Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Rocky Brands fourth quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue for questions. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded, and we'll now turn the conference over to Brendon Frey of ICR. Please go ahead, sir.
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. I'll now turn the conference over to Jason Brooks, Chief Executive Officer of Rocky Brands. Jason?
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 Rocky Brands, especially considering the industry headwinds we've navigated from 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 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 two 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 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 two 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 SuperLyte concept, launching a wedge version for the spring 2026, that was picked up by a large farm and ranch customer in the Pacific Northwest.
Rocky Work, Outdoor, and 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 reclaimed 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%+ growth in our overall retail sales. 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 Bollé 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 increase 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?
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 three 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%. 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 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%. 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 non-cash 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 at 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 one-time 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 amount amortized 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. 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 the prepared remarks. Operator, we are now ready for questions.
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using the speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we pull for questions. Our first question, we'll hear from Jonathan Komp with Bard. Baird, I'm sorry.
Yeah, thank you. Hi, good afternoon.
Hey, John.
Hope you're doing well. I wanna start just, you know, 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, you know, where you're seeing sources of upside, and what do you carry forward in terms of learnings from Q4 that apply, you know, as we look forward?
Yeah. Thanks for being on the call, John. I think we had gone into Q4 feeling pretty confident with all the brands from a, you know, seasonal standpoint and had things heat up from a marketing standpoint and driving the sales. 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. 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.
Again, from all the brand scenarios, we saw a nice uptick in the B2B business, and, you know, we'll continue to drive that. 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.
That's great. Maybe a broader question, when you step back and look at XTRATUF and Muck, could you just remind us, you know, the potential size of those brands in 2026? You know, what type of growth rate you're thinking and maybe how you're, you know, really fostering the long-term potential for both of those.
Yeah, John, I'll take that one. You know, so Muck, you know, Muck is our largest brand, you know, just north of $100 million. We're anticipating that XTRATUF will have tripled in 2026 when we acquired it. It was $32 million when we acquired it, so it'll be approaching $100 million here in 2026 as well.
How are you evolving, you know, some of the growth drivers or the levers, you know, or the, you know, the investments you're making to support that growth?
I mean, I think there's a couple things there, right? 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 platforms and 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. We saw our traffic meaningfully increase. To Jason's point around product, you know, we made investments in inventory, particularly for XTRATUF, to make sure we had it here for this holiday season.
Also, as Jason alluded to, or spoke to in his prepared remarks, the XTRATUF cold weather, the Fleece- Lined ADBs, were very successful and very incremental to the quarterly results. As we look to 2026, we're gonna continue those investments. You know, we're gonna 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. It'll be a continued focus for us. We made investments in the team.
To Jason's point, too, you know, we were, you know, 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, for our larger national accounts. We're gonna be making investments this year to handle increased volumes for 2026.
Yeah, 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? They're all very different, and they're all kind of going after a little bit of different market. 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. We are being a little more focused on where we are targeting. Maybe not spending as much time on the whole brand, but more what is being successful within that brand. 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.
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? How are you thinking about the offsets and the timing to tariffs and any updated thoughts going forward here? Could, you know, lower rates be a slight tailwind at some point relative to the higher tariffs in the base year now as we go forward? Just any updates on the tariff situation.
You, you did hear us correctly. You know, with all the changes that happened Friday and Saturday, you know, there were a significant amount of tariffs already. Inventory received, IEEPA tariffs paid, right? 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.
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. You know, our overall strategy remains unchanged. We're still gonna continue to leverage our own manufacturing facilities. We still think we have a meaningful competitive advantage compared to our peers because of that. 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 wanna 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 five-month deadline. If you think about too, with us historically carrying about six months of inventory on our books, you know, if the tariff rates do change in August, we won't see that benefit until 2027. Big picture, you know, I think as the administration looks through other levers to implement tariffs, you know, I don't think the focus of the administration will be on the Dominican Republic. 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.
We'll continue to update everyone as we move through the year. 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. We'll continue to stay on top of it.
Yeah, great. Appreciate all the color.
Thank you, John.
Next, we'll hear from Janine Stichter with BTIG.
Hey, you've got Ethan on for Janine. Congrats on the strong results. Was wondering if you could.
Thank you.
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? Thanks.
Yep. You know, I mean, as it relates to 2026, you know, I think we've continued to see this momentum carry forward. We have also benefited from, you know, weather in the first part of this year. You know, we're anticipating that, you know, obviously, weather will normalize as we get out of winter here, the same successes that we've seen in 2025 are carrying forward in 2026. That's both through, you know, wholesale and through our retail or e-commerce business, particularly. You know, if we look at our order book for spring 2026, you know, we are up pretty much across the board with all brands. So we're feeling good about that.
Our feedback that we've heard back from our spring 26 product is extremely positive. You know, hopefully, it will, you know, 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, you know, 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.
All right. Thanks a lot. I'll pass it on.
Thank you.
Thanks, Ethan.
Thank you. That will conclude the question and answer session. I would now like to turn the floor back to Jason Brooks for closing remarks.
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!
Thank you. That will conclude today's call. We thank you for your participation. You may now disconnect your lines.