Tim ODonovan last week conducted his last analyst conference call as the CEO of Wolverine World Wide, Inc. as Blake Krueger, company president and COO, assumed the reins as CEO under a succession plan previously approved by the companys board of directors. Mr. Krueger takes the helm of a company that has seen its market cap expand from $385 million to more than $1.6 billion under the leadership of Mr. ODonovan, who will stay with WWW as non-executive chairman of the board. Over that same period, the company saw global footwear sales increase from approximately 37 million pairs in 1999 to nearly 47 million pairs in 2006.
For the first quarter ended March 24, currency-neutral sales increased 5.2% on strong sales growth once again in the companys Outdoor Group and solid gains in the Hush Puppies and Heritage Brands Group that were offset in part by revenue declines at the Wolverine Footwear Group. The addition of the Patagonia Footwear line for the quarter added about 1.3% of growth to the overall company top-line gain. WWW reported “solid” results in the U.S., Canadian and European wholesale businesses; and, also saw double-digit sales and earnings gains in the international licensing and distribution businesses.
Revenues in Europe climbed 7.4% for the quarter, reflecting increases in most of the companys brands. The company said that while their European management and sourcing teams were effective in mitigating some of the impact of the EUs anti-dumping duty, the $1.9 million in additional duty did have an impact of profits in Europe.
The Wolverine Footwear Group, which includes the Wolverine and Bates brand businesses, took a hit in the quarter from a planned decline in Bates business with the Department of Defense and a planned reduction in private label, but still exceeded plan thanks to a mid-single-digit increase in the Wolverine boot business. The reduced demand from the DoD accounted for a $2.8 million decline during the quarter and is expected to impact 2007 full-year revenues by $13 million to $15 million.
The Heritage Brands Group, which includes the Caterpillar and Harley Davidson licensed businesses, saw revenues grow 11.8% for the quarter. The growth for the period was fueled by gains in both the wholesale and international distributor businesses. The CAT brand posted its fourth consecutive quarter of double-digit revenue growth and Harley Davidson revenues were up in high-single-digits for the period.
Hush Puppies revenue was up 1.6% for the quarter, while improved margins and operating efficiencies helped push operating profits up in the strong double-digits for the period.
The Outdoor Group, which includes Merrell, Sebago, and the recently launched Patagonia Footwear line, was again the primary driver of growth for the company. While Merrell continued its long string of strong growth quarters, the group also got a nice boost from Sebago and the launch of the inaugural Patagonia line. Management said the Outdoor Group posted growth of 12.1%, or $12.2 million, which would put group sales at over $112 million for the period.
Sebago revenues increased 30% for the quarter.
Merrell apparently contributed “about half” of the revenue increase, with Patagonia and Sebago splitting the balance. Management said the Merrell business remains strong in the U.S., Canada, and international distributors, but the business in Europe dipped 1.7% due to a shift of some Q1 shipments to Q2 for their largest European customer.
Still, the overall Merrell business was up 6.4% for the period and would have been up in the double-digits excluding the impact of the shift in European shipments. Overall Merrell backlog was up more than 20% at quarter-end.
The fall order book includes the first shipments of Merrell apparel, which is expected to account for about $10 million in revenues this fall. Management said initial orders are roughly 50% domestic and 50% international, evenly split between mens and womens. Approximately 45% of the business is in tops, about 35% in outerwear, with the balance coming from bottoms and accessories.
Management also hinted at an expanded owned-retail strategy for the Merrell brand, opening the first company-owned store in the U.S. this fall. Worldwide, the brand has 23 concept stores in place and over 500 shop-in-shops. Management feels the Merrell retail concept could grow to the size of the Hush Puppies concept, which now has over 370 stores.
Total owned-retail same-store sales were up 4.5% for the quarter. Comp store sales at the companys 16 multi-brand Track n Trail stores were up in the strong double-digits for the quarter. The consumer-direct Internet business was also up in the double-digits for the period.
Total company order backlog was up 8% at quarter-end. The reduction in the Bates DoD business is estimated to have a $5 million to $6 million hit to the backlog number. Management estimated that backlog would have been up in double-digits on an apples-to-apples basis.
| Wolverine Worldwide, Inc. | |||
| First Quarter Results | |||
| (in $ mm) | 2007 | 2006 | Change |
| Total Sales | $281.1 | $262.8 | 6.9% |
| Gross Margin | 40.6% | 40.3% | +30 bps |
| Net Income | $22.3 | $19.6 | +13.6% |
| Diluted EPS | 39¢ | 34¢ | +14.7% |
| Inventories* | $196.1 | $179.4 | +9.3% |
| Accts Rec* | $199.0 | $189.0 | +5.3% |
| *at quarter-end | |||
