Weyco Group’s Q4 Sales Slide 6 Percent

Weyco Group Inc. reported net sales for the fourth quarter of 2016 were $82.1 million, a decrease of 6 percent as compared to fourth quarter 2015 net sales of $87.4 million.

Earnings from operations were $8.5 million in the fourth quarter of 2016, down 26 percent as compared to $11.5 million in the fourth quarter of 2015. Net earnings attributable to the company were $8.2 million in the fourth quarter of 2016, up 17 percent as compared to $7.0 million in last year’s fourth quarter. Earnings for the fourth quarter of 2016 included an impairment of long-lived assets charge of $1.8 million ($1.1 million after tax), offset by a $3.1 million adjustment to reverse the deferred tax liability on corporate-owned life insurance policies. Earnings for the fourth quarter of 2015 included $458,000 ($279,000 after tax) of income representing the final adjustment to the earnout payment relating to the 2011 acquisition of the BOGS/Rafters brands. Without these non-recurring adjustments, earnings from operations and net earnings attributable to the company would have been down 7 percent and 9 percent, respectively, for the quarter.

Diluted earnings per share were $0.78 in the fourth quarter of 2016 as compared to $0.65 in the fourth quarter of 2015. Without the non-recurring adjustments described above, diluted earnings per share on an adjusted basis would have been $0.58 in the fourth quarter of 2016 and $0.62 in the fourth quarter of 2015.

During the fourth quarter of 2016, the company evaluated the current state of its Umi business and determined the brand did not fit the long-term strategic objectives of the company. As a result, the company recorded a $1.8 million impairment charge to write off the majority of the value of the Umi trademark. The company is currently looking into different strategic alternatives for the Umi brand. Additionally, in the fourth quarter of 2016, the company reviewed its liquidity needs and sources of capital, including evaluating whether it would need the cash available under corporate-owned life insurance policies on two former executives. It was determined that the chances were remote that the company would need to surrender these policies to satisfy liquidity needs, and, as a result, the company reversed the $3.1 million deferred tax liability related to these policies.

Net sales in the North American wholesale segment, which include North American wholesale sales and licensing revenues, were $61.6 million for the fourth quarter of 2016, down 9 percent as compared to $67.5 million in the fourth quarter of 2015. Within the wholesale segment, net sales of the Stacy Adams, Nunn Bush and Florsheim brands were down 11 percent, 9 percent, and 6 percent, respectively, for the quarter. These sales declines were the result of a challenging retail environment, particularly at our customers’ brick and mortar locations, where foot traffic has declined due to the growing popularity of online retailing. BOGS fourth quarter net sales were down 7 percent, reflecting the continued impact of the mild 2015/2016 winter season, as retailers carried over BOGS inventory into the 2016/2017 winter season. Licensing revenues were $1.1 million in the fourth quarter of 2016, as compared to $1.3 million in last year’s fourth quarter.

Gross earnings for the North American wholesale segment were 34.7 percent of net sales in the fourth quarter of 2016, as compared to 36.0 percent of net sales in last year’s fourth quarter. Earnings from operations for the wholesale segment were $5.8 million in the fourth quarter of 2016, down 37 percent as compared to $9.1 million in 2015. Wholesale operating earnings for the fourth quarter of 2016 included an impairment charge of $1.8 million related to the Umi trademark. Wholesale operating earnings for the fourth quarter of 2015 included $458,000 of income representing the final adjustment to the BOGS/Rafters earnout payment. Without these non-recurring adjustments, wholesale earnings from operations would have been down 13 percent for the quarter, due mainly to the decrease in wholesale sales.

Net sales of the North American retail segment, which include sales from the company’s Florsheim retail stores and its internet business in the United States, were flat at $7.4 million in the fourth quarter of both 2016 and 2015. Same store sales (which include U.S. internet sales) were down 3 percent for the quarter. There was one fewer domestic retail store operating in the fourth quarter of 2016 than there was in last year’s fourth quarter, as two stores closed and one store opened. Earnings from operations for the retail segment were $1.3 million in the fourth quarter of 2016, compared to $1.4 million in 2015.

Other net sales, which include the wholesale and retail sales of Florsheim Australia and Florsheim Europe, were $13.1 million in the fourth quarter of 2016, up 5 percent as compared to $12.5 million in 2015. This increase was due to a 7 percent increase in net sales at Florsheim Australia. In local currency, Florsheim Australia’s net sales were up 2 percent for the quarter. Earnings from operations at Florsheim Australia and Florsheim Europe were $1.4 million in the fourth quarter of 2016, up 35 percent as compared to $1.1 million in the same period last year. The increase between years was due to higher operating earnings in Florsheim Australia’s wholesale businesses, resulting mainly from an increase in sales.

Full Year 2016

Overall net sales were $296.9 million in 2016, a decrease of 7 percent as compared to $320.6 million in 2015. Earnings from operations were $21.2 million in 2016, down 29 percent as compared to $29.8 million in 2015. Net earnings attributable to the company were $16.5 million in 2016, down 10 percent as compared to $18.2 million in 2015. Earnings for 2016 included an impairment of long-lived assets charge of $1.8 million ($1.1 million after tax) related to the Umi trademark, offset by a $3.1 million adjustment to reverse the deferred tax liability on corporate-owned life insurance policies. Earnings for 2015 included $458,000 ($279,000 after tax) of income representing the final adjustment to the BOGS/Rafters earnout payment. Without these non-recurring adjustments, earnings from operations and net earnings attributable to the company would have been down 22 percent and 20 percent, respectively, for the year.

Diluted earnings per share were $1.56 in 2016, as compared to $1.68 in 2015. Without the non-recurring adjustments described above, diluted earnings per share on an adjusted basis would have been $1.36 in 2016 and $1.65 in 2015.

Net sales in the North American wholesale segment were $227.5 million in 2016, down 9 percent as compared to $251.4 million in 2015. Within the wholesale segment, net sales of our BOGS brand were down 23 percent for the year. This decrease was primarily due to the impact of last year’s mild winter season, as described above. Net sales of the Nunn Bush brand were down 13 percent this year. While its sales were down across a number of distribution categories, Nunn Bush was most affected by its reduced sales in the department store trade channel. Mid-tier department stores, in particular, are facing a challenging retail environment due to the growing popularity of online retailing. Stacy Adams net sales were down 2 percent for the year, primarily due to lower sales to national shoe chains. Florsheim net sales were up 1 percent for the year due to strong new product sales. Licensing revenues were $2.8 million in 2016, as compared to $3.6 million last year. The decrease in licensing revenues resulted mainly from licensee transitions that occurred during 2016.

North American wholesale segment gross earnings as a percent of net sales were 32.1 percent in 2016 and 32.5 percent in 2015. Wholesale earnings from operations were $16.4 million in 2016, down 32 percent as compared to $24.3 million in 2015. This year’s wholesale operating earnings included an impairment charge of $1.8 million related to the Umi trademark. Last year’s wholesale operating earnings included $458,000 of income representing the final adjustment to the BOGS/Rafters earnout payment. Without these non-recurring adjustments, wholesale earnings from operations would have been down 24 percent for the year, due mainly to the decrease in wholesale sales.

In the North American retail segment, net sales were $21.9 million in 2016, down 1 percent as compared to $22.1 million in 2015. Same store sales (which include U.S. internet sales) were up 1 percent for the year. There were three fewer domestic retail stores operating this year than there were last year, as four stores closed and one store opened. Earnings from operations for the retail segment were $2.1 million in 2016 and $2.5 million in 2015. This decrease was primarily due to lower net sales at the company’s brick and mortar locations.

The company’s other businesses had net sales of $47.5 million in 2016, up 1 percent as compared to $47.1 million in 2015. This increase was primarily due to higher net sales in Florsheim Europe’s wholesale business. Florsheim Australia’s net sales were down 1 percent for the year. In local currency, Florsheim Australia’s net sales were flat for the year. Earnings from operations at Florsheim Australia and Florsheim Europe were $2.7 million in 2016, down 9 percent as compared to $3.0 million last year. This decrease was primarily due to lower operating earnings at our retail store in Macau, resulting from lower sales.

Other income (expense) was $514,000 of income in 2016 compared to ($1.4 million) of expense in 2015. This year’s other income included foreign currency transaction gains of $513,000, resulting mainly from unrealized gains on foreign exchange contracts entered into by Florsheim Australia. Last year’s other expense included ($961,000) of foreign currency transaction losses, resulting mainly from unrealized losses on foreign exchange contracts entered into by Florsheim Australia, as well as losses from the revaluation of intercompany loans between the company’s North American wholesale segment and Florsheim Australia.

“It was a tough year for our North American wholesale business,” stated Thomas W. Florsheim, Jr., the company’s Chairman and CEO. “Not only were BOGS sales down following last year’s mild winter, but our legacy brands also struggled, echoing the challenges our retail partners are facing, particularly at their brick and mortar locations. While we are disappointed in our results for the year, we are committed to addressing the challenges brought out by this rapidly changing marketplace. We believe we have the right products and long-term strategies in place that will position the company for sustained growth in the long-term.”
On March 7, 2017, the company’s Board of Directors declared a quarterly cash dividend of $0.21 per share to all shareholders of record on March 20, 2017, payable March 31, 2017.

Photo courtesy Bogs