By Thomas J. Ryan

Wolverine World Wide reported another quarter of accelerated growth in the fourth quarter for its two biggest brands, Merrell and Sperry, and predicted a recovery year in 2020 for Saucony. Conservative guidance, however, was given for 2020 due to the expected fallout from the coronavirus outbreak and some continued challenges facing the U.S. wholesale channel.

Merrell’s Limited Edition Antora women’s specific trail running shoe was collaboratively designed with Trail Sisters Founder and Ultrarunner, Gina Lucrezi, pictured far right. Learn more here.   

The fourth quarter marked Wolverine’s highest quarterly growth rate of the year. Highlights include both Merrell and Sperry delivering mid-teens growth as both brands built on growth acceleration seen in the third quarter. Saucony saw nearly 10 percent growth in technical styles. Overall, the company saw 21 percent growth from its own e commerce platform and over 10 percent growth internationally with growth across all regions.

Blake Krueger, Wolverine’s chairman, CEO and president, said on a conference call with analysts, “We’re extremely pleased with these results, which reflect the strength of our brand portfolio, excellent effort and execution by our teams, and solid progress against our Global Growth Agenda.”

However, Wolverine guided for modest growth for 2020 in large part due to the coronavirus outbreak, including a decline in both revenues and earnings for the first quarter.

In the fourth quarter ended December 28, adjusted earnings rose 13.5 percent to 59 cents a share, just exceeding Wall Street’s consensus target of 58 cents. Lower-than-expected gross margins, due to higher close-out sales and retail promotional activity during the holiday season, was more than offset by lower than expected operating expenses. Reported gross margin of 37.8 percent decreased 140 basis points versus the prior year.

Revenue of $607.4 million increased 4.8 percent on a reported basis and expanded 5.1 percent on a currency-neutral basis.

The company showed a net loss of $11.7 million, or 1 cent a share, in the quarter due to litigation settlements related to legacy environmental matters. In the year-ago period, reported earnings were $40.9 million, or 39 cents.

By segment, Wolverine Michigan Group rose 7.6 percent to $360.0 million and grew 8.0 percent on a reported basis. The segment includes Bates, Cat Footwear, Chaco, Harley-Davidson Footwear, Hush Puppies, HyTest, Merrell, and Wolverine.

Krueger said Merrell and Cat both grew mid-teens in the quarter to offset declines from the Wolverine brand and some of the segment’s smaller brands.

Merrell’s growth was led by growth in all regions, including the U.S. Overall, Merrell’s wholesale, e-commerce and retail store channels all saw year-over-year gains.

Merrell’s growth came from both Performance and Lifestyle product categories, led by an “exceptionally strong” performance in Hike, where Merrell holds the number one U.S. market share position. Work, Merrell’s fastest-growing category, jumped nearly 50 percent in the quarter.

Nature’s Gym, Merrell’s most athletic expressive category and includes the Nova and Antora progressive trail running styles, “also posted nice gains in the quarter,” said Krueger. The Lifestyle category gains were helped by a good response to new collections, including the Alpine Sneaker, Juno Clog and Hut Moc. Revenues at Merrell.com climbed nearly 25 percent for the quarter, while Merrell’s stores comped up mid-single-digits. Said Krueger, “We expect Merrell’s momentum to continue into 2020.”

Cat’s increase in the quarter was driven by strong international growth in the EMEA and Latin America regions. The launch of Colt steel toe work boots represented Cat’s largest product launch ever.

Wolverine Brand’s results were down mid-single-digits but would have been up slightly except to lower sales to a financially-challenged retailer in the workspace. The Wolverine brand saw high single-digit growth in e-commerce and robust growth in the Wolverine apparel category.

Wolverine Boston Group’s sales were up 1.4 percent to $234.1 million and gained 1.6 percent on a currency-neutral basis. The segment includes Keds, Saucony, Sperry Top-Sider, the Stride Rite licensed business, and the kid’s footwear businesses of Cat, Hush Puppies, Keds, Merrell, Saucony, and Sperry.

Sperry saw mid-teen growth with the help of a strong boot season while Keds delivered low single-digit growth. As expected, the Boston segment’s growth was partially offset by Saucony, which declined at a low double-digit rate, due to significantly lower closeout sales.

Sperry delivered its highest quarterly growth of the year, driven by increases across all channels and with 50 percent growth in the boot category. Said Krueger, “The brand’s growth in boots outpaced the market, resulting in Sperry becoming the U.S. market share leader in the rain boot category.”

Sperry’s e-commerce business was up nearly 20 percent in Q4, primarily driven by increased traffic and improved conversion. Elevated storytelling, product exclusives and other investments helped drive the online gain. Sperry’s store revenue was up over 60 percent due to new stores, improved conversion and a high single-digit increase in comps. Said Krueger, “We’re pleased with the momentum in the Sperry business and expect continued growth in 2020 driven by the John Legend partnership and new product offerings.”

The Sperry Legend Edit is a selection of Sperry boat shoes, boots and sneakers chosen by John Legend, Sperry’s Global Brand Ambassador in 2020. Learn more here.

Saucony’s recovery “turned the corner” with Q4 growth in the brand’s core technical category up nearly 10 percent due to a strong consumer reaction to new performance products. The healthy growth in new styles was muted by significantly lower closeout sales. Saucony’s healthier mix and focus on more profitable distribution resulted in nearly a 700 basis point improvement in gross margin for the brand in Q4.

Krueger said Saucony also continues to benefit from “very good” e-commerce performance with growth of over 25 percent in the quarter and over 37 percent growth for the year. The e-commerce channel benefited from the brand’s digital direct investments and increased traffic.

The Triumph 17 and Guide 13, both utilizing Saucony’s new Power Run midsole cushioning technology, were introduced in the quarter and the Triumph 17 won the Editors’ Choice award from the Runner’s World.

Said Krueger, “We are very encouraged by the momentum in the Saucony business and the incredibly strong pipeline of new performance and lifestyle products planned for 2020 where we expect to see strong double-digit growth.”

For the full-year, Wolverine’s companywide revenue of $2.27 billion increased 1.5 percent compared to the prior year and adjusting for currency, increased 2.3 percent. Reported gross margin of 40.6 percent, decreased 50 basis points versus the prior year.

Reported diluted earnings per share were $1.44, compared to $2.05 in the prior year. Adjusted to exclude the litigation settlements and other non-recurring items, adjusted EPS increased 3.7 percent to $2.25, compared to $2.17 in the prior year.

Elaborating on the company’s Global Growth Agenda, Krueger said the nearly 10 percent combined growth for Merrell, Sperry and Saucony in the second half of 2019 underscores progress driving core growth.

The recruitment of its first chief merchant officer in 2019 is expected to help elevate the product creation process and storytelling across brands. He added, “We are excited by the 2020 pipeline of on-trend and innovative product offerings across our brand portfolio, which includes the Saucony Endorphin, Sperry Plus Wave, Merrell Antora and Nova, Wolverine Hellcat and Chaco’s Chillos collections.”

Driving DTC and international growth are also key priorities under the Global Growth Agenda. E-commerce grew over 20 percent across the brand portfolio for the year with “meaningful improvement” in operating margins. E-commerce is expected to continue to be Wolverine’s highest growth channel over the near term and to generate at least $100 million incremental revenue over next two years.

Wolverine’s international business is expected to add $150 million of incremental revenue over the next two years. Currently, about 34 percent of Wolverine’s global revenue is generated outside the U.S., and over 50 percent of its pairs are sold outside the U.S.

Overall, capital investments totaling $35 million last year to open new stores, acquire Saucony’s distributor in Italy, and establish a China joint venture program “have better positioned the company for future growth,” said Krueger.

On the potential impact on the supply chain from coronavirus, China is expected to represent less than 20 percent of Wolverine’s global production in 2020 due to past diversification efforts, down from approximately 40 percent in fiscal 2019. Krueger said some production delays from China factories and a potential slowdown in the supply of some raw materials from China are expected. Said Krueger, “This is being closely monitored, but will be difficult to quantify until our factory partners have more clarity on the return of workers from Chinese New Year. So far, the return rate of workers factory has been better than expected.”

Overall, Wolverine estimates the outbreak will have an impact of up to $30 million on revenues and up to $10 million on profits in the first half.

Revenues for 2020 is expected to be approximately $2.29 billion to $2.34 billion, representing growth of approximately 3.0 percent at the high-end of the range. Constant currency revenue growth is expected to be approximately 3.5 percent at the high-end of the range. This outlook includes an estimated revenue impact from the coronavirus of approximately $30 million in the first half of 2020. Excluding the estimated coronavirus impact, constant currency growth in 2020 is expected to be 4.5 percent at the high-end of the range.

Gross margin is expected to be approximately 41.0 percent. Reported operating margin is expected to be approximately 11.0 percent and adjusted operating margin is expected to be approximately 12.0 percent.

Reported EPS is expected to be approximately $2.05 to $2.20. Adjusted diluted earnings per share are expected to be approximately $2.25 to $2.40. Both reported and adjusted EPS include the negative estimated impact of 10 cents related to foreign currency and 10 cents related to the coronavirus. Excluding the estimated coronavirus impact and the impact of foreign currency, adjusted EPS on a constant currency basis is expected to be $2.60 at the high-end of the range.

EPS guidance of $2.25 to $2.40 was below Wall Street’s prior guidance of $2.50. Revenue in the range of $2.29 billion to $2.34 billion was below expectations of $2.37 billion.

For the first quarter, revenues are expected to reach approximately $500 million, down 4.4 percent from $523.4 million a year ago.

Mid-single digit growth is expected from its big three brands, Merrell, Sperry and Saucony, in the first quarter, supported by 20 percent growth from the owned DTC (direct-to-consumer) businesses. However, the impact from coronavirus will result in flat Q1 revenue for its international business with a loss of $15 million in sales from the health crisis. In addition, Mike Stornant, SVP and CFO, said some of the fourth-quarter “softness in the U.S. retail market has continued into Q1.”

Gross margins in the first quarter are expected to reach approximately 41 percent compared to 42.1 percent in Q119. Operating margin is expected to be approximately 8 percent against 10.0 percent.

First-quarter EPS is expected in the range of 30 to 32 cents, down from 49 cents reported in the year-ago quarter. The decline reflects certain headwinds that will moderate in future quarters, including 5 cents from the coronavirus outbreak, 5 cents from higher tariffs, 3 cents from higher incentive compensation and employee benefit costs, and 3 cents from foreign-exchange impacts.

Wolverine’s Q2 revenue outlook sees growth resuming with a mid-single-digit gain despite another $15 million impact expected from the coronavirus outbreak. The company’s full-year guidance only includes the current estimated impact related to the coronavirus for the first half of 2020.


Lead image: Merrell Ambassador Athlete Will “Akuna” Robinson who, on September 15, 2019, became the first African American male to hike the Pacific Crest Trail, Continental Divide Trail and Appalachian Trail for a total of 8,000 miles. Photo courtesy Merrell