Published on March 30th, 2022, by Quinn Mohammed
The demand for Weyco Group’s footwear products took a dive in 2020, as large swaths of the population stayed at home for much of the year, and some retailers were forced to close. As the world opened up in 2021, and continues to in 2022, the company has made strides in earnings growth, tapping into pent-up demand.
Sadly though, Weyco’s thirty-nine-year dividend increase streak was put to an end at the time of the COVID-19 pandemic. Since 2019, Weyco has not increased its dividend. With such a long history of increases, and a more stable payout ratio after putting the pandemic behind it, the company may begin increasing it again sometime soon.
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In this article, we will analyze footwear company Weyco Group (WEYS) Inc.
Business Overview
Weyco Group Inc. designs and sells footwear for all people, but primarily for men. Weyco’s well-recognized brand portfolio include Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters and Forsake.
Source: Weyco Group Website
Most of the company’s products are sold through footwear, department, and specialty stores. The company also sells directly through it’s e-commerce website. Weyco also runs Florsheim stores in the U.S., Australia, and other international markets.
The company’s common shares are owned by a small number of holders. Most notable, the Florsheim family owns roughly 50% of the stock. Additionally, one institutional shareholder owns a significant block of common shares.
Weyco Group reported Q4 and FY 2021 results on March 8th. Consolidated net sales for the full year 2021 were $267.6 million, a 37% year-over-year increase compared to $195.4 million in 2020. Net earnings equaled $20.6 million, favorable in comparison to an $8.5 million net loss in the prior year. Diluted earnings for 2021 was $2.12 per share, a significant improvement over the ($0.87) loss in 2020.
Year-over-year improvements in sales and earnings was due to the reopening of global economies, as 2020 results were crushed by the closing of brick-and-mortar retailers. Additionally, the demand for footwear has recovered with a less prominent stay-at-home paradigm in 2021 and 2022.
In 2021, the North American retail segment’s e-commerce sales increased 43% compared to the prior year. Sales of all brands’ websites were up year-over-year.
Growth Prospects
Moving forward, the company will continue to try and gain business through its e-commerce platform. This sales channel is more profitable, with higher margins, than selling through brick-and-mortar. And, customers have become quite comfortable purchasing products online, so there is likely to be less friction from future shoppers to purchase through this channel.
Weyco’s online business is performing above its industry e-commerce growth numbers. It’s e-commerce growth has led to online transactions now accounting for a large majority of the company’s retail sales.
Still, the company is heavily reliant on its wholesale channel and department stores for most of its revenue. In June 2021, Weyco acquired the Forsake brand, and merged it into the BOGS’ outdoor division. Supply chain constraints and delays weighed on the brand in 2021, but growth should materialize from here.
The company has been repurchasing common stock, at just a little over 1% per year for the last decade. It’s quite a slow repurchase rate, but as long as shares outstanding are not increasing, the shareholders are likely benefiting in the case of Weyco stock.
Competitive Advantages & Recession Performance
Weyco possesses a small competitive advantage in the strength of its brands, but the industry is fierce. Weyco’s competitors are much larger than them, which give them a clear scale advantage over Weyco.
Due to the pandemic, many of Weyco’s competitors did pull back or exit from the dress-shoe business, and Weyco is eyeing picking up that market share once that particular business line recovers.
Spending on footwear is highly reliant on discretionary income and the general economy. As a result, the company is not recession resistant. Earnings-per-share decreased during the Great Recession and then took several years to recover. However, the company does possess a very healthy balance sheet, which includes no debt and $38 million in cash.
Dividend Analysis
Weyco’s quarterly $0.24 dividend equals an annual cash payment of $0.96 for 2022. While the company previously possessed an incredible thirty-nine-year dividend increase streak, in 2021 this streak was canceled with no increase. At the current share price, Weyco Group has a high dividend yield of 4.0%. The current yield is about 60 basis points higher than the trailing decade average of 3.4%.
Sometimes, a higher-than-average dividend yield could indicate that shares are undervalued. As the share price decreases, and the annual dividend is maintained or increased, the dividend yield rises. However, this can also be caused due to a deteriorating business which has caused the share price to plummet and the yield to grow. Of course, this is simply one of many things investors can look into before determining the value of a stock.
Based on our 2022 earnings-per-share estimate of $2.14, the company will boast a 47% payout ratio. For the time being, that’s a fairly healthy payout ratio for this company. There’s a real possibility that Weyco will grow it’s dividend faster than it will grow earnings in the medium-term, which may weigh on the payout ratio going forward. Still, the company’s last dividend increase was in 2019.
Final Thoughts
Due to the COVID-19 pandemic, Weyco Group stopped raising its dividend after a 2019 increase. At the same time, the pandemic caused many competitors to shy away from the dress-shoe business, and Weyco anticipates picking up that market share as the economy recovers from the pandemic.
Today, Weyco has a dividend yield of 4.0%, which is well above it’s 3.4% trailing decade average. On a dividend yield basis, and a price-to-earnings basis, the company seems to offer some margin of safety at this price. Of course, the business is highly dependent on the general state of the economy, so the fair value could change quickly.
Weyco Group has a strong dividend history, and earnings have recovered since the pandemic. Shares appear to be good value here, but the company is not recession resistant. Still, the payout ratio is very fair at 47%, and paves the way for the start of a new dividend increase streak.