Wolverine World Wide reported a 10% decline in fiscal third quarter sales, but raised its fiscal year guidance due to improving backlog order trends and healthier sales at its own stores. On a conference call with analysts, Blake Krueger, Wolverine's CEO and president, said he expects the economy will likely recover at a slow pace but pointed to “hard evidence” that Wolverine's brands had begun to turn in the current environment.


First, sales at its 90 owned-retail stores began picking up in mid-May and recorded strong double-digit increases in the quarter, driven by a 4% comp gain. Recent openings, including a Merrell store in Boston and a Hush Puppy store in Montreal, exceeded expectations. E-commerce also continues to post “very strong double-digit increases.”


Second, Krueger said its current backlog position has improved “significantly” for spring 2010 deliveries. “While we believe retailers will continue to closely monitor at-once orders as they enter this holiday season, we believe that they have begun to adjust to the current retail environment and are placing future orders on a more normalized basis in order to keep their stores fresh, and to ensure that key product will be available when needed,” said Krueger.


Third quarter sales fell 10.1% to $286.8 million, with sales in constant-currency terms declining 6.9% for the period ended Sept. 12.
The Outdoor Group generated “strong quarterly earnings” on a low single-digit revenue decline on a constant currency basis. “Consumer demand remains strong for our Outdoor Group brands, especially Merrell, as retail sell-throughs are solid and our brands continue to gain market share,” said Krueger.


Merrell's Outventure performance collection had an “exceptional quarter with a healthy revenue increase.” Merrell's fall sell-through on the women's side were described as “very good.” Merrell's apparel backlogs are showing a “strong double-digit” increase for Spring 2010.


Patagonia footwear “is experiencing strong sell-through of key models with our top retailers this fall,” said Krueger. Spring 2010 product has booked “very well” with backlog up high-double digits across all product categories.


Chaco is performing above company expectations as a result of early efforts to integrate the brand and focus on operational, quality and product delivery improvements. “We have high expectations for Chaco to deliver strong double-digit growth in 2010, at an expanded product range and an improved replenishment business,” said Krueger.


Cushe, a U.K.-based casual brand acquired earlier this year, has seen “very encouraging” sell-through in the U.S., Canada and Europe, and reportedly drew attention at recent outdoor and surf shows.
Among other divisions, the Heritage Brands Group, which includes Sebago, Caterpillar and Harley Davidson, was down upper single digits on a constant dollar basis but in line with forecast. For Sebago, strong double-digit increases in Canada and Europe offset declines in the US, primarily due to soft reorders. Hush Puppies Group's revenues were down upper single digits on a constant currency basis although U.S. sales were only down 1%. The Wolverine Footwear Group's revenues dropped in the double digits primarily due to the domestic economy that has seen increased factory closings and workforce reductions.
Overall company gross margins after adjusting for the nonrecurring restructuring charges were 40.2%.


Accounting for currency exchange rate shifts, gross margin was 40.9% of sales in the quarter. Wolverine began to realize the benefit of lower product costs in the quarter with a larger benefit expected in the fourth. 


Operating expenses were down 11.1% after adjusting for restructuring charges, foreign exchange rates, operating expenses tied to newly-acquired brands, and increased pension expense.  Adjusting only for the nonrecurring restructuring charges, operating margin was 14.4% of sales, or 15.2% of sales in constant currencies.


After adjusting for the nonrecurring restructuring charges in this year's third quarter, EPS was 62 cents, equal to the prior year. Adjusting further for the impact of a stronger U.S. dollar, EPS was 67 cents a share, an 8.1% increase.


Looking ahead, Wolverine raised its full year EPS outlook to a range of $1.65 to $1.75 per share, up from its previous range of $1.55 to $1.73. At the same time, it slightly narrowed its expectation for full-year revenue to a range of $1.080 billion to $1.110 billion, but the mid-point remains unchanged at $1.095 billion.


Addressing the near-term sales challenges, CFO Don Grimes said what while order rates are improving, many shipments are landing in Q1 2010 rather than Q4 2009 as retailer's delay shipments. After adjusting for excessive order cancellations in last year's fourth quarter, total backlog is currently down in the mid-single digits. Backlog scheduled for delivery in Q1 2010 is “up solidly” and backlogs so far for Q2 2010 and beyond are “up even more.”