Wolverine World Wide Inc. lifted its guidance for the third time this year after reporting earnings on an adjusted basis rose 44 percent. Underlying revenue rose 1.1 percent on a currency-neutral basis

financial results for the third quarter ended September 29, 2018. The company also updated its full-year 2018 outlook.

“We reported strong earnings during the third quarter driven by healthy gross and operating margin expansion,” said Blake Krueger, Wolverine Word Wide’s chairman, chief executive officer and president. “Our Way Forward transformation initiatives continue to gain traction and deliver tremendous benefits as evidenced by better than expected operating leverage in the quarter. Underlying revenue growth in the third quarter was positive, and we expect underlying revenue growth for the fourth quarter to improve meaningfully as our growth initiatives take hold especially for our two largest brands, Merrell and Sperry.”

Third-Quarter 2018 Review

  • Reported revenue of $558.6 million decreased 3.9 percent during the third quarter. Underlying revenue increased 0.5 percent and further adjusting for currency, increased 1.1 percent.
  • Reported gross margin was 41.6 percent, as compared to 39.7 percent in the prior year. On an adjusted basis, gross margin of 41.6 percent expanded 170 basis points compared to the prior year.
  • Reported operating margin was 12.2 percent, compared to 6.4 percent in the prior year. Adjusted operating margin was 12.6 percent, an increase of 80 basis points compared to the prior year.
  • Reported diluted earnings per share was $0.60, compared to $0.24 in the prior year. Adjusted diluted earnings per share were $0.62 compared to $0.43 in the prior year, an increase of 44 percent. Wall Street’s consensus had been 56 cents.
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Inventories declined $14.4 million, or 4.3 percent compared to the prior year.
  • A discretionary pension contribution of $40.0 million was made during the third quarter to bring the company’s pension plan to substantially fully-funded status.
  • The tax rate of 7.8 percent during the third quarter was favorably impacted by the pension contribution noted above, resulting in a $0.06 benefit to earnings per share.
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The company executed approximately $20 million in share repurchases in the quarter bringing the year-to-date total to $70 million at an average price of $31.65, and has over $130 million still available under its current share repurchase program.

“Operating margin in the third quarter benefited from broad-based expansion of gross margin across our brands, primarily due to favorable mix, lower product costs, lower markdowns and benefits from a cleaner inventory pipeline,” said Mike Stornant, senior vice president and chief financial officer. “On a year-to-date basis, adjusted operating margin has expanded at a strong 120 basis points compared to the prior year which includes our significant incremental growth investments in the current year.”

Fourth Quarter And Full-Year 2018 Outlook

Fourth Quarter

“The company remains on track to invest up to $45 million in incremental investments to drive future growth as part of our GLOBAL GROWTH AGENDA,” stated Mr. Krueger. “We remain committed to this enhanced investment strategy for 2018 and expect to implement a number of new initiatives to drive accelerated revenue growth over the long term. We expect the fourth quarter to benefit from these investments, resulting in underlying revenue growth of 3 percent to 5 percent compared to the prior year. We expect Merrell to deliver low-teens growth and Sperry to deliver high-single-digit growth in the quarter. Growth in our eCommerce business is also expected to remain very strong in the fourth quarter.”

2018 Outlook

The company is updating its revenue and earnings projections for the full year. The full-year outlook is summarized below.

  • Revenue is now expected to be approximately $2.24 billion, representing 2.5 percent underlying growth for the full year. The updated guidance includes the fourth quarter impact from weakness in the Latin America region and the bankruptcy of a work boot customer.
 (Previous guidance: $2.24 billion to $2.32 billion.)
  • Gross margin is now expected to expand approximately 150 basis points compared to the adjusted prior year.
 (Previous guidance: range of 100 to 130 basis points.)
  • Reported operating margin is now expected to be approximately 11.7 percent, and adjusted operating margin is now expected to be approximately 12.1 percent, inclusive of up to $45 million of expected incremental investments to support the company’s GLOBAL GROWTH AGENDA. (Previous guidance: 11.6 percent to 11.9 percent and adjusted operating margin is now expected to be 12.1 percent to 12.4 percent,)
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The effective tax rate is now expected to be in the range of 15.0 percent to 16.0 percent, reflecting the discrete benefit from pension contributions.
 (Previous guidance: 18 percent to 20 percent.)
  • Reported diluted earnings per share are now expected to be between $2.09 to $2.13 and adjusted diluted earnings per share are now expected to be between $2.12 to $2.16, an increase over our previous outlook.
 (Previous guidance: $2.08 to $2.15.)

Wolverine World Wide’s portfolio of brands include Merrell, Sperry, Hush Puppies, Saucony, Wolverine, Keds, Stride Rite, Chaco, Bates, HYTEST, and Soft Style. The company also is the global footwear licensee of the popular brands Cat and Harley-Davidson.

Image courtesy Merrell