Brendon Frey - Managing Director Retail, Apparel and Footwear, ICR LLC David Sharp - President and CEO Jim McDonald - Chief Financial Officer.

Mitch Kummetz - Robert W. Baird.

Good afternoon, ladies and gentlemen. And thank you for standing by. Welcome to the Rocky Brands Third Quarter Fiscal 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we’ll conduct a question-and answer session.

Instructions will be provided at that time for you to queue up for questions. (Operator Instructions). I’d like to remind everyone that this conference call is being recorded. I will now turn the conference over to Brendon Frey of ICR. Thank you sir. You may begin..

Thank you. Please note that today’s discussion, including the Q&A period may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.

Such statements are based on information and assumptions available at this time and are subject to change, risks, and uncertainties, which may cause actual results to differ materially. We assume no obligation to update such statements.

For a complete discussion of the risks and uncertainties, please refer to today’s press release, and reports filed with the Securities and Exchange Commission, including our 10-K for the year ended December 31, 2013. With that, I’ll turn the call over to David Sharp, Rocky’s President and CEO..

Thanks Brendon. Joining with me on the call today is Jim McDonald, our Chief Financial Officer. After a very strong first half of the year, our sales growth continued in the third quarter but at a more moderate pace.

We continued to experience positive responses through our product line up, including several new collections that we brought to market this year that have helped increase our distribution footprint.

The warm dry September coupled with the fact that consumers are buying to closer to need, a portion of the end demand we typically see late in the third quarter into the fourth quarter. But based on current momentum, we anticipate growth to reaccelerate through the remainder of the year.

Before we discuss our outlook, let me walk through the drivers of our third quarter performance. Starting with our wholesale business, Work, our largest category was up 3% driven by a high single-digit gain for the Rocky Work footwear coupled with flat performances for Georgia Boot and our private label business with Tractor Supply.

Selling these new products for the quarter was generally in line with our expectations and included several of our newest innovative boots such as Georgia’s Homeland series which is an extremely flexible with durable outsole and the Rocky branded elements collection of trade-specific footwear.

However, primarily due to warm dry conditions in many parts of the country, we didn’t experienced the level of replenishment orders that we have forecasted for September. The good news is that as the climate has turned colder and wetter in many parts of the U.S.

in October, sales of our Work lines especially our insulated products have started to accelerate. Turning to our second largest category, Western, sales increased 5% driven by another strong quarter for the Durango brand which was up 17% year-over-year.

We continue to see great response to our more fashion forward [casual] boots under the Rebel and Lady Rebel collections which include our popular flag boot. Durango’s success in retail has been broad-based with shipments up meaningfully at major accounts including Amazon, Groupon and Dicks Sporting Goods.

In the Tractor Supply, we’ve benefited from the expanded shelf space we secured through our new seeding program earlier this year that has more than doubled our style count to five from two. We also experienced solid gains with several other formal range accounts. Now to Hunting, where Rocky Brand sales increased 9% for the quarter.

This was driven by the launch of an update to our legendary Corn Stalker boots collection, which includes our traditional Cordura, installation of waterproof packages along with great comfort in the compelling value proposition.

At the same time, a more modern and lightweight and more athletic inspired Silent Hunter Boots created to feel to the more active sportsmen was well received.

While the [winter] in September wasn’t introduced at the sell through, we are again encouraged by October sales trends and are confident that our product stories will help drive a solid fourth quarter for our hunting business with national accounts such as Bass Pro Shops, Cabelas, Shoe Shelf, Dick’s Sporting Goods, as well as our network of regional and independent dealers across the country.

Looking now at our commercial military business, sales took a step back during the third quarter following a very strong first half when sales increased 27%. There were a couple of factors that contributed to the mid-teen decline in our commercial military sales. The good news is that we believe each is temporary and addressable.

First, sales in September started up slow as the government was ramping up the close of its fiscal year. Late in the month, demand accelerated and was sold alarmingly the largest percentage of the purchase orders weren’t fulfill until of early October.

Secondly, the change in uniform regulations that was implemented this summer changed the classification of some lightweight footwear products made by us and our competitors to unauthorized, forcing soldiers to redirect their footwear purchases.

The good news is that our camp S2V line is still authorized under new guidelines, so we did see some benefit there during the quarter. In order to maintain a strong hold on the market, our chains move quickly and was in the final phases of producing the replacement boots. The RLW that we will start shipping in mid December.

And a quick update on our S2V jungle boot project to the department of the Army. We recently issued 300 pairs to the jungle operations training center and showed to the (inaudible) in Hawaii, the evaluation base this January. The results will dictate the Army’s acceptance of the jungle boots for a program of record across the Army.

We’re very excited about this opportunity and encouraged as the initial feedback has been very positive. On the international front, our business posted another solid quarter, the majority of our growth outside the U.S. is coming from Canada as we continue to make inroads building distribution and awareness for our brands.

We are also having success overseas primarily through new distribution agreements covering the UK, Europe and the Middle East.

Finally with regard to our newest wholesale brand Creative Recreation, we are starting to see improvements in the business with the results of our efforts to improve process in our supply chain and ensure product is flowing into the market in a timely manner.

There is still work to be done in order to Creative Recreation to generate the growth we believe the brand is capable of but we know we are moving in the right direction and expect that will start contributing to profitability in the very near future. Turning to our retail segment, sales were flat with a year ago.

Higher volumes in our direct to consumer e-commerce channel were offset by planned declines in our legacy Lehigh business and the reduction mobile stores in operation, we’re now down to 3 from 10 last year.

Over the past three years, we’ve been moving quickly to recapture the lost sales from transition to web based customized catalogs for each customer.

Sometimes these catalogs are presented through Custom Fit kiosks which are installed at our customers’ websites and allow employees to easily purchase the required safety footwear through the web for their specific occupation.

Year-to-date, we placed over 590 kiosks in the field and we remain ahead of schedule to have 750 deployed by the end of the year.

While currently a small percentage of our retail sales, we’re encouraged by the recent trends in our direct-to-consumer channel and excited about the potential of this growth vehicle given how consumers are shifting more of their branding direction and purchasing to the Internet and mobile.

We’ve now completed the overhaul of our branded websites moving each to demand platform that is more user friendly on the front-end and more efficient on the back end and is far more responsible on mobile devices, all of which is helping drive conversions.

To summarize the quarter, we’re pleased to have achieved our selling objectives for our major wholesale categories of work, western, and hunting which were driven by several innovative new collections.

While overall third quarter results fell shy of our expectations due to softer replenishment orders, we believe it was more timing and weather related than anything fundamental.

If anything, we feel stronger about the health of the business heading into the holiday season and looking out to next year than we did three months ago given what we are seeing so far in October and the feedback from our major retail partners about our product pipeline. I’ll now turn the call over to Jim..

Thanks, David. Net sales for the third quarter increased 3.6% to $72.7 million, compared to $70.2 million for the corresponding period a year ago. Our wholesale sales for the third quarter increased 8.3% to $62.1 million which included $4.4 million of Creative Recreation sales compared to $57.4 million last year.

Retail sales for the third quarter were $9.5 million compared to $9.6 million a year ago, while military segment sales decreased to $1.1 million versus $3.2 million for the same period in 2013. Gross profit in the third quarter was $24.3 million or 33.4% of sales compared to $22.7 million or 32.4% of sales for the same period last year.

The 100 basis point increase was driven by improved wholesale margins that came from improved operating efficiencies in our company-owned manufacturing facilities, partially offset by lower retail gross margins due to our shift to the web based retail platform which carries lower gross margins than our previous mobile store structure, but lower operating expenses as well.

Selling, general and administrative expenses were $19.4 million for the third quarter of 2014, compared to $18.3 million a year ago.

The $1.1 million increase in SG&A was driven by additional expenses associated with the Creative Recreation brand, which was acquired in December of 2013, partially offset by a $400,000 decrease in operating expenses associated with our legacy brands.

Income from operations was $4.9 million or 6.8% of net sales compared to $4.4 million or 6.3% of net sales, in the prior year period. For the third quarter, interest expense was $250,000, up from $2,000 last year due to higher bonds related t the acquisition of Creative Recreation.

Net income was $3.1 million or $0.42 per diluted share compared to $2.9 million or $0.39 per diluted share last year. Turning to the balance sheet, our funded debt at September 30, 2014 increased to $50.7 million from $42.4 million at September 30, 2013, primarily due to the acquisition of Creative Recreation.

During the quarter we paid out $750,000 to shareholders in quarterly dividends. Inventory increased 14.2% or $11.2 million to $90.1 million at September 30, 2014, which included approximately $2.9 million in Creative Recreation inventory compared with $78.9 million on the same date a year ago.

We feel comfortable with our current inventory position and based on sales projections, we expect inventory comparisons on a year-over-year basis to be lower at the end of Q4 versus the end of Q3. I will now turn it back to David for some closing comments..

Thanks Jim. [Followed] by the uncertain cold temperatures in several parts of the country, the fourth quarter is off to a solid start and will benefit from the pickup of sales that shifted out of the third quarter as select retailers pushed out some deliveries of our insulated and waterproof boots closer to (inaudible).

Based on current momentum and visibility, we feel comfortable with the external fourth quarter projections which call for approximately 20% top-line growth over last year inclusive of sales of the Creative Recreation brand.

Looking at next year, we believe we’re well positioned from a product and distribution standpoint to build on the positive gains we’ve made in several areas of our wholesale and retail businesses during 2014. We look forward to sharing more details on our fourth quarter call in February. Operator, we’re now ready to take questions..

Thank you. At this time, we’ll be conducting a question-and-answer session. (Operator Instructions). Our first question today is coming from Mitch Kummetz from Robert W. Baird. Please proceed with your question..

Yes. Thank you. Kind of have four questions and David I want to start just drilling down on a wholesale a little bit more. So in your prepared remarks you mentioned that deliveries were pushed out, replenishment was below plan all of this having to do with the weather.

I mean did you see retailers canceling orders at all or are they just looking for later deliveries?.

I think they just go with the later deliveries. I mean there were no orders cancelled because of replenishment. There were orders that were in January because of replenishment..

So what about -- because I know you had a really strong backlog going into the back half. I mean I think you’d said in the past your backlog was up double-digits.

I’m just wondering if how those forward orders work and if the product wasn’t shipped in the quarter on that order book, is that now just being scheduled for later delivery?.

It’s been scheduled for later delivery. We’re already -- and what we shipped now in the first two to three weeks in October. And we picked up what we felt we’ve lost in September..

Okay, okay. And now it’s kind of my next question because -- and again I just want to make sure I’m clear on this because it seems like we’re not going to dealing with the compressed season because the season is off to a slow start.

I mean I would think normally in a compressed season situation maybe end up with less volume than you would had the season started out strong. But again, to your comments just then, it sounds like you’ve already made up for what you are. So you’re kind of back on track with where you thought you would have been.

Is that right?.

Yes. That is correct..

Okay, okay.

And inventory levels at retail given the slow start and then the pick-up in the last few weeks, are the pretty clean? I mean do you think that we can proceed through the quarter?.

We’re not getting any push back, no..

Okay, all right. And then on Creative Rec. I mean it sounds like the business is kind of on track here. I know you’ve previously said that you’re looking for about $17 million to $18 million in revenue for the year.

Is that still kind of the range given kind of where you are or has that got any better or worse?.

Yes. I think at this point we’ll sign up for 17..

Okay, all right. And then Jim on the SG&A, it was only up I think about a million year-over-year from Q3 last year which was below what I thought it was going to be especially with the addition of expenses tied to Creative Rec.

I mean did you guys deferred some spending or is some of that tied to maybe bonus accruals or anything just kind of given where you are year-to-date?.

No, the only deferral that we had on spending was about $0.5 million in advertising in some late third quarter into early fourth quarter. So that’s the only deferral. We were up $1.5 million in Creative Recreation. Creative Recreation was $1.5 million, so the expenses were down about $400,000 all of the coming trends of kind of advertising..

Okay. Thanks for clearing that out.

And then I guess just lastly Jim can you just kind of touch upon the gross margin by segment in the quarter?.

Yes. Wholesale was 32.2, retail was 43.8 and military was 15.3..

Okay. All right. Thanks a lot. Good luck guys..

Thank you..

Thank you. (Operator Instructions). If there are no further questions at this time; I’d like to turn the floor back over to management for any further or closing comments..

Okay. Well, thanks operator. And thank you everyone for joining us on the call. We look forward to speaking with you in February..

All right. So that does conclude today’s teleconference. You may disconnect your lines at this time. And have a wonderful. We thank you for your participation today..