Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Rocky Brands Second Quarter Fiscal 2013 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 to remind everyone that this conference is being recorded. And I'll now turn the conference over to Brendon Frey of ICR.

Thank you. 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 31st, 2012. I'll now turn the conference over to Mr. David Sharp, President and Chief Executive Officer of Rocky Brands.

Thanks, Brendon. Good afternoon and thanks for joining us. With me on the call is Jim McDonald, our Chief Financial Officer. Our business was firing on all cylinders during the second quarter with each of our three operating segments wholesale, retail and military, posting strong results. Total sales increased $15 million or 34% providing significant operating expense leverage driving earnings per share up eight fold to $0.24. There were a number of contributing factors to our robust second quarter. Within wholesale, each of our major categories both Weston and Outdoor were up strong double-digits in sales. Our Weston category was once again our fastest growing, up 47% as Durango's momentum continued to build in the brand's core distribution channels. We are seeing great response to many of Durango's more fashion-forward styles, at traditional Weston and farm and ranch customers while sell-through of our basic western boots remain solid. Rocky Branded West footwear posted its strongest gain sometime with our basic waterproof pull-on boots for farmers and ranchers performing very well at retail, fueling increased fill-ins in the quarter. Meanwhile our Durango lifestyle collection continues to expand in new distribution, including mainstream accounts like Shoe Show where we are targeting consumers with a more urban fashion sensibility. We are also -- we also began shipping a new Moccasin Collection in the quarter and we are encouraged with early retail sell-through, both Zappos.com and Shoebuy.com report that the collection has jumped ahead of all other Durango styles and weekly sales. As a result of our increased sales and traditional channels and the push into new channels, the total Durango brand sales were up 68% in the quarter versus a year ago. While still relatively small, our Lifestyle collections are helping increased awareness and appeal to Durango with a wider consumer audience. As…

Thanks David. Net sales for the second quarter increased 33.8% to $59.4 million compared to $44.4 million for the corresponding period a year ago, driven by increases in all three reporting segments. Wholesale segment sales for the second quarter were $45.8 million compared to $34.7 million last year, an increase of 32%. By category, Work increased 33%, Weston increased 47%, Outdoor rose 23%, Commercial Military increased 8% and Lifestyle increased 62%. Retail segment sales for the second quarter increased 7% to $9.8 million compared to $9.1 million a year ago. Military segment sales were $3.8 million, compared to $0.6 million for the same period in 2012. Gross profit in the second quarter was $20.3 million or 34.2% of sales, compared to $15.4 million or 34.6% of sales for the same period last year. The 40 basis point decrease in our gross margin was driven by the significant increase in military segment sales, which had lower gross margin. This was nearly offset by a 130 basis point improvement in our wholesale gross margin and a 20 basis point improvement in retail gross margin. Selling, general and administrative expenses were $17.4 million or 29.4% of net sales for the second quarter of 2013, compared to $14.9 million or 33.5% of net sales a year ago. The 410 basis point improvement in SG&A expense as a percentage of net sales was driven by expense leverage from higher sales, while the $2.5 million increase was driven by an increase in advertising expenses and additional selling and distribution expenses associated with higher sales. Income from operations was $2.9 million or 4.8% of net sales, compared to $0.5 million or 1% of net sales in the prior year period. The 380 basis point improvement in operating margin was driven by SG&A expense leverage from higher sales, partially offset by the decline in gross margin. We reported net income of $1.8 million or $0.24 per diluted share versus net income of $0.2 million or $0.03 per diluted share a year ago. As David mentioned, last year sale included about $2.5 million in lost sales due to the disruption at our DC, which had a negative impact on EPS of approximately $0.06 that shifted into the second half of 2012. Turning to the balance sheet, our funded debt at June 30, 2013 was $31.4 million, an increase of 5.1% from $29.9 million as of June 30, 2012, with the increase coming primarily from increased working capital to support the sales growth. Inventory at June 30, 2013 was $81.2 million compared to $74 million on the same day the year ago in support of the sales increase. Based on our current bookings and current reorder rates, we feel comfortable with our inventory levels. I’ll turn it back to David for some closing comments.

Thanks Jim. We are very pleased with how our business performed during the first half of the year. We now have momentum across all of our major wholesale categories along with an improved retail operating platform which bodes well heading into our busiest selling season. We feel we have the right product and distribution strategy in place to drive top and bottom-line improvement for the combined second half period. However, with a more challenging comparison in our wholesale segment, we feel it is best to tamper expectations for Q3. Amongst the challenges are one, as mentioned earlier, we will not benefit from the sales of approximately $2.5 million, which moved into Q3 from Q2 from the power outage last year. Two, last year we had sales of more than $3 million to Wal-Mart in the quarter. We will not anniversary these sales this year because as previously announced we have licensed the product category to Intradeco. Three, last year we benefited from an award from a unit of the U.S. Military for approximately $2.5 million of commercial military footwear, which we know we will not anniversary. And four, Q3 is the quarter that we rely upon favorable seasonal weather the most. The hunting seasons must align with cooler wet weather in order for our sales to maximize. In past years this has happened sometimes and sometimes it has not. All of this said, with the visibility we have today, we are currently projecting our wholesale business in Q3 to be flat with last year. We do expect Q3 military sales to be around the same level as Q2 and we anticipate our retail segment sales to be up year-over-year. With respect to Q4, we expect year-on-year increases to be more achievable due to easier comparative. So in total our second half sales increases should be more in line with our first half performance. Operator, we’ll now take questions.

Thank you. (Operator Instructions) Our first question comes from Mitch Kummetz with Robert W. Baird.

Yeah. Thank you and congratulations on a great quarter. I've got several questions. David, let me -- let's just start with the guidance. One of the things that you mentioned in the guidance was the weather and obviously, the weather's been challenging in the last couple of years. I know your Wholesale business was up a little bit in Q3 last year. Could you maybe just start this discussion by reminding us where your fall orders are going into the back half and then how you're thinking about kind of what your underlying weather assumption is in terms of your outlook? I mean are you assuming sort of similar weather a year ago, normal weather or some improvement, but not average? I mean how are you thinking about that?

I think our orders are up versus last year, however, before they shipped, they are just indication of the interest and not really orders. I say that tongue-in -- you know, they are cancelable.

Sure.

So the big guys pick larger customers will jockey the orders around given that the weather is not favorable.

And so how are you thinking about replenishment orders in terms of this guidance that you've outlined?

What -- I don’t understand the question, Mitch.

Well, I mean, do you expect reorders to be up in the back half versus a year ago? I mean I would imagine that reorders probably weren't that fabulous last year, because the weather wasn't too cooperative in either Q3 or Q4

I think, well, regardless what the weather was last year, the weather -- even if the weather was very unfavorable, it can be more unfavorable this year. And that’s why because we’ve been in this -- the weather has cost us in many quarters, that’s why we’re taking this very conservative stance.

Got it. I guess that's what I was trying to get at. I was trying to understand how cautious you're being on the weather given that it's been pretty unfavorable last couple of years. It sounds like you're being very cautious there.

Yeah.

Jim, how about on the margin side. How should we be thinking about margins through the back half of the year? If sales are likely to grow at a similar rate in the back half as they are in the first half, what does that mean in terms of SG&A and also how should we be thinking about kind of margins across your business segments? Is there still room for -- I mean, your gross margin on Wholesale has performed very well through the first half of this year. So still continued room for expansion there?

No. Actually, I think our margins particularly in the wholesale, I think in our retail and our military margins, you know with those -- those run the same pretty consistently. Our wholesale margins will be -- our retail margins will be pretty consistent with what they were in the first half of the year. And on wholesale, we benefited in the first half of the year from some nice particularly fourth quarter of variances that we had at our manufacturing, positive variances particularly in our facility in Puerto Rico as our -- last year we had an increase in our commercial military business. The reverse of that is that we are, due to first half of this year commercial military business has been down fourth quarter and into this year. So our production at that facility has been down from where it was in previous years -- in previous quarters. So I think that particularly in third quarter, our margin will be best equal with last year, maybe down slightly for third quarter last year. I think for the back half of the year, it will be kind of flat with last year.

Okay, that's helpful. And then, I want to drill down a little more on Durango, I mean that business has been really strong for a number of reasons, including the new lifestyle product. I mean, it was up 68% -- overall, Durango was up 68% in the quarter. How much of that increase is lifestyle and how much runway is there still for lifestyle, either in terms of continuing to expand distribution through the lifestyle offering or even just by continuing to grow within existing doors because that product is selling through very well?

Well, the lion's share of the increase has really come from existing distribution. It's getting much broader and much deeper with them. And I think that you see there are inventories up and we were also in a much better inventory position this -- service of that business, we were really chasing it. Last year, I think -- last year, at this time, we were running at about 40% but chasing a lot of it. This quarter, I think we’ve filled most of the orders that came at us. But clearly, the big opportunity for us in the future is to continue to try and expand this into a lifestyle play. We’re doing a lot with product. We’re working hard at distribution. I mentioned in the prepared comments that we’re currently seeking to improve the sales capability around these other channels of distribution. And some of the product offerings that we were doing to extend the brand, we’re doing the apparel -- leather apparel, this September, we’ll be delivering it. We’ll be doing sandals in spring. We added the -- Moccasin Suite are selling through extremely well at some of the lifestyle retail. So we’re encouraged, but there is tons of runway left.

Okay. And I just have two last questions. One, Tractor Supply, you mentioned that was really strong in the quarter, above plan in terms of replenishment orders. Could you just -- could you give us a sense as to where that business stands through the first six months of the year, maybe in terms of dollars and kind of what the expectation is for Tractor Supply in the back half? Or if you want to just kind of maybe speak to it on a full-year basis?

We’re still pegging that around $9 million to $10 million for the year.

Okay.

It looks like, Mitch, that’s about how did we got the initial set, it's roughly at about $2 million run rate on a quarterly basis.

Okay. And then, how about the new medical industry product that you guys start to -- I think you started shipping that in the quarter, correct? How did that perform?

We didn’t.

Oh! You did not. Okay.

No. No. We didn’t. It came to us late. So we just started shipping that.

Okay. Okay. So that's incremental to the back half, you said by how much?

But it's -- we’re just starting out there and we sold into about 150 doors.

Got it. All right. Thanks.

Okay.

(Operator Instructions) There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Okay. Thank you, operator and thank you everyone for being on the call. We’ll work hard in the back half of this year to make it -- to end the year well. Thank you.

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.