Jim McDonald - CFO David Sharp - President & CEO

Mitch Kummetz - Robert W. Baird

Thank you. And thanks everyone for 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 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.

And I will now turn the conference over to David Sharp, President and Chief Executive Officer of Rocky Brands.

Thanks, Jim. Our fourth quarter results represents a great way to wrap up a very good year for Rocky Brands a year in which we grew earnings 31%.

Overarching our improved financial performance is the response to the product and marketing strategies we’ve implemented in our core western work and outdoor categories. The trade is responding positively to our new product introductions drive strong full price selling with key accounts throughout our wholesale distribution channel.

At the same time the work we have done to improve creative recreation supply chain and infrastructure since we acquired the brand a year ago is yielding improved results. We also experienced increases in our retail division driven by games from our enhanced direct to consumer branded ecommerce websites.

Our overall effort led to one of the strongest periods of growth for our company as fourth quarter sales grew 28% over the same period a year ago. This strong top line performance allowed us to meaningfully leverage our improved operating expense structure and grow fourth quarter earnings per share by a 146%.

As we said in our last earnings call in October, our outlook for fourth quarter was for sales and earnings to reaccelerate, this happened and as a result our earnings in the second half exceeded expectations by 10%. With respect to our reporting segments our improved sales were led by a wholesale division which was up 30% over last year starting with work our largest category, sales increased 15% driven primarily by the Georgia Boot brand and to a lesser extent the Rocky Brand.

Georgia's Boots performance was fueled by continued demand in key work categories such as farm and ranch, logging and industrial. This led to increased shell space with our big bucks retail partners and independent dealer network.

Of note, Georgia's new Homeland series which was introduced at the start of 2014 has quickly become a meaningful business. This underscores our belief that the combination of quality, value priced product and a trustworthy authentic brand name is a winning formula with work for [ph] consumers.

Colder weather late in the quarter also helped drive demand for our Rocky Brand elements collection of trade specific footwear, another new introduction that has performed very well. Moving to Western, which is our second largest category and delivered our strongest fourth quarter performance.

Sales increased 47% versus a year ago driven by strong gains for both the Durango and Rocky Brands. This business has been on a rapid growth trajectory with momentum accelerating in the fourth quarter driven by both new distribution and the increased velocity at existing accounts.

What is particularly encouraging is the fact that most of the growth has come from increased demand in the cold western and farm channels whose customers wear western influenced products regardless of trends. Having these channels of distribution validate our brands means that we’re building a reliable business even when Western cycles out of the main stream.

This core market customer is extremely brand loyal and a discerning consumer who will only buy from those brands that he or she considers authentic. So it is great for us to win them over.

We also saw solid growth in our Durango City line of more fashion forward boots in the Q4, again distributed mainly to our existing accounts. We’re looking to further build out this brand extension with the new collection of value priced boots launching in 2015 and the recent establishment of a dedicated lifestyle team within the company which I will speak more to later in the call.

Turning to Hunting, which also delivered a fantastic quarter, sales increased 33% driven by both unit growth and higher selling prices. Product highlights included our new and improved [inaudible] and Silent Hunter collections both of which provide today's outdoorsman with a unique features in addition to Rocky's traditional insolated water proof detection that the brand pioneered over 30 years ago.

These pro-attributes are also what continues to drive demand for many of our all-time best selling hunting boots like the sport utility [inaudible] especially as favorable cold weather conditions arise in November and December. From a channel perspective growth was broad based and included national outdoor and sporting goods retailers like Cabela's, Bass Pro and Dick Sporting Goods as well as our strong network of regional and independent dealers across the country.

Looking at commercial military business, sales trends reversed dramatically up 27% in the fourth quarter following some temporary challenges in the third quarter. As we have disclosed in our last call, our C4T boot was reclassified as unauthorized due to changes in army wear and appearance regulations around light weight boots.

This obviously has had a major impact on sales of this popular style. Fortunately we were able to move quickly to capture this lost share with our flagship boot, the S2V and late in the quarter we introduced the Rocky Light Weight, a fully uniform compliant multi-purpose light weight combat boot that offers more functionality, durability and comfort in than the C4T.

We believe the RLW will quickly take over as the light weight boot of choice amongst service depot. As mentioned on our last conference call we have high expectations for our new S2V jungle boot which is currently in testing with the U.S.

army. With regard to the newest addition to our wholesale department creative recreation we made additional progress during the fourth quarter preparing this business for sustained growth and improved margins.

First and foremost Rich Cofinco, Co-Founder of Creative Recreation returned as Creative Director. We’re confident he is going to have a profound impact on the future direction of the brand and product line.

We also expanded the sales team in order to broaden our coverage of the U.S. especially the East Coast which is under penetrated and a high priority for us in 2015.

On the operational front many of the supply chain came to the past results have been worked out [ph]. Inventory is now flowing to market on-time in a more cost efficient manner.

Turning to our retail segment, sales increased 6.6% from a year ago driven by continued gains in our direct to consumer ecommerce channel. Ramping up our online BTC [ph] operations was a key priority in 2014.

Many of the major initiatives weren't implemented until the second half of the year such as transitioning our model and omni-branded sites to Demandware and launching more advanced email marketing and lead nurturing capabilities. Therefore we’re well positioned to increase the penetration of this business into 2015 and longer term as consumers continue to shift more of their brand interaction and purchasing via the internet and mobile.

On the B2B side, 2014 was also about investing for the future. Most notably we added 500 more custom kiosks this past year and now have over 750 install at our customers worksites.

This web based program provides workers an easier way to purchase their required safety footwear while allowing us a more cost efficient way to execute these transactions compared to our legacy mobile store operations. In summary, we’re very pleased with the accelerated momentum in the fourth quarter exhibited by our legacy brands and our positions in work, western and outdoor have never been stronger.

We’re also pleased with the developmental progress of our newer growth initiatives which we have confident will evolve into larger contributors to our future top and bottom line results. After Jim reviews the numbers I will outline our strategies for building on our recent success in 2015.

Jim?

Thanks, David. Net sales for the fourth quarter increased 28.2% to a fourth quarter record of $78.9 million compared to $61.6 million for the corresponding period a year ago.

Wholesale sales for the quarter increased 30% and $62 million which included $3.3 million of creative recreational sales compared to $47.7 million last year. Retail sales for the fourth quarter increased 6.6% to $13.7 million compared to 12.9 million a year ago, while military segment sales increased to $3.2 million versus a $1 million for the same period in 2013.

Gross profit in the fourth quarter increased 26.6% to 27.6 million or 35% of sales compared to $21.8 million or 35.4% of sales in the same period last year. The 40 point basis decrease was driven by higher military sales which carry lower gross margins in our wholesale and retail operations.

Before I discuss the expenses and the bottom line I would like to remind everyone that the fourth quarter of 2013 included a onetime expense of a $1 million and a onetime income gain of $600,000 related to the acquisition of Creative Recreation which closed in December 13, 2013. The totals are excluded from the following year-over-year comparisons.

Selling, general and administrative expenses were $20.7 million for the fourth quarter of 2014 compared to $18.5 million in the year ago period. The $2.2 million increase in SG&A was due to higher compensation expense, higher [inaudible] expense associated with the increase in sales and additional expenses associated with the Creative Recreation brand.

As a percentage of sales, SG&A improved 330 basis points to 26.2% compared to 29.9% last year. Income from operations were $7 million or 8.8% of net sales compared to $3.4 million or 5.6% of net sales in the prior year period.

For the fourth quarter interest expense was $246,000 compared to $211,000 last year. Net income for the quarter increased $2.3 million or 107% to $4.5 million or $0.59 per diluted share compared to $2.2 million or $0.29 per diluted share last year.

I will just quickly touch on few highlights from the full year. Net revenue for 2014 increased 16.9% to $286.2 million and included a 31.3% gain of our wholesale footwear business.

For the year work increased 10.1%, Western and Hunting both grew 23.2% and Commercial Military sales were up 12.1%. Full year net income rose by 25.3% to $9.8 million or a $1.30 per share compared to $7.9 million or $1.4 per share.

Turning to the balance sheet, our funded debt at December 31, 2014 was $36.3 million compared with $38.4 million at December 31, 2013. During the year we paid out $3 million to shareholders in quarterly dividends.

Inventory increased 9% or $7.1 million to $85.2 million at December 31, 2014 compared with $78.2 million in the same date a year ago. We feel comfortable with our current inventory position as we start the New Year.

I will turn it back to David for some closing comments.

Thanks, Jim. Even with the touch comparisons we were up against in our core western and hunting businesses from the outsize these growth these categories posted in 2014, we believe there is room for further expansion.

The performance of our new product collections has led to additional shelf space with our key retail partners and new distribution that is helping us reach a wider consumer audience. As we discussed at Creative Recreation, our focus has been shoring up the supply chain.

The majority of the heavy lifting on the infrastructure has been completed so we can now focus our time and resources towards driving the top line through an evolution of the product line and an increased emphasis on sales and marketing. With Cofinco back on Board there is a clear line of sight on where we want to take the product line within existing categories as well as extending the brands into new markets like boots which we will answer this coming winter.

Finally we have done more work than made other investments in exploiting the opportunity for our legacy brands in the casual lifestyle market. Late last year, we created a new lifestyle division that is taxed with leveraging the strength of our brands and product development capabilities to reach a wider consumer audience.

The team spent the last few months researching macro, fashion and lifestyle trends to identify new opportunities for existing products as well as for building new lines in Durango leather company and Rocky 4EurSole that are relevant, on trend and excite today's lifestyle and fashion consumers. There were also identified several thousand doors where we have little or no distribution including department stores, leather shoe stores and specialty boutiques.

In response we have assembled a team of independent sales rep with proven success of selling into these distribution prospects. In closing we are confident that the investments we have made in our brands, in organization have a setup to deliver another year of solid growth in 2015.

With our outlook for gross margins to remain stable and SG&A dollars to grow only modestly we would again expect earnings to increase at a much faster pace than sales. Before we open the call upto questions I want to acknowledge that the recent passing of Pat Campbell, a member of Rocky's Board of Directors for over 12 years.

In addition to his valuable leadership and insight, Pat was a great friend to the company on many levels. Personally he has been a mentor to me especially as I made the transition into the CEO role.

I will miss his guidance but more than anything his friendship. Our thoughts and prayers continue to be with Pat's family.

Operator, we’re now ready to take questions.

Got a few questions, David let me start with the strength of your wholesale growth in the quarter, you mentioned up 30% and you highlighted work Western and Hunting and I guess what I'm trying to get is if you think about the drivers of that growth in order of magnitude maybe can you lay those out for me. I mean how much of it was growth of the segments versus taking market share versus expanded distribution or penetration of new products.

Again I'm sure it varies across the different segments but is there any way to kind of -- again it's sort of an order of magnitude as to what were the drivers of that wholesale growth?

[Inaudible] and we talked about already knowing when we had the Q3 but we had shifted some dollars into the fourth quarter. So there was about $3 million and $3.5 million that shifted [inaudible] into fourth.

We think that the our brands are largely around the needs of a blue collar guy and we think his lots has being a little better off late with the release that he is getting when he goes to the gas pump and when he is paying for fuel oil. And the whether sort of aligns pretty nicely with the season and drove some of that increase.

But I think in all of the categories we delivered a lot of these new product in the quarter and it performed extremely well at retail particularly at some of the larger camps through -- we ordered very strong through the quarter. So once we fired on all cylinders.

And then when you think about 2015 and maybe if you can speak a little bit to the visibility that you have there, I don’t know kind of where you’re in terms of building order books for the back half or at least if you can talk about the conversations you’re having with retailers and maybe you can talk about any sort of big new programs that you might have going on or any big new product extensions that you really feel like to be beneficial to you guys?

Well I think that no one knows better than you Mitch, that sales of Rocky brands have traditionally being very difficult to predict and that’s because it's a reminder of 70% of our sales and in fact in the first quarter over 90% of our sales are at ones once. We don’t book a lot of future shipments for first quarter and at this point in the year we out there gathering orders, retailer seem to be very optimistic they are very pleased with our brands performance this last quarter.

They don’t seem to have any inventory situations as they have in prior years. But because of these factors that sort of make the predictability of our business really tough, like weather if the weather and the seasons don’t align properly we can have these shifts from quarter to quarter and these micro-economic factors that knowing that we have largely cater to these blue collar guy.

If you’re looking at some sort of picture of this year, I think we’re comfortable in that 5% to 7% range. But I think the significant thing really is that because of all the work that we have done on leaning at the operating platform but with the past five years, six years that we should be able to leverage even on that, on a meager 5% sales growth leverage it at 20% earnings growth.

So, that’s how we are really thinking about the business and if you recall ICR, we began talking about that sort of leverage on a 5% sales growth.

Got it. And then on Creative Rec, I know at least from a sales standpoint of the business fell a little short of what your plans were at the beginning of the year but you talked about some of the improvements you made on the supply chain.

I think you were [inaudible] stuff last year try to hit delivery schedules. There is a new product coming out with the boots and stuff, you know how should we be thinking about that business in 2015.

I mean is there anybody you can kind of speak to you know how the business ended up for the full year '14 and kind of an EBIT basis and with the supply chain improvements you know how much can you kind of get back there in terms of profitability and again maybe kind of what your sales outlook is there?

Let me talk about it prospectively and then I will let Jim, give you some numbers for the last year. But on the top line we ended with about 16 million in sales which was, as the year prior have been 20 -- in prior years this brand has done as much as 40 million to 45 million in sales.

Even through these very difficult times with the supply chain issues that we had, we’re still in the key retailers. For example we are still in about 50 to 80 doors [inaudible] who have 850 doors.

So with Cofinco on board and a clear direction where to take the brand from a styling standpoint. Once we’re able to prove ourselves at retail again I think we can grow this business very quickly and work towards that getting back to that $40 million mark.

But I think again we want to approach this very conservatively for 2015 and we’re looking for 5% to 10% growth on that brand next year. And I think that brand will accelerate as we move to the back half of the year because some of the -- we still have some drag from the logistic problems that we had in 2014 and their effect on sales that you move into 2015 and particularly in the first half of the year.

So I think that acceleration will pick up as we move to the back half of the year. With regards to the profit of Creative Rec in 2014, it was not profitable in 2014 particularly in the first half of the year and then the second half of the year we actually broke even with the brand and made a profit for the first time in the fourth quarter with the brands.

So overall about $0.5 million negative to earnings and for the full year in all of that coming in the first half of the year.

And then I guess last question for you Jim--

I think Mitch, the other things that it took us -- we finally kind of that operation leaned out in the fourth quarter and that’s made it possible us to be profitable at lower levels of sales just as our other operations are so we’re in good shape there and that was one of the reasons we are able to make a profit in the fourth quarter.

And then lastly gross margin by segment for Q4?

Sure. Wholesale is 34, retail is 44.8, and military was 13.6.

Okay, well thanks again for joining us on the call today. We look forward to speaking to you again in 90 days with improved earnings again.

Thank you.