Good day and thank you for standing by. Welcome to the Weyco Group first quarter 2026 earnings release conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a Q&A session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference call 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 first quarter 2026 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 policies, 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 first quarter of 2026 were $68 million, flat compared to the first quarter of 2025. Consolidated gross earnings were 44.2% of net sales compared to 44.6% of net sales last year. Earnings from operations were $7.5 million for the quarter, up 7% from $7 million in 2025.
Net earnings totaled $6.1 million, up 10% from $5.5 million last year. Diluted earnings per share were $0.64 per share in 2026, up from $0.57 per share in the prior year. Net sales in our North American wholesale segment totaled $53.6 million for the quarter, down 1% from $54.3 million last year. Florsheim sales were up, but the increase was more than offset by lower sales of the Stacy Adams and BOGS brands. Nunn Bush sales were flat for the quarter. Wholesale gross earnings as a percent of net sales were 38.7% and 39.4% in the first quarters of 2026 and 2025, respectively.
Gross margins continued to be negatively impacted by incremental tariffs, partially offset by selling price increases instituted in the second half of last year. Wholesale selling and administrative expenses totaled $13.8 million, or 26% of net sales, versus $14.8 million, or 27% of net sales last year. The decrease in 2026 was largely due to lower employee costs. Wholesale operating earnings totaled $7 million for the quarter, up 5% from $6.6 million in 2025, mainly due to lower selling and administrative expenses. Net sales in our retail segment totaled $8.8 million for the quarter, up 2% from $8.7 million in 2025 due to increased sales of our e-commerce businesses.
Retail gross earnings as a percent of net sales were 66.1% and 66.6% in the first quarters of 2026 and 2025, respectively. Retail operating earnings totaled $800,000 for the quarter and $600,000 last year. Our other operations consist of our retail and wholesale businesses in Australia and South Africa, collectively referred to as Florsheim Australia. Net sales of Florsheim Australia were $5.6 million in 2026, up 10% from $5.1 million in 2025. The increase was due to the appreciation of the Australian dollar relative to the U.S. dollar as Florsheim Australia's net sales in local currency were flat for the quarter.
Florsheim Australia's gross earnings as a percent of net sales were 62.9% and 62.7% in the first quarters of 2026 and 2025, respectively, and its quarterly operating losses totaled $200,000 in both periods. In February of 2025, the U.S. imposed reciprocal and retaliatory tariffs on certain imported goods under the International Emergency Economic Powers Act, also known as IEEPA. We paid a total of approximately $19.8 million in IEEPA tariffs in 2025 and the first quarter of 2026. The IEEPA tariffs increased the cost of our products by 19% and to 50%, resulting in gross margin compression.
On February 20th, 2026, the U.S. Supreme Court ruled that IEEPA had not authorized the president to impose tariffs, declaring the IEEPA tariffs invalid. In April of 2026, U.S. Customs and Border Protection, or CBP, commenced a phased process to accept claims for potential refunds of IEEPA tariffs previously paid. The refund process formally opened on April 20th, 2026. On that date, we submitted claims covering our phase 1 entries totaling $18.6 million. The timing for submitting claims related to our phase 2 entries, totaling $1.2 million, has not yet been established. The timing and amount of any recoveries remains uncertain and subject to execution by the CBP.
Following the Supreme Court's ruling, the president announced the implementation of a new across-the-board tariff under a separate statutory authority currently set at 10%, although the scope and rate remain subject to change. U.S. trade policies continue to evolve and remain unpredictable, creating near-term gross margin uncertainty. We have mitigation strategies in place and will continue to adjust as appropriate in response to future policy developments. At December 31st, 2026, our cash and marketable securities totaled $93.9 million, and we had no outstanding debt on our $40 million revolving line of credit. During the first three months of 2026, we generated $17.4 million in cash from operations and used funds to pay $23.9 million in dividends. We also had $600,000 of capital expenditures.
We estimate that annual capital expenditures in 2026 will be between $2 million and $3 million. On May 5th, 2026, our board of directors declared a cash dividend of $0.28 per share to all shareholders of record on May 19th, 2026, payable June 30th, 2026. This represents an increase of 4% above the previous quarterly dividend rate of $0.27. I would now like to turn the call over to Tom Florsheim Jr., Chairman and CEO.
Thanks, Judy. Good morning, everyone. Our overall company sales were flat for the quarter, with Wholesale segment sales down 1%. Given the uncertainty in the economic environment, we believe we are holding our position within our competitive market segments, with Florsheim continuing its strong performance streak. Our legacy business, which includes Florsheim, Nunn Bush, and Stacy Adams, was flat for the quarter. The Florsheim division was up 5%, driven by strong sales in the traditional dress category. As discussed in previous conference calls, while the overall dress footwear market has been trending downward over time, Florsheim continues to gain market share. Retailers see the brand as the go-to choice to meet consumer demand in this category. From a design perspective, we continue to invest in developing fresh shoe concepts and believe we can leverage Florsheim's heritage to expand our penetration in hybrid and casual footwear.
We are making steady inroads in both categories and feel confident about our long-term growth prospects. Nunn Bush was flat for the quarter. We believe the brand is well-positioned as a leading value option in comfort casual and comfort dress footwear in an economy where many consumers are feeling stretched to cover day-to-day expenses. In the current market, the biggest competition comes from private label footwear that retailers import to pursue higher margins. Nunn Bush provides a compelling alternative with a trusted brand name, proven comfort technology, competitive pricing, and in-stock inventory that retail partners can use to match demand. Our Stacy Adams division was down 9% for the quarter. At retail, Stacy Adams sell-throughs have been solid. However, retailers are not investing in fashion dress shoes as they have in the past. This is especially true in department stores and family footwear channels.
We are focused on diversifying the Stacy Adams product assortment to be less centered on dress shoes with more casual offerings that align with today's lifestyle. Our BOGS brand was down 11% for the quarter. We anticipate a strong second half of the year as cold weather and precipitation last winter in the Midwest and East Coast helped clear excess inventory of weather boots. We are also encouraged by the launch of new, less insulated spring footwear, which is selling well and paving the way for more year-round BOGS business. This spring, BOGS implemented a marketing reset focused on storytelling with an emphasis on user authenticity and real-world use of the brand's products. The campaign highlights what differentiates BOGS from a performance standpoint and is being featured across multiple channels, including social media, as well as streaming on YouTube.
Net sales in our retail segment were up 2% for the quarter, led by strong Florsheim e-commerce sales. In the first quarter of 2025, we were still working through excess inventory across various areas of our branded portfolio. This year, we had less closeout inventory to sell through our websites, resulting in higher web margins as we sold more full-price footwear. We continue to invest in our e-commerce platform to better showcase our brands and drive long-term growth in direct-to-consumer sales. Florsheim Australia's net sales were up 10% for the quarter, but flat local currency. Consumers in these markets, including Australia, New Zealand, South Africa, and other Pacific Rim countries, are facing many of the same pressures as in North America. As a result, sales remain somewhat soft. We are focused on keeping expenses in line as we work to return to a growth trajectory.
Our overall gross margins were 44.2% for the quarter. Our first quarter margins are down approximately 50 basis points compared to the same period in 2025. With all the remaining uncertainty surrounding tariffs, it is hard to know how the margin picture will play out for the remainder of the year.
Our overall inventory as of March 31st, 2026 was $50.5 million, compared to $65.9 million at December 31st, 2025. Our inventories are also down about $18 million compared to March 31st of last year. The decrease in inventory was due to timing, and our inventory is expected to get back into the $60 million-$70 million range as we move through the year. This concludes our formal remarks. Thank you for your interest in Weyco Group, and I'd now like to open the call to any questions.
Thank you. At this time, again, we will conduct the Q&A session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again, and please stand by while we compile Q&A questions. Okay. At this time, we have David Wright of Henry Investment Trust. Your line is now open.
Good morning, everyone.
Good morning.
Good morning.
Commend you for a surprisingly good quarter given the environment and thanks for raising the dividend and also commend you for some really outstanding clear disclosure about your tariff picture. That's appreciated. Judy, a question. If you receive tariff refunds, what is the tax treatment?
We will be taxed on them.
Yes, [crosstalk]
Right. You had a deduction when you paid the tariff, and you have income when you get a refund?
That is correct. It was part of our cost of sales last year. We'll get a refund this year. It'll be a credit in our cost of sales and have to pay taxes on it.
Okay. Can you give any sense of what kind of the annualized run rate tariff burden is at the current 10%?
Well, it's a little, at 10%, if it was 10% all year, it would be about an extra $10 million, over and above what we normally pay in tariffs, and those normal tariffs are baked in, but the tariffs in the shoe industry are actually high compared to a lot of other categories. The problem, David, is the administration has said that their intent is to get these tariffs back up to where they were under IEEPA. It makes planning very difficult, but we're assuming that that will happen.
They're doing these 301 investigations, which they say are going to be complete by the end of July, and then we're gonna find out what the incremental tariff rate will be under the 301 section for the different countries where we import shoes. It's not that clear a picture, which is why we didn't really wanna commit to where margins are gonna be this year.
Happy to answer any additional questions about that because we are well-versed. We have been studying it.
Well, just kind of big picture, I mean, I assume you communicate somehow through a trade group or directly with, I guess, the Commerce Department. Does anybody in the administration really think that shoe manufacturing is coming back to America?
We actually do have a very good trade group called the FDRA, and they've been holding regular conference calls about this, and they are trying to talk to the administration about exactly what you just asked about. You know, I think they are aware that no shoes, I mean, it's less than 1%, are made in the U.S. We are really hoping that the 301 tariffs are gonna be more targeted than these IEEPA tariffs or the tariffs that they have in place right now, which are under Section 122, which are just 10% across the board, all countries on all products. It would make sense to have this more targeted, in our opinion, and we're trying to get that message across to the administration. We don't know. You know, we don't know if these 301 tariffs would be done in a more strategic way.
Okay. I just have a couple more. It seems like your price increases were pretty well absorbed because, you know, that's what the results suggest. Would that be your observation as well?
We raised our prices 10% July 1st, so it doesn't really cover what we were paying in IEEPA tariffs. It does cover, you know, right now the extra tariff is 10%, so that is looking better. You know, our margins have come back somewhat. We're still below where we've been the last couple years before the tariffs. We've really been watching the expense side of the business.
The other thing that's going on, David, it's John, is our inventory is pretty clean. You know, last year we had some heavy closeout inventory in a couple of brands, that's been cleaned up, that helps. It helps from a overall wholesale market perspective.
Yeah, that's a very good point. That definitely plays into this, it impacts in a positive way, both our wholesale margins and our retail margins. We also have cleaner inventories in Australia, which helps our margins there.
Okay. Last one would be on the I mean, you took $1 million out of SG&A year-over-year. That's a lot. You highlighted lower employee costs. Was that staff reduction or less compensation? How was that accomplished?
The lower employee cost was a combination. It was really lower employee benefit costs and it was a combination of a few different categories. For example, last year, we did not give out annual bonuses in the first quarter, therefore we had less FICA expense. You know, it's just something as kind of mundane as that. There was a combination of a few things. Our health insurance costs were down. Just FICA cost was down. It was a few things that added up in the first quarter.
Well, plus temporary, in the warehouse, our overall costs are down just because you use less, fewer temps, I believe. Yeah.
Correct.
We have not.
So, so you-
I was just gonna say, we have not reduced headcount here, though.
Your workforce flexes a little depending on your inventory level?
Depending upon our needs, especially in the distribution center. We were able to operate more efficiently, this last quarter versus a year ago.
Okay. Well, efficiency is a good word. You've just continued to deliver great results and great job, and thanks for taking my questions.
Thanks, David.
Thank you.
We appreciate your interest.
Okay, thank you. At this time, we're not showing any further questions. If anyone has a last question, please hit star one one on your telephone. Okay. This concludes the Q&A session. I would like now to turn it back to Judy Anderson for closing remarks.
Thank you. Just wanted to wish everybody a great day and a good rest of your week, and we'll talk to you next quarter. Thank you.
Thank you. That concludes our program. You may now disconnect and thank you for participating in today's conference.