WEYCO Group Inc (WEYS) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter Weyco Group earnings conference call. My name is Danielle and I will be your operator for today.

At this time, all participants are in listen-only mode and 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, Mr. John Wittkowske, Chief Financial Officer. Please proceed.

Thank you. Good morning, everyone. Welcome to Weyco Group's third-quarter conference call. On this call with me today are Tom Florsheim, Jr., our Chairman and CEO; and John Florsheim, our President and COO. 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 some statements are just predictions and that actual 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 third quarter of 2010 were $57.1 million compared with $57.9 million in 2009. Operating earnings were $4.5 million for the third quarter of 2010 compared to $4.6 million in 2009. Net earnings were $3.4 million for both the third quarter of 2010 and 2009. Diluted earnings per share were $0.30 in 2010 up from $0.29 in 2009.

Net sales in our North American wholesale segment include wholesale footwear sales in the United States and Canada. Licensing revenues are also included in the net sales of this segment which 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 footwear sales for the third quarter of 2010 were $41.1 million compared with $41.8 million in 2009. Looking at each brand in the wholesale division, sales of our Stacy Adams brand were up 16% while Nunn Bush and Florsheim were down 8 and 16%, respectively. Licensing revenues for the quarter were $362,000 compared with $616,000 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. Third quarter operating earnings for our North American wholesale segment were $3.3 million compared with $3.9 million last year.

The decrease was due to the lower licensing revenues and increased selling and administrative expenses this year. Selling and administrative expenses were $9.8 million in 2010 compared with $9.3 million in 2009.

The increase was primarily due to higher employee and advertising costs in 2010. The net sales of our North American retail segment include sales to consumers in our 36 domestic retail stores and through our Internet business.

Net sales were $5.2 million in the third quarter of 2010 compared with $5.1 million in 2009. Same-store sales were up 3%.

In the retail division, there was an operating loss of $378,000 in 2010 compared with a loss of $342,000 in 2009. Other net sales which include our wholesale and retail sales in Australia, Asia Pacific, South Africa and Europe were $10.6 million in the third quarter versus $10.5 million last year.

Florsheim Australia's 2010 net sales benefited from the weaker US dollar compared to the same period last year. Operating earnings were $1.6 million for the quarter up from $994,000 in 2009. The increase was driven by higher gross margin dollars in Florsheim Australia's retail business due to both higher sales and increased gross margin as a percent of sales.

As of September 30, 2010 our cash and marketable securities totaled $71 million and we had $6 million of outstanding debt. This net cash position of $65 million compares with a net cash position of $77 million at December 31, 2009.

During the first nine months of 2010, we used $1.9 million of cash for operating activities mainly to build inventories which were at low levels over the past several quarters. We also used $5.2 million to pay dividends, $2.6 million for the Umi acquisition, the children's line we bought on April 28, 2010, and used $2.2 million to repurchase Company stock. I will now turn the call over to Tom Florsheim, Jr., our Chairman and CEO.

Good morning, everyone. As John mentioned, in the third quarter of this year, our overall business was essentially flat compared to last year for both the sales and earnings perspective. While it is our viewpoint that the retail environment has stabilized, it's also clear the recovery is slow going and that consumers are exercising restraint in spending on footwear and apparel.

We believe the key to managing through a market like this is to continue to seek opportunities to take market share from other brands especially in categories where we are not highly penetrated. In terms of our brand portfolio, our performance was mixed.

Our Stacy Adams division experienced strong growth in the third quarter with a 16% increase over last year. Similar to the second quarter, Stacy Adams sales reflected the brand's success in selling more basic fashion to mainstream retailers as shipments were up significantly in the department store trade channel as well as a number of national chains.

Stacy Adams also experienced growth in casual and denim oriented footwear. We expect that trend to continue as Stacy Adams had strong bookings in both product categories for the Spring 2011.

While the Stacy Adams footwear business is on a growth track for 2010, our licensed accessories and apparel business remains challenging. During the third quarter, our sportswear licensee entered into bankruptcy and seized shipments.

Other license categories continue to be under pressure as independent clothing stores which cater to a higher fashion consumer remain highly affected by the recession. The weakness in Stacy Adams clothing and apparel resulted in a significant decrease in licensing revenues. Our Nunn Bush business was down 8% for the quarter. This decrease was primarily a timing issue as the Nunn Bush figures in 2010 were up against the third-quarter 2009 rollout with a large national chain.

This year in July, we began to ship the first Nunn Bush All-Terrain Comfort shoes which marks the brand's entry into the rugged casual category. Initial retail sales feedback has been very positive and we are excited about the potential of ATC to deliver future growth for the brand.

We're having success with the ATC product both in the outdoor trade channel as well as with more traditional accounts. Over the past several years, we've been moving Nunn Bush in a more casual direction. All-Terrain Comfort's initial success tells us that we can now connect to the consumer in the area of true casual which bodes well for the brand as we continue to maintain our dress business but focus on increasing our casual assortment which clearly is where future growth lies.

Overall, we believe that Nunn Bush as a leader in men's moderate priced footwear remains well positioned in this price-sensitive market. Our Florsheim performance was disappointing as our shipments were down 16% this past quarter compared to a year ago.

A significant percentage of this decrease can be attributed to the transitioning of the Florsheim product assortment with several large retailers. In our effort to update the brand, we're replacing some of our traditional legacy product with more modern and casual footwear with an eye towards building for the future.

In addition, as discussed on earlier calls, Florsheim continues to be impacted by its position at the higher end of the pricing matrix for mid-tier department stores and shoe chains. While we are cognizant of the current price constraints in the market, we also believe that Florsheim product remains an outstanding value.

We're hopeful that as the recovery progresses, mid-tier consumers and retailers will gravitate back toward upper moderate brands like Florsheim with strong heritage and relevant styling. We continue to have success with Florsheim by Duckie Brown.

While this is a small business, we now have shoes in many high-end department stores such as Barney's New York, Saks Fifth Avenue as well as leading men's stores such as Fred Siegel in Los Angeles and Odin in New York City. For spring of 2011, we have opened some impressive new accounts and continue to receive strong press.

This quarter we began shipping Florsheim Ltd. shoes, a collection of casual and dress footwear designed for better grade independent and department store distribution. Retail price points are $125 to $190 which makes Ltd. a bridge between Florsheim at about $90 and Florsheim by Duckie Brown which sells from approximately $250 to $600. Preliminary feedback on Florsheim Ltd. has been positive and we look forward to further developing this dimension of the Florsheim brand.

We have found that rebuilding Florsheim so that it is once again an aspirational brand is a long-term proposition. We have made some good headway by establishing Florsheim by Duckie Brown in some of our nation's most prestigious stores. As we build out that success, close attention is paid to the balance between the stewardship of our great heritage as a dress brand and how our styling must remain relevant to a more casual lifestyle today.

In short, we believe that we are planting some important seeds with Florsheim by Duckie Brown and now with Florsheim Ltd. to establish a halo for the brand. As we move forward, these higher end segments will help our ability to grow the Florsheim brand in other trade channels in a strategic way that will support the long-term health of Florsheim.

In April of this year, we purchased a children's footwear brand, Umi. This past quarter we shipped approximately $1 million of Umi product and we are excited about the potential of the brand as well as the opportunity (inaudible) gain incremental business in a new category.

In our North American retail segment, our same-store sales were up 3% versus last year. We continue to review our overall retail business model in the US as we strive to enhance our profitability while at the same time present a strong brand image for Florsheim. Toward that end, we launched a six-month pop-up shop in Soho in September with an entirely new design that features a clean modern look in combination with vintage photographs highlighting Florsheim's 118 year history.

The Soho store is selling a mix of Florsheim by Duckie Brown, Florsheim Ltd. and select Florsheim shoes. The Soho concept store generated good initial marketing buzz and we hope to utilize the new design to help formulate a stronger retail model for the future as we see flagship stores as an essential element of our long-term branding strategy.

Regarding our Florsheim Australian subsidiary which includes the Pacific Rim and South African markets, our retail same-store sales were up approximately 6% versus 2009. However, we continue to experience challenges in our Australian wholesale business.

In September, we opened a retail store in Newcastle, Australia which brings our total to 24 in that market. Overall, Florsheim Australia is meeting our expectations and we anticipate additional upside to this business as we work to streamline our systems worldwide.

Our balance sheet and cash position remain strong. This continues to be a great advantage as we navigate the slow pace of the current recovery. It enables us to make decisions for the long term to ensure we're well positioned in our respective markets.

Lastly, I want to mention that we are facing challenges in the sourcing part of our business, particularly in China. Labor prices continue to increase as well as some of the raw material costs.

We are expecting to make selective price increases to our customers in 2011 but plan to do this in a careful way given the fragile nature of the consumer market. That concludes our formal remarks. I would like to thank you for your interest in Weyco Group and would now like to open the call to any questions.

(Operator Instructions) There are no questions in queue at this time. I would like to turn the conference back over to Mr. John Wittkowske for closing remarks.

We would just like to thank everybody again for their -- listening to our call and have a great day. Thanks, bye bye.

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