Wolverine Worldwide said Merrell lost at least $50 million in sales in the fourth quarter due to the fallout from the Vietnam factory closures and supply chain challenges are expected to continue to limit growth for Merrell and Saucony in the early part of 2022. However, actions taken to improve supply capacity are set to drive 15 percent to 18 percent overall growth in 2022.

Sales Expand 25 Percent In The Fourth Quarter
In the fourth quarter ended January 1, revenue was $635.6 million, up 24.7 percent versus the prior year. Sales were ahead of the analyst’s consensus target of $629 million and also exceeded internal expectations despite Vietnam factory closures and persistent logistics delays.

On a constant-currency basis, revenue was up 24.6 percent. Excluding Sweaty Betty, the U.K.-based women’s activewear brand acquired on August 2, 2021, revenue increased 9.4 percent versus the prior year while decreasing 8.2 percent versus 2019.

Sweaty Betty contributed over $75 million of revenue in the quarter. For the year on a proforma basis, Sweaty Betty’s sales grew over 40 percent.

“We remain excited about Sweaty Betty as it further diversifies our portfolio as one of the few female-founded, female-led activewear brands in the market, creating products just for women,” said Brendan Hoffman in his first analyst call since assuming the role of CEO. “This team continues to execute on its key strategic priorities by delivering a powerful line of industry-leading products while growing internationally and expanding Wolverine’s direct-to-consumer (DTC) presence and capabilities which can be leveraged across the portfolio.”

Saucony and Wolverine were the biggest contributors to organic growth. Hoffman added, “Inventory constraints created by Vietnam factory closures and the ongoing supply chain challenges impacted our top-line growth with demand for Merrell, Saucony and other brands left unmet.”

Merrell’s Sales Slip In The Fourth Quarter
Merrell’s sales in the fourth quarter declined low-single digits due to the inventory shortages caused by factory shutdowns earlier last year.

“The fundamentals of Merrell’s global business remain very healthy, including an incredibly strong order book entering 2022,” said Mike Stornant, EVP and CFO, on the call. During the fourth quarter, Merrell’s lifestyle category grew mid-single-digits and the work category grew by nearly 30 percent. Merrell’s Q4 DTC business grew nearly 10 percent versus 2020 and over 50 percent versus 2019.

For the full year, Merrell’s sales jumped 22 percent to record levels. DTC revenue for the year was up 28 percent, led by a growth of 22 percent in e-commerce and 47 percent at stores.

Saucony’s Q4 Revenues Jump 25 Percent
Saucony’s fourth-quarter revenue reached an all-time high, increasing nearly 25 percent from 2020 and over 30 percent compared to 2019. All geographic regions delivered growth, led by North America and the Asia Pacific, which benefited from the brand’s China joint venture. Saucony achieved market share gains in road running and trail running categories in the U.S. and improved its strong market share in Europe. Saucony also gained market share in the lifestyle category in the Italian market.

Saucony continues to increase its DTC mix as Q4 e-commerce revenue grew nearly 38 percent versus 2020 and nearly 130 percent versus 2019. Said Stornant, “While Saucony was impacted by Vietnam factory closures, a relatively strong inventory position entering the quarter helped to mitigate the downside.”

For the year, Saucony’s revenues jumped 57 percent. DTC growth of 51 percent was led by gains of 52 percent in e-commerce and 47 percent at stores.

Among its other major brands, sales weren’t broken out for Sperry in the fourth quarter but grew 24 percent in the year. Said Hoffman, “Sperry faced significant category headwinds early on during the pandemic but delivered a marked improvement in 2021 delivering over 24 percent growth.”

The Wolverine flagship brand’s sales were up 28 percent in the year with e-commerce sales ahead 17 percent.

Among its two segments, sales at Wolverine Michigan Group (Merrell, Cat, Wolverine, Chaco, Hush Puppies, Bates, Harley-Davidson, and Hytest) reached $322.0 million in the fourth quarter, up 7.8 percent on a currency-neutral basis (7.9 percent reported). Wolverine Boston Group (Sperry, Saucony, Keds, and the Stride Rite licensed business) generated revenues were $218.1 million, up 10.2 percent on a currency-neutral basis (10.4 percent reported).

E-commerce revenue in the quarter surged 58.3 percent versus the prior year and vaulted 108.5 percent versus 2019. Excluding Sweaty Betty, e-commerce revenue was up 12.7 percent and 48.5 percent verses 2020 and 2019, respectively.

Adjusted Gross Margin Improves 160 Basis Points
Gross margin in the quarter improved 120 basis points to 41.3 percent while adjusted gross margin gained 160 basis points to 43.0 percent. Excluding Sweaty Betty, the Adjusted gross margin was up 10 basis points to 41.5 percent. The gains came despite an 80 basis point headwind from higher ocean freight costs. Total air freight costs in the quarter were $4.7 million with $2.3 million considered extraordinary and excluded from adjusted results.

Adjusted SG&A expenses of approximately $224 million were up $47 million, or 26 percent due to variable costs tied to higher revenue, the Sweaty Betty addition, higher labor rates at distribution centers and marketing investments to drive brand heat.

Operating losses were $8.7 million in the latest quarter against an operating loss of $204.1 million a year ago. The latest quarter included non-recurring items related to costs tied to an environmental lawsuit, the Sweaty Betty acquisition, air freight and production, and shipping delays caused by the pandemic. The year-ago period included a massive impairment charge for Sperry as well as COVID-19 and environmental costs.

Excluding the non-recurring items, the Adjusted operating income in the latest quarter was up 46.6 percent to $49.1 million from $33.5 million a year ago, but down 19.2 percent from $61.3 million in Q419.

The net loss was $14.6 million, or 18 cents, in the period compared to a loss of $170.7 million, or $2.10, a year ago. Excluding special items, adjusted EPS was 41 cents a share against 21 cents in the prior year and topping Wall Street’s consensus estimate of 40 cents. Excluding Sweaty Betty, the Adjusted EPS was 31 cents in the latest period.

Full-Year Revenues Climb 35 Percent
In the year, Wolverine’s revenue was $2,414.9 million, up 34.8 percent versus the prior year. On a constant-currency basis, revenue was up 33.4 percent. Excluding Sweaty Betty, revenue increased 28.3 percent versus the prior year and 1.0 percent versus 2019.

E-commerce revenue jumped 39.7 percent against 2020 and 109.4 percent versus 2019. Excluding Sweaty Betty, e-commerce revenue was up 18.3 percent versus the prior year and 77.3 percent versus 2019.

Sales at Wolverine Michigan Group reached $1,298.9 million in the year, up 22.2 percent on a currency-neutral basis and 23.6 percent on a reported basis. Wolverine Boston Group generated revenues were $935.8 million, up 32.9 percent on a currency-neutral basis and 34.5 percent on a reported basis.

Gross margin was 42.6 percent, compared to 41.1 percent in the prior year. Adjusted gross margin was 44.1 percent, compared to 41.5 percent in the prior year. Excluding Sweaty Betty, the Adjusted gross margin was 43.4 percent compared to 41.5 percent in the prior year.

Operating margin was 6.4 percent, compared to 7.7 percent in the prior year. Adjusted operating margin was 10.6 percent compared to 7.5 percent in the prior year. Excluding Sweaty Betty, the Adjusted operating margin was 10.7 percent compared to 7.5 percent in the prior year.

EPS came to 81 cents per share against a loss of $1.70 in the prior year. Adjusted EPS were $2.09 ($2.05 on a constant-currency basis) compared to 93 cents in the prior year. Excluding Sweaty Betty, adjusted EPS were $1.98 compared to $0.93 in the prior year.

Inventory Ahead 50 Percent To Meet Strong Demand
Inventory closed the quarter ahead 50 percent or 30 percent excluding Sweaty Betty. Stornant said the company’s available inventory position continued to improve and sequential improvement is expected each quarter in 2022

“Our global order demand for 2022 remains very high and is expected to continue to exceed the availability of inventory in the very near-term,” said Stornant. “This strong demand is true for all brands in the portfolio as we continue to benefit from relevant consumer and category trends in footwear and apparel. Thankfully, we believe the actions taken last year to improve our supply capacity and inventory position should allow us to service the increased demand at a higher level in 2022.”

To reinforce its supply chain, Stornant said Wolverine has secured 40 percent more production capacity and committed to early production on core inventory. Production orders placed and confirmed for 2022 are up over 75 percent compared to the same point in time last year. The forward coverage position on core inventory is expected to increase sequentially each quarter to help offset any further supply chain volatility. Overall, Wolverine expects to invest $220 million in working capital during 2022 to support demand across brands.

For 2022, Wolverine expects to deliver revenue in the range of $2.775 billion to $2.85 billion, or growth of 15 percent to 18 percent, including double-digit growth from organic brands. Wolverine’s four largest brands, Merrell, Saucony, Sperry, and Sweaty Betty, are expected to contribute approximately two-thirds of revenue. The addition of Sweaty Betty will also benefit the penetration of DTC and international businesses in 2022

Adjusted EPS is expected in the range of $2.50 to $2.65, up from $2.09

For the first quarter, revenue is expected to range between $595 million to $610 million, or growth of approximately 16.5 percent to 19.5 percent. Merrell and Saucony are expected to be approximately flat. Production in the company’s Vietnam factories has improved to about 70 percent of pre-closure levels but the recovery is happening more slowly than planned.

Adjusted EPS in the first quarter is expected to be in the range of 37 cents to 40 cents, including operating margin of approximately 8 percent. Adjusted EPS was 40 cents in Q121. Looking beyond the first quarter based on orders and expected inventory improvement, high-teens growth is expected in Q2 and Q3, with a low to mid-teens growth in Q4.

Photo courtesy Merrell