The recent earnings call for Rocky Brands (NASDAQ: <a href="https://seekingalpha.com/symbol/RCKY" alt="Rocky Brands Inc.">RCKY</a>) held on April 30th, 2023, was, on the surface, a story of cautious optimism. The company exceeded expectations for Q1 2024, with both sales and earnings ahead of projections. Durango and XTRATUF brands shone brightly with double-digit gains. CEO Jason Brooks even acknowledged that wholesale demand was returning to "normalcy" after a period of inventory adjustments at retail. Yet, beneath this positive narrative, a fascinating detail emerges, one that seems to have slipped past the radar of most analysts: the profound impact of a military contract on Rocky Brands' recent performance and its strategic downplaying of this success in their forward-looking guidance.

Throughout the call, executives alluded to the completion of a "last shipment under an elevated purchase agreement" for their commercial military product line. This agreement, supplying footwear and gear to a customer who, in turn, supplies the US Army, played a significant, though somewhat obscured, role in Rocky Brands' Q1 triumph. The exact financial magnitude of this contract was not explicitly stated. However, CFO Thomas Robertson provided a crucial clue in his summary of 2023 revenue that would "not reoccur in 2024," amounting to approximately $26 million. While this figure encompasses other factors like the discontinued Service Brand and the shift to a Canadian distributor model, the military contract appears to be the most substantial contributor.

The influence of this contract becomes even more compelling when we examine Rocky Brands' previous earnings call on February 28th, 2024, covering Q4 2023 and the full year. Here, the military contract is painted as a bright spot throughout the year, driving robust sales in a segment otherwise hit by wholesale inventory adjustments. CEO Brooks highlighted the "strongest year in recent memory" for the commercial military business, specifically citing orders related to the US Army and the "escalation in global geopolitical events." This context strongly suggests that the "elevated purchase agreement" referenced in the Q1 call was directly linked to the heightened military demand in 2023.

Now, the intriguing twist. Despite acknowledging the completion of this contract, Rocky Brands' guidance for the full year 2024 remains surprisingly conservative. They project revenue to be towards the higher end of a range of $450 million to $460 million, representing approximately 3% to 4% growth over the 2023 adjusted base of $438 million (which excludes the non-recurring $26 million, largely attributable to the military contract). This means that Rocky Brands is essentially forecasting a revenue increase that would offset the loss of the military contract revenue *while simultaneously* achieving organic growth across their other brands.

Why Downplay Success?

It's possible that Rocky Brands is simply exercising prudence. Election year uncertainty and the lingering effects of a volatile retail landscape may justify a conservative stance. However, this explanation feels incomplete. A more nuanced interpretation emerges when we consider Rocky Brands' broader corporate strategy.

"**Fun Fact:** Rocky Brands is a company deeply rooted in its heritage, with a history stretching back to 1932. It's a company that values long-term, sustainable growth over flashy, short-term gains. This preference for steady progress, combined with a focus on building consumer trust and brand loyalty, offers a clue to their guidance strategy."

By deliberately setting expectations at a level that may be readily surpassed, Rocky Brands can achieve several strategic objectives:

1. **Outperformance:** Consistently beating guidance generates positive investor sentiment. It portrays a company in control, capable of navigating challenging market dynamics.

2. **Flexibility:** A conservative guidance range provides greater flexibility to adjust spending throughout the year. They can invest in growth opportunities that emerge or pull back if the market softens, without triggering negative reactions from investors.

3. **Downplaying Risk:** By not emphasizing the significance of the military contract in their prior performance, Rocky Brands avoids the perception that their future growth is overly reliant on a single, potentially volatile revenue stream.

4. **Long-Term Focus:** The guidance reinforces the message that Rocky Brands is committed to sustainable, long-term growth, prioritizing the development of their core brands and consumer relationships over short-term spikes in revenue.

Revenue Breakdown (Hypothetical)

This chart illustrates a hypothetical breakdown of Rocky Brands' 2023 revenue, including the estimated portion attributed to the "elevated purchase agreement" for commercial military products.

Conclusion

Rocky Brands' Q1 2024 results reveal a company expertly managing both the opportunities and the optics of success. They have leveraged a military contract to bolster their financial position, but their forward-looking guidance suggests a deliberate downplaying of this influence. This strategy allows them to project an image of controlled, sustainable growth, positioning them for continued success in the long term. By recognizing the subtle interplay of financial performance and strategic messaging, we gain a deeper understanding of Rocky Brands' potential to deliver enduring value to their investors.

"**Interesting Observation:** The non-recurring revenue appears to be more heavily concentrated in the first three quarters of 2023, leaving Q4 as a more "normalized" baseline for comparison. This lends further credence to the hypothesis that Rocky Brands' current guidance anticipates substantial organic growth to offset the loss of the military contract."