Weyco Group Inc: Form 10-Q for the period ended Jun 30, 2025

FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements represent our good faith judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially. Such statements can be identified by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “likely,” “plans,” “predicts,” “projects,” “should,” “will,” or variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Therefore, the reader is cautioned that these forward-looking statements are subject to a number of risks, uncertainties or other factors that may cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to, the risk factors described under Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year-ended December 31, 2024, filed on March 14, 2025, which information is incorporated herein by reference, and in Part II, Item 1A, “Risk Factors,” of this Form 10-Q. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

GENERAL

We design, market, and distribute quality and innovative footwear principally for men, but also for women and children, under a portfolio of well-recognized brand names including: Florsheim, Nunn Bush, Stacy Adams, BOGS, and Forsake. Inventory is purchased from third-party overseas manufacturers. Almost all of these foreign-sourced purchases are denominated in U.S. dollars.

We have two reportable segments, North American wholesale operations (“Wholesale”) and North American retail operations (“Retail”). In the Wholesale segment, our products are sold to leading footwear, department, and specialty stores, as well as e-commerce retailers, primarily in the United States and Canada. We also have licensing agreements with third parties who sell our branded apparel, accessories, and specialty footwear in the United States, as well as our footwear in Mexico and certain markets overseas. Licensing revenues are included in our Wholesale segment. Our Retail segment consists of e-commerce businesses and four brick-and-mortar retail stores in the United States. Retail sales are made directly to consumers on our websites, or by our employees in our stores. Our “other” operations include our wholesale and retail businesses in Australia and South Africa (collectively, “Florsheim Australia”). We ceased operations in the Asia Pacific region, which was previously included in Florsheim Australia, in 2023 and completed the wind down of that business in 2024. The majority of our operations are in the United States and our results are primarily affected by the economic conditions and the retail environment in the United States.

Current Business Trends - Tariffs

In early 2025, the U.S. government enacted reciprocal and retaliatory tariffs (“incremental tariffs”) on goods imported into the United States. The incremental tariff on goods sourced from China, which is where we source most of our products, reached a high of 145% in April, but was temporarily reduced to 30% on May 12, 2025, for a 90-day period ending August 12, 2025. It has not yet been announced if the China tariff will change at that time. The incremental tariffs on goods we source from other countries, excluding China, were 10% throughout the second quarter of 2025. As of our August 7, 2025 filing date, the tariffs of three of those countries increased: Cambodia - 19%, Vietnam - 20%, and India - 50%, with effective dates over the next several months. U.S. trade and tariff policies currently remain fluid and unpredictable, and the specific tariff rates applicable to goods imported by our company continue to evolve. We remain committed to adapting to changes in tariff policies and will adopt further mitigation strategies, as needed.

EXECUTIVE OVERVIEW

The tariff environment created headwinds for our business in the second quarter. Coming into 2025, consumers were already faced with affordability issues, driven by rising costs and economic volatility. The uncertainty around potential tariff-related price increases only added to their concerns about being able to cover everyday expenses. The result is that consumers are pulling back on discretionary purchases, including footwear. At the same time, wholesale customers are being cautious with their inventory buys to avoid potentially being left with excess product in an uncertain retail environment.

Our combined legacy business was down 8% for the quarter, with Nunn Bush down 11%, Stacy Adams down 10%, and Florsheim down 5%. The overall men’s dress, dress-casual, and basic-casual markets remained under pressure during the quarter, as consumers delayed replacement purchases, which is an important part of our business. This category softness, combined with retailers’ cautious approach to inventory management, made for a difficult second quarter. Given current consumer sentiment and continued uncertainty around tariffs, we expect the challenging environment to persist through the second half of the year.

The second quarter is typically the lowest-volume period for our BOGS brand. Sales for the brand were down 14% for the quarter, as consumer demand remained sluggish in the outdoor category. We are gearing up for new Fall product introductions, including an expansion of our Seamless construction, which is lighter and more durable than traditional vulcanized rubber boot construction. In addition to diversifying BOGS manufacturing away from China, we are also expanding the product line to be less dependent on cold-weather demand. We now offer an enhanced assortment of lightly-insulated styles, as well as newly engineered products in the work category, which is a year-round business. We believe retailer inventories for outdoor footwear are lean, and we are cautiously optimistic that the brand will gain traction in the second half of the year.

Net sales in our retail segment were down 11% for the quarter, reflecting the tepid consumer environment. E-commerce site traffic for the majority of our brands increased year-to-date, but we are seeing a decrease in sales conversion rates. We believe consumers are increasingly value-conscious and focused on finding deals. As brand owners, we believe it is important to maintain pricing integrity and refrain from being overly promotional on our respective sites. In today’s price-sensitive environment, consumers tend to comparison shop, and we may lose a purchase to a more promotional retailer. We are investing in tools to drive consumer engagement and reduce shopping cart abandonment in this competitive landscape.

Florsheim Australia, which includes Asia and South Africa, experienced a 4% decline in net sales for the quarter, or 2% in local currency. This decrease was driven by lower wholesale shipments, as Australia’s retail same-store sales were flat for the quarter. Our focus for Florsheim Australia is growth of its wholesale business as well as finding efficiencies to reduce our selling and administrative expenses.

Second Quarter Highlights

Consolidated net sales were $58.2 million, down 9% compared to net sales of $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 totaled $3.9 million for the quarter, down 42% from $6.7 million last year. Second quarter net earnings were $2.3 million, or $0.24 per diluted share, in 2025, versus $5.6 million, or $0.59 per diluted share, in 2024.

Year-To-Date Highlights

Consolidated net sales for the first half of 2025 were $126.3 million, down 7% from $135.5 million in 2024. Consolidated gross earnings were 44.0% of net sales in the first six months of 2025 versus 44.4% of net sales in the same period one year ago. Year-to-date earnings from operations totaled $10.9 million, down 27% from $14.9 million in 2024. Net earnings were $7.8 million, or $0.81 per diluted share, in the first six months of 2025, down from $12.3 million, or $1.28 per diluted share, last year.

Financial Position Highlights

At June 30, 2025, our cash and marketable securities totaled $83.8 million, and we had no debt outstanding on our $40.0 million revolving line of credit. During the first six months of 2025, we generated $14.4 million of cash from operations. We used funds to pay $5.0 million in dividends, repurchase $3.1 million of our common stock, and pay $0.7 million of capital expenditures during the period. Additionally, our prefunded dividend of $21.6 million was paid to shareholders in January 2025.

CONSOLIDATED RESULTS OF OPERATIONS

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Consolidated net sales for the second quarter and first half of 2025 were down 9% and 7%, respectively, compared to the same periods of 2024. The decreases were mainly due to lower sales in our Wholesale and Retail segments, a result of lower demand.

Consolidated gross earnings as a percent of net sales were 43.3% and 43.9% in the second quarters of 2025 and 2024, respectively. For the year-to-date period, consolidated gross earnings were 44.0% in 2025 and 44.4% and 2024. The decreases in 2025 were primarily due to incremental tariffs, mainly incurred in the second quarter. Our cost of sales does not include distribution costs (e.g., receiving, inspection, warehousing, shipping, and handling costs) which are included in selling and administrative expenses. Consolidated distribution costs totaled $4.3 million and $4.5 million in the second quarters of 2025 and 2024, respectively. For the six months ended

June 30, consolidated distribution costs were $9.3 million in 2025 and $9.7 million in 2024, down in line with lower distribution activities this year.

Consolidated selling and administrative expenses as a percent of net sales were 37% and 34% in the second quarters of 2025 and 2024, respectively. For the first six months of 2025, selling and administrative expenses totaled 35% of net sales compared to 33% of net sales in the same period of 2024. This year’s percentage increases were because many of our operating costs are fixed and do not vary with sales.

Consolidated earnings from operations for the three and six months ended June 30, 2025, were down 42% and 27%, respectively, compared to the same periods one year ago. The decreases resulted mainly from lower sales in our Wholesale and Retail segments.

Interest income for the second quarter and year-to-date periods decreased $0.2 million and $0.5 million, respectively, compared to the same periods last year, due to lower interest rates in 2025. Interest expense was nominal for the three and six months ended June 30, 2025 and 2024, as there was no debt outstanding in such periods.

Other expense, net, primarily includes the non-service cost components of pension expense and net gains and losses on foreign currency transactions. The expense category remained relatively flat quarter-over-quarter and year-over-year, as there were no significant changes in these expenses.

Our effective income tax rates for the three months ended June 30, 2025 and 2024 were 51.1% and 25.1%, respectively. For the six months ended June 30, our effective tax rates were 35.8% in 2025 and 25.9% in 2024. This year’s effective tax rates were impacted by a $1.1 million adjustment to our second quarter income tax provision. See Note 9 to the Consolidated Financial Statements for additional information on income taxes.

Net earnings for the three months ended June 30, 2025 totaled $2.3 million, down 60% compared to $5.6 million in 2024. For the six months ended June 30, net earnings totaled $7.8 million in 2025, down 36% from $12.3 million in 2024. This year’s quarter and year-to-date net earnings were mainly impacted by lower operating earnings in our Wholesale and Retail segments, and a $1.1 million adjustment to our income tax provision.

SEGMENT ANALYSIS

Net sales and earnings from operations for our reportable segments and the “other” category for the three and six months ended June 30, 2025 and 2024, were as follows:

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North American Wholesale Segment

Net Sales

Net sales in our Wholesale segment for the three and six months ended June 30, 2025 and 2024, were as follows:

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Wholesale net sales for the second quarter of 2025 were down 9% compared to last year’s second quarter, with sales down across all brands and in most major categories. A slowdown in consumer spending amid economic uncertainty prompted retailers to take a more cautious approach to buying and managing their inventories. For the six months ended June 30, 2025, wholesale net sales were down 6% compared to the first six months of 2024, due to lower sales of the Stacy Adams, Nunn Bush and BOGS brands, a result of lower demand. Florsheim’s sales were up slightly for the year-to-date period, driven mainly by new product launches in the first quarter. Licensing revenues for the three and six months ended June 30, 2025 were down $0.4 million in both periods, compared to the same periods of 2024, due to decreased sales of licensed products.

Earnings from Operations

Wholesale gross earnings were 37.6% of net sales in the second quarter of 2025 compared to 38.2% of net sales in last year’s second quarter. For the six months ended June 30, wholesale gross earnings were 38.6% in 2025 and 39.0% in 2024. Gross margins for the quarter and year-to-date periods were negatively impacted by incremental tariffs in the second quarter.

We have taken various measures to minimize the impact of the tariffs on our gross margins. These measures included proactively bringing in a large amount of inventory ahead of the tariff effective dates, enabling us to temporarily halt our China imports while the incremental tariff rate was 145%. We negotiated factory cost reductions with several of our Chinese suppliers. We moved sourcing of certain footwear styles out of China and are continuing our efforts to diversify sourcing. Finally, we raised U.S. selling prices effective July 1, 2025. Until the U.S. trade agreements are finalized, we cannot predict the potential magnitude of the incremental tariffs on our gross margins. We intend to continue our work to mitigate the impact of the tariffs, as needed, by moving our supply chain and adjusting our pricing.

Wholesale selling and administrative expenses consist primarily of distribution costs, salaries and commissions, advertising costs, employee benefit costs, and depreciation. Wholesale selling and administrative expenses totaled $13.1 million for the quarter, or 29% of net sales, compared to $13.4 million, or 27% of net sales, in last year’s second quarter. For the six months ended June 30, wholesale selling and administrative expenses were $27.9 million, or 28% of net sales, in 2025 versus $28.3 million, or 27% of net sales, in 2024. The increases in expenses as percentage of net sales was because many of our costs are fixed and do not vary with sales.

Wholesale operating earnings for the three and six months ended June 30, 2025, decreased 30% and 19%, respectively, compared to the same periods one year ago. The decreases were driven by lower sales and gross margins in both periods.

North American Retail Segment

Net Sales

Net sales in our Retail segment, which were generated mainly by our e-commerce websites, were $6.8 million for the quarter, down 11% from $7.6 million in 2024. The decrease was primarily due to lower sales on the Florsheim and Stacy Adams websites, a result of lower consumer demand. For the six months ended June 30, retail net sales were $15.4 million, down 11% from record sales of $17.4 million in 2024. The year-to-date sales decrease was primarily on the BOGS and Florsheim websites, caused by lower demand. BOGS website sales were also impacted by less promotional activities this year.

Earnings from Operations

Retail gross earnings were 66.6% of net sales for the quarter and 67.5% in last year’s second quarter. For the six months ended June 30, retail gross earnings were 66.6% and 66.2% in 2025 and 2024, respectively.

Selling and administrative expenses for the Retail segment consist primarily of freight, advertising expense, employee costs, rent and occupancy costs. Retail selling and administrative expenses were flat at $4.4 million in both the second quarters of 2025 and 2024. For the six months ended June 30, retail selling and administrative expenses were flat at $9.6 million in both 2025 and 2024. As a percent of net sales, retail selling and administrative expenses were 66% and 58% in the second quarters of 2025 and 2024, respectively, and were 62% and 55% in the first half of 2025 and 2024, respectively. Retail expenses constituted a higher percentage of sales this year, as many of our retail costs are fixed and do not vary with sales.

Retail operating earnings declined $0.6 million for the quarter, compared to the last year’s second quarter, mainly because of lower sales and gross margins. For the year-to-date period, retail operating earnings declined $1.3 million in 2025, compared to the same period of 2024, due primarily to lower sales.

Other

Operating results reported in the “other” category historically included our retail and wholesale businesses in Australia, South Africa, and Asia Pacific (collectively, “Florsheim Australia”). We ceased operations in the Asia Pacific region in 2023 and completed the wind down of that business in 2024. Accordingly, second-quarter and year-to-date 2025 operating results of the “other” category only reflect the operations of Australia and South Africa.

Net sales of Florsheim Australia were $5.8 million, down 4% from $6.1 million in the second quarter of 2024. The weaker Australian dollar relative to the U.S. dollar contributed to the decrease, as Florsheim Australia’s quarterly net sales in local currency were down 2%, driven by lower wholesale shipments. For the year-to-date period, Florsheim Australia’s net sales declined $0.7 million, or 6%, from the same period one year ago. The weaker Australian dollar also contributed to this decrease, as Florsheim Australia’s first half net sales in local currency were down 2%. The local currency decrease was largely due to the closing of Asia Pacific, partially offset by higher sales in South Africa and Australia.

Florsheim Australia’s gross earnings as a percent of net sales were 60.9% and 62.0% in the second quarters of 2025 and 2024, respectively. For the six months ended June 30, Florsheim Australia’s gross earnings as a percent of net sales were 61.7% in 2025 and 61.2% in 2024. Florsheim Australia generated operating losses totaling $0.2 million for the quarter versus operating earnings of $0.2 million last year. For the six months ended June 30, 2025, its operating losses widened to $0.5 million, from $0.3 million in the same period of 2024. The three and six-month decreases were mainly due to the lower sales.

Other income and expense

Interest income totaled $0.8 million in the second quarter of 2025 compared to $1.0 million in last year’s second quarter. For the six months ended June 30, interest income was $1.4 million in 2025 and $1.9 million in 2024. The decreases in 2025 were due to less interest earned on cash balances, due to lower interest rates this year.

Other expense, net, primarily included the non-service cost components of pension expense and net gains and losses on foreign currency transactions. Other expense, net, remained relatively flat for the quarter and year-to-date periods, compared to the same respective periods of 2024, because there were no significant changes in these expenses.

The effective income tax rate was for the three months ended June 30, 2025 and 2024 were 51.1% and 25.1%, respectively. For the six months ended June 30, 2025, the effective tax rate 35.8% compared to 25.9% in the same period one year ago. The increases in 2025 were due to the establishment of a $1.1 million valuation allowance on deferred tax assets at Florsheim Australia, as it was determined more likely than not that these assets will not be realized.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash, short-term marketable securities and our revolving line of credit. The following discussion focuses on information included in the accompanying Consolidated Statements of Cash Flows.

Operating Activities

Net cash provided by operating activities totaled $14.4 million in the first six months of 2025, down $3.3 million from $17.7 million last year. The decrease was primarily due to lower net earnings and changes in operating assets and liabilities, principally inventory.

Cash flows from the change in inventory decreased $4.2 million for the period, mainly because our inventory levels as of June 30, 2025, were higher than normal for this time of year, as we were proactive in expediting a large amount of inventory before the incremental tariffs took effect. With higher tariff levels currently in place, we are working to bring our inventories down to more normalized levels in terms of pairs; however, with the tariffs, the dollar value of our inventory may increase.

Investing Activities

Net cash used for investing activities totaled $0.7 million for the first six months of 2025 compared to $0.1 million in the same period of 2024. The increased use of cash this year was due to higher capital expenditures and less proceeds from maturities of marketable securities. Capital expenditures totaled $0.7 million for the period, compared to $0.3 million last year. Management estimates that total capital expenditures for 2025 will be between $1.0 million and $2.0 million.

Financing Activities

Net cash used for financing activities totaled $8.2 million and $7.7 million in the first six months of 2025 and 2024, respectively. The change was due to a $2.1 million decrease in cash dividends paid (see further explanation below) partially offset by a $2.6 million increase in shares repurchased and retired.

Cash dividends paid for the first six months of 2025 totaled $5.0 million and included two dividend payments that were both declared and paid in the first half of 2025. Cash dividends paid for the first six months of 2024 totaled $7.2 million and included three dividend payments: one that was declared in the fourth quarter of 2023 and paid in the first half of 2024 and two that were both declared and paid in the first half of 2024.

On August 5, 2025, our Board of Directors declared a cash dividend of $0.27 per share to all shareholders of record on August 18, 2025, payable September 30, 2025.

We repurchase our common stock under our share repurchase program when we believe market conditions are favorable. During the first six months of 2025, we repurchased 104,092 shares for a total cost of approximately $3.1 million. As of June 30, 2025, there were 744,824 authorized shares available for repurchase under the program. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” below for more information.

On June 30, 2025, we had a $40.0 million revolving line of credit with a bank that is secured by a lien against our general business assets and expires on September 26, 2025. Outstanding advances on the line of credit bear interest at the one-month term SOFR plus 125 basis points. Our line of credit agreement contains representations, warranties and covenants (including a minimum tangible net worth financial covenant) that are customary for a facility of this type. At June 30, 2025, there were no outstanding borrowings on the line of credit, and we were in compliance with all financial covenants.

Financing Activities – Non-cash

Our regular fourth-quarter 2024 and one-time special cash dividend totaling $21.6 million were prefunded in December 2024 and paid to shareholders in January 2025. This dividend payment was reflected as a non-cash financing activity in the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2025.

Other

As of June 30, 2025, approximately $4.8 million of cash and cash equivalents was held by our foreign subsidiaries.

We will continue to evaluate the best uses for our available liquidity, including, among other uses, capital expenditures, continued stock repurchases and acquisitions. We believe that available cash, marketable securities, and cash provided by operations will provide adequate support for the cash needs of the business for at least one year, although there can be no assurances.

We maintain disclosure controls and procedures designed to ensure that the information we must disclose in our filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-

15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Company required to be included in our periodic filings under the Exchange Act. Such officers have also concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in accumulating and communicating information in a timely manner, allowing timely decisions regarding required disclosures.

There were no significant changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the three months ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other than the following risk factor, there have been no material developments with respect to the information previously reported under Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Additional tariffs on product imported into the U.S., retaliatory trade actions taken by other countries and resulting trade wars may have a material adverse impact on our business.

Our business is subject to risks related to tariffs and other trade policies put in place by the U.S. or other countries. In 2025, the U.S. government announced the intention to impose additional tariffs on certain goods imported from numerous countries, and multiple nations, including China, responded with reciprocal tariffs and other trade actions. A substantial amount of our products are imported into the U.S. from China, India, and other Asian countries.

The recent enactment of incremental tariffs by the U.S. government, along with the unpredictability of the rates, may materially increase our costs and reduce our margins. The tariffs may also lead to higher pricing for our products, potentially reducing consumer demand and impacting our sales volume. We are actively monitoring the impact of any tariffs that become effective, as well as potential retaliatory tariffs imposed by other countries. We are currently analyzing strategies that can be taken to moderate or minimize the effects of these trade actions, including evaluating the country of origin for sourcing product into the U.S., negotiating with suppliers and adjusting our pricing strategies. However, there can be no assurance that these measures will be successful, or that they will offset the negative impact of the tariffs on our business.

Given the uncertainty regarding the scope and duration of current and potential tariffs, as well as the potential for additional trade actions by the U.S. or other countries, the specific impact to our business, results of operations, cash flows and financial condition is uncertain but could be material.