Wolverine World Wide and VF Corp. Offer Bullish Outlooks for 2010

 

Don Grimes, SVP and CFO at Wolverine World Wide, highlighted growth strategies for Merrell-by far the company's single biggest growth vehicle over the past decade. The four-prong approach to expand Merrell includes incremental penetration in established markets, geographic expansion, opening Merrell retail stores and expanding Merrell apparel.

 

Highlighting its success, Grimes first noted that Merrell was doing $25 million in sales when Wolverine acquired the brand in 1997 and now accounts for the bulk of revenues of the Outdoor Group, which reached $416 million in 2009. The brand now churns out 13 million pairs annually and is sold in 160 countries. Despite its success, however, the brand has surprisingly low brand awareness with consumers. A 2008 study found the brand ranked 79 out of 100 among footwear brands in  consumer recognition with an awareness of only 8%. As such, a big emphasis will be shifting investment from trade communications to consumer-direct communications.

 

Regarding geographic expansion, 92% of Merrell's 13 million pairs are sold in its top 20 markets and only 8% in the other 140 markets around the world. Said Grimes, “If we achieve Merrell's current U.S. market share, which we believe is rather low in the addressable footwear market in the U.S., and replicate that in Europe, Middle East and Africa, and replicate that in Asia-Pacific, that's worth an incremental 9 million pairs of business for the Merrell brand…”

 

Wolverine had 88 stores across its brands at the close of last year, including three new Merrell stores opened in the U.S. in 2009. First quarter comps were up 16%. Wolverine plans to open stores in the mid- to high single-digits annually  going forward. But its Consumer Direct effort also includes the 6,000 dedicated points of distribution for its brands around the world, many of which are shop-in-shops. Wolverine also had 662 concept stores owned and operated by its licensees and distributors at the close of 2009. Online, Wolverine has 23 consumer Internet sites across its brand portfolio. Grimes said e-commerce has been growing “at exponential rates off of a very small base.”

 

Finally, Grimes said Merrell branched into apparel in 2007 with the goal of moving beyond footwear to become a “true lifestyle brand.” After stumbling with its launch, Merrell apparel's trajectory is “quite good,” after hiring a former executive from Columbia to lead the effort and signing up Lee & Fung to handle outsourcing.

 

Companywide, apparel and accessories is a $150 million business, with Merrell and Wolverine apparel representing only $30 million.

 

VF Corp. expects to resume revenue growth of 10% in 2010 after a 6% decline last year, SVP and CFO Bob Shearer told his audience at the Robert W. Baird Conference. VFC expects gross margins to grow 200 basis points and EPS to grow 14%, compared to last year’s 2% EPS growth.

 

VFC will invest $85 million in 2010, much of it in marketing aimed at maintaining momentum in the outdoor and action sports brands. It will also invest to supercharge growth in China, gain market share in Europe, bulk up its e-Commerce operations and secure best-in-class talent and innovation – especially in the area of consumer insight.

 

Shearer said VFC has hedged the bulk of its transactions in Europe, but exchange rates are still impacting the business. “Every five point movement in the euro costs us about $30-to-$35 million on the topline,” he said.

 

Shearer insisted that VF is well diversified both geographically and across brands and channels. Specialty stores, for instance, now generate a mere 18% of its revenues, with the remainder coming from international (27%), owned retail (17%), mass (15%), chains (7%) and department stores (6%). “That mitigates risk, even fashion risk,” he said.

 

Asked if VF would have an appetite to pursue larger deals such as Phillips-Van Heusen's acquisition of Tommy Hilfiger, Shearer said VF has the balance sheet to tackle a deal that size.  “I think in the reality, to me it's always about history and what have we been doing says an awful lot about where we are on M&A side,” said Shearer.

 

“And if you look at our-I'll call it our sweet spot-it's been more in that $300 to $400 million area. [We've] done a couple a little bit larger, but we just haven't done the $1 billion deal. So a little more comfortable with that level. Again, the balance sheet would support something larger, but we haven't done it.”  

 

Deckers Outdoor's executives also remain bullish on international growth, including Europe. The company’s plans still call for boosting international sales to 30% from 20% by 2012 and taking over distributorships in the United Kingdom and the Benelux countries when they expire in 2011. COO Zohar Ziv said DECK was in no hurry to make acquisitions, which he said would need to have annual revenues of between $100 million and $120 million.