Wolverine Worldwide, as expected, reported sales and earnings declined in its first quarter. But its core performance brands, led by Merrell and Saucony, posted solid gains. Keds also continued its turnaround.
The gains were tempered by continued soft traffic at retail in the U.S., the strategic realignment of Sperry Top-Sider's U.S. distribution, extreme weather conditions in the U.S. and the U.K., and the impact of the shift in timing of Easter business to the second quarter.
Adjusted fully diluted earnings per share were 38 cents, down from 41 cents in the prior year but well-above its outlook calling for earnings in the range of 28 to 30 cents per share. Wall Street's consensus estimate had been 30 cents a share.
Reported fully diluted earnings per share were $37.2 million, or 36 cents a share, a 20 percent increase compared to the prior year's reported earnings of $29.8 million, or 30 cents.
Sales in the quarter declined 2.8 percent to $627.6 million. Growth from the Performance Group and Heritage Group was offset by softness in the Lifestyle Group. Foreign exchange translation lowered reported revenue in the quarter by $1.5 million.
On a conference call with analysts, Blake Krueger, chairman, CEO and president, described Wolverine’s Q1 performance as “a solid start to the year.” Asia-Pacific and EMEA regions posted double-digit growth but the “retail malaise” impacted North America results. Said Krueger, “In 2013 the US market reached its lowest level since 2008, and this trend has continued through Q1, with the exceptionally long and severe winter. Encouragingly, we have seen a significant uptick in business over the last several weeks, as spring has finally arrived and consumers are beginning to shop and react positively to our new spring and summer product offerings.”
In the Performance Group, sales grew 3.4 percent to $248.8 million, led by Merrell, Saucony and Chaco. Merrell had mid-single-digit revenue growth in Q1, above expectations.
Merrell was up against strong growth in the prior year, driven by the launch of the full M-Connect collection in last year's Q1. The gains in the most-recent quarter were supported by double-digit growth from its Performance Outdoor product, “a nice lift” in men's Active Lifestyle product, and across-the-board strength from international regions, according to Don Grimes, Wolverine’s SVP, treasurer and CFO. Merrell's US specialty stores posted strong comps for the quarter, “continuing a nice trend for this important brand initiative,” said Grimes.
Krueger said Merrell continues to benefit from investments in 2013, including a new brand president, Gene McCarthy , as well as a new creative director and the realignment of the product development team.
“We are making great progress with compelling new product, and retailers and consumers are responding,” said Krueger. “I'm happy to report that Merrell is back on a growth track, and we believe its momentum will accelerate throughout the balance of 2014 and into 2015.”
Saucony “had another solid quarter,” said Grimes, delivering growth in the mid-single-digit range with momentum in both performance running product and its more lifestyle-oriented Originals product, “which is doing exceptionally well in Europe and is building momentum in other markets.” Saucony continued to expand in the important US specialty run channel, with the launch of both the Guide 7 and Ride 6.
Lifestyle Group revenues were down 11.9 percent to $238 million due to a negative trend in US casual footwear and the harsh winter weather. “Continued excellent double-digit-growth” from Keds was more than offset by double-digit declines in Sperry Top-Sider and Stride Rite, and a single-digit decline from Hush Puppies.
The Keds brand’s “renaissance and momentum continued in the first quarter, driven by the brand's Brave Girl initiative, highlighted by its continued partnership with Taylor Swift,” said Krueger.
Grimes said that expanded assortments with key retailers “are helping fuel brand excitement in the US,” while the international business for Keds “also saw a very healthy uptick during Q1.”
Stride Rite, with 50 percent of its sales coming from direct-to-consumer, was particularly impacted by “the brutal and prolonged winter season,” said Krueger. Stride Rite lost ”well over 600 retail business days due to weather-related closures, by far an all-time high, over 10 times the number of closures in a normal year.”
Stride Rite's year-over-year results were also impacted by the shift of Easter and lower mall traffic. Stride Rite’s Q2 sales have improved with the arrival of winter and warmer weather.
Sperry Top-Sider reported a decline in the upper mid-teens in the quarter, compared to a 28 percent increase in last year's Q1. The brand was negatively affected by weather in the US, the decision to exit certain distribution in the US, and ”a somewhat softer fashion trend” for boat shoe silhouette, primarily in women. Added Krueger, “Some product delays also had an impact on the quarter for Sperry. Almost 50 percent of the Q1 revenue decline relates to the family channel and our decision to exit some distribution that was not consistent with our future growth strategies.”
Krueger said Sperry is encouraged by the response to its newest products and is seeing strong early sell-through of its latest women's offerings, including its vulcanized, espadrille, and summer sandal collection. In men's, the momentum in Gold Cup, the brand's most premium offering, with price points running from $120 to over $200, “continues, and we're excited to launch the brand's first Gold Cup collection for women this coming fall,” said Krueger.
For the second quarter, Sperry’s revenues are projected to be down in the mid-single-digit range, compared to a 34 percent increase last year, and overall 2014 revenues are expected to be down in the mid-single to upper single-digit range.
“While we expect 2014 to be a normalizing year for Sperry, the brand remains one of the strongest in the industry and has tremendous equity with both retailers and consumers,” said Krueger. “We remain excited about the global growth potential that exists and look forward to making Sperry one of our first billion-dollar brands.”
Hush Puppies was impacted by “tough retail conditions for casual product” as well as poor weather in the US but the brand returned to growth in EMEA.
Heritage Group’s revenues were up 1.8 percent to $120.7 million. Double-digit growth from Cat Footwear and Harley-Davidson Footwear, and high single-digit revenue growth in the Wolverine brand, drove the group's performance. This growth was partially offset by declines in Sebago and its lower margin Bates US military business.
The Wolverine brand “solidified its leading position in the US sport category, where its market share expanded by approximately 110 basis points in the last year. Wolverine also achieved double-digit growth in its heritage product, specifically its 1000 Mile collection in top-tier accounts and better men's stores,” said Grimes.
Gross margin in the quarter was 40.8 percent, an increase of 20 basis points from 40.6 percent in the prior year first quarter. Excluding acquisition-related integration expenses, adjusted operating expenses in the quarter were $190.5 million, a decrease of 2.8 percent compared to the prior year's adjusted results. As a percentage of revenue, adjusted operating expenses were essentially flat with the prior year.
Based on the first quarter results and outlook for the remainder of the year, the company reaffirmed its full-year revenue forecast in the range of $2.775 to $2.85 billion growth of 3 percent to 6 percent compared to prior year revenue of $2.69 billion. The company also reaffirmed its adjusted earnings forecast in the range of $1.57 to $1.63 per share growth of 10 percent to 14 percent compared to prior year adjusted earnings per share of $1.43.
