Rocky Brands Q1 Revenues Increase 1.9 Percent

Rocky Brands, Inc. reported irst quarter 2012 net income increased $0.2 million to $0.7 million compared with $0.5 million in the first quarter of 2011 and diluted earnings per share increased 42.9 percent to 10 cents a share from 7 cents during the same period last year. First quarter net sales improved slightly to $53.3 million versus net sales of $52.3 million a year ago.

David Sharp, President and Chief Executive Officer, commented, “We are pleased with our first quarter results as we continued to realize solid progress against our strategic initiatives. Our top-line performance was again driven by our wholesale division highlighted by gains in our work and western segments and the expansion of our fast growing commercial military business. New product introductions continue to fuel growth and are leading to additional distribution with both new and existing accounts. Sell-in during the first quarter included a rollout to all locations of one of our largest national accounts that included price concessions which had a temporary impact on gross margins. We were able to fully offset the decline through expense management and deliver a marked improvement in earnings compared to a year ago. This was especially true in our retail division where the profit contribution was up dramatically even on lower sales. We are encouraged by the current pace of our business and based on our fall order book we expect our sales momentum to carry through the remainder of the year.”

First Quarter Review

Wholesale sales for the first quarter increased 6.5 percent to $42.4 million compared to $39.8 million for the same period in 2011. Retail sales for the first quarter were $10.5 million compared to $11.7 million for the same period last year. Military segment sales for the first quarter were $0.4 million compared to $0.8 million in the same period in 2011. As a result, net sales for the first quarter increased 1.9 percent to $53.3 million compared to $52.3 million a year ago.

Gross margin in the first quarter of 2012 was $18.0 million, or 33.8 percent of sales compared to $19.3 million, or 36.8 percent for the same period last year. The decrease in gross margin was primarily driven by lower initial mark ups associated with the rollout to all locations of one of our largest national accounts.

Selling, general and administrative (SG&A) expenses decreased 8.2 percent to $16.7 million or 31.4 percent of net sales, for the first quarter of 2012 compared to $18.2 million, or 34.9 percent of net sales a year ago. The $1.5 million decrease is primarily due to lower compensation expense and operating costs of our retail business.

Income from operations was $1.3 million, or 2.4 percent of net sales, compared to $1.0 million, or 2.0 percent of net sales, in the prior year period.

Interest expense decreased to $0.1 million for the first quarter of 2012 versus $0.2 million due to lower borrowings versus the same period a year ago.

The Company's funded debt decreased 22.5 percent or $6.3 million to $21.5 million at March 31, 2012 versus $27.8 million at March 31, 2011.

Inventory increased 4.0 percent to $64.1 million at March 31, 2012 compared with $61.7 million on the same date a year ago. The increase in inventory was the result of an increase in cost per unit partially offset by a decrease in units of footwear.

                               Rocky Brands, Inc. and Subsidiaries
                         Condensed Consolidated Statements of Operations
                                                           Three Months Ended
                                                                March 31,
                                                ----------------------------------------
                                                       2012                 2011
                                                -------------------  -------------------
                                                     Unaudited            Unaudited
        NET SALES                                 $ 53,325,918         $ 52,306,275
        COST OF GOODS SOLD                          35,303,837           33,040,330
                                                    ----------           ----------
        GROSS MARGIN                                18,022,081           19,265,945
        OPERATING EXPENSES
        SELLING, GENERAL AND
           ADMINISTRATIVE EXPENSES                  16,742,058           18,229,351
                                                    ----------           ----------
        INCOME FROM OPERATIONS                       1,280,023            1,036,594
        OTHER INCOME AND (EXPENSES):
                  Interest expense                    (144,347)           (215,532)
                  Other - net                           (8,989)             12,554
                                                    ---------- ---       ----------
                            Total other - net         (153,336)           (202,978)
        INCOME BEFORE INCOME TAXES                   1,126,687              833,616
        INCOME TAX EXPENSE                             406,000              292,000
                                                    ----------           ----------
        NET INCOME                                $    720,687         $    541,616
                                                === ==========       === ==========
        INCOME PER SHARE
                  Basic                           $       0.10         $       0.07
                  Diluted                         $       0.10         $       0.07
        WEIGHTED AVERAGE NUMBER OF
            COMMON SHARES OUTSTANDING
                  Basic                              7,503,270            7,476,448
                                                    ==========           ==========
                  Diluted                            7,503,270            7,478,611
                                                    ==========           ==========