John Deysher

John Deysher with Pinnacle inquired about Weyco Group's ability to recover incremental tariff costs through price increases, the expected refund amount from the IEEPA tariff lawsuit, the percentage of cost of goods sold imported from China, the reasons behind the increase in e-commerce sales reserves, and the potential impact of higher oil prices on the business.

Answer

Chairman and CEO Tom Florsheim Jr. explained that a 10% price increase only partially mitigated tariff impacts due to varying rates and the goal of maintaining market share. He expressed optimism about recovering the full $16 million in IEEPA tariffs through the lawsuit, noting the administration's prior commitment. He estimated 65%-70% of COGS were from China last year, highlighting efforts to diversify sourcing to Cambodia and Vietnam. CFO Judy Anderson clarified the e-commerce sales reserve increase was a standard Q4 adjustment. Tom Florsheim Jr. further elaborated that value-oriented consumers are seeking deals, leading to lower conversion on Weyco's sites due to cleaner inventory and less discounting, while wholesale e-commerce remains stable. He also noted that higher oil prices primarily impact consumer discretionary spending and shipping costs, with minimal direct impact on footwear component costs.

John Deysher inquired about the recovery rate of the $16 million in incremental tariffs through price increases, the specific amount Weyco Group is seeking in its lawsuit for tariff refunds, the percentage of cost of goods sold imported from China in the last year, the rationale behind the increase in sales reserves for e-commerce, and the potential impact of higher oil prices on vendor costs and consumer spending.

Answer

Tom Florsheim Jr., Chairman and CEO, explained that a 10% price increase only partially mitigated the tariff impact, which varied significantly by country, leading to a ~400 basis point drop in wholesale margin. He expressed optimism about recovering the full $16 million in IEEPA tariffs through the lawsuit, citing prior administration statements. He estimated 65%-70% of last year's COGS were from China, but highlighted successful diversification of sourcing to Cambodia and Vietnam. Judy Anderson, CFO, clarified that the e-commerce sales reserve was a standard Q4 adjustment. Tom Florsheim Jr. added that direct-to-consumer sales were impacted by value-oriented customers seeking deals elsewhere due to Weyco's cleaner, less discounted inventory, while wholesale e-commerce held up. He concluded that higher oil prices would primarily affect consumer discretionary spending and shipping costs, with minimal direct impact on footwear component costs.

John Deysher from Pinnacle Value Fund asked about the creditworthiness of wholesale customers and the company's strategy for managing potential distress. He also questioned the long-term strategic importance and business mix of the Florsheim Australia operations, including its presence in South Africa and Asia.

Answer

Chairman & CEO Thomas W. Florsheim, Jr. stated that while they are monitoring the shaky retail environment, no major customers currently pose an immediate credit risk. He affirmed the long-term strategic value of Florsheim Australia, citing its dominant market share and a business mix that includes retail stores, e-commerce, and a wholesale component they aim to grow. He also clarified that the segment includes a profitable wholesale business in South Africa and a maintained wholesale business in key Asian markets.

John Deysher of Pinnacle Value Fund inquired about Weyco's pause on imports from China, asking how long the company can sustain this before it affects inventory and customer deliveries, and seeking details on the strategy of holding inventory in Montreal.

Answer

Chairman and CEO Thomas Florsheim, Jr. explained that current inventory covers them through part of Q3 2025. While imports are paused, manufacturing in China continues, with products being shipped to and held in a Montreal distribution center. This strategy allows Weyco to bring goods into the U.S. quickly once tariffs potentially decrease, at which point they would pay the prevailing U.S. tariff and receive a duty drawback from Canada. Florsheim also highlighted an aggressive plan to diversify sourcing to countries like Cambodia, Vietnam, and India over the next 12 months.

John Deysher of Pinnacle followed up on tariffs, asking about the percentage of goods sourced from China, the specific tariff rates on non-Chinese imports, the expected blended tariff rate for 2025, and whether Chinese suppliers are helping to absorb the cost increases.

Answer

Chairman and CEO Thomas Florsheim, Jr. stated that for the current year, approximately 75% of purchases will be from China and 15% from India. He detailed how successive tariffs have raised the rate to as high as 36% on some Chinese goods and estimated a blended average tariff rate of around 25% for the year after accounting for pre-shipped inventory. He confirmed that their long-term Chinese factory partners are working with them to mitigate some, but not all, of the cost increases, making future price hikes necessary.

John Deysher asked for management's perspective on the upcoming holiday retail season and inquired about the renewal terms, maturity, and rate for the company's $40 million revolving credit facility.

Answer

President and COO John Florsheim described the current retail environment as sluggish and soft due to limited consumer discretionary spending, indicating a 'wait and see' approach for the holidays. CFO Judy Anderson confirmed the revolving credit facility with Associated Bank was renewed for another 364 days under the same terms, with the rate based on SOFR plus a margin.

John Deysher from Pinnacle inquired about the specific areas of sales decline, the percentage of products sourced from China, and details regarding the $2.5 million insurance claim proceeds.

Answer

Crown Crafts President and CEO Olivia Elliott clarified that the sales softness was primarily in the toddler bedding category due to consumer trade-downs. She also stated that nearly all (high 90%) of their products are sourced from China. Regarding the insurance claim, Ms. Elliott explained it stemmed from a product category dropped post-acquisition, leading to a successful claim under a representations and warranties insurance policy, also covering related licensing and inventory closeout costs. She does not anticipate similar claims in the future.

John Deysher inquired about the specific areas of softness contributing to the sales decline, the approximate percentage of products sourced from China, and requested further details regarding the $2.5 million insurance claim benefit, including whether similar benefits are expected in the future.

Answer

Crown Crafts President and CEO Olivia Elliott explained that the sales softness was primarily in the toddler bedding category, as consumers opted for lower-priced items like blankets. She confirmed that nearly all products, over 90%, are sourced from China. Regarding the insurance claim, Ms. Elliott clarified it stemmed from a product category dropped post-acquisition, covered by a representations and warranties insurance policy, and included one-time licensing and inventory closeout costs. She does not anticipate similar claims in the near future.

Asked to confirm lease expiration dates for various properties, the timeline for the new warehouse decision, future plans for the Minneapolis headquarters, and how the company is handling the newly announced 10% tariff on Chinese imports.

Answer

The lease expiration dates were confirmed. A decision on the new warehouse is expected by mid-year (June-August). The Minneapolis headquarters will be relocated to a smaller, less expensive space after the current lease expires. Regarding tariffs, the company is in discussions with Chinese suppliers and expects to roll back purchase prices to absorb the vast majority of the 10% increase, minimizing the impact on customers.

John Deysher of Pinnacle asked for confirmation on Baby Boom's projected annual sales run rate of $20 million. He also questioned if marketing and administrative expenses, excluding one-time acquisition costs, were at a reasonable run rate of 19% of sales. Lastly, he sought to clarify the timeline for gaining more visibility on the real estate consolidation plan.

Answer

Executive Olivia Elliott confirmed that $20 million is a good annual run rate estimate for Baby Boom, though it won't be achieved in fiscal 2025 due to owning the asset for only eight months. She also agreed that 19% of sales is a reasonable run rate for marketing and administrative expenses, excluding the non-recurring acquisition costs. Elliott affirmed that the company expects to have a better idea of the new real estate footprint by the fourth quarter call of the next fiscal year.

John Deysher of Pinnacle Value Fund inquired about the financial impact of tariffs in Q2 2025, the outlook for tariffs in Q3, the status of the employee retention credit, and details on the insurance reimbursement and lawsuit related to a past cyber attack.

Answer

CFO & Treasurer Philip Fain detailed that tariffs had a net negative impact of approximately $400,000 in Q2 due to inopportune component purchases at peak rates. He noted that while the situation is fluid, they are passing on surcharges and do not expect the same level of impact in Q3. Fain confirmed the employee retention credit has been fully received and used for debt repayment. Regarding the cyber attack, he stated they've received $235,000 and have filed a lawsuit seeking millions in damages for business interruption, with a trial expected in 2026. President, CEO & Director Michael Manna added context on the timing of the tariff impact.

Asked for clarification on the financial impact of tariffs, the status of the employee retention credit, and details regarding an ongoing insurance lawsuit related to a past cyber attack.

Answer

The net impact of tariffs was approximately $400,000 in Q2 due to inopportune timing of component purchases. The company has fully received its employee retention credit. A lawsuit against their insurance carrier for millions in damages from a cyber attack is in discovery, with a trial expected in 2026.

Inquired about the size of a significant order that was pushed from Q3 to Q4, the competitive nature of the Electrochem acquisition process, and the specific details of the upcoming financial disclosures for the acquired company.

Answer

The delayed Communications Systems order was valued at just under $2.5 million. The Electrochem acquisition was a targeted process, not a full auction, and Ultralife was chosen for its strategic synergies and ability to execute quickly, despite not being the highest bidder. The initial SEC filing by January 16 will include audited 2023 financials for Electrochem, with pro forma 2024 results to be included in future filings.

John Deysher of Pinnacle Value Fund asked for guidance on the company's consolidated gross margin percentage for the second half of the year, the outlook for SG&A expenses, and the potential revenue contribution from the planned Q3 delivery of 16 DAVD untethered systems.

Answer

Chairman & CEO Annmarie Gayle stated that the Q2 gross margin for the Marine Technology business was exceptionally low due to high commission costs on Asian sales and expects margins to return to their typical, higher levels around 70%. Interim CFO Gayle Jardine explained that SG&A was impacted by the Precision Acoustics acquisition and unfavorable exchange rates, but should be slightly lower as a percentage of sales going forward. Annmarie Gayle confirmed the order for 16 DAVD untethered systems is worth approximately $800,000, with the company aiming to deliver all units in Q3.

Asked for clarification on the M&A process, including the stage of due diligence, the number of targets, the nature of the target's business, and the timeline for a decision.

Answer

The company is conducting due diligence in anticipation of a definitive agreement for a single target. The target is in a new business area but aligns with the company's defense strategy. The decision to move forward is on hold pending stabilization of the global policy environment, so no specific timeline can be provided.

John Deysher asked for clarification on the company's M&A activity, specifically whether they have a definitive agreement, if they are focused on a single target, and if the potential acquisition is in a new or existing business line.

Answer

CEO Annmarie Gayle clarified that the company is conducting due diligence in anticipation of a definitive agreement, not subsequent to one. She confirmed they are focused on one target for the year, which operates in a new business area but aligns with their strategy to become a mid-tier defense contractor. Gayle reiterated that the transaction is paused until the global policy environment stabilizes.