Weyco Group - 10-Q quarterly report FY

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C.  20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended    March 31, 2010 

                                                 Or

o 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       0-9068

333 W. Estabrook Boulevard

P. O. Box 1188

(Address of principal executive offices)

(Zip Code)

(Registrant’s telephone number, including area code)

     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  x          No  ¨

    Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes¨     No¨

    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ¨   Accelerated Filer   x      Non-Accelerated Filer ¨   Smaller Reporting Company ¨

    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨   Nox

  As of April 30, 2010, there were 11,381,954 shares of common stock outstanding.

Item 1.  Financial Statements.

 

NOTES:

In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results of operations for the three month period are not necessarily indicative of the results for the full year.

Diluted weighted average shares outstanding for the three months ended March 31, 2010 excluded outstanding options to purchase 284,050 shares of common stock at a weighted average price of $28.46, as they were antidilutive.   Diluted weighted average shares outstanding for the three months ended March 31, 2009 excluded outstanding options to purchase 247,900 shares of common stock at a weighted average price of $29.16, as they were antidilutive.

As noted in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, all of the Company’s investments are classified as held-to-maturity securities and reported at amortized cost pursuant to Accounting Standards Codification (ASC) No. 320, Investments – Debt and Equity Securities as the Company has the intent and ability to hold all security investments to maturity.

The amortized cost of all marketable securities as of March 31, 2010 as reported in the Consolidated Condensed Balance Sheets was $51.8 million.  The estimated fair market value of those marketable securities as of March 31, 2010 was $53.7 million.  The unrealized gains and losses on marketable securities as of March 31, 2010, were $2.0 million and $71,000, respectively.  The estimated market values provided are level 2 valuations as defined by ASC 820, Fair Value Measurement and Disclosures.  The Company has reviewed its portfolio of marketable securities as of March 31, 2010 and has determined that no other-than-temporary market value impairment exists.

The Company has two reportable segments: North American wholesale operations (“wholesale”) and North American retail operations (“retail”). The chief operating decision maker, the Company’s Chief Executive Officer, evaluates the performance of its segments based on earnings from operations and accordingly, interest income, interest expense and other income or expense are not allocated to the segments. The “other” category in the table below includes the Company’s wholesale and retail operations in Australia, South Africa, Asia Pacific and Europe, which do not meet the criteria for separate reportable segment classification. Summarized segment data for the three months ended March 31, 2010 and 2009 was:

The components of the Company’s net pension expense were:

The following table summarizes the stock option activity under the Company’s plans for the three month period ended March 31, 2010:

The following table summarizes stock option activity for the three months ended March 31, 2010 and 2009:

 

The following table summarizes the Company’s restricted stock award activity for the three months ended March 31, 2010:

At March 31, 2010, the Company had a total of $50.0 million available under its borrowing facility, and no outstanding borrowings.  This facility includes one financial covenant that specifies a minimum level of net worth.  The Company was in compliance with the covenant at March 31, 2010.  The facility expired on April 30, 2010, and was renewed for another term that expires April 30, 2011.

Comprehensive income for the three months ended March 31, 2010 and 2009 was as follows:

A reconciliation of the Company’s equity for the three months ended March 31, 2010 follows:

On April 28, 2010, the Company acquired certain assets, including the Umi brand name, intellectual property and accounts receivable, from Umi, LLC, a children’s footwear company, for an aggregate price of approximately $2.5 million.  Following the transaction, Umi, LLC and its subsidiaries will cease using the Umi name.

FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements with respect to the Company’s outlook for the future.  These statements represent the Company's reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially.  The reader is cautioned that these forward-looking statements are subject to a number of risks, uncertainties or other factors that may cause (and in some cases have caused) actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to, the risk factors described under Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

GENERAL

The Company is a distributor of men’s casual, dress and fashion shoes.  The principal brands of shoes sold by the Company are “Florsheim,” “Nunn Bush” and “Stacy Adams.”  Inventory is purchased from third-party overseas manufacturers. The majority of foreign-sourced purchases are denominated in U.S. dollars. The Company has two reportable segments, North American wholesale operations (“wholesale”) and North American retail operations (“retail”).  In the wholesale segment, the Company’s products are sold to shoe specialty stores, department stores and clothing retailers, primarily in the United States and Canada.  The Company also has licensing agreements with third parties who sell its branded apparel, accessories and specialty footwear in the United States, as well as its footwear in Mexico and certain markets overseas.  Licensing revenues are included in the Company’s wholesale segment.  The Company’s retail segment consisted of 36 Company-owned retail stores in the United States and an Internet business as of March 31, 2010.  Sales in retail outlets are made directly to consumers by Company employees.  The Company’s “other” operations include the Company’s wholesale and retail operations in Australia, South Africa, Asia Pacific and Europe.  The majority of the Company’s operations are in the United States, and its results are primarily affected by the economic conditions and the retail environment in the United States.

CONSOLIDATED OVERVIEW

Consolidated net sales for the first quarter of 2010 reached $61.0 million, an increase of 4% above last year’s first quarter net sales of $58.9 million.  Consolidated operating earnings for the first quarter of 2010 were $5.4 million, up from $3.3 million last year.  The Company’s net earnings for the first three months of 2010 were $3.9 million, up from $2.5 million in the first quarter of 2009.  Diluted earnings per share this quarter rose to $.34 per share compared with $.22 per share in last year’s first quarter.

Wholesale segment net sales were down slightly in the first quarter this year compared with last year and retail segment net sales were flat with last year.  Net sales of the Company’s other operations, which include the wholesale and retail sales of Florsheim Australia and Florsheim Europe were up $3.8 million this year, as this year’s first quarter net sales included three full months of Florsheim Australia's net sales compared to last year’s first quarter which included only January 23 through March 31, 2009.  The 2010 net sales of Florsheim Australia and Florsheim Europe also benefited from foreign exchange rate changes.

The Company achieved higher gross earnings from operations this quarter compared with last year’s first quarter primarily as a result of higher gross margins in its wholesale segment.  The increase in operating earnings also reflects higher earnings at Florsheim Australia which primarily resulted from the additional 23 days of operations this year.  Also, Florsheim Australia’s first quarter 2009 earnings from operations were reduced by approximately $370,000 of acquisition costs.

SEGMENT ANALYSIS

Net sales and earnings from operations for the Company’s segments in the three months ended March 31, 2010 and 2009 were as follows:

North American Wholesale Segment

Sales in the Company’s North American wholesale segment for the three-month periods ended March 31, 2010 and 2009 were as follows:

North American Wholesale Segment Net Sales

The growth at Stacy Adams this year was achieved across the majority of its trade channels.  There were increases in the basic contemporary category, as well as with footwear that targets the younger denim oriented consumer.  Net sales for Nunn Bush were down this year primarily due to a decline in shipments of product to off-price retailers.  Florsheim net sales were down slightly in the first quarter of 2010 compared with the same quarter last year.

The Company’s licensing revenues consist of royalties earned on the sales of Stacy Adams apparel and accessories in the United States, Florsheim specialty footwear and accessories in the United States, and Florsheim footwear in Mexico and certain overseas markets.  For the first quarter of 2010, Stacy Adams licensing revenues were down mainly because the retail environment continues to be challenging for the independent retailers in the United States who distribute the majority of this product.  Licensing revenues from the Company’s Florsheim licensee in Mexico also decreased this year due to the troubled economic and retail environment in that country.

North American wholesale segment earnings from operations in the quarter ended March 31, 2010 were up $1.1 million over last year’s first quarter.  This increase was achieved through higher gross margins, which were offset slightly by the decrease in net sales for the quarter.

Wholesale gross earnings were 30.8% of net sales in the first quarter of 2010 compared with 26.6% in 2009.  The increase was due to higher selling prices on select products, an overall reduction this year in sales to off-price retailers, and some cost reductions achieved within the Company’s supply chain.

North American wholesale segment selling and administrative expenses include, and are primarily related to, distribution costs, salaries and commissions, advertising costs, employee benefit costs and depreciation.  Wholesale selling and administrative expenses this quarter were approximately level with the same period in 2009.  As a percent of net sales, wholesale selling and administrative expenses were 22.2% this quarter compared with 21.1% in the same quarter last year.  The percentage increase reflects the fixed nature of most of the wholesale selling and administrative expenses.

North American Retail Segment

Net sales in the Company’s North American retail segment were $5.3 million in the first quarter of 2010, as compared with $5.2 million last year.  There were the same number of retail stores this quarter as compared with 2009.

First quarter 2010 earnings from operations in the North American retail segment were flat as both gross margins and selling and administrative expenses were flat between periods.

North American retail segment gross earnings were 65.0% of net retail sales compared with 64.8% in the first quarter of 2009.  As a percent of sales, retail selling and administrative expenses were 68.6% in 2010 and 70.0% in 2009, which reflects the fixed nature of many of these retail expenses.  Selling and administrative expenses at the retail segment include, and are primarily related to, rent and occupancy costs, employee costs and depreciation.

Other

The increases this year in the Company’s other net sales and earnings from operations were mainly due to the inclusion of the full quarter of Florsheim Australia’s results this year, as compared with the period of January 23 through March 31, 2009.  In addition, the results of Florsheim Australia and Florsheim Europe benefited this year from foreign exchange rate changes.  Also, Florsheim Australia’s first quarter 2009 earnings from operations were reduced by $370,000 of acquisition costs.

Other income and expense and taxes

Other income during the first quarter of 2010 was $133,000 compared with expense of $94,000 in the prior year period.  The increase this year primarily related to foreign exchange gains on intercompany loans.

The Company’s effective tax rate in the quarter ended March 31, 2010 was 34.4% compared with 35.7% in the same period last year.  The decrease was due to a lower effective tax rate associated with the earnings at Florsheim Australia.

The Company’s primary source of liquidity is its cash and short-term marketable securities.  During the first three months of 2010, the Company generated $2.0 million in cash from operating activities compared with $6.0 million in the same period one year ago.  This decrease was primarily due to a smaller decrease in inventory levels in the first quarter of 2010 compared with the same period of 2009.  Capital expenditures were $385,000 in the first quarter of 2010.  The Company expects annual capital expenditures for 2010 to be between $1.0 million and $2.0 million.

The Company paid cash dividends of $1.7 million and $1.6 million during the three months ended March 31, 2010 and 2009, respectively.  On April 21, 2010, the Company’s Board of Directors increased the quarterly dividend rate from $.15 per share to $.16 per share.  This represents an increase of 7% in the quarterly dividend rate.  The impact of this will be to increase cash dividends paid annually by approximately $450,000.

The Company continues to repurchase its common stock under its share repurchase program when the Company believes market conditions are favorable.  To date in 2010, the Company has repurchased 4,100 shares at a total cost of $90,200.  The Company currently has 1,381,645 shares available under its previously announced buyback program.  See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” below for more information.

The Company had a total of $50.0 million available under its borrowing facility, and no outstanding borrowings as of March 31, 2010.  The facility includes one financial covenant that specifies a minimum level of net worth.  The Company was in compliance with the covenant at March 31, 2010.  The facility expired on April 30, 2010 and was renewed through April 30, 2011.

The Company will continue to evaluate the best uses for its free cash, including continued stock repurchases and additional acquisitions.

The Company believes that available cash and marketable securities, cash provided by operations, and available borrowing facilities will provide adequate support for the cash needs of the business in 2010.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes from those reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Item 4.  Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis.  The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the Company’s 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, the Company’s 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 the Company’s periodic filings under the Exchange Act.  Such officers have also concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in accumulating and communicating information in a timely manner, allowing timely decisions regarding required disclosures.

There have not been any 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 the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 1.   Legal Proceedings

None

Item 1A. Risk Factors

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

The table below presents information pursuant to Item 703(a) of Regulation S-K regarding the repurchase of the Company’s common stock by the Company in the three month period ended March 31, 2010.

Item 6.  Exhibits

SIGNATURE

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.

(THE “REGISTRANT”)

(COMMISSION FILE NO. 0-9068)

EXHIBIT INDEX

TO

CURRENT REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED  March 31, 2010