Weyco Group Q3 2024 Earnings Call Transcript

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November 6, 2024

Key Takeaways

  • Weyco reported a 12% year-over-year net sales decline to $74.3 million in Q3 2024 and net earnings of $8.1 million (EPS $0.84) despite improving gross margin to 44.3%.
  • North American wholesale segment sales fell 12%, with Florsheim outperforming and margins up to 40.1%, while overall selling & administrative costs were reduced.
  • BOGS brand sales dropped 18% amid mild weather and industry inventory normalization, prompting a shift towards the less weather-sensitive farm & ag trade channel and lighter, 3-season products.
  • Among legacy brands, Florsheim grew 1% and gained market share, while Stacy Adams and Nunn Bush were down 17% and 20%, respectively, with plans to expand in hybrid and casual segments.
  • The Board declared a regular $0.26 and a special $2.00 per-share cash dividend and ended Q3 with $81.8 million in cash & marketable securities, reflecting a strong balance sheet to fund growth, dividends, and share repurchases.
AI Generated. May Contain Errors.
Earnings Conference Call
Weyco Group Q3 2024
00:00 / 00:00

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Operator

Good day and thank you for standing by. Welcome to Weyco Group Incorporated's third quarter 2024 earnings release conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Judy Anderson, Chief Financial Officer. Please go ahead.

Judy Anderson
CFO at Weyco Group Inc

Thank you. Good morning and welcome to Weyco Group's conference call to discuss third quarter 2024 results. On the call with me today are Tom Florsheim, Jr., Chairman and Chief Executive Officer, and John Florsheim, President and Chief Operating Officer. Before we begin to discuss the results for the quarter, I will read a brief cautionary statement. During 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 these statements are just predictions and that actual events or results may differ materially. We refer you to the section entitled Risk Factors in our most recent annual report on Form 10-K, which provides a discussion of important factors and risks that could cause our actual results to differ materially from our projections. These risk factors are incorporated herein by reference.

Judy Anderson
CFO at Weyco Group Inc

They include, in part, the uncertain impact of inflation on our costs and consumer demand for our products, changes in interest rates, and other macroeconomic factors that may cause a slowdown or contraction in the U.S. or Australian economies. Overall net sales for the third quarter were $74.3 million, down 12% compared to $84.2 million in 2023. Consolidated gross earnings as a percent of net sales increased to 44.3% from 43% in last year's third quarter due mainly to higher gross margins in our North American wholesale segment. Quarterly earnings from operations were $10.2 million, down 18% from $12.4 million in 2023. Quarterly net earnings totaled $8.1 million or $0.84 per diluted share compared to $9.3 million or $0.98 per diluted share last year. Net sales in our North American wholesale segment were $61.1 million, down 12% from $69.5 million in 2023.

Judy Anderson
CFO at Weyco Group Inc

Florsheim's sales exceeded prior year, while our other brands were lower compared to last year. Wholesale segment gross earnings as a percent of net sales increased to 40.1% in the third quarter of 2024 compared to 38.6% last year. Wholesale segment selling and administrative expenses were $15.1 million for the quarter compared to $15.6 million last year, down as a result of lower employee costs, mainly commission-based compensation. As a percent of net sales, selling and administrative expenses were 25% and 22% in the third quarters of 2024 and 2023, respectively. The increase as a percent of net sales was because many of our costs are fixed in nature and do not vary with sales. Wholesale operating earnings totaled $9.4 million for the quarter, down 16% from $11.3 million last year as a result of lower sales.

Judy Anderson
CFO at Weyco Group Inc

Net sales in our North American retail segment, which were generated mainly by our e-commerce websites, were $7.2 million for the quarter, down 5% from $7.6 million last year. Lower sales on our Bogs website, as a result of the mild fall, were partially offset by higher sales on our Florsheim and Stacy Adams websites this quarter. Retail segment gross earnings as a percent of net sales were 66.9% and 65.4% in the third quarters of 2024 and 2023, respectively. Retail operating earnings totaled $800,000 for the quarter versus $900,000 last year. Our other operations historically included our retail and wholesale businesses in Australia, South Africa, and Asia-Pacific, collectively referred to as Florsheim Australia. We ceased operations in the Asia-Pacific region in 2023 and have substantially completed the wind-down of that business. Therefore, third quarter 2024 operating results only include Australia and South Africa.

Judy Anderson
CFO at Weyco Group Inc

Net sales of Florsheim Australia were $6 million, down 15% from $7.1 million in the third quarter of 2023. The decrease was almost entirely due to the closing of our Asia-Pacific operations. Sales in Australia were down 1% for the quarter due to the impact of four fewer stores operating compared to the same period last year. Australia's same-store sales were up 1% for the quarter. Florsheim Australia's gross earnings were 59.2% of net sales for the quarter and 61.6% of net sales last year. Its operating earnings were zero for the period, down from $300,000 of operating earnings last year. Interest income totaled $900,000 in the third quarter of 2024 compared to $300,000 in last year's third quarter. This year included interest earned on higher cash balances in the U.S. and Canada.

Judy Anderson
CFO at Weyco Group Inc

At September 30th, 2024, our cash and marketable securities totaled $81.8 million, and we had no debt outstanding on our $40 million revolving line of credit. During the first nine months of 2024, we generated $17.3 million of cash from operations, mainly from net earnings, and used funds to pay $9.6 million in dividends. We also repurchased $600,000 of company stock and had $900,000 of capital expenditures. We estimate that 2024 annual capital expenditures will be between $1 million and $2 million. On November 5th, 2024, our board of directors declared a cash dividend of $0.26 per share to all shareholders of record on November 18th, 2024, payable January 2nd, 2025. Additionally, on November 5th, 2024, our board of directors declared a special one-time cash dividend of $2 per share to all shareholders of record on November 18th, 2024, payable January 2nd, 2025.

Judy Anderson
CFO at Weyco Group Inc

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

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

Thanks, Judy. And good morning, everyone. It was a challenging quarter as sales in our North American wholesale business were down 12%. We are facing an economic environment in which consumers have limited discretionary funds, and footwear market sales are being impacted accordingly. While the near-term retail outlook is uncertain, we remain confident in our belief that each brand is well-positioned in its respective category for growth when conditions improve. In our outdoor division, Bogs sales were down 18% for the quarter. As discussed in previous conference calls, the outdoor category, particularly the weather boot market, has been under pressure for the better part of two years. During the pandemic, retailers and consumers alike loaded up on outdoor gear, resulting in record sales for many brands, including Bogs. Since then, the industry has been working through excess inventory, and we believe we've finally reached an equilibrium for fall 2024.

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

However, many retailers are taking a wait-and-see approach regarding orders, operating under the premise that if they need inventory, it will be available in the market. The result is that we've seen demand impacted by the mild and dry weather throughout the country, which has negatively affected our wholesale business. The adverse effects of the weather extended to our Bogs e-commerce business, which was down 31% for the quarter. While our success with the Bogs brand for the balance of 2024 depends on fall and winter weather returning to normal, for the long term, we are focused on reducing the weather sensitivity of the business. Towards that goal, we have doubled down on our sales effort in the farm and ag trade channel with the introduction of our seamless construction collection, which is 30% lighter and twice as durable as the vulcanized construction more commonly used in our category.

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

The farm and ag trade channel is less weather-dependent and utilizes Bogs products year-round. We are making progress in this category, but it will take time to expand our penetration in retailers that cater to this market. We are also introducing seamless construction and lighter, less insulated products to our kids' and women's lifestyle collections, which will help us make Bogs more of a three-season brand for this customer base. It has been a challenging stretch for the Bogs brand. Having our retail partners with right-sized inventory will help move Bogs forward. What's next on the agenda is rekindling demand with products that are built to match long-term weather changes. Our combined legacy business was down 10%, with Florsheim up 1%, Stacy Adams down 17%, and Nunn Bush down 20%.

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

As a category, dress footwear has been trending down for some time, except for a brief period emerging from the pandemic when there was a burst of weddings and more dressy occasions. This downtrend resulted in retailers shifting funding away from dress footwear and toward other categories. Given this context, Florsheim's performance over the last few years, including this quarter, is very solid. Florsheim continues to pick up market share in the refined footwear category and has made good strides in the hybrid and true casual segments of the market. Our Stacy Adams brand had a difficult quarter. The brand remains the market leader in accessible fashion in the contemporary dress footwear segment and is performing well, especially with accounts that maintain dress-oriented footwear as an important part of their retail assortment.

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

The challenge is evolving the product lineup so that Stacy Adams is in consideration for hybrid and more refined casual footwear. While it will take time, we are getting traction at retail with casual lifestyle products, particularly in the hybrid category. Our Nunn Bush brand caters to a more value-oriented, price-sensitive consumer. We saw reduced demand in the third quarter as these consumers cut back on discretionary purchases. In addition, a significant portion of Nunn Bush's sales decrease in the third quarter was due to a shift in timing of shipments to a large retailer from third to second quarter. Despite the volume drop, we feel good about the future trajectory of the Nunn Bush business. We have reinvented Nunn Bush as the most casual brand within our legacy portfolio. Nunn Bush is also well-positioned in the market with a strong value proposition and innovative comfort technology.

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

Retail sales were down 5% for the quarter compared to last year. The decline in retail sales was driven primarily by the decrease in Bogs e-commerce sales. Overall, our direct-to-consumer business has been more price-sensitive and promotionally oriented. As Judy referenced, the drop in sales at Florsheim Australia was the result of our closing operations in the Asia-Pacific region. Sales in the remaining markets, which include Australia, New Zealand, and South Africa, were flat for the period. We are finding the economic environment in Australia to be very similar to that of North America, with consumers under pressure and very conservative in their approach to discretionary purchases. Our overall inventory balances as of September 30th, 2024, was $72.2 million, up from $67.9 million at June 30, 2024.

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

As explained in our last conference call, we are continuing to bring our inventories up to make sure that we have enough inventory to meet demand for our core items during the fourth quarter from both our wholesale customers and to support our e-commerce businesses. We are comfortable with where we are from an inventory standpoint. Our overall gross margin was 44.3% compared to 43% last year. We are also comfortable with our margins and are focused on keeping them in this range. As Judy mentioned yesterday, our board of directors declared a one-time special cash dividend alongside our regular quarterly dividend. This return of capital to our shareholders is the result of our strong financial performance over the past few years, which led to a buildup of cash in excess of the amount necessary to fund operations, capital expenditures, and fulfill corporate obligations.

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

Looking ahead, we believe our strong balance sheet and liquidity will continue to allow us to fund organic growth, invest in our business, and remain opportunistic with respect to future strategic opportunities or share repurchases. This concludes our formal remarks. Thank you for your interest in Weyco Group, and I would now like to open the call to your questions.

Operator

Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of David Wright of Henry Investment Trust. Your line is now open.

David Wright
Research Analyst at Henry Investment Trust

Thank you, Tom, John, and Judy. Good morning.

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

Good morning.

Judy Anderson
CFO at Weyco Group Inc

Good morning.

David Wright
Research Analyst at Henry Investment Trust

I want to say nice surprise with the special dividend. Thanks to management and the board for returning capital to shareholders. I think it's just another example of the excellent job that everyone there does at governance and running a company with lots of disclosures and the shareholders in mind and thank you very much. It's appreciated. Tom, you were a shareholder.

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

Okay. That's a fair trade.

David Wright
Research Analyst at Henry Investment Trust

You went over the different brands, and all of your brands are pretty well-balanced, more or less, in terms of their revenue sizes. But one that we don't talk about that's really small is Forsake, and I wondered if you could take a minute and talk about that, talk about how Forsake fits in.

John Florsheim
John Florsheim
President and COO at Weyco Group Inc

Sure. Yeah. Hi, this is John. I mean, Forsake is we bought it in 2021. To be honest with you, we've had trouble growing the brand. It's less than one% of our sales. It doesn't really factor into the performance of our company. A lot of that has to do it's a little bit similar to Bogs in the sense that the outdoor market became oversaturated coming out of the pandemic. Everybody thought that people would be buying outdoor gear and hiking gear into the future. What happened is, as we came out of the pandemic, that shifted. The outdoor market became oversaturated with product. For us, that created some challenges in terms of growing the Forsake brand that we had just bought in 2021. We're working through these challenges. We're coming out with new products for Forsake.

John Florsheim
John Florsheim
President and COO at Weyco Group Inc

We're trying to keep the brand moving forward as the outdoor market opens up. But to this date, it's been a challenging situation.

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

Yeah. And I would just add to what John said that because of the reasons that he cited, it's been very hard for us to judge the brand's performance. It's been part of the whole thing that we were talking about with Bogs, where because the outdoor market has been so tough the last couple of years, it's hard for us to say, "This brand's just not going to make it," and/or "This brand's going to do great." We want to give it a little bit of time. We feel that the outdoor market is turning around from the standpoint that inventory has been absorbed. We still need some winter weather. But we think that Forsake has a really interesting positioning.

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

It's in a different place than Bogs. It's more of a sneaker boot brand that appeals to a younger consumer. And so we've spent this time building out a sales force and, as John said, really updating the product. And so we, even though it's very, very small, and as John said, less than 1% of the business, we feel like we want to give it a chance and that that can't really happen until this market opens up a bit.

David Wright
Research Analyst at Henry Investment Trust

Okay. And then, Tom, you were talking a little bit about building the inventory back up to be ready for the fourth quarter, which is sort of the holiday season. Kind of hard to give shoes to somebody as a present, more or less. But I wonder how much of your business is quantifiable as being related to the holiday season?

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

That's a good question. I think that what we see is it's more related to just fall weather. October is a pretty good month for us, typically, because people are buying winter coats and boots and the gear that they need for the fall, and so we also see during the holiday period, I think it's more people buying for parties and things like that that they're going to, so there's more of a dress trend during that period. I agree with you that it's not a big gift-giving item, but we do see a pickup just because of the seasonal aspect of it and then all of the kind of holiday parties and year-end-type parties.

David Wright
Research Analyst at Henry Investment Trust

Okay, well, great. Thanks for taking my questions, and just you really are the model of how a shareholder-friendly company should act, and I think you set a good standard for any other corporation, public corporation, who might want to emulate it, so thanks very much.

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

Thank you.

Judy Anderson
CFO at Weyco Group Inc

Thank you.

Operator

Thank you. Our next question comes from the line of John Deysher of Pinnacle. Your line is now open.

John Deysher
John Deysher
President and Portfolio Manager at Pinnacle

Good morning, everyone.

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

Hi, John.

John Florsheim
John Florsheim
President and COO at Weyco Group Inc

Hey, John.

John Deysher
John Deysher
President and Portfolio Manager at Pinnacle

Hey. A couple of quick questions. One, we're coming up on the holidays. Thanksgiving's about three weeks away. I'm just wondering what kind of color you're getting from the retailers in terms of how this holiday season is shaping up for your brands?

John Florsheim
John Florsheim
President and COO at Weyco Group Inc

Yeah. I mean, I think the market's been very sluggish, sort of what we talked about in the conference call, where discretionary spending is limited, and that seems to be impacting the footwear market. There's a couple of brands, more in the athletic space, that are having a good run, but everyone else, we're kind of working through these market challenges. This fall, Thanksgiving is at the end of the month, which actually cuts about a week off the retail calendar for the holiday season, which is another challenge. So we're hopeful that things will turn around and pick up, especially if we get some weather that's really going to help our outdoor business, weather boot business. But right now, the retail environment's very soft.

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

Okay, so it's kind of wait and see at this point.

John Florsheim
John Florsheim
President and COO at Weyco Group Inc

Yeah.

John Deysher
John Deysher
President and Portfolio Manager at Pinnacle

Okay. The revolver that expired in September, it sounds like you were able to renew it. And if so, what's the new maturity and what's the new rate for the $40 million?

Judy Anderson
CFO at Weyco Group Inc

All the terms remain the same. So it just renews for another 364 days. So it's a short-term instrument. But otherwise, it's renewing at the same. It's based on SOFR. And I believe I forget what the margin is on it, 125 basis points. I can check that for you. But that's in our disclosure. And all terms stay the same.

John Deysher
John Deysher
President and Portfolio Manager at Pinnacle

Okay. Who is the lender again?

Judy Anderson
CFO at Weyco Group Inc

Associated Bank.

John Deysher
John Deysher
President and Portfolio Manager at Pinnacle

Associated Bank. Okay. What is your?

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

It's a regional bank, John, based in Green Bay.

John Deysher
John Deysher
President and Portfolio Manager at Pinnacle

Green Bay. Okay. Fine. So you'll just keep renewing that on an annual basis, it sounds like?

Judy Anderson
CFO at Weyco Group Inc

That's correct.

John Deysher
John Deysher
President and Portfolio Manager at Pinnacle

Okay. All right. Great. Thanks very much, and good luck with the holidays.

Tom Florsheim Jr.
Tom Florsheim Jr.
Chairman and CEO at Weyco Group Inc

Thank you.

Judy Anderson
CFO at Weyco Group Inc

Thank you.

Operator

Thank you. I am showing no further questions at this time. So I would like to turn it back to Judy Anderson, Chief Financial Officer, for closing remarks.

Judy Anderson
CFO at Weyco Group Inc

I just wanted to close by saying thank you to everyone for joining us today and have a great rest of your day.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Executives
    • John Florsheim
      John Florsheim
      President and COO
    • Tom Florsheim Jr.
      Tom Florsheim Jr.
      Chairman and CEO
Analysts
    • John Deysher
      President and Portfolio Manager at Pinnacle
    • Judy Anderson
      CFO at Weyco Group Inc
    • David Wright
      Research Analyst at Henry Investment Trust
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