Q4 2020 WEYCO Group Inc Earnings Call
[music], ladies and gentlemen, thank you for standing by and welcome to the Waco Group Inc.
Fourth quarter and full year 2020 earnings release conference call. At this time all participant lines are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.
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I would now like to hand, the conference over to your Speaker today, John which Koski Chief Financial Officer. Thank you. Please go ahead Sir.
Thank you good morning, and welcome to Waco Group's conference call to discuss our fourth quarter and full year 2020 results on.
On this call with me today are Tom Florsheim, Jr, Chairman, and CEO, and John Florsheim, our President and C O.
Before we begin to discuss the results for the quarter 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 that actual events or results may differ materially.
We refer you to Waco groups. Most recent form 10-K as filed with the Securities and Exchange Commission as well as its other filings with the SEC.
The form 10-K as well as our most recent form 10-Q identify important factors and risks that could cause the company's actual results to differ materially from our projections.
With respect to the ongoing Covid pandemic.
Numerous factors will determine the extent and length.
Of the impact on the company, including the extent and duration of the pandemic and its impact on the global economy.
Actions taken by governments, such as stay at home and similar orders that among other effects require retail store closures are limit foot traffic.
Ill health of the company's customers and business partners, including the effects of any bankruptcy proceedings by such parties.
Performance on the company supply chain, and the health and welfare on the company's employees.
Additionally, some comparisons refer to non-GAAP measures are.
Our SEC filings may contain additional information about these non-GAAP measures and why we use them.
Net sales for the fourth quarter of 2020 were $62 million compared to last year's fourth quarter net sales on $86 $9 million operating earnings were $7 9 million for the quarter compared with $11 $5 million in the fourth quarter of 2019.
Net earnings totaled $5 $1 million compared to $8 $8 million last year.
Diluted earnings per share were <unk> 52 cents.
Per share in the fourth quarter of 2020 at <unk> 90 per share in 2019.
In the North American wholesale segment net sales for the fourth quarter of 2020 or $46 $2 million compared with $68 $8 million last year.
Earnings from operations for the wholesale segment were $5 $6 million compared with $10 $9 million last year.
Sales volumes were down across all three men's legacy brands due to the slow retail environment, resulting from the ongoing pandemic on our bogs outdoor brands increased 5% for the quarter as consumers continue to spend more time outdoors.
Our cost cutting measures, mainly an employee and advertising costs helped us generate solid earnings in the fourth quarter. Despite the reduction in sales.
Our North American retail segment, which includes our e-commerce businesses and retail stores.
Net sales of $8 $7 million for the quarter.
Share to $9 $1 million last year.
Retail operating earnings were $2 $7 million, this quarter and $1 $5 billion last year.
Retail sales decreased due to the closing of three unprofitable stores in the third quarter of 2020.
As well as reduced foot traffic in our existing stores, resulting from the pandemic.
The decrease was offset by a 15% increase in ecommerce sales due to consumers turning to online shopping and the COVID-19 environment.
Retail operating earnings increased due to the benefit of closing unprofitable stores and higher operating earnings from our website.
Our other operations, which include the wholesale and retail businesses of Florsheim, Australia, and Florsheim Europe had net sales of $7 $1 million in the fourth quarter of 2020, compared with $9 million in 2019 down.
<unk> as a result of the pandemic.
Collectively Florsheim, Australia, and Florsheim, Europe had operating losses totaling $393000 per quarter compared to operating losses of $854000 from the same period last year.
We will now discuss our full year 2020 results.
Rob This discussion we will refer to adjusted amounts which are non-GAAP financial measures.
Adjusted amounts exclude the following items, which were recognized primarily during the second and third quarters of 2020.
$5 $9 million and employee costs related to restructuring and temporary closures.
$4 $3 billion from two large customer receivable write offs due to bankruptcies filed during the pandemic.
$3 $1 million from the impairment of retail store fixed assets and operating lease right of use assets.
$2 billion on reserves for obsolete and slow moving inventory due to COVID-19 related impacts.
$1 $5 million on early lease termination charges.
And $500000 on other related charges.
Which were partially.
If were partially offset on a five $4 million on income from government wage and rent subsidies.
Additionally, adjusted amounts exclude $2 million of tax expense related to deferred tax assets of the company's foreign subsidiaries.
Reconciliations to the most directly comparable GAAP financial measures are contained within our earnings release.
Our overall net sales for $195 $4 million in 2020, compared with $304 million in 2019.
Loss from operations totaled $7 $6 million on 2020 compared to earnings from operations of $27 million in 2019.
Adjusted earnings from operations were $4 $3 million in 2020.
Hopefully in 2020 net loss totaled $8 $5 million or <unk> 87 per diluted share compared to net earnings of $29 million or $2 10 per.
Our diluted share in 2019.
Adjusted net earnings were $3 2 million or 32 cents per diluted share in 2020.
In the wholesale segment net sales were $152 $2 million in 2020 compared to $242 $1 million last year.
Net sales of the Stacy Adams Florsheim and non Bush brands were down significantly for the year due to the effects of the pandemic.
Bogs net sales were down slightly for the year the business improve as the year went on as consumers spend more time outside.
Licensing revenues were $1 $2 million this year and $3.0 million last year.
In line with reductions in licensee sales of branded products.
Wholesale price earnings as a percent of net sales were 35, 5% in 2020 versus 36, 6% in 2019.
The decrease in gross margins was largely due to additional costs related to the tariff on certain footwear imported from China and higher overseas freight costs.
Wholesale earnings from operations were $975000 on 2020 compared to $27 $8 billion in 2019.
Adjusted wholesale earnings from operations were $5 $8 million on 2020.
In our retail segment net sales were $21 $5 million on 2020, and $25 $2 million in 2019.
The decrease was due to fewer stores in 2020 as a result of the previously mentioned closure of unprofitable stores.
And a significant decline in brick and mortar same store sales due to the pandemic.
This decrease was partially offset by a 9% increase in ecommerce sales due to consumers turning to online shopping during the COVID-19 environment.
Retail losses from operations totaled $1 $1 million in 2020 compared to earnings of $2 $8 billion in 2019.
Adjusted retail earnings from operations totaled $1 $5 million on 2020.
Our other operations had net sales of $21 $7 million compared to $36 $7 million last year.
The decrease was due to lower net sales at both Florsheim, Australia, and Florsheim Europe, resulting from the pandemic.
Collectively Florsheim, Australia, and Florsheim Europe had a combined loss from operations totaling $7 $5 million compared to a loss from operations of $3 $5 million last year.
The adjusted loss from operations for the company's other operations was $3 $1 billion on 2020.
In late 2020, we decided to close Florsheim, Europe, which includes a small wholesale business and to retail stores.
Total sales at Florsheim, Europe, or $2 $6 million in 2020.
Approximately $1 $6 million on the non-GAAP adjustments described earlier, our costs related to the closing of Florsheim Europe in 2021.
At December 31, 2020, our cash and marketable securities totaled $47 $5 million and we had no amounts outstanding on our line of credit.
During 2020, we generated $40 million of cash from operations we.
We use those funds to pay 11 $8 billion on dividends.
Pay down $7 million on our line of credit and.
And repurchase $2 $1 million of our company stock.
Additionally, we had $3 $4 million on capital expenditures.
We estimate that our 2021 capital expenditures will be between one and $2 million.
On March 19, 2021, the company's board of directors declared a quarterly cash dividend of <unk> 24 per share all shareholders of record on March 19, 2021 payable on March 31 2021.
I would now like to turn the call over to Tom Florsheim, Jr. Our chairman and CEO. Thanks.
Thanks, John and good morning, everyone.
We feel positive about the return to profitability in the fourth quarter.
Reflecting increased demand in certain areas of our business as well as reduction in our expenses as we align costs with our lower sales volume.
On the margin for 2021 remains very hard to predict.
We're optimistic that our wholesale business will see a pickup in the second half of the year.
Our bogs business held up well during 2020, and we were pleased with how the business accelerated in the latter part of the year as consumers spend more time outdoors.
Excuse me, we quickly sold through key programs as there was a shortage of outdoor boots in the general market to satisfy increasing demand.
We were able to replenish a good portion of these programs in order to meet unexpected demand.
Early 2021 during this past year bogs also continued to reverse supply it's product mix selling more insulated and lifestyle oriented product in the women's market. While also developing its mens occupational virtually globally.
Regarding our legacy brands the business remains challenging but.
But we see a slight increase in demand at the retail level, our wholesale partners are reducing styles dress and dress casual footwear that are worker occasion oriented.
We believe that the normalization of our legacy business is tied closely to the rollout of vaccinations.
And people returning to normal activities, we expect that demand will increase as companies bring workers back to the office and people can be confident going to social events, such as weddings and family. So operations. However, the timing is on sure.
While we are disappointed with the level of wholesale shipments across our legacy brands. There were some bright spots casual and fashion boots were extremely good and we are also making significant progress towards introducing new casual footwear.
The pandemic motivated us to accelerate change and commit to rapid overhaul of our product mix. The new lines were shipping this spring as well as showcasing for our customers for our fall launch offer fresh book.
Relax take on our brands.
We anticipate increased demand.
We're on traditional dress Marines Dallas on the second half of the year.
We are excited about our prospects to extend into lifestyle categories based on the favorable resumption on new products, we have introduced John Dumber.
Terms of our U S retail segment, our focus remains on investing in growth.
Our E Commerce business, our E Commerce business was up 9% per year and 15% for the quarter.
<unk> drove the growth on the Internet with sales up 53% in the U S and nearly 80% Q as compared to 2019 and up nearly 100% in Canada in the fourth quarter as.
As a result.
The closing of unprofitable stores, we currently have only four active brick and mortar retail locations.
Currently the future results of our U S retail segment will be driven by our more profitable e-commerce business on a worldwide level, we continue to leverage the E. Commerce platform. We have built in the U S to other locations, including Canada, Australia, and New Zealand we.
We have seen success with worldwide E Commerce sales up 29% in the fourth quarter and 18% per the year overseas business is still down significantly from <unk>.
Moving to see signs of economic recovery, especially in Australia, Australia has begun to increase the percentage of workers allowed.
Emphasis.
And shopping malls and street stores are also seen steady growth in consumer traffic.
We have been able to exit a number of unprofitable stores as well as renegotiate retail leases.
On more favorable terms and feel we are on a good path toward improved profitability in 2021 in Australia, and New Zealand <unk>.
Pacific Rim or business remains limited.
Ongoing.
Traffic restrictions have reduced store traffic.
Travel restrictions from reduced store traffic.
So unfortunately, the Europe business has been unprofitable in the last few years and as John mentioned earlier, we have decided to close those operations. So we will be winding down the business this year.
And our third quarter call, we talked about further bringing down our inventories to align with sales our inventories as of December 31 were $59 million versus $76 2 million as of September 32020.
And $86 7 million at the end of 2019.
We have reduced our dress inventory to levels that makes sense with the decreased demand for this category and we continue to transition our mix to include more inventories of casual product.
We look ahead to 2021, we believe that.
At least the first day after the year will continue to be impacted.
Pandemic, but with the rollout of vaccines, we are hoping to see an improved retail environment and consequently higher sales in the second half of the year with our new leaner operations, coupled with our strong balance sheet. We believe we are well positioned for growth and profitability as conditions improve that concludes our formal remarks. We appreciate your interest in.
Waco group and I now welcome any questions.
As a reminder to ask a question you will need to press star one on your telephone to win.
John Your question principal Tom Please standby, while we compile the Q&A roster.
As a reminder, ladies and gentlemen to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Our first question comes from the line of John from clinical your line is now open.
Good morning, everyone.
Right.
I have a couple of questions one.
First let me say it.
Did pretty well in 2020, I mean, considering the pandemic and its impact on on.
On retail and shoe purchasing so it was proud to see that.
X all the noise you actually you actually did pretty well so congratulations.
Thanks, John I appreciate that.
Good work.
A couple of questions I guess on the demand side.
What's the tone of.
Your customer base, we had a couple of bankruptcies.
Are there credit issues.
A link are out there.
And secondarily.
And optimistic second half is that driven by a firm order book or just hopes that the vaccines bring people back to shopping.
Yeah John.
John.
As far.
Hum.
Your first question.
Maureen.
The energy.
Can you restate your first question I'm, sorry, well, what's the credit of your existing customers.
Alright.
Still lingering issues out there theyre not us.
Hmm.
A large as.
They were during the height of the pandemic.
We're watching it closely.
And.
Oh, we have a better a better handle on it but you're still you're still on a kind of interesting.
Time, Inc. In the retail on in the retail.
Environment, where you.
You have <unk>.
Jordan channel.
Panels within brick and mortar that remain under pressure on them.
And I don't want on mentioned any specific <unk> on.
General nor where are.
Now we're just.
We feel that while we're on.
Better on than we were.
Eight or nine months ago.
There are still some issues that worry.
That are out there on that.
We're watching very closely.
Yes.
Just to add to that John that after being stung a couple of times.
Last year.
We're being very very cautious.
Sure.
Where are the credit risk as far as your second question, it's kind of mixed because with Fox our backlog is way up.
That business is very very good with the legacy brands, our backlog is a little bit challenged right now because the retailers are hesitant to commit for the second half because.
They are watching their inventories very very closely so most of our.
What we've said about improvement in the second half.
Is based on our fueling that.
If everybody in the U S that wants to can be back day. After day by the end of May.
Things are going to start improving over the summer and that we are going to see a significant bump in the second half because there's a lot of weddings that were canceled that are being rescheduled for the secondhand and people I think there's there's just on.
Pent up behind in this country that people want to get back to doing normal things.
But what we're doing.
Because the backlog is challenged with legacy branch is very strategically.
And inventory that we feel is safe and so that we have no inventory.
Chase the business of debt as it comes back we actually think all.
Yet there is high.
On a chance, there's not enough inventory and.
Out there on the marketplace for us.
The more traditional dress dress casual business the back half of the year because you've had this reaction among a lot of retail ours or they've reduced.
Styles within that area of the market and they've moved more towards athletic net.
Very relaxed casual.
Which makes sense, but then you have the <unk>.
Andre I'm swings back.
A lot of companies.
Half.
Maintain stocks from a wholesale standpoint, and the more traditional area of the business and we feel that we can be pretty well positioned with less competition.
The question really is the timing the book.
Bogs.
Yes.
Tom mentioned that is different for different brands or blogs.
Backlog is very strong because there was a shortage of brutal out there.
Last fall so I think Richie ours is the opposite effect, where retailers want to make sure that they're covered.
For fall 'twenty one.
That business is actually.
Very strong right now when you look at that.
Confirmed bookings.
Yes.
Okay. Good that's encouraging.
And on the supply side.
Is the supply chain back to normal I know you source a lot through China. There were some disruptions there with the pandemic, but how would you characterize the supply chain at this point or are you getting what you need from offshore suppliers on a timely manner.
Yes.
The supply chain.
Gene is basically 100% back to normal with the exception of the shortage of containers you know I'm sure you've read about how theres, so much being imported right now.
Zero appear on shoes is probably not driven by appear on shoes.
But there's so much been imported from from China and other places in Asia that there is a big shortage of containers.
And so it could be more difficult to get space and sometimes we've had to wait a week or two weeks and then right now we're paying a premium for those containers and then once they get to the West coast.
There's issues with getting them through the ports and part of that is due to COVID-19, where they have workers that are out.
With COVID-19, but it's slower getting them through the ports out on the West coast and so that's all a hiccup in general.
Factories have capacity right now they are hungry.
And we're getting on the shoes manufactured that we need is just a matter of single day is getting them here.
Is that are those hiccups costing you sales in terms of not being able to make deliveries.
The retailers we have.
Yes.
To get some extensions for February deliveries into March we don't see a major impact on the first quarter at all.
And the retailers actually ever being very understanding and give you the extensions because.
They are facing this across all of their products right now and.
While the while there are delays.
A two week delay was frustrating is not new.
Not the end of the world.
Okay Alright.
That's good news and the percentage of business coming out of China did that change dramatically last year, because I know you were talking about sourcing from India, Vietnam, Cambodia, and other places that the percentage of business coming out of China changed at all last year.
Not significantly.
And.
AD.
We are.
We still have the strategy to diversify.
We're trying to do more business into all of those other places that you mentioned, but interestingly with restrictions due to the pandemic a lot of people that moved out of China have actually returned in part to China, because all the components are still made there it's very difficult with on.
All of the border issues and moving components around to move move.
Move to imported from China to Vietnam to India places like that so you actually have brands returning to China, which is kind of interesting it so.
We still have a lot of manufacturing in China, and we have good partners there.
And I would say that the pandemic is actually cause kind of a hiccup in our strategy and so we did move as much as we'd hoped to last year, but we're planning to restart that as things normalize.
Continuing that effort to diversify and China was what percentage of your imports I cant remember roughly.
I'd have to this is a ballpark number John I could follow up with you and give you more exact numbers at a more exact number but I'd say, it's 70% close to 70.
And the tariffs are still in place for Chinese imports correct.
Yes, they reduced from 15% on leather product to seven 5%. So there are lower but theres still seven 5% extra 75% is still in place we were fearful because initially they were talking about duties on.
Robert rubber product, which would apply to bonds and those never happened so that was.
That was a good thing, but we still are faced with this extra seven and a half on leather product.
Okay, Alright, great Thats, it was going into right direction.
Just a couple of quick questions on the numbers.
There were no as far as I could see no shares repurchased in.
In the fourth quarter, unless I missed it.
How much is left on your buyback program and with that a lot of cash you have sitting there.
Any value.
For buying shares at this point.
John.
Correct.
<unk>.
We did buy back.
Approximately 47000 shares in the fourth corner.
We did not buy shares we bought back shares in the first quarter then we stopped.
In April for the second and third quarter, we purchased no shares.
And in the fourth quarter, we began to buy shares back again, and so we've bought 47000 shares back in the fourth quarter and average price of around $16 a share.
And we continue to to buy back some shares.
In the first quarter.
We have approximately 336000 shares.
Left on our buyback program as of the end of the year that does not include anything bought back in the first quarter.
But we have continued that to some extent in the first quarter.
Okay, Alright, that's encouraging and I guess finally on the list of non recurring items and non-GAAP adjustments that you laid out.
The only one on that list that would apply to cost of goods sold would be.
The $2 million pre tax expense for reserves of obsolete and slow moving inventory is that correct everything else would go through SG&A.
That's correct.
Okay, Alright, I was just trying to.
But to put the right apples on the right bucket okay.
That's all I have thank you very much and congratulations thanks for your questions.
Thank you as a reminder, ladies and gentlemen to ask a question you will need to press star one on your telephone to win.
So on your question press the pound key.
At this time I'm showing no further questions I would like to turn the call back over to John with Kautsky for closing remarks.
Thanks, everyone for attending our conference call and we look forward to speaking at the end of the first quarter have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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