Wolverine World Wide, Inc. reported that first quarter adjusted profit easily exceeded analysts expectations, but management for the footwear brand consolidator warned that 2009 would likely be “one of the toughest years in a few decades for the footwear industry.”
Reported revenues for the footwear giant slid 11.4% to $255.3 million for the quarter from $288.2 million in the year-ago period. In a conference call with analysts, management noted that 6.2 points of the percentage point drop came from fluctuating currency rates. Excluding the impact of a strengthening U.S. dollar, revenues declined 5.2% for the quarter.
Meanwhile, reported net income plummeted 58.0% to $5.0 million, or 21 cents per diluted share, compared to $11.9 million, or 46 cents per share, in last years first quarter. Earnings were impacted by $14.5 million in non-recurring restructuring and related charges, $4.6 million of which were non-cash asset impairment charges. Adjusting for these charges, fully diluted earnings for the period were 41 cents per diluted share. On the conference call, management confirmed that a previously-announced restructuring plan would be implemented by the end of the fiscal year, and was expected to generate annualized pre-tax benefits in the range of $17 million to $19 million.
Gross margins fell 190 basis points to 40.3% of net sales. Excluding charges, margins for the quarter were 41.2% of net sales, which exceeded the companys previous estimates.
The Outdoor Group, which is the companys largest revenue and earnings generator and includes the Merrell, Patagonia and recently-acquired Chaco brands, saw revenues decline in the low-single-digits for the quarter as softness from retail sales continued. Management said Patagonia footwear ended the quarter with a low-singles increase in sales and a “solid order backlog position,” while early Spring sell-through for Merrell have been “very encouraging.” Merrell apparel shipments were above plan for the quarter. Management said they are in the process of forming a dedicated apparel sales force in the U.S. They said the apparel product line is now “more aligned with the DNA and strengths of Merrell footwear.”
Merrell's global retail presence continued to expand in the first quarter and WWW now plans to have over 100 Merrell branded concept stores and over 1000 Shop-in-Shops in place by the end of 2009. Management said that direct retail can represent over 15% of Merrell's revenue within the next five years.
The Hush Puppies Group, which includes its namesakes brand and the newly-acquired Cushe brand, posted solid revenues in the international and Canadian businesses while experiencing weakness in the U.S. and Europe. Soft sales in the U.S. and Europe were primarily a result of retail bankruptcies and consolidations stemming from weak consumer spending, the company said. Overall, the Hush Puppies Group reported a sales decline in the mid-single-digits. Management said response to the Cushe brand thus far has been “overwhelmingly strong.”
The Heritage Brands Group, which includes Sebago, Caterpillar and Harley-Davidson, saw return-on-sales improve 230 percentage points on stronger margins and tighter control of SG&A expenses. Notably, Caterpillar achieved a mid-single-digit improvement in earnings despite lower sales that resulted from weakness in the international market. Harley-Davidson sales declined in the high-single-digits for the quarter. Sebago's revenue decline in the quarter was attributed primarily to decreases in the U.S. and European operations.
Management said the Sebago decline resulted from fewer tourists visiting the critical New York City market. In Europe where the company said nautical-inspired profiles are in trend, Segago was said to be expanding its retail presence in “opinion-leading” retailers on the strength of the Docksides product line.
Finally, the Wolverine brand posted what management called a “very good sales increase” for the quarter on growth in the U.S. and Canada businesses.
Inventory levels at quarter end increased 15.6% from last years first quarter, driven primarily by year-over-year product increases, a pre-buy of Merrell and Caterpillar product prior to anticipated cost increase, inventory from the Chaco brand and to build “buffer inventory” in the companys leather business. Management said a cautious retailer environment had resulted in “volatile” order patterns from buyers, but maintained the company had seen fewer cancellations in the first quarter of 2009. The company has seen at-once orders increase about 5% thus far and expects to see a significant increase in at-once orders in the near future.
Looking ahead, management said they were reaffirming full year revenue guidance in the range of $1.07 billion to $1.15 billion, which is expected to be negatively impacted by $70 million to $90 million from foreign exchange rate changes. Earnings for the year are expected to be in the range of $1.50 to $1.70 per diluted share including various charges, foreign exchange and pension increases.
