John Wittkowske - Senior Vice President, Chief Financial Officer and Secretary Thomas Florsheim - Chairman and Chief Executive Officer.

Welcome to the Second Quarter 2018 Earnings Release Conference Call. My name is James, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Also note this conference is being recorded.

I now like to turn our call over to John Wittkowske, Chief Financial Officer. John, you may begin..

Thank you. Good morning, everyone. Welcome to Weyco Group's second quarter conference call. On this call with me today are Tom Florsheim Jr., our Chairman and CEO; and John Florsheim, our President and Chief Operating Officer. Before we begin to discuss the results for the quarter, I will 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 as 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 decided to use them. Our net sales for the second quarter of 2018 were $60.9 million, up 6% compared to 2017 net sales of $57.5 million. Operating earnings were flat at $1.9 million in both second quarters of 2018 and 2017.

Net earnings attributable to Weyco Group are $1.6 million for the quarter, up 29% from $1.3 million. Net earnings were positively impacted by the lower U.S. federal tax rate of 21% in 2018, compared to 35% in 2017. Diluted earnings per share were $0.15 this quarter and $0.12 per share last year.

In the North American wholesale segment, net sales for the quarter were $45.6 million, up 8% compared to $42.3 million in 2017. Licensing revenues were $472,000 this quarter and $591,000 last year. Wholesale gross earnings were 33.3% of net sales in the second quarter of 2018 and 31.3% of net sales in last year's second quarter.

Operating earnings for the wholesale segment increased 35% to $1.7 million this year, up from $1.3 million, due mainly to higher sale and gross margins. Net sales of our North American Retail segment which includes both our retail stores and U.S. Internet sales were $4.6 million in the second quarter, down 3%, compared to $4.8 million in 2017.

Same store sales which include the Internet sales were up 2% for the quarter, due to increased sales on our company's websites. Retail operating earnings increased to $222,000 this quarter, up from $184,000 last year, due mainly to the benefit of closing underperforming stores since last year.

Our other operations which include the wholesale and retail business of Florsheim Australia and Florsheim Europe had net sales of $10.6 million in the quarter, up 2% compared to $10.4 million last year.

Collectively, Florsheim Australia and Florsheim Europe had operating losses of $23,000 this quarter, compared to earnings of $407,000 dollars last year, caused by lower operating earnings in Florsheim Australia's retail and wholesale business. At June 30, 2018, our cash and marketable securities totaled $50.2 million and we had no debt outstanding.

During the first six months of 2018, we generated $14 million of cash from operations. We use those funds to pay $6.9 million in dividends, repurchased $6.6 million of our company's stock, and we have $491,000 of capital expenditures. We estimate that our 2018 annual capital expenditures will be between $1.5 million and $2.5 million.

An August 7, 2018, our Board of Directors declared a cash dividend of $0.23 per share to all shareholders of record on August 29, 2018, payable on September 28, 2018. I will now turn the call over to Mr. Tom Florsheim, Jr., our chairman and CEO..

Thanks and good morning, everyone. As John mentioned, sales in our North American wholesale segment grew up 8% for the quarter. We feel very good about the performance of our wholesale business. While the retail market in apparel and footwear is stabilizing comparison to same period last year.

Growth in this sector has been largely confined to the product segment. Given that context, our 8% growth reflects a nice pickup in market share in the men's dress casual and dress footwear segments. Sales of Florsheim were up 30% this quarter.

Florsheim accomplish this growth by having a range of compelling new products at retail that appeal to both the basic customer and the customer who seeks to be more on trend.

Our retail partners increasingly see Florsheim is not only a ready solution to cover their needs in the dress shoe market, but also as an evolving brand that is creatively tapping into the consumer's desire to have versatile footwear that can be worn across a variety of occasions.

We believe this momentum has given Florsheim the credibility to move the brand more casual, which is an important long term goal. Nunn Bush sales were up 4%. We're pleased to get back on our growth path with Nunn Bush's brand sales have been impacted by the decline in the mid-tier department store sales.

The increase was driven largely by growth in the e-commerce segment, but we also saw a slight increase with department stores, reflecting a stabilization of the Nunn Bush business in that channel. We believe we have a strong new product story in Nunn Bush as we head into fall and are focused on achieving sales growth for the back half of 2018.

BOGS sales are up 6% for the quarter. The second quarter is a small vibe quarter for BOGS with the sales growth we experienced now puts the brand slightly up for the first half of the year. Our current inventories are very clean and are margin for BOGS is much improved as we head into the key fall shipping season.

Fall weather trends currently drive much of the brand's performance but we are continually working to diversify BOGS into a least three season brand. Toward this end, our key initiative for the brand is to expand our work series to create a steady fill in business year around.

Early indications in our new work product are positive but this will be a slow build from a volume perspective. We're also focused on growing our spring rain boot business and have introduced a new lighter construction product with more accessible praising.

Sell through of the spring 2018 footwear line were very encouraging and we feel we can build on this momentum. Stacy Adams sales were down 2% for the quarter. A slight decrease in Stacy Adams was primarily the result of reduction of shipments to the OP price channel.

The department store segment was up significantly for Stacy Adams as the brand continues to find success in this channel with his mainstream fashion footwear. In the second quarter, e-commerce with Stacy Adams second largest trade channel reflecting strong direct-to-consumer demand for the brand.

In our North American Retail segment, overall sales were down 3% in the second quarter. Same store sales were up 2%, driven by the growth of our Internet business. Today, our retail business in the U.S.

consists of a handful of flagship stores in key tourist markets and our direct-to-consumer e-commerce business which drives growth and profitability for the company in the sector. We believe the flagship stores provide an important marketing component for Florsheim as an international grand.

However, our primary focus is by maintaining solid growth via e-commerce and continuously improving the consumer and branded experience across all our sites for online. Our overseas business was up 2% for the quarter. The increase was driven by higher wholesale sales of our European division.

While we are encouraged by the higher wholesale sales, the retail environment remains top head in Australian and Hong Kong where we have the majority of our company-controlled retail stores. We are currently developing a long term business model that allows for profitable growth in these important overseas markets.

On July 31, 2018, the minority interest shareholder of Florsheim Australia provided notice that al tendered shares representing 45% equity in Florsheim Australia to the company. Accordingly, the company were purchased the minority interest of Florsheim Australia for $3.8 million on August 30 of this year.

Our inventory levels as of June 30, 2018 were $57 million compared to $61 million in the same time one year ago. As we look forward to the second half of the year, we have planned our inventory to be flat to slightly up compared to 2017. Overall gross margins were 38.9% versus 38.4% a year ago, up 50 basis points.

We expressed concern in our last call that the weakness of the U.S. dollar against the Chinese currency might increase the cost of our imports and decrease our margins.

However, the dollar is rebounded against RMB and we think that we will not - that there will not be any significant cost increases the swap from our suppliers and our margin should remain level in the second half of the year. This concludes our formal remarks. Thank you for your interest in Weyco Group.

And I'd now like to open the floor up to any questions..

[Operator Instructions] And it looks like we have no questions..

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All right, we thank everybody for listening and we will talk to you next quarter. Have a great day..

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