WEYCO GROUP INC Q1 FY2025 earnings call

• Overall net sales were down 5% due to geopolitical and macroeconomic uncertainties. - BOGS sales were down 5%, but typical winter weather in January and February helped BOGS retailers work through existing inventory. - Florsheim brand was up 7%, Stacy Adams was down 7%, and Nunn Bush was down 16%. - Retail segment net sales were down 12% due to scaled-back promotional activity in 2025 compared to strong activity in 2024. - Florsheim Australia's net sales were down 7% but saw an 11% increase in same-store retail sales. - Inventory as of March 31, 2025, was $68.2 million, higher than normal for the time of year due to expediting inventory before tariffs. - Negotiated cost reductions with Chinese suppliers and plan to raise selling prices beginning in summer 2025. - Accelerating efforts to diversify sourcing.

Net sales for the first quarter of 2025 were $68 million, down 5% compared to $71.6 million in the first quarter of 2024. The North American wholesale segment had net sales of $54.3 million, down 4% from $56.2 million in the first quarter of 2024. The North American retail segment had net sales of $8.7 million, down 12% from $9.8 million in the first quarter of 2024. The other operations (Florsheim Australia) had net sales of $5.1 million, down 7% from $5.5 million in the first quarter of 2024. Consolidated gross earnings were 44.6% of net sales, operating earnings totaled $7 million, down 15% from the first quarter of 2024. North American wholesale gross earnings were 39.4% of net sales, retail gross earnings were 66.6% of net sales, and Florsheim Australia gross earnings were 62.7% of net sales.

• Estimates 2025 annual capital expenditures will be between $1 million and $2 million. - Board of Directors declared a cash dividend of $0.27 per share to all shareholders, an increase of 4% above the previous quarterly dividend rate.

• Uncertain impacts of U.S. trade and tariff policies, which remain dynamic and unpredictable. - Impact of inflation on costs and consumer demand for products. - Increased interest rates and other macroeconomic factors that may cause a slowdown or contraction in the U.S. or Australian economies.

Q: Hi, good morning. I just have a quick question on the pausing of the imports from China. I think China is like 75% of your imports. And I was just curious, how long can you keep that pause on before it starts to impact your inventories and ability to deliver for customers?

A: Yeah, I think -- that's a good question. I think that we are covered through part of the third quarter, but we're going to start to run into inventory issues at that point. Meanwhile, what we're doing is continuing to manufacture in China. So we haven't stopped our manufacturing. And what we're doing is we're shipping to -- we have a distribution center in Montreal and we're continuing to ship shoes from China to Montreal where we're holding them. And so they're about a week away from our distribution center here in Milwaukee, Wisconsin. And so as soon as things thaw, which we're hoping -- we don't know obviously, but we're hoping it happens over the next couple of months -- we're going to be in a position to bring inventory into Milwaukee, our main distribution center, within a week. And the other thing that we're doing is we have been working non-stop really since fall of last year to source our shoes in other countries. And so you're going to see over the next 12 months a pretty radical reorganizing of our supply chain so that we have much less exposure in China and we're going to see shoes this fall start to come in from some of these other places. So we are really taking a very aggressive approach on reordering our supply chain. And we're fortunate because we have experience in many of these other countries such as Cambodia and Vietnam and India. And so we feel that we can move fairly quickly, mindful of not sacrificing the quality of our product. And so that's a little bit of a long answer to your question, but hopefully that gives you what you're looking for.

Q: Okay. That's helpful, Tom. So back to Montreal. You're shipping to Montreal and holding inventory there and hoping that, what, tariffs come down on imports from Montreal or -- A: No. Because what -- the way this works is when you bring the footwear into Montreal, you pay the Canadian duty. When you -- if and when the tariffs come down between China and the U.S., then we take those goods that are staged in Montreal and we bring them into Milwaukee. And at that time, we pay the prevailing tariff between China and the U.S. So say the tariffs go down to 30%, something a more reasonable level, then we get the duty back from Canada. There's a mechanism called duty drawback where you get the duty back if you ship out of the country. So we get the duty back that we've paid bringing in the goods to Canada. And then we will pay the additional 30% on top of the normal duties when we bring the goods into the U.S. At the current rate of plus 145%, it's just totally unmanageable. There's a little bit of a bet there that the tariffs will come down in the short term. But what we've done just to be safe is we're focusing on continuing to manufacture shoes that we know are styles that will be good for a year or longer. We're not continuing to manufacture seasonal type goods or in and out type goods. And so that if this takes longer than we hope, we're going to still be able to bring the inventory either down in the U.S., or we have a fairly large business in Canada, we'll be able to sell it off in Canada.

Q: Okay. That's helpful. And what's the duty going into Canada right now?

A: It's 19%. They just have a flat 19% on all footwear. Their duty structure is actually much less complicated than the U.S., where you've got a lot of different duty categories. And so bringing shoes into the U.S., you've got leather shoes at one duty rate, one tariff rate, you've got PU upper shoes at a different one. You've got certain constructions of boots at another one. So it's much more complicated in the U.S., but the main number to focus on is what the additional duty is, which is currently 145%.

Q: Right. Okay. So你 might have to carry additional inventory in Canada for a while until the Chinese duties come down?

A: Exactly.

Q: Okay, that’s really appreciated.

A: All right. Thank you.