Q3 2022 WEYCO Group Inc Earnings Call
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Good day, and thank you for standing by.
Looking to the Waco grip third quarter 'twenty to 'twenty two early forties conference call.
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I would now like to hand, the conference or to your speaker today, Judy Anderson Waco grips, Chief Financial Officer, Judy. Please go ahead.
Thank you Kyle good morning, everyone and welcome to Waco Group's conference call to discuss third quarter 2022 earnings analyst call with me today is Tom Florsheim Junior, our chairman and CEO and John Florsheim, Our President and C O O.
Before we begin to discuss the results of the quarter I will read a brief cautionary statements.
Yeah.
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 the section entitled Risk factors in our most recent annual report on Form 10-K and to our other filings with the Securities and Exchange Commission for a discussion of important factors and risks that could cause our results to differ materially from our projections, including the answer.
Certain impact of inflation on our cost and consumer demand for our products.
And the continuing direct and indirect effects of the COVID-19 pandemic.
[laughter].
Yeah.
[noise] excuse me overall net sales for the third quarter were a third quarter record of $97 million up 57% compared to $61 $8 million in 2021.
Consolidated gross earnings increased to 46% of net sales compared to 40% of net sales in last year's third quarter due mainly to higher gross margins in our North American wholesale segment.
Quarterly operating earnings were a record $14 $2 million more than double last year's third quarter operating earnings of $6 $7 million.
Quarterly net earnings were a record $10 $8 million or $1 12 per diluted share up more than 100% from $5 $1 million or <unk> 52 per cent per diluted share last year.
Net sales in our North American wholesale segment reached a record $81 $6 million up 63% compared to $52 million in the third quarter of 2021.
Well part of this increase was due to strong consumer demand and higher selling prices last year's third quarter sales were abnormally low due to supply chain delays, which caused some third quarter orders to ship in the fourth quarter.
This quarter, our wholesale business experienced peak demand and our inventory levels supported record shipments looking forward to the fourth quarter, we anticipate that our sales will fall short of 2021 due to last year's shift in third quarter sales to the fourth quarter. However, overall.
For the second half of 2022 is expected to outpace the same period of 2021.
Wholesale gross earnings were 36, 3% of net sales in the third quarter at 22022 compared to 34, 6% of net sales last year.
Gross margins improved as a result of higher selling prices and lower inbound freight costs as freight rates on containers coming from China declined during the quarter.
Wholesale selling and administrative expenses were $16 $7 million or 21% of net sales for the quarter compared to $11 $3 million or 23% of net sales last year.
The increase was largely due to higher employee costs associated with our increased sales volumes.
Additionally, last year's third quarter expenses were reduced by $1 $9 million in government wage subsidies.
Wholesale operating earnings rose to $12 $9 million in the third quarter of 2022 up 114% from $6 billion last year due to higher sales and gross margin.
Net sales of the North American retail segment, where a third quarter record of $7 $1 million up 13% from $6 $3 million in the third quarter of 2021 the.
The increase was primarily due to higher sales volumes across our major brands website.
Sales were also up for the quarter at our four domestic brick and mortar stores.
Retail gross earnings as a percent of that sales were 66, 3% and 68, 4% in the third quarters of 2022 and 2021, respectively.
Selling and administrative expenses for the retail segment totaled $3 $9 million for the quarter compared to $2 $9 million last year.
The increase was mainly due to higher e-commerce expenses, primarily outbound freight and advertising.
Retail operating earnings were two $825000 for the quarter versus $1 $4 million last year.
The decrease was primarily due to lower earnings from our e-commerce businesses at higher sales were offset by higher selling and administrative expenses.
Our other operations have historically included the wholesale and retail businesses of Florsheim, Australia and Florsheim Europe . However, as previously disclosed the company closed Florsheim Europe as a result, the 2022 operating results of the other category reflect only that Florsheim Australia.
Other net sales for the third quarter totaled $8 $2 million up 54% compared to $5 $3 million in the third quarter of 2021 due to higher sales at Florsheim, Australia.
In local currency Florsheim, Australia net sales were up 71% for the quarter due to higher sales in both its retail and wholesale businesses.
Last year's third quarter sales were negatively impacted by COVID-19 related lockdowns.
Which resulted in a large number of florsheim, Australia stores being closed for a majority of the quarter.
Other operating earnings recovered to 476000 for the quarter from operating losses of $682000 last year.
The increase was due to improved performance of our retail and online businesses in Australia.
At September 30th 2022, our cash short term investments and marketable securities totaled $18 $7 million.
And we had $34 $7 million outstanding on our $50 billion revolving line of credit.
During the first nine months of 2022, we drew $34 $7 million on our line of credit and liquidated $8 $1 million of investment Securities. We used funds to pay $6 9 billion in dividends and to repurchase $3 $3 million of our company stock.
In addition, our operations.
<unk> in a net $42 1 million use of cash mainly to fund inventory purchases.
We also had approximately $1 $5 million of capital expenditures, we expect that 2022 annual capital expenditures will be between 2 million and $2 $5 million.
On November one 2022, our board of directors declared a cash dividend of 24 cents per share to all shareholders of record on.
On November 28, 2022 payable January 3rd 2023.
I'd now like to turn the call over to Tom Florsheim, Jr. Our chairman and CEO .
Thanks, Judy and good morning, everyone.
We are very excited about the overall strength of our wholesale business, which resulted in a fourth straight quarter of record sales.
Judy mentioned, our wholesale business was up nearly 63% versus last year's third quarter. The large increase reflects in part our strong inventory position relative to the third quarter of 2021, when our shipments were constrained due to supply chain issues. However, our performance was also a byproduct of stronger.
Both the retailer and consumer levels for our footwear.
In comparison to a very good pre pandemic third quarter of 2019, our wholesale shipments were up nearly 20% and as a company we achieved record profitability for the quarter.
We are proud of this accomplish accomplishment, particularly in this period of heightened economic insecurity.
We are experiencing a very positive trends.
With our legacy brands with Florsheim, Stacy Adams, Nunn Bush registering gains of 82%, 68% and 50% respectively. Both florsheim, our Nunn Bush had significant increases over 2019.
Unfortunately, we also had its third largest quarter on record.
Excuse me had its largest third quarter on record.
The market continues to cycle away from in home casual lifestyle that prevailed during the pandemic and toward more of a dress up stomach.
The changeover has boosted demand for work oriented and occasion oriented footwear, resulting in strong sales across all of our traditional legacy brands. We have benefited from less competition and dress and dress casual footwear certain brands pulled back from the space during the pandemic.
Over the last few years, we have also expanded our casual rage and experimented with different categories of footwear, which has given us a better understanding as to what works and doesn't work for our brands.
Push towards casual during the pandemic has provided good learning for future product development, where we believe the market for refined footwear will remain a growth opportunity for us in the near to mid term.
We remain focused long term on strengthening in our casual shortly for all brands.
In terms of.
Outdoor product group <unk> was up 52% versus last year and it was a record quarter for box shipments.
As discussed in previous conference calls the outdoor business took off during the height of the pandemic and we spent much of 2020 and 2021 navigating supply chain issues to try to meet heightened consumer demand.
The 2022, we are a much better inventory position, allowing us to deliver on our strong backlog of orders. In addition, we have expanded our box sales beyond our classic styles picked up market share with more casual and lifestyle products in particular in the women's category.
As we head into the fourth quarter. It has become clear that the outdoor market is oversee actuated with product and consumer demand has softened somewhat relative to last year.
We believe we are in a good position to navigate these changes as the majority of our bogs inventories in styles that we believe will have fluidity well into the future.
As we mentioned in our second quarter conference call.
On boarding a per se has been slower than anticipated due to supply chain challenges. We are in the process process of introducing a number of new styles for fall 'twenty three I believe the brand will be well positioned for a re launch in the back half of next year.
Our retail sales were up 13% for the quarter, mainly driven by strong E. Commerce sales. We are pleased by the solid growth as industry statistics indicate that footwear E. Commerce sales have largely flat wide year over year. However, our e-commerce profitability is down significantly due to higher SG&A costs primarily related.
Shipping and advertising.
<unk> expense increases track, the search and fuel costs.
While the digital advertising space has become more competitive and in some respects less efficient with new privacy settings, limiting the advertisers' ability to target consumers effectively in comparison to prior years as we move forward. We are focused on getting our cost in wide, while maintaining our sales growth.
Sales in Florsheim, Australia were up 71% versus 2021 in local currency with higher sales both in our wholesale and retail businesses last year, the Florsheim, Australia and markets were significantly impacted by Covid shutdowns during the third quarter, Austria, Our Australian management team successfully.
Advocated to transition to a new warehouse with.
With the opening up of the Australian markets, both our florsheim and bogs business are exhibiting strong momentum we expect bit bonds will have its third straight year of record sales and it has become an important part of our business model. In this market. We are pleased by the turnaround in Australia, and the bounce back to profitability for the region.
Our overall inventory was $112 million as of September 32022 up from $52 9 million at the end of September last year.
As discussed in previous calls.
Building, our inventories to meet the demand for our product as explained earlier in this call are higher inventories helped drive a record third quarter results. The supply chain continues to improve and delivery times have become shorter and more consistent for fall of this year and for spring of 2023, we plan to receipt of it.
Inventory to be earlier than normal to ensure on time delivery to our customers because we planned for fall 'twenty three our lead times with manufacturing of return closer to historical norms, which will allow us to bring a product closer to season.
Our overall gross margin was 46% compared to 40% last year gross margins improved due to price increases and lower inbound freight costs were free remains above pre pandemic levels. We are continuing to see freight costs move downward which helped to drive increased margins. This concludes our formal remarks.
You for your interest in breakout group and I would now like to open the call to your questions.
Yes.
As a reminder to ask a question you will need to press star one one on your telephone once again that is star one one on your telephone keypad.
Please stand by while we compile the Q&A roster.
Yeah.
Your first question comes from the line of David right.
From Henry Investment Trust L. P.
David Your line is now open.
Good morning, David.
Hey.
Two questions first did you have any any share repurchase in the latest quarter.
We did we.
I just.
28000 shares for the quarter.
At a total cost of $736000.
Yes.
So that works out to 'twenty six 'twenty Ada shares 28000 shares at $736000.
That's correct, yes and average.
Uh huh.
And then the Zip.
Second question is with this great profitability.
And of course, the company always has.
Super Conservative balance sheet I noticed that the dividend hasn't been increased and that's been about three and half years and I just.
Just wondered with the.
Pick up in earnings.
The board's thinking was on that and I don't know if it ties in with you with your stock buyback and overall capital allocation, but I'd appreciate your thoughts.
Sure.
The thinking behind maintaining our dividend.
Same amount is just duck.
The uncertainty that we're facing in the upcoming year, it's not I'm not talking about uncertainty just for wake Our group I think everyone would agree that.
There's a lot of clouds on the horizon, and just a lot of macro economic uncertainty globally and so as.
As you pointed out our balance sheet is conservative and I guess are the.
We are <unk> to our dividend increases or the say maybe.
The plan would be to eventually start increasing our dividend again, but we're going to wait until times are more predictable.
Right well I'm.
That's a fair position I would just pointed out that.
A penny a share a quarter increases only about $100000 of real money.
And.
I appreciate your comments on my question, Thanks very much.
Good luck going forward.
Thank you.
Your next question comes from the line of Jonathan sure from Pinochle Alexandre.
John Your line is now open.
Good morning, Tom Good morning, Judy.
Hi, John Good morning.
Hi, Good morning, a couple of questions. How much is left on the share repurchase plan.
One 1 million shares.
A little less $1 1 million.
$1 1 million shares Okay got it.
Oh man.
Ventura.
The quarter of 112 million.
How much and obviously that helped drive sales.
How much do you expect inventory to come down by year end or would you say.
Sure.
We actually expect it to grow up slightly higher just just probably a few million dollars, it's a little hard to predict exactly but we're pretty much at peak John .
But it is possible that our go up a little bit.
As we end the year and then ill come down as we move through first quarter and into second quarter.
Why is it going up.
Okay.
Good.
What we did.
As we broaden our spring inventory early because when we were purchasing the spring inventory the supply chain was still a pretty big mass.
What we have experienced the last few quarters has difficulty in getting the inventory in here at a time to ship all of our customer orders on time, and we actually face a bit of a challenge still this fall and so we're trying to we've been moving our timelines for purchasing because of the supply chain and the longer lead times.
Our factories.
And so thats the reason that that we brought our fall inventory and spring inventory for 'twenty three at early now what we're seeing is the supply chain normalizing and lead times getting back.
Almost pre pandemic levels, we still have issues, where containers will get held up sometimes it's always the ones you need Unfortunately, but.
We.
Our buying again much closer to season, so as we.
Contemplate what we're bringing in for fall 'twenty three.
Being able to bring that add much closer to our need.
And so that's going to help us bring down inventories.
So you think inventory will start to come down when.
Second quarter next year.
Second quarter 'twenty three okay great.
Let's talk about e-commerce for a second I note the headwinds there.
Probably stronger than they were.
18 months or two years ago.
What exactly Youre doing too.
Get that business profitable.
Sure.
I mean advertising freight it's Justin.
It's very competitive as you know and.
And frankly, one of our one of our portfolio companies. They ultimately decided to close our econ because it just it wasn't making money and they didn't see a turnaround coming so im just curious what specific steps, you're taking to get that business profitable.
Yeah, Hey, John This is John Florsheim.
E Commerce business is actually very very profitable.
Yes.
Yes, it's less profitable.
In the third quarter than it was last last year and ask because some of that.
SG&A costs got away from Us Tom detailed that in terms of.
Bob.
Higher spending on freight which has to do with fuel costs.
AD.
Also.
Sure.
Expenditures on advertising do you have any.
Do with more competition out there and less ability to target based on privacy settings that are that we didn't have a year ago. So is it actually is.
So very.
Nice profitable area of our business.
And our main focus right now is getting our costs more in line, we sort of see what has happened from an advertising perspective, and as we go into the fourth quarter, which is a very competitive time period for ecommerce, we're making sure that we stay on budget.
And then from a freight standpoint, we're doing some things around freight to try to renegotiate deals with our shipping carriers to try to get the freight cost more in line alright, great.
With.
Our e-commerce business and our ability to grow this year, we're not so happy with some of the pressure that we've had from an SG&A standpoint.
The other thing that we're doing to just in terms of.
Yes.
In terms of targeted customers, we have a number of new tools that we're using.
In terms of attributing to advertising.
And conversions and allow us to better.
Pack, where we want to advertise and do that more efficiently, it's something new that we've just added this year.
We're in our beta phase, but we have hopes that this will allow us to.
More efficiently.
Each out to consumers and prosper by consumers.
Okay. So.
Lots of positive steps there when do you anticipate seeing the impact of those changes.
Well I think right now.
In the fourth quarter, we're going to get some huge numbers.
Commerce, So I would anticipate our ecommerce growth being under pressure in the fourth quarter.
As far as SG&A, that's going to happen immediately where we're going to get our costs more in line. We didn't have a great fourth quarter last year from a profitability standpoint.
We were very profitable, but we didn't have the growth that we should have had given the growth in sales.
I anticipate this fourth quarter is there is going to be.
There is more pressure in terms of from a top line standpoint, what we should be able to get things more in line in terms of our expenses.
In the fourth quarter.
Fourth quarter, Okay, alright good.
That's good color, thanks, very much and good luck.
Yes.
Thanks, John .
Once again, if you'd like to ask a question. Please press star one one on your telephone keypad.
Once again that is SAR one one on your telephone keypad.
There are no further questions at the moment I would now like to turn the conference back to Judy Anderson for closing remarks.
I just wanted to say, thank you to everybody for participating in our call today and I Hope you have a really great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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