WEYCO Group Inc (WEYS) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2011 Weyco Group, Inc. earnings conference call. My name as Kathy and I'll be your operator for today. At this time all lines are in listen-only mode. Later we'll conduct a question-and-answer session. (Operator Instructions). I would now like to turn the conference over to Mr. John Wittkowske, Chief Financial Officer. Please proceed, sir.

Thank you. Good morning, everyone, and welcome to today's conference call to discuss our first-quarter 2011 earnings. 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 such statements are just predictions and that actual events or results may differ materially.

We refer you to our 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.

Our net sales for the first quarter of 2011 were $65.1 million, up 7% from $61 million in 2010. Operating earnings were $4.8 million versus $5.4 million in 2010. As a percent of sales operating earnings were 7.4% in 2011 and 8.9% in 2010. Net earnings were $3.4 million as compared with $3.9 million. Diluted earnings per share were $0.30 per share in 2011 versus $0.34 per share in 2010.

On March 2, 2011 we acquired The Combs Company, the owner of the Bogs and Rafters footwear brands. Bogs is a line of boots and shoes for men, women and children which are sold across the agricultural, industrial, outdoor specialty, outdoor sport, lifestyle and fashion markets. Rafters is a line of outdoor sandals.

The purchase price was $29.3 million in cash plus assumed debt of $3.8 million and contingent payments after two and five years which are dependent on the brands achieving certain performance measures and are estimated at $9.8 million. The two brands had approximately $27 million of sales during 2010 with the majority of those sales under the Bogs brand name.

Hereafter in this call we will refer to The Combs Company as Bogs. We expect the Bogs acquisition will be accretive to our earnings in 2011 excluding the impact of certain purchase accounting adjustments as well as transaction and integration costs. However, we expect that most of that accretion will occur in the second half of the year as the majority of Bogs' business occurs in the third and fourth quarters.

North American wholesale net sales of footwear for the first quarter of 2011 were $47.6 million compared with $44.1 million in 2010. Wholesale sales in 2011 included Bogs sales since the date of acquisition of $2.3 million. The first quarter of 2011 also included Umi sales of approximately $1.1 million. There were no Umi sales in the first quarter last year as the brand was acquired in April of 2010.

Looking at our other brands in the wholesale division, sales of Nunn Bush and Florsheim were up 1% and 5% respectively, while Stacy Adams was down 4%. Licensing revenues for the quarter were $504,000 compared with $580,000 last year. Operating earnings for the wholesale segment decreased $755,000 this quarter. This was the result of slightly lower gross margins and higher selling and administrative expenses which included the Bogs acquisition costs of $220,000.

In addition, the decrease in licensing revenues reduced the wholesale operating earnings. The inclusion of Bogs' March 11 operations contributed to the decrease in operating earnings as a percent of sales. Bogs had $2.3 million in sales but a small operating loss for March as March is historically an off-season month for the brand.

Net sales in our North American retail segment increased 6% to $5.6 million in the first quarter of 2011 compared with $5.3 million in 2010. Same-store sales were up 8% for the quarter. There were two fewer retail stores during the first quarter this year and we closed an additional store at the end of March. Retail operating earnings improved by $125,000 for the quarter primarily due to higher operating earnings from our Internet business.

Our other operations, which include the wholesale and retail businesses of Florsheim Australia and Florsheim Europe, had net sales of $11.4 million in 2011 versus $11.1 million in 2010. The majority of other net sales are generated by Florsheim Australia. Their sales were up 7%. However, in local currency Florsheim Australia sales were down 3%. The increase was caused by the weaker US dollar relative to the Australian dollar.

Florsheim Europe sales were down 7% due to the closing of its retail store in Dusseldorf, Germany at the end of 2010 as well as lower wholesale shipments. Collectively the operating earnings of the other businesses were flat at $1.2 million.

Our cash and marketable securities totaled $68.6 million at March 31 this year compared to $70.2 million at the end of last year. We borrowed $29 million under our revolving line of credit during the quarter to fund the Bogs acquisition. We also generated $2.8 million of cash from operations, paid dividends of $1.8 million and had $650,000 of capital expenditures to date this year.

We expect our capital expenditures to be approximately $2 million to $3 million for 2011 which will include costs associated with integrating Bogs into our operations. I would now like to turn the call over to Tom Florsheim, Jr., our Chairman and CEO.

Thanks, John, good morning. Our big news this quarter is the Bogs acquisition. We talked about Bogs in our March 4 conference call, so I'm going to be brief. Operations in Eugene, Oregon are continuing for several months while we build our systems and prepare our distribution center here in Milwaukee for the addition of this brand.

As John mentioned, Bogs had $2.3 million of sales and a small operating loss in March. This was expected as March is historically an off-season month. In fact, we did not expect to see significant shipments until the second half of 2011, which gives us a good window for our transition.

We feel that Bogs opens a whole new world to Weyco, the outdoor market is an exciting segment of the shoe industry and fits into the continuing trend toward a more casual lifestyle. The Bogs acquisition represents an important step toward diversifying our brand portfolio.

The Umi brand is also new to our first-quarter operating results as it was acquired in April 2010. We consider this business to still be in its infancy. This children's brand was started in 2004 and offers consumers European inspired designs, high-quality materials and unique styling at an attainable price point. We see a lot of potential with Umi, but it is currently a small niche market brand, so growth will take some time. Umi turned a small profit this quarter and we're pleased with its progress to date.

Collectively sales of Nunn Bush, Florsheim and Stacy Adams were flat with last year for the quarter. Our Nunn Bush business was up 1% during the period reflecting the brand's solid retail performance across all major trade channels. This quarter Nunn Bush launched an enhanced brand of walking shoes called Nunn Bush Core.

Nunn Bush Core combines our successful comfort gel platform with a light weight dual density contoured outsole to create a superior walking shoe experience. Year to date our sales force has placed over 100,000 pairs of this new program for delivery beginning in July 2011 and we are encouraged by the strong start. The addition of Core, as well as the successful introduction of Nunn Bush All-Terrain Comfort in 2010, significantly enhances the brand's casual assortment and well-positions Nunn Bush for long-term growth.

Florsheim sales increased 5% for the quarter as the brand experienced a significant increase in international shipments as well as growth in sales to Internet-based accounts. We are also pleased by the continued strong performance of Florsheim Limited, a line extension launched in the fall of 2010 which plays off the heritage of the brand utilizing premium materials and components.

In the marketplace Florsheim is benefiting from strong consumer interest in retro fashion and we are leveraging this trend to connect with younger consumers and introduce casual updates to our authentic legacy patterns.

Stacy Adams sales decrease 4% for the quarter; the decline was driven by the late timing of Easter shipments which continues to be an important retail holiday for the brand. Overall Stacy Adams footwear continues to perform well at retail with our major accounts.

In our North American retail segment our first-quarter same-store sales increased 8%. While we're pleased with the performance of some of our Florsheim locations and our online business, we have a number of stores that are under performing. In 2011 we closed one stored and two more are scheduled to close in the second quarter.

Overseas our retail performance remains strong. Same-store sales in our Florsheim Australian subsidiary were up significantly including a 16% increase in our Asian stores and a 14% increase in Australia. On May 9 we're scheduled to open a Florsheim store as part of the new Westfield City Center project which is right in the center of downtown Sydney. We're excited about the opening of this location and believe that the City Center store will serve as a flagship for the brand in this area of the world.

While our retail sales in Australia have been robust, our wholesale sales in the market continue to be challenging with shipments down 20% relative to 2010. The wholesale decline is primarily due to softness with two major department stores in Australia.

Similar to other companies in our industry, we face significant pricing pressure out of China based on increased labor and material costs as well as the strengthening value of the renminbi relative to the US dollar. We have raised our selling prices for fall in an effort to maintain our margins, but we believe we will continue to face increasing cost on the supply side for the near to medium term.

That concludes the formal remarks. We appreciate everyone's interest in Weyco Group and would now like to see if there are any questions out there.

(Operator Instructions). Darren Weems, DePrince.

Yes, thanks for taking my call. Can you tell us what the loss was for Bogs this quarter?

Yes, it was basically zero, about $40,000 approximately.

And then how seasonal are Bogs' sales as we go throughout the year? How should we think about the sales kind of falling into each quarter as we go forward?

Well, I think we don't know and we don't really throw out there are any guidance on what we think they'll be in total. But I would, based on I think the year before, if you look at the -- I don't have an exact number -- the $27 million they had in 2010, this is from memory and a guess, I would say that $20 million of the $27 million probably come in the third and fourth quarter, maybe $18-million-ish, in that range. So two-thirds probably come in the second two quarters versus the other.

And you said the merger charge this quarter was $220,000?

That's correct.

Okay. And then can you talk a little bit about your gross margin? I mean you're doing pretty well; it was pretty flat compared to last year. And just talk about your margin, how we should think about that for the rest of the year and maybe make some comments on leather prices?

This is Tom. From a margin standpoint the international piece of our business helps to offset some of the margin decline that we're experiencing right now in the US. And that's happening because of the strength of the currencies in the international pieces of our business. For example, you put Canada in North America but the currency in Canada is strong. The currency in Australia has gone through the roof. And so that's helping to offset some of the margin, the margin pressure that we're feeling in the US.

The question that you're asking is difficult to answer because the situation is a bit volatile right now. Leather prices are right now are -- if they're not at an all-time high they're near an all-time high. And we're also seeing a lot of the components being used for shoe manufacturing like the souls are oil-based and so with the increased -- increases in the price of oil that's affecting us as well.

And so it's a little bit of a moving target and what we're trying to do as much as possible is value engineer our product where it makes sense, we're trying to lock in pricing with factories as much as we can so that we have some stability as we move into the second half of the year. But the pressures -- and I mean I'm sure you've been reading -- I'm sure everybody has been reading about the price pressures throughout not only the shoe industry but other industries.

P&G came out with statements last week about how they're experiencing the same thing. I mean it's really due to increases worldwide in the cost of raw materials. And so it's something that's affecting a lot of different industries right now. And so as we move into the second half, as we mentioned, we raised pricing. We're doing this in a measured way because the consumer in the US particularly -- the consumer in the US is very price sensitive right now because of the other things that are affecting disposable income.

And so we're doing it in a measured way, but if it's difficult to say that we're going to be able to maintain margins as we move into the second half. Because the price increases keep coming and I think that -- from the standpoint of how much can we really increase prices, I think that there is some limit to that. So it's a moving target and we're going to just have to see how things go in the second half and into the first part of 2012.

Okay. And then talk about the accretion for Bogs? I mean, how much are you expecting in the second half?

We normally don't give guidance and do any projections on that. And so I think it would be inappropriate to do that. But it's always difficult; there will be certainly disclosures on sales and things as we move forward. But it's hard to predict accretion, particularly in the first year when you do have all of the integration costs that we're doing.

We've got two factories -- or not factories; we've got two locations right now. We still have the Eugene location, that will be closing up sometime early summer as indication there. And then we'll be here and we'll start seeing some of the synergies which will help our profitability. But we're not really -- we don't really throw out guidance on that.

Can you tell me what the operating margins are for Bogs?

Well, they're going to be significantly different with us because we're going to have everything integrated into our operation here. So that's a number that's not really relevant.

Okay. Okay, I think that's all that I have. I appreciate your time.

Thank you.

(Operator Instructions). Currently there are no questions at this time.

Okay, then we'll just thank everybody again for their attention and talk to you next quarter.

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