Wolverine World Wide, Inc. reported sales declined 2.5 percent in the first quarter ended April 1 as strong double-digit gains for Merrell and Saucony were offset by declines at Sperry and its work footwear brands. Results were in line with guidance and Wolverine affirmed its guidance for the year.

EPS on an adjusted basis of 9 cents a share topped analysts’ consensus estimate of 3 cents. Sales on an adjusted basis of $$580.4 million exceeded Wall Street’s consensus target of $577.5 million.

“We are pleased with delivering first quarter results in line with guidance which included 15 percent constant currency revenue growth from our Active Group,” said Brendan Hoffman, president and chief executive officer. “Earnings results slightly exceeded our expectations and we made progress on reducing inventory. Our first quarter performance and initiatives we have in place position us to reaffirm our full-year outlook despite a challenging environment.”

Commenting on portfolio optimization, Hoffman noted, “We need to focus our efforts and investments on our Active and Work Groups, specifically our growth brands—Merrell, Saucony and Sweaty Betty. The recent sale of Keds and pending licensing of Hush Puppies will enable this focus, and these transitions are well underway. We are now exploring strategic alternatives for Sperry while we continue the foundational work needed to position the brand for long-term success.”

Financial Highlights And Full-year Outlook
Financial results and guidance for 2023, and comparable results from 2022 for its ongoing business exclude the impact of Keds, which was sold in February 2023, and Wolverine Leathers, which is the subject of a sale process, and reflect an adjustment for the transition of its Hush Puppies North America business to a licensing model in the second half of 2023.

Revenue of $599.4 million declined 2.5 percent versus the prior year and declined 0.5 percent on a constant currency basis. Revenue from the ongoing business was $580.4 million representing constant currency growth of 2.9 percent.

By reporting segments, sales in the Active Group (Merrell, Saucony, Sweaty Betty, Chaco) were up 11.5 percent (+15.0 percent on a currency-neutral basis) to $385.9 million. Sales in the Work Group (Wolverine, Cat, Bates, Harley-Davidson, HyTest) declined 17.3 percent (-17.3 percent on a currency-neutral basis) to $114.5 million. Sales in the Lifestyle Group (Sperry, Keds) fell 21.1 percent (-20.9 percent on a currency-neutral basis) to $85.3 million.

Among major brands, Merrell sales jumped 17.6 percent (+20.3 percent on a currency-neutral basis) to $180.3 million. Saucony’s sales climbed 21.2 percent (+24.5 percent on a currency-neutral basis) to $132.6 million. Sperry’s sales fell 13.0 percent (12.9 percent on a currency-neutral basis) to $62.9 million. Wolverine Brand’s sales were down 12.1 percent (-12.1 percent on a currency-neutral basis) to $51.7 million. Sweaty Betty’s sales were off 11.4 percent (-3.1 percent on a currency-neutral basis) to 47.5 million.

The company’s international business was especially strong, up 12.6 percent or 18.0 percent on a constant currency basis to $249.7 million. Direct-to-Consumer revenue from the ongoing business of $124.9 million was down 7.7 percent compared to the prior year and down 4.4 percent on a constant currency basis.

Gross margin was 39.4 percent compared to 42.5 percent in the prior year reflecting the sale of higher-cost inventory due to transitory supply chain costs from 2022, the acceleration of end-of-life inventory liquidation, and increased promotions.

Selling, general & administrative expenses were $191.0 million, net of a $20.1 million gain on the divestiture of the Keds business. Adjusted SG&A expenses of $202.7 million or 34.9 percent of adjusted revenue, were 45 basis points lower than the prior year.

Net income came to $18.0, or 23 cents a share, against earnings of $8.4 million, or 12 cents, a year ago. On an adjusted basis, non-GAAP earnings per share was down 76.3 percent to 9 cents a share from 38 cents a year ago.

Q1 2023 adjustments reflect the gain on the divestiture of the Keds business and environmental and other related costs net of recoveries, partially offset by reorganization costs. Q1 2022 adjustments reflect environmental and other related costs net of recoveries.

Inventory at the end of the quarter was $725.9 million which excludes $11.2 million for held-for-sale business. Inventory was down approximately $19.0 million sequentially from the fourth quarter of fiscal 2022.

Net debt at the end of the quarter was $1.06 billion, and liquidity was approximately $670 million. The company’s bank-defined leverage ratio was 2.8x.

Full-Year 2023 Outlook
“During the first quarter, we saw supply chain and working capital improvements in the business,” said Mike Stornant, Executive Vice President and Chief Financial Officer. “Importantly, we also gained more certainty on current-year cost savings from Profit Improvement Office actions and we remain on track to deliver the earnings improvements planned for this year. The trading environment is challenging, but the diversity of our portfolio and its global reach is expected to help mitigate those challenges. As a result, we are reaffirming revenue and earnings guidance for fiscal 2023.”

  • Revenue from its ongoing business is expected to be in the range of $2.53 billion to $2.58 billion, representing growth of approximately 0.0 percent to 2.0 percent and constant currency growth of approximately 1.0 percent to 3.0 percent;
  • Gross margin is expected to be approximately 41.3 percent and adjusted gross margin is expected to be approximately 42.0 percent;
  • Operating margin is expected to be approximately 8.7 percent, and adjusted operating margin is expected to be approximately 8.5 percent;
  • The effective tax rate is expected to be approximately 21.0 percent;
  • Diluted earnings per share are expected to be between $1.50 to $1.70 and adjusted diluted earnings per share are expected to be between $1.40 to $1.60. These full-year EPS expectations include an approximate $0.14 negative impact from foreign currency exchange rate fluctuationsl
  • Diluted weighted average shares are expected to be approximately 79.3 million; and
  • Inventory is expected to improve by approximately $225 million by the end of the year.

Photo courtesy Wolverine