Q4 2019 Earnings Call
<unk> earnings release Conference call. My name is an era 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. During the question and answer session. If you have a question. Please press Star then one on your Touchtone phone I'll now turn the call over to Mr., John Wittkowske CFO, John you may begin.
Thank you good morning, everyone and welcome to our fourth quarter Conference call on this call with me today or Tom Florsheim Junior, our chairman and CEO and John Florsheim, our president and COO.
Before we begin to discuss the results of the quarter and for the year 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 actual events or results may differ materially from these statements.
We refer you to Weyco groups, most recent form 10-K, and its other SEC filings with the SEC, which identify 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 vacant.
Contain additional information about these non-GAAP measures, including why we use them and reconciliations to the corresponding GAAP data.
Net sales for the fourth quarter of 2019 were $86.9 million down 3% compared to last year's fourth quarter net sales of $89.6 million.
Operating earnings were 11.5 million in the fourth quarter of 2019 down 3% from $11.9 million in the fourth quarter of 2018.
Net earnings attributable to Weyco group totaled $8.8 million this quarter a decrease.
Of 8% from $9.6 million last year diluted earnings per share were 90 cents per share in the fourth quarter of 2019, and 93 cents per share in 2018.
In the North American wholesale segment net sales for the fourth quarter were $68.8 billion down, 3% compared with $70.8 million last year.
Licensing revenues were $1.1 million this quarter and $734000 last year.
Wholesale gross earnings were 40.4% of net sales in the fourth quarter of 2019, compared with 40% of net sales in the last year in last year's fourth quarter.
Despite the decrease in fourth quarter sales wholesale operating earnings increased five.
Percent to $10.9 million this quarter from $10.4 million in 2018.
This increase was larger the largely the result of lower selling and administrative expenses.
Net sales of our North American retail segment, which include both our retail stores and US ecommerce sales were $9.1 million for the quarter up 11% compared with the $8.2 million last year same store sales, which includes the us E comp sales were nine were up 9% for the quarter.
Were due mainly to higher sales on the company's websites.
Retail operating earnings were $1.5 million, this quarter and $1.9 million last year.
The decrease between periods was primarily due to lower operating results at the company.
Please brick and mortar locations and higher advertising costs.
From the company's ecommerce businesses.
Our other operations, which include the wholesale and retail businesses, a florsheim, Australia and Florsheim Europe had net sales of $9 million in the quarter.
Down, 15% compared with $10.6 million in 2018.
This decrease was primarily due to a 15% decline in net sales at Florsheim, Australia with sales down in both its wholesale and retail businesses due to the challenging retail environment in Australia and Asia.
The weaker Australian dollar.
Excuse me relative to the US dollars also contributed to the decrease as florsheim Australias net sales in local currency were only down 10% for the quarter.
Collectively Florsheim, Australia, and Florsheim, Europe had operating losses totaling $854000 for the quarter compared to operating losses of $333000 in the same period last year.
The increase in operating losses.
Because between years was primarily due to lower sales and higher operating costs and florsheim Australia's retail business.
In the fourth quarter of 2019, Florsheim Australia's operating expense.
Sensors, including approximately $500000 of costs to exit unprofitable stores.
Our overall net sales were $304 million in 2019, an increase of 2% compared with 280 $98 million in 2018.
Earnings from operations were 27 million in 2019 up 6% from $25.5 million last year.
Net earnings attributable to Weyco group rose, 2% to $20.9 million in 2019 up from $20.5 million.
Diluted earnings per share were $2.10 per share in 2019 up from $1.97 cents per share in 2018.
In the wholesale segment net sales for the year or $242 million.
Up 4% from $233 million in 2018.
Licensing revenues were $3 million this year and $2.5 million last year.
Wholesale gross earnings as a percent of net sales were 36.6% in 2019 up from 35.6% last year.
Operating earnings for the wholesale segment increased 20% to $27.8 million. This year up from $23.1 million last year, due primarily to higher sales and gross margins.
In our retail segment net sales were $25.2 million up 11% compared with $22.7 million in 2018.
Same store sales were up 10% for the year due mainly to increase sales on the company's websites.
Earnings from operations for reached for the retail segment were $2.8 billion up 2% from $2.7 million in 2018, due mainly to higher ecommerce sales.
Our other operations had net sales of $36.7 million down, 13% compared to $42.3 million.
The decrease was primarily due to lower net sales at Florsheim, Australia.
Florsheim Australias net sales were down 12% for the year with lower sales in both its wholesale and retail businesses.
Due again to the challenging retail environment in Australia and Asia.
The weaker Australian dollar relative to the US dollar also contributed to the decrease as.
As florsheim Australias net sales in local currency were only down 5% for the year.
Collectively Florsheim, Australia, and Florsheim Europe at operating losses totaling $3.5 million in 2019, compared with operating losses of $379000 in 2018.
This decrease was primarily due to lower sales and gross margins and higher selling and administrative expenses at Florsheim Australia.
In 2019.
Our channel strategy as operating expenses included $940000 of costs to exit unprofitable stores.
Additionally, those stores generated $350000 of Florsheim Australia's operating losses in 2019.
In 2019 to us government announced it would impose an additional 15% tariff on footwear sourced from China.
The tariff on leather footwear, which primarily impacts the florsheim Stacy Adams and Nunn Bush brands took effect on September Onest and was subsequently reduced to 7.5% on February 14 2020.
The tariff on rubber and other non leather footwear, which primarily impacts the bogs brand was expected to take effect on December 15th but never commenced as the us government suspended indefinitely.
For the fourth quarter and full year 2019, the tariff on leather footwear did not have a material impact on the company's results of operations because most of the inventory sold in 2019 was received before the tariff took effect.
For 2020 in an effort to mitigate the overall impact of the tariff cost increases.
The company has negotiated wholesale price increases with many of us customers and price reductions from many of its Chinese suppliers.
At December 30, Onest 2019, our cash and marketable securities totaled $31.5 million, and we had $7 million outstanding on our.
$60 million revolving line of credit.
During 2019, we generated $9.4 million of cash from operations.
And drew $1.2 million on our line of credit.
We repurchased $5.6 million of our company stock and paid $9.4 million in dividends.
We also spent $7.4 million on capital expenditures, primarily due to the expansion of office space within our corporate headquarters.
This project is expected to be completed in April 2020.
We expect annual capital expense.
And matures.
We'll be between three and $4 million in 2020.
On March 10th 2020, the company's board of directors declared a quarterly cash dividend of 24 cents per share to all shareholders of record on March Twentyth 2020, and payable on March 30 Onest.
I would now like to turn the call over to Tom Florsheim Junior our chairman and CEO. Thank you John and good morning, everyone.
Our North American wholesale business was down 3% for the quarter.
And up 4% for the year.
Excuse me it was it was a positive but somewhat mixed fourth quarter for wholesale business.
Overall, we performed well as we picked up share in the markets, where we compete at the brand level, we had a wide range of results that impart reflected both our strengths as well as the opportunities in our business as we enter 2020.
Our florsheim wholesale division was up 9% in the fourth quarter and 17% for the year.
We believe that this is an outstanding result, especially considering that this increase is on top of the 20% sales growth the portion brand registered in 2018.
Moreover, as.
Primarily a drastic dress casual brand florsheim achieved this growth in a category that shrink over 5% according to market statistics.
The brand has performed extremely well in terms of developing new product that resonates with consumers.
And is recognized for the value it offers relative to some higher price competitors.
As we move forward Florsheim is doubling down on the expansion of its casual assortment in order to take advantage of brand momentum and address the need to diversify its assortment to align with fast changing how styles.
Bogs sales were down 5% in the fourth quarter.
And off 8% for the year, we believe that warm occurs and lower precipitation across large parts of Canada and the United States resulted in a slower finished to box year.
Apart from the fourth quarter sales decline, we are pleased with our strong single digit increase.
In 2019, and the progress we continue to make towards becoming less weather dependent in the future.
With more casual lifestyle oriented footwear as well as portware and the work category. We continue to see significant upside to the bogs brand based on the exists on the success, we're having pushing into new products.
Excuse me as our Stacy Adams business was down 11% for the quarter.
And 3% for the year.
All right I'm, sorry, excuse me, our stinking as business was down 11% for the quarter at 3% for the year Stacy Adams decrease was in large part driven by a decline in shipments to the shoe chain trade channel. The vast majority of this gcs product range Paul's primarily into the dress shoe segment and while our sales perform.
Once has been very good.
Retailers, particularly in the chain store channel are narrowing their assortment of dress footwear.
As a result, placing fresh new footwear is challenging and less it has a casual orientation similar to florsheim Stacy Adams is increasing the number of casual styles within its mix as part of a long term strategy to habits fashion is static mirror the changes in how consumers dress.
We believe the key to success is maintaining the unique Stacy Adams point of view as we transition the brand to being more casual overtime.
We believe that we're making progress towards this end, but are in the early innings of this process.
Nunn Bush business decreased 7% for the quarter, 9% for the year.
As discussed in previous conference calls Nunn Bush as loss is the direct result of challenges facing the mid tier Department store segment. Our belief is that the Nunn Bush business will return to growth mode. In 2020 to brand is performing well at retail and has also made great progress in E.
Commerce trade channel, while there are still headwinds facing some of Nunn Bush is key retail partners. The brand has renewed momentum and we are optimistic about this year.
Same store sales in our North American retail segment, which includes US ecommerce sales were up 9% in the fourth quarter and 10% for the year.
The increase was entirely driven by our ecommerce sales, we continue to invest in consumer acquisition tools and programs to build our north American Internet business as well as ecommerce sales and other markets such as Australia in Europe.
With our solid foundation and improving capabilities. We believe we are positioned well to drive ecommerce is growth.
Net sales in our overseas business decreased 15% for the fourth quarter and 13% for the year.
For Boston sales reflected an overhaul of our business in Australia.
As 2018 has been a year of transition for florsheim in that market.
We have worked through a significant amount of obsolete inventory, both women's and men's footwear and a reset our stores with a more manageable level of skews.
We've also taken steps to prune unprofitable stores is wells look for opportunities with more favorable leases within our store network.
February of this year.
We re launch to more concise women's line focused on comfort, which we believe better reflects the essence of the florsheim Brad.
And men's we have curated assortment to highlight global product as well as a shift towards for casual footwear on all our new leadership in Australia has made tremendous amount a tremendous amount of progress in a short period of time and we anticipate improved performance in 2020.
Within our international business or sales reports from Asia Pacific are also being impacted by difficult retail environment.
Overall gross margins were 40.8%.
In 2019 versus 40.2% last year.
This increase was driven by an increase.
In North American wholesale margins, which were 36.6% in 2019 compared to 35.6% in 2018.
We have been focused on price negotiations with our factories in China to offset some of the cost of the additional tariff while we see.
While we will see an impact from the 15% tariff in the first two quarters of 2020, we believe that with the reduction of the tariff to 7.5% along with working together with our suppliers and customers margins will not be materially affected over the long term.
Our inventories at December 31, 2019 were 87 million compared to $73 million year ago, our inventories are higher than last year, because we brought add as much inventory as possible on core shoes and boots before the tariffs went into effect.
During this helped us maintain our margins and as it turned out with production delays that are being caused by the krona virus. We believe that we are well positioned to sustain any short term interruptions in our supply chain.
It is unknown how long the impact of this virus request, which makes it impossible to make predictions regarding the full year.
This concludes our formal remarks.
Thank you for your interest in Weyco group I would now like to open the call up to your questions.
Absolutely. Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
You are using a speaker phone you may begin to pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then one on your Touchtone phone.
Our first question comes from Chris on Hammerstein. Please go ahead. Your line is open.
Yes, Hi, guys go on.
Hi crush.
Yes, so two questions. The first one you mentioned the Corona virus is there any specific details about that like are there any like factories that are on.
On our other factories around China have actually been shut down where the supply change has been cut off and then the second question is the stock buyback mentioned I think.
Two quarters ago.
How many shares you guys.
We're going to buyback can you tell us like over what's your.
Stock buyback program looking like over the next six months to a year. Thank you sure sure business. This is Tom I'm going to take the first question and then I'm going to turn.
Turning the second question over to John Wittkowske, our CFO. So regarding the factories, we don't have any factories and who they province.
We do have factories around and several different provinces around China.
I think it's important for everybody to know that during the Chinese new year period, the factories typically shut down for a month and so we plan for that and so this year Chinese new year was January 20, Eightth and so the factories basically shut down no matter, what ill regardless of any kind of iris.
January 15th and then people come back around February 15th because most of the workers at the factories in China come from other provinces and they call Hall for Chinese new year. So they take a month vacation basically so.
This year with the current a virus.
Government and China extended the Chinese new year vacation by one or two weeks of so basically.
The end of February and we've been getting reports I've been talking to China almost every day.
Communicating with China everyday I should say.
On almost every single factory that we make shoes and.
As open again.
And the challenging part is getting all the workers back because they have very.
David they've put in restrictions so that when people come back further provinces. They can't just.
Start work the next day, they put them in kind of our quarantine for a couple of weeks, but our factories have 50% of the workers back to 90% of the workers and so we're making shoes again, we're getting shipments again, so as long as.
Things stay under control and China, how we actually got back to work sooner than I thought and we're seeing some good good progress and so does that answer your first question.
Yes, yes.
Okay. So John do you want to answer the stock buyback.
Sure.
Is your general question on the stock back what are we doing currently is that what you'd like to now.
I'd like to know what do you have in place because our two quarters ago you.
I'd mentioned in the conference call you set out an amount a share amount you said a share dollar amount that you had in place and also has there been any changes in that.
Yes, theres been no changes in that and we are.
Active in the market right now on our stock buyback program given the price of the stock we feel is very attractive and we are in the market.
On an active share buyback program the global amounts have not changed from the mouse disclosed.
Every quarter every quarter, there's an update in the 10-Q and a 10-K and there will be one in the 10-K that gets filed tomorrow. There's always an update on the amount of shares that are available to be repurchased under our plan.
And how many we have repurchased so that will be in the 10-K Theres been no increase nor decrease in the global evolved that we have authorized to buy back.
And we are.
Actively in the market now there are limitations on how much we can buy back based on our trading volume that set by the FCC.
And we are.
We're we're buying those.
Thank you. Our next question comes from John Deysher. Please go ahead. Your line is open.
Good morning, everyone.
Good morning.
On the share buyback just to clarify you said, you repurchased $5.6 million worth how many shares as that.
Let me see of on.
I have that for you right off the top here.
Hi.
Thanks, I can now.
Let me one second.
Okay.
Our.
Okay.
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Your job for setting.
Okay.
We look I'll tell you that number.
Rob Ashley guided through August this week.
To that of the correct.
Let's see.
Thats right here.
Okay. We bought back 223000 shares in 2019, it always average price that was the question.
We estimate shares.
Good math.
Yes.
Okay.
Average price about $24.
Okay, fine and the status of that buyback will be disclosed.
In the 10-K tomorrow.
Yes, it'll it'll have a summary of the well again 223000 shares have been repurchase so that that's it's kind of giving you the number you'll see that and it'll show that.
There are what the additional total number of buyback shares are authorized Paul has that number through I mean as of March Fiveth were authorized to buy back 412520 shares still under our buyback program, which is which gives us.
Plenty of plenty of other on either right. Okay. Good thats helpful.
Regarding China last year.
What percentage of wholesale shipments came from China.
I think it had previously been around 70%.
And once you anticipate it to be.
This year, because who knows if the times could come back or not and I was just curious how you're doing with the migration to get away from China.
Yes, I mean, we anticipate that for Satish will go down although.
It's going to take a number of years for us to really move that number a lot. So you may see it comes down to maybe.
The.
The middle sixties, maybe low 60%.
Our.
Our.
Position on this is that we've started production and other countries we've already had a.
Long term relationships with many of the factories in India, and we're increasing production there.
We've been in Vietnam for Awhile, and we're continuing their we opened a new facility in Cambodia, we've ramped up our production in the Dominican Republic, but some of our very best factories are China, and we have long term relationship ships. There. They have been very good partners through this whole situation with.
The tariffs.
Add we believe that it's in our best interest to move production very slowly because.
We're seeing competitors honestly move production very quickly like.
Overnight, saying, we really don't want to be in China anymore and picking.
Picking up their their production and just moving it very quickly to other countries that is a recipe in our opinion for disaster.
We have developed over the years great.
Resourcing and China some of our best shoes are made there and the last thing we feel as good for our long term health as in our brands is to have quality issues and so first and foremost we're we're making sure that we are able to maintain our CFO.
Quality standards with that said our long term strategy is to get our dependency down to China and China.
We're not sure where that number is going to land, but our guests would be 50% or maybe a little bit less would be a lot healthier.
But what are the things that you're seeing right now and this is just kind of our.
Oh.
Indication of how interconnected all of these countries are is that people that move their production to other places like Vietnam quality manufacturers that move their production to Bangladesh.
There are having interruption now because a lot of the components or raw material still come from China and so.
The answer too.
Insulating yourself from things that happen in China.
It's not necessarily.
Going to be Havent production out of there, while we feel that it does best to diversify over the long term, we're just going to be very methodical about it.
Okay.
That makes total sense so.
Last year was too about the same 60 to 70 that came out of China, and and you see that perhaps going down to 60% over the next several years to I like the lowest I would say the low sixtys and low sixtys in 2020 year.
And then more like I would I am guessing here because it theres. So many things in play right now with our production obviously has gotten a slow start after Chinese new year add.
We also brought in a lot of production from China, and 19 trying to to beat the tariff. So I would guess it will be this year 63, 64% and then in 2020, why we're going to continue this move into other countries and so I would guess would be.
It would be six year, a little bit lower we'd start breaking into the 50% range and the plan is over several years to get that down to around 50%.
Hi, good that makes sense.
Talking about Australia for a second I was a little surprised.
At the magnitude of.
The operating loss of 3.5 million I know that includes Europe, but my guess is most of that came from Australia.
And I'm just curious.
We were we want to be in Australia at this point or is 2020 going to be another transition year for us.
John do you want to yet I mean I think.
There were going to make good progress in 2020.
And it's Australia. It's also it's also the Pacific rim, because we had to deal with the.
Protested hard car, which.
At impact on US and also now with the OCC runner virus.
Which is affecting 2020, obviously and Ah but in in Australia.
We took over 100%.
George.
On 100 Central ownership previously it was a joint venture.
And we ended up.
A lot of things we didn't expect once we went we took that over.
And part of that was.
A fair amount of obsolete inventory that was mentioned in the in the conference call script I think it's been mentioned in previous calls as well and we work through that.
In 2019 to a significant degree we've got.
Still ways to go up so.
There will be some residual impact in 2020.
The good news is we've we've hired.
New management, a really happy with.
With the.
The new President we have in place in force from Australia, Damian Walton He's hired a new team of people. We just feel we're on the right path. So.
Performers not might not be exactly where we want to be in 2020, but it's going to be significantly better than what it was in 2019.
Okay. That's encouraging how many stores did you end up within Australia at year end and how many do you think you'll have at the end of 2020.
In Australia.
Do you have that exact Albert Thirtys it.
Both worries yeah add our where we are reviewing the store network, what we what we've done.
Gotten out of ops are the most on profitable stores and then.
And.
In.
In analyzing the store network foreseen, where we have gaps we didn't have enough outlet stores for instance.
And from a geographic standpoint, where there is opportunity in in our were from up.
Business model perspective.
We're not entering into leases.
I must we feel that weekend.
We can make money in store and so I think is more discipline around our our total approach.
One thing that that.
We ran into at the end of 2019 is.
The loss of a significant wholesale customer in Australia add up so we're we're very focused on expanding on.
Rekindling that relationship and also expanding our.
Our Australian wholesale business, which will help overall with with the total operation in one area, where we had good success in 2019 is in the ecommerce trade channel, we've really grown our own website.
Significantly and we're seeing that growth continue into 2020, and so that is going to help contribute to overall profitability down there some of the tools that we use.
You asked where we've had significant growth I think we had growth back to back years in the use of over 20%.
We've moved those down to Australia, and we feel it given the four times market position, Australia, Theres, a lot of upside with ecommerce okay. Good.
Finally go ahead.
What John I was going to mentioned that that the 33, you asked a number of stores. We had mentioned was 33 stores in Australia.
The exact number for you and as I mentioned on ecommerce site, we've seen significant growth in E commerce their 70% last year. So we are we're encouraged by that.
Okay.
The loss in the wholesale customers it was that on price on selection.
Where did that wholesale customer go no. It was like that is say its onto it was on target the terms of the business.
And so.
As a business that wasn't.
Profitable.
Yes.
And we basically tried to negotiate terms that would be.
Favorable to both AD.
It does not go as we had hoped but the conversation continues and so it's account that we were one of their biggest brands for many many years, we we performed very well there.
I think that that long term, we're hopeful that weekend as John used the word rekindle weekend other relationship.
And so we'll see how that goes but it was just we're we're basically applying the same disciplines to the business in Australia that we've applied for literally ever had the U.S. and so with our wholesale business here, which is the majority of our business, we've always been able to run profitable businesses and so were apply.
Same standards down there.
And.
So it's going to take us a little bit of time, but we feel that that we have a model.
That is profitable in the us.
And that over time that model will be profitable in Australia.
Okay that makes total sense.
Finally on the us retail side, how many stores did you end the year with and we will be closing any stores in 2020.
We have we ended the year with eight stores.
And.
In 2020, I think there's one more one more lease coming up and that store will close.
And then.
Yes, I mean that basically I think answers the question.
Seven is where you want to be the retails no I think at that we're going to continue to evaluate it just like we are doing in Australia.
As these leases come up.
In the past.
The.
The.
Power in the leasing arrangement has earned that lease terms as has been very.
Much on the side of.
The the mall or the person thats leasing the space and so.
In some cases in the US just like in Australia, we entered into leases that that when we look back at it are not farewell to us and especially given that mall traffic continues to decline.
So as each lease.
As each lease comes up.
We're having discussions with.
With the last server and try to negotiate better terms if those terms.
Allow us to make money in a location then we'll keep that location open.
If it if those terms do not allow us to make money that we're going to make the business decision to close and.
The power has shifted though because in a lot of of the malls.
As leases come up retailers are leaving and many cases, we've hit retailers will even before that because they're they're going out of business and so the path. The shift has been a shift in power. So.
We'll see how that goals in the us in particular, we're a very small product. We are very small retail presence. So we don't have a tremendous amount of power.
But we're going to where we we believe that marketing theres, a marketing benefit to having some florsheim stores, but only if they can make money.
So we were not we're going to hold the stores. If we if it doesn't look like it's going to be a profitable venture.
Great Great makes too.
Hello Hello.
Yes, thanks for your comments.
Okay. Thank you.
Thank you once again, if you have a question. Please press Star then one on your Touchtone phone, leading on standby for any additional questions.
And I'm not showing any further questions at this time I'd like to turn the call back over.
Thank you thank everyone for your questions and.
We will talk with you after the first quarter have a great day.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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Good morning, and welcome to the fourth quarter and full year 2019 earnings release Conference call. My name is an era and I'll be the operator for today's call. At this time, all participants are not listen only mode.
We will conduct a question and answer session. During the question and answer session. If you have a question. Please press Star then one on your Touchtone phone I'll now turn the call over to Mr., John Wittkowske CFO, John you may begin.
Thank you good morning, everyone and welcome to our fourth quarter Conference call on this call with me today, or Tom Florsheim Junior, our chairman and CEO and job Florsheim.
She also.
Before we begin to discuss the results for the quarter. After the year 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 with a company.
I wish to caution you that such statements are just predictions and actual events or results may differ materially from these statements.
We refer you to Weyco groups, most recent form 10-K, and its other FCC filings with the FCC, which identify 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 FCC filings may contain additional information about these non-GAAP measures, including why we use them and reconciliations to the corresponding GAAP data.
Net sales for the fourth quarter of 2019 were $86.9 million down 3% compared to last year's fourth quarter net sales $89.6 million.
Operating earnings were 11.5 million in the fourth quarter of 2019.
3% from $11.9 million in the fourth quarter of 2018.
Net earnings attributable to Weyco group totaled $8.8 billion this quarter a decrease.
Of 8% from $9.6 million last year diluted earnings per share were 90 cents per share in the fourth quarter of 2000 1993 cents per share in 2018.
In the North American wholesale segment net sales for the fourth quarter were $68.8 billion down, 3% compared with $70.8 million last year.
Licensing revenues were $1.1 billion this quarter and $734000 last year.
[laughter] wholesale gross earnings were 40.4% of net sales on the fourth quarter of 2019.
Compared with 40% of net sales in the last year in last year's fourth quarter.
Despite the decrease in fourth quarter sales wholesale operating earnings increased 5% to $10.9 million this quarter from $10.4 million in 2018.
This increase was larger than largely the result of lower selling and administrative expenses.
Net sales of our North American retail segment, which include both our retail stores and U.S. ecommerce sales were $9.1 million for the quarter up 11% compared with the $8.2 million last year same store sales, which include the U.S. E. Com sales were nine were up 9% for the quarter.
Were due mainly to higher sales on a companies' websites.
Retail operating earnings were $1.5 million, this quarter and $1.9 million last year.
The decrease between periods was primarily due to lower operating results at the company's brick and mortar locations and higher advertising costs.
From the company's ecommerce business.
Our other operations, which include the wholesale and retail businesses, a florsheim, Australia and Florsheim Europe had net sales of $9 billion in the quarter.
Down, 15% compared with $10.6 million in 2018.
This decrease was primarily due to a 15% decline in net sales at Florsheim, Australia with sales down in both its wholesale and retail businesses due to the challenging retail environment in Australia and Asia.
The weaker Australian dollar.
Excuse me relative to the U.S. dollar also contributed to the decrease as Florsheim Australias net sales in local currency were only down 10% for the quarter.
Collectively Florsheim, Australia at Florsheim, Europe at operating losses totaling $854000 for the quarter compared to operating losses of $333000 in the same period last year.
The increase in operating losses between years was primarily due to lower sales and higher operating costs Florsheim Australia's retail business.
In the fourth quarter of 2019, Florsheim, Australias operating expenses, including approximately $500000 of costs to exit unprofitable stores.
Our overall that sales were $304 million in 2019, an increase of 2% compared with 208 $98 million in 2018.
Earnings from operations were 27 million in 2019 up 6% from $25.5 million last year.
Net earnings attributable to Weyco group rose, 2% to $20.9 million in 2019 up from $20.5 million.
Diluted earnings per share were $2.10 per share in 2019 up from $1.97 cents per share in 2018.
In the wholesale segment net sales for the year or $242 million up 4% from $233 million in 2018.
Licensing revenues were $3 million this year and $2.5 million last year.
Wholesale gross earnings as a percent of net sales were 36.6% in 2019 up from 35.6% last year.
Operating earnings for the wholesale segment increased 20% to $27.8 billion. This year up from $23.1 million last year, due primarily to higher sales and gross margins.
In our retail segment net sales were $25.2 million up 11% compared with $22.7 million in 2018.
Same store sales were up 10% for the year due mainly to increase sales on the company's websites.
Earnings from operations for right for the retail segment were $2.8 billion up 2% from $2.7 million in 2018, due mainly to higher ecommerce sales.
Our other operations had net sales of $36.7 million down, 13% compared to $42.3 million.
The decrease was primarily due to lower net sales at Florsheim, Australia.
Florsheim Australias net sales were down 12% for the year with lower sales in both its wholesale and retail businesses.
Due again to the challenging retail environment in Australia and Asia.
The weaker Australian dollar relative to the U.S. dollar also contributed to the decrease as.
As florsheim Australias net sales in local currency were only down 5% for the year.
Collectively Florsheim, Australia, and Florsheim, Europe, and operating losses totaling $3.5 million in 2019, compared with operating losses of $379000 in 2018.
This decrease was primarily due to lower sales and gross margins and higher selling and administrative expenses at Florsheim Australia.
In 2019.
Florsheim Australia's operating expenses included $940000 of costs to exit unprofitable stores.
Additionally, those stores generated $350000 of Florsheim Australia's operating losses in 2019.
In 2019, the U.S. government announced it would impose an additional 15% tariff on footwear sourced from China.
The tariff on leather footwear, which primarily impacts the florsheim Stacy Adams and Nunn Bush brands took effect on September Onest and was subsequently reduced to 7.5% on February 14th 2020.
The tariff on rubber and other non leather footwear, which primarily impacts the bogs brand.
As expected to take effect on December 15, but never commenced as the U.S. government suspended indefinitely.
For the fourth quarter and full year 2019, the tariff on leather footwear did not have a material impact on the company's results of operations because most of the inventory sold in 2019 was received before the tariff took effect.
For 2020 in an effort to mitigate the overall impact of the tariff cost increases.
The company has negotiated wholesale price increases with many of us customers and price reductions from many of its Chinese suppliers.
At December 31, 2019, our cash and marketable securities totaled $31.5 million, and we had $7 million outstanding on our.
$60 million revolving line of credit.
During 2019, we generated $9.4 million of cash from operations and drew $1.2 billion on our line of credit.
We repurchased $5.6 million of our company stock and paid $9.4 million and dividends.
We also spent $7.4 million on capital expenditures, primarily due to the expansion of office space within our corporate headquarters.
This project is expected to be completed in April 2020.
We expect annual capital expenditures.
We'll be between three and $4 million in 2020.
On March 10, 2020, the company's board of directors declared a quarterly cash dividend of 24 cents per share to all shareholders of record on March 20-F, 2020, and payable on March 30 Onest.
I would now like to turn the call over to Tom Florsheim Junior our chairman and CEO.
Thank you Chad and good morning, everyone.
Our North American wholesale business was down 3% for the quarter.
It up 4% for the year.
Excuse me.
It was a positive but somewhat mixed fourth quarter for wholesale business.
Overall, we performed well as we picked up share in the markets, where we compete at the brand level, we had a wide range of results that in part, reflecting both our strengths as well as the opportunities in our business as we enter 2020.
Our florsheim wholesale division was up 9% in the fourth quarter and 17% for the year.
We believe that this is an outstanding result, especially considering that this increase is on top of the 20% sales growth the florsheim brand registered in 2018.
Moreover, as.
Hi, Merrily address a dress casual brand.
Florsheim achieved this growth in a category that shrink over 5% according to market statistics.
The brand has performed extremely well in terms of developing new product that resonates with consumers.
It is recognized for the value it offers relative to some higher price competitors.
As we move forward Florsheim is doubling down on the expansion of its casual assortment in order to take advantage of brand momentum and address the need to diversify its assortment to align with fast changing lifestyles.
Our sales were down 5% in the fourth quarter.
Up 8% for the year, we believe that warm occurs and lower precipitation across large parts of Canada and the United States resulted in a slower finished to box year.
Apart from the fourth quarter sales decline, we are pleased with our strong single digit increase.
In 2019, and the progress we continue to make towards becoming less weather dependent in the future.
With more casual lifestyle oriented footwear as well as portware and the work category. We continue to see significant upside to the barge brand based on Nexus on the success, we're having portion in the new product here.
Excuse me as our Stacy Adams business was down 11% for the quarter.
3% for the year.
All right I'm, sorry, excuse me, our staffing as business was down 11% for the quarter and 3% for the year Stacy Adams decrease was in large part driven by a decline in shipments to the shoe chain trade channel. The vast majority of this jcs pack range falls, primarily into the dress shoes segment, while our sales perform.
Payments has been very good.
Retailers, particularly in the chain store channel are narrowing their assortment and dress footwear.
As a result, placing fresh new footwear is challenging and less it has a casual orientation similar to florsheim Stacy Adams is increasing the number of casual styles within its mix as part of the long term strategy habits fashion aesthetic mirror the changes in how consumers dress.
We believe the key to success is maintaining the unique Stacy as point of view as we transition the brand to being more casual overtime.
We believe that we're making progress towards this end, but are in the early innings of this process.
Nunn Bush business decreased 7% for the quarter at 9% for the year.
As discussed in previous conference calls Nauseous loss is the direct result of challenges facing the mid tier Department store segment. Our belief is that the Nunn Bush business will return to growth mode. In 2020, the brand is performing well at retail.
And has also made great progress in the E Commerce trade channel, while there are still headwinds facing so about Nunn Bush is key retail partners. The Brad has renewed momentum and we are optimistic about this year.
Same store sales in our North American retail segment, which includes U.S. ecommerce sales were up 9% in the fourth quarter and 10% for the year.
The increase was entirely driven by our ecommerce sales, we continue to invest in consumer acquisition tools and programs to build our north American Internet business as well as ecommerce sales and other markets such as Australia in Europe.
With our solid foundation and improving capabilities, we believe we're positioned well to drive ecommerce is growth.
Net sales in our overseas business decreased 15% for the fourth quarter and 13% for the year.
Washington sales reflected an overhaul of our business in Australia.
2018 has been a year of transition for florsheim in that market.
We have worked through a significant amount of obsolete inventory, both women's and men's footwear and have reset our stores with a more manageable level of skews.
We've also taken steps to prone unprofitable stores is wells look for opportunities with more favorable leases within our store network.
Literary up this year.
We re wants to more concise women's line focused on comfort, which we believe better reflects the essence of the florsheim Brad.
And men's we have curated assortment to highlight global product as well as a shift towards more casual footwear on all our new leadership in Australia has made tremendous amount a tremendous amount of progress in a short period of time and we anticipate improved performance in 2020.
Within our international business or sales reports from Asia Pacific are also being impacted by difficult retail environment.
Overall gross margins were 40.8%.
2019 versus 40.2% last year.
This increase was driven by an increase.
In North American wholesale margins, which were 36.6% in 2019 compared to 35.6% in 2018.
We have been focused on price negotiations with our factories in China to offset some of the cost of the additional tariff while we see.
While we will see an impact from the 15% tariff in the first two quarters of 2020, we believe that with the reduction of the tariff to 7.5% along with working together with our suppliers and customers margins will not be materially affected over the long term.
Our inventories at December 31, 2019 were $87 million compared to $73 million a year ago, our inventories are higher than last year, because we brought add as much inventory as possible core shoes and boots before the tariffs went into effect.
During this helped us maintain our margins and as it turned out.
With production delays that are being caused by the CRADA virus. We believe that we are well positioned to sustain any short term interruptions in our supply chain.
It is unknown how long the impact of this virus request, which makes it impossible to make predictions regarding the full year.
This concludes our formal remarks.
Thank you for your interest in Weyco group I would now like to open the call up to your questions.
Absolutely. Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone, if you're using a speaker phone you may begin to pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then one on your Touchtone phone.
Our first question comes from Chris on Hammerstein. Please go ahead. Your line is open.
Yes, Hi, guys go on.
Hi crush.
Yes, so two questions. The first one you mentioned the Corona virus is there any specific details about that like are there any light factories that are on.
On or other factories around China have actually been shut down where the supply change has been cut off and then the second question is the stock buyback mentioning I think.
Two quarters ago.
How many shares you guys.
We're going to buyback can you tell us like over to what's your.
Talk buyback program looking like over the next six months to a year. Thank you sure sure. This this is Tom I'm going to take the first question to that I'm going to chart.
Turning the second question over to John Wittkowske, our CFO. So regarding the factories, we don't have any factories and who they province.
We do have factories route and several different provinces around China.
I think it's important for everybody to know that during Chinese new year period, the factories typically shut down for a month and so we plan for that and so this year Chinese new year was January 28, and so the factories basically shut down no matter, what regardless of any kind of iris.
January 15th and that people come back around February 15th because most of the workers at the factories in China come from other provinces and they go hall for Chinese new year. So they take a modification basically so.
This year with the current a virus.
Government and China extended Chinese new year vacation by one or two weeks of so basically.
The end of February added we've been getting reports I've been talking to China almost every day.
Communicating with trying to everyday I should say.
And almost every single factory that we make shoes and.
Is open to guide.
Add the challenging part is getting all the workers back because they have very.
David they've put in restrictions so that when people come back further provinces. They can't just.
Start work the next day, they put them and kind of our quarantine for a couple of weeks, but our factories have 50% of the workers back to 90% of the workers and so we're making shoes again, we're getting shipments again, so as long as.
Things stay under control and China, how we actually got back to work sooner than I thought and we're seeing some good good progress and so does that answer your first question.
Yes, yes.
Okay. So John do you want to answer the stock buyback.
Sure.
Is your general question on the stock back right. What are we doing currently is that what you would like to know.
I'd like to know what do you have in place because our two quarters ago you.
I would mention in the conference call you set out an amount a share amount you said a share dollar amount that you had in place and also has there been any changes in that.
Theres been no changes in that and we are.
Active in the market right now on our stock buyback program given the price of the stock we feel is very attractive and we are in the market.
On an active share buyback program the global amounts have not changed from the mouse disclosed.
In every quarter every quarter, there's an update in the 10-Q and the 10-K and there will be one in the 10-K that gets filed tomorrow.
Theres always an update on the amount of shares that are available to be repurchased under our plan.
And how many we have repurchased so that will be in the 10-K.
Theres been no increase nor decrease in the global about that we have authorized to buy back.
And we are.
Actively in the market now there are limitations on how much we can buy back based on our trading volume that set by the FCC.
And we are.
We're we're buying those.
Thank you. Our next question comes from John Deysher. Please go ahead. Your line is open.
Good morning, everyone.
Good morning.
On the share buyback just to clarify years.
Purchased $5.6 million worth how many shares as that.
Let me see of on.
I have that number for you right off the top here.
Hi.
Thanks.
I mean, one second.
Okay.
[music].
Okay.
Sure John.
Yes.
Okay.
We look back I'll tell you that number.
Ashley guidance, while this is this week.
To that.
Correct.
Let's see.
Right here.
Okay. We bought back 223000 shares in 2019, and what was average price that was the question.
We estimate shares.
To the math right.
Yes.
Well.
Average price about $24.
Okay, fine and the status of that buyback will be disclosed.
And the 10-K tomorrow.
Yes, it'll it'll have a summary of the well again 223000 shares have been repurchase so that that's it's kind of given to the number you'll see that and it will show that.
There are what the additional total number of buyback shares are authorized I'll add that number.
As of March that were authorized buyback 412520 share still under our buyback program, which is which gives us.
Plenty of plenty of other or you are right. Okay. Good thats helpful.
Regarding China last year.
What percentage of wholesale shipments came from China.
I think it had previously been around 70%.
And what do you anticipate.
Be.
This year, because who knows if the times could come back or not and I was just curious how you're doing with the migration to get away from China.
Yes, I mean, we anticipate that for Satish will go down although.
It's going to take a number of years for us to really move that number a watch saw you may see it go down to maybe.
The middle sixties, maybe low 60%.
Our.
Our.
Physician on this is that we've started production and other countries we've already had a.
Long term relationships with many of the factories and indeed, we are increasing production there.
We've been in Vietnam for Awhile, and we're continuing their we opened a new facility in Cambodia.
Ramped up our production in the Dominican Republic, but some of our very best factories are China, and we have long term relationship ships there.
They have been very good partners through this whole situation with the tariffs.
Add.
We believe that it's.
Our best interest to move production very slowly because.
We're seeing competitors honestly move production very quickly like.
Overnight, saying, we really don't want to be in China anymore and picking.
Picking up their their production just moving very quickly to other countries that is a recipe in our opinion for disaster.
We have developed over the years great.
Resourcing and China some of our best shoes are made there and the last thing we feel as good for our long term.
South as in our brands is to have quality issues and so first and foremost we're making sure that we are able to maintain our quality standards.
With that said our long term strategy is to get our dependency down to China and China.
We're not sure where that number is going to lay out, but I would guess would be 50% or maybe a little bit less would be a lot healthier.
But what are the things that you're seeing right. Now this is just kind of off.
Oh.
Indication of how interconnected all of these countries are is that people that move their production to other places like Vietnam quality manufacturers that move their production to Bangladesh.
They are having interruption now because a lot of the components or raw material still come from China and so.
The answer to.
Insulated yourself problem things that happened in China.
It's not necessarily.
Going to be Havent production out of there, while we feel that it does best to diversify over the long term, we're just going to be very methodical about it.
Okay.
Makes total sense so.
Last year was too about the same 60 to 70 that came out of China, and and you see that perhaps going down to 60% over the next several years like the lowest I would say the low sixtys and low sixtys in 2020, yes.
And then more like I would I am guessing here because there's so many things in play right now with our production obviously has gotten a slow start after Chinese new year add.
We also brought in a lot of production from China in 19 trying to beat the tariff. So I would guess it will be this year 63, 64% and that in 2020, why we're going to continue this move into other countries and so I would guess would be.
It would be six year, a little bit lower we'd start breaking into the 50% range and the plan is over several years to get that down to around 50%.
Hi, good that makes sense.
Talking about Australia for a second I was a little surprised.
At the magnitude of.
The operating loss of 3.5 million I know that includes Europe, but my guess is most of that came from Australia.
Just curious are we where we want to be in Australia. At this point or is 2020 going to be another transition year for us.
John do you want to yes, I mean I think.
There were going to make good progress in 2020.
And it's Australia. It's also it's also the Pacific rim, because we had to deal with the.
Protested hard car, which.
At impact on US and also now with the OCC runner virus.
Which is affecting 2020, obviously added.
In Australia.
We took over 100%.
George.
On 100% ownership previously it was a joint venture.
And we ended up.
See it a lot of things. We then expect once we once we took that over.
And part of that was.
A fair amount of obsolete inventory that was mentioned in the.
Conference call script, I think it's been mentioned it.
Cost as well.
And we work through that.
In 2019 to a significant degree we've got.
Still ways to go.
So there will be some residual impact in 2020.
The good news is weve hired.
Your management, we're really happy with.
With.
The new President, we Havent ways in force from Australia, Damian Walton He's hired a new team of people. We just feel we're on the right path. So.
The performance not might not be exactly where we want to be in 2020, but it's going to be significantly better than what it was in 2019.
Okay. That's encouraging how many stores did you end up with and Australia at year end and how many do you think you'll have at the end of 2020.
Sure.
Jimmy as an excess elder thirtys.
Low thirtys, yeah add our where we are reviewing the store network, what we what we've done.
We've gotten out of some of the most on profitable stores and then.
And.
And.
In analyzing the store network, we're seeing where we have gaps we didn't have enough outlet stores for instance.
And from a geographic standpoint, where theres opportunity in our were from off.
Business model perspective.
We're not entering into leases.
Unless we feel that weekend.
We can make money in store and so I think there's more discipline around our our total approach.
One thing that that.
We ran into at the end of 2019 is.
The loss of significant wholesale customer.
In Australia at so we're we're very focused on experience.
On rekindling that relationship and also expanded our.
Our Australian wholesale business, which will help overall with with the total operation and one area, where we had good success in 2019 is in the ecommerce trade channel, we've really growing our own website.
Significantly add we're seeing that growth continue into 2020, and so that is going to help contribute to overall profitability down there some of the tools that we use.
You asked where we've had significant growth I think we had growth back to back years in the use of over 20%.
We move those down to Australia, and we feel given the four times market position, Australia, Theres, a lot of upside with ecommerce okay. Good.
Finally go ahead.
What I.
I was going to mentioned that that the 33, you asked a number of stores. We had mentioned was 33 stores in Australia.
The exact number for you and as I mentioned on E Commerce site.
Are we seeing significant growth in ecommerce their 70% last year. So we are we're encouraged by that.
Okay.
Most of the wholesale customer was it was that on price on selection.
Where did that wholesale customer go no. There was like to say, it's hard to it was on chart the terms of the business.
And salt.
As a business that wasn't.
Profitable.
Yeah.
And we basically try to negotiate terms that would be.
Favorable to both AD.
It did not go as we had hoped but the conversation continues and so it's account that we were one of their biggest brands for many many years, we we performed very well there.
I think that that long term, we're hopeful that weekend as John use the word rekindle weekend other relationship.
And so we'll see how that goes but it was just we're basically applying the same disciplines to the business in Australia that we've applied for literally ever had to us and so with our wholesale business here, which is the majority of our business, we've always been able to run profitable businesses and so were apply those.
Same standards down there.
And.
So it's going to take us a little bit of time, but we feel that that we have a model.
That is profitable in the us.
And that over time that model will be profitable in Australia.
Okay that makes total sense.
Finally on the us retail side, how many stores did you end the year with and we will be closing any stores in 2020.
We have we ended the year with eight stores.
Add.
In 2020, I think there's one more one more lease coming up and that store will close.
And then.
Yes, I mean that basically I think answers the question.
Seven is where you want to be the retail so no I think that that we're going to continue to evaluate it just like we are doing in Australia as these leases come up in the past.
The up.
The.
Power and the leasing arrangement has earned that lease terms as has been very much on this side of golf.
The the mall or the person thats leasing the space and so.
In some cases in the US just like in Australia, we entered into leases that that when we look back at it are not farewell to us and especially given that mall traffic continues to decline.
So as each lease.
As each lease comes up.
We're having discussions with.
With the last server and try to negotiate better terms if those terms.
Allow us to make money at a location that will keep that location old but.
If it if those terms do not allow us to make money that were quite to make the business decision to close and.
The power has shifted though because in a lot of of the malls.
As leases come up retailers are leaving and many cases lead retailers will even before that because they're they're going out of business and so the partnership there's been a shift in power. So.
We'll see how that goals in the us in particular, we're a very small product. We are very small retail presence. So we don't have a tremendous amount of power, but we're going to where we we believe that marketing theres, a marketing benefit to having some florsheim stores, but only if they can make money.
So we were enough we're going to hoses stores. If we if it doesn't look like it's going to be a profitable venture.
Great Great mixed.
Hello Hello.
Yeah. Thanks for your comments.
Okay. Thank you.
Thank you once again, if you have a question. Please press Star then one on your Touchtone phone, leading on standby for any additional questions.
And I'm not showing any further questions at this time I'd like to turn the call back over to balance.
Thank you thank everyone for your questions and.
We will talk with you after the first quarter have a great day.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.