John Wittkowske - Chief Financial Officer Tom Florsheim Jr. - Chairman and CEO.

Good day, ladies and gentlemen, and welcome to the Third Quarter 2015 Weyco Group Earnings Conference Call. My name is Tony and I’ll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session.

[Operator Instructions] I would now like to turn the conference over to your host for today Mr. John Wittkowske, Chief Financial Officer. Please proceed..

Thank you. Good morning, everyone and welcome to Weyco Group’s third quarter conference call. On this call with me today are Tom Florsheim Jr., our Chairman and CEO; and John Florsheim, our President and COO. Before we begin to discuss the results of the quarter, I’ll read a brief disclaimer.

During the course of 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 such statements are just predictions and that actual events or results may differ materially.

We refer you to Weyco Group’s most recent Form 10-K that’s filed with the Securities and Exchange Commission. The 10-K identifies important factors and risks that could cause the Company’s actual results to differ materially from our projections. Additionally, some comparisons may refer to non-GAAP measures.

Our SEC filings may contain additional information about these non-GAAP measures and why we use them. We achieved record third quarter net sales of $91.2 million in 2015, which represents a 4% increase over last year’s net sales of $87.4 million. Operating earnings were $9.1 million, an increase of 1% as compared to $9 million in 2014.

Net earnings attributable to Weyco Group and diluted earnings per share were flat at $5.5 million and $0.51 per share.

Our third quarter results included a strong performance from our North American wholesale segment but those gains were mostly offset by the results of our international operations which were negatively impacted by the translation from their weaker local currencies into U.S. dollars.

In the North American wholesale segment, net sales for the third quarter were $74.6 million, up 10% as compared to $68 million in 2014. Wholesale gross earnings as a percent of net sales were 31.4% compared to 31.7% last year.

Selling and administrative expenses for the wholesale segment were $15.2 million in the third quarter compared with $14.1 million in 2014. As a percent of net sales, wholesale selling and administrative expenses remained flat at 21% in the third quarters of both 2015 and ‘14.

Driven by higher sales volumes, wholesale operating earnings rose 10% to $8.2 million in the third quarter, up from $7.4 million. Our North American retail segment represents a small portion of our overall business with retail net sales comprising only 5% of our overall Company net sales.

Net sales of this segment which include both our retail stores and internet sales in the United States were $4.8 million in the third quarter, down 11% as compared to $5.4 million in 2014.

The decrease was due to three fewer domestic retail stores operating this quarter compared with last year’s third quarter, as well as a 5% decrease in same-store sales. Retail operating earnings were $402,000 this quarter, down from $638,000 last year due primarily to lower net sales at our Company’s brick-and-mortar stores.

Our other operations which include the wholesale and retail businesses of Florsheim Australia and Florsheim Europe had net sales over $11.9 million, down 15% as compared to $14 million in 2014. This decrease was primarily due to lower net sales at Florsheim Australia caused by the translation of the weaker Australian currency into U.S. dollars.

In local currency, Florsheim Australia’s net sales were up 10%. Collectively, the operating earnings of Florsheim Australia and Florsheim Europe were $578,000 in the third quarter, down from $936,000 last year. This decrease was primarily due to lower gross margins at Florsheim Australia.

The gross margins in Australia were negatively impacted by the weaker Australian dollar this quarter, as Australia purchases all its inventory in U.S. dollars. At September 30, 2015, our cash and marketable securities totaled $40.3 million and we had $42 million outstanding under our $60 million revolving line of credit.

During the first nine months of 2015, we drew $36.6 million on our line and received net proceeds of $4 million from maturities of marketable securities. We used funds to pay $8.4 million in dividends and to repurchase $4.8 million of our Company stock.

In addition, our operations resulted in a net $27.2 million use of cash, mainly to fund inventory purchases. The increase in inventory of September 30th is the result of buying more inventories to meet increased backlogs.

In addition, we are increasing our stock of core products in order to meet at once demand which is particularly important for BOGS as weather can have a significant impact on its demand for its products. For the year-to-date period, we have spent $1.5 million on capital expenditures.

We expect annual capital expenditures will be around $2.5 million in 2015. On November 2, 2015, our Board of Directors declared a cash dividend of $0.20 per share to all shareholders of record on December 9th, payable January 4, 2016. I would now like to turn the call over to Tom Florsheim, Jr., our Chairman and CEO..

Thanks, John and good morning everyone. As mentioned earlier in the call, our overall third quarter wholesale sales were up 10%. We believe this market share growth is a nice accomplishment in an uneven U.S. retail market and are also pleased that all four of our major brands had sales increases.

Our strong growth offset weakness in overseas markets, mainly due to challenges associated with the strong dollar. Our third quarter BOGS business was up 20%, the increase was driven by both our classic insulated goods and our penetration into new product areas.

This is our second fall with the question of waterproof casual leather footwear for women and men. We’re experiencing sound wholesale growth in this category and nice sell-throughs at retail which should set the stage for future expansion in this category. Our weather oriented products are also off to a strong start across all genders.

This season, we’re carrying more core products in our inventory in order to take advantage of end-season sales associated with inclement weather. We believe we are positioned well for strong fourth quarter sales with the BOGS brand. Stacy Adams sales were up 10%, marking the fifth straight quarter of double-digit growth for the brand.

Stacy Adams increases reflected strong sales in both the department store and independent retailer trade channels. In addition to our growth in the footwear segment, we also experienced gains across our licensed product businesses including an added boost due to Stacy Adams’ reentry into this sportswear market for the fall.

We believe that Stacy Adams brand with its modern ecstatic, reputation for quality and assessable pricing is well-positioned for the future. Nunn Bush sales were up 1% for the quarter with solid growth in the department store and ecommerce trade channels offset by a decline in sales to off price chains.

At retail, Nunn Bush sell-throughs continue to be very good and we’re particularly encouraged by the strong sales of our new Nunn Bush slip resistant work shoes which are completing their first year in the market. We believe Nunn Bush work can be a meaningful growth category as we move forward. Our Florsheim business was up 4% in the third quarter.

In September, we came out with a new print and internet campaign via Sports Illustrated, highlighting Florsheim’s contemporary dress casual product. We are very enthused about the new product represented in the Florsheim line over the last couple of years.

The fashion sensibility of the brand has evolved and it has stepped [ph] with today’s more casual lifestyle. To help get the new look of Florsheim out to consumers, we’re investing more in marketing with Sports Illustrated being the main media vehicle in 2015.

Later this month, we will be launching a collaboration with George Esquivel, called Florsheim ex Esquivel. Esquivel is an award winning designer out of California who has its all men’s and women’s lines with the strong find in the high end artisan footwear market.

An exciting aspect about this collaboration is that the footwear’s been manufactured at Esquivel’s studio factory outside of LA with all footwear components sourced in the USA. The Florsheim ex Esquivel collaboration will feature both men’s and women’s shoes and include unique weather finishes including hand paint on some styles.

Women’s footwear will be sold through parties as well as select Florsheim stores worldwide. Men’s footwear will be sold exclusively through our owned flagship stores. Prices will be between $600 and $700.

In our North American retail segment, our third quarter same-store sales were down 5% with soft brick-and-mortar sales offset somewhat by slight increase in outline sales. Our U.S retail stores are primarily in major tourists markets. And sales were negatively impacted by the strength of the U.S dollar. While U.S.

direct to consumer sales only represent about 5% of our annual volume, we believe that it is an important platform for presenting the Florsheim product at a consumer level. We are in the process of reducing and reconfiguring stores focused on flagship markets as well as our ecommerce business.

Our oversees business has been difficult throughout 2015 and our third quarter results reflected the headwinds we are experiencing in foreign markets. While Florsheim Australia net sales were up 10% local currency, results were down 14% after translation to U.S. dollars. In addition, the majority of our sourcing is done in U.S.

dollars, which is negative margin implication to key markets such as Australia and South Africa. We remain committed to building international business and while currency issues are expected to work against us for the near-term, we are focused on maintaining our market-share and building for the future.

Our overall margins for the quarter were 35.7% versus 37.1% a year ago. As explained previously, margins at our U.S. wholesale business were strong with an increase from 30.7% to 31.6%, but this was offset by the weaker margins outside the U.S.

caused by declines in the value of the currencies in Canada, Australia, South Africa and Europe as compared to the U.S. dollar. While we have raised prices in these markets, it’s not possible to maintain market-share and raise pricing enough, in the short-term to offset the currency decline.

Regarding sourcing, for the most part prices at factories have been stable and the factories in Asia are hungry for orders. It is more of a buyer’s market than it’s been several years due to the fact that demand has slowed from Europe, Russia and other countries where the economies have softened.

Our backlogs are up for the fourth quarter and as John discussed, we’ve brought our inventories up on core products that we are well-positioned for filling business as we move into the busy holiday season. That concludes our formal remarks.

We appreciate your interest in Weyco Group, and now like to open up the call if there are any questions out there..

Operator:.

Okay. Then, we’ll end the call. And we’d like to thank everyone for joining us on the call and we’ll talk to you in February. Thank you..

Ladies and gentlemen, thank you so much for your participation in today’s presentation. You may now disconnect. And everyone have a great day..