Good day and thank you for standing by. Welcome to the Weyco Group First Quarter 2023 Earnings Release Conference Call. [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, Chief Financial Officer, Judy Anderson. Please go ahead.

Thank you. Good morning, everyone and welcome to Weyco Group's conference call to discuss first quarter 2023 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, 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 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 economies. Overall, net sales for the first quarter were a first quarter record of $86.3 million, up 6% compared to our previous record of $81.4 million in 2022. Consolidated gross earnings increased to 43.1% of net sales compared to 35.8% of net sales in the last year's first quarter due mainly to higher gross margins in our North American wholesale segment. Operating earnings were a record -- were a first quarter record of $10.4 million, up more than 90% over last year's first quarter operating earnings of $5.4 million. Net earnings were a first quarter record of $7.4 million or $0.78 per diluted share, up 84% compared to $4.1 million or $0.42 per diluted share in 2022. Net…

Thanks, Judy and good morning, everyone. We are extremely pleased with our results from the first quarter, both from a sales and earnings perspective. In a difficult retail environment, we were able to achieve increases across multiple segments of our business while keeping our expenses in check resulting in a record bottom line. While the outlook for 2023 remains uncertain, we are off to a strong start and we feel very good about our business model as well as our ability to manage through the current macroeconomic challenges. Our overall North American wholesale business was up 4%, led by our legacy business. Florsheim had another record quarter with a 15% increase as the brand continues to pick up market share in the refined footwear category. Within the industry, Florsheim has seen as the go-to brand for on-trend dress footwear and we continue to focus on expanding the brand into the hybrid and everyday casual market. Our Nunn Bush business was up slightly for the quarter with 1% sales increase. We are happy with the progress that Nunn Bush has made within the Comfort Casual segment with over half of its sales coming from the casual category. Stacy Adams was down 3% for the quarter. Stacy Adams continues to be the leading brand for accessible fashion footwear and we are well positioned from an inventory and style perspective for the key upcoming prom and wedding seasons. Our legacy brands all experienced resurgent sales in 2022 as we benefited from historically high sell-throughs based on robust demand for refined footwear. Lower-than-normal inventory levels at retail also resulted in additional shipments through pipeline fill. As of spring 2023, retail inventory levels have been reset and sell-through rates for our brands have normalized at slightly above pre-pandemic levels. While accounts are now taking a…

[Operator Instructions] Our first question comes from the line of David Wright of Henry Investment Trust.

Thanks for raising the dividend. I know I brought that up recently. And although it's a modest increase, I'm glad to take anything that the company is going to declare. So thank you. Wanted to ask a couple of questions about cash and cash management. Can you tell us how the company's cash is invested and what it's earning?

Well, we do -- our excess cash is invested in marketable securities which is a low-risk investment. As time has gone on recently, like currently, we do have a debt balance due to our inventory purchases last year. So we have been in a pattern of just letting our municipal securities as they mature, we have not been reinvesting. They don't really look like -- currently, that market is not very strong. So we're not reinvesting but we think we're better off paying off our debt.

Yes. I was just looking at your interest income versus your cash balance is up, treasury bills close to 5% for the last few months and probably going to stay there for a while. I don't know if that's part of your portfolio but I did notice the interest income. And then with interest rates having moved up, of course, short-term borrowing cost as well and I just wondered how you think about your capital management with, on the one hand, having cash earning interest at a lower rate than the interest you're paying on the debt you're borrowing and curious for your commentary on that.

Yes. Well, our focus has been on paying off the debt. The debt is a revolving line of credit. So as the cash becomes available, it gets paid off in the United States. Because of foreign exchange rates in Canada, we do have a cash balance -- a pretty healthy cash balance up in Canada right now and we are currently working to invest that in just the short-term savings account but they are kind of giving us some favorable interest rates up there. So that's kind of a current work in process.

So just from a general sense, you're more comfortable having just round numbers $20 million in cash and $20 million in debt and having $10 million in cash and $10 million in debt?

No. Like I said, it's just a matter of at this moment in time where the cash is. So in the U.S., we are paying off the debt at the -- to the extent that we can. We do have a little bit of a cash balance up in Canada just because of the FX rates and we're looking to earn some more interest on that money up there. But this is just a point in time thing. It's like something that we're currently working on.

Yes. And just to add to what Judy said, our intention is to pay down and pay off the line of credit where -- we've been in a position where we've been building inventories. Now that we're starting to bring inventories down because of the supply chain being normal, we are going to start generating a lot more cash. And the cash ebbs and flows a little bit with seasonality because as we pay for fall goods coming in, it can -- we can use cash but in general, you're going to see our cash grow this year due to the inventories coming down and we expect that we will pay off the line of credit.

Great. And then last question just on kind of capital allocation. How does the Board generally think about, okay, historically, the company has a lot of cash and that's fine, that's good actually. But how do you -- like what's the methodology to say, okay, we're putting -- we're paying this much in dividends and we're putting this much in stock buyback. Is it like -- what's the formula, if you will?

Yes. Well, we look at the dividend payout ratio just like everybody and we want to keep that at a reasonable weather -- level because we do want to have free cash flow to build cash because our goal long run is still to make some more acquisitions. And so that is one thing. As far as our stock buybacks go, we are in the market buying back stock when we feel that the price of it is advantageous. The levels that our stock has been over the last year, we felt that it was a good buy. So we kind of monitor that and do it basically on what level the stock is trading at, whether we think it makes sense. But long term, we like to generate and build cash because our goal long term is to look for acquisitions.

[Operator Instructions] At this time, I would like to turn it back to Judy Anderson, Chief Financial Officer, for any further comments.

No further comments. Thank you, everybody, for attending our call today and we hope you have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.