Thanks for standing by, and welcome to the Weyco Group Fourth Quarter and Full Year 2024 Earnings Conference 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. To ask a question during this session, you'll need to press star one one on your telephone. To remove your call from the queue, simply press star one one again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Judy Anderson, Chief Financial Officer. Please go ahead.

Thank you. Good morning, and welcome to Weyco Group's conference call to discuss fourth quarter and full year 2024 results. On this call with me today are Tom Florsheim, Jr, Chairman and Chief Executive Officer, and John Florsheim, President and Chief Operating Officer. 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 summary for a discussion of important factors and risks that could cause our actual results to differ materially from our projections. These risk factors are incorporated herein by reference. Overall net sales for the fourth quarter of 2024 were $80.5 million compared with $80.6 million in the fourth quarter of 2023. Consolidated gross earnings were 47.9% of net sales for the quarter compared to 50.3% of net sales in last year's fourth quarter. Quarterly operating earnings were flat at $11.5 million in both the fourth quarters of 2024 and 2023. Net earnings were $10 million or $1.04 per diluted share for the quarter versus $8.5 million or $0.90 per diluted share in the fourth quarter of 2023. In the North American wholesale segment, net sales for the quarter were $60.4 million, up 1% compared to $59.6 million last year. Higher sales of the Florsheim and Nunn Bush brands were mostly offset by lower sales of BOGS and Stacy Adams. Wholesale gross earnings were 42.4% of net sales compared to 44.9% of net sales in last year's fourth quarter.…

Good morning, everyone. As Judy mentioned, our overall net sales were flat for the fourth quarter and down 9% for the year. While we saw solid sequential improvement in the final quarter, 2024 proved to be a challenging year for our wholesale business. Consumers remain cautious amid ongoing economic uncertainty, limiting their discretionary spending on nonessential goods. Despite these challenges, we are navigating short-term pressures and evolving our portfolio of brands to position the company for future growth. BOGS sales declined 17% in the fourth quarter. The brand faced headwinds due to mild winter weather, which reduced consumers' urgency to purchase new boots. With fewer cold and snowy days, preholiday demand for insulated and waterproof footwear was softer than anticipated. However, winter weather did eventually arrive across most of the country in January and February, and retailers are now selling through their inventory. Partners are in a much better position to bring in fresh assortments, and we are starting to see renewed interest in the category for fall 2025. As discussed in previous calls, we believe the BOGS' new seamless construction, which is lighter and more durable than traditional vulcanized product, is a key differentiator. We are also excited about our new offerings in non-insulated footwear, such as the BOGS BOGA, which launches in March. The BOGA is a versatile lightweight clog featuring superior comfort and an outsole that provides better traction and durability than other outdoor clogs. The last two years have been challenging for BOGS, and we are focused on reenergizing the brand through product innovation and expanding its retail presence in the spring-summer selling season. Our combined legacy business grew 8% in the fourth quarter, with Florsheim leading the way with a 22% increase. The dress footwear category continues to face challenges as retailers prioritize other segments.…

Certainly. Ladies and gentlemen, if you have a question at this time, please press star one one. If you'd like to remove yourself from the queue, simply press star one one again. One moment for our first question. Our first question comes from the line of David Wright from Henry Investment Trust. Your question, please.

Yeah. Well, hello. Good morning, everyone.

Good morning.

I want to thank you very much, Tom, for the extensive commentary and, Judy, as well, for explaining what happened for the year and providing some context. And as always, I really appreciate you having these calls and taking the time to prepare for them and conduct them. Can somebody walk me through kind of the mechanics of a tariff for Weyco Group? You have an order coming your way. And, like, what happens? What are the mechanics that get the money from wherever it comes from to wherever it goes?

Sure. The mechanics are basically, and you're not talking about just these additional tariffs, you're talking about tariffs in general. Correct?

Well, yeah. For sure. I mean, it would apply to the additional ones. I'm just trying to visualize the flow of the cash.

Okay. Yeah. Essentially, we have to put up a bond that's equal to the amount of tariffs that we pay on average in a monthly period. And so when the goods are cleared, and we broker the goods ourselves and we clear them, then we pay customs for whatever tariffs are on goods per the US government. So if the tariff is 26%, which it is, has just gone from 26% to 36% in total. Then if you take a shoe that's roughly $20 first cost, when that shoe is cleared, we have to pay 36% of the $20, which is a little more than $7. And so it's a real cost to us. It's paid by us here in the US. Or in cases where we're importing goods into Australia or into Canada, then we pay their tariffs the same way essentially.

So you posted a bond. You're getting deliveries every week, let's say, and then monthly or quarterly or whenever you're writing a check to whom?

US Customs.

And so does Customs have your invoices when this stuff comes in, or are you just declaring what the value of the shipment is and calculating the tariff based on your declaration?

Judy, do you know the specifics of that? It's based on our declaration.

Yeah. Everything's done wirelessly, you know, paperless today. Correct.

And all the documents are available if customs wants to look at them. But we're CTPAT approved. We have a good relationship with customs, and it's done pretty seamlessly. And we do receive containers every single day here.

Right. So it's not like somebody is this is like customs is some guy sitting there with an adding machine going over your invoice of all these lots of shoes. You're just saying, hey. Here's a shipment of $100,000, and we owe you $36,000.

Exactly. And then, you know, they have the right to audit what we're declaring at any point for something like five years.

Very good. Well, I appreciate kind of the detail around that question. I hope you didn't think it was unusual. And congratulations on another record year, and thanks again for that special dividend.

Well, thanks for your questions, and we look forward to hearing from you on our next call.

Okeydoke.

Thank you. Our next question comes from the line of John Deysher from Pinnacle. Your question, please.

Good morning, everyone.

Good morning, John.

Following up on David's tariff question. Can you remind us, excuse me, what percentage of your cost of goods sold came from China last year, roughly, as well as other countries of origin, Vietnam, India, and whatever other countries you might have sourced from?

Sure. I was anticipating that question, and what I'm gonna give you is actually what we're looking at in the current year. Just give me one second to pull this up. Hang on one second. I apologize. I'm having trouble pulling up the email, but John, I think the main question right now goes to probably China. And about 75% of our purchases this year will be from China. Our second biggest country is India. We've been in India for about almost 40 years. And with all of this on the horizon, we've been growing our sourcing in India. But we're also in Cambodia, which is smaller. It's just probably a little under 5%, Vietnam, which is also under 5%, and then the Dominican Republic, which is about the same. And so it basically goes China, 75%, India, probably about 15%, and then the rest divided between those other three countries.

Okay. That's helpful. And what are the tariffs today on those other countries? India, Cambodia, Vietnam, and the Dominican Republic at this point.

Yeah. Essentially, most of the product that we bring in is leather upper products. The duty the Harmonized duty code in the US is fairly complex. And so you have different duties for, like, the BOGS boots than you do for the leather shoes. But if you're talking about just the leather shoes, which is the biggest part of what we import, the tariff has historically been 8.5%.

And with what happened in 2018 with the tariffs that President Trump imposed at that time, they were originally higher, but then they were reduced to 7.5% additional. And so that brought us to 16% on leather footwear. And President Biden kept those that 7.5% in place. And so the 16% is what we were paying as of the end of 2024. And then President Trump put in the additional 10%, which happened maybe two or three weeks ago. And so that brought the total number up to 26%. And now with the additional 10% that went into effect on Tuesday, that brought the number to 36%. And if you look at other shoes, you know, the base number is different. For example, a PU upper shoe is 6%. On some of the BOGS product, it's 12%. On other BOGS product, it's really already very high at, like, 37.5%. And then the additional tariffs.

I guess, you know, on the mix of business, the type of shoe that you anticipate importing in this year from those non-Chinese countries. What's a reasonable tariff range do you think? For 2025? Would it be 25% to 35% or 35% to 45% or just kind of a range for the current mix of business.

You know, I would say that since well, let me back up and just say this. We carry typically about 3 million pairs of inventory in here. And we ship about 7 million pairs a year. And when we saw this as potentially happening, we brought as much of our shipments forward as we could. And the way that these tariffs worked is anything that was in transit from China on the first date that the tariffs were declared, the first 10% those avoided the tariff. And so we had another approximately million pairs in transit that avoided any of these extra tariffs. And so when you look at the blend, the remaining pairs that we'll bring in this year, it will probably be in the I would guess in the low thirties. You know, you've got some product that's gonna be higher because of BOGS, but you've got some product that would be lower because it's PU uppers, which we do carry in, for example, on the Nunn Bush brand. And so I would say the average would be in the low thirties.

Okay. And that's for non-Chinese imports. Correct?

Oh, no. I'm sorry. I meant I thought you were speaking of China. If you average everything in, Judy, do you have to talk to you later here? Because I think hang on if you just take 25% times 8.5%, 75% times 30%, that would probably be a pretty good guess. 25% times 8.5% and 75% times 31%, say, then add those. One second, John. We're doing a little math here. So the thing that everybody has to realize is that on April 2nd, there are possibly gonna be these reciprocal tariffs. And so it makes it very uncertain as far as the best way forward from the standpoint of sourcing. Because you don't wanna move a wire product to say Vietnam right now because Vietnam is on the hit list. And so you could end up with even higher tariffs out of Vietnam. And so, you know, what we're doing is kind of waiting to see what happens in April. Judy, do you have that number?

25%. 25%, John. So an average of about 25%.

Okay. Alright. That's very helpful. And in your commentary, you're working with your offshore vendors regarding pricing. Are they receptive to eating part of the cost of the tariffs or kind of what's that dynamic like in terms of?

Yeah. The short answer is yes. They are. We have long relationships with the factories that we do business with in China going back over a decade, some 20 years. And we've cultivated those relationships. We're a very good partner to do business with, and we've grown our business with people that we feel make great shoes and offer good value add. And so when this happened actually, before this happened, we checked in with them, and they are willing to help us out. I mean, there's a limit to what they can do because the margins in manufacturing are not big. But we have made a lot of great shoes in China over the past, say, 25 years as long as we've been in China. And it's very hard to completely replace stuff. We are committed to having a fairly large percentage of our production remain in China at this point because with the pairs that we need and with our quality standards, it's almost impossible for us to replace them. And, you know, I think it's important from a context standpoint because of the desire to bring more manufacturing back to the US. We manufactured 100% of our shoes in the US until, say, the early eighties. You know, we started sourcing elsewhere after that. And the companies that remained in the US had to sell shoes for much more. And several of those companies have gone out of business. And so for our industry, it was necessary for shoe manufacturing to move overseas. And so I think it's over 90% of the shoes that are sold in the US are made overseas. And that's because it takes a tremendous amount of unskilled labor to make footwear, and you just literally cannot do it in the US. The component infrastructure is gone here. There's no easy way and probably it would be impossible to bring manufacturing back to the US.

Alright. Okay. Well, that's good. I mean, so you're pulling what levers you can to perhaps have your vendor share part of the cost.

Absolutely. And, you know, as I said before, we have very good relationships, and so the factories over there are all working with us and trying to help. So that will mitigate some of this. You're not gonna mitigate it all, though. So you're gonna have to raise prices.

Yeah. We're gonna have to raise prices.

Okay. As will everyone else.

Right. Exactly. Yeah.

Okay. Good. I appreciate the color. Thank you.

Thanks, John.

Thank you. Once again, if you have a question at this time, please press star one one. This does conclude the question and answer session of today's program. I'd like to hand the program back to Judy Anderson for any further remarks.

Thank you, everyone, for tuning in today, and we hope you have a great week. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.