Weyco Group Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 6, 2025

Key Takeaways

  • Negative Sentiment: Net sales fell 9% year-over-year to $58.2 M and net earnings dropped 60% to $2.3 M, driving EPS down to $0.24 from $0.59.
  • Negative Sentiment: Incremental tariffs on Chinese imports, peaking at 145%, pressured margins despite mitigation efforts like pre-importing inventory, supplier cost cuts, and sourcing diversification.
  • Negative Sentiment: North American wholesale sales declined 9% with operating earnings down 30% as retailers pulled back on orders amid economic uncertainty.
  • Positive Sentiment: The company ended the quarter with $83.8 M in cash, no debt, generated $14.4 M from operations, repurchased $3.1 M of stock, and declared a $0.27 dividend.
  • Neutral Sentiment: North American retail sales fell 11% and Florsheim Australia sales were down 4% with an operating loss, prompting a focus on reducing inventory to normal levels and improving wholesale performance.
AI Generated. May Contain Errors.
Earnings Conference Call
Weyco Group Q2 2025
00:00 / 00:00

There are 5 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Weyco Group Second Quarter twenty twenty five Earnings Release Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone.

Operator

You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference 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.

Speaker 1

Thank you. Good morning, and welcome to Waco Group's conference call to discuss second quarter twenty twenty five results. On the call with me today are Tom Florsheim, Jr, Chairman and Chief Executive Officer and John Florsheim, President and 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.

Speaker 1

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 ks, 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 U. S.

Speaker 1

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 U. S. Or Australian economies. Overall net sales for the 2025 were $58,200,000 down 9% compared to $63,900,000 in the 2024. Consolidated gross earnings were 43.3% of net sales compared to 43.9% of net sales in last year's second quarter.

Speaker 1

Earnings from operations were $3,900,000 for the quarter, down 42% from $6,700,000 in the 2024. Net earnings totaled $2,300,000 for the quarter, down 60% from $5,600,000 last year. Our net earnings were negatively impacted by lower operating earnings and a $1,100,000 adjustment to our quarterly income tax provision. Diluted earnings per share were $0.24 per share in the 2025 and $0.59 per share in last year's second quarter. Net sales in our North American wholesale segment totaled $45,600,000 for the quarter, down 9% from $50,300,000 last year.

Speaker 1

Sales were down across all our brands and in most major categories. A slowdown in consumer spending amid economic uncertainty has prompted retailers to take a more cautious approach with buying and managing their inventories. Wholesale gross earnings as a percent of net sales were 37.638.2% in the 2025 and 2024, respectively. Gross margins were negatively impacted by the effects of incremental tariffs. Wholesale selling and administrative expenses totaled $13,100,000 for the quarter and $13,400,000 last year.

Speaker 1

As a percent of net sales, wholesale selling and administrative expenses were 2927% in the 2025 and 2024, respectively. The increase in expenses as a percentage of net sales was because many of our operating costs are fixed and do not vary with sales. Wholesale operating earnings totaled $4,100,000 for the quarter, down 30% from $5,800,000 in 2024, due mainly to lower sales and gross margins. Earlier this year, the U. S.

Speaker 1

Government enacted reciprocal and retaliatory tariffs, collectively referred to as incremental tariffs, on goods imported into The United States. The incremental tariff on goods sourced from China, which is where we source most of our products, reached a high of 145% in April, but was temporarily reduced to 30% on 05/12/2025 for a ninety day period ending 08/12/2025. It has not yet been announced if the China tariff will change at that time. The incremental tariff on goods we source from other countries, excluding China, were 10% throughout the 2025. Effective 08/07/2025, the tariffs of three of those countries will increase to between 1925%.

Speaker 1

We have taken various measures to minimize the impact of the incremental tariffs on our gross margins. These measures included proactively bringing in a large amount of inventory ahead of the tariff effective date, enabling us to temporarily halt our China imports while the incremental tariff rate was 145%. We negotiated factory cost reductions with several of our Chinese suppliers. We moved sourcing of certain footwear styles out of China and are continuing our efforts to diversify sourcing. Finally, as we mentioned in our previous call, we raised U.

Speaker 1

S. Selling prices effective 07/01/2025. U. S. Trade and tariff policies currently remain fluid and unpredictable, and the specific tariff rates applicable to goods imported by our company continue to evolve.

Speaker 1

Therefore, despite our mitigation efforts, uncertainty still exists regarding the potential near term impacts of incremental tariffs on our gross margin. We remain committed to adapting to changes in tariff policies and will adapt further mitigation strategies as needed. Net sales in our North American Retail segment were $6,800,000 for the quarter, down 11% from $7,600,000 in 2024. The decrease was primarily due to lower sales on our Florsheim and Stacy Adams websites, a result of lower consumer demand for footwear. Retail gross earnings as a percent of net sales were 66.667.5% in the 2025 and 2024, respectively.

Speaker 1

Retail operating earnings totaled $100,000 for the quarter versus $700,000 in last year's second quarter. The decrease was due to lower sales and gross margin. Our other operations historically included our retail and wholesale businesses in Australia, South Africa and Asia Pacific, collectively referred to as Florsheim Australia. We ceased operations in the Asia Pacific region in 2023 and completed the wind down of that business in 2024. Accordingly, second quarter twenty twenty five results of the Other category only reflect the operations of Australia and South Africa.

Speaker 1

Net sales of Florsheim Australia were $5,800,000 down 4% from $6,100,000 in the 2024. The weaker Australian dollar relative to the U. S. Dollar contributed to the decrease as Florsheim Australia's net sales in local currency were down 2% for the quarter, driven by lower wholesale shipments. Florsheim Australia's gross earnings as a percent of net sales were 60.962% in the 2024, respectively.

Speaker 1

Florsheim Australia generated operating losses of $200,000 for the quarter versus operating earnings of $200,000 last year. Our consolidated effective tax rate was 51.1% for the quarter versus 25.1% in last year's second quarter. The increase was due to the establishment of a $1,100,000 valuation allowance on deferred tax assets at Florsheim Australia, as it was determined more likely than not that these assets will not be realized. At 06/30/2025, our cash and marketable securities totaled $83,800,000 and we had no debt outstanding on our $40,000,000 revolving line of credit. During the first six months of 2025, we generated $14,400,000 of cash from operations and used funds to pay $5,000,000 in dividends.

Speaker 1

We also repurchased $3,100,000 of company stock and had $700,000 of capital expenditures. We estimate that 2025 annual capital expenditures will be between 1,000,000 and $2,000,000 On 08/05/2025, our Board of Directors declared a cash dividend of $0.27 per share to all shareholders of record on 08/18/2025, payable 09/30/2025. I would now like to turn the call over to Tom Florsheim, Jr, Chairman and CEO.

Speaker 2

Thanks, Judy, and good morning, everyone. As Judy outlined, the tariff environment created headwinds that impacted both the top and bottom lines of our business. Coming into 2025, consumers were already feeling squeezed by affordability issues. Now the uncertainty around potential tariff related price increases only added to their concerns about being able to cover everyday expenses. The end result is that people are pulling back from discretionary purchases, and footwear is one of the areas where that shows up.

Speaker 2

At the same time, our wholesale customers are staying cautious with their inventory buys to avoid being caught with excess product in a shaky retail environment. It all adds up to a more hesitant and unpredictable market, which puts pressure on a business like ours, and we're seeing that across all brands. The additional tariffs and the ongoing uncertainty around future tariff negotiations have impacted our short term pricing model. Prior to twenty twenty five, seventy five percent of our factory base was located in China. We are actively working to further diversify our supply chain while staying true to our company's reputation for delivering exceptional footwear that dollar for dollar represents one of the best values in the market.

Speaker 2

We are proud of the quality and value we provide across all of our brands, and our focus is squarely on maintaining that winning combination, which has been essential to our long term success. Our combined legacy business was down 8% compared to last year's second quarter, with Nunn Bush off 11%, Stacy Adams down 10%, and Florsheim down 5%. While our brands are holding their own at retail, the overall men's dress, dress casual, and basic casual markets are under pressure. The traditional men's business is typically one of the first categories impacted in a slowing footwear market as consumers delay replacement purchases, an important part of our business. This category softness combined with retailers cautious approach to inventory management made for a tough quarter.

Speaker 2

Given current consumer sentiment and the continued uncertainty around tariffs, we expect the challenging environment to persist through the second half of the year. In regards to our BOGS business, the second quarter is typically our lowest volume period. Sales for the brand were down 14% compared to the 2024 as consumer demand remained sluggish in the outdoor category. We are gearing up for a number of new fall product introductions, including an expansion of our seamless construction, which is lighter than and more durable than traditional vulcanized rubber boot construction. In addition to diversifying BOGS manufacturing away from reliance on China, we are also expanding the product line to be less dependent on cold weather demand.

Speaker 2

We now offer an enhanced assortment of lightly insulated styles, as well as newly engineered products in the work category, which is a year round business. Retailer inventories for outdoor footwear are now very clean, and we are cautiously optimistic that the brand will gain traction in the second half of the year. Net sales in our retail segment were down 11% for the quarter, reflecting the tepid consumer environment. E commerce site traffic for the majority of our brands increased year to date, but we're seeing a decrease in conversion rates. We believe consumers are more value conscious than ever and increasingly focused on finding deals.

Speaker 2

As brand owners, we believe it's important to maintain pricing integrity and refrain from being overly promotional on our respective sites. In today's price sensitive environment, consumers tend to comparison shop, and we may lose a purchase to a more promotional retailer. We are investing in tools to drive consumer engagement and reduce shopping cart abandonment in this competitive landscape. In terms of our international business, Porsheim Australia, which includes Asia and South Africa, we saw net sales decline 4% for the quarter and 2% in local currency. Retail same store sales were flat, and we fell short in our wholesale business.

Speaker 2

Our focus for our overseas division is getting is on getting our wholesale business back on track, as well as finding efficiencies to reduce our SG and A. Our overall inventory as of 06/30/2025, was $71,300,000 compared to $74,000,000 at 12/31/2024. As discussed in previous calls, we brought our inventory levels up going into 2025 in anticipation of higher tariffs. With higher tariff levels currently in place, we are bringing our inventories down to normal levels in terms of pairs. However, with the tariffs, the dollar value of our inventory may increase.

Speaker 2

Our overall gross margins were 43.3% for the quarter compared to 43.9% last year. Until The US trade agreements are finalized, it's impossible to forecast the margin impact of the tariffs. As we get more information, we will continue our work to mitigate the impact of the tariffs by moving our supply chain and adjusting our prices. That concludes our formal remarks. Thank you for your interest in Waco Group.

Speaker 2

And I'd now like to open the call to your questions.

Operator

Thank you.

Speaker 1

At

Operator

this time, we will conduct a question and answer session. As a reminder, will conduct the Our first question will come from the line of David Wright of Henry Investment Trust. Your line is now open.

Speaker 3

Tom, John, Judy, good morning.

Speaker 2

Good morning.

Speaker 3

Dave. I have two questions. Can you at all quantify the change in inventory as a result of the pre purchasing that you did? We see where it is, where would it have been and maybe add a little more on what your inventory purchase plans are for the immediate future.

Speaker 2

So, I think that what I was saying in the conference calls that the inventory that we brought in, the extra inventory that we brought in, we've basically gone through a lot of that inventory. And so our inventories are getting back to normal levels in terms of peers. I would expect that in terms of dollars, we're going to be in the 70 to $75,000,000,000 range, which when you look historically at our inventory levels, it ranges, I mean, when you go back to that when we had the supply chain issue, blew to 120,000,000, but it's gone typically between 65 and 75,000,000. The thing that is a little bit uncertain is, add a 30% tariff to the goods that we're bringing into China and that increases the value of the inventory because it's in the cost of the inventory. And so that is the big unknown.

Speaker 2

So I'm not sure if I'm really answering your question with all that, but that's why I'm happy to elaborate if there's something I've missed.

Speaker 3

Yeah, I I think what you said basically is that and and you're on LIFO, right Judy?

Speaker 1

That is correct.

Speaker 3

Yeah, so what you're basically saying is the pre purchasing that you did the benefit of that kind of is in your first six months results. And you know, we're kind of in brave new world here, your inventory is kind of where you'd want it to be at around $70,000,000 and not quite sure what's gonna happen because no one's quite sure what's gonna happen. Kinda, that's what I take away from it. Does that sound

Speaker 2

That's correct. That's a good interpretation. Yes.

Speaker 3

And then my second question is, you started this diversification away from China, when tariffs started on China. And if I'm not mistaken, you went to India. And and if if I'm not mistaken, that's kind of a tough place to be in right now.

Speaker 2

That is correct. We we didn't just go to India though. We we We diversified to Vietnam, Cambodia and India. And so, you know, we're gonna have to wait and see what happens with India. Right before we got on this call, President Trump announced an extra 25% penalty for buying Russian oil.

Speaker 2

So that increases the tariff in India to 50%, which is not easy to manage. But what we have been able to do is really decrease our reliance on China. So when we look at our open order today, where we were 75% China, we're down to about 60% China. India represents about 14%. Vietnam is about 10%.

Speaker 2

Cambodia is about 10%. And then we have a little bit of other countries like the Dominican Republic. And, you know, we're really taking kind of a methodical approach to this because, you know, as I talked about in the conference call, we wanna make sure that we protect the quality and also the delivery of our product. And so, we've expanded to some new factories. We've increased our production in some existing factories in places like Cambodia.

Speaker 2

And now we wanna keep an eye on how things progress and then we'll shift production accordingly. But we're definitely, we've made definitely made good progress in establishing a bigger footprint outside of China that we can then grow. And so we're gonna do this over the next year or two. It's gonna take some time. And as far as India goes, a lot of that product is dual sourced.

Speaker 2

And so we're making the same product in China as we're making in India. And so if the Indian tariffs get unmanageable, we're gonna have to shift more product back to China on those particular shoes. So I think that David, we know as well as anybody, I guess, how to navigate this situation. We've been importing for a long time. We have good relationships overseas.

Speaker 2

And we're just kind of doing this as the terror situation evolves, we're gonna continue to make changes. But, you know, our feeling is that we're in a good position to navigate through this. We know what we're doing from the standpoint of importing and we've got such a strong balance sheet that we can weather the storm.

Speaker 3

Well, that's a really helpful explanation. And whenever this is over, it'll just be another chapter in the long book of, the history of the company and and, its ability to operate through all kinds of circumstances. Great to talk to you all and thanks for taking my questions.

Speaker 2

Thanks David. Thank you.

Operator

Our next question comes from John Deysher of Pinnacle. Your line is now open.

Speaker 4

Good morning. Thanks for taking my question.

Speaker 2

Hi, John. Hi.

Speaker 4

You mentioned the wholesale customers are reticent about ordering too much I was just curious about the quality of the wholesale customers, the creditworthiness of them. Are you seeing anything at this point in terms of distress or anything like that for any of your wholesale customers?

Speaker 2

I think John's gonna take that question. We're gonna have to be a little careful about naming specific retailers. John, why don't add In general, I mean, our antenna is up, given the shaky retail environment, but it is, we can keep very close track of this. At the moment, none of our major customers are in an immediate danger from a credit worthiness standpoint. But it's something that we're watching, because there's a lot of unknowns in this market.

Speaker 4

Okay, and what's the approach should warning flags start to fly? Do you cut them off immediately or gradually phase them out? What's your approach

Speaker 2

It to depends upon the situation. I mean, we try to work as best we can with our retailers, but we also are cognizant of realities that are out there. Conjunction with Tom said about navigating our manufacturing base. The same thing in terms of looking at the credit landscape. We've been doing this a long time and you you just don't want to cut off your business.

Speaker 2

You want to keep it going. But you also have to be realistic about any changes there on the marketplace.

Speaker 4

Okay, fine. That's helpful. Second question, from a bigger picture standpoint, what's the strategic importance of Florsheim Australia at this point? My understanding is it's a handful of retail stores. It's mostly retail oriented.

Speaker 4

It's not wholesale oriented. Why is that important to the business going forward? I mean, the last few years have been profitable, but there's been some years where it's not profitable. I'm just wondering, is that a long term business you want to be in going forward?

Speaker 2

I think that it is John. We've been in Australia for fifty plus years, and we really dominate that market. We have about 30 Florsheim stores in Australia and one in Auckland, New Zealand. Over the history, we've made a profit. You're correct that the last several years have been choppy, but we have right before the pandemic, we hired a new president, who's doing an excellent job.

Speaker 2

We have a strong team down there. They face some of the same issues we've had with consumer sentiment, inflation and everything else down there. But we think that we have a really good base. And I think that we're doing things in terms of the wholesale business, which is a leg of the business that we need and we've backtracked a bit. But we think if we can get the wholesale business going and continue to grow the retail business in a moderate way, because you have to be careful that you don't get too many stores in a market like that.

Speaker 2

We're gonna have decent profitability. I mean, that's our expectation. If you go down to Australia, if you ever have a chance to visit the country, you're gonna see that Florsheim shops really are the main shoe shops in our segment of the market. And so I think that we just wanna protect that business because we have such a great market share.

Speaker 4

That's interesting. Okay, so most of the revenues from Australia are retail oriented, this 30 or so stores that you own and operate in Australia.

Speaker 2

And we own an e commerce business as well that we're growing. There's, it's like as Tom said, the market has its challenges, but we do have a really strong brand name and there's certain areas of the business that we feel that we can continue to grow.

Speaker 4

Okay, that's helpful. And what's the presence in South Africa? I don't say much about that.

Speaker 2

Mostly a wholesale business. We have one retail store. It's a profitable business for us. Again, it's a situation where we've been in the market a long time. It's a very strong brand name, and we wanna continue to hold on to our market share there.

Speaker 4

Okay. What's the percentage that comes from South Africa of revenues?

Speaker 2

The percentage of that total business would probably be about 10%, right? Percentage of Australia business, it's probably actually more like 20%.

Speaker 4

2080% from Australia, okay. Yeah. All right,

Speaker 2

that's Well, also, John, just one other clarification. We've talked about this in previous calls, but when we closed our Asia Pacific business, we have maintained one piece of that business, which is the wholesale piece. And so we have some good accounts. We have a very good account in The Philippines. We have some good accounts in Hong Kong, and we are continuing to maintain and try to grow that business.

Speaker 2

Instead of doing that from our office and that used to be in Hong Kong, we're doing that from our office in Melbourne. So that's another piece of that business that we see opportunity in. We have a very good Florsheim business in The Philippines, for example.

Speaker 4

Okay, okay. Okay, good. That's good color. I appreciate the comments.

Speaker 3

Sure.

Operator

Thank you. Again, as a reminder, to ask a question, you'll need to press 11 on your telephone. One moment, please. I am showing no further questions at this time. I would now like to turn it back to Judy Anderson for closing remarks.

Speaker 1

Just wanted to say thank you, everyone, and I hope you have a great day.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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