Q4 2023 WEYCO Group Inc Earnings Call
Participants
Judy Anderson; CFO, VP, & Secretary; WEYCO Group Inc
Tom Florsheim, Jr.; Chairman of the Board & CEO; WEYCO Group Inc
David Wright; Analyst; Henry Investment Trust
Presentation
Operator
Good day and thank you for standing by and welcome to the Weyco Group, Inc. Fourth Quarter and Full Year 2023 earnings release 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 speaker today, Judy Anderson, Chief Financial Officer. Please go ahead.
Judy Anderson
Good morning, and welcome, everyone, to Weyco Group's conference call to discuss fourth quarter and full year 2023 results on this 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 and here, 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 costs and consumer demand for our products, increased interest rates and other macroeconomic factors that may cause a slowdown or contraction in the U.S. or Australian economy.
Net sales for the fourth quarter of 2023 were $80.6 million, down 19% compared to last year's fourth quarter. Net sales of $99 million. Consolidated gross earnings increased to 50.3% of net sales for the quarter compared to 46% at 46.6% of net sales in last year's fourth quarter due mainly to higher gross margins in our North American wholesale segment, quarterly operating earnings were $11.5 million, down 24% compared to record operating earnings of $15.1 million in the fourth quarter of 2022. Net earnings were $8.5 million, or $0.9 per diluted share for the quarter compared to $10.2 million or $1.6 per diluted share for the fourth quarter of 2022 in the North American wholesale segment.
Net sales for the quarter were $59.6 million, down 21% from $75.5 million last year. The decrease was primarily due to a 32% decline in BOGS sales, but also due to decreased sales across our legacy brands as a result of weaker demand.
Wholesale gross earnings were 44.9% of net sales for the quarter compared to 41.3% of net sales in last year's fourth quarter. Gross margins improved as a result of lower inventory costs, primarily inbound freight, wholesale, selling and administrative expenses totaled $18.9 million for the quarter compared to $20.5 million last year. The decrease was largely due to lower employee costs, mainly commission based compensation as a percent of net sales. Wholesale, selling and administrative expenses totaled 32% for the quarter versus 27% last year.
Wholesale operating earnings totaled $7.9 million for the quarter or down 27% compared to $10.7 million in 2022, primarily due to lower sales. Net sales in our North American retail segment were $13.9 million for the quarter, down 3% compared to record sales of $14.3 million last year. The decrease was primarily due was primarily on the BOGS e-commerce website as a result of lower demand.
Retail gross earnings as a percent of net sales were 65.8% and 64.5% in the fourth quarters of 2020, 23 and 2022, respectively.
Retail selling and administrative expenses totaled $5.6 million for the fourth quarter compared to $5.9 million last year down as a result of lower web advertising costs as a percent of net sales.
Retail, selling and administrative expenses were flat at 41% in both this year and last year. Retail operating earnings reached a record $3.5 million in the fourth quarter of 2023, up 6% over $3.3 million in 2022. The earnings improvement resulted from lower costs in the fourth quarter of 2023. Our other operations result consists of our retail and wholesale businesses in Australia, South Africa and Asia Pacific collectively referred to as Florsheim Australia.
However, as previously disclosed, we since we ceased operations in the Asia Pacific region in 2023 and are in the final stages of winding down this business. Net sales of Florsheim Australia were $7.2 million, down 23% from $9.2 million in the fourth quarter of 2022 in local currency, Florsheim Australia's net sales were down 22% due mainly to the loss of a sizable wholesale customer in Australia earlier this year, but also due to lower retail sales in Asia in the Asia Pacific region as a result of its wind-down, Florsheim Australia's gross earnings were 65.4% of net sales for the quarter compared to 61.8% in the fourth quarter of 2022. Operating earnings were $200,000 for the quarter compared to $1.1 million last year down due to lower sales volumes this year, we will now discuss our full year 2023 results.
Consolidated net sales for the full year were $318 million, down 10% compared to record sales of $351.7 million in 2022. Consolidated gross earnings increased to 44.9% of net sales in 2023 from 41.1% last year, due mainly to higher gross margins in our North American wholesale segments. Full year 2023 operating earnings were a record $41 million, up 2% over our previous record of for $40.4 million in 2022. Despite lower sales, net earnings were a record $30.2 million or $3.17 per diluted share in 2023, up 2% compared to $29.5 million or $3.7 per diluted share and 2022. North American wholesale net sales were $250.4 million in 2023, down 12% compared to record sales of $283.2 million in 2022. The decrease was primarily due to a 31% decline in BOGS sales compared to record sales for the brand last year. Sales of Stacy Adams, Florsheim and Nunn Bush brands were also down for the year due to lower demand following strong growth last year. Wholesale gross earnings as a percent of net sales were 39.7% in 23 in 2023 and 35.6% in 20 in 2022. Gross margins improved as a result of increased selling prices and lower inventory costs, primarily in non-freight.
Wholesale, selling and administrative expenses totaled $66 million in 2023 compared to $68.2 million in 2022. The decrease in 2023 was primarily due to lower employee costs, mainly commission based compensation as a percent of net sales, wholesale selling and administrative expenses were 26% in 2023 and 24% in 2022. Wholesale operating earnings reached a record $33.3 million in 2023, up 2% over our previous record of $32.6 million in 2022 due to higher gross margins and lower selling and administrative expense in our North American retail segment, net sales were a record $38 million in 2023, up 4% over our previous record of $36 points, $7 million in 2022 The increase was primarily due to the increase was primarily due to higher sales across our legacy brands websites, partially offset by lower sales on the Box website sales that are for domestic brick and mortar stores were down 4% for the year. Retail gross earnings were 65.9% of net sales in 2023 and 65.7% of net sales in 2022.
In retail, selling and administrative expenses totaled $18.3 million or 48% of net sales for the year compared to $18.1 million or 49% of net sales last year. The retail segment achieved record operating earnings of $6.8 million in 2023, up 11% over $6.1 million in 2022, due mainly to increase through the increase in web sales. Net sales at Florsheim Australia totaled $29.6 million in 2023, down 7% from $31.8 million in 2022.
In local currency, Florsheim Australia's net sales were down 3% for the year with sales down in its wholesale businesses due to the previously mentioned midyear loss of a wholesale customer in Australia, partially offset by higher sales across its retail businesses. Florsheim Australia's gross earnings were 62.5% of net sales in 2023 versus 61.1% of net sales in 2022. Its operating earnings totaled $1 million in 2023 and $1.7 million in 2022, down as a result of lower net sales at December 31st, 2023. Our cash and marketable securities totaled $75.9 million, and we had no debt outstanding on our $40 million revolving line of credit. During 2023, we generated $98.6 million of cash from operations due mainly to net earnings and reductions in inventory levels. We used funds to pay out $31.1 million on our line of credit to pay $9.3 million in dividends and to repurchase $4.3 million of our common stock. We also had $3.3 million of capital expenditures. We estimate that our 2024 annual capital expenditures will be between $2 million and $4 million.
On March fifth, 2024, our Board of Directors declared a cash dividend of $0.25 per share to all shareholders of record on March 15th, 2024, payable March 29th, 2024.
I would now like to turn the call over to Tom Florsheim Jr.
Tom Florsheim, Jr.
Good morning to everyone because Judy mentioned we experienced a slowdown in sales as our overall wholesale shipments were down 21% versus a strong fourth quarter last year. The retail environment remains difficult for footwear and apparel as consumers are spending more of their discretionary income on experiences and services. Retailers in turn are being cautious in regards to their inventory levels excuse me. While we recognize we are in a challenging period for our industry, we are pleased with our overall financial performance in 2023. We achieved record wholesale operating earnings by maintaining our price integrity while taking a disciplined approach to our expenses. Box sales were down 32% in the fourth quarter and 31% for the year, mild weather throughout the fall and early winter in combination with an inventory glut in the outdoor market, the for a tough 2023, we believe the outdoor boot market will remain challenging throughout 2024 as retailers right-size their inventories with BOGS, we are focused on moving the business forward through product innovation with an emphasis on Box seamless rubber boot construction hogs, seamless construction is 30% lighter than comparable vulcanized rubber boots and over twice as durable as measured by the number of flexes. Our seamless boots can withstand without any side of cracking this year, we are expanding the number of seamless boots in our line across numerous price points. Consumers and retailers are excited about this technology, which positions us well for future sales growth.
In addition to the expansion of our seamless collection, we are also introducing new and not insulated and lightly insulated footwear. So the badge brand is less dependent on inclement weather. Our overall legacy business declined 16% for the quarter and 5% for the year at the brand logo, Florsheim Nunn Bush and Stacy H were down 13%, 18% and 19%, respectively for the latest quarter and 4%, 2% and 10%, respectively for the year. The decline in sales of all three brands reflects a general slowdown in the market for dress and dress casual footwear. In addition, many of our retail partners have shifted to more of a Chase strategy in order to maintain greater inventory flexibility. We see the decrease in our legacy shipments as part of a return to normal to a normal business cycle. After a period of heightened demand and supply chain delays. We anticipate this trend will continue through the first half of 2024. Our sell-throughs at retail remained solid, and we continue to diversify our product mix across all three brands to expand our casual and hybrid offerings. In our retail segment, sales were down 3% for the quarter, but up 4% for the year. The fourth quarter decrease was driven primarily by a decline in BOGS online sales due to unseasonably warm and dry weather.
Overall, we believe the Company had a strong direct to consumer performance with a solid increase for 2023 as well as record retail operating earnings. We view our direct to consumer business as a growth opportunity and continued to invest in our online platform. Florsheim Australia's net sales in local currency were down 22% in the fourth quarter and 3% for the year. The loss of a major wholesale account as well as a soft, a soft consumer demand presented challenges in the Australian market. We anticipate headwinds through the first half of 2024 and are focused on reducing expenses while we assess opportunities to rekindle our growth from. As previously discussed, we closed our Hong Kong office in December and are in the process of transitioning the Asia Pacific wholesale business, two Australia divisions. Our inventory level was $74.9 million at December 31st, 2023, down from $128 million at December 31st, 2020 to as discussed in the third quarter call, we have brought our inventories down to a level that balances availability for in-season orders with better inventory turns for the year. Overall, gross margins were 44.9% in 2023 and 41.1% in 2022.
Going forward, we expect our margins to remain at a healthy level as Judy discussed discussed, our cash flow in 2023 was strong, resulting in a balance of $75.9 million in cash and marketable securities. We continue to look at potential acquisitions and other actions to put our cash to use. We also continue to invest in the distribution platform we have built and walk in Milwaukee in the fourth quarter of 2023, we installed equipment that automates the packaging and labeling process of single pairs with the growth of our e-commerce and drop-ship business. Gain efficiency in this area allows us to get faster service was significant labor savings. This new equipment allows us to process single zone at a rate of 30 to 40 pairs per minute, which is a processing speed approximately four times faster than previously.
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.
Question and Answer Session
Operator
(Operator Instructions) David Wright, Henry Investment Trust.
David Wright
So hi, good morning.
Tom Florsheim, Jr.
Good morning.
David Wright
Good morning, and I wanted to compliment and congratulate you first off to make $30 million after-tax. I mean that's that would be a pretty good feeling on So no, I'm there. If you look back 10 years ago on kind of the same revenue as you were making that sort of high 10s millions on. But the last couple of years, you've really elevated the results. So I as a stockholder, I say thank you for.
Tom Florsheim, Jr.
Thanks for Knology that we appreciate it.
Judy Anderson
And on the on the cash duty, can you can you break down where that's held geographically and the majority of it is in the U. S and we have we have invested in Denmark, money-market account on that. So we're earning between 5% and 5.5% on that. We also do have some cash in Canada as earning about the same rate.
David Wright
Okay. We'll finish those a couple of places to have your money, you can get to it, your IG, your interest earnings were double your interest expense. So that's a good result to on further on the cash, Tom, when you mentioned the board, considering acquisitions and other options on the Other options include sort of a shareholder capital return where we are looking at all the different options right now because we recognize that our cash has piled up, which is a good problem.
Tom Florsheim, Jr.
And we've had a couple investors actually asked us about a special dividend. So we're considering that we're considering on we're considering on additional stock buybacks, we're still we still want to have the flexibility for M&A. And we feel like with our balance sheet, we're in a good place for that even if we reduce our cash slightly. So we I'll just say at this point, we really recognize that we have more cash than we need on our balance sheet right now and we're figuring out the best ways to use it, and we're trying to do that at a shareholder-friendly way.
David Wright
Okay. That's great. Thanks for the on the elaboration if you'd indulge me, I just have kind of but a demographic question. You look back 25 years ago, say when a white-collar job met, you were a suit and tie in dress shoes.
And you know, over the decades that preceded that you probably had pretty stable. I'm going to call it dress shoe sales on growing a little with the economy and with the fact that there's more people on and, you know, dress office dress professional dress has changed so dramatically. Sorry to be sentimental, but I'm I'm curious if there's any way you can quantify what you know, if a traditional lace up leather dress shoes were, you know, X 25 years ago, your sales in those products today are Mino 10% of that for any way to quantify the for the. So overall, a decline in that particular style?
Tom Florsheim, Jr.
Yes, I mean, we don't have the exact numbers with us right now, but I hear what you're saying is 100% correct. When we look at our traditional classic dress business that has shrunken drastically over the last 10 years, and what people are wearing as dress shoes today are really completely different. And, you know, in the in the script, we talked about hybrid and hybrid. What that means is a dressy kind of upper with nice fit with a nice kind of dressy finish. But with a more casual or sporty bottom, I mean, I'm sure you've seen a lot of men wearing dress dress issues with the white bottles with white soles. And that's that's what we're referring to. When we talk about hybrid, that's a huge growth category because people still the way. I look nice at the office, but you're 100% correct. They're not wearing suits and ties. And also they need something that goes with that clothing. And we we look at shoes as an accessory to call date. And so we pay a lot of attention to what people are wearing. And over the years really going back probably more more than a decade. We've been trying to evolve our brands. So they go with the call date and we we recognize that in order to keep growing and be successful, we have to continue to adjust our products. And so when you watch the brand like Nunn Bush, for example, 75% of what we sell in Nunn Bush is casual like totally casual casual, not even hybrid. We have high brand and we have some traditional dress, but 75% casual and Florsheim. We've made good head roads into more casual offerings with ARM through casuals like we have a we have a kind of a bolt-action club of Lakeside. We have active casuals. We have a new one that's on our website that you could check out called satellite. And then we have a lot of hybrid shoes like the Dash. And so we are continuing to evolve. And with Stacy Adams, CCF still skews more dressy, but we're working to develop more hybrids. We have a successful hybrid and Stacy called the Syncro right now. And so you are 100% right with your original statement and we're very aware of it. And we continue to look at this every time we put together a new line and continue to evolve to become more and more lifestyle oriented more casual oriented because that's the way that's the way people are addressing it is that's going to change. We are convinced is going to continue to go down that path.
David Wright
Well, you've done a great job of moving the product line with the market, the results show that we know. So thanks for the elaboration there. Okay. Well, listen, I really appreciate the conference calls. I'm sorry, I missed the last one. I know a lot of people maybe don't show up, but I really appreciate you having me. And so I thank you for that, and thanks for taking my questions.
Tom Florsheim, Jr.
Thank you.
Judy Anderson
Thank you.
Operator
(Operator Instructions) I'm showing no further questions at this time, and I would like to turn the conference back over to Judy Anderson for any further remarks.
Judy Anderson
Thank you, and thank you, everyone, for joining us today and for your support of our company. And have a great day.
Operator
This concludes today's conference call. Thank you for participating, and you may now disconnect your lines.
