Weyco Group, Inc. — Q1 2024 Form 10-Q Summary
Business context and reporting period
Weyco designs, markets, and distributes footwear under brands including Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters, and Forsake. Its reportable segments are North American Wholesale and North American Retail; other operations primarily comprise Australia and South Africa following the wind-down of Asia operations. The filing covers the three months ended March 31, 2024, compared with the same period in 2023. Interim results are unaudited and may not indicate full-year performance.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $71.6 million | $86.3 million | Down 17% |
| Gross earnings | $32.0 million | $37.2 million | Down 14% |
| Gross margin | 44.7% | 43.1% | Up 160 basis points |
| Earnings from operations | $8.3 million | $10.4 million | Down 21% |
| Net earnings | $6.7 million | $7.4 million | Down 11% |
| Diluted EPS | $0.69 | $0.78 | Down $0.09 |
| Cash flow from operations | $14.3 million | $23.0 million | Down $8.7 million |
- Operating margin was approximately 11.5%, compared with 12.0% in Q1 2023. Net margin was approximately 9.3%, compared with 8.6%.
- Cash and cash equivalents were $78.3 million at March 31, 2024, compared with $69.3 million at December 31, 2023. Cash and marketable securities totaled $84.7 million.
- Inventory declined to $62.0 million from $74.9 million at year-end 2023. Management expects inventory to return to year-end levels by the end of Q2 to support at-once orders.
- The company had no borrowings under its $40.0 million revolving credit facility, which expires September 28, 2024, and was in compliance with its covenants. Operating lease liabilities totaled $12.1 million.
- Financing cash use included $4.7 million of dividends. Capital expenditures were $0.2 million, and management estimates full-year 2024 capital expenditures of $2.0 million to $4.0 million.
Material changes versus the prior comparable period
- North American Wholesale sales fell 20% to $56.3 million and operating earnings fell 16% to $7.4 million. Sales declined across brands, led by a 48% decrease in BOGS/Rafters; legacy brands were also lower.
- Wholesale gross margin improved to 39.6% from 38.2%, primarily because lower inbound freight costs flowed through inventory. Selling and administrative expenses declined, but remained approximately 27% of sales versus 26% previously.
- North American Retail sales increased 10% to a first-quarter record of $9.8 million, driven primarily by higher Florsheim and BOGS website sales. Operating earnings were essentially flat at $1.3 million because higher sales were offset by higher expenses.
- Other segment sales decreased 26% to $5.5 million, and the segment shifted to a $0.4 million operating loss from $0.3 million of operating earnings. The decline reflected Asia closures, the loss of an Australian wholesale account, and regional macroeconomic weakness.
- Interest income increased to $0.9 million from $0.1 million, while interest expense fell to zero from $0.4 million because the company held cash rather than debt during the quarter.
- Comprehensive income declined to $5.6 million from $7.2 million, including a $1.1 million unfavorable foreign-currency translation adjustment.
Outlook, commentary, risks, and unusual items
- Management expects conservative retailer ordering to continue through Q2 2024 but is optimistic that demand will improve in the second half of the year.
- Management cited soft footwear and apparel sales, retailer efforts to maintain lower inventories, excess outdoor-boot inventory, mild weather, macroeconomic pressure in overseas markets, and the loss of a key Australian wholesale account as principal business challenges.
- Management is expanding casual and hybrid footwear offerings and expects BOGS’s seamless-constructed products to support the brand as the outdoor boot market normalizes.
- The company is in the final stages of winding down its Asia operations and is focused on expense management and restoring growth in its overseas business.
- Disclosure controls were determined to be ineffective because of a material weakness in information-technology general controls involving program change management, user access, and segregation of duties. Remediation is underway with assistance from a third-party provider and is expected to be completed during 2024, but is not complete until controls operate effectively for a sufficient period and are tested.
- The board declared a quarterly dividend of $0.26 per share on May 7, 2024, up 4% from $0.25, payable June 28, 2024.
- Management stated that cash, marketable securities, operating cash flow, and available borrowing capacity should support cash needs for at least one year, subject to risks and uncertainties.
Important facts for investors to verify
- Whether wholesale demand and retailer inventory normalization improve in the second half of 2024, particularly for BOGS and the legacy men’s brands.
- Whether the IT-controls material weakness is remediated and independently tested by year-end 2024.
- The renewal or replacement of the $40.0 million revolving credit facility before its September 28, 2024 expiration.
- Whether inventory rebuilding supports at-once sales without increasing excess or obsolete inventory risk.
- The sustainability of the higher gross margin after freight-cost benefits are fully reflected and as product mix changes.
- Progress in the Asia wind-down and whether Australia and South Africa return to profitability.
- Execution of the $2.0 million to $4.0 million 2024 capital expenditure plan and continued dividend and repurchase capacity.