Good day, and thank you for standing by. Welcome to the Weyco Group Second Quarter 2025 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 first speaker today, Judy Anderson, Chief Financial Officer. Please go ahead.

Thank you. Good morning, and welcome to Weyco Group's conference call to discuss second quarter 2025 results. On the 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, 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, which provides 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. They include, in part, the uncertain impact of U.S. trade and tariff policy, which remain highly dynamic and unpredictable, the impact of inflation on our costs 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 second quarter of 2025 were $58.2 million, down 9% compared to $63.9 million in the second quarter of 2024. Consolidated gross earnings were 43.3% of net sales compared to 43.9% of net sales in last year's second quarter. Earnings from operations were $3.9 million for the quarter, down 42% from $6.7 million in the second quarter of 2024. Net earnings totaled $2.3 million for the quarter, down 60% from $5.6 million last year. Our net earnings were negatively impacted by lower operating earnings and a $1.1 million adjustment to our quarterly income tax…

Thanks, Judy, and good morning, everyone. As Judy outlined the tariff environment created headwinds that impacted both the top and bottom lines of our business. Coming into 2025, consumers were already feeling squeezed by affordability issues. Now the uncertainty around potential tariff-related price increases only added to their concerns about being able to cover everyday expenses. The end result is that people are pulling back from discretionary purchases and footwear is one of the areas where that shows up. At the same time, our wholesale customers are staying cautious with their inventory buys to avoid being caught with excess product in a shaky retail environment. It all adds up to a more hesitant and unpredictable market, which puts pressure on a business like ours, and we're seeing that across all brands. The additional tariffs and the ongoing uncertainty around future tariff negotiations have impacted our short-term pricing model. Prior to 2025, 75% of our factory base was located in China. We are actively working to further diversify our supply chain while staying true to our company's reputation for delivering exceptional footwear that dollar for dollar represents one of the best values in the market. We are proud of the quality and value we provide across all of our brands and our focus is squarely on maintaining that winning combination, which has been essential to our long-term success. Our combined legacy business was down 8% compared to last year's second quarter, with Nunn Bush off 11%, Stacy Adams down 10% and Florsheim down 5%. While our brands are holding their own at retail, the overall men's dress, dress casual and basic casual markets are under pressure. The traditional men's business is typically one of the first categories impacted in a slowing footwear market as consumers delay replacement purchases an important part…

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

I have 2 questions. Can you at all quantify the change in inventory as a result of the prepurchasing that you did? We see where it is, where would it have been and maybe add a little more on what your inventory purchase plans are for the immediate future?

So I think that -- what I was seeing in the conference call is that the inventory that we brought in, the extra inventory that we brought in, we've basically gone through a lot of that inventory. And so our inventories are getting back to normal levels in terms of peers. I would expect that in terms of dollars, we're going to be in the $70 million to $75 million range, which when you look historically at our inventory levels, it ranges -- I mean, when you go back to that when we have the supply chain issue, it ballooned to $120 million. But it's gone typically between $65 million and $75 million. The thing that is a little bit uncertain is you add a 30% tariff to the goods that we're bringing into China, and that increases the value of the inventory because it's in the cost of the inventory. And so that is the big unknown. So I'm not sure if I'm really answering your question with all that, so I'm happy to elaborate if there's something I've missed.

Yes, I think what you said basically is that -- and you're on LIFO, right, Judy?

That is correct.

Yes. So what you're basically saying is the prepurchasing that you did, the benefit of that kind of is in your first 6 months results. And we're kind of in a brave new world here. Your inventory is kind of where you want it to be at around $70 million and not quite sure what's going to happen because no one is quite sure what's going to happen, and I kind of -- that's what I take away from it.

Yes, that's correct. That's a good interpretation.

Yes. And then my second question is you started this diversification away from China when tariffs started on China. And if I'm not mistaken, you went to India. And if I'm not mistaken, that's kind of a tough place to be in right now.

That is correct. We didn't just go to India, though. We diversified to Vietnam, Cambodia and India. And so we're going to have to wait and see what happens with India right before we got on this call, Trump -- President Trump announced an extra 25% penalty for buying Russian oil. So that increases the tariff in India to 50%, which is not easy to manage. But what we have been able to do is really decrease our reliance on China. So when we look at our open order today, where we were 75% China, we're down to about 60% China. India represents about 14%. Vietnam is about 10%, Cambodia is about [ 5%]. And then we have a little bit from other countries like the Dominican Republic. And we're really taking kind of a methodical approach to this because as I talked about in the conference call, we want to make sure that we protect the quality and also the delivery of our product. And so we've expanded to some new factories. We've increased our production in some existing factories in places like Cambodia, and now we want to keep an eye on how things progress and then we'll shift production accordingly, but we're definitely -- we've definitely made good progress in establishing a bigger footprint outside of China that we can then grow. And so we're going to do this over the next year or 2. It's going to take some time. And as far as India goes, A lot of that product is dual sourced. And so we're making the same product in China as we're making in India. And so if the Indian tariffs get unmanageable, we're going to have to shift more product back to China in those particular shoes. So I think that, David, we know as well as anybody, I guess, how to navigate this situation. We've been importing for a long time. We have good relationships overseas. And we're just kind of doing this as the tariff situation evolved, we're going to continue to make changes. But our feeling is that we're in a good position to navigate through this. We know what we're doing from the standpoint of importing, and we've got such a strong balance sheet that we can we can weather the storm.

Well, that's a really helpful explanation. And whenever this is over, it will just be another chapter in the long book of the history of the company and its ability to operate through all kinds of circumstances. Great to talk to you all.

Our next question comes from John Deysher of Pinnacle.

You mentioned the wholesale customers are reticent about ordering too much inventory. I was just curious about the quality of the wholesale customers, the creditworthiness of them. Are you seeing anything at this point in terms of distress or anything like that for any of your wholesale customers?

I think John is going to take that question. We're going to have to be a little careful about naming specific retailers. But John, why don't you...

In general, I mean we're -- I mean our.antenna is up given the shaky retail environment. But -- and we keep very close track of this. At the moment, none of our major customers are intermediate data from a creditworthiness standpoint. But it's something that we're watching because there's a lot of unknowns in this market.

Okay. And what's the approach should warning flag start to fly? Do you cut them off immediately or gradually phase them out? Or what's your approach?

Depends upon the situation. I mean, we try to work as best we can with our retailers, but we also are cognizant of realities that are out there. In our conjunction with Tom said about navigating our manufacturing base, the same thing in terms of looking at the credit landscape. We've been doing this a long time, and you just -- you don't want to cut off your business, you want to keep it going, but you also have to be realistic about any changes there in the marketplace.

Okay. Fine. That's helpful. Second question, from a bigger picture standpoint, what's the strategic importance of Florsheim Australia at this point? My understanding is it's a handful of retail stores, it's mostly retail oriented, it's not wholesale oriented. Why is that important to the business going forward? I mean, the last few years have been profitable, but there's been some years where it's not profitable. And I'm just wondering, is that a long-term business want to be in going forward?

I think that it is, John. We've been in Australia for 50-plus years. And we really dominate that market. We have about 30 Florsheim stores in Australia and 1 in Auckland, New Zealand. And over the history, we've made a profit. You're correct that the last several years have been choppy. But we have -- right before the pandemic, we hired a new President who is doing an excellent job. We have a strong team down there. They faced some of the same issues we've had with consumer sentiment and inflation and everything else down there. But we think that we have a good -- a really good base. And I think that we are doing things in terms of the wholesale business, which is a leg of the business that we need and we've backtracked a bit. But we think if we can get the wholesale business going and continue to grow the retail business in a moderate way because we're -- you have to be careful that you don't get too many stores and a market like that, we're going to have decent profitability. I mean that's our expectation. And if you go down to Australia, if you ever had a chance to visit the country, you're going to see that Florsheim shops really are the main shoe shops in our segment of the market. And so I think that we just want to we want to protect that business because we have such a great market share.

That's interesting. Okay. So most of the revenues from Australia are retail-oriented, the 30 or so of stores that you own and operate in Australia?

E-commerce business as well that we're growing. So it's like as Tom said, it's -- the market has it challenges, but we do have a really strong brand name and there's certain areas of business that we feel that we can continue to grow.

And is there -- what's the presence in South Africa? I don't say much about that.

It's mostly a wholesale business. We have 1 retail store profitable business for us. Again, it's a situation where we've been in the market in a long time. It's a very strong brand name, and we want to continue to hold on to our market share there.

Okay. What's the percentage that comes from South Africa of revenues?

The percentage of that total business would probably be about 10%, right?

Percentage of Australian business is probably actually more like 20%.

And also, John, just one other clarification. We've talked about this in previous calls, but when we closed our Asia Pacific business, we have maintained one piece of that business, which is the wholesale piece. And so we have some good accounts. We have a very good account in the Philippines. We have some good accounts in Hong Kong. And we are continuing to maintain and try to grow that business instead of doing that from our office that used to be in Hong Kong, we're doing that from our office in Melbourne. So that's another piece of that business that we see opportunity in. We have a very good Florsheim business in the Philippines, for example.

[Operator Instructions] I am showing no further questions at this time. I would now like to turn it back to Judy Anderson for closing remarks.

Just wanted to say thank you, everyone, and I hope you have a great day.

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