UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31,June 30, 2023
Or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________________ to _____________________________
Commission File Number: 000-09068
WEYCO GROUP, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN |
| 39-0702200 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
333 W. Estabrook Boulevard
P. O. Box 1188
Milwaukee, Wisconsin 53201
(Address of principal executive offices)
(Zip Code)
(414) 908-1600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading |
| Name of each exchange on which registered |
Common Stock - $1.00 par value per share | | WEYS | | The Nasdaq Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ | Accelerated Filer ☒ | Non-Accelerated Filer ☐ | Smaller Reporting Company ☒ | Emerging Growth Company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of April 24,July 31, 2023, there were 9,509,3569,520,864 shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following consolidated condensed balance sheet as of December 31, 2022, which has been derived from audited financial statements, and the unaudited interim consolidated condensed financial statements have been prepared by Weyco Group, Inc. (“we,” “our,” “us,” and the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. Please read these consolidated condensed financial statements in conjunction with the financial statements and notes thereto included in our latest annual reportAnnual Report on Form 10-K.
1
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
| | | | | | | | | | | | |
| | March 31, | | December 31, | | June 30, | | December 31, | ||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||
ASSETS: |
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 22,565 | | $ | 16,876 | | $ | 21,962 | | $ | 16,876 |
Investments, at fair value | | | 108 | | | 107 | | | 109 | | | 107 |
Marketable securities, at amortized cost | |
| 1,098 | |
| 1,385 | |
| 1,097 | |
| 1,385 |
Accounts receivable, net | | | 52,791 | | | 53,298 | | | 34,176 | | | 53,298 |
Income tax receivable | | | — | | | 945 | | | 3,019 | | | 945 |
Inventories | |
| 106,677 | |
| 127,976 | |
| 103,857 | |
| 127,976 |
Prepaid expenses and other current assets | |
| 3,833 | |
| 5,870 | |
| 3,496 | |
| 5,870 |
Total current assets | |
| 187,072 | |
| 206,457 | |
| 167,716 | |
| 206,457 |
| | | | | | | | | | | | |
Marketable securities, at amortized cost | |
| 6,903 | |
| 7,123 | |
| 6,410 | |
| 7,123 |
Deferred income tax benefits | |
| 1,021 | |
| 1,038 | |
| 1,012 | |
| 1,038 |
Property, plant and equipment, net | |
| 28,794 | |
| 28,812 | |
| 28,874 | |
| 28,812 |
Operating lease right-of-use assets | | | 14,032 | | | 13,428 | | | 12,976 | | | 13,428 |
Goodwill | |
| 12,317 | |
| 12,317 | |
| 12,317 | |
| 12,317 |
Trademarks | |
| 33,618 | |
| 33,618 | |
| 33,618 | |
| 33,618 |
Other assets | |
| 23,952 | |
| 23,827 | |
| 24,105 | |
| 23,827 |
Total assets | | $ | 307,709 | | $ | 326,620 | | $ | 287,028 | | $ | 326,620 |
| | | | | | | | | | | | |
LIABILITIES AND EQUITY: | | | | |
| | | | | |
| |
Short-term borrowings | | $ | 20,640 | | $ | 31,136 | | $ | 2,570 | | $ | 31,136 |
Accounts payable | | | 6,540 | | | 14,946 | | | 5,659 | | | 14,946 |
Dividend payable | |
| — | |
| 2,290 | |
| — | |
| 2,290 |
Operating lease liabilities | | | 4,270 | | | 4,026 | | | 4,148 | | | 4,026 |
Accrued liabilities | |
| 11,751 | |
| 15,137 | |
| 9,866 | |
| 15,137 |
Accrued income tax payable | | | 1,245 | | | — | ||||||
Total current liabilities | |
| 44,446 | |
| 67,535 | |
| 22,243 | |
| 67,535 |
| | | | | | | | | | | | |
Deferred income tax liabilities | |
| 8,524 | |
| 8,530 | |
| 8,622 | |
| 8,530 |
Long-term pension liability | |
| 15,651 | |
| 15,523 | |
| 15,751 | |
| 15,523 |
Operating lease liabilities | | | 10,897 | | | 10,661 | | | 9,855 | | | 10,661 |
Other long-term liabilities | |
| 523 | |
| 466 | |
| 478 | |
| 466 |
Total liabilities | |
| 80,041 | |
| 102,715 | |
| 56,949 | |
| 102,715 |
| | | | | | | | | | | | |
Common stock | | | 9,523 | | | 9,584 | | | 9,529 | | | 9,584 |
Capital in excess of par value | |
| 70,828 | |
| 70,475 | |
| 70,971 | |
| 70,475 |
Reinvested earnings | |
| 167,717 | |
| 164,039 | |
| 169,633 | |
| 164,039 |
Accumulated other comprehensive loss | |
| (20,400) | |
| (20,193) | |
| (20,054) | |
| (20,193) |
Total equity | |
| 227,668 | |
| 223,905 | |
| 230,079 | |
| 223,905 |
Total liabilities and equity | | $ | 307,709 | | $ | 326,620 | | $ | 287,028 | | $ | 326,620 |
The accompanying notes to consolidated condensed financial statements (unaudited) are an integral part of these financial statements.
32
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (UNAUDITED)
| | | | | | | |
| | Three Months Ended March 31, | | ||||
|
| 2023 |
| 2022 |
| ||
| | (In thousands, except per share amounts) | |||||
| | | | | | | |
Net sales | | $ | 86,294 | | $ | 81,360 | |
Cost of sales | | | 49,132 | |
| 52,232 | |
Gross earnings | |
| 37,162 | |
| 29,128 | |
| |
| | |
| | |
Selling and administrative expenses | |
| 26,776 | |
| 23,697 | |
Earnings from operations | |
| 10,386 | |
| 5,431 | |
| |
| | |
| | |
Interest income | |
| 139 | |
| 91 | |
Interest expense | |
| (385) | |
| (1) | |
Other expense, net | |
| (130) | |
| (6) | |
| |
| | |
| | |
Earnings before provision for income taxes | |
| 10,010 | |
| 5,515 | |
| |
| | |
| | |
Provision for income taxes | |
| 2,565 | |
| 1,462 | |
| |
| | |
| | |
Net earnings | | | 7,445 | | | 4,053 | |
| |
|
| |
|
| |
Weighted average shares outstanding | |
|
| |
|
| |
Basic | |
| 9,483 | |
| 9,596 | |
Diluted | |
| 9,545 | |
| 9,647 | |
| |
| | |
| | |
Earnings per share | |
| | |
| | |
Basic | | $ | 0.79 | | $ | 0.42 | |
Diluted | | $ | 0.78 | | $ | 0.42 | |
| |
| | |
| | |
Cash dividends declared (per share) | | $ | 0.24 | | $ | 0.24 | |
| |
| | |
| | |
Comprehensive income | | $ | 7,238 | | $ | 4,728 | |
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
| | (In thousands, except per share amounts) | ||||||||||
| | | | | | | | | | | | |
Net sales | | $ | 67,014 | | $ | 74,359 | | $ | 153,308 | | $ | 155,719 |
Cost of sales | | | 38,007 | |
| 44,589 | |
| 87,139 | |
| 96,821 |
Gross earnings | |
| 29,007 | |
| 29,770 | |
| 66,169 | |
| 58,898 |
| |
| | |
| | |
| | |
| |
Selling and administrative expenses | |
| 22,307 | |
| 24,105 | |
| 49,083 | |
| 47,802 |
Earnings from operations | |
| 6,700 | |
| 5,665 | |
| 17,086 | |
| 11,096 |
| |
| | |
| | |
| | |
| |
Interest income | |
| 190 | |
| 89 | |
| 329 | |
| 180 |
Interest expense | |
| (132) | |
| (11) | |
| (517) | |
| (12) |
Other (expense) income, net | |
| (168) | |
| 181 | |
| (298) | |
| 175 |
| |
| | |
| | |
| | |
| |
Earnings before provision for income taxes | |
| 6,590 | |
| 5,924 | |
| 16,600 | |
| 11,439 |
| |
| | |
| | |
| | |
| |
Provision for income taxes | |
| 1,726 | |
| 1,429 | |
| 4,291 | |
| 2,891 |
| |
| | |
| | |
| | |
| |
Net earnings | | $ | 4,864 | | $ | 4,495 | | $ | 12,309 | | $ | 8,548 |
| |
|
| |
|
| |
|
| |
|
|
Weighted average shares outstanding | |
|
| |
|
| |
|
| |
|
|
Basic | |
| 9,440 | |
| 9,549 | |
| 9,461 | |
| 9,572 |
Diluted | |
| 9,542 | |
| 9,664 | |
| 9,625 | |
| 9,655 |
| |
| | |
| | |
| | |
| |
Earnings per share | |
| | |
| | |
| | |
| |
Basic | | $ | 0.51 | | $ | 0.47 | | $ | 1.30 | | $ | 0.89 |
Diluted | | $ | 0.50 | | $ | 0.47 | | $ | 1.28 | | $ | 0.89 |
| |
| | |
| | |
| | |
| |
Cash dividends declared (per share) | | $ | 0.25 | | $ | 0.24 | | $ | 0.49 | | $ | 0.48 |
| |
| | |
| | |
| | |
| |
Comprehensive income | | $ | 5,210 | | $ | 3,430 | | $ | 12,448 | | $ | 8,158 |
The accompanying notes to consolidated condensed financial statements (unaudited) are an integral part of these financial statements.
43
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2023 |
| 2022 | ||
| | (Dollars in thousands) | ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| |
|
| |
|
Net earnings | | $ | 7,445 | | $ | 4,053 |
Adjustments to reconcile net earnings to net cash provided by operating activities - | |
| | |
| |
Depreciation | |
| 643 | |
| 604 |
Amortization | |
| 69 | |
| 71 |
Bad debt (recovery) expense | |
| (13) | |
| 15 |
Deferred income taxes | |
| (23) | |
| (111) |
Net foreign currency transaction (gains) losses | |
| (48) | |
| 32 |
Share-based compensation expense | |
| 338 | |
| 350 |
Pension expense | |
| 347 | |
| — |
Increase in cash surrender value of life insurance | |
| (105) | |
| (150) |
Changes in operating assets and liabilities - | |
| | |
| |
Accounts receivable | |
| 520 | |
| 1,395 |
Inventories | |
| 21,297 | |
| 8,980 |
Prepaid expenses and other assets | |
| 1,943 | |
| 89 |
Accounts payable | |
| (8,411) | |
| (12,966) |
Accrued liabilities and other | |
| (3,208) | |
| (3,578) |
Accrued income taxes | |
| 2,192 | |
| 1,447 |
Net cash provided by operating activities | |
| 22,986 | |
| 231 |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
|
| |
|
|
Proceeds from maturities of marketable securities | |
| 510 | |
| 475 |
Proceeds from sale of investment securities | | | — | | | 8,050 |
Purchases of property, plant and equipment | |
| (659) | |
| (352) |
Net cash (used for) provided by investing activities | |
| (149) | |
| 8,173 |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
| |
Cash dividends paid | |
| (4,561) | |
| (2,297) |
Shares purchased and retired | |
| (1,540) | |
| (1,797) |
Net proceeds from stock options exercised | |
| 16 | |
| 11 |
Payment of contingent consideration | | | (500) | | | — |
Proceeds from bank borrowings | |
| 29,018 | |
| — |
Repayments of bank borrowings | | | (39,514) | | | — |
Net cash used for financing activities | |
| (17,081) | |
| (4,083) |
| | | | | | |
Effect of exchange rate changes on cash and cash equivalents | |
| (67) | |
| 118 |
| | | | | | |
Net increase in cash and cash equivalents | | $ | 5,689 | | $ | 4,439 |
| | | | | | |
CASH AND CASH EQUIVALENTS at beginning of period | |
| 16,876 | | | 19,711 |
| | | | | | |
CASH AND CASH EQUIVALENTS at end of period | | $ | 22,565 | | $ | 24,150 |
| | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | |
| | |
| |
Income taxes paid, net of refunds | | $ | 205 | | $ | 75 |
Interest paid | | $ | 423 | | $ | 1 |
| | | | | | |
| | Six Months Ended June 30, | ||||
|
| 2023 |
| 2022 | ||
| | (Dollars in thousands) | ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| |
|
| |
|
Net earnings | | $ | 12,309 | | $ | 8,548 |
Adjustments to reconcile net earnings to net cash provided by (used for) operating activities - | |
| | |
| |
Depreciation | |
| 1,279 | |
| 1,215 |
Amortization | |
| 137 | |
| 142 |
Bad debt expense | |
| 88 | |
| 34 |
Deferred income taxes | |
| 55 | |
| (140) |
Net foreign currency transaction (gains) losses | |
| (9) | |
| 118 |
Share-based compensation expense | |
| 675 | |
| 818 |
Pension expense | |
| 647 | |
| 36 |
Increase in cash surrender value of life insurance | |
| (210) | |
| (300) |
Changes in operating assets and liabilities - | |
| | |
| |
Accounts receivable | |
| 18,982 | |
| 13,237 |
Inventories | |
| 24,115 | |
| (24,448) |
Prepaid expenses and other assets | |
| 2,167 | |
| 311 |
Accounts payable | |
| (9,305) | |
| (12,310) |
Accrued liabilities and other | |
| (5,273) | |
| (4,252) |
Accrued income taxes | |
| (2,003) | |
| (1,725) |
Excess tax benefits from share-based compensation | |
| (73) | |
| — |
Net cash provided by (used for) operating activities | |
| 43,581 | |
| (18,716) |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
|
| |
|
|
Proceeds from maturities of marketable securities | |
| 1,010 | |
| 990 |
Proceeds from sale of investment securities | | | — | | | 8,050 |
Purchases of property, plant and equipment | |
| (1,381) | |
| (722) |
Net cash (used for) provided by investing activities | |
| (371) | |
| 8,318 |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
| |
Cash dividends paid | |
| (6,920) | |
| (4,587) |
Shares purchased and retired | |
| (2,134) | |
| (2,527) |
Net proceeds from stock option exercised | |
| 24 | |
| 228 |
Payment of contingent consideration | | | (500) | | | — |
Taxes paid related to the net share settlement of equity awards | | | (173) | | | (12) |
Proceeds from bank borrowings | |
| 63,047 | |
| 5,437 |
Repayments of bank borrowings | | | (91,613) | | | — |
Net cash used for financing activities | |
| (38,269) | |
| (1,461) |
| | | | | | |
Effect of exchange rate changes on cash and cash equivalents | |
| 145 | |
| (228) |
| | | | | | |
Net increase (decrease) in cash and cash equivalents | | $ | 5,086 | | $ | (12,087) |
| | | | | | |
CASH AND CASH EQUIVALENTS at beginning of period | |
| 16,876 | | | 19,711 |
| | | | | | |
CASH AND CASH EQUIVALENTS at end of period | | $ | 21,962 | | $ | 7,624 |
| | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | |
| | |
| |
Income taxes paid, net of refunds | | $ | 6,273 | | $ | 4,774 |
Interest paid | | $ | 808 | | $ | 12 |
The accompanying notes to consolidated condensed financial statements (unaudited) are an integral part of these financial statements.
54
NOTES:
1. Financial Statements
In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods presented. All such adjustments are of a normal recurring nature. The results of operations for the three-month periodthree and six months ended March 31,June 30, 2023, may not necessarily be indicative of the results for the full year.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and during the reporting period. Actual results specifically related to inventory reserves, realizability of deferred tax assets, goodwill and trademarks could materially differ from those estimates, which would impact the reported amounts and disclosures in the consolidated condensed financial statements and accompanying notes.
2. New Accounting Pronouncement
Recently Adopted
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses: Measurements of Credit Losses on Financial Instruments. This ASU modifies the measurement of expected credit losses of certain financial instruments, based on historical experience, current conditions, and reasonable forecasts, and applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to reinvested earnings in the period of adoption. We adopted this standard in first quarter of 2023. The adoption of this standard did not have a material impact on our consolidated financial statements or related disclosures.
3. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||||||
|
| 2023 | | 2022 |
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
| | (In thousands, except per share amounts) | | (In thousands, except per share amounts) | |||||||||||||||
Numerator: | | |
|
| |
| | | |
|
| |
| | |
|
| |
|
Net earnings | | $ | 7,445 | | $ | 4,053 | | | $ | 4,864 | | $ | 4,495 | | $ | 12,309 | | $ | 8,548 |
|
|
| | |
| | |
|
| | |
| | |
| | |
| |
Denominator: |
|
| | |
| | |
|
| | |
| | |
| | |
| |
Basic weighted average shares outstanding |
|
| 9,483 | |
| 9,596 | |
|
| 9,440 | |
| 9,549 | |
| 9,461 | |
| 9,572 |
Effect of dilutive securities: |
|
| | |
| | |
|
| | |
| | |
| | |
| |
Employee share-based awards |
|
| 62 | |
| 51 | |
|
| 102 | |
| 115 | |
| 164 | |
| 83 |
Diluted weighted average shares outstanding |
|
| 9,545 | |
| 9,647 | |
|
| 9,542 | |
| 9,664 | |
| 9,625 | |
| 9,655 |
|
|
| | |
| | |
|
| | |
| | |
| | |
| |
Basic earnings per share | | $ | 0.79 | | $ | 0.42 | | | $ | 0.51 | | $ | 0.47 | | $ | 1.30 | | $ | 0.89 |
|
|
| | |
| | |
|
| | |
| | |
| | |
| |
Diluted earnings per share | | $ | 0.78 | | $ | 0.42 | | | $ | 0.50 | | $ | 0.47 | | $ | 1.28 | | $ | 0.89 |
Diluted weighted average shares outstanding for the three months ended March 31,June 30, 2023, excludesexcluded anti-dilutive stock options totaling 1,042,000433,000 shares of common stock at a weighted average exercise price of $26.79.$30.75. Diluted weighted average shares outstanding for the threesix months ended March 31, 2022 excludesJune 30, 2023, excluded anti-dilutive stock options totaling 928,000735,000 shares of common stock at a weighted average exercise price of $27.24.
$28.78. Diluted weighted average shares outstanding for the three months ended June 30, 2022, excluded anti-dilutive stock options totaling 483,000 shares of common stock at a weighted average exercise price of $28.73. Diluted weighted average shares outstanding for the six months ended June 30, 2022, excluded anti-dilutive stock options totaling 704,000 shares of common stock at a weighted average exercise price of $27.99.
65
4. Investments
Investments, at fair value
At both March 31,June 30, 2023 and December 31, 2022, we had $0.1 million of cash invested in highly liquid taxable bond funds. We classify these investments as trading securities and report them at fair value. There were no significant unrealized gains or losses on these investments in the first quarters ofthree or six months ended June 30, 2023 and 2022. The fair value measurements of these investments are based on quoted market prices in active markets, and thus represent a Level 1 valuation as defined by Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures.
Marketable securities, at amortized cost
We also invest in marketable securities. As noted in our Annual Report on Form 10-K for the year ended December 31, 2022, all of our marketable securities are classified as held-to-maturity securities and reported at amortized cost pursuant to ASC 320, Investments – Debt and Equity Securities, as we have the intent and ability to hold all investments to maturity.
Below is a summary of the amortized cost and estimated market values of the Company'sour marketable securities as of March 31,June 30, 2023 and December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | | June 30, 2023 | | December 31, 2022 | ||||||||||||||||
|
| Amortized |
| Market |
| Amortized |
| Market |
| Amortized |
| Market |
| Amortized |
| Market | ||||||||
|
| Cost |
| Value |
| Cost |
| Value |
| Cost |
| Value |
| Cost |
| Value | ||||||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||||||||||||||
Marketable securities: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Current | | $ | 1,098 | | $ | 1,098 | | $ | 1,385 | | $ | 1,381 | | $ | 1,097 | | $ | 1,094 | | $ | 1,385 | | $ | 1,381 |
Due from one through five years | |
| 3,757 | |
| 3,758 | |
| 3,977 | |
| 3,950 | |
| 3,263 | |
| 3,216 | |
| 3,977 | |
| 3,950 |
Due from six through ten years | |
| 2,347 | |
| 2,492 | |
| 2,347 | |
| 2,455 | |
| 2,747 | |
| 2,913 | |
| 2,347 | |
| 2,455 |
Due from eleven through twenty years | |
| 799 | |
| 796 | |
| 799 | |
| 773 | |
| 400 | |
| 374 | |
| 799 | |
| 773 |
Total | | $ | 8,001 | | $ | 8,144 | | $ | 8,508 | | $ | 8,559 | | $ | 7,507 | | $ | 7,597 | | $ | 8,508 | | $ | 8,559 |
The unrealized gains and losses on marketable securities at March 31,June 30, 2023, and at December 31, 2022, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | | June 30, 2023 | | December 31, 2022 | ||||||||||||||||
|
| Unrealized |
| Unrealized |
| Unrealized |
| Unrealized |
| Unrealized |
| Unrealized |
| Unrealized |
| Unrealized | ||||||||
|
| Gains |
| Losses |
| Gains |
| Losses |
| Gains |
| Losses |
| Gains |
| Losses | ||||||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||||||||||||||
Marketable securities | | $ | 181 | | $ | (38) | | $ | 145 | | $ | (94) | | $ | 191 | | $ | (101) | | $ | 145 | | $ | (94) |
The estimated market values provided are Level 2 valuations as defined by ASC 820. We reviewed our portfolio of investments as of March 31,June 30, 2023, and determined that no other-than-temporary market value impairment exists.
5. Intangible Assets
During the threesix months ended March 31,June 30, 2023, there were no changes in the carrying value of our indefinite-lived intangible assets (goodwill and trademarks). Our amortizable intangible assets, which were included within other assets in the Consolidated Condensed Balance Sheets (unaudited), consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| March 31, 2023 | | December 31, 2022 |
| | |
| June 30, 2023 | | December 31, 2022 | ||||||||||||||||||||||||||||
| | Weighted | | Gross | | | | | | | | Gross | | | | | | | | Weighted | | Gross | | | | | | | | Gross | | | | | | | ||||||
| | Average | | Carrying | | Accumulated | | | | | Carrying | | Accumulated | | | | | Average | | Carrying | | Accumulated | | | | | Carrying | | Accumulated | | | | ||||||||||
|
| Life (Years) |
| Amount |
| Amortization |
| Net |
| Amount |
| Amortization |
| Net |
| Life (Years) |
| Amount |
| Amortization |
| Net |
| Amount |
| Amortization |
| Net | ||||||||||||||
| | | | | (Dollars in thousands) | | (Dollars in thousands) | | | | | (Dollars in thousands) | | (Dollars in thousands) | ||||||||||||||||||||||||||||
Amortizable intangible assets | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Customer relationships |
| | 15 | | $ | 3,500 | | $ | (2,819) | | $ | 681 | | $ | 3,500 | | $ | (2,761) | | $ | 739 |
| | 15 | | $ | 3,500 | | $ | (2,878) | | $ | 622 | | $ | 3,500 | | $ | (2,761) | | $ | 739 |
Total amortizable intangible assets | | | | | $ | 3,500 | | $ | (2,819) | | $ | 681 | | $ | 3,500 | | $ | (2,761) | | $ | 739 | | | | | $ | 3,500 | | $ | (2,878) | | $ | 622 | | $ | 3,500 | | $ | (2,761) | | $ | 739 |
Amortization expense related to the intangible assets was approximately $58,000 in both the firstsecond quarters of 2023 and 2022.
For both the six-month periods ended June 30, 2023 and June 30, 2022, amortization expense related to the intangible assets was approximately $116,000.
76
6. Segment Information
We have two reportable segments: North American wholesale operations (“Wholesale”) and North American retail operations (“Retail”). Our Chief Executive Officer evaluates the performance of our segments based on earnings from operations. Therefore, interest income or expense, other income or expense, and income taxes are not allocated to the segments. The “other” category in the table below includes our wholesale and retail operations in Australia, South Africa, and Asia Pacific, which do not meet the criteria for separate reportable segment classification. Summarized segment data for the three monthand six-month periods ended March 31,June 30, 2023 and 2022, was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, |
| Wholesale |
| Retail |
| Other |
| Total | ||||||||||||||||
June 30, |
| Wholesale |
| Retail |
| Other |
| Total | ||||||||||||||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||||||||||||||
2023 |
| |
|
| |
|
| |
|
| | |
| |
|
| |
|
| |
|
| |
|
Product sales | | $ | 69,281 | | $ | 8,930 | | $ | 7,467 | | $ | 85,678 | | $ | 50,910 | | $ | 7,627 | | $ | 7,923 | | $ | 66,460 |
Licensing revenues | |
| 616 | |
| — | |
| — | |
| 616 | |
| 554 | |
| — | |
| — | |
| 554 |
Net sales | | $ | 69,897 | | $ | 8,930 | | $ | 7,467 | | $ | 86,294 | | $ | 51,464 | | $ | 7,627 | | $ | 7,923 | | $ | 67,014 |
Earnings from operations | | $ | 8,829 | | $ | 1,282 | | $ | 275 | | $ | 10,386 | | $ | 5,355 | | $ | 1,069 | | $ | 276 | | $ | 6,700 |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
2022 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Product sales | | $ | 66,668 | | $ | 7,860 | | $ | 6,400 | | $ | 80,928 | | $ | 58,584 | | $ | 7,420 | | $ | 7,957 | | $ | 73,961 |
Licensing revenues | |
| 432 | |
| — | |
| — | |
| 432 | |
| 398 | |
| — | |
| — | |
| 398 |
Net sales | | $ | 67,100 | | $ | 7,860 | | $ | 6,400 | | $ | 81,360 | | $ | 58,982 | | $ | 7,420 | | $ | 7,957 | | $ | 74,359 |
Earnings (loss) from operations | | $ | 4,846 | | $ | 828 | | $ | (243) | | $ | 5,431 | ||||||||||||
Earnings from operations | | $ | 4,187 | | $ | 1,113 | | $ | 365 | | $ | 5,665 |
| | | | | | | | | | | | |
Six Months Ended | | | | | | | | | | | | |
June 30, |
| Wholesale |
| Retail |
| Other |
| Total | ||||
| | (Dollars in thousands) | ||||||||||
2023 |
| |
|
| |
|
| |
|
| | |
Product sales | | $ | 120,191 | | $ | 16,557 | | $ | 15,390 | | $ | 152,138 |
Licensing revenues | |
| 1,170 | |
| — | |
| — | |
| 1,170 |
Net sales | | $ | 121,361 | | $ | 16,557 | | $ | 15,390 | | $ | 153,308 |
Earnings from operations | | $ | 14,184 | | $ | 2,351 | | $ | 551 | | $ | 17,086 |
| |
| | |
| | |
| | |
| |
2022 | |
| | |
| | |
| | |
| |
Product sales | | $ | 125,252 | | $ | 15,280 | | $ | 14,357 | | $ | 154,889 |
Licensing revenues | |
| 830 | |
| — | |
| — | |
| 830 |
Net sales | | $ | 126,082 | | $ | 15,280 | | $ | 14,357 | | $ | 155,719 |
Earnings from operations | | $ | 9,033 | | $ | 1,941 | | $ | 122 | | $ | 11,096 |
7. Employee Retirement Plans
The components of our pension expense were as follows:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||||||||
Service cost | | $ | 118 | | $ | 112 | | $ | 116 | | $ | 111 | | $ | 234 | | $ | 223 |
Interest cost | |
| 672 | |
| 432 | |
| 644 | |
| 445 | |
| 1,316 | |
| 877 |
Expected return on plan assets | |
| (577) | |
| (752) | |
| (574) | |
| (750) | |
| (1,151) | |
| (1,502) |
Net amortization and deferral | |
| 134 | | | 208 | |
| 114 | | | 230 | |
| 248 | |
| 438 |
Pension expense | | $ | 347 | | $ | — | | $ | 300 | | $ | 36 | | $ | 647 | | $ | 36 |
The components of pension expense other than the service cost component were included in “other expense,(expense) income, net” in the Consolidated Condensed Statements of Earnings and Comprehensive Income (Unaudited).
7
8. Leases
We lease retail shoe stores, as well as several office and distribution facilities worldwide. The leases have original lease periods expiring between 2023 and 2029. Many leases include one or more options to renew. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The components of our operating lease costs were as follows:
| | | | | | | | | | | | | | | | | | |
|
| Three Months Ended March 31, |
| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||||||||
Operating lease costs |
| $ | 1,362 | | $ | 1,264 |
| $ | 1,298 | | $ | 1,308 |
| $ | 2,660 | | $ | 2,572 |
Variable lease costs (1) | | | 2 | | | — | | | 49 | | | 10 | | | 51 | | | 10 |
Total lease costs |
| $ | 1,364 | | $ | 1,264 |
| $ | 1,347 | | $ | 1,318 |
| $ | 2,711 | | $ | 2,582 |
8
(1) Variable lease costs primarily include percentage rentals based upon sales in excess of specified amounts.
Short-term lease costs, which were excluded from the above table, are not material to our financial statements.
The following is a schedule of maturities of operating lease liabilities as of March 31,June 30, 2023:
| | | | | | |
|
| Operating Leases |
| Operating Leases | ||
| | (Dollars in thousands) | | (Dollars in thousands) | ||
2023, excluding the quarter ended March 31, 2023 |
| $ | 3,697 | |||
2023, excluding the six months ended June 30, 2023 |
| | 2,421 | |||
2024 |
|
| 4,215 |
|
| 4,211 |
2025 |
|
| 3,213 |
|
| 3,211 |
2026 |
|
| 2,754 |
|
| 2,752 |
2027 |
|
| 1,628 |
|
| 1,627 |
Thereafter |
|
| 1,084 |
|
| 1,082 |
Total lease payments |
|
| 16,591 |
|
| 15,304 |
Less imputed interest |
|
| (1,424) |
|
| (1,301) |
Present value of lease liabilities |
| $ | 15,167 |
| | 14,003 |
The operating lease liabilities are classified in the consolidated condensed balance sheets (unaudited) as follows:
| | | | | | | | | | | | |
|
| March 31, 2023 |
| December 31, 2022 |
| June 30, 2023 |
| December 31, 2022 | ||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||
Operating lease liabilities - current | | $ | 4,270 | | $ | 4,026 | | $ | 4,148 | | $ | 4,026 |
Operating lease liabilities - non-current | | | 10,897 | | | 10,661 | | | 9,855 | | | 10,661 |
Total |
| $ | 15,167 | | $ | 14,687 |
| $ | 14,003 | | $ | 14,687 |
We determined the present value of our lease liabilities using a weighted-average discount rate of 4.25%. As of March 31,June 30, 2023, our leases havehad a weighted-average remaining lease term of 3.94.0 years.
Supplemental cash flow information related to our operating leases is as follows:
| | | | | | | | | | | | | | | | | | |
|
| Three Months Ended March 31, |
| Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||||||||
Cash paid for amounts included in the measurement of lease liabilities |
| $ | 1,286 | | $ | 1,128 |
| $ | 1,273 | | $ | 1,156 | | $ | 2,559 | | $ | 2,284 |
Right-of-use assets obtained in exchange for new lease liabilities (noncash) | | $ | 1,739 | | $ | — | | $ | — | | $ | 2,160 | | $ | 1,739 | | $ | 2,160 |
8
9. Income Taxes
The effective income tax rates for the three months ended March 31,June 30, 2023 and 2022 were 25.6%26.2% and 26.5%24.1%, respectively. The effective income tax rates for the six months ended June 30, 2023 and 2022 effective tax rates differed from the federal rate of 21% primarily because of state taxes.were 25.9% and 25.3%, respectively. The 2023 and 2022 effective tax rates differed from the federal rate of 21% primarily because of state and foreign taxes.
10.Share-Based Compensation Plans
During the three months ended March 31, 2023, we recognized $338,000 of compensation expense associated with stock option and restricted stock awards granted in years 2018 through 2022. During the three months ended March 31, 2022, we recognized $350,000 of compensation expense associated with stock option and restricted stock awards granted in years 2017 through 2021.
9
10.Share-Based Compensation Plans
During the three and six months ended June 30, 2023, we recognized $337,000 and $675,000, respectively, of compensation expense associated with stock option and restricted stock awards granted in years 2018 through 2022. During the three and six months ended June 30, 2022, we recognized $469,000 and $818,000, respectively, of compensation expense associated with stock option and restricted stock awards granted in years 2017 through 2021.
The following table summarizes our stock option activity for the three-monthsix-month period ended March 31,June 30, 2023:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | Weighted | | | | | | | | | | Weighted | | | |
| | | | Weighted | | Average | | | | | | | Weighted | | Average | | | | ||
| | | | Average | | Remaining | | Aggregate | | | | Average | | Remaining | | Aggregate | ||||
| | | | Exercise | | Contractual | | Intrinsic | | | | Exercise | | Contractual | | Intrinsic | ||||
|
| Shares |
| Price |
| Term (Years) |
| Value* |
| Shares |
| Price |
| Term (Years) |
| Value* | ||||
Outstanding at December 31, 2022 |
| 1,345,369 | | $ | 25.83 |
|
|
| |
|
| 1,345,369 | | $ | 25.83 |
|
|
| |
|
Granted |
| — | | | — |
|
|
| |
|
| — | | $ | — |
|
|
| |
|
Exercised |
| (2,100) | | | 18.00 |
|
|
| |
|
| (333,009) | | $ | 25.40 |
|
|
| |
|
Forfeited or expired |
| (1,020) | | | 29.65 |
|
|
| |
|
| (3,720) | | $ | 27.50 |
|
|
| |
|
Outstanding at March 31, 2023 |
| 1,342,249 | | $ | 25.84 |
| 5.0 | | $ | 1,759,000 | ||||||||||
Exercisable at March 31, 2023 |
| 889,013 | | $ | 26.37 |
| 3.4 | | $ | 780,000 | ||||||||||
Outstanding at June 30, 2023 |
| 1,008,640 | | $ | 25.97 |
| 6.1 | | $ | 2,484,000 | ||||||||||
Exercisable at June 30, 2023 |
| 558,104 | | $ | 26.92 |
| 4.7 | | $ | 1,106,000 |
*The aggregate intrinsic value of outstanding and exercisable stock options is defined as the difference between the market value of our Company’s common stock on March 31,June 30, 2023 of $25.30$26.69 and the exercise price multiplied by the number of in-the-money outstanding and exercisable stock options.
The following table summarizes our restricted stock award activity for the three-monthsix-month period ended March 31,June 30, 2023:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | Weighted | | | | | | | | | | Weighted | | | |
| | | | Weighted | | Average | | | | | | | Weighted | | Average | | | | ||
| | Shares of | | Average | | Remaining | | Aggregate | | Shares of | | Average | | Remaining | | Aggregate | ||||
| | Restricted | | Grant Date | | Contractual | | Intrinsic | | Restricted | | Grant Date | | Contractual | | Intrinsic | ||||
|
| Stock |
| Fair Value |
| Term (Years) |
| Value* |
| Stock |
| Fair Value |
| Term (Years) |
| Value* | ||||
Non-vested at December 31, 2022 |
| 71,808 | | $ | 24.67 |
|
|
| |
|
| 71,808 | | $ | 24.67 |
|
|
| |
|
Issued |
| — | | | — |
|
|
| |
|
| — | | | — |
|
|
| |
|
Vested |
| (150) | |
| 28.77 |
|
|
| |
|
| (150) | |
| 28.77 |
|
|
| |
|
Forfeited |
| - | |
| — |
|
|
| |
|
| (775) | |
| 26.49 |
|
|
| |
|
Non-vested at March 31, 2023 |
| 71,658 | | $ | 24.66 |
| 2.4 | | $ | 1,813,000 | ||||||||||
Non-vested at June 30, 2023 |
| 70,883 | | $ | 24.64 |
| 2.2 | | $ | 1,892,000 |
*The aggregate intrinsic value of non-vested restricted stock was calculated using the market value of our Company’s common stock on March 31,June 30, 2023 of $25.30$26.69 multiplied by the number of non-vested restricted shares outstanding.
11. Short-Term Borrowings
At March 31,June 30, 2023, we had a $50.0 million revolving line of credit with a bank that is secured by a lien against our general business assets, and expires on September 28, 2023. Outstanding advances on the line of credit bear interest at the one-month term secured overnight financing rate (“SOFR”) plus 145 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,June 30, 2023, outstanding borrowings on the line of credit totaled approximately $20.6$2.6 million at an interest rate of 6.26%6.54%, and we were in compliance with all financial covenants.
9
12. Financial Instruments
At March 31,June 30, 2023, our wholly-owned subsidiary, Florsheim Australia, had foreign exchange contracts outstanding to buy $3.2$2.6 million U.S. dollars at a price of approximately $4.5$3.7 million Australian dollars. These contracts all expire in 2023. Based on quarter-end exchange rates, there were no significant unrealized gains or losses on the outstanding contracts.
We determine the fair value of foreign exchange contracts based on the difference between the foreign currency contract rates and the widely available foreign currency rates as of the measurement date. The fair value measurements are based on observable market transactions, and thus represent a Level 2 valuation as defined by ASC 820.
10
13. Comprehensive Income
Comprehensive income for the three and six months ended March 31,June 30, 2023 and 2022, was as follows:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||||||||
Net earnings | | $ | 7,445 | | $ | 4,053 | | $ | 4,864 | | $ | 4,495 | | $ | 12,309 | | $ | 8,548 |
Foreign currency translation adjustments | |
| (306) | |
| 521 | |
| 262 | |
| (1,235) | |
| (44) | |
| (714) |
Pension liability, net of tax of $35 and $54, respectively | |
| 99 | |
| 154 | ||||||||||||
Pension liability, net of tax of $30, $60, $65, and $114, respectively | |
| 84 | |
| 170 | |
| 183 | |
| 324 | ||||||
Total comprehensive income | | $ | 7,238 | | $ | 4,728 | | $ | 5,210 | | $ | 3,430 | | $ | 12,448 | | $ | 8,158 |
The components of accumulated other comprehensive loss as recorded in the Consolidated Condensed Balance Sheets (Unaudited) were as follows:
| | | | | | | | | | | | |
|
| March 31, |
| December 31, |
| June 30, |
| December 31, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||
Foreign currency translation adjustments | | $ | (8,902) | | $ | (8,596) | | $ | (8,640) | | $ | (8,596) |
Pension liability, net of tax | |
| (11,498) | |
| (11,597) | |
| (11,414) | |
| (11,597) |
Total accumulated other comprehensive loss | | $ | (20,400) | | $ | (20,193) | | $ | (20,054) | | $ | (20,193) |
The following tables show changes in accumulated other comprehensive loss during the threesix months ended March 31,June 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | |
|
| Foreign |
| Defined |
| | |
| Foreign |
| Defined |
| | | ||||
| | Currency | | Benefit | | | | | Currency | | Benefit | | | | ||||
| | Translation | | Pension | | | | | Translation | | Pension | | | | ||||
| | Adjustments | | Items | | Total | | Adjustments | | Items | | Total | ||||||
Beginning balance, December 31, 2022 | | $ | (8,596) | | $ | (11,597) | | $ | (20,193) | | $ | (8,596) | | $ | (11,597) | | $ | (20,193) |
Other comprehensive loss before reclassifications | | | (306) | | | — | | | (306) | | | (44) | | | — | | | (44) |
Amounts reclassified from accumulated other comprehensive loss | | | — | | | 99 | | | 99 | | | — | | | 183 | | | 183 |
Net current period other comprehensive (loss) income | | | (306) | | | 99 | | | (207) | | | (44) | | | 183 | | | 139 |
Ending balance, March 31, 2023 | | $ | (8,902) | | $ | (11,498) | | $ | (20,400) | |||||||||
Ending balance, June 30, 2023 | | $ | (8,640) | | $ | (11,414) | | $ | (20,054) |
| | | | | | | | | | | | | | | | | | |
|
| Foreign |
| Defined |
| | |
| Foreign |
| Defined |
| | | ||||
| | Currency | | Benefit | | | | | Currency | | Benefit | | | | ||||
| | Translation | | Pension | | | | | Translation | | Pension | | | | ||||
| | Adjustments | | Items | | Total | | Adjustments | | Items | | Total | ||||||
Beginning balance, December 31, 2021 | | $ | (6,783) | | $ | (18,011) | | $ | (24,794) | | $ | (6,783) | | $ | (18,011) | | $ | (24,794) |
Other comprehensive income before reclassifications | | | 521 | | | — | | | 521 | |||||||||
Other comprehensive loss before reclassifications | | | (714) | | | — | | | (714) | |||||||||
Amounts reclassified from accumulated other comprehensive loss | | | — | | | 154 | | | 154 | | | — | | | 324 | | | 324 |
Net current period other comprehensive income |
| | 521 |
| | 154 |
| | 675 | |||||||||
Ending balance, March 31, 2022 | | $ | (6,262) | | $ | (17,857) | | $ | (24,119) | |||||||||
Net current period other comprehensive (loss) income |
| | (714) |
| | 324 |
| | (390) | |||||||||
Ending balance, June 30, 2022 | | $ | (7,497) | | $ | (17,687) | | $ | (25,184) |
1110
The following table shows reclassification adjustments out of accumulated other comprehensive loss during the three monthsand six month periods ended March 31,June 30, 2023 and 2022:
| | | | | | | | | ||||||||||||||
| | Amounts reclassified from | | | ||||||||||||||||||
| | accumulated other | | | | | | | | | | | | | | | | | ||||
| | comprehensive loss for | | Affected line item in the | | Amounts Reclassified from Accumulated Other Comprehensive Loss | | Affected line item in the | ||||||||||||||
| | the three months ended | | statement where net income is | | Three Months Ended June 30, | | Six Months Ended June 30, | | statement where net income is | ||||||||||||
|
| March 31, 2023 | | March 31, 2022 |
| presented |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| presented | ||||||
Amortization of defined benefit pension items |
| |
|
| | | |
|
| |
|
| | | | | | | |
|
|
|
Prior service cost | | $ | 5 | | $ | 2 | (1) | Other expense, net | | $ | 5 | | $ | 1 | | $ | 10 | | $ | 3 | (1) | Other (expense) income, net |
Actuarial losses | |
| 129 | | | 206 | (1) | Other expense, net | |
| 109 | | | 229 | | | 238 | |
| 435 | (1) | Other (expense) income, net |
Total before tax | |
| 134 | | | 208 | |
| |
| 114 | | | 230 | | | 248 | |
| 438 |
|
|
Tax benefit | |
| (35) | | | (54) | |
| |
| (30) | | | (60) | | | (65) | |
| (114) |
|
|
Net of tax | | $ | 99 | | $ | 154 | |
| | $ | 84 | | $ | 170 | | $ | 183 | | $ | 324 |
|
|
(1) | These amounts were included in pension expense. See Note 7 for additional details. |
14.Equity
The following table reconciles our equity for the six months ended June 30, 2023:
| | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | |
| | | | | Capital in | | | | | Other | ||
| | Common | | Excess of | | Reinvested | | Comprehensive | ||||
|
| Stock |
| Par Value |
| Earnings |
| Loss | ||||
| | (Dollars in thousands) | ||||||||||
Balance, December 31, 2022 | | $ | 9,584 | | $ | 70,475 | | $ | 164,039 | | $ | (20,193) |
Net earnings | |
| — | |
| — | |
| 7,445 | |
| — |
Foreign currency translation adjustments | |
| — | |
| — | |
| — | |
| (306) |
Pension liability adjustment, net of tax | |
| — | |
| — | |
| — | |
| 99 |
Cash dividends declared | |
| — | |
| — | |
| (2,289) | |
| — |
Stock options exercised, net of shares withheld for employee taxes and strike price | | | 1 | | | 15 | | | — | | | — |
Share-based compensation expense | | | — | | | 338 | | | — | | | — |
Shares purchased and retired | | | (62) | | | — | | | (1,478) | | | — |
Balance, March 31, 2023 | | $ | 9,523 | | $ | 70,828 | | $ | 167,717 | | $ | (20,400) |
Net earnings | | | — | | | — | | | 4,864 | | | — |
Foreign currency translation adjustments | | | — | | | — | | | — | | | 262 |
Pension liability adjustment, net of tax | | | — | | | — | | | — | | | 84 |
Cash dividends declared | | | — | | | — | | | (2,377) | | | — |
Stock options exercised, net of shares withheld for employee taxes and strike price | | | 29 | | | (194) | | | — | | | — |
Share-based compensation expense | | | — | | | 337 | | | — | | | — |
Shares purchased and retired | | | (23) | | | — | | | (571) | | | — |
Balance, June 30, 2023 | | $ | 9,529 | | $ | 70,971 | | $ | 169,633 | | $ | (20,054) |
11
14.Equity
The following table reconciles our equity for the threesix months ended March 31, 2023:
| | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | |
| | | | | Capital in | | | | | Other | ||
| | Common | | Excess of | | Reinvested | | Comprehensive | ||||
|
| Stock |
| Par Value |
| Earnings |
| Loss | ||||
| | (Dollars in thousands) | ||||||||||
Balance, December 31, 2022 | | $ | 9,584 | | $ | 70,475 | | $ | 164,039 | | $ | (20,193) |
Net earnings | |
| — | |
| — | |
| 7,445 | |
| — |
Foreign currency translation adjustments | |
| — | |
| — | |
| — | |
| (306) |
Pension liability adjustment, net of tax | |
| — | |
| — | |
| — | |
| 99 |
Cash dividends declared | |
| — | |
| — | |
| (2,289) | |
| — |
Stock options exercised, net of shares withheld for employee taxes and strike price | | | 1 | | | 15 | | | — | | | — |
Share-based compensation expense | | | — | | | 338 | | | — | | | — |
Shares purchased and retired | | | (62) | | | — | | | (1,478) | | | — |
Balance, March 31, 2023 | | $ | 9,523 | | $ | 70,828 | | $ | 167,717 | | $ | (20,400) |
The following table reconciles our equity for the three months ended March 31,June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | | | | | | | | | | | Accumulated | ||
| | | | | Capital in | | | | | Other | | | | | Capital in | | | | | Other | ||||
| | Common | | Excess of | | Reinvested | | Comprehensive | | Common | | Excess of | | Reinvested | | Comprehensive | ||||||||
|
| Stock |
| Par Value |
| Earnings |
| Loss |
| Stock |
| Par Value |
| Earnings |
| Loss | ||||||||
|
| (Dollars in thousands) |
| (Dollars in thousands) | ||||||||||||||||||||
Balance, December 31, 2021 | | $ | 9,709 | | $ | 68,718 | | $ | 147,762 | | $ | (24,794) | | $ | 9,709 | | $ | 68,718 | | $ | 147,762 | | $ | (24,794) |
Net earnings | |
| — | |
| — | |
| 4,053 | |
| — | |
| — | |
| — | |
| 4,053 | |
| — |
Foreign currency translation adjustments | |
| — | |
| — | |
| — | |
| 521 | |
| — | |
| — | |
| — | |
| 521 |
Pension liability adjustment, net of tax | |
| — | |
| — | |
| — | |
| 154 | |
| — | |
| — | |
| — | |
| 154 |
Cash dividends declared | |
| — | |
| — | |
| (2,316) | |
| — | |
| — | |
| — | |
| (2,316) | |
| — |
Stock options exercised, net of shares withheld for employee taxes and strike price | | | — | | | 8 | | | — | | | — | | | — | | | 8 | | | — | | | — |
Share-based compensation expense | |
| — | | | 350 | | | — | | | — | |
| — | | | 350 | | | — | | | — |
Shares purchased and retired | | | (75) | | | — | | | (1,722) | | | — | | | (75) | | | — | | | (1,722) | | | — |
Balance, March 31, 2022 | | $ | 9,634 | | $ | 69,076 | | $ | 147,777 | | $ | (24,119) | | $ | 9,634 | | $ | 69,076 | | $ | 147,777 | | $ | (24,119) |
Net earnings | | | — | | | — | | | 4,495 | | | — | ||||||||||||
Foreign currency translation adjustments | | | — | | | — | | | — | | | (1,235) | ||||||||||||
Pension liability adjustment, net of tax | | | — | | | — | | | — | | | 170 | ||||||||||||
Cash dividends declared | | | — | | | — | | | (2,307) | | | — | ||||||||||||
Stock options exercised, net of shares withheld for employee taxes and strike price | | | 15 | | | 193 | | | — | | | — | ||||||||||||
Share-based compensation expense | | | — | | | 468 | | | — | | | — | ||||||||||||
Shares purchased and retired | | | (29) | | | — | | | (701) | | | — | ||||||||||||
Balance, June 30, 2022 | | $ | 9,620 | | $ | 69,737 | | $ | 149,264 | | $ | (25,184) |
12
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations.
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 endedyear-ended December 31, 2022, filed March 13, 2023.2023, 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 and markets 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. Our “other” operations include our wholesale and retail businesses in Australia, South Africa, and Asia Pacific (collectively, “Florsheim Australia”). The majority of our operations are in the United States and our results are primarily affected by the economic conditions and retail environment in the United States.
EXECUTIVE OVERVIEW
After a strong 2022, during which our sales were lifted to record levels by a combination of post-pandemic retailer pipeline fill as well as strong consumer demand, 2023 represents a return to the footwear industry’s normal cyclical challenges. We startedare seeing consumer discretionary purchases shift away from products like footwear and apparel, and more towards experiential expenditures like travel and dining out. As such, previously elevated footwear sales returned to historical norms, and our customers have become much more cautious as far as their inventory levels. This trend is reflected in our sales in the yearsecond quarter of 2023 strong, setting a first quarter sales record and generating robust record-level earnings in bothacross all our Wholesale and Retail segments.major brands.
Net sales of our Wholesale segment were up 4% for the quarter, led byIn our legacy business. Wholesalebusiness, Florsheim sales increased due to higher unit selling prices, while pairs shipped decreased 5%. Florsheim had another record quarter with a 15% increase, as the brand continues to pick up market share in the refined footwear category. Within the retail industry, Florsheim is seen as the go-to brand for on-trend dress footwear, and we continue to focus on expanding the brand into the hybrid and everyday casual market. Our Nunn Bush business was up slightly for the quarter with a 1% sales increase. Nunn Bush has made progress within the comfort casual segment, with over half of its sales coming from the casual category.were down 11%, Stacy Adams was down 3%17%, and Nunn Bush was down 1% compared to last year’s second quarter. By comparison, all three brands experienced significant increases in the second quarter of 2022, and the shipment decrease is indicative of the overall slowdown in the industry. Sell-throughs for the quarter.Florsheim, Stacy Adams, continuesand Nunn Bush are tracking slightly above levels seen prior to be the leading brandpandemic. Our focus for accessible fashion footwear, andour legacy brands is threefold. First, we are well-positionedfocused on maintaining our leadership position in the dress-footwear market through superior product and value. Many of our competitors have vacated this category, while we see dress footwear as an evergreen market and a core competency of our company. Second, we are focused on continuing to develop new products that fit evolving consumer preferences. While we have benefitted from an inventoryrenewed interest in dress footwear over the last two years, we need to continue to diversify our product assortment. Florsheim, and style perspective for the key upcoming prom and wedding seasons. Our legacyespecially Nunn Bush, have made good progress in terms of increasing their percent of casual sales. Meanwhile, all three brands all experienced resurgent sales in 2022, as we benefited from historically high sell-throughs based on robust demand for refined footwear. Lower than normal inventory levels at retail also resulted in additional shipments through pipeline fill. As of Spring 2023, retail inventory levels have been resetgrowing hybrid footwear as an important part of their mix. A third and sell-through rates for our brands have normalized at slightly above pre-pandemic levels. While accounts are now taking a cautious approachfinal area of focus is to the market as they assess near-term consumer spending, we remain optimistic about our long-term prospects given the strength of our brands and our ability to favorably compete within the non-athletic footwear category.
BOGS first quarter sales were down 2%. After a record 2022, we have seen BOGS’ wholesale sales slow in 2023 as retailers remain cautious about adding to their outdoor footwear inventory given the mild winter in many parts of the country. We anticipate this sales trend to continue into the Fall as accounts right-size their inventory. We see this as a temporary set-back for the BOGS brand. BOGS experienced strong demand throughout the pandemic and has enjoyed extraordinary direct-to-consumer growth. Whilemake sure we are heavier than normaldisciplined in terms of our BOGS inventory levels,approach to style count and inventory. Over the last few years, supply chain challenges resulted in large deficits and then surpluses in our base inventory. Due to the current industry slowdown, we are working through a higher level of slow-moving footwear than normal. We believe itthis is a manageable situation as we were carefulgiven the combination of our strong gross margins and a return to invest in evergreenmore predictable manufacturing and sales cycles.
13
styles. Overall,Our BOGS business was down 35% versus the second quarter of 2022. BOGS brand is healthy’ second quarter performance was impacted by an oversaturated outdoor footwear and maintains a leadership position within the weather boot category,market. Retailers are taking a very conservative approach to ordering for the second half of the year as wellthey work through their current inventory. As a result, our confirmed orders are lower than last year for our Fall key selling season, and we will be reliant on a heavier percentage of at-once orders than in years past. Achieving normal Fall shipment results for the brand will be dependent on external factors such as an expanding casual lifestyle business.favorable weather conditions. We project a returnhave adjusted our planned inventory for BOGS down to more normalized inventory levelsmanage the softness in the fourth quarter of 2023 andcategory. Like our legacy brands, our BOGS inventory is turning more slowly than normal, but we also believe this slowness will be a rebound in sales growth in 2024.short-term situation.
In our Retail segment,regards to Forsake, sales were up 14%5% over last year’s second quarter. The brand remains a work-in-progress but we are pleased with the retail selling of some of the new styles we have introduced.
Retail sales were up 3% for the quarter. Mostquarter compared to the same period last year. The solid performance of our retail business has been encouraging as our sales have been outperforming the increase was driven by internet sales; brick-and-mortar sales also increased for the quarter. First quarter retail operating earnings rose 55%.industry in 2023. Our e-commerce team has been focused on reducing expenses asdone excellent work throughout 2023 driving sales in a percent of sales. The results this quarter indicated the progress that has been madetough environment while keeping costs in controlling expenses. Industry statistics show decreases in online sales year-over-year for footwear. We are currently bucking that trend. However, the challenging footwear retail market makes us mindfulline.
Sales at Florsheim Australia, which is comprised of the need to manage our expenses to maintain a healthy net profit margin.
Florsheim Australia’s netAustralian, New Zealand, Pacific Rim and South African markets, were down slightly for the second quarter, but in local currency, sales were up 17% for7% over last year’s second quarter. Our overall Florsheim Australia business held up well given these markets are facing some of the quarter. In local currency, they were up 24%. Whilesame macro-economic challenges we were up against an easy comparable due to last year’s first Omicron partial shut-downare experiencing in the U.S. Our business model in Australia and other overseas markets, our performance reflects a solid post-pandemic business modelNew Zealand, as well as in South Africa, is on sound footing and we believe that we are positioned well for the region. Aslong-term. However, we have decided to close our Hong Kong office and distribution center and wind down our Asia Pacific wholesale and retail division with a target date of the end of 2023. For the past number of years, our Asia Pacific business has struggled to be profitable, and we do not anticipate an opportunity to improve our prospects in the U.S.,foreseeable future. We are not abandoning the region entirely and plan to maintain the larger wholesale accounts by transferring them to our business overseas is trending well but faces uncertainty related to economic pressuresAustralian office. We currently have six retail outlets in Asia, consisting primarily of shop-in-shops, which will be closed as the world navigates higher interest rates and cautious consumer demand.our lease agreements expire.
Consolidated Sales and EarningsSecond Quarter Highlights
Consolidated net sales were a first-quarter record of $86.3$67.0 million, up 6%down 10% compared to our previous record second-quarter sales of $81.4$74.4 million in 2022. Consolidated gross earnings increased to 43.1%43.3% of net sales compared to 35.8%40.0% of net sales in last year’s firstsecond quarter, due mainly to higher gross margins in our Wholesale segment. Operating earnings were a first-quarter recordEarnings from operations rose 18% to $6.7 million, from $5.7 million in the second quarter of $10.4 million, up more than 90% over last year’s first quarter operating earnings of $5.4 million.2022. Net earnings were a first-quartersecond-quarter record of $7.4$4.9 million, or $0.78$0.50 per diluted share, up 84% compared to $4.18% over our previous record of $4.5 million, or $0.42$0.47 per diluted share, last year.
Year-to-Date Highlights
Consolidated net sales for the first half of 2023 were $153.3 million, down 2% compared to record first-half net sales of $155.7 million in 2022. Consolidated gross earnings were 43.2% of net sales in the first six months of 2023 versus 37.8% of net sales in the same period one year ago. The increase was primarily due to higher gross margins in our Wholesale segment. Year-to-date consolidated operating earnings were a record $17.1 million in 2023, up 54% compared to $11.1 million in 2022. Our net earnings were a record $12.3 million, or $1.28 per diluted share, in the first half of 2023 versus $8.5 million, or $0.89 per diluted share, in the same period last year.
Financial Position Highlights
At March 31,June 30, 2023, our cash, short-term investments, and marketable securities totaled $30.7$29.6 million and we had $20.6$2.6 million outstanding on our $50.0 million revolving line of credit. During the first threesix months of 2023, we generated $23.0$43.6 million of cash from operations. We used funds to pay down $10.5$28.6 million on our line of credit, to pay $4.6$6.9 million in dividends, and to repurchase $1.5$2.1 million of our common stock. We also had approximately $660,000$1.4 million of capital expenditures.expenditures during the period.
14
SEGMENT ANALYSIS
Net sales and earnings from operations for our segments for the three and six months ended March 31,June 30, 2023 and 2022, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | % | | | Three Months Ended June 30, | | % | | Six Months Ended June 30, | | % | | ||||||||||||
| | 2023 |
| 2022 |
| Change |
| | 2023 |
| 2022 |
| Change |
| 2023 |
| 2022 |
| Change | | ||||||
| | (Dollars in thousands) | | | | | (Dollars in thousands) | | ||||||||||||||||||
Net Sales |
| |
|
| |
|
|
| |
| |
|
| |
|
|
| | | | | | | | | |
North American Wholesale |
| $ | 69,897 |
| $ | 67,100 |
| 4 | % |
| $ | 51,464 |
| $ | 58,982 |
| (13) | % | $ | 121,361 |
| $ | 126,082 |
| (4) | % |
North American Retail | |
| 8,930 | |
| 7,860 |
| 14 | % | |
| 7,627 | |
| 7,420 |
| 3 | % | | 16,557 | | | 15,280 | | 8 | % |
Other | |
| 7,467 | |
| 6,400 |
| 17 | % | |
| 7,923 | |
| 7,957 |
| 0 | % | | 15,390 | | | 14,357 | | 7 | % |
Total | | $ | 86,294 | | $ | 81,360 |
| 6 | % | | $ | 67,014 | | $ | 74,359 |
| (10) | % | $ | 153,308 | | $ | 155,719 | | (2) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings from Operations | | | | | | | | | | | | | | | | | | | | | | | | | | |
North American Wholesale | | $ | 8,829 | | $ | 4,846 |
| 82 | % | | $ | 5,355 | | $ | 4,187 |
| 28 | % | $ | 14,184 | | $ | 9,033 | | 57 | % |
North American Retail | |
| 1,282 | |
| 828 |
| 55 | % | |
| 1,069 | |
| 1,113 |
| (4) | % | | 2,351 | | | 1,941 | | 21 | % |
Other | |
| 275 | |
| (243) |
| 213 | % | |
| 276 | |
| 365 |
| (24) | % | | 551 | | | 122 | | 352 | % |
Total | | $ | 10,386 | | $ | 5,431 |
| 91 | % | | $ | 6,700 | | $ | 5,665 |
| 18 | % | $ | 17,086 | | $ | 11,096 | | 54 | % |
14
North American Wholesale Segment
Net Sales
Net sales in our Wholesale segment for the three and six months ended March 31,June 30, 2023 and 2022, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | % | | | Three Months Ended June 30 , | | % | | Six Months Ended June 30, | | % | | ||||||||||||
|
| 2023 |
| 2022 |
| Change |
|
| 2023 |
| 2022 |
| Change |
| 2023 |
| 2022 |
| Change |
| ||||||
| | (Dollars in thousands) | | | | | (Dollars in thousands) | | | | (Dollars in thousands) | | |
| ||||||||||||
North American Wholesale Segment Net Sales |
| |
|
| |
|
|
| |
| |
|
| |
|
|
| | |
|
| |
|
|
| |
Stacy Adams | | $ | 16,300 | | $ | 16,797 |
| (3) | % | | $ | 13,102 | | $ | 15,790 |
| (17) | % | $ | 29,402 | | $ | 32,587 |
| (10) | % |
Nunn Bush | |
| 14,546 | |
| 14,374 |
| 1 | % | |
| 11,734 | |
| 11,803 |
| (1) | % | | 26,280 | |
| 26,177 |
| 0 | % |
Florsheim | |
| 25,209 | |
| 22,012 |
| 15 | % | |
| 21,456 | |
| 24,030 |
| (11) | % | | 46,665 | |
| 46,042 |
| 1 | % |
BOGS/Rafters | |
| 12,820 | |
| 13,099 |
| (2) | % | |
| 4,421 | |
| 6,773 |
| (35) | % | | 17,241 | |
| 19,872 |
| (13) | % |
Forsake | |
| 406 | |
| 386 |
| 5 | % | |
| 197 | |
| 188 |
| 5 | % | | 603 | |
| 574 |
| 5 | % |
Total North American Wholesale | | $ | 69,281 | | $ | 66,668 |
| 4 | % | | $ | 50,910 | | $ | 58,584 |
| (13) | % | $ | 120,191 | | $ | 125,252 |
| (4) | % |
Licensing | |
| 616 | |
| 432 |
| 43 | % | |
| 554 | |
| 398 |
| 39 | % | | 1,170 | |
| 830 |
| 41 | % |
Total North American Wholesale Segment | | $ | 69,897 | | $ | 67,100 |
| 4 | % | | $ | 51,464 | | $ | 58,982 |
| (13) | % | $ | 121,361 | | $ | 126,082 |
| (4) | % |
NetWholesale net sales infor the second quarter were lower across all our Wholesale segment reached a first-quarter record of $69.9 millionmajor brands (Stacy Adams, Nunn Bush, Florsheim, and BOGS/Rafters) due to reduced demand in 2023 following record growth in 2022. For the six months ended June 30, 2023, wholesale net sales were down 4% compared to the first six months of 2022. Last year’s net sales were up 4% over our previous record of $67.1 million last year. Wholesale sales increasedsignificantly due to post-pandemic retailer pipeline fill and strong consumer demand. So far in 2023, all our major brands have experienced decreases in pairs sold, as the footwear industry returned to its normal cycle. Decreases in pairs sold were partially offset by higher unit selling prices while pairs shipped decreased 5%. Florsheim posted 15% growth for the quarter, driven by higher sales of dress and dress-casual footwear, and achieved record quarterly sales on top of record sales for the brand lastthis year. Net sales of our other major brands, Nunn Bush, Stacy Adams, and BOGS, remained relatively steady with last year’s robust first quarter results.
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
Wholesale gross earnings were 38.2% of net sales compared to 30.0%37.0% of net sales in the firstsecond quarter of 2022.2023 compared to 33.7% of net sales last year. Gross margins for the quarter improved due mainly toas a result of selling price increases implemented in 2022 to address higher costs. For the six months ended June 30, wholesale gross earnings were 37.7% of net sales in 2023 compared to 31.7% of net sales in 2022. The increase in gross margins for the year-to-date period was due to higher selling prices and lower inbound freight costs. Last year’s first quarter gross margins were negatively impacted by higher inbound freight costs as a result of the global supply chain issues ongoing at that time, which have since eased.
15
Wholesale selling and administrative expenses include, and are primarily related to, distribution costs, salaries and commissions, advertising costs, employee benefit costs and depreciation. Wholesale selling and administrative expenses totaled $13.7 million for the quarter, compared to $15.7 million in last year’s second quarter, which constituted 27% of net sales in both periods. For the six months ended June 30, wholesale selling and administrative expenses were $17.9$31.6 million, or 26% of net sales, for the quarter compared to $15.3in 2023 versus $31.0 million, or 23%25% of net sales, in last year’s first quarter. This year’s expenses included higher employee costs. 2022.
Wholesale operating earnings reached a first-quarter record of $8.8rose to $5.4 million for the quarter, up 28% compared to $4.2 million last year. For the six months ended June 30, 2023, wholesale operating earnings rose to $14.2 million, up 82% compared to $4.857% over $9.0 million in the same period of 2022, driven bydue to the higher sales and gross margins this year.
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 $4.2$3.5 million in the firstsecond quarter of 2023 and $3.6$3.7 million in the first quartersame period of 2022. Our gross earnings may not be comparable to other companies, as some companies may includeFor the six-month periods ended June 30, wholesale distribution costs were $7.7 million in cost of sales.2023 and $7.2 million in 2022.
North American Retail Segment
Net Sales
Net sales in our Retailretail segment were a first-quartersecond-quarter record of $8.9$7.6 million, up 14%3% compared to our previous record of $7.9$7.4 million in 2022. The increase was primarily due to higher sales volumes across all our e-commerce websites. For the six months ended June 30, retail net sales were a record $16.6 million in 2023, up 8% over $15.3 million in 2022. The year-to-date increase was mainly driven by higher sales on the Florsheim and Stacy Adams websites. Brick-and-mortar sales were also increased forup in the quarter.first half of 2023 compared to the same period last year.
Earnings from Operations
Retail gross earnings as a percent of net sales were 66.3%66.2% and 65.9%67.4% in the firstsecond quarters of 2023 and 2022, respectively. For the six months ended June 30, 2023, retail gross earnings were 66.2% of net sales, compared to 66.7% of net sales in the same period of 2022.
Selling and administrative expenses for the retail segment consist primarily of freight, advertising expense, employee costs, and rent and occupancy costs. Retail selling and administrative expenses were $4.6$4.0 million, or 52% of net sales, for the quarter compared to $4.4$3.9 million, last year.or 52% of net sales, in the second quarter of 2022. For the six months ended June 30, retail selling and administrative expenses totaled $8.6 million in 2023 and $8.2 million in 2022. As a percent of net sales, retail selling and administrative expenses were 52% and 54% in the first half of 2023 and 55% in 2022. This2022, respectively; the decrease was primarily due to lower e-commerce expenses relative to net sales, primarilymainly outbound freight and advertising costs. We realized costcosts savings during the quarter as a result of measures taken over the past year to control costs.
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Retail operating earnings were $1.1 million in both the second quarters of 2023 and 2022. For the six months ended June 30, retail operating earnings were a first-quarter record of $1.3$2.4 million in 2023, up 55% compared to $828,000 last year. This21% over $1.9 million in 2022. The six-month earnings increase was primarily due to higher sales and improved profitability inof our e-commerce businesses. Brick and mortar operating earnings were also up for the quarter.businesses this year.
Other
Operating results reported in the “other” category consist entirely of the operating results at Florsheim Australia. Other net sales fortotaled $7.9 million, down slightly compared to $8.0 million in the firstsecond quarter of 2022. For the six months ended June 30, 2023, totaled $7.5other net sales were $15.4 million, up 17%7% compared to $6.4$14.4 million in 2022.the same period one year ago. In local currency, Florsheim Australia’s net sales were up 24%7% and 14% for the quarter and year-to-date periods, respectively, with sales up in both its retail and wholesale businesses. Last yearThe weakening of the Australian dollar relative to the U.S. dollar led to the lower sales growth in U.S. dollars this year.
Florsheim Australia’s sales volumes in Asia were negatively impacted by COVID lockdowns imposed in Hong Kong during the quarter.
Other gross earnings were 60.5%62.4% of net sales for the quarter compared to 59.6%61.3% of net sales in last year’s firstsecond quarter. Other operatingFor the six months ended June 30, Florsheim Australia’s gross earnings recovered to $275,000as a percent of net sales were 61.5% and 60.6% in 2023, up from operating losses of $243,000 last year.
Other income and expense and taxes
Interest income was $139,000 and $91,000 in the first quarters of 2023 and 2022, respectively. Interest expense increased to $385,000
Other operating earnings totaled $276,000 for the quarter up from $1,000versus $365,000 in last year’s first quarter,second quarter. This decrease was primarily due to lower operating earnings in Asia. For the six months ended June 30, 2023, other operating earnings totaled $551,000 compared to $122,000 in the same period last year. The year-to-date earnings increase was largely due to improved results of the wholesale and retail businesses in Australia.
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Other income and expense
Interest income was $190,000 and $89,000 for the three months ended June 30, 2023 and 2022, respectively. For the six months ended June 30, interest income was $329,000 in 2023 and $180,000 in 2022. The increases in 2023 were due to more interest earned on the higher cash balances this year. Interest expense increased $121,000 and $505,000 during the three and six months ended June 30, 2023, compared to the same periods of 2022, due to interest incurred on the higher average debt balances this year.
Other expense,(expense) income, net, increased to $130,000totaled ($168,000) for the quarter up from $6,000compared to $181,000 in last year’s second quarter. For the firstyear-to-date period, other (expense) income, net, totaled ($298,000) in 2023 and $175,000 in 2022. The increases in expense for both the quarter of 2022,and year-to-date periods was primarily due largely to an increase in the non-service cost components of pension expense.expense this year. See Note 7 in the Notes to the Consolidated Condensed Financial Statements (Unaudited) for additional details.
OurThe effective income tax rates for the three months ended March 31,June 30, 2023 and 2022 were 25.6%26.2% and 26.5%24.1%, respectively. The effective income tax rates for the six months ended June 30, 2023 and 2022 were 25.9% and 25.3%, respectively. The 2023 and 2022 effective tax rates differed from the federal rate of 21% primarily because of state and foreign taxes.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash, short-term investments, short-term marketable securities, and our revolving line of credit. WeDuring the first six months of 2023, we generated $23.0$43.6 million of cash from operating activities during the first three months of 2023,operations compared to $231,000a use of cash totaling $18.7 million in the same period one year ago. The increase in 2023 was primarily due to higher net earnings and changes in operating assets and liabilities, principally inventoryaccounts receivable and accounts payable.inventory. Our overall inventory as of March 31,June 30, 2023 was $106.7$103.9 million, down from $128.0 million at December 31, 2022. As expected,We have continued to bring down our inventory levels as supply chains have come down now that the supply chain has normalized, and we can plan our receiptsallowing us to bring in shoes closer to when we need to ship shoes to our customers.need.
We paid dividends totaling $4.6$6.9 million and $2.3$4.6 million in the first quarterssix-months of 2023 and 2022, respectively. The increase in 2023 was due to a shift in timing of our quarterly dividend payment schedule; the first quartersix months of 2023 includes twoincluded three quarterly dividend payments, as our fourth quarter 2022 dividend was paid in early January 2023. First quarterConversely, the first half of 2022 only included onetwo quarterly dividend payment,payments, as our fourth quarter 2021 dividend was paid in December 2021. On May 2,August 1, 2023, our Board of Directors declared a cash dividend of $0.25 per share to all shareholders of record on May 26,August 25, 2023, payable June 30,September 29, 2023. This represents an increase of 4% above the previous quarterly dividend rate of $0.24.
We repurchase our common stock under our share repurchase program when we believe market conditions are favorable. During the first three monthshalf of 2023, we repurchased 62,35285,157 shares for a total cost of $1.5$2.1 million. As of March 31,June 30, 2023, we had the authority to repurchase approximately 977,000954,000 shares under our 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 approximately $660,000$1.4 in the first threesix months of 2023. Management estimates that annual capital expenditures for 2023 will be between $2.0 million and $4.0 million.
At March 31,June 30, 2023, we had a $50.0 million revolving line of credit with a bank that is secured by a lien against our general business assets, and expires on September 28, 2023. Outstanding advances on the line of credit bear interest at the one-month term secured overnight financing rate (“SOFR”) plus 145 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,June 30, 2023, outstanding borrowings on the line of credit totaled approximately $20.6$2.6 million at an interest rate of 6.26%6.54%, and we were in compliance with all financial covenants. At December 31, 2022, outstanding borrowings on the line of credit totaled $31.1 million at an interest rate of 5.77%. In the first six months of 2023, our cash collections exceeded cash outlays, reducing our borrowing balances this year. We expect to renew thisour line of credit later this year, but cannot provide any assurances.assurances that it will be renewed on terms acceptable to us, or at all.
As of March 31,June 30, 2023, approximately $4.1$4.8 million of cash and cash equivalents was held by our foreign subsidiaries.
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We will continue to evaluate the best uses for our available liquidity, including, among other uses, capital expenditures, continued stock repurchases and acquisitions. We believeThe Company believes that available cash, short-term investments, 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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
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 have been no significant changes in the Company’s 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.From time to time, we are engaged in legal proceedings in the ordinary course of business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, financial condition, operating results or cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In 1998, our stock repurchase program was established. On several occasions since the program’s inception, our Board of Directors has increased the number of shares authorized for repurchase under the program. In total, 8.5 million shares have been authorized for repurchase. The table below presents information regarding our repurchases of our common stock in the three-month period March 31,ended June 30, 2023.
| | | | | | | | | | | | | | | | | ||
|
| |
| |
|
|
| Maximum Number |
| |
| |
|
|
| Maximum Number | ||
| | Total | | Average | | Total Number of | | of Shares | | Total | | Average | | Total Number of | | of Shares | ||
| | Number | | Price | | Shares Purchased as | | that May Yet Be | | Number | | Price | | Shares Purchased as | | that May Yet Be | ||
| | of Shares | | Paid | | Part of the Publicly | | Purchased Under | | of Shares | | Paid | | Part of the Publicly | | Purchased Under | ||
Period | | Purchased | | Per Share | | Announced Program | | the Program | | Purchased | | Per Share | | Announced Program | | the Program | ||
01/01/2023 - 01/31/2023 |
| 18,072 | | $ | 23.99 |
| 18,072 |
| 1,021,107 | |||||||||
02/01/2023 - 02/28/2023 |
| 20,643 | | $ | 26.31 |
| 20,643 |
| 1,000,464 | |||||||||
03/01/2023 - 03/31/2023 |
| 23,637 | | $ | 23.38 |
| 23,637 |
| 976,827 | |||||||||
04/01/2023 - 04/30/2023 |
| 15,978 | | $ | 26.00 |
| 15,978 |
| 960,849 | |||||||||
05/01/2023 - 05/31/2023 |
| 4,885 | | $ | 26.10 |
| 4,885 |
| 955,964 | |||||||||
06/01/2023 - 06/30/2023 |
| 1,942 | | $ | 26.47 |
| 1,942 |
| 954,022 | |||||||||
Total |
| 62,352 | | $ | 24.70 |
| 62,352 |
| |
| 22,805 | | 26.06 |
| 22,805 |
| |
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Item 6. Exhibits.
Exhibit |
| Description |
| Incorporation Herein By Reference To |
| Filed |
| | | | | | |
31.1 | | | | | X | |
| | | | | | |
31.2 | | | | | X | |
| | | | | | |
32 | | Section 906 Certification of Chief Executive Officer and Chief Financial Officer | | | | X |
| | | | | | |
101 | | The following financial information from Weyco Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended | | | | X |
| | | | | | |
104 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended | | | | X |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| WEYCO GROUP, INC. | |
|
| |
Dated: | | /s/ Judy Anderson |
| | Judy Anderson |
| | Vice President, |
2021