Rocky Brands, Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rocky Branch Second Quarter 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 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 the conference call is being recorded. And now we'll turn the conference over to Brendan Frey of ICR. Please proceed.

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 to 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, and recent trends have been particularly strong. The combination of innovative product introductions, enhanced consumer engagement, timely fulfillment, in effective inventory management or fueling share gains in our work, western, and outdoor markets. Our second quarter 2021 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 Honeywells Performance and lifestyle footwear business in March. I'll get into more detail in a moment, but collectively, the acquired brands are also performing very well compared 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 two organizations. Tom will go through the numbers in more detail, but here are just a few of the financial highlights. Net sales increased 134% to $132 million. Adjusted gross margin was up 270 basis points to 39.1%. And adjusted earnings per share rose 120% 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 into third quarter. To better understand the underlying strength of the business, I think it is important to, one, provide separate color on what we refer to internally as our Ohio and Boston groups, or said another way, our existing and acquired brands. Two, looking at our results against second quarter of 2019, which eliminates the benefit from the easy comparison due to COVID. Our Ohio group grew 44% year over year and was up 39% compared with two years ago. While the Boston group wasn't included in our prior year results, I'm pleased to share that the business increased 47% and 46% on a one 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 maintained its incredible momentum from the first quarter with second quarter 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 key e-tail partners. As has been the case since the start of the pandemic, Durango's strong performance at retail has been boosted by much healthier stock positions relative to the many of its industry peers who have struggled with inventory issues. This has led to important shelf space gains and new customer acquisitions for the brand. Turning to work, Georgia Boot posted another very strong quarter as the economy more broadly reopens 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 returned 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, An exclusive new product as well as a new disruptive wins 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 had been very well received. In terms of Rocky Outdoors 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 Rocky remains 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 Commercial Military Division, business is accelerated as retail foot traffic has picked up dramatically across key retailers in this channel. That said, we've had challenge in terms of supply as the sales uptick to outpace the manufacturing and 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. 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 was 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 ease, we expect to see e-commerce sales resume growth fueled by the work we've done enhancing the functionality of our sites and expanding our direct-to-consumer efforts on marketplaces, 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, up from the 18% gain in Q1. As more and more companies have resumed normalized operations, our activity with existing and new accounts has continued to pick up, led to a record level of onsite IFIT events. We expect this trend to continue based on our pipeline of new accounts and the further loosening of onsite 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% sales increase I cited earlier was driven largely by Muck and Extra Tough, the two largest and most popular brands in the portfolio. With Extra Tough, the standout, Meanwhile, we saw strong demand for MUC products in Europe, which is translating into healthy forward orders for next year. And we are seeing signs of growing traction for ExtraTuff 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 three main areas, people, systems, and inventory. I'll provide a brief update on each starting with people. Our people are the foundation of Rocky Brands, and they are the reason for the 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 two 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 onto Rocky's is underway. 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. 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 facility 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, we'll 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. Our results before, during, and as we are emerging from this pandemic underscore that we have the right strategies and the people in place to drive increased profitability and greater shareholder value over the near and long term. I'll now turn the call over to Tom.