Weyco Group, Inc. (NASDAQ: WEYS) reported a mix of gains and declines in its second-quarter 2024 financial results, with a notable 5% decrease in net sales to $63.9 million compared to the previous year. Despite the sales downturn, the company achieved a record net earnings increase of 15%, reaching $5.6 million, or $0.59 per diluted share.
The North American wholesale segment experienced a slight 2% dip in net sales, while Florsheim Australia faced a sharper 23% decline. However, the company's consolidated gross earnings improved, and operational cash flow remained strong.
Key Takeaways
- Net sales decreased by 5% to $63.9 million, with North American wholesale down 2% and Florsheim Australia down 23%.
- Consolidated gross earnings rose to 43.9% of net sales.
- Record net earnings for the second quarter reached $5.6 million, a 15% increase from the previous year.
- The company holds $84.8 million in cash and marketable securities with no debt on their revolving line of credit.
- $17.7 million generated from operations in the first half of 2024, with $7.2 million paid in dividends.
- A cash dividend of $0.26 per share was declared to shareholders.
- The CEO praised improved gross margins and solid brand performance, despite challenges in the BOGS business.
Company Outlook
- Weyco Group anticipates annual capital expenditures to be between $1 million and $3 million in 2024.
- The company is introducing more hybrid and athleisure styles to meet consumer demand.
- Investments continue in the online platform to fuel future retail growth.
- Cost control and a turnaround strategy are in focus for the Australian retail and wholesale segments.
Bearish Highlights
- Florsheim Australia's performance was negatively affected by the closure of the Asia Pacific business and the loss of a major wholesale customer.
- The BOGS business is facing a decline due to an oversaturated market for outdoor weather boots.
Bullish Highlights
- The company's inventory levels are well-maintained, and gross margins are robust.
- Wholesale operating earnings saw an 8% increase, totaling $5.8 million.
Misses
- Retail sales remained flat, indicating stagnation in that segment.
Q&A Highlights
- The company is adapting to retailer trends, focusing on "at once business" due to retailers' conservative nature.
- Freight costs have normalized, but the company will work off higher-cost inventory until October.
- Efforts to maintain margin growth are ongoing, with a focus on the farm and ag channel for the BOGS line.
- Development of lighter insulated footwear is in response to milder winter trends.
In conclusion, Weyco Group is navigating a challenging market with strategic adjustments to its product offerings and a keen eye on cost management. The company's healthy margins and strong operational cash flow position it to weather the fluctuations in consumer demand and retail trends.
InvestingPro Insights
Weyco Group, Inc. (NASDAQ: WEYS) has demonstrated resilience in its financial performance despite a challenging retail environment. The company's ability to maintain robust margins and a strong operational cash flow has been a highlight for investors. To provide a deeper understanding of the company's financial health and investor value, here are some key metrics and InvestingPro Tips:
InvestingPro Data:
- The company's market capitalization stands at approximately $290.89 million.
- Weyco Group boasts an attractive price-to-earnings (P/E) ratio of 9.69, which further adjusts to 9.55 when considering the last twelve months as of Q2 2024.
- Shareholders can appreciate a solid dividend yield of 3.37%, with the company having a history of maintaining dividend payments for 54 consecutive years.
InvestingPro Tips:
- Weyco Group holds more cash than debt on its balance sheet, indicating a strong liquidity position that enables the company to navigate market uncertainties.
- The stock has experienced volatility, taking a significant hit over the last week with a 1-week price total return of -11.4%, yet it has shown resilience over the longer term with a 1-year price total return of 28.89%.
For investors seeking additional insights and tips on Weyco Group, InvestingPro offers a comprehensive suite of metrics and analysis. Currently, there are 6 more InvestingPro Tips available that provide valuable information for making informed investment decisions. These can be accessed at https://www.investing.com/pro/WEYS, offering a more granular look at the company's financial performance and market positioning.
Full transcript - Weyco Group Inc (WEYS) Q2 2024:
Operator: Good day, and thank you for standing by. Welcome to the Weyco Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. 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. Judy?
Judy Anderson: Good morning, and welcome to Weyco Group's conference call to discuss second quarter 2024 results. On the call with me today are Tom Florsheim, Jr., Chairman and Chief Executive Officer; and John Florsheim, President 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. They include, in part, the uncertain impact of inflation on our cost and consumer demand for our products, increased interest rates and other macroeconomic factors that may cause a slowdown or contraction in the US or Australian economies. Overall net sales for the second quarter of 2024 were $63.9 million, down 5% compared to sales of $67 million in 2023. Consolidated gross earnings increased to 43.9% of net sales compared to 43.3% of net sales in last year's second quarter, due mainly to higher gross margins in our North American wholesale segment. Earnings from operations were flat at $6.7 million in both the second quarters of 2024 and 2023. Net earnings were a second quarter record of $5.6 million or $0.59 per diluted share, up 15% over our previous record of $4.9 million or $0.50 per diluted share last year. Net sales in our North American wholesale segment were $50.2 million, down 2% from $51.5 million in the second quarter of 2023. The decrease was due to lower sales of our BOGS and Stacy Adams brands, partially offset by higher sales of our Nunn Bush and Florsheim brands. Wholesale gross earnings were 38.2% of net sales in the second quarter of 2024 compared to 37% of net sales last year. Gross margins improved as a result of lower inventory costs. Wholesale selling and administrative expenses totaled $13.4 million for the quarter compared to $13.7 million last year, which constituted 27% of net sales in both periods. Wholesale operating earnings totaled $5.8 million for the quarter, up 8% from $5.4 million in 2023, primarily due to the impact of higher gross margins. Net sales in our Retail segment were flat at $7.6 million in both the second quarters of 2024 and 2023. Retail gross earnings as a percent of net sales were 67.5% and 66.2% in the second quarter of 2024 and 2023, respectively. Retail operating earnings were $700,000, down from $1.1 million in last year's second quarter. The decrease was due to higher retail selling and administrative expenses this year. primarily web advertising and freight costs. Web advertising expenses in the second quarter of 2024 increased compared to last year's second quarter due to the reallocation of certain expenditures historically charged in our Wholesale segment that primarily benefit our website. 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 are in the final stages of winding down that business. As a result, the 2024 operating results of the other category primarily reflect that of Australia and South Africa. Net sales of Florsheim Australia were $6.1 million, down 23% from $7.9 million in the second quarter of 2023. Florsheim Australia's gross earnings were 62% of net sales for the quarter compared to 62.4% of net sales last year. Its operating earnings totaled $200,000 for the period, down from $300,000 last year as a result of lower sales. Interest income totaled $1 million in the second quarter of 2024 compared to $200,000 in last year's second quarter. This year included interest earned on higher cash balances in the U.S. and Canada. At June 30th, 2024, our cash and marketable securities totaled $84.8 million, and we had no debt outstanding on our $40 million revolving line of credit. During the first six months of 2024, we generated $17.7 million of cash from operations and used funds to pay $7.2 million in dividends. We also repurchased $0.5 million of company stock and had $300,000 of capital expenditures. We estimate that 2024 annual capital expenditures will be between $1 million and $3 million. On August 6th, 2024, our Board of Directors declared a cash dividend of $0.26 per share to all shareholders of record on August 19th, 2024, payable September 30th, 2024. I would now like to turn the call over to Tom Florsheim, Jr., Chairman and CEO.
Tom Florsheim: Thanks Judy and good morning everyone. We are pleased with our Wholesale performance, especially given the challenging economic environment for discretionary purchases like footwear. While total brand shipments were down 2% for the quarter, we were able to deliver higher Wholesale operating earnings driven by improved gross margins, and we registered solid increases with two of our brands. As we enter the back half of the year, many retailers remain conservative in their approach to future order bookings. However, we are encouraged by the strength of our at-once business, and we believe we are well positioned with the right inventory to leverage an uptick in consumer demand. Our legacy wholesale business increased slightly in the second quarter with Florsheim and Nunn Bush up 3% and 8%, respectively, Stacy Adams down 10%. The increase for Nunn Bush was partially due to a timing shift of shipments to a large retailer from third to second quarter. Our legacy brands faced the challenge of maintaining a strong position and refined footwear, while expanding their presence in the casual segment. The traditional dress and dress casual footwear categories comprise a meaningful, but shrinking market. We have done well over the years with all three legacy brands picking up market share by offering great product value in fresh, relevant designs that resonate with consumers. While we remain committed to maximizing our leadership position in refined footwear, growth over the medium to long-term is dependent on each brand's ability to navigate the casual lifestyle aesthetic that accelerated during the pandemic. From a product perspective, we are focused on introducing more hybrid and athleisure styles that appeal to today's consumer who places a premium on versatility and comfort. Our success in these categories is most evident on our websites. Nunn Bush and Florsheim now derived more than half of their direct-to-consumer sales volume from true casual and hybrid footwear. Stacy Adams, our most dress-oriented brand has also started to make inroads selling hybrid footwear. As we move forward, we expect all three brands to benefit from a more balanced product offering. Our BOGS business experienced a 33% decline for the quarter. As noted in previous quarters, the outdoor weather boot market has been affected by over-saturation of inventory in two relatively mild winters. Retailers have spent the last 18 months working to normalize their inventory levels, and we are now seeing early signs of renewed wholesale demand in the U.S. as retailers evaluate their upcoming inventory needs. We remain cautiously optimistic as we approach the key fall selling season. Our current focus for BOGS is to enhance the brand's presence in the workwear category, which is a more year-round business. We're introducing lighter insulated boots with seamless construction suitable for use from September through May. These seamless construction boots offer more than twice the durability of traditional vulcanized boots and should serve as a significant differentiator as we expand our footprint in the farm and ag channel. Retail sales, which are generated mainly by our websites were flat for the quarter. We are encountering a more price-sensitive competitive environment. Nunn Bush and Stacy Adams experienced slight declines for the quarter, while BOGS and Florsheim have low single-digit increases. We continue to invest in our online platform and believe that there is considerable room for future growth in e-commerce sales. Sales at Florsheim Australia were down 23% for the quarter. Approximately half of the decrease was attributable to the closing of our Asia Pacific business in late 2023. Australia's results were also impacted by the loss of a sizable wholesale customer. Three fewer stores operated in the quarter compared to the same period last year and a challenging environment at retail. Like their counterparts in the US, Australian consumers are facing inflationary pressures for basic everyday necessities in housing, leading to reduced spending on discretionary items such as footwear and apparel. We are focused on controlling our costs, we're working to turn around both our Australian retail and wholesale businesses. Our overall inventory as of June 30, 2024, was $67.9 million up from $62 million at March 31, 2024. As discussed in our last conference call, we are in the process of bringing up inventories to meet our full needs and to support our at-once business. Our inventory is currently at a good level, and we are forecasting it to be slightly higher at the end of the third quarter. Our overall gross margins were 43.9% for the quarter, up from 43.3% last year. We feel our margins are at a healthy level. 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 a question-and-answer session. [Operator Instructions] Our first question comes from the line of David Wright of Henry Investment Trust. Your line is now open.
David Wright: Tom and Judy, good morning.
Tom Florsheim: Good morning.
Judy Anderson: Good morning.
David Wright: Congratulations on another great quarter. You continue to chug along and deliver results better than might be expected given what you hear about the overall economy. So congratulations.
Tom Florsheim: Thank you. We appreciate it.
David Wright: And also, thanks for having the call and the obvious effort that you put into drawing up the script and the information that you share, it is really appreciated.
Tom Florsheim: We feel that it's something that we need to do for shareholders. But thanks acknowledging that.
David Wright: I wanted to ask, it's kind of obvious on its face, but just so I'm not confused. What is At once business?
Tom Florsheim: At once business is business that comes in without having orders ahead from retailers. So most of the large retailers will give us orders for the future. So right now, we're out booking spring 2025. So we're getting orders for next spring. And then once we get into the season retailers will give us their fill into their inventory if they haven't forecasted enough when they give us their orders and especially in an environment like right now, where retailers still have their memory, the situation that they ran into in 2023 when they had quite a bit too much inventory, which was caused by all the supply chain issues. And so because of that, they're being very conservative when it comes to giving us future bookings. And so what that does is it means there's going to be more at once business than there used to be. It's kind of a trend, actually, where the retailers are. We hope that trend doesn't go on forever, but right now, that is the trend where retailers want us to have the inventory when they need it instead of committing to in the future. So, what we mean by [indiscernible] business is just a business that comes in with an order without having orders ahead for retailers.
John Florsheim: This is John. I just want to add to that. A great example would be BOGS where a lot of retailers kind of sit back and see what the weather is going to do. And then if there's a lot of precipitation or early winter, you get at once business. And last year, every fall, we get a fair amount of at once business with BOGS, but we're more dependent on it than previous years right now because the retail trades being so conservative based on the last 2 mild winters.
David Wright: Okay. So it's sort of on-demand business and you're trying to gain how much might be coming in so that you can meet it just right?
Tom Florsheim: Exactly. And we have been pretty good at forecasting the needs of these retailers that are buying at once. And what we do is it's kind of the 80-20 rule, where we do a lot of business on the 20% of best styles. And so what we do is we stock in extra inventory on those styles that we know we're going to be able to use the inventory. It's not perishable like some of the seasonal goods. And so that we're in a position to take advantage of the at-once business. And the retailers really count on us to do that today.
David Wright: All right. And in wholesale, you called out lower inventory costs and I recall during the pandemic, freight was a big issue and putting the cost of things up and you do mention freight costs in retail, but I wonder generally, is trade really still an issue?
Judy Anderson: Freight costs have definitely come back down from their peak that was in 2022 was when we experienced the very high freight cost. However, in 2023, we were still experiencing those higher freight costs as we worked through the inventory that kind of had those higher freight costs attached. So, we're still anniversarying right now when we look at 2024 compared to 2023, some higher freight costs last year that were kind of hangover from 2022, but freight costs normalized by late 2023. So we should be starting to we're kind of down at this more normalized level and it's been stable for some time. It's just when I kind of to our inventory.
David Wright: So you're working off the last of that, we'll call it, higher-priced inventory?
Judy Anderson: We worked it off last year, and now we're into the lower -- well, actually, you're correct. You're correct. We'll be anniversarying the higher cost inventory still until about October of this year.
David Wright: It really is impressive these last few quarters, you just continue to be able to squeeze out a little bit of margin when one might be thinking that everything that's been -- could be done has been done. So I hope you can keep finding some extra places to squeeze. My last question is going to be on BOGS. And Tom, you mentioned obviously, the mild winters. But I wonder, do you look at your BOGS sales historically for geographic, has there been geographic concentration and where are making most of the sales and then you try to like correlate those geographies with what the weather was in the winter versus what the weather is in the winter, obviously, up where you are you know you're going to get winter every year but some other places like the Mid-Atlantic, they sort of stop getting winter. The Mid-Atlantic, the last few years doesn't get virtually no snow at all. So I'm curious geographically how you look at BOGS.
Tom Florsheim: Yes. No, we definitely look at it geographically in the areas where we do the best in our high season, which is fall, are the areas that get more weather. And even last year in the Midwest, our snowfall was very light and the temperatures were warm. So it's just the reality of the situation is we need to build product that's going to sell and be less dependent on the weather. And that's why we're really focused on the farm and ag channel right now, which is a big channel and 1 that that we're not penetrated in that sells footwear like BOGS that is used by people in a more functional way than, say, in a city where people are buying boots only when it snows. And so you really want to get that business that is more functional. And what we're also trying to do is build lighter insulated footwear so that it just is more appropriate in these milder winters. We kind of have to assume that we're going to see this continue because it's really been the pattern. If you look over the last five or 10 years, we've had a lot of mild winners. And so we're trying to build a product that will be appropriate and that will sell in those milder temperatures.
David Wright: Okay. Well, thanks so much for taking my questions and continue. Good luck.
Tom Florsheim: Great. Thanks for all your questions.
Operator: Thank you. [Operator Instructions] I am showing no further questions at this time. I would now like to turn the call over to Judy Anderson, Chief Financial Officer, for closing remarks.
Judy Anderson: We just wanted to say thank you, everyone, for joining us today, and we hope you have a great day.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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