Weyco Group, Inc. (WEYS) Q3 2018 Earnings Report, Transcript and Summary

Hello, and welcome to the Third Quarter 2018 Earnings Release Conference Call. My name is Anara, and I'll be the operator for today's call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session [Operator Instructions] I will now turn the call over to Mr. John Wittkowske, CFO. John, you may begin.

Thank you. Good morning, everyone, and welcome to Weyco Group's conference call to discuss our third quarter 2018 earnings. On this call with me today is Tom Florsheim, Jr., our Chairman and CEO. 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 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. Our net sales for the third quarter of 2018 were $78.4 million, up 2% compared to last year's third quarter of $76.9 million. Operating earnings were $8 million, up 3% from $7.8 million last year. Net earnings attributable to Weyco Group rose 27% to $6.3 million for the quarter, up from $4.9 million. Net earnings were positively impacted by the lower U.S. Federal tax rate this year. Diluted earnings per share were $0.60 per share compared with $0.48 per share last year. In the North American wholesale segment, net sales for the quarter were $63.2 million, up 4% compared to $60.7 million in 2017. Licensing revenues were approximately $530,000 in both quarters of both year -- in the third quarter of both years. Wholesale gross earnings were 34.4% of net sales in the third quarter of 2018 and 33.9% of net sales in last year's third quarter. Operating earnings for the wholesale segment increased 3% to $7.6 million, up from $7.4 million, mainly due to higher sales and gross margins. Net sales of our North American retail segment, which include our retail stores and U.S. Internet sales, were $4.9 million in the third quarter, up 15% compared to $4.3 million in 2017. Same-store sales, which include the Internet sales, were up 20% for the quarter, due mainly to increased sales on our company's websites. Driven by higher online sales, retail operating earnings rose to $428,000 this quarter, up from $17,000 last year. Our other operations, which include the wholesale and retail businesses of Florsheim Australia and Florsheim Europe, had net sales of $10.3 million in the quarter, down 14% from $11.9 million in 2017. This decrease was primarily due to a 16% reduction in the net sales at Florsheim Australia. In local currency, Florsheim Australia's net sales were down 9%, with sales down in both its wholesale and retail businesses. The weaker Australian dollar also contributed to the decrease in Florsheim Australia's net sales this year. Collectively, the operating earnings of Florsheim Australia and Florsheim Europe were $8,000 this quarter compared to $369,000 last year, with that decrease primarily due to the decline in Florsheim Australia's net sales. During the quarter, the minority interest shareholder of Florsheim Australia provided notice and tendered to the company his shares, which represented a 45% equity interest in Florsheim Australia. Accordingly, the company purchased a minority interest in Florsheim Australia for $3.7 million on August 30, 2018, and the company now owns 100% of Florsheim Australia. At September 30, 2018, our cash and marketable securities totaled $39.7 million, and we had $8 million outstanding on our $60 million revolving line of credit. During the first 9 months of 2018, we generated $1.8 million of cash from operations and drew $8 million on our line. We paid $9.3 million in dividends, repurchased $6.6 million of our stock and paid $3.7 million to acquire the minority interest in Florsheim Australia. In addition, we spent $876,000 on capital expenditures. We estimate that 2018 annual capital expenditures will be between $1 million and $1.5 million. On November 03, excuse me, November 6, 2018, our Board of Directors declared a cash dividend of $0.23 per share to all shareholders of record on December 03, 2018, payable January 2, 2019. I would now like to turn the call over to Tom Florsheim, Jr., our Chairman and CEO.

Thanks, John, and good morning, everyone. As John mentioned, sales in our North American wholesale segment were up 4% for the quarter. Overall, we feel that we are on a good trajectory with our wholesale business. We're picking up market share in the dress and dress casual categories, and our outdoor business is currently tracking to be up for the year. Stacy Adams sales were up 17% for the quarter. The increase was driven primarily by gains at family shoe chain and department store trade channels. There are very few dress-oriented brands that have performed as consistently as Stacy Adams in the past few years. We are focused on evolving the line as well as our marketing to emphasize versatile fashion that can be worn for more formal occasions or with a nice pair of jeans. That formula has strengthened the brand's relevance in an increasingly casual world. With the strong third quarter, Stacy Adams is now up 5% for the year. Our Florsheim business is having a terrific 2018, with an 8% increase for the third quarter and a 19% increase year to date. The brand's resurgence is driven by great new product across a variety of platforms that have enabled Florsheim to garner additional shelf space. We believe that we are making inroads with the next generation of consumers that are attracted by the authenticity of Florsheim's heritage as well as a design aesthetic that reflects today's lifestyle. Nunn Bush sales were flat for the quarter. Nunn Bush sales have been impacted by the difficulties of the mid-tier department store segment, with 2 key accounts filing for bankruptcy this year. That being said, the brand is growing its business with other retailers as well as in the e-commerce segment. Nunn Bush is focused on innovative comfort. In combination with accessible pricing, it remains extremely relevant, and we believe we are successfully navigating the current changes in the retail environment. BOGS sales were down 5% for the quarter. The decrease in BOGS was a result of a shift in timing of fall shipments as retailers receive a larger percentage of their shipments in October versus September. While fourth quarter weather is key for BOGS, we are optimistic about finishing the year with an overall increase based on early fall sell-throughs at retail. Our inventories are very clean, which has resulted in lower sales of obsolete inventory and higher profitability for BOGS. In our North American retail segment, third quarter sales were up 15% compared to last year. Same-store sales were up 20%, driven by the growth of our Internet business. In North America today, the majority of our direct-to-consumer business is our own e-commerce sites. We continue to invest in tools to grow this business as it is critical in the overall presentation of our brands. We also have a limited number of remodeled flagship brick-and-mortar stores in key tourist markets that we believe are important to Florsheim's marketing mix. Our overseas business was down 14% for the quarter. As John mentioned, part of that decrease had to do with currency exchange rates. However, our international business in the Pacific Rim and Australia is challenging both at our company-owned retail stores as well as at our wholesale business. At the end of August, we completed the purchase of the minority interest of Florsheim Australia. We now own 100% of our business in Australia, Asia and South Africa. We believe that having complete ownership will provide the flexibility and focus to turn this business around, and we are very engaged in getting this important segment back on track. Overall gross margins were 38.8% versus 38.3% a year ago, up 50 basis points. In our wholesale business, factory pricing remains stable during the quarter. The U.S. dollar has been strong against the currencies in the countries where we do the majority of our sourcing. In our international business, however, our margins declined slightly due to the weaker Australian dollar as we buy our products in U.S. dollars. Our inventory levels as of September 30, 2018, were $16 million compared to $58 million at the same time 1 year ago. The fourth quarter is off to a strong start, with shipments up across all of our brands. We are optimistic this momentum will continue. Accordingly, we are increasing our inventory levels to meet that higher sales demand. 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.

[Operator Instructions] And I'm not showing any audio questions at this time. : :

Okay. Then we'd like to thank everyone for their participation on today's call, and we will look forward to talking with you in the new year. Have a great day.