Wolverine World Wide, Inc.’s fourth-quarter sales grew 8.4 percent as strong double-digit growth at Merrell and Saucony offset a steep decline at Sperry. Overall results were in line with recently-updated guidance. Guidance for the current year calls for margin pressures to continue in the first half of the year to further reduce inventories and low-single-digit growth on a currency-neutral basis for the overall year.

On January 11, Wolverine said an acceleration of its inventory reduction efforts was expected to pressure fourth-quarter earnings toward the lower end of guidance.

Earnings on an adjusted basis in the quarter were 15 cents a share loss. Guidance had called for adjusted EPS in the range of a loss of 15 cents to a loss of 5 cents.

Revenue in the quarter was $665.0 million, up 4.6 percent on a reported basis and 8.4 percent on a constant currency basis. Guidance had called for revenue of approximately $665 million (representing approximately 5 percent growth and 8 percent on a constant currency basis)

“Despite a challenging year in 2022, we’ve taken important steps to become a more disciplined and agile company while focusing on long-term growth. Encouraging results from our 100-day action plan, initiated in the fourth quarter, include a reduction in inventory and debt levels, the sale of Keds, and the establishment of a new Profit Improvement Office to unlock savings to support growth acceleration in our highest potential brands,” stated Brendan Hoffman, Wolverine Worldwide’s president and CEO. “Our priorities for 2023 are to fuel growth in our Active Group, sustain positive momentum in our Work Group, and address underperforming brands while we further strengthen our financial position. We expect to grow 2023 revenue from our ongoing business by approximately 0 percent to 2.0 percent and 1.0 percent to 3.0 percent on a constant currency basis, and deliver approximately 8.5 percent operating margin. We remain confident in our ability to deliver a 12 percent operating margin in 2024.”

Fourth-Quarter 2022 Financial Highlights
Revenue of $665.0 million represents growth of 4.6 percent versus the prior year and growth of 8.4 percent on a constant currency basis. The company’s international business was said to be especially strong, up 22.2 percent or 31.9 percent on a constant-currency basis to $281.5 million. Direct-to-Consumer revenue of $224.4 million was flat compared to the prior year and up 4.8 percent on a constant currency basis.

By segment, Active Group (Merrell, Saucony, Sweaty Betty, Chaco) sales rose 16.8 percent (+23.0 percent currency-neutral) to $397.6 million from $340.4 million a year ago. Sales at the Work Group (Wolverine, Cat, Bates, Harley-Davidson, HyTest) increased 3.3 percent (+4.4 percent currency-neutral) to $154.5 million from $149.5 million. Lifestyle Group (Sperry,  Keds, Hush Puppies) sales were down 20.6 percent (-19.7 percent currency-neutral) to $100.7 million from $126.9 million.

By major brand, sales rose 27.0 percent (+31.2 percent currency-neutral) to $193.9 million at Merrell, 24.8 percent (+30.2 percent currency-neutral) to $121.3 million for Saucony, and 9.6 percent (+9.8 percent currency-neutral) to $71.8 million for Wolverine brand. Sales at Sperry were down 28.0 percent (-27.9 percent currency-neutral) to $68.0 million. Sales at Sweaty Betty were down 7.0 percent (+5.1 percent currency-neutral) to $72.8 million.

Gross margin of 33.7 percent versus 41.3 percent in the prior year reflects the acceleration of end-of-life inventory liquidation, increased promotions, and a higher mix of international distributor sales that carry a relatively lower gross margin.

SG&A expenses were $678.9 million including $428.7 million for the non-cash impairment of Sperry and Sweaty Betty intangible assets primarily driven by an increase in discount rates used in the valuation. Adjusted SG&A expenses of $238.3 million or 35.8 percent of revenue, was 50 basis points higher than the prior year primarily due to higher storage and handling costs as a result of elevated inventory levels.

The net loss came to $361.6 million, or 4.59 a share, from a loss of $188.3 million, or $2.37, a year ago.

On an adjusted basis, the loss came to 15 cents a share against earnings of 37 cents a year ago.

Adjusted earnings exclude environmental and other related costs net of recoveries, costs associated with Sweaty Betty integration, reorganization costs, receivables securitization transaction costs, non-cash impairment of the Sperry trade name and the Sweaty Betty trade name and goodwill, costs associated with the acquisition of the Sweaty Betty brand, debt extinguishment costs, non-cash impairment related to one of the company’s joint ventures and gain on the sale of the Champion trademark.

Inventory at quarter-end was $745.2 million which does not include $43.1 million from held-for-sale businesses. Inventory was down approximately $90 million versus the previous quarter.

Net Debt at the end of the quarter was $1.02 billion, down from $1.35 billion at the end of the third quarter, and liquidity was approximately $685 million. The company’s bank-defined leverage ratio was 2.7x

Full-Year 2022 Financial Highlights
Revenue of $2,684.8 million represents a growth of 11.2 percent versus the prior year and a growth of 14.1 percent on a constant currency basis.

Gross margin was 39.9 percent versus 42.6 percent in the prior year and reflects the acceleration of end-of-life inventory liquidation, increased promotions, and a higher mix of international distributor sales that carry relatively lower gross margin.

Selling, General & Administrative expenses were $1.28 billion, including $428.7 million for a non-cash impairment of Sperry and Sweaty Betty intangible assets. Adjusted SG&A expenses of $894.5 million, or 33.3 percent of revenue, was 20 basis points lower than the prior year.

Net EPS came to a loss of $2.37 against earnings of 81 cents a year ago. Adjusted EPS was $1.41 against $1.85 a year ago, representing a decline of 23.8 percent,

Full-Year 2023 Outlook
“We are encouraged by the progress made to simplify the business and improve the balance sheet in the fourth quarter,” said Mike Stornant, EVP and CFO. “We enter 2023 with excellent visibility to cost savings and operational efficiencies that we believe will benefit the year. We expect that during the first half of the year, gross margin will continue to be impacted by expense timing of higher transitory supply chain costs from 2022 and the sell-off of end-of-life inventory. As a result of the proactive work started several months ago, we expect profitability to improve meaningfully in the second half of the year as supply chain costs and inventory levels normalize, and the Profit Improvement Office initiatives deliver benefits.”

The following guidance reflects the performance of the company’s ongoing business operations. As such, all financial expectations for 2023 and comparable results from 2022 exclude the full-year impact of Keds, which was sold in February 2023, and Wolverine Leathers, which is the subject of a sale process, and reflect an adjustment for the transition of its Hush Puppies North America business to a licensing model in the second half of 2023.

  • Revenue from its ongoing business is expected to be in the range of $2.53 billion to $2.58 billion, representing growth of approximately 0.0 percent to 2.0 percent and constant-currency growth of approximately 1.0 percent to 3.0 percent;
  • Gross margin is expected to be approximately 41.2 percent and adjusted gross margin is expected to be approximately 42.0 percent;
  • Operating margin is expected to be approximately 8.7 percent, and adjusted operating margin is expected to be approximately 8.5 percent;
  • The effective tax rate is expected to be approximately 21.0 percent;
  • Diluted earnings per share are expected to be between $1.50 to $1.70 and adjusted diluted earnings per share are expected to be between $1.40 to $1.60. These full-year EPS expectations include an approximate $0.14 negative impact from foreign currency exchange rate fluctuations; and
  • Diluted weighted average shares are expected to be approximately 79.3 million.

Photo courtesy WWW/Saucony