Good day, and thank you for standing by. Welcome to the Weyco Group Third Quarter 2022 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. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Judy Anderson, Weyco Group's Chief Financial Officer. Judy please go ahead.

Thank you Kyle. Good morning, everyone, and welcome to Weyco Group's conference call to discuss third quarter 2022 earnings. On this call with me today is 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 cautionary statement. 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 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 and to our other filings with the Securities and Exchange Commission for a discussion of important factors and risks that could cause our results to differ materially from our projections including the uncertain impact of inflation on our costs and consumer demand for our products, and the continuing direct and indirect effects of the COVID-19 pandemic. Overall, net sales were a third quarter record of $97 million, up 57% compared to $61.8 million in 2021. Consolidated gross earnings increased to 40.6% of net sales, compared to 40% of net sales in last year's third quarter due mainly to higher gross margins in our North American wholesale segment. Quarterly operating earnings were a record $14.2 million, more than double last year's third quarter operating earnings of $6.7 million. Quarterly net earnings were a record $10.8 million or $1.12 per diluted share, up more than 100% from $5.1 million or 52% per diluted share last year. Net sales in our North American wholesale segment reached a record $81.6 million, up 63% compared to $50.2 million in the third…

Thanks Judy, and good morning everyone. We are very excited about the overall strength of our wholesale business, which resulted in a fourth straight quarter of record sales. As Judy mentioned, our wholesale business was up nearly 63% versus last year's third quarter. The large increase reflects in part our strong inventory position relative to the third quarter of 2021, when our shipments were constrained due to supply chain issues. However, our performance was also a byproduct of strong demand at both the retailer and consumer levels for our footwear. In comparison to a very good pre-pandemic third quarter of 2019, our wholesale shipments were up nearly 20% and as a company we achieved record profitability for the quarter. We are proud of this accomplishment particularly in this period of heightened economic insecurity. We are experiencing a very positive trend with our legacy brands with Florsheim, Stacy Adams and Nunn Bush registering gains of 82%, 68% and 50% respectively. Both Florsheim and Nunn Bush had significant increases over 2019, and Florsheim also had its third largest quarter on record -- excuse me, had its largest third quarter on record. The market continues to cycle away from the in-home casual lifestyle that prevailed during the pandemic and toward more of a dress-up aesthetic. The changeover has boosted demand for work-oriented and occasion-oriented footwear resulting in strong sales across all of our traditional legacy brands. We have benefited from less competition in dress and dress casual footwear as certain brands pulled back from this space during the pandemic. Over the last few years, we have also expanded our casual range and experimented in different categories of footwear, which has given us a better understanding as to what works and doesn't work for our brands. The push towards casual during the pandemic has…

[Operator Instructions] Your first question comes from the line of David Wright from Henry Investment Trust L.P. David your line is now open.

Good morning, David.

Hey. I have two questions. First, did you have any share repurchase in the latest quarter?

We did. We -- just 28,000 shares for the quarter at a total cost of $736000.

And so that works out to 26,000, 28,000-ish shares - 28,000 shares at $736,000?

That's correct. Yes. An average of...

Okay. Thanks. And then the second question is with this great profitability -- and of course, the company always has a super conservative balance sheet. I noticed that the dividend hasn't been increased and it's been about 3.5 years. And I just wondered with the great pickup in earnings, what the Board's thinking was on that? And I don't know if it ties in with you -- with your stock buyback and overall capital allocation, but I'd appreciate your thoughts.

Sure. The thinking behind maintaining our dividend at the same amount is just the uncertainty that we're facing in the upcoming year. And it's not -- I'm not talking about uncertainty just for Weyco Group, I think that everyone would agree that, there's a lot of clouds on the horizon and just a lot of macroeconomic uncertainty globally. And so, as you pointed out our balance sheet is conservative and I guess, our -- the way our viewpoint to our dividend increases are the same. I mean, we're -- the plan would be to eventually start increasing our dividend again, but we're going to wait until times are more predictable.

Right. Well, that's a fair position. I would just point out that $0.01 a share a quarter, increase is only about $100,000 of real money. And I appreciate your comments on my question. Thanks very much, and good luck going forward.

Thank you.

Your next question comes from the line of John Deysher from Pinnacle Value Fund. John, your line is now open.

Good morning, Tom. Good morning, Judy.

Hi, John.

Good morning.

Good morning. A couple of questions. How much is left on the share repurchase plan?

1.1 million shares, a little less than 1.1 million.

1.1 million shares. Okay, got it. The inventory ended the quarter at $112 million, how much -- and obviously, that helped drive sales. But how much do you expect inventory to come down by year-end would you say?

We actually expect it to go up slightly higher just probably a few million. It's a little hard to predict exactly but we're pretty much at peak, John. And -- but it's possible that it'll go up a little bit as we end the year and then it will come down, as we move through first quarter and into second quarter.

Why is it going up?

What we did was we brought in our spring inventory early, because when we were purchasing the spring inventory the supply chain was still a pretty big mess. And what we have experienced in the last few quarters, is difficulty in getting the inventory in here on time to ship all of our customer orders on time. And we actually faced a bit of that challenge still this fall. And so we're trying to -- we've been moving our timelines, up for purchasing because of the supply chain and the longer lead times from factories. And so, that's the reason that we brought our fall inventory and spring inventory for 2023 and early. Now what we're seeing is the supply chain normalizing, and lead times getting back to almost pre-pandemic levels. We still have issues where containers will get held up sometimes and it's always the ones you need, unfortunately. But we are buying again much closer to season. So as we contemplate, what we're bringing in for fall 2023, we'll be able to bring that in much closer to our need. And so that's going to help us bring down inventories.

So, you think inventory will start to come down when...

Second quarter, next year.

Second quarter 2023. Okay. Let's talk about e-commerce for a second. I know the headwinds there are probably stronger than they were a few months or two years ago. What exactly are you doing to get that business profitable? Mean advertising, freight, it's just it's very competitive as you know. And frankly, one of our portfolio companies they ultimately decided to close their e-com because it just -- it wasn't making money and they didn't see a turnaround coming. So, I'm just curious what specific steps you're taking to get that business profitable?

Yes. John, this is John Florsheim. John, our e-commerce business is actually very, very profitable and yes it's less profitable in this -- in the third quarter than it was last year. It is because some of the SG&A costs got away from us and Tom, detailed that in terms of higher spending on freight, which has to do with fuel costs and also higher expenditures on advertising having to do with more competition out there and less ability to target, based on privacy settings there that we didn't have a year ago. So, it actually is -- it's a very nice profitable area of our business. And our main focus right now, is getting our costs more in line. We sort of see what's happened from an advertising perspective, and as we go into the fourth quarter, which is a very competitive time period for e-commerce, we're making sure that we stay on budget. And then from a freight standpoint, we're doing some things around freight to try to renegotiate deals with our shipping carriers, to try to get the freight costs more in line, but we're really happy with our e-commerce business and our ability to grow this year. We're not so happy with some of the pressures that we've had from an SG&A standpoint. The other thing, that we're doing too just in terms of, targeting customers, we have a number of new tools that we're using in terms of how -- in terms of attributing advertising and conversions that allow us to better pick where we want to advertise and do that more efficiently. It's something new that we've just added this year. We're in our beta phase, but we have hopes that this will allow us to more efficiently reach out to consumers and prospect consumers.

Okay. So, lots of positive steps there. When do you anticipate seeing the impact of those changes?

Well, I think right now in the fourth quarter, we're going to get some huge numbers in e-commerce. So I would anticipate, our e-commerce growth being under pressure in the fourth quarter. As far as SG&A, that's going to happen immediately where we're going to get our costs more in line. We didn't have a great fourth quarter last year, from a profitability standpoint. We had -- we were very profitable, but we didn't have the growth that we should have had given the growth in sales. What I anticipate this fourth quarter, is there's going to be -- there's more pressure in terms -- from a topline standpoint, but we should be able to get things more in line in terms of our expenses.

In the fourth quarter.

In the fourth quarter.

Okay All right. Good. That’s good color. Thanks very much and good luck

[Operator Instructions] There are no further questions at the moment. I would now like to turn the conference back to Judy Anderson for closing remarks.

I just want to say thank you to everybody, for participating in our call today and I hope you have a really great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.