ROCKY BRANDS, INC. Q3 FY2026 earnings call

• Top-line Growth: Sales grew approximately 13%, marking the second consecutive quarter of double-digit growth, accelerated from Q2's 12% gain.
• Brand Performance:
  • Extra Tough: Grew double digits, driven by strong Direct-to-Consumer (DTC) sales and wholesale growth with Key Sporting Goods. Addressed distributor diversion issues by cutting off unauthorized international distributors.
  • Muck: Delivered its strongest quarter, supported by new collections (Explorer, Outmax, Woodland Pro) and viral influencer campaigns. Women’s boots were the fastest-growing sub-segment.
  • Durango: Exceptional quarter driven by new product shipments (Shiloh item), door count additions in sporting goods and farm/ranch retailers, and robust demand among Hispanic retailers.
  • Georgia Boot: Sales declined YoY due to timing and difficult comparisons (non-repeat of last year’s bulk orders), though new BOA styles and wedge expansions are gaining traction.
  • Rocky Work/Outdoor/Western: Western was a highlight, with the Ride LTE collection reviving the category. DTC e-commerce grew low double digits.
• Military/Public Service: Commercial military sales were below plan due to raw material shortages and budget shifts; however, two new bids (U.S. Air Force and international) secured for early 2027 shipping. Public service saw small gains as fire boots were recertified.
• Lehigh B2B: Sales grew low double digits via new customer acquisition and expanded Bolle partnership. Subsidy utilization trends upward.
• Margin Improvement: Gross margins improved ~200 bps sequentially to the low 40s, aided by better full-price selling and favorable tariff tailwinds (IEPA refunds and free trade zone inventory sell-through).

Reported net sales increased 13.3% year-over-year to $138.8 million. The Wholesale segment generated $99.6 million in revenue (71.7% of total), representing an 11.8% increase. The Retail segment contributed $35.4 million (25.5% of total), growing by 20%. Contract Manufacturing remained essentially flat at $3.8 million (2.7% of total). Excluding tariff benefits, gross margins were 40.7%; Wholesale margins declined 90 basis points to 39.2%, while Retail margins expanded 330 basis points to 48.2%.

• Revenue: Raised 2026 revenue growth guidance to approximately 10.5% (up from prior 8.5%).
• Gross Margins: Normalized gross margins (excluding all tariff benefits) projected at approximately 41%. Prior guidance excluded only IEPA refunds; this update also excludes free trade zone benefits.
• Operating Expenses: Expected to increase slightly as a percentage of net sales YoY, driven by higher logistics costs, digital advertising spend, and performance-based compensation.
• EPS: Reported EPS guidance raised to approximately $5.30 (from $5.00). Non-GAAP EPS remains projected at approximately $4.00 per share.

• Tariff Uncertainty: Potential incremental tariff increases post-election could impact future margins and pricing strategies.
• Cost Inflation: Headwinds from rising oil prices, component costs, and inbound freight/container pricing pressures.
• Inventory Constraints: Temporary raw material shortages impacted commercial military inventory; expedited shipping used to meet Q4 demand, potentially increasing costs.
• Currency/Exchange Rates: Implicit risk in sourcing operations (Dominican Republic/Puerto Rico) and international distribution management.

Q: Analyst asked about drivers of margin beat, long-term margin targets given cost headwinds, and inventory positioning. / A: CFO cited better full-price selling and higher DTC mix as margin drivers. Long-term target remains 40%, though pricing for 2027 is under evaluation due to oil/freight costs. Inventory pairs are up YoY, but specific areas (e.g., military) need more stock; company is investing in raw materials for faster lead times.

Q: Analyst requested color on Q4 revenue expectations by channel and whether strength comes from sell-in or sell-through. / A: CFO implied ~8% Q4 overall growth, with retail moderating due to difficult weather comparisons from last year. CEO emphasized strong sell-through, noting retailers are booking well and performing regular fill-ins, indicating genuine consumer resonance rather than just channel stuffing.

Q: Analyst asked if cost inflation is worsening and how it impacts pricing decisions, plus operating leverage outlook for 2027 without tariff benefits. / A: CFO noted container pricing worsened in Q3 but expects oil to stabilize. Pricing will be adjusted to preserve the 40% margin target. Operating leverage will depend on Extra Tough’s continued high-margin growth and DTC mix; detailed 2027 leverage framework to be provided next quarter.

Q: Analyst asked about the nature of increased digital ad spend ($1-2M incremental) and brand-wide impact. / A: CFO explained a shift toward CAC-focused digital spending, mostly incremental to traditional marketing. Spend will likely rise in Q4. All brands saw double-digit DTC growth except commercial military, which was constrained by inventory availability rather than demand.