Weyco Group May Be Ready To Move Higher
Weyco Group (NASDAQ: WEYS) has been struggling with pandemic conditions and the fallout from them for some time but those days may be over. The company gave a blowout Q4 report that suggests not only is demand strong for the brands within this shoe empire and supply chain challenges have been well mitigated. Trading at only 11X its pre-release trailing 12-month earnings, it is a value and a deeper value now the outlook has brightened and one that pays a nice 4% yield for small-cap investors. The payout hasn’t been increased for a couple of years but the company has a robust history of increases we see resuming in 2022 and there is some institutional support as well. The institutions are net-sellers for the last 4 quarters but the selling is centered in Q3 2021 and turned slightly bullish in the 1st quarter of 2022.
Weyco Group Exceeds 2019 Results
Weyco Group had a great quarter and one supported by demand in all segments. The company reported a record $101.4 million in consolidated revenue for a gain of 63.6% over last year, 64% sequentially, and 16.6% in the two-year stack. The gains were driven by a 72% increase in wholesales, up 16% versus 2019, and a 55% increase in North American Retail. North American Retail is also supported by a 52% increase in eCommerce sales. The other category, which includes the Australian segment, grew by 14% and is on track to improved profitability due to restructuring efforts.
Moving down, there is some bad news in terms of the margin but it is mitigated by operating leverage and looks good in the 2-year comparison. The company’s gross margin contracted by 430 basis points but was not enough to offset revenue strength and the leverage it provided. On the bottom line, operating income is up 62% and drove GAAP earnings to a near doubling versus last year and the previous quarter. In the two-year stack, GAAP earnings are up 19% and outpaced revenue growth by about 300 basis points.
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The company did not give any formal guidance for the new year but is expecting the momentum to carry forward. Surely some of the strength is due to inventory restocking but there have been market share gains as well. In our view, revenue may retreat from this peak but is still very strong and supporting a very healthy dividend.
Weyco Group Is On Track For A Dividend Increase
It’s been several years since Weyco Group issued a dividend increase due to the pandemic but we think one is on the way. The pre-pandemic history shows a long series of annual increases that lead us to believe another is on the way as soon as earnings strength supports it. The payout ratio for F2021 came in at 45% of earnings with the Q4 results which we think is more than low enough. Assuming strength continues as-is for the next year the payout ratio could fall below 25% and the balance sheet is strong. The company has some debt but it's low and the balance sheet is net cash with ridiculously high coverage ratios.
The Technical Outlook: Weyco Group May Enter Reversal
Price action in Weyco Group has been moving higher lately but this movement is well within a larger trading range that is, ultimately, a bottom in price action. The Q4 results have shares edging higher now and may push them even higher if resistance at the $25.50 level can be broken. In that scenario, we see this stock moving up to the $35 level and possibly higher. If not, we expect range bound conditions to remains until institutional buying picks up.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Weyco Group (WEYS) | $29.14 | +2.6% | 3.43% | 9.22 | | N/A |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
