High-Yield Weyco Group Returns To Reasonable Levels

Weyco Group Returns To Growth, Dividend Hike Is Expected 

Weyco Group (NASDAQ: WEYS) caught our eye a few years ago while screening for small-cap dividend growth stocks. The company owns a healthy portfolio of legacy and growth-oriented shoe brands and pays what we consider to be an above-average distribution in both yield and safety. The pandemic put an end, a temporary end we believe, to the dividend growth story but opened up new opportunities. Among the opportunities were a chance to get in at the lowest levels in over a decade, the chance to get in with an even better yield, and the chance to do both when the market was on an upswing. Now, the opportunities aren’t quite what they were a year ago but there are still there and ready to be taken advantage of. Trading at only 11X earnings and yielding over 4.0% this is a high-yield value. 

Weyco Group Has Solid Quarter, Gives Positive Outlook 

Weyco Group had a very solid quarter despite the winding down of its international business. The European business is already closed while the Australian business is slowly following suit and the core US business remains strong. The company reports $81.4 million in sales for a gain of 73.6% over last year. Last year’s sales were impacted by COVID-related conditions so aren’t as good as they look. The two-year comparison, however, is up 10% on strength in the wholesale and retail units that is expected to continue through the end of the year.

On a unit basis, the wholesale unit grew more than 110% YOY as merchants refill shelves while the retail unit grew 39% on a comp basis and 41% in the two-year stack. Sales in the retail unit continue to be underpinned by eCommerce which grew by 38% across all brands and websites and we see strength in this channel continuing as well. 

“Our sales continued to surge during the first quarter of 2022, hitting record levels, fueled by strong demand in our North American wholesale and retail segments,” stated Thomas W. Florsheim, Jr., the Company’s Chairman and CEO. “We received a large number of containers during the quarter which enabled us to fulfill much of the increased demand, despite supply chain delays. While the supply chain shows indications of improving as inflows of product into the U.S. are increasing, we still anticipate continued headwinds in the near to medium term. Our wholesale backlog currently remains very strong, and we look forward to carrying on this positive momentum as we move throughout the year.”

The company reported a systemwide decline in the margin but this is due to the overly large increase in wholesale sales. Gross margin contracted by 540 basis points but that decline was offset by revenue growth and had little impact on the bottom line. On a unit basis, wholesale margin contracted by 450 basis points and was offset by a 60 basis point improvement in the retail unit. This drove GAAP income up by nearly 200% and left GAAP earnings of $0.42 higher on a 1 and 2-year basis. 

The Technical Outlook: Weyco Group Is Ready To Spring Higher 

Price action Weyco Group staged a nice recovery post-pandemic but it has yet to surpass the pre-pandemic highs. Considering the fact that business has exceeded those levels including the winding down of international affairs it seems as if price action is lagging the results. In that light, we are expecting to see this market break above resistance at the $25 level and continue moving higher and into the $30 to $32.50 zone. If not, resistance may cap gains and keep this stock range-bound until the general outlook for economic activity improves.