Wolverine World Wide Inc. reported sales rose 4.8 percent in the fourth quarter, boosted by mid-teens revenue growth from Merrell and Sperry and saw earnings top Wall Street’s guidance. For the current year, however, the company provided a soft outlook, citing the negative impact of the coronavirus outbreak.
“We delivered a strong finish to the fiscal year reflecting progress on our Global Growth Agenda, which drove over 5 percent constant-currency revenue growth and record fourth-quarter adjusted earnings per share of $0.59. Our fourth-quarter revenues were highlighted by mid-teens growth from our largest brands, Merrell and Sperry, acceleration in our digital-direct (DTC) offense and improved international expansion,” said Blake Krueger, Wolverine World Wide’s chairman, chief executive officer and president. “I am pleased with our performance in fiscal 2019 and proud of our team’s efforts that contributed to another record year.”
Fourth Quarter 2019 Review
- Reported revenue of $607.4 million increased 4.8 percent compared to the prior year and, adjusting for currency, increased 5.1 percent.
- Reported gross margin of 37.8 percent, decreased 140 basis points versus the prior year. Reported operating margin was -0.8 percent, and adjusted operating margin was 10.1 percent.
- Reported diluted loss per share was 1 cent, compared to earnings per share of 39 cents in the prior year. Reported results include the impact of the previously disclosed litigation settlements related to legacy environmental matters.
- Adjusted diluted earnings per share increased 13.5 percent to 59 cents, compared to 52 cents in the prior year.
The reported tax rate increased to 95.3 percent, compared to 4.0 percent in the prior year. The effective tax rates in both periods benefited from a change in the mix of taxable income within jurisdictions with varying tax rates and certain discrete items. The adjusted tax rate was 8.7 percent, compared to 11.8 percent in the prior year. - Inventories increased 9.6 percent compared to the prior year, in line with expectations, and included $14.9 million related to new stores, the Saucony/Italy acquisition and incremental tariff costs. Inventories would have increased 4.9 percent without these items.
- The company generated $206.5 million in cash from operations during the fourth quarter.
- The company repurchased $4.9 million shares in the quarter at an average price of $26.90 per share.
Adjusted earnings of 59 cents came in just above Wall Street’s consensus target of 58 cents.
By segment, Wolverine Michigan Group’s rose 7.6 percent to $360.0 million and grew 8.0 percent on a reported basis. Wolverine Boston Group’s sales were up 1.4 percent to $234.1 million and gained 1.6 percent on a currency-neutral basis.
Wolverine Michigan Group includes Bates, Cat Footwear, Chaco, Harley-Davidson Footwear, Hush Puppies, HyTest, Merrell and Wolverine. Wolverine Boston Group includes Keds, Saucony, Sperry Top-Sider, the Stride Rite licensed business, and the kid’s footwear businesses of Cat, Hush Puppies, Keds, Merrell, Saucony and Sperry.
Full-Year 2019 Review
- Reported revenue of $2,273.7 million increased 1.5 percent compared to the prior year and adjusting for currency, increased 2.3 percent.
- Reported gross margin of 40.6 percent, decreased 50 basis points versus the prior year.
- Reported operating margin was 7.5 percent, and adjusted operating margin was 11.5 percent.
- Reported diluted earnings per share were $1.44, compared to $2.05 in the prior year. Reported results include the impact of the previously disclosed litigation settlements related to legacy environmental matters.
- Adjusted diluted earnings per share increased 3.7 percent to $2.25, compared to $2.17 in the prior year.
The reported tax rate was 11.7 percent, compared to 11.9 percent in the prior year. The adjusted tax rate was 15.7 percent, compared to 13.3 percent in the prior year. - Full-year cash from operations of $222.6 million exceeded expectations.
- The company repurchased $319.2 million of shares during the year at an average price of $29.24 per share and has approximately $508 million available under its authorized share repurchase programs.
“We had a very solid finish to the year with Merrell, Sperry and Saucony—our top three brands—combining to deliver nearly 10 percent constant-currency growth in the second half,” stated Mike Stornant, senior vice president and chief financial officer. “In the fourth quarter, our eCommerce and International channels exceeded expectations and were major contributors to our overall performance. Our efficient business model and strong deployment of capital throughout 2019 allowed us to deliver excellent earnings leverage resulting in record adjusted earnings per share for both the fourth quarter and full-year. We are also pleased with our strong cash generation for the quarter and full-year, partially aided by excellent inventory management in the fourth quarter.”
Full-Year 2020 Outlook
The company is providing its initial revenue and earnings outlook for the full-year, which is summarized below. The company’s guidance includes the current estimated impact related to the coronavirus for the first half of 2020. In recent years, the company has diversified its supply chain away from China and, in 2020, China is expected to represent less than 20 percent of its global production, down from approximately 40 percent in fiscal 2019. The company is continuing to monitor and to adjust to the fluid coronavirus situation and recognizes that there could be an additional future impact on the global supply chain or customer demand.
- Revenue is expected to be approximately $2.29 billion to $2.34 billion, representing growth of approximately 3.0 percent at the high-end of the range. Constant currency revenue growth is expected to be approximately 3.5 percent at the high-end of the range. This outlook includes an estimated revenue impact from the coronavirus of approximately $30 million in the first half of 2020. Excluding the estimated coronavirus impact, constant currency growth in 2020 is expected to be 4.5 percent at the high-end of the range.
- Gross margin is expected to be approximately 41.0 percent.
- Reported operating margin is expected to be approximately 11.0 percent and adjusted operating margin is expected to be approximately 12.0 percent.
- The effective tax rate is expected to be approximately 19.0 percent.
- Diluted weighted average shares are expected to be approximately 82.5 million.
- Reported diluted earnings per share are expected to be approximately $2.05 to $2.20. Adjusted diluted earnings per share are expected to be approximately $2.25 to $2.40. Both reported and adjusted EPS include the negative estimated impact of 10 cents related to foreign currency and 10 cents related to the coronavirus. Excluding the estimated coronavirus impact and the impact of foreign currency, adjusted EPS on a constant currency basis is expected to be $2.60 at the high-end of the range.
- Cash flow from operations is expected to be approximately $240 million.
EPS guidance of $2.25 to $2.40 was below Wall Street’s guidance of $2.50. Revenue in the range of $2.29 billion to $2.34 billion was below expectations of $2.37 billion.
Photo courtesy Wolverine Worldwide