Good day, and thank you for standing by. Welcome to Weyco Group, Incorporated Third Quarter 2024 Earnings Release Conference Call. At this time, all participants are in 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. Please go ahead.

Thank you. Good morning, and welcome to Weyco Group's conference call to discuss third quarter 2024 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 consumers for our products, changes in 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 were $74.3 million down 12%, compared to $84.2 million in 2023. Consolidated gross earnings as a percent of net sales increased to 44.3%, from 43% in last year's third quarter, due mainly to higher gross margins in our North American Wholesale segment. Quarterly earnings from operations were $10.2 million, down 18% from $12.4 million in 2023. Quarterly net earnings totaled $8.1 million or $0.84 per diluted share, compared to $9.3 million or $0.98 per diluted share last year. Net sales in our North American Wholesale segment were $61.1 million, down 12% from $69.5 million in 2023. Florsheim sales exceeded prior year, while our other brands were lower, compared to last year. Wholesale segment gross earnings as a percent of net sales increased to 40.1% in the third quarter of 2024, compared to 38.6% last year. Wholesale segment selling and administrative expenses were $15.1 million for the quarter, compared to $15.6 million last year, down as a result of lower employee costs, mainly commission-based compensation. As a percent of net sales, selling and administrative expenses were 25% and 22% in the third quarters of 2024 and 2023, respectively. The increase as a percent of net sales was because many of our costs are fixed in nature and do not vary with sales. Wholesale operating earnings totaled $9.4 million for the quarter, down 16% from $11.3 million last year as a result of lower sales. Net sales in our North American Retail segment, which were generated mainly by our e-commerce websites, were $7.2 million for the quarter, down 5% from $7.6 million last year. Lower sales on our BOGS website as a result of the mild fall were partially offset by higher sales on our Florsheim and Stacy Adams websites this quarter. Retail segment gross earnings as a percent of net sales were 66.9% and 65.4% in the third quarters of 2024 and 2023, respectively. Retail operating earnings totaled $800,000 for the quarter, versus $900,000 last year. Our other operations historically included our retail and wholesale businesses in Australia, South Africa and Asia Pacific collectively referred to as Florsheim Australia. We ceased operations in the Asia Pacific region in 2023, and have substantially completed the wind down of that business. Therefore, third quarter 2024 operating results only include Australia and South Africa. Net sales of Florsheim Australia were $6 million, down 15% from $7.1 million in the third quarter of 2023. The decrease was almost entirely due to the closing of our Asia Pacific operations. Sales in Australia were down 1% for the quarter, due to the impact of four fewer stores operating compared to the same period last year. Australia same-store sales were up 1% for the quarter. Florsheim Australia's gross earnings were 59.2% of net sales for the quarter, and 61.6% of net sales last year. Its operating earnings were zero for the period, down from $300,000 of operating earnings last year. Interest income totaled $900,000 in the third quarter of 2024, compared to $300,000 in last year's third quarter. This year included interest earned on higher cash balances in the U.S. and Canada. At September 30, 2024, our cash and marketable securities totaled $81.8 million, and we had no debt outstanding on our $40 million revolving line of credit. During the first nine months of 2024, we generated $17.3 million of cash from operations, mainly from net earnings and used funds to pay $9.6 million in dividends. We also repurchased $600,000 of company stock, and had $900,000 of capital expenditures. We estimate that 2024 annual capital expenditures will be between $1 million and $2 million. On November 5, 2024, our Board of Directors declared a cash dividend of $0.26 per share to all shareholders of record on November 18, 2024, payable January 2, 2025. Additionally, on November 5, 2024, our Board of Directors declared a special one-time cash dividend of $2 per share to all shareholders of record on November 18, 2024, payable January 2, 2025.

Thanks, Judy, and good morning, everyone. It was a challenging quarter as sales in our North American wholesale business were down 12%. We are facing an economic environment in which consumers have limited discretionary funds and footwear market sales are being impacted accordingly. While the near-term retail outlook is uncertain, we remain confident in our belief that each brand is well positioned in its respective category for growth when conditions improve. In our Outdoor division, BOGS sales were down 18% for the quarter. As discussed in previous conference calls, the outdoor category, particularly the weather boot market has been under pressure for the better part of two years. During the pandemic, retailers and consumers alike loaded up on outdoor gear, resulting in record sales for many brands, including BOGS. Since then, the industry has been working through excess inventory, and we believe we finally reached an equilibrium for fall 2024. However, many retailers are taking a wait-and-see approach regarding orders, operating under the premise that if they need inventory, it will be available in the market. The result is that we have seen demand impacted by the mild and dry weather throughout the country, which has negatively affected our wholesale business. The adverse effects of the weather extended to our BOGS e-commerce business, which was down 31% for the quarter. While our success with the BOGS brand for the balance of 2024 depends on fall and winter weather returning to normal, for the long term, we are focused on reducing the weather sensitivity of the business. Towards that goal, we have doubled down on our sales effort in the farm and ag trade channel, with the introduction of our seamless construction collection, which is 30% lighter and twice as durable as the vulcanized construction, more commonly used in our category. The farm and ag trade channel is less weather dependent and utilizes BOGS products year-round. We are making progress in this category, but it will take time to expand our penetration in retailers that cater to this market. We are also introducing seamless construction in lighter, less insulated products to our kids and women's lifestyle collections, which will help us make BOGS more of a three-season brand for this customer base. It has been a challenging stretch for the BOGS brand. Having our retail partners with right-sized inventory will help move BOGS forward. What's next on the agenda is rekindling demand with products that are built to match long-term weather changes. Our combined legacy business was down 10% with Florsheim up 1%, Stacy Adams down 17% and Nunn Bush down 20%. As a category, dress footwear has been trending down for some time, except for a brief period emerging from the pandemic when there was a burst of weddings and more dressy occasions. This downtrend resulted in retailers shifting funding away from dress footwear and toward other categories. Given this context, Florsheim's performance over the last few years, including this quarter, is very solid. Florsheim continues to pick up market share in the refined footwear category, and has made good strides in the hybrid and true casual segments of the market. Our Stacy Adams brand had a difficult quarter. The brand remains the market leader in accessible fashion in the contemporary dress footwear segment and is performing well, especially with accounts that maintain dress-oriented footwear as an important part of the retail assortment. The challenge is evolving the product lineup so that Stacy Adams is in consideration for hybrid, more refined casual footwear. While it will take time, we are getting traction at retail with casual lifestyle product, particularly in the hybrid category. Our Nunn Bush brand caters to a more value-oriented price-sensitive consumer. We saw reduced demand in the third quarter as these consumers cut back on discretionary purchases. In addition, a significant portion of Nunn Bush's sales decrease in the third quarter was due to a shift in timing of shipments to a large retailer from third to second quarter. Despite the volume drop, we feel good about the future trajectory of the Nunn Bush business. We have reinvented Nunn Bush as the most casual brand within our legacy portfolio. Nunn Bush is also well positioned in the market with a strong value proposition and innovative comfort technology. Retail sales were down 5% for the quarter, compared to last year. The decline in retail sales was driven primarily by the decrease in BOGS e-commerce sales. Overall, our direct-to-consumer business has been more price-sensitive and promotionally oriented. As Judy referenced, the drop in sales at Florsheim Australia was the result of closing operations in our Asia Pacific region. Sales in the remaining markets, which include Australia, New Zealand and South Africa were flat for the period. We are finding the economic environment in Australia to be very similar to that of North America, with consumers under pressure and very conservative in their approach to discretionary purchases. Our overall inventory balances as of September 30, 2024, was $72.2 million, up from $67.9 million at June 30. As explained in our last conference call, we are continuing to bring our inventories up to make sure that we have enough inventory to meet demand for our core items during the fourth quarter, from both our wholesale customers and to support our e-commerce businesses. We are comfortable with where we are from an inventory standpoint. Our overall gross margin was 44.3%, compared to 43% last year. We are also comfortable with our margins and are focused on keeping them in this range. As Judy mentioned yesterday, our Board of Directors declared a one-time special cash dividend alongside our regular quarterly dividend. This return of capital to our shareholders is the result of our strong financial performance over the past few years, which led to a buildup of cash in excess of the amount necessary to fund operations, capital expenditures and fulfill corporate obligations. Looking ahead, we believe our strong balance sheet and liquidity will continue to allow us to fund organic growth, invest in our business and remain opportunistic with respect to future strategic opportunities or share repurchases. 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 David Wright of Henry Investment Trust. Your line is now open.

Thank you, Tom, John and Judy, good morning.

Good morning.

Good morning.

I want to say a nice surprise with the special dividend, thanks to management and the Board for returning capital to shareholders. I think it's just another example of the excellent job that everyone there does at governance and running a company with lots of disclosures and the shareholders in mind, and thank you very much. It's appreciated.

We love our shareholders.

Okay. Well, that's a fair trade. You went over the different brands and all of your brands are pretty well balanced, more or less, in terms of their revenue sizes. But one that we don't talk about that's really small is Forsake. And I wondered if you could take a minute and talk about that - talk about how Forsake fits in.

Sure.

Hi. This is John. I mean Forsake, we bought it in 2021. And to be honest with you, we had trouble growing the brand. It's less than 1% of our sales. It doesn't really factor into the performance of our company. A lot of that has to do - it's a little bit similar to BOGS in the sense that the outdoor market became oversaturated coming out of the pandemic. Everybody thought that outdoor - people would be buying outdoor gear and hiking gear into the future. But what happened is as we came out of the pandemic, that shifted and the outdoor market became oversaturated with product. And for us, that created some challenges in terms of growing the Forsake brand that we just bought in 2021. So we're working through these challenges. We're coming out with new product for Forsake. We're trying to keep the brand moving forward as the outdoor market opens up. But to this date, it's been a challenging situation.

Yes. And I would just add to what John said that, because of the reasons that he cited, it's been very hard for us to judge the brand's performance. It's been part of the whole thing that we were talking about with BOGS, where because the outdoor market has been so tough the last couple of years, it's hard for us to say this brand is just not going to make it and/or this brand is going to do great. We want to give a little bit of time, we feel that the outdoor market is turning around from the standpoint that inventory has been absorbed. We still need some winter weather. But we think that Forsake has a really interesting positioning. It's in a different place than BOGS. It's more of a sneaker boot brand that appeals to a younger consumer. And so we've spent this time building out a sales force and as John said, really updating the product. And so we even though it's very, very small, and as John said, less than 1% of the business, we feel like we want to give it a chance and that can't really happen until this market opens up a bit.

Okay. And then, Tom, you were talking a little bit about building the inventory back up to be ready for the fourth quarter, which is sort of the holiday season. Kind of hard to give shoes to somebody as a present, more or less. But I wonder how much of your business is quantifiable as being related to the holiday season?

That's a good question. I think that what we see is it's more related to just fall weather. October is a pretty good month for us typically because people are buying winter coats and boots and the gear that they need for the fall. And so, we also see in - during the holiday period, I think it's more people buying for parties and things like that that they're going to. So there's more of a dress trend during that period. I agree with you that it's not a big gift-giving item. But we do see a pickup just because of the seasonal aspect of it and then all of the kind of holiday parties and year-end type parties.

Okay. Well, great. Thanks for taking my questions. And you know just - you really are the model of how a shareholder-friendly company should act. And I think you set a good standard for any other corporation, public corporation who might want to emulate it. So thanks very much.

Thank you.

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

Good morning, everyone.

Hi John.

A couple of quick questions. One, we're coming up on the holidays. Thanksgiving is about three weeks away. I'm just wondering what kind of color you're getting from the retailers in terms of how this holiday season is shaping up for your brands?

Yes. I mean I think it's been - the market has been very sluggish, sort of what we talked about in the conference call, where discretionary spending is limited, and that seems to be impacting the footwear market. There's a couple of brands more in the athletic space that are having a good run. But everyone else, we're kind of working through these market challenges. This fall Thanksgiving is at the end of the month, which actually cuts about a week off the retail calendar for the holiday season, which is another challenge. So we're hopeful that things will turn around and pick up, especially if we get some weather that's really going to help our outdoor business and weather boot business. But right now, the retail environment is very soft.

Okay. So it's kind of wait and see at this point.

Yes.

Okay. The revolver that expired in September, it sounds like you were able to renew it. And if so, what's the new maturity? And what's the new rate for the $40 million?

All the terms remain the same. So it just renews for another 364 days. So it's a short-term instrument. But otherwise, it's renewing at the same. It's based on SOFR, and I believe I forget what the margin is on it, 125 basis points. I can check that for you. But that's in our disclosure and all terms stayed the same.

Okay. Who is the lender again?

Associated Bank.

Based in Green Bay.

Green Bay. Okay, fine. So you'll just keep renewing that on an annual basis, it sounds like?

That's correct.

Okay. All right, great. Thanks very much and good luck with the holidays.

Thanks, John.

Thank you.

Thank you. I am showing no further questions at this time. So I would like to turn it back to Judy Anderson, Chief Financial Officer, for closing remarks.

I just wanted to close by saying thank you to everyone for joining us today, and have a great rest of your day.

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