Wolverine World Wide Sees Growth Across All Brands in Fourth Quarter

 

Adjusted for restructuring charges and other non-recurring expenses in the 2009 period, earnings in the latest period were up 15.6%. Results easily topped Wall Street's consensus estimate of 46 cents a share.

On a conference call with analysts, Blake Krueger, Wolverine's chairman, CEO and president, said all 12 brands in Wolverine's portfolio posted revenue increases in Q4 while all regions grew at a double-digit pace. Consolidated backlogs were up over 38% at year end with each brand group up “substantially.”

The Outdoor Group, including Merrell, Patagonia Footwear and Chaco, saw revenues climb 22.3% in the fourth quarter to $134.9 million. Sales in the year for the group rose 12.4% to $467.6 million. Merrell brand sales grew 20% in the fourth quarter with increased market penetration in every geography, category and channel.

“We also made substantial gains in our casual footwear and kids categories,” said Krueger. “Merrell's core collections such as the Men's World and the Women's Encore offerings have performed well this season along with new collections such as the Refuge, the Whiteout, and Thermo boots.

Management said Merrell's apparel program continues to gain momentum, finishing the year up over 40%. Merrell also added 12 owned-retail stores globally to finish the year with 146 in total, along with over 1,000 dedicated shop-in-shops.

Krueger said Merrell's gains were bolstered by a 20% increase in marketing for the brand. These included expanded catalog distribution and increased investments in social media, event sponsorship and traditional print and out of home placement throughout 2010. One result was that Merrell finished the year with about six times more Facebook fans than it had at the beginning of the year.

A particularly encouraging launch for Spring 2011, however, has been the Merrell Barefoot collection. Year-end backlog reached approximately 400,000 pairs for this program, exceeding all previous product launches for the brand, even the iconic Jungle Moc in 1998.

“Barefoot had an early launch in a handful of U.S. stores in January and the initial results have been encouraging as a consumer response and sell throughs have been very strong. Retailers have told us they expect Merrell Barefoot sales to be largely incremental to their existing Merrell business,” said Krueger.

Patagonia footwear achieved double-digit sales increases for the quarter and the year with strong acceptance of new product. Chaco generated high double-digit Q4 and full-year sales growth as the product assortment evolved into a four season brand offering. Chaco added over 200 new U.S. accounts in 2010, mostly in footwear specialty stores.

At Wolverine Footwear Group, which also includes the Bates brand, sales jumped 27.6% in the quarter to $97.9 million. The highlight was the Wolverine brand, which had had a “spectacular quarter” and finished the year with strong double-digit sales growth in all markets.
“These results reflect new vintage fashion product, but even more importantly, excellent momentum in the core U.S. work business, where the Contour Wealth collection growth increases,” said Krueger. “The rugged casual category also experienced excellent growth led by the more fashion-oriented 1000 Mile Boot and 1883 collections which are priced from $180-$325 at retail.”

Wolverine's newer apparel business doubled in sales and is seeing triple-digit backlog gains for Spring 2001.

 

Heritage Brands Group's sales increased 25.8% to $65.1 million, led by double-digit growth from both Caterpillar and Sebago. Sebago's alliance with Filson Company on a co-branded footwear, apparel and accessories offering is “already generating trade show buzz and interest from younger consumers,” said Krueger.

Sebago also continues to gain shelf space in premium doors. For 2011, Sebago will have an exclusive shop-in-shop presence within the Saks Fifth Avenue flagship store in New York City, a shop-in-shop in Galeries Lafayette in Paris and an all-door offering at Nordstrom in the first half of the year. Two additional Sebago owned-retail doors opened in Norway and Venezuela in Q4 to end the year with 45 stores. Harley-Davidson Footwear achieved “very good” Q4 growth, with particular strength in Europe.

Hush Puppies Group, which also includes Cushe and Soft Style, saw sales climb 16.4% in the quarter to $38.9 million. Hush Puppies' strong fourth quarter gains were led by big regional increases in Europe, Asia-Pacific, and Latin America. Hush Puppies ended the quarter with a global count of 580 concept stores and almost 1,400 shop-in-shops. Cushe, its action sports lifestyle brand, continues to add new accounts and finished the year with a triple-digit revenue increase.

Overall WWW gross margin in the quarter eroded to 37.1% of sales from 39.7% in the prior-year period due to higher year-over-year product costs as well as a negative $3.5 million LIFO swing.

For 2011, Wolverine expects revenues in the range of $1.36 billion to $1.39 billion, representing growth of 8.9% to 11.3%. Full year gross margin is expected to be in line with the prior year as higher year-over-year product cost, particularly in the second half of 2011 are expected to be offset by strategic price increases and favorable brand and business channel mix.

Modest operating expense leverage is projected due to continued marketing investments to drive brand awareness, particularly for Merrell, Cushe and Sebago, as well as incremental investments to expand the consumer direct business including both new brick and mortar openings and e-commerce infrastructure. Fully diluted EPS is forecast in the $2.35 to $2.45 range, reflecting growth of 8% to 13% versus the prior year.

Asked about cost pressures, Krueger said Wolverine has seen cost pressures across the board, including with rubber and synthetic fabrics tied to higher oil prices, higher cotton prices, as well as higher labor prices in China, where he said the U.S. still gets 87% of all of its footwear this past year. “We are seeing some signs though that capacity is freeing up,” said Krueger. “Historically, when capacity freed up, it meant at least more stabilized or potentially lower prices. I don't know if I would count on that for 2011. So we may be in an environment where capacity is freeing up a little bit but the higher commodity costs are still going to drive some of the product cost increases that we outlined.”