Weyco Group (NASDAQ:WEYS) reported first-quarter financial results on Wednesday. The transcript from the company's first-quarter earnings call has been provided below.

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The full earnings call is available at https://edge.media-server.com/mmc/p/ncvykvxv/

Summary

Weyco Group reported flat net sales of $68 million in Q1 2026 compared to the previous year, with consolidated gross earnings slightly declining to 44.2% from 44.6%.

Net earnings improved by 10% to $6.1 million, with diluted earnings per share rising from $0.57 to $0.64.

The North American wholesale segment saw a 1% decline in sales, primarily due to weaker performance in Stacy Adams and Boggs brands, while Florsheim showed growth.

Retail segment sales increased by 2%, driven by strong e-commerce performance, despite a slight decrease in gross margins.

Florsheim Australia's sales were up 10% due to currency appreciation, though local currency sales remained flat.

The company faces uncertainty due to evolving U.S. trade policies and tariffs, with a recent Supreme Court ruling invalidating previous tariffs and ongoing tariff refund claims.

Weyco Group's cash reserves stood at $93.9 million, with no debt, and a declared dividend increase of 4% to $0.28 per share.

Management highlighted strategic focus on expanding Florsheim's market share in hybrid and casual footwear and diversifying Stacy Adams' offerings.

Operational efficiencies helped reduce selling and administrative expenses, contributing to improved operating earnings.

Full Transcript

OPERATOR

Good day and thank you for standing by. Welcome to Weyco Group First Quarter 2026 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 ask a question during the session you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Judy Anderson, Chief Financial Officer. Please go ahead.

Judy Anderson (Chief Financial Officer)

Thank you. Good morning and welcome to Weyco Group's conference call to discuss first quarter 2026 results. On the call with me today are Tom Florsheim Jr. Chairman and chief Executive Officer and John Florsheim, Chief Operating Officer. Before we begin to discuss the results for the quarter, 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 10K, 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 first quarter of 2026 were $68 million flat compared to the first quarter of 2025. Consolidated gross earnings were 44.2% of net sales compared to 44.6% of net sales last year. Earnings from operations were $7.5 million for the quarter, up 7% from $7 million in 2025. Net earnings totaled $6.1 million, up 10% from $5.5 million last year. Diluted earnings per share were $0.64 per share in 2026, up from $0.57 per share in the prior year. Net sales in our North American wholesale segment totaled $53.6 million for the quarter, down 1% from $54.3 million last year. Florsheim sales were up, but the increase was more than offset by lower sales of steel, the Stacy Adams and Nunn Bush brand I'm sorry Stacy Adams and Bogs Brands. Nunn Bush Sales were flat for the quarter. Wholesale gross earnings as a percent of net sales were 38.7% and 39.4% in the first quarters of 2026 and 2025, respectively. Gross margins continued to be negatively impacted by incremental tariffs, partially offset by selling price increases instituted in the second half of last year. Wholesale selling and administrative expenses totaled $13.8 million, or 26% of net sales, versus $14.8 million, or 27% of net sales last year. The decrease in 2026 was largely due to lower employee costs. Wholesale operating earnings totaled $7 million for the quarter, up 5% from $6.6 million in 2025, mainly due to lower selling and administrative expenses. Net sales in our retail segment totaled $8.8 million for the quarter, up 2% from $8.7 million in 2025 due to increased sales of our E Commerce products businesses. Retail gross Earnings as a percent of net sales were 66.1% and 66.6% in the first quarters of 2026 and 2025, respectively. Retail operating earnings totaled $800,000 for the quarter and $600,000 last year. Our other operations consist of our retail and wholesale businesses in Australia and South Africa, collectively referred to as Florsheim Australia. Net sales of Florsheim Australia were $5.6 million in 2026, up 10% from $5.1 million in 2025. The increase was due to the appreciation of the Australian dollar relative to the US Dollar as Florsheim Australia's net sales in local currency were flat for the quarter. Florsheim Australia's gross earnings as a percent of net sales were 62.9% and 62.7% in the first quarters of 2026 and 2025, respectively, and its quarterly operating losses totaled $200,000 in both periods. In February of 2025, the US imposed reciprocal and retaliatory tariffs on certain imported goods under the International Emergency Economic Powers act, also known as IPA. We paid a total of approximately $19.8 million in IIPA tariffs in 2025 and the first quarter of 2026. The IPA tariffs increased the cost of our products by 19% to 50%, resulting in gross margin compression. On February 20, 2026, the US Supreme Court ruled that International Emergency Economic Powers Act (IEEPA) did not authorize the President to impose tariffs, declaring the International Emergency Economic Powers Act (IEEPA) tariffs invalid. In April of 2026, U.S. customs and Border Protection or CBP commenced a phased process to accept claims for for potential refunds of IEPA tariffs previously paid. The refund process formally opened on April 20, 2026 and on that date we submitted claims covering our phase one entries totaling $18.6 million. The timing for submitting claims related to our phase two entries totaling $1.2 million has not yet been established. The timing and amount of any recoveries remains uncertain and subject to execution by the CBP. Following the Supreme Court's ruling, the President announced the implementation of a new across the board tariff under a separate statutory authority currently set at 10%. Although the scope and rate remain subject to change, US trade policies continue to evolve and remain unpredictable and creating near term gross margin uncertainty. We have mitigation strategies in place and will continue to adjust as appropriate in response to future policy developments. At December 31, 2026, our cash and marketable securities totaled $93.9 million and we had no outstanding debt on our $40 million revolving line of credit. During the first three months of 2026, we generated $17.4 million in cash from operations and used funds to pay $23.9 million in dividends. We also had $600,000 of capital expenditures. We estimate that annual capital expenditures in 2026 will be between 2 and $3 million. On May 5, 2026, our Board of Directors declared a cash dividend of $0.28 per share to all shareholders of record on May 19, 2026, payable June 30, 2026. This represents an increase of 4% above the previous quarterly dividend rate of $0.27. I would now like to turn the call over to Tom Florsheim Jr. Chairman and CEO.

Tom Florsheim Jr

Thanks Judy and good morning everyone. Our overall company sales were flat for the quarter with wholesale segment sales down 1%. Given the uncertainty in the economic environment, we believe we are holding our position within our competitive market segments with Florsheim continuing its strong performance streak. Our legacy business, which includes Florsheim, Nunn Bush and Stacey Adams, was flat for the quarter. The Florsheim division was up 5%, driven by strong sales in the traditional dress category. As discussed in previous conference calls, while the overall dress footwear market has been trending downward over time, Florsheim continues to gain market share. Retailers see the brand as the go to choice to meet consumer demand in this category. From a design perspective. We continue to invest in developing fresh shoe concepts and believe we can leverage Florsheim's heritage to expand our penetration in hybrid and casual footwear. We are making steady inroads in both categories and feel confident about our long term growth prospects. Nunnbush was flat for the quarter. We believe the brand is well positioned a leading value option in comfort casual and comfort dress footwear in an economy where many consumers are feeling stretched to cover day to day expenses. In the current market, the biggest competition comes from private label footwear that retailers import to pursue higher margins. Nunn Bush provides a compelling alternative with a trusted brand name, proven comfort technology, competitive pricing and in stock inventory that retail partners can use to match demand. Our Stacey Adams division was down 9% for the quarter. At retail, Stacey Adams sell throughs have been solid. However, retailers are not investing in fashion dress shoes as they have in the past. This is especially true in department stores and family footwear channels. We are focused on diversifying the Stacey Adams product assortment to be less centered on dress shoes with more casual offerings that align with today's lifestyle. Our Bogs brand was down 11% for the quarter. We anticipate a strong second half of the year as cold weather and precipitation last winter in the Midwest and East coast helped clear excess inventory of weather boots. We are also encouraged by the launch of new, less insulated spring footwear which is selling well and paving the way for more year round Bogs business. This spring Bogs implemented a marketing reset focused on storytelling with an emphasis on user authenticity and real world use of the brand's products. The campaign highlights what differentiates Bogs from a performance standpoint and is being featured across multiple channels including social media as well as streaming on YouTube. Net sales in our retail segment were up 2% for the quarter, led by strong Florsheim E Commerce sales. In the first quarter of 2025 we were still working through excess inventory across various areas of our branded portfolio. This year we had less closeout inventory to sell through our websites resulting in higher web margins as we sold more full price footwear. We continue to invest in our E Commerce platform to better showcase our brands and drive long term growth and direct to consumer sales. Florsheim Australia's net sales were up 10% for the quarter, but flat local currency consumers in these markets, including Australia, New Zealand, South Africa and other Pacific Rim countries are facing many of the same pressures as in North America. As a result, sales remain somewhat soft. We are focused on keeping expenses in line as we work to return to our growth trajectory. Our overall gross margins were 44.2% for the quarter. Our first quarter margins are down approximately 50 basis points compared to the same period in 2025. With all the remaining uncertainty surrounding tariffs it is hard to know how the margin picture will play out for the remainder of the year. Our overall inventory as of March 31, 2026, was 50.5 million, compared to 65.9 million at December 31, 2025. Our inventories are also down about 18 million compared to March 31 of last year. The decrease in inventory was due to timing, and our inventory is expected to get back into the $60 to $70 million range as we move through the year. This concludes our formal remarks. Thank you for your interest in Waco Group, and I would now like to open the call to any questions.

OPERATOR

Thank you. So at this time, again, we will conduct the question and answer session as a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. And please stand by while we compile Q and A questions. Okay. At this time, we have David Wright of Henry Investment Trust. Your line is now open.

Tom Florsheim Jr

Good morning, everyone. Good morning.

David Wright

Commend you for a surprisingly good quarter, given the environment, and thanks for raising the dividend. And also commend you for some really outstanding clear disclosure about your tariff picture. That's appreciated. Judy, a question. If you receive tariff refunds, what is the tax treatment?

Judy Anderson (Chief Financial Officer)

We will be taxed on them, right? So you had a deduction when you had a deduction when you paid the tariff and you have income when you get a refund? That is correct. It was part of our cost of sales last year. And so we'll get a refund this year. It'll be credit in our cost of sales and have to pay taxes on that.

David Wright

Okay. Can you give any sense of what kind of the annualized run rate tariff burden is at the current 10%?

Judy Anderson (Chief Financial Officer)

Well, it's a little at 10%. If that's it was 10% all year, it would be about an extra $10 million over and above what we normally pay in tariffs. And those normal tariffs are baked in. But the tariffs in the shoe industry are actually regular, are high compared to a lot of other categories. The problem, David, is the administration has said that their intent is to get these tariffs back up to where they were under IEEPA. And so it makes planning very difficult. But we're assuming that that will happen. So they're doing these 301 investigations, which they say are going to be complete by the end of July. And then we're going to find out what the incremental tariff rate will be under the 301 section for the different countries where we import shoes. And so it's not that clear a picture, which is why we didn't really want to commit to where margins are going to be this year. So happy to answer any additional questions about that because we are well versed. We have been studying it.

David Wright

Well, just kind of big picture. I mean, I assume you communicate somehow through a trade group or directly with, I guess, the Commerce Department. Does anybody in the administration really think that shoe manufacturing is coming back to America?

Judy Anderson (Chief Financial Officer)

We actually do have a very good trade group called the ftra and they've been holding regular conference calls about this and they are trying to talk to the administration about exactly what you just asked about. You know, I think they are aware that no shoes, I mean, it's less than 1% are made in the US and we are really hoping that the 301 tariffs are going to be more targeted than these IPA tariffs or the tariffs that they have in place right now, which are under section 122, which are just 10% across the board, all countries on all products. And so it would make sense to have this more targeted in our opinion. And we're trying to get that message across to the administration. But we don't know. We don't know if these 301 tariffs would be done in a more strategic way.

David Wright

Okay, I just have a couple more. It seems like your price increases were pretty well absorbed because that's what the results suggest. Would that be your observation as well?

Judy Anderson (Chief Financial Officer)

Well, we raised our prices 10% July 1, so it doesn't really cover what we were paying in IEEPA tariffs. It does cover, you know, right now the extra tariff is 10%. So that is looking better. And so, you know, our margins have come back somewhat. We're still below where we've been the last couple years before the tariffs. And we've really been watching the expense side of the business. The other thing, the other thing that's going on, David, this is, John, is our inventory is pretty clean. So a year, you know, last year we had some heavy closeout inventory in a couple of brands and there's been, that's been cleaned up. And so that helps. It helps from our overall wholesale market perspective. Yeah, that's a very good point. That definitely plays into this. And it impacts in a positive way both our wholesale margins and our retail margins. And we also have cleaner inventories in Australia, which helps our margins there.

David Wright

Okay, and then last one would be on. I mean, you took a million out of SGA year over year. That's a lot. You highlighted lower employee costs. Was that staff reduction or less compensation? How was that accomplished?

Judy Anderson (Chief Financial Officer)

The lower employee cost was a combination. It was really lower employee benefit costs, and it was a combination of a few different categories. For example, last year we did not give out annual bonuses in the first quarter, and therefore we had less FICA expense. So, you know, it's just something as kind of mundane as that. So there was a combination of a few things. Our health insurance costs were down. The spica cost was down. It was a few things that added up in the first quarter. Well, that's temporary. In the warehouse, our overall costs are down just because we use less. Fewer taps, I believe. Correct. I was just going to say we have not reduced headcount here, though. So your workforce flexes a little depending on your inventory level, depending upon our needs, especially in the center. So we were able to operate more efficiently this last quarter versus a year ago.

David Wright

Okay, well, efficiency is a good word. You just continue to deliver great results and so great job. And thanks for taking my questions.

Judy Anderson (Chief Financial Officer)

Thanks, David. We appreciate your interest.

OPERATOR

Okay, thank you. And at this time, we're not showing any further questions. If anyone has last question, please hit star 11 on your telephone. Okay. This concludes the question and answer session. I would like now to turn it back to Judy Anderson for closing remarks.

Judy Anderson (Chief Financial Officer)

Judy, thank you. Just wanted to wish everybody a great day and a good rest of your week, and we'll talk to you next quarter. Thank you.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.