WEYCO Group Inc (WEYS) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Quarter 4 2009 Weyco Group Earnings Conference Call. My name is Jeff and I will be your operator for today.

At this time, all participants are in a listen-only mode. Later we will facilitate a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. John Wittkowske, Senior Vice President and Chief Financial Officer. Please proceed, Mr. Wittkowske.

Thank you. Good morning, everyone, and welcome to Weyco Group's conference call to discuss our fourth-quarter and full-year 2009 results. Also on this call today are Tom Florsheim, Jr., Chairman and CEO; and John Florsheim, President and COO.

On behalf of Tom and John I would again like to thank all of you for joining us here today.

Before we begin, I will read a brief disclaimer. 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 such statements are just predictions and actual events or results may differ materially.

We refer you to our most recent Form 10K as filed with the Securities and Exchange Commission. That document identifies important factors that could cause the Company's actual results to differ materially from our projections.

Additionally, some comparisons may refer to non-GAAP measures. Our SEC filings may contain additional information about these non-GAAP measures and why we use them.

Net sales for the fourth quarter of 2009 were $58.4 million, up from $50 million in 2008. Net earnings were $4.8 million, compared with $3.5 million. Fourth-quarter diluted earnings per share were $0.41 compared with $0.30 in 2008.

For the year, net sales were $225.3 million, up 2% from $221.4 million in 2008. Net earnings were $12.8 million, down from $17 million. Diluted earnings per share were $1.11, down from $1.45 in 2008.

North American wholesale net sales of products for the quarter were $43.2 million, up from $40.6 million in 2008. For the year, North American wholesale sales were $166 million, down 9% from $182.9 million.

Looking at each brand in our wholesale division, Stacy Adams sales increased 7% in the fourth quarter and decreased 12% for the year. Nunn Bush sales were up 6% for the quarter and down 2% for the year. Florsheim net sales increased 7% for the quarter and decreased 15% for the year.

Across all of our wholesale brands, our sales volumes were down for the first three quarters of 2009, due to the recessionary economic environment, which some improvement noted in the fourth quarter.

Net sales in our retail division, which includes our 36 domestic retail stores and our Internet business, were $6.3 million for the quarter compared with $7.1 million last year. For the full year, retail sales were $22 million in 2009 compared with $26.5 million in 2008. There were two fewer stores in 2009 and our same-store sales were down 3% for the quarter and 8% for the year.

Licensing revenues for the quarter were $766,000 versus $1.3 million in 2008, and $2.7 million for the year as compared with $4.3 million in 2008. Our licensing revenues consist of royalties earned on sales of Stacy Adams apparel and accessories in the United States, Florsheim specialty footwear and accessories in the United States, and on sales of Florsheim footwear in Mexico and certain overseas markets.

In January 2009, we acquired a 60% interest in a new subsidiary now named Florsheim Australia, which subsequently purchased the Florsheim wholesale and retail businesses in Australia, South Africa and Asia Pacific. Accordingly, the financial statements of Florsheim Australia are consolidated in our 2009 fourth-quarter and annual results.

These businesses were previously licensed to us by a third party from whom we had collected approximately $1 million of royalty income annually. The acquisition of Florsheim Australia accounted for more than half the decrease in overall licensing revenues for the quarter and year compared with 2008. The remainder of the decrease was due to a general trend of lower sales of the Company's licensed products in this year's challenging retail environment.

The wholesale and retail sales of Florsheim Australia and Florsheim Europe were $8.1 million in the fourth quarter of 2009 versus $974,000 in 2008. Sales were $34.6 million for 2009 compared with $7.7 million in 2008, that is for the full year. Florsheim Australia sales were $7 million for the quarter and $27.3 million for the year, which accounts for the majority of that increase.

Operating earnings were $6.7 million for the fourth quarter of 2009 as compared with $4.7 million in 2008, an increase of $2 million. This increase is attributable to a $3.7 million increase in our North American wholesale operating earnings, offset by a $508,000 decrease in our licensing business and a $1.4 million decrease in operating earnings from our retail division.

In the wholesale division, the majority of the increase in operating earnings for the quarter was due to greater sales volume and higher gross margins. Margins were up due to higher selling prices on select products and also due to cost reductions achieved as a result of our cost control measures.

For the year, operating earnings were $16.8 million as compared with $24.5 million. The decrease between years of $7.7 million is due to a $4.3 million decrease in our wholesale division, a $2.7 million decrease in our retail division and a $1.6 million decrease in licensing revenues. These items are offset by a $900,000 increase in the operating earnings of Florsheim Australia and Florsheim Europe, due primarily to Florsheim Australia's $1.2 million of operating earnings this year.

In the wholesale division, most of the decrease in operating earnings for the year was due to lower sales volumes as wholesale gross margins were flat, and wholesale selling and administrative expenses were down $669,000.

The decrease in wholesale selling and administrative expenses for the year was primarily due to lower salaries and salesmen's commissions as well as decreased advertising costs. These decreases were partially offset by increased pension and stock-based compensation expense.

As a percent of sales, selling and administrative expenses were 22.1%, up from 20.5%, and that increase reflects the fixed nature of most of our expenses.

Earnings from operations for our retail division were down for the fourth quarter and the year, primarily due to lower sales volumes. In addition, in 2009, retail division selling and administrative expenses included a $1.1 million charge to recognize the impairment of certain fixed assets.

Interest income for the fourth quarter was $500,000 compared with $520,000 last year and $1.8 million for the full year compared with $2 million last year. The majority of our interest income is from our investments in marketable securities.

For the year, our other income and expense was $1.4 million compared with $21,000 of expense in 2008. The increase in 2009 is primarily due to foreign currency exchange gains on intercompany loans.

Our cash and marketable securities totaled $76.8 million at December 31, 2009, and we had no debt outstanding. At December 31, 2008, we had $57.6 million of cash and 1.2 5 million of outstanding debt under our short-term credit facility.

During '09 we generated $37.9 million of cash from operating activities. Almost half the cash generated from operations was due to reductions in inventory since the beginning of the year, as we have continued to carefully manage our inventory levels.

$9.3 million of cash was used for the acquisition of Florsheim Australia. Additionally we used $6.6 million to pay shareholder dividends, $2.6 million to purchase Company stock, and for 2010 we expect capital expenditures to be $1 million to $2 million.

I will now turn the call over to Tom Florsheim, Jr., our Chairman and CEO.

Thanks, John, and good morning. We are pleased to report improved results for the fourth quarter after what has been a tough year. Our year-over-year sales and profits were down in the first three quarters and during that time we took measures to control our costs, manage inventory levels carefully and introduce new products that address the more value-conscious consumer.

We began to see the impact of these efforts in the fourth quarter as sales and margins both improved.

In our wholesale business, we saw retailers reduce inventories to very low levels beginning in the latter part of 2008 and maintain a conservative stance in inventory throughout 2009. The uptick we experienced in the fourth quarter was largely in our [At Once] business which was driven by strong sales through of our product at retail resulting in increased replenishment orders from our customers.

As John mentioned, our Nunn Bush business was up 6% for the quarter and down slightly for the year. In a very tough retail environment, Nunn Bush managed to pick up market share in 2009 as the consumer was responsive to the brand's blend of innovation, relevance styling, and moderate price points.

Retail sales performance of our core comfort gel footwear as well as our slip-resistant dynamic comfort program was strong with our key accounts. And we believe that Nunn Bush is well-positioned in today's value-oriented market.

One of our key long-term objectives for the brand is to build off of Nunn Bush's success as a leader of comfort dress and dress casual footwear for midtier retailers and expand the brand's presentation in the weekend casual category. With that goal in mind for fall 2010 we are introducing a new Nunn Bush line extension called [All Terrain Comfort] or ATC.

The ATC product finds Nunn Bush's comfort gel platform with a more rugged casual design orientation to capitalize on the growing market for outdoor lifestyle footwear. We believe there is an opportunity in the outdoor category for quality branded footwear at more accessible price points.

We introduced ATC at recent industry trade shows and are encouraged by early success and placement of the collections with some of our most important existing accounts.

We also feel that there's an opportunity to sell the outdoor retailer trade channel, which would represent incremental distribution for Nunn Bush and enhance the brand's overall position in the casual footwear market.

Moving on to Florsheim, while 2009 was a challenging year, we are pleased that the brand had a 7% increase in wholesale sales in the fourth quarter. The Florsheim gain reflected a higher frequency of At Once (inaudible) for core classic styles as well as the introduction of some new contemporary and casual product that sold well at retail.

As we move forward in 2010, we are focused on building off of this space to expand the brand's appeal to a younger and more casually oriented consumer.

One additional bright spot in the fourth quarter was that Florsheim by [Ducky Brown] was named one of the launches of the year by the leading industry trade magazine Footwear News. The Florsheim by Ducky Brown line has helped make Florsheim a more important part of the overall discourse in the fashion market, especially as the industry trends towards more classic time-tested silhouettes. Our Stacy business was down 7% in the fourth quarter as the brand's success with contemporary footwear resulted in strong performance with department stores and national shoe chains.

As mentioned in previous conference calls, independent apparel and footwear retailers have been especially hard hit during the economic recession. This trade channel sells a significant percentage of Stacy Adams' more high-fashion footwear and is an important avenue of distribution for our licensed apparel and accessory products.

While this area of the business remains under pressure, we are encouraged by Stacy Adams' ability to expand the range of its products by the appeal to a more mainstream fashion consumer. We are committed to further developing this area of growth for the brand, and are investing in a new ad campaign for spring 2010 that highlights a younger, more contemporary look for Stacy Adams.

Our retail division in the US struggle throughout 2009. At year end, we analyzed our stores and determined that certain US locations are not performing well enough to support our investment in them. Therefore we took a $1.1 million impairment charge to write down our retail fixed assets to their realizable value.

We believe that improvement in the retail environment will be slow. And at this time, we expect to close a handful of our domestic retail shops over the next several years.

Our long-standing strategy with our retail business has been to evaluate our stores and the retail landscape on an ongoing basis, and make adjustments when necessary. Maintaining a retail presence continues to be an important part, though, of our branding strategy for the Florsheim brand.

In January 2009, we bought a majority interest of Florsheim Australia, which operates our retail and wholesale businesses in Australia, South Africa, and Asia-Pacific. The 2009 revenues of these businesses met our expectations. However their profitability fell a bit short of what we had hoped for due to the challenging retail climate this year and due to some acquisition and transitional expenses.

For the long term, we believe that this acquisition will allow us to grow our business in these markets, enhance our control over the Florsheim brand message and increase the overall profitability of our Company.

Our balance sheet remains strong. And we continue to evaluate the best ways to utilize cash including continued repurchases of company stock, increase dividends and potential acquisitions.

Our goal continues to be to deliver solid value to our customers and provide growth to our shareholders. And I believe our Company is well-positioned to do both over the long term.

That concludes our formal remarks. Thank you for your interest in Weyco Group and now we are going to take any questions that might be out there.

(Operator Instructions). It looks like there are no questions in the queue.

: Okay. Then we thank again, thank everyone again for attending this conference call and hope everyone has a good day.

Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect. Have a wonderful day.