Weyco Group - 10-K annual report 2023

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 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)

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333 W. Estabrook Boulevard, P. O. Box 1188, Milwaukee, WI 53201

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (414) 908-1600

Securities registered pursuant to Section 12(b) of the Act:

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Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ☐     No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.     Yes ☐     No ☒

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐   No ☒

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the close of business on June 30, 2023, was $156,202,000. This was based on the closing price of $26.69 per share as reported by Nasdaq on June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter.

As of March 1, 2024, there were 9,507,365 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders scheduled for May 7, 2024, are incorporated by reference in Part III of this report.

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WEYCO GROUP, INC.

Table of Contents to Annual Report on Form 10-K

Year Ended December 31, 2023

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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

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 in this report under Item 1A, “Risk Factors.”

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PART 1

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ITEM 1     BUSINESS

The Company is a Wisconsin corporation incorporated in the year 1906 as Weyenberg Shoe Manufacturing Company.  Effective April 25, 1990, the name of the corporation was changed to Weyco Group, Inc.

Weyco Group, Inc., and its subsidiaries (collectively, "we," "our," "us," and the “Company”) designs, markets, and distributes quality and innovative footwear principally for men, but also for women and children, under a portfolio of well-recognized brand names including: Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters, and Forsake. Trademarks we maintain on our brands are important to our business. Our products consist primarily of mid-priced leather dress shoes, casual footwear composed of man-made materials and leather, and outdoor boots, shoes, and sandals. Our footwear is available in a broad range of sizes and widths, primarily designed to meet the needs and desires of the general American population.

We purchase finished shoes from outside suppliers, primarily located in China and India, and we have recently begun contracting with suppliers located in Cambodia, Vietnam, and the Dominican Republic.  Almost all of these foreign-sourced purchases are denominated in U.S. dollars. While we source from more than 80 suppliers, our two largest suppliers each accounted for more than 10% of our total inventory purchases in 2023. Costs from our suppliers have historically been relatively stable, although in recent years there have been upward cost pressures due to higher freight, labor, and material costs, as well as due to tariffs and other trade protection measures.  Since the pandemic in 2020, there have been worldwide supply chain challenges that first caused inbound freight costs to increase, and more recently returned to just above pre-pandemic levels.

Our business is separated into two reportable segments – the North American wholesale segment (“Wholesale”) and the North American retail segment (“Retail”). We also have other wholesale and retail businesses overseas in Australia, South Africa, and Asia Pacific (collectively, “Florsheim Australia”). However, we ceased operations in the Asia Pacific region in 2023, and are in the final stages of winding down this business.

Sales in our Wholesale segment, which include both wholesale sales and worldwide licensing revenues, constituted 79% and 81% of total net sales in 2023 and 2022, respectively.  At Wholesale, our shoes are marketed by retailers throughout the United States and Canada in more than 10,000 shoe, clothing and department stores. In 2023 and 2022, no individual customer represented 10% or more of our total net sales. We employ traveling salespeople and independent sales representatives who sell our products to retail outlets. Shoes are shipped to these retailers primarily from our distribution center in Glendale, Wisconsin. In the men’s footwear business, there is generally no identifiable seasonality, although new styles are historically developed and shown twice each year, in spring and fall. With the BOGS brand, its strong presence in the winter and outdoor boot category results in some seasonality; the majority of BOGS sales occur in the third and fourth quarters. Consistent with industry practices, we carry significant amounts of inventory to meet customer delivery requirements and periodically provide extended payment terms to customers.  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.

Sales in our Retail segment constituted 12% and 10% of total net sales in 2023 and 2022, respectively.  The Retail segment consists of e-commerce businesses and four brick and mortar stores in the United States.  Retail sales are made directly to consumers on our websites, or by our employees in our stores.  We believe that the results of our Retail segment will continue to be driven by our e-commerce businesses, as we have a limited number of brick-and-mortar stores. We intend to continue to focus on investing in and growing our e-commerce businesses.

Sales of our other businesses constituted 9% of total net sales in both 2023 and 2022, respectively. These sales came from our wholesale and retail operations at Florsheim Australia.

As of December 31, 2023, we employed 608 persons worldwide, of whom 397 were full-time employees.

Brand recognition, price, quality, and service, are all important competitive factors in the shoe industry.  We have a design department that continually reviews and updates product designs.  Compliance with environmental and other government regulations historically has not had, and is not expected to have, a material impact on our results of operations, although there can be no assurances as to the future.

We make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements on Schedule 14A and all amendments to those reports upon written or telephone request.  Investors can also access these reports through our website, www.weycogroup.com, as soon as reasonably practical after we file or furnish those reports to

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the Securities and Exchange Commission (“SEC”). The contents of our website are not incorporated by reference and are not a part of this filing.  Also available on our website are various documents relating to our corporate governance, including our Code of Business Ethics.

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ITEM 1A     RISK FACTORS

There are various factors that affect or might affect our business, results of operations and financial condition, many of which are beyond our control. The following is a description of some of the material factors that could materially and adversely affect our reputation, business, results of operations and financial condition.  

Risk factors related to our operations

We rely on independent foreign sources of production and the availability of leather, rubber and other raw materials; a deterioration in our relationships, or other issues affecting such manufacturers and/or issues with the availability of raw materials could have unfavorable effects on our business.

We purchase all our products from independent foreign manufacturers, primarily in China and India.  Although we believe that we have good working relationships with our manufacturers, we do not have long-term contracts with them. Thus, we could experience increases in manufacturing costs, disruptions in the timely supply of products or unanticipated reductions in manufacturing capacity, any of which could negatively impact our business, results of operations and financial condition. We can move production to different suppliers; however, the transition may not occur smoothly or quickly, or at the same cost, which could result in us missing customer delivery date requirements and, consequently, we could lose future orders and our reputation may be harmed.

Our use of foreign sources of production results in relatively long production and delivery lead times.  Therefore, we typically forecast demand at least five months in advance.  If our forecasts are wrong or there are significant changes in demand, it would result in a loss of sales if we do not have enough product on hand or in reduced margins if we have excess inventory that needs to be sold at discounted prices.

Our ability to import products in a timely and cost-effective manner may be affected by disruptions at U.S. or foreign ports or other transportation facilities, such as those due to labor disputes and work stoppages, political unrest, trade protection measures or trade wars, severe weather (climate change may increase the frequency and severity of severe weather conditions or events), outbreaks of infectious diseases, or security requirements in the United States and other countries.  These issues could delay importation of products or require us to locate alternate ports or warehousing providers to avoid disruption to our customers. These alternatives may not be available on short notice or could result in higher transportation costs, which could have a material adverse impact on our overall profitability.  

Our products depend on the availability of raw materials, especially leather and rubber.  Any significant shortages of quantities or increases in the cost of leather or rubber would have an adverse effect on our business and results of operations, unless we were able to pass such costs along to our customers.

Additional risks associated with foreign sourcing that could negatively impact our business include adverse changes in foreign economic conditions, import regulations, restrictions on the transfer of funds, duties, tariffs, quotas and political or labor interruptions, foreign currency fluctuations, expropriation, and nationalization. It is difficult to predict the effects of current or future tariffs and other trade barriers and disputes, and our efforts to reduce the effects of tariffs through pricing and other measures may not be effective.

A disruption in our supply chain could adversely affect our profitability.

Most of our products for North American distribution are shipped to us via ocean freight carriers to ports primarily on the west coast of North America. Our reliance on ocean freight transportation for the delivery of our inventory exposes us to various inherent risks, including port congestion, severe weather conditions, labor issues, natural disasters, and terrorism, any of which could result in delivery delays and inefficiencies, increased costs and disruption of business. In 2021 and in the first half of 2022, our supply chain was disrupted by congestion throughout the supply chain, domestic port and warehousing delays, and container shortages, resulting in us incurring premium freight charges on a portion of our imports. In addition to these factors, global inflation has contributed to already higher incremental freight costs. Severe disruptions of the supply chain may force us to use more expensive methods to ship our products, and we may not be able to meet our customers’ delivery requirements, which may result in the loss of sales.

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Any severe and prolonged disruption to ocean freight transportation could force us to rely on alternate and more expensive transportation systems. Efficient and timely inventory deliveries and proper inventory management are important factors in our operations. Extended delays and disruptions in shipments could result in changes in the availability of inventory, increased shipping costs, or missed sales that may materially adversely impact our business and results of operations.

Loss of the services of our top executives and an inability to effectively manage leadership transitions, could adversely affect the business.

Thomas W. Florsheim, Jr., our Chairman and Chief Executive Officer, and John W. Florsheim, our President, Chief Operating Officer and Assistant Secretary, each have a strong heritage within our Company and the footwear industry. They possess knowledge, relationships and reputations based on their lifetime exposure to and experience at our Company and the industry.  The unexpected loss of either one or both of our top executives could have an adverse impact on our performance. A loss of the skills, industry knowledge, contacts, and expertise of any of our senior executives could cause a setback to our operating plan and strategy.  In addition, transitions of important responsibilities to new individuals include the possibility of disruptions, which could negatively impact our business and results of operations.

If we fail to maintain effective internal control procedures over our financial reporting and disclosures, investor confidence may be adversely affected thereby affecting the value of our stock price.

We are required to maintain proper internal control over our financial reporting and adequate controls related to our disclosures. As defined in Rule 13a-15(f) under the Exchange Act, internal control over financial reporting is a process designed by, or under the supervision of the Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. If we fail to maintain adequate controls resulting in a material weakness in our internal control over financial reporting, and/or if we are unable to remediate a material weakness on a timely basis, our business, results of operations, financial condition and/or the value of our stock may be adversely impacted.  

In 2023, we identified a material weakness in our internal control over financial reporting. Please see Item 9A of this Form 10-K for a full discussion of this item.

We may not be able to successfully integrate new brands and businesses.

We continue to look for acquisition opportunities.  Those search efforts could be unsuccessful and costs could be incurred in any failed efforts.  Further, if and when an acquisition occurs, we cannot guarantee that we will be able to successfully integrate the brand into our current operations, or that any acquired brand would achieve results in line with our historical performance or our specific expectations for the brand.

Risk factors related to our business and industry

Decreases in disposable income and general market volatility in the U.S. and global economy may adversely affect our Company.

Spending patterns in the footwear market, particularly those in the moderate-priced market in which a majority of our products compete, have historically been correlated with consumers’ disposable income.  As a result, the success of our Company is affected by changes in general economic conditions, especially in the United States.  Factors affecting discretionary income for our consumers include, among others, gas and energy costs, inflation rates, employment rates, interest rates and taxation.  Additionally, changes in the economy and consumer behavior generally impact the financial strength and buying patterns of retailers, which also affects our results. Volatile, unstable, or weak economic conditions, or a worsening of conditions, could adversely affect our sales volume and overall performance.

We are subject to risks related to operating in the retail environment that could adversely impact our business.

We are subject to risks associated with doing business in the retail environment, primarily in the United States.  The U.S. retail industry has experienced a growing trend toward consolidation of large retailers. The merger of additional major retailers could result in us losing sales volume or increasing our concentration of business with a few large accounts, resulting in reduced bargaining power, which could increase pricing pressures and lower our margins.  

We regularly assess our retail locations in the U.S. and overseas and have closed unprofitable retail locations and incurred costs related to such closures. Future closures could have a material adverse effect on our results.

As the popularity of online shopping for consumer goods continues to increase, our retail partners in the U.S. and abroad may experience decreased foot traffic, which could negatively impact their businesses. In addition, the COVID-19 pandemic caused a temporary decrease in foot traffic; other significant health pandemic or outbreaks of infectious diseases could also lead to a similar decrease in foot traffic. Decreases in foot traffic have, and in the future may, in turn, negatively impact our sales to those customers, and adversely affect our results of operations.

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We operate in a highly competitive environment, which may result in lower prices and reduced profits.

The footwear market is extremely competitive.  We compete with numerous manufacturers, distributors and retailers of men’s, women’s and children’s shoes, some of which are larger and have substantially greater resources than we do.  We compete with these companies primarily on the basis of brand recognition, price, quality, and service, all of which are important competitive factors in the shoe industry.  Our ability to compete effectively depends upon these factors, as well as our ability to deliver new products at the best value for the consumer, maintain positive brand recognition, and obtain sufficient retail floor space and effective product presentation at retail.  If we do not remain competitive, future prospects, results of operations and financial condition would decline.

Changes in fashion trends and consumer preferences could negatively impact the Company.

Our success is dependent upon our ability to accurately anticipate and respond to rapidly changing fashion trends and consumer preferences. For example, as a result of the COVID-19 pandemic, purchases of dress and other dress-casual footwear were negatively affected in 2020 through early 2022 as many consumers worked from home due to stay-at-home orders or otherwise, and social as well as other occasion-related events were cancelled. Failure to predict or effectively respond to trends or preferences could have an adverse impact on our sales volume and overall performance, as well as have a negative impact on our reputation.

We conduct business globally, which exposes us to the impact of foreign currency fluctuations as well as political, economic and social risks.

A portion of our revenues and expenses are denominated in currencies other than the U.S. dollar, with our primary exposures being to the Australian dollar and the Canadian dollar. We are therefore subject to foreign currency risks and foreign exchange exposure. Exchange rates can be volatile and could adversely impact our financial results.

We are exposed to other risks of doing business in foreign jurisdictions, including political, economic, or social instability, armed conflicts, acts of terrorism, civil unrest, changes in government policies and regulations, outbreaks of infectious diseases, severe weather events, natural disasters, and exposure to liabilities under anti-corruption laws (such as the U.S. Foreign Corrupt Practices Act). We are also exposed to risks relating to U.S. policy with respect to companies doing business in foreign jurisdictions. Additional legislation or other changes in the U.S. tax laws or interpretations could increase our U.S. income tax liability and adversely affect our after-tax profitability.  Changes in tax policy or trade regulations, such as the disallowance of tax deductions on imported merchandise or the imposition of new tariffs on imported products, could have a material adverse effect on our business and results of operations.

In response to the ongoing military conflict between Russia and Ukraine, the U.S. and certain other countries imposed significant sanctions and export controls against Russia, Belarus and certain individuals and entities connected to Russian or Belarusian political, business, and financial organizations. The situation remains uncertain and it is difficult to predict the impact that the conflict and actions taken in response to it will have on our business. Our business may be impacted as a result of various factors, including inflation and actions taken to combat inflation, increased energy prices, a slowing U.S. economy, more ocean freight disruptions, increased cyber-attacks, and reduced consumer confidence.

Risk factors related to cybersecurity

We are dependent on information and communication systems to support our business and e-commerce sales. Significant interruptions could disrupt our business and damage our reputation.

We accept and fill the majority of our larger customers’ orders through the use of Electronic Data Interchange (EDI), and we rely on our warehouse management system to efficiently process orders.  Our corporate office relies on computer systems to efficiently process and record transactions.  Significant interruptions in EDI, information and communication systems from power loss, telecommunications failure, malicious attacks, or computer system failure could significantly disrupt our business and operations, as well as damage our reputation. In addition, we sell footwear on our websites, and failures of our or other retailers’ websites could adversely affect our sales, results, and reputation.

We are subject to the risk of data loss and security breaches, particularly in our retail segment and our e-commerce businesses.

We sell footwear in our retail stores and on our websites, and therefore we and/or our third-party credit card processors must process, store, and transmit large amounts of data, including personal information of our customers. Failure to prevent or mitigate data loss or other security breaches, including breaches of our technology and systems, could expose us or our customers to a risk of loss or misuse of such information, which could adversely affect our operating results, result in litigation or potential liability, and/or otherwise harm our business and/or reputation.  Our technology and systems, as well as those of our partners have, and in the future may, become the target of cyberattacks. To our knowledge, we have not experienced a material breach; however, in order to address these risks, we have secured cyber insurance and use third party technology and systems to aid in safeguarding our data and systems, including, without limitation, encryption and authentication technology, content delivery to customers, back-office support, and other functions. Although we have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third-party vendor, such measures cannot provide absolute security.

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Risk factors related to environmental, social, and corporate governance (“ESG”)

We may be unable to complete ESG initiatives, in whole or in part, which could lead to less opportunity for us to have ESG investors and partners and could negatively impact ESG-focused investors when evaluating the Company.

There has been increased focus on ESG matters by consumers, investors, employees, and other stakeholders, as well as by governmental and non-governmental organizations. We have undertaken, and plan to continue undertaking, ESG initiatives. Any failure by us to meet our commitments, or loss of confidence on the part of customers, investors, employees, brand partners and other stakeholders as it relates to our ESG initiatives, could negatively impact our brands, business, financial condition, and our operating results. These impacts could be difficult and costly to overcome, even if such concerns were based on inaccurate or misleading information.

In addition, achieving our ESG initiatives may result in increased costs in our supply chain, fulfillment, or corporate business operations, and could deviate from our initial estimates and have a material adverse effect on our business and financial condition. In addition, standards and research regarding ESG initiatives could change and become more onerous both for the Company and our third-party suppliers and vendors to meet successfully. Evolving data and research could undermine or refute the Company’s current claims and beliefs that it has made in reliance on current research, which could also result in costs, a decrease in revenue, changes to projections or plans, and negative market perception that could have a material adverse effect on our business and financial condition.

A variety of organizations measure the performance of companies on such ESG topics, and the results of these assessments may be widely publicized. In addition, investment in funds that specialize in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of such ESG measures to their investment decisions. Topics considered in such assessments include, among others, the company’s efforts and impacts on climate change and human rights, ethics and compliance with laws, and the role of the company’s board of directors in supervising various sustainability issues. In light of investors’ increased focus on ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet investors’ or society’s ESG expectations, which could have a material adverse effect on our business, financial condition and operating results.

Finally, while we may create and publish voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures are based on hypothetical expectations and assumptions that may or may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith. Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved in measuring and reporting on many ESG matters.

Risk factors related to COVID-19 and other infectious diseases

Future public health emergencies, including a resurgence in the COVID-19 pandemic, could have a long duration and significant impacts that could adversely affect our operations, supply chain, distribution, and demand for our products, which could, in turn, have a material adverse effect on our business and results.

The COVID-19 pandemic had widespread, rapidly-evolving, and unpredicted impacts on global financial markets and business practices. As conditions fluctuated, governments responded by adjusting their restrictions and guidelines accordingly. The scope, nature, and duration of any future public health emergencies, including a resurgence in the COVID-19 pandemic, is uncertain. While the COVID-19 pandemic has subsided with the normalization of living with COVID-19 following the increase in accessibility to COVID-19 vaccines and antiviral treatments, the full impact of a future public health emergency or a resurgence of the COVID-19 pandemic on our business, financial condition, and results of operations is uncertain and will continue to depend on future developments, such as the ultimate duration and scope of the health emergency, its impact on our employees, customers and suppliers, the effectiveness and adoption of vaccines and therapeutics and the broader implications on the macro-economic environment. Such emergencies may cause or require us to take actions that alter our business operations as may be required by federal, state, or local authorities, or which we determine to be in the best interests of our employees, customers, suppliers, and shareholders.

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Public health emergency-related factors that have impacted us, or may negatively impact, sales, gross margin and other results of operations in the future include, but are not limited to: limitations on the ability of our suppliers to obtain necessary raw materials and parts to manufacture, or procure from manufacturers, the products we sell; transportation delays and other logistical challenges resulting in longer lead times; limitations on the ability of our employees to perform their work due to illness or other disruptions caused by the pandemic, including local, state, or federal orders requiring employees to remain at home; labor shortages or an increase in the cost of labor; limitations on the ability of carriers to deliver our products to customers; limitations on the ability of our customers to purchase our products; and limitations on the ability of our customers to pay us on a timely basis.

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The potential negative financial of a future public health emergency or a resurgence of the COVID-19 pandemic on our business and results of operations cannot be reasonably estimated but could be material and last for an extended period of time.

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Risks related to financing, investment, and pension matters

Volatility and uncertainty in the U.S. and global credit markets could adversely affect our business.

U.S. and global financial markets have at times been unstable and unpredictable, which has generally resulted in tightened credit markets with heightened lending standards and terms. The ultimate impact on the U.S. and global financial markets of the Russian invasion of Ukraine cannot yet be predicted, and will depend on the severity and duration of the conflict and the sanctions imposed by the U.S. and other countries. Volatility and instability in the credit markets pose various risks to us, including, among others, a negative impact on retailer and consumer confidence, limits to our customers’ access to credit markets and interference with the normal commercial relationships between us and our customers.  Increased credit risks associated with the financial condition of some customers in the retail industry affects their level of purchases from us and the collectability of amounts owed to us, and in some cases, causes us to reduce or cease shipments to certain customers who no longer meet our credit requirements.  

In addition, weak economic conditions and unstable and volatile financial markets could lead to certain of our customers experiencing cash flow problems, which may force them into higher default rates or to file for bankruptcy protection which may increase our bad debt expense or further negatively impact our business.

Interest rate volatility may increase the cost of financing.  Our U.S. dollar variable rate debt currently uses the secured overnight financing rate (“SOFR”) as a benchmark for determining interest rates. In connection with our line of credit amendment in September 2022, SOFR became the new benchmark interest rate and all London Interbank Offered Rate (“LIBOR”) provisions were replaced with SOFR provisions.

Deterioration of the municipal bond market in general or of specific municipal bonds held by the Company or our pension plan may result in a material adverse effect on our financial condition, results of operations, and liquidity.

We maintain an investment portfolio consisting primarily of investment-grade municipal bond investments. Our investment policy only permits the purchase of investment-grade securities. Our investment portfolio totaled $6.6 million as of December 31, 2023, or approximately 2% of total assets.  If the value of municipal bonds in general or any of our municipal bond holdings deteriorate, the performance of our investment portfolio, financial condition, results of operations, and liquidity may be materially and adversely affected.

Risk factors related to our capital structure

The limited public float and trading volume for our Company’s stock may have an adverse impact on the stock price or make it difficult to liquidate.

The Company’s common stock is held by a relatively small number of shareholders. The Florsheim family and company insiders own more than 50% of the stock and one institutional shareholder holds a significant block. Other officers, directors, and members of management own stock or have the potential to own stock through previously granted stock options and restricted stock.  Consequently, we have a relatively small public float and low average daily trading volume, which could affect a shareholder’s ability to sell stock or the price at which it can be sold.  In addition, future sales of substantial amounts of our common stock in the public market by large shareholders, or the perception that these sales could occur, may adversely impact the market price of the stock and the stock could be difficult for the shareholder to liquidate.

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ITEM 1B    UNRESOLVED STAFF COMMENTS

None

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ITEM 1C    CYBERSECURITY

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Risk Management and Strategy

We face various cybersecurity risks and threats that could have a material adverse effect on our business, operations, financial performance, liquidity, and reputation. We have implemented processes and systems to identify, assess, and manage these risks and threats, as well as to prevent, detect, and respond to any cybersecurity incidents that may occur, which is integrated into our overall risk management process. We also have a comprehensive cybersecurity strategy, policy, and program that aligns with our business objectives and risk appetite. We regularly review and update our cybersecurity strategy, policy, and program to address the evolving nature and scope of cybersecurity risks and threats. In addition, we consider the cybersecurity practices of our third-party service providers, through a general security assessment and contractual requirements, as appropriate, before engaging them in order to help identify and mitigate cybersecurity risks associated with those providers.

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We comply with various laws, regulations, standards, and guidance related to cybersecurity, such as the Sarbanes-Oxley Act of 2002, the Payment Card Industry Data Security Standard, the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework and the SEC's guidance on cybersecurity disclosures.

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During the fiscal year ended December 31, 2023, we did not experience any cybersecurity incidents that materially impacted, or are reasonably likely to materially impact, our business strategy, results of operations or financial condition.  Please refer to the risk factors described in this report under Item 1A, “Risk Factors,” for a discussion of the potential impacts of future cybersecurity events.

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Our Information Technology (“IT”) security department, led by our Vice President of Information Systems (“IS”) and Distribution and overseen by our Director of IS, holds primary responsibility for assessing and managing cybersecurity threats. Our Vice President of IS and Distribution has more than 34 years of experience in IT and holds a bachelor’s degree in Management of IS; his in-depth knowledge and experience are instrumental in developing and executing our cybersecurity strategies.  Our Director of IS has more than 20 years of experience in various IT and IS roles, and holds a bachelor’s degree in Accounting and Finance.

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A team of IT Specialists (including a Cybersecurity Analyst) at our Company is tasked with monitoring cybersecurity and operational risks associated with information security and system disruption. This team employs measures aimed at protecting against, detecting, and responding to cybersecurity threats, and has implemented processes and procedures in line with our information security management system to bolster and advance resilient programs. This encompasses:

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Cybersecurity Governance

Our Audit Committee is provided with regular updates from management concerning cybersecurity developments, significant cybersecurity threats, risks and processes implemented to address these risks. Our Audit Committee receives presentations on cybersecurity topics from management as part of the Committee’s continuing education on topics that impact the Company. Furthermore, management informs the Audit Committee as deemed necessary, about any notable cybersecurity incidents.

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ITEM 2     PROPERTIES

The following facilities were operated by the Company or its subsidiaries as of December 31, 2023:

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In addition to the above-described offices and distribution facilities, we also operate offices, distribution facilities, and retail shoe stores under various rental agreements. All of these facilities are suitable and adequate for our current operations. See Note 7 of the Notes to Consolidated Financial Statements and Item 1, “Business”, above.

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ITEM 3     LEGAL PROCEEDINGS

None

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ITEM 4     MINE SAFETY DISCLOSURES

Not Applicable

INFORMATION ABOUT EXECUTIVE OFFICERS

The following individuals were executive officers of Company as of December 31, 2023:

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Thomas W. Florsheim, Jr. has served as Chairman and Chief Executive Officer since 2002.

John W. Florsheim has served as President, Chief Operating Officer, and Assistant Secretary since 2002.

Judy Anderson has served as Vice President, Chief Financial Officer, and Secretary since May 6, 2022. Prior to this role, Ms. Anderson served as Vice President of Finance and Treasurer since 2004.

Kate Destinon has served as a Vice President of the Company and President of the Nunn Bush Brand since January 1, 2021. Prior to this role, Ms. Destinon served as Vice President of Nunn Bush from 2019 to 2020.

Jeff Douglass has served as Vice President of Marketing since 2015.

Dustin Combs has served as a Vice President of the Company and President of the BOGS and Rafters Brands since 2015.

Brian Flannery has served as a Vice President of the Company and President of the Stacy Adams Brand since 2007.

Kevin Schiff has served as a Vice President of the Company and President of the Florsheim Brand since 2010.

George Sotiros has served as Vice President of Information Systems and Distribution since 2017.

Damian Walton has served as a Vice President of the Company and President of Florsheim Australia since January 7, 2019. Prior to this role, Mr. Walton served as Executive General Manager of Merchandise Planning at Myer, a national department store chain in Australia, for 3 years.

Joshua Wisenthal has served as a Vice President of the Company and President of Weyco Canada since January 1, 2022. Prior to this role, Mr. Wisenthal served as a Vice President of the Company and a manager of our legacy brands in Canada since 2014.

Allison Woss has served as Vice President of Supply Chain since 2016.

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PART II

ITEM 5     MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Shares of our Company’s common stock are traded on the Nasdaq Stock Market (“Nasdaq”) under the symbol “WEYS.”  There were 91 holders of record of the Company's common stock as of March 1, 2024.

In 1998, our stock repurchase program was established and approved by the Board of Directors. On several occasions since the program’s inception, our Board of Directors 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 the repurchases of our common stock in the three-month period ended December 31, 2023.

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ITEM 6     RESERVED

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ITEM 7     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

We design, market, and distribute quality and innovative footwear principally for men, but also for women and children, under a portfolio of well-recognized brand names including: Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters, and Forsake.  Inventory is purchased from third-party overseas manufacturers.  Almost all of these foreign-sourced purchases are denominated in U.S. dollars. We have two reportable segments, North American wholesale operations (“Wholesale”) and North American retail operations (“Retail”). In the Wholesale segment, our products are sold to leading footwear, department, and specialty stores, as well as e-commerce retailers, primarily in the United States and Canada. We also have licensing agreements with third parties who sell our branded apparel, accessories, and specialty footwear in the United States, as well as our footwear in Mexico and certain markets overseas.  Licensing revenues are included in our Wholesale segment. Our Retail segment consists of e-commerce businesses and four brick-and-mortar retail stores in the United States.  Retail sales are made directly to consumers on our websites, or by our employees in our stores.  Our “other” operations include our wholesale and retail businesses in Australia, South Africa, and Asia Pacific (collectively, “Florsheim Australia”). However, we ceased operations in the Asia Pacific region in 2023, and are in the final stages of winding down this business. The majority of our operations are in the United States, and our results are primarily affected by the economic conditions and the retail environment in the United States.  

This discussion summarizes the significant factors affecting the consolidated operating results, financial position, and liquidity of our company for the two-year period ended December 31, 2023. This discussion should be read in conjunction with Item 8, “Financial Statements and Supplementary Data” below.

KNOWN TRENDS IMPACTING OUR BUSINESS

Macroeconomic pressures in the U.S. and the global economy have created a tepid retail environment. Following a period of unprecedented supply chain disruptions, retailers are being cautious with their inventory levels, which reduces wholesale customer orders.  Additionally, consumers are currently spending more of their discretionary income on experiences and services and less on footwear and apparel. Looking ahead, we expect to face continued headwinds as a result of the challenging retail environment in the first half of 2024, but we continue to focus on building our backlogs and are optimistic that demand will improve in the back half of the year.

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Post-pandemic disruptions in the supply chain in 2021 and the first half of 2022 affected the flow of our inventory into the U.S. over the past few years.  In 2022, we brought in much of our inventory for the Spring 2023 selling season early based on the expectation that extended inventory transit times would last throughout much of 2022.  As a result, our inventory was at peak levels at December 31, 2022.  By the end of 2022, inventory transit times had improved and supply chain issues had subsided.  In 2023, we managed our inventory down to more normalized levels.  

EXECUTIVE OVERVIEW

We experienced a slowdown in sales in 2023, mainly as a result of lower wholesale shipments compared to record sales in 2022.  Though sales were down, we achieved record operating and net earnings in 2023 by maintaining our pricing integrity while taking a disciplined approach to our expenses.

In our Wholesale segment, net sales of our BOGS brand were down 31% in 2023, compared to the prior year. Mild weather throughout the Fall and early Winter, in combination with an inventory glut in the outdoor market, led to the sales decline. We believe the outdoor boot market will remain challenging throughout 2024 as retailers continue to right size their inventories.  With BOGS, we are focused on moving the business forward through product innovation with an emphasis on our BOGS seamless rubber boot construction. BOGS seamless construction is 30% lighter than comparable vulcanized rubber boots and over twice as durable as measured by the number of flexes our seamless boots can withstand without any sign of cracking. This year, we are expanding the number of seamless boots in our line across numerous price points. In addition to the expansion of our seamless collection, we are also introducing new non-insulated and lightly insulated footwear so the BOGS brand is less dependent on inclement weather.

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Net sales of our legacy businesses (comprised of the Florsheim, Nunn Bush and Stacy Adams brands) were collectively down 5% for the year. At the brand level, Florsheim, Nunn Bush and Stacy Adams were down 4%, 2%, and 10%, respectively, for the year. The decline in sales of all three brands reflects a general slowdown in the market for dress and dress casual footwear. In addition, many of our retail partners have shifted to more of a “chase” strategy in order to maintain greater inventory flexibility.   We see the decrease in our legacy shipments as part of a return to a normal business cycle after a period of heightened demand and supply chain delays. We anticipate this trend will continue through the first half of 2024. Our sell-throughs at retail remain solid, and we continue to diversify our product mix across all three brands to expand our casual and hybrid offerings.

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In our Retail segment, sales were up 4% for the year, driven by growth in our e-commerce businesses.  Overall, we believe we had strong direct consumer performance for the year, with a solid sales increase in 2023 as well as record retail operating earnings. We view our direct-to-consumer business as a growth opportunity and continue to invest in our online platform.

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Florsheim Australia’s net sales in local currency were down 3% for the year. The loss of a significant wholesale account as well as soft consumer demand presented challenges in the Australian market. We anticipate headwinds through the first half of 2024 and are focused on reducing expenses while we assess opportunities to rekindle our growth. As previously disclosed, we closed our Asia Pacific operations in 2023. Going forward, certain significant wholesale accounts that were previously served by our Asia Pacific team will be picked up by Australian wholesale division.

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Sales and Earnings Highlights

Consolidated net sales for 2023 were $318.0 million, down 10% compared to $351.7 million in 2022.  Consolidated gross earnings as a percent of net sales were 44.9% and 41.1% in 2023 and 2022, respectively. Operating earnings were a record $41.0 million, up 2% over our previous record of $40.4 million, despite lower sales.  Net earnings were a record $30.2 million, or $3.17 per diluted share, in 2023, up 2% compared to $29.5 million, or $3.07 per diluted share, in 2022.

Financial Position Highlights

At December 31, 2023, our cash and marketable securities totaled $75.9 million and we had no debt outstanding on our $40.0 million revolving line of credit. During 2023, we generated $98.6 million of cash from operations, due mainly to net earnings and reductions in inventory levels. We used funds to pay $9.3 million in dividends and to repurchase $4.3 million of our stock during 2023. We also had $3.3 million of capital expenditures.

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SEGMENT ANALYSIS

Net sales and earnings from operations for our segments, as well as our “other” operations, in the years ended December 31, 2023 and 2022, were as follows:

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North American Wholesale Segment

Wholesale Net Sales

Net sales in our Wholesale segment for the years ended December 31, 2023 and 2022, were as follows:

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Wholesale net sales were collectively down in 2023 due to lower demand following record growth in 2022.  Sales across all our brands in 2022 were positively impacted by a combination of post-pandemic retailer pipeline fill and strong consumer demand. Our BOGS brand experienced the largest decrease for the year, compared to record sales for the brand in 2022, as orders were down amid the current saturation of product in the outdoor market, and due to the mild weather in the final months of 2023.  Licensing revenues consist of royalties earned on sales of branded apparel, accessories, and specialty footwear in the United States and on branded footwear in Mexico and certain overseas markets. Licensing revenues increased in 2023, compared to 2022, in line with increased licensees’ sales of branded products.

Wholesale Earnings from Operations

Wholesale gross earnings as a percent of net sales were 39.7% in 2023 versus 35.6% in 2022. Gross margins improved as a result of increased selling prices and lower inventory costs, primarily inbound freight. Selling and administrative expenses for the wholesale segment consist primarily of distribution costs, salaries and commissions, advertising costs, employee benefit costs, and depreciation. Wholesale selling and administrative expenses were $66.0 million and $68.2 million in 2023 and 2022, respectively. The decrease in 2023 was primarily due to lower employee costs, mainly commission-based compensation. As a percent of net sales, wholesale selling and administrative expenses were 26% in 2023 and 24% in 2022.  Wholesale operating earnings reached a record $33.3 million in 2023, up 2% over our previous record of $32.6 million in 2022, due to higher gross margins and lower selling and administrative expenses.

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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 $15.5 million and $16.0 million for the years ended

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December 31, 2023 and 2022, respectively. Our gross earnings may not be comparable to other companies, as some companies may include distribution costs in cost of sales.

North American Retail Segment

Retail Net Sales

Retail net sales were a record $38.0 million in 2023, up 4% over our previous record of $36.7 million in 2022. The increase was primarily due to higher sales on our legacy brands’ websites, partially offset by lower sales on the BOGS’ website. Sales at our four domestic brick and mortar stores were down 4% for the year.

Retail Earnings from Operations

Retail gross earnings as a percent of net sales were 65.9% in 2023 and 65.7% in 2022. Selling and administrative expenses for the retail segment consist primarily of freight, advertising expense, employee costs, rent and occupancy costs. Retail selling and administrative expenses totaled $18.3 million in 2023, or 48% of net sales, for the year compared to $18.1 million, or 49% of net sales, in 2022. The Retail segment achieved record operating earnings of $6.8 million in 2023, up 11% over $6.1 million in 2022, due mainly to the increase in web sales.

Other

Our other operations consist of our retail and wholesale businesses in Australia, South Africa, and Asia Pacific (collectively, “Florsheim Australia”). However, we ceased operations in the Asia Pacific region in 2023, and are in the final stages of winding down this business. The winddown of our Asia-Pacific operations did not have a material impact on our full year 2023 consolidated results.  

Other net sales totaled $29.6 million in 2023 down 7% from $31.8 million in 2022. In local currency, Florsheim Australia’s net sales were down 3% for the year, due mainly to the mid-year loss of a sizeable wholesale customer in Australia, partially offset by higher sales across Florsheim Australia’s retail businesses.   Other gross earnings were 62.5% of net sales in 2023 versus 61.1% of net sales in 2022. Other operating earnings totaled $1.0 million in 2023 and $1.7 million in 2022, down mainly as a result of lower sales in Australia this year.

OTHER INCOME AND EXPENSE AND TAXES

Most of our interest and dividend income is generated by investments in marketable securities and money market mutual funds. Interest and dividend income totaled $1.1 million and $361,000 in 2023 and 2022, respectively. The increase in 2023 was due to more earnings on the higher cash balances this year.  Interest expense was $529,000 in 2023 and $710,000 in 2022. The decrease in 2023 was due to less interest incurred as we paid off our debt during the year. Other expense, net, totaled $738,000 in 2023 and $277,000 in 2022. Other expense was up in 2023 due largely to an increase in the non-service cost components of pension expense, primarily interest cost, as a result of the higher interest rates this year. Last year’s other expense included a $894,000 pension settlement charge recorded in connection with a lump-sum benefit payment to a former executive of the Company.

Our effective tax rate was 26.1% in 2023 versus 25.7% in 2022. The current tax rate differs from the U.S. federal statutory rate of 21% due mainly to the impact of state income taxes.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash, short-term investments, and short-term marketable securities, which aggregated $69.5 million and $18.4 million at December 31, 2023 and 2022, respectively, and our revolving line of credit.  We generated $98.6 million of cash from operations in 2023, and used $29.9 million of cash in operations in 2022. Fluctuations in net cash from (used for) operating activities mainly resulted from changes in net earnings and operating assets and liabilities, most significantly, our inventory. Our inventory balance was $74.9 million at December 31, 2023, down from $128.0 million at December 31, 2022. We brought our inventories down in 2023 to a level that balances availability for in-season orders with better inventory turn.

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Our capital expenditures were $3.3 million and $2.3 million in 2023 and 2022, respectively. This year’s capital expenditures included costs related to equipment installed in our Glendale warehouse that automates the packing and labeling process of single pair orders. With the growth of our e-commerce and drop-ship businesses, gaining efficiency in this area allows us to give faster service with significant labor savings. Looking ahead, we expect capital expenditures will be between $2.0 million and $4.0 million in 2024.

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We paid aggregate cash dividends of $9.3 million and $7.0 million in 2023 and 2022, respectively.  The increase in 2023 was due to a timing difference in our quarterly dividend payment schedule; 2023 included four quarterly dividend payments, as our fourth quarter 2022 dividend was paid in early January 2023. 2022 included only three quarterly dividend payments, as our fourth quarter 2021 dividend was paid in late December 2021.

In December 2022, in accordance with the terms of our supplemental pension plan, we made a lump-sum benefit payment of $4.3 million to a former executive of the Company.

We repurchase our common stock under our share repurchase program when we believe market conditions are favorable. In 2023, we purchased 170,422 shares at a total cost of $4.3 million through our share repurchase program. In 2022, we purchased 171,397 shares at a total cost of $4.2 million through our share repurchase program.  As of December 31, 2023, there were 868,757 authorized shares remaining under the program.

On September 28, 2023, we amended our line of credit agreement. The amendment (“Amended Credit Agreement”) extended the maturity of our credit facility to September 28, 2024 and has a maximum available borrowing limit of $40.0 million. Under the terms of the Amended Credit Agreement, amounts outstanding bear interest at the one-month term secured overnight financing rate (“SOFR”) plus 125 basis points. The 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) for a facility of this type. At December 31, 2023, there were no outstanding borrowings on the line of credit, and we were in compliance with all financial covenants. At December 31, 2022, outstanding borrowings on the line of credit were approximately $31.1 million at an interest rate of 5.77%.

As of December 31, 2023, approximately $5.9 million of cash and cash equivalents was held by our foreign subsidiaries.

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

Off-Balance Sheet Arrangements

We do not utilize any special purpose entities or other off-balance sheet arrangements.

Critical Accounting Estimates

Our accounting policies are more fully described in Note 2 of the Notes to Consolidated Financial Statements.  As disclosed in Note 2, 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 about future events that affect the amounts reported in the consolidated financial statements and accompanying notes.  Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the consolidated financial statements. The following policies are considered by management to be the most critical in understanding the significant accounting estimates inherent in the preparation of our consolidated financial statements and the uncertainties that could impact our results of operations, financial position and cash flows.

Sales Returns, Sales Allowances and Doubtful Accounts

We record reserves and allowances (“reserves”) for sales returns, sales allowances and discounts, cooperative advertising, and accounts receivable balances that we believe will ultimately not be collected. The reserves are based on such factors as specific customer situations, historical experience, a review of the current aging status of customer receivables and current and expected economic conditions. The reserve for doubtful accounts includes a specific reserve for accounts identified as potentially uncollectible, plus an additional reserve for the balance of accounts, determined based on historical trends. We evaluate the reserves and the estimation process and adjust when appropriate.  Apart from unprecedented write-offs that occurred during the COVID-19 pandemic, our historical write-offs against the reserves have been within our expectations. Future changes in reserves may be required if actual returns, discounts and bad debt activity varies from the original estimates.  These changes could impact our results of operations, financial position, and cash flows.

Pension Plan Accounting

Our pension expense and corresponding obligation are determined on an actuarial basis and require certain actuarial assumptions.  We believe the two most critical of these assumptions are the discount rate and the expected rate of return on plan assets.  We evaluate actuarial assumptions annually on the measurement date (December 31) and make modifications based on such factors as market interest rates and historical asset performance.  Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from these assumptions.

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Discount Rate – Pension expense and projected benefit obligations both increase as the discount rate is reduced.  See Note 12 of the Notes to Consolidated Financial Statements for discount rates used in determining pension expense for the years ended December 31, 2023 and 2022, and the funded status of the plans at December 31, 2023 and 2022.  We use the spot-rate approach to determine the service and interest cost components of pension expense. Under the spot-rate approach, the service and interest costs were calculated by applying specific spot rates along the yield curve to the relevant projected cash flows, to provide a better estimate of future service and interest costs. A 0.5% decrease in the discount rate would have a nominal impact on annual pension expense, and would increase the projected benefit obligation by approximately $2.7 million.  

Expected Rate of Return – Pension expense increases as the expected rate of return on pension plan assets decreases.  In estimating the expected return on plan assets, we consider the historical returns on plan assets and future expectations of asset returns.  We utilized an expected rate of return on plan assets of 6.75% for both 2023 and 2022, respectively. This rate was based on our Company’s long-term investment policy of equity securities: 20% - 80%; fixed income securities: 20% - 80%; and other, principally cash:  0% - 20%.  A 0.5% decrease in the expected return on plan assets would increase annual pension expense by approximately $182,000.

Our unfunded benefit obligation was $14.0 million and $16.1 million at December 31, 2023 and 2022, respectively.

Recent Accounting Pronouncements

See Note 2 of the Notes to Consolidated Financial Statements.

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ITEM 7A    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

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ITEM 8     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders, Audit Committee and the Board of Directors of Weyco Group, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Weyco Group, Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of earnings, comprehensive income, equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO because a material weakness in internal control over financial reporting existed as of that date as the Company did not design and maintain information technology general controls (ITGCs) in the areas of user access and change management including segregation of duties for systems supporting certain internal control processes.  As a result, automated and manual process controls dependent on those ITGCs were also not effective.

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A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management’s Annual Report on Internal Control over Financial Reporting included in Item 9A of this Annual Report on Form 10-K. We considered this material weakness in determining the nature, timing, and extent of audit tests applied to our audit of the 2023 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

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Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects.

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Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures, as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in

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accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. We determined that there are no critical audit matters.

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/s/ Baker Tilly US, LLP

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We have served as the Company's auditor since 2015.

Milwaukee, Wisconsin

March 14, 2024

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CONSOLIDATED STATEMENTS OF EARNINGS

For the years ended December 31, 2023 and 2022

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The accompanying notes to consolidated financial statements are an integral part of these financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended December 31, 2023 and 2022

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The accompanying notes to consolidated financial statements are an integral part of these financial statements.

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CONSOLIDATED BALANCE SHEETS

At December 31, 2023 and 2022

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The accompanying notes to consolidated financial statements are an integral part of these financial statements.

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CONSOLIDATED STATEMENTS OF EQUITY

For the years ended December 31, 2023 and 2022

(In thousands, except per share amounts)

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The accompanying notes to consolidated financial statements are an integral part of these financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2023 and 2022