Good day, and thank you for standing by. Welcome to the Weyco Group Fourth Quarter 2022 Earnings Release Conference Call. At this time all participants are in a listen-only mode. After the speaker’s presentation there’ll 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, Chief Financial Officer.

Thank you. Good morning, everyone, and welcome to Weyco Group's conference call to discuss fourth quarter and full year 2022 results. On this call with me today are Tom Florsheim, Jr., Chairman and CEO; and John Florsheim, President and COO. Before we begin to discuss the results for the quarter and year, 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 and to our other filings with the Securities and Exchange Commission for a discussion of important factors and risks that could cause our actual results to differ materially from our projections, including the uncertain impact of inflation on our cost and consumer demand for our products, increased interest rates and other macroeconomic factors that may cause a slowdown or contraction in the U.S. or Australian economy. Net sales for the fourth quarter of 2022 were $99 million, down 2% compared to last year's fourth quarter net sales of $101.4 million. Consolidated gross earnings increased to 46.6% of net sales for the quarter compared to 40.2% of net sales in last year's fourth quarter due to higher gross margins in our North American wholesale segment. Quarterly operating earnings rose to a record $15.1 million, up 18% compared to $12.8 million in the fourth quarter of 2021. Fourth quarter 2022 net earnings were $10.2 million or $1.06 per diluted share, compared to $10.3 million or $1.07 per diluted share last year. In the North American wholesale segment, net sales…

Thanks, Judy, and good morning, everyone. We are very pleased with our fourth quarter results, which capped off a record year in both sales and earnings. Our entire Weyco team worked extremely hard throughout 2022 to navigate supply chain issues and challenging market conditions, and we are proud of this accomplishment. As mentioned, part of our strong volume this year had to do with pipeline fill, as many retailers needed to get shoes back on their shelves in the first half of the year. However, we also enjoyed strong consumer demand for our brands, especially in our more traditional business, which experienced a resurgence in 2022. And our legacy business comprised of Florsheim, Stacy Adams and Nunn Bush, all three brands had come back years. Florsheim was going against a record fourth quarter last year, driven by timing of shipments and was down 14% for the fourth quarter. However, the brand was up 43% for the year and 2022 was a record year for Florsheim. Stacy Adams sales were up 5% for the quarter and 49% for the year. The Nunn Bush brand was up 18% for the quarter and 40% for the year. Our legacy brands benefited from the strength of the men's dress and refined casual business as consumers were once again updating their wardrobes for social occasions as well as the return to the office work environment. While the refined footwear market referred into more normalized sell-through during the fourth quarter, the category is healthy, and we expect to see a steady performance throughout 2023. As discussed in past conference calls, Florsheim, Nunn Bush and Stacy Adams are focused on diversifying their product mix, with Nunn Bush having the most success at retail with its value-oriented, comfort casual footwear. Florsheim also continued to make progress with a…

[Operator Instructions] Our first question comes from the line of John Deysher with Pinnacle. Your line is now open.

Good morning. Thanks for taking my call. Just a quick -- two quick questions. One, where are we with the Forsake brand at this point? I know you're monitoring that pretty closely. We're coming up on a two-year anniversary of the purchase. I just want to make sure we're on target for launching that. I think the last update was for fall of 2023. Is that still realistic?

Yes. This is John. Yes, a couple of things on Forsake. We're just really starting to get new product out there. I think we completed the purchase in June of 2021. It's been 1.5 years. But the supply chain issues slowed us down a bit. And we're looking at more of a Weyco overhaul except for the fall of 2023. So it's kind of -- it's too early to tell, really, from a new product standpoint. That being said, the outdoor market has gotten more difficult, which we referenced in the call. And the direct-to-consumer market has become less efficient, especially for brands with lower consumer recognition. So we're moving forward. We're looking forward to getting the new product out in market, back half of the year. But the jury is still very much out.

Okay. Okay, good. That's helpful. Thank you. And then just a couple of questions on the cash flow statement. There's some -- looks like non-recurring items there. And I'm just wondering where they appear on the income statement? You've got a pension settlement charge of $900,000 and an impairment of trademark for $1.2 million for the year. Where do those appear on the income statement? Did those go through SG&A? Or how did they flow through the income statement since it's not broken out?

Both of those go through SG&A. The settlement loss is part of pension expense. Actually, let me change that a little bit. That pension loss, $600,000 of it goes through other income. It's just because of the accounting rules, make us split it. And the other $300,000 is in SG&A. So that's the settlement loss. And the impairment charge is in SG&A.

$1.2 million?

Yes.

Okay, good. And the gains from fair value measurement of contingent consideration, I guess that's for Forsake. Where does that flow through?

That's also in SG&A.

That's also embedded in SG&A. Okay. Great.

Correct.

All right. Terrific. Thanks for the update, and good luck going forward.

Our next question comes from the line of David Wright with Henry Investment Trust.

Good morning, everyone. I have a question. You highlighted the high level of inventory. I go back five, six years when you might have ended the year with $60 million of inventory. So kind of any nervousness about the absolute level of inventory?

We overall feel like it's very manageable. We -- the situation over the last two years really has been, one, in which -- if you're going to deliver our shoes on time for the season, you have to bring in everything early. The transit time, and I'm going back six months or more, always historically from China, was about 30 days. During the supply chain issues that went up to three months and at times, it was longer than that. And so we basically were forced to bring in seasonal goods early and bring in everything early, so we were confident that we'd have the inventory. And I think that part of the reason we've been able to show such big revenue growth is that we've had the inventory and some of our competitors have not. And so we've discussed in past calls that when we are forced essentially to buy earlier, and to buy larger quantities and bring them in earlier, we focus on core merchandise. And so where the majority of that inventory is, it's on our best sellers. And so that inventory is not perishable, and it's good for several seasons. And so we -- as the supply chain unfroze, we saw what was happening. And so we cut back our buying nine months ago. And so we feel very confident that over the first half of this year, our inventories are going to be back in line. They're not going to be down to the $60 million because our business is bigger now. But they're going to be substantially lower than the $128 million.

Okay. Great. Thanks for that answer. Non-financial question, if you don't mind. I'm curious just more as a consumer. So in your e-commerce segment, and let's just stick with Florsheim, what's the incidence of returns? A pair of shoes, you go to the store, you try on four or five different ones and this one feels best and looks okay, so fine. I can't really do that so well with e-commerce. Curious about the return rates.

This is John. It's about 12% to 13%, for instance, on the Florsheim brand. That's relatively low when you look at it within the context of the industry. I think we benefit from a lot of our consumers it's repeat purchases. They know what shoe they want, they know their size, how they fit our brands. And so we tend to have lower return rates than the industry, especially the multi-brand sites.

Well, thanks for giving me some insight there. Congratulations on the record results. And thanks for taking my questions.

I'm showing no further questions in queue at this time. I'd like to turn the call back to Judy Anderson for closing remarks.

I just want to say thank you, everyone, for joining our call today, and have a great day.

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