Wolverine World Wide reported earnings in the first quarter were down slightly on an adjusted basis but exceeded guidance as its top-five brands, including Merrell and Saucony, saw revenue arrive above plan during the quarter to offset some challenges at Sperry.

The company also provided an update on its key 2019 investments and full-year 2019 outlook.

“We are pleased to report first quarter earnings per share which exceeded our expectations,” said Blake Krueger, Wolverine World Wide’s Chairman, chief executive officer and president. “Four of our top-five brands delivered revenue above plan during the quarter, including Merrell and Saucony, and our owned eCommerce business continued to be robust, growing 28 percent over the prior year. This strength helped to offset some unforeseen challenges at Sperry and the late start to Spring which impacted certain product categories. Overall revenue declined less than 1 percent during the quarter on a constant-currency basis. We expect revenue growth to resume in the second quarter and accelerate during the second half of the year as we continue to invest in a variety of initiatives to drive topline growth and attractive earnings leverage.”

First-Quarter 2019 Review

  • Reported revenue of $523.4 million decreased 2.0 percent during the first quarter and adjusting for currency, decreased 0.9 percent. Wolverine had projected revenues would be “roughly flat” in the first quarter.
  • Reported gross margin was 42.1 percent, as compared to 42.7 percent in the prior year.
  • Reported operating margin was 10.0 percent. Adjusted operating margin was 10.9 percent as compared to 12.0 percent in the prior year.
  • The reported tax rate was 13.2 percent, as compared to 15.1 percent in the prior year.
  • Reported diluted earnings per share was $0.43, compared to $0.48 in the prior year. Adjusted diluted earnings per share was $0.49 compared to $0.50 in the prior year. The company had guided adjusted earnings to land between 45 and 48 cents a share.
  • Inventories increased 28.7 percent compared to the prior year, approximately 7 percent higher than expected, mostly due to Sperry. The quality of inventory remains very high, with both aged and close-out inventory declining compared to the prior year.
  • The company repurchased $103.1 million of shares in the quarter at an average price of $35.65, and has approximately $325 million available under its recently-approved $400 million share repurchase program.
  • The company’s Board of Directors declared a 25 percent increase in the quarterly dividend, which follows a 33 percent increase in the prior year.
  • During the first quarter, the brands that were formerly part of the Wolverine Outdoor & Lifestyle Group and Wolverine Heritage Group were realigned into a newly formed Wolverine Michigan Group.

“Our diversified portfolio was an asset during the quarter as several brands experienced attractive revenue growth, which helped to offset the macro headwinds faced in other parts of the business,” stated Mike Stornant, senior vice president and chief financial officer. “We remain committed to making key investments to drive revenue growth as part of our Global Growth Agenda, including a new joint venture in China, acquiring a European distributor, expanding our store base for key brands and significantly enhancing the work environment of our corporate headquarters. We also remain focused on leveraging our strong liquidity and financial position to drive overall shareholder return.”

2019 Key Investment Update

The company is providing detail on up to $40 million of key capital investments to drive long-term revenue growth, including the following:

  • As previously announced, the company entered into a joint venture agreement with Xtep International Holdings Limited (1368.HK), a leading Chinese sportswear retailer, to develop, market and distribute Merrell® and Saucony® products in mainland China, Hong Kong and Macau. Xtep is a powerful vertical player in the fast-growing running and sportswear market, with over 6,200 stores in 31 provinces and municipalities across China, including a strong network of distributors and shopping mall operators.
  • The company is expanding its European operations by acquiring one of its key Saucony footwear distributors. The investment is expected to expand the company’s owned market presence in the region and strengthen growth opportunities for the brand.
  • As part of its direct-to-consumer strategy, the company is investing in several new outlet store locations for Sperry and Merrell.
  • To attract and retain the best talent, the company is also investing to significantly enhance the work environment of its corporate headquarters in Rockford, Michigan.

2019 Outlook

The company is providing an update to its full-year outlook as summarized below.

  • Revenue is still expected to be in the range of $2.28 billion to $2.33 billion, representing growth of 3.0 percent at the mid-point of the range.
  • Gross margin is still expected to be in the range of 41.3 percent to 41.8 percent, up 45 basis points at the mid-point of the range.
  • Reported operating margin is now expected to be in the range of 11.3 percent to 11.6 percent and adjusted operating margin is still expected in the range of 12.2 percent to 12.6 percent, including approximately $40 million of ongoing investments to support the company’s Global Growth Agenda.
  • The effective tax rate is now expected to be between 18.5 percent and 19.0 percent.
  • Diluted weighted average shares are now expected to be approximately 91 million.
  • Reported diluted earnings per share are now expected to be between $2.00 and $2.15 and adjusted diluted earnings per share are still expected to be between $2.20 and $2.35.
  • Cash flow from operations is now projected to be in the range of $195 million to $215 million.

Photo courtesy Merrell