Wolverine Worldwide reported revenue  reached $613.5 million in its second fiscal quarter ended June 14, up 4.4 percent versus the prior year.  All three of the company's brand operating groups contributed to the quarter's revenue growth.

Adjusted operating expenses in the quarter were $190.8 million, a decline of 2.8 percent versus the prior year.  As a percentage of revenue, adjusted operating expenses were 31.1 percent compared to 33.4 percent in the prior year.  Reported operating expenses in the quarter were $196.7 million, a decline of 3.6 percent vs. the prior year. 
 
Adjusted operating margin expanded 140 basis points to 9.0 percent.  Reported operating margin was 8.0 percent.
 
Adjusted fully diluted earnings per share increased 34.8 percent to $0.31, compared to an adjusted $0.23 per diluted share in the prior year.  Reported fully diluted earnings were $0.27 per share, an increase of 50 percent compared to the prior year's reported earnings of $0.18 per share. 
 
Outstanding operating free cash flow reached $113.6 million.
 
“We are extremely pleased to deliver a record quarter in what continues to be a volatile global retail environment, particularly in the U.S.” said Blake W. Krueger, the company's chairman and CEO.  “All of our operating groups achieved a revenue increase in the quarter, which was spread across nearly every region of the world.  Our Saucony, Keds, Caterpillar Footwear, Chaco and Wolverine brands posted very strong year-over-year results, and double-digit revenue gains in EMEA, Latin America and Asia-Pacific highlight the broad geographic reach of our portfolio.”
 
Additional financial information from the quarter:
  • Gross margin was 40.1 percent compared to the prior year's gross margin of 41.0 percent.  The lower gross margin resulted from increased promotional activity designed to combat sluggish U.S. retail traffic in the company's consumer-direct business and higher product costs.
  • The reported effective tax rate in the quarter was 28.2 percent, significantly higher than the prior year due to a higher mix of earnings in the United States and the expiration of the research and development federal tax credit.
  • Inventory at the end of the second quarter was down 5.1 percent compared to the prior year, reflecting the company's continued effective working capital management.
  • The company reduced its interest-bearing debt by $43.0 million in the quarter, including fully paying off its revolving line of credit.  The company ended the quarter with cash of $232.4 million and net debt of $898.9 million, with the latter down $108.6 million from prior quarter end.

Guidance
Based on revised expectations for the remainder of the year, the company expects its full-year consolidated revenue to approximate $2.775 billion, representing growth of approximately 3 percent compared to prior year revenue of $2.69 billion.  The company is reaffirming its adjusted earnings per share estimate in the range of $1.57 to $1.63 per share – growth of 10 percent to 14 percent compared to prior year adjusted earnings per share of $1.43.  On a reported basis, earnings per share are expected in the range of $1.32 to $1.38 per share and reflect the impact of the Strategic Realignment Plan outlined below. 

“The company delivered record financial performance in the second quarter, highlighting the strength of our business model and our team's dedication to identifying operating efficiencies,” commented Don Grimes, Wolverine Worldwide's SVP and CFO.  “As we turn to the back half of the year, we have taken a somewhat more conservative approach to our revenue outlook, reflective of a continued soft retail environment in the U.S.  Having said this, we are pleased to reiterate our full-year adjusted earnings per share guidance.”

Strategic realignment plan

In a move designed to accelerate growth and improve overall profitability, the company also announced a strategic realignment plan that includes store closures – primarily within the Stride Rite fleet – and several other initiatives.  The realignment of the consumer-direct business is intended to optimize the fleet of retail locations, right-size the supporting infrastructure, address a fundamental shift in consumer shopping behavior and allow for greater focus on important omni-channel initiatives. 

Key components of the Plan include:

  • Closing approximately 140 retail locations – primarily Stride Rite stores – over the next 18 months.  Of these, the company expects that approximately 60 stores will close by fiscal year end, with the balance closed by the end of 2015;
  • Consolidating certain consumer-direct functions, specifically store operations and field support teams, intended to allow for a more effective and efficient management of the retail fleet; and
  • Implementing organizational and infrastructure changes to realize further synergies.
     

The company estimates pretax charges related to the Plan in the range of $30 million to $37 million, and expects to record these charges between now and the end of fiscal 2015 as it executes each component.  Approximately $13 million to $15 million of this estimate represents non-cash charges, primarily asset write-offs related to closed retail locations and restructuring charges related to the remaining retail store fleet and international operations.  Of this non-cash amount, $3.4 million was recorded in the second fiscal quarter. 

Once the plan is fully implemented, the company expects annual pretax benefits of approximately $11 million and intends to redeploy a meaningful portion of these benefits to further build out consumer-direct omni-channel capabilities and accelerate growth in its wholesale operations.

“The Strategic Realignment Plan announced today is an important step in the evolution of the company's consumer-direct operations to meet the changing behavior of today's consumer,” said Krueger.  “We are confident that these actions will set a new foundation for our consumer-direct business, help position our company for future growth and increase shareholder value.” 

WOLVERINE WORLD WIDE, INC.










CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(in millions, except per share data)












12 Weeks Ended


24 Weeks Ended



June 14,


June 15,


June 14,


June 15,



2014


2013


2014


2013










Revenue


$ 613.5


$ 587.8


$ 1,241.1


$ 1,233.7

Cost of goods sold


367.7


346.7


739.1


730.6

Restructuring costs


0.1



0.5


Gross profit


245.7


241.1

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