Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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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, and BOGS. 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. As of September 30, 2026, our Retail segment consisted of e-commerce businesses and two 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. As previously announced, we made the strategic decision to close our U.S. brick-and-mortar stores at the end of their lease terms. Two stores closed in Summer 2026, and the remaining two are planned to close at the end of December 2026 and January 2027. Our "other" operations include our retail and wholesale businesses in Australia and South Africa (collectively, "Florsheim Australia"). 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.

Incremental Tariff Status

In early 2025, the U.S. imposed tariffs on certain imported goods under the International Emergency Economic Powers Act ("IEEPA"). During 2025 and the first quarter of 2026, we paid approximately $19.8 million in IEEPA tariffs. In February 2026, the U.S. Supreme Court invalidated IEEPA tariffs, and in April 2026, U.S. Customs and Border Protection ("CBP") commenced a phased process for accepting refund claims. In April, we submitted refund claims for our Phase 1 entries totaling $18.6 million, substantially all of which were approved during the second quarter. Accordingly, during the second quarter, we recognized: $15.3 million in tariff refunds as a reduction to cost of sales, $3.3 million as a reduction of inventory, and $0.7 million of interest income. During the third quarter, the $3.3 million previously recorded to inventory was recognized as a reduction to cost of sales ($3.2 million in the Wholesale segment and $0.1 million in the Retail segment) upon sale of the related inventory.

Our Phase 3 entries, totaling $1.2 million were submitted to CBP in early October, of which $0.4 million have been approved for liquidation, while $0.8 million remain under review. The timing and amount of these recoveries remain uncertain and subject to execution by CBP. Accordingly, no refunds related to Phase 3 entries were recognized in the third quarter.

Following the U.S. Supreme Court's ruling in February, the Administration imposed a 10% incremental tariff under a separate statutory authority. On July 24, 2026, the Administration increased the incremental tariff on imports from China, Dominican Republic, and Vietnam to 12.5%, which remained in effect for the duration of the third quarter. 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.

EXECUTIVE OVERVIEW

We are pleased with our overall performance in the third quarter, with net sales increasing 5% and wholesale net sales increasing 6%. In a challenging retail environment, we believe we are continuing to gain market share in the categories where we compete. While conditions at retail remain uncertain, our portfolio of brands is well-positioned, and we remain confident about the future.

Sales of our combined legacy business, comprised of the Florsheim, Stacy Adams, and Nunn Bush brands, increased 6% in the third quarter. Florsheim's sales increased 9%, delivering another record-breaking quarter at Wholesale, driven by higher sales in the dress shoe category. Florsheim has also been able to expand its presence in casual boots, sneakers, and hybrids. While these latter categories still represent a relatively small portion of our business, we are seeing encouraging results. Stacy Adams sales increased 9% compared to last year's third quarter, driven by higher sales in the dress shoe category. We remain focused on developing our hybrid and fashion-casual offerings to capitalize on the longer-term shift toward more relaxed, lifestyle-oriented wardrobes. Nunn Bush sales declined 1% for the quarter. While sales were slightly below last year's levels, we believe Nunn Bush continues to compete effectively and that our investment in meaningful product differentiation is the right strategy.

BOGS sales increased 6% for the quarter. We are gaining traction with our focus on innovation, particularly our seamless construction technology, which produces footwear that is lighter and twice as durable as traditional vulcanized construction. We also continue to make progress in diversifying the product line to establish BOGS as a relevant brand 365 days a year.

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Sales in our Retail segment increased 3% for the quarter, driven by strong Florsheim e-commerce sales. We continue to invest in tools and technology for our online platforms to more effectively target customers, improve conversion, and increase the productivity of our websites.

Florsheim Australia's net sales declined 3% for the quarter, or 10% in local currency. The Australian retail market has been under pressure for some time, and conditions have been further exacerbated by higher fuel costs. Our team in Australia remains focused on navigating these headwinds, improving conversion rates in an environment of reduced retail traffic, and carefully managing expenses. We expect market conditions to remain challenging in the near to medium term and will continue to align our cost structure with the business environment.

Third Quarter Highlights

Consolidated net sales were $77.0 million, up 5% compared to the third quarter of 2025. Consolidated gross earnings were 49.7% of net sales for the quarter, which included $3.3 million of tariff refunds, compared to 40.7% of net sales in last year's third quarter. Earnings from operations totaled $13.7 million for the quarter, up from $8.1 million last year. Third quarter net earnings were $11.5 million, or $1.19 per diluted share, in 2026, compared to $6.6 million, or $0.69 per diluted share, in 2025.

Year-To-Date Highlights

Consolidated net sales for the first nine months of 2026 were $207.2 million, up 4% from $199.4 million in 2025. Consolidated gross earnings were 54.1% of net sales in the first nine months of 2026, mainly impacted by tariff refunds, versus 42.8% of net sales in the same period one year ago. Year-to-date earnings from operations totaled $38.3 million, up from $19.0 million in 2025, mainly impacted by tariff refunds. Net earnings were $30.9 million, or $3.23 per diluted share, in the first nine months of 2026, up from $14.4 million, or $1.50 per diluted share, last year.

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Financial Position Highlights

At September 30, 2026, our cash and marketable securities totaled $95.2 million, and we had no debt outstanding on our $40.0 million revolving line of credit. During the first nine months of 2026, we generated $26.6 million in cash from operations and used funds to pay $29.4 million in dividends. We also had $1.9 million of capital expenditures.

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CONSOLIDATED RESULTS OF OPERATIONS

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NM - Not meaningful

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Consolidated net sales for the third quarter and first nine months of 2026 were up 5% and 4%, respectively, compared to the same periods last year. The increases were mainly due to higher sales in our Wholesale segment.

Consolidated gross earnings as a percent of net sales were 49.7% and 40.7% in the third quarters of 2026 and 2025, respectively. For the year-to-date period, consolidated gross earnings were 54.1% in 2026 and 42.8% in 2025. The increases in 2026 were primarily due to tariff refunds and lower incremental tariff rates compared to last year. 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 $5.0 million and $4.3 million in the third quarters of 2026 and 2025, respectively. For the nine months ended September 30, consolidated distribution costs were $14.1 million in 2026 and $13.6 million in 2025.

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Consolidated selling and administrative expenses as a percent of net sales were 32% and 30% in the third quarters of 2026 and 2025, respectively. For the first nine months of 2026, selling and administrative expenses totaled 36% of net sales compared to 33% of net sales in the same period of 2025. This year's percentage increases were mainly due to higher employee costs in our Wholesale segment.

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Consolidated earnings from operations for the three and nine months ended September 30, 2026, increased $5.7 million and $19.3 million, respectively, compared to the same periods one year ago, with the increases mainly driven by tariff refunds.

Interest income for the third quarter was relatively flat compared to last year. Year-to-date interest income increased $0.8 million over 2025, due mainly to interest income on tariff refunds recognized in the second quarter.

Other income (expense), net, primarily includes the non-service cost components of pension (benefit) expense and net gains and losses on foreign currency transactions. For the year-to-date period, the category improved due to decreased pension expense and gains on favorable foreign exchange contracts.

Our effective tax rates for the three months ended September 30, 2026 and 2025 were 21.5% and 26.3%, respectively. For the nine months ended September 30, our effective tax rates were 25.6% in 2026 and 31.8% in 2025. The lower effective tax rates in 2026 were primarily due to income tax benefits from share-based compensation. Last year's year-to-date effective tax rate differed from the U.S. federal rate of 21% primarily because of U.S. state taxes and the establishment of a $1.1 million valuation allowance on deferred tax assets at Florsheim Australia. See Note 10 to the Condensed Consolidated Financial Statements for additional information on income taxes.

Consolidated net earnings for the three months ended September 30, 2026, were $11.5 million, up $4.9 million compared to the same period one year ago. For the nine months ended September 30, net earnings totaled $30.9 million in 2026, up from $14.4 million in 2025. The increases compared to last year were mainly a result of the tariff refunds.

SEGMENT ANALYSIS

Net sales and earnings from operations for our reportable segments and the "other" category for the three and nine months ended September 30, 2026 and 2025, were as follows:

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North American Wholesale Segment

Net Sales

Net sales in our Wholesale segment for the three and nine months ended September 30, 2026 and 2025, were as follows:

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Wholesale net sales were $64.0 million for the quarter, up 6% from $60.2 million in the third quarter of 2025. Sales of our Florsheim and Stacy Adams brands both increased 9% for the quarter, due mainly to higher sales in the dress shoe category. BOGS sales were up 6% for the quarter, with sales volumes up across most major channels. Nunn Bush sales were down 1% for the quarter. Last year's third quarter sales were negatively impacted by reduced business with a large customer who failed to timely adopt our new pricing structure, resulting in order cancellations during the period.

For the nine months ended September 30, 2026, Wholesale net sales were up 4% compared to the first nine months of 2025. The increase was mainly due to higher sales of the Florsheim brand, which were up 9% year-to-date, due to its strong sales in the dress shoe category. Licensing revenues for the three and nine months ended September 30, 2026 were up $0.1 million and $0.4 million, respectively. Last year's year-to-date licensing revenues were down due to decreased sales of licensed products.

Earnings from Operations

Wholesale gross earnings as a percent of net sales were 46.0% and 35.7% in the third quarters of 2026 and 2025, respectively. The quarterly increase was primarily due to lower incremental tariff rates compared to last year and the recognition of $3.2 million in tariff refunds. For the year-to-date period, gross earnings as a percent of net sales were 50.7% in 2026 and 37.5% in 2025. The increase was primarily due to the recognition of tariff refunds totaling $17.5 million in the first nine months of 2026. Wholesale selling and administrative expenses totaled $16.0 million, or 25% of net sales, for the quarter versus $14.0 million, or 23% of net sales, last year. For the year-to-date period, Wholesale selling and administrative expenses totaled $47.9 million, or 29% of net sales, versus $41.8 million, or 26% of net sales, last year. The increases in 2026 selling and administrative expenses were primarily due to higher employee costs.

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Wholesale operating earnings for the third quarter and first nine months of 2026 increased $5.9 million and $18.2 million, respectively, over the prior year comparative periods, due to higher sales and gross margins partially offset by higher employee costs.

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North American Retail Segment

Net Sales

Net sales in our Retail segment, which were generated mainly by our e-commerce websites, were $7.2 million for the quarter, up 3% from 2025. For the nine months ended September 30, Retail net sales were $23.0 million, up 3% from 2025. The quarter and year-to-date increases were driven mainly by higher sales on the Florsheim website, largely offset by lower sales from closed stores.

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Earnings from Operations

Retail gross earnings were 70.7% of net sales for the quarter and 66.4% in last year's third quarter, driven mainly by lower incremental tariff rates this year. For the nine months ended September 30, retail gross earnings were 71.5% and 66.5% in 2026 and 2025, respectively. The year-to-date margin improvement was driven by tariff refunds, which decreased Retail cost of sales by $1.1 million in the first nine months of 2026.

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 $4.4 million and $4.0 million in the third quarters of 2026 and 2025, respectively. For the nine months ended September 30, Retail selling and administrative expenses were $14.0 million and $13.6 million

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in 2026 and 2025, respectively. As a percent of net sales, Retail selling and administrative expenses were 61% and 57% in the third quarters of 2026 and 2025, respectively, and were 61% in the first nine months of 2026 and 2025.

Retail operating earnings increased $0.1 million for the quarter, compared to the last year's third quarter. For the nine months ended September 30, Retail operating earnings increased $1.1 million in 2026, compared to the same period of 2025. The increase for the year-to-date period was due to the tariff refunds.

Other

Other operations consist of our retail and wholesale businesses in Australia and South Africa (collectively, "Florsheim Australia").

Net sales of Florsheim Australia for the third quarter of 2026 decreased $0.2 million, or 3%, from last year's third quarter. In local currency, its net sales were down 10% for the quarter, mainly at wholesale. The local currency decrease translated to a 3% decline in U.S. dollars due to the strengthening of the Australian dollar relative to the U.S. dollar. For the year-to-date period, its net sales increased $0.9 million, or 5%, compared to the same period one year ago. The year-to-date 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 down 4% for the period.

Florsheim Australia's gross earnings as a percent of net sales were 63.8% and 61.0% in the third quarters of 2026 and 2025, respectively, and its quarterly operating losses were $0.4 million in 2026 compared to $0.1 million in 2025. Operating losses widened in the quarter, due mainly to lower wholesale sales. For the nine months ended September 30, 2026 and 2025, Florsheim Australia's gross earnings as a percent of net sales were 63.3% and 61.5%, respectively, and its nine-month operating losses were $0.7 million in 2026 compared to $0.6 million in 2025.

Other income and expense

Interest income totaled $0.8 million in both the third quarters of 2026 and 2025. For the nine months ended September 30, interest income was $3.1 million in 2026 and $2.2 million in 2025. The increase was due primarily to interest income on tariff refunds recognized in the second quarter.

Other income (expense), net, primarily includes the non-service cost components of pension (benefit) expense and net gains and losses on foreign currency transactions. The income/expense category was flat for the quarter, but improved $0.4 million for the year-to-date period, due to decreased pension expense and gains on favorable foreign exchange contracts.

Our effective tax rates for the three months ended September 30, 2026 and 2025 were 21.5% and 26.3%, respectively. For the nine months ended September 30, our effective tax rates were 25.6% in 2026 and 31.8% in 2025. The lower effective tax rates in 2026 were primarily due to income tax benefits from share-based compensation. Last year's year-to-date effective tax rate differed from the U.S. federal rate of 21% primarily because of U.S. state taxes and the establishment of a $1.1 million valuation allowance on deferred tax assets at Florsheim Australia. See Note 10 to the Condensed Consolidated Financial Statements for additional information on income taxes.

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 Condensed Consolidated Statements of Cash Flows.

Operating Activities

Net cash provided by operating activities totaled $26.6 million for the first nine months of 2026, up from $13.2 million in the same period last year. The increase was primarily due to higher net earnings.

Proceeds for our Phase 1 tariff refund entries totaled $19.3 million. We received $1.8 million of these proceeds during the second quarter and the remaining $17.5 million in the third quarter.

Investing Activities

Net cash used in investing activities totaled $1.5 million for the nine months ended September 30, 2026, compared to $0.1 million in the same period of 2025. We anticipate total capital expenditures for the full year 2026 to be approximately $3.0 million.

Financing Activities

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Net cash used for financing activities totaled $30.1 million and $12.0 million in the first nine months of 2026 and 2025, respectively. The increase was largely driven by a timing difference in our fourth-quarter and special dividend payments. The 2025 fourth-quarter and special dividend, totaling $21.4 million, was funded in January 2026 while the 2024 fourth-quarter and special dividend totaling $21.6 million was pre-funded in December 2024.

Cash dividends paid in the first nine months of 2026 totaled $29.4 million and included four dividend payments: our regular fourth-quarter and special dividend that was declared in 2025 and paid in 2026, and three dividend payments that were both declared and paid in the first nine months of 2026. Cash dividends paid in the first nine months of 2025 totaled $7.7 million and included three dividend payments that were both declared and paid in the first nine months of 2025.

On November 3, 2026, our Board of Directors declared a regular quarterly cash dividend of $0.28 per share to all shareholders of record on November 17, 2026, payable January 8, 2027. Additionally, on November 3, 2026, our Board of Directors declared a special cash dividend of $2.00 per share to all shareholders of record on November 17, 2026, payable January 8, 2027.

We repurchase our common stock under our share repurchase program when we believe market conditions are favorable. During the first nine months of 2026, we repurchased 1,149 shares for a total cost of approximately $34,000, all of which were repurchased in the first quarter. As of September 30, 2026, there were 671,076 authorized shares available for repurchase under the program.

On September 24, 2026, we amended our line of credit agreement. The Amendment ("Amended Credit Agreement") extended the maturity of our credit facility to September 23, 2027. Under the terms of the Amended Credit Agreement, there is a maximum available borrowing limit of $40.0 million and amounts outstanding bear interest at the one-month term secured overnight financing rate ("SOFR") plus 110 basis points. The Amended Credit Agreement is secured by a security interest in the Company's general business assets, and contains customary representations, warranties, and covenants (including a minimum tangible net worth financial covenant) for a facility of this type. At September 30, 2026 and December 31, 2025, there were no outstanding borrowings on the line of credit, and we were in compliance with all financial covenants.

Investing Activities - Non-cash

During the third quarter, we became eligible to receive proceeds under a corporate-owned life insurance policy. As we expect to receive proceeds within the next twelve months, we reclassified the carrying value of the policy of $8.1 million from "other assets" to "prepaid expenses and other current assets" as of September 30, 2026.

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Financing Activities - Non-cash

Our regular fourth-quarter 2024 and special 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 nine months ended September 30, 2025.

Other

As of September 30, 2026, approximately $5.2 million of cash and cash equivalents was held by our foreign subsidiaries.

We 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.

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