What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-11 compared with 2025-03-17 · 109 added, 127 removed, 163 unchanged (59% of the section changed)

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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 brands have a long history of representing high quality, comfortable, functional, and durable footwear, and our products are organized around six target markets:

work, outdoor, western, commercial military, duty and military.

Our footwear products incorporate varying features and are positioned across a range of suggested retail price points from

for our value priced products to

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:

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 is organized into three reportable segments in which our product is distributed:

Wholesale, Retail, and Contract Manufacturing.

In our Wholesale business, we distribute our products through a wide range of distribution channels representing over 10,000 retail store locations in the U.S., the U.K.

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.

Our footwear products incorporate varying features and are positioned across a range of suggested retail price points from $45.00 for our value priced products to $680.00 for our premium products.

In our Wholesale business, we distribute our products through a wide range of distribution channels representing thousands of 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 Wholesale channels vary by product line and include sporting goods stores, outdoor retailers, independent shoe retailers, hardware stores, 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-commerce websites, third-party marketplaces and our Rocky Outdoor Gear Store.

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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.

Over the last two years, we have seen a shift in our total mix of sales, as the growth of our Retail segment continues to outpace the growth in our Wholesale and Contract Manufacturing segments.

Growth in our Retail segment was primarily driven by increased sales on our owned e-commerce websites and third-party marketplaces, as we placed an emphasis on our direct-to-consumer business, partially through increased digital marketing in response to an ongoing shift among consumers to online retailers.

During the second quarter of 2024, we amended and restated our Original ABL Facility (as such term is defined in Note 7 - 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.

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See Note 7 - Long-Term Debt of our Consolidated Financial Statements for further information regarding our long-term debt.

In 2023, we were awarded a new multi-year contract with the U.S.

Military pursuant to which we will produce and ship a minimum number of pairs to the U.S.

Military through 2026, with an option to extend.

The first quarter of 2024 was the first full quarter in which shipments were made to the U.S.

Military under this multi-year contract.

The sales under this contract are included in our Contract Manufacturing segment.

During the first quarter of 2023, we divested the Servus brand.

The gain of approximately $1.3 million on the sale of the Servus brand was recorded within Interest Expense and Other - net in the Consolidated Statements of Operations for the year ended December 31, 2023.

The Servus brand was sold to allow us to focus on our more profitable core brands and allocate resources toward growth and development of opportunities with those brands moving forward.

During the third quarter of 2023, we closed our manufacturing facility in Rock Island, Illinois.

This facility primarily manufactured product for the Servus brand.

Following the sale of the Servus brand in the first quarter of 2023, the Rock Island facility operations were underutilized, prompting our decision to close the facility during the third quarter of 2023.

In the first quarter of 2025, we announced a share repurchase program, which was approved by the Board of Directors to allow the Company to repurchase up to $7.5 million of the Company's outstanding common stock.

During the first quarter of 2025, the Company repurchased 10,456 shares of common stock under the plan using cash flows generated from operations.

The year ended December 31, 2025 was a year of growth, led by top-line expansion in our Retail segment, particularly in our direct-to-consumer selling channel.

We delivered higher margins in 2025 compared to 2024 in both our Wholesale and Retail segments.

While the additional tariffs imposed in the second quarter of 2025 created margin pressures in the latter half of the year, we were able to ease the burden by diversifying our sourcing and leveraging our manufacturing facilities in the Dominican Republic and Puerto Rico as well as benefit from implementing price increases prior to realizing the impact of the tariffs.

While operating expenses were up slightly to the year ago period, we were able to significantly increase our bottom line as a result of interest expense and tax savings.

ECONOMIC CONDITIONS AND UNCERTAINTIES

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Failure to gain market acceptance for new products that we introduce could impede our growth, reduce our profits, adversely affect the image of our brands, erode our competitive position, and result in long term harm to our business.

As the macroeconomic environment is continuously evolving, we are aware that global trends, such as inflationary pressures, are weakening consumer sentiment, negatively impacting consumer spending, and creating differing traffic patterns across channels.

These conditions have led to elevated inventory levels in certain markets and an increased promotional environment.

We have also experienced higher interest rates which have resulted in increased borrowing costs.

There is ongoing uncertainty surrounding the global economy and macroeconomic environment, which we expect to continue and could potentially cause disruption and near-term challenges for our business.

We continue to monitor pressures on the global supply chain, which have shifted the timing of shipments across our brands, resulting in increased inventory levels outpacing our sales growth.

However, we have seen improvements in transit lead times and related freight costs compared to the prior period, which have had a positive impact on the results of our operations through 2024.

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"), the U.S.

presidential administration modified and imposed significant additional tariffs on products imported from various countries, including those countries where we primarily source our products.

During the year ended December 31, 2025, we paid approximately $18.7 million in IEEPA tariffs.

More recently, in February 2026, t he U.S.

Supreme Court ruled that certain tariffs imposed under the IEEPA were unlawful.

Following the Supreme Court's decision, the U.S.

presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs.

There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and whether additional tariffs or other retaliatory actions may be imposed, modified, or suspended.

During 2025, w e 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, paused, removed, or changed at any time and to the extent we are unable to successfully mitigate any negative impacts it could adversely affect our business, financial condition and results of operation.

2025 FINANCIAL OVERVIEW

Net sales decreased 1.7% to $453.8 million in 2024 compared to 2023;

Gross margin increased 70 basis points to 39.4% of net sales in 2024 versus 38.7% of net sales in 2023;

Income from operations in 2024 compared to 2023 decreased 12.1% to $31.1 million;

Interest expense decreased 19.8% to $17.0 million in 2024 over 2023;

Net sales increased 6.2% to $482.0 million compared to 2024;

Gross margin increased 150-basis points to 40.9% of net sales in 2025 compared to 39.4% of net sales in 2024;

Income from operations increased 19.7% to $37.2 million in 2025 compared to $31.1 million in 2024;

Net income increased 95.6% to $22.3 million, or $2.96 per diluted share, in 2025, compared to $11.4 million, or $1.52 per diluted share, in 2024;

Total debt, net of debt issuance costs, decreased 25.7% to $128.7 million at December 31, 2024 compared to $173.1 million at December 31, 2023;

Inventory decreased 1.5% to $166.7 million at December 31, 2024 compared to $169.2 million at December 31, 2023.

During 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 a decline in sales in our Wholesale reporting segment, partially offset by increases in 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.

The increase in gross margin to 39.4 % of net sales in 2024 from 38.7% of net sales in 2023 was attributed to an increase in Wholesale gross margin of 190-basis points as well as an increase in Retail net sales as percentage of total net sales.

Our Retail reporting segment carries higher gross margins than both our Wholesale and Contract Manufacturing Reporting segments.

The increase was offset by a decrease in Retail gross margins as a percentage of net sales in 2024 compared to the prior year.

Operating income decreased 12.1% to $31.1 million for the year ended December 31, 2024 compared to $35.4 million for the year ended December 31, 2023.

The decrease in operating income was due to higher freight and logistics costs associated with higher Retail sales as well as higher marketing and other discretionary spending due to the pullback of spending in 2023.

Interest expense decreased 19.8% in 2024 compared to 2023 due to lower debt levels and lower interest rates resulting from the debt refinance that closed in April 2024.

Net income increased 9.6% to $11.4 million in 2024 from $10.4 million due to lower interest expense and lower tax expense in 2024 compared to that of 2023.

As of December 31, 2024, cash and cash equivalents were approximately $3.7 million and our total indebtedness, net of debt issuance costs, was approximately $128.7 million, a reduction of $44.4 million, or 25.7%, over our indebtedness at December 31, 2023.

Of total debt paydown, $21.7 million occurred in the fourth quarter of 2024.

Our strong sales in the second half of the year, coupled with additional cash on-hand resulting from lower interest rates and corresponding interest payments subsequent to the debt refinance in April 2024, provided excess cash flow that we were able to put towards debt repayments in the latter part of 2024.

Total inventory decreased 1.5%, or $2.5 million, to $166.7 million at December 31, 2024 compared to $169.2 million at December 31, 2023.

Our inventory on-hand decreased at December 31, 2024 by approximately $14.9 million versus the prior year, partially offset by an increase in in-transit inventory of approximately $12.6 million.

In 2024 and 2023, our business generated a positive cash flow from operating activities of $52.8 million and $73.6 million, respectively.

Generally, the cash provided from operations consists of changes in our working capital and is sufficient to fund operations in any given year.

Total debt on December 31, 2025 was $122.6 million, down 4.7%, compared to $128.7 million at December 31, 2024.

During the twelve months ended December 31, 2025, we reported an increase in net sales compared to the twelve months ended December 31, 2024, which was attributable to an increase in net sales in our Wholesale and Retail reporting segments, partially offset by a decrease in net sales in our Contract Manufacturing reporting segment.

The 150-basis point increase in gross margin to 40.9% of net sales in 2025 compared to 39.4% of net sales in 2024 was primarily driven by an 170-basis point increase in our Wholesale gross margin as well as a higher mix of Retail segment sales which carry higher gross margins than our Wholesale and Contract Manufacturing segments, partially offset by higher tariffs and a decrease in Contract Manufacturing gross margins.

Our operating income as a percentage of net sales for the year ended December 31, 2025 was 7.7% of net sales compared to 6.8% of net sales for the year ended December 31, 2024.

The increase in operating income as a percentage of net sales was due to higher gross margins for the year ended December 31, 2025 compared to December 31, 2024.

Interest expense for 2025 was $10.0 million, compared to interest expense of $17.0 million for 2024, inclusive of a $2.6 million one-time term loan extinguishment charge in 2024.

Excluding the one-time term loan extinguishment charge, interest expense for 2024 was $14.4 million.

The decrease in interest expense compared to the year-ago period was driven by lower interest rates as a result of the debt refinancing completed in April 2024 as well as lower debt levels.

Net income increased 95.6% to $22.3 million for the twelve months ended December 31, 2025 compared to $11.4 million for the twelve months ended December 31, 2024, primarily due to higher gross margins, lower interest expense and a lower effective tax rate in 2025 compared to 2024.

As of December 31, 2025, cash and cash equivalents were approximately $2.9 million and our total indebtedness, net of debt issuance costs was approximately $122.6 million, a reduction of approximately 4.7%, or $6.1 million, from December 31, 2024.

Total inventory increased 8.7% or $14.4 million from December 31, 2024 and was approximately $181.1 million at December 31, 2025.

The increase in inventory was primarily due to an increase in cost of inventory as a result of the tariffs imposed in 2025.

In 2025 and 2024, our business generated positive cash flow from operating activities of approximately $16.3 million and $52.8 million, respectively.

Generally, the cash provided by 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 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.

Excluding certain non-recurring sales in 2023, 2024 was a year of growth for Rocky from a net sales perspective.

This growth was primarily fueled by an increase in Retail sales, a combination of increases in sales in both our Lehigh CustomFit Platform and e-Commerce websites.

We invested more in marketing and other discretionary spending in 2024, creating a decrease in income from operations in 2024 compared to 2023.

Due to refinancing our long-term debt during 2024, which resulted in lower interest rates as well as lower debt levels, we achieved an increase in income before taxes in 2024 compared to that of 2023.

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.

Analysis of Results of Operations

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

The following table sets forth a summary of the Consolidated Statements of Operations:

Twelve Months Ended

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Income from operations

Net sales decreased $8.1 million or 1.7% for the twelve months ended December 31, 2024, due to a decrease in Wholesale net sales, partially offset by an increase in Retail and Contract Manufacturing net sales.

Gross margin in 2024 was 39.4% compared to 38.7% in 2023.

The increase in gross margin was attributed to an increase in both Wholesale and Contract Manufacturing gross margin as well as a higher mix of Retail segment net sales, which carry higher margins than our Wholesale and Contract Manufacturing segments.

Net sales increased approximately $28.2 million, or 6.2%, for the twelve months ended December 31, 2025, due to an increase in Wholesale and Retail net sales, partially offset by a decrease in Contract Manufacturing net sales.

Gross margin in 2025 was 40.9% of net sales compared to 39.4% of net sales in 2024.

The 150-basis point improvement in gross margin was primarily driven by a 170-basis point increase in Wholesale gross margin as well as a higher mix of Retail segment sales which carry higher gross margins than Wholesale and Contract Manufacturing segments, partially offset by higher tariffs and a decrease in Contract Manufacturing gross margin.

Operating expenses increased $12.2 million to 33.2% of net sales in 2025 compared to 32.6% of net sales in 2024.

The increase in operating expenses was due to a $4.0 million impairment charge for the Muck trademark and an increase in outbound freight and other logistic costs associated with the increase in Retail sales.

See Note 7 - Goodwill and Other Intangible Assets of our Consolidated Financial Statements for additional information on the Muck trademark impairment.

The increase in operating expenses as a percentage of net sales was due to higher outbound logistics and other selling costs associated with the increase in Retail net sales, as well as an increase in discretionary spending.

The following information is presented on net sales for the years ended December 31, 2025 and 2024:

Twelve Months Ended

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Total Net Sales

The decrease in Wholesale net sales for the twelve months ended December 31, 2024 was due to non-recurring sales that occurred during 2023 and are not expected to continue on an on-going basis.

These sales included temporarily elevated commercial military footwear sales to a single customer throughout 2023, Servus brand sales prior to its divestiture in March 2023, sales relating to the change to a distributor model in Canada in November 2023, and sales relating to the manufacturing of Servus product following the divestiture of the Servus brand.

Retail net sales for the twelve months ended December 31, 2024 increased due to growth in our Lehigh CustomFit Platform and our direct to consumer e-Commerce business.

The increase in net sales in our Lehigh CustomFit Platform was attributed to the completion of the realignment of our sales organization in the first quarter of 2024 which allowed us to expand our customer base and increase offerings to current customers.

The increase in sales under our direct to consumer e-Commerce business was due to increased targeted marketing efforts, primarily through digital marketing.

This led to increased brand awareness and allowed us to engage more directly with consumers, which resulted in increased traffic on our branded websites and increased sales compared to the prior year ago period.

The increase in Contract Manufacturing net sales for the twelve months ended December 31, 2024 was due to a multi-year contract awarded with the U.S.

Product Line Information - The following is supplemental information on net sales by product line for the years ended December 31:

($ in thousands)

Contract Manufacturing

Work footwear

Outdoor footwear

Duty and commercial military footwear

Military footwear

($ in thousands)

Contract Manufacturing

Work footwear

Outdoor footwear

Duty and commercial military footwear

Military footwear

The following information is presented on gross margin for the years ending December 31, 2024 and 2023:

Wholesale net sales increased approximately $3.2 million or 1.0% for the twelve months ended December 31, 2025 compared to the twelve months ended December 31, 2024.

The increase was due to increased demand across several key styles and brands coupled with tariff related price increases.

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 twelve months ended December 31, 2025 increased $26.0 million or 20.5% compared to the twelve months ended December 31, 2024.

The increase in Retail net sales was primarily due to growth in our direct-to-consumer business as well as our Lehigh CustomFit Platform.

The increase in our direct-to-consumer business was driven by both our owned e-commerce websites and our third-party marketplace platforms.

We upgraded our e-commerce platform during the third quarter of 2025 and increased our digital advertising spend throughout the year, driving more website traffic and increasing net sales.

The increase in third-party marketplace net sales can be partially attributed to an increased presence among various marketplace platforms as well as increased digital marketing.

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 2025 compared to the prior year.

Contract Manufacturing net sales decreased approximately $1.0 million, or 7.7%, for the twelve months ended December 31, 2025, compared to the twelve months ended December 31, 2024.

The decrease in Contract Manufacturing net sales for the twelve months ended December 31, 2025 was mainly attributed to a decrease in sales to the U.S.

Military as there were no new contracts awarded in 2025, partially offset by an increase in private label net sales.

The following information is presented on gross margin for the years ended December 31, 2025 and 2024:

Twelve Months Ended

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Total Margin $'s

The increase in Wholesale gross margin as a percentage of net sales for the twelve months ended December 31, 2024 compared to the twelve months ended December 31, 2023 was due to product mix as well as more favorable sourcing costs in 2024 compared to the prior year.

Additionally, we divested the Servus brand in March 2023, which carried lower gross margins than the rest of our product portfolio.

Retail gross margins as a percentage of net sales decreased for the twelve months ended

Wholesale gross margin for the twelve months ended December 31, 2025 was approximately $123.6 million, or 39.1%, of net sales compared to $117.2 million, or 37.4%, of net sales.

The 170-basis point increase in Wholesale gross margin was attributable to a more favorable product mix and tariff related price increases taken during 2025 compared to the prior year period.

The favorable shift in product mix was 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 in our portfolio.

Retail gross margins for the twelve months ended

December 31, 2025

compared to the same year ago period due to increased promotional efforts across all of our retail channels in order to optimize our inventory levels.

Contract Manufacturing gross margin as a percentage of net sales increased for the twelve months ended

due to increased sales with the U.S.

Military which carried higher margins than private label sales.

were $73.1 million, or 47.8%, of net sales compared to $60.2 million, or 47.4%, of net sales.

The increase in Retail gross margin as a percentage of net sales was due to an increase in our e-commerce and third-party marketplace net sales as a percentage of total Retail sales, which carry higher margins than our Lehigh CustomFit sales.

Contract Manufacturing gross margin for the twelve months ended December 31,

2025 was $0.6 million, or 4.8%, of net sales compared to $1.6 million, or 11.9%, of net sales.

The decrease in gross margin

as a percentage of net sales was due to reduced economies of scale at our Puerto Rico manufacturing facility.

Twelve Months Ended

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OPERATING EXPENSES

General and administrative

Sales and marketing

Trademark impairment

Depreciation and amortization

Total Operating Expenses

% of Net Sales

The increase in operating expenses as a percentage of net sales for the twelve months ending December 31, 2024 was attributable to increased outbound freight and logistics costs associated with an increase in Retail sales as well as an increase in marketing, incentive compensation and other discretionary spending in 2024 compared to 2023.

Additionally, we recognized a $4.0 million non-cash impairment charge for the Muck trademark following our annual indefinite-lived intangibles impairment test performed in the fourth quarter of 2024.

See Note 7 - Goodwill and Other Intangible Assets of our Consolidated Financial Statements for additional information on the Muck trademark impairment.

Operating expenses were $160.1 million, or 33.2%, of net sales for the year ended December 31, 2025 compared to $147.9 million, or 32.6%, of net sales for the year ended December 31, 2024.

The increase in operating expenses as a percentage of net sales was primarily due to an increase in outbound logistics and other selling costs associated with a higher volume of Retail sales in the current year period as well as an incremental increase in discretionary spending, including digital advertising.

Twelve Months Ended

($ in thousands)

INTEREST EXPENSE AND OTHER:

Interest expense

Loss on term loan extinguishment

Other income, net

Gain on sale of business

Total Interest Expense and Other

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, 2024 compared to the year ago period .

The debt refinance resulted in $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.

INTEREST EXPENSE AND OTHER - net

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 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 7 - Long-Term Debt of our Consolidated Financial Statement for more information.

We completed the sale of Servus brand and related assets in March 2023 which resulted in a gain on sale of approximately $1.3 million for the year ended December 31, 2023.

Twelve Months Ended

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The effective tax rate for the twelve months ended December 31, 2025 was 18.1% compared to 19.0% for the twelve months ended December 31, 2024.

The decrease in our effective tax rate was due to a return to provision adjustment resulting from foreign tax credits recognized in the fourth quarter of 2023.

The decrease from the year ago period was primarily driven by the changes in state and local income taxes and other discrete tax benefits recognized in 2025.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity is our income from operations, as well as access to the borrowing capacity under our ABL Facility.

Our principal source 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.

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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 consists primarily of trade receivables and inventory, offset by accounts payable and accrued 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.

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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.

Additionally, the ABL Facility and Term Facility contain restrictions on the amount of dividend payments and share repurchases.

As of December 31, 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.

During the year ended December 31, 2024, we paid down a total of $44.2 million in debt.

We may utilize portions of our excess cash to prepay certain amounts of long-term debt prior to maturity as well as repurchase shares of common stock under 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.

We lease certain machinery, equipment, and manufacturing facilities under operating leases that generally provide for renewal options.

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Adjusting for non-cash items, net income provided a cash in-flow of $40.3 million and $35.5 million for the years ended December 31, 2025 and 2024 , respectively.

The net change in working capital and other assets and liabilities resulted in an increase to cash provided by operating activities 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 .

The net change in working capital and other assets and liabilitie s resulted in a decrease 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 .

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.

Investing Activities.

Net c ash used in investing activities for the twelve months ended December 31, 2024 was primarily a result of purchases of fixed assets, specifically machinery and equipment.

Cash provided by investing activities for the twelve months 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 Assets of our Consolidated Financial Statements.

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 and investments in information technology.

Additionally, in 2025, we purchased land for the planned future expansion of our distribution center located in Logan, Ohio.

Financing Activities.

Cash used in financing activities for the twelve months ended December 31, 2024 and 2023 was primarily related to payments on our revolving credit facility and term loan.

On February 24, 2025, we announced our new $7,500,000 share repurchase program.

F or additional information regarding this share repurchase p rogram, see Note 14 - Shareholder's Equity of our Consolidated Financial Statements.

Cash used in financing activities for the twelve months ended December 31, 2025 and 2024 was primarily related to dividend payments and payments on our revolving credit facility and term loan.

O n February 24, 2026, we announced our new $7,500,000 sha re repurchase program.

F or additional information regarding this share repurchase p rogram, see Note 18 - Subsequent Events of our Consolidated Financial Statements.

We are contingently liable with respect to lawsuits, taxes and various other matters that routinely arise in the normal course of business.

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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 retail 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.

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We did not recognize any impairment charges for goodwill during fiscal year 2025 or 2024.

During the fourth quarter of 2024, we recognized a $4.0 million impairment charge for the Muck trademark.

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 2025.

During the fourth quarter of 2024, we recognized a $4.0 million impairment charge for our Muck trademarks.

The charge is included within Operating Expenses within the Consolidated Statements of Operations for the twelve months ended December 31, 2024.

Refer to Note 5 - Goodwill and Other Intangible Assets of our Consolidated Financial Statements for additional information on the Muck trademark impairment.

We are subject to taxation in the United States, as well as various state and foreign jurisdictions.

We are subject to taxation in the U.S., as well as various state and foreign jurisdictions.

The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws.

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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 all 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, cyber security 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.

Investors are cautioned that all 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 this Annual Report on Form 10-K and other factors detailed from time to time in our filings with the Securities and Exchange Commission.

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We assume no obligation to update any forward-looking statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable to smaller reporting companies.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis