Weyco Group Inc. 10-Q Summary: Period Ended June 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 June 30, 1998. The company operates through wholesale and retail divisions. As of August 1, 1998, the company had 3,680,269 shares of Common Stock and 960,156 shares of Class B Common Stock outstanding.
Key Financial Metrics
| Metric | Three Months Ended June 30, 1998 | Six Months Ended June 30, 1998 |
|---|---|---|
| Net Sales | $29,636,465 | $65,691,727 |
| Gross Earnings | $7,824,353 | $17,625,290 |
| Gross Margin | 26.4% | 26.8% |
| Net Earnings | $1,950,211 | $4,625,964 |
| Earnings Per Share (Diluted) | $0.41 | $0.96 |
| Cash Flow from Operations | N/A | $5,930,090 |
| Cash and Cash Equivalents | $4,417,527 (Balance Sheet) | $4,417,527 (Balance Sheet) |
| Short-Term Borrowings | $7,739,050 | $7,739,050 |
Liquidity: Total cash and marketable securities aggregated approximately $45.6 million at June 30, 1998, up from $40.8 million at year-end 1997.
Material Changes vs. Prior Period
- Sales Performance: Net sales for the three months ended June 30, 1998, were essentially flat compared to the prior year ($29.6M vs. $29.7M). For the six-month period, sales increased 3% to $65.7M.
- Segment Mix: Wholesale sales increased 2% in the quarter and 5% for the six months, driven by a 3% increase in volume and higher average selling prices. Retail sales decreased 18% in both periods due to the closure of five retail units (four in 1997, one in 1998). Retail sales now represent less than 6% of total net sales.
- Profitability: Net earnings increased 10% for the quarter and 11% for the six months compared to the prior year periods. Gross margins remained consistent at approximately 27%.
- Debt and Capital: The company issued $7.7 million in commercial paper to finance a new distribution center. Additionally, the company repurchased 149,000 shares of common stock for approximately $4.0 million under a new authorization program.
Outlook, Risks, and Management Commentary
- Capital Projects: The company is constructing a new distribution center with an estimated total cost of $12 million. Construction costs of $3.6 million are currently capitalized in Plant and Equipment. Operations are expected to begin in Q2 1999.
- Liquidity Strategy: Management believes cash, marketable securities, and operating cash flow are sufficient to meet business needs. The company maintains a $7.5 million bank line of credit and a new $10 million revolving credit agreement, though no borrowings were made under these specific facilities in the first half of 1998.
- Accounting Changes: The company adopted SFAS 128 (Earnings Per Share) and SFAS 130 (Comprehensive Income) in 1998. The adoption of SFAS 133 (Derivatives) is planned for 2000 and is not expected to have a material effect.
- Risks: No legal proceedings were reported. The primary operational risk noted is the transition to the new distribution facility.
Investor Verification Checklist
- Verify the timeline and total cost overrun risks associated with the $12 million distribution center project.
- Confirm the impact of the 18% decline in retail sales on future profitability, given retail now comprises less than 6% of revenue.
- Monitor the utilization of the $7.7 million commercial paper and the $10 million revolving credit facility.
- Review the effectiveness of the stock repurchase program (149,000 shares purchased) on earnings per share.
- Assess the consistency of the 27% gross margin in the context of changing product mix and wholesale volume growth.