Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
WEYS > SEC Filings for WEYS > Form 10-Q on 7-Aug-2013All Recent SEC Filings

Show all filings for WEYCO GROUP INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for WEYCO GROUP INC


7-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements with respect to the Company's outlook for the future. These statements represent the Company's reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially. 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 the Company's Annual Report on Form 10-K for the year ended December 31, 2012.

GENERAL

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

The Company has two reportable segments, North American wholesale operations ("wholesale") and North American retail operations ("retail"). In the wholesale segment, the Company's products are sold to leading footwear, department, and specialty stores, primarily in the United States and Canada. As of June 30, 2013, the Company also had licensing agreements with third parties who sell its branded apparel, accessories and specialty footwear in the United States, as well as its footwear in Mexico and certain markets overseas. Licensing revenues are included in the Company's wholesale segment. The Company's retail segment consisted of 19Company-owned retail stores in the United States and an Internet business as of June 30, 2013. Sales in retail outlets are made directly to consumers by Company employees.

The Company's "other" operations include the Company's wholesale and retail businesses in Australia, South Africa, Asia Pacific (collectively, "Florsheim Australia") and Europe ("Florsheim Europe"). The majority of the Company's operations are in the United States, and its results are primarily affected by the economic conditions and the retail environment in the United States.

EXECUTIVE OVERVIEW

Second Quarter Highlights

Consolidated net sales for the second quarter of 2013 were $65.0 million, up 8% over last year's second quarter net sales of $60.3 million. Earnings from operations increased 8% to $3.7 million this quarter, from $3.4 million in 2012. Consolidated net earnings attributable to Weyco Group, Inc. and diluted earnings per share were flat at $2.2 million and $0.20 per share, respectively, for the second quarter of 2013 compared to the same period in 2012. Earnings for last year's second quarter included approximately $700,000 ($410,000 after tax, or $0.04 per diluted share) of income resulting from a reduction in the contingent consideration liability. See Note 10.

The majority of the increase in consolidated net sales came from the Company's wholesale segment. Wholesale net sales increased $3.9 million this quarter compared to the same period last year. This increase was primarily due to higher sales of the Nunn Bush and Florsheim brands.

Excluding the $700,000 prior year adjustment, consolidated earnings from operations would have been up approximately $1 million, or 57%, for the quarter. This increase was driven by strong performance in the Company's wholesale and retail segments, offset by lower earnings from operations from the Company's other businesses.

Year to Date Highlights

Consolidated net sales for the first half of 2013 were $138.6 million, up 2% over last year's year to date net sales of $135.6 million. Earnings from operations decreased 9% to $8.4 million in the first six months of 2013, from $9.2 million in 2012. Consolidated net earnings attributable to Weyco Group, Inc. for the six months ended June 30, 2013 were $5.4 million, compared to $6.1 million last year. Diluted earnings per share to date through June 30, 2013 were $0.50 per share, down from $0.55 per share for the same period in 2012. Last year's year to date earnings included approximately $1.2 million ($710,000 after tax, or $0.06 per diluted share) of income resulting from the contingent consideration adjustments described above.

The majority of the increase in consolidated net sales for the six months ended June 30, 2013 came from Company's wholesale segment. Wholesale net sales increased $2.5 million in the first six months of 2013, compared to the same period last year. This increase was primarily due to higher sales volumes across several of the Company's major wholesale brands, and increased Bogs sales volumes in Canada due to the takeover of Bogs Canadian distribution in June 2012.

Excluding the $1.2 million prior year adjustment, consolidated earnings from operations would have been up approximately $400,000 in the first six months of 2013, compared to the same period in 2012. This increase was driven by strong performance in the Company's wholesale and retail segments, offset by lower earnings from operations from the Company's other businesses.

Financial Position Highlights

At June 30, 2013 cash and marketable securities totaled $45 million and outstanding debt totaled $20 million. At December 31, 2012, cash and marketable securities totaled $62 million and outstanding debt totaled $45 million. The Company's main sources of cash for the first six months of 2013 were from operations, the maturities of marketable securities and proceeds from stock options exercised. The Company's main uses of cash during the year to date period were for common stock repurchases, payments on the revolving line of credit, and a payment to the former shareholders of Bogs. The Company also paid approximately $3.2 million for a 50% interest in a building in Montreal, Canada on May 1, 2013.

SEGMENT ANALYSIS



Net sales and earnings from operations for the Company's segments in the three
and six months ended June 30, 2013 and 2012 were as follows:



                               Three Months Ended June 30,             %            Six Months Ended June 30,            %
                                2013                 2012            Change           2013               2012          Change
                                                          (Dollars in thousands)
Net Sales
North American Wholesale   $       47,484       $       43,615              9 %   $     102,727       $  100,242              2 %
North American Retail               5,383                5,589             -4 %          11,131           11,249             -1 %
Other                              12,174               11,129              9 %          24,773           24,156              3 %
Total                      $       65,041       $       60,333              8 %   $     138,631       $  135,647              2 %

Earnings from Operations
North American Wholesale   $        2,179       $        2,092              4 %   $       5,911       $    6,562            -10 %
North American Retail                 584                   37              *             1,026               32              *
Other                                 917                1,273            -28 %           1,431            2,641            -46 %
Total                      $        3,680       $        3,402              8 %   $       8,368       $    9,235             -9 %

* Not meaningful.

North American Wholesale Segment

Net Sales

Net sales in the Company's North American wholesale segment for the three and six months ended June 30, 2013 and 2012 were as follows:

North American Wholesale Segment Net Sales



                            Three Months Ended June 30,             %            Six Months Ended June 30,            %
                             2013                 2012            Change           2013               2012          Change
                              (Dollars in thousands)                               (Dollars in thousands)
North American Net
Sales
Stacy Adams             $       13,484       $       13,172              2 %   $      32,200       $   31,601              2 %
Nunn Bush                       17,132               15,410             11 %          33,267           33,545             -1 %
Florsheim                       12,406               10,550             18 %          24,893           22,616             10 %
BOGS/Rafters                     3,245                3,538             -8 %           9,548            9,372              2 %
Umi                                591                  406             46 %           1,599            1,844            -13 %
Total North American
Wholesale               $       46,858       $       43,076              9 %   $     101,507       $   98,978              3 %
Licensing                          626                  539             16 %           1,220            1,264             -3 %
Total North American
Wholesale
Segment                 $       47,484       $       43,615              9 %   $     102,727       $  100,242              2 %

The increase in Nunn Bush second quarter net sales was primarily due to higher sales volumes at department stores and national shoe chains. The increases in Florsheim second quarter and year to date net sales were also driven by higher sales at department stores and national shoe chains. The Company took over the distribution of Bogs in Canada from a third-party licensee effective June 1, 2012. As a result, Bogs net sales increased due to having new sales in Canada for six months in 2013, compared to one month of such sales in 2012. This increase was largely offset by decreased sales of Bogs in the United States in 2013. Management believes that Bogs net sales in the United States decreased because retailers continued to sell inventory carried over from the prior mild winter rather than buying new stock.

Licensing revenues consist of royalties earned on the sales of branded apparel, accessories and specialty footwear in the United States and on branded footwear in Mexico and certain overseas markets.

Earnings from Operations

Earnings from operations in the North American wholesale segment were $2.2 million in the second quarter of 2013, compared to $2.1 million in 2012. For the six months ended June 30, 2013, earnings from operations for the wholesale segment were $5.9 million, down from $6.6 million in the same period last year. Last year's earnings from operations for the three and six months ended June 30, 2012 included approximately $700,000 and $1.2 million, respectively, of income resulting from the contingent consideration adjustments described above. No significant adjustment was made to the contingent consideration in the first six months of 2013.

Wholesale gross earnings increased by $1.4 million and $1.3 million for the three and six months ended June 30, 2013, respectively, due to higher sales volumes and higher gross earnings as a percent of net sales. Wholesale gross earnings were 29.9% of net sales in the second quarter of 2013 compared with 29.3% in last year's second quarter. For the six months ended June 30, wholesale gross earnings were 30.5% of net sales in 2013 compared with 30.0% in 2012.

The Company's cost of sales does not include distribution costs (e.g., receiving, inspection or warehousing costs). Distribution costs for the three month periods ended June 30, 2013 and 2012 were $2.6 million and $2.4 million, respectively. For the six month periods ended June 30, 2013 and 2012, distribution costs were $5.5 million and $4.9 million, respectively. These costs were included in selling and administrative expenses. The Company's gross earnings may not be comparable to other companies, as some companies may include distribution costs in cost of sales.

North American wholesale segment selling and administrative expenses include, and are primarily related to, distribution costs, salaries and commissions, advertising costs, employee benefit costs and depreciation. As a percent of net sales, wholesale selling and administrative expenses were 26% this quarter compared with 25% in the same quarter last year. For the six months ended June 30, wholesale selling and administrative expenses were 25% of net sales in 2013 and 24% of net sales in 2012. Last year's selling and administrative expenses for the three and six months ended June 30, 2012 were reduced by the contingent consideration adjustments described above. Excluding these adjustments, selling and administrative expenses as a percent of net sales for the quarter and year to date periods would have been flat between years.

North American Retail Segment

Net Sales

Net sales in the Company's North American retail segment decreased approximately $200,000 or 4% in the second quarter of 2013, compared to the same period last year and decreased approximately $100,000 or 1% for the six months ended June 30, 2013 compared to the same period last year. There were seven fewer domestic retail stores at June 30, 2013 than at June 30, 2012, as the Company has been closing unprofitable stores. Same store sales were up 6% for the quarter and up 8% for the first half of 2013, primarily due to increased sales volumes in the Company's Internet business.

Earnings from Operations

Retail earnings from operations increased by $550,000 and $1 million for the three and six months ended June 30, 2013, respectively, compared to the same periods in 2012. These increases were due to higher same store sales as well as the closing of underperforming stores since June 30, 2012. Gross earnings as a percent of net sales increased to 65% this quarter, from 64% in last year's second quarter. For the six months ended June 30, retail gross earnings as a percent of net sales were 65% in 2013, compared to 64% in 2012.

Selling and administrative expenses for the retail segment include, and are primarily related to, rent and occupancy costs, employee costs and depreciation. Selling and administrative expenses as a percent of net sales were 55% in the second quarter of 2013 and 64% in last year's second quarter. To date in 2013, selling and administrative expenses were 56% of net sales compared to 64% of net sales in the first half of 2012. The decreases in selling and administrative expenses relative to net sales for the quarter and six months ended June 30 were primarily due to the closing of unprofitable stores since last year.

Other

The Company's other net sales increased 9% for the quarter and 3% for the first half of the year compared to the same periods last year. The majority of the Company's other net sales were generated by Florsheim Australia. For the quarter and six months ended June 30, 2013, Florsheim Australia's net sales were up 7% and 3%, respectively. The quarter and year to date increases were achieved through higher sales in Florsheim Australia's retail business, slightly offset by lower sales in Florsheim Australia's wholesale business. Florsheim Australia's retail net sales were up 13% and 10%, respectively, for the three and six months ended June 30, 2013, compared to 2012. Florsheim Australia's wholesale net sales were down 1% and 8%, respectively, for the three and six months ended June 30, 2013, compared to 2012. Florsheim Europe's net sales increased for the quarter and first six months of 2013 due to higher wholesale sales.

Collectively, the earnings from operations of the Company's other businesses for the quarter and six months ended June 30, 2013 decreased approximately $350,000 and $1.2 million, respectively, compared to 2012. These decreases were mainly due to higher retail selling and administrative expenses. Retail selling and administrative expenses increased due to new retail locations in Australia and Asia. There were also higher selling and administrative expenses in Florsheim Australia's wholesale business to accommodate the Bogs expansion in Australia.

Other income and expense and taxes

Interest income for the quarter and six months ended June 30, 2013 was down approximately $100,000 and $170,000, respectively, compared to the same periods last year, primarily due to a lower average investment balance this year compared to last year. Interest expense was relatively flat for the quarter and year to date periods. Other expense for the quarter and six months ended June 30, 2013 increased approximately $420,000 and $560,000, respectively, compared to the same periods last year, primarily due to foreign exchange losses resulting from the revaluation of intercompany loans between the Company's North American wholesale segment and Florsheim Australia.

The Company's effective tax rate for the quarter ended June 30, 2013 was 34% as compared to 30% for the same period in 2012. The effective tax rate for the six months ended June 30 was 35% in 2013 and 33% in 2012. The higher effective tax rates for the quarter and year to date periods were primarily due to lower percentages of tax free municipal bond income relative to pretax earnings in the United States.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity are its cash, short-term marketable securities and revolving line of credit. During the first six months of 2013, the Company generated $15.9 million of cash from operating activities compared with $6.6 million in the same period one year ago. The increase between years was primarily due to changes in operating assets and liabilities, and most significantly in the inventory balance.

The Company paid no cash dividends in 2013 and $3.5 million during the six months ended June 30, 2012. The dividends which typically would have been paid in the first half of 2013 were accelerated into 2012 and were paid on December 31, 2012. The Company resumed its regular quarterly dividend payment schedule in July 2013.

The Company continues to repurchase its common stock under its share repurchase program when the Company believes market conditions are favorable. During the first half of 2013, the Company repurchased 195,050 shares at a total cost of $4.6 million. As of June 30, 2013, the Company had 628,475 shares available under its previously announced stock repurchase program. See Part II, Item 2, "Unregistered Sales of Equity Securities and Use of Proceeds" below for more information.

Capital expenditures totaled $4.3 million in the first six months of 2013, including the purchase of a 50% interest in a building located in Montreal, Canada for approximately $3.2 million. This building serves as the Company's Canadian office and distribution center. Management estimates that annual capital expenditures for 2013 will be between $5 million and $6 million.

At June 30, 2013, the Company had a $60 million unsecured revolving line of credit. The Company repaid a net of $25 million on its line of credit during the first six months of 2013. At the end of the second quarter, the Company had $20 million of bank borrowings outstanding at an interest rate of approximately 1.2%. The Company's borrowing facility includes one financial covenant that specifies a minimum level of net worth. The Company was in compliance with the covenant at June 30, 2013. The line of credit agreement expired on April 30, 2013 and was renewed for another term that expires April 30, 2014, at essentially the same terms as the prior agreement.

The Company made a contingent consideration payment of approximately $1,270,000 in the first quarter of 2013. A second contingent consideration payment is due to the former shareholders of Bogs in March 2016. See Note 10.

The Company will continue to evaluate the best uses for its available liquidity, including, among other uses, continued stock repurchases and additional acquisitions.

The Company believes that available cash and 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.

  Add WEYS to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for WEYS - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.