Weyco Group Inc. 10-Q Summary: Period Ended June 30, 2010
Business Context and Reporting Period
This is a quarterly report (Form 10-Q) for Weyco Group, Inc., a distributor of men's casual, dress, and fashion shoes under brands including Florsheim, Nunn Bush, Stacy Adams, and Umi. The reporting period covers the three and six months ended June 30, 2010. The company operates through North American wholesale, North American retail, and international ("Other") segments.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2010 | Six Months Ended June 30, 2010 |
|---|---|---|
| Net Sales | $48.7 million | $109.8 million |
| Gross Earnings | $18.7 million | $42.1 million |
| Earnings from Operations | $1.7 million | $7.1 million |
| Net Earnings (Total) | $1.1 million | $5.1 million |
| Net Earnings Attributable to Weyco | $1.3 million | $5.1 million |
| Diluted EPS | $0.11 | $0.45 |
| Cash from Operating Activities | N/A (Quarterly not provided) | $7.9 million |
| Cash and Cash Equivalents | $13.1 million (Balance Sheet) | $13.1 million (Balance Sheet) |
| Marketable Securities | $64.9 million (Total) | $64.9 million (Total) |
| Debt | $0 | $0 |
Material Changes vs. Prior Period
- Quarterly Performance: Net sales decreased 3% to $48.7 million compared to $50.1 million in Q2 2009. Earnings from operations declined 23% to $1.7 million from $2.2 million. Net earnings attributable to Weyco dropped to $1.3 million from $2.2 million.
- Year-to-Date Performance: Net sales increased 1% to $109.8 million compared to $109.0 million in the prior year. Earnings from operations rose 29% to $7.1 million from $5.5 million, driven by higher gross margins in the wholesale segment.
- Foreign Exchange Impact: A significant variance in "Other income and expense" was driven by foreign currency transaction results on intercompany loans. Q2 2010 included a $344,000 loss, whereas Q2 2009 included an $870,000 gain.
- Segment Trends: North American wholesale sales declined slightly (-2% Q/Q, -3% YTD), while the "Other" segment (international) saw a 20% sales increase YTD, largely due to currency fluctuations and the inclusion of additional days of Florsheim Australia operations.
Guidance, Outlook, and Management Commentary
- Acquisition: On April 28, 2010, the company acquired the Umi children's footwear brand for approximately $2.5 million. Sales were minimal in Q2 due to seasonality, with shipments expected to begin in Q3 2010.
- Dividends: The Board increased the quarterly dividend rate from $0.15 to $0.16 per share (a 7% increase) on April 21, 2010.
- Capital Allocation: The company repurchased 32,906 shares for approximately $753,000 in the first half of 2010. Approximately 1.35 million shares remain available under the buyback program.
- Liquidity: The company maintains a strong liquidity position with $78.0 million in cash and marketable securities and no outstanding debt. A $50 million revolving credit facility was renewed through April 30, 2011.
- Risks: Management notes that results are primarily affected by U.S. economic conditions and the retail environment. Foreign currency fluctuations continue to impact earnings through intercompany loan transactions.
Investor Verification Checklist
- Wholesale Margin Sustainability: Verify if the improved gross margins in the wholesale segment (30.6% YTD vs 27.9% prior year) are sustainable given the decline in sales volume.
- Umi Integration: Monitor Q3 and Q4 results for the impact of the Umi acquisition, as Q2 results were not representative of the brand's potential due to seasonality.
- Foreign Exchange Volatility: Assess the ongoing impact of currency fluctuations on intercompany loans, which caused a significant swing in non-operating income between 2009 and 2010.
- Retail Segment Turnaround: Review the performance of the North American retail segment, which continues to report operating losses despite flat same-store sales.
- Capital Expenditures: Confirm that annual capital expenditures remain within the guided range of $1.0 million to $2.0 million.