Good day ladies and gentlemen, and welcome to the Weyco Group Third Quarter 2016 Earnings Release Conference Call. My name is Kathy and I will be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions] I would like to turn the call over to Ms. Judy Anderson, Vice President Finance and Treasurer. Please proceed, ma'am.

Thank you. Good morning and welcome to Weyco Group's conference call to discuss third quarter 2016 earnings. On this call with me today are Tom Florsheim Jr., Chairman and CEO; John Florsheim, our President and COO, and John Wittkowske, Senior Vice President and CFO. Before we begin to discuss the results for the quarter, I will 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 events 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 third quarter of 2016 were $79.1 million, down 13% as compared with 2015 sales of $91.2 million. Operating earnings were $7.3 million for the third quarter of 2016 versus $9.1 million in 2015. Net earnings attributable to Weyco Group were $4.6 million this quarter as compared to $5.5 million in 2015. Diluted earnings per share were $0.44 versus $0.51 per share in 2015. In the North American wholesale segment, net sales for the third quarter of 2016 were $62.2 million, down 17% as compared $74.6 million in 2015. The decrease between years was primarily due to lower sales of our BOGS, Nunn Bush and Stacy Adams brands. Our BOGS brand has a large winter boot components and due to last year's wild winter retailers carried…

Thanks, Judy and good morning everyone. Overall, it was a tough quarter from a wholesale prospective with our North American sales falling 17%. There were several reasons for the decline and I'll delve into as I cover the individual brands. We are clearly not pleased with our performance over the third quarter and are very focused on reversing what we feel is a temporary setback as a result of a soft economy. In a difficult third quarter, Florsheim was a nice bright spot for the Company coming in with 7% increase over last year. Florsheim's increase was driven in large part by the success of the brands new product. Over the last several years, we've seen a downward trend in sales of Florsheim's classic legacy product which appeals to an older demographic, that is more conservative from a fashion perspective. Our design staff has been focused on moving the brand forward to fit a more casual and modern lifestyle in a way they connects the brands heritage. This has been a progression and we believe we are starting to hit our stride as we have been able to expand our business where certain key retailers in a very tepid environment. We are especially pleased with the performance of two new Comfortech dress casual packages that saw an exceptionally well at retail. We are currently advertising one of the new Comfortech collections called the Heights in Sports Illustrated. Our Stacy Adams business was down 6%. The decline was across a mix of accounts mainly in the off-price and independent trade channels. A retail sell-through for the brand remains strong and well above the industry average. However, foot traffic at stores is down as the shift in consumer buying patterns has accelerated toward ecommerce. Retailers are extremely cautious about inventory levels with…

[Operator Instructions] Please standby for your first question, which comes from the line of Mitch Kummetz, B. Riley.

Thanks for taking my question. Let me begin with BOGS because you mention that you've seen a recent uptick in at once orders. I was hoping you could elaborate on that, I mean we had a pretty warm fall season. And I am just wondering, is there anything in particular that's driving that that uptick? Your channel inventory is starting to kind of lean out and retailers getting a little bit less tight on open to buys or what causing that?

Mitch thanks for calling in. I think it's a mix of things. There was somewhat of an overreaction to the weather patterns last fall and people went into this fall with very lean inventory. So in selective areas of the country where they've gotten a little bit of weather and a little bit of cold, we are seeing nice fill-ins, which is encouraging because people – retailers went in to the season so lean. Now, we've actually kind of backtracked a little bit less like a weak or two, where it's got a little warm again, so we see that slowdown. So, it's definitely in concert with the weather. The other thing that we are seeing and we've mentioned this in the remarks is that in the ecommerce channel, last year 2015, there was a tendency not to on turn, and there was very aggressive topline sales growth goals that never happened. You go into 2016 and allow those retailers procuring significant inventory. That inventory has been worked down in our case and we're getting very good sell-throughs, so we are getting a lot of fill-ins from – in the ecommerce world, which is helping our business. The fourth quarter is very difficult to predict, and a couple of weeks ago with the cold weather, we really started to grant our growth, that as I said before, backed off a little bit. So the big question mark, as far as how much of a fourth quarter lift we are going to get, we are going against very weak numbers with BOGS last year in the fourth quarter. So we're optimistic on the account.

So let me just follow-up on that because I know coming off in the last call, you guys were indicating that BOGS was expected to be down 25% on the year, which I think at this point implies something in the team's percent down teens in Q4. I mean do you think – I know it's tough to predict, but do you think it could now be better than that, just given what you've seen in terms of at once when there has been some decent weather?

It is hard. Mitch, it's hard to say so much depends upon the next seven weeks. I think that there is potential for that, but it does depend on the weather.

Okay. And then on Florsheim, good results in the quarter there, so congrats on that. You talked about some of the new product and these Comfortech Collections. Could you just talk a little bit about what that might mean on a go forward basis now that you're getting some traction on those things?

Yeah. I mean we are seeing – there is a couple of things. One is, we are doing much better and the area of business is actually quite tough right now in the department store world. We are picking up market share and we are picking up stores because there is a nice ditch or nice wide space in that better positioning within those stores. I think for Florsheim perspective, we are finally getting in the type of assortment into these stores that we feel really good about, and we're seeing results. So I think that there are some upsides there. Florsheim is also a really strong ecommerce brand. So with some of the big ecommerce retailers out there, we are seeing very nice growth this year on lower inventory levels, which is good all around. And that's not necessarily the case. I mean ecommerce even this year has been really hitting us. So, from that perspective, when you look at where the market is going and what trade channels are growing, that positions Florsheim very well. I mean we still feel like we are in the third or fourth inning of where we want to be with Florsheim in terms of getting the brand, position in the marketplace. But we're. So, I think there from a product perspective, we are getting there and we are just now starting to catch up from a sales perspective. So we are feeling good about our overall position.

And I assume you're seeing the same results on the DTC side as well there, right, with some of new products driving the comp increase?

Yes.

Okay. And then on your stores, you talked about opening the Sawgrass outlet, you closed some stores. Remind me when you guys will be sort of apples-to-apples in terms of in terms of store account because I know that from a dollar sales standpoint, you know the loss of a couple of stores still hurt the numbers in the quarter, but when does that kind of even out?

Mitch, this is Tom. It's a little hard to give you a specific time that that's going to happen. I mean we're reassessing stores as leases come up. We've reduced our store count to about 12 in the U.S. and what continue to do is look for opportunities, like we've been looking for a store in that Sawgrass Mall for probably three years. And when we got the right deal, we took it, and so we're going to continue to look for stores like that. There are in high tourist, high traffic areas. And then as the leases come up on our existing stores, we are assessing whether they really help us for branding standpoint whether they're making money and look at those as the leases come up. And so I can't give you an exact answer, but I think that long-term the plan is to have fewer higher volume stores. So we could end up with 10 stores and do considerably more volume then we are doing right now with 12.

Got it. That makes sense. And then last question, just on the margins, but you guys have done a good job on the gross margin line in the tough environment and you talked about a fairly stable, sourcing environment and you're raising prices. I mean is that a dynamic that you can expect to continue over the coming quarters? I guess from an inventory management standpoint, it's not like you guys are sitting on a lot of bad inventory that you necessary have to liquidate, right. I mean you guys are pretty good from that standpoint.

Yeah. If the question is if we think we can maintain and like maybe grow our margins a little, I'd say the answer is yes. What we are seeing right now from sourcing standpoint is factories around the world are very hungry, because growth around the world obviously is very slow. So these factories need business and it makes it a lot easier to deal with them. And so then, we're going to continue to selectively raise prices. You know we have to be very conscious of the fact that the market is priced competitive right now, so you have to really be careful where you do that. But overall, we think from a margin standpoint, we're in a pretty good place. And as you pointed out, and I agree with that, our inventories are clean and we're in good shape from that standpoint.

And part of it Mitch too is that is the trade channel mix that we're selling. And as we mentioned the cost, the percentage of our business that we're selling in the off-price trade channel is down and typically you know you have much lower margin. There is a lot of product out there in the marketplace and we just feel like we need to step back, not participate in the – in really aggressive pricing deals for that segment and just – you lose some volume, but I think your margin goes up and you are not selling at end precedent in the market.

And just a quick follow-up on the margin. What are you seeing on the input cost side? The leather was running down, I actually haven't looked at that recently, so is there updates you can give me in terms of like material costs?

I think that, I would just say that they are stable. I think that leather depending on where it's coming from, you can – it's maybe a little more negotiable than it's been. I think that their tanneries that need business and when they need business, they are flexible, but there is no like big, big movements.

Thanks guys. Good luck.

Thank you.

Thank you.

[Operator Instructions]. We have no further questions. I would now like to turn the call over to Tom Florsheim for closing remarks.

Okay. We just want to thank everybody for listening to our call today. Have a good day and don't forget to vote. Thank you.