RCKY

• Overall Second Quarter Performance

  • Total reported net sales grew 12% YoY to $118.4 million, the highest sales growth rate for the company since 2022, exceeding internal expectations
  • A $20 million gross tariff refund receivable (net $10 million benefit after offsetting existing IEPA tariff costs) was recognized in Q2, driving a record gross margin of 51.4% (up 1000 basis points YoY) and significant YoY profitability growth
  • GAAP net income was $13.9 million ($1.83 per diluted share), up from $3.6 million ($0.48 per diluted share) in Q2 2025; adjusted net income was $14.4 million ($1.90 per diluted share), up from $4.1 million ($0.55 per diluted share) YoY
  • Inventories declined 7.1% YoY to $173.5 million, with discontinued inventory down more than 30% YoY, leaving the company's inventory position the cleanest it has been since a prior acquisition
  • The company repurchased ~54,000 shares for $2 million in Q2, and the Board raised the quarterly dividend to $0.17, paid in June 2026
  • Total debt declined 7.6% YoY to $122.4 million

• Brand and Operational Updates

  • Extra Tough expanded beyond its marine roots into everyday consumer use, with strong performance from existing core styles and new spring/summer lines including kids' collections and branded collaborations; pre-book orders for the second half of 2026 are the largest in the brand's history
  • Georgia Boot's CarbonFlex wedge is now the brand's second highest-selling product franchise, with plans to expand BOA technology to women's products and warm-climate non-waterproof styles
  • Lehigh B2B benefited from rising employer subsidy utilization for PPE, with customer spending remaining resilient despite broader cost pressures
  • The company gained incremental shelf space at large key retail accounts across work, western, farm and ranch, and sporting goods channels, driven by strong early sell-through of test styles, with plans to expand into additional doors and product lines
  • Direct-to-consumer e-commerce sales across all brands outperformed expectations, with investments in digital driving higher traffic and volume

• Full year 2026 guidance has been raised from prior levels, with total revenue now expected to increase approximately 8.5% YoY over 2025, with Q4 growing modestly faster than Q3
• Excluding the unexpected tariff refund, full year 2026 gross margins are now forecasted to be approximately 40%, with Q3 and Q4 margins improving sequentially into the low 40% range. Gross margins face ongoing pressure from higher expedited freight costs, higher inbound freight rates driven by fuel surcharges, and higher component costs from elevated oil prices
• SG&A as a percentage of sales is expected to increase slightly from 2025, driven by the unexpected $1.1 million accounts receivable write-off from a customer bankruptcy, sustained higher outbound freight fuel surcharges, a higher mix of higher-cost retail sales, and stepped up digital advertising investment to capitalize on DTC momentum
• The full year net benefit from the tariff refund is $10 million (after offsetting $10 million in first half IEPA tariff costs), with an additional $2 million gross benefit expected in Q3. The company plans to reinvest a portion of the proceeds into expanding its distribution center and pay down remaining debt
• Excluding the net tariff refund impact, full year 2026 EPS is expected to be similar to 2025's $3.26. Reported EPS including the tariff benefit is expected to be ~$5, with EPS net of both the $20 million refund and $10 million in incremental IEPA tariffs expected to be ~$4 per share

By channel segment: Wholesale sales increased 7.9% YoY to $78.8 million, contributing 66.6% of total Q2 2026 net sales. Excluding the tariff refund benefit, wholesale gross margins declined 430 basis points to 36.3% due to sourcing shifts, expedited freight costs and selective shelf-space incentives. Retail (direct-to-consumer) sales increased 21.8% YoY to $36.2 million, contributing 30.6% of total Q2 net sales. Excluding the tariff refund benefit, retail gross margins increased 120 basis points to 46.6%. Contract manufacturing sales increased 17.2% YoY to $3.3 million, contributing 2.8% of total Q2 net sales. Excluding the tariff refund benefit, contract manufacturing margins declined 320 basis points to 9.3%. By brand segment: Extra Tough delivered strong double-digit growth across all channels, and became Rocky Brands' largest brand in Q2 2026, on track to exceed $100 million in full year 2026 sales with 30% full-year growth. Muck's U.S. business maintained positive momentum, but total Muck sales were down modestly YoY due to timing shifts in international distributor sell-in; softness in Arctic product sales due to milder spring weather also contributed. Georgia Boot delivered strong broad-based growth, driven by expansion of its best-selling BOA Carbon Flex Wedge into 500 additional retail doors. Rocky Work Outdoor and Western posted growth across all three core categories, driven by strong independent retailer sell-through and new product launches. Durango sales were down YoY in line with expectations, driven entirely by lapping large pre-price-increase bulk orders from two major chains in the prior year; excluding this dynamic, core Durango business posted solid growth. Commercial Military and Public Service delivered mid-single-digit YoY growth, meeting positive momentum from Q1, with public service outperforming expectations and commercial military roughly flat YoY with solid underlying momentum. Lehigh B2B delivered strong growth, driven by robust new customer acquisition and expanded product offerings.

• Shifting and uncertain tariff policy: New incremental 301 tariffs implemented in mid-2026 will not impact results until late 2026 or early 2027, and additional tariffs expected after U.S. midterm elections create uncertainty for 2027 pricing and costs
• Input cost pressure: Elevated oil prices have driven mid-single-digit increases in oil-based component costs, and container freight prices have risen, creating ongoing gross margin pressure
• Sourcing constraints: Higher-than-expected demand required the company to source more product from Asia than the originally planned Dominican Republic facility to reduce transit time, resulting in higher production costs than planned, creating a ~$3 million expected headwind for the second half of 2026
• Consumer and macro uncertainty: Ongoing macroeconomic uncertainty has led to cautious inventory management from independent retail partners, and drought conditions are pressuring two large farm and ranch channel customers
• Customer credit risk: A customer bankruptcy resulted in a $1.1 million unexpected accounts receivable write-off in Q2 2026

Q: Where has sales acceleration occurred, what is driving better-than-expected second half results, and is growth driven by new shelf space or existing accounts?

A: Growth is broad-based across almost all brands, with Extra Tough leading as the fastest growing. DTC e-commerce on the company's branded sites has outperformed expectations, delivering stronger growth than initially anticipated from ongoing digital investments. Bookings are up across all brands and account types, including independent retailers. Key new shelf space gains (such as the successful expansion of Georgia Boot's BOA Carbon Flex Wedge to all retail doors after a strong test, and Extra Tough expansion at a major sporting goods retailer) are incremental, with strong early sell-through driving expected continued fill-in orders in the second half.

Q: What is driving the higher-than-expected SG&A growth, and what is the long-term operating margin outlook for the higher-margin growing retail segment?

A: The $1.1 million unexpected customer bankruptcy write-off and sustained higher fuel surcharges (adding ~80 basis points of freight cost as a percent of sales) are the main near-term drivers of higher SG&A. Short-term gross margin pressure also comes from shifting sourcing to faster, higher-cost Asian suppliers to meet unanticipated higher demand, instead of the planned lower-cost Dominican Republic facility. Once the company builds up raw material inventory in the Dominican Republic and optimizes sourcing, operating margins are expected to increase over current guidance.

Q: When will new tariffs create a year-over-year headwind, what is the outlook for input costs, and are further price increases planned?

A: Incremental 301 tariffs implemented in Q2 2026 will not flow through the P&L until late 2026 or early 2027, and additional expected tariffs after U.S. midterms will impact 2027 pricing. Input costs are seeing mid-single-digit increases for oil-based components, with rising container freight costs exacerbated by expedited shipping to meet demand. Pricing will be evaluated after the details of expected additional tariffs are confirmed, with no immediate plans for further 2026 price increases.

Q: With inventories down 7% YoY amid strong sales, is the inventory level appropriate, and did early fall product shipping pull forward sales from Q3?

A: The inventory reduction is largely from clearing out discontinued products (down 30% YoY), leaving a cleaner, healthier inventory position; the company has not missed meaningful sales due to inventory constraints, only had to shift sourcing to faster suppliers which increased costs. Early fall product shipping was limited to the Rocky brand and not meaningful enough to pull significant sales from Q3, and strong early retail sell-through is expected to generate incremental fill-in orders in the second half.