Q1 2021 WEYCO Group Inc Earnings Call
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Yes.
Ladies and gentlemen, thank you for standing by and welcome to the Waco Group first quarter 2021 earnings release Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone.
If you require any further assistance. Please press star then zero.
I would now like to hand, the conference over to your speaker for today, John with Koski, Chief Financial Officer, you may begin.
Thank you good morning, everyone and welcome to Waco Group's conference call to discuss our first quarter 2021 results.
On this call with me today are Tom Florsheim Junior, our chairman and CEO and John Florsheim, Our President and C O B.
Before we begin to discuss the results I will read a brief disclaimer during.
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 identifies important factors and risks that could cause the company's actual results to differ materially from our projections.
With respect to the ongoing COVID-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 its impact on the global economy and.
Actions taken by governments, such as stay at home and similar orders that among other effects require retail store closures or limit foot traffic and the financial health of the company's customers and business partners, including the effects of any bankruptcy proceedings by which by such parties.
The performance of the Companys supply chain, and the health and welfare and 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.
Net sales for the first quarter of 2021 were $46 9 million compared with first quarter 2020, net sales of $63 6 million.
Operating earnings increased to $1 $6 million and 2021 from $1 3 million and the first quarter of 2020.
Net earnings were $1 $3 million, this quarter and $1 $2 million last year.
Diluted earnings per share were <unk> 14 per share and the first quarter versus <unk> 12 per share and the first quarter of 2020.
And the North American wholesale segment net sales for the first quarter of 2021 were $33 4 million compared to $52 $7 billion last year.
Last year's first quarter included approximately two and one half months of sales that occurred before the pandemic struck the U S and.
In mid March 2020, much of the country shutdown, which resulted in a sharp drop off and sales during the last few weeks of the quarter.
Our first quarter 2021 sales continued to be impacted by the effects of the ongoing pandemic, resulting in lower demand for dress and dress casual footwear.
Sales of the bogs outdoor brand rose, 32% and the first quarter of 2021 as consumers continue to spend more time outdoors during the pandemic.
Wholesale gross earnings were 34, 5% of net sales and the first quarter of 2021.
Compared with 31, 8% of net sales in 2020.
And last year's gross margins were negatively impacted by a 15% tariff on certain footwear imported from China beginning in September of 2019.
The tariff was later reduced to seven 5% in February of 2020.
Our gross margins improved and the first quarter of 2021, because the company has sold through much of the high tariff inventory during 2020.
Wholesale selling and administrative expenses were $10 2 million or 31% of net sales for the quarter compared to $14 million or 27% of net sales and last year's first quarter.
First quarter 2021 expenses were reduced by approximately $1 $8 million due to government wage subsidies.
Additionally, wages and advertising costs were down for the quarter as a result of the company's cost cutting measures.
Wholesale earnings from operations were $1 4 million compared to $2 8 million and the first quarter of 2020.
The decrease was due to lower sales, partially offset by the higher gross margins and lower selling and administrative expenses.
Net sales of our North American retail segment, which includes sales from both our U S E Commerce business and retail stores were $5 $6 million per quarter compared to $4 8 million and last year's first quarter.
Same store sales were up 32% for the quarter due to a 36% increase and E. Commerce sales, mainly box offset by a 5% decline and brick and mortar same store sales.
There were four fewer brick and mortar stores operating at March 31, 2021 that at March 31 2020.
Retail operating earnings were $756000 compared to operating losses of $89000 last year.
The improvement was due to the benefit of closing unprofitable stores and higher earnings from the company's ecommerce business.
Our other operations, which include the wholesale and retail businesses of Florsheim, Australia, and Florsheim Europe had net sales of $7 $9 million.
And the first quarter up from $6 $1 million last year.
The increase was due to higher net sales at Florsheim, Australia.
Florsheim Australia's net sales were up 39% for the quarter with sales up in both its wholesale and retail businesses the.
The stronger relative to the stronger dollar relative to the U S dollar.
Also contributed to the increase as Florsheim Australia's net sales in local currency were up 19%.
Collectively Florsheim, Australia, and Europe had operating losses totaling $481000.
Compared with operating losses of $1 $3 million last year.
The reduction in operating losses was due to the improved performance at Florsheim, Australia.
At March 31, 2021, our cash and short term investments and marketable securities totaled $58 2 million and there were no amounts outstanding on our revolving line of credit.
During the first three months of 2021, we generated $14 $2 million of cash from operations.
We purchased $20 million of short term investments used funds to pay $2 3 million and dividends and repurchase $1 $1 million of our company stock.
We also had 73000 of capital expenditures we.
We estimate that 2021 annual capital expenditures will be between one and $2 million.
On May four 2021, and our board of directors declared a cash dividend of <unk> 24 per share to all shareholders of record on May 28, 2021 payable on June 32021.
I would now like to turn the call over to Tom Florsheim, Jr. Our chairman and CEO.
Thanks, John.
And good morning, everyone. After a tough January February business opened up and March across all of our brands a trend that continued through April.
We believe that there are a number of factors behind the improved trajectory, including stimulus checks pent up demand the gradual reopening of offices and.
As well as planning for events, such as weddings and graduations.
While the market remains hard to predict we are encouraged by that.
The demand, we're seeing at retail for our more traditional dress and dress casual footwear.
Bogs sales rose, 32% for the quarter.
Throughout the pandemic, our bogs sales have been strong reflecting the trend toward more time outdoors. We benefited from late winter weather in February as borrowers was one of the few weather boot brands to have adequate inventory.
Meanwhile, we have enjoyed a solid start to spring with our lightly insulated lifestyle and garden oriented products.
Bookings for fall are significantly up for the brand and we anticipate a good year per box.
Since the beginning of the pandemic demand for our legacy brands for Schein Nunn Bush and Stacy Adams.
Has been limited as consumers spent discretionary dollars and more relaxed and athletic footwear and apparel.
And while demand improved slightly and the fall of 2020, we did not anticipate significant interest and our dress and dress casual styles and two.
Till the second half of this year with offices were more fully reopened and consumers were likely returning to social and pass that required more formal are fashionable and tire power.
However.
We experienced rising demand across all of our brands for dress and dress casual footwear and the last month of the quarter earlier than anticipated. We also saw good sell through performance for this category and the weekly data sent to us by our key retailers, while demand is still not at 2019 levels.
It is higher than we anticipated Fortunately.
We were and are relatively good inventory position and we're able to ship a good portion of these orders.
We believe that we are one of the few companies to maintain a significant inventory of more traditional footwear.
And we are well positioned to pick up market share as this segment of the footwear business rebounds.
We are also pleased with the progress, we're making and placing and selling more casual and relaxed footwear.
As part of the merchandise mix for all of our legacy brands over the past 18 months, we devoted the majority of our design work toward developing a broad range of casual footwear and line with irrespective DNA and aesthetic a portion non bush and Ccs EBIT with the resurgence of our traditional business we see.
The investment and the casual lifestyle category is critical to our future success.
We continue to see good growth and our ecommerce business.
Our first quarter web sales increase was driven by bogs.
We also are starting to see significant ecommerce growth for our legacy brands and March which continued through April we see investment and our web business is a key part of our strategy and business model moving forward.
We are extremely pleased with the turnaround we saw in Australia, and New Zealand. This quarter both markets have largely opened up and are steadily returning to our pre pandemic lifestyle. We're starting to see retail numbers compare favorably to 2019 sales levels at the same time, we've exited unprofitable stores and.
<unk> leases on more favorable terms, which we expect.
We'll create a healthier business for us and this important market, our Australia and wholesale business was also boosted by a significant increase and our bogs wholesale business, which is off to a strong start.
And 2021 on the heels of solid growth last year.
As mentioned and our prior conference call, we decided to wind down our florsheim wholesale and retail business in Europe.
Our European business has been unprofitable the last few years and the situation worsened with the onset of the pandemic.
And a positive note we reached a long term licensing agreement with Alba mode up and manufacturer and marketer of footwear Eastern Florence, Italy, our mode out will begin signed florsheim men's and women's shoes, and Europe and other select markets beginning in November of this year. We are excited about our partnership with <unk> and look forward to growing the <unk>.
<unk> brand in Europe through this new relationship.
And the last few conference calls, we have talked about bringing our inventories down.
To align with lower sales and the legacy brands.
And our any inventory at March 31 was $47 3 million compared to $59 million at the end of 2020.
With increased demand for dress and business casual shoes, and we have started the process of rebuilding our inventories many of our large accounts are requesting delivery for as soon as possible to replenish the dress shoe and inventories in order to meet current higher consumer demand.
Our backlog has grown for the third and fourth quarters Harbor forecasting is still challenging as retailers remain somewhat cautious.
Given the long lead times out of Asia, we are bringing in extra inventory on our core styles as well as some of the new casual product, where we are seeing strong retail selling to position.
<unk> and ourselves for a stronger second half as the U S economy opens up.
The increased demand for bonds is also contributing to our plan for higher inventories.
Lastly, we are currently experiencing price pressure due to increases and freight costs as well as increases and the cost of materials. We are trying to cover as much of our needs as possible for this year at current prices, but we are planning to increase our selling prices and the second half of the year to maintain our margins.
This concludes our formal remarks, thank you for your interest and Waco group and I'd now like to open the call to your questions.
Thank you.
Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.
To withdraw your question.
And again Thats star one to ask the question.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of John John di share.
Sir your line is open.
Good morning, everyone.
Morning, John John.
Good good solid quarter I'm impressed that earnings were up even though sales were down.
And so.
That's a healthy sign.
And I was just curious a couple of things one.
And what are your retailers are.
Are your retail customers, giving you firm commitments for the second half yet.
I know.
This conference call and they hadn't.
Really done anything yet, but what are they telling you for the second half I know you mentioned box was up about the legacy brands.
We're starting to see that change and a positive way.
Our orders come in and two different forms one or hard orders that retailers commit to typically for new product that's being delivered in the fall and then we have orders that we call box and we work with the large retailers to plan out their inventory needs.
And in advance so that we'll have the product that they need and then the orders come in against those box through Adi each week.
And we've seen a change in attitude, let me put it that way from a large retailers over the last few weeks as they've seen their dress and dress casual business pick up and.
So we've had much more.
Collaboration.
And then.
Bulks and planning out business for the fall. We've also as I mentioned and their call John we've seen a.
A big increase and at once business, where orders just come in because the retailers the big ones tend to replenish what they sell.
It's too early it's too early to call. This a trend and what after what we've been through the last year.
You want to still be a little bit cautious, but it's exciting.
And to see what we're seeing right now and retail sell throughs and like and this past week.
We get day.
Data from most of our key retailers and in some cases.
Retailers beat their sales numbers for 2019 and our.
With our brands and <unk>.
Inventory that was down and say, 40% some cases, 50% and it just seems too good to be true and some of that is definitely.
And.
Positively impacted by the stimulus checks and so thats going to wear off of that effect what were off eventually but.
There's also been a lot written and the Wall Street Journal recently about how people are out shopping for clothes shopping for shoes planning for events and so.
Basically I think retailers are feeling more confident and we're having more success getting backlog and for the second half we still have work to do with the legacy brands.
It has come in at.
Okay.
That's good to hear so back to school and holiday orders and when do you anticipate to see those one way or the other.
While her blogs.
Already in April.
And.
We get harder from Boston.
The fact that there is a shortage.
And.
Okay.
Year.
And Mary.
Maybe grant or sold out our inventories.
And we're relatively good but we still ran out and key styles.
<unk> and.
And advice.
Retailer Iq.
Give us orders well in advance to cover themselves from the back half of the year. So we're seeing large increases and our backlog.
Per block for our legacy brands.
Starting to get more hard orders.
It's not at the level that we would like.
But the reality is.
And most of our accounts.
Rob.
Majority of the backlog is done per key styles through as Tom asset book.
<unk> orders.
And so we were already put those in.
Well and to that.
Fourth quarter early outflow covered through the fourth order and we're more confident based on demand.
And so.
We're probably getting smaller and orders than we normally would get for back half of the year by the majority of our business is through.
Planned our inventory that we go ahead and we.
And we're feeling a lot better.
About being able to cover that inventory and debt.
And we demand there too.
From a retailer to bring that inventory net.
Okay, good and that's encouraging and speaking about bringing inventory and.
And what's the status of the supply chain or Theres still bottlenecks and the ports.
How is that shaping up at this point, yes, there are still bottlenecks and the ports and that situation actually has gotten a little bit worse not better.
It's probably because of just the volume of imports coming into this country, but we're seeing two issues, we're seeing delays and getting containers out of the ports and particularly in China.
And then once the containership the west coast.
There are delays there that can take another one week two weeks and so we're trying to plan as much of that and as possible but.
We are anticipating some late deliveries as we move into fall and the retailers seem very aware of the situation because everybody is faced with that they are faced with it with their own private label brands. So they are working with us but that is a challenge the actual supply chain from the standpoint of manufacturing footwear is not a proud.
<unk>.
But getting them here is still a problem.
Okay, Okay alright.
Alright.
You just have to deal with that.
Okay.
Couple of financial questions, you bought back $1 1 million.
And as a stock how many shares was that or what was the average price and that stock.
Rob.
And we bought back about 62000 shares at an average price of about $17 50 for.
And for the quarter that'll be in the 10-Q and.
We have.
Authorized 275000 remaining shares yet.
To buyback or that we at least have authorized at this time.
Can you tell us if youre active currently.
We're always active based upon.
What we feel.
The pricing is.
We haven't bought some stock we haven't bought much back and the last month or so, but we're always looking at it and always evaluating it.
Okay Fair enough and then.
<unk>.
First quarter 2021 expenses were reduced by approximately $1, one $1 8 million.
And due to government wage subsidies.
Is that continuing.
What does that mean the government is subsidizing.
Payroll.
Yes.
Yes that is true.
And then called the earned retention of our employee retention credit that was in place for 2021.
The credit says.
That.
If you are more than 20, it used to be you had to be 50% down.
To qualify they changed it for 2021 for the first two quarters and and extended it for the last two quarters. So the entire year. If you qualify you have to be 20% down and gross receipts.
Compared with 2019.
So if you do you're eligible for a credit equal to approximately ballpark I'm not ballpark and I'm, giving you round numbers.
<unk> almost $7000.
Per employee.
For wages for each quarter up to $10000 and wages. So its maximum of $7000 per full time employee effectively.
For the for each quarter.
So if you continue to show.
And.
Sales lower than 80% of 2019, you qualify for the credit we will qualify for the <unk> you can also use the prior year quarter.
So we know we're going to qualify for the second quarter. So we will have that subsidy in quarter two.
We do not know if we will qualify for that quarter, yet or other credit yet for quarter, three and four it depends on the results on how we're doing based on what I, just said, 80% down on 2019, 80% of 2019 and 20% down.
So we did get the credit and the first quarter, we will get the credit and the second quarter and.
And yet on three and four.
And Q2, you anticipate to be similar to Q1 and amount.
Yes, the credit yes, because it's based upon employee wages, it's 70% of employee wages.
Up to $10000 and wages.
That's the credit.
So you can do the quick math, if you people are making $40000 a year you will get 7000, a quarter for those employees, Okay fair enough.
Good day and then my final question is Florsheim Europe.
Or is there any shutdown expenses or extraordinary expenses and <unk>.
Q1 from shutting that down.
Most of those costs were put through in the fourth quarter last year, our third and fourth quarter last year. When we had those onetime charges, we had much of that and I can't guarantee that there won't be some.
Some shut down cost, but we don't believe those are going to be material to our numbers. Okay got it great. Thanks, and good luck going forward. Thanks.
Thanks, John and Ken.
Thank you as a reminder, ladies and gentlemen that star one to ask the question. Our next question comes from the line of Steve Rudd with Blackwell. Your line is open.
Hi.
Can you breakout from you what percentage of total sales our bogs sales.
Yes, we can that will be and that is disclosed in the and the 10-Q.
For first quarter or first quarter and I.
Assume you are talking about the first quarter.
Correct.
Okay.
Okay.
And a pickup.
The quarter will be out.
For filing and.
And Steve while John is John Mcaliskey is getting that number.
And just go a little bit of context bogs is still pretty heavily weighted towards the second half of the year. So the first and second quarter, our smaller quarters for bogs and so the numbers vary.
By quarter, essentially so I'll do the math for you real quick here.
And again. These are all of these are these are north American wholesale segment sales for bogs and this is this will be disclosed and the 10, Qs one and not giving any information that is not public.
23% and the first quarter of 2021 of wholesale was blocks.
Okay.
So and a dollar amount that about let me just maybe.
And maybe.
And it's all around it's about $7 6 million.
The book and then that ramps that ramps up as a percentage as we get two three and four.
That is correct bogs is a little seasonal is seasonal and.
Yes, I do not have right in front of me the percentage from last year, but you can get that and the 10-K and its.
And it's right in the MD&A section so it's.
And it's it's out there.
So is the plan and certainly would be my plan.
Going forward <unk> got this growth brand of bogs, which has.
And at better margins and a business model that.
Designed for better margins.
Also with.
Quarter to quarter and year to year.
Growth I mean, it's a fabulous brand attached to this legacy brand I think all of you see where I'm headed isn't the plan and to spin that off and get a real multiple on it I mean, you could probably get a multiple.
That would exceed our current share price.
Yes, that's not that's not really the plan I mean, one of the things that you have to kind of monitor.
And one of the things that you have to consider.
And that legacy brands have been depressed and sales, we had 20% growth and free.
Four shy of two years in a row is our fastest growing prior to the pandemic. So that was actually our fastest growing brand and our largest brand.
But to your point, we're very focused on growing the outdoor business.
And our portfolio and we've stated this previously we're looking for other acquisitions. So it's kind of the opposite of actually what you are suggesting and we're going to beef up that area of our portfolio that diversifies our portfolio and.
In terms of the range of products that we're offering.
And while we're actually seeing a nice surge and our.
Traditional business.
And why.
And we start to cycle against big numbers from box from last year. So it's.
Actually it balances out.
Since your sense is I mean, we are growing fastest growing roughly so from the last few quarters and about 35% growth our growth rate.
From a.
Our wholesale perspective.
And I don't have the number by quarter and barge was more or less flat last yet where we're seeing.
Where we saw very strong growth.
Was and ecommerce.
Our e-commerce direct to consumer business.
Up significantly last year and that continued through the first quarter I think we were up over 30% box and the first quarter ecommerce.
Right.
Cool.
And I mean listen from.
Yes from from an Investor point of view right people love to have the growth story because there is.
And have to tell you guys I mean <unk> been around long enough you know that.
These days, it's hard to call folks analysts, but you know how analysts will project things out and I mean, it's growing 35.
And now it will be 400% and.
And you get these wild multiples based on growth, which may or may not occur.
And in the meantime, if you have a separate.
Company net.
It doesn't have to have its own <unk>.
Management infrastructure and you can pay for Florsheim management.
Anything to think about because you can really get better.
Economy, and that are off but bogs better fell from the structure.
Structure out here that we're here.
And here that we lever that allows box and be a very profitable brand.
Right.
And so that's really and.
And so it all it all start working together and I think youre going to see.
Our legacy business bounce back and we.
We're going to continue to and strong growth per blogs and certainly the back half of this year, we feel very confident about.
And I should do very well and kind of working out there for ways to further diversify our business from a portfolio standpoint.
And with <unk> Bank.
Okay, and just lastly, too.
Just at this point just per year further.
Consideration and you don't need to set up and complete separate infrastructure to be running bogs effectively independently or it could be reporting them out independently.
And you can always pay right.
That would be correct, but it's not decided and our plants.
Okay and that box.
Alright, I guess.
And <unk>.
<unk> and I think the market will do.
The retail market will lift.
This up without a doubt.
We agree.
Yes, no question.
Yes no.
No.
And I think was higher.
Rob apparel and footwear brands and we did not escape that and we're looking forward to much better year. This year.
Okay. Thanks.
Thank you.
Thank you.
I'm showing no further questions in the queue.
I would now like to turn the call back over to John for closing comments.
Thanks for your attention today, and we will talk with you next quarter have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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