Q4 2021 WEYCO Group Inc Earnings Call
Thank you for standing by and welcome to Waco group's fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker 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 maybe recorded should you require any further assistance. Please press star zero I would now like to hand, the call over to John Bakowski Senior Vice President Chief Financial Officer. Please go ahead.
Thank you good morning, and welcome to Waco Group's conference call to discuss our fourth quarter and full year 2021 results on this call with me today are Tom Florsheim Tom.
Tom Florsheim, Jr, Our chairman and CEO , and John Florsheim, our President and C O before.
Before we begin to discuss the results for the quarter and for the year I will read a brief cautionary statement.
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 these 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 our other filings with the SEC.
The Form 10-K identifies important factors and risks that could cause our 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.
The extent and duration of the negative impacts on our supply chain.
Actions taken by governments, such as stay at home or similar orders that among other effects require retail store closures or limit foot traffic.
The financial health of our customers and business partners, including the effects of any bankruptcy proceedings by such parties and the health and welfare of our employees.
Our net sales for the fourth quarter of 2021 were a record $101 $4 million compared to last year's fourth quarter net sales of $62 million consolidated gross earnings were 42% of net sales for the quarter compared to 44, 5% of net sales in last year's fourth quarter.
The decrease in gross margins was largely due to lower wholesale margins, partially offset by higher margins in our other businesses.
Operating earnings were $12 $8 million for the quarter compared with $7 $9 million in the fourth quarter of 2020.
Quarterly net earnings rose to a record 10 $3 million or $1 seven per diluted share up from $5 $1 million or <unk> 52 per diluted share last year.
Last year's fourth quarter results were significantly impacted by the COVID-19 pandemic as.
As such comparisons of 2021 financial performance to 2020 May have limited utility and therefore, we are including selected comparisons to 2019 as appropriate.
<unk> net sales for the quarter.
<unk> fourth quarter 2019 levels by 17% and operating earnings beat 2019 levels by 11%.
In the North American wholesale segment net sales for the quarter were $79 $9 million compared with $46 $2 million last year with sales up across all of our brands.
Last year's fourth quarter sales of our legacy brands were lower than normal.
Because of the pandemic significantly impacted sales of dress and dress casual footwear sales.
Sales of the bogs outdoor brand, which were less affected by the pandemic in 2020 rose, 29% with sales up across most distribution categories.
The North American wholesale segment experienced significant growth in the fourth quarter with net sales, surpassing 2019 levels by 16%.
Not only did florsheim and bogs achieved record fourth quarter sales, but sales of the Stacy Adams and Nunn Bush brands rebounded to near pre pandemic levels.
While part of the sales increase can be attributed to some third quarter orders shipping in the fourth quarter due to delays in the supply chain.
We also experienced strong demand across all of our brands as consumers continue to participate in normal activities.
And retailers worked to restock their shelves.
Wholesale gross earnings were 33, 7% of net sales for the quarter compared to 39, 6% of net sales in last year's fourth quarter.
The decrease in gross margins in 2021 was primarily due to higher inbound freight costs as we paid premium rates during the quarter.
We believe that gross margins will improve in mid to late 2022, as the supply chain stabilizes and as negotiated price increases with our customers go into effect.
Wholesale operating earnings rose to $9 $4 million for the quarter up from $5 $6 million in 2020.
Due to higher sales, partially offset by the lower gross margins.
Operating earnings reached 87% of 2019 levels.
Net sales of the North American retail segment were $13 $5 million for the quarter compared to $8 7 million last year same store sales rose, 57% due to a 52% increase in ecommerce sales and higher brick and mortar sales.
Last year's brick and mortar sales were down significantly as a result of the pandemic.
We closed three unprofitable retail stores in the third quarter of 2020.
And one in the first quarter of 2021, and currently have four active U S brick and mortar locations.
Retail gross earnings as a percent of net sales were 66, 2% and 66, 7% in the fourth quarters of 2021 and 'twenty respectively.
Retail operating earnings totaled $3 3 billion up from $2 $7 million last year with earnings up at brick and mortar locations and in E Commerce.
The retail segment posted its highest ever quarterly sales and operating earnings results in the fourth quarter of 2021 significantly outpacing the comparative 2019 levels by 48 and 116% respectively.
While most of the sales increase was driven by e-commerce growth brick and mortar sales at our remaining locations also surpassed 2019 levels.
Our other operations, which include the wholesale and retail businesses of Florsheim, Australia, and Florsheim Europe had net sales of $8 million for the quarter compared with $7 $1 million in 2020.
The 2021 increase was at Florsheim, Australia with sales up in both its retail and wholesale businesses.
Really offset by the lower sales at Florsheim, Europe , which we are in the final stages of winding down.
Gross earnings at our other businesses were 61, 1% of net sales for the quarter compared to 48, 6% of net sales in the fourth quarter of 2020.
Collectively Florsheim, Australia, and Florsheim Europe had operating earnings totaling $41000 for the quarter versus operating losses of $393000 last year. The improvement between periods was primarily due to lower operating losses at Florsheim Europe .
Other net sales for the quarter reached 88% of 2019 levels with Florsheim, Australia, beating 2019 levels offset by lower sales at Florsheim Europe .
Lockdowns imposed in Australia were lifted which allowed us to reopen all of the florsheim Australia's retail stores during the quarter.
We will now discuss our full year 2021 results are.
Our consolidated net sales in 2021 were $267 $6 million compared with $195 $4 million in 2020.
Consolidated gross earnings were 41% and 42% of net sales in 2021 and 'twenty respectively.
Operating earnings rose to $25 $7 million up from operating losses of $7 $6 million last year.
Net earnings were $26 million or $2 12 per diluted share in 2021 compared to net losses of $8 5 million or <unk> 87 per diluted share in 2020.
Our 2020 results were significantly impacted by the pandemic due to most brick and mortar retailers being closed for a majority of the second quarter and an overall increase in consumer demand overall decrease in consumer demand.
Additionally, last year's operating results included nonrecurring charges totaling $11 9 billion.
Consolidated net sales for the year recovered to 88% of 2019 levels and operating earnings reached 95% of 2019 levels.
North American wholesale net sales were $205 $4 million in 2021 compared to $152 $2 million in 2020.
With sales up across all brands.
Last year's sales of our legacy brands were down significantly as a result of the pandemic.
Sales of the bogs outdoor brand rose, 17% with sales up across most distribution categories.
Wholesale gross earnings as a percent of net sales were 33, 8% in 2021 and 35, 5% in 2020.
The decrease in gross margins was largely due to higher inbound freight costs as previously discussed self.
Selling and administrative expenses were $49 9 million or 24% of net sales.
Versus $53 1 million or 35% of net sales in 2020.
2021 expenses included income of $5 $5 billion in wage subsidies received from the U S and Canadian governments and expense of $1 $1 billion to write off certain assets related to the closing of Florsheim Europe .
2020 wholesale expenses included $4 8 million of nonrecurring charges.
Wholesale operating earnings rose to $19 $5 million in 2021 from $975000 in 2020, due mainly to higher sales.
2021, wholesale sales and operating earnings rose to 85% and 70%.
Of the 2019 levels respectively.
This recovery was sluggish early in 2021 with the first quarter is still being impacted by the pandemic, but operations improved significantly after COVID-19 vaccinations were rolled out in the second quarter.
In our North American retail segment net sales were $31 $6 million in 2021, and $21 5 million in 2020.
Same store sales rose, 53% due to a 43% increase in ecommerce sales and higher brick and mortar same store sales.
For the year retail gross earnings Rose to 66, 4% of net sales up from 64, 8% of net sales in 2020 with gross margins up at both active brick and mortar locations and in e-commerce the.
The retail segment had operating earnings of $6 $7 million in 2021, compared with operating losses of $1 $1 million in 2020.
Last year's losses included $2 $6 million and nonrecurring charges.
The improvement in 2021 is due to the benefit of closing unprofitable stores higher ecommerce earnings and improved performance at active brick and mortar locations.
2021, retail sales and operating earnings surpassed 2019 levels by 25 and 138% respectively.
The increases were primarily due to growth in our more profitable E comm business.
Our other operations had net sales of $30 $7 million in 2021, compared with $21 $7 million in 2020.
Increase was at Florsheim, Australia with sales up in both its retail and wholesale businesses for the year. Other net sales amounted to 84% of 2019 levels with Florsheim, Australia, reaching 93% of 2019 levels offset by lower sales at Florsheim Europe .
Gross earnings in our other businesses were 55, 8% of net sales in 2021 versus 48, 8% of net sales in 2020.
Collectively Florsheim, Australia, and Europe had operating losses totaling $404000 in 2021, compared with operating losses of $7 $5 million.
In 2020, and $3 $5 million in 2019.
<unk>, Australia had operating earnings of $118000, resulting from improved gross margins and cost reductions.
Last year's losses included $4 5 million and nonrecurring charges.
The improvement in 2021 was primarily due to stronger results at Florsheim, Australia.
At December 31, 2021, our cash and short term investments and marketable securities totaled $38 million and there were no amounts outstanding on our revolving line of credit.
During 2021, we generated $6 $4 million of cash from operations, we used funds to pay $9 $3 million in dividends and invested $8 1 million and short term investments and repurchased $2 $5 million of our stock.
We also spent $2 $6 million to acquire the forsake brand and had $1 billion of capital expenditures.
We estimate that our 2022 annual capital expenditures will be between two and $3 million.
On March eight 2022, our board of directors declared a quarterly cash dividend of 24 per share to all shareholders of record on March 18th 2022 payable on March 31, 2022, I would now like to turn the call over to Tom Florsheim, Jr. Our chairman and CEO . Thank you John .
And good morning, everyone as John mentioned, we had an outstanding end to the year with record wholesale shipments in the fourth quarter and strong performances across all brands our results reflected two underlying trends.
First the slow unwinding of the supply chain follow NEC as we started to receive significant quantities of footwear in the fourth quarter the.
The incoming shipments allowed us to fill a portion of the demand pipeline as we are still in the process of getting retailers back to their natural inventory models and second we are seeing outstanding consumer response to our product offerings in both legacy and outdoor brands.
Our bogs brand has been solid across the pandemic timeframe. So is especially meaningful that we had a record fourth quarter for box or.
Our classic weather boot styles experienced elevated demand and multiple distribution channels, ranging from department stores and cities to FARB in agricultural stores in rural communities.
Addition, we greatly expanded sales of our casual lifestyle footwear from our wholesale and direct to consumer perspective.
Relative to 2019, our bogs.
Commerce business in North America, we saw over 100% for both the fourth quarter and for all of 2021. The bogs brand is in a good place as we build off the strong momentum over the past two years and pushed successfully into new categories.
In June of 2021, we acquired that for sake brand, which joined box as part of our outdoor group in Portland over.
Over the past few months, we've been working with for shakes founders J Anderson and cm Barstow to onboard the brand and to determine opportunities to expand <unk> reach both in the wholesale and direct to consumer channels.
Similar to our other brands for sale certain supply chain constraints and delays, but we believe we're making good progress in terms of putting the right structure in place for future growth.
Our legacy brands, which encompass florsheim, Stacy Adams and Nunn Bush had a robust fourth quarter.
In previous calls we've discussed the demand roller coaster associated with the dress and dress casual business.
We went from nearly non existent demand in early March to unprecedented interest a few months later and that trend continued largely through the end of 2021, the falloff in the refined footwear category early in the pandemic, followed a long period, where the category had already been under pressure.
Due to the increased importance of a flatter can have leisure casual footwear in today's lifestyle.
As a result at the onset of Covid many of our competitors pulled back or exited from the dress shoe business, which put us in a strong position to pick up significant market share when the business bounce back.
While we remain committed to diversifying our legacy product mix. We also recognize that we have a tremendous opportunity to be the leader is still sizeable category and the footwear world as.
As we look forward in 2022, we see good things on the horizon with more workers returning to the office and increased social events, including a record forecast for weddings, all of which bodes well for our business.
While we're excited about.
With how our legacy brands benefited from the comeback of dress footwear and underlying story and the recent success, we have had introducing.
Introducing products in the casual and athletic theme for example, the number two question. Unfortunately E. Commerce for 2021 was a sneaker program and four of the top 15 shoes were true casuals.
This type of consumer acceptance is something that we could not have imagined two years ago. We have a similar success story with Nunn Bush as its number two wholesale package last year was a sneaker collection.
As we look back over the last two years.
We feel good about the work we have done during the pandemic to pick up market share in our traditional business while at the same time pushing into new categories and positioning ourselves for additional opportunities.
In terms of our retail business.
We posted our highest ever quarterly sales, which was driven by a 52% increase in e-commerce .
Online transactions account for the vast majority of our of our retail sales in our fourth quarter growth is all the more impressive when you consider we were going against double digit increases in the fourth quarter of 2020.
We are trending well above industry.
E Commerce growth numbers, which speaks to both the strength of our brands as well as our execution in this space, we continue to invest resources in marketing and analytical tools to build our E. Commerce platform as we see this area as a key piece of our growth model moving forward. We are also planning to invest in our distribution.
<unk> center to enable us to process and ship more efficiently the large increase in ecommerce orders, which we have experienced over the past several years.
In terms of our international performance.
We had an increase in the fourth quarter sales or profitability from Florsheim, Australia, which includes the markets of New Zealand South Africa in the Pacific Rim.
Australia reopened retail in October after months of Lockdowns, which put us in.
In the position to end the year on a stronger note.
Overall 2021 was a turnaround year for overseas markets, we exited an unprofitable European florsheim business and signed a long term licensing deal brand in that region.
We also reset our Australian business with more favorable retail leases increased wholesale sales for bogs in for Shaun.
<unk> experienced solid growth in our ecommerce business.
We are optimistic that the changes made will allow for our international business to once again be steady profitable contributor to Waco groups.
Overall inventory levels were $71 million at December 31, 2021.
Compared to $59 million at the end of 2020.
As explained in our last call. Our inventory includes both inventory in transit to our distribution center and also.
And.
Inventory.
Before the supply chain issues, typically about 10% to 20%.
Our inventory was in transit so we did not break.
Inventory down in our reporting.
As of December 31, 2021 50.
59% of the $70 million.
Dollars or $1 9 million peers was in transit with.
With 41% or $1 3 million peers.
Hand in our distribution center.
We continue to receive a much higher number of containers on a daily basis, the normal and this has allowed us to meet.
Maintained strong shipments to our customers and start building back inventory levels on core product that.
That is needed for at once business our.
Our wholesale gross margins for the quarter were 33, 7% versus 39, 6% in the fourth quarter of 2020.
As John stated most of the decrease in gross margin was due to higher shipping costs. Starting in January 2022, we raised our selling prices, which will offset some of this margin loss as we move into fall 2022, we will have a second increase go into effect for both.
Great and factory price increases and that is when do we expect to see wholesale margins improve.
We continue to see strong demand for our brands across the board and expect that both pipeline fill and strong consumer demand will drive our business as we move into 2022, we expect our first quarter 2022 volume to be significantly better than 2021, not only because demand is up but also because the first quarter of two <unk>.
'twenty, one was still somewhat impacted by the pandemic.
As of March.
2022, the company's North American wholesale backlog was the highest in the company's history, we have bought aggressively, especially on core products to make sure that we can fulfill demand as well as builders are in stock inventory back to normal levels. This concludes our formal remarks. Thank you for your interest in <unk>.
Waco group and I would now like to open the call to your questions.
As a reminder to ask a question you will need to press star one on your telephone again Thats Star one on your Touchtone telephone to ask a question to withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
And again to ask a question press star one on your Touchtone telephone.
Our first question comes from the line.
I have John timeshare.
Your line is open.
Good morning, everyone and a nice way to wrap up the year congratulations.
Thank you Hi, John .
Okay.
Curious about a couple of things one.
The price increases that you just mentioned you said January of this year and when was the second one going into effect. It will be July so for the second half of the year, Okay and do you anticipate those price increases to recoup.
Part of the increase in freight and raw material costs or.
Should we think about the recovery of the.
Inflation that everyone is seeing these days.
That's a great question.
A little bit of a moving target because.
When we when we started this year, we felt that the freight cost would probably come down in the second half of the year.
That would be a big help but I think with everything going on in the world today, we're not so sure about that anymore.
And so.
There's a lot of different pieces that are involved and so my answer to you isn't going to keep 100% I would say that are our best guess is that.
And.
And in the fall I think we're still going to be down a little bit margin wise I would say.
2% to 3%.
But.
If freight if freight costs.
Anywhere closer to normal that will not be the case.
We tried to do with the second price increase was cover cover most of the freight increase and so we're hoping to see really improved margins in the second half.
I hope I don't know if that gives you.
Definitely the answer is you wanted but that's kind of our best guess, okay. So that covers the freight but what about raw material cost of material prices, we've covered and so we are where we really have covered those increases.
The increases we had for the first half of 'twenty two are cardboard and same with the second half the real the real cheap.
Channel to our margins is in these freight is in these freight costs.
And so we are also the way our buying works we have basically.
We are basically locked in our pricing with all of our factories for the remainder of the year. We've covered most of our needs for this whole year at the current pricing. So we don't expect any surprises there.
Other thing to consider is.
Because of our backlog is way up.
We are seeing big increases in volume as we as we have started this year and so even though we have this pressure on gross margin percentages are total gross margin dollars.
Our our op and we feel that theyre going to.
Be up considerably for the year.
Okay. Good so it sounds like.
Freight is still an issue, but there is no bottlenecks in terms of you getting supply.
It's not 100% sure either.
You know, we we still are seeing some bottlenecks there is no doubt about that but we have so much.
Things were placing orders earlier trying to give ourselves more time so that.
For fall for example, we're bringing a product as early as we can so even if the supply chain bottlenecks caused delays, we're hoping that.
Should be able to ship boots.
In August and September , which we were not able to do it fall of 'twenty, one just because everything came in two or three months wait.
The other thing is we have the pipeline so fall between our factories and our distribution center that even though there are continuing to be delays.
Just because we have so much in transit, we're receiving a record number of containers everyday so we're getting in and product, but that's almost in spite of the book.
Bob.
The supply chain bottlenecks, but not because they are completely gone away at.
It's different at different ports in it.
For a while it seems like it's getting better than that.
Because there are various things that are happening around the world.
Ed.
It gets back to again, but in general we are getting in product and because of planning we feel that we're going to be able to do a much better job shipping to our customers.
At the appropriate time.
Seasonally.
Okay, Great. That's helpful. No change in tariffs at this point, they're still what we've talked about in the past coming in from the.
The far east.
Yes, no change no change in terms okay.
Talk to us about the.
Forsake brand.
When will that plan.
Come into effect and kind of.
What's your target market.
Or where that product line.
So I'm going to turn that question over to John Florsheim.
Yeah, Hey, John .
It's Todd.
Target market is younger.
It's 50 50 male.
Female.
We're looking more in the.
25.
40 year old range, maybe even a little younger in that its outdoor.
Venture enthusiasts.
It's a very different product.
Category within our Max maybe it fits more with our outdoor group.
In Portland in terms of when that's going to come online, we're still really in the onboarding process.
It's been forsake deliveries this fall we're caught up in.
And some of the supply chain bottlenecks.
Tom referenced.
So we were a little late and deliveries for the fall.
And then in Guinea in terms of getting new new product online as well. So we really look at this more as something Thats correct.
Evolve and grow in 2023.
And we also see this.
More of.
It is important to wholesale opportunity.
You also see it.
As important within our mix of direct to consumer.
As far as our e-commerce portfolio yet.
Dresses a younger consumer.
They've built a nice niche e-commerce business on their own and we feel that we can use some of the tools that we have here that have worked for other brands.
To grow to growth for Sage.
Online.
Does that answer your question yes.
It's very helpful. So it sounds like no meaningful sales contributions until 2023.
Say 2023.
B, where we expect to really see the work that we're doing since we purchased the brand.
To come to fruition.
Good luck with that.
Two final kind of financial questions.
Any.
With the closing of Europe will there be any additional expenses that slot.
Cash over into 2022.
No no we took all the write offs that we need to.
Between.
2020 in 2021.
Okay, Great. That's helpful. And then on the share buyback you spent $2 $5 million last year, how many shares did you repurchase and what's left on the authorization.
Last year, we purchased 125000 shares.
We had 210000 left.
As of the end of the year, but during the first quarter. So far we've bought about 50000 shares and so theres about 160000 left on that original buyback or that buyback amount that amount can be changed at our discretion, but what's authorized right now is.
160000.
As of right now alright, Okay, 160000 shares and we have bought back 50000 more in the first quarter. So far okay. So that leaves a 160000.
If you decided to increase it does that merit disclosure in terms of the board decided to increase it.
Yes, we would.
Disclosed that we would it would be a board approved and we would disclose it okay great.
Thats all I have thanks very much.
Continued luck.
China, Thanks for the questions.
Thank you again to ask a question. Please press star one on your Touchtone telephone again Thats Star one on your Touchtone telephone to ask a question.
And as there are no further questions in queue I'd like to turn the call back over to Mr. Makowski for any closing remarks Sir.
Thank you thanks, everyone for joining us today for our conference call.
We look forward to talking to you on May <unk>.
For our next quarterly update have a great day.
Sure.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Yes.
Yes.
Okay.
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