Rocky Brands, Inc. third quarter of 2007 net sales increased 5.4% to $82.3 million versus net sales of $78.1 million in the third quarter of 2006. The Company reported net income of $1.1 million, or 21 cents per diluted share versus net income of $4.2 million or 76 cents per diluted share a year ago.

Mike Brooks, Chairman and Chief Executive Officer, commented, “While our third quarter sales were in-line with our projections our earnings were lower than we anticipated due to a combination of factors. During the quarter we experienced a 550 basis point decline in gross margin as a result of significant pricing pressure and an increase in product costs. In addition, we made the strategic decision to increase our retail operating expenses in order to capitalize on the near-term prospects created by the bankruptcy of a key competitor. We are committed to driving further top-line gains in both our wholesale and retail divisions while at the same time evaluating all our opportunities in an effort to return to more normalized margins beginning in 2008.”

Third Quarter Results

Net sales for the third quarter increased to $82.3 million compared to $78.1 million a year ago. The increase in sales was primarily driven by a 25.0% increase in retail revenues, combined with a slight increase in wholesale sales.

Gross profit in the third quarter of 2007 was $29.3 million, or 35.6% of sales, compared to $32.1 million or 41.1% of sales, for the same period last year. The decline was primarily due to pricing pressure and an increase in product costs.

Selling, general and administrative (SG&A) expenses were $25.1 million, or 30.5% of sales, for the third quarter of 2007 compared to $22.6 million, or 28.9% of sales, a year ago. The increase in SG&A was driven by additional selling and distribution expenses to support the future growth of the retail division.

Income from operations was $4.2 million, or 5.1% of net sales, for the period compared to $9.5 million, or 12.2% of net sales, in the prior year.

Funded Debt and Interest Expense

The Company’s funded debt at September 30, 2007 was $122.8 million versus $127.3 million at September 30, 2006. Interest expense was $2.9 million for the third quarter of 2007 versus $2.9 million for the same period last year.

Inventory

Inventory decreased $2.6 million, or 3.0%, to $85.1 million at September 30, 2007 compared with $87.7 million on the same date a year ago. The decrease in inventory is due to our focus on improved inventory management through the scheduling of receipts to more closely coincide with projected shipments and the reduction of discontinued products.

Outlook

The Company stated that based on actual third quarter results and better visibility into the fourth quarter, it now expects net sales for fiscal 2007 to be approximately $280 million compared to its previous guidance of approximately $277 million, and earnings per share of approximately $0.30 versus its previous guidance of approximately $1.16.