Q3 2023 Weyco Group Inc Earnings Call
Good day, Thank you for standing by welcome to the breakout groups third quarter 2023 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 the session you will need to press star one one on your telephone you will then hear an automated message advising that your hand is raised.
Draw. Your question. Please press star one again.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your first speaker today, Gerry Anderson, Chief Financial <unk> Financial Officer.
Thank you.
Good morning, and welcome to Waco groups conference call to discuss two.
To discuss third quarter 2023 results.
On the call with me today are Tom Florsheim, Jr, 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 provide a discussion of important factors and risks that could cause our actual results to differ materially from our projections.
These risk factors are incorporated herein by reference.
They include impart the uncertain impact of inflation on our card.
And consumer demand for our products increased interest rates and other macroeconomic factors that may cause a slowdown or contraction in the U S. Our Australian economy.
Yeah.
Overall, net sales were $84 $2 billion down 13% compared to a record third quarter sales of $97 million in 2022.
Consolidated gross earnings increased to 43% of net sales compared to 46% of net sales in last year's third quarter due mainly to higher gross margins in our North American wholesale segment.
Quarterly earnings from operations were $12 $4 million down, 12% compared to record operating earnings of $14 $2 million in 2022.
Quarterly net earnings totaled $9 $3 million or 98 cents per diluted share.
Compared to record net earnings of $10 $8 million or $1 12 per diluted share last year.
Net sales in our North American wholesale segment were $69 $5 million.
Down 15% compared to record sales of $81 $6 million in 2022. The decrease was primarily due to the 42% decline in box sales.
Impaired to record sales for the brand last year.
This quarter, our wholesale sales were negatively impacted by reduced consumer demand following record growth last year.
Looking ahead to the fourth quarter, we anticipate that our sales will continue to fall short of 2022.
Not only are we going up against a strong fourth quarter of last year, but retail market conditions remain challenging as the pace of consumer spending in the footwear category has slowed which we believe continue to impact our business at least the remainder of the year.
Wholesale segment gross earnings were 38, 6% of net sales in the third quarter of 2023 compared to 36, 3% of net sales last year.
Gross margins improved as a result of lower inventory costs compared to last year, primarily related to inbound freight costs.
Okay.
Wholesale segment, selling and administrative expenses were $15 $6 million for the quarter compared to.
$16 $7 million last year.
The decrease was primarily due to lower employee costs, mainly commission based compensation.
As a percent of net sales selling and administrative expenses were 22% and 21% of net sales in the third quarters of 2023 and 2022, respectively.
Wholesale operating earnings totaled $11 $3 million for the quarter down 13% from $12 $9 million last year due primarily to lower sales.
Net sales in our North American retail segment, where a third quarter record of $7 $6 million up 6% over our previous record of $7 $1 million last year.
The increase was due to higher sales across all our domestic ecommerce websites with the largest increases at bogs in florsheim.
Retail segment gross earnings as a percent of net sales were 65, 4% and 66, 3% in the third quarters of 2023 and 2022, respectively.
Selling and administrative expenses for the retail segment totaled $4 million or 53% of that sales for the quarter compared to $3 $9 million or 55% of net sales last year.
Third quarter retail operating earnings rose to $926000 up 12% compared to $825000 last year, mainly due to the increase in web sales.
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 $1 million down, 414% compared to $8 $2 million in the third quarter of 2022.
In local currency its net sales were down 10% primarily in its wholesale businesses.
Florsheim Australia's gross earnings were 61, 6% of net sales compared to 61, 4% of net sales in last year's third quarter. Its operating earnings were $256000 for the quarter versus 476.
Dollars last year. The decrease was primarily due to lower earnings in Australia as wholesale businesses as a result of lower sales.
Yeah.
At September 30th 2023, our cash and short term investments and marketable securities totaled $41 million and we had no debt outstanding on our $40 million revolving line of credit.
During the first nine months of 2023, we generated $62 $9 million of cash from operations due mainly to reductions in inventory levels. We.
We used funds to pay off $31 $1 million on our line of credit to pay $9 $3 million in dividends and to repurchase three $4 million of our common stock during the nine month period.
We also had $2 $6 million of capital expenditures.
We estimate that 2023 annual capital expenditures will be between three and $4 million.
On November seven 2023, our board of directors declared a cash dividend <unk> 25 per share to all shareholders of record.
November 27th 2023 payable January 2nd 2024.
I would now like to turn the call over to Tom Florsheim, Jr. Our chairman and CEO.
Thanks, Judy and good morning, everyone sales in our North American wholesale business were down 15% for the quarter.
While we are never pleased with the decrease the comparison was against a record third quarter last year wholesale sales in 2022 reflected strong demand.
But also significant pipeline fill as many accounts were replenishing stock accreted due to pandemic related supply chain delays to.
To provide some context, taking out 2022.
This year's third quarter would have been our most profitable.
Wholesale operating earnings.
This year at the retail environment is more challenging due to macroeconomic pressures.
And consumers are being cautious in terms of expenditures on footwear and apparel.
With demand softening retailers are being conservative with at once that future orders at the wholesale level.
The change in retail dynamics is most apparent in the outdoor market.
Given the spike in demand in 2021.
In the first half of last year.
Retailers placed heavy orders with expectation of strong consumer sell throughs.
Sales did not keep pace.
A cap of last year.
Mercury Channel entered 2023 with an inventory Quad city.
The situation has put exasperated exacerbated by unseasonably warm weather in the early fall.
As a result box shipments declined 42% compared to record sales for the brand last year with retailers appreciated pure orders due to the current saturation.
Product in the market.
The barge brand has enjoyed very strong performance over the last few years and we see the current decline as a category issue. While the majority of our box inventory is in core product that remains valid from year to year. We are also taking steps to reduce inventory of slower moving styles.
We believe the situation is manageable, but anticipate that inventory backlog in the outdoor footwear category will not normalize until the back half of 2024.
The market is challenging we are not standing still and are optimistic about the brand's long term growth prospects given box strong consumer loyalty, we continue to develop exciting new box product with a special focus on less insulated footwear with a longer selling season.
In terms of our legacy business.
Florsheim <unk> net sales were down 7% compared to record sales for the brand in last year's third quarter sales of Stacy Adams were down 1%, but sales have been on Bush brand were up 11% with increase with the increase driven in part by incremental sales of the casual and hybrid categories and new programs.
To a few large retailers.
Performance of our legacy business was respectable given each brand was up against strong sales in 2022.
In addition, retail feedback indicates that our brands are among the most productive within their respective categories and a difficult environment, while florsheim Stacy Adams Nunn Bush are positioned differently from a fashion and price perspective, there are common threads across our across our legacy.
We believe that Porsche Doug Busch of Stacy Adams, our reflect outstanding value and trend right decide within their respective categories as such.
All three brands maintained solid retail sell throughs, despite a general slowdown in the more refined footwear category. We are also encouraged by our progress with <unk> and hybrid footwear that is more casual in nature, but can be reward across a variety of studies from office to social occasions consumers are gravitating towards this category.
Footwear and we see this as an important growth area for our legacy business for a product development perspective, we are expanding our range of hybrid footwear, while selectively adding to our true cash order refined assortment.
Retail sales were up 6% for the quarter with increase driven primarily by our ecommerce business footwear industry statistics indicate the ecommerce sales channel is down year to date. So it is encouraging that we continue to grow our ecommerce platform in a very competitive environment.
Sales at Florsheim, Australia were down 14% in local currency were down 10% as mentioned in our second quarter conference call. The Australian market spaces over the same challenges as in the U S regarding softness in the footwear and apparel category. We also lost a sizeable wholesale account that impacted our host.
Shipments for the quarter going forward, we believe that we will make up some of this deficit in the Australian market through other accounts as well as the transfer of the Asia Pacific wholesale business to the Florsheim, Australia office.
Our inventory level was 79 6 million as of September 32023, compared to $148 million.
December 31 2022.
We feel that our inventory is now at a good level overall, but continue to focus on any areas, where we have slow moving product.
Our overall gross margin was 43% compared to 46% last year, we have worked hard to offset increased costs and our margins are now at a healthy level.
This concludes our formal remarks. Thank you for your interest in Waco group and I would now like to open the call to your questions.
Yes.
Thank you.
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 to withdraw your question. Please press star one again.
Please standby, we check our Q&A roster.
Okay.
Okay.
Okay.
Okay.
Okay.
Our first question comes from the line of John <unk> with Pinnacle. Your line is now open.
Good morning, everyone.
Good morning, John and good morning.
Good good progress on the inventories are glad to see the debt.
Debt paid off or I'm just curious.
What the plans are.
With our cash going forward I know you raised your dividend recently and I think you bought back about $2 4 million.
Shares year to date.
There anything remaining on the share repurchase at this point.
Yes, Judy can you give that number.
Sure.
Sure.
Well that's right.
Judy.
903000 shares.
Is it remaining a junior.
Yes, so we have plenty plenty ready Greg.
I mean.
I'm just going to say what was the average.
What was the average on the $2 4 million buyback.
20 543.
Yes, $25 40 and is that number right.
Before I thought it was a little higher.
Okay.
Total cost of our shares purchased through October 31.
Three Boeing 794000, so its about three $3 8 million John.
$3 8 million shares at 20.
Scholars.
$8 million three point.
The average cost was 25 43 right. So we can give you the number of shares how many shares was that Jon.
Okay.
740, <unk> hundred 40, <unk> hundred 49000, Okay, sorry, my mistake.
Sorry, Tom I cut you off but what are you going to say.
I'm curious.
Well, we're going to continue to.
Probably build some cash I mean, a lot of that cash that we built is from.
From we spent a lot of money building up our inventories because our inventories were depleted due to the other supply chain issues and also coming out of Covid, our inventory basically evaporated and then we had to rebuild those inventories and because of the demand was so high we built them up too.
Fairly high level and so now that we've brought them down to what we consider our <unk>.
Good level.
We're not going to see as much cash poor Ed as you've seen over the last nine months or so.
We're going to watch it.
To do stock buybacks.
We had a record of increasing our dividend for years and our plan.
<unk> is that we're going to continue to try to increase our dividend on an annual basis.
Okay. That's helpful would you consider a special dividend I don't think you've done that historically, but is that.
I think we've done that either but if our cash continues to grow up it's definitely something that we might consider.
Okay. Okay. That's helpful.
What's the status of forsake.
You bought that over a year ago.
I'm, just wondering where we are with that.
Is that per head really adding adding value to the portfolio and if not.
What are the plans.
Yeah no.
First of all I want.
State that.
The <unk> brand represents roughly 1%.
Of our total annual sales so when we bought it it was very small it remains small a part of the reason a big part of the reason that it remains small.
Because our timing definitely could've been better.
By an outdoor brand.
The market.
For in that category is just totally saturated and so what we've done John the west.
Year and a half.
As retool the brand and so.
For 'twenty three is really the first season that we started to get new product out there and we have new product. It's cleared for spring of 'twenty for fall 'twenty four.
Jonathan I just came back from our sales meeting where sales really for box and for for sake of Portland.
And we actually are encouraged about the brand.
Any promises, but we feel that.
It has unique positioning.
We have.
Good Guy running the brand the product looks good.
We have put together a national sales force of agents, which the brand never had before.
So we wanted to give it a chance again, it's less than 1% of our business. So it's not hurting us and we have a very talented office out of Portland.
Thats running bogs and we've so where there's quite a lot of efficiency. There because we have the same design people doing both brands and so we're going to we want to give it a little bit of time, but the.
The market clear up from this inventory glut and see what happens, but we're hoping that the inventory glut clears next year and so that the back half is better and we'll see what we'll see what happens but it just.
It has not had a fair chance and so we want to give it that.
Okay, Alright, so you've got the pieces in place you just need to execute at this point.
Exactly exactly okay.
Good.
Fair enough.
Congrats on a pretty good quarter.
Thanks, Thanks, John we appreciate your questions.
Okay.
Thank you John.
We're showing no further questions at this time, Andrew I'd now like to turn it Act and Judy Anderson for closing remarks.
Just like to thank everybody for joining us today and wish you a great back half one fewer week this week.
Thank you.
Yes. Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.
Okay.
Yeah.
Okay.
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