WEYS

Overall Company Performance

• The company delivered year-over-year net sales growth of 7% to $62.2 million in Q2 2026, with significant increases in operating earnings ($17 million vs. $3.9 million) and net earnings ($13.3 million vs. $2.3 million) versus Q2 2025.
• The U.S. Supreme Court invalidated prior IEPA tariffs in February 2026; the company received approval for $18.6 million in tariff refunds in Q2 2026, recognizing a $15.3 million reduction to cost of sales in the quarter. A remaining $1.2 million in Phase III refund claims has not been recognized due to uncertain recovery timing.
• As of June 30 2026, the company held $98.1 million in cash and marketable securities with no outstanding debt on its $40 million revolving credit line. The Board of Directors declared a 28 cent per share cash dividend payable September 30 2026.

Wholesale Brand Performance

• Three of four wholesale brands delivered year-over-year sales growth: Florsheim (+12%), Stacey Adams (+4%), and Bogs (+10%); Nunn-Busch sales declined 3% year-over-year.
• Florsheim gained momentum from strong traditional dress shoe sales and growing hybrid/casual footwear lines. Stacey Adams saw strong retail sell-through for dress shoes, with management focused on growing casual lifestyle offerings.
• Nunn-Bush, an opening price point brand facing heavy competition from private labels, is differentiated via investments in comfort technology and higher quality materials. Bogs benefits from differentiated seamless construction that is lighter and more durable than competing products, and management notes early progress in the brand's turnaround.

Retail and International Operations

• U.S. retail segment growth of 4% was driven by strong e-commerce sales on the Florsheim website; the company continues to invest in its direct-to-consumer platform.
• Florsheim Australia maintained disciplined expense control amid a challenging macroeconomic environment, delivering breakeven operating results in Q2 2026 after a loss in the prior year quarter.

Balance Sheet and Inventory

• Inventory as of June 30 2026 was $49.1 million, down from $65.9 million at the end of 2025. Management plans to increase inventory to approximately $70 million by the end of Q4 2026 to support demand and mitigate tariff-related supply risks.

• Annual capital expenditures for 2026 are projected to be between $2 million and $3 million.
• Management maintained prior guidance to increase total inventory to approximately $70 million by the end of the 2026 fourth quarter, with the planned increase being a conscious, modest adjustment to address supply chain uncertainty and backlog demand.
• No other upward or downward revisions to prior full-year financial guidance were provided in the call.

1. Wholesale segment: Net sales were $48.8 million in Q2 2026, up 7% from $45.6 million in Q2 2025, contributing 78.5% of total company net sales. Gross margin was 70% in Q2 2026, up from 37.6% in the prior year quarter. Operating earnings were $16 million, up from $4.1 million in Q2 2025. Selling and administrative expenses totaled $18.1 million (37% of net sales), up from $13.1 million (29% of net sales) in Q2 2025.
2. Retail segment: Net sales were $7 million in Q2 2026, up 4% from $6.8 million in Q2 2025, contributing 11.3% of total company net sales. Gross margin increased to 79.2% from 66.6% in Q2 2025. Operating earnings reached $1 million, up from $100,000 in the prior year quarter.
3. Florsheim Australia (other operations): Net sales were $6.4 million in Q2 2026, up 10% from $5.8 million in Q2 2025, contributing 10.3% of total company net sales. Local currency net sales declined 1% year-over-year, with the reported growth driven by Australian dollar appreciation against the US dollar. Gross margin was 63.1%, up from 60.9% in Q2 2025. Operating results were breakeven in Q2 2026, compared to an operating loss of $200,000 in Q2 2025.

• U.S. trade and tariff policies remain highly dynamic and unpredictable. After the invalidation of prior IEPA tariffs, a new 10% incremental tariff was imposed earlier in 2026, and this rate was increased to 12.5% on imports from China, the Dominican Republic, and Vietnam on July 24 2026. Uncertainty around ongoing tariff changes creates near-term gross margin volatility.
• General macroeconomic risks include persistent inflation impacting production costs and consumer discretionary demand, elevated interest rates, and potential slowdown or contraction in the U.S. and Australian economies.
• The timing and amount of the remaining $1.2 million in unrecognized tariff refunds from CBP remain uncertain.
• The opening price point footwear segment where Nunn-Busch competes faces intense competition from private label and low-cost licensed brands.

Q: An analyst asks for an early update on 2026 back-to-school sales trends, and asks how this seasonal period impacts Waco Group's business. / A: Management notes back-to-school season is not a major revenue driver for Waco Group's product lines, only serving to generate general retail foot traffic in August, so no meaningful performance data is available early in the season. Management adds that retailers are cautious about implementing price increases for kids' footwear right now due to consumer discretionary income pressures from ongoing inflation.

Q: An analyst asks for context on the planned increase in inventory to $70 million by the end of 2026, up from $65.9 million at the end of 2025. / A: Management explains the 4% net inventory increase is a modest, intentional adjustment, not a sign of unplanned demand weakness. The company accelerated inventory purchases ahead of the July 24 2026 tariff rate increase to lock in lower costs, and is building inventory to mitigate potential supply chain disruptions from future unpredictable tariff policy changes. The company holds ample cash to fund the inventory build, and wants sufficient stock to meet existing backlog and expected retailer demand in the second half of 2026.