Brendon Frey - ICR Jim McDonald - CFO David Sharp - President and CEO.

Mitch Kummetz - B. Riley.

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Rocky Brands’ Second Quarter Fiscal 2015 Earnings Conference Call. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question-and-answer session.

Instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference call is being recorded and I will now turn the conference over to Mr. Brendon Frey of ICR..

Thank you and thanks to everyone joining us today. Before we begin, please note that today's session 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 changes, 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, our reports filed with Securities and Exchange Commission, including our 10-K for the year ended December 31, 2014. I will now turn the conference over to David Sharp, President and Chief Executive Officer of Rocky Brands..

Thank you, Brendon. Joining me on the call today is Jim McDonald our Chief Financial Officer. Our most recent results represent the third consecutive quarter of double digit earnings growth on a year-over-year basis.

The adjustments we’ve made to our operating structure over the past several years allowed us to achieve a 30% increase in earnings on a slight less than 1% decrease in sales for the second quarter.

As we expected, topline growth for the first half of the year was challenging, due to tough comparisons created by some large, one time selling events in the quarter last year.

These were principally a seeding program with tractor supply which expanded our assortment at this unemployment account and a large onetime shipment to a foreign country for military goods. Compounding the issue of these tough comparisons and as we have reported for several quarters, changes in the U.S.

Army authorized footwear regulations, precious growth of our commercial military business. These headwinds were offset by strong double digit growth of our hunting boot category and more than doubling of contract military sales and the relatively continuous strong performance of our Durango brand.

I’m going to walk through each of our brands and channels and outline why we are confident that despite the fiber sales trends during the first six months of 2015 we are poised for accelerated growth over the remainder of the year. Starting with wholesale. Sales of work footwear our largest categories were flat with the year ago.

Led by Georgia boot, we experienced solid sell through many of our core independent accounts which led to filling orders during the quarter.

Unfortunately this was offset by softer than expected sales with several larger national accounts where traffic during the quarter appears to have been challenging consistent with overall retails and trends [ph].

The good news is that inventories in the channel are very clean especially our insulated work boots following a cold winter throughout the eastern half of the United States. Moving onto Western, Durango brand sales increased to high single digits which comes on top of the mid 20% gain in the year ago quarter.

In general, the brand continues to experience healthy gains across its retail distribution network as western fashion trends remain very relevant with today’s consumer. Our Rebel, Lady Rebel and little Durango collections are resonating with a broad audience, driving solid sell through at key retailers like Boot Barn, Academy-Sports and Cabela's.

Western sales were partially offset by the product seeding program we ran with tractor supply during the first half of last year and a slight decline in Rocky brand of western footwear which was also up against a tough comparison due to a sizeable closed out order a year ago.

We’re pleased to report that we’ll begin shipping Bealls Department Stores, a Florida based retailer in Q3. We are online with them, have displays with inventory in six stores as an opening test, and a visual presence in all stores with display materials that direct the purchase via Bealls in store online kiosks.

And regarding Rocky Brand and Western Boots, retailer response to Rocky’s new fall holiday 2015 collection has been very positive, the majority of which we’ll ship in Q4. Now to Hunting, which delivered our strongest performance in the quarter with sales growth of 19%. It’s great to heading for the key hunting season with such strong momentum.

As we said last quarter, the cold weather earlier in the year helped drive sell through of insulated water proof boots setting us up for a solid restocking situation ahead of the fall season.

That is what we experienced during the second quarter and we are now well positioned with new products and traditional best sellers to meet demand and chase re-orders and season that of key accounts such as BassPro, Cabellas, denims and boot box [ph].

Turning to commercial military, sales were almost $3 million less compared with a year ago with the decline due primarily to the impact on demand for our popular C4 and C5 Lightweight boots. These styles were deemed unserviceable in the middle of last year due to changes in the Army’s wear and appearance regulations.

This affected all manufacturers not just us. During the past several months we’ve been working hard to overcome this obstacle through the developments of our new Rocky Lightweight boot which boasts a rugged, yet lightweight platform and its’ over compliant with all Army uniform requirements.

The RLW launches next quarter and we believe it will eventually more than fill the void created by the discontinuation of C4 and C5 boots.

Also boosting our outlook for this category was the recent transition to a new operational camouflaged pattern that aligns with the new military uniform introduced from July the 1st which will benefit sales of our flagship S2V boot and new RLW in Q3.

With regard to Creative Recreation, we continued to make steady progress building a business for the long term that is rooted in great product and quality distribution.

The impact of the brands new sales force has been very positive in terms of expanding relationships with existing partners such as Nordstrom and Journeys and testing new accounts including Express and GSW this fall and opening up new international markets via new distributors.

The spring 2015 product line is performing well led by The Santos, a new style that is selling through on a weekly basis in excess of 50% to several key retailers.

Looking ahead, the early reactions of the Spring 206 [ph] line which will begin shipping in Q4 is providing us with increased optimism about the top line opportunities we believe exist for this business.

Turning to our retail segment, we saw a nice improvement in our B2B channel during the quarter as we re-established an important customer we have previously serviced under our old mobile store operating model.

At the same time, we continued to make important enhancements to our infinite based direct ship platform to drive higher sales through existing customers.

These included one, upgrading our custom fit size, to be mobile responsive allowing for a seamless ordering experience regardless of the device consumers use to interact with our brands, two, implementing a series of health videos on our custom fit websites and three, publishing a series of white papers focused on occupational safety.

We ended the second quarter with 760 installed CustomFit Kiosks and remain on schedule to end the year with a 1000 installations. With respect to our direct consumer operation as you will recall, the first quarter got off to a slow start due in part to some ineffective paid advertising programs.

The team reacted quickly and was able to rectify the situation and I’m pleased to report that organic sales trends across our branded e-commerce websites are again heading in the right direction with increases year-over-year.

We remain very confident that our enhanced e-commerce websites supported by more robust software platforms provide us with meaningful by margin growth opportunities in the coming years. In summary, the first half of the year played out much like we expected it to.

While our top line was a bit softer than we planned due to some mixed sales opportunities created by the west coast or [Indiscernible] [5 0:42] we delivered strong earnings growth in the face of challenging comparisons highlighting the power of our business model.

The good news is that the temporary headwinds that we recently faced are now behind us and our top line comparisons get easier as we head into the second half of the year. Therefore we are confident that we could increase sales mid single digits during the back half of 2015. Jim will now review the financials.

Jim?.

Thanks, David. Net sales for the second quarter were $68.6 million compared to $68.8 million the corresponding period a year ago. Wholesale sales for the second quarter decreased 4.9% to $53.9 million compared to $56.7 million last year.

Retail sales for the second quarter increased 1.2% to $10.2 million compared to 10.1 million a year ago, while military segment sales increased to $4.5 million versus $2 million for the same period in 2014.

Gross profit in the second quarter increased to $22.6 million or 33% of sales compared to $22.6 million or 32.8% of sales in the same period of last year.

The 20 basis point increases was driven by higher wholesale and retail gross margins, partially offset by the increase in military segment sales which carry lower gross margins in both wholesale and retail. Selling, general and administrative expenses were $19.4 million for the second quarter of 2015 compared to $20 million in the year ago period.

The $0.6 million decrease in SG&A expenses was primarily attributable to lower incentive compensation expense. As a percentage of sales, SG&A improved 80 basis points to 28.3% compared to 29.1% last year. Income from operation was $3.3 million or 4.7% of net sales compared to $2.5 million or 3.7% of sales in the prior year period.

For the second quarter, interest expense was $176,000 compared to $225,000 last year. Net income for the quarter increased $0.5 million or 33% to $2 million or $0.26 per diluted share compared to $1.5 million or $0.20 per diluted share last year.

Turning to the balance sheet, our funded debt at June 30, 2015 decreased $7.8 million or 17.9% to $35.6 million compared with $43.4 million at June 30, 2014. Inventories were $86.5 million at June 30, 2015 compared to $86.4 million on the same date a year ago. Operator we are now ready to take questions..

Thank you. We will now be conducting a question-and-answer session [Operator Instructions]. Our first question is from Mitch Kummetz of B. Riley. Please go ahead..

Yes, thanks can you guys hear me?.

Yeah..

Yes..

All right.

I’ve got about a handful of questions, so let me, Jim first of all can you just give me the segment margins on the quarter?.

Sure. Wholesale 32.5, retail 44.6 and military 13.3..

Got it, thank you.

And then obviously some moving parts in the quarter in terms of sales, is there any way you can kind of give us an aggregate number when you are treating programs, the military shipments to the foreign country and then the C4, C5 I know you mentioned that was $3 million, but is there any way you can add those up and tell us what the impact was on the quarter?.

So Mitch, in total it was around $3 million..

Okay, in total okay I thought the C4, C5 was by itself $3 million..

No, that was around 2..

Got it. Okay..

I think the commercial military which included the shipment to a foreign country was the other….

So all in, it was $3 million, okay. In terms of your back half outlook I know you are seeing mid single digit sales growth. I thought you were previously expecting kind of mid single digit growth for the full year recognizing that the first half were a little depressed based on some of these moving parts.

So I’m trying to File no 12 And we’re still, we’re going to continue to perform at the levels that we had there in the backhalf of the year also, so we’ve got some strong orders for that or going forward so I think we did in the front half of the year we did about $7 million and I would anticipate the backhalf of the year to assuming we have a few more months to get orders for but we should be above the same range for the back half of the year..

Okay, all right and that’s good to hear. And then lastly on commercial military, how should we been thinking about that going forward.

You got the RLW boot coming out you know you’ve had some pressure from the C4, C5 you know commercial military was down $3 million in the quarter, did that kind of normalize as we go into the back half of the year or is that still a bit of a pressure point in Q3?.

It’s still going to be a little bit of pressure point but I think as we move into Q4 we’ll be in good shape..

Okay. All right, thanks again..

Okay, thank you Mitch..

Thank you. I would now turn the conference back over to management for any additional or closing remarks..

Well thank you for joining us on the call today. We'll look forward to speaking to you again in approximately 90 days. Thank you, thank you..

Thank you. Ladies and gentlemen this does conclude today’s teleconference. You may disconnect your lines at this time. And thank you for your participation..