RCKY 10-K & 10-Q changes, risk factors and insider trading

An investment in our common stock is subject to certain risks inherent in our business. Before making an investment decision, investors should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this Annual Report on Form 10-K. If any of the following risks occur, our business, results of operations, financial conditioncondition, and cash flows could be materially and adversely affected. These described risks are not the only risks facing us. Additional risks and uncertainties not known to us or that we deem to be immaterial also may materially adversely affect our business, results of operations, financial conditioncondition, and cash flows. If any of these risks were to materialize, the value of our common stock could decline significantly.

The majority of our products are produced in Vietnam, China, the Dominican Republic, Cambodia, Puerto Rico, Vietnam, India, and Mexico. Therefore, our business is subject to certain risks of doing business offshore including:

The emergence or persistence of geopolitical instability creates risks for disruptions in the global economy which may negatively impact our business, financial condition, and results of operations. Factors such as new global tariffs proposedimposed by the U.S. in various international markets, including China, shipping disruptions in the Red Sea,U.S., uncertainties related to the political environment in China, and ongoing conflicts such as the war between Russia and Ukraine have adversely affected the global economy and contributed to geopolitical instability. While we have managed to navigate impacts from these conflicts thus far, the ongoing instability resulting from these disruptions or other future disruptions could potentially harm our business, financial condition, results of operations, supply chain, intangible assets, partners, customers, or employees, should tensions escalate. Moreover, an escalation of geopolitical tensions may lead to broader impacts, including but not limited to cyberattacks, supply chain and logistics disruptions, lower consumer demand, and changes to foreign exchange rates and interest rates. Any of these factors may adversely affect our business and supply chain.

We require our third-party manufacturers to meet our standards for working conditions and other matters before we are willing to placedo business with them. As a result, we may not always obtain the lowest cost production. Moreover, we do not control our third-party manufacturers or their respective business practices. If one of our third-party manufacturers violates generally accepted labor standards by, for example, using forced or indentured labor or child labor, failing to pay compensation in accordance with local law, failing to operate its factories in compliance with local safety regulations or diverging from other labor practices generally accepted as ethical, we likely would cease dealing with that manufacturer, and we could suffer an interruption in our product supply. Similarly, if one or more of our third-party manufacturers violate applicable environmental or other laws and regulations, we could suffer an interruption in our product supply. In addition, such actions by a manufacturer could result in negative publicity and may damage our reputation and the value of our brand and discourage retail customers and consumers from buying our products.

We own U.S. registrations for many our trademarks, trade names and designs, including such marks as Muck, XTRATUF, Rocky, Durango, Georgia Boot, Durango, Lehigh, XTRATUF and Ranger. Additional trademarks, trade names and designs are the subject of pending federal applications for registration. We also use and have common law rights in certain trademarks. Over time, we have increased distribution of our goods in several foreign countries. Accordingly, we have applied for trademark registrations in a number of these countries. We intend to enforce our trademarks and trade names against unauthorized use by third parties.

Although we have paid dividends to our shareholders, we have no obligation to continue doing so and may change our dividend policy at any time without notice to our shareholders. Our ABL Facility and Term Facility (as such terms are defined in Note 107 - Long-Term Debt of our Consolidated Financial Statements) also contain restrictions on the amount of dividend payments. Holders of our common stock are only entitled to receive such cash dividends as our Board of Directors may declare out of funds legally available for such payments.

Our information technology systems and-e-Commerceand e-commerce platforms are critical to our business operations. Any interruption, unauthorized access, impairment or loss of data integrity or malfunction of these systems could severely impact our business, including delays in product fulfillment and reduced efficiency in operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems, or with maintenance or adequate support of existing systems, could disrupt or reduce the efficiency of our operations. Disruption to our information technology systems may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, denial-of-service attacks, computer viruses, physical or electronic break-ins, or similar events or disruptions. System redundancy may be ineffective or inadequate, and our disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could prevent access to our online services and preclude retail transactions resulting in loss of sales. System failures and disruptions could also impede the manufacturing and shipping of products, transactions processing and financial reporting. Additionally, we may be adversely affected if we are unable to improve, upgrade, maintain, and expand our technology systems.

Some of our employees are working remotely which could strain our information technology systems and impact business continuity plans. Remote work could also introduce operational risk such as, but not limited to, cyber securitycybersecurity risks.

A cyber-securitycybersecurity breach could have a material adverse effect on our business and reputation.

We rely heavily on digital technologies for the successful operation of our business, including electronic messaging, digital marketing efforts and the collection and retention of customer data and employee information. We also rely on third parties to process credit card transactions, perform online e-Commercee-commerce and social media activities and retain data relating to our financial position and results of operations, strategic initiatives and other important information. Despite the security measures we have in place, our facilities and systems and those of our third-party service providers, may be vulnerable to cyber-securitycybersecurity breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other similar events. Any misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information, whether by us or by our third-party service providers, could damage our reputation and our customers’ willingness to purchase our products, which may adversely affect our business. In addition, we could incur liabilities and remediation costs, including regulatory fines, reimbursement or other compensatory costs, additional compliance costs, and costs for providing credit monitoring or other benefits to customers or employees affected. We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our losses from any future breaches of our systems.

Our products are subject to increasingly stringent and complex domestic and foreign product labeling, performance, environmental and safety standards, laws and other regulations, including those pertaining to perfluoroalkyl and polyfluoroalkyl substances (PFAS) and other environmental impacts. These requirements could result in greater expense associated with compliance efforts, and failure to comply with these regulations could result in a delay, non-delivery, recall, or destruction of inventory shipments during key seasons, a loss of advance orders from wholesale customers or in other financial penalties. Significant or continuing noncompliance with these standards and laws could disrupt our business and harm our reputation. Our products are generally used in outdoor activities, sometimes in severe conditions. Product recalls or product liability claims resulting from the failure, or alleged failure, of our products could have a material adverse effect on the reputation of our brands and result in additional expenses.

We are a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names including Muck, XTRATUF, Rocky, Durango, Georgia Boot, Lehigh, Ranger, and the licensed brand Michelin. Our portfolio of brands haveis aorganized longinto historythree ofreportable representingsegments highin quality,which comfortable,our functional,product is distributed: Wholesale, Retail, and durableContract footwear,Manufacturing. andThe ourreportable productssegments are organizedtargeted around six targetdistinct marketsproduct lines: work, outdoor, western, duty, commercial military, dutyand military. We frequently experience significant seasonal fluctuations in our business as many of our footwear products and military.product lines are used by consumers in adverse weather conditions. Accordingly, average inventory levels have been highest during the second and third quarters of each year and sales have been highest in the last two quarters of the year. Our footwear products incorporate varying features and are positioned across a range of suggested retail price points from $48.00 $45.00 for our value priced products to $655.00 $680.00 for our premium products. As a part of our strategy of outfitting consumers from head-to-toe, we market complementary branded apparel and accessories that we believe leverage the strength and positioning of each of our brands.

Our products are distributed through three distinct business segments: Wholesale, Retail and Contract Manufacturing. In our Wholesale business, we distribute our products through a wide range of distribution channels representing overthousands 10,000of retail store locations in the U.S., the U.K. and other international markets such as Europe. Our Wholesale channels vary by product line and include sporting goods stores, outdoor retailers, independent shoe retailers, hardware stores, catalogs, mass merchants, uniform stores, farm store chains, specialty safety stores, specialty retailers, and online retailers. Our Retail business includes direct sales of our products to consumers through our business-to-business web platform, e-Commercee-commerce websites, third-party marketplaces and our Rocky Outdoor Gear Store. Our Contract Manufacturing segment includes sales to the U.S. Military, private label sales and any sales to customers in which we are contracted to manufacture or source a specific footwear product for a customer.

During the second quarter of 2024, we amended and restated our Original ABL Facility (as such term is defined in Note 107 - Long-Term Debt of our Consolidated Financial Statements) which resulted in a restated $175.0 million revolving credit facility and a new $50.0 million term facility. The proceeds from this transaction were used to retire our existing senior secured term loan facility with TCW Asset Management Company, LLC as of April 26, 2024. This transaction resulted in an expense of $2.6 million, consisting of a loss on extinguishment of term debt in the amount of $1.1 million and a $1.5 million prepayment penalty, which are included in Interest Expense and Other - net-net within the Consolidated Statements of Operations for the twelve months ended December 31, 2024. See Note 107 - Long-Term Debt of our Consolidated Financial Statements for further information regarding our long-term debt.

During the twelve months ended December 31, 2025, we reported an increase in net sales compared to the twelve months ended December 31, 2024, we reported a decline in net sales compared to the year ended December 31, 2023, which was attributable to aan declineincrease in net sales in our Wholesale and Retail reporting segment,segments, partially offset by increasesa decrease in net sales in our Retail and Contract Manufacturing reporting segments. The decline in sales in our Wholesale reporting segment was due to certain non-recurring sales in 2023, and Servus brand sales, which was divested in March 2023. The increase in Retail sales was attributed to increased sales in our Lehigh CustomFit Platform as well as year-over-year growth in our e-Commerce business.segment.

The 150-basis point increase in gross margin to 39.440.9% %of net sales in 2025 compared to 39.4% of net sales in 2024 from 38.7% of net sales in 2023 was attributedprimarily todriven by an 170-basis point increase in our Wholesale gross margin of 190-basis points as well as ana increasehigher inmix of Retail netsegment sales aswhich percentage of total net sales. Our Retail reporting segment carriescarry higher gross margins than both our Wholesale and Contract Manufacturing Reportingsegments, segments. The increase waspartially offset by higher tariffs and a decrease in RetailContract Manufacturing gross margins as a percentage of net sales in 2024 compared to the prior year.margins.

Net income increased 9.6%95.6% to $22.3 million for the twelve months ended December 31, 2025 compared to $11.4 million infor 2024the fromtwelve $10.4months millionended December 31, 2024, primarily due to higher gross margins, lower interest expense and a lower effective tax expenserate in 20242025 compared to that of 2023.2024.

In 20242025 and 2023,2024, our business generated a positive cash flow from operating activities of $52.8approximately $16.3 million and $73.6$52.8 million, respectively. Generally, the cash provided fromby operations consists of changes in our working capital and coupled with our ABL is sufficient to fund operations in any given year. Our positive cash flow in 2025 was offset by cash used in investing and financing activities of $6.3 million and $10.9 million, respectively, resulting in an overall decrease in cash of approximately $0.8 million in 2025. For the year ended December 31, 2024, our positive cash flow in 2024 was offset by cash used in investing and financing activities of $3.0 million and $50.6 million, respectively, resulting in an overall decrease in cash of approximately $0.8 million in 2024. For the year ending December 31, 2023, our positive cash flow from operations was enhanced by a positive cash flow from investing activities of $13.4 million, offset by cash used in financing activities of $88.2 million, resulting in an overall decrease in cash of approximately $1.2 million in 2023.million.

The following table sets forth a summary of the Consolidated Statements of Operations data as percentages of total net sales:

Net sales decreasedincreased $8.1approximately million$28.2 million, or 1.7%6.2%, for the twelve months ended December 31, 2024,2025, due to aan decreaseincrease in Wholesale and Retail net sales, partially offset by ana increasedecrease in Retail and Contract Manufacturing net sales.

Gross margin in 20242025 was 39.4%40.9% of net sales compared to 38.7%39.4% of net sales in 2023.2024. The increase150-basis point improvement in gross margin was attributedprimarily todriven anby a 170-basis point increase in both Wholesale and Contract Manufacturing gross margin as well as a higher mix of Retail segment net sales,sales which carry higher gross margins than our Wholesale and Contract Manufacturing segments.segments, partially offset by higher tariffs and a decrease in Contract Manufacturing gross margin.

Operating expenses increased $4.7$12.2 million to 33.2% of net sales in 2025 compared to 32.6% of net sales in 2024 compared to 31.0% of net sales in 2023.2024. The increase in operating expenses as a percentage of net sales was due to a $4.0 million impairment charge for the Muck trademark and an increase inhigher outbound freightlogistics and other logisticselling costs associated with the increase in Retail sales.net Seesales, Noteas 7well -as Goodwillan andincrease Otherin Intangiblediscretionary Assets of our Consolidated Financial Statements for additional information on the Muck trademark impairment.spending.

The following information is presented on grossnet marginsales for the years endingended December 31, 20242025 and 20232024:

Interest expense and other was approximately $10.0 million for the year ended December 31, 2025 compared to $17.0 million for the year ended December 31, 2024. The decrease in interest expense was mainly attributed to lower interest rates achieved through our debt refinance completed in April 2024, as well as lower debt levels for the year ended December 31, 20242025 compared to the prior year ago period. The debt refinance that occurred in April 2024 resulted in a $1.1 million loss on term loan extinguishment charge and a $1.5 million prepayment penalty which are included within Interest Expense and Other - net within the Consolidated Statements of Operations for the twelve months ended December 31, 2024. See Note 107 - Long-Term Debt of our Consolidated Financial Statement for more information.

The effective tax rate for the twelve months ended December 31, 20242025 was 19.0%18.1% compared to 26.3%19.0% for the twelve months ended December 31, 2023.2024. The decrease from the year ago period was primarily driven by the changes in ourstate effectiveand local income taxes and other discrete tax rate was due to a return to provision adjustment resulting from foreign tax creditsbenefits recognized in the fourth quarter of 2023.2025.

Our principal sourcessource of liquidity is our income from operations, as well as access to the borrowing capacity under our ABL Facility. We believe that we have sufficient liquidity to support our ongoing operations and to re-invest in our business to drive future growth. As of December 31, 2024,2025, we maintained cash and cash equivalents of $3.7$2.9 million and had $55.9$39.5 million of availability under our ABL Facility. Our primary ongoing operating cash flow requirements are for inventory purchases and other working capital needs, capital expenditures, and payments on our credit facilities.

Our working capital consists primarily of trade receivables and inventory, offset by short-termaccounts debtpayable and accountsaccrued payable.liabilities. Our working capital fluctuates throughout the year as a result of our seasonal business cycle and is generally lowest in the months of January through March of each year and highest during the months of May through October of each year. Our cash generated from operations throughout the year is typically sufficient to fund our seasonal working capital requirements; however, we have the ability to borrow on our ABL Facility as needed and as such its balance may fluctuate significantly throughout any given year.

In addition to our ABL Facility with outstanding borrowings of $95.9$97.6 million as of December 31, 2024,2025, we also have a Term Facility with outstanding borrowings of $35.1$26.8 million as of December 31, 2024.2025. Our ABL Facility and Term Facility require us to maintain a minimum fixed charge coverage ratio, as defined in the agreement. Additionally, the ABL Facility and Term Facility contain restrictions on the amount of dividend payments.payments and share repurchases. As of December 31, 2024,2025, we were in compliance with the covenant and restrictions. We may utilize portions of our excess cash to prepay certain amounts of long-term debt prior to maturity.maturity Duringas thewell yearas endedrepurchase December 31, 2024, we paid down a totalshares of $44.2common millionstock inunder debt.our share repurchase program.

Our capital expenditures relate primarily to investments in information technology, molds and equipment associated with our manufacturing and distribution operations, merchandising fixtures and projects related to our corporate offices. In 2025, we purchased land for the future expansion of our distribution center in Logan, Ohio and as such it is possible that a significant portion of future capital expenditures may relate to this expansion.

Operating Activities. Net cash provided by operating activities for the year ended December 31, 20242025 was $52.8$16.3 million compared to $73.6$52.8 million for the year ended December 31, 2023.2024. Adjusting for non-cash items, net income provided a cash in-flow of $35.5$40.3 million and $22.3$35.5 million for the years ended December 31, 20242025 and 2023,2024, respectively. The net change in working capital and other assets and liabilities resulted in ana increasedecrease to cash provided by operating activities of $24.0 million for the year ended December 31, 2025, compared to an increase of $17.2 million for the year ended December 31, 2024, compared to an increase of $51.3 million for the year ended December 31, 2023.2024.

During the year ended December 31, 2025, the net change in working capital was primarily impacted by increases in inventory and accounts receivable offset by an increase in accrued expenses and other liabilities. The increase in inventory of approximately $14.4 million was a result of higher inventory costs caused by increased tariffs imposed during 2025. The increase in accounts receivable was due to an increase in sales during fourth quarter of 2025 over the fourth quarter of 2024. The increase in accrued expenses and other liabilities of $11.7 million was primarily due to increased duty costs also resulting from the additional tariffs imposed during 2025. During the year ended December 31, 2024, the net change in working capital was primarily impacted by an increase in accounts payable and accrued expenses of $7.7 million and $5.2 million, respectively. The increase in accounts payable and accrued expenses during the year ended December 31, 2024 compared to the prior year was due to increased inventory purchases in the fourth quarter of 2024, compared to the fourth quarter of 2023. The increase in inventory purchases also led to increased inventory in-transit at December 31, 2024 versus the year ago period and associated accrued duties and in-bound freight, which are included in accrued expenses and other liabilities on the Consolidated Balances Sheets at December 31, 2024 and 2023. During the year ended December 31, 2023 inventory decreased $60.0 million, which was attributed to a concentrated effort to optimize inventory levels during 2023.2024.

Investing Activities. Net cash used in investing activities for the twelve months ended December 31, 2025 and 2024 was primarily a result of purchases of fixed assets, specifically machinery and equipment.equipment Cashand providedinvestments byin investinginformation activitiestechnology. Additionally, in 2025, we purchased land for the twelveplanned monthsfuture ended December 31, 2023 was primarily derived from the proceeds from sale of the Servus brand. See Note 3 - Sale of Servus Brand and Related Assetsexpansion of our Consolidateddistribution Financialcenter Statements.located in Logan, Ohio.

Financing Activities. Cash used in financing activities for the twelve months ended December 31, 20242025 and 20232024 was primarily related to dividend payments and payments on our revolving credit facility and term loan.

On February 24, 2025,2026, we announced our new $7,500,000 share repurchase program. For additional information regarding this share repurchase program, see Note 1418 - Shareholder'sSubsequent EquityEvents of our Consolidated Financial Statements.

Revenue is recognized when the performance obligations under the terms of a contract with our customer are satisfied. The performance obligation is satisfied, and revenue is recorded when control passes to the customer which is generally upon shipment to the customer or at the time of sale for our retailoutdoor gear store customers. Revenue is measured as the amount of consideration we expect to receive in exchange for the transfer of our products, which is the net sales price.

We did not recognize any impairment charges for goodwill during fiscal year 20242025 or 2023.2024. No impairment charges were recognized for the Company’s indefinite-lived intangible assets during fiscal year 2025. During the fourth quarter of 2024, we recognized a $4.0 million impairment charge for theour Muck trademark.trademarks. The charge is included within Operating Expenses within the Consolidated Statements of Operations for the twelve months ended December 31, 2024. No impairment charges were recognized for the Company’s indefinite-lived intangible assets during fiscal year 2023. Refer to Note 75 - Goodwill and Other Intangible Assets of our Consolidated Financial Statements for additional information on the Muck trademark impairment.

We are a leading designer, manufacturermanufacturer, and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names including Muck, XTRATUF, Rocky, Durango, Georgia Boot, Lehigh, Ranger, and the licensed brand Michelin. Our portfolio of brands is organized into three reportable segments in which our product is distributed: Wholesale, RetailRetail, and Contract Manufacturing. The reportable segments are targeted around six distinct product lines: work, outdoor, western, duty, commercial militarymilitary, and military. We frequently experience significant seasonal fluctuations in our business as many of our footwear products and product lines are used by consumers in adverse weather conditions. Accordingly, average inventory levels have been highest during the second and third quarters of each year and sales have been highest in the last two quarters of the year.

Our business is subject to a highly evolving and everchanging macroeconomic environment, including changes in tariffs, taxes and industry changes. We continue to monitor changes in policy impacting global trade, including tariffs, which have been dynamic, unpredictable, and subject to ongoing modification. Beginning in early 2025, pursuant to the International Emergency Economic Powers Act ("IEEPA"), significant additional tariffs were imposed on products imported from various countries, including those countries where we primarily source our products. In February 2026, the U.S. Supreme Court invalidated certain tariffs imposed under the IEEPA and in March 2026, the U.S. Court of International Trade ordered the U.S. Customs and Border Protection Agency ("CBA") to suspend collection of the invalidated tariffs and to establish a process to refund certain IEEPA tariffs previously collected. As a result of this ruling, we may beare eligible to receive refunds of tariffs previously paid on qualifying imports.imports, including interest. We have paid approximately $20.5 million in tariffs for products that were subject to the invalidated IEEPA tariffs. BeginningWe inapplied Aprilthe loss recovery model and determined the expected receipt of the refund of the previously paid IEEPA tariffs is probable. Accordingly, we recognized a benefit of $18.0 million as a reduction to cost of goods sold within the accompanying Unaudited Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2026. Additionally, $2.5 million has been recorded as a reduction of inventory within the accompanying Unaudited Condensed Consolidated Balance Sheet as of June 30, 2026, and will be recognized as a reduction to cost of goods sold as the inventory is sold. As of June 30, 2026, we beganhave filingreceived refund$3.7 claimsmillion within CBPrefunds relatedand recorded $16.8 million of outstanding IEEPA tariff receivables, which is included in "other receivables" within the accompanying Unaudited Condensed Consolidated Balance Sheet. Subsequent to eligibleJune IEPPA30, tariff2026, paymentswe made.have Therereceived canan beadditional no$8.2 guarantee that a refund, if received, will equal the full amount of IEEPA tariffs paid, and any refund may be subject to further legal and regulatory developments. As a resultmillion of the uncertainty, we have not recorded a receivable related to the potential recovery of IEEPA tariffstariff paid as of March 31, 2026.receivable.

Additionally, following the Supreme Court's ruling invalidating the IEEPA tariffs, the U.S. imposed a temporary 10% general tariff under Section 122 of the Trade Act of 1974. There remains substantial uncertainty regarding the potential changes or pauses to existing and newly announced tariffs, tariff levels, and whether additional tariffs or other reciprocal actions may be imposed, modified, or suspended. We have implemented, and plan to continue to implement, as needed, various mitigation strategies including adjusting the prices of our products, adjusting the countries from which we source our products and further leveraging our own manufacturing facilities in the Dominican Republic and Puerto Rico. Proposed or enacted tariffs and changes to U.S. trading policies may be restituted,reinstituted, paused, removed, or changed at any time and to the extent we are unable to successfully mitigate any negative resulting impacts it could adversely affectimpacts, our business, financial condition, and results of operation.operation could be materially and adversely affected.

During the firstsecond quarter of 2026, we experienced an increase in net sales over the firstsecond quarter of 2025. This increase was attributable to an increase in net sales across all three of our reportable segments, Retail, Wholesale, Retail, and Contact Manufacturing. WeThe continueprice increase implemented in the third quarter of 2025 allowed us to benefitexperience fromsteady growth during the strengthfirst and growthhalf of our2026 over the first half of 2025. Our Retail segment continues to be our fastest growing reportable segment, with thedouble third consecutive quarter ofdigit growth in ourthe Retailfirst segmentand netsecond sales.quarters Growthof in2026 ourover Retailthe segmentprior wasyear periods, driven by increasesgrowth across all of our Retail selling channels. The increase in net sales on our e-commerce websites and third-party marketplace platforms was driven by a continued focus on our digital marketing and expansion into new marketplaces. The increase in net sales in our Lehigh CustomFit business was attributed to expanding our customer base and product offerings. We saw aan decreaseincrease in gross margin as a percentage of sales in our Wholesale and Retail segments as a result of increasedthe productrecognition costsof dueactual toand elevatedexpected IEEPA tariff costsrefunds recognized duringin the second quarter partiallyof offset2026, bywhich tariff-relatedreduced pricecost increases.of goods sold.

Our operating expenses as a percentage of net sales for the three and six months ending MarchJune 31,30, 2026 wasincreased consistentdue to an approximate $1.1 million write-off of accounts receivable associated with thata customer bankruptcy during the second quarter of the prior year period.2026.

Interest expense declined for the three and six months ending MarchJune 31,30, 2026 compared to the same periodperiods in 2025 due to continued debt repayments over the past twelve months, which have reduced the overall outstanding principal balances, as well as a decrease in interest rates.

The decrease in inventory as of MarchJune 31,30, 2026 compared to MarchJune 31,30, 2025 was primarily due to our efforts to optimize our inventory position by reducing our discontinued inventory levels throughout the year.

FIRSTSECOND QUARTER 2026 FINANCIAL HIGHLIGHTS COMPARED TO FIRSTSECOND QUARTER 2025

Net sales increased to $124.4$118.4 million in the firstsecond quarter of 2026 compared to $114.1$105.6 million in the firstsecond quarter of 2025. The increase in net sales in the current year quarter compared to the prior year quarter was due to an increase in net sales across all of our reportable segments: Wholesale, Retail, and Contract Manufacturing.

Gross margin in the firstsecond quarter of 2026 was $45.4$60.8 million, or 36.5%51.4% of net sales, compared to $47.0$43.3 million, or 41.2%41.0% of net sales, in the firstsecond quarter of 2025. The 470-basis point decreaseincrease in gross margin as a percentage of net sales was primarily drivendue byto increasedthe sourcingrecognition variances,of mainlyactual higherand tariffs,expected IEEPA tariff refunds, which reduced cost of goods sold in the firstsecond quarter of 2026 compared to the first quarter of 2025.2026.

Operating expenses for the firstsecond quarter of 2026 were $41.8$41.1 million, or 33.6%34.7% of net sales, compared to $38.3$36.1 million, or 33.6%34.2% of net sales, for the firstsecond quarter of 2025. The increase in operating expenses as a percentage of net sales was due to an approximate $1.1 million write-off of accounts receivable associated with a customer bankruptcy in the second quarter of 2026.

Income from operations for the firstsecond quarter of 2026 was $3.6$19.7 million, or 2.9%16.6% of net sales, compared to $8.7$7.2 million, or 7.6%6.8% of net sales, in the year agoyear-ago period. The decreaseincrease in income from operations was primarily driven by the decreaseincrease in gross margin for the three months ended MarchJune 31,30, 2026,2026 compared to the year agoyear-ago period.

Contract Manufacturing grossGross margin forin the three six months ended MarchJune 31,30, 2026 was $0.3$106.2 million, or 9.2%43.8% of net sales, compared to $0.2$90.3 million, or 5.8%41.1% of net sales, forin the three six months ended MarchJune 31,30, 2025. The increase in gross margin was drivenprimarily bydue increasedto economiesthe recognition of scaleactual atand ourexpected PuertoIEEPA Ricotariff manufacturingrefunds, facilitywhich aslowered wecost increasedof productiongoods there.sold in the second quarter of 2026.

Operating expenses for the three six months ended MarchJune 31,30, 2026 andwer e March 31, 2025 were $41.8 million and $38.3$82.9 million, respectively,or 34.2% of net sales, compared to $74.4 million, or 33.6%33.9% of sales.net sales, for the six months ended June 30, 2025. The increase in operating expenses as a percentage of net sales was due to higheran logisticsapproximate costs$1.1 million write-off of accounts receivable associated with thea increasecustomer bankruptcy in Retailthe sales.second quarter of 2026.

InterestIncome Expensefrom and Other - netoperations for the three six months ended MarchJune 31,30, 2026 was $23.3 $2.0million, millionor 9.6% of net sales, compared to $2.4$15.9 millionmillion, or 7.2% of net sales, in the year agoyear-ago period. The decreasein crease in interestincome expensefrom operations was dueprimarily driven by the increase in gross margin for the six months ended June 30, 2026 compared to lowerthe debtyear-ago levels as well as a decrease in interest rates.period.

The decrease in our effective tax rate in the firstsecond quarter of 2026 compared to the year agoyear-ago period was primarily due to the mix of earnings between the United States and our international subsidiaries.

Our principal sources of liquidity are our income from operations, as well as access to the borrowing capacity under our ABL Facility. We believe that we have sufficient liquidity to support our ongoing operations and to re-invest in our business to drive future growth. As of MarchJune 31,30, 2026, we maintained cash and cash equivalents of $1.7$2.6 million and had $48.5$46.3 million of availability under our ABL Facility. Our primary ongoing operating cash flow requirements are for inventory purchases and other working capital needs, capital expenditures, and payments on our credit facilities.

In addition to our ABL Facility with outstanding borrowings of $99.1$101.3 million as of MarchJune 31,30, 2026, we also have a Term Facility with outstanding borrowings of $24.7$22.6 million as of MarchJune 31,30, 2026. Our ABL Facility and Term Facility require us to maintain a minimum fixed charge coverage ratio, as defined in the ABL Agreement. Additionally, the ABL Facility and Term Facility contain restrictions on the amount of dividend payments and the amount of share repurchases of common stock. As of MarchJune 31,30, 2026, we were in compliance with such covenants and restrictions under the ABL Facility and Term Facility. We may utilize portions of our excess cash to prepay certain amounts of long-term debt prior to maturity.

As of MarchJune 31,30, 2026, our material cash requirements from known contractual obligations and commitments relate primarily to our long-term debt and operating leases commitments. See Note 9 - Long-Term Debt to the Unaudited Condensed Consolidated Financial Statement for more information. Based on our current expectations and forecasts of future earnings, we believe our cash generated from operations will provide sufficient liquidity to fund our operations and debt and lease obligations for the next twelve months and beyond.

Operating Activities. Net cash provided by operating activities was $1.9$9.7 million and $1.2$2.0 million for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. AdjustingThe forincrease noncashin items,cash provided by operating activities was primarily due to an increase in net income providedresulting afrom cashan in-flowincrease in net sales over the prior year period as well as IEEPA tariff refunds received during the second quarter of $5.5 million and $8.8 million for the three months ended March 31, 2026 and 2025, respectively.2026. The net change in working capital and other assets and liabilities resulted in cash used by operating activities of $3.6$14.5 million and $7.6$14.2 million for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively.

During the threesix months ended MarchJune 31,30, 2026, the net change in working capital was primarily impacted by an increase in accounts payablereceivable and a decrease in accrued expenses. The increase in accounts payable resulted in a source of cash of $6.8 millionreceivable and the decrease in accrued expenses resulted in a use of cash of $7.0$16.5 million.million and $5.0 million, respectively. The increase in accounts payablereceivable forwas primarily due to the three months ended March 31, 2026 was a resultrecognition of the timingIEEPA oftariff paymentsrefunds to suppliers and an increase in inventory purchasesreceivable in the firstsecond quarter of 2026 compared to fourth quarter of 2025.2026. The decrease in accrued expenses for the threesix months ended MarchJune 31,30, 2026 was a result of thea decrease in tariff reductionscosts imposedas duringa result of the U.S. Supreme Court's ruling to invalidate certain IEEPA tariffs in the first quarter of 2026. During the threesix months ended MarchJune 31,30, 2025, the net change in working capital was primarily impacted by an increase in inventory and accounts payable. An increase in inventory resultedresulting in a use of cash of $8.8 million and an increase in accounts payable resulted in a source of cash of $5.6$20.1 million. The increase in inventory and accounts payable was thea result of athe strategicadditional movetariffs imposed during 2025 as well as increased purchases in order to acceleratemeet inventoryestimated receiptsdemand in Marchthe tosecond avoidhalf higher tariffs that did not go into effect until Aprilof 2025.

Investing Activities. Net cash used in investing activities for the threesix months ended MarchJune 31,30, 2026 and 2025 was $1.1$4.8 million and $0.7$3.9 million, respectively. The use of cash in both periods was a result of capital expenditures for our manufacturing operationsoperations, distribution center, and information technology.

On February 24, 2026, we announced a share repurchase program of up to $7,500,000 of the Company's outstanding common stock, no par value per share. As of June 30, 2026, we repurchased 53,664 shares of common stock under our authorized share repurchase program. The shares were purchased at an aggregate cost of $2.0 million and an average price of $37.09 per share.