Look for Rocky Shoes & Boots
It's an interesting announcement for Rocky. In its last military deal -- which was direct rather than a subcontract -- it agreed in September to deliver $6.1 million in boots between December and April. This one, though, stands to be both more lucrative and longer lasting.
Management has agreed to make 240,000 pairs of boots for Belleville in exchange for $16.4 million. The deal is scheduled to begin in June and run at the rate of 20,000 pairs per 30-day period. Assuming that the revenue will be recognized in the same fashion as with the deal above -- where the company is paid during the same periods in which it does the work -- this implies that the Belleville shipments and revenue alike are expected to run through May 2005, or Q2 of that year.
But this deal may actually run even longer. Belleville has the option to order an additional 675,000 pairs, at the same rate of 20,000 pairs per 30 days , once the first 200,000 have been delivered. This amounts to nearly three years of potential additional military revenue. What's unclear is the impact this might have on production capacity, though presumably management looks to avoid deals that will overtax its manufacturing to the extent that it might not be able to pursue additional, or more profitable, contracts.
Military sales are only part of Rocky's business, which is made up primarily of casual footwear and gear for hunters, outdoorsmen, and professionals such as law enforcement officials and construction workers. But the military contract business is nevertheless an interesting one. Since deals are acquired based on competitive bids, they can offer nice "pops" to supplement the company's non-contract revenue.
This is something investors must remember when comparing year-over-year results, as contract revenue represents a different sales process and channel than the consumer-oriented business. The deal announced last night, however, stands out because of its length -- investors may be able to bank on this one providing revenue for years to come. It's no wonder that Rocky's shares quickly jumped more than 14% in early trading today.
Can this company keep up its impressive growth rate? Talk it over on our Rocky Shoes & Boots discussion board.
Fool contributor Dave Marino-Nachison doesn't own any of the companies in this story. He can be reached via email.