Q2 2023 Weyco Group Inc Earnings Call

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Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Andrew.

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Good morning, everyone and welcome to Waco Group's conference call to discuss second quarter 2023 result.

On the call with me today are Tom Florsheim, Jr. Our chairman and Chief Executive Officer, and John Florsheim, President and Chief operating Officer.

Before we begin to discuss the results for the quarter I will read a brief cautionary statement.

During 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, which provides a discussion of important factors and risks that could cause our actual results could differ materially from our projections.

These risk factors are incorporated herein by reference.

They include in part the uncertain impact of inflation on our cost and consumer demand for our product.

Increased interest rates and other macroeconomic factors that may cause a slowdown or a contraction in the U S or Australia economies.

All net sales for the second quarter of 2023 and were $67 million.

Down.

Compared to record sales of $74 4 million.

Consolidated gross earnings increased 43, 3% of net sales.

243, 3% of net sales compared to 40% of net sales in last years second quarter due mainly to higher gross margins in our North American wholesale segment.

Earnings from operations rose, 18% to $6 $7 million from $5 $7 million in the second quarter of 2022.

Net earnings were a second quarter record of $4 $9 million or 50 cents per diluted share up 8% over our previous record of $4 $5 million or <unk> 47 cents per diluted shares last year.

Net sales in our North American wholesale segment were $51 $5 million down, 13% compared to a record $59 million in 2022.

Sales were lower across all our major brands due to reduced demand in 2023 following record growth in 2022.

Wholesale gross earnings were 37% of net sales in the second quarter of 2023 compared to 33, 7% of net sales last year.

Gross margins and crude salt selling.

Selling price increases implemented in 2022 to address higher cost.

Wholesale selling and administrative expenses totaled $13 $7 million for the quarter compared to $15 $7 million last year, which constituted 27% of net sales in both periods.

Wholesale operating earnings rose to $5 $4 million.

For the quarter up 28%.

Compared to $4 $2 million last year.

Net sales in our retail segment were a second quarter record of $7 $6 million up 3% compared to our previous record of $7.4 million in 2022, the increase was primarily due to higher sales.

All our ecommerce website.

Retail gross earnings as a percent of net sales were 66, 2% and 67, 4% in the second quarter yourself 2023, and 2022, respectively.

Selling and administrative expenses for the retail segment totaled $4 million for the quarter compared to $3 $9 million last year.

As a percent of net sales retail selling and administrative expenses were 52% in both 2023 and 2022.

Retail operating earnings were $1 $1 million in towards the second quarters of 2023 and 2022.

Our other operations consist of our retail and wholesale businesses in Australia, South Africa, and Asia Pacific collectively referred to as Florsheim, Australia.

Net sales at Florsheim, Australia totaled $7 $9 million down slightly compared to $8 million in the second quarter of 2022 in local currency.

Florsheim Australia's net sales were up 7% for the quarter with sales up in both its retail and wholesale businesses.

The decrease in sales in U S dollars was due to the weakening of the Australian of the Australian dollar.

Turning to the U S dollar compared to last year.

Florsheim, Australia to grow its earnings were 62, 4% of net sales compared to 61, 3% of net sales in last year's second quarter.

It's the operating earnings were $276000 for the quarter versus $365000 last year. This decrease was primarily due to lower operating earnings in Asia.

At June 30th 2023, our cash and short term investments and marketable securities totaled $29 $6 million, and we had $2.6 million outstanding on our $50 million revolving line of credit.

During the first six months of 2023, we generated $443 6 million of cash from operations, we used funds to pay down $28 6 million on our line of credit to pay $6 $9 million in dividends and to repurchase $2 $1 million of our common stock.

We also had $1 $4 million of capital expenditures, we estimate that 2023 annual capital expenditures will be between $2 million.

Okay.

On August one 2023, our board of directors declared a cash dividend of 25 cents per share to all shareholders of record on August 25th 2023 payable September 29th 2023.

I would now like to turn the call over to Tom Florsheim, Jr. Our chairman and CEO . Thanks, Judy and good morning, everyone. After an outstanding 2022 during which our sales were lifted to record levels by a combination of post pandemic retailer pipeline fill as rare as well as strong consumer.

Demand too.

2023 represents a return to the footwear industry is normal cyclical challenges, we're seeing consumer discretionary purchases shift away for products like footwear, and apparel and more towards X pretzel.

Expenditures like travel dining out as such previously elevated footwear sales returned to historical norms and our accounts have become much more cautious as far as their inventory levels. This trend is reflected in our shipments in the second quarter across all our major brands in terms of our legacy.

Florsheim sales were down 11% Stacy Adams was down 17% and Nunn Bush was down 1% all three brands were up against significant increases in the second quarter of 2022, and the shipment decrease is indicative of the overall slowdown in the industry.

We believe our legacy business remains healthy shelters for Florsheim Stacy Adams Nunn Bush.

Our tracking slightly above levels seen prior to the pandemic and we feel good about the strong position we have in the refined footwear market. Our focus for legacy branch is threefold first maintain our leadership position in the dress footwear market through superior product and value share.

<unk> continue to develop new products that fit evolving consumer preferences, while we have benefited from renewed interest in dress footwear over the last two years, we are well aware that we need to continue to diversify our product assortment.

Sean and especially that Bush had made good progress in terms of increasing the percent of casual sales. Meanwhile, all three brands have been growing hybrid footwear is an important part of their mix.

A third and final area of focus is to make sure. We're disciplined in terms of our approach to style count and inventory over the last few years supply chain challenges resulted in large deficits answer, but then surpluses in our base inventory.

Due to the current industry slowdown we are working through a higher level of slow moving footwear than normal. We believe this is a manageable situation given the combination of our strong gross margins and a return to more predictable manufacturing sales cycles.

Our outdoor division our box business was down 35% versus 2022.

<unk> second quarter performance was impacted by an oversea actuated outdoor footwear and weather boot market.

Retailers are taking a very conservative approach to ordering for the back half of the year as they work through their current inventory.

As a result, our confirmed orders are lower than last year for our fall key selling season, and we will be reliant on a heavier percentage as percentage of at once orders than in years past.

While we think that retailers have been too cautious based on the historic consistency of bogs sales achieving normal fall shipments results for the brand will be dependent on external factors such as favorable weather conditions. We have adjusted our planned inventory for bogs down to manage the softness in the category similar.

Our legacy business, our bogs inventory is turning slower than normal, but we also feel it will be a short term situation.

In regards to per Se sales were up 5% on a small base. The brand remains a work in progress, but we are pleased with the retail side of some of the new styles we've introduced.

Retail sales were up 3% for the quarter the solid performance of our retail business has been encouraging as we have been outperforming the industry in 2023, our ecommerce team has done excellent work throughout this year driving sales in a tough environment, while keeping costs in line.

Sales at Florsheim, Australia, which is comprised of the Australia, New Zealand Pacific Rim, and South African markets were down slightly for the quarter, but in local currency up 7%.

Over our overall Florsheim, Australia business held up well given these markets are facing some of the same macroeconomic challenges we are experiencing in the U S.

Our business model at Australia, New Zealand as well as South Africa is on sound footing, and we believe that we're positioned well for the long term. However.

However, after an internal review, we have decided to close our Hong Kong office and distribution center and wind down our Florsheim Asia Pacific wholesale retail division with a target date of the end of 2023.

For a number of years Florsheim Asia Pacific has struggled to be profitable.

And we do not anticipate the opportunity to improve our prospects in the foreseeable future.

We are not abandoning the region entirely and plan to maintain the larger wholesale accounts by transferring them to our Australia office. We currently have six retail outlets in Asia.

Consisting primarily of shop in shops, which will be closed as are lease agreements expire.

Our overall inventory level was $103 9 million as of June 32023, compared to $128 million at December 31, 2022.

As discussed in our last conference call, we are bringing down our inventory levels and supply chain have normalized allowing us to bring in shoes closer to need. This concludes our formal remarks.

You for your interest in Waco group and I'd now like to open up the call to your questions.

Thank you.

We will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.

Jim Please press star one again, please standby, while we compile the Q&A roster.

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Hey, Joe Your question. Please press Star one again.

No further questions I would now like to turn it back to Judy Anderson for closing remarks.

Okay.

Just like to say, thank you everyone for joining us and have a good day.

The conference is now over you may now disconnect.

Okay.

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