Good day and thank you for standing by. Welcome to the Weyco Group Inc. Fourth Quarter and Full Year 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 fourth quarter and full year 2023 results. On this 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 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 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. Net sales for the fourth quarter of 2023 were $80.6 million, down 19% compared to last year's fourth quarter net sales of $99 million. Consolidated gross earnings increased to 50.3% of net sales for the quarter compared to 46.6% in last year's fourth quarter due mainly to higher gross margins in our North American Wholesale segment. Quarterly operating earnings were $11.5 million, down 24% compared to record operating earnings of $15.1 million in the fourth quarter of 2022. Net earnings were $8.5 million or $0.90 per diluted share for the quarter compared to $10.2 million, or a $1.06 per diluted share, for the fourth quarter 2022. In the North American Wholesale segment, net sales for the quarter were $59.6 million, down 21% from $75.5 million last year. The decrease was primarily due to a 32% decline in BOGS sales, but also due to decreased sales across our legacy brands as a result of weaker demand. Wholesale growth earnings were 44.9% of net sales for the quarter compared to 41.3% of net sales in last year's fourth quarter. Gross margins improved as a result of lower inventory costs, primarily inbound freight. Wholesale selling and administrative expenses totaled $18.9 million for the quarter, compared to $20.5 million last year. The decrease was largely due to lower employee costs mainly commission-based compensation. As a percent of net sales, wholesale selling and administrative expenses totaled 32% for the quarter versus 27% last year. Wholesale operating earnings totaled $7.9 million for the quarter, or down 27% compared to $10.7 million in 2022, primarily due to lower sales. Net sales in our North American Retail segment were $13.9 million for the quarter down 3% compared to record sales of $14.3 million last year. The decrease was primarily on the BOGS e-commerce website as a result of lower demand. Retail growth earnings as the percent of that sales were 65.8% and 64.5% in the fourth quarters of 2023 and 2022 respectively. Retail selling and administrative expenses totaled $5.6 million for the quarter compared to $5.9 million last year, down as a result of lower web advertising costs. As a percent of net sales, retail selling and administration expenses were flat at 41% in both this year and last year. Retail operating earnings reached a record $3.5 million in the fourth quarter of 2023, up 6% over $3.3 million in 2022. The earnings improvement resulted from lower costs in the fourth quarter of 2023. Our other operations consist of our retail and wholesale businesses in Australia, South Africa and Asia Pacific collectively referred to as Florsheim Australia. However, as previously disclosed, we ceased operations in the Asia-Pacific region in 2023 and are in final stages of winding down this business. Net sales of Florsheim Australia were $7.2 million, down 23%, from $9.20 million in fourth quarter of 2022. In local currency Florsheim Australia’s net sales were down 22% due mainly to the loss of a sizable wholesale customer in Australia earlier this year, but also due to lower retail sales in the Asia-Pacific region as a result of its wind down. Florsheim Australia's gross earnings were 65.4% of net sales for the quarter compared to 61.8% in the fourth quarter of 2022. Its operating earnings were $200,000 for the quarter compared to $1.1 million last year, down due to lower sales volumes this year. We will now discuss our full year 2023 results. Consolidated net sales for the full year were $318 million, down 10% compared to record sales of $351.7 million in 2022. Consolidated gross earnings increased to 44.9% of net sales in 2023 from 41.1% last year due mainly to higher gross margins in our North American Wholesale segment. Full year 2023 operating earnings were a record $41 million, up 2% over our previous record of $40.4 million in 2022, despite lower sales. Net earnings were a record $30.2 million or $3.17 per diluted share in 2023, up 2% compared to $29.5 million, or $3.07 per diluted share in 2022. North American Wholesale net sales were $250.4 million in 2023, down 12%, compared to record sales of $283.2 million in 2022. The decrease was primarily due to a 31% decline in BOGS sales compared to record sales for the brand last year. Sales of the Stacy Adams, Florsheim, and Nunn Bush brands were also down for the year due to lower demand following strong growth last year. Wholesale growth earnings as a percent of net sales were 39.7% in 2023 and 35.6% in 2022. Gross margins improved as a result of increased selling prices and lower inventory costs, primarily inbound freight. Wholesale selling and administrative expenses totaled $66 million in 2023 compared to $68.2 million in 2022. The decrease in 2023 was primarily due to lower employee costs, mainly commission-based compensation. As a percent of net sales, wholesale selling and administrative expenses were 26% in 2023 and 24% in 2022. Wholesale operating earnings reached a record $33.3 million in 2023, up 2% over our previous record of $32.6 million in 2022 due to higher gross margins and lower selling and administrative expenses. In our North American Retail segment, net sales were a record $38 million in 2023, up 4% over our previous record of $36.7 million in 2022. The increase was primarily due to higher sales across our legacy brands' websites, partially offset by lower sales on the BOGS website. Sales at our four domestic brick-and-mortar stores were down 4% for the year. Retail gross earnings were 65.9% of net sales in 2023 compared to 65.7% of net sales in 2022. Retail selling and administrative expenses totaled $18.3 million or 48% of net sales for the year compared to $18.1 million, or 49% of net sales last year. The retail segment achieved record operating earnings of $6.8 million in 2023, up 11% over $6.1 million in 2022, due mainly to the increase in web sales. Net sales at Florsheim Australia totaled $29.6 million in 2023, down 7% from $31.8 million in 2022. In local currency, Florsheim Australia's net sales were down 3% for the year, with sales down in its wholesale businesses due to the previously mentioned mid-year loss of a wholesale customer in Australia, partially offset by higher sales across its retail businesses. Florsheim Australia's gross earnings were 62.5% of net sales in 2023 versus 61.1% of net sales in 2022. Its operating earnings totaled $1 million in 2023 and $1.7 million in 2022, down as a result of lower net sales. At December 31, 2023, our cash and marketable securities totaled $75.9 million and we had no debt outstanding on our $40 million revolving line of credit. During 2023, we generated $98.6 million of cash from operations due mainly to net earnings and 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 $4.2 million of our common stock. We also had $3.3 million of capital expenditures. We estimate that our 2024 annual capital expenditures will be between $2 million and $4 million. On March 5, 2024, our board of directors declared a cash dividend of $0.25 per share to all shareholders of record on March 15th, 2024, payable March 29th, 2024.

Good morning, everyone. As Judy mentioned, we experienced a slowdown in sales as our overall wholesale shipments were down 21% versus a strong fourth quarter last year. The retail environment remains difficult for footwear and apparel as consumers are spending more of their discretionary income on experiences and services. Retailers, in turn, are being cautious in regards to their inventory levels. While we recognize we are in a challenging period for our industry, we are pleased with our overall financial performance in 2023. We achieved record wholesale operating earnings by maintaining our price integrity while taking a disciplined approach to our expenses. BOGS sales were down 32% in the fourth quarter and 31% for the year. Mild weather throughout the fall and early winter, combined with an inventory glut in the outdoor market, made for a tough 2023. We believe the Outdoor boot market will remain challenging throughout 2024 as retailers right-size their inventories. With BOGS, we are focused on moving the business forward through product innovation with emphasis on BOGS seamless rubber boot construction. BOGS’ seamless construction is 30% lighter than comparable vulcanized rubber boots and over twice as durable as measured by the number of flexes our seamless boots can withstand without any sign of cracking. This year, we are expanding the number of seamless boots in our line across numerous price points. Consumers and retailers are excited about this technology, which positions us well for future sales growth. In addition to the expansion of our seamless collection, we are also introducing new non-insulated and lightly insulated footwear, so the BOGS brand is less dependent on inclement weather. Our overall legacy business declined 16% for the quarter and 5% for the year. At the brand level, Florsheim, Nunn Bush, and Stacy Adams were down 13%, 18%, and 19%, respectively, for the latest quarter and 4%, 2%, and 10%, respectively, for the year. The decline in sales of all three brands reflects a general slowdown in the market for dress and dress casual footwear. In addition, many of our retail partners have shifted to more of a chase strategy in order to maintain greater inventory flexibility. We see the decrease in our legacy shipments as part of the return to a normal business cycle after a period of heightened demand and supply chain delays. We anticipate this trend will continue through the first half of 2024. Our sell-throughs at retail remain solid, and we continue to diversify our product mix across all three brands to expand our casual and hybrid offerings. In our retail segment, sales were down 3% for the quarter, but up 4% for the year. The fourth quarter decrease was driven primarily by a decline in box online sales due to unseasonably warm and dry weather. Overall, we believe the company had a strong direct-to-consumer performance with a solid increase for 2023, as well as record retail operating earnings. We view our direct-to-consumer business as a growth opportunity and continue to invest in our online platform. Florsheim Australia's net sales in local currency were down 22% in the fourth quarter and 3% for the year. The loss of a major wholesale account, as well as soft consumer demand presented challenges in the Australian market. We anticipate headwinds through the first half of 2024 and are focused on reducing expenses where we assess opportunities to rekindle our growth. As previously discussed, we closed our Hong Kong office in December and we are in the process of transitioning the Asia Pacific wholesale business to the Australia division. Our inventory level was $74.9 million at December 31st, 2023, down from $128 million at December 31st, 2022. As discussed in the third quarter call, we have brought our inventories down to a level that balances availability for in-season orders with better inventory turn. For the year, overall gross margins were 44.9% in 2023 and 41.1% in 2022. Going forward, we expect our margins to remain at a healthy level. As Judy discussed, our cash flow in 2023 was strong, resulting in a balance of $75.9 million in cash and marketable securities. We continue to look at potential acquisitions and other options to put our cash to use. We also continue to invest in the distribution platform we have built in Milwaukee. In the fourth quarter of 2023, we installed equipment that automates the packing and labeling process of single pairs. With the growth of our e-commerce and dropship business, gaining efficiency in this area allows us to give faster service with significant labor savings. This new equipment allows us to process singles at a rate of 38 to 40 pairs per minute, which is a processing speed approximately four times faster than previously. 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.

Our first question is from David Wright with Henry Investment Trust.

Hi, good morning, everyone. I wanted to compliment and congratulate you, first off, for making $30 million after tax. I mean, that's got to be a pretty good feeling. So if you look back 10 years ago, the same revenues were in the high teens millions, but the last couple of years, you really elevated the results. So, as a stockholder, I say thank you.

Well, thanks for acknowledging that. We appreciate it.

On the cash, Judy, can you break down where that's held geographically?

The majority of it is in the U.S. and we have invested in a money market account, so we're earning between 5% and 5.5% on that. We also have some cash in Canada that's earning about the same rate.

Okay, well, thanks. Those are a couple of very good places to have your money. You can get to it and your interest earnings were double your interest expense, so that's a good result too. Further on the cash, Tom, when you mentioned the board considering acquisitions and other options, do the other options include shareholder capital return?

We are looking at all the different options right now because we recognize that our cash has piled up, which is a good problem. And we've had a couple of investors actually ask us about a special dividend, so we're considering that. We're considering additional stock buybacks. We still want to have the flexibility for M&A, and we feel like with our balance sheet, we are in a position for that, even if we reduce our cash slightly. So, I'll just say at this point, we really recognize that we have more cash than we need on our balance sheet right now, and we're figuring out the best ways to use it. And we are trying to do that in a shareholder-friendly way.

Okay, that's great. Thanks for the elaboration. If you'd indulge me, I just have kind of a demographic question. Looking back 25 years ago, a white-collar job often meant wearing suit and tie dress shoes. Over the decades preceding that, you probably had stable dress shoe sales growing slightly along with the economy. However, office dress has changed so dramatically. I'm sorry to be sentimental, but I'm curious if there's any way you can quantify what traditional lace-up leather dress shoes were 25 years ago. Your sales in those products today may be only 10% of that or any way to quantify the decline in that particular style?

Yes, I mean, we don't have the exact numbers with us right now, but what you're saying is 100% correct. When we look at our traditional classic dress business, that has shrunk drastically over the last 10 years. What people are wearing as dress shoes today are really completely different. In the script, we talked about hybrid styles, which means a dressy kind of upper with a nice dressy finish, but with a more casual or sporty bottom. I'm sure you've seen a lot of men wearing dressier shoes with white soles. That's what we refer to when we talk about hybrids. That's a huge growth category because people still want to look nice at the office, but you're 100% correct; they're not wearing suits and ties. They need something that goes with their clothing. We look at shoes as an accessory to clothing, and we pay a lot of attention to what people are wearing. Over the years, really going back more than a decade, we've been trying to evolve our brand, so they match the clothing. For a brand like Nunn Bush, 75% of what we sell is casual—totally casual, not even hybrid. We have hybrids, and we have some traditional dress, but 75% casual. In Florsheim, we've made good inroads into more casual offerings with true casuals, like our Lakeside boat-type shoe. We have active casual styles, and hybrids like the Dash. We are continuing to evolve; with Stacy Adams, Stacy Adams still skews more dressy but we're working to develop more hybrids. We have a successful hybrid in Stacy called the Synchro. You're 100% right with your original statement, and we are very aware of it. We continue to assess this every time we develop a new line and are adjusting to become more lifestyle-oriented and more casual-oriented. That's the trend, and we believe it will continue to decline.

Well, you've done a great job of moving the product line with the market, and the results show that, so thanks for the elaboration there. Okay. Well, listen, I really appreciate the conference calls. I'm sorry I missed the last one. I know a lot of people may not show up for them, but I really appreciate you having them, so thank you for that and thanks for taking my questions.

I am showing no further questions at this time. And I would like to turn it back over to Judy Anderson for any further remarks.

Thank you. Thank you everyone for joining us today and for your support of our company. Have a great day.

This concludes today's conference call. Thank you for participating, and you may now disconnect.