rcky20240630

rcky20240630_10q.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-34382

ROCKY BRANDS, INC.

(Exact name of Registrant as specified in its charter)

Ohio		No. 31-1364046
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

39 East Canal Street, Nelsonville, Ohio 45764
(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (740) 753‑9100

Title of class		Trading symbol		Name of exchange on which registered
Common Stock – No Par Value		RCKY		Nasdaq

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in 12b-2 of the Exchange Act.

	☐ Large accelerated filer	☒ Accelerated filer

	☐ Non-accelerated filer	☒ Smaller reporting company

		☐ Emerging growth company

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 7,449,020 shares of the Registrant's Common Stock outstanding on July 31, 2024.

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TABLE OF CONTENTS



		Page
PART I	Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited), December 31, 2023, and June 30, 2023 (Unaudited)	2
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited)	3
	Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (Unaudited)	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20

PART II	Other Information
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 5.	Other Information	20
Item 6.	Exhibits	21
SIGNATURES		22

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PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)

(Unaudited)

	June 30,		December 31,		June 30,
	2024		2023		2023
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents	$	4,107	$	4,470	$	3,082
Trade receivables – net		62,968		77,028		72,566
Contract receivables		-		927		2,990
Other receivables		427		1,933		2,225
Inventories – net		174,973		169,201		218,327
Income tax receivable		1,025		1,253		3,494
Prepaid expenses		5,659		3,361		5,522
Total current assets		249,159		258,173		308,206
LEASED ASSETS		7,367		7,809		9,362
PROPERTY, PLANT & EQUIPMENT – net		51,296		51,976		54,032
GOODWILL		47,844		47,844		47,844
IDENTIFIED INTANGIBLES – net		111,220		112,618		114,019
OTHER ASSETS		988		965		1,049
TOTAL ASSETS	$	467,874	$	479,385	$	534,512

LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable	$	57,824	$	49,840	$	61,225
Contract liabilities		-		927		2,990
Current portion of long-term debt		8,361		2,650		4,625
Accrued expenses and other liabilities		20,663		18,112		21,526
Total current liabilities		86,848		71,529		90,366
LONG-TERM DEBT		144,073		170,480		217,114
LONG-TERM TAXES PAYABLE		-		169		169
LONG-TERM LEASE		4,914		5,461		6,804
DEFERRED INCOME TAXES		7,475		7,475		8,006
DEFERRED LIABILITIES		752		716		1,325
TOTAL LIABILITIES		244,062		255,830		323,784
SHAREHOLDERS' EQUITY:
Common stock, no par value;
25,000,000 shares authorized; issued and outstanding June 30, 2024 - 7,444,881; December 31, 2023 - 7,412,480; June 30, 2023 - 7,354,060		73,223		71,973		70,400
Retained earnings		150,589		151,582		140,328
Total shareholders' equity		223,812		223,555		210,728
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	467,874	$	479,385	$	534,512

See Notes to Unaudited Condensed Consolidated Financial Statements

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Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
NET SALES	$	98,258		$	99,822		$	211,164		$	210,267
COST OF GOODS SOLD		60,220			62,250			128,977			128,936
GROSS MARGIN		38,038			37,572			82,187			81,331

OPERATING EXPENSES		33,530			35,370			69,695			74,974

INCOME FROM OPERATIONS		4,508			2,202			12,492			6,357

INTEREST EXPENSE AND OTHER – net		(6,131	)		(5,630	)		(10,785	)		(10,294	)

(LOSS) INCOME BEFORE INCOME TAX EXPENSE		(1,623	)		(3,428	)		1,707			(3,937	)

INCOME TAX (BENEFIT) EXPENSE		(380	)		(713	)		399			(823	)

NET (LOSS) INCOME	$	(1,243	)	$	(2,715	)	$	1,308		$	(3,114	)

(LOSS) INCOME PER SHARE
Basic	$	(0.17	)	$	(0.37	)	$	0.18		$	(0.42	)
Diluted	$	(0.17	)	$	(0.37	)	$	0.18		$	(0.42	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

Basic		7,429			7,354			7,423			7,350
Diluted		7,429			7,354			7,466			7,350

See Notes to Unaudited Condensed Consolidated Financial Statements

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Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands, except per share amounts)

(Unaudited)

	Common Stock and
	Additional Paid-in Capital							Total
	Shares				Retained			Shareholders'
	Outstanding		Amount		Earnings			Equity

BALANCE - December 31, 2022		7,339	$	69,752	$	145,721		$	215,473

SIX MONTHS ENDED JUNE 30, 2023
Net loss					$	(398	)	$	(398	)
Dividends paid on common stock ($0.155 per share)						(1,141	)		(1,141	)
Stock issued for options exercised, including tax benefits		1	$	8		-			8
Stock compensation expense		7		347		-			347
BALANCE - March 31, 2023		7,347	$	70,107	$	144,182		$	214,289

Net loss					$	(2,715	)	$	(2,715	)
Dividends paid on common stock ($0.155 per share)						(1,139	)		(1,139	)
Stock compensation expense		7	$	293		-			293
BALANCE - June 30, 2023		7,354	$	70,400	$	140,328		$	210,728

BALANCE - December 31, 2023		7,412	$	71,973	$	151,582		$	223,555

SIX MONTHS ENDED JUNE 30, 2024
Net income					$	2,550		$	2,550
Dividends paid on common stock ($0.155 per share)						(1,149	)		(1,149	)
Stock compensation expense		5	$	339		-			339
BALANCE - March 31, 2024		7,417	$	72,312	$	152,983		$	225,295

Net loss					$	(1,243	)	$	(1,243	)
Dividends paid on common stock ($0.155 per share)						(1,151	)		(1,151	)
Stock issued for options exercised, including tax benefits		-	$	599		-			599
Stock compensation expense		6		312		-			312
BALANCE - June 30, 2024		7,423	$	73,223	$	150,589		$	223,812

See Notes to Unaudited Condensed Consolidated Financial Statements

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Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended
	June 30,
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	1,308		$	(3,114	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		5,130			5,527
Noncash lease expense		1,281			-
Loss on term loan extinguishment		1,111			-
Provision for bad debts		728			312
Stock compensation expense		651			640
Amortization of debt issuance costs		300			427
Loss on disposal of assets		-			240
Gain on sale of business		-			(1,341	)
Change in assets and liabilities:
Receivables		13,139			22,458
Contract receivables		927			(2,990	)
Inventories		(5,772	)		10,908
Other current assets		(2,298	)		(1,455	)
Other assets		(23	)		1,546
Accounts payable		7,061			(10,076	)
Operating lease liability		(1,270	)		-
Accrued and other liabilities		2,470			(1,828	)
Income taxes		59			(4,588	)
Contract liabilities		(927	)		2,990
Net cash provided by operating activities		23,875			19,656

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets		(2,130	)		(1,738	)
Proceeds from sale of business		1,700			17,300
Net cash (used in) provided by investing activities		(430	)		15,562

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility		120,892			26,399
Repayments of revolving credit facility		(110,833	)		(36,750	)
Proceeds from long-term debt		50,000			-
Repayments of long-term debt		(80,115	)		(25,232	)
Debt issuance costs		(2,051	)		-
Proceeds from stock options		599			8
Dividends paid on common stock		(2,300	)		(2,280	)
Net cash used in financing activities		(23,808	)		(37,855	)

DECREASE IN CASH AND CASH EQUIVALENTS		(363	)		(2,637	)

CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD		4,470			5,719
END OF PERIOD	$	4,107		$	3,082

See Notes to Unaudited Condensed Consolidated Financial Statements

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Rocky Brands, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

We are a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names including Rocky, The Original Muck Boot Company ("Muck"), Georgia Boot, Durango, XTRATUF, Lehigh, Ranger and the licensed brand Michelin. Our brands have a long history of representing high quality, comfortable, functional and durable footwear and our products are organized around six target markets: outdoor, work, duty, commercial military, military and western. In addition, as part of our strategy of outfitting consumers from head-to-toe, we market complementary branded apparel and accessories that we believe leverage the strength and positioning of each of our brands.

The accompanying Unaudited Condensed Consolidated Financial Statements reflect all adjustments that are necessary for a fair presentation of the financial results. All such adjustments reflected in the Unaudited Condensed Consolidated Financial Statements are considered to be of normal and recurring nature. The results of operations for the three and six months ended June 30, 2024 and 2023 are not necessarily indicative of the results to be expected for the whole year. The December 31, 2023 Unaudited Condensed Consolidated Balance Sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). This Quarterly Report on Form 10-Q should be read in connection with our Annual Report on Form 10-K for the year ended December 31, 2023, which includes all disclosures required by GAAP.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

We have reclassified certain amounts in Note 9 - Accrued Expenses and Other Liabilities to conform to current period presentation.

2. ACCOUNTING STANDARDS UPDATES

Recently Issued Accounting Pronouncements

Rocky Brands, Inc. is currently evaluating the impact of certain ASUs on its Unaudited Condensed Consolidated Financial Statements:

Standard	Description	Anticipated Adoption Periods
ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures	This pronouncement requires expanded disclosures about an entity’s reportable segments, including more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how an entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources.	Fiscal year ending December 31, 2024
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures	This pronouncement requires expanded income tax disclosures primarily related to an entity's effective tax rate reconciliation and income taxes paid.	Q1 2025

In addition to the recently issued accounting pronouncements, the SEC recently issued its final rule regarded climate change disclosures. We are evaluating the impact this final rule will have on our Unaudited Condensed Consolidated Financial Statements. No other new accounting pronouncement issued or effective during the period had, or is expected to have, a material impact on our Unaudited Condensed Consolidated Financial Statements.

Accounting Standards Adopted in the Prior Year

Standard		Description
ASU 2016-13, Measurement of Credit Losses on Financial Instruments		This pronouncement significantly changes how entities measure credit losses for most financial assets, including accounts receivable and held-to-maturity marketable securities, by replacing today’s “incurred loss” approach with an “expected loss” model under which allowances will be recognized based on expected rather than incurred losses.

3. FAIR VALUE

Generally accepted accounting standards establish a framework for measuring fair value. The fair value accounting standard defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This standard clarifies how to measure fair value as permitted under other accounting pronouncements.

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The fair value accounting standard defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. This standard also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

●

Level 1 – Quoted prices in active markets for identical assets or liabilities.

●

Level 2 – Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

●

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The fair values of cash and cash equivalents, receivables, and payables approximated their carrying values because of the short-term nature of these instruments. Receivables consist primarily of amounts due from our customers, net of allowances, and expected insurance recoveries. The carrying amounts of our long-term credit facility and other short-term financing obligations also approximate fair value, as they are comparable to the available financing in the marketplace during the year. The fair value of our credit facilities is categorized as Level 2.

We hold assets and liabilities in a separate trust in connection with deferred compensation plans. The deferred compensation assets are classified as trading securities within other assets and the deferred compensation liabilities are classified within deferred liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheet. The fair value of these assets is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).

4. SALE OF SERVUS BRAND AND RELATED ASSETS

On March 30, 2023, we completed the sale of the Servus brand and related assets to PQ Footwear, LLC and Petroquim S.R.L. (collectively, the "Buyer"). Total consideration for this transaction was approximately $19.0 million, of which $17.3 million was received at closing. The remaining $1.7 million was received during the quarter ended June 30, 2024. The sale of the Servus brand included the sale of inventory, fixed assets, customer relationships and tradenames, all of which related to our Wholesale segment. In connection with the sale of the Servus brand we also are licensing the rights to certain proprietary processes to the Buyer. We recorded a gain on the sale of Servus of approximately $1.3 million which is recorded within Interest Expense and Other - net on the accompanying Unaudited Condensed Consolidated Statement of Operations for the six months ended June 30, 2023.

5. REVENUE

Nature of Performance Obligations

Our products are distributed through three distinct channels, which represent our business segments: Wholesale, Retail and Contract Manufacturing. In our Wholesale business, we distribute our products through a wide range of distribution channels representing over 10,000 retail store locations in the U.S., Canada, U.K. and other international markets such as Europe. Our Wholesale channels vary by product line and include sporting goods stores, outdoor retailers, independent shoe retailers, hardware stores, catalogs, mass merchants, uniform stores, farm store chains, specialty safety stores, specialty retailers and online retailers. Our Retail business includes direct sales of our products to consumers through our business-to-business web platform, e-commerce websites, third-party marketplaces and our Rocky Outdoor Gear Store. Our Contract Manufacturing segment includes sales to the U.S. Military, private label sales and any sales to customers in which we are contracted to manufacture or source a specific footwear product for a customer.

Significant Accounting Policies and Judgments

Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied; this generally occurs at a point in time when our product ships to the customer, which is when the transfer of control passes to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for the transfer of our products, which is the net sales price.

The net sales price includes estimates of variable consideration for which reserves are established. Components of variable consideration include discounts and allowances, customer rebates, markdowns, chargebacks, and product returns. These reserves, are based on the amounts earned, or to be claimed on the related sales of our products.

Elements of variable consideration including discounts and allowances and rebates are determin

SEC Form 10-Q filed by Rocky Brands Inc.