Wolverine World Wide Inc. reported strong demand for most brands and record bookings but reduced its earnings guidance in the year due to supply chain challenges that are expected to continue at least until the end of 2021.
In the third quarter, Wolverine officials indicated the company lost at least $60 million in sales due to factory closures in Vietnam, which impacted its Merrell brand, coupled with logistic delays caused by port congestion.
Helped by demand for Saucony, Sperry, its work footwear range, and Sweaty Betty, sales grew 29 percent in the third quarter versus 2020 and 11 percent over 2019. Sales reached $637 million, short of Wall Street’s consensus estimate of $653 million due to the company’s supply chain issues.
Revenues at The Wolverine Michigan Group (Merrell, Cat, Wolverine, Chaco, Hush Puppies, Bates, Harley-Davidson, and Hytest) grew 13 percent year-over-year to $324.8 million. Wolverine Boston Group (Sperry, Saucony, Keds, and the Stride Rite licensed business) saw sales increase 33 percent to $258.8 million. Both groups delivered growth over 2019.
Adjusted EPS reached 62 cents, exceeding internal expectations despite the supply chain issues and beating Wall Street’s consensus target of 60 cents. Adjusted EPS was 35 cents in the prior year.
“Consumer demand for our market-leading brands and product offerings continued to surge and exceeded our expectations in Q3,” said Blake Krueger, chairman and CEO, on an analyst call. “Our strategic focus on a deeper connection with consumers, digital and DTC capabilities and product and design innovation is paying dividends. While the supply chain challenges that have been well documented across many industries have limited our ability to fully service this growing demand in the short-term, I have never been so enthusiastic about our future and our outlook for 2022.”
Saucony’s Q3 Revenues Jump 40 Percent
Among its key brands, Saucony’s sales grew more than 40 percent growth over 2020 and 60 percent versus 2019 “despite some supply chain challenges,” said Brendan Hoffman, president. Saucony.com was up more than 50 percent and nearly tripled versus 2019.
“The brand has seen global success with all regions contributing significant growth,” said Hoffman. Outside of the U.S., sales in Europe grew 30 percent with strength in technical running and lifestyle performance. The Asia Pacific saw 60 percent growth. In China, Saucony stores and the online business operated through a joint venture are performing well.
By product category, road running paced the gains, boosted by the recent launches of the Ride 14, the brand’s biggest franchise shoe, and Triumph 19. The Endorphin collection “continues to generate heat in the marketplace and delivered substantial revenue for the brand,” backed by recent franchise updates, including the Pro 2, Speed 2 and Shift 2. Trail running grew more than 40 percent.
Said Hoffman, “Saucony continues to deliver a consistent flow of powerhouse performance product and trend-right lifestyle product. This has translated to consistent robust growth for the brand over the last several quarters, and we expect this to continue into 2022.”
Merrell’s Sales Expand Mid-Single-Digits
Merrell was most impacted by the Vietnamese factory closures, with lost revenue in the quarter estimated to be at least $25 million but still managed to deliver mid-single-digit growth year over year. By channel, Merrell’s DTC sales grew mid-single-digits with merrell.com building on its nearly doubling of the business last year. Merrell stores continued to outperform expectations.
In the performance category, the Moab Speed and Moab Flight both exceeded expectations and are helping build on Merrell’s “number one U.S. market share position in the hike category.” Hoffman said, “These styles represent the brand vision for fast, lightweight footwear for the trail and light hiking and also build on the heritage and success of the world’s number one hiker, The Moab.”
Merrell’s Lifestyle business performed better than the brand’s overall growth in Q3.
“We are seeing positive results from our strategic focus on further elevating Merrell as a lifestyle brand,” Hoffman said. “Recent brand health research indicates that consumers are incorporating Merrell into their own identity at an increasingly higher degree. These trends are manifesting in the strong performance we are seeing in lifestyle products, including the Hydro Moc and the newly launched Cloud all-day casual sneaker collection made with eco-friendly materials.”
Looking ahead, Merrell has sizeable untapped growth opportunities globally, particularly in the EMEA region, which has seen increasing momentum for several quarters, and in the Asia Pacific, where the brand’s China joint venture is beginning to gain momentum.
Hoffman said, “Outdoor and performance trends are strong around the world, and Merrell is capitalizing on its heritage and brand positioning.”
Work Sales Expand 16 Percent
Wolverine’s work division, which accounted for nearly 20 percent of total revenue and was led by the Wolverine brand, grew sales by over 16 percent. Cat Footwear was up nearly 40 percent, and “strong contributions” were seen from smaller work brands. Said Hoffman, “We expect continued strong growth in the work category as we pivot toward 2022.”
Sweaty Betty Grows Over 50 Percent
Sweaty Betty, the U.K.-based women’s activewear brand, saw sales expand over 50 percent, ahead of expectations. Hoffman reiterated that the brand provides an opportunity for Wolverine to address the growing activewear market of over $200 billion. The acquisition also expands Wolverine’s DTC and international presence while supporting other brands. Hoffman said, “We plan to leverage these strengths by deploying Sweaty Betty’s best practices and apparel expertise across our portfolio.”
Based on the performance of Merrell, Saucony, Sweaty Betty, Wolverine, and its other work brands, the performance business saw growth of nearly 30 percent over 2019 during the third quarter.
Sperry Delivers Over 40 Percent Q3 Growth
Sperry continued its recovery with sales ahead over 40 percent in the quarter. DTC sales grew 25 percent, driven by ongoing e-commerce growth and “very good” Sperry stores performance, according to Hoffman. All product categories delivered strong double-digit increases in the quarter.
“The overall boat market showed strong growth, particularly in men’s, and Sperry gained significant market share growth in this key category,” said Hoffman. “From a fashion standpoint, there are clear indications that we are at the forefront of a boat shoe trend with very encouraging demand from key retailers for the first half of 2022. I hope you all saw 007 James Bond wearing a pair of our iconic boat shoes in No Time To Die.”
In the coming months, Sperry plans to build on the energy created by recent collaborations with Rowing Blazers and Netflix’s Outer Banks and product capsules with John Legend and Rebecca Minkoff. Hoffman said, “The brand is also well-positioned for the current seasonal women’s boot business with strong demand and healthy inventory levels. Sperry will also leverage the easy on-off trend during Q4 with its Moc Sider and the Cozy Float collections.
In Spring 2022, the brand will launch its Sperry Sport collection.
Benefit From DTC/Digital Shift And Consumer Behavior Trends
Krueger said Wolverine is benefiting from its emphasis on digital and DTC. E-commerce revenue jumped 45 percent in the quarter versus the prior year and 126 percent versus 2019. Wolverine’s owned online business and the online business of its wholesale customers now account for over 30 percent of global revenue. With the DTC businesses operated by its distributor partners worldwide, nearly 40 percent of Wolverine’s global revenue is generated through the direct consumer channel. Krueger said this provides “enhanced brand shopping experiences, a wealth of consumer insights and data and a more efficient business model.”
Krueger also said Wolverine continues to reduce risks in today’s uncertain climate given its numerous brands selling across product categories and distribution channels and its significant international presence.
Finally, Krueger said underlying consumer behavior trends supporting performance categories “are long-term in nature and are expected to persist” to Wolverine’s benefit. He cited an increased focus on health and wellness that supports running, hiking and exercise in general.
Krueger said, “Participation in running in the U.S. has increased every year over the last five years. And a significant majority of new runners today plan to continue running in the future. Participation in all outdoor activities, including hiking, walking and boating has also increased with over 20 million new hikers in the U.S. alone since 2015. This past spring and summer, National Park shattered attendance records and new boat purchases and water activities, in general, reached a 13-year high.
Consumers’ renewed affinity for the outdoors is expected to continue into the future, especially as consumers begin to travel again.”
He further said the work category had shown strong growth supported by healthy macro industry conditions and workwear fashion tailwinds.
Krueger said, ‘In addition to our strong DTC business, these trends are reflected by continued strength in retail sell-through and a historically high order backlog that now extends into Q3 of 2022. We remain bullish on our outlook in light of these trends and the composition of our brand portfolio, which over indexes in trending performance and lifestyle categories. We expect strong long-term consumer demand, especially for Saucony, Merrell, Sweaty Betty, our work brands and Sperry, which will launch a line of products in the active sport category next spring.”
Adjusted Gross Margins Expand 330 Basis Points
Wolverine showed a net loss of $800,000, or break even, in the latest quarter against earnings of $21.7 million, or 27 cents, a year ago. Adjustments in the latest quarter reflect $17.3 million of environmental and other related costs net of recoveries, $9.5 million of costs associated with the acquisition of Sweaty Betty and $7.0 million of air freight charges related to production and shipping delays caused by the pandemic. The year-ago period included $9.7 million in non-recurring charges tied to environmental issues and the pandemic.
The improvement on EPS on an adjusted basis, to 62 cents a share from 35 cents was helped by improved margins.
Adjusted gross margin improved 330 basis points versus the prior year to 44.6 percent due to higher average selling prices, favorable product mix and the addition of Sweaty Betty for nearly two months of the quarter. Merrell, Saucony and Sperry all well exceeded gross margin expectations in the quarter. Total air freight costs were approximately $10 million in the quarter, of which $7 million was excluded from adjusted results. Including the full air freight impact, our adjusted gross margin would have been 43.5 percent, up 220 basis points.
Wolverine said it continues to use air freight where appropriate to mitigate supply chain delays.
Adjusted SG&A expenses were $208 million, up $56 million year over year due to increased revenue, the addition of Sweaty Betty and increased marketing investments. Adjusted operating margin was 12 percent, an improvement of 140 basis points over last year and ahead of expectations.
Looking ahead, Wolverine’s updated guidance calls for:
- Adjusted EPS is now expected to be in the range of $2.05 to $2.10, down from a range of $2.20 to $2.30 previously;
- Reported EPS is now expected to be in the range of $1.16 to $1.21, down from a range of $1.85 to $1.95 previously;
- Sales are now expected to be approximately $2.4 billion against a range of $2.34 billion to $2.4 billion previously. The updated revenue outlook represents nearly 35 percent growth versus the prior year, mid-single-digit growth over 2019, including Sweaty Betty, and low-single-digit growth excluding Sweaty Betty.
Looking further ahead, Michael Stornant, SVP and CFO, said, “While certainly known supply chain headwinds will continue to be in play, we still expect to deliver mid-teens underlying growth and mid-20s overall growth in the first quarter of 2022. Our confidence in delivering double-digit underlying growth next year remains very high, and we believe Sweaty Betty adds significantly to the growth profile of the company.”
Photo courtesy Sweaty Betty