Rocky Brands Sees Q1 Profits Decline on Lower Margins

Rocky Brands first quarter, 2007 net sales increased 7.2% to $61.7 million versus net sales of $57.5 million in the first quarter of 2006. Net income was $800,000 versus net income of 900,000 and diluted earnings per share were 14 cents compared to diluted earnings per share of 16 cents a year ago.

Mike Brooks, Chairman and Chief Executive Officer, commented, “We were pleased with our top-line performance during the first quarter which was driven by gains in our work and outdoor segments, offset by a decrease in our western business. As we expected, gross margins declined as a result of a shift in our product mix combined with our strategic decision to reduce a portion of our inventory at closeout. At the same time, we benefited from a reimbursement of expenses from the U.S. military. Overall, we are encouraged by our start to the new year and we remain on track to achieve our near and long-term objectives.”

Net sales for the first quarter increased to $61.7 million compared to $57.5 million a year ago. The increase in sales is primarily attributable to year-over-year improvements in the work footwear category, coupled with an increase in our retail operations.

Gross margin in the first quarter of 2007 was $26.1 million, which included $0.7 million of a reimbursement of expenses from the military, or 42.3% of sales, compared to $24.9 million or 43.3% of sales, for the same period last year. The decline was primarily due to a decrease in sales of western footwear, which carry higher gross margins and an increase in closeout sales versus a year ago.

Selling, general and administrative (SG&A) expenses were $22.3 million, or 36.2% of sales, for the first quarter of 2007 compared to $21.1 million, or 36.7% of sales, a year ago. The increase in SG&A expenses is partially due to additional selling expenses related to increased sales and higher professional fees.

Income from operations was $3.8 million, or 6.1% of net sales, for the period compared to $3.8 million, or 6.6% of net sales, in the prior year.

The Company's funded debt at March 31, 2007 was $89.9 million versus $94.1 million at March 31, 2006. Interest expense increased to $2.5 million for the first quarter of 2007 versus $2.4 million for the same period last year. The slight increase in interest expense was due to higher interest rates versus a year ago.

Inventory decreased $11.2 million, or 13.5%, to $71.8 million at March 31, 2007 compared with $83.0 million on the same date a year ago.

The Company stated it remains comfortable with its previously issued guidance and continues to expect fiscal 2007 revenues to increase approximately 5% over 2006 levels, and diluted earnings per share to increase approximately 35% over 2006 levels.

Mr. Brooks concluded, “We have made important progress over the past several months diversifying our business, reducing our expenses, and improving our balance sheet. While we still have much work to do we are excited about several upcoming product introductions and believe recent investments in research and development will lead to future market share gains in each of our operating segments. We are committed to capitalizing on all the opportunities we believe exist for our entire portfolio of brands and move forward more focused than ever on successfully executing our growth strategy.”

                 Rocky Brands, Inc. and Subsidiaries
           Condensed Consolidated Statements of Operations
                             (Unaudited)

                                                Three Months Ended
                                                     March 31,
                                             -------------------------
                                                2007         2006
                                             ------------ ------------
NET SALES                                    $61,657,024  $57,525,164

COST OF GOODS SOLD                            35,576,338   32,609,207
                                             ------------ ------------

GROSS MARGIN                                  26,080,686   24,915,957

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES  22,322,941   21,109,397
                                             ------------ ------------

INCOME FROM OPERATIONS                         3,757,745    3,806,560

OTHER INCOME AND (EXPENSES):
  Interest expense                            (2,498,845)  (2,369,033)
  Other - net                                    (42,995)     (18,297)
                                             ------------ ------------
    Total other - net                         (2,541,840)  (2,387,330)

INCOME BEFORE INCOME TAXES                     1,215,905    1,419,230

INCOME TAX EXPENSE                               450,000      526,000
                                             ------------ ------------

NET INCOME                                   $   765,905  $   893,230
                                             ============ ============

NET INCOME PER SHARE
  Basic                                      $      0.14  $      0.17
  Diluted                                    $      0.14  $      0.16

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
 OUTSTANDING
  Basic                                        5,457,556    5,362,953
                                             ============ ============
  Diluted                                      5,594,930    5,615,942
                                             ============ ============