Weyco Group, Inc. 2023 Form 10-K Summary
Business Context and Reporting Period
Weyco Group designs, markets, and distributes footwear under the Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters, and Forsake brands. Operations comprise North American Wholesale, North American Retail, and other international businesses, principally Florsheim Australia. The filing covers the fiscal year ended December 31, 2023, compared with 2022; it is not a standalone fourth-quarter filing.
- Wholesale represented 79% of 2023 net sales; Retail represented 12%; other operations represented 9%.
- The Company sources finished footwear primarily from China and India, with additional sourcing from Cambodia, Vietnam, and the Dominican Republic.
- Asia Pacific operations ceased in 2023 and were in the final stages of winding down at year-end.
Financial Performance and Key Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $318.0 million | $351.7 million | Down 10% |
| Gross earnings | $142.9 million | $144.4 million | Down 1% |
| Gross margin | 44.9% | 41.1% | Up 380 bps |
| Operating earnings | $41.0 million | $40.4 million | Up 2% |
| Net earnings | $30.2 million | $29.5 million | Up 2% |
| Diluted EPS | $3.17 | $3.07 | Up 3% |
| Effective tax rate | 26.1% | 25.7% | Up 40 bps |
- Wholesale sales declined 12% to $250.4 million, while Wholesale operating earnings increased 2% to $33.3 million. Wholesale gross margin improved to 39.7% from 35.6%, reflecting higher selling prices and lower inbound freight costs.
- Retail sales increased 4% to a record $38.0 million, primarily from e-commerce growth. Retail operating earnings increased 11% to a record $6.8 million.
- Other operations sales declined 7% to $29.6 million, and operating earnings declined 41% to $1.0 million, primarily because of lower Australian sales.
- BOGS/Rafters sales declined 31%; legacy brand sales declined collectively, including Florsheim down 4%, Nunn Bush down 2%, and Stacy Adams down 10%.
Cash Flow, Liquidity, Debt, and Capital Allocation
- Cash provided by operating activities was $98.6 million, compared with cash used of $29.9 million in 2022. The improvement was driven mainly by earnings and a $53.1 million reduction in inventory.
- Cash and cash equivalents were $69.3 million at December 31, 2023; cash and marketable securities totaled approximately $75.9 million.
- Inventory declined to $74.9 million from $128.0 million, reflecting management’s effort to normalize inventory and improve turns.
- The Company had no borrowings under its $40.0 million revolving credit facility at year-end, compared with $31.1 million outstanding at December 31, 2022. The facility matures September 28, 2024, bears interest at one-month SOFR plus 125 basis points, and is secured by general business assets.
- Capital expenditures were $3.3 million. Management expects 2024 capital expenditures of approximately $2.0 million to $4.0 million.
- The Company paid $9.3 million in dividends and repurchased 170,422 shares for $4.3 million during 2023. At year-end, 868,757 shares remained authorized for repurchase.
- Investment securities totaled approximately $6.6 million, primarily investment-grade municipal bonds.
Material Changes Versus 2022
- Sales declined following record 2022 wholesale demand, post-pandemic retailer pipeline replenishment, and subsequent retailer inventory caution.
- Profitability improved despite lower sales because of pricing discipline, lower freight and inventory costs, and controlled expenses.
- Inventory, accounts receivable, and debt declined materially, resulting in substantially improved operating cash flow and liquidity.
- Florsheim Australia lost a significant wholesale account, while Asia Pacific operations were discontinued.
- The Company recorded a $0.5 million impairment of the Forsake trademark in 2023, compared with a $1.2 million impairment in 2022.
- Other expense increased to $0.7 million from $0.3 million, primarily because of higher pension interest costs. The 2022 period included a $0.9 million pension settlement charge.
Guidance, Outlook, Risks, and Unusual Items
- Management expects a challenging retail environment in the first half of 2024, with potential demand improvement in the second half. Management is focused on building wholesale backlogs.
- The outdoor boot market, particularly BOGS, is expected to remain challenging during 2024 because of excess retailer inventory and weak weather-related demand. Product innovation and less weather-dependent offerings are key responses.
- Legacy footwear shipments are expected to remain pressured through the first half of 2024 as retailers maintain flexible “chase” inventory strategies.
- Key risks include foreign sourcing and supply-chain disruptions, tariffs and trade restrictions, raw-material and freight costs, consumer discretionary spending, retailer credit risk, changing fashion preferences, foreign currency exposure, cybersecurity, and competition.
- The Company identified a material weakness in internal control over financial reporting related to information-technology general controls, including user access, change management, and segregation of duties. Management and the Audit Committee initiated remediation, including planned use of a third-party service provider; remediation is not complete until controls operate effectively for a sufficient period.
- The independent auditor issued an unqualified opinion on the consolidated financial statements but concluded that internal control over financial reporting was not effective as of December 31, 2023. The auditor reported no critical audit matters.
- At December 31, 2023, inventory purchase commitments totaled $41.2 million, all due within one year. The Company also had $13.5 million of operating lease liabilities and $14.0 million of unfunded pension obligations.
Investor Verification Priorities
- Verify whether wholesale orders, BOGS performance, and consumer demand improve during the second half of 2024 as management expects.
- Monitor inventory levels, markdown activity, gross margin, and the sustainability of the 2023 margin improvement.
- Review the September 2024 revolving-credit maturity and the Company’s refinancing or renewal plans.
- Track remediation of the IT general-control material weakness and subsequent auditor conclusions.
- Assess exposure to foreign suppliers, tariffs, freight disruptions, retailer concentration, and the $41.2 million of inventory commitments.
- Evaluate the effect of Asia Pacific’s wind-down and the lost Australian wholesale account on international earnings.