Wolverine World Wide Inc. reported a loss of $1.9 million, or 2 cent a share, in the fourth quarter, against earnings of $11.6 million, or 12 cents, a year ago. Adjusted earnings on a currency-neutral basis were slightly above year-ago levels.

Adjusted financial results exclude restructuring and impairment costs, organizational transformation costs, and debt extinguishment and other costs. References to underlying revenue indicate reported revenue adjusted for the impact of foreign exchange, retail store closures, and the exit of the Cushe business.

“Our diverse portfolio of global brands, exceptional operating platform, and strong business model continue to fuel a powerful earnings engine, even when faced with the current retail environment,” said Blake W. Krueger, Wolverine Worldwide’s Chairman, Chief Executive Officer and President. “Revenue finished in line with our original outlook entering the year, and we delivered solid adjusted earnings. Our team worked diligently throughout 2016 to execute on our new strategic platform, the Wolverine Way Forward – investing in consumer insights, creating a more robust product pipeline with new innovation, and improving profitability through operational excellence. As a result, we are well positioned going into 2017 to deliver stronger earnings and perform in what we believe will be a consumer and retail environment that we refer to internally as the ‘new normal.'”

Fourth-Quarter 2016 Review

  • Reported revenue of $729.6 million, down 2.9 percent versus the prior year. Underlying revenue grew 0.1 percent versus the prior year.
  • Reported gross margin of 36.6 percent, compared to 36.2 percent in the prior year. Adjusted gross margin on a constant currency basis was 37.7 percent, up 110 basis points versus the prior year.
  • Reported operating margin was 2.1 percent, compared to 1.9 percent in the prior year. Adjusted operating margin on a constant currency basis was 7.3 percent, up 140 basis points versus the prior year.
  • Reported diluted loss per share was 2 cents per share, compared to earnings per share of 12 cents in the prior year. Adjusted diluted earnings per share were 33 cents a share, and, on a constant currency basis, were 36 cents, compared to 33 cents in the prior year.  Wall Street’s consensus target had been 32 cents.
  • Inventory at the end of the quarter was down 25.3 percent versus the prior year, meaningfully better than expected.
  • Cash generated by operating activities in the quarter was $153.1 million, up $47.4 million or 44.8 percent versus the prior year.
  • The company repurchased 2,084,582 shares during the quarter at an average price of $22.08 per share.

Full-Year 2016 Review

  • Reported revenue of $2,494.6 million, down 7.3 percent versus the prior year. Underlying revenue declined 4.9 percent versus the prior year.
  • Reported gross margin of 38.5 percent, compared to 39.1 percent in the prior year. Adjusted gross margin on a constant currency basis was 39.7 percent, up 50 basis points versus the prior year.
  • Reported operating margin was 6.4 percent, compared to 7.5 percent in the prior year. Adjusted operating margin on a constant currency basis was 9.3 percent, up 40 basis points versus the prior year.
  • Reported diluted earnings per share were 89 cents, compared to $1.20 in the prior year. Adjusted diluted earnings per share were $1.36, and, on a constant currency basis, were $1.52, compared to $1.45 in the prior year.
  • Cash generated by operating activities for the year was $296.3 million, up $80.8 million or 37.5 percent versus the prior year.
  • The company closed 101 stores during 2016 as part of its omnichannel transformation initiative.
  • The company completed a refinancing of its debt, which is expected to result in approximately $30 million of interest savings through 2020 and provide more flexibility for use of cash.
  • The company repurchased 2,838,919 shares during fiscal 2016 at an average price of $21.80 per share.

“We are pleased with the strong finish to the year and the incredible progress made on our operational excellence initiatives throughout 2016,” stated Mike Stornant, senior vice president and chief financial officer. “We exercised strong working capital management, reducing accounts receivable by nearly $36 million and lowering inventory levels by $118 million, or 25 percent year-over-year, while expanding gross margins in the fourth quarter. All of this helped to deliver a 37 percent increase in operating cash flow in 2016. Over the past year, we worked hard to improve the fundamentals of the business, and this approach served us well not only in delivering the year’s results but also in strengthening the company for the future. Looking ahead, we believe we have a clear strategic direction and remain focused on improving profitability to invest in organic growth and to return value to our shareholders.”

Fiscal  2017 Outlook

The company enters 2017 prepared to drive earnings growth despite expectations that the macroeconomic challenges will persist, the U.S. dollar will remain strong, and the global retail environment will remain tepid with certain channels facing continued pressure. For fiscal 2017, the company expects:

  • Reported revenue in the range of $2.270 billion to $2.370 billion, a decline of approximately 9 percent to 5 percent.
  • Underlying revenue is expected in the range of down 2.3 percent to growth of 1.9 percent, reflecting approximately $160 million to $180 million of impact from currency and store closures.
  • Slight gross margin improvement due to lower product costs and supply chain efficiencies partially offset by negative currency impact and mix impact from fewer stores.
  • Reported operating margin in the range of 7.9 percent to 8.5 percent and adjusted operating margin in the range of 9.9 percent to 10.4 percent, resulting from operational excellence initiatives focused on a supply chain optimization, omnichannel transformation, and operational efficiencies.
  • A reported effective tax rate range in the mid-twenties, and an adjusted effective tax rate range in the high-twenties.
  • Diluted weighted average shares outstanding in the range of 95 million to 96 million.
  • Reported diluted earnings per share in the range of $1.19 to $1.29. Adjusted diluted earnings per share are expected in the range of $1.45 to $1.55. On a constant currency basis, adjusted earnings per share in the range of $1.53 to $1.63.

The company’s portfolio of brands includes: Merrell, Sperry, Hush Puppies, Sauconyzz, Wolverine, Keds, Stride Rite, Sebago, Chaco, Bates, and HYTEST.  The Company also is the global footwear licensee of the popular brands Cat and Harley-Davidson.

Image courtesy Merrell