Q1 2020 Earnings Call
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Good day, ladies and gentlemen, and welcome to the Weyco Group first quarter Twentytwenty earnings release Conference call.
At this time all participants are in listen only mode. After the speakers presentation. There will be a question answer session to participate on that portion of the call you will need to press star one on your telephone and please be advised that today's conference is being recorded.
Now, it's my pleasure to turn the call to John Wittkowske.
Thank you good morning, everyone welcome to Weyco group's conference call to discuss our first quarter 2020 earnings.
On this call with me today, or Tom Florsheim, 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.
In that actual events or results may differ materially.
We refer you to Weyco groups. 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.
With respect to the ongoing covert 19 pandemic numerous factors will determine the extent and length of the impact on the company, including the extent and duration of the pandemic and resulting global economic slowdown.
Actions taken by governments, such as stay at home and similar orders that among other effects require retail store closures to.
The financial health of the company's customers and business partners. The performance of the company supply chain and the health and welfare the company's employees.
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 operations and business experienced significant disruptions beginning in the second half of March 2020, due to the unprecedented conditions are running the cobot 19 pandemic.
Government mandated shutdowns of non essential businesses resulted in the majority of retailers temporarily closing their stores.
Which significantly affected our wholesale business.
Our domestic retail locations closed on March 18, and remain closed due to government orders.
Overseas, our wholesale and retail businesses in Australia Asia, South Africa in Europe were similarly impacted by retail store closures and Lockdowns and required lockdowns requiring consumers to stay at home.
These closing resulted in lower first quarter sales and earnings across all of our businesses and the company expects shutdowns and global economic slowdown caused by the pandemic to continue to adversely impact our business during 2020.
Net sales for the first quarter of 2020 were $63.6 million.
Down 14% compared to first quarter 2019, net sales of 74.1 million.
Operating earnings were 1.3 million in 2020, compared with $5.1 million in the first quarter of 2019.
Net earnings were $1.2 million, this quarter and $4 million last year.
Diluted earnings per share were 12 cents per share in the first quarter versus 40 cents per share in the first quarter of 2019.
In the North American wholesale segment net sales for the first quarter were $52.7 million down 11% compared to $59.5 million last year, Stacy Adams bogs end Nunn Bush net sales declined 23, 22, and 8% respectively with sales down across.
Most major categories.
As a result of the cobot 19 related shutdowns of retail locations.
These decreases were partially offset by a 4% increase in the net sales of of the Florsheim brand, which had strong sales in January and February before the retail shutdowns went into effect.
Licensing revenues were $461000 for the quarter and $707000 last year.
Wholesale gross earnings were 31.8% of the net sales in the first quarter compared to 34.3% of net sales last year.
The decrease in gross margins of was primarily due to the additional costs of the tariff.
On certain footwear imported from China.
As we discussed in our previous call in additional tariff of 15% was assessed from September one 2019 until February 14, 2020, when it was reduced to 7.5%.
Because we purchased a limited amount of inventory at the higher tariff rate, we expect the tariffs negative impact on our margins to lessen as we sell through our current inventory.
Wholesale operating earnings were $2.8 million for the quarter and $5.2 million last year.
Net sales of our North American retail segment, which include both our retail stores and us ecommerce sales were $4.8 million.
Down, 15% compared with $5.6 million in last year's first quarter.
Same store sales, which include the US ecommerce sales were down 13% for the quarter.
Due primarily to retail store closings late in the quarter and decreased sales on the company's websites.
As a result, the retail segment net operating losses totaling $89000 for the quarter compared with operating earnings of $483000 last year.
Our other operations, which include the wholesale and retail businesses of Florsheim, Australia, and Florsheim, Europe, and net sales of $6.1 million in the first quarter down from $9.1 million last year.
The decrease was due to lower net sales at both Florsheim, Australia and Florsheim Europe.
Largely caused by retail shutdowns and government orders for consumers to stay at home.
Collectively Florsheim, Australia, and Florsheim Europe at operating losses totaling $1.3 million in the first quarter compared to operating losses of 543000 in the first quarter of 19.
Other income and expense totaled $407000 of income in the first quarter of 2020.
Compared to $125000 of expense in last year's first quarter.
The increase this year or this quarter was primarily due to unrealized gains on favorable foreign exchange contracts held by Florsheim Australia.
At March 31, 2020, our cash and marketable securities totaled $31.4 billion, and we had no debt outstanding on our $60 million revolving line of credit.
During the first three months of 2020, we generated $15 million of cash from operations, we used funds to pay $4.7 million in dividends paid down $7 million on our line of credit and repurchased $1.3 million of our company stock.
Additionally, we had $1.8 million of capital expenditures.
We expect that our 2020 annual capital expenditures will be between three and $4 million.
On May Fiveth 2020, our board of directors declared a cash dividend of 24 cents per share to all shareholders of record on May 29.
It will on June Thirtyth.
I will now turn the call over to Tom Florsheim Junior our chairman and CEO.
Thanks, John and good morning, everyone.
The retail landscape has changed dramatically over the first quarter of 2020 due to the impact of the coated 19 pandemic and related government orders, but we are focused on the long term as we navigate the current situation.
We believe our strong balance sheet and operating expertise will allow us to manage our way through this crisis, our distribution center and the majority of our supply chain continue to operate.
Which allows us to continue shipping E commerce orders, while remaining ready to commence full operations when appropriate.
That being said.
Since we do not know when our retail partners will reopen their stores, we cannot present, we estimate the impact of Kogan 19 on our business, but we do expect it to have an adverse effect on our operating results. This year.
In light of these challenges our main priority for 2020 will be the management of our liquidity costs and inventories.
With more than $16 million in cash and short term marketable securities and the full $60 million available on our line of credit. We're currently in a strong cash position. However collection of our accounts receivable has slowed and we expect that trend to continue over the coming months.
We have already begun a dialogue with many customers and we'll continue to actively manage our receivables to secure payments and mitigate risk.
We have reduced.
Operating expenses were appropriate and we are pursuing rent relief for our retail stores worldwide outside of the U.S.. We have qualified for government subsidies in several markets. We will continue to scrutinize our costs in light of decreased demand.
We have reduced our 2020 planned inventory receipts in response to.
Reduce short term demand for our products.
There's been some disruptions in our supply chain as a result of the pandemic. Presently this has not had a significant impact on our operations currently our factories are operating through our factories in China, our operating but production India has ceased to do has ceased due to a country wide shutdown and we're not.
Sure when that production will resume.
We will continue to manager inventory levels closely throughout the year.
Our distribution system allows us to quickly adapt to changes in consumer and customer demand and we believe our system is well suited for adjusting to the future consumer landscape.
At this time, we continue to employ our people as we believe employee stability is important to our long term success and majority of our corporate staff has been working remotely.
We have strong brands that resonate well with consumers.
We believe we earn a strong financial position to get through these challenges.
We will pay our next quarterly dividend, although we will not increase it at this time.
This concludes our formal remarks. Thank you for your interest in Weyco group now like to open the call to your questions.
Thank you, ladies and gentlemen, I thought reminder.
Yes, that's question yes.
And then one on your telephone keypad.
When we tie up question just press the pound our house pool.
We have a question on the line of John JCR with Canaccord Your line open.
Good morning, everyone is.
And safe.
Hi, John I hope, you're you're healthy as well.
Yes, we're doing well here I just have a couple of brief questions.
First on the share buyback a $1.3 million.
How many shares was that and what dollar authorization is left.
The.
John that was a total of 59000 shares that were that were purchase.
We have 382000 shares remaining in the buyback program as of as of today.
Okay great.
And regarding the.
Status of your customers.
Obviously, that's something it sounds like you're on top of but.
Have there been any were there any bad debts in the first quarter and.
Do you anticipate any bad debts going forward.
And there is nothing no nothing significant in the first quarter.
As far as like anticipating.
Yeah debts or there are couple customers out there there are significant customers.
But less than 10% of our no customers is more than 10% of ours current receivables.
And we're monitoring the situations.
That are out there right now so there's there's a possibility.
That we could do some customers this quarter.
I'm, sorry lose some customers because of credit agenda, there theres a possibility that.
Several customers are really.
One to two major customers that.
Potentially could be seeking relief.
Through through bankruptcy, but we don't now those rumors out there.
Yes at this point John It's just rumor so nothing has been declared by.
When you look at.
The leverage that some of these retailers have going into this.
It makes all of us a little bit nervous, but we're just we're trying to up.
We're going to try to work through that as we get go through the year and just.
The us cautious as we can add and.
We'll volte, we'll see what happens by favorably there's going to be some theres going to be youre going to have some retailers out there that we deal with the go bankrupt. The question is.
You know when and and two in which retailers but.
Theres going to be fall from us, we just because theres nothing.
Nothing has happened yet and we're just monitoring the situation.
Okay. So button so to the one or two that are questionable.
What percentage of your receivables would be tied to those at the end of first quarter.
Roughly.
Less than less than 10%.
Okay.
All right.
Okay.
On the flip side I mean retailers are struggling.
What about your competitors I mean, one of the reasons, we owned the stock is because.
You know you've been patient.
And diligent about waiting for the right opportunity too.
Take out weaker competitors.
Are you hearing any rumors or.
Anything regarding the status of.
Competition.
Nothing ROI specific but we have heard about some of our competition that is laid off most of their.
Their employees and there are some.
There are some.
So I don't know when you called research that's out there that shows brands that have more of a danger of not make it through to the other side of this and there's a couple of them west how that so.
That's the thing I mean, we're not sure nobody share how long this is going to last but it's very possible that there may be some opportunities that come out of this and so we're going to.
Definitely keep our eyes out for those.
Yes, I mean, we like companies that will go through a period like this and come out stronger on the other side. So I would encourage you to.
Staying focused and.
Opportunistically take advantage of them.
Absolutely.
Good Okay from a thank you okay John skincare.
You too.
Thank you.
And our firing line that you have a comment or question just press Star then one forgetting the floor.
This call.
Okay.
I'm, sorry, I'm not showing any phone questions.
Okay. Then we thank everyone for your tenants at our conference call this quarter and they will afford to talking to you next quarter have a great day.
Thanks.
Gentlemen.
Thanks Conference. Thank you probably participating and you may now disconnect.
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