Wolverine Worldwide said third-quarter sales would come in below its recent guidance. The company now expects a low-single digit revenue decline after adjusting for the impact of foreign exchange.
Revenues are expected to be flat on a currency-neutral basis after adjusting for retail store closures and the termination of its Patagonia license. Net revenues are now projected to decline between 4 and 5 percent on a reported basis. Its third quarter ends Sept. 12.
When it reported second-quarter earnings on July 31, officials expected growth on a currency-neutral basis in the mid single-digits, with reported growth in the low single-digits.
Wolverine continues to expect adjusted earnings per share in line with the company's most recent guidance of 47 to 49 cents a share.
The revision was made in conjunction with Wolverine’s attendance at Stifel's 2015 Consumer Conference.
At the conference, Mike Stornant, Wolverine’s SVP, CFO and treasurer, said much of the top-line pressure came overseas.
“Outside of the US, we continue to see macroeconomic headwinds that are impacting our business, specifically a stronger U.S. dollar and very low commodity prices,” said Stornant. “Earlier in the year, our brands took swift actions to raise prices to combat the higher cost of currency and to protect our gross margin. This was a successful effort and is consistent with our past practice. We continue to believe that this is a sound tactic, but we believe that the resulting higher retail prices have slowed demand.”
In addition, he said low global commodity prices have negatively impacted the economies of certain of its key markets outside the U.S., notably in Canada, Russia, and certain countries in South America, “a factor that has negatively impacted consumer demand in those markets.”
Another large contributor of the revenue shortfall in the quarter came from underperformance in its brick-and-mortar retail stores, especially its Stride Rite fleet. Said Stornant, “As we all know, U.S. retail traffic trends remain soft through Q3. Retailers remain very promotional during this time, likely in an effort to combat these worsening traffic trends. During Q3, we attempted to reduce the promotional cadence in our Stride Rite stores, but in a heavily promotional environment, this approach had a negative impact on comp store performance.”
Finally, Stornant said Wolverine’s U.S. wholesale businesses were similarly hurt by lower consumer traffic and higher promotional retail environment. In addition, key retail partners have indicated that retail inventories progressively increased in Q3.
“These factors put negative pressure on reorder activity during the quarter and also resulted in some orders being delayed into the fourth quarter,” said Stornant. “In late Q2 and early Q3, we implemented price increases for some brands and products, including Sperry. The result has been a very strong expansion of gross margin for the Sperry brand. But we believe that higher retail prices for some of our products offered in a very promotional US retail environment had a negative impact on consumer demand.”
Stornant said the company is in the first week of its fourth quarter and not ready to update its full-year guidance.
“Despite the challenging revenue results in Q3, our portfolio of brands remain second to none in the industry and the company’s business model remains strong and profitable,” said Stornant. “Our international distribution network remains a strategic advantage and the global expansion of our brands continue, especially for our Boston-based brands.”
He also said Wolverine’s ability to maintain its Q3 guidance shows its “disciplined operating model continues to produce reliable earnings and cash flow in a challenging and volatile macro environment.”
“Our two largest brands remain strong, strong leaders in their respective categories,” added Stornant. “Moving forward, the focus for Sperry will continue to be on product diversification and international expansion as we leverage the strength of our new brand platform and focus on new product categories and enhance design. Merrell will continue to focus on product innovation and new go to market strategy that is planned for Q1 of 2016, along with new demand creation investments to raise brand awareness for Merrell.”
Wolverine’s portfolio of brands includes: Merrell, Sperry, Hush Puppies, Saucony, Wolverine, Keds, Stride Rite, Sebago, Chaco, Bates and Hytest.
