Wolverine Worldwide reported a loss in the fourth quarter due to costs related to its acquisition of the Performance+Lifestyle Group (PLG) from Collective Brands, Inc. Excluding charges tied to the acquisition, however, earnings handily exclipsed its prior guidance.
The strong results were led by better-than-expected results from its existing business and the PLG group acquisition, which consists of Sperry Top-Sider, Saucony, Stride Rite, and Keds; as well as lower-than-expected acquisition-related costs.
On a conference call with analysts, Blake Krueger, Wolverines chairman, CEO and president, said the sales gains in its legacy business was driven by increases in all operating groups, with a particular performance seen throughout the year in the U.S.
The U.S. market proved to be an important contributor to our consolidated performance in 2012, with many brands growing at a double-digit pace in the company’s most significant market, helping offset the yearlong headwinds in Europe and, to a lesser extent, Canada, said Krueger.
The loss of $3.7 million, or 8 cents a share, in the quarter, included more than $24 million in transaction and integration costs and $3.8 million tied to its its $1.25 billion buyout of PLG. The acquisition was completed on Oct. 9.
Excluding charges tied to the acquisition, EPS reached 48 cents a share, slightly above the 47 cents a share earned a year ago and over double the company’s prior guidance of 12 cents to 22 cents a share.
Fourth quarter revenue jumped 60.5 percent to $652.2 million, reflecting $150.2 million in revenues from PLG. Revenue for the legacy WWW business grew 6.5 percent to $432.8 million.
The 48 cents was comprised of 53 cents per share from the legacy WWW business and 5 cents-dilution from the PLG acquisition. Gross margins in the quarter were basically flat at 36.7 percent, down form 36.9 percent a year ago.
Earnings leverage was also good as we delivered better than expected results from our legacy brand portfolio, said Krueger. PLGs revenues were in line with its high expectations and earnings were better-than-anticipated during the stub period.
By segment among the legacy WWW business, revenue in the Outdoor Group inched up 1.7 percent, to $143.5 million. For the full year, Outdoor Groups revenues were down 1.2 percent to $545.3 million.
Merrells footwear revenue was up slightly in the quarter, despite challenging market conditions in the outdoor retail channel, which Krueger said has retracted by approximately 10 percent in the past 12 months. He added that the absence of cold weather and snow in key regions for the second year resulted in generally slower retail sales across this distribution channel.
On the positive side, Merrell notched market share gains in the quarter across the entire outdoor category, with especially strong gains in the hiking, light hiking and minimalist segments.
Krueger was also upbeat about the prospects for Merrells Outside Athletics category, marked by its launch of the Barefoot collection in 2011. For Spring 2013, M-Connect will represent the largest new product introduction in Merrells history, extending far beyond pure barefoot running products while expanding Merrell’s distribution base. Merrells product development team in the Active Lifestyle segment has been restructured following several quarters of good but less than spectacular performance in the segment. Krueger said the reaction to Merrell Active Lifestyle offerings at the recent Outdoor Retailer show were very positive.
Don Grimes, SVP and CFO, noted that Merrell, by far the largest brand in the Outdoor Group, was also significantly impacted by retailer consolidation in Canada and most acutely the macroeconomic environment in Europe with the brand’s full-year revenue in these markets down in the mid to high single-digit range. Some stabailization was seen in the fourth quarter in Europe with Merrell almost flat with the prior year.
Among other brands in the Outdoor Group, Chaco posted a very strong increase in revenue in the fourth quarter, and was up double digits for the years with the help of strong response to its new closed toe product.
In the Heritage Group, sales in the quarter reached $170.8 million, a gain of 7.9 percent. The Wolverine brand had a double-digit Q4 increase, aided by double-digit gains in its Wolverine 1000 Mile and 1883 rugged casual lines. Cat Footwear saw a double-digit increase in the quarter.
Full-year Heritage Groups sales inched ahead 0.5 percent to $502.7 million, with economic conditions in Europe particularly challenging Cat Footwear. The Wolverine footwear and apparel business saw an excellent performance, in the year, led by high single-digit growth in the U.S. Bates and HyTest also delivered growth to help offset declines in its Harley-Davidson Footwear business.
The Lifestyle Groups revenues increased 2.8 percent to $58.9 million in the quarter and was down 1.4 percent to $203.5 million in the year. Strong double-digit full-year revenue growth for Hush Puppies in the US, and globally for both Sebago and Cushe, were offset by tough conditions for Hush Puppies in Europe.
The PLG Group recorded revenues of $219.4 million in the stub period, representing growth of 17.1 percent, versus the comparable year-ago stub period. The gains were highlighted by double-digit domestic wholesale growth for each of the four PLG brands, with particular strength in Sperry and Stride Rite. On a full-year pro forma basis, PLG’s revenue was $1.13 billion, up 12.8 percent versus the prior year.
Sperry generated extremely strong double-digit revenue in the stub period, with especially strong gains in fashion flats and cold weather boots for women, as well as the Gold Cup collection of men’s premium footwear. Womens now accounts for more than 50 percent of all sales. Sperrys flagship boat shoe business also generated excellent growth in the stub period.
Saucony experienced accelerated momentum in the back half of the year, driven by strong double-digit domestic gains across its focused channels of distribution, including the specialty run and sporting goods channels. These gains were moderated by planned sales reductions in close-out product and lower-tier distribution, resulting in flat sales for the short stub period.
Keds brand delivered strong double-digit revenue growth in the stub period, with solid increases across all product categories. Said Krueger, The repositioning of the brand with younger, fresher product is accelerating, aided by its partnership with singer songwriter Taylor Swift.
The Stride Rite Children’s group saw its eighth consecutive quarter of strong growth for the group’s wholesale business whiile its consumer direct business achieved another high teens comp store increase in the quarter.
Krueger said the overall PLG integration is ahead of schedule and under budget.
Bottom line, there has been a great cultural fit, said Krueger of the merger. We believe that our current portfolio of 16 powerful, authentic brands, that have a combined heritage and brand equity of more than 1,000 years, is unmatched in the industry.
Looking ahead, although the company expects strong performance in the U.S., Latin America and Asia Pacific markets in 2013, it also expects continued challenging trading conditions in Europe. Full-year consolidated revenue are projected in the range of $2.7 to $2.8 billion, representing growth in the range of 64.5 percent to 70.6 percent. Pro-forma combined revenues for the for PLG and the legacy WWW business are expected to expand in the range of 9.2 percent to 15.7 percent.
Fully diluted EPS, adjusted to exclude non-recurring transaction and integration expenses, are expected in the range of $2.50 to $2.65, representing growth of 9.2 percent to 15.7 percent versus the prior year’s adjusted earnings per share.
