Weyco Group, Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021, with comparisons primarily to fiscal 2020 and selected comparisons to 2019. Weyco designs and distributes footwear under Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters, and Forsake brands through wholesale, retail/e-commerce, licensing, and international operations.
Business Context
- North American wholesale represented 77% of 2021 net sales; retail represented 12%; other international operations represented 11%.
- The Company acquired substantially all operating assets and certain liabilities of Forsake, Inc. on June 7, 2021, adding an outdoor footwear brand to the BOGS division.
- Florsheim Europe continued to be wound down, with the Company having entered into a long-term licensing arrangement for the brand in that region.
- Products are sourced almost entirely from independent overseas manufacturers, primarily in China and India, creating exposure to freight, tariffs, raw material, port, and supply-chain risks.
Financial Performance and Position
| Metric | 2021 | 2020 | Change or comment |
|---|---|---|---|
| Net sales | $267.6 million | $195.4 million | Up 37%; 88% of 2019 levels |
| Gross earnings | $107.4 million | $78.6 million | Gross margin of 40.1% versus 40.2% |
| Operating earnings | $25.7 million | $(7.6) million | Turned profitable; 95% of 2019 operating earnings |
| Net earnings | $20.6 million | $(8.5) million | Return to profitability |
| Diluted EPS | $2.12 | $(0.87) | Improved materially |
| Cash flow from operations | $6.4 million | $40.0 million | Lower due principally to higher receivables and inventory |
| Cash, short-term investments, and marketable securities | $38.0 million | Not directly comparable in the filing summary | Liquidity remained substantial |
| Revolving credit outstanding | $0 | $0 | $40 million facility available, subject to covenants |
- Wholesale sales increased 35% to $205.4 million, with operating earnings of $19.5 million versus $1.0 million in 2020. Wholesale gross margin declined to 33.8% from 35.5% because of premium inbound freight costs.
- Retail sales increased 47% to $31.6 million. E-commerce sales increased 43%, and retail operating earnings improved to $6.7 million from a $1.1 million loss.
- Other operations sales increased 41% to $30.7 million, while operating losses narrowed to $0.4 million from $7.5 million. Florsheim Australia returned to a modest operating profit.
- Inventory increased to $71.0 million from $59.0 million. Approximately 59% of 2021 year-end inventory was in transit, compared with approximately 10% to 20% historically.
- Accounts receivable increased to $53.3 million from $34.6 million, while accounts payable increased to $19.2 million from $8.4 million.
- The Company paid $9.3 million in dividends, repurchased $2.5 million of stock, spent $2.6 million on the Forsake acquisition, and invested $1.0 million in capital expenditures.
- Total assets were $277.7 million and total liabilities were $76.3 million at December 31, 2021. The long-term pension liability was $27.8 million, and operating lease liabilities totaled $11.1 million.
Material Changes Versus Prior Period
- 2021 reflected a significant recovery from the COVID-19-affected 2020 period, when store closures, reduced consumer demand, customer bankruptcies, restructuring, and asset impairments materially depressed results.
- 2021 selling and administrative expenses included $5.5 million of government wage subsidies and $1.1 million of asset write-offs related to closing Florsheim Europe. By comparison, 2020 included $4.3 million of net receivable write-offs, $3.2 million of retail asset and lease impairments, restructuring costs, and other pandemic-related charges.
- BOGS delivered a record fourth quarter, and its North American e-commerce sales increased more than 100% versus 2019 for both the fourth quarter and full year.
- Legacy brands recovered as demand for dress and dress-casual footwear improved, while sneaker, casual, outdoor, and athleisure offerings expanded.
- Cash from operations fell sharply because working capital absorbed cash, particularly through higher accounts receivable and inventory balances.
Guidance, Outlook, Risks, and Unusual Items
- Management expected first-quarter 2022 volume to be significantly better than first-quarter 2021. As of March 1, 2022, North American wholesale backlog was described as the highest in Company history.
- Management expected pipeline fill, strong consumer demand, and continued recovery in retailer inventories to support 2022 performance.
- Management expected wholesale gross margins to improve in mid-to-late 2022 as supply-chain conditions stabilize and negotiated customer price increases take effect.
- Planned 2022 capital expenditures were estimated at $2.0 million to $3.0 million, including distribution-center investments to support e-commerce fulfillment.
- Key risks include persistent supply-chain congestion, premium freight, container shortages, inflation, labor shortages, tariffs, raw-material costs, foreign currency exposure, changing consumer preferences, retail weakness, COVID-19 disruptions, cyberattacks, and customer credit risk.
- The Company had $171.5 million of inventory purchase commitments due within one year, increasing exposure to demand forecasting, inventory liquidation, and working-capital requirements.
- The Forsake acquisition included estimated discounted contingent consideration of approximately $1.3 million payable over five years based on performance measures.
- The Company reported no goodwill or trademark impairment in 2021, but impairment testing depends on forecasts, discount rates, market conditions, and other management assumptions.
- John F. Wittkowske, Chief Financial Officer and Secretary, was scheduled to retire effective May 6, 2022; Judy Anderson was designated as his successor.
- Management and the independent auditor concluded that internal control over financial reporting was effective as of December 31, 2021. No material legal proceedings or unresolved SEC staff comments were reported.
Most Important Facts for Investors to Verify
- Whether elevated wholesale backlog converts into sales without excessive cancellations, discounts, or additional premium freight.
- Whether inventory levels and the unusually high in-transit balance normalize, and whether working-capital investment continues to pressure operating cash flow.
- Whether customer price increases offset freight, labor, materials, tariff, and inflationary costs and restore wholesale gross margins.
- The terms, timing, and performance conditions of Forsake contingent payments, as well as the brand’s contribution to future sales and earnings.
- The renewal or replacement status of the $40 million revolving credit facility, which was scheduled to expire November 4, 2022.
- The sustainability of dividends and share repurchases given lower operating cash flow and the Company’s purchase commitments.
- The effect of the CFO transition, Florsheim Europe’s final wind-down, and continued international operating performance.
- Potential future impacts from pension obligations, foreign currency movements, tariffs, geopolitical developments, and supply-chain disruptions.