Weyco Group, Inc. (WEYS) Q3 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q3 2012 Weyco Group Earnings Conference Call. My name is Andrew, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to John Wittkowske, Chief Financial Officer. Please proceed, sir.

Thank you. Good morning, everyone. Welcome to Weyco Group's conference call to discuss our third quarter 2012 earnings. On this call with me today are Tom Florsheim, Jr., our Chairman and CEO; and John Florsheim, our President and COO. Before we begin, I will read a brief disclaimer. During the course of 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 such statements are just predictions and that actual events or results may differ materially. We refer you to Weyco Group's most recent Form 10-K as filed with the Securities and Exchange Commission. The 10-K identifies important factors and risks that could cause the company's actual results to differ materially from our projections. Additionally, some comparisons may refer to non-GAAP measures. Our SEC filings may contain additional information about these non-GAAP measures and why we use them. Net sales for the third quarter of 2012 were $79 million, up 7% from $75 million in 2011. Operating earnings increased 21% to $8.1 million from $6.7 million. Net earnings attributable to Weyco Group were $5.2 million as compared to 5 -- excuse me, as compared with $4.4 million. Diluted earnings per share were $0.48 in 2012, up from $0.40 last year. North American wholesale net sales of footwear for the third quarter of 2012 were $60 million compared with $55 million in 2011. The increase in sales resulted from increased shipments across several of our wholesale brands. Licensing revenues were $800,000, down from $1.1 million in 2011. Gross earnings as a percent of sales were 32.4% in the third quarter, as compared with 31.6% in the third quarter last year. Operating earnings for the Wholesale segment were $6.6 million this year, compared with $5 million last year. On June 1, 2012, we took over the Canadian distribution of our Bogs and Rafters brands from a previous licensee. Consequently, wholesale sales increased and licensing revenues decreased. Sales of Bogs in Canada were $4.1 million, and the related earnings, after considering the loss of licensing revenues, were accretive and contributed to the overall increase in operating earnings for the quarter. Selling and administrative expenses for the Wholesale segment were $13.2 million or 22% of sales this quarter, as compared to $12.9 million or 23% of sales in last year's third quarter. Third quarter 2012 selling and administrative expenses increased primarily due to the additional expenses related to the takeover of Bogs distribution in Canada. The increase was somewhat offset by a $460,000 adjustment to reduce our estimate of the March 2013 payment due to former owners of Bogs and Rafters based on the 2011 and 2012 performance of the brands. No significant adjustment was made to the estimate of the second payment, which was payable in 2016, and is based on the performance of the brand in 2013 through 2015. In our North American Retail segment, which includes our 26 U.S. retail stores and our Internet business, net sales decreased 5% to $5.5 million, down from $5.8 million in 2011. Same-store sales were up 2%. There were 4 fewer retail stores at the end of our third quarter 2012 than there were at the same time last year. Retail operating earnings were $322,000 compared to $245,000 last year. Our other operations, which include the wholesale and retail businesses of Florsheim Australia and Florsheim Europe had net sales of $12.9 million in the third quarter versus $12.2 million in 2011 third quarter. The majority of these sales are generated by Florsheim Australia. Florsheim Australia's net sales were up 14% or $1.4 million, and Florsheim Europe sales decreased $700,000. Collectively, the operating earnings of Florsheim Australia and Florsheim Europe were $1.2 million for the quarter compared to $1.5 million last year. At September 30, 2012, our cash and marketable securities were $53 million and we had $44 million outstanding under our revolving line of credit. We generated $5.9 million of cash from the maturities of our marketable securities and borrowed an additional $7 million under our revolving line of credit. We also paid dividends of $5.4 million, bought back $5.7 million of our stock, paid a $2 million holdback payment in connection with the Bogs acquisition, and had $5.4 million of capital expenditures. Last December, we purchased a new building adjacent to our distribution center. During the third quarter, we substantially completed the connection of that building to our new existing distribution center. This will provide us additional space for Bogs product and will allow us to accommodate future growth while maintaining the efficiencies of our operation. Including this project, we estimate that 2012 capital expenditures will be between $8 million and $9 million. We expect capital expenditures to return to our more normal level of approximately $2 million to $4 million in 2013. I will now turn the call over to Tom Florsheim, Jr., our Chairman and CEO.

Thanks, John. Good morning. As John mentioned, we had solid increases in our wholesale shipments this past quarter. In terms of our portfolio of brands, Bogs, Florsheim and Umi all had very strong quarters with gains of 46%, 20% and 9%, respectively. Meanwhile, our Stacy Adams business was flat and Nunn Bush sales were off 16%. Bogs' growth was driven primarily by our takeover of the distribution in Canada, which accounted for $4.1 million of sales in the third quarter. We are very pleased with our first full quarter of shipping in Canada. Bogs has a strong following in this market, and we believe there's excellent long-term growth potential. Currently, the majority of our sales are in kids and women's segments. Our objective is to complement these segments with increased penetration in the men's classic, industrial and hunting categories. Bogs also had a very good quarter in the U.S. market with a shipping increase of 8% over last year. Florsheim had a strong quarter with a 20% gain in sales, driven by strong performance in our department store trade channel, as well as an increase in shipments to Latin America. Over the last few years, we've increased our presence in the Latin American and Caribbean markets and now have 20 independently owned Florsheim stores in the region, including 7 that have opened this year. Overall, the positive Florsheim quarter reflects the brand's continued progress in expanding its market penetration in the casual footwear segment. In addition, Florsheim benefited from the launch of the Florsheim Kids business, which was well received by consumers and registered strong sales during the back-to-school time period. Stacy Adams sales were flat this quarter but are still trending up significantly for the year. At retail, the brand's performance is healthy and we believe Stacy Adams is well-positioned as a market leader for accessible modern footwear with the fashion-oriented consumer. Nunn Bush had a difficult quarter. The loss of sales was the result of limited placement of new fall styles with several of its customers. While sales of existing Nunn Bush product continue to be strong at the retail level, we're putting a more focused effort around new product development that we believe will drive brand growth in future quarters. Our Umi business remained strong this quarter. Umi's growth reflects its leadership position in the premium children's footwear market and we are pleased with the market share growth we've experienced this year. In our North American Retail segment, our third quarter same-store sales, which include Internet sales, increased 2%. In September, we completed the remodel of 2 flagship stores, 1 on Madison Avenue in New York, and another on Via Europa in Milan. Updating our key stores is an important element of our branding strategy for Florsheim, and we're very happy with the look and feel of both stores. Turning to our overseas business, we had good results in Florsheim Australia, which includes the Australian, South African and Pacific Rim markets. Wholesale sales were up 22%, and retail same-store sales were up 9%. We believe that there continues to be a significant opportunity to expand our Florsheim presence in overseas markets, especially Asia. In August, we opened a new freestanding store in Hong Kong to accompany the 7 leased departments we have in that market. European sales for both retail and wholesale were challenging this quarter, reflecting the tough economic conditions in Europe, as well as the temporary loss of sales associated with the remodel of our Milan Florsheim store. That concludes our formal remarks. And we appreciate your interest in Weyco Group, and we now like to open up the call to any questions.

[Operator Instructions] Sir, you have no questions at this time. [Operator Instructions] Again, we have no questions coming through. So I would now like to turn the call over to John Wittkowske for closing remarks.

I just want to thank everybody again for joining us, and we'll talk to you after the full year is up. Have a good day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.