Rocky Brands, Inc. (Nasdaq: RCKY) this week announced financial results for its fourth quarter and year ended December 31, 2007.

For the fourth quarter of 2007, net sales increased 2.8% to $72.5 million versus net sales of $70.6 million in the fourth quarter of 2006. For the fourth quarter, the Company reported a net loss of $23.6 million, or ($4.31) per diluted share, versus a net loss of $0.08 million, or ($0.01) per diluted share, for the fourth quarter of 2006. Results for the fourth quarter of 2007 include a non-cash charge of $23.5 million, net of tax benefits, or ($4.29) per diluted share, for goodwill impairment, which is discussed below. Results for the fourth quarter of 2006 include a non-cash impairment charge of $0.5 million, net of tax benefits, or $0.09 per diluted share reflecting the write-down of intangible assets related to the Gates trademark. Excluding these charges, the Company reported a net loss of $0.1 million, or ($0.02) per diluted share in the fourth quarter of 2007 compared to a net income of $0.4 million, or $0.08 per diluted share in the fourth quarter of 2006.

For the full year 2007, net sales increased 4.5% to $275.3 million versus net sales of $263.5 million in 2006. For the full year 2007, the Company reported a net loss of $23.1 million, or ($4.22) per diluted share, compared to net income of $4.8 million, or $0.86 per diluted share in 2006. Results for fiscal 2007 include a non-cash charge of $23.5 million, net of tax benefits, or ($4.30) per diluted share, for goodwill impairment. Results for fiscal 2007 include a non-cash charge of $23.5 million, net of tax benefits, or ($4.29) per diluted share, for goodwill impairment, which is discussed below. Results for fiscal 2006 include a non-cash impairment charge of $0.5 million, net of tax benefits, or $0.09 per diluted share reflecting the write-down of intangible assets related to the Gates trademark. Excluding these charges, the Company reported net income of $0.4 million, or $0.08, per diluted share in fiscal 2007 compared to a net income of $5.3 million, or $0.95 per diluted share in fiscal 2006.

During the fourth quarter, the Company conducted its annual impairment testing required by SFAS No. 142, “Goodwill and Other Intangible Assets,” for fiscal 2007. As a result of the evaluation, the Company determined that the carrying amount of the goodwill exceeded its implied fair value, and recognized an impairment loss on the carrying value of goodwill in the amount of $23.5 million, net of tax benefits, in 2007. In the fourth quarter of 2006, the Company recognized an impairment loss on the carrying value of the Gates trademark in the amount of $0.5 million, net of tax benefits.

Mike Brooks, Chairman and Chief Executive Officer, commented, “Our fourth quarter performance was highlighted by positive gains in our retail business combined with the initial shipments of footwear to the military. Retail sales rose 31.5% as we continued to add more national accounts and increase our share of the market. However, we experienced softness in our outdoor and western footwear segments which negatively impacted our sales and earnings. We are taking steps to reverse the trends in these categories and improve our overall profitability in 2008.”

Fourth Quarter Results

Net sales for the fourth quarter of 2007 were $72.5 million compared to $70.6 million a year ago. The increase in sales was attributable to higher sales in our retail segment and to a lesser extent, footwear sales to the military, partially offset by a decline in outdoor and western footwear sales in our wholesale segment.

Gross profit in the fourth quarter of 2007 was $28.7 million, or 39.6% of sales compared to $28.2 million, or 40.0% for the same period last year. The 40 basis point decrease in gross margin was primarily due to the increase in shipments to the U.S. military in the fourth quarter of 2007 compared to the fourth quarter of 2006. Military boots are sold at lower gross margins than branded products.

Selling, general and administrative (SG&A) expenses were $26.2 million, or 36.1% of sales, for the fourth quarter of 2007 compared to $24.5 million, or 34.7% of sales, a year ago. The increase was primarily a result of higher salaries, commissions and bad debt expenses versus the year before.

Income from operations, excluding the non-cash intangible impairment charge, was $2.5 million, or 3.5% of net sales for the fourth quarter of 2007, compared to income from operations, excluding the impairment loss on the carrying value of the Gates trademark, of $3.8 million or 5.3% of net sales for the fourth quarter of 2006.

2007 Year-End Results

Net sales for the year ended December 31, 2007 were $275.3 million compared to net sales of $263.5 million for the year ended December 31, 2006. The increase in sales was primarily attributable to higher sales in our retail segment.

Gross profit was $108.0 million, or 39.2% of sales, compared to $109.3 million, or 41.5% of sales for the same period last year. The 230 basis point decrease was primarily due to a reduction in sales price per unit for competitive reasons in the wholesale segment combined with an increase in manufacturing costs and higher closeout sales versus the prior year.

Selling, general and administrative (SG&A) expenses were $96.4 million, or 35.0% of sales, compared to $89.6 million, or 34.0% of sales, a year ago. The increase was primarily a result of higher salaries and commissions, bad debt and collection expenses and professional fees versus the year before.

Income from operations, excluding the non-cash intangible impairment charge, was $11.6 million, or 4.2% of net sales for fiscal 2007, compared to income from operations, excluding the impairment loss on the carrying value of the Gates trademark, of $19.7 million or 7.5% of net sales for fiscal 2006.

Funded Debt and Interest Expense

The Company’s funded debt at December 31, 2007 improved to $103.5 million versus $110.5 million at December 31, 2006 Interest expense decreased to $2.9 million for the fourth quarter of 2007 versus $3.3 million for the same period last year, and remained flat at $11.6 million for 2007 versus $11.6 million for 2006.

Inventory

Inventory decreased to $75.4 million at December 31, 2007 compared with $77.9 million on the same date a year ago.

Mr. Brooks concluded, “Fiscal 2007 was a challenging year for our Company as we faced increased competition, pricing pressure, and a difficult consumer environment. Over the past 12-months we have implemented several initiatives aimed at expanding margins, reducing operating expenses, and improving earnings. At the same time, we have taken steps to further diversify our business by creating additional growth vehicles and penetrating new categories that we believe provide our Company with compelling long-term prospects. As we begin the new year, we are very focused on successfully executing a strategy that will position us for better operational and financial performances and enable us to become a stronger, more disciplined organization.”

About Rocky Brands, Inc.

Rocky Brands, Inc. is a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names including Rocky Outdoor Gear®, Georgia Boot®, Durango®, Lehigh®, and the licensed brands Dickies®, Zumfoot® and Michelin®.