Weyco Group Inc: Form 10-Q for the period ended Mar 31, 2025

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, 2024, filed on March 14, 2025, which information is incorporated herein by reference, and in Part II, Item 1A, “Risk Factors,” of this Form 10-Q. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

GENERAL

We design, market, and distribute 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, 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 the Asia Pacific region in 2023 and completed the wind down of that business in 2024. 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

Overall net sales for the first quarter of 2025 were down 5% compared to the first quarter of 2024. We began the year facing geopolitical and macroeconomic uncertainties, which include evolving U.S. trade policies, recession concerns, and market volatility. These factors affected both consumer and retailer confidence, resulting in declines in our wholesale and direct-to-consumer businesses.

BOGS wholesale net sales declined 5% for the quarter. We experienced more typical winter weather in January and February 2025, with cold temperatures and precipitation across much of the country. This helped our BOGS retailers work through existing inventory, which we expect will create opportunities for new product in the remainder of 2025. We continue to have high expectations for our innovative seamless construction, which is lighter and more durable than comparable vulcanized products currently in the market. Our new Spring product, such as the Boga clog, has arrived at retail and is off to a solid start.

Wholesale net sales of our legacy brands (Florsheim, Stacy Adams and Nunn Bush) were collectively down 3% in the first quarter, with Florsheim up 7%, Stacy Adams down 7%, and Nunn Bush down 16%. The declines in Nunn Bush and Stacy Adams reflect the current softness in non-athletic footwear at retailers, as consumers remain cautious with their discretionary spending. In tandem with this, many of our wholesale partners are maintaining conservative inventory positions, which has impacted our shipments.

Considering the challenging environment, in light of reduced consumer discretionary spending and cautious retailer inventory management, Florsheim’s first quarter performance was particularly strong. The brand continues to gain market share with robust sales across a range of categories including hybrid “refined casual” footwear, which we view as a significant growth opportunity in the future.

Net sales in our retail segment were down 12% for the quarter. Last year, we drove significant e-commerce volume through promotions, particularly with BOGS, due to elevated inventory levels. In 2025, our inventory is more aligned with demand, and we scaled back promotional activity, which contributed to the decline in sales. We continue to invest in data-driven tools to position our e-commerce business for long-term growth.

Florsheim Australia’s overall net sales declined 7% for the quarter, or 3% in local currency, due mainly to the closing of our Asia Pacific operations. Like the U.S., Florsheim Australia's markets, which include South Africa, New Zealand, and the Pacific Rim, are facing economic headwinds. Despite the challenging environment, Florsheim Australia's first-quarter operating results improved due, in part, to an 11% increase in same-store retail sales. We remain focused on managing expenses and identifying opportunities for profitable growth in Florsheim Australia.

Current Business Trends - Tariffs

Over the last several weeks, the U.S. government enacted a broad range of reciprocal and retaliatory tariffs (“incremental tariffs”) on goods imported into the United States. Including these incremental tariffs, the current effective total tariff rate on goods sourced from China, which is where we source a majority of our products, is 161%, up from 16% in 2024. While the incremental tariffs did not impact our first quarter 2025 performance, unless withdrawn, these tariffs will significantly increase our cost of goods sold in future periods. To mitigate the impact of tariff-cost increases, we negotiated cost reductions with several of our Chinese suppliers and are planning to raise selling prices beginning in Summer 2025. We are also accelerating our efforts to diversify our sourcing.

First Quarter Highlights

Consolidated net sales were $68.0 million, down 5% compared to net sales of $71.6 million in the first quarter of 2024. Consolidated gross earnings were 44.6% of net sales compared to 44.7% of net sales in last year’s first quarter. Earnings from operations totaled $7.0 million for the quarter, down 15% from $8.3 million last year. First quarter net earnings were $5.5 million, or $0.57 per diluted share, in 2025, versus $6.7 million, or $0.69 per diluted share, in 2024.

Financial Position Highlights

At March 31, 2025, our cash and marketable securities totaled $77.9 million, and we had no debt outstanding on our $40.0 million revolving line of credit. During the first three months of 2025, we generated $4.1 million of cash from operations, and used funds to pay $2.5 million in dividends and repurchase $0.7 million of our common stock. Additionally, our prefunded dividend of $21.6 million was paid to shareholders in January 2025, and we had $0.4 million of capital expenditures during the period.

CONSOLIDATED RESULTS OF OPERATIONS

(Dollars in thousands)

NM – Not meaningful

Net sales for the first quarter of 2025 were $68.0 million, down $3.5 million, or 5%, compared to the first quarter of 2024. This decrease was comprised of a $2.0 million decline in Wholesale net sales, a $1.1 million decline in Retail net sales, and a $0.4 million decline in net sales of Florsheim Australia.

Gross earnings as a percent of net sales remained relatively flat at 44.6% and 44.7% in the first quarters of 2025 and 2024, respectively. 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. Consolidated distribution costs totaled $5.0 million and $5.3 million in the first quarters of 2025 and 2024, respectively.

First quarter selling and administrative expenses as a percent of net sales remained relatively flat at 34% and 33% in 2025 and 2024, respectively. Earnings from operations were $7.0 million, down $1.2 million, or 15%, from 2024 levels. This decrease resulted from lower sales in both our Wholesale and Retail segments.

Interest income decreased $0.3 million compared to last year’s first quarter, due to less interest earned on cash balances in the U.S. and Canada. Interest expense was nominal for the quarter and zero in the first quarter of 2024, as there was no debt outstanding during either period.

Other expense, net, primarily includes the non-service cost components of pension expense and net gains and losses on foreign currency transactions. The expense category remained flat year-over-year, as were no significant changes in these expenses between periods.

The effective income tax rate was 26.5% and 26.6% for the first quarters of 2025 and 2024, respectively. See Note 9 to the Consolidated Financial Statements for additional information on income taxes.

Net earnings were $5.5 million or $0.57 per diluted share, in 2025 versus $6.7 million, or $0.69 per diluted share, in 2024. The decreases were primarily due to lower sales.

SEGMENT ANALYSIS

Net sales and earnings from operations for our reportable segments and the “other “category for the three months ended March 31, 2025 and 2024, were as follows:

(Dollars in thousands)

North American Wholesale Segment

Net Sales

Net sales in our Wholesale segment for the three months ended March 31, 2025 and 2024, were as follows:

(Dollars in thousands)

Net sales of the Stacy Adams and Nunn Bush brands were down 7% and 16%, respectively, for the quarter, reflecting the current softness in non-athletic footwear at retail, as consumers were cautious with discretionary spending. Florsheim’s sales were up 7% for the period, due largely to new product launches. BOGS sales were down 5%, resulting from lower retailer demand.

Earnings from Operations

Wholesale gross earnings as a percent of net sales were 39.4% and 39.6% in the first quarters of 2025 and 2024, respectively. The incremental tariffs did not impact our first quarter 2025 gross margins. Given the uncertainty surrounding the evolving tariff and trade policies of the U.S. government, we cannot currently predict the potential magnitude of the incremental tariffs on our gross margins.

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 $14.8 million for the quarter and $14.9 million last year. As a percent of net sales, wholesale selling and administrative expenses were flat at 27% in both 2025 and 2024. Wholesale operating earnings decreased 10% to $6.6 million for the quarter, from $7.4 million in 2024, as a result of lower sales.

North American Retail Segment

Net Sales

Net sales in our Retail segment, which were generated mainly by our e-commerce websites, were $8.7 million for the quarter, down 12% from record sales of $9.8 million in 2024. The decrease resulted mainly from lower sales on the BOGS website, due to less promotional activities in 2025, compared to a strong first quarter last year.

Earnings from Operations

Retail gross earnings were 66.6% of net sales for the quarter compared to 65.3% in the first quarter of 2024. 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 $5.2 million and $5.1 million in the first quarter of 2025 and 2024, respectively. As a percent of net sales, retail selling and administrative expenses were 59% and 52% in the first quarters of 2025 and 2024, respectively. The increase in retail selling and administrative expenses as a percentage of net sales is because many of our retail expenses are fixed and do not vary with sales. Retail operating earnings totaled $0.6 million for the quarter, down 52% from $1.3 million last year. The decrease was primarily due to lower sales.

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 the Asia Pacific region in 2023 and completed the wind down of that business in 2024. Accordingly, first-quarter 2025 operating results of the “other” category only reflect the operations of Australia and South Africa.

First quarter 2025 net sales of Florsheim Australia were $5.1 million, down 7% from $5.5 million in the first quarter of 2024. The weaker Australian dollar relative to the U.S. dollar contributed to this decrease. In local currency, Florsheim Australia’s net sales were down 3% due mainly to the closing of Asia Pacific, partially offset by higher sales in Australia. Net sales in Australia were up 6% in local currency, with higher sales in both its wholesale and retail businesses.

Florsheim Australia’s gross earnings as a percent of net sales were 62.7% and 60.2% in the first quarters of 2025 and 2024, respectively. Florsheim Australia generated operating losses totaling $0.2 million for the quarter and $0.4 million last year. The improvement was due to higher sales in Australia.

Other income and expense

Interest income totaled $0.6 million in the first quarter of 2025 compared to $0.9 million in last year’s first quarter. The decrease was due to less interest earned on cash balances in the U.S. and Canada, resulting from lower average cash balances and lower interest rates compared to last year.

Other expense, net, primarily includes the non-service cost components of pension expense and net gains and losses on foreign currency transactions. Other expense, net, remained flat at $0.1 million in both the first quarters of 2025 and 2024, because there were no significant changes in these expenses during the period.

The effective income tax rate was 26.5% and 26.6% in 2025 and 2024, respectively. The 2025 and 2024 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. The following discussion focuses on information included in the accompanying Consolidated Statements of Cash Flows.

Operating Activities

Net cash provided by operating activities totaled $4.1 million in the first three months of 2025, down $10.2 million compared to $14.3 million last year. The decrease was primarily due to lower net earnings and changes in operating assets and liabilities, principally inventory. Cash flows from the change in inventory decreased $7.1 million for the period, mainly because our inventory levels as of

March 31, 2025, were higher than normal for this time of year, as we were proactive in expediting a large amount of inventory before the incremental tariffs went into effect.

Investing Activities

Net cash used for investing activities totaled $0.4 million for the quarter compared to less than $0.1 million in the same period of 2024. The increased use of cash this year was due to higher capital expenditures and less proceeds from maturities of marketable securities. Capital expenditures totaled $0.4 million for the period, compared to $0.2 million last year. Management estimates that total capital expenditures for 2025 will be between $1.0 million and $2.0 million.

Financing Activities

Net cash used for financing activities totaled $3.2 million and $4.7 million in the first quarters of 2025 and 2024, respectively. The change was due to a $2.2 million decrease in cash dividends paid (see further explanation below) partially offset by a $0.7 million increase in shares repurchased and retired.

Cash dividends paid for the first three months of 2025 totaled $2.5 million and included one dividend payment that was both declared and paid in the first quarter of 2025. Cash dividends paid for the first three months of 2024 totaled $4.7 million and included two dividend payments: one that was declared in the fourth quarter of 2023 and paid in the first quarter of 2024 and one that was both declared and paid in the first quarter of 2024.

On May 6, 2025, our Board of Directors declared a cash dividend of $0.27 per share to all shareholders of record on May 16, 2025, payable June 30, 2025. This represents an increase of 4% above the previous quarter dividend rate of $0.26.

We repurchase our common stock under our share repurchase program when we believe market conditions are favorable. During the first three months of 2025, we repurchased 24,253 shares for a total cost of approximately $0.7 million. As of March 31, 2025, there were 824,663 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.

On March 31, 2025, 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 26, 2025. Outstanding advances on the line of credit bear interest at the one-month term 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, 2025, there were no outstanding borrowings on the line of credit, and we were in compliance with all financial covenants.

Financing Activities – Non-cash

Our regular fourth-quarter 2024 and one-time special cash dividend totaling $21.6 million was prefunded in December 2024 and paid to shareholders in January 2025. This dividend payment was reflected as a non-cash financing activity in the Condensed Consolidated Statements of Cash Flows.

Other

As of March 31, 2025, approximately $3.7 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.

We maintain disclosure controls and procedures designed to ensure that the information we must disclose in our filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Company required to be included in our periodic filings under the Exchange Act. Such officers have also concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in accumulating and communicating information in a timely manner, allowing timely decisions regarding required disclosures.

There were 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 the three months ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other than the following risk factor, there have been no material developments with respect to the information previously reported under Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Additional tariffs on product imported into the U.S., retaliatory trade actions taken by other countries and resulting trade wars may have a material adverse impact on our business.

Our business is subject to risks related to tariffs and other trade policies put in place by the U.S. or other countries. In 2025, the U.S. government announced the intention to impose additional tariffs on certain goods imported from numerous countries, and multiple nations, including China, responded with reciprocal tariffs and other trade actions. A substantial amount of our products are imported into the U.S. from China, India, and other Asian countries.

The recent enactment of tariffs by the U.S. government, along with the unpredictability of the rates, may materially increase our costs and reduce our margins. The tariffs may also lead to higher pricing for our products, potentially reducing consumer demand and impacting our sales volume. We are actively monitoring the impact of any tariffs that become effective, as well as potential retaliatory tariffs imposed by other countries. We are currently analyzing strategies that can be taken to moderate or minimize the effects of these trade actions, including evaluating the country of origin for sourcing product into the U.S., negotiating with suppliers and adjusting our pricing strategies. However, there can be no assurance that these measures will be successful, or that they will offset the negative impact of the tariffs on our business.

Given the uncertainty regarding the scope and duration of current and potential tariffs, as well as the potential for additional trade actions by the U.S. or other countries, the specific impact to our business, results of operations, cash flows and financial condition is uncertain but could be material.