Q3 2021 Rocky Brands Inc Earnings Call
Good afternoon, ladies and gentlemen, and thank you for standing by welcome to the Rocky brands third quarter fiscal 2021 earnings conference call at.
At this time all participants are in a listen only mode.
Following the presentation, we will conduct a question and answer session and instructions will be provided at that time for you to queue up for questions.
If anyone has any difficulties hearing the conference. Please press star zero for operator assistance at any time I would like to remind everyone that this conference call is being recorded and I will now turn the call the conference call over to Brendon Frey of ICR.
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.
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 31 2020.
I'll now turn the conference over to Jason Brooks, Chief Executive Officer of Rocky brands.
Yeah.
Thank you Brendan.
With me on today's call is Tom Robertson, our Chief Financial Officer.
Like we experienced during the first half of the year demand for our portfolio of leading brands was very strong during the third quarter, despite the demand and ample inventory.
Soon after we completed the Boston groups inventory from Honeywell distribution center to our D. C in Ohio in mid August, which coincided with a record inbound supply deliveries in preparation for a strong finish to the year, we encountered unforeseen issues.
That has temporarily impacted our ability to fulfill all orders on time.
I'm going to walk through the issues and the steps we've taken to improve the situation.
And a timeline for returning to a steady state environment there.
Then I'll provide color on our brand and channel performance, which we will give a better idea of the true demand in the quarter.
After that Tom will review the numbers in detail and provide an update on our outlook for 2021.
When we completed the acquisition of Honeywell's performance and lifestyle footwear business in March we knew there was heavy lifting to be done in integrating our two organizations before we could leverage the strength of the combined businesses to expand market share and drive enhanced profitability.
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While we completed the move of the acquired brands inventory on schedule.
Soon after we ran into obstacles as we started processing a record number of orders in our Ohio D C.
For context, we shipped over 50% more orders in the third quarter of 2021 versus Q3 of last year, but at the same time the amount of product. We received at the D. C was up nearly 200% year over year.
The congestion made it difficult to keep up with the strong demand.
Integration integrating the Boston group inventory with our distribution systems was not a direct map over due to differences in Honeywell and our order systems and our fulfillment process.
Knowing it would require additional work to align our inventory with our fulfillment systems, we hired more workers and increase the number of shifts at our distribution center.
Due to the tight labor market it took longer than expected to onboard and train new staff, which lead to inefficiencies both in getting product in and out of the D. C.
While these issues are not fully behind US we have made steady progress over the past 45 days improving the organization with the D. C and are in a much better place operating at a nearly double the capacity we were before the integration.
Helping to alleviate some of the pressure our new DC in Reno, Nevada went live on October eight.
We currently expect the Reno D C to be fully up and running during the first half of next year.
This will give us a combined 655000 square feet of space.
The ability to house, approximately $4 5 million pairs of footwear.
Despite the impact from the temporary fulfillment challenges there were a number of positives in the third quarter.
<unk> to last earnings call I'm going to discuss our Ohio and Boston groups separately.
In addition to sales results I'm also going to provide some color on orders and sell through performance, which would give everyone. A much better idea of the underlying strength of our business.
Starting with our Ohio group orders for the third quarter were approximately up 26%.
As the same period last year, however, sales increased 8%.
Reflecting the impact from delayed fulfillment.
The recent performance of our Ohio Group has been driven by strong demand in both our wholesale and retail segments.
Beginning with wholesale our western business grew 17% year over year as demand for the Durango brand remains.
At an all time high.
Several key customers across traditional western and farm and ranch retail contributed to Durango performance as each posted strong double digit growth year over year.
The brand continues to become more and more meaningful in true western categories, which has driven strong sell through and help secure additional shelf space throughout 2021.
With the weather recently, starting to turn colder in rodeo season getting into full swing many of our western accounts are seeing a nice pick up in boot sales, while logistics and other global supply chain disruptions limited Durango potential growth in the quarter, we continue to hear that.
We are navigating the current situation much better than the majority of our peers.
Turning to work, Georgia experienced notable growth with farm and ranch stores driven in large by demand for the brands and L. T collection of boots, including the addition of women's products at several accounts.
The introduction of the new Amp L. T styles contributed to a record breaking fall booking season, and new shelf space for the brand.
Based on our recent performance customers feedback and consumer ratings. We are confident we'll be able to continue strengthening and broadening disrupt distribution for this comfort based work platform.
The block the Rocky brand, which spans work outdoor western and commercial military had a number of positive wins during the quarter. Despite the growth being hampered by disruption in supply chain headwinds ease.
These challenges probably had the biggest impact on the brand's outdoor businesses.
Some of the key products for the fall season, especially new styles were difficult to procure and deliver on time.
Thankfully, we were carrying inventory of many traditional bestsellers, including our very popular sport pro and sport utility product.
The biggest highlight of the season has been the introduction of our new Mountain Stocker pro premium hunting trucking that.
Which has provided the brand entry into the technical mountaineering category with a great product at a more accessible price point something our retail partners are very excited about.
Rocky Western continued its strong trend upward to supply despite the supply and distribution challenges.
Ordering new products early and carrying over additional inventory has allowed rocky to capitalize on competitor struggles and build on existing programs and getting new shelf space.
Those sales were strong with traditional best sellers. It was the new product that primarily drove the increase for rocky Western.
Like Western Rocky work was able to grow even in the face of the temporary disruption due in large part to the explosive growth of the industrial Athletic program that has brought in a lot of new business. This includes exclusive product for zappos that we delivered during the third quarter and.
It's been selling through quite well.
Turning to our retail segment following a 50% increase in E. Commerce sales in Q3 of 2020. This channel was down low single digits. This year, reflecting the combination of a tough tough comparison and our delay in processing a portion of online orders on time.
As comparisons further ease and we return to our normalized shipping state, we expect to see ecommerce sales resumed growth fueled by the work we've done enhancing the functionality of our sites and expanding our direct to consumer efforts to marketplaces, particularly Amazon and more recently target.
And ebay.
Meanwhile, Lehigh continues its recovery from the height of the pandemic.
Sales increased 23% over last year, driven by both higher account retention and new accounts, including Stryker Corporation S ease express lines.
And snitzer steel that launched in Q3.
The business is still facing some headwinds from COVID-19 related to accessibility issues and now third party product delays stemming from supply chain challenges. However, our cruise line business nearly dorm. It for 18 months has started to show signs of recovery, while our new email and <unk>.
S. M. S strategy continues to improve account participation rates driven revenue per account higher.
Shifting now to our Boston group.
Total orders increased 46% as demand for Marc and extra tough is high and continues to grow.
Unfortunately, the shipment and inventory challenges has disproportionately hampered the group's Q3 success.
<unk> sales were down 31%.
Positive here is that over vendors other vendors are having supply chain.
Which is keeping the like.
Out of accepting late shipments hot.
Customers have not been canceling open orders, which gives us an excellent opportunity capitalized on replenishment in Q4.
To do this we are focused on alternative shipping options like cross stocking and container shipment opportunities to drive inventory to accounts.
In terms of the integration as discussed earlier, we are making good progress toward returning our Ohio DC to historical state of efficiency.
We remain confident that with the investments we've made in technology and people.
Along with the new Reno D C will be able to realize important savings overtime by meaningfully lowering fulfillment cost for the Boston group brain.
We are also on track with migrating the acquired business off Honeywell's ERP system and onto Rockies by the end of this year.
This step is critical to providing our newest brands customers and consumers with the World Class service, we've been executing at Rocky for years.
While I'm disappointed in the temporary setback, we encountered during the third quarter I am confident that we are taking the necessary actions to restore our advanced fulfillment capabilities and fully captured the true demand, we're experiencing for our portfolio of leading brands.
With the significant growth opportunities, we are creating for the business long term future for the company has never been brighter.
I'll now turn the call over to Tom.
Tom.
Thanks, Jason.
Jason outlined growing demand was damper this quarter by integration related distribution challenges, while sales compared to the previous record quarter. We're challenge net.
Net sales for the third quarter increased 61, 4% year over year to $125 million with wholesale sales, increasing 73% to 96 million retail sales, increasing 35, 3% to $21 8 million and <unk>.
Contract manufacturing sales of 45, 1% to $7 7 million.
The third quarter of this year includes $41 $6 million in sales from the acquired brands or Boston Group.
With approximately $37 million falling in our wholesale segment and $4 million in the retail segment.
Turning to gross profit for the third quarter gross profit increased 57, 4% to $47 million or 37, 4% of sales.
<unk> to $29 8 million or 38, 4% of sales in the same period last year.
Adjusted gross margin this quarter, which excludes a $900000 inventory purchase accounting adjustment was $47 8 million or 38, 1% of net sales.
The 30 point 30 basis point decrease to adjusted gross margin was primarily attributable to lower wholesale segment margins due to an increase in USA manufacturing and sourcing costs associated with the acquired brands.
And a lower mix of retail segment sales compared with a year ago period, which carry higher gross margins than our wholesale and contract manufacturing segments.
Gross margins by segment were as follows.
Sale 36, 1% retail 49, 9% and contract manufacturing 18, 8%.
Adjusted gross margins for wholesale.
<unk>, 37.0%.
Operating expenses were $44 2 million or 35, 2% of net sales for the third quarter of 2021 compared to $20 million $20 2 million or 25, 9% of net sales last year, excluding $2 $9 million in acquisition related amortization and integration expenses third.
Quarter 2021, operating expenses were $41 3 million or 32, 9% of net sales the.
The increase in operating expenses was primarily driven by the expenses associated with the brands. We acquired in March of this year.
Income from operations.
Creased too.
$2 million to $8 million or two 2% of net sales compared with $9 7 million or 12, 4% of net sales a year ago period.
Adjusted operating income, which excludes the inventory purchase accounting adjustment and acquisition related expenses in Q3, 2021 was $6 5 million or five 2% of net sales.
For the third quarter of this year interest interest expense was $3 $4 million compared with essentially no interest expense in the year ago period.
The increase reflects interest payments on the senior term loan and the credit facility, we use to fund the Honeywell footwear acquisition.
On a GAAP basis, we reported a net loss of $400000 or five cents per diluted share compared to net income of $7 6 million or $1.04 per diluted share in the third quarter of 2020.
Adjusted net income for the third quarter of 2021 was $2 $5 million or 34 cents per diluted share.
Turning to our balance sheet at the end of the third quarter cash and cash equivalents stood at $12 $9 million and our debt totaled.
20, or $238 $8 million consisting of $130 million.
On your secured term loan facility and borrowings under our senior secured asset backed credit facility as of September 30th.
Our 2021, we had $35 $9 million of borrowing borrowings available under our credit facility.
Inventory at the end of the third quarter was $202 million compared to $80 7 million a year ago period.
$121 $5 million increase includes approximately $90 million.
Associated with the acquired brands and approximately $30 million from orders that did not ship on schedule. This third quarter.
Due to the impact of our second half results.
From the congestion congestion in our distribution center, we are updating our outlook.
For the fourth quarter. We currently expect net sales to be in the range of $155 million to $165 million in full year net sales between 500 and 510.
By group, we are now expecting Ohio group net sales for 2021 to grow between 15, and 20% compared to our previous outlook of approximately 24%.
Our Boston Group, we are now expecting full year net sales to be flat to up 5% versus our previous forecast of approximately 20%.
As a reminder, we will only recognize 80% of the Boston group sales based on the timing of the acquisition in March of 2021.
As Jason discussed earlier, the temporary shipping and fulfillment issues.
We are experiencing disproportionately impacted the acquired brands that concludes our prepared remarks, operator, we're now ready for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
Press Star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Thank you. Our first question comes from Susan Anderson with B Riley. Please proceed with your question.
Hi, it's Alex leg on for Susan Thanks for taking our question a question on the inventory you mentioned around $30 million did not ship. This quarter was that all in wholesale or was there some retail component in that too and how much of that inventory that did not ship is seasonal and what is the risk that.
The wholesale accounts reduce or even told their orders related to that.
Yeah. So I'll start with sorry go ahead, Jason can hop in.
Of the 31 million, that's almost all exclusively the wholesale business. There certainly was some impact of retail, but our retail businesses was not really a vanilla is behind us the wholesale business, so that would be almost all exclusively wholesale.
As for cancellations were not seeing a lot of cancellations and we recognized that we were having the issues and the distribution center and so we took we did our best to prioritize what inventory. We did have in stock that was more seasonal such as.
Hunt product that needed to be out the door for hunting season. So we did our best to prioritize that but again, we are not seeing a.
A significant amount of cancellations.
The the retail partners of ours are still with like the product.
Yeah, Alex I would I would just add on that from the seasonal standpoint, obviously, we sell.
Insulated hunting boots work boots.
I think because of the environment that we're living in right now retailers are not willing to cancel orders they they want the inventory when they can get it.
And so we're a little behind them or they may tell you, where a lot behind but at least we're getting some boots out the door and so as Tom indicated we just haven't seen that happen and we believe that our product is still sellable you know as we go into the beginning.
Of the year and then even if you want to store it and your back room and sell it next fall.
Perfect. Thank you and then a quick follow up.
What would what inning would you say you are in with the integration of Honeywell brands and their inventory and I guess, what what work needs to be done and what <unk> already done.
Yeah. So all of the inventory is now.
Either in our Logan D C or as we indicated on the call. We did open up the Reno D. C. So we we have inventory in both places we are 100% out of the Honeywell D C and everything is being processed through our own D C.
We did also say in the <unk>.
Report that we are on track to be off of Honeywell's ERP system and out of there by the end of the year and I'm happy to say that that is still on track right now and I feel very confident that we'll be able to accomplish that and be and be done by the end of the year.
But the inventory is out and as we said.
Middle of August really and in all of September this congestion happened.
And so we worked really 24 seven.
To try to eliminate or resolve the issues.
And we've been able to slowly unfortunately slower than I had hoped been able to move.
Move back to a more realistic shipping capability.
But we still have some ways to go we we got to get through this year.
I think the Reno D C will be helpful.
Next year, but but probably not until mid late.
Q1, as a as a full functioning D. C. We are we are seeing pretty major labor issues out there and trying to hire people, which is no surprise anywhere to anybody in the world right now.
But I feel comfortable that we are moving in the right direction and that we are able to ship.
Better today than we were a week ago, two weeks ago three weeks ago.
Just to give a little clarity there specifics on the on the on the distribution numbers. So if you look back you know August things kind of hit their high there the peak of congestion issues with the integration. So we're very excited as Jason spoke we've made progress every week and we in the month of October we shipped over two X what we shipped in.
In August just from a payer standpoint, and so we know that we can do better than even where we're at in October and and we need to do more efficiently and so we think that.
While arena was up and functioning.
No it will not be but you know, there's there's issues with getting some of the equipment and getting some of the automation put in so we're still function out of Reno. It just wont be up to our standards to the beginning.
And I guess, the middle to end of the first quarter.
Thanks, Jason Tom very helpful.
Yep.
Thank you. Our next question is from Camilo Lyon with <unk>. Please proceed with your question.
Thank you good afternoon.
And we think that if you just to understand a little bit in greater detail.
What exactly mhm.
The issues, where they know that there were issues. Initially when you received the Boston group inventory that it was packaged differently. So they had to yeah. I think you had to go through a whole kind of re boxing of machines and plastic bags in.
If you could just help us understand.
Exactly what the issues were.
And what really needs to happen for you to start operating at the level of efficiency that you expect to.
Yeah, So I'll start and I'm sure Tom.
We've been in this a.
Pretty heavy so I'm sure Tom will have something to add.
It's really about <unk>.
Multiple pieces.
So this issue right. So you think about the inventory coming in and as you stated.
The idea around the boxes and the UPC codes and how it was different than our warehouse being set up versus their warehouse.
So that was really kind of one piece.
Our D. C was also set up.
To be more of a <unk>.
Sorts and pack kind of D. C. Because we were capable of doing it that way so a customer would call and fill in with US every week and we would ship them $24 70 to 124 pair.
And as we started to get the inventory in what we learned is that the Honeywell business was more done on larger case pack orders.
And the case packs were also in either three packs or four packs.
In our case packs are in six packs.
So the way you have to put the inventory ended the D. C was not as efficient. So I had to put two three packs back to back where if I needed that case pack of six I now have to pull to wear in ours, we could just pull one and I know it doesn't sound like.
But it is inefficient as hell to pull two of those versus one.
The other issue we saw was really the inbound inventory.
And not only the rocky inventory that was excuse me come into Logan, but obviously the market an extra tough service meals brands. We're also starting to come to Logan.
And as they came we were not receiving shipment notices about them and so we would have to take those containers unload them put a new label on them based off of a.
Inventory report that we got and that took more time than our Rocky, Georgia Durango products, we just scan it and put it away.
So taking the labels putting them on the boxes and then putting them in the in the racking was taking more time.
And then the inconsistency of the way those containers would show up so normally we would have a pretty normal flow right a.
A couple three or four or five six containers a day.
Well with the logistic problem that everybody is aware of right now what we would get is 10 containers today and then no containers for two days and then 30 containers and so we have a lot of back up around that and then the third piece that really affected us was the.
People thing.
We were not able to hire as quickly as we had hoped and we started this process of hiring. These people you know long before August knowing that we were moving the inventory and the deal closed in March but it took us longer to hire those people and then getting those people up to speed.
At the level of capability.
Well, it's taking a little bit longer or was taking a little bit longer and so I think those are kind of all the problems. So we've been able to rearrange the D C and become more efficient with the organization in the D. C. So that felt we now have all the boots in there their label the way we need them.
They're working through our processes the way we need them.
And then obviously the people are getting better every day and then one final thing that I'll say.
I mentioned it in my notes.
We have done the Boston group has done an exceptional job of changing containers that would come to our D. C and theyre shipping them correct direct to customers and that was a process that they did not have the ability to do within Honeywell for whatever our system.
Constraint not a big deal, but we are able to do that and so we are finding ways to divert those containers and that team has done a really great job working with the logistics team to make that happen.
Did you have anything to add yeah, I mean, I think look we could spend hours talking about everything.
About the distribution center, but I think.
I wanted to touch a little bit on one of the points, Jason made and so if we think back kind of all Boston group product was all distributed it all ran through one distribution center every single.
Order Randy on the U S ran through one distribution center.
And as Jason alluded to.
The system the system limitations, where they couldn't ship containers directly to their customers and so if you think about stair step back prior to the acquisition and today, the Ohio business.
We have large seasonal orders, we shipped those directly from either our own factories or third party source factories from from the factory to the customer.
And so is that different order set is really.
Really challenging on a distribution center, especially our distribution center, which we set up a replenishment as Jason touched on and so the the really great news here is that a lot of these bigger order says that we have with the Boston group.
As of today, we can now process those orders through our system and.
There's going to be some lag on this because it would give a lot of inventory coming at us but.
You know in the future state does really large seasonal items will not even go through our distribution centers they'll go straight from the source factory to to to the customers. So that'll be a big improvement and we actually think that the Boston group product.
The nature of the Boston Group orders.
There is more suitable for that direct fulfillment method and so we're excited to see how much pressure that can alleviate off the warehouse as we move into 2022.
Thank you for that detail that that's really helpful.
Yep.
Is it helpful to maybe.
Can you quantify.
Maybe on a weeks basis, how much these delays created.
On a weeks basis of inventory and where youre at today with that.
I think you answered it in a private question that you prioritize shipping out a lot of the seasonal goods. So it doesn't sound like you're overly concerned with.
And with with kind of missing that particular part of the season right now with the inventory that you have so is it feasible to expect that you'll recoup a bulk of this.
This quarter and into next or how do we think about.
That chunk of deliveries that you.
You know were expected and ordered but more than fulfilled.
Yeah. So so I think because we as we as we said earlier, we've not really seen.
Significant cancellations there had been some again, we prioritize the seasonal product that we could we're continuing to try to prioritize.
<unk>.
Due to retail for Black Friday.
And so we're focused on that and Ah.
I think if you just look at the overall marketplace, it's kind of an out of stock economy right. So we know that a lot of our partners and our peers.
Wow, well they are having different supply chain issues and us.
There's not a whole lot of substitutes and so we know there's demand the demand is not the issue for the product for us the demand is just getting it.
Out of the distribution center and I think it's important to call out that that I think we've kind of proven.
That that our supply chain can be can be quicker more efficient.
And then some of our some of our of our peers, given our vertical integration and our near shore sourcing with the Caribbean of Dominican and Puerto Rico, and so I think that.
We've kind of proven we had the inventory to we have the inventory and we had the demand we just didn't get out the door fast enough and so that's where the focus is now is getting out the door I do think.
We don't think we're going to catch up on any of them is on all of them as sales in the fourth quarter.
Simply because demand is continuing to outpace our the ability to distribute the product.
And so that's why we gave some some clear guidance for the fourth quarter inevitably.
There will be carryover into into Q1, and but we were.
Mostly monitoring any cancellations for Q1, but again, we've not really seen any.
Cancellations that Scott is concerned.
Yeah, I think just to add to Tom's right, we and Tom's notes. He said you know Q4 was like 155 to 165 million.
And we feel pretty good about that.
So picking up what what was.
Missed in Q3 is really not going to happen, 100% in Q4, and it's really probably going to roll into Q1 of next year and to your question. The Big question is is there anybody gonna start canceling those payers as we move forward.
And we'll have to wait and see how that goes but.
But we feel we feel pretty good about Q4 and again, we've been able to accomplish over the last month in October are shipping out of the D. C.
Again, it's not perfect yet we still have a ways to go to to make it as good as it was before the acquisition, but we're making progress.
Thank you for that color.
As you as you kind of look at your list of integration tasks that remain and I think you addressed this a little bit, but I wanted to dig into that.
Greater detail.
Now that you've had.
Two groups in Ohio.
And with the D. C is now trying to digest the incremental volume that's come on board.
Are there any other major.
Major innovation issues that you now have better visibility or line of sight into that that we should be aware of.
Or was this the biggest kind of pig in a python moment to try and digest. This initial burst of of inventory, we're seeing that now youre getting better you're getting more efficient in getting smarter, there's more people that have been hired.
That a lot of these issues.
At least are known and and on the back.
Yeah.
Yeah, I would tell you that we believe.
This is the biggest issue.
And I don't even like a call it an issue because we were good at this like we were good. We were in addition, we shipped shoes well if you recall our D. C is Amazon Prime we got shoes in and out of that D C really well.
And so it's really frustrating to be here.
But I know these issues and we have dealt through them and now we've just got to take the time to solve them.
But from the rest of the integration the ERP, you know getting customers over getting orders over getting credit apps getting you know all the other kind of monotonous stuff that I'm sure. The team that's doing that would be angry with me right now about how long.
Maybe pushing it off but they've done an amazing job.
Of working through that our I T Department has been working.
Just crazy to get this done and get us off of their system. Our customer service Department. There was a customer service division that came with the organization out of Mexico, they've been amazing.
We've really done a pretty good job at it. It's this D C thing that.
Hum.
I hate to say it surprised me because.
I don't I don't like to be surprised but we.
Aye.
We were good at this and we'll get good at it again.
I think said another way.
To date, we've executed almost.
Our entire plan with the exception of.
The distribution of the product.
Which is something that we really pride ourselves on prior to this acquisition and.
We know it.
It can be seen in the results leading up to the acquisition a few years, leading up to the acquisition that we know we have the ability to do this we just have to reset in a quarter.
And we've got to get some more.
You know more capacity with another distribution center to get it off the door and in a timely and efficient manner. So.
We don't think this will be an issue that lingers.
For a very long time.
Great last question for me.
Is.
Did you have any incremental costs.
Payments to Honeywell during the quarter. So what was that in the end are you complete with those.
Shared services costs.
Yeah. So I think I know, what you're speaking to so yes, there'll be we we had TSA or transition services agreements with Honeywell.
We are out of the vast vast majority of the distribution was the largest one was we got out of.
In the middle of August.
And as Jason said earlier in the call, we will be completely out of them.
By the end of the year. So there were certainly some significant do cause duplicative cost and in the third quarter.
But if we look at the operating expenses.
Had those duplicate costs, but we also were inefficient at the distribution center.
We're still not as efficient as we think we should be.
We had to with the labor constraints, we had to go after.
Or expensive temp labor and things such as that so.
Not to mention with the with the topline sales.
And really leverage our operating expenses, but.
Most of the duplicative cost out of the way.
As we go into the fourth quarter.
Again, we need to be more efficient from a distribution standpoint.
But yes, most of those costs are behind us.
Got it.
Thank you gentlemen, and good luck with the talents of the year.
Great. Thank you.
Thank you our last question comes from Jonathan Komp with Baird. Please proceed with your question.
Yeah, Hi, thanks, everyone.
Couple of follow ups first just when you look at the third quarter or is there an easy way to just boil.
Boil down.
Revenue in the overall profit or margin impact from from the disruptions.
Yeah. It is there's not an easy way.
I think.
Said another way I mean, I think that we.
You know obviously the topline miss from the consensus and so again, we were not quite as efficient as we would've liked to have been but.
That being said you know what I don't think we've really been terribly off.
The.
The other thing that we haven't spoken about it probably negatively impacted the margins a little bit.
<unk> was we spoke that the distribution center issues that we had disproportionately impacted the Boston group brands, particularly the muck brand the muck brand.
Hum.
This is a strong margin in.
And the product that we got out with more of our value product, which carries a lower margin.
During this during this move and transition.
Negatively that was a that was a challenge on a headwind on our margins in the third quarter as well.
Jason I don't know if you have anything else.
And with that there.
No I think no.
No you got.
Okay, and then a follow up on the comment of October and the parents.
I think it was parents process.
We're double the level processed in August could you just maybe comment October.
But the amount you processed are shipped relative to where it needs to be here.
All state and when you expect that you should be able to get to where it's where you need to be.
Yeah Yeah.
I'd say, if we had.
Uh huh.
We were hitting where we wanted to do we would have done about 10% more than what we did.
October.
But I I I just want to add like if you look at.
By week, which we are looking at it by week every week.
Yeah, I was looking at it by day, but we are really.
So it's gotten better Jonathan like if you look at even the last weekend September we got better in the first weekend of October and we've gotten better in the second week in the third and fourth. So so you know if you look at the whole month that like Tom said, maybe we would've liked to seen about 10% more.
Sure.
But but it's getting better every week.
And Jonathan to that point too.
And as we continue to integrate them into our systems, we have more flexibility today than we did in the third quarter with shuffling orders around leveraging our supply chain partners did I heard containers.
Or do you even break down containers, a port and ship them out so.
We're working very diligently.
To find other solutions to to get the product to our retail partners.
Okay. That's really helpful. And then just a follow up on the full year comment around revenue, which is helpful. Tom.
Tom you didn't mention margin or earnings is there any way to comment on.
What we should expect and specifically I'm wondering if you still think you can have a double digit operating margin for this year or any additional color there.
Yeah. So you know as it relates to as it relates to margins.
We had previously guided to.
39.
39% I would say you know we're continuing to experience some of the you know the supply chain costs with rates and things like that and also some some labor constraints and incentives.
In our U S manufacturing facilities, and so we are probably bring that down a little bit.
Probably closer to the 38% range.
For the full year.
Down from the 39.
As it relates to operating income I think we are.
We're not going to give any real any further guidance on this you know I think there's still a lot of moving parts with the efficiencies while we while we've doubled the capacity of their distribution center and we're still not doing nearly as efficiently as we would like.
And so and so we're going to we're not going to give any further guidance on operating income.
Yeah. It makes sense last one from me just as you think about the Boston group into next year.
I don't know what the right baseline as you sort of.
Assume your recapture anything you'll also see here and then I know at one point you expected to grow 2021 by 20% for that group. So just any context on since it's such a big variable as we think about modeling for next year, how we should.
Conceptually, you're thinking I think about the Boston group opportunity.
It's a great question, Jonathan and we are obviously vital river, it's obvious but I assume everybody is in the middle of budget season, and this is a really big question that we are trying to.
We threw us well.
The question is.
Have we.
Disrupted any dealers to where they may buy less from us next year.
We still think and know the brands are strong.
And so we.
We believe that we're going to fall into Q1, and an inch not struggle, but it it's not going to be perfect. Yet from a D. C standpoint, 20% is probably a little aggressive next year, but but we still think there's great opportunity here.
And we're trying to navigate that that question as well as we as we go into next year, Yeah. I think as we think about this we know that there's a ton of demand for the brands.
And really that kind of spans rocky, Georgia, Durango, Mark and extra tops.
So we've got some visibility into you know into bookings for 2022, we're seeing significant increases in our bookings and we think theres a couple of things driving that if we think one.
I see some of the retailers.
I'm taking.
With the supply chain as you've taken a more aggressive outlook and making sure they get their orders at a time, but also we think that just speaks volume to the demand we're seeing for our brands.
And so as we think about our ability to execute from a distribution standpoint again, we think will help us.
We will continue to make progress throughout the fourth quarter.
And in Q1, and then hopefully as we get into Q3.
And very importantly, Q3, and Q4 of next year, we'll be able to we'll be able to handle the seasonality and the influx of new business that we see them again and more importantly, as we integrate all the orders for next year into our system.
We'll have a lot more flexibility and we'll probably do significantly.
Greater amount of direct fulfillment orders.
But the demand demand is there.
And we've proven that we can get the inventory to us.
And so the key here is just getting it out the door at a time and then and.
And I think that.
As you know the.
The whole environment right now with the entangled with everybody struggling to get inventory.
I think we're not standing out quite as you know our industry is we probably feel internally about this because everybody is out of stock on inventory.
Right now so we think we will we're not we don't we don't believe we're going to lose a lot of shelf space just given this whole global supply chain crisis, and how it's impacting everybody in our industry.
Understood I appreciate all the color and best of luck with the continued progress here.
Thanks, Jonathan.
Thank you there are no further questions at this time I would like to turn the floor back over to Jason Brooks for any closing comments.
Yes, thank you very much.
I'd just like to thank all of the Rocky brand to employees. During this time and this year the.
Progress. We have made is has been exceptional the passion that the employees have all around the United States and the world.
Is is exceptional and and I appreciate their efforts and in this integration and I also want to thank our customers and consumers for their patience and we will get these great brands out to you as quick as we can and thank you all for your time.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.