WEYCO Group Inc (WEYS) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2010 Weyco Group earnings conference call. My name is Saylie 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, John Wittkowske, Senior VP and CFO. Please proceed.

Thank you. And good morning, everyone, and welcome to our conference call today. On this call with me is Tom Florsheim, Jr., our Chairman and CEO. 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 10-K 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 second quarter of 2010 were $48.7 million, down 3% from $50.1 million in 2009. Operating earnings were $1.7 million for the quarter, down from $2.2 million in 2009. Net earnings were $1.3 million as compared with $2.2 million last year. Diluted earnings per share were $0.11 in 2010 and $0.19 in 2009.

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

North American Wholesale sales of footwear for the second quarter of 2010 were $34.8 million compared with $35.4 million in 2009. Looking at each brand in our division in the Wholesale division, sales of our Stacy Adams brand were up 2%, while Nunn Bush was flat and Florsheim was down 7%.

Licensing revenues for the quarter were $470,000 compared with $552,000 in 2009. Licensing revenues were down, due to the continued struggles of independent retailers in the United States who distribute the majority of our licensed products, and also due to the poor economic environment in Mexico, which has caused a decrease in our licensing revenues from our footwear licensee in Mexico.

Our North American Wholesale operating earnings for the quarter were $1.8 million compared with $1.9 million last year. The decrease includes the impact of the $80,000 decrease in licensing revenues. Additionally, we had slightly lower gross margin dollars for the quarter, caused by lower sales volume. Our Wholesale margins were 30.3% for the second quarter of 2010 versus 29.6% in 2009.

Selling and administrative expenses were up slightly at $9.26 million in 2010 compared with $9.1 million in 2009.

Net sales of our North American Retail segment result from sales of our men's branded footwear to consumers in our 35 domestic retail stores and through our Internet business. Net sales were $5.3 million in the second quarter of 2010 compared with $5.4 million in 2009. One store closed during the second quarter of 2010.

Same-store sales were down 1%. In the Retail division, there was an operating loss of $160,000 in 2010 compared with a loss of $138,000 in 2009. Flat gross margins and level selling and administrative expenses caused the flat operating results for the quarter.

Other net sales, which include our Wholesale and Retail sales in Europe, Australia, Asia and South Africa, were $8.1 million in the second quarter compared with $8.7 million last year. This decrease in sales occurred principally in the Australian Wholesale business. Florsheim Australia's 2010 net sales benefited from the weaker US dollar compared with the same period last year. Operating earnings were $96,000 for the quarter, down from $405,000 last year, primarily due to the lower wholesale sales volume in Australia.

Earnings before tax were $1.9 million for the second quarter compared with $3.7 million last year. $500,000 of this decline was due to decreases in operating earnings discussed earlier. The other $1.3 million was a decrease in other income and expense, $1.2 million of which was the result of exchange gains and losses recognized on intercompany loans with Florsheim Australia.

In the second quarter of 2010, a loss of $344,000 was incurred versus a gain of $870,000 in 2009. As of June 30, 2010, our cash and marketable securities totaled $78 million and we have no outstanding debt. This compares with a net cash position of $76.8 million at the end of 2009.

During the first six months of 2010, we generated $7.9 million of cash from operating activities, which was used mainly to pay dividends and to fund the Umi acquisition, which is the children's line we purchased on April 28, 2010. Additionally, we purchased $21.8 million of marketable securities, using both current maturities and available cash.

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

Thanks, John. Good morning, everyone. In the second quarter of this year, our business continued to be affected by the general economic environment. After an initial uptick in demand during the first part of this year, consumers have once again returned to a more cautious approach to discretionary spending. As a result, our overall Wholesale sales were down slightly from last year's levels. While we are not pleased with our short-term performance, we also recognize that the recovery will take time and we remain focused on building our brands for long-term success.

As John mentioned, our Stacy Adams brand was up 2% this past quarter. Overall, the brand continues to make considerable progress diversifying its product mix and selling more basic fashion product to mainstream retailers. Stacy Adams also continues to develop its denim-friendly collection, which attracts a younger consumer. This spring, we launched a new advertising campaign for Stacy Adams across a variety of media, with a more modern and casual creative feel that highlights the updated design correction of the brand.

The one area of Stacy Adams that remains challenging is our licensed Accessories and Apparel business, which appeals to a higher fashion consumer that mainly shops at independent clothing stores. This Retail segment continues to be highly impacted by the recession. We are working with our licensees to increase their penetration in other trade channels.

Our Nunn Bush business was flat for the quarter. Both our Comfort Gel and Dynamic Comfort slippers [listed] products are selling well at retail as Nunn Bush continues to be a leader in dress casual footwear for mid-tier department stores and shoe chains. As we've mentioned in previous conference calls, Nunn Bush is extending its comfort position into the rugged casual category with the launch of our All-Terrain Comfort Or ATC sub-line.

We are very pleased with the initial sell-in of ATC, as our sales force placed approximately 150,000 pairs for fall. We believe the introduction of ATC will enable Nunn Bush to garner incremental business with the outdoor trade channel, as well as increase our shelf space with our traditional account base. We are just starting to ship the first ATC shoes and look forward to getting feedback at the consumer level.

Our Florsheim business was down 7% this past quarter, with nearly all the decline attributed to a loss of shipments to mid-tier shoe chains. As discussed in earlier calls, Florsheim is at the higher end of the pricing matrix for mid-tier department stores and shoe chains. As a result, the brand is affected to a greater degree by price-sensitive consumers trading down to less expensive alternatives.

We are mindful of the constraints of the existing market and have incorporated more packages of shoes in the Florsheim line that address the price-sensitive needs of today's consumer. However, we are also focused on our long-term objectives of enhancing the casual dimension of the Florsheim brand, as well as increasing our penetration with better independents that sell higher-end footwear. Towards that end, we look forward to the launch of Florsheim Limited this fall. Florsheim Limited is a collection of casual and dress footwear that utilizes premium materials, and targets the consumer that knows and likes Florsheim and desires accessible, higher-end product.

In our North American Retail segment, although our same-store sales held up compared to last year, our retail stores in the US continue to struggle with sales volumes. Until we increase our topline sales closer to pre-recession levels, the profitability in our retail stores will suffer, due to the high fixed cost structure inherent in this business.

Like most other retailers, we are focusing our efforts on advertising and promotions. We have met some successes with our programs, but not enough to garner the volumes that we had just a few years ago. We have not seen a turnaround in our retail business and we believe it will return very slowly. In the meantime, we are cautious about entering new leases or extending existing leases.

We closed one retail store in May this year and we plan to close another one this October. We continue to view our retail stores as an important part of our branding strategy for the Florsheim brand; but given the current retail environment at this time, we're not looking to expand this are of our business.

Regarding our Florsheim Australia subsidiary, which includes the Pacific Rim and South African markets, solid sales in our Florsheim retail stores were offset by challenges in our Australian Wholesale business. Our two major Australian Wholesale accounts have experienced difficult sales, reflecting the overall challenging retail environment in Australia.

While our company-owned stores have held up quite well relative to the general market, we have experienced the decline in wholesale shipments and we're currently working through these issues with our retail partners. Meanwhile, Florsheim sales in the Pacific Rim and South Africa met expectations for the second quarter.

Our balance sheet and cash position remains strong. This has been a great advantage to us in the current challenging times. It allows us to make decisions for the long-term to ensure we are well-positioned in our respective markets. We continue to look for opportunities to acquire new brands, and in April of this year, we purchased Umi, a children's line, for $2.5 million. As of right now, we have completed the integration of Umi into our systems and are preparing to ship our first season of the line this fall. We are excited about the future prospects of the Umi brand.

Although we are not pleased with our second-quarter results, we remain positive about our long-term prospects and believe that we have a number of new initiatives in place that will enable us to build for the future.

This concludes our formal remarks. I'd like to thank you for your interest in Weyco Group, and we'd now like to open the call up to any questions that might be out there.

(Operator Instructions). Randall Coleman, Forward Management.

I may have missed it, but can you give an update on what's happened with the Duckie Brown brand?

Sure. We are going into our fourth season of selling that brand. We've been very pleased with how that has gone. We've expanded our distribution into the places that we've really targeted, which are several high-end retailers.

The brand at retail continues to perform well. And basically, we feel that that has been a great thing overall for the Florsheim brand. It creates this kind of halo effect for the brand. We've gotten a lot of press and we're just -- we're moving forward. There's no -- we're moving forward, and just in general, we're very pleased with how that's gone.

Thank you.

(Operator Instructions). It appears we have no additional questions at this time, Mr. Wittkowske.

Okay. We'd like to thank everybody again for joining us and have a great day. Thank you.

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