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,September 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 Symbol |
| 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,October 27, 2023, there were 9,509,3569,497,622 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, | | September 30, | | December 31, | ||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||
ASSETS: |
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 22,565 | | $ | 16,876 | | $ | 33,397 | | $ | 16,876 |
Investments, at fair value | | | 108 | | | 107 | | | 110 | | | 107 |
Marketable securities, at amortized cost | |
| 1,098 | |
| 1,385 | |
| 1,096 | |
| 1,385 |
Accounts receivable, net | | | 52,791 | | | 53,298 | | | 53,209 | | | 53,298 |
Income tax receivable | | | — | | | 945 | | | 250 | | | 945 |
Inventories | |
| 106,677 | |
| 127,976 | |
| 79,567 | |
| 127,976 |
Prepaid expenses and other current assets | |
| 3,833 | |
| 5,870 | |
| 3,060 | |
| 5,870 |
Total current assets | |
| 187,072 | |
| 206,457 | |
| 170,689 | |
| 206,457 |
| | | | | | | | | | | | |
Marketable securities, at amortized cost | |
| 6,903 | |
| 7,123 | |
| 6,412 | |
| 7,123 |
Deferred income tax benefits | |
| 1,021 | |
| 1,038 | |
| 979 | |
| 1,038 |
Property, plant and equipment, net | |
| 28,794 | |
| 28,812 | |
| 29,337 | |
| 28,812 |
Operating lease right-of-use assets | | | 14,032 | | | 13,428 | | | 11,546 | | | 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 | |
| 23,962 | |
| 23,827 |
Total assets | | $ | 307,709 | | $ | 326,620 | | $ | 288,860 | | $ | 326,620 |
| | | | | | | | | | | | |
LIABILITIES AND EQUITY: | | | | |
| | | | | |
| |
Short-term borrowings | | $ | 20,640 | | $ | 31,136 | | $ | — | | $ | 31,136 |
Accounts payable | | | 6,540 | | | 14,946 | | | 4,831 | | | 14,946 |
Dividend payable | |
| — | |
| 2,290 | |
| — | |
| 2,290 |
Operating lease liabilities | | | 4,270 | | | 4,026 | | | 3,840 | | | 4,026 |
Accrued liabilities | |
| 11,751 | |
| 15,137 | |
| 11,389 | |
| 15,137 |
Accrued income tax payable | | | 1,245 | | | — | ||||||
Total current liabilities | |
| 44,446 | |
| 67,535 | |
| 20,060 | |
| 67,535 |
| | | | | | | | | | | | |
Deferred income tax liabilities | |
| 8,524 | |
| 8,530 | |
| 8,485 | |
| 8,530 |
Long-term pension liability | |
| 15,651 | |
| 15,523 | |
| 15,866 | |
| 15,523 |
Operating lease liabilities | | | 10,897 | | | 10,661 | | | 8,640 | | | 10,661 |
Other long-term liabilities | |
| 523 | |
| 466 | |
| 426 | |
| 466 |
Total liabilities | |
| 80,041 | |
| 102,715 | |
| 53,477 | |
| 102,715 |
| | | | | | | | | | | | |
Common stock | | | 9,523 | | | 9,584 | | | 9,511 | | | 9,584 |
Capital in excess of par value | |
| 70,828 | |
| 70,475 | |
| 71,269 | |
| 70,475 |
Reinvested earnings | |
| 167,717 | |
| 164,039 | |
| 175,338 | |
| 164,039 |
Accumulated other comprehensive loss | |
| (20,400) | |
| (20,193) | |
| (20,735) | |
| (20,193) |
Total equity | |
| 227,668 | |
| 223,905 | |
| 235,383 | |
| 223,905 |
Total liabilities and equity | | $ | 307,709 | | $ | 326,620 | | $ | 288,860 | | $ | 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 September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
| | (In thousands, except per share amounts) | ||||||||||
| | | | | | | | | | | | |
Net sales | | $ | 84,150 | | $ | 96,971 | | $ | 237,458 | | $ | 252,690 |
Cost of sales | | | 47,997 | |
| 57,583 | |
| 135,136 | |
| 154,404 |
Gross earnings | |
| 36,153 | |
| 39,388 | |
| 102,322 | |
| 98,286 |
| |
| | |
| | |
| | |
| |
Selling and administrative expenses | |
| 23,720 | |
| 25,181 | |
| 72,803 | |
| 72,983 |
Earnings from operations | |
| 12,433 | |
| 14,207 | |
| 29,519 | |
| 25,303 |
| |
| | |
| | |
| | |
| |
Interest income | |
| 269 | |
| 86 | |
| 598 | |
| 266 |
Interest expense | |
| (5) | |
| (197) | |
| (522) | |
| (209) |
Other (expense) income, net | |
| (133) | |
| 141 | |
| (431) | |
| 316 |
| |
| | |
| | |
| | |
| |
Earnings before provision for income taxes | |
| 12,564 | |
| 14,237 | |
| 29,164 | |
| 25,676 |
| |
| | |
| | |
| | |
| |
Provision for income taxes | |
| 3,227 | |
| 3,467 | |
| 7,518 | |
| 6,358 |
| |
| | |
| | |
| | |
| |
Net earnings | | $ | 9,337 | | $ | 10,770 | | $ | 21,646 | | $ | 19,318 |
| |
|
| |
|
| |
|
| |
|
|
Weighted average shares outstanding | |
|
| |
|
| |
|
| |
|
|
Basic | |
| 9,451 | |
| 9,535 | |
| 9,458 | |
| 9,560 |
Diluted | |
| 9,530 | |
| 9,605 | |
| 9,539 | |
| 9,638 |
| |
| | |
| | |
| | |
| |
Earnings per share | |
| | |
| | |
| | |
| |
Basic | | $ | 0.99 | | $ | 1.13 | | $ | 2.29 | | $ | 2.02 |
Diluted | | $ | 0.98 | | $ | 1.12 | | $ | 2.27 | | $ | 2.01 |
| |
| | |
| | |
| | |
| |
Cash dividends declared (per share) | | $ | 0.25 | | $ | 0.24 | | $ | 0.74 | | $ | 0.72 |
| |
| | |
| | |
| | |
| |
Comprehensive income | | $ | 8,656 | | $ | 9,248 | | $ | 21,104 | | $ | 17,406 |
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 |
| | | | | | |
| | Nine Months Ended September 30, | ||||
|
| 2023 |
| 2022 | ||
| | (Dollars in thousands) | ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| |
|
| |
|
Net earnings | | $ | 21,646 | | $ | 19,318 |
Adjustments to reconcile net earnings to net cash provided by (used for) operating activities - | |
| | |
| |
Depreciation | |
| 1,930 | |
| 1,840 |
Amortization | |
| 204 | |
| 213 |
Bad debt expense | |
| 107 | |
| 135 |
Deferred income taxes | |
| (82) | |
| (215) |
Net foreign currency transaction gains | |
| (9) | |
| (233) |
Share-based compensation expense | |
| 996 | |
| 1,157 |
Pension expense | |
| 970 | |
| 53 |
Impairment of trademark | | | — | |
| 350 |
Net gain on remeasurement of contingent consideration | | | — | | | (407) |
Increase in cash surrender value of life insurance | |
| (315) | |
| (450) |
Changes in operating assets and liabilities - | |
| | |
| |
Accounts receivable | |
| (6) | |
| (11,188) |
Inventories | |
| 48,442 | |
| (41,134) |
Prepaid expenses and other assets | |
| 2,775 | |
| 1,319 |
Accounts payable | |
| (10,164) | |
| (10,116) |
Accrued liabilities and other | |
| (4,331) | |
| (2,571) |
Accrued income taxes | |
| 775 | |
| (139) |
Net cash provided by (used for) operating activities | |
| 62,938 | |
| (42,068) |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
|
| |
| |
Proceeds from maturities of marketable securities | |
| 1,015 | |
| 1,495 |
Proceeds from sale of investment securities | | | — | | | 8,050 |
Purchases of property, plant and equipment | |
| (2,565) | |
| (1,515) |
Net cash (used for) provided by investing activities | |
| (1,550) | |
| 8,030 |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
| |
Cash dividends paid | |
| (9,285) | |
| (6,878) |
Shares purchased and retired | |
| (3,439) | |
| (3,264) |
Net proceeds from stock options exercised | |
| 33 | |
| 276 |
Payment of contingent consideration | | | (500) | | | — |
Taxes paid related to the net share settlement of equity awards | | | (173) | | | (12) |
Proceeds from bank borrowings | |
| 70,060 | |
| 71,833 |
Repayments of bank borrowings | | | (101,196) | | | (37,168) |
Net cash (used for) provided by financing activities | |
| (44,500) | |
| 24,787 |
| | | | | | |
Effect of exchange rate changes on cash and cash equivalents | |
| (367) | |
| (612) |
| | | | | | |
Net increase (decrease) in cash and cash equivalents | | $ | 16,521 | | $ | (9,863) |
| | | | | | |
CASH AND CASH EQUIVALENTS at beginning of period | |
| 16,876 | | | 19,711 |
| | | | | | |
CASH AND CASH EQUIVALENTS at end of period | | $ | 33,397 | | $ | 9,848 |
| | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | |
| | |
| |
Income taxes paid, net of refunds | | $ | 6,462 | | $ | 6,729 |
Interest paid | | $ | 971 | | $ | 209 |
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’sour 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 nine months ended March 31,September 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, trademarks, and trademarkssales allowances could materially differ from those estimates, which would impact the reported amounts and disclosures in the consolidated 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 September 30, | | Nine Months Ended September 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 | | | $ | 9,337 | | $ | 10,770 | | $ | 21,646 | | $ | 19,318 |
|
|
| | |
| | |
|
| | |
| | |
| | |
| |
Denominator: |
|
| | |
| | |
|
| | |
| | |
| | |
| |
Basic weighted average shares outstanding |
|
| 9,483 | |
| 9,596 | |
|
| 9,451 | |
| 9,535 | |
| 9,458 | |
| 9,560 |
Effect of dilutive securities: |
|
| | |
| | |
|
| | |
| | |
| | |
| |
Employee share-based awards |
|
| 62 | |
| 51 | |
|
| 79 | |
| 70 | |
| 81 | |
| 78 |
Diluted weighted average shares outstanding |
|
| 9,545 | |
| 9,647 | |
|
| 9,530 | |
| 9,605 | |
| 9,539 | |
| 9,638 |
|
|
| | |
| | |
|
| | |
| | |
| | |
| |
Basic earnings per share | | $ | 0.79 | | $ | 0.42 | | | $ | 0.99 | | $ | 1.13 | | $ | 2.29 | | $ | 2.02 |
|
|
| | |
| | |
|
| | |
| | |
| | |
| |
Diluted earnings per share | | $ | 0.78 | | $ | 0.42 | | | $ | 0.98 | | $ | 1.12 | | $ | 2.27 | | $ | 2.01 |
Diluted weighted average shares outstanding for the three months ended March 31,September 30, 2023, excludesexcluded anti-dilutive stock options totaling 1,042,000606,000 shares of common stock at a weighted average exercise price of $26.79.$28.13. Diluted weighted average shares outstanding for the threenine months ended March 31, 2022 excludesSeptember 30, 2023, excluded anti-dilutive stock options totaling 928,000692,000 shares of common stock at a weighted average exercise price of $27.24.
$28.56. Diluted weighted average shares outstanding for the three months ended September 30, 2022, excluded anti-dilutive stock options totaling 1,046,000 shares of common stock at a weighted average exercise price of $26.80. Diluted weighted average shares outstanding for the nine months ended September 30, 2022, excluded anti-dilutive stock options totaling 819,000 shares of common stock at a weighted average exercise price of $27.59.
65
4. Investments
Investments, at fair value
At both March 31,September 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 nine months ended September 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,September 30, 2023, and December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | | September 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: |
| |
|
| |
|
| |
|
| |
| ||||||||||||
Marketable Securities: |
| |
|
| |
|
| |
|
| |
| ||||||||||||
Current | | $ | 1,098 | | $ | 1,098 | | $ | 1,385 | | $ | 1,381 | | $ | 1,096 | | $ | 1,093 | | $ | 1,385 | | $ | 1,381 |
Due from one through five years | |
| 3,757 | |
| 3,758 | |
| 3,977 | |
| 3,950 | |
| 3,264 | |
| 3,127 | |
| 3,977 | |
| 3,950 |
Due from six through ten years | |
| 2,347 | |
| 2,492 | |
| 2,347 | |
| 2,455 | |
| 3,148 | |
| 3,069 | |
| 2,347 | |
| 2,455 |
Due from eleven through twenty years | |
| 799 | |
| 796 | |
| 799 | |
| 773 | |
| — | |
| — | |
| 799 | |
| 773 |
Total | | $ | 8,001 | | $ | 8,144 | | $ | 8,508 | | $ | 8,559 | | $ | 7,508 | | $ | 7,289 | | $ | 8,508 | | $ | 8,559 |
The unrealized gains and losses on marketable securities at March 31,September 30, 2023, and at December 31, 2022, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | | September 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) | ||||||||||||
Marketable Securities | | $ | 160 | | $ | (379) | | $ | 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,September 30, 2023, and determined that no other-than-temporary market value impairment exists.
5. Intangible Assets
During the threenine months ended March 31,September 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 |
| | |
| September 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 | | $ | (2,936) | | $ | 564 | | $ | 3,500 | | $ | (2,761) | | $ | 739 |
Total amortizable intangible assets | | | | | $ | 3,500 | | $ | (2,819) | | $ | 681 | | $ | 3,500 | | $ | (2,761) | | $ | 739 | | | | | $ | 3,500 | | $ | (2,936) | | $ | 564 | | $ | 3,500 | | $ | (2,761) | | $ | 739 |
Amortization expense related to the intangible assets was approximately $58,000 in both the firstthird quarters of 2023 and 2022.
For both the nine-month periods ended September 30, 2023 and September 30, 2022, amortization expense related to the intangible assets was approximately $175,000.
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 nine-month periods ended March 31,September 30, 2023 and 2022, waswere as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, |
| Wholesale |
| Retail |
| Other |
| Total | ||||||||||||||||
September 30, |
| Wholesale |
| Retail |
| Other |
| Total | ||||||||||||||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||||||||||||||
2023 |
| |
|
| |
|
| |
|
| | |
| |
|
| |
|
| |
|
| |
|
Product sales | | $ | 69,281 | | $ | 8,930 | | $ | 7,467 | | $ | 85,678 | | $ | 68,927 | | $ | 7,584 | | $ | 7,094 | | $ | 83,605 |
Licensing revenues | |
| 616 | |
| — | |
| — | |
| 616 | |
| 545 | |
| — | |
| — | |
| 545 |
Net sales | | $ | 69,897 | | $ | 8,930 | | $ | 7,467 | | $ | 86,294 | | $ | 69,472 | | $ | 7,584 | | $ | 7,094 | | $ | 84,150 |
Earnings from operations | | $ | 8,829 | | $ | 1,282 | | $ | 275 | | $ | 10,386 | | $ | 11,251 | | $ | 926 | | $ | 256 | | $ | 12,433 |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
2022 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Product sales | | $ | 66,668 | | $ | 7,860 | | $ | 6,400 | | $ | 80,928 | | $ | 81,183 | | $ | 7,129 | | $ | 8,205 | | $ | 96,517 |
Licensing revenues | |
| 432 | |
| — | |
| — | |
| 432 | |
| 454 | |
| — | |
| — | |
| 454 |
Net sales | | $ | 67,100 | | $ | 7,860 | | $ | 6,400 | | $ | 81,360 | | $ | 81,637 | | $ | 7,129 | | $ | 8,205 | | $ | 96,971 |
Earnings (loss) from operations | | $ | 4,846 | | $ | 828 | | $ | (243) | | $ | 5,431 | ||||||||||||
Earnings from operations | | $ | 12,906 | | $ | 825 | | $ | 476 | | $ | 14,207 |
| | | | | | | | | | | | |
Nine Months Ended | | | | | | | | | | | | |
September 30, |
| Wholesale |
| Retail |
| Other |
| Total | ||||
| | (Dollars in thousands) | ||||||||||
2023 |
| |
|
| |
|
| |
|
| | |
Product sales | | $ | 189,118 | | $ | 24,141 | | $ | 22,484 | | $ | 235,743 |
Licensing revenues | |
| 1,715 | |
| — | |
| — | |
| 1,715 |
Net sales | | $ | 190,833 | | $ | 24,141 | | $ | 22,484 | | $ | 237,458 |
Earnings from operations | | $ | 25,435 | | $ | 3,277 | | $ | 807 | | $ | 29,519 |
| |
| | |
| | |
| | |
| |
2022 | |
| | |
| | |
| | |
| |
Product sales | | $ | 206,435 | | $ | 22,409 | | $ | 22,562 | | $ | 251,406 |
Licensing revenues | |
| 1,284 | |
| — | |
| — | |
| 1,284 |
Net sales | | $ | 207,719 | | $ | 22,409 | | $ | 22,562 | | $ | 252,690 |
Earnings from operations | | $ | 21,939 | | $ | 2,766 | | $ | 598 | | $ | 25,303 |
7. Employee Retirement Plans
The components of our pension expense were as follows:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||||||||
Service cost | | $ | 118 | | $ | 112 | | $ | 116 | | $ | 111 | | $ | 350 | | $ | 334 |
Interest cost | |
| 672 | |
| 432 | |
| 658 | |
| 438 | |
| 1,974 | |
| 1,315 |
Expected return on plan assets | |
| (577) | |
| (752) | |
| (575) | |
| (751) | |
| (1,726) | |
| (2,253) |
Net amortization and deferral | |
| 134 | | | 208 | |
| 124 | | | 219 | |
| 372 | |
| 657 |
Pension expense | | $ | 347 | | $ | — | | $ | 323 | | $ | 17 | | $ | 970 | | $ | 53 |
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. TheThese 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 September 30, |
| Nine Months Ended September 30, | ||||||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||||||||
Operating lease costs |
| $ | 1,362 | | $ | 1,264 |
| $ | 1,119 | | $ | 1,283 |
| $ | 3,744 | | $ | 3,855 |
Variable lease costs (1) | | | 2 | | | — | | | 40 | | | — | | | 91 | | | 10 |
Total lease costs |
| $ | 1,364 | | $ | 1,264 |
| $ | 1,159 | | $ | 1,283 |
| $ | 3,835 | | $ | 3,865 |
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,September 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 nine months ended September 30, 2023 |
| $ | 1,129 | |||
2024 |
|
| 4,215 |
|
| 4,054 |
2025 |
|
| 3,213 |
|
| 3,169 |
2026 |
|
| 2,754 |
|
| 2,736 |
2027 |
|
| 1,628 |
|
| 1,599 |
Thereafter |
|
| 1,084 |
|
| 1,061 |
Total lease payments |
|
| 16,591 |
|
| 13,748 |
Less imputed interest |
|
| (1,424) |
|
| (1,268) |
Present value of lease liabilities |
| $ | 15,167 |
| $ | 12,480 |
The operating lease liabilities are classified in the consolidated condensed balance sheets (unaudited) as follows:
| | | | | | | | | | | | |
|
| March 31, 2023 |
| December 31, 2022 |
| September 30, 2023 |
| December 31, 2022 | ||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||
Operating lease liabilities - current | | $ | 4,270 | | $ | 4,026 | | $ | 3,840 | | $ | 4,026 |
Operating lease liabilities - non-current | | | 10,897 | | | 10,661 | | | 8,640 | | | 10,661 |
Total |
| $ | 15,167 | | $ | 14,687 |
| $ | 12,480 | | $ | 14,687 |
We determined the present value of our lease liabilities using a weighted-average discount rate of 4.25%. As of March 31,September 30, 2023, our leases havehad a weighted-average remaining lease term of 3.93.8 years.
Supplemental cash flow information related to our operating leases is as follows:
| | | | | | | | | | | | | | | | | | |
|
| Three Months Ended March 31, |
| Three Months Ended September 30, | | Nine Months Ended September 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 |
| $ | 1,204 | | $ | 1,160 | | $ | 3,728 | | $ | 3,444 |
Right-of-use assets obtained in exchange for new lease liabilities (noncash) | | $ | 1,739 | | $ | — | | $ | 99 | | $ | 3,710 | | $ | 1,571 | | $ | 5,870 |
8
9. Income Taxes
The effective income tax rates for the three months ended March 31,September 30, 2023 and 2022 were 25.6%25.7% and 26.5%24.4%, respectively. The effective income tax rates for the nine months ended September 30, 2023 and 2022 effective tax rates differed from the federal rate of 21% primarily because of state taxes.were 25.8% and 24.8%, 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 nine months ended September 30, 2023, we recognized $321,000 and $996,000, respectively, of compensation expense associated with stock option and restricted stock awards granted in years 2018 through 2023. During the three and nine months ended September 30, 2022, we recognized $339,000 and $1,157,000, respectively, of compensation expense associated with stock option and restricted stock awards granted in years 2017 through 2022.
The following table summarizes our stock option activity for the three-monthnine-month period ended March 31,September 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 |
| — | | | — |
|
|
| |
|
| 149,200 | | $ | 25.79 |
|
|
| |
|
Exercised |
| (2,100) | | | 18.00 |
|
|
| |
|
| (404,564) | | $ | 25.36 |
|
|
| |
|
Forfeited or expired |
| (1,020) | | | 29.65 |
|
|
| |
|
| (31,890) | | $ | 25.59 |
|
|
| |
|
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 September 30, 2023 |
| 1,058,115 | | $ | 26.02 |
| 6.9 | | $ | 1,682,000 | ||||||||||
Exercisable at September 30, 2023 |
| 609,387 | | $ | 26.82 |
| 5.7 | | $ | 1,041,000 |
*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,September 29, 2023 of $25.30$25.35 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-monthnine-month period ended March 31,September 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 |
| — | | | — |
|
|
| |
|
| 27,700 | | | 25.79 |
|
|
| |
|
Vested |
| (150) | |
| 28.77 |
|
|
| |
|
| (28,243) | |
| 25.65 |
|
|
| |
|
Forfeited |
| - | |
| — |
|
|
| |
|
| (2,175) | |
| 25.13 |
|
|
| |
|
Non-vested at March 31, 2023 |
| 71,658 | | $ | 24.66 |
| 2.4 | | $ | 1,813,000 | ||||||||||
Non-vested at September 30, 2023 |
| 69,090 | | $ | 25.54 |
| 2.9 | | $ | 1,751,000 |
*The aggregate intrinsic value of non-vested restricted stock was calculated using the market value of our Company’s common stock on March 31,September 29, 2023 of $25.30$25.35 multiplied by the number of non-vested restricted shares outstanding.
11. Short-Term Borrowings
At March 31,On September 28, 2023, we had a $50.0 million revolvingamended our line of credit with a bank that is secured by a lien againstagreement. The amendment (“Amended Credit Agreement”) extended the maturity of our general business assets, and expires oncredit facility to September 28, 2023. Outstanding advances on2024 and has a maximum available borrowing limit of $40.0 million. Under the lineterms of creditthe Amended Credit Agreement, amounts outstanding bear interest at the one-month term secured overnight financing rate (“SOFR”) plus 145125 basis points. Our line of credit agreementThe Amended Credit Agreement is secured by a security interest in our general business assets, and contains customary representations, warranties, and covenants (including a minimum tangible net worth financial covenant) that are customary for a facility of this type. At March 31,September 30, 2023, there were no outstanding borrowings on the line of credit, totaled approximately $20.6 million at an interest rate of 6.26%, and we were in compliance with all financial covenants.
9
12. Financial Instruments
At March 31,September 30, 2023, our wholly-owned subsidiary, Florsheim Australia, had foreign exchange contracts outstanding to buy $3.2$1.2 million U.S. dollars at a price of approximately $4.5$1.7 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.
13.Comprehensive Income
Comprehensive income for the three and nine months ended September 30, 2023 and 2022, was as follows:
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
| | (Dollars in thousands) | ||||||||||
Net earnings | | $ | 9,337 | | $ | 10,770 | | $ | 21,646 | | $ | 19,318 |
Foreign currency translation adjustments | |
| (773) | |
| (1,684) | |
| (817) | |
| (2,398) |
Pension liability adjustment, net of tax of $32, $57, $97, and $171, respectively | |
| 92 | |
| 162 | |
| 275 | |
| 486 |
Total comprehensive income | | $ | 8,656 | | $ | 9,248 | | $ | 21,104 | | $ | 17,406 |
The components of accumulated other comprehensive loss as recorded in the Consolidated Condensed Balance Sheets (Unaudited) were as follows:
| | | | | | |
|
| September 30, |
| December 31, | ||
| | 2023 | | 2022 | ||
| | (Dollars in thousands) | ||||
Foreign currency translation adjustments | | $ | (9,413) | | $ | (8,596) |
Pension liability, net of tax | |
| (11,322) | |
| (11,597) |
Total accumulated other comprehensive loss | | $ | (20,735) | | $ | (20,193) |
10
13.Comprehensive Income
Comprehensive income for the three months ended March 31, 2023 and 2022, was as follows:
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2023 |
| 2022 | ||
| | (Dollars in thousands) | ||||
Net earnings | | $ | 7,445 | | $ | 4,053 |
Foreign currency translation adjustments | |
| (306) | |
| 521 |
Pension liability, net of tax of $35 and $54, respectively | |
| 99 | |
| 154 |
Total comprehensive income | | $ | 7,238 | | $ | 4,728 |
The components of accumulated other comprehensive loss as recorded in the Consolidated Condensed Balance Sheets (Unaudited) were as follows:
| | | | | | |
|
| March 31, |
| December 31, | ||
| | 2023 | | 2022 | ||
| | (Dollars in thousands) | ||||
Foreign currency translation adjustments | | $ | (8,902) | | $ | (8,596) |
Pension liability, net of tax | |
| (11,498) | |
| (11,597) |
Total accumulated other comprehensive loss | | $ | (20,400) | | $ | (20,193) |
The following tables show changes in accumulated other comprehensive loss during the threenine months ended March 31,September 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) | | | (817) | | | — | | | (817) |
Amounts reclassified from accumulated other comprehensive loss | | | — | | | 99 | | | 99 | | | — | | | 275 | | | 275 |
Net current period other comprehensive (loss) income | | | (306) | | | 99 | | | (207) | | | (817) | | | 275 | | | (542) |
Ending balance, March 31, 2023 | | $ | (8,902) | | $ | (11,498) | | $ | (20,400) | |||||||||
Ending balance, September 30, 2023 | | $ | (9,413) | | $ | (11,322) | | $ | (20,735) |
| | | | | | | | | | | | | | | | | | |
|
| 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 | | | (2,398) | | | — | | | (2,398) | |||||||||
Amounts reclassified from accumulated other comprehensive loss | | | — | | | 154 | | | 154 | | | — | | | 486 | | | 486 |
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 |
| | (2,398) |
| | 486 |
| | (1,912) | |||||||||
Ending balance, September 30, 2022 | | $ | (9,181) | | $ | (17,525) | | $ | (26,706) |
11
The following table shows reclassification adjustments out of accumulated other comprehensive loss during the three monthsand nine month periods ended March 31,September 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 September 30, | | Nine Months Ended September 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 | | $ | 2 | | $ | 15 | | $ | 5 | (1) | Other (expense) income, net |
Actuarial losses | |
| 129 | | | 206 | (1) | Other expense, net | |
| 119 | | | 217 | | | 357 | |
| 652 | (1) | Other (expense) income, net |
Total before tax | |
| 134 | | | 208 | |
| |
| 124 | | | 219 | | | 372 | |
| 657 |
|
|
Tax benefit | |
| (35) | | | (54) | |
| |
| (32) | | | (57) | | | (97) | |
| (171) |
|
|
Net of tax | | $ | 99 | | $ | 154 | |
| | $ | 92 | | $ | 162 | | $ | 275 | | $ | 486 |
|
|
(1) | These amounts were included in pension expense. See Note 7 for additional details. |
11
14. Equity
The following table reconciles our equity for the threenine months ended March 31,September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | 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, 2022 | | $ | 9,584 | | $ | 70,475 | | $ | 164,039 | | $ | (20,193) | | $ | 9,584 | | $ | 70,475 | | $ | 164,039 | | $ | (20,193) |
Net earnings | |
| — | |
| — | |
| 7,445 | |
| — | |
| — | |
| — | |
| 7,445 | |
| — |
Foreign currency translation adjustments | |
| — | |
| — | |
| — | |
| (306) | |
| — | |
| — | |
| — | |
| (306) |
Pension liability adjustment, net of tax | |
| — | |
| — | |
| — | |
| 99 | |
| — | |
| — | |
| — | |
| 99 |
Cash dividends declared | |
| — | |
| — | |
| (2,289) | |
| — | |
| — | |
| — | |
| (2,289) | |
| — |
Stock options exercised, net of shares withheld for employee taxes and strike price | | | 1 | | | 15 | | | — | | | — | | | 1 | | | 15 | | | — | | | — |
Share-based compensation expense | | | — | | | 338 | | | — | | | — | | | — | | | 338 | | | — | | | — |
Shares purchased and retired | | | (62) | | | — | | | (1,478) | | | — | | | (62) | | | — | | | (1,478) | | | — |
Balance, March 31, 2023 | | $ | 9,523 | | $ | 70,828 | | $ | 167,717 | | $ | (20,400) | | $ | 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) | ||||||||||||
Net earnings | | | — | | | — | | | 9,337 | | | — | ||||||||||||
Foreign currency translation adjustments | | | — | | | — | | | — | | | (773) | ||||||||||||
Pension liability adjustment, net of tax | | | — | | | — | | | — | | | 92 | ||||||||||||
Cash dividends declared | | | — | | | — | | | (2,377) | | | — | ||||||||||||
Stock options exercised, net of shares withheld for employee taxes and strike price | | | 6 | | | 3 | | | — | | | — | ||||||||||||
Issuance of restricted stock | | | 28 | | | (28) | | | — | | | — | ||||||||||||
Restricted stock forfeited | | | (2) | | | 2 | | | — | | | — | ||||||||||||
Share-based compensation expense | | | — | | | 321 | | | — | | | — | ||||||||||||
Shares purchased and retired | | | (50) | | | — | | | (1,255) | | | — | ||||||||||||
Balance, September 30, 2023 | | $ | 9,511 | | $ | 71,269 | | $ | 175,338 | | $ | (20,735) |
The following table reconciles our equity for the three months ended March 31, 2022:
| | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | |
| | | | | Capital in | | | | | Other | ||
| | Common | | Excess of | | Reinvested | | Comprehensive | ||||
|
| Stock |
| Par Value |
| Earnings |
| Loss | ||||
|
| (Dollars in thousands) | ||||||||||
Balance, December 31, 2021 | | $ | 9,709 | | $ | 68,718 | | $ | 147,762 | | $ | (24,794) |
Net earnings | |
| — | |
| — | |
| 4,053 | |
| — |
Foreign currency translation adjustments | |
| — | |
| — | |
| — | |
| 521 |
Pension liability adjustment, net of tax | |
| — | |
| — | |
| — | |
| 154 |
Cash dividends declared | |
| — | |
| — | |
| (2,316) | |
| — |
Stock options exercised, net of shares withheld for employee taxes and strike price | | | — | | | 8 | | | — | | | — |
Share-based compensation expense | |
| — | | | 350 | | | — | | | — |
Shares purchased and retired | | | (75) | | | — | | | (1,722) | | | — |
Balance, March 31, 2022 | | $ | 9,634 | | $ | 69,076 | | $ | 147,777 | | $ | (24,119) |
12
The following table reconciles our equity for the nine months ended September 30, 2022:
| | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | |
| | | | | Capital in | | | | | Other | ||
| | Common | | Excess of | | Reinvested | | Comprehensive | ||||
|
| Stock |
| Par Value |
| Earnings |
| Loss | ||||
|
| (Dollars in thousands) | ||||||||||
Balance, December 31, 2021 | | $ | 9,709 | | $ | 68,718 | | $ | 147,762 | | $ | (24,794) |
Net earnings | |
| — | |
| — | |
| 4,053 | |
| — |
Foreign currency translation adjustments | |
| — | |
| — | |
| — | |
| 521 |
Pension liability adjustment, net of tax | |
| — | |
| — | |
| — | |
| 154 |
Cash dividends declared | |
| — | |
| — | |
| (2,316) | |
| — |
Stock options exercised, net of shares withheld for emloyee taxes and strike price | | | — | | | 8 | | | — | | | — |
Share-based compensation expense | |
| — | | | 350 | | | — | | | — |
Shares purchased and retired | | | (75) | | | — | | | (1,722) | | | — |
Balance, March 31, 2022 | | $ | 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 emloyee 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) |
Net earnings | | | — | | | — | | | 10,770 | | | — |
Foreign currency translation adjustments | | | — | | | — | | | — | | | (1,684) |
Pension liability adjustment, net of tax | | | — | | | — | | | — | | | 162 |
Cash dividends declared | | | — | | | — | | | (2,310) | | | — |
Stock options exercised, net of shares withheld for emloyee taxes and strike price | | | 3 | | | 45 | | | — | | | — |
Issuance of restricted stock | | | 28 | | | (28) | | | — | | | — |
Share-based compensation expense | | | — | | | 339 | | | — | | | — |
Shares purchased and retired | | | (30) | | | — | | | (707) | | | — |
Balance, September 30, 2022 | | $ | 9,621 | | $ | 70,093 | | $ | 157,017 | | $ | (26,706) |
13
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 on 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 includingincluding: 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.employees in our stores. 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
We started the year 2023 strong, setting a first quarter sales record and generating robust record-level earningsSales in both our Wholesale and Retail segments.
Net sales of our WholesaleNorth American wholesale segment were up 4%down 15% for the quarter, ledcompared to a record third quarter last year. Wholesale sales in 2022 reflected strong consumer demand, but also significant pipeline fill as many accounts were replenishing stock depleted due to pandemic-related supply chain delays. This quarter was our second most profitable third quarter in terms of wholesale operating earnings, second only to last year. This year, the retail environment is more challenging due to macro-economic pressures, and consumers are being cautious in terms of expenditures on footwear and apparel. With demand softening, retailers are being conservative with at-once and future orders at the wholesale level.
The change in retail dynamics is most apparent in the outdoor market. Given the spike in demand in 2021 and the first half of last year, retailers placed heavy orders with the expectation of strong consumer sell-throughs. Sales did not keep pace in the back half of last year, and the outdoor trade channel entered 2023 with an inventory glut. The situation has been exacerbated by unseasonably warm weather in early Fall. As a result, sales of the BOGS brand declined 42%, compared to record sales last year, with retailers placing fewer orders due to the current saturation of product in the market. While the majority of our BOGS’ inventory is in core product that remains valid from year to year, we are also taking steps to reduce inventory of slower moving styles. We anticipate that the inventory backlog in the outdoor footwear category will not normalize until the second half of 2024. While the market is challenging, we are optimistic about the brand’s long-term growth prospects given BOGS’ strong consumer loyalty. We continue to develop new BOGS product with a special focus on less insulated footwear with a longer selling season.
In our legacy business. Wholesalebusiness, Florsheim net sales increased duewere down 7%, compared to higher unit selling prices, while pairs shipped decreased 5%. Florsheim had another record quarter with a 15% increase, assales for the brand continuesin last year’s third quarter. Sales of Stacy Adams were down 1%, and sales of the Nunn Bush brand were up 11%, with the increase driven in part by incremental sales in the casual and hybrid categories, and sales of new programs to pick up market sharea few large retailers. All three brands maintained solid retail sell-throughs during the quarter despite a general slowdown in the more 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 madeWe are encouraged by our progress within the comfort casual segment, with over half of its sales coming from the casual category. Stacy Adams was down 3% for the quarter. Stacy Adams continues to be the leading brand for accessible fashion footwear, and we are well-positioned from an inventory and style perspective for the key upcoming prom and wedding seasons. Our legacy 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 reset and sell-through rates for our brands have normalized at slightly above pre-pandemic levels. While accounts are now taking a cautious approach 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. While we are heavier than normal in terms of our BOGS inventory levels, we believe it is a manageable situation as we were careful to invest in evergreenselling
1314
styles. Overall,hybrid footwear that is more casual in nature but can be worn across a variety of settings from office to social occasions. Consumers are gravitating towards this category of footwear, and we see this as an important growth area for our Legacy business. From a product development perspective, we are expanding our range of hybrid footwear while selectively adding to our true casual and refined footwear assortment.
Retail sales were up 6% for the BOGS brandquarter with the increase driven primarily by our e-commerce business. Footwear industry statistics indicate the e-commerce sales channel is healthydown year-to-date, so it is encouraging that we continue to grow our e-commerce platform in a very competitive environment.
Sales at Florsheim Australia were down 14%, and maintainsin local currency, were down 10%. The Australian market is facing some of the same challenges as in the U.S. regarding softness in the footwear and apparel category. We also lost a leadership position withinsizeable wholesale account that impacted our wholesale shipments for the weather boot category,quarter. Going forward, we believe that we will make up some of this deficit in the Australian market through other accounts as well as an expanding casual lifestyle business. We project a return to more normalized inventory levels in the fourth quarter of 2023 and a rebound in sales growth in 2024.
In our Retail segment, sales were up 14% for the quarter. Mosttransfer of the increase was driven by internet sales; brick-and-mortar sales also increased forAsia-Pacific wholesale business to the quarter. First quarter retail operating earnings rose 55%. Our e-commerce team has been focused on reducing expenses as a percent of sales. The results this quarter indicated the progress that has been made 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 mindful of the need to manage our expenses to maintain a healthy net profit margin.
Florsheim Australia’s net sales were up 17% for the quarter. In local currency, they were up 24%. While we were up against an easy comparable due to last year’s first Omicron partial shut-down in Australia and other overseas markets, our performance reflects a solid post-pandemic business model for the region. As in the U.S., our business overseas is trending well but faces uncertainty related to economic pressures as the world navigates higher interest rates and cautious consumer demand. office.
Consolidated Sales and EarningsThird Quarter Highlights
Consolidated net sales were a first-quarter record of $86.3$84.2 million, up 6%down 13% compared to our previous record third-quarter sales of $81.4$97.0 million in 2022. Consolidated gross earnings increased to 43.1%43.0% of net sales compared to 35.8%40.6% of net sales in last year’s firstthird quarter, due mainly to higher gross margins in our Wholesale segment. Operating earningsEarnings from operations were a first-quarter$12.4 million, down 12% compared to record of $10.4 million, up more than 90% over last year’s first quarter operating earnings of $5.4 million. Net$14.2 million in 2022. Quarterly net earnings were a first-quarter record of $7.4totaled $9.3 million, or $0.78$0.98 per diluted share, up 84% compared to $4.1record net earnings of $10.8 million, or $0.42$1.12 per diluted share, last year.
Year-to-Date Highlights
Consolidated net sales for the first nine months of 2023 were $237.5 million, down 6% compared to record sales of $252.7 million in the first nine months of 2022. Consolidated gross earnings were 43.1% of net sales in the first nine months of 2023 versus 38.9% 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 $29.5 million in 2023, up 17% over our previous record of $25.3 million in 2022. Our net earnings reached a record $21.6 million, or $2.27 per diluted share, in the first nine months of 2023, up 12% over our previous record of $19.3 million, or $2.01 per diluted share, in 2022.
Financial Position Highlights
At March 31,September 30, 2023, our cash, short-term investments, and marketable securities totaled $30.7$41.0 million and we had $20.6 millionno debt outstanding on our $50.0$40.0 million revolving line of credit. During the first threenine months of 2023, we generated $23.0$62.9 million of cash from operations.operations, due mainly to reductions in inventory levels. We used funds to pay down $10.5paid off $31.1 million on our line of credit, to pay $4.6paid $9.3 million in dividends, and to repurchase $1.5repurchased $3.4 million of our common stock. We alsostock, and we had approximately $660,000$2.6 million of capital expenditures.expenditures during the period.
SEGMENT ANALYSIS
Net sales and earnings from operations for our segments for the three and nine months ended March 31,September 30, 2023 and 2022, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | % | | | Three Months Ended September 30, | | % | | Nine Months Ended September 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 | % |
| $ | 69,472 |
| $ | 81,637 |
| -15 | % | $ | 190,833 |
| $ | 207,719 |
| -8 | % |
North American Retail | |
| 8,930 | |
| 7,860 |
| 14 | % | |
| 7,584 | |
| 7,129 |
| 6 | % | | 24,141 | | | 22,409 | | 8 | % |
Other | |
| 7,467 | |
| 6,400 |
| 17 | % | |
| 7,094 | |
| 8,205 |
| -14 | % | | 22,484 | | | 22,562 | | 0 | % |
Total | | $ | 86,294 | | $ | 81,360 |
| 6 | % | | $ | 84,150 | | $ | 96,971 |
| -13 | % | $ | 237,458 | | $ | 252,690 | | -6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings from Operations | | | | | | | | | | | | | | | | | | | | | | | | | | |
North American Wholesale | | $ | 8,829 | | $ | 4,846 |
| 82 | % | | $ | 11,251 | | $ | 12,906 |
| -13 | % | $ | 25,435 | | $ | 21,939 | | 16 | % |
North American Retail | |
| 1,282 | |
| 828 |
| 55 | % | |
| 926 | |
| 825 |
| 12 | % | | 3,277 | | | 2,766 | | 18 | % |
Other | |
| 275 | |
| (243) |
| 213 | % | |
| 256 | |
| 476 |
| -46 | % | | 807 | | | 598 | | 35 | % |
Total | | $ | 10,386 | | $ | 5,431 |
| 91 | % | | $ | 12,433 | | $ | 14,207 |
| -12 | % | $ | 29,519 | | $ | 25,303 | | 17 | % |
1415
North American Wholesale Segment
Net Sales
Net sales in our Wholesale segment for the three and nine months ended March 31,September 30, 2023 and 2022, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | % | | | Three Months Ended September 30, | | % | | Nine Months Ended September 30, | | % | | ||||||||||||
|
| 2023 |
| 2022 |
| Change |
|
| 2023 |
| 2022 |
| Change |
| 2023 |
| 2022 |
| Change |
| ||||||
| | (Dollars in thousands) | | | | | (Dollars in thousands) |
| ||||||||||||||||||
North American Wholesale Segment Net Sales |
| |
|
| |
|
|
| |
| |
|
| |
|
|
| | |
|
| |
|
|
| |
Stacy Adams | | $ | 16,300 | | $ | 16,797 |
| (3) | % | | $ | 14,348 | | $ | 14,544 |
| -1 | % | $ | 43,750 | | $ | 47,131 |
| -7 | % |
Nunn Bush | |
| 14,546 | |
| 14,374 |
| 1 | % | |
| 15,401 | |
| 13,824 |
| 11 | % | | 41,681 | |
| 40,001 |
| 4 | % |
Florsheim | |
| 25,209 | |
| 22,012 |
| 15 | % | |
| 22,638 | |
| 24,463 |
| -7 | % | | 69,303 | |
| 70,505 |
| -2 | % |
BOGS/Rafters | |
| 12,820 | |
| 13,099 |
| (2) | % | |
| 16,057 | |
| 27,735 |
| -42 | % | | 33,298 | |
| 47,607 |
| -30 | % |
Forsake | |
| 406 | |
| 386 |
| 5 | % | |
| 483 | |
| 617 |
| -22 | % | | 1,086 | |
| 1,191 |
| -9 | % |
Total North American Wholesale | | $ | 69,281 | | $ | 66,668 |
| 4 | % | | $ | 68,927 | | $ | 81,183 |
| -15 | % | $ | 189,118 | | $ | 206,435 |
| -8 | % |
Licensing | |
| 616 | |
| 432 |
| 43 | % | |
| 545 | |
| 454 |
| 20 | % | | 1,715 | |
| 1,284 |
| 34 | % |
Total North American Wholesale Segment | | $ | 69,897 | | $ | 67,100 |
| 4 | % | | $ | 69,472 | | $ | 81,637 |
| -15 | % | $ | 190,833 | | $ | 207,719 |
| -8 | % |
Net sales in our Wholesale segment reached a first-quarter record of $69.9 million in 2023, up 4% over our previous record of $67.1 million last year. Wholesale sales increased due to 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 last year. Net salesyear-to-date periods were down across most of our other major brands Nunn Bush, Stacy(Stacy Adams, Florsheim, and BOGS, remained relatively steady with lastBOGS/Rafters) due to reduced demand in 2023 following record growth in 2022. Last year’s robust firstsales were up significantly due to post-pandemic retailer pipeline fill and strong consumer demand. So far in 2023, most of our brands experienced decreases in pairs sold, as the footwear industry returned to its normal cycle, and as many retailers in the U.S. and Canada continue to pare back higher levels of inventory. BOGS has been particularly impacted by this slowdown due to the current saturation of product in the outdoor footwear market, and due to the mild start to Fall. Nunn Bush sales rose 11% and 4% for the quarter results.and year-to-date periods, respectively, due mainly to new programs with a few large retailers that performed well in the third quarter.
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%38.6% of net sales in the firstthird quarter of 2022. Gross2023 compared to 36.3% of net sales last year. Quarterly gross margins improved as a result of lower inventory costs compared to last year, primarily related to inbound freight costs. For the nine months ended September 30, wholesale gross earnings were 38.0% of net sales in 2023 and 33.5% of net sales in 2022. The increase in gross margins for the year-to-date period was due mainly to higher selling price increases implemented in 2022 to address higherprices and lower inbound freight costs. LastIn the first half of last year,’s first quarter gross margins were negatively impacted by higherinflated inbound freight costs as a result of the global supply chain issues ongoing at that time, which have since eased.
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 were $17.9$15.6 million or 26% of net sales, for the quarter compared to $15.3$16.7 million last year. The decrease was primarily due to lower employee costs, mainly commission-based compensation. As a percent of net sales, wholesale selling and administrative expenses were 22% and 21% of net sales in the third quarters of 2023 and 2022, respectively. For the nine months ended September 30, wholesale selling and administrative expenses were $47.1 million, or 25% of net sales, in 2023 versus $47.7 million, or 23% of net sales, in 2022.
Wholesale operating earnings totaled $11.3 million for the quarter, down 13% from $12.9 million in last year’s first quarter. This year’s expenses included higher employee costs. Wholesalethird quarter, due primarily to lower sales. For the nine months ended September 30, wholesale operating earnings reached a first-quarterrecord $25.4 million in 2023, up 16% over our previous record of $8.8 million, up 82% compared to $4.8$21.9 million in 2022, driven by the2022. The year-to-date earnings increase was primarily due to higher sales and gross margins this year.margins.
Our cost of sales does not include distribution costs (e.g., receiving, inspection, warehousing, shipping, and handling costs,costs) which are included in selling and administrative expenses).expenses. Wholesale distribution costs were $4.2$3.8 million in the firstthird quarter of 2023 and $3.6$4.1 million in the first quartersame period of 2022. Our gross earnings may not be comparable to other companies, as some companies may includeFor the nine-month periods ended September 30, wholesale distribution costs were $11.5 million in cost of sales.2023 and $11.3 million in 2022.
16
North American Retail Segment
Net Sales
Net sales in our Retailretail segment were a first-quarterthird-quarter record of $8.9$7.6 million in 2023, up 14%6% compared to our previous record of $7.9$7.1 million last year. The quarterly increase was due to higher sales across all our domestic e-commerce websites, with the largest increases at BOGS and Florsheim. For the nine months ended September 30, retail net sales reached a record $24.1 million in 2023, up 8% over our previous record of $22.4 million in 2022. The year-to-date increase was primarily due to higher sales onvolumes across all our e-commerce websites, with the Florsheim and Stacy Adams websites.largest increase at Florsheim. Brick-and-mortar sales also increased for the quarter.first nine months of 2023 were relatively flat compared to last year.
Earnings from Operations
Retail gross earnings as a percent of net sales were 66.3%65.4% and 65.9%66.3% in the firstthird quarters of 2023 and 2022, respectively. For the nine months ended September 30, 2023, retail gross earnings were 66.0% of net sales, compared to 66.5% 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, compared to $4.4 million last year. As a percentor 53% of net sales, in the third quarter of 2023 versus $3.9 million, or 55% of net sales, in the third quarter of 2022. For the nine months ended September 30, retail selling and administrative expenses were $12.6 million, or 52% of net sales, in 2023 and 55%$12.1 million, or 54% of net sales, in 2022. This decrease was primarily due to lower e-commerce expenses relative to net sales, primarily outbound freight and advertising costs. We realized cost savings during the quarter as a result of measures taken over the past year to control costs.
15
Retail operating earnings were a first-quarter record of $1.3 million,rose to $926,000 for the quarter, up 55%12% compared to $828,000$825,000 in last year. This increase wasyear’s third quarter. For the nine months ended September 30, retail operating earnings were $3.3 million in 2023, up 18% over $2.8 million in 2022. The increases for the quarter and year-to-date periods were primarily due to higher sales and improved profitability inearnings from our e-commerce businesses. Brick and mortar operating earnings were also up for the quarter.businesses, driven by higher web sales.
Other
OtherOperating results reported in the “other” category consist entirely of the operating results at Florsheim Australia. Third quarter 2023 net sales forof Florsheim Australia totaled $7.1 million, down 14% compared to $8.2 million in the firstthird quarter of 2022. In local currency, its net sales were down 10%, primarily in its wholesale businesses. For the nine months ended September 30, 2023, totaled $7.5other net sales were $22.5 million, up 17%down slightly compared to $6.4$22.6 million in 2022.the same period one year ago. In local currency, Florsheim Australia’s net sales were up 24% with5% for the year-to-date period, due to higher sales up in both its retail andbusinesses partially offset by lower sales in its 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%61.6% of net sales for the quarter compared to 59.6%61.4% of net sales in last year’s firstthird quarter. For the nine months ended September 30, its gross earnings as a percent of net sales were 61.5% and 60.9% in 2023 and 2022, respectively.
Other operating earnings recoveredtotaled $256,000 for the quarter versus $476,000 last year. The decrease was primarily due to $275,000lower earnings in Australia’s wholesale businesses, as a result of lower sales. For the nine-months ended September 30, 2023, up fromother operating losses of $243,000earnings totaled $807,000, compared to $598,000 in the same period last year. The year-to-date earnings increase was largely due to improved results of the retail businesses in Australia.
Other income and expense and taxes
Interest income was $139,000$269,000 and $91,000 in$86,000 for the first quarters ofthree months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, interest income was $598,000 in 2023 and $266,000 in 2022. The increases in 2023 were due to more interest earned on the higher cash balances this year. Interest expense increaseddecreased $192,000 in the three months ended September 30, 2023, compared to $385,000the same period of 2022, due to less interest incurred as we paid off our debt in the 2023 quarter. Interest expense for the quarter,nine months ended September 30, 2023 was up from $1,000 in last year’s first quarter,$313,000 over the same period of 2022, due to interest incurred on the higher average debt balances earlier this year.
Other expense,(expense) income, net, increased to $130,000totaled ($133,000) for the quarter up from $6,000compared to $141,000 in last year’s third quarter. For the firstyear-to-date period, other (expense) income, net, totaled ($431,000) in 2023 and $316,000 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 costcosts components of pension expense.expense this year. See Note 7 in the Notes to Consolidated Condensed Financial Statements (Unaudited) for additional details.
Our17
The effective income tax rates for the three months ended March 31,September 30, 2023 and 2022 were 25.6%25.7% and 26.5%24.4%, respectively. The effective income tax rates for the nine months ended September 30, 2023 and 2022 were 25.8% and 24.8%, 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 nine months of 2023, we generated $23.0$62.9 million of cash from operating activities during the first three months of 2023,operations compared to $231,000a use of cash totaling $42.1 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 inventory. Our inventory and accounts payable. Our overall inventorylevel was $79.6 million as of March 31,September 30, 2023 was $106.7 million, down fromcompared to $128.0 million at December 31, 2022. As expected,We believe our inventory levels have come downis now that the supply chain hasat a normalized level, and we can plan our receipts closercontinue to when we need to ship shoes to our customers.review areas of slow-moving product.
We paid dividends totaling $4.6$9.3 million and $2.3$6.9 million in the first quartersnine 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 quarternine months of 2023 includes twoincluded four quarterly dividend payments, as our fourth quarter 2022 dividend was paid in early January 2023. First quarterConversely, the first nine months of 2022 only included one quarterlythree dividend payment,payments, as our fourth quarter 2021 dividend was paid in December 2021. On May 2,November 7, 2023, our Board of Directors declared a cash dividend of $0.25 per share to all shareholders of record on May 26,November 27, 2023, payable June 30, 2023. This represents an increase of 4% above the previous quarterly dividend rate of $0.24. on January 2, 2024.
We repurchase our common stock under our share repurchase program when we believe market conditions are favorable. During the first three monthsnine of 2023, we repurchased 62,352135,513 shares for a total cost of $1.5$3.4 million. As of March 31,September 30, 2023, we had the authority to repurchase approximately 977,000904,000 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$2.6 million in the first threenine months of 2023. Management estimates that annualtotal capital expenditures for 2023 will be between $2.0$3.0 million and $4.0 million.
At March 31,On September 28, 2023, we had a $50.0 million revolvingamended our line of credit with a bank that is secured by a lien againstagreement. The amendment (“Amended Credit Agreement”) extended the maturity of our general business assets, and expires oncredit facility to September 28, 2023. Outstanding advances on2024 and has a maximum available borrowing limit of $40.0 million. Under the lineterms of creditthe Amended Credit Agreement, amounts outstanding bear interest at the one-month term secured overnight financing rate (“SOFR”) plus 145125 basis points. Our line of credit agreementThe Amended Credit Agreement is secured by a security interest in our general business assets, and contains customary representations, warranties, and covenants (including a minimum tangible net worth financial covenant) that are customary for a facility of this type. At March 31,September 30, 2023, there were no outstanding borrowings on the line of credit, totaled approximately $20.6 million at an interest rate of 6.26%, and we were in compliance with all financial covenants. We expect to renew thisAt December 31, 2022, outstanding borrowings on the line of credit later this year, but cannot provide any assurances.totaled $31.1 million at an interest rate of 5.77%. So far in 2023, our cash provided by operations exceeded cash outlays, which allowed us to repay outstanding borrowings under our line of credit.
As of March 31,September 30, 2023, approximately $4.1$4.5 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.
18
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.
1719
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 September 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 | |||||||||
07/01/2023 - 07/31/2023 |
| 7,931 | | $ | 26.29 |
| 7,931 |
| 946,091 | |||||||||
08/01/2023 - 08/31/2023 |
| 30,144 | | 25.75 |
| 30,144 |
| 915,947 | ||||||||||
09/01/2023 - 09/30/2023 |
| 12,281 | | | 26.08 |
| 12,281 |
| 903,666 | |||||||||
Total |
| 62,352 | | $ | 24.70 |
| 62,352 |
| |
| 50,356 | | $ | 25.92 |
| 50,356 |
| |
1820
Item 6. Exhibits.
Exhibit |
| Description |
| Incorporation Herein By Reference To |
| Filed |
| | | | | | |
10.1 | | Third Amendment to Credit Agreement, dated as of September 28, 2023 | | Exhibit 10.9 to Form 8-K filed September 29, 2023 | | |
| | | | | | |
10.2 | | Third Amended and Restated Revolving Loan Note, dated September 28, 2023 | | Exhibit 10.10 to Form 8-K filed September 29, 2023 | | |
| | | | | | |
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 |
1921
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, |
2022