Let's get started here. I'm Jonathan Komp, a Senior Analyst from Baird. Very pleased to host Rocky Brands today. You may know Rocky as a company with more than 90 years of operating history and a leading designer, manufacturer, marketer of rugged boots and outdoor gear. A couple of household names in the portfolio you may know: Rocky Boots, Georgia Boots, Durango, more recently the Original Muck Boot brand, as well as XTRATUF, and I'm sure I'm leaving a few out. But with me today, Jason Brooks. Jason's been CEO since 2017 and with the company more than 25 years.
Correct.
Tom Robertson, CFO and COO. Tom has been the CFO since 2017 as well and has spent most of his life related to the footwear business. Tom, Jason, welcome.
Yeah, thank you.
Yeah, thank you for having us and thank you ICR as well.
Yeah, thank you. Well, let's get started. Let's talk about 2025 to start. It's obviously been a unique year to say the least. Rocky's on track to deliver the guided results after the third quarter. You got it, 4%-5% revenue growth and approximately 10% earnings growth. So just maybe lay the foundation, talk about how you've navigated 2025 and some of the trends you've seen.
Yeah, as everybody is aware, right, 2025 was a very challenging year with the tariffs. I remember being here a year ago thinking how 2025 was going to be that next, you know, here we go, going for the ride. And we've had a good year. We're excited about where we're going to finish up. But the tariffs definitely impacted things, and we had to dance a little bit to make it happen.
Yeah, I mean, as we look forward to the rest of 2025, or I guess it's over now, but for 2025 and Q4 in particular, right, we implemented pricing increases to offset the impact of tariffs. We worked diligently to resource our products from different geographies. We are a little bit uniquely situated in that we still own and operate manufacturing facilities. And so historically, we had made about 25%-30% of our products in our three facilities. And we've moved a lot of that production to be more in-house and then obviously to this side of the world, in the Dominican Republic and Puerto Rico specifically.
And maybe sticking on tariffs to start here, but just highlight some of the details you've given on your tariff exposure for 2025. And then as we move forward into 2026, how you're navigating, including the pricing increase you've taken and any reaction you've seen there?
Yeah, I'll take the start. So as we navigated the tariffs and the conversations and talked about taking price increases, I think the good thing that happened is everybody had to deal with this, right? So the retailers were not terribly happy about a price increase, but they understood it. And so we were able to navigate that. It didn't happen until really July, August, September. And I think the retailers were able to take those price increases. And we've seen our consumers really navigate it as well. W e haven't seen any real impact from that standpoint, in our opinion. And we really look at our products as like tools. So these individuals need them when they go to work. So they're going to find ways to make that happen. And the retailer was able to manage it and navigate it as well.
Yeah, I mean, it's important to call out when we did our price increase earlier in the year, you know, we were able to maintain the gross margin % for our retail partners. So effectively, we haven't really seen anything slow down because of the price increases. Ultimately, the retailer should be making actually more gross margin dollars given the increase in price. You had touched on a little bit for 2025. We had about $2 million of impact in the third quarter. We've guided about $10 million of impact in Q4. If we look at the balance sheet at the end of the third quarter, going back in time now, we had about $20 million of tariffs sitting on the balance sheet.
So a lot of the changes that we made in the last half of 2025, we're really not going to see those come to light until 2026, particularly the last half of 2026, as we have to work, you know, five, six months of inventory that has to work through, work off the balance sheet through the P&L. And so a lot of the work that's been done, we won't really get to see those benefits until the last half of 2026. But bearing that in mind, you know, we see a path to having gross margins in the last half of 2026 actually greater than they were pre-tariffs, right, because we were leveraging our own manufacturing facilities.
Yeah, maybe one more follow-up. Given the Dominican and the Puerto Rican opportunity you have to shift production in-house, just talk more about the unique ability you have to source internally and what you've done in terms of some of those actions.
Yeah, I think one of the really great things that happened, like tariffs, don't like tariffs, it allowed us to think a little bit differently, right? And so we've been able to, not only in our own factory that we own in mainland China, but some of our partners around the world, think about manufacturing a little differently. So we might be able to do an upper in this country and ship it to the Dominican and finish it and bottom it in the Dominican, and then it comes into the U.S. as a 10% tariff. So we've been able to navigate that a little bit differently because I don't know that many of our peers or any of our peers have manufacturing capabilities like we do. We've also been able to increase our production in Puerto Rico, which is made in America.
I think in February, you're going to see a Chore USA-made boot, which is really exciting.
From Muck, yep.
From Muck, correct. So it's just allowed us to think a little bit different, and it made us think different.
Yeah, I think just to add on there, you know, it's really interesting. So in Asia, with everybody trying to get out of China, right, we continued to see better pricing in China from our source partners over there. And then as everybody has built, you know, a lot of our partners who had Chinese facilities have now built facilities in Cambodia or Vietnam. And so, you know, ultimately today, there's just more footwear capacity, right, to be made, right? And so we're able to leverage that a little bit from a pricing perspective, from a first cost perspective. And what's really happened, and I'm not sure it was the intent of the administration, but now that tariffs in China and tariffs in Vietnam are essentially the same, it's making China actually more competitive, right?
Because a lot of those raw materials that would traditionally come from, or for the products being made in Vietnam or Cambodia are still coming from China, and so it'll be really interesting to see how that plays out, you know, particularly with the Supreme Court ruling hopefully coming here soon.
Sure, we'll have a lot more to talk about.
Oh yeah, that'll stir it up real quick.
Maybe let's shift gears though to talk about some of the top line growth you've been able to drive and maybe, you know, give some color and insight to, you know, the consumer end markets and the brands and where you're seeing growth across the portfolio.
Yeah, well, as you mentioned, we have five different brands and then we have the division Lehigh. Where we've really seen some big growth is in our XTRATUF brand, which is a neoprene rubber kind of fishing shoe. It started off as, and it's really expanded into a little bit of a fashion product, but still very functional. The Muck product has also had a nice turnaround. We saw it explode in like 2022 and 2023, and then the retailers got a little over-inventoried. So that's come back pretty nice in 2025 and excited about where that's going in 2026. We introduced a new boot there called the RainScape, which has booked in really well for spring 2026. So really excited about that.
And then the Rocky, Georgia, and Durango, it really just kind of depends on the season and what's maybe going on with TV. Because, like, Western was hot there for a really long time, the last year or two. That seems to have calmed down a little bit, but then work has seemed to pick up a little bit. So Georgia is doing well. And then during the hunting season, Rocky does well. And so those kind of all mix and match throughout the year depending on what's going on. And then Muck in particular, if there's any kind of weather event, my friends all hate me because I want it to snow and rain and be cold every day. And it sells boots, so.
Yeah, I mean, I think just to add on a little bit there, you know, as we go into 2026, I've never been so excited about our product offering. Spring 2026, really across all brands looks spectacular. And so, you know, Jason touched on the RainScape. You know, there's men's and women's, but it's booking in really well with women's product, more fun colors. And so in our mind, that's incremental sales. Like the everyday Muck Chore boot that Jason mentioned earlier, that is a staple. It is the Kleenex of rubber neoprene boots. But this new RainScape, I think, is going to get us, you know, into new consumers as well as XTRATUF, which this year, we had launched it in a prior year to kind of test it out, but this year we kind of went all in on cold weather, fleece-lined ADBs.
And it was really neat to see if you look back at our e-commerce data where that product was selling into. A lot of it going into Vail, you know, Colorado, Jackson Hole, stuff like that. And so, you know, consumers are really gravitating to that product.
So that's interesting. So you're seeing more signs of four-season demand as you expand the product line. Just sticking on XTRATUF and Muck, just maybe frame up the opportunity that you see at a high level and then also how are you managing those brands differently since, you know, you haven't had huge growth opportunities like that in your portfolio in the past.
Yeah, great question. So from an XTRATUF standpoint, if you think about that brand, it was really popular and has been really popular on the East Coast and the West Coast. And what we're really trying to do is just bring it more to the middle of the country, right, to bring it inland. And we're having some success with that. Like Tom talked about, you know, Colorado is a pretty big popular area. Wisconsin has seemed to be picking up a little bit from a cold weather, fleece-lined. And so we're seeing some really positive things there. And we think that growth is, it can be multiple years. We're really excited about where the brand's going. We're excited about what it's creating in the marketplace and the demand. And as Tom mentioned, our e-commerce business in Q4 was really nice around that brand in particular.
We think the popularity of it is good, doing a lot of social media around it, a lot of influencers, doing a lot of collaborations. And so terribly excited about XTRATUF. And then Muck is just this steady business. It just works. It is, it's the number one neoprene rubber boot in the marketplace. And I think this expansion, like Tom talked about with the RainScape, and then we also have what's called the Muckster Clog, which is a little slip-on shoe that you'll see in the marketplace. And that seems to be growing a little bit. And we're seeing it grow in the farm and ranch business as well. So I think, you know, Muck's not growing quite as fast as XTRATUF, but we're still very excited about that one as well.
Yeah, I think for XTRATUF in particular, right, we recognize kind of the fire in a bottle we have right now. And so we're feeding that with a lot more social media and digital marketing spend. The collaborations go a long way. And so we're excited to announce some new collaborations in 2026 with the brand. But the thing that is really neat about it is that how it just spreads through word of mouth, right? It's a little bit of a unique looking product. People see it and they ask about it. And so kind of that grassroots, if you know, you know kind of situation there. And so it's really neat to see this kind of spreading throughout the country.
Maybe circling back to the core Western and work business, just what are your thoughts on the macro picture and any broader themes you see there?
Yeah, from the Western boot perspective, you know, we haven't really seen a slowdown, you know, at retail with Western. And we get some visibility into that with some of our key accounts. And so Western seems to be doing, you know, well. It's continuing to do well. But I do want to echo Jason's point. The work does seem to have picked up a little bit, which is great. And we're seeing that work consumer kind of gravitate towards, you know, as the consumer, the younger generation gets into work products, we're seeing them kind of embrace the technology of boots a little bit differently. You know, we're starting to incorporate a lot of BOA lacing systems into our work product. You know, the younger consumer wants to see and know that there's something new or special about that boot.
And then we don't always talk about the Lehigh business, but maybe just frame that up.
Yeah, so just real quick background, you know, Lehigh is managed footwear services that we enter into relationships with employers that have some type of safety footwear need, right? So if you work at a manufacturing facility that would require a safety toe shoe, we enter a relationship with that employer. Their employees then log on to our proprietary, you know, custom website, if you will. It looks and feels like that employee's website. And then we're able to take vouchers or subsidies from the employer. We can participate in payroll deduction programs. We offer our products and we hope they buy Rocky Georgia Durango or one of our work products, but we also offer over 65 other brands.
And so if they want a different brand, we give them the opportunity to buy that. And it's proven to be really successful for us. It's kind of a low double-digit growth number over the last five years. And the exciting thing about it and the thing I love about it the most is, you know, when I have my finance hat on, it's as close to a footwear subscription as you can get, right? Every January 1st, you know, thousands of employees get their subsidy reloaded and the vast majority of them take up on that opportunity. It also gives us a big barometer into what's going on in the space, whether, you know, if the economy, if people were buying less washers and dryers, there's less manufacturing workers there. But also we get insight into what other brands are doing with pricing and we can see certain styles that might be working better than others and make sure we incorporate that into our product as well.
The big opportunity for Lehigh is, you know, we announced at the last quarterly call that we started doing prescription safety glasses and these are, you know, anywhere from $200-$300 prescription safety glasses. We don't touch them. They upload their prescriptions to our website and then the manufacturer sends them directly to them. And so this is going to be a nice little lift for Lehigh in 2026. But, you know, the concept of what else can we add on to that, right? A lot of those individuals have uniforms or some type of apparel offering, apparel voucher, subsidy. And so we want to start to go after that here. Our plan is to experiment with that in 2026.
Yeah, I would just add on, you know, Tom talked about over the last five years, its growth trajectory and it's the only business that we have that's done that. It's not like fun like the other brands, right? You don't see the advertisements around it. We do go to a lot of shows. We do drive the business there, but it's just a different kind of business model than an XTRATUF or a Muck or a Durango brand. Very excited about what it is. I think just long term it can continue to add to the bottom line.
Adding that all together from a top line perspective, and I know you haven't guided 2026, but just broader, how do you think about, you know, the annual growth potential for the businesses combined?
Yeah, you know, we've historically kind of guided to this mid-single digit range. And again, we'll give guidance here and, you know, after the Q4 earnings call. But, you know, I think what we're seeing with the growth of XTRATUF , with the growth of our e-commerce business, and then with Lehigh, you know, I think we will probably take that model up a little bit in 2026.
And when you think about, you mentioned the second half of 2026 being a target to get back to or above pre-tariff gross margins. What are some of the drivers from an underlying gross margin standpoint?
Yeah, there's really three drivers. So one, we have initially lower costs, right? Even prior to this tariffs, we had done a lot of work trying to lower our costs and find manufacturing efficiencies. And that's why we saw margin increases in Q1, Q2 before the tariffs started to hit us. The other benefits we have are our brand mix, right? So Muck and XTRATUF , which are our two fastest growing brands right now, they carry the highest gross margins of our portfolio. That coupled with the fact that we're also getting a segment mix, you know, benefit here. So we're selling more online. We're selling more on marketplaces. Lehigh sales are growing. And so as that retail segment continues to grow higher than or quicker than our wholesale business, you know, we'll see a mixed benefit as well.
And I think just to add to that, like that is a real focus of ours this year in 2026 to drive more e-commerce business. I think we want to continue to push that and find ways to drive more people to our websites.
When you think about investing in the business and historically your G&A growth has been very well contained and controlled, are you able to keep the core business pretty contained on the growth side in terms of the spending while still fueling, you know, some of the more exciting opportunities?
Yeah, absolutely. I mean, we're going to be making incremental investments, particularly in digital, as Jason just touched on. But, you know, John, you've been following us long enough. You've seen how we're able to leverage top line sales in our current model. And so we'll probably be taking, you know, some of that and putting it back into marketing in 2026 and beyond.
Yeah, and I would say we internally talk about the brands, you know, they're not our children. So we don't have to treat them equally. And so depending on where things are going and where things are falling, we will invest in those brands based on where we think we can take them.
That's good. I like that. And then competition, what do you make of the competitive landscape and the environment which you operate in?
Yeah, it's competitive. You know, if you look at the rubber boot business, our opinion is Muck is actually the number one neoprene rubber boot in the marketplace. And so being the leader is always great, but that also means people are coming after you all the time. And then if you look at XTRATUF, I would say it is also the number one boot in the Ankle Deck Boot fishing area. And so we get a lot of knockoffs there as well. A lot of people coming after us.
Including Muck.
Including Muck. We got to have a little bit of competition internally, and then when you look at the other brands, Rocky, Georgia, and Durango, you know, depending on which one you look at, you know, Durango is probably a number four or five within the category, and so we're probably chomping at our competitors a little bit more than they are with us. Work boots, you know, Georgia is a great brand and doing well, but the competition is broad in the work boot area, and then Rocky kind of covers all of those, right? Work, Western, and hunting outdoor, and just depending on which one of those categories, Rocky work is probably seven, eight, or nine, and so we're just trying to be creative. Like Tom talked about the BOA. The BOA is something that we've done in Rocky Work and Georgia Work, and we're seeing great success with that.
I think we just want to continue to be creative with our product launches and try to stay ahead of it and not get too overly cocky with it.
That's great. Tom, on the balance sheet, maybe one more topic there. Any further improvement? I know tariffs are obviously taking up some cash in the short term, but any improvements on the balance sheet yet here?
Yeah, absolutely. You know, so we'll obviously come out with Q4 numbers, but you know, Q4 traditionally for us is a big paydown quarter. We've got, you know, wholesale sales in Q3, which are typically stronger for us. We collect, you know, cash in Q4 for those, but then also the e-commerce and marketplace business, the cash conversion obviously is a lot quicker. And so, you know, continue focused to pay down that and we'll continue that into 2026.
The other side, you know, on the inventory side of things, you know, our inventory, our pairs are relatively flat, right? And the $20 million or so increase in inventory is really just being driven by those tariffs, right? As we look at, you know, we just met this past week as we looked at 2026 and trying to optimize inventory levers or levels, we think we can get our units down in 2026. Nothing crazy, but you know, to find another $10 million -$15 million should be doable. And then also as those tariffs come off, we'll also see some of that reduce our inventory.
Did you say pay down debt?
Pay down debt, yeah, yeah. Pay down debt. The other thing just to call out too is given all these sourcing changes that we've made, we will be carrying a little bit more raw materials than we traditionally would. If you think about the upper program that Jason was talking about, we're going to, you know, we're going to be taking inventory from Asia, sending it through the Panama Canal to the Dominican Republic. So there's going to be a little bit of longer lead time. And so we'll have more inventory on the balance sheet. Makes all the sense in the world given the cost savings, though.
For either one of you, but why don't we wrap up? If there's anything to highlight you think is underappreciated or misunderstood, you know, maybe to take us to the home front here.
Yeah.
I'll go, yeah. I got a long list now. I think our Lehigh business is not really well understood. I think we did a great job today talking about it. I don't think the street completely understands that recurring revenue that it generates and that steady drumbeat, and also when we're selling, you know, 70% of the products we sell on Lehigh are third-party brands, most of which we never have to touch, right? So it's a very capital-light business and I really value that. The other thing that I think is kind of underappreciated is how our product is consumed, right? You know, Jason kind of called it a tool earlier, right? Our consumer buys their products, they wear them out, and then they rebuy them, right? And so our return for e-commerce business, our returns are tiny.
And it's a really great business, that very sticky consumer who just goes and buys the same pair of boots every year, year and a half, two years.
Yeah, I say this all the time. We're not very sexy, right? Our brands aren't very sexy. The products aren't very sexy, but they use them. And we have products that have been in the line for 35 years. The same outsole, the same leather, the same, everything's the same. And yes, we introduce new shoes every year and we try to broaden that and make that happen, but we're a steady company and our balance sheet's in a great place now. And so I think we're ready to go.
It's a great place to end. Thank you both. Awesome.
Thank you.