Release Date: February 25, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Rocky Brands Inc (NASDAQ:RCKY) reported a strong fourth quarter with sales increasing 1.7% year over year to $128.1 million.
• The retail segment achieved its highest ever quarterly sales figure, with a 15.3% increase in sales.
• The company's Durango and Extra Tough brands showed strong performance, contributing significantly to top-line results.
• Gross profit improved to $53.2 million, with a gross margin increase of 120 basis points to 41.5% of net sales.
• The company successfully reduced its debt by 25.7% over the last 12 months, enhancing financial stability.

Negative Points

• Operating expenses increased to $44.7 million, representing 34.9% of net sales, up from 28.6% in the previous year.
• The company recorded a $4 million non-cash trademark impairment charge related to the Muck brand.
• Net income decreased to $4.8 million from $6.7 million in the fourth quarter of 2023.
• The company faces pressure from a 10% increase in tariffs on products sourced from China, impacting cost structures.
• Retailers are exhibiting cautious behavior with inventory commitments, leading to uncertainty in future sales projections.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Signs with RCKY.

Q: Can you clarify the recent mixed indicators and what you're observing in terms of sell-throughs? A: (CFO) We've seen good sell-through from retailers, especially with favorable weather conditions. However, retailers are cautious moving forward, which is reflected in our guidance. (CEO) Retailers are working through existing inventory and are cautious about restocking, affecting the pace of orders.

Q: What factors give you confidence in the projected low single-digit revenue growth for the year, and how does Q1 look relative to the full-year target? A: (CFO) Our order book is up year-over-year, which is encouraging. However, retailers are cautious, leading us to be conservative in our projections. We expect Q1 sales to be flat compared to last year, with growth picking up in Q2 and Q3 as inventory levels stabilize.

Q: Regarding the 110 basis point tariff impact, is that the gross impact, and how are you planning to mitigate it? A: (CEO) The 110 basis points consider existing tariffs. We're exploring price increases, vendor negotiations, and raw material adjustments to mitigate the impact. We expect to see more significant effects in Q3 and Q4 as we work through these strategies.

Q: Can you discuss the key growth drivers for 2025 and rank them in terms of contribution? A: (CEO) Extra Tough is a strong growth driver, especially with women's and kids' products. Muck brand is also performing well, particularly in the camouflage hunting market. Durango continues to be strong, and we're seeing some success in casual footwear with Rocky and Georgia brands.

Q: How are you handling the potential 25% tariffs on products sourced from Mexico, and what impact would this have on your guidance? A: (CFO) We source a small percentage of inventory from Mexico, mainly exotic Western footwear. While it would impact us, it might affect our peers more significantly. We're considering resourcing options in other countries to mitigate this.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.