Rocky Brands (RCKY) Q2 FY26 earnings call: guidance and Q&A

Rocky Brands reported a strong second quarter with net sales increasing 12% year-over-year to $118.4 million, building on a 7.5% gain in the prior-year period. This growth was broad-based across the portfolio, with Extra Tough leading, followed by Georgia, Rocky, and Lehigh B2B. Direct-to-consumer sales were particularly strong, and increased sell-through in the wholesale channel fueled robust bookings for the second half of the year. The company recorded a significant tariff refund receivable, which positively impacted gross margins and profitability.

Extra Tough continued its strong momentum, extending its position as the fastest-growing brand. It posted large increases in wholesale, e-commerce, and marketplace channels. Key accounts, including Amazon, a major outdoor retailer, and a fast-growing Western market account, contributed significantly. A sporting goods retailer that brought Extra Tough in-store quickly became one of the largest key accounts and plans to expand doors and styles. The brand is also extending beyond its marine roots into everyday use, with strong performance from the 15-inch Legacy boot and new spring-summer lines. Q3 and Q4 hold the largest set of pre-book orders in the brand's history, positioning it for a strong back half.

Georgia Boot delivered an outstanding quarter with broad-based growth across e-commerce and key and field accounts. A large farm and ranch customer expanded the best-selling wedge into over 500 additional doors, and a work and western retailer significantly expanded its Georgia Boot assortment. The CarbonFlex wedge is now the second highest-selling franchise. Rocky Work, Outdoor, and Western also posted growth across all three categories, with wholesale being a particular strength due to strong independent retailer sell-through and new product driving exposure at national retailers. Early Fall 2026 product arrivals allowed for early shipments and replenishment opportunities.

The company recorded an $18 million actual and expected IEPA tariff refund, resulting in a $15 million net tariff impact^🌐 that significantly boosted Q2 gross margins. Management plans to reinvest a portion of these proceeds into the business, including expanding the distribution center, and paying down debt. While new 301 tariffs were recently implemented, their incremental impact is not expected until late 2026 or early 2027 as they flow through inventory. The company is evaluating the potential for further pricing actions in 2027 based on future tariff developments, noting that the Dominican Republic, a key manufacturing location, is less exposed to future 301 tariffs.

Inventories decreased 7.1% year-over-year to $173.5 million, and discontinued inventory was down over 30%, indicating a cleaner inventory position. Despite strong sales, the company managed to meet demand by expediting shipping and adjusting manufacturing and sourcing plans, though this came with incremental costs. The strategy to shift more production to the Dominican Republic remains in place, but current demand has necessitated sourcing more product from Asia, impacting margins due to longer transit times and higher costs. Investments in raw materials for the Dominican Republic facility are planned to optimize future sourcing.

Operating expenses increased as a percentage of net sales, primarily due to a $1.1 million write-off from a customer bankruptcy, higher outbound freight rates from fuel surcharges, and increased logistics costs associated with a higher mix of retail sales. The company is also stepping up investment in digital advertising to capitalize on D2C momentum. Despite these headwinds, adjusted operating income improved significantly year-over-year, driven by the tariff refund. Management expects Q3 and Q4 gross margins to improve sequentially into the low 40% range, but full-year gross margin is forecasted at approximately 40% (excluding tariff refunds) due to ongoing cost pressures.