WEYS - NASDAQ

Good day, everyone, and welcome to Weyco Group, Inc. Fourth Quarter and Full Year 2025 Earnings Release Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. Please note, this conference is being recorded. Now it is 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, Inc.'s conference call to discuss fourth quarter and full year 2025 results. On this call with me today are Thomas W. Florsheim, Chairman and Chief Executive Officer, and John W. 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 2025 were $76,800,000, down 5% compared to $80,500,000 in 2024. Consolidated gross earnings were 44.1% of net sales compared to 47.9% of net sales in 2024. Earnings from operations were $10,200,000 for the quarter, down 12% from $11,500,000 in 2024. Net earnings totaled $8,700,000 for the quarter, down 13% from $10,000,000 last year. Diluted earnings per share were $0.91 per share in 2025 compared to $1.04 per share in the prior year's fourth quarter. Net sales in our North American wholesale segment totaled $56,700,000 for the quarter, down 6% from $60,400,000 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 2025 and 2024, respectively. Gross margins for the quarter were negatively impacted by incremental tariffs. Although selling price increases helped mitigate the effects of these tariffs, they did not fully offset the resulting costs, leading to margin erosion for the period. Wholesale selling and administrative expenses totaled $12,700,000, or 23% of net sales for the quarter, versus $16,700,000, or 28% of net sales, last year, down largely due to lower employee costs this year. Wholesale operating earnings totaled $8,400,000 for the quarter, down 6% from $8,900,000 in 2024 due to lower sales volumes and gross margin. In early 2025, the U.S. imposed 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 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 $16,000,000 of incremental tariffs in 2025. In December 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 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 will continue to adjust as needed in response to future policy development. Net sales in our retail segment totaled $13,300,000 for the quarter, down 5% from $14,100,000 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% and 65% in 2025 and 2024, respectively. Retail operating earnings totaled $1,900,000 for the quarter and $2,500,000 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 $6,800,000 in 2025, up 12% from $6,000,000 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 $276,000,000, down 5% compared to sales of $290,000,000 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 $29,200,000, down 20% from $36,600,000 in 2024. Net earnings totaled $23,100,000, down 24% from $30,300,000 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 $217,000,000 in 2025, down 5% compared to $228,000,000 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 $4,054,600,000 for the year, and $60,100,000 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 $26,600,000 in 2025, down 16% from $31,500,000 in 2024 due to lower sales volumes and gross margins. In our North American retail segment, net sales were $35,700,000 in 2025, down 8% from a record $38,700,000 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 $3,300,000 for 2025 and $5,300,000 last year. The decrease was primarily due to lower sales volumes. Net sales of Florsheim Australia remained relatively flat at $23,700,000 and $23,600,000 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% in 2025 and 61% in 2024. Florsheim Australia generated an operating loss of $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 a valuation 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 $101,000,000, and we had no debt outstanding on our $40,000,000 revolving line of credit. During 2025, we generated $37,300,000 in cash from operations and used funds to pay $7,700,000 in dividends. We also repurchased $5,300,000 of company stock and had $1,800,000 of capital expenditures. We estimate that 2026 annual capital expenditures will be between $1,000,000 and $3,000,000. During January 2026, we paid our February and special cash dividends totaling $21,400,000 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 March 31, 2026. I will now turn the call over to Thomas W. Florsheim, 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 rates that rendered 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% price 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 continue to take a conservative approach to inventory management, which negatively impacted fourth quarter shipments. The Florsheim division reported a 1% decrease for the quarter and a 2% increase for the year. The brand achieved $92,000,000 in sales in 2025, 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-throughs of traditional dress 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 are 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 offerings. 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 selling 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. Net 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 two 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

Thank you so much. And as a reminder, if you have a question, simply press 11 to get in the queue and wait for your name to be announced. To remove yourself, press 11 again. One moment, please. Again, that is 11 if you have a question. One moment for our first question. The line of John Eric Deysher with Pinnacle Value Fund. Please proceed.

Good morning, everyone.

Good morning.

Solid year in a difficult market. Just a couple of quick questions. You mentioned you paid approximately $16,000,000 in incremental tariffs. How much of that did you recover in terms of price increases?

I would say that, you know—Judy, I do not know if you—our wholesale margin is down about 400 basis points from last year, more or less. You know, so we had a 10% price increase, but it did not cover a significant portion of how the tariffs impacted our business. Are you—yeah. 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 the rough percentage.

Yeah. It is hard. It is a confusing answer because the tariffs from different countries varied a lot. You know, the last several months from India, 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 were at around 20%. But that also varied during the several months of the second half where China—China was originally higher and went down to 20%. I believe it was 30% for a period, and then it was over 100% for a period. And so we took a very methodical approach to increasing prices because we are in a tough market as far as consumer sentiment. 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 is not an easy answer, and I am sorry if we are not giving you exactly what you want there.

Oh, okay. That is understandable. The lawsuit for the refund—about how much are you looking to retrieve with that lawsuit?

Well, we are hoping to retrieve the whole thing. As the administration's attorneys took this up through the court system, they—I cannot 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 are on record in the court system as saying they would pay this back. Once the Supreme Court ruled, the tune changed a little bit from the administration, saying they might litigate it. And I think that is going to be difficult for them because they were so clear in what they said to the court as this moved up to the Supreme Court. Now it goes back down to the Court of International Trade for remedy. And so we are optimistic, but we have also seen that things can get tied up in litigation no matter what. So we are going to wait and see, but we are optimistic about getting back the whole $16,000,000.

Oh, okay. So that was the refund that you are seeking, $16,000,000 or so?

Exactly. You state a number when you file the lawsuit. It is just a refund on all the IEEPA tariffs.

Right. Okay. That makes a lot of sense. You mentioned China. I am 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% from China. What we have done, John, last year was a busy year for sourcing. And what we have done is we have established a much better footprint in Cambodia and Vietnam than we had prior to 2025. So we are in a really good position to continue to grow our sourcing outside of China. You know, we were thrown a little bit of a wrench into the works because we have a big base of manufacturing in India. And when China was hit with tariffs early on at very high levels, we moved product to India, and then India got hit with 50%. So the uncertainty around these tariffs makes it difficult. But we are learning to live with that uncertainty, and we have set up a much more flexible supply chain for the future.

Okay. Great. That is good to hear. And I guess finally, 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 a standard adjustment that was made in the fourth quarter. It just happened that our sales declined by not that much, a small amount, and it is just that adjustment to the sales reserve was a little bit more than that. So it seemed 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 our actual direct-to-consumer customers? Or—

Well, both, actually. I know it is a pretty competitive business, and I was curious if there is any pressure on either the wholesale business or the e-commerce side.

I think what we are seeing out there is that our end customer is shopping for deals. And two things are going on. One is our inventory is extraordinarily clean right now. In 2025, we had more clearance, but it really dwindled throughout the year. And so we just do not have as much clearance to offer customers, and, as such, they are moving to 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 are trying not to be out there discounting as much in terms of our ongoing line. But we do have wholesale partners out there that carry our ongoing top patterns, top styles, that will discount from time to time. We are 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 two reasons I just communicated.

Okay. Good. Very helpful. Just one more quickie if I might. We are all hearing about higher oil prices, and I was just curious if that impacts your vendors in terms of, I do not 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, you know, parts of the shoe that are oil-impacted.

Yeah. No. I think that there are two impacts that I can think of. The first one is that if this goes on for a while, it is going to reduce discretionary spending on the part of the consumer because more of that spending is going to go to filling up their car and 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 is a big part of their cost. As far as 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 do not see a major impact other than maybe the consumer being more stretched. Other than that, from the standpoint of the cost of the shoes, we do not really see a big impact.

Okay. Good. That is it. Thanks for taking my question.

Thanks, John.

Thank you. Our next question comes from Christine Sutton with Shopify. Please proceed.

Yes, 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 who already buy bypassing the wholesale and coming directly for the e-commerce, seeing that that was just asked. My question is if the customer is already coming to your brand sites, would being able to increase the conversion size directly while circumventing the discount shopping—would that be a helpful aspect to layer on while 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?

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

I appreciate that. Thank you for the answer.

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, Inc., and everyone have a great day.