Speaking at the 2023 ICR Conference, Brendan Hoffman, president and CEO, Wolverine Worldwide, elaborated on how the company’s realigned reporting structure and 100-day plan were designed to “move the needle” and prioritize investments into its three biggest growth drivers—Merrell, Saucony and Sweaty Betty.
The realignment also led to its decision to divest the Keds business.
On December 8, Wolverine said it began the formal process to divest or license the Keds brand and its Wolverine Leathers business, both of which were low-profit contributors.
Hoffman, who became CEO at the start of 2022 after joining Wolverine as president in September 2020, said that divesting brands, traditionally at Wolverine, was “off limits” with the breadth and diversity of the company’s broad portfolio regularly touted as a strength.
“That’s true to a certain extent, but the focus is also important to clarity,” said Hoffman. “And we can’t have any sacred cows. The world is different now. We can’t afford to invest in all these businesses we have. The competition’s too strong out there right now to be peanut buttering these resources.”
The focus, he said, had to center on “which businesses we believe in and want to fund.”
Hoffman said with the strategy work the team took showed that while Keds is a “great legacy business,” it’s under $100 million in sales. The recent sale of the rights to Champion footwear, which was under the Keds platform, to Hanesbrands further showed the core Keds business was operating with “very, very low-profit margins.”
Hoffman added, “Part of the conversation we had to have as a senior team was, ‘What’s it going to take to double this business?’ ‘What investment do we have to make to get this to be a $200 million business?’ ‘Is that really worth it considering the opportunities we have in Saucony, Merrell and Sweaty Betty, where we can grow at $85, $90 million with far less of a lift?”
Hoffman was enthused that members of his senior team applauded the move. He said, “When I went around the senior team, it wasn’t the newbies that were as enthusiastic about selling these brands as some of the people who have been here for a long time and saw this as long overdue.”
Wolverine acquired the Keds business in 2012 as part of its acquisition of Collective Brands’ Performance + Lifestyle Group (PLG), which also included Sperry, Saucony and Stride Rite.
The decision to explore divesting Wolverine Leathers was “more of an obvious one” as Hoffman felt a tannery business did not align with the company’s focus on footwear brands.
Hoffman said Wolverine might explore divestitures of other brands, but also noted that it’s not a seller’s market given the challenging marketplace.
“Right now, the market is not very frothy for M&A,” said Hoffman. “In Keds, we had an inbound interest so we pretty much had it teed up, knowing that there would be a successful event there. We felt very comfortable there. On the other brands, we have some work to do, specifically around Sperry, to heal that brand again and bring it back to its core. For now, getting the Keds and Wolverine Leathers deals done will be a big step for the company and allow us to think differently going forward.”
Regarding its new reporting structure the company reported on November 9, Hoffman said he recognized that Wolverine’s 12 brands were “often moving in twelve different directions” under the prior organization that was “becoming complicated, and we were not very agile.”
He felt Wolverine was not able to distort investments into where the biggest opportunities were. He said, “I think, historically, the company had been too peanut buttery with making investment decisions and it didn’t leave enough for any one brand. The first thing I wanted to do was clarify the lanes we wanted to play in.”
Wolverine shifted from being segmented by the Boston Group and the Michigan Group to three divisions—Active Group (Merrell, Chaco, Sweaty Betty and Saucony); Work Boot Group (the Wolverine flagship brand, Caterpillar, Harley Davidson, Bates, and Hytest); and Lifestyle Group (Sperry, Keds and Hush Puppies).
Hoffman said of the realignment, “Instantly internally, it allowed us to think about ways we could get synergies out of the business. We were no longer twelve different businesses and trying 12 different ways of operating. We grouped these businesses together because they had a lot of overlap. There are a lot of synergies that they can share in terms of product creation and marketing messages and right away it allowed us to feel more agile as we look toward growth in the future. It also helped clarify which businesses we felt most strongly about and which ones had the tailwinds which, right now, is our Active Group. Our Lifestyle Group is more in a turnaround mode.”
He noted that Wolverine is also about halfway through its 100-day plan announced in November to deal with excess inventory imbalances.
Said Hoffman, “It was with an eye toward agility and making quick decisions that was the impetus for developing this 100-day plan. And a sprint for the whole organization to be rallied around because again, in a couple of years that I had been in the company, I noticed it going in different directions, and given the world we’re in now, we didn’t have the time to have those inefficiencies in the business.”
The 100-day plan focuses on four workstreams.
One was reducing inventory. Wolverine indicated in a press release before its presentation at ICR that it had reduced inventories by $30 million below targeted levels. Said Hoffman, “We made great progress there in a short time.”
Two was to reduce gridlock in its warehouses. Said Hoffman, “All this inventory put a lot of pressure on our warehouses, and early in November, late October I was worried about how we’re going to be able to service the business with all this inventory. We put processes in place to learn how to operate in this new normal with certain fast tracks to make sure we can serve the customer as needed. And, I sit here today saying, we’ve largely accomplished that in a short period of time.”
The third focus was establishing a Profit Improvement Office to identify cost savings, increase efficiencies and enable investments that would fuel growth. Hoffman said, “That was initially meant to stand up to find ways to fund all the investments we want to make as part of our corporate strategy work. And it’s not something that we have for a year or two and shut down. But in the immediacy, it’s going to provide us cover against some of the headwinds that the world is looking to face in 2023.”
He said part of the company’s focus led to workforce reduction it announced in December that’s expected to result in approximately $30 million in savings in 2023. Wolverine is also analyzing indirect procurement and materials to improve margins.
Finally, the fourth workstream focuses on looking to the future. Hoffman said that while the Wolverine team is realigning its “big brands” for growth, “we still have to make sure we’re parallel pathing that. We can’t slow that down. It’s making sure that we have the team also focused on where we want to go. As I say to the team, it’s ‘What are we going to do now?’ ‘What do we need to do next’ and ‘Where are we going?’ By articulating that in different ways than we’ve done before, we’ve been able to galvanize the organization to move far quicker than we ever have.”
In its recent press release, Wolverine noted that the acceleration of its inventory reduction efforts is expected to pressure fourth-quarter earnings toward the lower end of guidance.
Wolverine had guided fourth-quarter earnings to come in the range of a loss of 19 cents to a loss of 9 cents and adjusted EPS in the range of a loss of 15 cents to a loss of 5 cents. In the 2021 fourth quarter, Wolverine posted a net loss of 18 cents on a reported basis and earnings of 41 cents on an adjusted basis.
Wolverine said it achieved its revenue, inventory management and cash flow goals for the latest quarter.
Fourth quarter revenue of approximately $665 million, representing approximately 5 percent growth and 8 percent on a constant-currency basis. Fiscal 2022 full-year revenue was $2.685 billion, representing approximately 11 percent growth and 14 percent on a constant-currency basis.
Photo courtesy Sweaty Betty
