Rocky Brands ((RCKY)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Rocky Brands’ recent earnings call presented a balanced outlook, highlighting significant achievements in sales growth and sourcing diversification while acknowledging challenges from higher tariffs and shipment delays. Despite these hurdles, the company remains optimistic about future prospects, particularly with the promising performance of the XTRATUF brand.
Increase in Sales and Gross Margins
Sales for the quarter saw a notable increase of 7%, with gross margins rising by 210 basis points. This growth translated into a 34% increase in adjusted diluted EPS compared to the same quarter last year, showcasing the company’s strong financial performance.
Strong Performance of XTRATUF and Muck Brands
The XTRATUF brand continued its impressive growth trajectory, with U.S. wholesale experiencing double-digit increases. Similarly, the Muck brand also saw double-digit growth in U.S. wholesale, driven by robust product demand.
Successful Diversification of Sourcing Base
Rocky Brands successfully diversified its sourcing base by adding new manufacturing partners outside of China and Vietnam, leveraging facilities in the Dominican Republic and Puerto Rico. This strategic move is expected to mitigate some of the impacts of higher tariffs.
Increase in Net Sales Across Segments
The company reported increases across all sales segments, with wholesale net sales up 6.1%, retail net sales climbing 10.3%, and contract manufacturing net sales rising 4.1%. These figures underscore the broad-based strength of Rocky Brands’ market presence.
Improved Inventory and New Product Launches
Improved inventory positions and successful new product launches, including the Sesame Street collaboration and a new cold weather collection for XTRATUF, are anticipated to drive future growth and enhance brand appeal.
Impact of Higher Tariffs
Higher tariffs exerted 160 basis points of pressure on gross margins, with significant impacts expected in the upcoming quarters. The company is actively working to mitigate these effects through diversified sourcing strategies.
Delayed Shipments Due to Sourcing Changes
The transition to new sourcing partners led to some delayed shipments, impacting quarterly sales by a few million dollars. This challenge is expected to be temporary as new partnerships stabilize.
Decline in Durango Brand Sales
Durango brand sales experienced a year-over-year decline, attributed to key accounts pulling forward orders ahead of planned price increases. This strategic adjustment is expected to stabilize in future quarters.
Increased Operating Expenses
Operating expenses rose due to higher outbound logistics costs, selling costs, and increased marketing investments, reflecting the company’s commitment to expanding its market reach and brand visibility.
Forward-Looking Guidance
Rocky Brands reaffirmed its full-year guidance, projecting revenue growth of 4% to 5% and gross margins between 38% and 39%. The company is actively addressing the impact of higher tariffs through diversified sourcing and increased in-house production, aiming to restore gross margins to the high-30s, low-40s range by the second half of 2026.
In conclusion, Rocky Brands’ earnings call highlighted a balanced performance with significant achievements in sales growth and sourcing diversification. Despite challenges from tariffs and shipment delays, the company remains optimistic about its future, particularly with strong performances from the XTRATUF and Muck brands. Investors can look forward to continued growth and strategic initiatives aimed at mitigating current challenges.