<span style="color: #a6a6a6;">Powered by strong growth at Saucony, improving trends at Merrell, its work brands, and explosive growth online overall, Wolverine Worldwide reported both earnings and sales topped expectations during its third quarter. Sales are expected to decline no more than 25 percent in the fourth quarter in part due to the timing of deliveries, but a strong return to growth is predicted for Q121.
On a conference call with analysts, Blake Krueger, chairman and CEO, said, “Our brands are well-positioned in high-demand categories and distribution channels and forward demand signals are healthy both within wholesale and in our direct-to-consumer businesses.”
He noted that the company has doubled down on new products and innovation during the pandemic and sees consumers responding favorably to the company’s fresh product offerings.
Krueger added, “As a company, we are clear on our strategic investment priorities to fuel future growth out of our strong brands that are at the center of the most relevant product categories trending with today’s consumers—active and athletic, including running; outdoor; at home; work and work lifestyle.”
In the third quarter ended September 26, revenues declined 14.1 percent to $493.1 million due to the pandemic’s ongoing impact but topped Wall Street’s consensus estimate of $460.81 million. On a constant-currency basis, revenue was down 14.6 percent.
Net earnings fell 55.3 percent to $21.7 million, or 27 cents a share, from $48.6 million, or 57 cents, a year ago. Adjusted diluted earnings per share were 35 cents and, on a constant-currency basis, were 34 cents, compared to 68 cents in the prior year. Adjusted EPS exceeded Wall Street’s consensus estimate of 27 cents.
Reported gross margin was down 140 basis points to 41.0 percent but at the high end of expectations. Healthy gross margin expansion from product mix and elevated direct-to-consumer (DTC) mix was more than offset by lower royalties in its international business, more closeout volume resulting from the reopening of the outlet channel and the impact of higher tariffs.
Adjusted SG&A expenses were down $11 million to $151.5 million to reflect $18 million in cost reductions from actions taken earlier this year. Of the expense reductions, $7 million was redeployed toward digital and e-commerce marketing.
Reported operating margin was 8.6 percent, compared to 11.9 percent in the prior year. Adjusted operating margin was 10.6 percent compared to 14.1 percent in the prior year.
Owned E-Commerce Jumps 56 Percent
Among channels, the highlight was owned e-commerce where revenues climbed 56.4 percent. The operating margin in the owned e-commerce segment expanded nearly 300 basis points.
“For several years, we’ve been investing to strengthen our digital and DTC capabilities, and this has allowed us to accelerate and optimize the global online channel,” said Krueger. “These investments dovetail perfectly with the once in a generation change in consumer behavior that we are witnessing.”
Krueger also noted that the online channel of its customers has also become its largest U.S. wholesale channel. Together, Wolverine’s owned e-commerce business and its online business of wholesale partners accounted for over 40 percent of its revenue in the U.S. during the quarter.
For 2021, Krueger said its global online business will be the largest source of growth and account for almost half its U.S. business. Wolverine also set a goal to achieve $500 million of revenue in its e-commerce in 2021, more than doubling 2019 revenue.
Among other channels in the third quarter, owned stores performed relatively well, down less than 12 percent, and improved each month in the quarter. Wholesale reorder trends were better than expected, up nearly 10 percent.
By region, the EMEA was the only positive region, climbing mid-single-digits and helped by traction at Merrell and Saucony. The Asia Pacific and North America both saw “meaningful” sequential improvement but were down mid-teens year-over-year. Latin America, facing significant headwinds due to the pandemic, finished down less than 40 percent.
Among segments, Wolverine Michigan Group’s sales slumped 9.9 percent on a reported basis to $287.3 million and were off 10.2 percent on a currency-neutral basis. The Michigan Group includes Bates, Cat Footwear, Chaco, Harley-Davidson Footwear, Hush Puppies, HyTest, Merrell, and Wolverine.
Krueger said the Michigan Group saw “significant sequential improvement” despite the continued impact of the pandemic. Merrell and Wolverine performed comparatively well with revenue down mid-single-digits and high-single-digits respectively. Chaco also outperformed with a nearly 30 percent gain due to the overall outdoor category tailwind, the brand’s high online penetration and the continued success of its new Chillos product.
Sales Expand Nearly 80 Percent On Merrell.com
At Merrell, highlights included nearly 80 percent growth at Merrell.com and digital marketing driving almost three and a half times as many social media engagements year-to-date compared to 2019. Owned stores were down only mid-single-digits.
The overall Performance category saw “solid growth” for Merrell, its Moab collection delivered high-teens growth and the Honey Stinger collaboration, exclusive to Merrell.com, sold well.
At the end of the quarter, Merrell launched the Ventura Two and Nova Two trail running franchises and the Undyed sustainable collection. For Spring 2021, “faster, lighter and more athletic offerings” will be extended across the Moab line, and the Jungle Moc, Hydro Moc, and Hut Moc will be expanded to capitalize on the “easy on off-trend.”
Said Krueger, “Merrell remains the number one hiking brand in the U.S., offering consumers a broad range of products across many outdoor categories.”
The Wolverine brand outpaced internal expectations as the work and rugged outdoor categories continue to trend. The Wolverine brand’s online sales doubled in the quarter. Sales were boosted by the launch of the Wolverine Shiftplus work boot featuring its DuraSpring cushioning technology and the Hellcat, which became the top-selling style on Wolverine.com and is on track to become the brand’s third-largest franchise in its first year.
Wolverine Boston Group’s sales fell 19.7 percent on a reported basis to $193.8 and were down 20.3 percent on a currency-neutral basis. Wolverine Boston Group includes Keds, Saucony and Sperry Top-Sider.
The period likewise marked “substantial improvement over Q2” for the Boston Group, according to Krueger. Saucony continued its resurgence driving low-teens growth in the quarter. Sperry, as expected, was down around 45 percent, reflecting challenges in lifestyle fashion footwear in general.
Saucony Sees Low-Teens Growth In Q3
Saucony’s momentum is being fueled by Saucony Originals fashion product, as well as a strong response to innovation in the running category “a sport, and an activity, that is experiencing a resurgence in the current environment,” said Krueger.
Saucony Originals is seeing strong demand in Europe with Italy leading in market share. Saucony will look to translate its Originals’ success in Italy to further expand its retro lifestyle collection to other markets including China, the U.S. and additional European countries. Said Krueger, “The Originals lifestyle business is already significant in terms of size for Saucony, but it’s still in its early days, and we have confidence that global opportunities are large and trend-right.”
On the performance side, the Endorphin collection continued to drive momentum in the third quarter with a successful launch of the Endorphin ViziPro. The Triumph 18, leveraging Saucony’s PowerRun midsole cushioning technology, also launched. Said Krueger, “The brand’s rollout of PwrRun and SpeedRoll technology across its product line continues to fuel brand growth.”
Other achievements for Saucony include a near doubling of sales on Saucony.com with the brand delivering a significant online increase in average retail selling price. Gross margins, overall, improved more than 300 basis points with healthy sell-through. China and Europe are seeing accelerated growth.
For spring 2021, updates to the Kinvara, Guide and Ride, as well as expansions of the Endorphin series, are set to fuel growth. Said Krueger, “The start of 2021 looks like a blockbuster for Saucony.”
For Sperry, owned online sales were up in the high-teens, but Q3 results were adversely impacted by the pandemic and shipping delays for some boot styles. Krueger said Sperry is focused on “reinvigorating” the boat shoe category with product innovation; product collaborations, including one with singer John Legend and new categories, including expanding the Saltwater boot into men’s and a new injected Float boat shoe collection set to launch Spring 2021.
Companywide, inventory, at the end of the quarter, was down 22.0 percent due in part to stronger demand in Q2 and Q3 than expected.
Strong Sales Recovery Seen For Q121
Looking to the fourth quarter, October revenue was nearly flat to last year, partially as a result of earlier sell-in due to a lengthened holiday selling season; however, Wolverine expects a steeper sales decline than the third quarter of “no more than 25 percent,” according to Mike Stornant, SVP and CFO.
The decline is expected due to a planned timing shift of key franchise launches for Saucony from Q420 to Q121, a shift in revenue from its international business into Q121 and lean inventories for certain brands due to stronger-than-expected revenue during the last two quarters. Stornant also said the resurgence of the pandemic “has started to impact certain global markets and could create headwinds for our U.S. business.”
Stornant said that while the pandemic is “now entering into a new disruptive phase” after a few months of consistent market conditions, “we are seeing very encouraging trends that support our growing confidence in returning to meaningful year-over-year growth in Q1 2021.”
He cited the continuing strong digital business as well as promising product franchise launches and other product introductions for Saucony and Merrell for Q121 that supports a “substantial increase” in global orders for Q121.
“Our early proactive response to the challenges of the pandemic is now paying dividends and sets our brands up for growth in 2021,” said Stornant. “Many of our brands are now benefiting from the strong consumer trends and tailwinds related to the pandemic. We have many opportunities in front of us and a balance sheet to provide flexibility and capacity to invest in our biggest 2021 growth initiatives.”
Photos courtesy Merrell, Chaco, Saucony
