Wolverine World Wide Inc. reported financial results for the fourth quarter and fiscal year ended December 30, 2017, and outlined its 2018 Global Growth Agenda, which is the next phase of the company’s transformation initiative.
“I am pleased with our fiscal 2017 financial performance and continued momentum in Q4, but I am especially proud of the major accomplishments achieved by our team over the last two years,” said Blake W. Krueger, Wolverine Worldwide’s chairman, chief executive officer and president. “These results reflect our ability to accelerate the execution and benefits of recent restructuring and transformation activities, and we are now positioned to invest in our new Global Growth Agenda in 2018.”
FISCAL 2017 REVIEW
The highlights of the company’s fourth quarter and full-year financial performance are summarized below. The fourth quarter revenue and earnings per share amounts reflect the company’s revised quarterly calendar.
Fourth Quarter Results
- Reported revenue of $578.6 million decreased 20.7 percent during the fourth quarter, or decreased 7.1 percent after taking into effect the quarterly calendar change. Underlying revenue increased 1.7 percent, including nearly 18 percent underlying growth for Merrell.
- Reported gross margin was 38.4 percent, compared to 36.6 percent in the prior year. Adjusted gross margin on a constant currency basis was 38.5 percent, compared to 37.1 percent in the prior year, reflecting an improvement of 140 basis points despite a 50 basis point negative mix impact from store closures.
- Reported operating margin was -12.7 percent, compared to 2.1 percent in the prior year. Adjusted operating margin on a constant currency basis was 10.7 percent compared to 8.1 percent in the prior year.
- Reported diluted loss per share was 65 cents a share, compared to a diluted loss per share of 2 cents in the prior year. The reported results include restructuring and transformation costs 24 cents a share and other special charges recorded in the quarter for the non-cash impairment of the Sperry-indefinite lived trade name (45 cents a share), environmental and other related costs (28 cents a share) and the impact of tax reform (9 cents a share). Adjusted diluted earnings per share were 41 cents per share compared to 34 cents in the prior year, an increase of 20 percent.
Results came in line with Wall Street’s targets. On February 8, Wolverine pre-announced results, indicating that sales would land at top end of its full-year outlook entering the year and EPS would reach the high end of its previous earnings outlook. At the time, Wolverine also noted that the quarter would include charges tied to a writedown of the Sperry name and environmental remediation related to its former Tannery operation and related disposal sites.
- Reported revenue of $2.35 billion decreased 5.8 percent vs. the prior year. Underlying revenue grew 0.6 percent.
- Reported gross margin was 38.9 percent, compared to 38.5 percent in the prior year. Adjusted gross margin on a constant currency basis was 40.0 percent, compared to 38.8 percent in the prior year, reflecting an improvement of 120 basis points despite a 50 basis point negative mix impact from store closures.
- Reported operating margin was 1.0 percent, compared to 6.4 percent in the prior year. Adjusted operating margin on a constant currency basis was 11.2 percent, a 270 basis points increase versus the prior year.
- Reported diluted earnings per share were $0.00 and include full-year costs directly related to the company’s restructuring and transformation ($0.82) and the special charges recorded in the fourth quarter as noted above (82 cents a share). Adjusted diluted earnings per share were $1.64, and, on a constant currency basis were $1.71 compared to $1.36 in the prior year, growth of nearly 26 percent.
- The company closed 215 stores during 2017, leaving 80 go-forward stores in the fleet.
- Inventory at year end declined 20.6 percent.
- Cash and cash equivalents on hand at year end were $481 million, up 30 percent over the prior year, despite nearly $90 million of cash costs to execute restructuring and transformation activities during the year.
- The company repurchased 1,639,732 shares during fiscal 2017 at an average price of $25.79 per share.
- Total shareholder return of over 45 percent for 2017.
2018 Global Growth Agenda
“The WOLVERINE WAY FORWARD has been the most ambitious effort in the company’s nearly 140-year history,” stated Krueger. “While portions of this work will be ongoing, I’m pleased to say that the heavy lifting is behind us and the extra costs required to execute the transformation are complete. We are now ready to implement new tools and capabilities that were developed as part of this work, and pivot our focus and energy to growth.”
In 2018, through the realized benefits of its WAY FORWARD transformation initiative, the company expects to invest $40 million to $45 million in its new Global Growth Agenda, which 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 our owned eCommerce growth beyond 20 percent, improve the on-line businesses of our retail customers and enhance our 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.
“This new Global Growth Agenda represents the next phase of our transformation,” said Mike Stornant, senior vice president and chief financial officer. “We have the financial capacity to invest in key initiatives and capabilities expected to fund our biggest growth opportunities and support accelerated growth beyond 2018. Including these important investments, we expect to achieve our stated 12 percent adjusted operating margin goal ahead of our original schedule. We are excited about our outlook for 2018, including the expected financial results included below.”
- Revenue in the range of $2.24 billion to $2.32 billion, a reported decline of 1.3 percent and underlying growth of nearly 6 percent at the high-end of the range.
- Gross margin expansion in the range of 40 to 80 basis points, despite a negative mix impact of 20 basis points from 2017 store closures.
- Reported operating margin of 11.6 percent and adjusted operating margin of 12 percent, inclusive of incremental investments in the company’s Global Growth Agenda.
- An effective tax rate in the range of 18 percent to 21 percent, reflecting new U.S. tax laws.
- Reported diluted earnings per share in the range of $1.87 to $1.97 and adjusted diluted earnings per share of $1.95 to $2.05, an increase of 25 percent at the high-end of the range. Foreign currency is expected have a neutral impact on earnings.
- Cash from operations in the range of approximately $230 million to $250 million.
- A 33 percent increase in the annual dividend.
FISCAL YEAR CALENDAR CHANGE
Prior to fiscal 2017, the company reported its quarterly results of operations on the basis of 12-week periods for each of the first three fiscal quarters and a 16 or 17-week period for the fiscal fourth quarter. Beginning in fiscal 2017, the company’s fiscal year is comprised of 13-week quarters for each of the first three fiscal quarters and a 13 or 14-week period for the fiscal fourth quarter. There is no change to the company’s fiscal year-end date.
Photo courtesy Wolverine Worldwide