Welcome to the Rocky Brands Fiscal 2009 First Quarter 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 remind everyone that this conference call is being recorded. I will now like to turn the conference over to Brendon Frey of ICR.

Thanks. Before we begin, please note that today's discussion, 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 Rocky's Form 10-K for the year ended December 31, 2008. I will now turn the conference over to Mr. Mike Brooks, Chairman and Chief Executive Officer of Rocky Brands.

Thank you, Brendon, and thank you everyone for joining us this afternoon to review our first quarter results. With me on today's call are David Sharp, our President and Chief Operating Officer, and Jim McDonald, our Chief Financial Officer and Treasurer. Our first quarter results were generally inline with our internal projections. We expect sales and earnings to be down from a year ago as we were up against tough comparisons in our retail division and higher than normal gross margins in the first quarter of 2008, which we were unable to anniversary. Our top line was also impacted by lower than anticipated wholesales sales primarily in our work in western segment. As the difficult economic environment continues or more of our retail partners of cut back from the size and frequently of their orders and chosen to operate with leaner and stock position until the market condition improved. We have been doing business with majority of our account base for many years and everyone understands where all of in this together because of this longstanding relationships and confident we will continue to work successfully with then to help offset risk and maximize productivity. Importantly, we continue to focus on areas of our business that we can directly control namely expenses and one again we did a very good job managing cost down in conjunction with lower sales volumes. That included reductions in salaries and benefits, advertising expenses, sales commissions which contributed to 13.5% or $3.1 million decline in SG&A versus last year. Our SG&A was also down due to our ongoing efforts to drive more of our Lehigh safety shoe business to the web. While we are still in early stages of executing the strategy we are pleased by our initial success of transitioning a greater percentage of the…

Thanks Mike. I would like to talk about our retail division first because this is where our business has been most challenged. As you know the company took steps in the fourth quarter to remake our retail business. Our plan now is to offer our industrial and hospitality customers provide their workers with safety footwear better economic proposition. Customers may now opt to purchase via custom websites as opposed to what's driving trucks containing inventory and bidding employees in their workplace a very costly in way to transact business. The new model is resonating well with our customers and our cost savings story is particularly relevant in this economic downturn. In events of fully implementing this new model we chose to strategically downsize our fleet of mobile trucks particularly in locations where operating profits were marginal and to benefit from reduced expenses. Knowing full well that our sales would be negatively impacted until the new strategy is fully leveraged. As Mike highlighted, our expense reductions in the first quarter was substantial, and the downsizing of our mobile fleet operations contributed to this reduction significantly. In addition, we did not yet fully realize all of the cost reduction benefit because we incurred one-time severance in store closing in first quarter. So, first quarter sales in our retail division was $13.7 million versus $18.9 million the year before. In the quarter, we saw many customers defer their purchases due to cut backs of their facilities. However, we are very encouraged by the response to our new model. In the quarter, we set up 1300 accounts with fully customized websites. We expect more and more customers to convert the web as they and are sales force become comfortable with the model. Now, turning to our wholesale division, for the first quarter our sales…

Thanks, David. Net sales for the first quarter decreased 17.2% to $50.1 million, compared to $60.5 million for the corresponding period a year ago. Gross profit in the first quarter was $20.1 million, or 40.1% of sale compared to $25.9 million, or 42.9% of sale for the same period last year. The 280 basis point decrease in gross margin was primarily attributable to lower retail sale, which carry a higher gross margin and to a lesser extent lower wholesale gross margins due to increased manufacturing cost versus the year ago. Selling, general and administrative expenses decreased 13.5%, or $3.1 million, to $19.9 million, or 39.8% of sales for the first quarter of 2009 compared to $23.1 million, or 38.1% of sales a year ago. The decrease in SG&A expenses is primarily the result of reductions in salaries and benefits, advertising, freight, professional fees and Lehigh mobile store expense. Income from operations was $0.1 million, or 0.3% of net sales for the first quarter of 2009 compared to income from operations of $2.9 million, or 4.8% of net sales for the first quarter of 2008. Interest expense for the first quarter decreased 26.3%, or to $1.8 million from $2.4 million in the first quarter of 2008 as a result of lower borrowings under our credit facility combined with lower interest rates compared to the same period last year. For the quarter, we reported a net loss of $1.1 million, or $0.20 per diluted share in the first quarter of 2009 compare to net income of $0.3 million, or $0.05 per diluted share in the first quarter of 2008. Inventory decreased $1.4 million to $78.4 million at March 31, 2009 compare to $79.8 million on the same date a year ago. Funded debt as of March 31, 2009 decreased 8.4%, or $7.9 million to $86.2 million compared to $94.1 million at March 31, 2008. As a reminder, on March 31st, we announced that we amended our credit facility with GMAC Commercial Finance, LLC to extend the facility's maturity through April 30, 2012. The credit facility was originally scheduled to mature on January 5, 2010. In addition, the amendment reduced the commitment under the facility from $100 million to $85 million. As of March 31, 2009, we had $46.2 million outstanding on the line. I will now turn the call back to Mike for some closing comments.

Thanks Jim. While I do believe there are still challenging times ahead of us, I do think that the worst of this recession is now behind us. Looking out at the remainder of 2009, our sales comparison, they are beginning to moderate, particularly starting in July and we should see of incremental business driven by the stimulus spending. We expect gross margin be roughly flat versus last year nine-month of 2008, and SG&A to be down over the same nine months period of last year. Although not at the same rate it was in the first quarter. We are also forecasting that our debt levels will come down further by year end. Our entire team continue to do a very good job managing our business through this volatile environment, and I believe we are well positioned to capitalize on the market share opportunities that will materialize when the economy improves. Operator, we will now be ready to take any questions.

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) The first question is from Reed Anderson with D. A. Davidson. Please go ahead with your question.

,:

Reed, we are fortunate that we have multiple brand, and we have price segment of those brand, and we have not had price pressures that we have reduced our wholesale selling price, we are generating some interest through freight from time-to-time and some additional incentives, some in-store marketing, but we have not felt to need to break price. And if that is your question, and especially with the new product that we are offering that they have signed up for and our backlog is, started in the second half over last year, there is nothing price pressure. David may be you have something.

At the end of this year we took about a 1.5%, 2% price increase.

Okay.

And our retail customer seems to be settled into that pretty well.

That’s good. And then in terms of the other side of that the cost side, is your sense that maybe later as this year moves on you might see a little benefit on the cost side of things or is too early to tell.

Well.

I am talking about ending up the souring production not the SG&A side. I am sorry.

Yes I understand the question and, a year ago there was inflation with the cost side almost runaway inflation that’s been reversed and factories are not full. And there are some opportunities not break, but there are some opportunities or volume orders so we are trying to take advantage of that.

Okay. And then you talked a little bit about trend, the early stages of migrating some of the Lehigh business to the web and that sort of thing, so you've gotten lot of people looking at that. What's the thinking there in terms of to provide them an incentive whether it’s a volume discount, or is that where the freight piece comes in, how would we think about the benefits of the customer. How would you position that?

Sales proposition is all around cost savings. And what we are showing customers is if they go to the web and this amount to 15% to 25% cost savings.

Okay.

And we are selling that to the management that will keep those cost savings and all have it their heart to break, but we think once management feels the cost savings in today’s environment they almost cannot break down.

Okay good and lastly on Lehigh could you give an order of magnitude of either number of trucks that are down, you talked about a lot of how did you make big progress. I am just curious what that equates to in actual numbers?

We are currently operating with about 65 trucks which is now down about 20 from December of last year.

Okay great that’s it for me. Good luck thanks.

Thanks.

The next question is from Mitch Kummetz with Robert W. Baird. Please go ahead with your questions.

Hi guys this is actually [Kevin Kim] calling in for Mitch.

Hi Kevin

Hi Mike, I just had a quick question as far as genuine Dickies and launch of Wal-Mart I know that you guys were working through some of the issues when you guys reported Q4, can you give us an update on that maybe total doors and total skews and kind of how that’s being going so far?

Kevin you are correct. Year-end last year we talked about a start late last year late November and not a good distribution of the product in the stores. The answer is there has been more of the same. Our customer Wal-Mart has moved the buying headquarters from [Westville] to New York just two weeks ago they designed a buyer a footwear buyer we were there last week. And then we have got good information that they are going to test lower price points and they are going to test location in the footwear department and are going to distribute into I think they made ahead of wrong stores instead of we were in many of the wrong door. So, we don’t have a strong answer for you other than we got a new manager, a new buyer and actually it's open to ideas to regenerate sale interest in the brand.

Okay. And then as far as guidance, realizing you guys are not providing official guidance, but given all the positive things that you guys were talking about, that could hid in the second half weather it's federal spending, or this new UK or the backlog increase. Would you guys go as far as to say that you guys are expecting top line growth in the second half of '09?

Kevin, this is Jim, I think that as Mike said in his closing comments, we feel like the gross margins are going to be flattish with what they were last year in the last nine months of the year. And we feel SG&A is going to be down year-over-year and although it may not as significantly as it was in the first quarter, but certainly down year-over-year. You know, the biggest question is the top line and we feel as we move to back half of the year, the comparison become easier because our business was down more particularly on our retail business in the back half of the year. So, we certainly have a greater opportunity to equal our last year as we move forward to the next nine months. That’s obviously everybody's $400,000 question is what the sales look like at the back half.

Exactly the stuff right now. And then, as far as this backlog increase that you guys are experiencing in the second half, can you guys quantify that in a specific way, I think, David you mentioned in categories.

I don't just want to do that, but I can tell you that our business in outdoor around these new products is up substantially in our business some of the key retailers and we are experiencing the same kind of reception to our work in western product. But traditionally you do not have quite the profit in the third quarter on, so we are very optimistic about what we see and brought back in the for the back half of the year.

Okay. Now that's great to hear.

We have those orders in house so we know what those numbers are but we are, as compared to last year we know where our new business is coming from and as we brought play out.

Okay. And that's it for me. Thank you so much.

Thanks, Jeff.

(Operator Instructions) The next question is from Peter Larson with Columbia Management Group. Please state your question.

Hello all.

Hi, Peter.

Just a couple of things anything from the military that you might be waiting on a decision or have some potential for being there little ways out?

Peter, there is two answers to that question. Part of the increase that we saw that David talked about in our duty line is actually, it's a branded military special boot that we had in the line now for couple of seasons, high priced and delivering margin in sales and so that's actually military that's a positive. The negative is the business is very, very difficult and we were just in, we were just over a public defense last Friday, there is a bid that was still waiting to go from that we bid, the middle of last year and here we are almost one year and they have not left the bid. Now they did indicate that they are going to give everyone another opportunity to readjust their bid. So I do not have anything positive to report with that a couple little contracts that we are working through and we need a sizable contract public defense of where that we verbalize it and that we are really just sitting and waiting like everyone else.

Okay so I guess, I was looking at military is just giving you little extra and helps in total term of the cost?

We see that also and that’s important to us now. One thing I will backup and there is other branded boot is also built in our same plant, it’s a Make in USA product therefore falls in the various complaints. But those are in hundreds of thousands that's probably 30,000 per unit annually but a really good margin to price it.

Is Long foot ever going to mean much to you guys?

We have passed on input. We have trying to build that and we announced that the last quarter for you and basically we were investing money that try to build the long terms and when just so to answer your question no.

Okay, now I assume that you mentioned that you expected to pay down debt further, I assume that means you expect over the next several quarters to have again free cash and the target for that is going to be pay down debt?

That’s correct. And the which we have done the last two years we will continue to do that. I think we have can take some inventory out, more inventory ran a little tighter and watching that inventory everyday. And we are also trying to limit our capital expenditures as much as possible to build more cash push against the. But the Peter, also our business is we get orders day we shift it tomorrow. We don’t have a, except the fall business David Sharp talked about with our order book. We have to have inventory to service our customer. So, I do not want to mislead anybody and tell you that we are going to run down inventory. So that we can shape our customers. We got to balanced that.

No, I am actually interested in your debt getting paid down some and using free cash in that all mode some?

So am I.

I can imagine. I was on your neck yesterday saw I was unable get in there.

We should stop.

Plain just didn’t work. Anyway thanks for the answers, and let's hope things get better for everybody.

Thanks, Peter.

Yeah.

(Operator Instructions) I am showing no further questions in queue. I would like to turn the call back over to management.

Great. Well, thank you ladies and gentlemen for listening, we appreciate the questions, and we look forward to talking to you next quarter.

This concludes the teleconference. You may disconnect your lines. Thank you for your participation.