Weyco Group Inc. 10-Q Summary: Period Ended June 30, 1999
Business Context and Reporting Period
This Quarterly Report (Form 10-Q) covers the three and six-month periods ended June 30, 1999, for Weyco Group, Inc., a Wisconsin-based company operating in wholesale distribution and retail sales of men's footwear. The company recently moved its corporate offices and distribution operations into a new 346,000-square-foot facility in February and the second quarter of 1999, respectively.
Key Financial Metrics
| Metric | Three Months Ended June 30, 1999 | Six Months Ended June 30, 1999 |
|---|---|---|
| Net Sales | $31,804,314 | $66,844,960 |
| Gross Earnings | $8,469,209 (26.6% margin) | $18,179,457 (27.2% margin) |
| Net Earnings | $2,110,156 | $4,814,375 |
| Earnings Per Share (Diluted) | $0.48 | $1.09 |
| Cash Flow from Operations | N/A | $1,150,243 |
| Cash and Cash Equivalents | $2,757,148 (Ending Balance) | $2,757,148 (Ending Balance) |
| Short-Term Borrowings | $11,199,750 | $11,199,750 |
| Total Current Assets | $56,463,808 | $56,463,808 |
| Total Current Liabilities | $33,741,877 | $33,741,877 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 7.3% for the quarter and 1.8% for the six-month period compared to 1998. Wholesale distribution sales drove growth (up 9% for the quarter), while retail sales declined 11% due to store closings.
- Profitability: Net earnings rose 8.2% for the quarter and 4.1% for the six-month period. Gross margins remained stable at approximately 27% of net sales.
- Inventory Buildup: Total inventories increased significantly from $11.8 million to $18.1 million, a $6.3 million increase attributed to preparation for the upcoming selling season and an increased backlog of orders.
- Liquidity: Cash and marketable securities decreased from $36.3 million at year-end 1998 to $31.5 million at June 30, 1999, primarily due to the inventory buildup and capital expenditures.
- Debt: Short-term borrowings increased to $11.2 million, consisting of commercial paper issued to finance the new facility construction.
Outlook, Risks, and Management Commentary
- Capital Expenditures: The company spent $3.35 million on plant and equipment in the first six months of 1999, primarily for the new corporate office and distribution center.
- Stock Repurchases: The Board extended the stock repurchase program in April 1999. The company purchased 121,400 shares under the program and 18,000 shares privately in the first half of 1999.
- Year 2000 Compliance: The company anticipates completing its Year 2000 computer compliance project by the end of the third quarter of 1999. Estimated total costs remain at $800,000. No issues were found with manufacturing machinery.
- Accounting Changes: The company intends to adopt SFAS No. 133 regarding derivative instruments in 2001; no material effect is expected on financial statements.
- Liquidity Position: Management believes cash, marketable securities, and a $7.5 million bank line of credit (undrawn) provide adequate support for business needs.
Investor Verification Checklist
- Verify the sustainability of the 9% increase in wholesale shoe shipments driving revenue growth.
- Confirm the conversion of the $6.3 million inventory buildup into sales during the upcoming selling season.
- Monitor the repayment schedule of the $11.2 million commercial paper outstanding.
- Review the impact of continued retail store closings on the remaining retail segment (now <5% of total sales).
- Assess the final costs and timeline for Year 2000 compliance completion.