WEYCO Group Inc (WEYS) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2014 Weyco Group earnings conference call. My name is Whitley, and I'll be your operator for today. (Operator Instructions)

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 our fourth-quarter earnings conference call. On this call today we have myself; Tom Florsheim, Jr., our Chairman and CEO; and John Florsheim, our President and COO.

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 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. The 10-K identifies important factors and risks that could cause the Company's actual results to differ materially from our projections.

Additionally, some comparisons 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 fourth quarter of 2014 were $95.3 million, up 21% as compared to 2013 sales of $78.5 million. Operating earnings increased 24% to $13.4 million in the fourth quarter of 2014 from $10.8 million in 2013.

Net earnings attributable to Weyco Group were $8.1 million this quarter, up 19% from $6.8 million last year. Diluted earnings per share were $0.75 for the fourth quarter, up from $0.62 in the fourth quarter last year.

Earnings for the quarter included $611,000 of expense that resulted from an increase in the estimated liability for the final earnout payment related to the Bogs acquisition. On an after-tax basis, this adjustment was $373,000, or $0.03 per diluted share. Without this adjustment, earnings from operations and net earnings attributable to Weyco Group would have been up 30% and 25%, respectively, for the quarter.

In the North American wholesale segment, net sales for the fourth quarter of 2014 were $73.9 million, up 27% compared with the $58.2 million in 2013. Wholesale gross earnings as a percent of net sales were 35.2% in the fourth quarter compared to 36.2% in 2013. The decrease in gross margin percentage was the result of significantly lower margins in our Canadian business caused by the weaker Canadian dollar relative to the US dollar in the fourth quarter of 2014 as compared to 2013. Had the Canadian exchange rate remained constant between years, wholesale gross margins would have been flat in the fourth quarter of 2014.

Selling and administrative expenses for the wholesale segment were $16.3 million in the fourth quarter compared to $13.3 million in 2013. As a percent of net sales, selling and administrative expenses dropped to 22% versus 23% in 2013.

Driven by higher sales volumes, wholesale operating earnings increased 26% to $9.8 million in the fourth quarter of 2014 from $7.8 million in 2013. Without the adjustment related to the Bogs acquisition, earnings from operations for the wholesale segment would have been up 33%.

Net sales of our North American retail segment, which include our retail stores and US Internet sales, were $7.5 million in the fourth quarter, up 9% as compared to $6.9 million in 2013. Same-store sales, which include US Internet sales, were up 11% for the quarter. There was one fewer retail store operating during fourth quarter of 2014 than there were in last year's fourth quarter.

Retail operating earnings increased by approximately $200,000 or 14% for the quarter. The increase in sales and operating earnings was due to the improved performance in the Company's US Internet business. Our other operations, which include the wholesale and retail businesses of Florsheim Australia and Florsheim Europe, had net sales of $13.9 million in the fourth quarter -- up 3% compared to the $13.5 million in 2013.

This increase was primarily due to higher net sales in Florsheim Europe's wholesale business. Florsheim Australia's net sales were flat at $12.1 million for the quarter. In local currency, Florsheim Australia's net sales were up 8%, driven by a 15% increase in its retail business, offset by a 7% decrease in the wholesale business.

Florsheim Australia's net sales in US dollars were negatively impacted by the depreciation of the Australian dollar relative to the US dollar in 2014. Collectively, the operating earnings of Florsheim Australia and Florsheim Europe were $1.9 million in the fourth quarter of 2014, up 23% as compared to $1.6 million in 2013.

The increase was driven by higher gross margins in Florsheim Australia's wholesale business. For the year, our overall net sales were $320.5 million, up 7% compared with $300.3 million in 2013. Earnings from operations increased 10% to $30.7 million in 2014, up from $27.8 million.

Net earnings attributable to Weyco Group were $19 million, up 8% percent as compared to $17.6 million. Diluted earnings per share increased to $1.75 per share in 2014, up from $1.62 per share in 2013.

Earnings for 2014 included $611,000 of expense that resulted from an increase in the estimated liability for the final earnout payment related to the Bogs acquisition. On an after-tax basis the adjustment was $373,000 or $0.03 per share. Without this adjustment, earnings from operations and net earnings attributable to Weyco Group would have been up 12% and 10%, respectively.

In the wholesale segment, net sales for the year were $243.4 million, up 8%. Wholesale gross earnings as a percent of net sales were 32.3% in 2014 compared to 32.6% in 2013. The decrease in gross margin percent was the result of significantly lower margins in our Canadian business caused by the weaker Canadian dollar.

Had the Canadian dollar exchange rate remained constant between years, wholesale gross margins would have been up slightly in 2014. Selling and administrative expenses for the wholesale segment were $56 million compared to $52.8 million in 2013.

As a percent of net sales, selling and administrative expenses were 23% and 24% in 2014 and 2013, respectively. Driven by higher sales volumes, wholesale operating earnings increased 9% to $22.5 million, up from $20.7 million in 2013. Without the adjustment related to the Bogs acquisition, earnings from operations for the wholesale segment would have been up 11%.

In our retail segment, net sales were flat at $23.3 million. There were seven fewer domestic retail stores operating in 2014 than in 2013, as one store closed in 2014 and the six stores closed in 2013. These sales losses from these closed stores were offset by a 5% increase in same-store net sales for the year.

The retail division's operating earnings increased 9% to $3.3 million, up from $3 million in 2013, due to improved performance in the Company's US Internet business. Our other businesses had net sales of $53.7 million in 2014, up 5% as compared to the $51.4 million in 2013. This increase was due to higher sales volumes at both Florsheim Europe and Florsheim Australia.

Florsheim Australia's net sales were up $1.4 million or 3% for the year. In local currency, Florsheim Australia's net sales were up 10%, driven by a 13% increase in its retail business and a 6% increase in its wholesale business. Florsheim Australia's net sales in US dollars were negatively impacted by the weaker Australian dollar.

Earnings from operations from our other businesses were approximately $4.8 million, up 21% as compared to $4 million in 2013. This increase was primarily due to higher operating earnings at Florsheim Australia.

At December 31, 2014, our cash and marketable securities totaled $43 million. And we had $5.4 million outstanding under our $60 million revolving line of credit. In 2014 we generated most of our cash from operations. We used $8.2 million to pay dividends and an additional $8 million to repurchase Company stock. We also repaid $6.6 million on our line of credit, and we spent $2.9 million on capital expenditures.

We expect capital expenditures to be approximately $2 million to $3 million in 2015. On March 2, 2015, the Company's Board of Directors declared a quarterly cash dividend of $0.19 per share to all shareholders of record on March 16, 2015, payable on March 31.

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

Thanks, John, and good morning, everybody. In the fourth quarter come our North American wholesale business was up 27%. For the year our wholesale business was up 8%.

We are very pleased with how our brands ended the year, as all divisions achieved double-digit increases in the final quarter. The combination of early winter weather, strong new products, and a loosening of both retailer and consumer purse strings resulted in a significant uptick in our North American shipments.

Our Bogs sales grew from $14 million in the fourth quarter of 2013 to $25 point -- million (sic) this quarter, an increase of 69%. For the year, Bogs was up 46%. The surge in shipments reflected in part an early consumer reaction to winter precipitation. November snowstorms across the Midwest and parts of the East Coast helped stimulate consumer demand and reorders from retailers.

In addition, Bogs continued its expansion into casual, non-insulated, and lightly insulated products as part of our effort to diversify into a business that is less dependent on seasonal weather. We believe that this past fall represented a solid start in the evolution of Bogs into a multidimensional brand.

Our international business also expanded in 2014, with particularly strong growth in both the Canadian and Korean markets. Overall, Bogs took a big step this year -- not only in volume, but also on consumer following and acceptance of the brand in new categories.

Stacy Adams sales were up 19% for the quarter and 5% for the year. Growth was driven by strong shipments in the department store and national shoe chain trade channels. After a slow start, Stacy Adams picked up momentum in the second half of 2014 with, strong sellthroughs at retail.

We are told by our retailers that the brand remains among the most consistent performers in the men's business and one of the few dress shoe brands that has exhibited growth over the years. Our challenge is to leverage the leadership position that Stacy Adams has in the modern dress category and build an expansive modern casual business. We believe expanding our casual assortment remains a significant opportunity, and we're making steady progress towards this goal.

Our Nunn Bush business bounced back this quarter with an increase of 13% while, for the year, the brand was down 4%. The annual decrease reflected a decline in sales to a major department store that is reducing its branded assortment in favor of more private-label footwear.

Overall, Nunn Bush product continues to be solid at retail. The strength of our Comfort Gel memory foam platforms make the brand a leader in nonathletic comfort footwear for midtier retailers. In addition, Nunn Bush launched its work shoe collection in November, and the shoes performed exceptionally well, with very high sellthrough rates at retail.

Nunn Bush Work is focused on the service sector and features a lightweight, industrial-grade, slip-resistant outsole and maintenance-free upper with a memory foam sock liner. The collection is targeted toward national shoe chains and midtier department stores. Our early success with Nunn Bush Work puts the brand in a good position as we roll out the program to more stores in 2015.

Florsheim sales were up 10% in the fourth quarter and ended down 1% for the year. Overall, we believe we have made significant progress with Florsheim in terms of introducing new product that performs well at retail. We now have a diverse range of footwear across the dress, refined casual, and weekend casual categories that form a nucleus of core styles within key retailers.

While we still do a significant business with our classic heritage styles, it is the new modern assortment that serves to redefine the brand in the eyes of the retailers and consumers. The growth of the e-commerce trade channel represents an opportunity for Florsheim to showcase its entire range of product and reach consumers interested in premium footwear made with quality materials at accessible prices.

In the final quarter of the year e-commerce was Florsheim's second-largest trade channel and represented nearly 20% of the brand's business. We believe that Florsheim's strong new product in combination with expanded distribution in select e-commerce and brick-and-mortar venues gives the brand a viable path towards increased sales.

Regarding our wholesale margins, John mentioned earlier we were off 100 basis points in the fourth quarter. However, if you take out the impact from the weaker Canadian currency, our margins were flat for the quarter and actually up slightly for the year. From a sourcing standpoint, the strength of the US dollar helps us to maintain our margins. We pay the majority of the factories in US dollars, so when the dollar has increased in value against the local currency, this mitigates price increases from our factories.

Other prices remain high, but we believe they have reached a plateau. Labor costs continue to go up in India and China, but these increases have been mostly offset by the dollar's strength. We continue to moderately increase prices to customers and hope to see margins in 2015 back to 2013 levels.

Our inventory as of December 31 was $69 million versus $63 million a year ago. This number includes both shoes in our distribution center as well as in-transit inventory that we own. This year we have greater in-transit inventory compared to a year ago, in part because of the situation on the West Coast, where the longshoremen had been engaged in a work slowdown which began at the end of October.

This created delays of up to 3 to 4 weeks on transit times from Asia to our distribution center. On February 20, 2015, it was announced that the PMA and the ILWU had reached a tentative five-year agreement. While we are certainly pleased an agreement has been reached, the impact of the slowdown will continue to be felt, as the large backlog of containers will likely take months to be cleaned up.

Transit delays have been manageable so far, but we still could experience delivery issues until the ports are back to normal. Our inventories are very clean, and we are comfortable with our overall position.

In our North American retailer segment and our Internet business, we continued to perform well, driving our overall same-store sales growth for both the quarter and the year. We are now down to 15 retail shops in the US, and we anticipate further closures as we focus on building our e-commerce platform and selectively investing in flagship brick-and-mortar locations in key markets.

Overseas, a greater opportunity exists for retail expansion. We added four new stores in Australia this past year and remodeled an existing store. In addition, we registered strong same-store sales growth in Australia.

Florsheim also saw a lift in our retail and wholesale business in Asia. During this past year, two partner stores were opened by distributors in South America -- one in Santiago, Chile, our fourth store in that country; and another store in Guayaquil, Ecuador, representing our second partner store in Ecuador.

While the international market has near-term challenges based on currency fluctuations and other economic uncertainties, we remain confident in Florsheim's overall prospects for growth. Our first quarter is off to a solid start, with our backlogs up compared to last year.

As we look ahead to 2015, we feel our brands are well-positioned in their respective markets, and we look forward to another successful year. That concludes our formal remarks. We appreciate your interest in Weyco Group and now would like to see if there are any questions we can answer.

(Operator Instructions) There are no questions in queue.

Okay, then; we'll end the call. Should I make a last statement?

Go ahead.

Then if there are no questions, then we will thank everyone for their attendance on our call and look forward to talking to you at the end of our first quarter. Have a great day.

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