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Rocky Brands concluded 2025 with a strong fourth quarter, posting a 9.1% increase in net sales to $139.7 million. Performance was led by a 30.8% surge in the retail segment, driven by robust e-commerce demand for XTRATUF and Muck boots. XTRATUF, which has nearly tripled since its acquisition, is nearing the $100 million revenue milestone alongside Muck. While wholesale revenue dipped slightly by 2.1% due to inventory timing and carryover, the company saw success in work and outdoor categories, particularly with BOA-equipped footwear. Despite navigating $10.9 million in tariffs during the year, Rocky Brands expanded its full-year gross margin to 40.9%. Management is proactively mitigating new 15% tariffs by leveraging internal manufacturing in the Dominican Republic. For 2026, the company forecasts 6% revenue growth and low-teens EPS growth. Profitability will be back-half weighted due to $10 million in front-loaded tariff costs in the first half of the year. The company remains focused on reducing debt, which stood at $122.6 million at year-end, while increasing marketing investments to drive D2C growth. Overall, the company is leveraging its manufacturing agility to navigate industry headwinds and sustain long-term growth.

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Full Earnings Call Transcript — Q4 • 2026-02-24

Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rocky Brands Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. I would like to remind everyone that this conference call is being recorded, and we will now turn the conference over to Brendon Frey of ICR. Please go ahead, sir.
Brendon Frey: 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. Jason?
Jason Brooks: Thank you, Brendon. With me on today's call is Tom Robertson, our Chief Operating and Chief Financial Officer. After our prepared remarks, we will take your questions. We concluded 2025 with our highest quarterly growth rate of the year in the fourth quarter delivering strong results that reflect the momentum that has been building in our business. Net sales increased 9%, marking an excellent finish to what has been a very good year for the Rocky Brands, especially considering the industry headwinds we've navigated from the higher tariffs and deteriorating consumer sentiment. Our performance during the key holiday season was particularly encouraging, highlighted by exceptional demand in our direct-to-consumer channel, demonstrating the power of our brand portfolio and the strong consumer response to our merchandise offerings. For the full year, net sales grew 6% and gross margins expanded by 150 basis points even as we faced increased pressures from higher tariffs. I am incredibly proud of how our organization responded to the challenges over the past 12 months. Our teams executed exceptionally well, leveraging our manufacturing facilities to diversify our sourcing structure, which helped offset a meaningful portion of the impact from the higher tariffs and positioned us for margin tailwinds over the long term. The agility we demonstrated in adapting our supply chain while maintaining product quality and availability has been a key differentiation for us. The accomplishments for this past year have us well positioned to capitalize on the growth opportunities we believe exist in 2026 and beyond. Our diversified brand portfolio, operational flexibility and strong balance sheet provide us with multiple avenues for continued growth and value creation. Before I hand over to -- before I had over to Tom for detailed looking at the financials, I will walk through our fourth quarter brand and channel performance. XTRATUF delivered another exceptional quarter, continuing its position as our fastest-growing brand with strong performance across all channels, led by e-commerce, which was almost triple digits. Wholesale was up nicely, driven by traditional big box, outdoor specialty retailers and regional partners across the Southeast and Pacific Northwest. Product-wise, our most popular styles dominated sales throughout the quarter, including our core ankle deck boots, including our sports and legacy collection. A standout performer was our new cold weather collection, fleece-lined versions of our classic ankle deck boots for both men and women that sold very well and proved attractive to both new customers and existing XTRATUF fans in colder environments. The Q4 launch of our new Sesame Street licensed product was also well received, particularly through e-commerce, adding momentum to our rapidly growing kids business. Muck also had a very good quarter with sales increasing in the low 20% range. Growth was driven by our branded website, which was up mid-double digits, while marketplace volumes more than doubled driven in part by 2 successful Good Morning America Deals and Steals events during the quarter. This strong performance reflects our inventory position compared to 2024, successful National Muck Day execution in early October, favorable weather conditions in early December and continued strong brand demand. Our women's business continues to excel, led by the Arctic Sport II series and continued success with the women's original series. We also saw strength in the men's Arctic collection, particularly in the Midwest, West and the Rocky Mountain regions, while the kids business also experienced strong growth with the added bone collector kids boots contributing to the uptick. Durango finished the quarter with a good December performance especially in farm and ranch accounts benefiting from increased foot traffic due to the wet and snowy weather conditions. This was offset by softness in our key account base year-over-year due to bulk buy timing and carryover inventory impacts that negatively impacted wholesale sell-in. Durango.com continues to perform well, increasing low double digits in Q4 as legacy collections and new Shyloh's -- and new styles from our Shyloh series were in high demand. For spring, we're adding new men's and women's Square Toe series at key price points that are being carried by key accounts and large farm and ranch retailers. Like Durango, it was a tale of 2 channels for Georgia Boot in the fourth quarter. [ Lackluster ] wholesale results in part due to timing of certain customer orders were partially offset by a strong double-digit gain in e-commerce, driven by a strong holiday season online for the brand. Our strongest offerings include items with the trending BOA lacing system across categories, including the -- technically Carbon Flex wedge, the LTX Logger and the general work Durablend styles. We are pleased to share that the BOA Carbon Flex wedge will be prominently featured at one of Georgia Boot's largest customers beginning in Q1 2026. We have also been expanding our Super Light concept, launching a wedge version for the spring '26 that was picked up by a large farm and ranch customer in the Pacific Northwest. Rocky Work, Outdoor & Western ended Q4 on a positive note as favorable boot weather drove sales of insulated and waterproof products across brick-and-mortar and e-commerce channels. For the full year, the WOW categories ended positively, reversing the trend of recent years with rugged outdoor product leading the way with low double-digit year-over-year increases and work products achieving high single-digit growth over 2024. Sales were led by solid gains in national e-commerce companies and our own rockyboots.com site, along with diverse brick-and-mortar retailers, including major national sporting goods outlets and safety footwear suppliers. The year was highlighted by new programs with major retailers including an important new work footwear program with a major farm store in the Northwest and renewed programs with key sporting goods chains that reclaim shelf space in the outdoor category. Commercial military and duty closed out 2025 Q4 sales nearly in line with the year ago period despite battling significant challenges from the 43-day government shutdown that affected military personnel pay periods and defense logistics agency operations. A big highlight in the quarter was our Rocky Code Red Wildlands 77 Fire boot, which delivered another double-digit sales increase. We are encouraged with the momentum for both segments heading into 2026, which we expect to build with positive marketplace response to both spring and fall collections. Turning to retail. As I touched on in each of the brand discussions, e-commerce, particularly our own branded websites had a fantastic quarter, fueling 30-plus percent growth in our overall retail sales. Also contributing to the segment improvement year-over-year was our B2B Lehigh business, which grew mid-single digit versus Q4 last year. Of particular note, our new partnership with [ Bolle ] Eyewear continues generating positive incremental growth in the prescription safety eyewear as an extension of our management PPE program. At the same time, new customer acquisitions remain very strong as we continue adding accounts to drive growth. Looking ahead to 2026, we are optimistic about several key developments across our brand portfolio, and we'll be leaning into our highest growth opportunities, which increased marketing spend to drive full price selling this year and into the future. With that, I'll turn over to Tom the review of the financials. Tom?
Thomas Robertson: Thanks, Jason. As Jason shared, we had a good fourth quarter, highlighted by strong gains in our retail segment. Overall, sales increased 9.1% year-over-year to $139.7 million, our highest growth rate of the year and our highest in over 3 years. By segment, retail sales increased 30.8% to $57 million, which comes on top of a 15.1% growth in the year ago quarter. Wholesale sales were $79.6 million, a decrease of 2.1% and contract manufacturing sales were essentially flat at $3.2 million. Turning to gross profit. For the fourth quarter, gross profit was $57.7 million or 41.3% of net sales compared to $53.2 million or 41.5% of net sales in the same period last year. The 20 basis point decrease in gross margin was attributable to $8.3 million in tariffs and sourcing variances, which mostly impacted wholesale gross margins, although the total amount was modestly below our forecast as a portion of this headwind shifted into 2026 based on the timing of certain product sales. This was nearly offset by higher retail segment gross margins and a higher mix of retail segment sales, which carry higher gross margins than the Wholesale and Contract Manufacturing segments. Gross margins by segment were as follows: Wholesale, down 220 basis points to 36.3%, retail up 170 basis points to 50.9% and contract manufacturing sales were slightly negative as we experienced reduced economies of scale in our Puerto Rican manufacturing facility early in 2025, which hit our P&L in the fourth quarter. We expect contract manufacturing margins to normalize in 2026. Operating expenses were $48.1 million or 34.5% of net sales in the fourth quarter of 2025 compared to $44.7 million or 34.9% of net sales last year. On an adjusted basis, which excludes acquisition-related amortization costs on both periods and a noncash trademark impairment charge in Q4 of last year, operating expenses were $47.4 million in the fourth quarter of 2025 versus $40 million in the fourth quarter of 2024. As a percentage of net sales, adjusted operating expenses were down -- I'm sorry, were 34.0% in the fourth quarter of 2025 compared to 31.2% in the year ago period. The increase in operating expenses was driven by higher logistics costs associated with the increase in retail sales as well as higher marketing investments and incentive compensation. Income from operations was $9.6 million or 6.9% of net sales compared to $8.5 million or 6.6% of net sales in the year ago period. Adjusted operating income was $10.3 million or 7.4% of net sales compared to adjusted operating income of $13.2 million or 10.3% of net sales a year ago. For the fourth quarter of 2025, interest expense was $2.5 million compared with $3 million in the year ago period. The decrease reflects lower debt levels and lower interest rates in the quarter compared to the fourth quarter of 2024. On a GAAP basis, we reported net income of $6.5 million or $0.86 per diluted share compared to net income of $4.8 million or $0.64 per diluted share in the fourth quarter of 2024. Adjusted net income for the fourth quarter of 2025 was $7.2 million or $0.94 per diluted share compared to adjusted net income of $8.9 million or $1.19 per diluted share in the year ago period. Our tax rate for the fourth quarter was 6.3%, down from 12.1%, primarily driven by changes in state and local income taxes and other discrete tax benefits recognized in 2025. For the full year, net sales were up 6.2% to $482 million. By segment, wholesale sales increased 1%, retail sales were up 20.5% and contract manufacturing decreased 7.7%. In terms of profitability, gross margins increased 150 basis points to 40.9%, even as we absorbed approximately $10.9 million in IEEPA tariffs. Adjusted income from operations increased 5.6% to $40.0 million or 8.3% of net sales. Adjusted net income rose 29.4% to $24.5 million and adjusted EPS increased 28.3% to $3.26. For the full year, interest expense was down $10 million from $17 million, inclusive of a $2.6 million onetime loan extinguishment charge in 2024. Our effective tax rate for 2025 was 18.1% compared to 19% in the prior year. Turning to our balance sheet. At the end of 2025, cash and cash equivalents stood at $2.9 million and our debt net of unamortized debt issuance costs totaled $122.6 million, down 4.7% from the end of 2024. We also returned $4.6 million directly to shareholders through quarterly dividends in 2025. Now to our outlook. We entered 2026 with good momentum and have a solid plan in place to build on the accomplishments from this past year. Our positive sales outlook is being somewhat offset by continued impact of margins from higher tariffs, especially in the first half of the year. For 2026, we expect revenue to increase approximately 6% over 2025 with our retail segment growing faster than wholesale. We are forecasting gross margins to be similar to that of 2025. This includes roughly $10 million in IEEPA tariffs that will hit our P&L in the first half of the year with 80% occurring in the first quarter. SG&A is expected to be up in dollars as we increase our marketing spend to support growth. However, as a percentage of revenue, we expect to leverage by approximately 80 basis points. Interest expense will take another step down this year based on our year-end debt levels, but the decrease will be more modest than what we realized in 2025. With our estimated tax rate of 21.5%, this translates into EPS percentage growth in the low teens. In terms of the shape of the year, sales growth should be fairly consistent each quarter. However, with the impact from tariffs being front-loaded, especially in Q1, all of our earnings growth will come in the second half of the year, primarily the fourth quarter. That concludes our prepared remarks. Operator, we are now ready for questions.
Operator: [Operator Instructions]. And our first question, we'll hear from Jonathan Komp with Baird.
Jonathan Komp: I want to start just understanding the fourth quarter and the strength, especially in the retail channel. Can you just maybe talk about how things played out versus what you may have expected and where you're seeing sources of upside? And what do you carry forward in terms of learnings from Q4 that apply as we look forward?
Jason Brooks: Yes. Thanks for being on the call, John. So I think we had gone into Q4 feeling pretty confident with all the brands from a seasonal standpoint and had things heat up from a marketing standpoint and driving the sales. But to be perfectly frank, the sales just came in significantly higher than our anticipation. And really XTRATUF was one of the big ones. But I would tell you that Muck was also another one that we were expecting good growth out of, but it just came in much better than we thought. And I am sure the weather had a lot to do with it. But I think our product was right this year, and I think our marketing efforts were really good. But again, from all the brand scenarios, we saw a nice uptick in the B2B business, and we'll continue to drive that. And as you indicated, we will definitely be doing some homework in our own [ DCs ] to make sure that we are the most efficient in getting that product out at the end of the year.
Jonathan Komp: That's great. And maybe a broader question when you step back and look at XTRATUF and Muck, could you just remind us the potential size of those brands in 2026? What type of growth rate you're thinking and maybe how you're really fostering the long-term potential for both of those?
Thomas Robertson: Yes, John, I'll take that one. So Muck is our largest brand, just north of $100 million. And XTRATUF experienced exceptional growth this year, and we're anticipating that XTRATUF will have tripled in 2026 when we acquired it. It was $32 million when we acquired it. So it will be north of -- it will be approaching $100 million here in 2026 as well.
Jonathan Komp: And how are you evolving some of the growth drivers or the levers or the investments you're making to support that growth?
Thomas Robertson: Yes. I mean I think there's a couple of things there, right? So when you look at -- I mean just touching on e-commerce again, right? We have completely updated our websites. I think we touched on that in Q3. We've seen a lift just from transitioning to new platform websites. We've seen conversion rates go up. A big driver in the fourth quarter, along with the product being right, as Jason touched on, was a meaningful investment in our marketing spend, particularly in digital and social media. And so we saw our traffic meaningfully increase. To Jason's point around product, we made investments in inventory, particularly for XTRATUF to make sure we had it here for this holiday season. And also, as Jason alluded to or spoke to in his prepared remarks, the XTRATUF cold weather, the fleece line ADVs were very successful and very incremental to the quarterly results. And so as we look to 2026, we're going to continue those investments. We're going to continue, as we called out in the guidance, continue to spend more there, but we think we'll be able to leverage that given the margin profile of our branded websites. And so it will be a continued focus for us. We've made investments in the team. And then to Jason's point, too, we were pleasantly surprised by the results of the websites that put a little pressure on our distribution channels to get all that product out because we also saw a significant increase in drop shipments for our larger national accounts. And so we're going to be making investments this year to handle increased volumes for 2026.
Jason Brooks: Yes, John, I would just add, as we look at these brands, right, they are all very different and they're all very similar, they're footwear, right? But they're all very different and they're all kind of going after a little bit of different market. And so when we see success, for example, I think I talked about in my script on the Georgia Boot BOA series, we are seeing some serious success with that product. And so we are being a little more focused on where we are targeting. And so maybe not spending as much time on the whole brand, but more what is being successful within that brand. But when you have something like XTRATUF that it just seems to all be working, then we're definitely spending and focusing a little bit differently there.
Jonathan Komp: Great. Maybe last one for me. Tom, I think I heard you say flat gross margin for 2026 despite the tariff headwinds. Could you just confirm I heard that. And then how are you thinking about the offsets and the timing to tariffs? And any updated thoughts going forward here? Could lower rates be a slight tailwind at some point relative to the higher tariffs in the base here now as we go forward? Just any updates on the tariff situation?
Thomas Robertson: Yes. So you did hear us correctly. So if you think about -- as we -- with all the changes that happened Friday and Saturday, there were a significant amount of tariffs already inventory received, i.e. the tariffs paid, right? And so those expenses are going to continue to flow through our P&L to the tune of about $10 million in the first half of the year. We have modeled our margin based on this new 15% that the administration announced on Saturday. We haven't seen the executive order for 15%. We've only seen the executive order for 10%. So we'll continue to monitor that. And so we are going through the process, much like we did several times last year of evaluating where product is being sourced from and making sure we're sourcing it in the best location possible. Our overall strategy remains unchanged. We're still going to continue to leverage our own manufacturing facilities. We still think we have a meaningful competitive advantage compared to our peers because of that. And so we'll be able to be more nimble than most of our peers there. As we continue to monitor what happens with tariffs, we have assumed that these tariffs, this incremental 10% or 15%, however you want to look at it, is staying in place for essentially the rest of the year. We feel like the administration is going to find another method, maybe Section 301 to continue to keep tariffs in place past that 5-month deadline. And so if you think about, too, with us historically carrying about 6 months of inventory on our books, if the tariff rates do change in August, we won't see that benefit until 2027. Big picture, I think as the administration looks through other levers to implement tariffs, I don't think the focus of the administration will be on the Dominican Republic. So we think that still is a big competitive advantage of ours as we move throughout the year and get past this 150-day window on the Section 122. But we'll continue to update everyone as we move through the year, but there's still some unknown. And obviously, if we've learned anything over the last couple of years is that things change pretty quickly on us. So we'll continue to stay on top of it.
Operator: And next, we'll hear from Janine Stichter with BTIG.
Ethan Saghi: You've got Ethan on for Janine. Congrats on the strong results. I was wondering if -- I was just wondering if you could elaborate a little on how the business has been trending year-to-date across your brands? And then anything to call out on the health of the consumer or macro environment in general that's changed over the first couple of months of the year compared to when you last reported?
Thomas Robertson: So I mean, as it relates to 2026, I think we've continued to see this momentum carry forward. We have also benefited from weather in the first part of this year. And so we're anticipating that, obviously, weather will normalize as we get out of winter here, but the same successes that we've seen in 2025 are carrying forward in 2026. And that's both through wholesale and through our retail or e-commerce business, particularly. If we look at our order book for spring 2026, we are up pretty much across the board with all brands. And so we're feeling good about that. Our feedback that we've heard back from our spring '26 product is extremely positive. And so hopefully, it will get to retail here. It's starting to get to retail now. So we'll check and make sure how that moves through the channel. From a macro perspective, I mean, we have not seen a significant change in our consumer. We are well aware of the increase in tax refunds. I think it's on average about 14% that people are seeing this year. We will certainly hopefully benefit from that as most brands would, but we'll continue to monitor that as well.
Operator: That will conclude the question-and-answer session. I would now like to turn the floor back to Jason Brooks for closing remarks.
Jason Brooks: Great. Thank you very much. First, I'd like to just say thank you to the entire organization. Everyone has worked really hard in 2025 to make it the best it could be. And I want to thank you personally for that. I'd also like to give a special thanks out to our sourcing team and our factories. They had a ton of stuff thrown at them this year, and they really did an exceptional job to make 2025 happen. Thank you to our shareholders and our continued support along with our Board of Directors. And we are excited about 2026 and beyond, and let's go.
Operator: Thank you. That will conclude today's call. We thank you for your participation. You may now disconnect your lines.