Rocky Brands, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Overall Performance: Pleased with third quarter results amidst a difficult operating environment. Sales increased 7%, gross margins rose 210 basis points, and adjusted diluted EPS was $1.03, a 34% increase from Q3 last year.
• Sourcing Diversification: Moved to diversify sourcing base, adding Asian manufacturing partners outside China and Vietnam, and leveraging own facilities in the Dominican Republic and Puerto Rico to mitigate the impact of higher tariffs.
• Brand Performance:
  • XTRATUF: Exceptional momentum with U.S. wholesale and xtratuf.com both posting double-digit growth. Camo designs remained in high demand across various categories.
  • Muck: Continued positive trajectory despite less favorable weather, with improved inventory positions and a successful Bone Collector collaboration boosting performance.
  • Durango: Sales down Y/Y in Q3 due to key accounts pulling forward orders, but saw growth in Farm and Ranch accounts.
  • Georgia Boot: Solid growth from major accounts and field account business, driven by new product launches and legacy bestsellers.
  • Rocky: Work and outdoor categories saw growth, with new programs and products like Wildcat hunting outdoor boots contributing to gains.
• Supply Chain: Still ramping up production with new partners, leading to some delayed shipments, but confident to have supply chain in place to capture demand by 2026.

Segment Performance

• XTRATUF: Continued strong growth with U.S. wholesale and xtratuf.com posting double-digit growth. Legacy 6-inch ankle deck boot (duck camo) and ADB Sports collection were top performers. Camo designs in high demand across men's, women's, and kids offerings. Absolute revenue growth was strong; revenue contribution % not explicitly stated but was a significant driver.
• Muck: Continued positive trajectory with double-digit growth in U.S. wholesale and higher marketplace volumes. Improved inventory positions and Bone Collector collaboration boosted performance. Women's business strong via Muckster II Chicken Print series. Absolute revenue growth double-digit; revenue contribution % not explicitly stated.
• Durango: Sales down Y/Y in Q3 due to key accounts pulling forward orders, but saw growth in Farm and Ranch accounts. Shyloh series and women's fashion collection popular. Absolute revenue down Y/Y; revenue contribution % not explicitly stated.
• Georgia Boot: Solid growth led by major accounts and field account business. Driven by new product launches and legacy bestsellers. Absolute revenue growth strong; revenue contribution % not explicitly stated.
• Rocky Work, Outdoor and Western: Up Y/Y, led by work and outdoor categories. New work program and Wildcat hunting outdoor boots drove growth. Absolute revenue up Y/Y; revenue contribution % not explicitly stated.
• Financials: Net sales increased 7% to $122.5 million. Gross profit was $49.3 million (40.2% of net sales) compared to $43.6 million (38.1%) in the same period last year. Operating expenses were $37.6 million. Income from operations was $11.7 million. Adjusted net income was $7.8 million ($1.03 per diluted share).

Guidance

• Reiterated 2025 guidance: Expected revenue to increase 4%-5% compared to 2024 levels. Full-year gross margins are projected to be down approximately 70 basis points, between 38% and 39%. SG&A is expected to increase due to higher marketing spend and logistics costs. 2025 EPS is anticipated to increase approximately 10% over 2024's $2.54.

Risks

• Tariffs: Higher tariffs are impacting margins, particularly in the fourth quarter of 2025 and early 2026. Delayed shipments from new manufacturing partners due to ramping up the sourcing transition.
• Consumer Environment: Cautious consumer spending and a dynamic environment with fluctuating consumer behavior pose challenges.
• Supply Chain Disruptions: Delayed shipments from new manufacturing partners have affected product availability, particularly for certain brands like Durango which was heavily impacted by sourcing changes from China.

Question and Answer

Q: Janine Hoffman Stichter asked about thoughts on the consumer environment now versus 3 months ago and its impact on the forecast.

A: Jason Brooks responded that the consumer is cautious, with people being selective about spending, and the company is navigating to support retail partners and websites while being cautiously optimistic.

Q: Janine asked to quantify supply chain delays and impact on Durango.

A: Thomas Robertson said Durango was most affected, with a couple million dollars missing due to sourcing changes from China to Cambodia and India, as the majority of its product historically was made in China.

Q: Jonathan Komp inquired about visibility on sell-throughs and trends.

A: Thomas Robertson mentioned strong marketplace and e-commerce performance, with e-commerce recovering after a platform transition, and Jason Brooks added that while Durango is a brand watched, there are no major concerning issues from a consumer standpoint.

Q: Jonathan asked about implied profit guidance in the fourth quarter.

A: Thomas Robertson explained that Q4 margins are depressed due to $10 million in tariff-related inventory timing and sourcing changes, but pricing will help offset, with Q4 expected to be the worst quarter from a tariff perspective.

Q: Jonathan asked about thoughts on stimulus benefiting the business in 2026.

A: Jason Brooks stated the company is prepared to take advantage of any consumer stimulus if it occurs, though it's not a major focus at the moment.