Weyco Group Q2 2023 Earnings Call Transcript

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August 2, 2023

There are 3 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Weyco Group Second Quarter 2023 Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and Message advising your hand is raised. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Judy Anderson. Please go ahead.

Speaker 1

Good morning, everyone, and welcome to Weyco Group's conference call to discuss Q2 2023 results. On the call with me today are Tom Florsheim, Jr, our 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 In our most recent annual report on Form 10 ks, which provides a discussion of important factors and risks that could cause our actual results to differ materially from our projections.

Speaker 1

These risk factors are incorporated herein by reference. They include, in part, the uncertain 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 Q2 of 2023 were $67,000,000 down 10% compared to record sales of $74,400,000 in 2022.

Speaker 1

Consolidated gross earnings increased 43.3 percent of net sales increased to 43.3% of net sales compared to 40% of net sales In last year's Q2, due mainly to higher gross margins in our North American Wholesale segment. Earnings from operations rose 18 percent to $6,700,000 from $5,700,000 in the Q2 of 2022. Net earnings were a 2nd quarter record of $4,900,000 or $0.50 per diluted share, up 8% over our previous record of $4,500,000 or $0.47 per diluted share last year. Net sales in our North American Wholesale segment were $51,500,000 down 13% compared to record sales $59,000,000 in 2022. Sales were lower across all our major brands due to reduced Demand in 2023 following record growth in 2022.

Speaker 1

Wholesale gross earnings were 37% of net Sales in the Q2 of 2023 compared to 33.7 percent of net sales last year. Gross margins improved as a result of selling price increases implemented in 2022 to address higher costs. Wholesale selling and administrative expenses totaled $13,700,000 for the quarter compared to $15,700,000 last year, which constituted 27% of net sales in both periods. Wholesale operating earnings rose to $5,400,000 We're a 2nd quarter record of $7,600,000 up 3% compared to our previous record of $7,400,000 in 2022. The increase was primarily due to higher sales volumes across all our e commerce websites.

Speaker 1

Retail gross earnings as a percent of net sales were 66.2% and 67.4% in the 2nd quarters of For the retail segment totaled $4,000,000 for the quarter compared to $3,900,000 last year. As a percent of net sales, retail selling and administrative expenses were 52% in both 20232022. Retail operating earnings were $1,100,000 in both the 2nd quarters of 2023 2022. Our other operations consist of our retail and wholesale businesses in Australia, South Africa and Asia Pacific, collectively referred to as Florsheim Australia. Net sales of Florsheim Australia totaled $7,900,000 Down slightly compared to $8,000,000 in the Q2 of 2022.

Speaker 1

In local currency, Florsheim Australia's net sales were up 7% for the quarter with sales up in both its retail and wholesale businesses. The decrease in sales in U. S. Dollars was due to the weakening of the Australian dollars relative to the U. S.

Speaker 1

Dollar compared to last year. Florsheim Australia's gross earnings were 62.4% of net sales compared to 61.3 percent of net sales in last year's Q2. Its operating earnings were $276,000 for the quarter versus $365,000 last year. This decrease was primarily due to lower operating earnings in Asia. At June 30, 2023, our cash, short term investments and marketable securities totaled $29,600,000 And we had $2,600,000 outstanding on our $50,000,000 revolving line of credit.

Speaker 1

During the first 6 months of 2023, we generated $43,600,000 of cash from operations. We used funds to pay down $28,600,000 on our line of credit to pay $6,900,000 in dividends and to repurchase $2,100,000 of our common stock. We also had $1,400,000 of capital expenditures. We estimate that 2023 annual capital expenditures will be between $2,000,000 $4,000,000 On August 1, 2023, our Board of Directors declared a cash dividend of $0.25 per share to all shareholders of record on August 25, 2023, payable September 29, 2023. I would now like to turn the call over to Tom Florsheim, Jr, our Chairman and CEO.

Speaker 2

Thanks, Judy, and good morning, everyone. After an outstanding 2022, during which our sales were lifted to record levels by a combination of post pandemic retailer pipeline fill, As well as strong consumer demand, 2023 represents a return to the footwear industry's normal cyclical challenges. We are seeing consumer discretionary purchases shift away for products like footwear and apparel and more towards experiential expenditures like travel and dining out. As such, previously elevated footwear sales returned to historical norms and our accounts have become much more cautious as far as their inventory levels. This trend is reflected in our shipments in the Q2 across all our major brands.

Speaker 2

In terms of our legacy business, Florsheim sales were down 11%, Stacy Adams was down 17% and Nunn Bush was down 1%. All three brands were up against significant increases in the Q2 of 2022 and the shipment decrease is indicative of the overall slowdown in the industry. We believe our legacy business remains healthy. Sellers for Florsheim, Stacy Adams and Nunn Blush are tracking slightly above levels seen prior to the pandemic and we feel good about the strong position we have in the refined footwear market. Our focus for our legacy brands is threefold.

Speaker 2

1st, maintain our leadership position in the dress footwear market through superior product and value. 2nd, continue to develop new products that fit evolving consumer preferences. While we have benefited from renewed interest in dress footwear Over the last two years, we are well aware that we need to continue to diversify our product assortment. Florsheim and Especially non voice have made good progress in terms of increasing the percent of casual sales. Meanwhile, all three brands have been growing hybrid Footwear is an important part of their mix.

Speaker 2

A third and final area of focus is to make sure we are disciplined in terms of our approach to style count And inventory. Over the last few years, supply chain challenges resulted in large deficits and then surpluses in our base inventory. Due to the current industry slowdown, we are working through a higher level of slow moving footwear than normal. We believe this is a manageable situation given Combination of our strong gross margins and a return to more predictable manufacturing and sales cycles. In our outdoor division, our BOGS business was down 35% versus 2022.

Speaker 2

BOGS 2nd quarter performance was impacted by an oversaturated Outdoor footwear and weather boot market. Retailers are taking a very conservative approach to ordering for the back half of the year as they work through their current inventory. As a result, our confirmed orders are lower than last year for our fall key selling season And we will be reliant on a heavier percentage of At Once orders than in years past. While we think that retailers have been too cautious based on the historic consistency of BOGS sales, Achieving normal fall shipments results for the brand would be dependent on external factors such as favorable weather conditions. We have adjusted our planned inventory for BOGS down to manage the softness in the category.

Speaker 2

Similar to our legacy business, our BOGS inventory is turning slower the normal, but we also feel it will be a short term situation. In regards to Percek, sales were up 5% on a small base. The brand remains a work in progress, but we are pleased with the retail selling of some of the new styles we've introduced. Retail sales were up 3% for the quarter. The solid performance of our retail business has been encouraging as we've been outperforming the industry in 2023.

Speaker 2

Our e commerce team has done excellent work throughout this year, driving sales in a tough environment while keeping costs in line. Sales at Forsyth Australia, which is comprised of the Australian, New Zealand, Pacific Rim and South African markets were down slightly for the quarter, but in local currency up 7%. Our overall Fortuner Australia business held up well given These markets are facing some of the same macroeconomic challenges we are experiencing in the U. S. Our business model in Australia and New Zealand as well as South Africa is on sound footing and we believe that we're positioned well for the long term.

Speaker 2

However, after an internal review, we have decided to close our Hong office and distribution center and wind down our Florsheim Asia Pacific Wholesale and Retail division with a target date of the end of 2023. For a number of years, Florsheim Asia Pacific has struggled to be profitable, and we do not anticipate the opportunity to improve our prospects in the We are not abandoning the region entirely and plan to maintain the larger wholesale accounts by transferring them To our Australian office, we currently have 6 retail outlets in Asia, consisting primarily of shop in shops, which will be closed as our lease agreements expire. Our overall inventory level was $103,900,000 as of June 30, 2023 compared to $128,000,000 at December 31, 2022. As discussed in our last conference call, we are bringing down our inventory levels as supply chains have normalized allowing us to bring in shoes closer to need. This concludes our formal remarks.

Speaker 2

Thank you for your interest in Weyco Group. And I'd now like to open the call to your questions.

Operator

Thank you. At this time, we will conduct a question and answer session. Please standby while we compile the Q and A roster. One moment please. Seem to be no further questions.

Operator

I would now like to turn it back to Judy Anderson for closing remarks.

Speaker 1

Just like to say thank you everyone for joining us and have a good day.

Operator

The conference is now over. You may now disconnect.

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