Rocky Brands, Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rocky Brands, Inc. third quarter fiscal 2026 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. 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'd like to remind everyone that this conference call is being recorded. and we'll now turn the conference over to Brendan Frey of ICR.

Thank you and thanks everyone for joining us. 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 follow the Securities and Exchange Commission, including our 10-K for the year end of December 31, 2025. In addition, the company may refer to certain adjusted non-GAAP metrics on this call. Explanation of these metrics can be found in the earnings release filed earlier today. I'll now turn the comments over to Mr. Jason Brooks, President and Chief Executive Officer of Rocky Brands.

Thank you, Brendan. With me on today's call is Tom Robertson, our Chief Operating and Chief Financial Officer. After our prepared remarks, we will take your questions. We are very pleased with our third quarter results, which exceeded our expectations across the board. Sales increased approximately 13%, marking our second consecutive quarter of double-digit top-line growth and an acceleration from the 12% gain we delivered in Q2. Encouragingly, Demand was broad based with several of our brands upon the double digits led by Durango, Muck, and Extra Tough. At the same time, another solid performance from our Lehigh custom fit business combined with our strong sell-through on our own branded websites fueled a 20% increase in retail sales while wholesale sales Our largest segment was up approximately 12%. I will go through the numbers in more detail shortly, but I wanted to highlight that when you exclude the positive net impact from tariffs, we saw a nice sequential improvement in gross margins. Q3 gross margins increased approximately 200 basis points from the second quarter into the low 40% range. which along with increased sales drove profitability higher than planned and higher versus a year ago. Now let me walk you through our third quarter brand performance. Extra tough again with double digits led by another very strong quarter of direct-to-consumer sales. Wholesale sales was up high single digits with top accounts in the quarter coming from drivers mixed. including our largest authorized Amazon partner, Key Sports Goods, and national outdoor retailers, and independents across Western, Lifestyle, and Marine. While Q3 wholesale growth moderated from recent quarters, this was largely timing related to combined with our decision to cut off sales to certain international distributors, that we discovered had been diverting product to the U.S. marketplace sites. Extra Tough's core styles continue to shine, including the Duck Camo ADV, the ADV Sport. We started shipping fall orders in the third quarter, including the kids' ADV Sport, the new Insulated Outdoor ADV Collection, new 9-inch Legacy Styles, and amends ADV Sport in a popular Maceo pattern. And we just wrapped up our spring-summer 2027 booking window with strong orders for new products, including our new sandal program. Muck delivered its strongest quarter of the year. Three new collections, the Explorer, the Outmax and the Woodland Pro, added meaningfully to the change in sales year over year. Our Arctic collection also contributed to the brand's performance, as earlier in-stock inventory allowed retailers to stock up ahead of the winter. Women's remained our fastest-growing segment, led by the originals, the Muxer II, our Chicken Boo, and the continued sell-through of the Rainscapes. We supported the Explorer and Outmac launches with social and digital campaigns. including creator and influencer partnership that went viral. By channel, hardware continues to expand with the National Hardware Co-op that has added styles to its warehouse program and the sporting goods benefited most from our new fall collection. Durango delivered an exceptional quarter. Strong new product shipments, four-count additions, and fresh assortments at large retailers drove growth, and Key also benefited from larger orders from Key Western retailers. Sporting goods and outdoor accounts refreshed assortments around a new Shiloh item with strong early sell-through, and the Key Farm and Ranch retailer added doors, allowing us to capture additional share. Our field business grew nicely as multiple regions posted double-digit growth was September particularly strong. Demand remains robust among Hispanic retailers, where we added multiple new doors, particularly in the Southwest. And our field team reports that retail business is improving. Newness is fueling momentum. Spring 2027 bookings are up nicely versus last year, led by Workhorse Light, Rebel USA, and the Cattlemen. Our fall of 2026 product is now landing at retail, and we're watching Workhorse and Rebel Pro, our two highest-booked collections. Georgia boot sales declined year over year, impacted by timing and difficult comparisons. Last year's third quarter included large bulk orders from a key account that did not repeat. While this year, several new products launched and shipped in Q2, which contributed to our outstanding second quarter. Beyond those factors, the field environment remains cautious, as inflation and higher fuel costs have led to smaller baskets and more conservative inventory decisions among independents. Importantly, there are clear bright spots. GeorgiaBoot.com was up double digits for the second time. Thank you for joining us. Beyond the Boa Carbo Flex Wedge, and other new launches, and other key account plans to add the Carbon Flex Wedge in Q4. Spring 2027 begins shipping soon, with multiple new Boa styles, a new work platform built around Superlight, and a new version of the Eagle Light, one of our top-selling styles. We're also increasing our focus on USA-made products, with new styles planned for early 2027, and have partnered with BOA on a first-to-market design that will give retailers and consumers a differentiated story. Rocky Work, Outdoor, and Western collectively grew low single digits driven by DTC sales. Western was the highlight as the expansion of our ride LTE collection continued to revive the category that has underperformed in recent seasons. Our number one boot for the quarter was the Ride LTE Style with Duck Camo Shaft, combining two of our most important categories. Rockingboots.com grew low double digits with all the categories up the double digits, led by work, and our e-commerce partners continue to report strong online sales. While prolonged record heat across the South and Midwest delayed the start of the fall season, our wholesale business rebounded as the third quarter progressed and fall weather arrived. Strong preseason bookings, a recovery of at-once business, and new and expanded retail programs all contributing to an improving trend to start the fourth quarter. Commercial military sales were below last year and below plan, primarily due to temporary shortages in raw material that impacted available inventory. The situation has been rectified along with a down market overall as the government fiscal year came to an end in September and the budget expenditures were diverted to more technical hardware and other categories in support of ongoing military operations. That said, there was some bright spots with the team securing two bids, including one with the U.S. Air Force and one with an international government customer, both of which are expected to ship in early 2027. Public service delivered a small gain as the team worked through the new NFPA requirements. With our best-selling fire boots now modified and recertified, The fire category exceeded last year and is well positioned heading into the wildland fire season and a strong Q4. Our USPS collection also exceeded last year and is now in a strong inventory position. Moving to our Lehigh B2B custom fit business, sales grew low double digit versus last year, driven by new customer acquisition and retention of existing businesses. We continue to add quality brands to broaden our assortment and strengthen our ability to serve customers across industries. Our partnership with Volet also continues to expand with increased adoption of prescription safety eyewear and wellness products, reinforcing the value of bringing multiple PT categories together in LEI's managed programs. Subsidy utilization and average subsidy dollars continue to trend upward as employers stay committed to employee protection. While tariffs and inflation continue to create cost uncertainty, customer demand remained resilient, and Lehigh's customer growth and broader portfolio helped offset these pressures. I want to thank all of our team for their hard work. Thank you, Jason.