Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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, 2023, filed on March 14, 2024, which information is incorporated herein by reference. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
GENERAL
The Company designs, markets, and distributes 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, Rafters, 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, South Africa, and Asia Pacific (collectively, “Florsheim Australia”). We ceased operations in the Asia Pacific region in 2023 and have substantially completed the wind down of that business. 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.
EXECUTIVE OVERVIEW
Third quarter 2024 net sales in our Wholesale segment were down 12% compared to last year’s third quarter. The decrease was a result of the challenging economic environment, in which consumers have limited discretionary funds, and footwear market sales are being impacted accordingly.
BOGS net sales were down 18% for the quarter. The outdoor category, particularly the weather boot market, has been under pressure for the better part of two years. During the pandemic, retailers and consumers alike loaded up on outdoor gear, resulting in record sales for many brands, including BOGS. Since then, the industry has been working through excess inventory, and we believe we have finally reached an equilibrium for the remainder of 2024. However, many retailers are taking a wait-and-see approach regarding orders, operating under the premise that if they need inventory, it will be available in the market. The result is that we have seen demand impacted by the mild and dry weather throughout the country, which has negatively affected our wholesale sales. The adverse effects of the weather extended to our BOGS e-commerce business, which was down 31% for the quarter.
While our success for the remainder of 2024 depends on Fall and Winter weather returning to normal, for the long-term, we are focused on reducing the weather sensitivity of the BOGS business. Towards that goal, we have increased our sales efforts in the Farm & Agriculture trade channel with the introduction of our Seamless Construction collection, which is 30% lighter and twice as durable as the vulcanized construction more commonly used in our category. The Farm & Agriculture trade channel is less weather-dependent and utilizes BOGS products year-round. We are making progress in this category, but it will take time to expand our penetration in retailers that cater to this market. We are also introducing Seamless Construction and lighter, less-insulated products to our Kids and Women’s lifestyle collections, which will help us make BOGS more of a three-season brand for this customer base. It has been a challenging stretch for the BOGS brand. We expect that having our retail partners with right-sized inventory will help move BOGS forward.
Our combined legacy business was down 10% for the quarter, with Florsheim up 1%, Stacy Adams down 17%, and Nunn Bush down 20%. As a category, dress footwear has been trending down for some time, except for a brief period emerging from the pandemic when
