Weyco Group's Inventory Strategy and Tariff Impact Claims Clash in Q2 2026 Earnings Call

Date of Call: Aug 5, 2026

Financials Results

• Revenue: $62.2M, up 7% YOY
• EPS: $1.39 per diluted share, up from $0.24 per share prior year
• Gross Margin: 70.4%, compared to 43.3% in the prior year
• Operating Margin: 27.4% (calculated from operating earnings of $17M on $62.2M revenue), up from 8.6% prior year

Business Commentary:

Revenue and Earnings Growth:

• Waco Group, Inc. reported net sales of $62.2 million for the second quarter of 2026, up 7% compared to the same quarter in 2025.
• The growth in revenue was accompanied by an increase in earnings, with operating earnings rising to $17 million from $3.9 million in the previous year.
• This growth was driven by higher sales across several brands, including Floorshine, Stacey Adams, and Boggs, as well as tariff refunds that reduced costs.

Impact of Tariff Refunds:

• The company recognized $15.3 million in tariff refunds, with $14.3 million benefiting the wholesale segment and $1 million the retail segment.
• Tariff refunds also led to a $3.3 million reduction in inventory and $700,000 in interest income.
• These refunds were a result of the U.S. Supreme Court invalidating certain IEPA tariffs, allowing for a phased process of refund claims.

Wholesale Segment Performance:

• Wholesale net sales increased to $48.8 million, up 7% from $45.6 million in Q2 2025.
• Wholesale gross earnings as a percentage of net sales improved to 70% from 37.6% the previous year.
• The increase was primarily due to tariff refunds and selling price increases implemented in the latter half of 2025.

Retail Segment and Florsheim Australia:

• Retail segment net sales were $7 million, a 4% increase from $6.8 million in 2025, while Florsheim Australia reported net sales of $6.4 million, up 10% from $5.8 million.
• Florsheim Australia's performance was influenced by the appreciation of the Australian dollar, despite a local currency decline in sales.
• Retail growth was driven by higher sales on the Floorshine website and tariff refunds, which improved the segment's gross earnings margin.

Inventory and Tariff Uncertainty:

• The company's overall inventory rose to $49.1 million as of June 30, 2026, with plans to increase it to about $70 million by the end of the fourth quarter.
• This increase is attributed to the unpredictable nature of U.S. tariff policies and efforts to secure inventory before potential tariff increases, supported by available cash.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed being 'pleased with the growth of our wholesale business' and noted 'strong growth' in three of four brands, leading to a 7% sales increase. The company is 'well positioned' for a strong second half with Boggs and is 'encouraged by this quarter's growth' for Stacey Adams. Inventory is being built prudently to support demand and mitigate tariff uncertainty.

Q&A:

• Question from John Drescher (Pinnacle): Quick question. Is it too early to talk about back-to-school sales? I know we haven't even hit Labor Day yet, but any color you can give on that space?
  Response: Back-to-school is not a major factor for the company's market, but it creates retail traffic. Retailers are hesitant on price increases due to inflationary pressures on discretionary income.

• Question from John Drescher (Pinnacle): And your last comment was on inventory. I think you said you're moving towards $70 million by year end. that would put you up about $4 million from year-end 2025. Can you talk about that dynamic of how we should think about that rise in inventory to $70 by the year-end?
  Response: The planned 4% inventory increase is prudent given tariff uncertainty; the company aims to have sufficient inventory to support retailers and meet demand, especially with a healthy backlog entering the second half.

Contradiction Point 1

Inventory Management Strategy

Contradiction on the reason for increasing inventory levels.

John Drescher (Pinnacle) - John Drescher (Pinnacle)

2026Q2: The planned 4% inventory increase is driven by uncertainty around U.S. tariffs, a strategy to build inventory ahead of potential disruptions and have cash on hand to support it, and a desire to support retailers and meet anticipated demand. - Tom Florsheim, Jr.(CEO)

Can you explain the factors driving the increase in inventory to $70 million by year-end, up $4 million from year-end 2025? - David Wright (Henry Investment Trust)

2026Q1: The 10% price increase effective July 1st helps offset the 10% tariff rate. Improved margins are also aided by cleaner inventory (less closeout stock) in both North American wholesale and retail operations, including in Australia. - Tom Florsheim, Jr.(CEO) and John Florsheim(COO)

Contradiction Point 2

Financial Impact of Tariffs

Contradiction on the financial burden of the current 10% tariff rate.

John Drescher (Pinnacle) - John Drescher (Pinnacle)

2026Q2: The planned 4% inventory increase is driven by uncertainty around U.S. tariffs (the Section 122 tariffs ended July 24), a strategy to build inventory ahead of potential disruptions and have cash on hand to support it... - Tom Florsheim, Jr.(CEO)

What is the strategy behind increasing inventory to $70 million by year-end, up $4 million from year-end 2025? - David Wright (Henry Investment Trust)

2026Q1: At 10%, tariffs would add approximately $10 million to the normal tariff cost. - Tom Florsheim, Jr.(CEO)

Contradiction Point 3

Inventory Strategy and Its Primary Drivers

Contradiction on whether inventory build is a proactive strategy or a reaction to specific risks.

John Drescher (Pinnacle) - John Drescher (Pinnacle)

2026Q2: The planned 4% inventory increase is modest... It is driven by... uncertainty around U.S. tariffs... a strategy to build inventory ahead of potential disruptions... - Tom Florsheim, Jr.(CEO)

Can you explain the dynamic behind the inventory increase to $70 million by year-end, up $4 million from 2025? - John Deysher (Pinnacle)

20260304-2025 Q4: The company has made significant progress diversifying its manufacturing base... This has created a much more flexible supply chain to mitigate future tariff uncertainties. - Thomas Florsheim(CEO)

Contradiction Point 4

Progress on Tariff Cost Recovery

Contradiction on the company's stance regarding the recovery of previously paid tariffs.

John Drescher (Pinnacle) - John Drescher (Pinnacle)

2026Q2: The planned 4% inventory increase... and a desire to... have cash on hand to support it... - Tom Florsheim, Jr.(CEO)

What is the dynamic behind the inventory increase to $70 million by year-end, up $4 million from year-end 2025? - John Deysher (Pinnacle)

20260304-2025 Q4: The company is seeking a full refund of the $16 million paid in incremental tariffs... The company is optimistic about recovering the full amount... - Thomas Florsheim(CEO)

Contradiction Point 5

Tariff Impact and Mitigation Strategy

Contradiction on tariff impact timeline and strategic pricing response.

What are Pinnacle's earnings results? - John Drescher (Pinnacle)

2026Q2: The planned 4% inventory increase is driven by uncertainty around U.S. tariffs (Section 122 tariffs ended July 24)... a strategy to build inventory ahead of potential disruptions. - Tom Florsheim, Jr.(CEO)

What's driving the inventory increase to $70 million by year-end, up $4 million from 2025? - David Wright (Henry Investment Trust, L.P.)

2025Q3: The margin erosion is 100% attributable to incremental tariffs. The company raised prices by 10% on July 1, 2025, but the 30% tariffs from China were not fully offset... This decision was intentional to maintain market share amid volatile and uncertain tariff policies. - Thomas Florsheim(CEO) and Judy Anderson(CFO)