Q3 2024 Weyco Group Inc Earnings Call
Good day and thank you for standing by. Welcome to WayCo Group Incorporated.
3rd quarter 2024 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised.
To withdraw your question, please press star one one again.
Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand the conference over to your first speaker today. Judy Anderson Chief Financial Officer, please go ahead.
Judy Anderson: Thank you.
Judy Anderson: Good morning and welcome to Wake O'Groops Conference Call to discuss third quarter, 2024 results.
I'm the call with me today our time floor shine junior chairman and chief executive officer in John Florsheim, President and Chief Operating Officer.
Judy Anderson: 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.
Judy Anderson: We wish to caution you that these statements are just predictions and that actual events or results may differ materially.
Judy Anderson: We refer you to the section entitled Risk Factors in our most recent annual report on Form 10K, which provides a discussion of important factors in risks that could cause our actual results to differ materially from our projections.
Speaker Change: These risk factors are incorporated here in by reference.
Judy Anderson: They include in part the uncertain impact of inflation on our costs and consumer demands for our products. Changes in interest rates and other macroeconomic factors that may cause a slowdown or contraction in the US or Australian economy.
Speaker Change: and the first time I've seen this video, I'm going to show you how to do this video.
Speaker Change: Overall net sales for the third quarter were 74.3 million dollars down 12% compared to $84.2 million in 2023.
Speaker Change: Consolidated gross earnings as a percent of net sales increased to 44.3% from 43% in last year's third quarter, do mainly to higher gross margins in our North American wholesale segment.
Speaker Change: Quarterly earnings from operations were $10.2 million, found 18% from $12.4 million in 2023.
Speaker Change: Quarterly net earnings totaled 8.1 million dollars or 84 cents per diluted share compared to 9.3 million dollars or 98 cents per diluted share last year.
Speaker Change: Net sales in our North American wholesale segment were $61.1 million, down 12% from $69.5 million in 2023.
Speaker Change: Florsheim sales exceeded prior year while our other brands were lower compared to last year.
Judy Anderson: Wholesale segment growth earnings as a percent of net sales increased to 40.1% in the third quarter of 2024 compared to 38.6% last year.
Judy Anderson: Wholesale segment selling and administrative expenses were $15.1 million for the quarter compared to $15.6 million last year, down as a result of lower employee costs, mainly commission-based compensation.
Judy Anderson: As a percent of net sales, selling and administrative expenses were 25% and 22% in the third quarters of 2024 and 2023, respectively.
Judy Anderson: The increase as a percent of net sales was because many of our costs are fixed in nature and do not vary with sales.
Judy Anderson: Wholesale operating earnings totaled $9.4 million for the quarter, down 16% from $11.3 million last year as a result of lower sales.
Judy Anderson: Net sales in our North American retail segment, which were generated mainly by our e-commerce websites, were $7.2 million for the quarter, down 5% from $7.6 million last year.
Judy Anderson: Lower sales on our BOGS website as a result of the mild fall were partially offset by higher sales on our Florsheim and Stacey Adams websites this quarter.
Judy Anderson: Retail segment growth earnings as a percent of net sales were 66.9% and 65.4% in the third quarters of 2024 and 2023, respectively.
Judy Anderson: Retail operating earnings totaled $800,000 for the quarter versus $900,000 last year.
Judy Anderson: Our other operations historically included our retail and wholesale businesses in Australia, South Africa, and Asia-Pacific, collectively referred to as Florsheim, Australia.
Judy Anderson: We ceased operations in the Asia-Pacific region in 2023 and have substantially completed the wind-down of that business. Therefore, third quarter 2024 operating results only include Australia and South Africa.
Judy Anderson: Net sales of Florsheim Australia were $6 million, down 15% from $7.1 million in the third quarter of 2023. The decrease was almost entirely due to the closing of our Asia-Pacific operations.
Judy Anderson: Sales in Australia were down 1% for the quarter due to the impact of four fewer stores operating compared to the same period last year. Australia's same store sales were up 1% for the quarter.
Judy Anderson: Florsheim, Australia's gross earnings were 59.2% of net sales for the quarter and 61.6% of net sales last year.
Judy Anderson: Its operating earnings were zero for the period, down from $300,000 of operating earnings last year.
Judy Anderson: Interest income totals $900,000 in the third quarter of 2024 compared to $300,000 in last year's third quarter.
Judy Anderson: This year included interest earned on higher cash balances in the U.S. and Canada.
Judy Anderson: At September 30, 2024, our cash and marketable securities totaled $81.8 million, and we had no debt outstanding on our $40 million revolving line of credit.
Judy Anderson: During the first nine months of 2024, we generated $17.3 million of cash from operations, mainly from net earnings, and used funds to pay $9.6 million in dividends.
Judy Anderson: We also repurchased $600,000 of company stock and had $900,000 of capital expenditures.
Judy Anderson: We estimate that 2024 annual capital expenditures will be between $1 and $2 million.
Judy Anderson: On November 5, 2024, our Board of Directors declared a cash dividend of $0.26 per share to all shareholders of record on November 18, 2024, payable January 2, 2025.
Judy Anderson: Additionally, on November 5, 2024, our Board of Directors declared a special one-time cash dividend of $2 per share to all shareholders of record on November 18, 2024, payable January 2, 2025.
Speaker Change: I would now like to turn the call over to Tom Florsheim, Jr., our Chairman and CEO. Thanks, Judy, and good morning, everyone.
Speaker Change: It was a challenging quarter as sales in our North American wholesale business were down 12%.
Judy Anderson: We are facing an economic environment in which consumers have limited discretionary funds and footwear market sales are being impacted accordingly.
Speaker Change: While the near-term retail outlook is uncertain, we remain confident in our belief that each brand is well positioned in its respective category for growth when conditions improve.
Speaker Change: In our outdoor division, bog sales were down 18% for the quarter. As discussed in previous conference calls, the outdoor category, particularly the weather boot market, has been under pressure for the better part of two years.
Judy Anderson: Since then, the industry has been working through excess inventory, and we believe we've finally reached an equilibrium for fall 2024.
Judy Anderson: However, many retailers are taking a wait-and-see approach regarding orders, operating under the premise that if they need inventory, it will be available in the market. The result is that we've seen demand impacted by the mild
Judy Anderson: and dry weather throughout the country which has negatively affected our wholesale business. The adverse effects
Judy Anderson: of the weather extended to our BOGS e-commerce business, which was down 31% for the quarter.
Judy Anderson: While our success with the BOGS brand for the balance of 2024 depends on fall and winter weather returning to normal, for the long term, we are focused on reducing the weather sensitivity of the business.
Judy Anderson: Towards that goal, we have doubled down on our sales effort in the farm and ag trade channel with the introduction of our seamless construction collection, which is 30% lighter and twice as durable as the balkanized construction more commonly used.
Judy Anderson: in our category.
Judy Anderson: The farm and ag trade channel is less weather dependent and utilizes BOGS products year-round.
Judy Anderson: We are making progress in this category, but it will take time to expand our penetration in retailers that cater to this market We are also introducing seamless construction and lighter less insulated products to our kids and women's lifestyle collections which will help
Judy Anderson: us make Boggs more of a three-season brand for this customer base.
Judy Anderson: It has been a challenging stretch for the Boggs brand.
Judy Anderson: Having our retail partners with right-sized inventory will help move BOGS forward.
Judy Anderson: What's next on the agenda is rekindling demand with products that are built to match long-term weather changes. Our combined legacy business was down 10% with Florsheim up 1%, Stacey Adams down 17%, and Nunn-Bush down 20%.
Judy Anderson: As a category, dress footwear has been trending down for some time, except for a brief period emerging from the pandemic when there was a burst of weddings and more dressy occasions.
Judy Anderson: This downtrend resulted in retailers shifting funding away from dress footwear and toward other categories.
Judy Anderson: Given this context...
Judy Anderson: Florsheim's performance over the last few years, including this quarter, is very solid. Florsheim continues to pick up market share in the refined footwear category and has made good strides in the hybrid and true casual segments of the market.
Judy Anderson: Our Stacey Adams brand had a difficult quarter. The brand remains the market leader in accessible fashion in the contemporary dress footwear segment and is performing well, especially with accounts that maintain dress-oriented footwear as an important part of their retail assortment.
Judy Anderson: The challenge is evolving the product lineup so that Stacey Adams is in consideration for hybrid and more refined casual footwear. While it will take time, we are getting traction at retail with casual lifestyle product, particularly in the hybrid category.
Judy Anderson: Our Nunn-Busch brand caters to a more value-oriented, price-sensitive consumer.
Judy Anderson: We saw reduced demand in the third quarter as these consumers cut back on discretionary purchases.
Judy Anderson: In addition, a significant portion of Nunn-Busch's sales decrease in the third quarter was due to a shift in timing of shipments to a large retailer from third to second quarter. Despite the volume drop, we feel good about the future trajectory of the Nunn-Busch business.
Judy Anderson: We have reinvented Nunn-Busch as the most casual brand within our legacy portfolio.
Judy Anderson: Nunn-Bush is also well positioned in the market with a strong value proposition and innovative comfort technology.
Judy Anderson: Retail sales were down 5% for the quarter compared to last year. The decline in retail sales was driven primarily by the decrease in Bogsy Condor sales.
Judy Anderson: Overall, our direct-to-consumer business has been more price-sensitive and promotionally oriented.
Speaker Change: As Judy referenced, the drop in sales at Forsheim Australia was the result of our closing operations of our closing operations in the Asia-Pacific region.
Speaker Change: Sales in the remaining markets which include Australia, New Zealand, and South Africa were flat for the period.
Speaker Change: was $72.2 million up from $67.9 million at June 30th.
Speaker Change: As explained in our last conference call, we are continuing to bring our inventories up to make sure that we have enough inventory to meet demand for our core items during the fourth quarter from both our wholesale customers and to support our e-commerce businesses.
Speaker Change: We are comfortable with where we are from an inventory standpoint.
Judy Anderson: Our overall gross margin was 44.3% compared to 43% last year. We are also comfortable with our margins and are focused on keeping them in this range. As Judy mentioned yesterday,
Judy Anderson: Our Board of Directors declared a one-time special cash dividend alongside our regular quarterly dividend. This return of capital to our shareholders is the result of our strong financial performance over the past few years, which led to a build-up of cash
Judy Anderson: in excess of the amount necessary to fund operations, capital expenditures, and fulfill corporate obligations.
Judy Anderson: Looking ahead, we believe our strong balance sheet and liquidity will continue to allow us to fund organic growth, invest in our business, and remain opportunistic with respect to future strategic opportunities for share repurchases.
Judy Anderson: This concludes our formal remarks.
Judy Anderson: Thank you for your interest in Waco Group, and I would now like to open the call to your questions.
Speaker Change: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question you will need to press star 1 1 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of David Wright of Henry Investment Trust. Your line is now open.
David Wright: Thank you, Tom, John, and Judy. Good morning.
Speaker Change: Good morning.
David Wright: I want to say nice surprise with the special dividend. Thanks to management and the board for returning capital shareholders. I think it's just another example of the excellent job that
David Wright: everyone there does that you know
Judy Anderson: governance and running a company with lots of disclosures.
Judy Anderson: and the shareholders in mind. And thank you very much. It's appreciated.
Speaker Change: Thank you for being a shareholder.
Speaker Change: Okay, well that's a fair trade. You went over the...
Judy Anderson: The different brands and all of your brands are pretty well balanced more or less in terms of their
Speaker Change: Their revenue sizes, but one that we don't talk about that's really small is forsake And I wondered if you could take a minute and and talk about that how talk about how forsake fits in
Speaker Change: Sure.
Judy Anderson: Yeah, hi, this is John. Forsake is, you know, we bought it in 2021. And to be honest with you, we've had trouble growing the brand. It's less than 1% of our sales, it doesn't really factor into the performance of our company.
Judy Anderson: And a lot of that he has to do, it's a little bit similar to Boggs in the sense that the outdoor market...
Judy Anderson: became oversaturated coming out of the pandemic. Everybody thought that people would be buying outdoor gear and hiking gear.
Judy Anderson: You know into the future, but what happened is as we came out of the pandemic
Judy Anderson: that shifted, and the outdoor market became
Judy Anderson: For us that that created some challenges in terms of growing the Forsyth brand
Judy Anderson: that we had just bought in 2021.
Judy Anderson: So, we're working through these challenges, we're coming out with new products for Forsake, we're trying to keep the brand moving forward as the outdoor market opens up, but to this date it's been a challenging situation.
Speaker Change: Yeah, and I would just add
Speaker Change: to what John said that, you know, because of the reasons that he cited, it's been very hard for us to judge the brand's performance. It's been, it's been
Speaker Change: Part of the whole thing that we were talking about with fogs were because the outdoor market has been so tough
Judy Anderson: the last couple of years.
Speaker Change: It's hard for us to to say, you know, this brand's just not gonna not gonna make it and or this brand's going to do Great, you know, we want to we want to give it a little bit of time. We feel that the outdoor market is Is turning around?
Speaker Change: from the standpoint that inventory has been absorbed. We still need some winter weather.
Speaker Change: But we think that Forsake has a really interesting positioning. It's in it's in a different place than Boggs It's it's more of a sneaker boot brand that appeals to a younger consumer
Speaker Change: And so we've spent this time building out a sales force.
Speaker Change: and as John said, really updating the product and so...
Speaker Change: We, even though it's very, very small, and as John said, less than 1% of the business, we feel like we want to give it a chance, and that that can't really happen until this market opens up a bit.
Speaker Change: Okay.
Judy Anderson: And then, Tom, you were talking a little bit about building the inventory back up to be ready for the fourth quarter, which is sort of the holiday season. Kind of hard to give shoes to somebody as a present, more or less, but I wonder, you know, how much of your business is quantifiable as being related to the holiday season?
Speaker Change: That's a good question. I think that what we see.
Speaker Change: It's more related to just fall weather. You know, October is a pretty good month for us typically, because people are buying winter coats and
Speaker Change: Boots and the gear that they need for the fall and so we also see in During the holiday period I think it's more
Speaker Change: people buying for parties and things like that that they're going to so there's more of a there's more of a dress trend during that period.
Speaker Change: holiday parties and year-end type parties.
Speaker Change: Okay. Well, great. Thanks for taking my questions and, you know, just...
Speaker Change: You really are the model of how a shareholder-friendly company should act and I think you set a good standard for any other corporation, public corporation, who might want to emulate it. So thanks very much.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of John Dasher of Pinnacle. Your line is now open.
John Dasher: Good morning, everyone.
John Dasher: Hi John, how are you doing?
John Dasher: Okay, a couple quick questions. One...
John Dasher: We're coming up on the holidays. Thanksgiving is about three weeks away. I'm just wondering what kind of color you're getting from the retailers in terms of how this holiday season is shaping up for your brands?
Speaker Change: Yeah, I mean, I think it's been the market's been very sluggish. So what we talked about in the conference call where.
John Dasher: You know discretionary spending is limited and that seems to be impacting the footwear market there's a couple brands more in the athletic space that are having a good run, but Everyone else, you know, we're kind of working through these market challenges this this fall
John Dasher: Thanksgiving is at the end of the month which actually cuts about a week off the retail calendar.
Speaker Change: for the holiday season, which is another challenge. So, you know, we're hopeful that things will turn around and pick up, especially if we get some weather, that's really gonna help our outdoor business, weatherproof business. But right now, the retail environment's very soft.
Speaker Change: Okay, so it's kind of wait and see at this point.
Speaker Change: Okay, the revolver that expired in September, it sounds like you were able to renew it and if so, what's the new maturity and what's the new rate for the $40 million?
Speaker Change: All the terms remain the same so it just renews for another 364 days so it's a short-term instrument but otherwise it's renewing at the same it's based on SOFR
Speaker Change: and I believe...
Speaker Change: Thank you. Bye-bye.
Speaker Change: 125 basis points.
Speaker Change: I can check that for you.
Speaker Change: but that's in our disclosure.
Speaker Change: and all terms stayed the same.
Speaker Change: Okay, who's the lender again?
Speaker Change: Associated Bank.
Speaker Change: All right, okay.
Speaker Change: Okay. Yeah.
Speaker Change: So you just keep renewing that on an annual basis it sounds like? That's correct.
Speaker Change: OK.
Speaker Change: All right, great. Thanks very much and good luck with holidays.
Speaker Change: Thank you.
Speaker Change: I am showing no further questions at this time, so I would like to turn it back to Judy Anderson, Chief Financial Officer, for closing remarks.
Judy Anderson: I just wanted to close by saying thank you to everyone for joining us today and have a great rest of your day.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.