Good day, ladies and gentlemen, and welcome to the Q4 2013 Weyco Group Earnings Conference Call. My name is Dilu, and I will be your operator today. At this time, all participants will be in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, ladies and gentlemen, this call is being recorded for replay purposes only. I would now like to turn the call over to Mr. John Wittkowske, Chief Financial Officer. Please proceed sir.

Thank you. Good morning, everyone. Welcome to our 2013 annual conference call today. With me are Tom Florsheim Jr., our Chairman and CEO and John Florsheim, our President and COO. Before I begin, I’d like to read a brief disclaimer. During the course of 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 such statements are just predictions and that actual event or results may differ materially. We refer you to Weyco Group’s most recent Form 10-K, as filed with the Securities and Exchange Commission. The 10-K identifies important factors and risks that could cause the company’s actual results to differ materially from our projections. Additionally, some comparisons may refer to non-GAAP measures. Our SEC filings may contain additional information about these non-GAAP measures and why we use them. Net sales for the fourth quarter of 2013 were $78.5 million, compared with 2012 net sales of $78.4 million. Operating earnings for the quarter were $10.8 million compared to $12.5 million in 2012. Net earnings attributable to Weyco Group were $6.8 million compared to $7.7 million last year. Diluted earnings per share were $0.62 per share for the fourth quarter of 2013 versus $0.71 per share in 2012. Earnings in the fourth quarter of 2012 included $1.8 million or $1.1 million after-tax, the equivalent of $0.11 per diluted share of income that resulted from a reduction in the estimated liability for future payments relating to the BOGS acquisition. Without this prior year adjustment, earnings from operations and net earnings would have been up 2% and 4% respectively for the quarter. In the wholesale segment, net sales were $58.2 million in 2013 compared to $56.6 million. Wholesale gross earnings as…

Thanks, John and good morning. Given the general soft retail environment for the holiday season, we feel positive about the overall performance of our brands. In the fourth quarter, our North American wholesale business was up 3%, which was in line with our 4% increased for the full year in 2013. Our BOGS division had the company’s largest gain for the quarter with the 22% increase in sales driven primarily by the harsh winter weather across significant parts of the U.S. and Canada. For the year of BOGS sales were up 9%. We are encouraged by the sell-throughs at retail as well as to our e-commerce side. Based on the last two mild winters, we went into the season with a conservative inventory position as did many of our accounts. As a result we did not realize the full upside based on the weather related demand. However, we believe that the low level of inventory in the market combined with the strong BOGS performance bodes well for the fall 2014 selling season. Brands Bons remains committed to diversifying the brand by introducing categories that are less weather dependent. For the fall 2014 we are expanding our Kids collection to include a range of casuals that will allows BOGS to move beyond purely outdoor usage occasions. In our women’s collections we are introducing additional non-insulated fashion styles constructed with waterproof leather. BOGS brands for fall includes more lifestyle product including waterproof leather casuals and hikers. While we are excited about capitalizing on the strength of the brands of all the business we were also mindful that the design of the new products must connect to the unique character and heritage of BOGS. In terms of our Nunn Bush business, the quarter was down 2%. However, we had a very strong year…

Thank you. (Operator Instructions) Thank you. And our first question comes from the line of Rebecca Simmons of DRZ Inc. Please go ahead.

Good morning. Thanks for taking my questions.

Hi, Rebecca.

I want to know if you could give us an update on your quarter-to-date trends and what you are seeing so far?

Our quarter-to-date trends first quarter?

Yes.

I mean in general I think the year is down it has gotten off to from a retail perspective a bit of a tough start. I mean a lot of it is weather related. We just came back from that the main industry trade show last week. And January was tough for most retailers and I don’t think February was much better. We are not seeing that necessarily in our business, I mean our shipments are – we are seeing a lot of cancellations or anything of that nature. I see the general mood at retail right now is challenging.

Can you – are you getting any feedback from your customers?

In terms – I mean mid as far us our product goes or as far as the general market, I mean the general market I think it is tough out there. And some of that can be attributed to weather probably not all of it. As far as our product I mean like things are pretty steady we have less of a seasonal component and where we do have a seasonal component for instance in BOGS that market has been very strong and has continued into the first quarter. So we are enthused about that. In the general market, it has been less so. In spring selling obviously it has gotten off to a slow start just based on the fact that president stays typically where everybody kicks off their spring selling and weather certainly is not cooperative across the country, in most parts of the country.

Rebecca, this is Tom. Typically we don’t comment on backlog, but one thing I will mention is we are out right now so on a fall of course and fall ‘14. And one of the things that’s really exciting to us is that due to the performance of BOGS this past fall and as John just mentioned it’s continued in the spring our BOGS orders are way up as we are – we are still in the early part of the fall selling season, but the backlog is up not only on the core product, which we been out we are selling last – since we acquired the brand a few years ago, but we are starting the new product that I talked about in my part of the call we are introducing waterproof leather product that is not as dependent on having a really harsh winter. And so we feel really good about what’s happening from the standpoint of fall ‘14 selling at BOGS, so early to say about the other brands.

Do you have any new products that you are launching over the next year or so that you are seeing good response from or that you are excited about just maybe outside of BOGS in your other core brands?

We are introducing actually Nunn Bush kids for fall ‘14 and that’s new for us and we have gotten a really nice response to it. One of the things that really did for us is introduced us to the kids market. We didn’t want to get into kids business with Stacy Adams, but when we realized sort of got us thinking about strategically how do we want to approach the kids market and then when we acquired BOGS, a big part of the BOGS business is kids. And so we feel like we are moving down that learning curve. That positive experience with Florsheim when we introduce Florsheim in the fourth quarter of 2012, we see an opportunity in boy’s footwear especially in the outdoor category. So we are introducing Nunn Bush ATC kids shoes for fourth quarter at a nice price point that we see as a boy in the market. What’s that, okay. Yes, I am sorry John Wittkowske giving me some additional information, Florsheim kids was up 100% in 2013. So we see that as a nice growth vehicle.

Okay, great. And when I am looking at the gross margin you guys did a great job of keeping them flat over the last year, I mean looking forward into this year, I mean are there any opportunities you are seeing there or any cost pressures you are expecting?

I think in China it’s going to be more of the same. Leather prices really haven’t eased. There is still currency pressure although the Chinese currency – I hope you saw that the Chinese currency fell a little bit this week for the first time in a long time, a little bit weaker against U.S. dollar. So hopefully that’s a trend, but I think that may be temporary. But the cost pressures in China remain and I think that they are going to be something that we have to just deal what and where we are raising prices where we can. The one thing that we are doing, which I believe will help long-term is we have a big presence relative to other people out in the industry in India. We have been there for a very long time. And the dollar actually has really strengthened against the rupee, which is the Indian currency, over the last year. And so we are trying to grow our business in India and are finding that labor costs and the impact of the currency just make it easier to show decent margins on the product and so there are a lot of companies in this industry looking at other markets right now. These people are targeting about Vietnam and a lot of people are in Vietnam and we are making some products in Vietnam, but we see India has a nice balance to our sourcing in China. So hopefully that will help just to reduce the challenges that we are facing from the pricing standpoint in China.

Should we think of gross margins as kind of flattish going forward?

Yes, that’s right. I think that we’re hoping to just maintain our gross margin exactly.

Okay. And how do you feel about inventory levels right now?

I think that our inventory levels are in good shape. We were – when you look at – our inventories are slightly down at year end. But we bought early this year due to the earlier Chinese New Year. So we feel very – we actually are in good shape going into first quarter, we ship a tremendous amount of shoes in February and March. And so I think that our inventory levels are right where they should be and our inventories are very clean as well I mean one of those reasons why we had a little bit of pickup in gross margin I think in 2013 is and we alluded to it in talking about (CES) we just had less obsolete inventory across our brand, certainly with BOGS where we carried some inventory in 2012 into 2013 just because of the mild winter and it’s opposite now where we are really –our inventories have a very low level of obsolete product.

Okay. And lastly could you talk about cash priorities and maybe any acquisition opportunity you’re seeing or anything else you’re planning on doing this year?

I’ll speak a little bit to acquisition opportunities and then John maybe talk about use of cash. We ourselves are looking I mean we’ve been looking – we’re always out there looking for opportunities because we see that is a key to our growth and we have a pretty disciplined approach to acquisitions and right now there isn’t anything that we’re looking at that as imminent and we’re going to just keep looking though but hopefully over the next couple of years we’ll find another good one. And that’s really others to report on that front.

I think on the cash management side and what we’re doing with the cash, you could see from this year is our focus was on getting the debt from the BOGS acquisition and other things down to a level where we feel comfortable. And you can see it went from $45 million down to about 12. We used operational cash in some of our maturities from marketable securities. Now we’re going to be in a different point where we’re going to start generating cash over and above that of course, we’re starting to buy some more investments, rates have moved up a little bit. But we’re pretty careful with that, we’re not going out too long right now, we’re just following and laddering out some municipals but the goal…

Buyback shares too…

We buyback shares when it’s there, when the opportunity arises and we’re also – we’re just cognizant of the – as Tom mentioned we’re always looking for the acquisition. So we’re not going to lock up our cash in very long-term securities but we do ladder them out to make sure and our borrowing rate on our debt is low. So I think we’re doing well on cash management, that’s our approach.

Okay. I mean you guys have done such a great job navigating this difficult market environment and you continually seen earnings growth over the last three years. I mean overall I mean it seems like you’re cautious that’s a pretty optimistic going forward and anyway I’m thinking about your company may seem like you think you can continue to kind a block in to tackle to this environment. Is that kind of in line with kind how you’re looking I think?

Absolutely I think that’s right. I think that to do well in this environment you do have to do a whole lot of blocking and tackling, that’s a good way to put at. You really have to do the basics well and I think that we’re good at that. And we’re pretty conservative but we can be aggressive in a disciplined way when we’re looking for these for acquisitions. And we really with the fairly mature market in the U.S. and with I think that we have some good growth in BOGS. So I think the Florsheim I think that we have decent growth but it’s single digit growth probably in the legacy brand. We just see making a smart acquisition as a key part of our strategy to continue our growth.

Okay, great. Well that’s all I have. Thank you for your time.

Thank you, Rebecca.

Thank you. And the next question is from the line of (Joel Leonard) from DCO Capital Management. Please go ahead.

Hi, guys. I am trying to drill down a little bit more on the BOGS story, because I think it’s a good one. And I am just – I understand that we benefited from a frigged winter, but I was really interested in hearing more about what BOGS can do for the brand in terms of making product that doesn’t rely on cold winters? When I think about BOGS, for instance, people were those in the middle of July and I was wondering, because I see the BOGS story as really very interesting? And I just wonder if you are thinking like that?

Yes, that’s a big part of our strategy moving forward. We did benefit from our cold winter that makes everybody look a little bit better, but we don’t want to be dependent up on that going forward. So in a number of areas, we are diversifying the product line. We are doing more non-insulated products. We are still tying it to the BOGS D&A. It’s waterproof leather that we are using in most of the products. And we are doing that both in women’s and in men’s and in kids and saw more lifestyle type product. And we have got a very nice reception to it. For fall ‘14, we are going to be introducing that product starting really in July. The other thing that we have been trying to do, which is not really weather based. We are expanding what we are doing in the industrial market and it taking us a while to move down that learning curve, but we have some really interesting product, that is both slip resistant and chemical resistant and there is not a lot of that in the industrial market, especially that’s rubber-based product. So, we are slowly getting beachhead in that market. The industrial market takes time to build. It’s got more of a complex distribution network, but we are starting to get some nice feedback from end consumers and from distributors in that market. We are also expanding what we are doing in the hunting market. We have a nice. It’s a small business, but we have a nice following in the hunting market. And we see that as tying very much with the BOGS brand positioning. And again we are really careful – we are being very careful to introduce product that is unique in the marketplace and we are getting more placement and we see that as a growth story for us over the long-term.

Okay. If I wanted to buy a pair of BOGS, I can click on the BOGS website or I can try and go to Zappos or whatever, can you tell me more about the BOGS website, are you guys selling through that website, is that getting decent response or is it more that you are just pushing it through your retail distribution?

We’ve had significant growth in BOGS e-commerce this year. We – particularly in Canada we launched Canada in I think it was fourth quarter of 2012. And we had significant growth in 2013 and we continue to have really nice growth in the U.S. as well. And I think that really actually speaks I mean to two things that are going on in the marketplace, one is BOGS specific. I mean, the brand has got momentum. I think we are building a strong following. So, there is interest in the brand, so that attracts consumers to our website. And then in general in our industry, the brick and mortar component of retail is challenged and you are just seeing a lot more activity on the internet. And we are benefiting from that not only on our own sites, but we are expanding the business that we are doing with e-commerce sites across the industry, e-commerce sites that are pure plays, e-commerce sites that are attached to brick and mortar retailers.

So, if you guys pegged your legacy brands a slow single-digit growth, what do you think BOGS is?

It’s hard to say. We don’t like to give specific guidance in terms of incremental growth, we are very optimistic about the growth of BOGS. We want also be careful to manage it proper way. We are entering a number of new categories and we want to make sure that we are successful in those new categories as we expand. But we think that there is certainly potential for double digit growth in BOGS hopefully in 2014 and beyond.

Okay. And then the percentage of sales are due to BOGS is what percent now of overall?

We are looking at that number.

I will give that to you. That number is – it sounds wrongly. I am sorry. In our total North American wholesale division the percentage right now is about 18%.

And that is added e-commerce, right?

Well, it doesn’t.

We got the e-commerce numbers.

That’s just wholesale business right, that’s just our North American wholesale business. That’s correct.

That’s correct.

We are also starting to get some traction overseas with BOGS, we launched BOGS in Australia and so we are starting to penetrate into that market and then we are starting to build a nice distribution network overseas as well, that’s what a long term play, what is happening. All those numbers in percentages will be in the 10-K which will be issued in a couple of weeks. So you will be able to get all that detail from there.

Okay, thank you guys. I appreciate it.

Thank you.

Thank you. Gentlemen, we have no further questions in the queue.

Alright, I would like to thank everybody again for their time and interest in Weyco Group and have a good day. Thank you.