Wolverine Worldwide Inc. shares took a hit last week after the company said a pronounced shift from future orders to at-once orders across its entire brand portfolio was the major cause behind a drop in the growth of backorders from 10% to 4% in the second quarter. The company said while its inventories declined 7%, its order backlog rose 4%, down from a 10% increase at the end of the first quarter. WWW also reported that strong sales growth in the back half of the quarter contributed to a 12.8% increase in accounts receivables.
“In the United States and a few other markets the retailers are cautious and it's for that reason that we really saw an up tick in our at-once orders and a fall off, really a transfer from future orders to at-once orders in the quarter, which was just the opposite of our experience in Q1,” said company President and CEO Blake Krueger. “They're only ordering as necessary and they're really relying on those brands like Merrell. Maybe it's going to reverse in Q3 and Q4, but it clearly was a significant trend in Q2.”
The shift has made it more difficult for WWW to forecast third and fourth quarter revenues, said CFO Don Grimes, who was participating in his first quarterly earnings call since joining the company in April.
Gross margin in the quarter increased modestly to 38.3%, as benefits from foreign currency translation were offset by increased product and freight costs. The operating margin for the second quarter improved 27 basis points to 9.7%, reflecting continued tight control on operating expenses, which fell 10 basis points to 28.6% of sales despite a double-digit increase in advertising spending. Year-to-date, Wolverines gross margin rose 90 basis points to 40.3%.
