Rocky Brands - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 net sales rose 1.7% to $128.1M; gross margin expanded 120 bps to 41.5%, with Retail hitting its highest-ever quarterly sales and adjusted EPS increasing to $1.19, up from $0.98 YoY.
• GAAP EPS was $0.64 (vs. $0.91 LY) due to a $4.0M non‑cash trademark impairment; adjusted net income rose 22.7% to $8.9M as interest expense fell to $3.0M on lower debt after April 2024 refinancing.
• FY 2024 debt fell 25.7% YoY to $128.7M; Board authorized a new $7.5M share repurchase and declared a $0.155 quarterly dividend payable March 17, 2025, adding capital return and potential stock support catalysts.
• 2025 outlook: revenue low single-digit growth vs. $453.8M, gross margin down modestly (~110 bps tariff headwind), SG&A similar % of revenue, lower interest expense; tax rate normalizes to ~22–23% and EPS expected just below FY2024 adjusted $2.54 (ex‑tariffs ~20% higher).
• Wall Street consensus (S&P Global) could not be retrieved during this session; comparisons to estimates are unavailable. If you want, we can re‑run S&P Global pulls for consensus EPS/revenue after system limits reset.

What Went Well and What Went Wrong

What Went Well

• Retail sales +15.3% to $43.6M; “highest ever sales quarter” for the Retail segment, driven by strong DTC momentum and targeted promotions; Durango and XTRATUF delivered double-digit gains and record December months.
• Gross margin +120 bps to 41.5%; Wholesale margin +310 bps to 38.5%, aided by mix shift and improved pricing; interest expense declined to $3.0M on refinancing and lower debt.
• Balance sheet strengthened: total debt down 25.7% YoY to $128.7M; inventory down 1.5% YoY and 3.0% sequentially, enabling more aggressive inventory positioning in 2025 (XTRATUF, Muck).

What Went Wrong

• GAAP operating income declined to $8.5M (from $14.7M LY) and GAAP EPS to $0.64 (from $0.91), primarily due to a $4.0M trademark impairment and higher SG&A (marketing/logistics/incentives).
• Wholesale segment sales –5.2% to $81.3M (up 4.5% recurring), pressured by holiday promotions and partner inventory challenges; Rocky Outdoor was impacted by mild hunting weather and a narrow selling window.
• Retail gross margin –370 bps to 49.2% as marketplace channel was used to clear discontinued/slow‑moving product, trading off margin for profitable inventory rationalization.

Transcript

Operator (participant)

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rocky Brands Q4 2024 Earnings Conference Call. At this time, all participants are on a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided for you at that time. If anyone has difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded. I will now turn the conference over to your host, Brendan Frey of ICR. Thank you. You may begin.

Brendon Frey (Partner)

Thanks, Rob, and thanks to everyone joining us today. Before we begin, please note that today's session, 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 changes, 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 our reports filed with the Securities and Exchange Commission, including our 10-K for the year ended December 31, 2023. I'll now turn the conference over to Jason Brooks, Chief Executive Officer of Rocky Brands. Jason?

Jason Brooks (President, CEO, and Chairman)

Thank you, Brendan. With me on today's call is Tom Robertson, our Chief Operating and Chief Financial Officer. After our prepared remarks, we will be happy to take questions. The Q4 marked a solid conclusion to 2024, a year in which we navigated microeconomic headwinds, lap business model changes, and non-recurring sales from 2023 that made our year-over-year comparisons more difficult. Looking at our results on an apples-to-apples basis, the performance of our core business was encouraging, especially in the Q4, while sales trends accelerated as the holiday season progressed, led by demand for our Durango and XTRATUF brands. Demand was particularly strong in our direct-to-consumer channel, which fueled the highest-ever sales volume quarter for our retail segment. At the same time, recurring wholesale sales returned to growth in Q4, increasing mid-single digits for the quarter.

Helping to drive our recent top-line performance was additional investments in demand creation. We underinvested in marketing in the year-ago period and made the decision to bring spending back in line with historical levels this Q4. We are pleased with the momentum this generated, and we plan to make further incremental investments going forward to increase brand awareness and drive traffic to our sites and our wholesale partner doors. Before I hand over to Tom for a more detailed look at the financials, I'll take a few moments to walk through our brand and channel performance. Much like last quarter, our Durango and XTRATUF brands were the standouts in our portfolio that helped deliver better-than-anticipated top-line results in Q4. Durango built upon its recent momentum, driven by strong sell-through across key accounts and farm and ranch partners, and an uptick in at-once business.

Our recent work to clear overstock and discontinued styles allowed us to better position our inventory to meet the strongest pockets of demand, serve new niches, and accelerate turn rates. In the near term, we are excited about the launch of new on-trend products, as well as expanding the brand into new categories, providing potential catalysts for upside with Durango. XTRATUF delivered another exceptional quarter, finishing with strong double-digit gains. Growth was strong in both the wholesale and e-commerce channels, driven by better-than-expected holiday performance and strong consumer reception to both our core product and new Fall 2024 styles. Of particular note, this summer's new Tailgate Collection of ankle-deck boots in sports-inspired colorways, along with our new kids' TUFS collection, continue to be successful and drive incremental growth for the brand.

These new products are opening up a whole new customer set, with women's and kids' offerings now making up approximately 40% of the brand's sales collectively. Overall, XTRATUF performed very well in 2024, surpassing expectations and ending the year with a strong momentum. Our focus remains on the launches of our highly anticipated 2025 summer, fall, and holiday lines, keeping our customer shelves well-stocked and the XTRATUF brand top of mind for our consumers. Our other rubber-based brand, Muck, delivered solid overall performance in the Q4, driven largely by cold, wet weather across much of the U.S., particularly late in the quarter. In fact, December was the best month for the brand in some time. While some factory delays and capacity issues were headwinds in the period, this dynamic allowed us to work through closeout items and position the brand for continued success into the new year.

Our new digital advertising efforts continue to drive incremental demand, helping deliver a successful holiday for the brand's new Fall 2024 styles. Looking ahead, we increased our digital campaign spend in December and pivoted focus to our Arctic cold-weather products, and are optimistic that we can continue December's momentum into the Q1. Georgia Boot delivered a slight increase in Q4 compared to a year-ago period. A combination of better boot weather and post-election clarity drove a strong November and December for the brand. Throughout the quarter, we saw solid demand across our account base and also had success adding new accounts in the period. Throughout 2024, the Georgia team has focused on finding and delivering the value sweet spot for our work-based product.

This strategy is now beginning to deliver results, with new product being adopted by a number of our large retail partners in the Q4 without cannibalizing existing SKUs. Looking ahead, we remain cautiously optimistic that we can continue to build Georgia from here with our new product approach. Turning to Rocky, we saw pockets of strength across the work, western, and outdoor segments in our DTC channel. However, the promotional holiday period and continuing inventory challenge for key retail partners weighed on overall fourth-quarter results. Our work segment was the best performing during the period, with modest declines compared to a year ago. We continue to adjust the work product mix and value propositions to better match consumer needs while offering unique product that will set us apart from other work competitors.

While the work team had a challenging quarter in wholesale, we were pleased with the level of work demand on our own DTC site, demonstrating that our new product continues to resonate with consumers. In Rocky Western, similar efforts to reposition with new value-driven product and more competitive price points are gaining traction. However, the elevated level of holiday promotions in the marketplace during the Q4 pressured demand and slowed our progress. We continue to believe our revamped strategy and product is resonating with our customers as we saw steady DTC volumes during the period, along with solid dropship sales through specialty western distributors that provided confidence in our more value-focused strategy moving forward. With respect to Rocky Outdoor, another poor season for hunting and outdoor weather in the critical narrow sales window weighed on fourth-quarter sales.

As we shared, back-to-back years of more mild weather has led to an over-inventory of hunting footwear and apparel with many of our key retail partners. While better boot weather later in the quarter did help offset some of the early weaknesses, the short seasonal window, primarily October through early November, for much of the hunting specialty product made it challenging to make up ground. Looking ahead, we are optimistic that our non-hunting footwear led by rugged, casual styles will continue to provide a degree of mitigation as the more hunting-focused inventory works its way through our retail partners. Lastly, in our commercial military and duty segments, was down in line with our expectations. We are still facing a sizable military blanket purchase agreement that elevated 2023 sales on a comparison basis. Additionally, in Q4, we saw hesitancy to spend allocated monies due to anticipated administrative change.

We did see some offsets to these headwinds, primarily from the continuing strength of our fire category. Looking ahead to 2025, we anticipate being able to return the segment to a positive comparison with 2023's elevated sales behind us. Shifting to retail, our branded e-commerce sites and marketplace business continued their recent positive momentum in the Q4. Across our digital platforms, we successfully navigated and consented a holiday shopping season through targeted promotional strategies and enhanced consumer engagement initiatives. Notable areas of strength included XTRATUF and Durango, which both delivered their best month ever in December, strong double-digit gains in Rocky, and solid increases for Muck and Georgia online. Shifting to our B2B Lehigh business, sales were up double digits compared to a year-ago period, marking two consecutive quarters of double-digit growth.

We credit recent success to our work in the first half of the year to significantly realigning our sales organization to improve our sales pipeline and provide greater continuation in account setup, rollout, and implementation. These positive results continue to accelerate with new account openings jumping meaningfully for Q3 and Q4. Along with these sizable gains, customer spending continues to be strong, which inspires confidence that Lehigh will be able to continue its momentum into the new year. We feel good about the overall health of our business as 2025 gets underway. Like any portfolio, we expect varying degrees of performance among our brands and channels, but collectively, we are expecting another year of solid growth. Our optimism is being somewhat tempered by continued uncertainty around the consumers as recent purchasing behaviors have been more unpredictable, which is causing many retailers to be cautious with their inventory commitments in general.

However, based on the sell-through of our brands over the past several months, both in stores and online, we believe we are in a position well versus the competition to continue gaining share in our categories. In closing, I want to thank the entire Rocky Brands team for their hard work this past year and their commitment to delivering great product and great experience for our consumers. I also want to thank our loyal consumers, retail customers, suppliers, and shareholders for our ongoing support of our brands and company. I will now turn the call over to Tom. Tom?

Thomas D. Robertson (COO and CFO)

Thanks, Jason. As Jason shared, we had a good Q4 highlighted by strong gains in our retail segment and a nice improvement in our wholesale segment when comparing results on a recurring basis.

This brought full-year sales towards the midpoint of our guidance range and profitability in line with our expectations as meaningfully gross margin expansion helped to offset higher expenses associated with planned increases in marketing, incentive compensation, and fulfillment costs associated with the increase in direct-to-consumer sales. For the Q4, sales increased 1.7% year over year to $128.1 million, or 8.8% when you exclude certain non-recurring sales in the Q4 of 2023 related to the change in the distributor model in Canada and temporarily elevated commercial military footwear sales to a single customer. By segment, wholesale sales were $81.3 million, a decrease of 5.2%, but up 4.5% on a recurring basis. Retail sales increased 15.3%, or 16.3% on a recurring basis to $43.6 million, the segment's highest-ever quarterly sales figure. Contract manufacturing sales increased 39.1% to $3.2 million. Turning to gross profit.

For the Q4, gross profit was $53.2 million, or 41.5% of net sales, compared to $50.7 million, or 40.3% of net sales in the same period last year. The 120 basis point increase in gross margin as a percentage of net sales was attributable to an increase in the wholesale gross margin as well as higher mix of retail segment sales, which carry higher gross margins than the wholesale and contract manufacturing segments. Gross margins by segment were as follows. Wholesale up 310 basis points to 38.5%. Retail gross margins were down 370 basis points to 49.2%, and contract manufacturing was up 110 basis points to 14.8%. Operating expenses were $44.7 million, or 34.9% of net sales in the Q4 of 2024, compared to $36 million, or 28.6% of net sales last year.

During the Q4, we completed our annual impairment testing of goodwill and other intangible assets, and as a result, we recorded a $4 million non-cash trademark impairment charge related to the Muck brand. Excluding this charge and acquisition-related amortization, adjusted operating expenses were $40 million in the Q4 of 2024 versus $35.2 million in the Q4 of 2023. As Jason said in his remarks, we underinvested in our brands during the year-ago quarter, and we purposely increased investments this year more in line with historic levels. We also incurred higher logistics costs this year associated with the 15% increase in retail segment sales and higher incentive compensation based on our performance. Compared to two years ago, adjusted operating expenses as a percentage of net sales were 31.2% this year versus 29.8% in the Q4 of 2022.

Income from operations was $8.5 million, or 6.6% of net sales, compared to $14.7 million, or 11.7% of net sales in the year-ago period. Adjusted operating income was $13.2 million, or 10.3% of net sales, compared to adjusted operating income of $15.5 million, or 12.3% of net sales a year ago. For the Q4 of 2024, interest expense was $3 million, compared with $5.3 million in the year-ago period. The decrease reflects lower debt levels and lower interest rates in the quarter compared to the Q4 of 2023. On a GAAP basis, we reported net income of $4.8 million, or $0.64 per diluted share, compared to net income of $6.7 million, or $0.91 per diluted share in the Q4 of 2023.

Adjusted net income for the Q4 of 2024 was $8.9 million, or $1.19 per diluted share, compared to adjusted net income of $7.3 million, or $0.98 per diluted share in the year-ago period. For the full year, net sales were down 1.7% on a reported basis, but up 5.3% on a recurring basis to $453.8 million. By segment, recurring wholesale sales increased 0.7%. Recurring retail sales up 10.2%, and contract manufacturing increased 202.2%. In terms of profitability, gross margins increased 70 basis points to 39.4%. Adjusted operating income was $37.8 million, or 8.3% of net sales. Adjusted net income was $19 million, up from $14.3 million in 2023, and adjusted EPS increased to $2.54 from the $1.93 in the prior year. For the full year, interest expense was $17 million, inclusive of a $2.6 million one-time loan extinguishment charge, compared with $21.2 million in 2023.

Excluding this one-time charge, interest expense decreased 32.1% year over year. Our effective tax rate for 2024 was 19%, compared to 26.3% in the prior year. Driven primarily by return-to-provision adjustments resulting from foreign tax credits recognized in the Q4 of 2023, we expect our tax rate for 2025 to normalize around 22-23%. Turning to our balance sheet, at the end of 2024, cash and cash equivalents stood at $3.7 million, and our debt, net of unamortized debt issuance cost, totaled $128.7 million. We've made excellent progress paying down our debt over the last 12 months, with total indebtedness down 25.7% compared to the end of last year. We also returned $4.6 million directly to shareholders through quarterly dividends in 2024.

Finally, as we announced in our earnings release today, the board has approved a new share repurchase program of up to $7.5 million of the company's outstanding common stock. This program replaces the previous repurchase program that expired in March of 2022. Now to our outlook. To reiterate what Jason said, we feel good about the health of our business, but are aware that consumer uncertainty continues to generate an elevated level of caution among our retail partners. The good news relative to a year ago is that the channel inventories are much cleaner, so good sell-through should translate into improved replenishment orders. In terms of costs, we are facing pressure from the 10% increase in tariffs on products sourced from China recently enacted by the new administration. In 2024, approximately 50% of our footwear was manufactured in China, either at our own facility in Chuzhou or by third-party suppliers.

We are working to reduce our third-party exposure and anticipate total goods coming from China to be below 35% by the end of 2025, but plan to maintain manufacturing presence in China as our cost to produce products remains competitive even with the increase in tariffs. For the year, we expect revenue to increase in the low single-digit range over 2024 revenue of $453.8 million. This expectation is based on the anticipation of another year of strong gains from our retail segment, along with steady growth in wholesale, partially offset by roughly $4 million less in contract manufacturing sales. We are forecasting gross margins to be down modestly from the 39.4% we reported in 2024. This includes roughly a 110 basis point headwind from higher tariff, which without gross margins would be up year over year.

SG&A is expected to be up in dollars as an increase in our marketing spend to support growth and realize higher logistics costs from the projected increase in retail sales. However, as a percentage of revenue, expenses will be similar to last year. Interest expense will take another step down this year based on our year-end debt levels and current interest rates, helping to nearly offset the 110 basis point impact on operating margins from higher tariffs. This puts 2025 EPS just below 2024's adjusted EPS of $2.54, but up approximately 20%, excluding the impact from higher tariffs. That concludes our prepared remarks. Operator, we are now ready for questions.

Operator (participant)

Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you'd like to remove your question from the queue. One moment, please, while we poll for questions. Our first question comes from Jonathan Komp with Baird. Please proceed with your question.

Jonathan R. Komp (Senior Research Analyst)

Yeah. Hi. Good afternoon. Thank you. Can I just follow up the commentary around more mixed recent indicators? Could you just clarify a little further what you're seeing? It sounds like sell-through is maybe holding up better, so just curious some of the observations you have there.

Thomas D. Robertson (COO and CFO)

Yes. Jon, I'll start, and Jason certainly will chime in here. I think, obviously, with the weather that we saw later in the Q4 and at the beginning of this year, we've seen good sell-through from the retailers, but we recognize that they are being cautious as they go forward. We are being cautious as we give guidance for the rest of the year. Jason, I don't know if you've got any more clarity there.

Jason Brooks (President, CEO, and Chairman)

Yeah. I think as the weather came into January and then still continued through February, I think the retailers said, "Hey, eventually, it's going to stop." They have been working through the inventory they had and coming to us when they need to, but it's been a little bit different pace.

Jonathan R. Komp (Senior Research Analyst)

Okay. If you look forward to low single-digit growth for revenue for the year, can you talk about some of the factors that are giving you confidence and any shaping as we think about Q1 relative to the full-year target?

Thomas D. Robertson (COO and CFO)

Yeah. I think as we look at our order book and our bookings for the rest of the year, we're up year over year, so that makes us feel good. I think that we're just hearing a lot of cautious behavior from the retailers and maybe at-once ordering, and so we're probably being a hair conservative there. As we look to the quarters and the cadence for the year, Q1, we've been talking about this the last couple of earnings calls. We've been chasing a little bit of inventory for XTRATUF and Muck, particularly, and so we're continuing to chase here through Q1. We are anticipating a little bit of a late delivery of some spring product as we were trying to replenish active styles.

We are going to see a little bit of a shift from Q1 into Q2 a little bit. For all intents and purposes, we see Q1 sales flattish with last year. Really, the increases in sales that we called out, the low single digits, are really happening in Q2 and more so in Q3 as inventory is back in stock and just given where we can see our booking sitting today.

Jonathan R. Komp (Senior Research Analyst)

Okay. Great. A follow-up on the tariff impact. I think you called out 110 basis points. Can you just clarify? Is that the gross impact, or is that a net of any offsets? Is that just the current tariffs expected as of today? Any more color there? How should we think about any decisions around pricing or other actions that you could take?

Jason Brooks (President, CEO, and Chairman)

Yeah. I'll start here, Jon. It's definitely only considering the existing tariffs that have been put in place, and we are evaluating all options to try to cover those, right? We are evaluating some price increases.

We've seen some of our competitors already do that in the marketplace. We are also going to our vendor partners and talking about different options and ways they can support and help. Raw materials are obviously another way. I think we have a really good plan in place there, and we think we'll be able to ultimately find a good positive there, but it's going to take us probably into—it is definitely going to take us into 2026. That is why we think the impact is really going to be more in Q3 and Q4, maybe a little in Q2, but we've got pretty good inventory, and I feel pretty good about that right now.

Thomas D. Robertson (COO and CFO)

Yeah. I think, Jon, just to add on there, I think as we look at margins throughout the year, Jason touched on it, right?

The 110 basis points, it's an implied five-ish million dollars of tariffs. Some of that's already been mitigated. That number was north of that a couple of months ago when we were anticipating the tariffs were coming. We have mitigated some of that. To Jason's point, we're going to continue to mitigate that. That is just kind of where we view the world today. Obviously, a lot of uncertainty, again, to Jason's point about any new tariffs or incremental tariffs or reciprocal tariffs in other areas. We are going to continue to mitigate that. We have plans. We have seen a couple of peers of ours adjust some pricing. Nothing dramatic, but we have seen that, and we are monitoring that as well. I think big picture, I think we are in a really good position comparatively.

The fact that we have our own and operated manufacturing facilities allows us to be a little bit more nimble potentially than some of our peers. We are going to continue to do that. We are continuing to push our partners in Asia to either expedite their plans to get into other countries in Asia or even to push more capacity in countries like Vietnam, Cambodia, and partners of ours in the Dominican Republic. We are going to continue to mitigate that, but the 110 basis points is kind of how we see it today. I did want to call out maybe one other thing from earlier, a slight increase in maybe wholesale margins in the Q1 of this year because we still have—and this will be the end of that one-time contract that we had with that one—the elevated non-recurring sales that we talked about all year.

Q1 of 2024 was the last quarter that we shipped on that contract. There is $2-3 million of non-recurring sales, I'm sorry, that we're not going to have this year, but there should be a slight improvement on our wholesale margins because of that. I just wanted to call that out for why we think Q1 will be more flat to LY.

Jonathan R. Komp (Senior Research Analyst)

Okay. Great. Maybe last one for me. Just as you think about the key growth drivers in 2025, I know you've highlighted some of the strengths for XTRATUF, parts of the Muck business, women's, Western for Durango in recent quarters. Can you just maybe rank order, discuss some of the biggest contributors as you look forward to the key drivers in 2025? Thanks again.

Jason Brooks (President, CEO, and Chairman)

Yeah. Yeah. Sorry. Thanks, Jon. Sure, Tom will add some, but you hit on them, right? XTRATUF is definitely one of our strongest growing brands right now. As Tom had indicated, we are chasing it, and we are still chasing it. Some of that product for spring is moving into Q2, but we are going to continue to chase it. You even touched a little bit on the women's and kids, or I touched on it too. We are seeing some nice growth there, and that is exciting to get out of our men's footwear business because that is the majority of what we have. The Muck brand is also seeing some nice bookings for fall.

We've got some new product out there that's doing really well, particularly in the camouflage hunting market, which is kind of an odd thing because I know we talked about how that's hindering Rocky, but in the rubber boot business, it seems to be a little bit better. Durango continues to be a strong brand, and as we all know, our partners at Boot Barn are doing well, so we'll continue to see some things going there. Some of the places we're seeing some different success, and it's small for us, but it's exciting, is a little more what I call is just casual-type footwear. Rocky is seeing a little bit of it. Rocky introduced a 6-inch casual kind of work boot with a BOA system on it that seems to be checking pretty well at retail. Georgia's got a few little things happening.

We've been expanding into some other retailers with Georgia. Nothing huge in those two areas, but I think those are some places that we're pretty excited about and have seen some new bookings for fall, which I think is great.

Thomas D. Robertson (COO and CFO)

I think just to add on, Jon, I echo all of Jason's comments, but also as we look to that retail segment, the strength of Lehigh over the last few quarters has been phenomenal, and it's been really exciting to see this shift in we reorganized the sales team and how this seems to be clicking and checking with our consumers, and they continue to see success. We are optimistic for them in 2025. We have kind of reinvigorated our marketplace team, and we have been using our marketplace team to really unload discontinued or slower-moving product at a reasonable margin.

That's a little bit of why you saw the margins tweak down a little bit in that retail segment as we're selling more discontinued product there. Ultimately, it's a more profitable way of selling that product, and we're going to continue hopefully to see that be successful throughout 2025. I think the one thing out here, and it's something that we're going to be able to take advantage of in 2025 that we really couldn't in 2024 or 2023, is really we're being more aggressive when it comes to an inventory perspective, particularly for the XTRATUF and the Muck brands. We recognize that with Muck, you have to have the inventory when the weather shows up. We have very long lead times on our rubber product.

We're going to be investing in inventory for Muck, but also we're trying to get ahead of bookings and demand for XTRATUF. With where our balance sheet is today, that's going to allow us to be more aggressive there. If the demand is there, we'll be able to capitalize on it more so than we did in 2024. The other call out there, just from a modeling perspective, is if we looked at the seasonality of our business, historically, that inventory grows in the second and Q3s to be sold off in the third and fourth.

We anticipate that happening again, and we will see meaningful inventory growth in the middle of the year where if we look at the last couple of years, because we have been bringing inventory down from a high of $290 million to the $167 million that we had at the end of this year, it has kind of muted that seasonality of our inventory. From a modeling perspective, you will see that ebb and flow a little bit more this year than we had the last few years.

Jonathan R. Komp (Senior Research Analyst)

All really helpful color. Thanks again.

Jason Brooks (President, CEO, and Chairman)

Thanks, Jon.

Operator (participant)

As a reminder, if you would like to ask a question, please press star one on your telephone keypad. One moment, please, while we poll for questions. Our next question comes from Ethan Saghi with BTIG. Please proceed with your question.

Ethan Saghi (Equity Research Associate)

Hey. Thanks for taking my questions. Could you just give us an update on your—Hey. Could you give us an update on your sourcing exposure to Mexico and given the potential for 25% tariffs on the country, I think, set to begin next week? Just how you're navigating that situation and if those do come to fruition, how that would impact your guide.

Thomas D. Robertson (COO and CFO)

Yeah. I'll change it off.

Jason Brooks (President, CEO, and Chairman)

Yeah.

Thomas D. Robertson (COO and CFO)

We do source a very, very small proportion of our inventory from Mexico, less than a few percent, to be quite frank. It is really on more of our exotic Western footwear product. While it would negatively impact us, I think it would potentially disrupt the other Western boot market a little bit more so, meaning that our peers may be detrimented worse by a tariff there. We've definitely evaluated it, and we're looking to potentially resource some of that exotic western wear in other countries, but it won't be that meaningful to our business.

Ethan Saghi (Equity Research Associate)

Got it. That's good to hear. It's nice to kind of hear some of the momentum has carried into the beginning of 2025 so far. I was just wondering if you could give a little more color on what you're seeing quarter to date across brands and categories. Thanks.

Thomas D. Robertson (COO and CFO)

Yeah. I think we've continued to see a little bit of just a continuation of what we saw in the Q4. Our Muck brand has continued to be strong in the Q1. Certainly, the weather has helped that. XTRATUF has continued to be strong. Our e-commerce business has continued to be strong as well.

As we look to the Q1, we feel pretty positive about it, but we're just cautioning our guidance in the Q1 as we know that we've got a few million dollars of non-recurring sales from that one contract that we've been talking about, but also that shift of us getting spring product that's going to ultimately ship in the Q2. We're just being a little cautious with our guidance there, but we've been happy and pleased with the start of the year.

Jason Brooks (President, CEO, and Chairman)

Yeah. I would just add the sell-through, we're really good. We're comfortable with our sell-through to retailers, but the retailers are just being a little more cautious, and they are buying back in, but not at the levels I would anticipate it. I think as Tom indicated, we're still comfortable here, but Q1, we're being cautious.

Ethan Saghi (Equity Research Associate)

Got it. That makes sense. Appreciate the color. Thanks.

Jason Brooks (President, CEO, and Chairman)

Yeah. Absolutely. Thank you.

Operator (participant)

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Jason Brooks for closing comments.

Jason Brooks (President, CEO, and Chairman)

Thank you, Rob. Appreciate it. Once again, I would just like to thank the entire Rocky team for the efforts they put in in 2024. We navigated an interesting year and ended up pulling off what I would once again say was a nice 2024. I'd also like to thank our customers, consumers, shareholders, and also our board members for their support, and we look forward to a great 2025 and the future. Thank you very much.

Operator (participant)

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.