Weyco (WEYS) - 2024 Q1 - Quarterly Results

First Quarter 2024 Financial Highlights Weyco Group's Q1 2024 saw decreased consolidated net sales and earnings, driven by wholesale challenges, while retail achieved record sales and interest income significantly increased Consolidated Performance Overview Weyco Group, Inc. reported a decrease in consolidated net sales and earnings for Q1 2024 compared to a record Q1 2023, primarily driven by challenges in the wholesale segment | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | Change (%) | | :----------------------- | :------------------ | :------------------ | :--------- | | Consolidated Net Sales | $71.6 | $86.3 | -17% | | Consolidated Gross Earnings (% of Net Sales) | 44.7% | 43.1% | +1.6 pp | | Earnings from Operations | $8.3 | $10.4 | -21% | | Net Earnings | $6.7 | $7.4 | -9.6% | | Diluted EPS | $0.69 | $0.78 | -11.6% | North American Wholesale Segment Performance The North American wholesale segment experienced a significant sales decline in Q1 2024, primarily due to retailers reducing orders amidst a product surplus and reduced demand | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | Change (%) | | :-------------------------------- | :------------------ | :------------------ | :--------- | | Net Sales | $56.2 | $69.9 | -20% | | Gross Earnings (% of Net Sales) | 39.6% | 38.2% | +1.4 pp | | Selling and Administrative Expenses | $14.9 | $17.9 | -16.8% | | Operating Earnings | $7.4 | $8.8 | -16% | - Sales of the BOGS brand decreased by 48% due to retailers reducing orders amid a product surplus in the outdoor footwear market[3] - Florsheim, Stacy Adams, and Nunn Bush brands also saw declines of 11%, 16%, and 13% respectively, attributed to reduced demand after record sales growth in early 2023[3] - Wholesale gross margins improved due to lower inventory costs, mainly inbound freight[4] - Selling and administrative expenses decreased primarily due to lower employee costs, including commission-based compensation[4] North American Retail Segment Performance The North American retail segment achieved record net sales in Q1 2024, driven by strong website performance, though operating earnings remained flat due to increased expenses | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | Change (%) | | :-------------------------------- | :------------------ | :------------------ | :--------- | | Net Sales | $9.8 | $8.9 | +10% | | Gross Earnings (% of Net Sales) | 65.3% | 66.3% | -1.0 pp | | Operating Earnings | $1.3 | $1.3 | 0% | - The increase in retail net sales was primarily due to higher sales on the BOGS and Florsheim websites[5] - Retail operating earnings were flat as higher sales were offset by increased selling and administrative expenses, mainly web freight[6] Other Operations Performance Other operations, primarily Australia and South Africa, saw a significant decline in net sales and an operating loss in Q1 2024, mainly due to Asia operations closure and loss of a major Australian customer | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | Change (%) | | :-------------------------------- | :------------------ | :------------------ | :--------- | | Net Sales (Florsheim Australia) | $5.5 | $7.5 | -26% | | Gross Earnings (% of Net Sales) | 60.2% | 60.5% | -0.3 pp | | Operating Earnings (Losses) | ($0.4) | $0.3 | -233.3% | - The 'other' category's operating results primarily reflect Australia and South Africa, following the cessation of Asia operations in 2023[7] - The decline in net sales for Florsheim Australia was mainly due to lower sales in Asia from the closing of operations and the mid-year 2023 loss of a sizeable wholesale customer in Australia[8] - Retail sales in Australia also decreased due to a challenging retail environment[8] Other Income / (Expense) Weyco Group saw a substantial increase in interest income and the elimination of interest expense in Q1 2024, primarily due to interest earned on cash balances and no outstanding debt | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | Change (Millions) | | :------------- | :------------------ | :------------------ | :---------------- | | Interest Income | $0.9 | $0.1 | +$0.8 | | Interest Expense | $0.0 | $0.4 | -$0.4 | - The increase in interest income was due to interest earned on cash in the U.S. and Canada, while the prior year included interest expense on outstanding debt balances[10] Management Commentary and Outlook Management addresses industry challenges, highlights strong retail performance, and declares an increased quarterly cash dividend CEO Statement Chairman and CEO Thomas W. Florsheim, Jr. acknowledged industry headwinds impacting wholesale volumes but highlighted strong retail performance and expressed optimism for improved demand in H2 2024 - Wholesale volumes were down due to broader industry headwinds, with retailers reluctant to place orders after struggling with high inventories last year[11] - Despite challenges, sell-throughs at wholesale remain strong, and the retail segment posted another record quarter, demonstrating brand strength across North America[11] - Management expects sales to remain soft through the second quarter but is optimistic that demand will improve in the back half of the year[11] Dividend Declaration The Board of Directors declared an increased quarterly cash dividend for shareholders | Dividend Type | Current Rate (per share) | Previous Rate (per share) | Increase | | :-------------- | :----------------------- | :------------------------ | :------- | | Cash Dividend | $0.26 | $0.25 | 4% | - The dividend is payable on June 28, 2024, to shareholders of record on May 17, 2024[11] Company Information This section provides an overview of Weyco Group's business, outlines forward-looking statement disclaimers, and details the Q1 2024 conference call About Weyco Group Weyco Group, Inc. designs and markets quality and innovative footwear for men, women, and children under several recognized brand names, distributed globally through various retail channels - Weyco Group designs and markets quality and innovative footwear primarily for men, but also for women and children[14] - The company's portfolio includes well-recognized brand names such as Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters, and Forsake[14] - Products are sold in leading footwear, department, and specialty stores, e-commerce websites worldwide, and through company-operated Florsheim stores in the United States, Australia, and South Africa[14] Forward-Looking Statements This section provides a standard disclosure regarding forward-looking statements, outlining various factors that could cause actual results to differ materially from projections - The press release contains forward-looking statements subject to risks and uncertainties under the Private Securities Litigation Reform Act of 1995[15] - Factors that could cause material differences include inflation, economic slowdowns, competitive industry, changing consumer trends, timely product procurement, consumer acceptance, increased interest rates, and geopolitical impacts[15] - The company undertakes no obligation to update any forward-looking statements[15] Conference Call Details Weyco Group hosted a conference call to discuss Q1 2024 financial results, with details provided for pre-registration and replay access - A conference call was scheduled for May 8, 2024, at 11:00 a.m. Eastern Time to discuss Q1 2024 financial results[12] - Participants were required to pre-register online to receive the conference call phone number and passcode[12][13] - A replay of the call is available for one year via a webcast link and in the investor relations section of Weyco Group's website[13] Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including statements of earnings, balance sheets, and cash flows for the specified periods Consolidated Condensed Statements of Earnings and Comprehensive Income The unaudited consolidated condensed statements of earnings and comprehensive income provide a detailed breakdown of the company's financial performance for the three months ended March 31, 2024, compared to the same period in 2023 | | Three Months Ended March 31, | | :---------------------------------- | :------------------ | :------------------ | | | 2024 (Millions) | 2023 (Millions) | | Net sales | $71.558 | $86.294 | | Cost of sales | $39.551 | $49.132 | | Gross earnings | $32.007 | $37.162 | | Selling and administrative expenses | $23.756 | $26.776 | | Earnings from operations | $8.251 | $10.386 | | Interest income | $0.905 | $0.139 | | Interest expense | $0.000 | ($0.385) | | Other expense, net | ($0.095) | ($0.130) | | Earnings before provision for income taxes | $9.061 | $10.010 | | Provision for income taxes | $2.411 | $2.565 | | Net earnings | $6.650 | $7.445 | | Weighted average shares outstanding | | | | Basic | 9,436 | 9,483 | | Diluted | 9,580 | 9,545 | | Earnings per share | | | | Basic | $0.70 | $0.79 | | Diluted | $0.69 | $0.78 | | Cash dividends declared (per share) | $0.25 | $0.24 | | Comprehensive income | $5.631 | $7.238 | Consolidated Condensed Balance Sheets The unaudited consolidated condensed balance sheets present the company's financial position as of March 31, 2024, compared to December 31, 2023, detailing assets, liabilities, and equity | | March 31, 2024 (Millions) | December 31, 2023 (Millions) | | :-------------------------------- | :-------------------------- | :--------------------------- | | ASSETS: | | | | Cash and cash equivalents | $78.348 | $69.312 | | Marketable securities, at amortized cost | $0.000 | $0.215 | | Accounts receivable, net | $42.098 | $39.275 | | Income tax receivable | $0.000 | $0.245 | | Inventories | $61.960 | $74.890 | | Prepaid expenses and other current assets | $3.641 | $6.172 | | Total current assets | $186.047 | $190.109 | | Marketable securities, at amortized cost | $6.360 | $6.354 | | Deferred income tax benefits | $1.052 | $1.096 | | Property, plant and equipment, net | $28.970 | $29.504 | | Operating lease right-of-use assets | $11.153 | $12.520 | | Goodwill | $12.317 | $12.317 | | Trademarks | $33.168 | $33.168 | | Other assets | $24.204 | $24.274 | | Total assets | $303.271 | $309.342 | | LIABILITIES AND EQUITY: | | | | Accounts payable | $5.789 | $8.845 | | Dividend payable | $0.000 | $2.352 | | Operating lease liabilities | $3.671 | $3.979 | | Accrued liabilities | $9.718 | $14.446 | | Accrued income tax payable | $1.950 | $0.000 | | Total current liabilities | $21.128 | $29.622 | | Deferred income tax liabilities | $11.765 | $11.819 | | Long-term pension liability | $13.447 | $13.412 | | Operating lease liabilities | $8.412 | $9.531 | | Other long-term liabilities | $0.411 | $0.465 | | Total liabilities | $55.163 | $64.849 | | Common stock | $9.508 | $9.497 | | Capital in excess of par value | $72.016 | $71.661 | | Reinvested earnings | $184.914 | $180.646 | | Accumulated other comprehensive loss | ($18.330) | ($17.311) | | Total equity | $248.108 | $244.493 | | Total liabilities and equity | $303.271 | $309.342 | Consolidated Condensed Statements of Cash Flows The unaudited consolidated condensed statements of cash flows provide an overview of cash generated from operating, investing, and financing activities for the three months ended March 31, 2024, compared to the same period in 2023 | | Three Months Ended March 31, | | :-------------------------------------------------- | :------------------ | :------------------ | | | 2024 (Millions) | 2023 (Millions) | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | Net earnings | $6.650 | $7.445 | | Adjustments to reconcile net earnings to net cash provided by operating activities | | | | Depreciation | $0.584 | $0.643 | | Amortization | $0.066 | $0.069 | | Bad debt expense (recovery) | $0.044 | ($0.013) | | Deferred income taxes | ($0.035) | ($0.023) | | Net foreign currency transaction gains | ($0.009) | ($0.048) | | Share-based compensation expense | $0.367 | $0.338 | | Pension expense | $0.220 | $0.347 | | Loss on disposal of fixed assets | $0.018 | $0.000 | | Increase in cash surrender value of life insurance | ($0.105) | ($0.105) | | Changes in operating assets and liabilities - | | | | Accounts receivable | ($2.865) | $0.520 | | Inventories | $12.928 | $21.297 | | Prepaid expenses and other assets | $2.633 | $1.943 | | Accounts payable | ($3.053) | ($8.411) | | Accrued liabilities and other | ($5.301) | ($3.208) | | Accrued income taxes | $2.194 | $2.192 | | Net cash provided by operating activities | $14.336 | $22.986 | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | Proceeds from maturities of marketable securities | $0.215 | $0.510 | | Purchases of property, plant and equipment | ($0.170) | ($0.659) | | Net cash provided by (used for) investing activities | $0.045 | ($0.149) | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | Cash dividends paid | ($4.664) | ($4.561) | | Shares purchased and retired | ($0.005) | ($1.540) | | Net proceeds from stock options exercised | $0.000 | $0.016 | | Payment of contingent consideration | $0.000 | ($0.500) | | Proceeds from bank borrowings | $0.000 | $29.018 | | Repayments of bank borrowings | $0.000 | ($39.514) | | Net cash used for financing activities | ($4.669) | ($17.081) | | Effect of exchange rate changes on cash and cash equivalents | ($0.676) | ($0.067) | | Net increase in cash and cash equivalents | $9.036 | $5.689 | | CASH AND CASH EQUIVALENTS at beginning of year | $69.312 | $16.876 | | CASH AND CASH EQUIVALENTS at end of year | $78.348 | $22.565 | | SUPPLEMENTAL CASH FLOW INFORMATION: | | | | Income taxes paid, net of refunds | $0.207 | $0.205 | | Interest paid | $0.000 | $0.423 |