Weyco Group, Inc. (WEYS)

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Weyco Group, Inc. (WEYS)

Q2 2008 Earnings Call

August 7, 2008 11:00 am ET


Thomas W. Florsheim, Jr. - Chairman of the Board, Chief Executive Officer

John W. Florsheim - President, Chief Operating Officer, Assistant Secretary, Director

John F. Wittkowske - Chief Financial Officer, Senior Vice President, Secretary


[Ted Goins]

[Huraki Tuwana]



Ladies and Gentlemen, welcome to the second quarter 2008 Weyco Group earnings conference call. My name is Gwen and I will be your operator today. At this time all participants are in listen-only mode. We will conduct a question and answer session towards the end of this conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. John Wittkowske, Senior Vice President and CFO.

John F. Wittkowske

Good morning everyone and welcome to Weyco Group’s conference call to discuss our second quarter 2008 earnings. Also on this call today are Tom Florsheim, Jr., Chairman and CEO, and John Florsheim, President and COO. On behalf of Tom and John I’d like to welcome you all here and thank you for joining us today for our conference call.

Before we begin 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 10K as filed with the Securities and Exchange Commission. This document identifies the 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.

Our net sales for the second quarter of 2008 were $53 million up 9.6% from $48.4 million in 2007. Net earnings were flat at $4.1 million for the second quarter of both 2008 and 2007. Diluted earnings per share were $0.34 in both 2008 and 2007. Wholesale sales for the second quarter were $44.7 million up 12% from $39.9 million in 2007. Looking at each brand in our wholesale division, sales of our Stacy Adams brand were up 35%, Nunn Bush 3%, and Florsheim 6%. Tom will discuss individual brand performance in a few minutes.

Sales in our retail division decreased 4% to $7.4 million down from $7.7 million last year. Same-store sales were down 6% for the quarter. Second quarter retail sales included four new stores that were opened in the second half of 2007. During the second quarter of 2008 our retail division consisted of 39 retail stores in the United States, two in Europe and an Internet business. In July we closed one of our retail locations.

Licensing revenue for the quarter was $969,000 in 2008 and $835,000 in 2007. Licensee sales of Stacy Adams branded products were down for the quarter as the independent clothing retailers continue to face a challenging retail environment. However, Stacy Adams royalties increased this quarter because we terminated our agreement with our licensing agent to whom we previously paid a percentage of the royalties. The services performed by the licensing agent are now handled in-house and those costs are included in selling and administrative expenses and offset a portion of the royalty gain. Licensing revenues from the sales of Florsheim footwear overseas and branded products in the United States were consistent with the prior year.

Overall gross margins were 37.2% this quarter compared with 38.6% last year. Approximately half the decrease in overall margins was due to a change this quarter in the mix of wholesale and retail sales with wholesale sales making up a significantly higher percentage of total sales than last year. Because wholesale sales carry lower margins than retail sales, the increase in wholesale sales resulted in a decrease in overall gross margin. Additionally, wholesale gross margins were down 80 basis points and retail gross margins were down 50 basis points.

Selling and administrative expenses were 26.1% of sales for the second quarter of 2008 versus 26.4% in 2007. Wholesale selling and administrative costs were 20.8% of sales in 2008 as compared with 22.3% in 07, while retail selling and administrative costs were 61.9% of retail sales in 08 as compared with 50.8% in 2007. The decrease in wholesale selling and administrative costs as a percent of sales reflects the fixed nature of many of our wholesale selling and administrative expenses in relation to the increase in wholesale sales. In the retail division the increase reflects higher operating costs, in particular rent and occupancy costs coupled with lower sales volumes.

As of June 30, 2008 our cash and marketable securities totaled $61.7 million with only $2 million of debt resulting in a net cash position of $59.7 million. This compares with a net cash position of $56.2 million at December 31, 2007. In the first half of 2008 we generated $12.1 million of cash from operating activities, borrowed $1.5 million under our short-term credit facility, and we used $1.8 million of cash for capital expenditures, $6.2 million to purchase company stock, and $2.5 million to pay dividends. We anticipate our total capital expenditures for 2008 to be between $2 million and $3 million.

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