Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter 2020 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. [Operator Instructions] I would now like to hand the conference over to one of your speakers’ today, Mr. John Wittkowske. Sir, please go ahead.

Thank you. Good morning, welcome to Weyco Group’s conference call to discuss our third quarter 2020 earnings. On this call with me today are Tom Florsheim Jr., our Chairman and CEO and John Florsheim, our President and COO. Before we begin, to discuss the results of 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 as well as other filings with the SEC. The Form 10-K, as well as our most recent Form 10-Q identify important factors and risks that could cause the company’s actual results to differ materially from our projections. With respect to the ongoing COVID-19 pandemic, numerous factors will determine the extent and length of the impact on the company, including the extent and duration of the pandemic and its impact on the global economy. Actions by governments such as stay-at-home and similar orders that among other things are effects require retail store closures, or limit foot traffic the financial health of the company’s customers and business partners, including the effects of any bankruptcy proceedings by such parties, the performance of the company’s supply chain and the health and welfare of the company’s employees. additionally, some comparisons refer to non-GAAP measures. Our SEC filings may contain additional information about these non-GAAP measures and why we use them. During this call, we will discuss some of our financial results on an adjusted basis. Amounts referred to as adjusted, exclude the following items…

Thanks, John and good morning, everyone. While COVID-19 continues to impact our business, we are pleased with the upward trend in the third quarter. Our revenues returned to sustainable levels, and as John discussed, our efforts to reduce expenses resulted in operating profits on an adjusted basis. Our BOGS wholesale business accelerated throughout the third quarter and finished with a 6% increase versus last year. The strength of the BOGS business reflects increased demand in the outdoor footwear market as consumers continue to spend more time outdoors during the pandemic. We opted to maintain significant inventory levels in our core BOGS programs for fall 2020. While some of our competitors appear to have taken a more conservative approach. This decision has helped the BOGS business and we expect this trend will continue throughout the balance of the year as there was a shortage of boots in the marketplace. The BOGS business has also been driven by increased sales of more lifestyle-oriented footwear; it is not as dependent on inclement weather. We see lifestyle casual opportunity as a key component to future BOGS growth, and are excited by the positive consumer reception. During the third quarter, our BOGS online business was up over a 100% in the U.S. and over 85% worldwide. This increase was driven in part by the outdoor footwear trend. However, we’re also – we also believe that the online growth of BOGS indicates increased consumer recognition and excitement regarding the brands expanded product choices although uncertainty remains regarding the expenses during the pandemic, we’re currently bullish on BOGS ability to maintain its momentum in 2021 and beyond. Excuse me. Regarding our legacy brands, as we discussed last quarter, our product has historically been focused on go to work type shoes and while we were seeing some pickup,…

[Operator Instructions] I’m showing no questions at this time and – oh I’m sorry, I do show a question from the line of John Deysher with Pinnacle. Your line is open. Please go ahead.

I’m glad I made it onto the call. How are you, guys?

Hi, John. We’re doing okay. How are you?

Good. Thanks. A couple of quick questions; one, Tom, are all of your wholesale customers open at this point?

Essentially, they are. I would say that, as you probably are aware, many of them have – are making their footprint smaller. So, there are fewer actual stores, but all of our major accounts at least are open. There are some smaller, independent accounts in certain areas that have yet to reopen. But for the most part, our retailer customers are open.

Okay. That’s good news. You mentioned in spring 2021, how does the order book look now versus a year ago? I’m guessing it’s probably down, but is it down significantly from a year ago for spring of 2021?

Well, we have a combination of two different types of orders; carry forward orders on ongoing product. And we’re still in the process actually of entering those orders for first and second quarter of 2021. As far as new product sales, our business is down and I can’t – it’s not because I don’t want to, but I don’t have the exact percentage, but retailers are being more conservative about their placements of new shoes. And so that business is down. But the positive thing I would say is that as I mentioned in the conference call that almost all the new product that we’re showing for spring is casual and the reception to that product has been good from the retailers. It’s just the orders themselves are smaller than previous years, because the retailers have been acting in a very conservative way due to the environment and all the uncertainty.

Right. Okay. That’s understandable. and on your retail stores, you closed three, you have five left in the U.S. How many retail stores do we have still in Australia and Europe at this point?

Well, there’s 33 in Australia, I believe. that’s roughly the number; in Europe, there’s two. and then we have some shop-in-shops and some stores in Hong Kong. There’s probably between the shop-in-shops and the stores. There’s about seven, right, John? Yes. And that’s clear...

There are short-term leases.

Yes. There are short-term leases.

Okay. So, you can get out of those if you need to, but the other are the 33 into two are any of those stores that you can vacate soon if they’re not profitable?

Yes. I mean, we – the leases come up, they’re not on the same schedule. So, we have leases in Australia, for example, come up all the time. And what we’ve been doing as the leases come up is renegotiate in lower rents and if we can’t get a deal that we think will be profitable; we are walking away from those stores too. but in Australia, most of the leases are much shorter-term than the U.S. the typical lease that I would say is three years. and well, in the U.S., it’s usually five years or more, Australia is a bit different though, John than our U.S. business, because while you know, our U.S. business is focused on a wholesale, our – the Australian market is very different and while we do have a wholesale business there, the bulk of our business is retail. And historically, we’ve been able to make good money in retail that wasn’t true in 2019, but we feel that we’re – we actually, you’ve heard us talk about our new management down there and some of the other things that we’re doing. So, we still feel that we have an opportunity to do well in the retail brick-and-mortar business in Australia. With that said, we’re also very focused on growing our web business.

Yes. I mean John, just to edit it, I mean, I think what you’re going to see over the next year, or two is a big reset in terms of retail leases – length of leases, how leases are structured, just based upon the realities of marketplace. and so there’s going to be – you’re seeing a collection [ph] of retail stores right now. That’s going to – it’s ultimately going to impact the structure of the relationship between landlords and tenants within the sector, and we’re kind of in the beginning of that and our feeling is we – we’re appropriate. Well, we’ll say in retail important for us, for instance, in Australia, I mentioned, but you have to structure deals that are sustainable, that are profitable, that are good for both parties. And so you’re kind of in this process right now, where everyone’s sort of feeling it out.

Okay. well, that’s encouraging. And does the same hold true for Europe in terms of leases there and resets there.

All right. mr. Wittkowske, you can go ahead and continue, sir.

Hello, John. are you still there? Hello?

I can hear you. Can you hear me?

Okay. Now we can hear.

Sorry about that, John.

We don’t know what happened.

We had technical difficulties but we’re back.

Okay, good. I just wanted to follow-up. you talked about Australia. What about Europe? Is there a reset going on there in terms of the relationship between landlords and retailers? I know you only have two stores there, but maybe, there’s an opportunity for more stores.

Yes. We’re not really looking at expanding retail in Europe. we are evaluating Europe overall. It’s been a small division for us and one of the things that we’re doing from an expense standpoint is looking at every single different piece of our business and that’s one that has been very moderately profitable some year, some years, it’s lost a little bit of money. And so we’re studying the viability of Europe and whether that’s really something that we’re going to go forward with.

Okay. Do you think that decision will be made by year-end?

Yes.

Okay. Good to hear. All right. Good. And then there’s just a couple of financial questions. One, you bought – you resumed buybacks in October. Can you share with us how many shares you bought in October?

Yes. we just – we went back into the market about a week ago when the stock went down and we bought back this a total about 25,000 shares.

26,000 shares.

Yes.

26,000. Okay. And how much dollar wise do you have left on the repurchase authorization?

Do you know what that number is? We can get that number for you. I got it. it’s significant; I don’t know the exact number off the top of my head right now.

All right.

One second, John.

Do you want the queue?

John, did you have any other questions?

Yes, I did. That’s okay. I can look at the queue, but the most important one for me is the adjustments that were made and there were a string of them, which is fine, but tell us which of those seven or eight items impacted SG&A, and we’ll assume the remainder impacted gross margins. I’m trying to get to where we are on a normalized basis. So maybe, you could just tell me which of those specific items impacted SG&A.

John, do you want to run through that?

Yes. actually all of them affected SG&A with the exception of the inventory, $1 million of inventory. And of course, the $2 million tax expense number.

Okay. So the $1 million inventory was at the gross – at the COGS level, cost of goods sold?

That’s correct.

Okay. And the rest were all at...

SG&A.

SG&A. Okay. So – and if we adjust that, does that give us a good run rate for SG&A going forward?

We believe it does. We have made operational changes; obviously, when we talk about employee costs for restructuring enclosures. We’ve made adjustments to our cost structure. We’ve looked at our advertising numbers. So, we believe that our third quarter adjusted gets us close. I’m not saying it’s perfect at the third quarter. we still are going to continue to evaluate our SG&A and make adjustments where needed and where appropriate. But I think it’s certainly much – it’s certainly much closer.

Okay. Because I mean, the adjustments that you mentioned affected at SG&A were like $9.2 million in total and if we reduce SG&A by that amount, that gets us to $15 million. It seems low, but maybe, you have a comment on that.

Well, you just mentioned a $9 million, I don’t know if that’s quite the number. If you look in the press release, you could see back in the back, where we’ve got earnings loss from operations adjusted and we have $7.4 million of adjustments for the third quarter, $1 million of that was gross margin, so $6.4 million would be SG&A of the total $7.4 million.

Yes. I think what you’re doing John, if you’re adding back in double max.

No. It’s the tax number or maybe, it’s that...

Yes. The wage in rent subsidies, which is a positive number, the...

No, no, no. I excluded that, but let me follow up with you offline, because I want to get this reconciliation. Right.

Okay. That’s fair.

All right. So, I’ll call you after the call and we can go through it.

Sure. That’s fine.

Yes. Okay. That’s all we have.

All right. Thanks, John.

Yes.

Thank you. And I’m showing no further questions at this time and would like to turn the conference back over to John Wittkowske for any further remarks.

We just thank you for joining us on our call today. And we look forward to talking with you after our fourth quarter and we’re all hoping for good news. Have a great day.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone, have a great day.