Rocky Brands(RCKY) - 2024 Q4 - Annual Report

Part I Business Rocky Brands, Inc. designs, manufactures, and markets premium footwear and apparel across three segments: Wholesale, Retail, and Contract Manufacturing - The company's business is organized into three reportable segments: Wholesale, Retail, and Contract Manufacturing[15][17] Brand Portfolio and Retail Price Points | Brand | Description | Suggested Retail Price Range (USD) | | :--- | :--- | :--- | | Muck | Premium rubber and neoprene boots | $55.00 - $265.00 | | Rocky | Premium footwear, apparel, and accessories | $80.00 - $415.00 (Footwear) | | Georgia Boot | Moderately priced work and rugged lifestyle footwear | $109.00 - $280.00 | | Durango | Premium western footwear | $120.00 - $655.00 | | Lehigh | Occupational safety footwear | $91.00 - $295.00 | | XTRATUF | Footwear for fishing and outdoor markets | $50.00 - $195.00 | | Ranger | Value-priced pac-boots for wet/cold weather | $48.00 - $100.00 | | Michelin | Licensed premier price point work footwear | $210.00 - $237.00 | - The company's growth strategy includes expanding into new target markets, cross-selling brands to retailers, growing internationally and through e-commerce, increasing the Lehigh business-to-business platform, and acquiring new brands[44] - Manufacturing and sourcing are diversified across company-owned facilities in the Dominican Republic, Puerto Rico, and China, and third-party facilities in China, Vietnam, India, and Mexico[48] - As of December 31, 2024, the company had approximately 2,535 employees, with about 1,690 working in manufacturing facilities[62] Risk Factors The company faces numerous risks, including business risks such as difficulties in brand expansion, reliance on international manufacturing, and changing consumer trends - A majority of products are produced in China, the Dominican Republic, Puerto Rico, Vietnam, India, and Mexico, exposing the company to risks of international commerce, including tariffs, political instability, and transportation costs[75] - The business is subject to intense competition from companies with greater resources, and its financial success is influenced by the success of its wholesale customers[90][91] - The company is in the process of a multi-year implementation of a new enterprise resource planning (ERP) system, which carries risks of business disruption, inefficiencies, and potential impacts on internal controls over financial reporting[113] - Cybersecurity breaches pose a material risk due to reliance on digital technologies for operations, data collection, and e-commerce, potentially leading to reputational damage, financial liabilities, and business disruption[114] - The company's debt facilities contain restrictive covenants, and increases in interest rates could adversely affect financial results[88][89] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[123] Cybersecurity Rocky Brands has established a robust cybersecurity program aligned with industry standards (CIS, COBIT, NIST) to manage risks - The company's cybersecurity program is aligned with frameworks from the Center for Internet Security (CIS), Control Objectives for Information Technologies (COBIT), and National Institute of Standards Technology (NIST)[124] - The Board's Audit Committee has primary oversight responsibility for cybersecurity risks, with one committee member holding a Certificate in Cyber-Risk Oversight from the National Association of Corporate Directors[128] - No cybersecurity incidents during the year ended December 31, 2024, had a material impact on the company's business, operations, or financial condition[127] Properties The company owns and leases various properties for its corporate, manufacturing, distribution, and retail operations - Principal properties include owned facilities in Nelsonville, OH (corporate offices, retail store), Logan, OH (distribution), and Chuzhou, China (manufacturing), as well as leased facilities in Puerto Rico and the Dominican Republic (manufacturing) and Reno, NV (distribution)[132] Legal Proceedings The company is involved in litigation from time to time in the normal course of business - The company is party to routine litigation but does not expect any material adverse impact from these proceedings[133] Mine Safety Disclosures This section is not applicable to the company - Not applicable[134] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Rocky Brands' common stock is traded on the NASDAQ Global Select Market under the symbol 'RCKY' - The company's common stock trades on the NASDAQ under the symbol 'RCKY'[137] - On February 24, 2025, the board of directors approved a new share repurchase program for up to $7.5 million of the company's outstanding common stock[139] Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal year 2024 saw a net sales decrease, improved gross margin, and reduced debt, despite lower operating income 2024 Financial Highlights vs. 2023 | Metric | 2024 | 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $453.8M | $461.8M | ($8.1M) | (1.7)% | | Gross Margin % | 39.4% | 38.7% | +70 bps | N/A | | Income from Operations | $31.1M | $35.4M | ($4.3M) | (12.1)% | | Net Income | $11.4M | $10.4M | +$1.0M | +9.6% | | Diluted EPS | $1.52 | $1.41 | +$0.11 | +7.8% | | Total Debt (net) | $128.7M | $173.1M | ($44.4M) | (25.7)% | | Inventory | $166.7M | $169.2M | ($2.5M) | (1.5)% | - In April 2024, the company refinanced its debt, resulting in a new $175.0 million revolving credit facility and a $50.0 million term facility, incurring a one-time expense of $2.6 million[148] Net Sales by Segment (in thousands) | Segment | 2024 | 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Wholesale | $313,340 | $337,019 | $(23,679) | (7.0)% | | Retail | $126,868 | $116,960 | $9,908 | 8.5% | | Contract Manufacturing | $13,564 | $7,854 | $5,710 | 72.7% | - Operating expenses increased by $4.7 million, driven by higher outbound freight costs from increased Retail sales and a $4.0 million non-cash impairment charge for the Muck trademark[172][179] - Cash flow from operating activities was $52.8 million in 2024, used to pay down $44.2 million in debt during the year[185][190] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rate fluctuations related to its variable-rate ABL and Term Facilities - The primary market risk is interest rate fluctuations on the Term Facility and ABL Facility, which are tied to variable rates like SOFR[213] - As of December 31, 2024, the company had $131.0 million of debt outstanding under its credit facilities and did not have any interest rate management agreements in place[214][216] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for the fiscal year ended December 31, 2024, and the accompanying notes - The independent registered public accounting firm, Deloitte & Touche LLP, issued an unqualified opinion on the consolidated financial statements as of December 31, 2024[222] - The auditor identified the valuation of Goodwill for the Wholesale and Retail reporting units and the Muck trademark as a Critical Audit Matter, due to the materiality of the assets and the significant judgments involved in forecasting and valuation[228][233] Consolidated Financial Data (in thousands) | Metric | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Balance Sheet | | | | Total Current Assets | $246,439 | $258,173 | | Total Assets | $457,300 | $479,385 | | Total Current Liabilities | $90,407 | $71,529 | | Total Liabilities | $225,076 | $255,830 | | Total Shareholders' Equity | $232,224 | $223,555 | | Income Statement | | | | Net Sales | $453,772 | $461,833 | | Gross Margin | $179,010 | $178,598 | | Income from Operations | $31,066 | $35,372 | | Net Income | $11,387 | $10,426 | - In the fourth quarter of 2024, the company recognized a $4.0 million impairment charge related to the Muck trademark, reducing its carrying value to an estimated fair value of $37.9 million due to changes in projected revenue growth[232][290] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on any matter of accounting principles or practices, or financial statement disclosure - None reported[373] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2024 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2024[374] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2024, based on the COSO framework[376] - No material changes were made to the company's internal control over financial reporting during the most recent fiscal quarter[375] Other Information During the fourth quarter of 2024, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the three months ended December 31, 2024[384] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's Proxy Statement for the 2025 Annual Meeting of Shareholders - The required information is incorporated by reference from the Company's Proxy Statement for the 2025 Annual Meeting of Shareholders[387] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's Proxy Statement for the 2025 Annual Meeting of Shareholders - The required information is incorporated by reference from the Company's Proxy Statement[388] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information regarding security ownership of certain beneficial owners, management, and related shareholder matters is incorporated by reference from the company's Proxy Statement for the 2025 Annual Meeting of Shareholders - The required information is incorporated by reference from the Company's Proxy Statement[389] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's Proxy Statement for the 2025 Annual Meeting of Shareholders - The required information is incorporated by reference from the Company's Proxy Statement[390] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's Proxy Statement for the 2025 Annual Meeting of Shareholders - The required information is incorporated by reference from the Company's Proxy Statement[391] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements and all exhibits filed as part of the Annual Report on Form 10-K - The list of documents filed includes the Consolidated Financial Statements and various exhibits[394] - Key filed exhibits include the Amended and Restated ABL Loan and Security Agreement (Exhibit 10.14) and the 2024 Omnibus Incentive Plan (Exhibit 10.15)[395] Form 10-K Summary This section is not applicable - Not applicable[397]