Wolverine World Wide Inc. reported its fourth quarter earnings came in slightly above analysts’ expectations. But sales were moderately below plan as cold weather impacted sales of its brown shoes and casual footwear, especially with the Sperry Top-Sider brand. Wolverine also provided a subdued outlook for 2014 that was also below Wall Street’s targets.
In the quarter ended Dec. 28, Wolverine’s net loss narrowed to $1.7 million, or 2 cents a share, from $3.7 million, or 4 cents, a year ago.
On an adjusted basis excluding acquisition related charges tied to its October 2012 acquisition of PLG Brands (Sperry Top-Sider, Saucony, Stride Rite, and Keds), earnings reached 22 cents per share, up from Wall Street’s consensus target of 20 cents but below the 24 cents earned in the 2012 fourth quarter. Wolverine had previously warned that fourth quarter earnings would be negatively impacted by incremental pension and incentive compensation expense and a higher tax rate and share count.
Fourth quarter sales on a pro-forma basis inched up 0.6 percent to $736.4 million, missing Wall Street’s consensus guidance of $744.3 million.
On a conference call with analysts, Blake Krueger, chairman and CEO, highlighted the company’s progress for the year as adjusted earnings grew 25.4 percent on a 5.6 percent revenue gain. He also said the aggressive integration of PLG Brands met or exceeded each target previously established around budget and timelines. Said Krueger, “The past 24 months have only confirmed my long-standing belief that one of our core competencies is executing on brand acquisitions and integration.”
On the downside, he said that while Merrell’s growth accelerated in the back half of 2013, Sperry Top-Sider’s saw a high-single digit revenue decline in the fourth quarter due to tough comparisons, poor holiday season at U.S. retail and the “historic early and harsh start” to winter that boosted boot sales at the expense of brown shoes and casual footwear.
Looking at 2014, he said continued strong growth is expected in Latin America and Asia-Pacific and further stabilization is planned in Europe. However, he said the U.S. “has grown in importance” with the acquisition of PLG Brands. He further said “a number of factors continue to impact the US consumer in the short term and as a result, we expect that retail will continue to be sluggish in the first half of the year.”
He noted that “certainly the continuation of the harsh weather is also a contributing to a weak start for the industry.”
For 2013, Wolverine saw growth in the year in every region except the EMEA. Europe was slightly down against a plan calling for flat sales although modest growth was seen the fourth quarter. Full year revenue in the US and Canada grew in the mid single digits on a pro-forma basis. Latin America and Asia-Pacific both saw double-digit growth in the fourth quarter.
Among its operating segments, Performance Group revenues – Merrell, Saucony, Chaco, Cushe and Patagonia footwear – rose 13.8 percent in the fourth quarter to $251.3 million. Pro-forma sales increased 3.9 percent to $251.3 million. For the full year, pro-forma sales rose 5.3 percent.
Merrell delivered mid single digit full year revenue growth, slightly better expectations, with accelerated growth in the back half of the year.
“Merrell delivered solid results in 2013, especially when viewed through the lens of a material contraction in the outdoor footwear category in the US. performance that was consistent with the guidance we provided throughout the year,” said Don Grimes, SVP and CFO, on the call.
Merrell saw gains in wholesale footwear for the year in almost every region, as well as growth in apparel, accessories and DTC, both e-commerce and brick & mortar. Merrell “essentially exhausted its inventory of boots and cold weather product well before Christmas,” with the weather boosting the US business and helping the year-end with clean inventories, said Grimes.
With the recent hiring of Gene McCarthy as Merrell’s president, Merrell continues to focus on growing its performance outdoor business through innovation and more effective consumer marketing, stabilizing its trail running business and “returning its important active lifestyle brand to meaningful growth with fresh new offerings,” said Grimes.
Krueger said Merrell benefited from the restructuring of its product development team around its performance outdoor, outside athletic and active lifestyle segments, as well as new talent. That includes McCarthy as well as the recent hiring of Sylvie D’Azemar as VP of Merrell apparel and accessories. Said Krueger, “The Merrell brand, with over 170 global concept stores at year-end, is well on its way to becoming a global lifestyle brand, but we believe we have an opportunity to accelerate progress in our apparel and accessories initiatives.”
Saucony’s full year revenue grew at a double-digit rates, with the strongest growth coming from the US, EMEA and Asia-Pacific. The brand benefited from editor’s choice mentions for both its Guide 7 and Triumph 11, expanding its share in the run specialty channel, and a resurgence in its Originals business in both the US and international markets.
Chaco saw low double-digit growth in 2014, led by strong demand for its classic Z sandal, particularly resonating with younger consumers. The My Chacos customization program continues to be a hit. Growth drivers for 2014 include new flip flops that let consumers switch the uppers, limited-edition classic product, an expanded social-media emphasis, and a marketing tour to celebrate the brand’s heritage.
In the Lifestyle Group (Sperry Top-Sider, Stride Rite Children's Group, Hush Puppies, Keds), revenues in the quarter rose 25.9 percent, to $265.3 million. On a pro-forma basis, sales were down 3.4 percent.
Sales in the Lifestyle Group for the year were up 9.4 percent, with double-digit growth for all four brands in the US.
Sperry Top-Sider revenues were up in the mid-teens for the year, with slightly faster growth from men's offerings. Growth came in every region and channel. DTC was ahead 45 percent. Krueger said Sperry ”gained meaningful market share in 2013 and today is the number one casual footwear brand in America.”
To support growth, seven license agreements were signed from swimsuits to sunglasses with apparel to be launched through a licensing arrangement with Lee this fall.
The fourth quarter’s decline for Sperry in the high-single digits partly reflects tough comparisons against 35-percent growth in the 2012 fourth quarter as well as the cold weather that particularly impacted the US women's business in Q4. Weak holiday mall traffic also hurt Sperry Top-Sider in the quarter as well as decision to exit certain accounts in the US and ”some self-inflicted misses” in women’s and to a less extent in men’s, particularly in vulcanized product.
Krueger added that “continuing record-setting harsh winter will have an impact on Sperry's first half results,” along with the account exits and sales climate. Overall, Sperry’s sales are expected to be flat in 2014, with a stronger performance in the second half. Krueger said management is encouraged the positive reaction to spring offerings of its expanded region in warmer climates.
Grimes also noted that Sperry is “implementing a series of course corrections from design talent to marketing programs to distribution strategies that should help position the brand for growth for years to come.”
Keds saw double-digit growth in the year, aided by its Taylor Swift partnership, other collaborations such as those with Kate Spade and Hollister, shelf gains in the U.S. at influential retailers, and growth in Latin America and Asia-Pacific internationally. The brand saw the return of a “meaningful fall, winter business,” and a “very strong performance” for BTS and holiday.
Hush Puppies saw “excellent double-digit” revenue growth in the US in the year and mid to upper single digit growth in Latin America and Asia-Pacific while Europe was challenging.
The Stride Rite children's group had low single digit revenue growth for the year, with solid growth in the US wholesale business partially offset by challenges in the consumer direct business, with the fourth quarter particularly impacted by decreased mall traffic over the holiday selling season.
Heritage Group's revenues (Wolverine, Caterpillar Footwear, Bates, Sebago, Harley-Davidson Footwear, HyTest ) inched up 2.2 percent in the quarter to $193.7 million on both an actual and pro-forma basis. The segment’s sales were up slightly for the year, led by mid-single digits growth at Caterpillar and “excellent” growth at Wolverine. The Wolverine brand saw double-digit growth in its lifestyle offerings, led by Western boots.
For 2014, Wolverine said it expects revenue in the range of $2.775 to $2.85 billion, representing growth in the range of 3 percent to 6 percent. Adjusted EPS are projected in the range of $1.57 to $1.63, representing growth of 10 percent to 14 percent. Gross margins are expected to improve slightly with modest full-year operating expense leverage projected, driven partially by lower year-over-year pension expense.
On average, Wall Street was expecting revenue of $2.84 billion with EPS at $1.67.
For the first quarter, revenues are projected to be modestly down, due to the
the sluggish macroeconomic outlook, continued soft US retail trends, unusual weather patterns as well as tough comparisons for Merrell against its M-Connect launch and a 28 percent year-ago gain for Sperry. Easter also falls later this year, pushing sales into the second quarter. Timing will also negatively impact shipments of certain significant distributor partners.
Q1 adjusted earnings per share are also expected in the range of 28 to 30 cents per share, driven by the challenging US retail conditions, unfavorable foreign exchange comparisons, brand investments, a higher tax rate and share count, all only partially offset by the benefit from lower pension expense. In the year-ago period, Wolverine earned 41 cents on an adjusted basis.
