Wolverine World Wide Delivers Broad-Based Growth in Q1; Raises FY Outlook

Earnings of $35.9 million, or 72 cents a share, exceeded Wall Street's consensus estimate of 66 cents. The results prompted the footwear maker to boost its full-year guidance to $2.40 to $2.50 a share on $1.38 billion to $1.42 billion in revenue, up from its upbeat February forecast of $2.35 to $2.45 a share and revenues of $1.35 billion to $1.39 billion. With the new guidance, EPS is expected to increase in the range of 10.6 percent to 15.2 percent for the year with sales climbing between 10.5 percent and 13.7 percent.

On a conference call with analysts, company President and CEO Blake Krueger said every brand in its portfolio saw revenue increases with strong growth seen across every global region.

“Momentum in the business that began in the back half of 2010 continued to build in Q1 and we closed the quarter with record performance against almost all financial measures including revenue, gross margin, operating margin, and earnings per share,” said Krueger.
The Outdoor Group, which consists of Merrell footwear and apparel, Chaco and Patagonia footwear, saw revenues jump 21.6 percent to $138.1 million with each brand growing over 20 percent during the quarter. Merrell grew at a “strong double-digit pace” in its wholesale, consumer direct and international businesses.

Merrell Barefoot, launched in February, is on track to be the most successful product launch in the history of the company, according to Krueger.

“Sell-throughs have been better than expected and we are seeing a significant amount of at-once orders as retailers try and keep up with strong consumer demand,” said Krueger. “Merrell has established itself as the go-to brand in the minimalist running category and is expanding this program to mainstream consumers and additional product categories.”

A broader, more versatile Barefoot collection that will also feature new materials, colors and leathers will roll out this fall.

Merrell Apparel delivered triple-digit revenue growth in the quarter.
Merrell's retail footprint also continued to expand, now boasting over 1,000 dedicated shop-in-shops in 145 concept stores globally.
With a strong response to the introduction of its new closed-toe program, Chaco is expected to “continue to grow at a very strong pace and will be a major contributor to our future performance,” said Krueger.
The overall Outdoor Group ended the quarter with a “strong double-digit backlog increase.”

Heritage Group revenues climbed 18.3 percent to $111.1 million in Q1, led by strong double-digit growth for Bates, Wolverine footwear and apparel in the U.S., and Caterpillar footwear. Krueger said the Wolverine brand is continuing to grow market share in its core work faster than any of its competitors while its premium-priced 1000 Mile and 1883 collections to grow in both in the U.S. and internationally.
“Consumers and retailers around the world continue to seek out this product which falls in the sweet spot of the current boot, Americana and authentic brand trends,” said Krueger.

The Heritage Group also ended the quarter with a strong backlog increase.

The Lifestyle Group, consisting of Hush Puppies, Sebago, Cushe and Soft Style, increased its revenue by 1.1 percent to $52 million. Strong growth in Cushe and Hush Puppies’ third-party licensing business was offset by expected softness for Hush Puppies in Europe and the U.S. Lower close-out sales, some late deliveries from third-party factories in India and softness in the mid-tier department store sector accounted for the vast majority of the decline in the U.S. and Europe for Hush Puppies.

Cushe, WWW’s action sports-inspired brand, achieved “outstanding global revenue growth” by continuing to gain access to influential core independent action sports accounts as well as leading fashion-boutiques such as the Tannery in Boston, City Soles in Chicago and Terra Firma in Montreal. Sebago likewise “continues to gather global momentum,” said Krueger, and is expanding at Saks, Bloomingdale's, Nordstrom and Urban Outfitters.

In its International Group, formed in January, strong revenue growth was generated in each region, especially Greater China, India, and other Asia-Pacific countries with the overall international distributor business growing at over 40 percent.

Gross margin widened to 41.6 percent from 41.3 percent as strategic price increases and a slightly favorable foreign exchange impact offset higher product costs and a slightly higher mix of volume direct and special makeup goods.  Wolverine officials noted that higher product cost negatively impacted its gross margin by only 31 basis points in the quarter due to inventory pre-buys in late fiscal 2010 ahead of announced price increases from third party factories.

SG&A was reduced almost 90 basis points due to the sales leverage. The improvement came despite an increased marketing investment by almost 16 percent to expand brand awareness and consumer loyalty, as well as investments in its sales infrastructure and product development to support initiatives such as Merrell Barefoot.

Inventories were up 45.5 percent at the quarter's end, partly reflecting the fact that last year's Q1 inventory levels were down about 21 percent. About a quarter of the increase was due to accelerated purchases of core product to avoid announced factory cost increases, another quarter reflects higher product and freight cost and inventory for new collections such as Merrell Barefoot, and the balance of the increase reflects inventory to service the improved outlook for the balance of the year.