Wolverine World Wide saw sales increases at three out of four of its brand divisions in the fiscal third quarter ended September 11 combine with improved profits in all divisions to contribute to the eleventh consecutive quarter of both record revenue and net earnings for the company. WWW continues to see a balanced contribution from both domestic and international businesses, expecting a 50/50 split in earnings contribution for the full year.
Third quarter revenue increased 13.2% to $260.9 million from $230.6 million in the year-ago period.
International revenues increased 21.4% for the period, a figure management said was due primarily to increased market share. Gross margin was flat to last year at 37.6% of sales. SG&A improved 120 basis points to 25.0% of sales, helping boost net income 33.7% to $21.9 million, or 55 cents per diluted share, versus $16.4 million, or 40 cents per diluted share, in Q3 last year.
Foreign currency exchange rate benefits accounted for 2.1% of the revenue increase for the quarter, while the addition of Sebago in the numbers added another 2.4% to the revenue gain for the period. Sales would have increased 8.7% without the benefits.
The Hush Puppies division saw revenues decline 2.9% for the period, but profits were said to have “improved” for the quarter. The sales decline was due in part timing of slipper deliveries and lower U.S. wholesale deliveries.
The U.S. shortfall was due primarily to the companys shift in distribution channel focus in the domestic market, resulting in fewer closeout shipments and “lower promotional product sales to lower tier distribution channels.” Management said the biggest challenge is building the better channels of distribution fast enough to offset their contraction in the discount channel. The U.K. business was said to be “particularly strong” and the Canadian and International businesses reported solid sales and profit increases for the period.
The Wolverine Footwear group posted an 11% increase in revenue for Q3, due primarily to “a large increase in the base uniform footwear business.” Management said the Bates brand benefited from accelerated demand from the U.S. military. Wolverine boot revenues were “up slightly”, based on stronger units shipment offset by a modest decline in the average price per pair.
The Harley Davidson business, which saw a modest revenue increase for the period, will now be combined the Caterpillar Footwear business to form the new Heritage Brands group. WWW sees the HD brand benefiting from access to more international resources.
Caterpillar Footwear posted a 9.3% revenue increase for the quarter, supported by a double-digit gain in the U.S. market, a triple-digit increase in the International Distributor business, and a low-single-digit revenue gain in Europe.
The Outdoor Footwear group, which contains the Merrell and Sebago businesses, was again the primary driver for the companys gains, accounting for “just over half” of the Wolverines revenue growth for the third quarter.
Global sales at Merrell were up nearly 19%, with coming across all regions. Revenues in International Distributors and Europe were said to be particularly strong, while sales in the U.S. and Canada were up in double-digits.
Management said the Merrell operating margins are better than the average of the company.
Merrell installed 51 shop-in-shops year-to-date, bringing the total to 111 shops. The proliferation of the shops is of particular interest since Merrell sees a 40% lift in sales on a comp basis when a shop is installed. Merrell expects to install another 20 to 25 shops in Q4 will continue the rollout in the U.S., Europe, and other markets throughout 2005.
At Sebago, management said they were “tracking slightly ahead” of plan. Europe, which is Sebagos strongest international market, is expected to benefit from the companys new distribution center there.
WWW said they like the trend at the Track n Trail stores, which posted comps in the mid-teen range. They are currently nine stores in operation, with continuous testing new formats, size, and merchandise mix.
Total inventories at quarter-end were up only 0.6% to $182.0 million.
Management said they saw a solid start to the fourth quarter, reporting a 19% increase in order backlog at the end of Q3. Again, they saw the backlog balance across the board, with the Hush Puppies, CAT, and Merrell groups posting strong double-digit increases on a global basis.
The Wolverine brand posted a solid double-digit increase at quarter-end, which was partially offset by DOD reductions, resulting in a single-digit backlog gain in the Wolverine Footwear group.
Based on the strength of the backlog going into Q4, which is also a heavy fill-in quarter for the company, WWW is now estimating full year EPS in the $1.60 to $1.62 per share range on sales between $975 million and $985 million, up from previous estimates of EPS in the $1.44 to $1.52 per share range on sales ranging from $960 to $980 million.
For 2005, the company sees earnings per share to range from $1.77 to $1.84 on sales in the $1.035 billion to $1.055 billion range.
>>> Sounds like these guys are just getting stated in Europe, a region that should be a major driver for the Merrell business in the near future…