Weyco Group, Inc. (NASDAQ:WEYS) Q1 2023 Earnings Call Transcript

Weyco Group, Inc. (NASDAQ:WEYS) Q1 2023 Earnings Call Transcript May 6, 2023

Operator: Good day and thank you for standing by. Welcome to the Weyco Group First Quarter 2023 Earnings Release Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Chief Financial Officer, Judy Anderson. Please go ahead.

Judy Anderson: Thank you. Good morning, everyone and welcome to Weyco Group’s conference call to discuss first quarter 2023 results. On this call with me today are Tom Florsheim, Jr., Chairman and CEO; and John Florsheim, President and COO. 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 actual events or results may differ materially. We refer you to the section entitled Risk Factors in our most recent annual report on Form 10-K and to our other filings with the Securities and Exchange Commission for a discussion of important factors and risks that could cause our results to differ materially from our projections, including the uncertain impact of inflation on our cost 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 first quarter were a first quarter record of $86.3 million, up 6% compared to our previous record of $81.4 million in 2022. Consolidated gross earnings increased to 43.1% of net sales compared to 35.8% of net sales in the last year’s first quarter due mainly to higher gross margins in our North American wholesale segment. Operating earnings were a record — were a first quarter record of $10.4 million, up more than 90% over last year’s first quarter operating earnings of $5.4 million. Net earnings were a first quarter record of $7.4 million or $0.78 per diluted share, up 84% compared to $4.1 million or $0.42 per diluted share in 2022. Net sales in the North American wholesale segment reached a first quarter record of $69.9 million, up 4% compared to $67.1 million in 2022.

Wholesale sales increased due to higher unit selling prices, while pairs shipped decreased 5%. Florsheim posted 15% growth for the quarter, driven by higher sales of dress and dress casual footwear and achieved record quarterly sales on top of record sales for the brand last year. Net sales of our other major brands, Nunn Bush, Stacy Adams and BOGS remained relatively steady with last year’s robust first quarter results. Wholesale gross earnings were 38.2% of net sales compared to 30% of net sales in the first quarter of 2022. Gross margins improved due mainly to selling price increases implemented in 2022 to address higher costs. Last year’s first quarter’s gross margins were negatively impacted by higher inbound freight costs as a result of the global supply chain issues ongoing at that time which has since eased.

Wholesale selling and administrative expenses were $17.9 million or 26% of net sales for the quarter compared to $15.3 million or 23% of net sales in last year’s first quarter. This year’s expenses included higher employee costs. Wholesale operating earnings reached a first quarter record of $8.8 million, up 82% compared to $4.8 million in 2022, driven by higher sales and gross margins this year. Net sales of our North American retail segment were a first quarter record of $8.9 million compared to our previous record of $7.9 million in 2022. The increase was primarily due to higher sales on the Florsheim and Stacy Adams websites. Brick-and-mortar sales also increased for the quarter. Retail gross earnings as a percent of net sales were 66.3% and 65.9% in the first quarters of 2023 and 2022, respectively.

Selling and administrative expenses for the retail segment were $4.6 million compared to $4.4 million last year. As a percent of net sales, retail selling and administrative expenses were 52% in 2023 and 55% in 2022. This decrease was primarily due to lower e-commerce expenses relative to net sales, primarily outbound freight and advertising costs. We realized cost savings during the first quarter as a result of measures taken over the past year to control costs. Retail operating earnings were a first quarter record of $1.3 million, up 55% compared to $828,000 last year. This increase was primarily due to higher sales and improved profitability in our e-commerce businesses. Brick-and-mortar operating earnings were also up for the quarter. Our other operations consist of our wholesale and retail businesses in Australia, South Africa and Asia Pacific collectively referred to as Florsheim Australia.

Other net sales for the first quarter of 2023 totaled $7.5 million, up 17% compared to $6.4 million in 2022. In local currency, Florsheim Australia’s net sales were up 24%, with sales up in both its wholesale and retail businesses. Last year’s sales volumes in Asia were negatively impacted by lockdowns imposed in Hong Kong during the quarter. Other gross earnings were 60.5% of net sales compared to 59.6% of net sales in last year’s first quarter. Other operating earnings recovered to $275,000 in 2023, up from operating losses of $243,000 last year. At March 31, 2023, our cash, short-term investments and marketable securities totaled $30.7 million and we had $20.6 million outstanding on our $50 million revolving line of credit. During the first 3 months of 2023, we generated $23 million of cash from operations.

We used funds to pay down $10.5 million on our line of credit to pay $4.6 million of dividends and to repurchase $1.5 million of our common stock. We also had $660,000 of capital expenditures. We estimate that 2023 annual capital expenditures will be between $2 million and $4 million. On May 2, 2023, our Board of Directors declared a cash dividend of $0.25 per share to all shareholders of record on May 26, 2023, payable June 30, 2023. This represents an increase of 4% above the previous quarterly dividend rate of $0.24. I would like — I would now like to turn the call over to Tom Florsheim, Jr., Chairman and CEO.

Thomas Florsheim: Thanks, Judy and good morning, everyone. We are extremely pleased with our results from the first quarter, both from a sales and earnings perspective. In a difficult retail environment, we were able to achieve increases across multiple segments of our business while keeping our expenses in check resulting in a record bottom line. While the outlook for 2023 remains uncertain, we are off to a strong start and we feel very good about our business model as well as our ability to manage through the current macroeconomic challenges. Our overall North American wholesale business was up 4%, led by our legacy business. Florsheim had another record quarter with a 15% increase as the brand continues to pick up market share in the refined footwear category.

Within the industry, Florsheim has seen as the go-to brand for on-trend dress footwear and we continue to focus on expanding the brand into the hybrid and everyday casual market. Our Nunn Bush business was up slightly for the quarter with 1% sales increase. We are happy with the progress that Nunn Bush has made within the Comfort Casual segment with over half of its sales coming from the casual category. Stacy Adams was down 3% for the quarter. Stacy Adams continues to be the leading brand for accessible fashion footwear and we are well positioned from an inventory and style perspective for the key upcoming prom and wedding seasons. Our legacy brands all experienced resurgent sales in 2022 as we benefited from historically high sell-throughs based on robust demand for refined footwear.

Lower-than-normal inventory levels at retail also resulted in additional shipments through pipeline fill. As of spring 2023, retail inventory levels have been reset and sell-through rates for our brands have normalized at slightly above pre-pandemic levels. While accounts are now taking a cautious approach to the market as they assess near-term consumer spending, we remain optimistic about our long-term prospects given the strength of our brand and our ability to favorably compete within the nonathletic footwear category. BOGS first quarter sales were down 2%. After a record 2022, we have seen BOGS wholesale sales slow in 2023 as retailers remain cautious about adding to their outdoor footwear inventory given the mild winter in many parts of the country.

We anticipate the sales trend to continue into fall as accounts rightsized their inventory. We see this as a temporary setback for the BOGS brand. BOGS experienced strong demand throughout the pandemic and has enjoyed extraordinary direct-to-consumer growth. While we are heavier than normal in terms of our BOGS inventory levels, we believe it is a manageable situation as we were careful to invest in evergreen styles. Overall, the BOGS brand is healthy and maintains a leadership position within the weather boot category as well as in expanding casual lifestyle business. We project to return to more normalized inventory levels in the fourth quarter of this year and rebound in sales growth in 2024. In our retail segment, sales were up 14% for the quarter.

Most of the increase was driven by Internet sales. Brick-and-mortar sales also increased for the quarter. As pleased as we are with our retail sales increase, we were even happier with the jump in retail operating earnings. Our e-commerce team has been focused on reducing expenses as a percent of sales. The results this quarter indicate the progress that has been made in controlling expenses. Industry statistics showed decreases in online sales year-over-year for footwear. We are currently bucking that trend. However, the challenging footwear and retail market makes us mindful of the need to manage our expenses and to maintain a healthy profit margin. Florsheim Australia’s net sales were up 17% for the quarter. In local currency, they were up 24%.

While we were up against an easy comparable due to last year’s first Omicron partial shutdown in Australia and other overseas markets, our performance reflects a solid post-pandemic business model for the region. As in the U.S., our business overseas is trending well but faces uncertainty related to economic pressures as the world navigates higher interest rates and cautious consumer demand. We have an excellent management team in Florsheim Australia and are confident that we can continue to maintain a strong, profitable business as we move forward. Our overall inventory as of March 31, 2023, was $107 million, down from $128 million at December 31, 2022. As expected, our inventory levels have come down now that the supply chain is normalized and we can plan our receipts closer to when we need to ship our shoes to customers.

This concludes our formal remarks. Thank you for your interest in Weyco Group and I would now like to open the call to your questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of David Wright of Henry Investment Trust.

Operator: [Operator Instructions] At this time, I would like to turn it back to Judy Anderson, Chief Financial Officer, for any further comments.

Judy Anderson: No further comments. Thank you, everybody, for attending our call today and we hope you have a great day.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.