Despite reporting flattish first quarter sales, executives at Wolverine Worldwide Inc. insisted they can still grow sales 2-to-4 percent this year as a big boost in spending, expedited product launches at Merrell and growing momentum at it resurgent Sperry brand accelerate in the back half.

WWW reported consolidated revenue increased to $631.4 million in the quarter ended March 28, up just 0.6 percent from the first quarter of 2014. Sales increased 3.4 percent in currency-neutral (c-n) terms. Executives said mid single-digit growth from its Heritage Group and low single-digit growth from the Lifestyle Group were partially offset by a low-single-digit decline at the Performance Group.

Sperry's momentum continues to build
The Lifestyle Group delivered revenue of $243 million, up 2.1 percent (3.6 percent in c-n) compared with the year earlier quarter. In currency-neutral terms, strong mid-teen growth at Sperry and low single-digit revenue growth at Keds were partially offset by declines from Stride Rite and Hush Puppies. 

Sperry carried over its momentum from the fourth quarter by performing “very well” in nearly every U.S. distribution channel and especially well in stores aimed at younger consumers. International sales to third party distributors grew nearly 50 percent year over year, while owned operations in EMEA grew nearly 20 percent.

Comp stores sales at Sperry's bricks-and-mortar stores declined in the low-single digits as WWW continued to fine tune distribution in the family footwear channel. Even so, Sperry stores outperformed most other bricks-and-mortar formats in WWW retail fleet.

“Sperrys had a very good business in the family channel,  but quite frankly, before the acquisition they didn't probably have adequate discipline or product segmentation,” said WWW Chairman, CEO and President Balke Krueger. “That required us to really take a couple of steps back and then as we're reentering a couple of those retailers we're doing so on the understanding they are going to be less promotional but most importantly there's going to be a strict product segmentation strategy that we put into place.”

After several consecutive quarters of strong double-digit growth, Keds posted constant currency revenue growth in the low single-digits for the quarter and reported revenue growth that was essentially flat to last year. The unseasonably cold Spring and West Coast port situation put some pressure on Keds' core North American business, while business in EMEA was negatively impacted by the shift from a top line, to a distributer-based model for some key markets.

Chaco and Merrell Performance drive Performance Group
The Performance Group delivered revenue of $243.4 million, up 2.1 percent (-2.2 percent c-n) due to exceptionally strong double-digit growth from Chaco, low single-digit growth from Saucony and flat year-over-year performance from Merrell.

Chaco sales soared 70 percent due largely to sold sell-in of its new closed toe collection. Traffic to chaco.com was up 50 percent while custom Chaco orders surged 85 percent.

At Merrell, the performance outdoor category, which generates 60 percent of brand sales, posted a high single-digit gain on the strength of a global launch of the newest Capra trail shoe and several product introductions, including updates to the Chameleon. This marked the seventh consecutive quarter of growth in the performance outdoor category for the brand. The outdoor athletic category, which generates just 10 percent of performance outdoor sales, declined.

The men's active lifestyle business generated nice gains, but softness in the important women's casual business continued. Sales growth at Merrell.com exceeded 30 percent following its launch on a new e-commerce platform during the quarter.

At Saucony, sales increased in the low single-digit range in currency-neutral terms, but declined as a result of currency translation. After doubling in 2014, sales of the Saucony Originals collection grew at an exceptionally strong double-digit pace in the quarter.

At the Heritage Group, revenue reached $126.1 million, up 4.0 percent (7.0 percent c-n) as growth at Bates, CAT and Harley-Davidson were partially offset by declines at Wolverine and Sebago.

Headwinds include weather, port delays and Patagonia exit
Store closures associated with WWW's retail realignment plan and the exit from the Patagonia Footwear license had a negative 170 basis point impact on reported revenue growth. SVP and CFO Don Grimes estimated late deliveries attributable to a slow down at West Coast ports trimmed sales by $10 million during the quarter with the biggest impact coming at Wolverine and – to a less extent – Keds.

On top of those headwinds, harsh winter weather made for challenging conditions across much of WWW's retail fleet.
“Even for stores that didn't close, traffic was so negatively impacted by the cold weather that it really had a negative impact on comp store performance across our fleet of retail stores,” said Grimes.

WWW's consolidated e-commerce sales grew by more than 30 percent reflecting a host of investments the company has been making in its omnichannel capabilities. Site visits were up nearly 20 percent across the company's .com portfolio and conversion also increased. Mobile sales penetration increased nearly 700 basis points to generate more than 30 percent of e-commerce sales.

Sperry price increases, lower close outs boost margins

Gross margin increased 60 basis points to 41.4 percent, thanks primarily to price increases at Sperry and lower close out sales, partially offset by product cost increases. Merrell was also able to sharpen prices on some styles during the quarter.

As expected, adjusted operating margin decreased 60 basis points to 9.9 percent due to increased brand investment and higher pension expense.  Reported operating margin was flat compared to the prior year at 10.1 percent. 

Adjusted diluted earnings per share decreased 2.6 percent to 37 cents.  On a currency-neutral basis, adjusted diluted earnings per share increased 2.6 percent to 39 cents.  

The company ended the quarter with nearly 10 percent less inventory,  27.3 percent less cash and cash equivalents and net debt of $736.0 million, a reduction of $271.5 million from the same period last year.

Forecast assumes investments kick in, Merrell lifestyle initiatives succeed
WWW reaffirmed its full-year guidance, which calls for consolidated revenue to grow 2-to-4 percent, (5-to-7 percent c-n) and earnings per diluted share of $1.42-to-$1.49 ($1.71-to-$1.78 c-n). Executives said they expect the momentum at Sperry's, Merrell and Saucony Originals to grow as $30 million in additional spending kicks in over the balance of the year. Thus far, the money has been spent primarily on Merrell and Sperry's new brand platforms and associated marketing campaigns. 

While Merrell's performance outdoor styles continue to perform well, Grimes said the brand must grow its ratio of lifestyle footwear if it is to regain the high-single-digit/low-double-digit growth rates of the past. To make that happen, Merrell is recruiting new designers and striving to accelerate the launch of several Women's casual lifestyle products in the back half of the year. Krueger cited the extension of the Capra franchise this Fall with new product introductions in leather and Gore-Tex, recent sell-through of the All Out collection, positive performance of the women's Terran collection and the active lifestyle sandal category as reasons for optimism.

Still, worsening conditions in Russia prompted WWW to lower Merrell's forecast from the high-single digits it expected in February to the mid-single digits, Grimes said.

Based on positive feedback to new products in the pipeline, particularly boots, WWW expects Sperry sales growth to accelerate to the mid single-digit range in the second quarter and even further in the back half.

“Women's boat has bounced back, which is a very good sign for the brand and men's continues to perform at a high level,” said Krueger.

Continued international expansion of the Sperry, Saucony, Keds and Stride Rite brands acquired in the first quarter of 2013 will also continue to drive growth. The brands are distributed in 50 more countries than they were just over two years ago, an increase of 50 percent. Additionally, over 400 new points of global controlled distribution have opened, an increase of almost 150 percent. In the first quarter, international sales reached 18 percent of the four brands combined sales compared with 12 percent in the first quarter of 2013.