Weyco Group, Inc. Stock

Good day, and thank you for standing by. Welcome to the Weyco Group Third Quarter 2026 Earnings Release Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Chief Financial Officer, Judy Anderson. Please go ahead.

Thank you. Good morning, and welcome to Weyco Group's conference call to discuss third quarter 2026 results. On the call with me today are Tom Florsheim, Jr., Chairman and Chief Executive Officer; and John Florsheim, President and Chief Operating Officer.

Before we begin to discuss the results for the quarter, I will read a brief cautionary statement. During this call, we may make projections or other forward-looking statements regarding our current expectations concerning future events and the future financial performance of the company. We wish to caution you that these statements are just predictions and that actual events or results may differ materially. We refer you to the section entitled Risk Factors in our most recent annual report on Form 10-K, which provides a discussion of important factors and risks that could cause our actual results to differ materially from our projections.

These risk factors are incorporated herein by reference. They include, in part, the uncertain impact of U.S. trade and tariff policies, which remain highly dynamic and unpredictable, the impact of inflation on our costs and consumer demand for our products, increased interest rates and other macroeconomic factors that may cause a slowdown or contraction in the U.S. or Australian economy.

Overall net sales for the third quarter of 2026 were $77 million, up 5% compared to the third quarter of 2025. Consolidated gross earnings were 49.7% of net sales, which included $3.3 million of tariff refunds. Gross earnings were 40.7% of net sales in the third quarter of 2025. Earnings from operations were $13.7 million for the quarter, up from $8.1 million in 2025. Net earnings totaled $11.5 million, up from $6.6 million last year. Diluted earnings per share were $1.19 per share in 2026, up from $0.69 per share in the prior year.

In early 2026, IEEPA tariffs were invalidated by the U.S. Supreme Court. We paid approximately $19.8 million of IEEPA tariffs, $18.6 million of Phase 1 entries and $1.2 million of Phase 3 entries. In April of this year, we submitted refund claims for our Phase 1 entries, substantially all of which were approved and recognized during the second quarter. During the third quarter, $3.3 million in refunds previously recorded in inventory were recognized as a reduction to cost of sales upon the sale of the related inventory. Our Phase 3 entries were submitted in early October with $400,000 of entries approved for liquidation, while the other $800,000 remain under review. The timing and amount of these recoveries remain uncertain and subject to execution by U.S. Customs and Border Protection. Accordingly, no refunds related to Phase 3 entries were recognized in the third quarter.

Under a separate statutory authority, incremental tariffs on imports from China, the Dominican Republic and Vietnam were 12.5% during the quarter, while our other imports remained at 10%. U.S. trade policies continue to evolve and remain unpredictable, creating near-term gross margin uncertainty. We have mitigation strategies in place, and we'll continue to adjust as appropriate in response to future policy developments.

Wholesale net earnings were $64 million for the quarter, up 6% from $60.2 million in the third quarter of 2025. The increase was due to higher sales of our Florsheim, Stacy Adams and BOGS brands. Nunn Bush sales were down slightly for the current quarter. Last year's third quarter sales were negatively impacted by reduced business with a large customer who failed to timely adopt our new pricing structure that was effective July 1, 2025, resulting in order cancellations during the period.

Wholesale gross earnings as a percent of net sales were 46% and 35.7% in the third quarters of 2026 and 2025, respectively. The increase was primarily due to lower incremental tariff rates compared to last year and the recognition of approximately $3 million in tariff refunds in the segment, as discussed earlier. Wholesale selling and administrative expenses were $16 million or 25% of net sales for the quarter versus $14 million or 23% of net sales last year. The increase in 2026 was primarily due to higher employee costs. Wholesale operating earnings were $13.4 million for the quarter, up from $7.5 million in 2025 due mainly to higher sales and gross margins.

Net sales in our retail segment totaled $7.2 million for the quarter, up 3% from $7 million in 2025. The increase was primarily due to higher sales on our Florsheim website, largely offset by lower sales resulting from store closures. Retail gross earnings as a percent of net sales were 70 -- or increased to 70.7% in the third quarter of 2026, up from 66.4% in the third quarter of 2025, driven by lower incremental tariff rates this year. Retail operating earnings totaled $700,000 for the quarter and $600,000 in last year's third quarter.

Our other operations consist of our retail and wholesale businesses in Australia and South Africa, collectively known as Florsheim Australia. Net sales of Florsheim Australia were $5.8 million in the third quarter of 2026, down 3% from $6 million in 2025. In local currency, its net sales were down 10% for the quarter, mainly at wholesale. The local currency decrease translated to a 3% decline in U.S. dollars due to the strengthening of the Australian dollar relative to the U.S. dollar year-over-year. Florsheim Australia's gross earnings as a percent of net sales were 63.8% and 61% in the third quarters of 2026 and 2025, respectively. Its third quarter operating losses were $400,000 in 2026 versus $100,000 last year. Operating losses were higher for the quarter due to lower wholesale sales.

At September 30, 2026, our cash and marketable securities totaled $95.2 million, and we had no debt outstanding on our $40 million revolving line of credit. During the first 9 months of 2026, we generated $26.6 million in cash from operations and used funds to pay $29.4 million in dividends. We also had $1.9 million of capital expenditures. We estimate that annual capital expenditures in 2026 will be approximately $3 million.

On November 3, 2026, our Board of Directors declared a regular quarterly cash dividend of $0.28 per share to all shareholders of record on November 17, 2026, payable January 8, 2027. Additionally, on November 3, 2026, our Board of Directors declared a special cash dividend of $2 per share to all shareholders of record on November 17, 2026, payable January 8, 2027.

I would now like to turn the call over to Tom Florsheim Jr., Chairman and CEO.

Thanks, Judy, and good morning, everyone. We are very pleased with our overall performance in the third quarter with net sales increasing 5% and wholesale net sales increasing 6%. In a challenging retail environment, we believe we are continuing to gain market share in the categories where we compete. While conditions at retail remain choppy, our portfolio of brands is well positioned, and we remain confident about the future. Sales of our combined legacy brands increased 6% in the third quarter, led by Florsheim, which posted a 9% gain. The strength of the Florsheim business is both broad and deep.

In dress footwear, we have half a dozen distinct product collections that have become go-to programs for both our sales force and our retail partners. Even more encouraging, the success of our dress business has opened doors for us to expand our presence in casual boots, sneakers and hybrids. While these categories still represent a relatively small portion of our business, we are seeing encouraging results and retailers are increasingly giving Florsheim a place in these areas of their merchandising mix.

Our Nunn Bush business declined 1% for the quarter. In today's market, Nunn Bush competes primarily with retailers' private label offerings and lower-priced footwear licensed under apparel brands. We have maintained the brand's relevance by adding added value through affordable comfort technologies, including gel footbeds, dual density outsoles and easy access and design. While sales were slightly below last year's levels, we believe Nunn Bush continues to compete effectively and that our investment in meaningful product differentiation is the right strategy.

Stacy Adams shipments increased 9% for the quarter. Dress footwear is having something of a moment from a fashion perspective, and we are pleased to see Stacy Adams return to growth. While we welcome the lift in our dress business, we remain focused on developing our hybrid and fashion casual offerings to capitalize on the longer-term shift toward more relaxed, lifestyle-oriented wardrobes.

Our BOGS brand posted a 6% increase for the quarter. We are gaining traction with our focus on innovation, particularly our seamless construction technology, which produces footwear that is lighter and twice as durable as traditional vulcanized construction. We also continue to make progress in diversifying the product line to establish BOGS as a relevant brand 365 days a year. We are expanding our presence in lightly insulated and non-insulated footwear and introducing more non-rubber styles to the collection. While we are still early -- in the early stages of rebuilding BOGS to its previous sales levels, we believe the brand has turned a corner and is positioned for growth.

Net sales in our retail segment increased 3% for the quarter. Our retail segment consists primarily of our direct-to-consumer online business. Growth was led by a 17% increase in Florsheim e-commerce sales, reflecting the strength of the brand and its appeal to consumers. We continue to invest in tools and technology for our online platforms to more effectively target customers, improve conversion and increase the productivity of our websites.

Florsheim Australia's net sales declined 3% for the quarter and 10% in local currency. The Australian market has been under pressure for some time and conditions have been further exacerbated by higher fuel costs. Our team in Australia remains focused on navigating these headwinds, improving conversion rates in an environment of reduced retail traffic and carefully managing expenses. We expect market conditions to remain challenging in the near to medium term, and we will continue to align our cost structure with the business environment.

Our overall inventory as of September 30, 2026, was $60 million compared to $66 million at December 31, 2025. As discussed last quarter, we are bringing our inventory levels up to approximately $70 million by the end of the fourth quarter.

As Judy mentioned, yesterday, our Board of Directors declared a special cash dividend. Over the past few years, we have continued to build up cash in excess of what we need to fund operations and capital expenditures. Looking to the future, we anticipate that our strong balance sheet and liquidity will allow us to fund organic growth and pursue future strategic opportunities as they arise. Therefore, we are returning capital to our shareholders in the form of a special cash dividend alongside our regular quarterly dividend.

This concludes our formal remarks. Thank you for your interest in Weyco Group, and I would now like to open the call to your questions.

[Operator Instructions] Our first question comes from the line of David Wright with Henry Investment Trust.

First, I want to just congratulate your city on your recent victory in the World Series. It's a big thing for a smaller town. And for those of us who didn't have a rooting interest, we always want to see it go 7 games just to get a little more baseball. But your team was very dominant, and I'm sure the spirit around town is very high. So congratulations there.

Thank you, David. And it's been great for Milwaukee. It's been an exciting couple of weeks with the Brewers.

Well, I hope things keep going well there. And things are obviously continuing or just going very, very well at your company. And congratulations. When I take out the -- even when I take out the tariff refund, it looks like you were able to expand margin on a year-over-year basis. Your inventory is down. You said you want to build it back up, generating a lot of free cash and giving some of it back to the stockholders. So you're just doing an outstanding job managing that business, and thank you.

Thank you. That means a lot to hear that from you. I really -- we all really appreciate it.

You're welcome. Judy, in your prepared remarks, when you were talking about tariffs and you said something about potential gross margin pressure, and I was distracted when you were speaking at that moment. Would you mind just repeating and perhaps elaborating on that?

Let's see where that is.

I think it's the unpredictability of what's...

What's yet to come?

Yes. You don't know.

Yes. We've been dealing with these tariffs and tariff refunds for 18 months. And even before that, we had some back in -- before the pandemic. So we have developed strategies for mitigating our -- any new tariffs that come up. And I mean, we're in a good place right now that the incremental tariffs are lower than they were at the same time last year. So they have come down. But there is some uncertainty as to what will happen in the future. But we feel like we have some experience with this and our strategies in the past have seemed to work out nicely.

Okay. And then just on...

Just to add to that, there are a lot of inflationary pressures out there from a supply chain standpoint. So while tariffs remain unpredictable, some of the inflationary pressures are not. And then when you look at the market today, it's not a market where you want to increase your wholesale prices because the consumer just doesn't have the money in their pocket. And so we're just cognizant -- our margins are better this quarter. We're glad about that. But when we look towards the future, we just -- we want to make sure that there could be margin pressure down the road based upon what's going on in the supply chain and then the inability to raise prices. So it's not inability, but our desire not to raise prices.

So against that backdrop and, kind of, a middle market consumer that's supposedly being squeezed, what -- can you -- what would you attribute to the increased volume, the more orders from the retailers? It's a good disconnect for you, but it just seems like a mild disconnect with kind of the perceived economic picture.

Yes. I think there are a couple of different reasons for that. Over the past several years, we've seen our competition get weaker. And several brands that we compete with head-to-head were sold where the brand name was bought by one company and then they licensed the brand to another company to run the operation. And that model, I think, has some issues. And so our competition has gotten weaker.

The other thing, which is probably more important, is our product really across our brands is performing extremely well at retail. It rarely happens when you have 4 brands that all 4 are performing well. But we have that going right now and the retailers, our customers are very happy with us. We have a lot of our customers come into Milwaukee, and we've been working with them over the last few weeks, and we've heard their feedback directly. And we're in a good place.

And I'll throw in one last thing. One thing -- one comment that we heard from many of the big retailers that were in Milwaukee was the athletic business is trending off. And it's not trending off by a lot, and it's a huge part of their business. But if the athletic business is down 2% -- that gives a lot more budget for brands like ours that are more in the dress and casual category. And so that also, we think, is helping.

It sounds like you're taking a little market share in the process. So once again, thanks for the great job that you're doing and I'll yield.

[Operator Instructions] I'm showing no questions at this time. I would now like to turn it back to Chief Financial Officer, Judy Anderson, for closing remarks.

Thank you. Thank you, everyone, for attending our call today. We hope you all have a great rest of your week.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Weyco Group, Inc. Second Quarter 2026 Earnings Release Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Judy Anderson, Chief Financial Officer. Please go ahead.

Thank you. Good morning, and welcome to Weyco Group's conference call to discuss second quarter 2026 results. On the call with me today are Tom Florsheim, Jr., Chairman and Chief Executive Officer, and John Florsheim, President and Chief Operating Officer. Before we begin to discuss the results for the quarter, I will read a brief cautionary statement.

During this call, we may make projections or other forward-looking statements regarding our current expectations concerning future events and the future financial performance of the company. We wish to caution you that these statements are just predictions and that actual events or results may differ materially. We refer you to the section entitled Risk Factors in our most recent annual report on Form 10-K, which provides a discussion of important factors and risks that could cause our actual results to differ materially from our projections.

These risks are incorporated herein by reference. They include, in part, the uncertain impact of U.S. trade and tariff policies, which remain highly dynamic and unpredictable, the impact of inflation on our costs and consumer demand for our products, increased interest rates, and other macroeconomic factors that may cause a slowdown or contraction in the U.S. or Australian economies.

Overall, net sales for the second quarter of 2026 were $62.2 million, up 7% compared to the second quarter of 2025. Consolidated gross earnings were 70.4% of net sales compared to 43.3% of net sales last year.

Earnings from operations were $17 million for the quarter, up from $3.9 million in 2025. Net earnings totaled $13.3 million, up from $2.3 million last year. Diluted earnings per share were $1.39 per share in 2026, up from $0.24 per share in the prior year.

In early 2025, the U.S. imposed tariffs on certain imported goods under the International Emergency Economic Powers Act, also known as IEEPA.

During 2025 and the first quarter of 2026, we paid approximately $19.8 million in IEEPA tariffs. In February of 2026, the U.S. Supreme Court invalidated IEEPA tariffs, and in April of 2026, U.S. Customs and Border Protection, or CBP, commenced a phased process for accepting refund claims. Accordingly, in April, we submitted refund claims for our Phase 1 entries totaling $18.6 million, substantially all of which were approved during the second quarter.

As a result, during the quarter, we recognized $15.3 million in tariff refunds as a reduction to cost of sales, of which $14.3 million related to the Wholesale segment and $1 million related to the Retail segment. We also recognized $3.3 million as a reduction of inventory and $700,000 of interest income.

Our remaining entries, totaling $1.2 million are now classified as Phase 3 entries. No refunds related to Phase 3 entries have been recognized as the timing and amount of these recoveries remain uncertain and subject to execution by CBP.

Following the U.S. Supreme Court's ruling in February, the administration imposed a 10% incremental tariff under a separate statutory authority, which remained in effect throughout the second quarter. On July 24, the administration increased the incremental tariff on imports from China, Dominican Republic, and Vietnam to 12.5%. U.S. trade policies continue to evolve and remain unpredictable, creating near-term gross margin uncertainty. We have mitigation strategies in place and will continue to adjust, as appropriate, in response to future policy developments.

Wholesale net sales were $48.8 million for the quarter, up 7% from $45.6 million in the second quarter of 2025 due to higher sales of our Florsheim, Stacy Adams, and BOGS brands. Nunn Bush sales were down slightly for the quarter.

Wholesale gross earnings as a percent of net sales were 70% and 37.6% in the second quarters of 2026 and 2025, respectively. The increase was primarily due to the reduction in cost of sales of $14.3 million caused by tariff refunds as discussed earlier, as well as the benefit of selling price increases implemented in the second half of 2025.

Wholesale selling and administrative expenses totaled $18.1 million, or 37% of net sales for the quarter, versus $13.1 million, or 29% of net sales last year. The increases in 2026 were primarily due to higher employee costs. Wholesale operating earnings were $16 million for the quarter, up from $4.1 million in 2025, mainly driven by tariff refunds.

Net sales in our Retail segment totaled $7 million for the quarter, up 4% from $6.8 million in 2025. The increase was primarily due to higher sales on our Florsheim website. Retail gross earnings as a percent of net sales increased to 79.2% in the second quarter of 2026, up from 66.6% in the second quarter of 2025, driven mainly by the reduction of cost of sales of $1 million caused by tariff refunds. Retail operating earnings reached $1 million for the quarter compared to $100,000 last year due to the tariff refunds.

Our other operations consist of our retail and wholesale businesses in Australia and South Africa, collectively known as Florsheim Australia. Net sales of Florsheim Australia were $6.4 million in the second quarter of 2026, up 10% from $5.8 million in 2025. The increase was due to the appreciation of the Australian dollar relative to the U.S. dollar, as Florsheim Australia's net sales in local currency were down 1% for the quarter. Florsheim Australia's gross earnings as a percent of net sales were 63.1% and 60.9% in the second quarters of 2026 and 2025, respectively. Its second quarter operating earnings were break-even in 2026 versus operating losses of $200,000 last year.

Interest income totaled $1.5 million compared to $800,000 in last year's second quarter. This year included $700,000 of interest income related to tariff refunds recognized in the second quarter.

Our effective tax rates for the second quarters of 2026 and 2025 were 28.4% and 51.1%, respectively. The higher effective tax rate in 2025 was primarily due to the establishment of a $1.1 million valuation allowance on deferred tax assets at Florsheim Australia.

At June 30, 2026, our cash and marketable securities totaled $98.1 million, and we had no debt outstanding on our $40 million revolving line of credit. During the first 6 months of 2026, we generated $25.2 million in cash from operations and used funds to pay $26.6 million in dividends. We also had $1.5 million of capital expenditures. We estimate that annual capital expenditures in 2026 will be between $2 million and $3 million.

During the second quarter, we received $1.8 million in tariff refund and interest proceeds from the U.S. government, and in early July, we received an additional $17.5 million. As these refunds all related to entries approved during the quarter, the full benefit was recognized in our second quarter results.

On August 4, 2026, our Board of Directors declared a cash dividend of $0.28 per share to all shareholders of record on August 18, 2026, payable September 30, 2026.

I would now like to turn the call over to Tom Florsheim, Jr., our Chairman and CEO.

Thanks, Judy, and good morning, everyone. We are pleased with the growth of our Wholesale business in the second quarter. While the categories in which we compete remain under pressure, we delivered growth in 3 of our 4 brands, resulting in a 7% increase in Wholesale sales. It remains a very challenging environment for discretionary consumer goods, including footwear, and we believe our company is executing well despite these market conditions.

Sales of our combined legacy business increased 6% in the second quarter, with Florsheim leading the way with a 12% increase. The Florsheim brand continues to build momentum driven by strong sales of traditional dress shoes and encouraging growth in hybrid and casual footwear.

Stacy Adams sales increased 4%. While we still have ground to recover following the brand's softer performance last year, we are encouraged by this quarter's growth. The Stacy Adams dress shoe business continues to generate strong retail sell-through, and our focus is on translating that success into increased demand for our casual lifestyle products.

Nunn Bush sales declined 3% for the quarter. As an opening price point brand, Nunn Bush competes in a highly competitive segment of the market against private label offerings and lower-priced licensed brands. Our strategy is to differentiate the brand by investing in comfort technology and higher quality materials, giving consumers a clear reason to choose Nunn Bush for superior value. We believe we are well positioned with strong products currently at retail and in the pipeline that distinguish the brand on quality.

In our Outdoor segment, BOGS sales increased 10%, and the brand is well positioned for a strong second half. In a market with many rubber boot options, BOGS' seamless construction provides a meaningful point of differentiation. It is significantly lighter and more durable than the traditional vulcanized construction used by many competing brands. We are continuing to educate both retailers and consumers about the advantages of seamless construction, and we are seeing solid growth across this product line. While we believe we are still in the early stages of a BOGS turnaround, we are encouraged by the brand's performance this quarter.

Our Retail segment increased 4% driven by very strong Florsheim e-commerce sales. We continue to invest in our direct-to-consumer platform and are encouraged by our growth in the U.S. market so far this year. Florsheim Australia's reported net sales increased 10% for the quarter but declined 1% in local currency, reflecting the favorable impact of foreign exchange. Despite a challenging economic environment, our Florsheim Australia team continues to execute well by maximizing sales opportunities in a difficult retail market while maintaining disciplined expense control.

Our overall gross margins were 70.4% for the quarter. Our margins in the second quarter benefited from the IEEPA refunds we received. The administration continues to pursue additional tariff actions, and it is difficult to know what impact additional tariffs could have on our margins as we move through the second half of the year.

Our overall inventory as of June 30, 2026 was [ $49.1 million ] compared to $65.9 million at December 31, 2025. As discussed last quarter, we have planned our inventories to rise over the next several months to about $70 million by the end of the fourth quarter.

This concludes our formal remarks. Thank you for your interest in Weyco Group, and I would now like to open the call to your questions.

[Operator Instructions] Our first question comes from the line of John Deysher of Pinnacle.

Quick question. Is it too early to talk about back-to-school sales? I know we haven't even hit Labor Day yet, but any color you can give on that space?

Yes, you know, not too much at this point. I mean, you know, it's not that important a factor in our market other than it creates retail traffic and, you know, it's in full swing, especially in the South. But I don't have that much insight, to be honest with you, as to how back-to-school is going in the market, I think.

Retailers in general are worried about the impact of price increases in the kids' footwear market, they've been hesitant to take price increases because of pressures on discretionary income right now given all the inflationary concerns. It's not that big a factor for what we do, other than it does create some retail traffic in August.

Okay, that's helpful. And your last comment was on inventory. I think you said you're moving towards $70 million by year-end. That would put you up about $4 million from year-end 2025. Can you talk about that dynamic of, you know, how we should think about that rise in inventory to $70 million by the year-end?

Well, John, 4% rise in inventory is not a lot. I mean, we, a couple things from the standpoint of thought process is with the unknown situation with tariffs. We brought in as much product as we could when we knew it was going to be 10%. You know, the Section 122 tariffs ended July 24, so we tried to buy as much inventory and get it on the water. And we believe that with possible disruptions just due to all these tariffs. We don't know what they're going to be. We're trying to get shoes in here and just have the inventory.

We have cash to support that. And so we feel that we're better off having a little extra inventory than not enough. And as we've talked about also, we have a healthy backlog going into the second half of the year, and so we just want to have the inventory to support our retailers and take advantage of demand that we hope is there from our customers. So it's nothing extreme I guess, but we consciously are making inventories, bringing them up a little bit higher than they've been.

[Operator Instructions] I am showing no further questions at this time. I would now like to turn it back to Judy Anderson for closing remarks.

Just wanted to say thank you to everyone for participating in our call today and for your ongoing support of Weyco Group. Have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Weyco Group First Quarter 2026 Earnings Release Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded.

I would now like to hand the conference over to your first speaker today, Judy Anderson, Chief Financial Officer. Please go ahead.

Thank you. Good morning, and welcome to Weyco Group's conference call to discuss first quarter 2026 results. On the call with me today are Tom Florsheim, Jr., Chairman and Chief Executive Officer; and John Florsheim, President and Chief Operating Officer.

Before we begin to discuss the results for the quarter, I will read a brief cautionary statement. During this call, we may make projections or other forward-looking statements regarding our current expectations concerning future events and the future financial performance of the company. We wish to caution you that these statements are just predictions and that actual events or results may differ materially.

We refer you to the section entitled Risk Factors in our most recent annual report on Form 10-K, which provides a discussion of important factors and risks that could cause our actual results to differ materially from our projections.

These risk factors are incorporated herein by reference. They include, in part, the uncertain impact of U.S. trade and tariff policies, which remain highly dynamic and unpredictable, the impact of inflation on our costs and consumer demand for our products, increased interest rates and other macroeconomic factors that may cause a slowdown or contraction in the U.S. or Australian economies.

Overall, net sales for the first quarter of 2026 were $68 million, flat compared to the first quarter of 2025. Consolidated gross earnings were 44.2% of net sales compared to 44.6% of net sales last year. Earnings from operations were $7.5 million for the quarter, up 7% from $7 million in 2025. Net earnings totaled $6.1 million, up 10% from $5.5 million last year. Diluted earnings per share were $0.64 per share in 2026, up from $0.57 per share in the prior year.

Net sales in our North American wholesale segment totaled $53.6 million for the quarter, down 1% from $54.3 million last year. Florsheim sales were up, but the increase was more than offset by lower sales of the Stacy Adams and BOGS brands. Nunn Bush sales were flat for the quarter. Wholesale gross earnings as a percent of net sales were 38.7% and 39.4% in the first quarters of 2026 and 2025, respectively.

Gross margins continued to be negatively impacted by incremental tariffs, partially offset by selling price increases instituted in the second half of last year. Wholesale selling and administrative expenses totaled $13.8 million or 26% of net sales versus $14.8 million or 27% of net sales last year. The decrease in 2026 was largely due to lower employee costs. Wholesale operating earnings totaled $7 million for the quarter, up 5% from $6.6 million in 2025, mainly due to lower selling and administrative expenses.

Net sales in our retail segment totaled $8.8 million for the quarter, up 2% from $8.7 million in 2025 due to increased sales of our e-commerce businesses. Retail gross earnings as a percent of net sales were 66.1% and 66.6% in the first quarters of 2026 and 2025, respectively. Retail operating earnings totaled $800,000 for the quarter and $600,000 last year.

Our other operations consist of our retail and wholesale businesses in Australia and South Africa, collectively referred to as Florsheim Australia. Net sales of Florsheim Australia were $5.6 million in 2026, up 10% from $5.1 million in 2025. The increase was due to the appreciation of the Australian dollar relative to the U.S. dollar as Florsheim Australia's net sales in local currency were flat for the quarter. Florsheim Australia's gross earnings as a percent of net sales were 62.9% and 62.7% in the first quarters of 2026 and 2025, respectively, and its quarterly operating losses totaled $200,000 in both periods.

In February of 2025, the U.S. imposed reciprocal and retaliatory tariffs on certain imported goods under the International Emergency Economic Powers Act, also known as IEEPA. We paid a total of approximately $19.8 million in IEEPA tariffs in 2025 and the first quarter of 2026. The IEEPA tariffs increased the cost of our products by 19% to 50%, resulting in gross margin compression.

On February 20, 2026, the U.S. Supreme Court ruled that IEEPA is not authorized [indiscernible] to impose tariffs, declaring the IEEPA tariffs invalid.

In April of 2026, U.S. Customs and Border Protection, or CBP, commenced a phased process to accept claims for potential refunds of IEEPA tariffs previously paid. The refund process formally opened on April 20, 2026. And on that date, we submitted claims covering our Phase 1 entries totaling $18.6 million. The timing for submitting claims related to our Phase 2 entries totaling $1.2 million has not yet been established. The timing and amount of any recoveries remains uncertain and subject to execution by the CBP.

Following the Supreme Court's ruling, the President announced the implementation of a new across-the-board tariff under a separate statutory authority currently set at 10%, although the scope and rate remains subject to change. U.S. trade policies continue to evolve and remain unpredictable, creating near-term gross margin uncertainty. We have mitigation strategies in place, and we'll continue to adjust as appropriate in response to future policy developments.

At December 31, 2026, our cash and marketable securities totaled $93.9 million, and we had no outstanding debt on our $40 million revolving line of credit. During the first 3 months of 2026, we generated $17.4 million in cash from operations and used funds to pay $23.9 million in dividends.

We also had $600,000 of capital expenditures. We estimate that annual capital expenditures in 2026 will be between $2 million and $3 million. On May 5, 2026, our Board of Directors declared a cash dividend of $0.28 per share to all shareholders of record on May 19, 2026, payable June 30, 2026. This represents an increase of 4% above the previous quarterly dividend rate of $0.27.

I would now like to turn the call over to Tom Florsheim, Jr., Chairman and CEO.

Thanks, Judy, and good morning, everyone. Our overall company sales were flat for the quarter, with wholesale segment sales down 1%. Given the uncertainty in the economic environment, we believe we are holding our position within our competitive market segments with Florsheim continuing its strong performance streak. Our legacy business, which includes Florsheim, Nunn Bush and Stacy Adams was flat for the quarter.

The Florsheim division was up 5%, driven by strong sales in the traditional dress category. As discussed in previous conference calls, while the overall dress footwear market has been trending downward over time, Florsheim continues to gain market share. Retailers see the brand as the go-to choice to meet consumer demand in this category. From a design perspective, we continue to invest in developing fresh shoe concepts and believe we can leverage Florsheim's heritage to expand our penetration in hybrid and casual footwear. We are making steady inroads in both categories and feel confident about our long-term growth prospects.

Nunn Bush was flat for the quarter. We believe the brand is well positioned as a leading value option in comfort casual and comfort dress footwear in an economy where many consumers are feeling stretched to cover day-to-day expenses. In the current market, the biggest competition comes from private label footwear that retailers import to pursue higher margins.

Nunn Bush provides a compelling alternative with a trusted brand name, proven comfort technology, competitive pricing and in-stock inventory that retail partners can use to match demand. Our Stacy Adams division was down 9% for the quarter. At retail, Stacy Adams sell-throughs have been solid. However, retailers are not investing in fashion dress shoes as they have in the past. This is especially true in department stores and family footwear channels. We are focused on diversifying the Stacy Adams product assortment to be less centered on dress shoes with more casual offerings that align with today's lifestyle.

Our BOGS brand was down 11% for the quarter. We anticipate a strong second half of the year as cold weather and precipitation last winter in the Midwest and East Coast helped clear excess inventory of weather boots. We are also encouraged by the launch of new, less insulated spring footwear, which is selling well and paving the way for more year-round BOGS business. This spring, BOGS implemented a marketing reset focused on storytelling with an emphasis on user authenticity and real-world use of the brand's products.

The campaign highlights what differentiates BOGS from a performance standpoint and is being featured across multiple channels, including social media as well as streaming on YouTube. Net sales in our Retail segment were up 2% for the quarter, led by strong Florsheim e-commerce sales.

In the first quarter of 2025, we are still working through excess inventory across various areas of our branded portfolio. This year, we had less closeout inventory to sell through our websites, resulting in higher web margins as we sold more full-price footwear.

We continue to invest in our e-commerce platform to better showcase our brands and drive long-term growth in direct-to-consumer sales. Florsheim Australia's net sales were up 10% for the quarter, but flat in local currency. Consumers in these markets, including Australia, New Zealand, South Africa and other Pacific countries are facing many of the same pressures as in North America. As a result, sales remained somewhat soft. We are focused on keeping expenses in line as we work to return to growth trajectory.

Our overall gross margins were 44.2% for the quarter. Our first quarter margins are down approximately 50 basis points compared to the same period in 2025. With all the remaining uncertainty surrounding tariffs, it is hard to know how the margin picture will play out for the remainder of the year.

Our overall inventory as of March 31, 2026, was $50.5 million compared to $65.9 million at December 31, 2025. Our inventories are also down about $18 million compared to March 31 of last year. The decrease in inventory was due to timing, and our inventory is expected to get back into the $60 million to $70 million range as we move through the year. This concludes our formal remarks.

Thank you for your interest in Weyco Group, and I'd now like to open the call to any questions.

[Operator Instructions] At this time, we have David Wright of Henry Investment Trust.

Commend you for a surprisingly good quarter given the environment. And thanks for raising the dividend. And also commend you for some really outstanding clear disclosure about your tariff picture. That's appreciated. Judy, a question. If you receive tariff refunds, what is the tax treatment?

We will be taxed on them.

Yes.

So you had a deduction when you paid the tariff and you have income when you get a refund.

That is correct. It was part of our cost of sales last year, and so we'll get a refund this year. It will be a credit in our cost of sales and have to pay taxes on it.

Okay. Can you give any sense of what kind of the annualized run rate tariff burden is at the current 10%?

Well, it's a little -- at 10%, if that's -- it was 10% all year, it would be about an extra $10 million over and above what we normally pay in tariffs. And those normal tariffs are baked in, but the tariffs in the shoe industry are actually -- are high compared to a lot of other categories. The problem, David, is the administration has said that their intent is to get these tariffs back up to where they were under IEEPA. And so it makes planning very difficult, but we're assuming that, that will happen.

So they're doing these 301 investigations, which they say are going to be complete by the end of July. And then we're going to find out what the incremental tariff rate will be under the 301 section for the different countries where we import shoes. And so it's not that clear picture, which is why we didn't really want to commit to where margins are going to be this year. So happy to answer any additional questions about that because we are well versed. We have been studying it.

Well, just kind of big picture, I mean, I assume you communicate somehow through a trade group or directly with, I guess, the Commerce Department. Does anybody in the administration really think that shoe manufacturing is coming back to America?

We actually do have a very good trade group called the FDRA, and they've been holding regular conference calls about this, and they are trying to talk to the administration about exactly what you just asked about. I think they are aware that no shoes, I mean, it's less than 1% are made in the U.S. And we are really hoping that the 301 tariffs are going to be more targeted than these IEEPA tariffs or the tariffs that they have in place right now, which are under Section 122, which are just 10% across the board, all countries on all products. And so it would make sense to have this more targeted in our opinion, and we're trying to get that message across to the administration, but we don't know. We don't know if these 301 tariffs would be done in a more strategic way.

Okay. I just have a couple more. It seems like your price increases were pretty well absorbed because that's what the results suggest. Would that be your observation as well?

Well, we raised our prices 10% July 1. So it doesn't really cover what we were paying in IEEPA tariffs. It does cover -- right now, the extra tariff is 10%. So that is looking better. And so our margins have come back somewhat. We're still below where we've been the last couple of years before the tariffs. And we've really been watching the expense side of the business.

The other thing that's going on, David, this is John, is our inventory is pretty clean. So last year, we had some heavy closeout inventory in a couple of brands, and that's been cleaned up. And so that helps from an overall wholesale margin perspective.

Yes. That's a very good point. That is -- that definitely plays into this, and it impacts in a positive way, both our wholesale margins and our retail margins. And we also have cleaner inventories in Australia, which helps our margins there.

Okay. And then last one would be on the -- I mean, you took $1 million out of SG&A year-over-year. That's a lot. You highlighted lower employee costs. Was that staff reduction or less compensation? How was that accomplished?

The lower employee cost was a combination. It was really lower employee benefit costs. And it was a combination of a few different categories. For example, last year, we did not give out annual bonuses in the first quarter. And therefore, we had less FICA expense. So it's just something as kind of mundane as that. So there was a combination of a few things. Our health insurance costs were down. This FICA cost was down. It was a few things that added up in the first quarter.

Well, that's temporary in the warehouse, our overall costs are down just because you use less -- fewer tax, I believe.

Correct.

I was just going to say we have not reduced headcount here, though.

So your workforce flexes a little depending on your inventory level?

Depending upon our needs, especially in the distribution center. So we were able to operate more efficiently this last quarter versus a year ago.

Okay. Well, efficiency is a good word. You just continue to deliver great results. And so great job and thanks for taking my questions.

Thanks, David. We appreciate your interest.

And at this time, we're not showing any further questions. [Operator Instructions] Okay. This concludes the question-and-answer session. I would like now to turn it back to Judy Anderson for closing remarks.

Thank you. Just wanted to wish everybody a great day and a good rest of your week, and we'll talk to you next quarter. Thank you.

Thank you. That concludes our program. You may now disconnect, and thank you for participating in today's conference.

Good day, everyone, and welcome to Weyco Group, Inc. Fourth Quarter and Full Year 2025 Earnings Release Conference Call. [Operator Instructions]

Please note, this conference is being recorded. Now it's my pleasure to turn the call over to the Chief Financial Officer, Judy Anderson. Please proceed. .

Thank you. Good morning, and welcome to Weyco Group's conference call to discuss fourth quarter and full year 2025 results. On this call with me today are Tom Florsheim, Jr., Chairman and Chief Executive Officer; and John Florsheim, our President and Chief Operating Officer.

Before we begin to discuss the results for the quarter and year, I will read a brief cautionary statement. During this call, we may make projections or other forward-looking statements regarding our current expectations concerning future events and the future financial performance of the company. We wish to caution you that these statements are just predictions and that actual events or results may differ materially. We refer you to the section entitled Risk Factors in our most recent annual report on Form 10-K, which provides a discussion of important factors and risks that could cause our actual results to differ materially from our projections.

These risk factors are incorporated herein by reference. They include, in part, the uncertain impact of U.S. trade and tariff policies, which remain highly dynamic and unpredictable, the impact of inflation on our costs and consumer demand for our products, increased interest rates and other macroeconomic factors that may cause a slowdown or contraction in the U.S. or Australian economy.

Overall net sales for the fourth quarter of 2025 were $76.8 million, down 5% compared to $80.5 million in the fourth quarter of 2024. Consolidated gross earnings were 44.1% of net sales compared to 47.9% of net sales in the fourth quarter of 2024. Earnings from operations were $10.2 million for the quarter, down 12% from $11.5 million in the fourth quarter of 2024.

Net earnings totaled $8.7 million for the quarter, down 13% or $10 million -- from $10 million last year. Diluted earnings per share were $0.91 per share in the fourth quarter of 2025 compared to $1.04 per share in the prior year's fourth quarter. Net sales in our North American wholesale segment totaled $56.7 million for the quarter, down 6% from $60.4 million last year.

Sales were down due to lower shipping volumes, partially mitigated by our July 1, 2025 price increases. Wholesale gross earnings as a percent of net sales were 37.2% and 42.4% in the fourth quarter of 2025 and 2024, respectively. Gross margins for the quarter were negatively impacted by incremental tariffs. Although selling price increases helped mitigate the effect of these tariffs, they did not fully offset the resulting costs, leading to margin erosion for the period.

Wholesale selling and administrative expenses totaled $12.7 million or 23% of net sales for the quarter versus $16.7 million or 28% of net sales last year, down largely due to lower employee costs this year. Wholesale operating earnings totaled $8.4 million for the quarter, down 6% from $8.9 million in 2024 due to lower sales volumes and gross margin.

In early 2025, the U.S. imposed reciprocal and retaliatory tariffs on imported goods. Throughout 2025, these incremental tariffs increased the cost of our products by 19% to 50%, resulting in gross margin compression. On February 20, 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act, also known as IEEPA does not authorize the President to impose tariffs, invalidating the statutory basis for incremental tariffs enacted since February of 2025. The matter has been remanded to the Court of International Trade for further proceedings, including issues related to implementation and potential refunds.

We paid approximately $16 million of incremental tariffs in 2025. In December of 2025, we filed a lawsuit seeking a refund for amounts paid in connection with incremental tariffs imposed pursuant to IEEPA. The President responded to the Supreme Court ruling by announcing the implementation of a 10% across-the-board tariff under a separate statutory authority. The administration has indicated that rates may be increased further, subject to statutory limits. Certain other tariffs imposed under authorities independent of IEEPA remain in effect. U.S. trade policies remain fluid and unpredictable creating near-term gross margin uncertainty.

We have mitigation strategies in place and we'll continue to adjust as needed in response to future policy developments. Net sales in our Retail segment totaled $13.3 million for the quarter, down 5% from $14.1 million in 2024. Fourth quarter 2025 sales were negatively impacted by an increase in sales reserves related to our e-commerce businesses.

Retail gross earnings as a percent of net sales were 64.3% versus 65% in the fourth quarter of 2025 and 2024, respectively. Retail operating earnings totaled $1.9 million for the quarter and $2.5 million in last year's fourth quarter. The decrease was primarily due to the sales reserve adjustment described earlier. Our other operations consist of our retail and wholesale businesses in Australia and South Africa, which are collectively referred to as Florsheim Australia. Net sales of Florsheim Australia were $6.8 million in the fourth quarter of 2025, up 12% from $6 million in 2024.

In local currency, Florsheim Australia's net sales were up 11% for the quarter, driven by growth in both its wholesale and retail businesses. Florsheim Australia's gross earnings as a percent of net sales were 61.5% and 62.5% in the fourth quarters of 2025 and 2024, respectively. Its quarterly operating losses totaled $100,000 in 2025 versus operating earnings of $100,000 in the prior year. We will now discuss our full year 2025 results.

Consolidated net sales for the full year were $276 million, down 5% compared to sales of $290 million in 2024. Consolidated gross earnings were 43.2% of net sales compared to 45.3% of net sales in 2024. Full year 2025 operating earnings were $29.2 million, down 20% from $36.6 million in 2024. Net earnings totaled $23.1 million, down 24% from $30.3 million last year. Diluted earnings per share were $2.41 per share in 2025 and $3.16 per share in 2024.

North American wholesale net sales were $217 million in 2025, down 5% compared to $228 million in 2024. We are pleased to announce that despite the challenges of 2025, our Florsheim brand achieved record wholesale sales. Sales of our Nunn Bush, Stacy Adams and BOGS brands decreased in 2025.

Wholesale gross earnings as a percent of net sales were 37.5% in 2025 and 40.2% in 2024. Gross margins for the year were negatively impacted by incremental tariffs. Wholesale selling and administrative expenses totaled $54.6 million for the year and $60.1 million last year, down largely due to lower employee costs. As a percent of net sales, wholesale selling and administrative expenses were 25% and 26% in 2025 and 2024, respectively.

Wholesale operating earnings totaled $26.6 million in 2025, down 15% from $31.5 million in 2024 due to lower sales volumes and gross margins. In our North American Retail segment, net sales were $35.7 million in 2025 down 8% from a record $38.7 million in 2024. The decrease was primarily due to lower direct-to-consumer sales of Florsheim, BOGS and Stacy Adams footwear. BOGS website sales were also impacted by fewer promotional activities in 2025.

Retail gross earnings as a percent of net sales were 65.7% and 65.9% in 2025 and 2024, respectively. Retail operating earnings totaled $3.3 million for 2025 and $5.3 million last year. The decrease was primarily due to lower sales volumes. Net sales of Florsheim Australia remained relatively flat at $23.7 million and $23.6 million in 2025 and 2024, respectively. In local currency, Florsheim Australia's net sales were up 2% for the year, driven by growth in its retail businesses.

Florsheim Australia's gross earnings as a percent of net sales were 61.5% and 61% in 2025 and 2024, respectively. Florsheim Australia generated operating losses totaling $700,000 for 2025 and $200,000 in 2024. Our effective tax rates for 2025 and 2024 were 28% and 23.9%, respectively.

Our 2025 income tax provision included a charge to establish an evaluation allowance on Florsheim Australia's deferred tax assets. Our 2024 tax provision was reduced by deductions related to share-based compensation. At December 31, 2025, our cash and marketable securities totaled $101 million, and we had no debt outstanding on our $40 million revolving line of credit.

During 2025, we generated $37.3 million in cash from operations and used funds to pay $7.7 million in dividends. We also repurchased $5.3 million of company stock and had $1.8 million of capital expenditures. We estimate that 2026 annual capital expenditures will be between $1 million and $3 million. During January of 2026, we paid our 2025 fourth quarter and special cash dividends totaling $21.4 million to shareholders. On March 3, 2026, our Board of Directors declared our first quarter cash dividend of $0.27 per share to all shareholders of record on March 13, 2026 payable on March 31, 2026.

I would now like to turn the call over to Tom Florsheim, Jr., our Chairman and CEO.

Thanks, Judy, and good morning, everyone. Our overall company sales were down 5% in the fourth quarter and 5% for the full year. While we are never content with the decline, given the challenges we faced related to tariffs and dampened consumer sentiment, we are proud of the work done by our production and sales teams to navigate these economic headwinds.

For an extended period during the second quarter, we faced tariff rebates -- tariff rates that render trade with China, our largest sourcing country commercially prohibitive. Because the second quarter is a primary manufacturing period for our key fall shipping window, this created a strong likelihood of disrupted deliveries to both our wholesale partners and our direct-to-consumer business.

By strategically keeping production running on key programs and holding finished goods overseas, we positioned ourselves to deliver nearly 100% of our fall shipments on time once tariffs were reduced to commercially viable levels. Throughout 2025, new tariffs increased the cost of our products by 19% to 50%, resulting in gross margin compression despite a 10% increase that took effect in July.

Over the past year, we have made significant progress in diversifying our manufacturing base to be less China-centric Sales of our combined legacy business declined 7% in the fourth quarter and 4% for the year. Given the uncertain economic environment, particularly in soft goods, our accounts continued to take a conservative approach to inventory management, which negatively impacted fourth quarter shipments.

The Florsheim division recurred a 1% decrease for the quarter and a 2% increase for the year. The brand achieved $92 million in sales in 2025 and an all-time record making it one of the few men's brands outside of the athletic category to sustain this level of post-pandemic growth. While the nonathletic brown shoe category has been in secular decline, Florsheim has bucked the trend and gained market share. Sell-through is a traditional address and refined casual footwear have been strong, and the brand continues to make progress in the hybrid and dress sneaker categories.

Our Nunn Bush business declined 13% for the quarter and 10% for the year. The mid-tier trade channels, which account for the majority of Nunn Bush's volume remain under pressure negatively impacting sales. As an opening price point brand with major retailers, Nunn Bush also faces increased competition from private label programs as stores seek to improve margins. We believe we're taking the necessary steps to return Nunn Bush to growth, including value engineering product to meet key price points while delivering attributes and benefits not typically found in private label offerings. Retail sell-through of Nunn Bush remains solid.

Stacy Adams sales declined 13% for the quarter and 9% for the year, reflecting continued challenges in the fashion dress shoe market. While the Stacy Adams brand remains a leader in this category, retailers are devoting less inventory and shelf space to dress shoes. Our focus with Stacy Adams continues to be on expanding categories beyond its core elevated dress operates.

The BOGS business remains difficult with sales down 6% for the quarter and 11% for the year. While early winter cold and snowfall resulted in strong sell-through of BOGS product, fall sell-in declined year-over-year as retailers maintained a conservative chase based inventory strategy for seasonal product.

Retailers ended the season with exceptionally clean inventories, and we are now seeing strong bookings for fall 2026. While we are optimistic about improvement this year, we remain mindful of the long-term impact of climate change on the weather boot category. Our priority continues to be the development of footwear designed for multi-season use. Next sales in our Retail segment declined 5% for the quarter and 8% for the year. In 2025, our e-commerce consumer was increasingly value-oriented. Our overall inventory position is significantly cleaner than the prior years, which is a positive. It resulted in lower conversion among consumers motivated by clearance discounts.

As we enter the new year, we remain disciplined in our approach to inventory management and anticipate a lower level of clearance sales. We believe that there is a meaningful opportunity to drive full price sales through improved storytelling across our brand portfolio and clearer communication of product attributes and benefits.

Florsheim Australia's net sales increased 12% for the quarter and 11% in local currency. For the year, net sales were flat, increasing 2% in local currency. Florsheim Australia, which includes New Zealand, South Africa and our Asia business remains a work in progress. While certain areas such as Australian e-commerce delivered solid gains, we continue to face challenges in our Australian wholesale business where improvements are necessary to drive profitability.

Our overall inventory as of December 31, 2025 was $65.9 million compared to $74 million at December 31, 2024. We think our inventories are at a healthy level as we move into the first quarter of this year. Our overall gross margins were 44.1% for the quarter and 43.2% for the year. Our margins were down 200 basis points for the year due to incremental tariffs. With the IEEPA tariffs ruled unlawful and the administration implementing new tariffs, we're expecting continued cost uncertainty in 2026. We are prepared to continue to adjust our margin and pricing strategy with the goal of maintaining historical margins.

This concludes our formal remarks. Thank you for your interest in Weyco Group, and I would now like to open the call to your questions.

[Operator Instructions] Our first question comes from the line of John Deysher with Pinnacle. Please proceed.

Solid, solid year and a difficult market. Just a couple of quick questions. You mentioned you paid approximately $16 million in incremental tariffs. How much of that did you recover in terms of price increases?

I would say -- Judy, I don't know if you.

Our wholesale margin is down about 400 basis points from last year, more or less. So we had a 10% price increase, but it didn't cover a significant portion of what the how tariffs invested our business. .

Are you -- that was John speaking, John, are you looking for a dollar amount?

Well, a percentage would help. In other words, -- did you recover 50% with price increases, 30%, 70%, just a rough percentage.

Yes, it's hard. It's a confusing answer because the tariffs in different -- from different countries, varied a lot. The last several months we had a 50% tariff. So the 10% increase just got us a small percentage of the tariff back. And most of the other countries are -- were at around 20%, but that also varied during the several months of the second half, where China was originally higher and went down to 20%. I believe it was at 30% for a period, and then it was over 100% for a period. And so the 10 -- it was -- we took a very methodical approach to increasing prices because we're in a tough market as far as consumer settlement.

And so what we were trying to achieve with that was mitigate part of the tariff impact, but also maintain market share as best as we could. And so it's not -- I guess, it's not an easy answer, and I'm sorry if we're not giving you exactly what you want there. .

Okay. That's understandable. The lawsuit for the refund about how much are you looking to retrieve with that lawsuit?

Well, we're hoping to retrieve the whole thing. What as the administration's attorneys took this up through the court system, they -- I can't remember if it was the federal appeals court or the Court of International Trade. But they basically said to the court, please do not stay this because if the Supreme Court rules this unlawful, we will pay back these incremental tariffs, the IEEPA tariffs with trust. And so they're on record in the court system as saying they would pay this back.

Once the Supreme Court ruled, the tone changed a little bit from the administration saying they might litigate it. And I think that's going to be difficult for them because they were so clear in what they said to the court as it's moved up to the Supreme Court.

Now it goes back down to the Court of International Trade for remedy. And so we're optimistic, but we've also seen that things can get tied up in litigation no matter what. So we're going to wait and see, but we're optimistic about getting back the whole $16 million.

Okay. So that was the refund that you're seeking, $16 million or so.

Exactly. You don't state number when you file the lawsuit, it's just a refund on all the IEEPA lawsuit -- all the IEEPA tariffs.

Right. Okay. That makes a lot of sense. You mentioned China. I'm just curious, last year, what percentage of the cost of goods sold were imported from China roughly?

I would say it was about 65% to 70%. What we've done, John, last year was a busy year for sourcing. And what we've done is we've established a much better footprint in Cambodia and Vietnam than we had prior to 2025. So we're in a really good position to continue to grow our sourcing outside of China. We were throwing a little bit of rent into the works because we have a big base of manufacturing in India. And when China was hit with tariffs early on, at very, very high levels, we moved product to India. And then India got hit with 50%. So the uncertainty around these tariffs make it difficult but we're learning to live with that uncertainty, and we've set up a much more flexible supply chain for the future.

Okay. Great. That's good to hear. And I guess, finally, the on the e-commerce business, the increase in sales reserves. Can you give us some color on that, why that was necessary?

That was just standard adjustment that was made in the fourth quarter. It just happened that our sales declined by not that much a small amount and just that adjustment -- debt adjustment to the sales reserve was a little bit more than that. So it seems significant in relation to the change in the sales for the quarter..

Okay. Are any of your e-commerce customers facing any kind of pressure at this point?

John, do you mean -- are you talking about our actual direct-to-consumer customers or wholesale?

Yes. Well, it is -- both actually. I know it's a pretty competitive business. And I was just curious if there's any pressures on either the wholesale business or the e-commerce side.

What we're seeing out there is that the customer -- our end customer is shopping for deals. And two things are going on. One is our inventory is extraordinarily clean right now. And in the first half of 2025 we had more clearance, but it really dwindled throughout the year. And so we just don't have as much clearance to offer our customers, and they're as such, they're moving to -- they'll look for deals on Florsheim or BOGS or Stacy Adams on other sites.

The other thing in that dynamic is that as the owner of the brand, we're not -- we're trying not to be out there discounting as much in terms of our ongoing line. But we do have wholesale partners out there, the [indiscernible] ongoing top patterns, top styles that will discount from time to time. And we're seeing a migration of our consumers from our site to other sites in terms of purchasing.

So I think our overall wholesale e-commerce business is holding up relatively well. Our own websites are down just because of the 2 reasons I just communicated.

Okay. Good. Very helpful. Just one more quickly, if I might. We're all hearing about higher oil prices, and I was just curious if that impacts your vendors in terms of, I don't know, foam costs or anything like that? Have you thought about how that dynamic might play out?

As far as what cost did you say?

Foam costs or any other parts of the shoe that are oil impacted.

Yes. No, I don't -- I think that there's two impacts that I can think of. The first one is that if this goes on for a while, it's going to reduce discretionary spending on the part of the consumer because more of that spending is going to go to fund up their car for heating bills and everything. The second impact, as far as our products go is really more with shipping. I mean you might see the shipping lines raise their prices if it goes on because that's a big part of their cost.

As far as like the actual impact on components going into footwear unless this goes on for a long time, I think that would be very minimal. And so we don't see a major impact other than maybe more consumer -- the consumer being more stretched. Other than that, from the standpoint of the cost of the shoes, we don't really see a big impact.

Our next question comes from Christine Sutton with Shopify.

Yes, John, thanks for the context, and I appreciate the discipline around not discounting directly, as you just explained, which protects wholesale partnerships as well as the brand. But I wanted to ask about the dynamic of customers already bypassing the wholesale and coming too directly for the e-commerce seeing that, that was just asked. And understand. I'm sorry. .

Go ahead, Christian. So go ahead. .

My question is if the customers are already coming to your brand sites, would being able to increase the conversion basket size directly while circumventing the discount shopping. Would that be a helpful aspect to learn and earn still keeping the wholesale partnerships, which is obviously a critical part of the earnings success for the last quarter. Is that something that will help.

Yes. We're all looking for ways to increase conversion and want to do that in a way to healthy for the business. I think the situation right where we are right now, we just have less clearance and consumer is under pressure right now. And I think that's affecting soft goods in general. So when consumers are -- have less money in their packet, they're looking for deals. And if we have less clearance, it lowers our conversion rate, and that's just something that we work through. But we feel actually pretty good about how our e-commerce business is performing, but you're going to have these types of changes based on the obsolescence in your inventory.

Thank you. And this concludes our Q&A session. I will turn it back to Judy Anderson for closing comments.

Thank you for your support of Weyco Group, and everyone, have a great day. Thank you. .

And this concludes our conference. Thank you for participating. You may now disconnect.

Thank you for standing by. At this time, I would like to welcome everyone to Weyco Group, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Judy Anderson, Chief Financial Officer. You may begin.

Thank you. Good morning, and welcome to Weyco Group's conference call to discuss third quarter 2025 results.

On the call with me today are Tom Florsheim, Jr., Chairman and Chief Executive Officer; and John Florsheim, President and Chief Operating Officer.

Before we begin to discuss the results for the quarter, I will read a brief cautionary statement. During this call, we may make projections or other forward-looking statements regarding our current expectations concerning future events and the future financial performance of the company. We wish to caution you these statements are just predictions and that actual events or results may differ materially. We refer you to the section entitled Risk Factors in our most recent annual report on Form 10-K which provides a discussion of important factors and risks that could cause our actual results to differ materially from our projections.

These risk factors are incorporated herein by reference. They include, in part, the uncertain impact of U.S. trade and tariff policies, which remain highly dynamic and unpredictable, the impact of inflation on our costs and consumer demand for our products, increased interest rates and other macroeconomic factors that may cause slowdown or contraction in the U.S. or Australian economy.

Overall net sales for the third quarter of 2025 were $73.1 million, down 2% compared to $74.3 million in the third quarter of 2024. Consolidated gross earnings were 40.7% of net sales compared to 44.3% of net sales in last year's third quarter. Earnings from operations were $8.1 million for the quarter, down 21% from $10.2 million in the third quarter of 2024.

Net earnings totaled $6.6 million for the quarter, down 18% from $8.1 million last year. Diluted earnings per share were $0.69 per share in the third quarter of 2025 and $0.84 per share in last year's third quarter. Net sales in our North American Wholesale segment totaled $60.2 million for the quarter down 2% from $61.1 million last year.

Sales volumes were down 7% for the quarter, but selling price increase instituted on July 1, 2025, helped to mitigate the impact of the volume decline. The decrease in volume was primarily due to reduced business with a large wholesale customer who failed to timely adopt our new pricing structure, resulting in order cancellations during the period. This issue has since been resolved and is not expected to significantly impact the fourth quarter.

Wholesale gross earnings as a percentage of net sales were 35.7% and 40.1% in the third quarter of 2025 and 2024, respectively. Gross margins were negatively impacted by the effects of incremental tariffs. Although selling price increases helped mitigate the effect of these tariffs, they did not fully offset the costs leading to the margin erosion for the period.

Wholesale selling and administrative expenses totaled $14 million for the quarter and $15.1 million last year. The decrease was primarily due to lower employee costs. As a percentage of net sales, wholesale selling and administrative expenses were 23% and 25% in the third quarter of 2025 and 2024, respectively.

Wholesale operating earnings totaled $7.5 million for the quarter, down 20% from $9.4 million in 2024 due to lower sales volumes and margin erosion.

Earlier this year, the U.S. government enacted reciprocal and retaliatory tariffs collectively referred to as incremental tariffs on goods imported into the United States. The incremental tariff on goods sourced from China, where most of our products originate remained 30% out the third quarter of 2025. This tariff rate is set to be reevaluated on or before November 10, 2025. The incremental tariffs on goods sourced from other countries, excluding China, range from 10% to 50% throughout the third quarter of 2025.

U.S. trade and tariff policies currently remain fluid and unpredictable and the specific tariff rates applicable to goods imported by our company continue to evolve. As such, there is significant ongoing uncertainty regarding the potential near-term impact of incremental tariffs on our gross margins. We have implemented various mitigation strategies and remain committed to adopting further strategies, including shifting our sourcing in alignment with evolving tariff policies, optimizing our pricing structure, and enhancing operational efficiencies as needed in response to future policy developments.

Net sales in our North American Retail segment were $7 million for the quarter, down 4% from $7.2 million in 2024. The decrease was primarily due to softer demand on the Florsheim and Stacy Adams websites amid the tepid retail environment. Retail gross earnings as a percentage of net sales were 66.4% and 66.9% in the third quarters of 2025 and 2024, respectively.

Retail operating earnings totaled $600,000 for the quarter versus $800,000 in last year's third quarter. The decrease was primarily due to lower [Technical Difficulty]. Our other operations consist of our retail and wholesale businesses, primarily based in Australia, with a limited presence in South Africa collectively referred to as Florsheim Australia.

Net sales of Florsheim Australia remained flat at $6 million in both the third quarters of 2025 and 2024. In local currency, Florsheim Australia's net sales were up 2% for the quarter, driven by growth in its retail businesses. Florsheim Australia's gross earnings as a percentage of net sales were 61% and 59.2% in the third quarter of 2025 and 2024, respectively. Florsheim Australia generated operating losses totaling $100,000 for the quarter and breakeven results for the third quarter last year.

At September 30, 2025, our cash and marketable securities totaled $78.5 million, and we had no debt outstanding on our $40 million revolving line of credit. During the first 9 months of 2025, we generated $13.2 million in cash from operations and used funds to pay $7.7 million in dividends. We also repurchased $4.1 million of company stock and had $900,000 of capital expenditures.

We estimate that 2025 annual capital expenditures will be between $1 million and $3 million.

On November 4, 2025, our Board of Directors declared a quarterly cash dividend of $0.27 per share to shareholders of record on November 17, 2025, payable January 9, 2026. Additionally, on November 4, 2025, our Board of Directors declared a special cash dividend of $2 per share to all shareholders of record on November 17, 2025, paid January 9, 2026.

I would now like to turn the call over to Tom Florsheim, Jr., Chairman and CEO.

Thanks, Judy, and good morning, everyone. Overall company wholesale sales were down 2% in dollars and 7% in unit volume during the third quarter. We raised prices by 10% on July 1 to offset tariff increases. While shipments were down slightly, we were encouraged by the relative strength of our brands at retail following those price increases. In what remains a difficult market, our brands, especially our legacy business performed well. Even so, the unsettled tariff environment, along with weak consumer sentiment and the cautious approach retailers are taking toward inventory investment continues to create midterm challenges.

We continue to diversify our factory base to reduce our manufacturing concentration in China while maintaining strong relationships with our long-standing partners there who have been instrumental to Weyco's reputation for quality and value.

Expanding our factory base isn't a quick process, and we're very deliberate about partnering only with factories that share a commitment to quality and on-time delivery. As we navigate the uncertainties in this economic environment, we remain confident in the strength of our brands and the resilience of our business model.

Sales of our combined legacy business were up 3% despite a 3% decline in unit volume. Florsheim was a standout brand, with sales up 8% for the quarter. Florsheim continues to be a bright spot in men's nonathletic footwear for 2 reasons. First, it's become the go-to brand for traditional dress and dress casual footwear priced under $150. While this segment has shrunk with the trend toward more casual lifestyles, it remains an important part of the market that retailers rely on to meet consumer demand for work in occasion-based styles. Florsheim is gaining shelf space as a bridge brand that offers premium quality at a reasonable price.

Second, the brand has expanded its presence in hybrid footwear and dress sneakers with good success. The Florsheim DNA fits well in the refined casual category, which remains a key focus for growth.

Our Nunn Bush business was up 1% and continued to show good momentum in retail. With pricing pressures across the industry, Nunn Bush is positioned as a branded value alternative and the comfort casual on traditional dress casual segments as competitors exit the under $80 price point. We continue to invest in Comfort technology platforms that differentiate Nunn Bush from private label options and allow it to compete effectively against higher-priced brands.

Stacy Adams was down 5% for the quarter. It remains the leader in accessible elevated dress footwear with exceptional brand loyalty among style-driven consumers. We're focused on expanding its casual offerings to capture the same refined aesthetic. While we're seeing some success, we'll need to grow this segment further and make Stacy Adams back on a growth track.

The BOGS business remains challenging with a 17% decline for the quarter. The category became oversaturated after the pandemic and mild winters in recent years have made many retailers more cautious, waiting to fund weather boot purchases closer to the season. As a result, BOGS is now more dependent on fourth quarter cold and precipitation to drive sales. Our focus is on innovation and diversifying away from the winter weather dependence. We believe our seamless construction with its durability and lightweight feel gives us a real competitive edge in the market place. While we're making progress with less insulated and noninsulated footwear, that diversification will take time to materially impact sales.

During the quarter, we made the strategic decision to wind down operations of the Forsake brand due to a sustained lack of growth and profitability. This decision is part of our ongoing effort to optimize our brand portfolio and focus on those brands with the greatest potential for long-term success. The closure of Forsake is not expected to have a material impact on our consolidated financials.

Net sales in our Retail segment were down 4% for the quarter, driven by a decline in e-commerce sales. We've seen increased price sensitivity from consumers in comparison to last year as more consumers are choosing items at lower prices. We also believe we're losing some sales to our wholesale partners, e-commerce sites since our own sites are often priced at full MSRP while some partners promote our brands more aggressively.

The pricing gap widened when we raised retail price points by 10% on July 1, while our wholesale customers phased in to increase more gradually. This situation should level out over time, but we recognize that consumers with limited discretionary spending will continue to shop around through the best prices across our brands.

Florsheim Australia's net sales were flat for the quarter, but up 2% in local currency. Our Florsheim Australia business, which includes the South African and Pacific Rim markets, remains a work-in-progress from a profitability standpoint. We're encouraged by the increase in same-store sales during the quarter, but we still need to grow our wholesale business to reach our profitability targets.

Our overall inventory as of September 30, 2025, was $67.2 million compared to $74 million at December 31, 2024. We are at a good inventory level as we move into the fourth quarter. Our overall gross margins were 40.7% for the quarter and 44.3% last year. Our wholesale margins were negatively impacted by the incremental tariffs. We took a conservative approach to price increases because we want to maintain our market share, and we do not know where the tariffs are going to land from China or India. While we are encouraged by recent trade talks between the U.S. and China, we still consider the situation to be volatile and uncertain.

As we gain more clarity, we will continue to mitigate the impact of incremental tariffs by shifting our supply chain and assessing the need for additional price increases or the implementation of other strategies.

As Judy mentioned, yesterday, our Board of Directors declared a special cash dividend. Over the past few years, we've built up cash in excess of what we need to fund operations and capital expenditures. Looking to the future, we anticipate that our strong balance sheet and liquidity will allow us to fund organic growth and pursue future strategic opportunities as they arise. Therefore, we are returning capital to our shareholders in the form of a special cash dividend alongside our other annual quarterly dividend.

This concludes our formal remarks. Thank you for your interest in Weyco Group, and I would now like to open the call to your questions.

[Operator Instructions]

Your first question comes from the line of David Wright with Henry Investment Trust.

Can you hear me?

Yes, we can.

No, we hear you.

Okay. Thanks for the special dividend. That's excellent. And I applaud the continued efforts at capital management.

Tom, do you have any sense on in the last quarter, how much of the margin deterioration is attributable to tariffs? Do you try to look at it that way?

Yes. I would say -- and I'm going to have Judy voice in on this as well. It's 100% basically of our margin erosion. I mean we raised prices 10%. But the incremental duties out of China have been at 30%. And so it doesn't cover -- we didn't raise prices enough, I guess, to cover the cost of the incremental tariffs. We did that intentionally because as we mentioned, we really want to maintain market share, and we don't want to go too fast with price increases until we see where all these tariffs are going to land.

India started out -- now the tariffs changed off, but I can't remember where they started out 10% or 20%. And then the administration added an extra 50%. And we have been moving product to India from China. And so it's been -- David, it's been a pretty crazy 6 months. And we're pleased with our results with how this is going on, and we think that we're doing the right things for the long-term health of the business as far as maintaining market share. And reasonable profitability. We know that with the margin erosion, we're not going to be as profitable as we've been in the last couple of years, but we think that we're better off kind of taking time and seeing where everything lands.

Okay. There's been an increasing commentary in the general business press lately about the upper end of the consumer caring the economy and the lower end cutting back. And I don't know, if you dice your customer base to that extent. But if you do, do you have any sense of -- do you see one region or one wholesale customer, one demographic remaining stronger relative to another?

This is John. It's hard to parse it. I mean, we see certain retailers that have more customers from the lower middle income strata. And I think those customers are challenged right now just in terms of seeing their performance. When you look at our brands, I think the Florsheim attracts a slightly higher income customer. So we're -- and our business with Florsheim is very strong right now.

Stacy Adams and Nunn Bush are more of a value customer. And that's -- and I think we're seeing a bit of that drag on those 2 brands.

Okay. So you're kind of seeing the same thing that other companies are commenting on, and I appreciate the answer there.

Okay. Great. Well, those are my questions. I commend you for the continued great quarterly call, the comprehensive review that Judy gives. It's all good.

[Operator Instructions]

Seeing no further questions at this time, ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.