Weyco Group (WEYS)


Key Statistics

Enterprise Value = $268.28 million

Operating Income = $27.04 million

EV/Operating Income = 9.92

Earnings Yield = 8%

Price/Revenue = .85x

Debt/Equity = 5%

The Company

Weyco is a footwear company. Weyco has several excellent brands, which include: Florsheim, Stacy Adams, Nunn Bush, and Bogs. Most of the footwear brands are reasonably priced dress shoes for men. Bogs specializes in boots. Their boots are known for being waterproof and sturdy.

The business is split up into two segments: wholesale and retail. It wholesales to stores throughout the United States and Canada. Each brand also has a web presence and sells shoes directly to consumers via the web from its site. Additionally, you can purchase their shoes directly on Amazon. Nearly all of their shoes are available for prime shipping, and some are including in Prime Wardrobe.

Most of these brands have a long history, which indicates they’re probably not likely to fall apart any time soon. Florsheim’s is a particularly iconic dress shoe brand and has been around since 1892. The CEO is currently Thomas Florsheim.

My Take

Weyco’s shoes receive positive reviews online. The Florsheim Oxford dress shoe, for instance, looks good and is reasonably priced at $103. One of the Bogs children’s boots, the “bogs kids classic high waterproof insulated rubber rain and winter snow boot” is a #1 best seller in boy’s snow boots on Amazon. This boot, along with many others, is included in prime wardrobe. It receives rave reviews with plenty of 5-star ratings.

While Weyco maintains nine retail stores, they’re not threatened by the retail carnage, as their products already have a prominent place on Amazon and it is sold through their own website.

While the company isn’t growing significantly, it is consistently profitable. They posted positive results in the depths of the recession in 2009. FY 2018 was one of their best on record when they earned $1.97 a share. Their recent quarter hasn’t been bad either, in which they earned 40 cents a share compared to 29 cents in the previous quarter a year ago.

They have a high degree of financial quality. Weyco’s debt/equity ratio is an ultra-conservative 5%, compared to an industry average of 98%. With little debt and continued profitability, Weyco should weather a recession well. They also have an Altman Z-Score of 4.63, which is a low bankruptcy risk. The Beneish M-Score is -2.76, meaning there is a low probability of earnings manipulation. Piotroski F-Score is a solid 6 out of 9.

If the company is so great, why is the stock down? The stock is down due to the usual suspects: recession jitters and tariffs. An increase to the 52-week high would be a 55% increase from current levels.

Weyco is affected by the tariff because they source many of their shoes from outside suppliers which are located in India (which isn’t a problem) and China. The tariffs will force Weyco to raise prices, which is challenging to pull off without affecting demand. It’s also possible that they won’t be able to pass on the cost and will have to eat the cost to maintain market share. Long story short, tariffs are the main reason that the stock is now available at a bargain price.

As with everything else I’ve bought that is affected by the tariffs this year, I’m purchasing the stock based on this uncertainty with the understanding that this is why I can buy at a bargain price. I believe that the worst case scenario has already been priced into the stock. Once the uncertainty subsides (and it will subside, one way or another), the stock can appreciate back up to a reasonable level.

In terms of the multiples, this trades at a P/E of 12.39. This compares to an industry average of 22. The P/E compares to Weyco’s five year average of 17.5, which seems right for a company that is consistently profitable with minimal debt. An increase in the P/E to 17.5 at current earnings would be a 41% increase from current levels. The EV/EBIT multiple of 9.9 compares to an average of 11.29, and Weyco’s valuation often goes as high as 13x. Weyco also supplies an excellent dividend yield of 3.72%. For over a decade, dividends have been consistent.

On a price/book and price/sales basis, it looks to me like a recession is already priced in. Price/sales is currently .85x, which is the lowest it has traded at in the last ten years, including the recession. The same is true on a price/book basis, currently at 1.25x, which is the cheapest it has traded at in the last decade.

PLEASE NOTE: The information provided on this site is not financial advice and it is for informational and discussion purposes only. Do your own homework. Full disclosure: my current holdings.  Read the full disclaimer.