Weyco Group Inc. 10-Q Summary: Period Ended September 30, 1998
Business Context and Reporting Period
This is a quarterly report (Form 10-Q) for Weyco Group, Inc., a manufacturer and retailer of footwear, for the period ended September 30, 1998. The company operates both wholesale and retail divisions. As of October 30, 1998, the company had 955,275 shares of Common Stock and 3,531,650 shares of Class B Common Stock outstanding.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 1998 | Nine Months Ended Sep 30, 1998 |
|---|---|---|
| Net Sales | $32,745,457 | $98,437,184 |
| Gross Earnings | $8,603,462 | $26,228,752 |
| Gross Margin % | 26.3% | 26.7% |
| Net Earnings | $2,308,080 | $6,934,211 |
| Earnings Per Share (Diluted) | $0.49 | $1.45 |
| Cash Flow from Operations (9mo) | $3,773,406 | |
| Cash and Cash Equivalents (Sep 30, 1998) | $3,691,806 | |
| Total Liquidity (Cash + Marketable Securities) | $39,589,000 | |
| Short-Term Borrowings | $9,996,900 |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 9% ($3.2 million) for the three months ended September 30, 1998, compared to the same period in 1997. For the nine-month period, sales decreased 1%. Wholesale sales were flat year-to-date, while retail sales dropped 20% due to store closures.
- Margin Compression: Gross earnings as a percent of net sales declined from 27.5% to 26.3% in the third quarter. This was driven by foreign currency losses (weak Canadian dollar) and increased manufacturing labor costs.
- Profitability: Net earnings for the three months decreased 18% to $2.3 million. Year-to-date net earnings were nearly flat, decreasing slightly to $6.9 million.
- Capital Expenditures: Significant investment in a new distribution center, with $8.6 million in construction costs capitalized as of September 30, 1998. Total project cost is estimated at $12 million.
- Debt and Liquidity: The company issued $9.997 million in commercial paper to finance the construction project. Total liquidity (cash and marketable securities) remained stable at approximately $39.6 million.
Guidance, Outlook, and Risks
- Outlook: Management expects the new distribution center to be completed in the fall of 1998, with operations beginning in the second quarter of 1999.
- Stock Repurchase: The company has repurchased 277,000 shares at a cost of $7.38 million under a program authorized for up to 500,000 shares.
- Year 2000 Compliance: Management estimates total costs of $800,000 to address the Year 2000 problem, with critical systems expected to be completed by the end of the first quarter of 1999.
- Accounting Changes: The company intends to adopt FASB Statement No. 133 regarding derivative instruments in 2000, though no material effect is currently expected.
- Risks: Continued pressure on margins due to foreign currency fluctuations and labor market tightness. Retail volume remains under pressure due to store closures.
Investor Verification Checklist
- Verify the timeline and cost overruns for the $12 million distribution center project.
- Monitor the impact of the weak Canadian dollar on future gross margins.
- Assess the sustainability of retail sales given the reduction in store count and same-store sales decline.
- Confirm the status of the $10 million revolving credit agreement and the $7.5 million line of credit.
- Review the progress of Year 2000 system modifications to ensure no operational disruption in 1999.