Weyco Group, Inc. (WEYS) Earnings Call Transcript & Summary

Thank you. Good day and thank you for standing by. Welcome to Waco Group, Inc. Second 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 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 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.

Thank you. Good morning and welcome to Waco Group's conference call to discuss second quarter 2026 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. 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 risks are incorporated herein by reference. They include in part the uncertain impact of U.S. 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 second quarter of 2026. were $62.2 million, up 7% compared to the second quarter of 2025. Consolidated gross earnings were 70.4% of net sales compared to 43.3% of net sales last year. Earnings from operations were $17 million for the quarter, up from $3.9 million in 2025. Net earnings totaled $13.3 million, up from $2.3 million last year. Diluted earnings per share were $1.39 per share in 2026, up from $0.24 per share in the prior year. In early 2025, the US imposed tariffs on certain imported goods under the International Emergency Economic Powers Act, also known as IEPA. During 2025 and the first quarter of 2026, we paid approximately $19.8 million in IEPA In February of 2026, the US Supreme Court invalidated IEPA tariffs and in April of 2026, US Customs and Border Protection, or CBP, commenced a phased process for accepting refund claims. Accordingly, in April, we submitted refund claims for our phase one entries totaling $18.6 million, substantially all of which were approved during the second quarter. As a result, during the quarter, we recognized $15.3 million in tariff refunds as a reduction to cost of sales of which $14.3 million related to the wholesale segment and $1 million related to the retail segment. We also recognize $3.3 million as a reduction of inventory and $700,000 of interest income. Our remaining entries totaling $1.2 million are now classified as Phase III entries. No refunds related to Phase 3 entries have been recognized as the timing and amount of these recoveries remain uncertain and subject to execution by CBP. Following the US Supreme Court's ruling in February, the administration imposed a 10% incremental tariff under a separate statutory authority, which remained in effect throughout the second quarter. On July 24th, the administration increased the incremental tariff on imports from China, Republic and Vietnam to 12.5%. U.S. trade policies continue to evolve and remain unpredictable, creating near-term gross margin uncertainty. We have mitigation strategies in place that will continue to adjust as appropriate in response to future policy developments. Wholesale net sales were $48.8 million for the quarter, up 7% from $45.6 million in the second quarter of 2025 due to higher sales of our Florsheim, Stacey Adams, and Boggs brands. Nunn-Busch sales were down slightly for the quarter. Wholesale gross earnings as a percent of net sales were 70% and 37.6% in the second quarters of 2026 and 2025, respectively. The increase was primarily due to the reduction in cost of sales of $14.3 million caused by tariff refunds as discussed earlier, as well as the benefit of selling price increases implemented in the second half of 2025. Wholesale selling and administrative expenses totaled $18.1 million, or 37% of net sales for the quarter, versus $13.1 million, or 29% of net sales last year. The increases in 2026 were primarily due to higher employee costs. Wholesale operating earnings were $16 million for the quarter, up from $4.1 million in 2025, mainly driven by tariff refunds. Net sales in our retail segment totaled $7 million for the quarter, up 4% from $6.8 million in 2025. The increase was primarily due to higher sales on our Floorshine website. Retail growth earnings as a percent of net sales increased to 79.2% in the second quarter of 2026. from 66.6% in the second quarter of 2025, driven mainly by the reduction of cost of sales of $1 million caused by tariff refunds. Retail operating earnings reached $1 million for the quarter compared to $100,000 last year due to the tariff refunds. Our other operations consist of our retail and wholesale businesses in Australia and South Africa. collectively known as Florsheim Australia. Net sales of Florsheim Australia were $6.4 million in the second quarter of 2026, up 10% from $5.8 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 and local currency were down 1% for the quarter. Florsheim Australia's gross earnings at 10% of net sales were 63.1% and 60.9% in the second quarters of 2026 and 2025, respectively. Its second quarter operating earnings were break-even in 20, in 2026 versus operating losses of $200,000 last year. Interest income totaled $1.5 million compared to $800,000 in last year's second quarter. This year included $700,000 of interest income related to tariff refunds recognized in the second quarter. Our effective tax rates for the second quarters of 2026 and 2025 were 28.4% and 51.1% respectively. The higher effective tax rate in 2025 was primarily due to the establishment of a $1.1 million valuation allowance on deferred tax assets at Florsheim Australia. At June 30th, 2026, our cash and marketable securities totaled $98.1 million and we had no debt outstanding on our $40 million revolving line of credit. During the first six months of 2026, we generated $25.2 million in cash from operations and used funds to pay $26.6 million in dividends. We also had $1.5 million of capital expenditures. We estimate that annual capital expenditures in 2026 will be between $2 and $3 million. During the second quarter, we received $1.8 million in tariff refund and interest proceeds from the U.S. government, and in early July, we received an additional $17.5 million. As these refunds all related to entries approved during the quarter, the full benefit was recognized in our second quarter results. On August 4th, 2026, our Board of Directors declared a cash dividend of 28 cents per share to all shareholders of record on August 18th, 2026, payable September 30th, 2026. I would now like to turn the call over to Tom Floreshine,.

our Chairman and CEO. Thanks, Judy, and good morning, everyone. We are pleased with the growth of our wholesale business in the second quarter. While the categories in which we compete remain under pressure, we delivered growth in three of our four brands, resulting in a 7% increase in wholesale sales. It remains a very challenging environment for discretionary consumer goods, including footwear, and we believe our company is executing well despite these market conditions. Sales of our combined legacy business increased 6% in the second quarter, with Floreshine leading the way with a 12% increase. The Floreshine brand continues to build momentum driven by strong sales of traditional dress shoes and encouraging growth in hybrid and casual footwear. Stacey Adams sales increased 4%. While we still have ground to recover following the brand's softer performance last year, we are encouraged by this quarter's growth. The Stacey Adams dress shoe business continues to generate strong retail sell-through, and our focus is on translating that success into increased demand for our casual lifestyle products. Nunn-Busch sales declined 3% for the quarter. As an opening price point brand, Nunn-Busch competes in a highly competitive segment of the market against private label offerings and lower priced licensed brands. Our strategy is to differentiate the brand by investing in comfort technology and higher quality materials, giving consumers a clear reason to choose Nunn-Busch for superior value. We believe we are well positioned with strong products currently at retail and in the pipeline that distinguish the brand on quality. In our outdoor segment, BOG sales increased 10% and the brand is well positioned for a strong second half. In a market with many rubber boot options, BOGS seamless construction provides a meaningful point of differentiation. It is significantly lighter and more durable than the traditional vulcanized construction used by many competing brands. We are continuing to educate both retailers and consumers about the advantages of seamless construction and we are seeing solid growth across this product line. While we believe we are still in the early stages of a BOGS turnaround, we are encouraged by the brand's performance this quarter. Our retail segment increased 4% driven by very strong Foreshine eCommerce sales. We continue to invest in our direct-to-consumer platform and are encouraged by our growth in the US market so far this year. Florsheim Australia's reported net sales increased 10% for the quarter but declined 1% in local currency, reflecting the favorable impact of foreign exchange. Despite a challenging economic environment, our Florsheim Australia team continues to execute well by maximizing sales opportunities in a difficult retail market. while maintaining disciplined expense control. Our overall gross margins were 70.4% for the quarter. Our margins in the second quarter benefited from the IEPA refunds we received. The administration continues to pursue additional tariff actions and it is difficult to know what impact additional tariffs could have on our margins as we move through the second half of the year. Our overall inventory as of June 30th, 2026 was 49.1 million compared to the to 65.9 million at December 31st, 2025. As discussed last quarter, we have planned our inventories to rise over the next several months to about 70 million by the end of the fourth quarter. 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.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Thank you. Our first question comes from the line of John Drescher of Pinnacle. Your line is now open.

Good morning, everyone. Good morning, John. Hey, John. Quick question. Is it too early to talk about back to school sales? I know we haven't even hit Labor Day yet, but any color you can give on that space?.

Yes, you know, not too much at this point. I mean, you know, it's not that important a factor, you know, in our market other than it creates retail traffic and, you know, it's in full swing, especially in the south. But I don't have that much insight, to be honest with you, as to how back to school is going in the market, I think. Retailers in general are worried about the impact of price increases so that in the kids' footwear market, they've been hesitant to take price increases because of pressures on discretionary income right now. and all the inflationary concerns. It's not that big a factor for what we do, other than it does create some retail traffic in August.