Good afternoon, everyone, and thank you for being here. Welcome to the Rocky Brands Second Quarter 2025 Earnings Conference Call. I want to remind you that this call is being recorded. Now, I will hand it 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 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 31, 2024. I'll now turn the conference over to Jason Brooks, Chief Executive Officer of Rocky Brands. Jason?

Thank you, Brendon. Today, I’m joined by Tom Robertson, our Chief Operating and Chief Financial Officer. After our prepared remarks, we’ll take your questions. We delivered very good Q2 results, significantly outperforming both last year and our own expectations through strong execution across our diversified portfolio. High single-digit revenue growth and adjusted EPS that more than tripled to $0.55 per diluted share demonstrates the power of our multi-brand strategy and operational excellence. Three key drivers powered this performance. First, we witnessed broad-based revenue momentum as multiple brands and channels contributed year-over-year growth with strong full-price selling, leading to a 230 basis point gross margin expansion despite challenging consumer conditions. Second, we maintained disciplined cost management, effectively controlling our fixed cost base, which resulted in 59% operating income growth while also reducing interest expense and debt levels year-over-year. Third, our Outdoor category, led by XTRATUF and Muck, has emerged as a key growth engine alongside our traditional Work and Western strengths. This transformation in Outdoor is particularly significant following the 2021 acquisition of XTRATUF and Muck, as we added two functional brands with strong fishing and farming roots. Now, especially with XTRATUF, we are building lifestyle components that broaden distribution and consumer reach. We are excited about the opportunity to attract more consumers to our brands and believe we are just beginning to realize this potential for growth. Let me share our Q2 brand performance. XTRATUF remains our fastest-growing brand, gaining momentum across multiple quarters. We are working hard to keep up with demand and our expanding distribution network. U.S. Wholesale significantly outperformed last year with strong double-digit growth, while e-commerce growth matched this strength in the second quarter. Key wins in Q2 included sustained success with authorized online partners, expansions into Boot and Western retailers, and new placements with major big box outdoor and fashion partners. Our fall/winter 25 lineup is particularly exciting with fleece-lined ADBs, an expanded Tailgate collection, and a new Sesame Street children's line. Meanwhile, Muck delivered its best quarter-to-quarter performance since 2023, benefiting from improved inventory positions, especially in bestselling chore styles, along with favorable weather conditions that fueled strong results. The men's business posted solid mid-single-digit gains, with double-digit growth seen in the Upper Midwest, Northeast, and Southwest. For our women's business, we achieved strong double-digit increases versus Q2 2024, led by triple-digit growth in the Muckster II collection, including the Chicken Print series. Our new digital advertising targeted at working utility customers yielded our best campaign results ever, enhancing brand awareness and e-commerce gains. Notable partnerships, including a collaboration with country star Dierks Bentley, further extended our reach. Durango saw high single-digit growth driven by strong performance with key accounts. Field accounts showed improvement in Q2 compared to Q1, with momentum increasing through May and June. Farm and Ranch remained steady, putting us in a good position for the latter half of the year. Our inventory mix of new releases and legacy favorites continues to deliver results. Georgia Boot experienced a slight decline but demonstrated progressive improvement throughout the quarter. A tariff-related timing shift delayed a new fall product shipment by a month. Key accounts were stable, supported by a major e-commerce partner and a Work and Western retailer chain returning to regular purchasing. Farm and Ranch faced some softening due to weather impacts in the Pacific Northwest and inventory overstocks, while Field accounts encountered macroeconomic challenges in May. We expect the late-quarter pick-up to extend into fall as our price-point-focused products resonate with consumers. Rocky Work, Outdoor, and Western categories all grew for the first time in several quarters, with Outdoor and Western up double digits, driven by new products, demand for bestsellers, and expanded partnerships. Profitability saw significant improvement due to increased full-price selling compared to last year’s emphasis on overstock. The strength in the Work category came from online sales and enhanced farm store performance, alongside ongoing expansion with national safety shoe distributors driving bestseller safety-toe products. Outdoor showed promising signs despite a lack of Q2 hunting seasonality, with hiking collections performing exceptionally well on our e-commerce site and partner platforms. Western Work products, particularly our IronSkull safety toe Western pull-on, excelled at major industry outlets, which was supported by strong online and farm store performance. Our Commercial Military and Duty segment rebounded nicely, exceeding Q2 expectations after a slow start. Our Public Service division did well, particularly with USPS and the Code Red fire assortment, while momentum in the Commercial Military segment increased as the U.S. government released allocated funds for the first time in months. We secured three substantial orders from the U.S. Navy to offset last year's contract sales, and looking ahead, we remain optimistic about military opportunities. Rocky Brands recently earned a certification for USMC hot weather boots, allowing us to pursue significant bid opportunities and individual marine sales moving forward. In Retail, our B2B Lehigh segment grew by mid-teens compared to last year. As our sales team realignment reaches its one-year anniversary, new processes are yielding sustainable double-digit growth. Customer acquisition and spending have remained strong, with better utilization of subsidies and increased average subsidy dollars year-over-year, largely counterbalancing supply chain and tariff pressures. Before handing it over to Tom, I want to express my gratitude to the entire team for their exceptional execution during this dynamic quarter. Despite global tariff uncertainties and economic pressures, our performance highlights the resilience of our diversified portfolio. I am particularly proud of how swiftly we have adapted to changing trade conditions, leveraging our Dominican Republic and Puerto Rican facilities, and implementing strategic sourcing changes that have mitigated much of the tariff impact. While we maintain a cautious outlook on the broader environment, our strategic positioning, manufacturing flexibility, and robust brand portfolio set us up well for continued growth and increased shareholder value. The momentum across key brands like XTRATUF and Durango, combined with our operational efficiencies and strong balance sheet, gives us confidence to navigate challenges while seizing significant opportunities ahead. I will now turn the call over to Tom.

Thank you, Jason. The acceleration of both the top and bottom line we delivered in Q2 is a testament not only to the strength and resilience of our diverse brand portfolio but also a reflection of the hard work of the entire organization. Our teams did an excellent job capitalizing on new opportunities and implementing strategic shifts throughout the period, allowing us to outperform expectations in a difficult operating environment. Reported net sales for the second quarter increased 7.5% to $105.6 million. By segment, Wholesale sales net increased 7.1% to $73.1 million, Retail net sales increased 13.9% to $29.7 million, and Contract Manufacturing net sales were $2.8 million. Turning to gross profit. For the second quarter, gross profit was $43.3 million, or 41.0% of net sales compared to $38.0 million, or 38.7% of net sales in the same period last year. The 230 basis point improvement in gross margin was primarily driven by higher wholesale margins, combined with a higher percentage of Retail sales, which carry higher gross margins than our Wholesale and Contract Manufacturing segments. Reported gross margins by segment were as follows: Wholesale, up 300 basis points to 40.3%; Retail, down 170 basis points to 45.2%; and Contract Manufacturing margins were 12.4%. Operating expenses were $36.1 million or 34.2% of net sales compared to $33.5 million or 34.1% of net sales last year. Excluding $0.7 million of acquisition-related amortization in both periods, adjusted operating expenses were $35.4 million and $32.8 million, respectively. The increase in operating expenses was driven primarily by higher selling costs associated with the increase in direct-to-consumer sales and incremental marketing investments to drive growth. Income from operations increased 58.7% to $7.2 million or 6.8% of net sales compared to $4.5 million or 4.6% of net sales last year. On an adjusted basis, operating income was $7.8 million or 7.4% of net sales compared to $5.2 million or 5.3% of net sales a year ago. For the second quarter of this year, interest expense was $2.5 million compared with $6.1 million last year, inclusive of a $2.6 million one-time term loan extinguishment charge over the prior year period. Excluding the one-time term loan extinguishment charge, interest expense in the second quarter for 2024 was $3.5 million. The decrease reflects lower interest rates as a result of the debt refinancing we completed in April of 2024 as well as lower debt levels. On a GAAP basis, net income was $3.6 million or $0.48 per diluted share compared to a net loss of $1.2 million or a loss of $0.17 per diluted share in the second quarter of 2024. Adjusted net income was $4.1 million or $0.55 per diluted share compared to $1.3 million or $0.17 per diluted share a year ago. Turning to our balance sheet. At the end of the second quarter, cash and cash equivalents were $2.8 million, and our total debt, net of unamortized debt issuance costs totaled $132.5 million, a decrease of 13.1% since June 30 of last year. Inventories at the end of the second quarter were $186.8 million, up 6.8% compared to $175.0 million a year ago, with the increase driven by higher tariffs as tariffs are relatively consistent year-over-year. As we mentioned last quarter, we purposely accelerated receipts in the first half of the year after the initial round of tariffs were announced, and we continue to bring product in early to avoid the impact of higher tariffs announced later this year. That said, we have approximately $11 million of incremental tariffs on the balance sheet that will flow through our P&L over the remainder of the year, with the bulk of the impact occurring in the fourth quarter. With respect to our outlook, based on the second quarter performance and inclusive of tariffs that have been announced this year through today, combined with the mitigation actions, we are increasing our prior year 2025 guidance. Revenue is now expected to increase between 4% and 5% compared to 2024 levels, up from our prior guidance for revenue to grow in the low single-digit range. We are forecasting gross margins to be down roughly 70 basis points from the 39.4% reported in 2024, inclusive of roughly $11 million of headwinds from tariffs currently in place, partially offset by our pricing actions. It is important to note that the margin benefits of shifting production to our own Dominican Republic and Puerto Rico facilities will take time to fully materialize with the largest margin benefits beginning in 2026. SG&A is still expected to be up in dollars from an increase in our marketing spend to support growth and higher logistics costs from the projected increase in retail sales. However, we are now expecting to realize modest expense leverage versus last year on higher sales. Finally, we now expect 2025 EPS to increase approximately 10% over last year's $2.54 a share, up from our prior forecast for EPS to be down slightly year-over-year. In terms of the quarterly shape of the second half, we are expecting growth in gross margins to be stronger in the third quarter versus the fourth quarter as we've adopted an appropriately conservative view on Q4 when most of the impact from tariffs on pricing and costs will hit consumers and our P&L. In addition, the fourth quarter includes a sequential step-up in marketing spend to drive demand during the key holiday season. That concludes our prepared remarks. Operator, we are now ready for questions.

Our first question comes from Jonathan Komp with Baird.

I want to start, if I could ask just how things have gone in terms of shifting the supply chain. I know you talked quite a bit on the last call about some of the changes, but any reaction or results so far there? And then separately on pricing, could you just comment on how you're seeing the pricing flow through either through your own retail business or the price increases you passed along to some of your wholesale partners?

Yes. Jonathan, thanks for being on the call. I'll take the first part on sourcing and let Jason weigh in on the pricing. But we're ahead of schedule in getting our production shifted from other countries. I would tell you that we are at our expectation really as we see it now in China from a go-forward standpoint. Again, things could shift and change after August 1, which seems to be a date that we're going to get some more news on tariffs. But I think what we're most proud about is our ability to shift production to our Dominican Republic facility first. And now we're starting to shift production to our Puerto Rican facility. We are ahead of schedule in the DR, and we have boots inbound to us now, and we have for a couple of weeks. So we're excited to see that plan coming to fruition. We'll just be cautious about any changes that come about August 1, whether there's an extension with the deadline or if there's more clarity on changes. But everything is going as planned from a sourcing and manufacturing perspective. We just need to see the game changes here later this week.

Yes. And then from a pricing standpoint, I would tell you that pretty much all of our retail partners were understanding. We got a little pushback, but I think the world, really, the U.S., knew where everything was and that things were coming. We've heard some of our competitors having significantly higher price increases. And then we've heard some that have had lower than what we took. So it's taken us some time. That price increase went into effect in June, and we've had to work with some of our retail partners to get it into place throughout June. So it was a process, but I feel pretty good about where we're at.

Yes. I think just to add on there, we were particularly cautious when we did our price increase to make sure that we maintained retailers' margins at MAP, or minimum advertised price. So we think that helped with delivering the message because we know that not all brands took that position.

Okay. That's helpful color. And then as a follow-up, I want to ask about the guidance raise. Tom, as you think about the drivers of the increase, could you help us understand just how much was related to second quarter outperformance versus any change and how you're thinking about the back half in any of the order indications you're seeing? Just want to get a better understanding of the drivers.

Yes. The updated guidance reflects the positive results from Q2, which indicates growth for the remainder of the year. For the third and fourth quarters, our bookings for Q3 appear very strong, and importantly, we will have a better inventory position for Muck and XTRATUF in the third quarter compared to last year. We feel more confident about the third quarter than the fourth. However, we remain cautious regarding the price increase and its impact at retail since we haven't had sufficient time to assess market reactions. Nevertheless, we believe we are competitive when comparing ourselves to our peers and other brands.

Yes. Just to add, I think one of the things that we are really pleased with is pretty much all of the brands, Georgia was kind of flat down a little. But we've seen Rocky come back a little bit, right? Durango has been doing pretty good. XTRATUF has been strong. And now we've seen Muck kind of come back. So we're anticipating because of what Tom said about us having better inventory in Q3 and Q4, that we'll hopefully see that driver happen with all of the brands, and maybe even Georgia will start to see some pickup too. So I think the fact that we've got the brands all kind of moving in the right direction is really a positive for us as well.

And last one for me. Could you just maybe give us an update how would you frame up the relative size of the Outdoor versus Work business across your brand portfolio? And any comment on sort of relative top-line revenue growth rates for the year?

Yes. So I would say that our Outdoor category is certainly growing at a rate faster than our other areas.

We're trying to look it up here, Jonathan, real quick, but the Work categories are the biggest though.

The Work category is our biggest category, followed by the Outdoor category with a lot of that growth happening in XTRATUF and Muck as Jason touched on in his prepared remarks. As we look at it for the quarter, the Outdoor category made up about one-third of the sales for Q2. And so I think that as we get into the Q3 and Q4, we'll see that acceleration continue. So Outdoor is going to continue to be a bigger piece of the total pie.

Our next question comes from the line of Janine Stichter with BTIG.

I was hoping just to get your thoughts on how you're feeling about the state of the consumer versus when we last spoke. On one hand, we see a nice increase in retail sales there in Q2, but then you did mention weakened visibility into consumer demand. Just curious what signals you're getting from the consumer. And I know it's still early, but any data or thoughts you have on the sell-throughs since you've raised prices would be really helpful.

Yes. Great question, by the way, because I would tell you that the consumer is a little confusing right now. When you read the data that we get from our retail partners and we look at the sell-through, we're getting really positive information there. And I know not all categories in the marketplace are getting the same kind of results. But when you look at the Work category, the Farm and Ranch, the Outdoor category, we're seeing pretty good sell-through at those retailers. And so we're excited about that. We, again, are pretty cautious and trying to be cautiously optimistic about it. But it seems like our guy is doing okay, but they're also very fickle. And you can see one week where the numbers are really strong and then the next week, maybe not so. So we're just following through it and seeing where it ends up. But I think we, again, are cautiously optimistic that they're doing okay.

Yes, Janine, to provide some insights, we rely on our e-commerce sites to gauge how pricing affects customer behavior. In June, our price increase took effect on June 1, and we observed similar growth in June compared to the rest of the quarter from an e-commerce standpoint. So far in July, e-commerce performance has been relatively flat due to some challenging comparisons, such as Prime Days. We will closely monitor this situation, but there doesn’t seem to be a significant shift in customer response on the websites following the price changes.

All right. That's helpful color. And then maybe just on XTRATUF, really interesting about the lifestyle opportunity there. If you could just maybe help us size up what the opportunity looks like there and how you would expect that to evolve within the next year or so?

Yes. I'll go ahead. Tom will likely add to this since he is a fan of XTRATUF. We're observing a transition from men's to women's footwear, as well as into children's footwear. We are noticing substantial growth in women's and kids' footwear, which seems to be appealing to a broader audience, possibly including soccer moms or just anyone needing a reliable rain boot. When it rains, they’re opting for these boots instead of the rubber boots they used to wear. While the product remains functional, the ways it's being used, the variety of colors offered, and the demographic using it are driving significant interest. We're also seeing more usage in inland areas, indicating that even people farther from coastal regions are starting to adopt these boots.

Yes, Jason covered it well. As we continue to grow the ADB sport line, which is the fastest-growing collection in XTRATUF, it's apparent from our sales heat maps that our audience is expanding beyond just fishing consumers. We're seeing retailers who typically wouldn't cater to that demographic now offering our products. This is exciting because it's allowing us to reach new consumers through various retailers and their websites. Additionally, we're introducing a wider range of footwear products and have added some apparel to the brand. Our Riptide collection and Ana collection are performing well, and we're eager to see their trajectory. Many consumers associate XTRATUF primarily with the 6-inch ankle deck boot, but those same customers also wear flip-flops and EBA shoes. Our goal is to encourage them to choose XTRATUF over the brands they previously preferred.

And as our final question, we have from the line of Bruce Geller with Geller Ventures.

Congratulations on doing a very admirable job in a difficult consumer environment here.

Thank you.

My first question relates to, are you seeing the prospects for or any actual market share gains related to your ability to manage or to manufacture product in-house?

Yes, I'll start with this one, Bruce. I think we're going to continue to utilize our in-house operations. We've mentioned the Dominican Republic and Puerto Rico. We will be able to maintain lower costs than some of our competitors, making us more nimble and flexible. For instance, in rubber boot production, we will have twice the volume coming from the Dominican Republic, which is currently at 10% compared to what we did in 2024 and up to 2025. This will materialize because many of our competitors have a lot of their production capacity outsourced or in locations with higher tariffs. Therefore, we should be able to remain more competitive than them in this situation.

That's great. And what percentage of your overall product will be manufactured in-house, say, next year and full calendar year 2026?

We are still working on that number, but I would estimate it at around 40% to 45%. We will push as hard as we can, and ideally, we would like to reach 50%. We are making this transition as quickly as possible, but we are also being very methodical to ensure that we avoid any quality issues that could deter customers.

It's great to hear that. It appears to be a significant competitive advantage at this time. I have another question regarding your overall business mix. It seems like it has been shifting a bit more towards your direct-to-consumer e-commerce in recent years. Do you disclose the breakdown between wholesale and direct-to-consumer? Can you talk about how that has been changing lately and what the effects might be on your overall gross margin mix as this trend continues?

Yes. So we don't disclose our DTC being in our branded websites. We do have the Retail segment, obviously, which we disclosed. I would tell you that in that Retail segment, about half of the sales, a little bit more than half of the sales are Lehigh business and the other half being both our branded e-commerce websites and our marketplace sales, where we're selling directly on marketplaces. And as we touched on in the prepared remarks, Lehigh continues to grow at mid-teen numbers. And so with the total increase of 13.9%, we saw the branded websites fall a little short of the average there from a blended standpoint. But I think the really unique thing is the DTC breakout between brands and the differences of the percentage of sales there. And so when you look at a brand such as XTRATUF, it is a much higher percentage of its sales online. And part of that is driven probably by the consumer buying it. And the lack of XTRATUF's presence in some big box retailers, which is getting better, but XTRATUF is by far the leader in our DTC business.

I want to mention, Bruce, that this is definitely a priority for us, and we’ve been concentrating on it for the past four to five years. However, we need to find a balance. We have a significant wholesale business to manage with our wholesale customers, and it’s essential to ensure that both can coexist. The truth is that each brand has its own website, and we aim to encourage consumers to visit those sites. We hope they have a positive experience there so we can keep growing that sector.

Great. Thanks for the update on that. And my last question relates to the balance sheet. You guys have done a great job over the last 12 to 18 months or so with getting the balance sheet back into a more comfortable shape. I believe, typically, you do pretty well in terms of cash generation in the second half of the year. Based on where you stand today and the guidance you've laid out, how much debt do you think you will be able to pay down in the second half of this year?

It's a really good question, Bruce. The reality is that these tariffs have been a strain on cash flow. Ideally, the price increase will help address that. I don't think we will see the same paydown as we did in the last half of last year, but continuing to reduce debt by 10% to 13% from the prior year is definitely something we believe we can achieve.

Terrific. Well, congrats again, and best of luck in the second half.

Thanks, Bruce. And we'll keep working on that debt. I promise you.

And we have reached the end of the question-and-answer session. Therefore, I will now turn the call back over to Jason Brooks for closing remarks.

Great. Thank you. First, I just want to thank the Rocky team here. They have really been doing an amazing job for the first half of 2025 and put us in an amazing position to finish 2025 strong. And I look forward to working with all of you to make that happen. And thank you to our shareholders and our Board members. And let's finish strong in 2025, team. Thank you.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation. Have a great day.