Weyco Group Inc. 10-Q Summary: Period Ended September 30, 1999
Business Context and Reporting Period
This is a quarterly report (Form 10-Q) for Weyco Group, Inc., a company operating in the wholesale distribution and retail sales of men's footwear. The reporting period covers the three and nine months ended September 30, 1999. The financial statements are unaudited.
Key Financial Metrics
| Metric | 9 Months Ended Sep 30, 1999 | 9 Months Ended Sep 30, 1998 |
|---|---|---|
| Net Sales | $101,854,789 | $98,437,184 |
| Gross Earnings | $27,110,578 | $26,228,752 |
| Gross Margin | 26.6% | 26.6% |
| Net Earnings | $7,277,108 | $6,934,211 |
| Diluted EPS | $1.66 | $1.45 |
| Cash Flow from Operations | $(1,371,472) | $3,773,406 |
| Cash and Cash Equivalents (End of Period) | $1,652,039 | $3,691,806 |
| Total Liquidity (Cash + Marketable Securities) | $25,049,000 | $36,254,000 (Dec 31, 1998) |
| Short-term Borrowings | $9,254,868 | $9,521,545 (Dec 31, 1998) |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 3% year-over-year for the nine-month period, driven by a 4% increase in wholesale sales. Retail sales declined 7% due to store closings in the prior year.
- Profitability: Net earnings rose 5% to $7.28 million. Earnings per share (diluted) increased from $1.45 to $1.66.
- Cash Flow Deterioration: Operating cash flow turned negative ($1.37 million outflow) compared to a $3.77 million inflow in the prior year. Management attributes this primarily to a $6.0 million buildup in inventory for the upcoming selling season.
- Capital Expenditures: CapEx decreased significantly to $3.83 million from $9.19 million in the prior year, as the new corporate office and distribution center construction neared completion.
- Share Repurchases: The company repurchased 199,000 shares (155,000 open market, 44,000 private) for a total cost of $4.8 million during the nine-month period.
Guidance, Outlook, and Risks
- Outlook: Management expects available cash, marketable securities, and borrowing facilities to adequately support business needs. The inventory buildup is intentional to meet increased order backlogs.
- Unusual Items: The company recorded an $188,000 gain on the sale of a former warehouse facility in September 1999. A separate $612,000 gain from the sale of former Milwaukee buildings is expected to be recognized in the fourth quarter.
- Year 2000 Compliance: The company reports its Y2K project is substantially completed with a total cost of $800,000, and no major problems are anticipated.
- Accounting Changes: The company intends to adopt SFAS No. 133 regarding derivative instruments in 2001; no material effect is currently expected.
Investor Verification Checklist
- Verify the sustainability of the 12% same-store sales growth in the retail segment despite overall retail revenue decline.
- Monitor the conversion of the $6.0 million inventory buildup into sales revenue in the upcoming quarters to ensure it does not lead to write-downs.
- Confirm the impact of the $9.25 million commercial paper outstanding on future interest expenses and liquidity.
- Review the fourth-quarter financials for the anticipated $612,000 gain from the Milwaukee property sale.
- Assess the long-term strategic shift as retail sales now represent less than 5% of total net sales.