Weyco Group, Inc.

Good day, everyone, and welcome to White Coat Group Inc. fourth quarter and full year 2025 earnings release conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 1-1 again. Please note, this conference is being recorded. Now it's my pleasure to turn the call over to the Chief Financial Officer, Judy Anderson. Please proceed.

Thank you. Good morning and welcome to Waco Group's conference call to discuss fourth quarter and full year 2025 results. On this call with me today are Tom Florsheim, Jr., Chairman and Chief Executive Officer, and John 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 US 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 US or Australian economies. Overall net sales for the fourth quarter of 2025 were $76.8 million, down 5%, compared to $80.5 million in the fourth quarter of 2024. Consolidated gross earnings were 44.1% of net sales compared to 47.9% of net sales in the fourth quarter of 2024. Earnings from operations were $10.2 million for the quarter, down 12% from $11.5 million in the fourth quarter of 2024. Net earnings totaled $8.7 million for the quarter, down 13% or $10 million from $10 million last year. Diluted earnings per share were $0.91 per share in the fourth quarter of 2025 compared to $1.04 per share in the prior year's fourth quarter. Net sales in our North American wholesale segment totaled $56.7 million for the quarter, down 6% from $60.4 million 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 the fourth quarters of 2025 and 2024, respectively. Gross margins for the quarter were negatively impacted by incremental tariffs. Although selling price increases helped mitigate the effect of these tariffs, they did not fully offset the resulting costs, leading to margin erosion for the period. Wholesale selling and administrative expenses totaled $12.7 million, or 23% of net sales for the quarter, versus $16.7 million, or 28% of net sales last year, down largely due to lower employee costs this year. Wholesale operating earnings totaled $8.4 million for the quarter, down 6% from $8.9 million in 2024 due to lower sales volumes and gross margins. In early 2025, the US imposed reciprocal and 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 IEPA, does not authorize the President to impose tariffs, invalidating the statutory basis for incremental tariffs enacted since February of 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 million of incremental tariffs in 2025. In December of 2025, we filed a lawsuit seeking a refund for amounts paid in connection with incremental tariffs imposed pursuant to IEFA. The President responded to the Supreme 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 IEPA 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 developments. Net sales in our retail segment totaled $13.3 million for the quarter, down 5% from $14.1 million in 2024. Fourth quarter 2025 sales were negatively impacted by an increase in sales reserves related to our e-commerce businesses. Retail growth earnings as a percent of net sales were 64.3% versus 65% in the fourth quarter of 2025 and 2024 respectively. Retail operating earnings totaled $1.9 million for the quarter and $2.5 million 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 $6.8 million in the fourth quarter of 2025, up 12% from $6 million 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 million, down 5% compared to sales of $290 million 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 $29.2 million, down 20% from $36.6 million in 2024. Net earnings totaled $23.1 million, down 24% from $30.3 million 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 million in 2025 down 5% compared to $228 million in 2024. We are pleased to announce that despite the challenges of 2025, our Floorshine brand achieved record wholesale sales. Sales of our Nunn-Bush, Stacey Adams, and Boggs brands decreased in 2025. Wholesale gross earnings as a percent of net sales were 37.5% in 2025 and 40.2% in 2024. Growth margins for the year were negatively impacted by incremental tariffs. Wholesale selling and administrative expenses totaled $54.6 million for the year and $60.1 million last year, down largely due to lower employee costs. As a percent of net sales, wholesale selling and administrative expenses were 25 percent 6% in 2025 and 2024, respectively. Wholesale operating earnings totaled $26.6 million in 2025, down 16% from $31.5 million in 2024 due to lower sales volumes and gross margins. In our North American retail segment, net sales were $35.7 million in 2025, down 8% from a record $38.7 million in 2024. The decrease was primarily due to lower direct-to-consumer sales of Floorshine, Boggs, and Stacey Adams Footwear. Boggs website sales were also impacted by fewer promotional activities in 2025. Retail growth earnings as a percent of net sales were 65.7% and 65.9% in 2025 and 2024, respectively. Retail operating earnings totaled $3.3 million for 2025 and $5.3 million last year. The decrease was primarily due to lower sales volumes. Net sales of Florsheim Australia remained relatively flat at $23.7 million and $23.6 million 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% and 61% in 2025 and 2024, respectively. Florsheim, Australia generated operating losses totaling $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 an evaluation allowance on Florsheim Australia's deferred tax assets. Our 2024 tax provision was reduced by deductions related to share-based compensation. At December 31st, 2025, our cash and marketable securities totaled $101 million and we had no debt outstanding on our $40 million revolving line of credit. During 2025, we generated $37.3 million in cash from operations and used funds to pay $7.7 million in dividends. We also repurchased $5.3 million of company stock and had $1.8 million of capital expenditures. We estimate that 2026 annual capital expenditures will be between $1 and $3 million. During January of 2026, we paid our 2025 fourth quarter and special cash dividends totaling $21.4 million to shareholders. On March 3rd, 2026, our board of directors declared our first quarter cash dividend of 27 cents per share to all shareholders of record on March 13th payable March 31st, 2026. I would now like to turn the call over to Tom Florsheim, Jr., 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 face 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 rebates, excuse me, 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% 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 over 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 continued to take a conservative approach to inventory management, which negatively impacted fourth quarter shipments. The Porsche division reported a 1% decrease for the quarter and a 2% increase for the year. The brand achieved $92 million 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 non-athletic 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-Busch business declined 13% for the quarter and 10% for the year. The mid-tier trade channels, which account for the majority of Nunn-Busch's volume, remain under pressure, negatively impacting sales. As an opening price point brand with major retailers, Nunn-Busch also faces increased competition from private label programs as stores seek to improve margins. We believe we're taking the necessary steps to return Nunn-Busch 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-Busch remains solid. Stacey Adams sales declined 13% for the quarter and 9% for the year, reflecting continued challenges in the fashion dress shoe market. While the Stacey Adams brand remains a leader in this category, retailers are devoting less inventory and shelf space to dress shoes. Our focus with Stacey Adams continues to be on expanding categories beyond its core elevated dress offerings. The Boggs 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 Boggs product, Fall sell-in 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're 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. While 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. Excuse me. 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. Foresham Australia, which includes New Zealand, South Africa, and our Asia wholesale business, remains a work in progress. While certain areas, such as Australian e-commerce, delivered solid gains, we continue to face challenges in our Australian wholesale business where improvements are necessary to drive profitability. Excuse me. Our overall inventory as of December 31st, 2025 was 65.9 million compared to 74 million at December 31st, 2024. We think our inventories are at a healthy level as we move into the first quarter of this year. Our overall gross margins were 44.1% for the quarter and 43.2% for the year. Our margins were down 200 basis points for the year due to incremental tariffs. With the IEPA tariffs ruled unlawful and the administration implementing new tariffs, we're expecting continued cost uncertainty in 2026. We are prepared to continue to adjust our margin and pricing strategy with the goal of maintaining historical margins. This concludes our formal remarks. Thank you for your interest in Waco Group, and I would now like to open the call to your questions.