WEYCO Group Inc (WEYS) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2010 Weyco Group Earnings Conference Call. My name is [Tanina] and I will be your operator for today.

At this time, all participants are in listen-only mode. Later we will conduct 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, Ms. Judy Anderson, Vice President Finance. Please proceed, ma'am.

Good morning and welcome to Weyco Group's conference call to discuss first quarter 2010 earnings. I am Judy Anderson, the Vice President of Finance of Weyco Group and I'm filling in today for our CFO, John Wittkowske, who is currently visiting our Australian subsidiary.

On this call with me today are Tom Florsheim, Jr., Chairman and CEO; and John Florsheim, President and COO. On behalf of Tom and John Florsheim I would like to thank all of you for joining us for our quarterly conference call today.

Before we begin to discuss the results for the quarter, 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 that actual events or results may differ materially.

We refer you to Weyco Group's most recent Form 10K as filed with the Securities and Exchange Commission. This 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 first quarter of 2010 were $61 million, up 4% from $58.9 million in 2009. Operating earnings were $5.4 million for the first quarter of 2010, up from $3.3 million in 2009. Net earnings were $3.9 million for the first quarter of 2010, as compared with $2.5 million in 2009. Diluted earnings per share were $0.34 per share in 2010 versus $0.22 per share in 2009.

On January 23, 2009, we acquired a majority interest in a new subsidiary, Florsheim Australia. Accordingly, our first quarter 2010 results include Florsheim Australia's operations for the entire first quarter, while 2009 only includes the consolidated financial statements of Florsheim Australia from January 23 through March 31, 2009.

The net sales of our North American wholesale segment constitute approximately 73% of our overall net sales and result primarily from wholesale sales of footwear in the United States and Canada.

Licensing revenues are also included in the net sales of the North American wholesale segment and result from third-party sales of our branded apparel, accessories, and specialty footwear in the US, as well as from the sale of our footwear in certain foreign markets.

North American wholesale net sales of footwear for the first quarter of 2010 were $44.1 million compared with $45.6 million in 2009. Looking at each brand in our wholesale division, sales of our Stacy Adams brand were up 6% while sales of Nunn Bush and Florsheim were down 12% and 3% respectively.

Licensing revenues for the first -- for the quarter were $580,000 in 2010 compared to $750,000 in 2009. For the first quarter of 2010, Stacy Adams licensing revenues were down mainly because the retail environment continues to be tough for the independent retailers in the United States who distribute the majority of this product. Our licensing revenues from our Florsheim licensee in Mexico were also down this year due to the troubled economic and retail environment in that country.

Wholesale gross margins were 30.8% for the first quarter of 2010 versus 26.6% in 2009. The higher gross margins in 2010 were due to higher selling prices on select products and overall reduction this year in sales to off-price retailers and cost reductions achieved within our supply chain. Despite the decrease in wholesale net sales this quarter, wholesale selling and administrative expenses were flat, reflecting the fixed nature of the majority of these costs.

Operating earnings for the wholesale segment increased $1.1 million this quarter compared to the same period of 2009. With flat wholesale selling and administrative expenses, the impact of higher gross margins discussed above caused the increase, offset slightly by the decrease in net sales for the quarter.

The net sale of our North American retail segment constitute approximately 9% of our overall net sales and result from sales of our branded men's footwear to consumers in our 36 domestic Florsheim retail stores and through our Internet business. Net sales were $5.3 million in the first quarter of 2010 compared with $5.2 million in 2009. There were the same number of retail stores in the first quarter of 2010 as in the same period of 2009.

Retail operating earnings for the first quarter were flat as both gross margins and selling and administrative expenses were flat between periods. Our other operations, which include the wholesale and retail businesses of Florsheim Europe and Florsheim Australia, had net sales of $11.1 million in 2010 versus $7.3 million in 2009 and operating earnings of $1.2 million in 2010 versus $313,000 in 2009.

The increased net sales and operating earnings in 2010 were mainly due to the inclusion of the full quarter of Florsheim Australia results this year as compared with the period of January 23rd through March 31st in 2009. In addition, these entities' current results benefitted from foreign exchange rate changes. Also, Florsheim Australia's first quarter 2009 earnings from operations were reduced by $370,000 of acquisition costs.

Our balance sheet remains strong with cash and marketable securities of $77 million and no debt as of March 31, 2010. This compares with the net cash position of $76.8 million at December 31, 2009. In the first three months of 2010, we generated $2 million of cash from operating activities and used cash primarily to purchase marketable securities and to pay dividends.

Since the recession began about 18 months ago, we have been managing our inventories carefully and as of March 31st this year, our inventory levels were low compared to the recent past. We are in the process of building our inventory levels back up to where they have been historically, and as a result we believe our cash position will come down as we move through the year this year.

Yesterday we announced that we increased our quarterly dividend rate to $0.16 per share. This represents an increase of 7% over the previous quarterly dividend rate of $0.15 per share.

I would now like to turn the call over to Tom Florsheim, Jr., Chairman and CEO

Thanks, Judy, and good morning, everybody. We are pleased to report significantly improved results for the first quarter. While our year-over-year wholesale net sales were down slightly, we took measures to control costs and managed our inventories, resulting in fewer shipments of obsolete and surplus product.

We achieved higher gross margins, which resulted in higher operating earnings. We are encouraged by the momentum we have with several new product initiatives across our brands. Stacy Adams enjoyed a strong first quarter with a 6% increase in sales. Sales increase was across the majority of our trade channels as we are starting to see early signs of the fashion-oriented consumer returning to the market.

In particular, Stacy Adams experienced increased sales in the basic contemporary category as well as with footwear that targets a younger, denim-oriented consumer. We believe the growth in both of these product areas reflects a positive long-term opportunity for the brand. Stacy Adams licensed apparel and accessory shipments were down in the quarter, however we are hopeful that the licensed products will begin to mirror the up tick in footwear sales we've seen the last two quarters.

Our Nunn Bush business was down 12% for the quarter, primarily due to the decline in shipments of surplus product to off-price retailers. Overall sales of regular priced Nunn Bush footwear remain solid in the marketplace with our Comfort Gel and Dynamic Comfort collections performing well in key mid-tier department stores and footwear chains.

We also experienced a strong selling of our new Nunn Bush line extension called All Terrain Comfort or ATC. The ATC product combines Nunn Bush's Comfort Gel platform with a more rugged, casual design to capitalize on a growing market for outdoor lifestyle footwear. We believe Nunn Bush can add value to this category by providing quality branded casuals at accessible price points.

The other positive about the introduction of ATC is we are achieving incremental distribution through outdoor retailers that typically would not carry Nunn Bush product. We will begin delivering ATC in July of this year and look forward to getting the product in front of consumers.

Florsheim sales were down slightly in the first quarter. While we're not pleased with this decrease, we believe we have turned the corner in establishing more casual Florsheim product, as there are a number -- as a number of new styles are performing well at retail this spring. While we are refining Florsheim's casual offerings, we have a strong foundation in the dress business and continue to focus on expanding the range of what Florsheim represents in the market.

Toward that end, we'll be introducing a collection of footwear this fall utilizing premium materials called Florsheim Limited. Florsheim Limited has both a dress and casual component, and is targeted toward the independent trade channel that caters to our consumer that knows and likes Florsheim and desires an accessible, upscale product.

The results of our North American retail segment were flat with the first quarter of last year. We saw our business in the shops stabilize during this period, but we believe that improvement in the retail environment will be slow. 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. While maintaining a retail presence continues to be an important part of our branding strategy for Florsheim, we currently plan to close a handful of our domestic retail locations over the next several years.

We believe our Florsheim Australia subsidiary, which includes Australia, South Africa, and Asia Pacific markets, has made strides in both the retail and wholesale businesses as profits exceeded our budget for the quarter. While these markets are experiencing some of the same challenges we have experienced in the US, we remain positive about the long-term potential to leverage the Florsheim brand worldwide.

In the second week of April, we opened our first Florsheim store in South Africa in downtown Johannesburg at the Carlton Mall. South Africa has been an extremely strong market for Florsheim over the last few years and we believe that adding a flagship retail store will not only enhance the brand in South Africa, but result in a good return on our investment.

Finally, we are excited to announce the addition of UMI to the Weyco portfolio of brands. Umi -- the Umi brand was started in 2004 by Mark Kohlenberg, who previously ran Elefanten USA children's footwear business for 14 years. Umi offers its customers European inspired design, high quality materials, and unique styling at an attainable price point. We are very pleased that Mark will be joining Weyco Group as President of the Umi brand and believe Mark's stewardship, supported by Weyco's infrastructure should provide significant opportunity to grow the Umi brand in the marketplace.

On an overall basis, we -- while we had a good quarter, we are cautiously optimistic as we recognize that the recovery is still tentative and dependent on a myriad of economic factors. We also continue to experience price compression at retail and are starting to feel pricing pressure out of China based on increased labor and material costs, as well as anticipation of the revaluation of the Chinese currency.

As we move further into 2010, we will continue our efforts to deliver solid value to our customers and provide growth for our shareholders. This concludes our formal remarks. We thank you for your interest in Weyco Group and I'd now like to open the call to any questions.

(Operator instructions) I'm showing no questions at this time.

Okay, we thank everybody for listening to the call and for your interest in Weyco Group.

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