple drivers or 1 is, you know, we had a lot of inventory sitting at the at the doors, ready to ship out. At the end of the quarter that again we spoke about earlier. But really the big increase there is is in transit inventory. So boots on the water or and trucks coming towards us, as well as with the with the move with the move, from the honey.
That slow down outbound shipments. So I think that's really the big, the big takeaway there. Also, I think, given some of the supply chain can, you know concerns. We have going on even product. It's produced in the Dominican Republic, you know, some of the raw materials are sourced from China. So I think we're taking, you know, more aggressive inventory position on raw materials at our manufacturing facilities as well. Okay, second question is
I've always thought that.
Would be a creative yet. You had the full contribution in the quarter compared to the first quarter when you had earnings were lower in the second quarter than the first where they're, you know, unusual operating expenses are Boston group that held profitability down because I would have thought with the higher margins of Boston group and their contribution earnings would have been higher in the second quarter than the first quarter. He had a very question Robert. You know I think as
If we look back in Q2, you know, I think we certainly we're not doing things as efficiently as we would have liked to particularly as it relates to the distribution of the product and the move of all the inventory as we said. And so as Jason alluded to earlier in the call we were around here called patients and so I can promise you that we'll get that those details ironed out here by 2022. But we're still very, very pleased with the results.
The second quarter, okay? So in the second half, should the acquisition be additive then to what Ohio would have done on its own?
Yes, sir.
Okay, good. Thank you very much for your help.
Thank you for the questions.
Thank you, ladies and gentlemen. At this time, I would like to turn the call back over to management for closing comment.
Great. Thank you very much. Appreciate everybody's interesting questions today. I just want to end the call with a, thank you to the rocky team here in Ohio, and the Boston group team, and all their efforts in bringing this acquisition together and a successful Q2. And we look forward to many more great quarters to come. Thank you all so much for your time today.
Thank you, ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Ian.