ROCKY BRANDS, INC. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. BUSINESS OVERVIEW 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, Rocky, Georgia Boot, Durango, Lehigh, XTRATUF, Ranger and the licensed brand Michelin. Our portfolio of brands is organized into three reportable segments in which our product is distributed: Wholesale, Retail and Contract Manufacturing. The reportable segments are targeted around six distinct product lines: work, outdoor, western, duty, commercial military 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. During the first six months of 2025, we began to implement strategic sourcing shifts to leverage our own manufacturing facilities in the Dominican Republic and Puerto Rico. This strategic shift in sourcing and manufacturing was aimed to help mitigate potential adverse business impacts stemming from additional tariffs imposed during 2025. In addition to these sourcing shifts, we have accelerated our inventory purchases in 2025 prior to the implementation of these additional tariffs, in an effort to mitigate the adverse potential business impact. Over the last twelve months, we have seen a shift in our total mix of sales, as the growth or our Retail segment outpaces the growth in our Wholesale and Contract Manufacturing segments. Growth in our Retail segment was driven in part by an increase in our Lehigh CustomFit business as we expand our customer base and product offerings. Additionally, there has been an uptick in sales on our owned e-commerce websites and third-party marketplaces as we put an emphasis on digital marketing and as spending among consumers continues to shift to online retailers. During the second quarter of 2025, we experienced an increase in net sales over the second quarter of 2024. This increase was attributable to an increase in Wholesale and Retail net sales, partially offset by a decrease in Contract Manufacturing net sales. Overall gross margin improved over the past year, driven by an increase in Wholesale segment gross margin and the continued acceleration of growth in our Retail segment, which as noted above grew at a faster rate than our Wholesale and Contract Manufacturing segments. The increase in Wholesale gross margin as a percentage of net sales compared to the prior year period was largely due to favorable shifts in product mix, manufacturing efficiencies and strategic sourcing shifts. The favorable shift in product mix is largely attributed to an on-going shift in our branded net sales mix, with our rubber-boot brands delivering stronger growth relative to the rest of the brands under our portfolio. Our operating expenses as a percentage of net sales increased for the three and six months ending June 30, 2025 compared to the three and six months ending June 30, 2024 due to the increase in Retail sales as well as an increase in marketing investments. Sales under our Retail segment are generally subject to higher selling and outbound logistics costs relative to those costs incurred under our Wholesale and Contract Manufacturing segments. In addition to the increased costs associated with Retail sales, we made incremental investments in traditional and digital marketing during the three and six months ended June 30, 2025 to drive sales growth. Interest expense declined for the three and six months ending June 30, 2025 compared to the same periods in 2024, due to lower interest rates following the refinancing of our debt in April 2024. Additionally, continued debt repayments over the past twelve months have reduced the overall outstanding principal balances, further contributing to the decrease in interest expense. The increase in inventory as of June 30, 2025 compared to June 30, 2024 was a strategic move to place ourselves in a better inventory position for the latter half of 2025 and to accelerate inventory purchases before new tariffs were put in place. SECOND QUARTER 2025 FINANCIAL HIGHLIGHTS COMPARED TO SECOND QUARTER 2024 ● Net sales increased 7.5% to $105.6 million ● Gross margin increased 230-basis points to 41.0% ● Inventory increased 6.8% to $186.8 million ● Total debt decreased 13.1% to $132.5 million FIRST HALF OF 2025 FINANCIAL HIGHLIGHTS COMPARED TO FIRST HALF OF 2024 ● Net sales increased 4.1% to $219.7 million ● Gross margin increased 220-basis points to 41.1% ● Operating income as a percentage of net sales increased 130-basis points to $15.9 million ● Net income increased to $8.6 million, or $1.14 per diluted share RESULTS OF OPERATIONS The following tables set forth, for the periods indicated, information derived from our Unaudited Condensed Consolidated Financial Statements. The discussion that follows each table should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements as well as our Annual Report on Form 10-K for the year ended December 31, 2024. Three Months Ended Six Months Ended June 30, June 30, ($ in thousands) 2025 2024 2025 2024 Net sales 105,647 98,258 $ 219,720 $ 211,164 Cost of goods sold 62,366 60,220 129,431 128,977 Gross margin 43,281 38,038 90,289 82,187 Operating expenses 36,125 33,530 74,427 69,695 Income from operations 7,156 4,508 $ 15,862 $ 12,492 Net sales increased to $105.6 million in the second quarter of 2025 compared to $98.3 million in the second quarter of 2024. The increase in net sales in the current year quarter compared to the prior year quarter was due to an increase in both our Wholesale and Retail reporting segments, partially offset by a decrease in our Contract Manufacturing reporting segment. Gross margin in the second quarter of 2025 was $43.3 million, or 41.0% of net sales, compared to $38.0 million, or 38.7% of net sales, in the second quarter of 2024. The increase in gross margin as a percentage of net sales was attributed to an increase in Wholesale gross margins as well as a higher percentage of Retail net sales, which carry higher gross margins than our Wholesale and Contract Manufacturing segments. Operating expenses for the second quarter of 2025 were $36.1 million, or 34.2% of net sales, compared to $33.5 million, or 34.1% of net sales, for the first quarter of 2024. The increase in operating expenses as a percentage of net sales was due to higher selling costs associated with the increase in Retail sales as well as incremental investments in marketing. Income from operations for the second quarter of 2025 was $7.2 million, or 6.8% of net sales, compared to $4.5 million, or 4.6% of net sales, in the year ago period. The increase in income from operations was primarily driven by the increase in gross margin for the three months ended June 30, 2025, compared to the year ago period. Net sales for the six months ended June 30, 2025 increased to $219.7 million compared to $211.2 million for the six months ended June 30, 2024. The increase in net sales was due to an increase in Retail segment net sales for the six months ended June 30, 2025 compared to the prior year period, partially offset by a decrease in Wholesale and Contract Manufacturing net sales. Gross margin in the second half of 2025 and 2024 was $90.3 million, or 41.1% of net sales and $82.1 million, or 38.9% of net sales, respectively. The increase in gross margin as a percentage of net sales was attributable to increased Wholesale segment gross margins as well as an increase in Retail net sales which carry higher gross margins than the Wholesale and Contract Manufacturing segments. Operating expenses for the six months ended June 30, 2025 were $74.4 million, or 33.9% of net sales, compared to $69.7 million, or 33.0% of net sales for the six months ended June 30, 2024. The increase in operating expenses as a percentage of net sales during the six months ended June 30, 2025 compared to the year ago period was largely attributable to an increase in selling and logistics costs associated with an increase in Retail sales as well as an increase in digital marketing. Income from operations for the six months ended June 30, 2025 was $15.9 million, or 7.2% of net sales, compared to $12.5 million, or 5.9% of net sales, for the same period a year ago. The increase in income from operations was primarily driven by an increase in gross margin in the current year period. 14 Table of Contents Three Months Ended June 30, 2025 compared to Three Months Ended June 30, 2024 Three Months Ended June 30, ($ in thousands) 2025 2024 Inc./ (Dec.) Inc./ (Dec.) NET SALES: Wholesale $ 73,092 $ 68,258 $ 4,834 7.1 % Retail 29,746 26,110 3,636 13.9 Contract Manufacturing 2,809 3,890 (1,081 ) (27.8 ) Total Net Sales $ 105,647 $ 98,258 $ 7,389 7.5 % Wholesale net sales for the three months ended June 30, 2025 were $73.1 million compared to $68.3 million for the three months ended June 30, 2024. The increase in Wholesale net sales was due to increased demand across several key styles and brands, supported by favorable weather conditions and a stronger inventory position throughout the second quarter of 2025. Additionally, as part of a strategic initiative, we continued to build upon the lifestyle component of our outdoor category to broaden our distribution and consumer reach. Retail net sales for the three months ended June 30, 2025 were $29.7 million compared to $26.1 million for the three months ended June 30, 2024. The increase was attributed to an increase in our Lehigh CustomFit business, third-party marketplace net sales, and our own e-commerce website net sales. The increase in our Lehigh CustomFit business was attributed to a realignment of our sales organization in the first quarter of 2024, which allowed us to expand our customer base, positioning Lehigh for long-term growth starting in the latter half of 2024. Consumer spending among Lehigh CustomFit customers has also increased with improved subsidy utilization and an increase in average subsidy dollars in the second quarter of 2025 compared to the second quarter of 2024. These factors have largely offset supply chain and tariff pressures. The increase in third-party marketplace platforms was attributed to increased presence within the marketplace space and more competitive pricing. The increase in our e-commerce websites in the second quarter of 2025 compared to the year ago period was due to increased promotions and more competitive pricing on certain products as we continue to optimize our inventory position. Contract Manufacturing net sales for the three months ended June 30, 2025 were $2.8 million compared to $3.9 million for the three months ended June 30, 2024. The decrease in Contract Manufacturing net sales was mainly attributed to no new U.S. Military contracts in 2025 as well as a decrease in contract manufacturing net sales. 15 Table of Contents Three Months Ended June 30, ($ in thousands) 2025 2024 Inc./ (Dec.) GROSS MARGIN: Wholesale Margin $'s $ 29,478 $ 25,432 $ 4,046 Margin % 40.3 % 37.3 % 3.0 % Retail Margin $'s $ 13,455 $ 12,234 $ 1,221 Margin % 45.2 % 46.9 % (1.7 )% Contract Manufacturing Margin $'s $ 348 $ 372 $ (24 ) Margin % 12.4 % 9.6 % 2.8 % Total Margin $'s $ 43,281 $ 38,038 $ 5,243 Margin % 41.0 % 38.7 % 2.3 % Wholesale gross margin for the three months ended June 30, 2025 was $29.5 m illion, or 40.3% of net sales, compared to $25.4 million, or 37.3% of net sales, for the three months ended June 30, 2024. The higher Wholesale gross margin in the second quarter of 2025 compared to the second quarter 2024 was attributable to a more favorable product mix, manufacturing efficiencies, and strategic sourcing shifts in the second quarter of 2025 compared to the prior year period. The favorable shift in product mix is largely attributed to an on-going shift in our branded net sales mix, with our rubber-boot brands delivering stronger growth relative to the rest of the brands under our portfolio. Retail gross margin for the three months ended June 30, 2025 was $13.5 million, or 45.2% of net sales, compared to $12.2 million, or 46.9% of net sales, for the three months ended June 30, 2024 . The decrease in Retail gross margin as a percentage of net sales was attri butable to Lehigh representing a larger portion of total Retail sales, which carry a lower margin than our e-commerce and third-party marketplace sales. The decrease in Retail margin can also be attributed to a decrease in margin on our e-commerce and third-party marketplace platforms, driven by increased promotional activity and more competitive pricing as we continued to optimize our inventory position. Contract Manufacturing gross margin for the three months ended June 30, 2025 was $0.3 million, or 12.4% of net sales, compared to $0.4 million, or 9.6% of net sales, for the three months ended June 30, 2024 . The increase in Contract Manufacturing gross margin was driven by fewer contract manufacturing sales, which are typically at a lower margin than our U.S. Military sales. Three Months Ended June 30, ($ in thousands) 2025 2024 Inc./ (Dec.) Inc./ (Dec.) OPERATING EXPENSES: General and administrative $ 27,650 $ 25,627 $ 2,023 7.9 % Sales and marketing 6,864 6,226 638 10.2 Depreciation and amortization 1,611 1,677 (66 ) (3.9 ) Operating Expenses $ 36,125 $ 33,530 $ 2,595 7.7 % % of Net Sales 34.2 % 34.1 % 0.1 % Operating expenses for the three months ended June 30, 2025 were $36.1 million, or 34.2% of net sales, compared to $33.5 million, or 34.1% of net sales, for the three months ended June 30, 2024. The increase in operating expenses as a percentage of net sales was due to increases in selling costs associated with a higher volume of Retail sales in the current year period as well as incremental marketing investments. Three Months Ended June 30, ($ in thousands) 2025 2024 Inc./ (Dec.) Inc./ (Dec.) INTEREST EXPENSE AND OTHER: Interest expense $ 2,496 $ 6,131 $ (3,635 ) (59.3 )% Other (income) expense, net 23 - 23 100.0 Total Interest Expense and Other $ 2,519 $ 6,131 $ (3,612 ) (58.9 )% Interest Expense and Other - net for the three months ended June 30, 2025 was $2.5 million compared to $6.1 million in the year ago period. The decrease in interest expense was largely due to a $2.6 million loan extinguishment charge in the second quarter of 2024 associated with a prepayment penalty and accelerated amortization of deferred financing fees in connection with paying off our previous term debt. The remaining $1.0 million decrease in interest expense in the second quarter of 2025 compared to the prior year period was due to a decrease in interest rates resulting from our debt refinance that occurred in April 2024 as well as lower debt levels. Three Months Ended June 30, ($ in thousands) 2025 2024 Inc./ (Dec.) Inc./ (Dec.) INCOME TAXES: Income Tax Expense $ 1,029 $ (380 ) $ 1,409 (370.8 )% Effective Tax Rate 22.2 % 23.4 % (1.3 )% The decrease in our effective tax rate in the second quarter of 2025 compared to the same year ago period was due to changes in our projected income generated from our international business. 16 Table of Contents Six Months Ended June 30, 2025 compared to Six Months Ended June 30, 2024 Six Months Ended June 30, ($ in thousands) 2025 2024 Inc./ (Dec.) Inc./ (Dec.) NET SALES: Wholesale $ 147,877 $ 148,050 $ (173 ) (0.1 )% Retail 66,386 56,517 9,869 17.5 Contract Manufacturing 5,457 6,597 (1,140 ) (17.3 ) Total Net Sales $ 219,720 $ 211,164 $ 8,556 4.1 % Wholesale net sales for the six months ended June 30, 2025 were $147.9 million compared to $148.1 million for the six months ended June 30, 2024. The decrease in Wholesale net sales, was due to a blanket commercial military order that elevated sales in the first quarter of 2024. This decrease was partially offset by increased demand in select key styles, driven by favorable weather and the continued expansion of the lifestyle component within our outdoor category in the second quarter of 2025 compared to the second quarter of 2024. Retail net sales for the six months ended June 30, 2025 were $66.4 million compared to $56.5 million for the six months ended June 30, 2024. The increase in Retail net sales for the first six months of 2025 was partially due to increased sales in our Lehigh CustomFit platform. The increase in our Lehigh CustomFit business was attributed to a realignment of our sales organization in the first quarter of 2024, which allowed us to expand our customer base, positioning Lehigh for long-term growth starting in the latter half of 2024. Consumer spending among Lehigh CustomFit customers has also increased with improved subsidy utilization and an increase in average subsidy dollars in the first half of 2025 compared to the first half of 2024. We also experienced an increase in sales through third-party marketplace platforms and owned e-commerce websites in the first six months of 2025 compared to the year ago period due to increased promotions and more competitive pricing on certain products as we continue to optimize our inventory position. Contract Manufacturing net sales for the six months ended June 30, 2025 and 2024 were $5.5 million and $6.6 million, respectively. The decrease in sales during the current year period was due to no new contracts awarded with the U.S. Military and a decrease in our Contract Manufacturing sales. 17 Table of Contents Six Months Ended June 30, ($ in thousands) 2025 2024 Inc./ (Dec.) GROSS MARGIN: Wholesale Margin $'s $ 59,588 $ 54,463 $ 5,125 Margin % 40.3 % 36.8 % 3.5 % Retail Margin $'s $ 30,200 $ 27,036 $ 3,164 Margin % 45.5 % 47.8 % (2.3 )% Contract Manufacturing Margin $'s $ 501 $ 688 $ (187 ) Margin % 9.2 % 10.4 % (1.2 )% Total Margin $'s $ 90,289 $ 82,187 $ 8,102 Margin % 41.1 % 38.9 % 2.2 % Wholesale gross margin for the six months ended June 30, 2025 was $59.6 million of 40.3% of net sales, compared to $54.5 million, or 36.8% of net sales, for the six months ended June 30, 2024. The higher Wholesale gross margin in the first half of 2025 compared to the first half of 2024 was attributable to a more favorable product mix, manufacturing efficiencies, and strategic sourcing shifts in the first quarter of 2025 compared to the prior year period as well as the blanket commercial military order in the prior year period that elevated sales but carried a lower gross margin compared to other Wholesale sales. The favorable shift in product mix is largely attributed to an on-going shift in our branded net sales mix, with our rubber-boot brands delivering stronger growth relative to the rest of the brands under our portfolio. Retail gross margin for the six months ended June 30, 2025 was $30.2 million, or 45.5% of net sales, compared to $27.0 million, or 47.8% of net sales, for the six months ended June 30, 2024. The decrease in gross margin as a percentage of net sales was attributable to a decrease in margin on our e-commerce and third-party marketplace platforms, driven by increased promotional activity and more competitive pricing as we continued to optimize our inventory position. Contract Manufacturing gross margin for the six months ended June 30, 2025 was $0.5 million, or 9.2% of net sales, compared to $0.7 million, or 10.4% of net sales, for the six months ended June 30, 2024 . The decrease in gross margin was driven by reduced economies of scale at our Puerto Rico manufacturing facility. Six Months Ended June 30, ($ in thousands) 2025 2024 Inc./ (Dec.) Inc./ (Dec.) OPERATING EXPENSES: General and administrative $ 56,643 $ 52,798 $ 3,845 7.3 % Sales and marketing 14,572 13,538 1,034 7.6 Depreciation and amortization 3,212 3,359 (147 ) (4.4 ) Total Operating Expenses $ 74,427 $ 69,695 $ 4,732 6.8 % % of Net Sales 33.9 % 33.0 % 0.9 % Operating expenses for the six months ended June 30, 2025 were $74.4 million, or 33.9% of net sales, compared to $69.7 million, or 33.0% of net sales, for the six months ended June 30, 2024. The increase in operating expenses as a percentage of net sales was due to increases in selling and outbound logistics costs associated with a higher volume of Retail sales in the current year period as well as an increase in marketing investments. Six Months Ended June 30, ($ in thousands) 2025 2024 Inc./ (Dec.) Inc./ (Dec.) INTEREST EXPENSE AND OTHER: Interest expense $ 4,896 $ 10,642 $ (5,746 ) (54.0 )% Other income, net (22 ) 143 (165 ) (115.4 ) Total Interest Expense and Other $ 4,874 $ 10,785 $ (5,911 ) (54.8 )% Interest Expense and Other - net for the six months ended June 30, 2025 was $4.9 million compared to $10.8 million in the year ago period. The decrease in interest expense was partially due to a $2.6 million loan extinguishment charge during the first six months of 2024 associated with a prepayment penalty and accelerated amortization of deferred financing fees in connection with paying off our previous term debt. The remaining decrease in interest expense is due to lower interest rates resulting from our debt refinance that occurred April 2024 as well as lower debt levels. Six Months Ended June 30, ($ in thousands) 2025 2024 Inc./ (Dec.) Inc./ (Dec.) INCOME TAXES: Income Tax Expense $ 2,438 $ 399 $ 2,039 511.0 % Effective Tax Rate 22.2 % 23.4 % (1.2 )% The decrease in our effective tax rate in the first six months of 2025 compared to the same year ago period was due to changes in our projected income generated from our international businesses. 18 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Overview 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 June 30, 2025, we maintained cash and cash equivalen ts of $2.8 million and had $45.7 m illion 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-term debt and accounts payable. 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 $103.6 million as of June 30, 2025, we also have a Term Facility with outstanding borrowings of $30.9 million as of June 30, 2025. Our ABL Facility and Term Facility require us to maintain a minimum fixed charge coverage ratio, as defined in the ABL Agreement. Additionally, the ABL Facility and Term Facility contain restrictions on the amount of dividend payments and the amount of share repurchases of common stock. As of June 30, 2025, we were in compliance with such covenants and restrictions under the ABL Facility and Term Facility. We may utilize portions of our excess cash to prepay certain amounts of long-term debt prior to maturity. Our capital expenditures primarily relate to investments in information technology, molds and equipment associated with our manufacturing and distribution operations, merchandising fixtures and projects related to our corporate offices. We lease certain machinery, equipment, and manufacturing facilities under operating leases that generally provide for renewal options. As of June 30, 2025, our material cash requirements from known contractual obligations and commitments relate primarily to our long-term debt and operating leases commitments. See Note 8 - Long-Term Debt to the Unaudited Condensed Consolidated Financial Statement for more information. Based on our current expectations and forecasts of future earnings, we believe our cash generated from operations will provide sufficient liquidity to fund our operations and debt and lease obligations for the next twelve months and beyond. Cash Flows Six Months Ended June 30, ($ in millions) 2025 2024 Operating activities $ 2.0 $ 23.9 Investing activities (3.9 ) (0.4 ) Financing activities 0.9 (23.8 ) Net change in cash and cash equivalents $ (1.0 ) $ (0.3 ) Operating Activities. Net cash provided by operating activities for the six months ended June 30, 2025 and 2024 was $2.0 million and $23.9 million, respectively. Adjusting for noncash items, net income provided a cash in-flow of $16.3 million and $10.5 million for the six months ended June 30, 2025 and 2024 , respectively. The net change in working capital and other assets and liabilities resulted in cash used by operating activities of $14.2 million for the six months ended June 30, 2025 , compared to an increase in cash provided by operating activities of $13.4 million for the six months ended June 30, 2024 . 19 Table of Contents An increase in inventory resulted in a use of cash of $20.1 million and $5.8 million for the six months ended June 30, 2025 and 2024, respectively. The increase in cash used to purchase inventory was a result of the additional tariffs imposed during 2025 as well as increased purchases in order to meet estimated demand in the second half of the year. A decrease in accounts receivable resulted in a source of cash of $6.1 million and $13.1 million for the six months ended June 30, 2025 and 2024, respectively. The change in cash provided by accounts receivable was due to an increase in sales for the second quarter of 2025 compared to the prior year period. Investing Activities. Net cash used in investing activities for the six months ended June 30, 2025 and 2024 was $3.9 million and $0.4 million, respectively. We invested $3.9 million and $2.1 million in capital expenditures for our manufacturing operations and information technology during the six months ended June 30, 2025 and 2024, respectively. The use of cash for the six months ended June 30, 2024 was offset by proceeds from the sale of the Servus brand, totaling $1.7 million. Financing Activities. Net cash provided by financing activities for the six months ended June 30, 2025 was $0.9 million compared to $23.8 million in net cash used in financing activities for the six months ended June 30, 2024. The current year net source of cash primarily related to proceeds from our revolving facility offset by payments on our term loan and dividend payments. The net use of cash for the six months ended June 30, 2024 primarily related to payments on our revolving facility and term loan. On February 25, 2025, we announced a share repurchase program of up to $7,500,000 of the Company's outstanding common stock, no par value per share. We are contingently liable with respect to lawsuits, taxes and various other matters that routinely arise in the normal course of business. See Note 13 - Commitments and Contingencies of our Unaudited Condensed Consolidated Financial Statements for further discussion of legal matters. We do not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities, also known as "Variable Interest Entities." Additionally, we do not have any related party transactions that materially affect the results of operations, cash flow or financial condition. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of the Company’s Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions. We have identified the critical accounting policies used in determining estimates and assumptions in the amounts reported in our Management Discussion and Analysis of Financial Conditions and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2024 . SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995 This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, all statements regarding our and management’s intent, belief, and expectations, such as statements concerning our future profitability and our operating and growth strategy. Words such as “believe,” “anticipate,” “expect,” “will,” “may,” “should,” “intend,” “plan,” “estimate,” “predict,” “potential,” “continue,” “likely,” “would,” “could” and similar expressions are intended to identify forward-looking statements. Investors are cautioned that forward-looking statements involve risk and uncertainties including, without limitations, dependence on sales forecasts, changes in consumer demand, seasonality, impact of weather, competition, reliance on suppliers, risks inherent to international trade, changing retail trends, the loss or disruption of our manufacturing and distribution operations, cybersecurity breaches or disruption of our digital systems, fluctuations in foreign currency exchange rates, economic changes, as well as other factors set forth under the caption “Item 1A, Risk Factors” in our Annual Report on Form 10- K for the year ended December 31, 2024 (filed March 17, 2025) and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 (filed May 8, 2025), and other factors detailed from time to time in our filings with the Securities and Exchange Commission. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate. Therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We assume no obligation to update any forward-looking statements. 20 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. There have been no material changes to our market risk as disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10- K for the year ended December 31, 2024 .