Good day and thank you for standing by. Welcome to the Weyco Group Third Quarter 2023 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. 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.

Thank you. Good morning, and welcome to Weyco Group's conference call to discuss third quarter 2023 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 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 were $84.2 million, down 13% compared to record third quarter sales of $97 million in 2022. Consolidated gross earnings increased to 43% of net sales, compared to 40.6% of net sales in last year's third quarter, due mainly to higher gross margins in our North American wholesale segment. Quarterly earnings from operations were $12.4 million, down 12% compared to record operating earnings of $14.2 million in 2022. Quarterly net earnings totaled $9.3 million or $0.98 per diluted share, compared to record net earnings of $10.8 million, or $1.12 per diluted share last year. Net sales in our North American wholesale segment were $69.5 million, down 15%, compared to record sales of $81.6 million in 2022. The decrease was primarily due to a 42% decline in BOGS sales compared to record sales for the brand last year. This quarter, our wholesale sales were negatively impacted by reduced consumer demand following record growth last year. Looking ahead to the fourth quarter, we anticipate that our sales will continue to fall short of 2022. Not only are we going up against a strong fourth quarter last year, but retail market conditions remain challenging as the pace of consumer spending in the footwear category has slowed, which we believe will continue to impact our business at least for the remainder of the year. Wholesale segment gross earnings were 38.6% of net sales in the third quarter of 2023, compared to 36.3% of net sales last year. Gross margins improved as a result of lower inventory costs compared to last year, primarily related to inbound freight costs. Wholesale segment selling and administrative expenses were $15.6 million for the quarter, compared to $16.7 million last year. The decrease was primarily due to lower employee costs, mainly commission-based compensation. As a percent of net sales, selling and administrative expenses were 22% and 21% of net sales in the third quarters of 2023 and 2022, respectively. Wholesale operating earnings totaled $11.3 million for the quarter, down 13% from $12.9 million last year due primarily to lower sales. Net sales in our North American retail segment were a third quarter record of $7.6 million, up 6% over our previous record of $7.1 million last year. The increase was due to higher sales across all our domestic e-commerce websites with the largest increases at BOGS and Florsheim. Retail segment gross earnings as a percent of net sales were 65.4% and 66.3% in the third quarters of 2023 and 2022, respectively. Selling and administrative expenses for the retail segment totaled $4 million or 53% of net sales for the quarter, compared to $3.9 million, or 55% of net sales last year. Third quarter retail operating earnings rose to $926,000, up 12% compared to $825,000 last year, mainly due to the increase in web sales. Our other operations consist of our retail and wholesale businesses in Australia, South Africa and Asia-Pacific, collectively referred to as Florsheim Australia. Net sales of Florsheim Australia totaled $7.1 million, down 14%, compared to $8.2 million in the third quarter of 2022. In local currency, its net sales were down 10%, primarily in its wholesale businesses. Florsheim Australia's gross earnings were 61.6% of net sales, compared to 61.4% of net sales in last year's third quarter. Its operating earnings were $256,000 for the quarter versus $476,000 last year. The decrease was primarily due to lower earnings in Australia's wholesale businesses as a result of lower sales. At September 30, 2023, our cash, short-term investments, and marketable securities totaled $41 million, and we had no debt outstanding on our $40 million revolving line of credit. During the first nine months of 2023, we generated $62.9 million of cash from operations due mainly to reductions in inventory levels. We used funds to pay off $31.1 million on our line of credit, to pay $9.3 million in dividends, and to repurchase $3.4 million of our common stock during the nine-month period. We also had $2.6 million of capital expenditures. We estimate that 2023 annual capital expenditures will be between $3 million and $4 million. On November 7, 2023, our Board of Directors declared a cash dividend of $0.25 per share to all shareholders of record on November 27, 2023, payable January 2, 2024. I would now like to turn the call over to Tom Florsheim, Jr., our Chairman and CEO.

Thanks, Judy, and good morning, everyone. Sales in our North American wholesale business were down 15% for the quarter. While we are never pleased with the decrease, the comparison was against a record third quarter last year. Wholesale sales in 2022 reflected strong demand but also significant pipeline fill as many accounts were replenishing stock depleted due to pandemic-related supply chain delays. To provide some context, taking out 2022, this year's third quarter would have been our most profitable third quarter in wholesale operating earnings. This year, the retail environment is more challenging due to macroeconomic pressures and consumers are being cautious in terms of expenditures on footwear and apparel. With demand softening, retailers are being conservative with at once and future orders at the wholesale level. The change in retail dynamics is most apparent in the outdoor market. Given the spike in demand in 2021, and the first half of last year, retailers placed heavy orders with the expectation of strong consumer sell-throughs. Sales did not keep pace in the back half of last year and the outdoor trade channel entered 2023 with an inventory glut. The situation has been exacerbated by unseasonably warm weather in early fall. As a result, BOGS shipments declined 42% compared to record sales for the brand last year, with retailers placing fewer orders due to the current saturation of product in the market. The BOGS brand has enjoyed very strong performance over the last few years, and we see the current decline as a category issue. While the majority of our BOGS inventory is in core product that remains valid from year to year, we are also taking steps to reduce inventory of slower moving styles. We believe the situation is manageable, but anticipate that the inventory backlog in the outdoor footwear category will not normalize until the back half of 2024. While the market is challenging, we are not standing still and are optimistic about the brand's long-term growth prospects given BOGS strong consumer loyalty. We continue to develop exciting new BOGS products with a special focus on less insulated footwear with a longer selling season. In terms of our legacy business, Florsheim net sales were down 7% compared to record sales for the brand in last year's third quarter. Sales of Stacy Adams were down 1%, and sales of the Nunn Bush brand were up 11%, with the increase driven in part by incremental sales in the casual and hybrid categories and new programs to a few large retailers. The performance of our legacy business was respectable given each brand was up against strong sales in 2022. In addition, retail feedback indicates that our brands are among the most productive within their respective categories in a difficult environment. While Florsheim, Stacy Adams, and Nunn Bush are positioned differently from a fashion and price perspective, there are common threads across our legacy business. We believe that Florsheim, Nunn Bush, and Stacy Adams all reflect outstanding value in trend-right design within their respective categories. As such, all three brands maintained solid retail sell-throughs despite a general slowdown in the more refined footwear category. We are also encouraged by our progress in selling hybrid footwear that is more casual in nature but can be worn across a variety of settings from office to social occasions. Consumers are gravitating towards this category of footwear, and we see this as an important growth area for our legacy business. From a product development perspective, we are expanding our range of hybrid footwear while selectively adding to our true casual and refined assortment. Retail sales were up 6% for the quarter, with the increase driven primarily by our e-commerce business. Footwear industry statistics indicate the e-commerce sales channel is down year-to-date, so it is encouraging that we continue to grow our e-commerce platform in a very competitive environment. Sales at Florsheim Australia were down 14%, and in local currency, were down 10%. As mentioned in our second quarter conference call, the Australian market is facing some of the same challenges as in the U.S. regarding softness in the footwear and apparel category. We also lost a sizable wholesale account that impacted our wholesale shipments for the quarter. Going forward, we believe that we will make up some of this deficit in the Australian market through other accounts as well as the transfer of the Asia-Pacific wholesale business to the Florsheim Australia office. Our inventory level was $79.6 million as of September 30, 2023, compared to $128 million at December 31, 2022. We feel that our inventory is now at a good level overall, but continue to focus on any areas where we have slow moving product. Our overall gross margin was 43% compared to 40.6% last year. We have worked hard to offset increased costs and our margins are now at a healthy level. 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.

Thank you. Our first question comes from the line of John Deysher with Pinnacle. Your line is now open.

Good progress on the inventories. Glad to see the debt paid off. Just curious what the plans are for the cash going forward. I know you raised your dividend recently and I think you bought back, what, 2.4 million shares year-to-date. Is there anything remaining on the share repurchase at this point?

Yes. Judy, can you give that number?

What's remaining? 903,000 shares.

Is remaining.

Did you hear it?

Yes.

So we have plenty remaining.

Good. I was just going to say, what was the average on the 2.4 million buyback?

$25.43.

Yes.

$25.43 and is that number right, the $2.24? I thought it was a little higher.

Total cost of our shares purchased through October 31 is about $3,794,000.

Yes. So it's about $3.8 million, John.

3.8 million shares at $25.43.

No, no, dollars, dollars.

Dollars.

$3.8 million.

$3.8 million and the average cost is $25.43.

Right. So we can give you the number of shares. How many shares was that, John?

149,000.

Yes. 149,000.

Okay. Sorry, my mistake. Sorry, Tom, I cut you off. What were you going to say as to the future uses?

Well, we're going to continue to probably build some cash. I mean, a lot of that cash that we built is from we spent a lot of money building up our inventories because our inventories were depleted due to all the supply chain issues and also coming out of COVID our inventory basically evaporated. And then we had to rebuild those inventories. And because the demand was so high, we built them up to a fairly high level. And so now that we've brought them down to what we consider a good level, we're not going to see as much cash pour in as you've seen over the last nine months. And so we're going to watch it, and we're going to continue to do stock buybacks. And we had a record of increasing our dividend for years. And our plan, I think, is that we're going to continue to try to increase our dividend on an annual basis.

Okay. That's helpful. Would you consider a special dividend? I don't think you've done that historically, but is that something you would think about?

I don't think we've done that either. But if our cash continues to go up, it's definitely something that we might consider.

Okay. Good. That's helpful. What's the status of Forsake? You bought that over a year ago. I'm just wondering where we are with that. And is that brand really adding value to the portfolio, and if not, what are the plans?

First of all, I want to mention that the Forsake brand accounts for about 1% of our total annual sales. When we acquired it, it was already small, and it continues to be small. A significant reason for this is that our timing could have been better when we purchased an outdoor brand in a market that is currently saturated. Over the last year and a half, we have been reworking the brand, and fall 2023 marks the first season where we've launched new products. We have additional products planned for spring 2024 and fall 2024. John and I recently returned from a sales meeting for BOGS and Forsake in Portland, and we are feeling optimistic about the brand. While we’re not making any promises, we believe it has a unique position. We have a competent individual managing the brand, the product looks promising, and we’ve established a national sales force of 800 agents, which is something the brand has lacked before. We want to give it a proper chance. Since it represents less than 1% of our business, it’s not a financial burden. We also have a skilled team in Portland managing BOGS, creating efficiencies since the same design people oversee both brands. We aim to allow some time to let the market stabilize from the current inventory surplus and see how things develop. We hope that the inventory situation improves next year so that the latter half of the year is better, and we want to see how it unfolds. It hasn’t had a fair opportunity yet, and we want to provide that.

Okay. All right. Fine. So you've got the pieces in place. You just need to execute at this point.

Exactly. Exactly.

Okay. Good. Fair enough. Congrats on a pretty good quarter.

Thanks. Thanks, John. We appreciate your questions.

Thank you, John. We're showing no further questions at this time. And I would now like to turn it back to Judy Anderson for closing remarks.

Just like to thank everybody for joining us today and wish you a great back half of your week this week. Thank you.

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