Wolverine Worldwide reported adjusted earnings rose 35 percent in the first quarter to 50 cents a share, exceeding Wall Street’s consensus estimate of 37 cents a share. Underlying revenue inched up 0.3 percent on a currency-neutral basis as Merrell, Sperry and international exceeded expectations.
Wolverine provided an update on its 2018 Global Growth Agenda, which is in the next phase of the company’s transformation initiative. The company also raised full-year earnings guidance and updated its full-year outlook.
“Our first quarter was very strong and an excellent start to the year,” said Blake W. Krueger, Wolverine Worldwide’s chairman, chief executive officer and president. “The company had record earnings per share performance, much better than expected entering the year. This reflects our ability to harvest the benefits of our recent transformation initiatives.”
First Quarter 2018 Review
- Reported revenue of $534.1 million decreased 9.7 percent during the first quarter. Underlying revenue increased 1.8 percent and further adjusting for currency, increased 0.3 percent.
- Reported gross margin was 42.7 percent, compared to 39.7 percent in the prior year. Adjusted gross margin in the prior year was 41.2 percent.
- Reported operating margin was 11.5 percent, compared to 5.8 percent in the prior year. Adjusted operating margin was 12.0 percent, up 110 basis points compared to the prior year.
- Reported diluted earnings per share were $0.48, compared to $0.17 in the prior year. Adjusted diluted earnings per share were $0.50 compared to $0.37 in the prior year, an increase of 35 percent.
- Inventory declined $66.0 million, or 18.5 percent, compared to the prior year.
- The company made a voluntary debt principal payment of $100 million during the quarter.
- The company executed nearly $45 million in share repurchases during the quarter, comprised of 1,509,664 shares at an average price of $29.56 per share.
2018 Global Growth Agenda
“The company is currently implementing key investments and activating critical initiatives as part of our new Global Growth Agenda, the next phase of our holistic transformation,” stated Krueger. “The recent restructuring and related operational activities are substantially complete and we are now utilizing the new tools and capabilities that were developed as part of this work to focus on growth. During the first quarter, Merrell, Sperry and our international business exceeded our revenue expectations and our owned e-commerce business delivered mid-twenties underlying growth. These results were driven in large part by executing against our new and more profitable operating model focused on speed, innovation and growth.”
The company’s Global Growth Agenda is comprised of three key elements:
- Powerful Product Creation Engine – Relentless and frequent introduction of craveable product that resonates around the world, taking full advantage of new creative design capabilities, stronger consumer insights and a faster supply chain.
- Digital-Direct Offense – Seamless interaction with our consumers through more effective digital engagement to drive owned eCommerce growth beyond 20 percent, improve the on-line businesses of retail customers and enhance brand positioning in the digital marketplace.
- International Expansion – Greater investment in regional resources and systems to accelerate international growth, with a specific focus on China and the Asia Pacific region.
“We are proceeding with our enhanced investment strategy related to the Global Growth Agenda and still anticipate achieving our stated 12 percent adjusted operating margin goal well ahead of our original schedule,” said Mike Stornant, senior vice president and chief financial officer. “Gross margin performance in the first quarter was especially noteworthy, driven mostly by lower product costs and less markdown exposure due to much cleaner inventory levels.”
Updated 2018 Outlook
The strong first quarter earnings results were better than expected. The company is now raising its earnings projection for the year. The full year outlook is summarized below.
- Revenue in the range of $2.24 billion to $2.32 billion.
- Gross margin expansion in the range of 50 to 90 basis points, despite a negative mix impact of 20 basis points from 2017 store closures.
- Reported operating margin of 11.6 percent to 11.9 percent and adjusted operating margin of 12.0 percent to 12.3 percent, inclusive of $40 to $45 million of incremental investments to support the company’s Global Growth Agenda.
- An effective tax rate in the range of 18 percent to 21 percent.
- Reported diluted earnings per share in the range of $1.92 to $2.02 and adjusted diluted earnings per share of $2.00 to $2.10.
Wolverine’s brands include: Merrell, Sperry, Hush Puppies, Saucony, Wolverine, Keds, Stride Rite, Chaco, Bates, Hytest and Soft Style. The company also is the global footwear licensee of the brands Cat and Harley-Davidson.
Photo courtesy Wolverine Worldwide