Good afternoon, ladies and gentlemen, and thank you for being here. Welcome to the Rocky Brands Third Quarter 2025 Earnings Conference Call. I would like to remind everyone that this call is being recorded. I will now turn the conference over to Cody McAlester 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. And I'll now turn the conference over to Jason Brooks, Chief Executive Officer of Rocky Brands.

Thank you, Cody. With me on today's call is Tom Robertson, our Chief Operating and Chief Financial Officer. After our prepared remarks, we'll take your questions. Overall, we are pleased with our third quarter results in light of what remains a difficult and dynamic operating environment. Sales for the quarter increased 7%. Gross margins were up 210 basis points, and we delivered adjusted diluted EPS of $1.03, a 34% increase versus our Q3 last year. Our teams have done a great job at navigating higher tariffs imposed by the U.S. on most trade partners, especially countries that account for the majority of global footwear production. We've moved quickly to diversify our sourcing base, including adding new Asian-based manufacturing partners outside of China and Vietnam as well as leveraging our own facilities in the Dominican Republic and Puerto Rico. These actions, along with price increases and strong demand for our brands should help mitigate the impact of the higher tariffs as they start to hit our P&L more meaningfully in the fourth quarter and next year. We are still ramping up production with our new partners, which has resulted in some delayed shipments. However, we are confident that we'll start 2026 with our supply chain in a position to fully capture demand. Tom will share more about our sourcing structure later in the call, but first, I'll review the drivers of our third quarter performance by brand. Starting with XTRATUF. The brand continued its exceptional momentum, delivering strong growth that significantly outpaced last year. U.S. wholesale stood out in the quarter, increasing double digits, while xtratuf.com also posted double-digit growth compared with Q3 last year. From a product standpoint, our legacy 6-inch ankle deck boot, particularly the duck camo version was once again the top performer, and within the category, ADB Sports was the best-performing collection. Camo continues to be in high demand across our men's, women's and kids offerings, demonstrating strong consumer performance for these designs. We were encouraged that the strong sell-through was broad-based with notable gains coming from big box sporting goods stores, traditional coastal retailers, pure-play e-commerce retailers and online marketplaces. We are excited about the XTRATUF prospects for the fourth quarter with the launch of our cold weather collection, a Sesame Street collaboration for holiday at retail and online, plus several exciting xtratuf.com exclusives. Turning to Muck. Coming off one of the strongest Q2 in years, the brand continued its positive trajectory in Q3 despite less favorable weather compared to the year ago period. Improved inventory positions, particularly in best-selling chore styles, combined with initial deliveries of our successful Bone Collector collaboration in the hunting channel fueled double-digit growth in our U.S. wholesale business and meaningfully higher marketplace volumes. Also adding to Muck's performance and brand awareness was a highly successful feature on Good Morning America's Deals & Steals event over Labor Day weekend. Our women's business continues to be strong, led by the Muckster II Chicken Print series, while men's also had notable success in several regions. In terms of the channels, new product expansion fueled growth in the hardware stores, while our Farm and Ranch segment saw solid growth with multiple key retailers. As we anticipated, Durango sales were down year-over-year in Q3 as some key accounts pulled forward orders into Q2 ahead of the planned price increase we took to help offset higher tariffs. This was particularly offset by the consistent and steady growth Durango has experienced throughout this year in our Farm and Ranch accounts. Product highlights include the Durango Shyloh series, which continues to gain traction with consumers, thanks to the great styling, great quality and attractive price points. Our Legacy line continues to sell through well at retail, and our on-trend women's fashion collection has proven extremely popular, leading to increased placement for these series. Georgia Boot delivered solid growth in the quarter, led by double-digit gains with major accounts and strong results in our field account business. This strength was driven by our largest Farm and Ranch accounts and e-commerce-only partners, supported by successful new product launches and legacy bestsellers. New product launches were led by our Carbon Flex Wedge, a technology wedge with improved flexibility that is doing so successfully that we are launching a version in November featuring the BOA lace and closure system. Field business followed similar patterns with new products driving increases across most regions, compensating for mixed retail conditions in some areas. Rocky Work, Outdoor and Western in total was up versus last year, led by gains in the work and outdoor categories. Work was driven by new or expanding distribution across the country, including a new work program with a large Farm and Ranch retailer across the mountain and Northwest region, led by several styles with the BOA lacing and closure system. Rocky Work also continued to sell well in key national safety footwear distributors plus multiple digital platforms. In Outdoor, it was improved distribution nationwide with new and larger programs at key Farm and Ranch retailers and sporting goods partners that fueled the year-over-year improvement. Within these channels, our new Wildcat series of hunting outdoor boots delivered great value at core price points, while premium BearClaw outdoor boots reinforced Rocky's leadership in performance footwear. While Rocky Western sales declined year-over-year, our heightened focus on Work Western products, particularly our Iron Skull Safety Toe Western pull-on, is driving gains with several regional and national brick-and-mortar and online. Rocky commercial military and duty posted its second consecutive quarter of improved results. Commercial military sales were up versus last year and exceeded plans as our strategic inventory management enabled us to maintain higher fill rates throughout the quarter. Duty also outperformed expectations, driven by strong gains with our largest U.S. Postal Service customer and continued double-digit growth in our Fire Boot program. In retail, our BI B2B business grew high single digits versus Q3 last year. We continue making operational improvements to our custom fit website and launched our new partnership for prescription safety eyewear through our managed PPE program. Customer spending remained consistent with good subsidy utilization and new customer acquisition remains strong, more than offsetting impacts from supply chain and tariff uncertainty. Looking ahead, our view in the remainder of the year is based on the momentum we are currently experiencing with our brands, especially XTRATUF, balanced with a level of caution about the broader consumer environment and the anticipated impact on the fourth quarter gross margins from higher tariffs. While there is still uncertainty regarding the outcome of certain trade negotiations, we feel good about the changes we've made to our supply chain, particularly the increased flexibility we have to shift sourcing and production if needed. Therefore, we are anticipating that the headwinds from higher tariffs implemented this year will abate midway through 2026. With that, I will turn the call over to Tom. Tom?

Thank you, Jason. We are pleased with the improvement in results we delivered year-over-year, especially given the changes in our sourcing structure we've undertaken recently to help mitigate the impact of higher tariffs combined with what continues to be a choppy consumer environment. For the third quarter, reported net sales increased 7% to $122.5 million. By segment, wholesale net sales increased 6.1% to $89.1 million. Retail net sales increased 10.3% to $29.5 million and contract manufacturing net sales increased 4.1% to $3.9 million. Turning to gross profit. For the third quarter, gross profit was $49.3 million or 40.2% of net sales compared to $43.6 million or 38.1% of net sales in the same period last year. The 210 basis point improvement in gross margin was driven by higher wholesale and retail margins, which were fueled by brand mix and select price increases and higher percentage of retail sales, which carry higher gross margins than the wholesale and contract manufacturing segments. These gains were partially offset by 160 basis points of pressure from higher tariffs as product brought into the U.S. post-Liberation Day in April has begun flowing through the P&L. Reported gross margins by segment were as follows: wholesale, up 200 basis points to 39.5%. Retail, up 320 basis points to 46.8%, and contract manufacturing margins were 6.9%. Operating expenses were $37.6 million or 30.6% of net sales compared to $33.6 million or 29.3% of net sales last year. Excluding $700,000 of acquisition-related amortization in both periods, adjusted operating expenses were $36.8 million and $32.9 million for the third quarter of 2025 and 2024, respectively. As a percentage of net sales, adjusted operating expenses were 30.1% in the third quarter of 2025 compared with 28.7% in the year-ago period. The increase in operating expenses was driven primarily by higher outbound logistics costs and selling costs associated with the increase in our direct-to-consumer business as well as an increase in our marketing investments compared with the year-ago period. Income from operations increased 16.5% to $11.7 million or 9.6% of net sales compared to 10.1% of sales last year. On an adjusted basis, income from operations was $12.4 million or 10.1% of net sales compared to $10.8 million or 9.4% of net sales a year ago. For the third quarter of this year, interest expense was $2.6 million compared with $3.3 million last year. The decrease in interest expense was driven by lower debt levels as well as lower interest rates. On a GAAP basis, net income was $7.2 million or $0.96 per diluted share compared to net income of $5.3 million or $0.70 per diluted share in the third quarter of 2024. Adjusted net income was $7.8 million or $1.03 per diluted share compared with $5.8 million or $0.77 per diluted share a year ago. Turning to our balance sheet. At the end of the third quarter, cash and cash equivalents were $3.3 million and our total debt net of unamortized debt issuance costs totaled $139 million, a decrease of 7.5% since September 30 of last year. Inventories at the end of the third quarter were $193.6 million, up $21.8 million or 12.7% compared to $171.8 million a year ago. Of the approximate $22 million increase in inventories year-over-year, about $17 million or nearly 80% is attributable to higher tariffs, a small increase in pairs on hand and the remainder in raw materials as we are now producing more footwear in-house. Of the approximate $17 million from incremental tariffs on our balance sheet, roughly $10 million will flow through our P&L in the fourth quarter with the rest hitting in the first half of 2026. As we've touched on, we have taken actions this year to mitigate the impact of higher tariffs that started to pressure margins in Q3 and will intensify for the next few quarters, offset by price increases. We also made significant changes to our sourcing model. These include shifting more production to our own facilities in the Dominican Republic and Puerto Rico and diversifying the geographic footprint of our third-party manufacturing to reduce our exposure in China. For 2026, we project that we'll manufacture approximately 50% of our inventory needs in-house, up from approximately 30% in 2025. Approximately 20% will be produced in China. However, only half of that or 10% of the total will be imported into the United States. The other 30% will be split between partners in Vietnam, Cambodia, the Dominican Republic, and India. We anticipate our actions will allow us to return gross margins to the recent run rate in the high-30s to low-40s percent range in the second half of next year as we move through the incremental tariffs currently on the balance sheet. With respect to our outlook, based on the third quarter performance and current view of the remainder of this year, we are reiterating our prior guidance for 2025. We still expect revenue to increase between 4% to 5% compared to 2024 levels with full-year gross margins down approximately 70 basis points to between 38% and 39%, consistent with our previous outlook. SG&A is still expected to be up in dollars from an increase in our marketing spend to support growth, especially during the key holiday season and higher logistics costs from the projected increase in retail sales with modest expense leverage versus last year on higher sales. Finally, we still expect 2025 EPS to increase approximately 10% over last year's $2.54. That concludes the prepared remarks. Operator, we are now ready for questions.

Our first question is from Janine Stichter with BTIG.

I want to start by discussing the consumer. You have mentioned a challenging and dynamic environment. Could you share your thoughts on how your view of the consumer has changed over the past three months and how this is reflected in your forecast?

Yes. Thanks, Janine. Great question. This has been probably one of the most dynamic years in my career with trying to understand the consumer. We get reports back from many of our retail partners, and our products are still selling well. But I think there is still some cautiousness about when and where they're going to spend those dollars and what they're going to spend those dollars on. So I think we are just trying to navigate it the best we can, try to provide the best inventory positions we can without being too aggressive to support our retail partners and our own websites. But I think it's a little unsettling out there, and if we could have a consistent consumer report, I think it would be better, but it just kind of goes up and down right now. So we're just being a little cautious.

Totally fair. All right. And then a couple more for me. Just you mentioned some delayed sales due to supply chain. Is there any way to quantify how much that was? And then as you think about tariffs and offsetting, it sounds like all of it from a gross margin rate perspective in the back half of next year. Maybe just walk us through what that embeds. Is there any additional pricing that you feel like you need to take to get there? Or is that all just diversification of sourcing?

Yes. I'll take this one, Janine. Look, at the end of every quarter, we always have a little bit of missing inventory and a little bit left on the table as we're chasing certain styles. This quarter, with all the sourcing changes, particularly with moving products to India, Cambodia, and Vietnam, we saw anywhere from a 3-week to 30-day delay getting those products. And so that number was a little larger than usual, probably a few million dollars being transparent. And then I think as we look to next year, I think the second part of the question from a margin perspective, diversifying is certainly going to help. But I think the biggest driver in helping margins next year is going to be us bringing more and more product in-house. So that will help leverage our margins as we go into 2026.

Our next question is from Jonathan Komp with Baird.

Can I just ask when you look at the third quarter results, how things played out generally versus what you expected since I know you don't guide quarterly, necessarily. And when you look at the indicators you watch for your business, could you maybe remind us what visibility you have on sell-throughs in the marketplace, either your or your partners' business? And just what you've observed more recently in terms of some of the trends you've seen?

Yes, I can start here, and then Jason can certainly weigh in. We have visibility into some of our larger national accounts, and there's been nothing that's been really concerning from a sell-through and retail perspective. I think Jason was touching on a little bit of just retailer behavior maybe earlier. But to that point, our marketplace business continues to be very strong compared to last year, up strong double digits. Our e-commerce business, which I kind of use as our closest pulse, was a little sluggish in the end of July and early August when we were transitioning over to our new platform. But we saw that recover nicely at the end of August and then September was the strongest month for the quarter from an e-commerce perspective. So we're not seeing anything too troubling out there from a consumer standpoint.

Jon, I would just add, I think at the beginning of the question, you asked about our expectations about how Q3 came in. And I think we are pretty pleased with where we're at. I obviously would have loved to hit that top line number, but I think because of the transitions of the factories and what we had to do there, it made things a little more complicated for us. But I think we're really pleased with what Q3 was, and we're looking forward to Q4 and think it can be a good quarter as well. But just want to be cautious about it. Like I said, it seems to be an ever-ending story. One week, it's really positive in the consumers' mind and then the next week, it seems to change. So we're just trying to take it kind of one week at a time and navigate that.

Understood. And maybe as a follow-up, are there any pockets of weakness that you're seeing that you're paying close attention to across your business? And when we think about the fourth quarter, you're reiterating the guidance for the year. It implies a wider range for the fourth quarter by nature. So any color on what might cause you to be closer to the high end or the low end as you think about the implied fourth quarter?

Yes. So from a branding standpoint, the only brand that is kind of funky right now is Durango. But as I said in the script, we had quite a few key accounts pull some business ahead there before the price increase. So our fill-in business wasn't quite as good in Q3. So I would say Rocky Western sales declined year-over-year, our heightened focus on Work Western products, particularly our Iron Skull Safety Toe Western pull-on, is driving gains with several regional and national brick-and-mortar and online. Rocky commercial military and duty posted its second consecutive quarter of improved results. Commercial military sales were up versus last year and exceeded plans as our strategic inventory management enabled us to maintain higher fill rates throughout the quarter. Duty also outperformed expectations, driven by strong gains with our largest U.S. Postal Service customer and continued double-digit growth in our Fire Boot program. In retail, our BI B2B business grew high single digits versus Q3 last year. We continue making operational improvements to our custom fit website and launched our new partnership for prescription safety eyewear through our managed PPE program. Customer spending remained consistent with good subsidy utilization and new customer acquisition remains strong, more than offsetting impacts from supply chain and tariff uncertainty. Looking ahead, our view in the remainder of the year is based on the momentum we are currently experiencing with our brands, especially XTRATUF, balanced with a level of caution about the broader consumer environment and the anticipated impact on the fourth quarter gross margins from higher tariffs.

Yes. Just to touch on the Durango piece a little bit. I think in the middle of the summer and dragging into a little bit of fall here, we've seen a little bit of softness in kind of our independent Hispanic retail accounts. And so we've been keeping an eye on that. That appears to have recovered a little bit here in September. So we'll continue to monitor that. And then to the sourcing comment and the missing inventory from a minute ago, Durango was detrimented the most here as the vast majority of that product historically was made in China. And so that's where you've seen a lot of the sourcing changes, particularly in Cambodia and India. And so there was a couple of million dollars there that just didn't get here as we had originally hoped.

Great. One follow-up then, if I could, Tom, on the implied profit guidance in the fourth quarter. I know you still are expecting earnings growth around 10% for the year after a good third quarter, that implies a pretty steep decline in the fourth quarter and some pretty steep falloff in gross margins. So I guess, are you assuming that pricing doesn't offset the tariff impact as it looks like it has started to? Or just any further color on what you're embedding there?

Yes, the pricing will definitely have an impact. Each month since the price increase, we've seen more of that benefit. We will keep recognizing it. The margins will be more affected in the fourth quarter primarily due to the $10 million I mentioned earlier. Additionally, the timing of the tariffs played a significant role. Initially, they were much higher, especially from China. As our inventory was still coming in, we were paying those elevated tariffs, which were greater than what we pay now, and we couldn't make all the sourcing changes we have since implemented. These sourcing changes are improving daily, but their effects will take time to reflect in the profit and loss statement. I believe Q4 of 2025 will be the most challenging quarter regarding tariffs, with improvements starting after that. It will still pose difficulties in Q1 and Q2 of 2026.

Okay. Great. And then last one for me, just bigger picture as we look forward into 2026. Any thoughts that you have just knowing your business and your brands whether or not stimulus could be something you can take advantage of or that might benefit? Any thoughts there? And then when you think of the momentum for XTRATUF, could you maybe just frame up what you're planning for that business? And any updated thoughts on what the potential might be as we look forward?

Jon, can you elaborate more on the stimulus? I'm not sure what the question is.

I wonder if the early 2026 stimulus to consumers from the tax bill is something you see as a potential driver for consumers or businesses, and if that's something you've considered for your business.

Got you. Yes, I'm sorry. Yes, I think any time the consumer is going to get any kind of stimulus, I think we all saw this during COVID. And then obviously, this is a very different tax bill and stuff. But I think any time our consumer gets a little kick, they are willing to spend some more. So I think we will be prepared if it happens, we'll have the inventory, and we'll be able to take advantage of it. But it's not something that is a huge focus of ours, but we'll be prepared if it does come for sure.

As we look to 2026, our order book shows an increase in bookings year-over-year, which is encouraging. This growth is reflected in both dollar amounts and unit pairs, indicating that it’s not solely due to price increases. Our spring 2026 product is looking exceptional, and I want to commend our product development team for their efforts. Regarding XTRATUF, it seems to be gaining momentum, having shown a steady increase in low to mid-double digits throughout the year, with further acceleration in the third quarter. We are eager to see how our new cold weather line, in which we have heavily invested, performs as inventory continues to arrive daily at the warehouse. We will monitor its development in 2026.

We're beginning to see that product move further inland. Initially, it was mostly successful along the coastlines, in fishing, and boating, but now it's gradually extending inland. While the change isn't happening rapidly, we are noticing it, and we are quite excited about it. I believe that 2026 will be an exciting year for XTRATUF.

There are no further questions at this time. I'd like to hand the floor back over to Jason Brooks for any closing comments.

Great. Thank you. I'd like to thank the entire Rocky team for all their efforts this year. It has been a real challenge, particularly in our sourcing department, and that team has just done an amazing job to try to navigate what we've had to do. So thank you, Rocky team, and thank you to our investors, and thank you to the Board. We look forward to finishing 2025 and kicking some butt in 2026. Thank you.

This concludes today's conference. We thank you again for your participation. You may disconnect your lines at this time.