Weyco Group, Inc. (WEYS) on Q1 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Weyco Group First Quarter of 2021 earnings release conference call . I will now like to hand the conference over to your speaker for today, John Wittkowske, Chief Financial Officer. You may begin.
John Wittkowske: Thank you. Good morning, everyone, and welcome to Weyco groups conference call to discuss our first quarter 2021 results. On this call, with me today are Tom Florsheim, Jr., our Chairman and CEO; and John Florsheim, our President and COO. Before we begin to discuss the results, 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 10K, as filed with the Securities and Exchange Commission as well as its other filings with the SEC. The form 10K identifies important factors and risks that could cause the company's actual results to differ materially from our projections.
Tom Florsheim Jr.: Thanks, John. Excuse me. And good morning, everyone. After a tough January, February, business opened up in March across all of our brands, a trend that continued through April. We believe that there are a number of factors behind the improved trajectory, including stimulus checks, pent-up demand, the gradual reopening of offices as well as planning for events such as weddings and graduations. While the market remains hard to predict, we are encouraged by the demand we are seeing at retail for a more traditional dress and dress casual footwear. BOGS sales rose 32% for the quarter. Throughout the pandemic, our BOGS sales have been strong, reflecting the trend toward more time outdoors. We've benefited from late winter weather in February as BOGS was one of the few weather boot brands to have adequate inventory. Meanwhile, we have enjoyed a solid start to spring where there are lightly insulated lifestyle and garden-oriented products.
Operator: Our first question comes from the line of John Deysher.
John Deysher: A good solid quarter. I'm impressed that earnings were up even though sales were down, so that's a healthy sign. I was just curious, a couple of things. One, what are your retailers. Are your retail customers giving you from commitments for the second half yet? I know the last conference call, they hadn't really done anything yet, but what are they telling you for the second half? I know you mentioned BOGS is up, but about the legacy brands?
Tom Florsheim Jr.: We're starting to see that change in a positive way. Our orders come in, in 2 different forms. One are hard orders that retailers commit to typically for new product that's being delivered in the fall. And then we have orders that we call bulks and we work with the large retailers to plan out their inventory needs in advance so that we'll have the product that they need. And then the orders come in against those bulks through EDI each week. And we've seen a change in attitude, let me put it that way, from the large retailers over the last few weeks, as they've seen their dress and dress casual business pickup. And so we've had much more collaboration in BOGs and planning out business for the fall. We've also, as I mentioned in the call, John, we've seen a big increase in at once business where orders just come in because retailers, the big ones tend to replenish what they sell. And it's too early to call this a trend and after what we've been through the last year, you want to still be a little bit cautious, but it's exciting to see what we're seeing right now in retail sell-throughs.
John Deysher: So back to school and holiday orders, when do you anticipate to see those one way or the other?
John Florsheim: Well, for BOGS, we already have them, and we get hard orders for BOGS. I think the fact that there's a shortage in year and many brands are sold out. Our employees were relatively good, but we still ran out of some key styles, really incentivize retailers to give us orders well in advanced to cover themselves for the back half of the year. So we're seeing large increases in our backlog for BOGs. For our legacy brands, we're starting to get more part orders, but it's not at the level that we would like. But the reality is in most of our accounts, majority of the backlog is done for key styles bulk orders. And so we've already put those in well into the fourth quarter.
Tom Florsheim Jr.: We've covered through the fourth quarter.
John Florsheim: We're more confident based on demand. So we're probably getting smaller part orders than we normally would get for the back half of the year but the majority of our business is through planned inventory that we fill in from week to week and we're feeling a lot better about being able to cover that inventory and that there be demand there from retailers to bring that inventory yet.
John Deysher: Speaking about bringing inventory in, what's the status of the supply chain? Are there still bottlenecks in the ports? How was that shaping up at this point?
John Florsheim: There are still bottlenecks to the ports. And that situation actually has gotten a little bit worse, not better. I think it's probably because of just the volume of imports coming into this country. But we're seeing two issues. We're seeing delays in getting containers out of the ports, particularly in China. And then once the containers hit the West coast, there are delays there that can take another one week, two weeks. And so we're trying to plan as much of that in as possible, but we are anticipating some late deliveries as we move into fall. The retailers seem very aware of the situation because everybody's faced with it. They're faced with it with their own private label brands so they're working with us, but that is a challenge. The actual supply chain from the standpoint of manufacturing footwear is not a problem, but getting them here is still a problem.
John Deysher: So you just have to deal with that. A couple of financial questions. You bought back $1.1 million of stock. How many shares was that or what was the average price of that stock?
John Wittkowske: We bought back about 62,000 shares at an average price of about $17.50 for the quarter. That will be in the 10-Q. And we have authorized 275,000 remaining shares yet to buy back or that we at least have authorized at this time.
John Deysher: Can you tell us if you're active currently?
John Wittkowske: We're always active based upon what we feel the pricing is. We haven't bought much back in the last month or so, but we're always looking at it and always evaluating it.
John Deysher: And then the first quarter of 2021 expenses were reduced by approximately $1.8 million due to government wage subsidies. Is that continuing? I mean what does that mean, the government is subsidizing your payroll or how can we.
John Wittkowske: Yes, that is true. There's a thing called the earned retention or employee retention credit that was in place for 2021. The credit says that if you are more than 20% -- it used to be, you had to be 50% down to qualify. They changed it for 2021 for the first two quarters and then extended it for the last two quarters, so the entire year. If you qualify, you have to be 20% down in gross receipts compared with 2019. So if you do, you're eligible for a credit equal to approximately, I'm not ballparking, I'm giving you a round numbers, a maximum of $7,000 per employee for wages for each quarter up to $10,000 in wages. So it's maximum of $7,000 per full-time employee effectively for each quarter. So if you continue to show sales lower than 80% of 2019, you qualify for the credit. You can also use a prior year quarter. So we know we're going to qualify for the second quarter. So we will have that subsidy in quarter two. We do not know if we will qualify for that credit yet for quarter three and four. It depends on the results on how we're doing based on what I just said, 80% up 2019, 20% down. So we did get the credit in the first quarter. We will get the credit in the second quarter. Unknown yet on three and four.
John Deysher: And Q2, you anticipate to be similar to Q1 in amount?
John Wittkowske: Yes, because it's based upon employee wages. It's 70% of employee wages up to $10,000 in wages. That's the credit. So you can do the quick math. If your people are making $40,000 a year, you will get $7,000 a quarter for those employees.
John Deysher: And then my final question is Florsheim Europe, was there any shutdown expenses or extraordinary expenses in Q1 from shutting that down?
John Wittkowske: No. Most of those costs were put through in the fourth quarter last year, our third and fourth quarter last year when we had those one-time charges, we had much of that. Now I can't guarantee that there won't be some shutdown costs, but we don't believe those are going to be material to our numbers.
Operator: Our next question comes from the line of .
Unidentified Analyst: So can you break out for me what percentage of total sales are BOGS sales?
John Wittkowske: Yes, we can. That is disclosed in the 10-Q.
John Florsheim: For first quarter.
John Wittkowske: For first quarter. And I assume you're talking about the first quarter?
Unidentified Analyst: Correct.
John Wittkowske: Let me take a quick -- deeply the quarter will be out for filling.
Tom Florsheim Jr.: And Steve, while John Wittkowske is getting that number, just to give a little bit of context, BOGS is still pretty heavily weighted toward the second half of the year. So the first, the second quarter are smaller quarters for BOGS. And so the numbers vary by quarter essentially.
John Wittkowske: I'll do the math for you real quick here. And again these are North American wholesale segments sales for BOGS, and this will be disclosed in the 10-Q. So I'm not giving any information that is not public. 23% in the first quarter of 2021 of wholesale was BOGS.
Unidentified Analyst: So in a dollar amount, that's about -- let me, I got to just -- maybe you'll do the math faster than me.
John Wittkowske: That's about $7.6 million for BOGS.
Unidentified Analyst: And then that ramps up as a percentage as we get to three and four, right?
John Wittkowske: That is correct. BOGS is seasonal -- and yes. I do not have right in front of me the percentage from last year, but you can get that in the 10K, and it's right in the MD&A section. So it's out there. So is the plan -- it certainly would be my plan going forward. You've got this growth brand of BOGS, which has better margins and a business model that's designed for better margins, also with quarter to quarter, year to year growth. I mean, it's a fabulous brand attached to this legacy brand. I think all of you see where I'm heading, isn't the plan then to spin that off and get a real multiple on it? I mean, you could probably get a multiple that would exceed our current share price.
Tom Florsheim Jr.: Yes, that's not really the plan. I mean, one of the things that you have to consider.
Unidentified Analyst: Why not?
Tom Florsheim Jr.: One of the things that you have to consider is that the legacy brands have been depressed in sales. We had 20% growth in Florsheim two years in a row.
John Florsheim: It's our fastest growing brand.
Tom Florsheim Jr.: Yes, prior to the pandemic. So that was actually our fastest growing brand.
John Florsheim: And our largest brand.
Tom Florsheim Jr.: But to your point, we're very focused on growing the outdoor business in our portfolio. And we've stated this previously, we're looking for other acquisitions. So it's kind of the opposite of actually what you're suggesting, we're going to beef up that area of our portfolio.
John Florsheim: It diversifies our portfolio in terms of the range of products that we're offering. And while we're actually seeing now a surge in our traditional business, especially online as we start to cycle against big numbers for BOGS from last year. So it balances out.
Unidentified Analyst: So your sense is, I mean, BOGS is growing, what roughly, so for the last few quarters it's about 35%, is our growth rate?
John Florsheim: No, from a wholesale perspective, and I don't remember the number by quarter, BOGS was more or less flat last year, where we saw very strong growth was in e-commerce. Our e-commerce direct to consumer business was up significantly last year, and that continued through the first quarter. I think we were up over 30% BOGS in the first quarter e-commerce.
Unidentified Analyst: So I mean, listen, yes, from an investor point of view, right, people love to have the growth story because, I don't have to tell you guys, I mean, you've been around long enough, you know how these days it's hard to call folks analysts, but you know how analysts will project things out. I mean, it's growing 35%, 40%, now it'll be 400% in 10 years. And you get these wild multiples based on growth, which may or may not occur. And in the meantime, if you have a separate company and that doesn't have to have its own management infrastructure, you can pay for Florsheim management, it's something to think about, because you can really get a.
John Florsheim: But for Florsheim -- I don't mean to interrupt, but Florsheim benefit structure out here that were elected in here, that we leveraged, that allows BOGS to be a very profitable brand. And so that's really the key. So it all sort of works together. And I think you're going to see our legacy business bounce back, and we're going to continue to have strong growth for BOGS, certainly the back half of this year, we feel very confident about. And we're always kind of looking out there for ways to further diversify our business from a portfolio standpoint, more on .
Unidentified Analyst: And lastly, just to this point, just for your further consideration, you don't need to set up a complete separate infrastructure to be running BOGS effectively, independently, or to be reporting them out independently, you could always pay, right?
John Florsheim: That would be correct, but it's not in our plans to thin out BOGS.
Unidentified Analyst: I guess keep executing. And I think the retail market will lift this up, without a doubt.
Tom Florsheim Jr.: We agree.
Unidentified Analyst: Yes, there's no question.
Tom Florsheim Jr.: Yes. No, the pandemic was hard for a lot of apparel and footwear brands and we did not escape that, and we're looking forward to a much better year this year.
Operator: Thank you. I'm showing no further questions in the queue. I will now like to turn the call back over to John for closing comments.
John Wittkowske: Thanks for your attention today, and we will talk with you next quarter. Have a great day.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
