# Weyco Group Inc: Form 10-Q for the period ended Mar 31, 2024

- Company: [Weyco Group Inc](/companies/weys.md) (CIK 106532)
- Form: 10-Q
- Filed: 2024-05-09
- Accepted by EDGAR: May 9, 2024, 14:12 ET
- Period: 2024-03-31
- Accession: 0001558370-24-007553
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/106532/000155837024007553/weys-20240331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/106532/000155837024007553/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $71.6m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $39.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $32.0m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-01-01 to 2024-03-31 | $23.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | $8.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $2.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $6.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.69 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.70 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 9,580,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $14.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $170.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2024-01-01 to 2024-03-31 | $4.7m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2024-01-01 to 2024-03-31 | $5.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-31 | $78.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $186.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $303.3m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $21.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $55.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $248.1m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 16,962 characters.

### FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements represent our good faith judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially. Such statements can be identified by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “likely,” “plans,” “predicts,” “projects,” “should,” “will,” or variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Therefore, the reader is cautioned that these forward-looking statements are subject to a number of risks, uncertainties or other factors that may cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to, the risk factors described under Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year-ended December 31, 2023, filed on March 14, 2024, which information is incorporated herein by reference. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

### GENERAL

The Company designs, markets, and distributes quality and innovative footwear principally for men, but also for women and children, under a portfolio of well-recognized brand names including: Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters, and Forsake. Inventory is purchased from third-party overseas manufacturers. Almost all of these foreign-sourced purchases are denominated in U.S. dollars.

We have two reportable segments, North American wholesale operations (“Wholesale”) and North American retail operations (“Retail”). In the Wholesale segment, our products are sold to leading footwear, department, and specialty stores, as well as e-commerce retailers, primarily in the United States and Canada. We also have licensing agreements with third parties who sell our branded apparel, accessories, and specialty footwear in the United States, as well as our footwear in Mexico and certain markets overseas. Licensing revenues are included in our Wholesale segment. Our Retail segment consists of e-commerce businesses and four brick and mortar retail stores in the United States. Retail sales are made directly to consumers on our websites, or by our employees in our stores. Our “other” operations include our wholesale and retail businesses in Australia, South Africa, and Asia Pacific (collectively, “Florsheim Australia”). We ceased operations in Asia in 2023, and are in the final stages are winding down that business. The majority of our operations are in the United States and our results are primarily affected by the economic conditions and the retail environment in the United States.

### EXECUTIVE OVERVIEW

Sales in our Wholesale segment were down 20% versus record first-quarter sales in 2023. Our performance reflected industry headwinds, as retailers are taking a conservative approach to inventory management given the soft sales trend in the footwear and apparel categories and their focus on maintaining lower inventory levels. While our sales were down, we remain encouraged by solid retail sell-throughs, especially in our legacy men’s brands.

Our legacy business was collectively down 13%, with Stacy Adams, Nunn Bush and Florsheim brands down 16%, 13% and 11%, respectively. After working though high inventories for much of 2023, retailers are reducing their upfront buys and placing more orders on an as-needed basis. We did see a meaningful increase in our at-once business during the quarter, but it was not enough to make up the deficit. We anticipate this conservative trend among retailers will continue through the second quarter, but are optimistic that demand will improve in the second half of 2024. We remain focused on evolving our brands to fit a more relaxed lifestyle and continue to expand our offerings in the true casual and hybrid footwear categories. While there is uncertainty in the current retail environment due to a variety of factors, we feel confident about the long-term trajectory of our legacy brands.

BOGS sales were down 48% for the quarter, as the outdoor boot market remains challenging. Additionally, BOGS’ decline in sales was driven by a tough comparison to last year’s first quarter sales. In early 2023, BOGS shipped a large work boot program to a key account which did not recur in 2024. The loss of this program made up the majority of BOGS’ sales decline for the quarter. After multiple seasons of solid growth, the BOGS business lost momentum in the back half of 2023 due to the oversaturation of boots at retail, in combination with mild Fall and Winter weather. We believe the market is slowly normalizing as retailers work down their inventories. We are rolling out a wide range of boots that utilize BOGS’ seamless construction, which is 30% lighter and over twice as durable than the standard vulcanized rubber boot. We believe the expansion of our seamless collection will be a difference-maker as the outdoor boot market resets with cleaner inventories this Fall.

Our Retail segment had record first-quarter sales and a 10% increase over last year. The increase was driven primarily by higher web sales for both Florsheim and BOGS. The growth in our direct-to-consumer business reflects the strength of our brand portfolio as well as the investment we have made in our e-commerce platform.

Our overseas business, which consists of Australia, New Zealand, Asia Pacific, and South Africa, collectively known as Florsheim Australia, had a sales decrease of 26% for the quarter. Sales were lower, in part, due to the closure of our Florsheim Asia retail locations at the end of 2023, and the loss of an important wholesale account in Australia. In addition, overall retail and wholesale sales have been lackluster throughout much of the region, reflecting general macro-economic pressures. For the second half of the year, we are focused on expense management while we identify opportunities to get our overseas business back on a growth track.

#### First Quarter Highlights

Consolidated net sales were $71.6 million, down 17% compared to record first-quarter sales of $86.3 million in 2023. Consolidated gross earnings increased to 44.7% of net sales compared to 43.1% of net sales in last year’s first quarter, due to higher gross margins in our Wholesale segment. Earnings from operations were $8.3 million, down 21% from record first-quarter operating earnings of $10.4 million in 2023. First-quarter 2024 net earnings were $6.7 million, or $0.69 per diluted share, compared to record first-quarter net earnings of $7.4 million, or $0.78 per diluted share, last year.

#### Financial Position Highlights

At March 31, 2024, our cash and marketable securities totaled $84.7 million and we had no debt outstanding on our $40.0 million revolving line of credit. During the first three months of 2024, we generated $14.3 million of cash from operations and used funds to pay $4.7 million in dividends. We also had $0.2 million of capital expenditures during the period.

### SEGMENT ANALYSIS

Net sales and earnings from operations for our segments for the three months ended March 31, 2024 and 2023, were as follows:

*(Dollars in thousands)*

| ​ ​ ​ ​ Net Sales | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2024 ​ | ​ ​ | ​ ​ 2023 ​ | ​ ​% ​ ​ | ​ ​ ​ Change ​ | ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- |
| North American Wholesale | **​** | **$56,250** | ​ | $69,897 |  | (20)% | **​** |
| North American Retail | **​** | **9,819** | ​ | 8,930 |  | 10% | **​** |
| Other | **​** | **5,489** | ​ | 7,467 |  | (26)% | **​** |
| Total | **​** | **$71,558** | ​ | $86,294 |  | (17)% | **​** |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| **Earnings from Operations** | ​ | ​ | ​ | ​ |  | ​ | ​ |
| North American Wholesale | **​** | **$7,391** | ​ | $8,829 |  | (16)% | **​** |
| North American Retail | **​** | **1,297** | ​ | 1,282 |  | 1% | **​** |
| Other | **​** | **(437)** | ​ | 275 |  | NM ​ | **​** |
| Total | **​** | **$8,251** | ​ | $10,386 |  | (21)% | **​** |

NM – Not meaningful

### North American Wholesale Segment

#### Net Sales

Net sales in our Wholesale segment for the three months ended March 31, 2024 and 2023, were as follows:

*(Dollars in thousands)*

| ​ ​ ​ ​ North American Wholesale Net Sales | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2024 ​ | ​ ​ | ​ ​ 2023 ​ | ​ ​ ​ ​% Change ​ ​ ​ | ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | ---: | --- |
| Stacy Adams | **​** | **$13,758** | ​ | $16,300 | (16)% | **​** |
| Nunn Bush | **​** | **12,690** | ​ | 14,546 | (13)% | **​** |
| Florsheim | **​** | **22,395** | ​ | 25,209 | (11)% | **​** |
| BOGS/Rafters | **​** | **6,659** | ​ | 12,820 | (48)% | **​** |
| Forsake | **​** | **221** | ​ | 406 | (46)% | **​** |
| Total North American Wholesale | **​** | **$55,723** | ​ | $69,281 | (20)% | **​** |
| Licensing | **​** | **527** | ​ | 616 | (14)% | **​** |
| Total North American Wholesale Segment | **​** | **$56,250** | ​ | $69,897 | (20)% | **​** |

Wholesale net sales for the quarter were down across all brands due to reduced demand following record growth early last year. Our BOGS brand experienced the largest decrease, with sales down 48% for the quarter, as retailers reduced orders due to the current surplus of product in the outdoor footwear market.

#### Earnings from Operations

Wholesale gross earnings were 39.6% of net sales for the quarter compared to 38.2% of net sales last year. Gross margins improved as a result of lower inventory costs, primarily inbound freight. Freight costs normalized in the first half of 2022, but because of the large buildup of inventories in 2022, it was not until late 2023 that we sold through inventory with higher freight and were able to begin realizing the full benefit of these lower freight costs.

Wholesale selling and administrative expenses consist primarily of distribution costs, salaries and commissions, advertising costs, employee benefit costs, and depreciation. Wholesale selling and administrative expenses totaled $14.9 million for the quarter compared to $17.9 million last year. The decrease was primarily due to lower employee costs, including commission-based compensation. As a percent of net sales, wholesale selling and administrative expenses were 27% in 2024 and 26% in 2023. Wholesale operating earnings totaled $7.4 million for the quarter, down 16% from $8.8 million in 2023, primarily due to lower sales.

Our cost of sales does not include distribution costs (e.g., receiving, inspection, warehousing, shipping, and handling costs) which are included in selling and administrative expenses. Wholesale distribution costs were $3.7 million and $4.2 million in the first quarters of 2024 and 2023, respectively.

### North American Retail Segment

#### Net Sales

Net sales in our retail segment were a first-quarter record of $9.8 million, up 10% over our previous record of $8.9 million in the first quarter of 2023. The increase was primarily due to higher sales on our BOGS and Florsheim websites.

#### Earnings from Operations

Retail gross earnings as a percent of net sales were 65.3% and 66.3% in the first quarters of 2024 and 2023, respectively. Selling and administrative expenses for the retail segment consist primarily of freight, advertising expense, employee costs, rent and occupancy costs. Retail selling and administrative expenses were $5.1 million in the first quarter of 2024 versus $4.6 million in the first quarter of 2023. The increase was primarily due to higher freight costs associated with the increase in web shipments this year. As a percent of net sales, retail selling and administrative expenses were flat at 52% in both 2024 and 2023.

Retail operating earnings were flat at $1.3 million in both the first quarters of 2024 and 2023. Higher retail sales were offset by increased selling and administrative expenses this year.

### Other

Operating results reported in the “other” category historically included our retail and wholesale businesses in Australia, South Africa, and Asia Pacific (collectively, “Florsheim Australia”). We ceased operations in Asia in 2023, and are in the final stages of winding down that business. As a result, the 2024 operating results of the “other” category primarily reflect that of Australia and South Africa.

Net sales of Florsheim Australia were $5.5 million in the first quarter of 2024, down 26% from $7.5 million in the first quarter of 2023. In local currency, its net sales were down 24%, due mainly to lower sales in Asia as a result of the closing of our Asia operations, and the mid-year 2023 loss of a sizeable wholesale customer in Australia. Retail sales in Australia were also down for the quarter due to the challenging retail environment.

Florsheim Australia’s gross earnings were 60.2% of net sales for the quarter and 60.5% of net sales last year. Florsheim Australia generated operating losses of $0.4 million for the period, down compared to operating earnings of $0.3 million in last year’s first quarter. The decrease was primarily due to lower sales.

### Other income and expense

Interest income totaled $0.9 million in the first quarter of 2024 compared to $0.1 million in last year’s first quarter. Interest expense was $0 for the quarter compared to $0.4 million last year. This year included interest earned on cash in the U.S. and Canada while prior year included interest expense incurred on outstanding debt balances during the period.

Other expense, net, totaled $0.1 million in both the first quarters of 2024 and 2023.

The effective income tax rates for the three months ended March 31, 2024 and 2023 were 26.6% and 25.6%, respectively. The 2024 and 2023 effective tax rates differed from the federal rate of 21% primarily because of state taxes.

### LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash, short-term marketable securities, and our revolving line of credit. During the first three months of 2024, we generated $14.3 million of cash from operations compared $23.0 million in the same period one year ago. The decrease in 2024 was primarily due to changes in operating assets and liabilities, principally inventory. Our consolidated inventory balance as of March 31, 2024 was $62.0 million, down from $74.9 million at December 31, 2023. Our inventory is at a seasonal low point and is expected to return to year-end 2023 levels by the end of the second quarter 2024. We are building inventories to support “at once” business on our core styles.

We paid dividends totaling $4.7 million and $4.6 million in the first three months of 2024 and 2023, respectively. On May 7, 2024, our Board of Directors declared a cash dividend of $0.26 per share to all shareholders of record on May 17, 2024, payable June 28, 2024. This represents an increase of 4% above the previous quarterly dividend rate of $0.25.

We repurchase our common stock under our share repurchase program when we believe market conditions are favorable. During the first three months of 2024, we repurchased 200 shares for a total cost of approximately $5,000. As of March 31, 2024, there were 868,557 authorized shares available for repurchase under the program. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” below for more information.

Capital expenditures totaled $0.2 million in the first three months of 2024. Management estimates that total capital expenditures for 2024 will be between $2.0 million and $4.0 million.

At March 31, 2024, we had a $40.0 million revolving line of credit with a bank that is secured by a lien against our general business assets, and expires on September 28, 2024. Outstanding advances on the line of credit bear interest at SOFR plus 125 basis points. Our line of credit agreement contains representations, warranties and covenants (including a minimum tangible net worth financial covenant) that are customary for a facility of this type. At March 31, 2024 and December 31, 2023, there were no outstanding borrowings on the line of credit, and we were in compliance with all financial covenants.

As of March 31, 2024, approximately $4.7 million of cash and cash equivalents was held by our foreign subsidiaries.

We will continue to evaluate the best uses for our available liquidity, including, among other uses, capital expenditures, continued stock repurchases and acquisitions. We believe that available cash, marketable securities, cash provided by operations, and available borrowing facilities will provide adequate support for the cash needs of the business for at least one year, although there can be no assurances.

## Controls and procedures

As filed, 4,246 characters.

Attached as exhibits to this Quarterly Report are certifications of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance with Rule 13a-14 of the Exchange Act. This "Controls and Procedures" section includes information concerning the controls and procedures evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented in the section titled Evaluation of Disclosure Controls and Procedures.

### Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the CEO and CFO, conducted an evaluation of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as such term is defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) (“Disclosure Controls”) as of the end of the period covered by this Quarterly Report. Our Disclosure Controls are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Our Disclosure Controls are also designed to ensure that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based upon the controls evaluation, our CEO and CFO have concluded that as of the end of the period covered by this Quarterly Report, our Disclosure Controls were not effective due to the material weakness in internal control over financial reporting, described below in “Remediation.”

### Changes in Internal Control Over Financial Reporting

Other than the material weakness described below in “Remediation,” there have been no significant changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

### Remediation

As previously disclosed in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2023, we determined a material weakness existed relating to the design, implementation, and monitoring of general information technology controls in the areas of program change management, user assess, and segregation of duties for systems supporting certain internal control processes. Related controls are dependent upon the information derived from the information systems and therefore could have been adversely impacted.

With respect to the material weakness, our management, under the oversight of our Audit Committee, has begun evaluating and implementing measures designed to remediate the material weakness. These measures have or will include implementing controls, procedures, and software relating to program change management, user access and segregation of duties for systems supporting the related internal control processes and developing monitoring controls and protocols that will allow us to timely assess the design and the operating effectiveness of the new and redesigned controls. The Company has engaged a third-party service provider to assist with the remediation of the material weakness and the implementation of the required controls.

We believe the above actions will be effective in remediating the material weakness and we will continue to devote time and attention to these remedial efforts. Our remediation efforts will not be considered complete until the applicable controls operate for a sufficient period of time and our management has concluded, through testing, that these controls are operating effectively. We anticipate the remediation of the material weakness will be completed during 2024. We are committed to improving our internal control processes, and, as we evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify certain of our remediation measures.

Filed May 9, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-007553. Last ingested by Listed: Nov 3, 2026, 18:56 ET. No prices; not investment advice.