Weyco Group Inc Q1 2008 Earnings Call Transcript

May.16.08 | About: Weyco Group, (WEYS)

Weyco Group Inc (NASDAQ:WEYS)

Q1 2008 Earnings Call

April 30, 2008 11:00 am ET

Executives

Rob Damron - Investor Relations

John Wittkowske - SVP, CFO

Tom Florsheim- Chairman and CEO

Operator

Good day, ladies and gentlemen and welcome to the Weyco Group, first quarter 2008 Earnings Call. (Operator Instruction).

I would like to now turn the call over to your host for today, Mr. Rob Damron, Investor Relations representative. Sir, you may proceed.

Rob Damron

Thank you, Katy. Good morning and welcome to Weyco Group's conference call to discuss first quarter 2008 earnings. I am Rob Damron, Weyco Group's Investor Relations representative. On this call today, are Tom Florsheim, Chairman and CEO; John Florsheim, President and COO; and John Wittkowske, Senior Vice President and CFO.

Before I turn the call over to management 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 Weyco Group's most recent Form 10-K 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.

I will now turn the conference call over to John Wittkowske, Weyco Group's Senior Vice President and CFO to discuss some of the financial highlights of the quarter.

John Wittkowske

Thanks, Rob. Good morning everyone. On behalf of Tom and John Florsheim, I would like to thank all of you for joining us here today on our conference call. Our net sales for the first quarter of 2008 were $61.3 million down 4% from $63.9 million in 2007. Net earnings were $5.1 million down 10% from $5.7 million last year.

Diluted earnings per share were $0.43 compared with $0.47 in 2007. Wholesale sales for the first quarter were 53.1 million down 4% from 55.5 million in 2007.

Looking at each brand in our wholesale divisions, sales of our Stacy Adams and Nunn Bush brands were each down approximately 1%, while Florsheim sales were down 13%. Tom will further discuss the individual brand performance in a few minutes.

Sales in our retail division decreased 2% to 7.1 million, down from 7.25 million last year. Same-store sales were down 5% for the quarter. Our retail sales this year include four new stores that were opened in the second half of 2007. Our retail division currently consists of 39 retail stores in the United States, two in Europe and an Internet business.

Licensing revenues were $1.1 million in both 2008 and 2007. Florsheim royalties increased this quarter but the impact of this was offset by a decrease in Stacy Adams royalties, reflecting the continued struggles faced by the independent clothing retailers.

Overall gross margins were 36.3% in the first quarter compared with 36.1% last year. Wholesale margins were up 10 basis points and gross margins in retail were up 40 basis points.

Selling and administrative expenses were 23.9% of sales for the first quarter of 2008 versus 22.5% in 2007. Selling and administrative costs as a percent of sales, increased in both wholesale and retail divisions in the first quarter. Wholesale selling and administrative expenses were flat in dollars but the lower sales volumes this quarter caused the increase in costs as a percent of sales. This reflects the fixed nature of many of our wholesale selling and administrative expenses.

In our retail division, selling and administrative expenses as a percent of net sales were up due to higher rent and occupancy costs at our existing stores, as well as higher expenses in relation to sales at newer stores. This resulted in operating earnings as a percent of sales decreasing to 12.4% in 2008 from 13.6% in 2007.

As of March 31, 2008, our cash and marketable securities totaled $56.9 million with only $3 million of debt, resulting in a net cash position of $53.9 million. This compares with a net cash position of $56.2 million at December 31st, 2007.

In the first quarter of 2008 we generated $2.1 million of cash from operations and used $1 million of our cash for capital expenditures, $4.3 million to repurchase company stock, $1.3 million to pay dividends and we borrowed $2.5 million under our short-term credit facility. We still anticipate capital expenditures for 2008 to be approximately $2 million.

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

Tom Florsheim, Jr.

Thanks John and good morning everyone. In our wholesale business this quarter, we felt the impact of the challenging economy across all three of our brands. Decreased discretionary income related to higher gas prices and general economic uncertainty translated to a tough environment at retail. Consumers tightened their belts and retailers reacted by focusing on inventory management.

January in particular, was a tough month. For many retailers, January is the last month of their fiscal year and in challenging times some retailers significantly reduce their buying in January to keep their yearend inventories at conservative levels. We felt this across all three of our brands this January.

Our Nunn Bush and Stacy Adams brands, each made up a good portion of the lost volume from January with increased sales in February and March. Both brands were down only 1% for the quarter. Within the context of the industry, we believe that the performance of Nunn Bush and Stacy Adams this quarter was above par.

Florsheim sales were down 13% for the first three months of the year. In addition to the impact of the overall retail climate, Florsheim shipments were affected by the timing of new programs. In the first quarter of 2007, Florsheim rolled out a number of new shoe programs with two large retailers. In 2008, there were no new product introductions of a similar scale.

While, we are not pleased with our results this quarter, we believe that our brands held their own in a tough environment. When apparel and footwear sales are strong, retailers tend to invest a higher proportion of their inventory in trend-driven product. In challenging retail climates, buyers are less adventurous and place more emphasis on brands that have a proven track record over time.

Our brands fit the latter profile and while we are not immune to macroeconomic pressures, we believe that we have not been impacted by the recent pullback in spending as much as some of our competitors.

We are hopeful that the positive performance we noted in February and March reflects a change in momentum that we can continue to build on in future months. However, the retail climate is unpredictable and we are hesitant to consider this a trend at this point.

The performance of our Florsheim retail stores this quarter with same-store sales down 5% is consistent with what has been going on in the overall retail environment. In addition, the profitability of our stores has been decreasing due to the higher operating costs that John referred to earlier. Given these factors, we are being very cautious when reviewing opportunities for new retail locations and currently have no new store openings planned for 2008.

We are however, continuing to remodel existing Florsheim retail shops with our new store design. Three store remodels were completed during April and one additional store is scheduled to be remodeled during this second quarter. The majority of our stores now reflect our new look.

On the supply side we continue to experience pricing pressures from our overseas factories resulting from higher material and labor costs, the weak US dollar and higher freight and transportation costs due to increased petroleum prices.

We have been doing our best to mitigate these pressures by working with our overseas suppliers and selectively increasing our wholesale prices. In doing so, we remain sensitive to the challenges of our retailers and consumers.

As John mentioned earlier, our gross margins were consistent this quarter with the first quarter of last year. Our balance sheet remains strong and we continue to provide positive cash flow from operations.

Yesterday we announced that we will be increasing our quarterly cash dividend from $0.11 per share to $0.14 per share, an increase of 27% in the quarterly dividend rate. We will also continue to repurchase our stock and look for additional opportunities to grow our business.

In conclusion, while the retail environment is currently unfavorable, our relative position in the industry remains strong and we believe that our brands are well positioned for future growth.

That concludes our formal remarks. Thank you for your interest in Weyco Group. We would now like to open the floor to any questions.

Questions-and-Answers Session

Operator

(Operator Instruction) At this time, I'm showing you have no questions.

Rob Damron

Okay, Katy. Well, thank you very much and thanks everyone for participating and we'll talk to you next quarter. Thanks again.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the conference call and you may now disconnect. Have a wonderful day.

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