Q2 2020 WEYCO Group Inc Earnings Call
Good day, ladies and gentlemen, thank you for standing by welcome to the second quarter 2020 earnings release Conference call for Weyco group at this time, all participants are not listen only mode. After the speakers presentation. There will be a question answer session to ask a question. During the session you will need to press Star then one all your telephone keypad.
If you require any further assistance. Please press star zero at this time I would like to turn the conference over to your host Mr. John Wittkowske. Thank you Sir please begin.
Thank you good morning, everyone and welcome to Weyco group's conference call to discuss our second quarter 2020 results.
On this call with me today, our top Florsheim junior our chairman and CEO and John Florsheim, Our President and C O.
Before we begin.
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 or the company.
We wish to caution you that such statements are just predictions and 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 as well as other filings with the FCC.
The form 10-K as well as our most recent form 10-Q.
Important factors and risks that could cause the company's actual results could differ materially from our projections.
With respect to the ongoing cobot 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 by governments, such a stay at home and similar orders that among others. Among other effects require retail store closures, the financial health of the company's customers and business partners.
Including the effects of any bankruptcy proceedings by such party.
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 are FCC filings may contain additional information about these non-GAAP measures and why we use them.
The cobot 19 pandemic significantly impacted the company's second quarter results the majority of retailers, including our retail stores were closed for a vast majority of the quarter due to government orders in August and business recovery has been slow.
As a result, the company experienced significant sales losses sales volume losses during the quarter, which led to substantially lower second quarter earnings.
Net sales for the second quarter of 2020 were 16.7 million compared to second quarter 2019, net sales of 60 million point by.
Operating losses totaled 13 million for the quarter as compared to operating earnings of $1.9 billion into second quarter of 2019.
The company's net loss totaled $8.9 billion for the quarter compared to net earnings of $1.5 million in last year's second quarter.
Diluted loss per share was 91 cents in the quarter compared to diluted earnings per share a 15 cents in the second quarter of 2019.
In the North American wholesale segment net sales for the second quarter of 2020 were $9.3 million compared with $46.1 billion last year.
Net sales across all of our brands were down significantly and all major categories. As a result of retail shutdowns due to the pandemic.
Licensing revenues declined to $141000 for the quarter.
From 300 from $636000 last year in line with reduction in licensees sales are branded products.
[noise] wholesale gross earnings were 34.7% of net sales in the second quarter of 2020.
Compared to 35.1% of net sales in 2019.
The wholesale segment and operating losses totaling $10.2 million for the quarter compared to operating earnings of $2.2 million last year.
The losses. This quarter included the write off of approximately $3.3 million in receivables as a result of the JC Penney bankruptcy filing in May of 2020.
Set by $1.4 million of income from U.S., and Canada government wage subsidies.
Net sales of the North American retail segment, which include our retail stores [noise].
Excuse me and U.S. ecommerce sales.
Were $3.6 million in the quarter down from $5.4 million in last year's second quarter.
Same store sales, which include U.S. ecommerce sales were down 31%.
Due to retail store closures, which were partially offset by higher sales on our company's websites.
The retail segment had operating losses totaling $856000.
Now from earnings of $400000 last year.
Due to larger operating losses at brick and mortar stores.
Our other operations, which include the wholesale and retail business is a florsheim, Australia and Florsheim Europe had net sales of $3.7 million in the second quarter down from $9 million last year. The decrease was due to lower net sale that both for same Australia, and Florsheim Europe, resulting from retail shutdowns.
[laughter].
Collectively Florsheim, Australia, and Florsheim, Europe, and operating losses totaling $2.2 billion for the quarter compared to operating losses of $749000 in last year's second quarter.
The losses. This quarter included the write down of approximately $1 billion of obsolete inventory at Florsheim Asia.
And included $1.3 billion of income from rent and we'd subsidies recognized during the period.
At June Thirtyth, 2020, or cash and marketable securities totaled $25.9 billion.
And we had no debt outstanding on our 60 billion dollar line of credit.
During the first six months of 2020, we generated $12.6 million of cash from operations.
We use funds to pay $7 million and dividends paid down $7 million on our line of credit and repurchased $1.3 million of our company stock I.
Additionally, we had $2.7 billion of capital expenditures.
We estimate that.
In 2020 total annual capital expenditures will be between three and $4 million.
On August four 2020, our board of directors declared a cash dividend of 24 cents per share to all shareholders of record on August 28, 2020, and payable on September Thirtyth 2020.
I'd now like to turn the call over to Tom Florsheim Junior our chairman and CEO.
[noise] [noise], thanks, John and good morning, everyone.
The retail environment continues to be significantly affected.
By the Coburn 19 pandemic.
The impact was particularly harsh in the second quarter with retailers closed the majority of the quarter and consumer staying at home.
Even after stores began to reopen.
However, we remain focused on the long term goals and objectives of the company as we navigate through on precedent on this unprecedented situation.
Consumer purchasing behaviors have changed over the past number of months consumers are seeking new and increased opportunities to participate in outdoor and socially distanced activities, which has created an opportunity for outdoor minded products such as box, we've already seen salad increases.
I might business during the second quarter.
And as we move into bogs busy season in the back half of the year. We're optimistic that the brand may have new opportunities to grow and potentially increased market share.
Over the past several seasons, we have talked about the evolution of our legacy brands into more casual product.
We have made strides in this area, both but both Porsche and Stacy Adams are still show still show a high percentage of what we referred to as go to work type shoes.
The dress and dress casual footwear market is currently seen significantly lower demand because many people have not yet returned offices.
It also due to weddings and other dress up type events being canceled due to call that.
[noise] Nunn Bush is performed better because is because of its more casual product offerings.
We expect that our dressed in dress casual business will have the opportunity to recover what people are no longer spending so much time in their homes and are able to return to normal social activities.
Although the timing of returned to normal is of course unknown.
Many of the new shoes, and for which we are delivering this fall or more casual and the majority of our spring 21 line is also geared toward our relax lifestyle.
The transformation to more casual footwear and apparel was a strong trend prior to call that but has greatly accelerated by stay at home mandates.
Our backlog is down for fall because our selling season was interrupted by shutdowns and we received many cancellations crippled spring 20, and fall 20 orders.
From from retailers, we are the process of having virtual meetings with their customers to solidify fall order.
And also to shore up show, our new lines for spring 21.
Well I'd be preferable to meet with customers face to face, we're finding that with the technology that is available we can effectively show new product and communicate with their brick and mortar and ecommerce customers.
Our distribution center and supply chain are fully operational which enables us to fulfill wholesale ecommerce orders on a timely basis. We believe we have the infrastructure and technology systems in place that were allow us to adapt.
To the future consumer landscape.
We believe we're well positioned to respond to changes in consumer demand. During these volatile times. The 2018, we filter inventory levels of core product in anticipation of the position of the China Terra.
When the pandemic hit the U.S. in March of this year, we adjusted our 2020 buys accordingly.
At June Thirtyth.
Okay. This year, we have.
81.4 million of inventory versus 82.8 million.
At the same time last year.
Our current inventory our current level of inventory is higher than optimal.
Given decreased demand.
We have reviewed our inventories at June Thirtyth, and with exception of some obsolete inventory, we wrote off and Asia This quarter.
We feel our inventories salad with a good base of core product. However, given the uncertainty in the marketplace. We will continue to review and much or seasonal and discontinued products throughout the rest of the year, which might result in additional inventory write downs.
As the world rear weekends and the marketplace evolves, we are in good position to respond to our consumers needs.
Cost management and liquidity remain top priorities of our company during this challenging time.
Expenses across the organization are being evaluated and right size. So that we can effectively operate during this period of lower sales volumes during the quarter, we adjusted our advertising spending which reduced second quarter selling expenses by 1.1 million, we qualify for 1.5 million and cover it wage subsidies in the us in Canada and received additional.
Rent and Weve subsidies outside of the U.S. truly 1.3 noise, we're continuing to pursue additional subsidies.
Yes, and other cost savings at this time.
Our balance sheet and associated liquidity remained highlights in the company's current financial position with nearly 26 million in cash and short term marketable securities in the full $60 million available on our line of credit. We believe we are in a strong cash position, which affords us the ability to withstand the economic effects of the current.
Had demicks situation.
Collection of our accounts receivable has slowed and we expect that trend to continue over the coming months. In addition, as previously previously discussed.
We had to write down receivables during the quarter due to the bankruptcy of JC Penney.
We're continuing to accurately manager receivables to secure payments and mitigate risk and are also monitoring the financial health or other customers. 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.
Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad. If your question has been answered all your wish to remove yourself from the Q simply press the pound.
Again, if you have a question or comment at this time. Please press Star then one on your telephone keypad.
Our first question or comment comes from the line of Frederic Solar Your line is open.
Yeah, Hi, guys doing.
Hi, good morning.
Just a quick question.
The JC Penney.
If you.
The possibility of them reopening stories, a future day once they are re emerge from bankruptcy is that.
I'm just curious.
They have been aware that you guys. Even had she was [laughter]. So I thought it was mostly Macy's, but can you just give me maybe.
The top brick and mortar stores that you guys percentage wise that you sell I had the most sales then.
Because me I know Macy's is a big one.
And also the JC Penney thing the possibility of them re emerge from bankruptcy is that something that could boost earnings going down. The line. If they were to every emerged from bankruptcy and make a column.
Yes, I mean, we don't break down our cost of sales to customers by customer, but JC Penney must be account base is a big count.
Which JC Penney remember are coming out.
The fired for chapter 11.
Reorganization and we are John shipping down, but with secure web it's secured on so that.
They emerge and come back stronger we will be good for our business we are back shipping Dom.
And in a way where are we don't have any kind of exposure.
If the data answered your question.
I think was the second part of your question, whether you feel they're going to emerge as a as an ongoing entity from chapter 11.
Well it just seems to me that at least in my general area that they still have stores open and they're still selling issues.
I looked into it I looked at often they have shoes in stock. So theres still selling season. So I mean, the 3.3, new I know what would happen what happens with the chapter 11. It is.
Our allows us to continue as our as a function business and what they've done as Dave slated I think.
And our I'm not could get the number exactly right, but I think it's about 250 stores that they are closing.
And so they are running corn out of business sales in those stores, but in their remaining stores, which I think as.
In the neighborhood of seven or 800 stores, they're continuing to do business and that right now.
Theres actually.
I think in the next couple of weeks.
Theres a number of bidders for JC Penney. So they will go forward and we.
It's hard to predict with Coburn 19 exactly.
How are we think shakes out, but we certainly are encouraged by the fact that theres some bit that there are multiple bidders for JC Penney business and it at least in the near term they're going to continue through.
Customer of ours.
Alright, thank you.
Thank you.
Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad. Our next question or comment comes from the line or John Deschner from Pinnacle. Your line is open.
Good morning, everyone.
Hi, John.
Got a couple of questions one on the share repurchase.
Thank you bought back $1.3 million worth in the first quarter.
Did you buy in the second quarter, and if not why not I don't want what what's the appetite at this point for buying back stock at the levels that's trading at.
Right now I mean, we think it's a good by at the level, it's trading that but we're trying to be smart about using our cash.
We see.
The possibility that this is going to go on for a while.
And we just don't think that at this point.
It's it's wise to do stock buybacks.
Okay. So your hoarding cash for other purposes.
Okay.
Staying just John just to sustain the business I mean, if you think about.
I think that were not alone. If you look at what most companies are doing right now because of the uncertainty surrounding this situation.
You want to make sure that you have ample cash reserves.
Okay.
So even though you've got a 16 million dollar I think undrawn revolver or your customers want to see the cash on the balance sheet is that fair.
Yes, and also because the revenues of four to such an extent.
That we are in a position right now where we lost money into the last quarter, which I think is the first quarter I can remember and I've been here a long time.
We've lost body.
We just are conservative and the fact that we want to make sure that at this goes on for a while we're going to try to rightsize so that weekend.
Get to breakeven as quickly as possible, but we just feel more comfortable.
Having money in the bank right now John dollar thing is if you look at both most public companies out there he have suspended Paul.
Stock buybacks and also.
A number of suspended their dividend.
We have maintained our dividend.
Yes, Sir you had to make choices in terms of where what's important to our shareholders.
And also just looking.
Down the line, we certainly hope the pandemic will be over.
Sooner rather than later I mean, when this all start we've got three months six months now garlic, we're just basically very conservative in terms of how we're approaching us to make sure that we maintain liquidity yeah with that said, we are investing continuing to invest in areas of our business that we feel.
Going to be or be where we draw in the future like D to C market. So.
Well it sounds like I, just wanted to get clear that were not just try to pile of cash that we're looking very strategically where we want to invest.
Okay, that's fair.
In terms of Rightsizing the business how much in terms of dollars.
Would you say, you'll be able to take out of the expense structure and the next 12 months.
That's it that's a difficult question to answer at this point I think we're being a better positioned to answer that next quarter.
John we're looking at everything and we've started this process you know.
A number of months ago, we've made a number of changes are ready theres more.
To calm.
We're just re examine reexamining every aspect of our business add you know for awhile I think companies have the luxury.
Funding some things that maybe weren't that profitable because we're making up a fair amount of money and other areas of our business.
We are.
We're literally studied every single expense line in our company right now.
To figure to figure out the question you disposed.
Yes, I would prefer to give you some more specific answers after next quarter. Okay. That's that's fine.
And I guess finally, you mentioned that you're selling back to selling JC Penney.
On a secured basis.
Cash on delivery or what exactly does secured mean, you know we can't exactly yeah, yeah here into specifics about half, but we've taken steps to mitigate our exposure. Yes. There is no the way that we're doing that there is no risk.
Theres no risk okay.
Well I mean lets ignore JC Penney conceptually what are the ways. Besides cash on delivery that you could guarantee payment conceptually.
What are the alternatives.
Yeah.
You know our John I, obviously happy to like to talk to you offline about this but I don't want to get into like specifics of power handling.
And our credit with.
With different accounts alright.
Feel free to call me, our both were both in today, yeah, Okay I'll give you Eric.
Okay.
Thanks.
Thank you. Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad.
I'm showing no additional audio questions into queue at this time I like to trying to call back over to management for any closing remarks.
Okay.
We just want to thank everybody for listening to the call today stay safe and well talk to next quarter. Thank you.
Ladies and gentlemen, thank you for participating in todays conference. This concludes the program you may now disconnect everyone have a wonderful day Stacey.
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