Earnings Labs

Weyco Group, Inc. (WEYS)

Q3 2014 Earnings Call· Wed, Nov 5, 2014

$34.27

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Transcript

Operator

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2014 Weyco Group Earnings Conference Call. My name is Tony and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to your host for today Mr. John Wittkowske, Chief Financial Officer. Please proceed.

John Wittkowske - Chief Financial Officer

Management

Thank you, Tony. Good morning, everyone. Welcome to Weyco Group’s conference call to discuss our third quarter 2014 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’d like to 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 Form 10-K identifies important factors and risks that could cause the company’s actual results to differ 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. Our net sales for the third quarter of 2014 were $87.4 million, up 5% as compared to 2013 net sales of $83.1 million. Operating earnings increased 5% to $9 million in the third quarter from $8.6 million last year. Net earnings attributable to Weyco Group were $5.5 million this quarter, up 2% from $5.4 million. Diluted earnings per share were $0.51 per share in the third quarter, up from $0.50 a share in 2013. In the North American wholesale segment, net sales for the third quarter of 2014 were $68 million, up 5% as compared to $64.8 million in 2013. This increase was primarily due to higher sales of the BOGS brand. Wholesale gross earnings were 31.7% of net sales in the third quarter compared to 32.6% in 2013. This decrease was partially due to the weaker Canadian dollar…

Tom Florsheim Jr. - Chairman and Chief Executive Officer

Management

Thanks John and good morning everyone. Excuse me. Overall, as mentioned earlier in the call, our third quarter wholesale sales were up 5%. We feel good about our performance and what we see as a very choppy retail market. Many of our key accounts are being conservative with their inventory levels as they see a decline in overall store traffic. Consumer shopping patterns meanwhile continue to evolve with customers buying later in the season and with more purchases via the internet. While our individual brand performance has varied significantly, we believe that as a company we are well positioned to pick up future market share. Our third quarter BOGS business was up 37% reflecting both pent up demand as well as our success in establishing BOGS in new categories. As a result of last year’s harsh winter, retailers came out of 2013 with low inventory levels. Our BOGS division is benefited from replenishment of retailer inventory as well as strong consumer interest in the category. We are seeing robust sell-throughs across our key trade channels in all segments of our business with a particularly strong performance in the kids market. In addition, BOGS shipped an expanded assortment of women’s, kids and men’s non-insulated footwear and the consumer response has been very positive. This early success in the evolution of BOGS to more of an outdoor lifestyle brand and a wave from dependence on cold weather bodes well for our future growth. Stacy Adams sales were up 10% for the quarter as we continue to see strong sales in the dress shoe market, the largest segment of Stacy Adams business. In men’s footwear, we were seeing more interest in refined dress casuals and colors, especially cognac, as shoes that can be worn as a jeans shoe as well as footwear appropriate…

Operator

Operator

(Operator Instructions) Your first question comes from the line of Ms. Rebecca Simmons of DRZ, Inc. Please proceed.

Rebecca Simmons - DRZ, Inc.

Analyst

Hi, thanks for taking my questions.

Tom Florsheim Jr.

Analyst

Good morning, Rebecca.

Rebecca Simmons - DRZ, Inc.

Analyst

Good morning. Could you talk about the environment remains difficult and pretty promotional, could you talk about how you are managing in the current environment or if you are anticipating any promotional pressures going into the holidays?

John Florsheim

Analyst

I mean, we basically conduct the business in working with our accounts. We anticipate that this is going to be a promotional holiday. It doesn’t probably change the way we approach our accounts. It just – as Tom mentioned, there is pricing pressure out there at the retail level based upon that retailers is sluggish, so we are just mindful of when we have pricing pressures on the supply – at the supply chain level that we are methodical in terms of how we go about moving those price increases to our accounts. So we are – the short answer is it probably will be a very promotional holiday season. I don’t really see it changing our approach.

Rebecca Simmons - DRZ, Inc.

Analyst

Okay. And then you mentioned some issues with some key department stores, could you give a little more color on what’s occurring there, it sounds like you still expect some impact going into the fourth quarter, but the lessening – does anymore color would help?

John Florsheim

Analyst

Yes. I mean, we don’t like too much on specific accounts, but in the mid-tier I mean I think you can guess some of that issues that are out there in the mid-tier. We have two important retailers to us that are very – being very careful in terms of how they are managing their cash flow. So they are keeping their inventory levels relatively conservative as they enter into the fourth quarter. We are seeing good sell-throughs of these accounts. Our performance is very strong and we are now seeing as we go into the fourth quarter with larger retailers, a big pickup in terms of our filling business, which is the business that we get on a weekly basis based on sales at the register. And then they are also building their model inventory stocks as they head into the holiday. So we are – we feel that we are kind of coming out of this, but there are unknowns as we look at 2015 with a larger of our two accounts we feel that that’s very stable. And with the other account we feel that that’s stable with the overall level of business is not going to get back to the level it was a year or two ago. Did that give you a little more background?

Rebecca Simmons - DRZ, Inc.

Analyst

Okay, yes. I know it’s helpful. Okay. And then the international business, it sounds like it continues to do well, could you talk about where you are in the process of expanding that business or any initiatives that you have going on there?

Tom Florsheim Jr.

Analyst

Sure. In Australia, we have continued to open stores. I think we opened three this year. I think we have opened two already we are opening one in the fourth quarter. We are trying to continue to grow the wholesale businesses both in Australia and Asia. And we also initiated a joint venture about a little more than a year ago with the company in Mainland China. And we are continuing to open up stores within stores and I would say that that is going just so slow, it’s kind of the product is still out on that, but we are hopeful that that’s going to be an avenue for growth as we move forward. And so we – that’s basically what I mean it’s a combined retail wholesale strategy in both regions and we are having a decent year and we would definitely see good growth opportunities in both areas.

Rebecca Simmons - DRZ, Inc.

Analyst

Okay. And lastly, could you give insight on how you are feeling as you leave the holidays into 2015 or any other initiatives outside of international that you are going to be working on?

Tom Florsheim Jr.

Analyst

Sure. I mean, we have publicly said that we continue to look at acquisitions. And we are continuing to do that. And so there has been a little more activity in that area as of late and so we are hoping that – we are hoping that there is going to be an – I don’t want to make a few promises, but we are hoping that there is going to be an acquisition happening in the near future.

John Florsheim

Analyst

The other thing I just want to add, we have seen a lot of momentum in our BOGS business both at the retail level in terms of new categories we are going into. And so we feel very, very positive about that being a nice growth vehicle in 2015. In the other brands, it’s been a little bit inconsistent, but we do. We are seeing good signs at retail. I mean, I think a lot of it has to do with more from a pipeline build that made some of our accounts as I discussed earlier but there is good signs there. So, I mean, like overall the BOGS business should be very good in 2015 and we are optimistic that we will get some growth out of our legacy brands as well.

Rebecca Simmons - DRZ, Inc.

Analyst

Okay, that sounds good. That’s all I had guys. Thanks.

Tom Florsheim Jr.

Analyst

Okay. Thank you, Rebecca.

Operator

Operator

(Operator Instructions) There are no further questions in the queue at the moment, sir.

John Wittkowske - Chief Financial Officer

Management

Okay. We will just thank everybody for being with us on our call and we look forward to talking to you after the end of the year. Have a great day.