Seeing its momentum accelerating on the payback from its Wolverine Way Forward transformation program, Wolverine Worldwide delivered better-than-expected second-quarter results and lifted its guidance for the year. Net profits jumped 70 percent on a currency-neutral basis in the quarter on underlying growth of 1.4 percent.

Most of Wolverine Worldwide’s brands exceeded revenue expectations for the quarter while also over-delivering on operating profit goals.

Blake Krueger, WWW Chairman, President and CEO

“Our proactive response to the quickly evolving global marketplace and changing consumer landscape has allowed us to sprint ahead in what remains a challenging global environment, something we’ve been calling the new normal for a couple of years,” said Blake Krueger, Wolverine Worldwide’s chairman, CEO and president, on a conference call with analysts. “Our strong second quarter results reflect these efforts and I am encouraged about what I see ahead for the company.”

Krueger said the company during the quarter “made excellent headway across all four sprint lanes” of its Wolverine Way Forward program.

“Innovation and growth remains our top priority and we made excellent progress in becoming more consumer centric, strengthening our product innovation pipeline and reducing concept to market timeline, all aimed at driving the global growth of our brand,” stated Krueger.

At the same time, the company has “taken aggressive action” to address underperforming segments, notably by closing subpar retail stores, executing strategic alternatives for a few of its smaller brands; including Sebago; and restructuring other parts of the business. He added, “We’ve also prioritized speed in everything we do with a focus on creating a nimble, faster, more efficient company.”

As a result, Krueger said the company has “a high level of confidence” that the company will achieve a 12 percent adjusted operating margin by the end of 2018 set when it first launched the Wolverine Way Forward program in April 2016.

“Our progress so far is encouraging and on plan but we remain intensely focused on fully executing the Way Forward transformation and harvesting the growth and operating profit benefits these efforts will deliver,” said Krueger. “We’re also excited to accelerate the reinvestment of some of these early benefits in the second half of this year.”

Wolverine’s reported revenue increased 2.6 percent to $598.8 million, but adjusted revenue decreased 3.3 percent after accounting for a calendar change.

Prior to this year, Wolverine 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 2017, the 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.

In the Wolverine Outdoor & Lifestyle Group, underlying revenue grew 11.4 percent with Merrell growing just over mid-single digits, Cat up strong double digits, Chaco posting mid-teens growth, and Hush Puppies down high single digits.

“The Merrell business continued to accelerate in Q2, including growth of over 30 percent in its e-commerce business, with the brand also benefiting from the migration of a few distributors to a top line model,” said Krueger.

Merrell’s core Performance Outdoor category grew mid-single digits due to the successful launch of the Moab 2 and the strong performance of the Nature’s Gym collection.

“The Merrell product and innovation pipeline is robust and we continue to see positive momentum into the second half of the year through the introduction of the new Chameleon 7 and MQM collections, while expanding the Arctic Grip assortment to capitalize on the momentum we have around this new technology,” said Krueger.

The Merrell Work and Tactical program launch also contributed to the brand’s Q2 growth.

The Active Lifestyle category again improved moderately in the quarter, with the men’s category up mid-single digits. Krueger said the category “remains a key priority and opportunity for the brand.”

He added, “Overall, Merrell’s key initiatives are connecting with consumers and I’m increasingly excited by the brand’s future opportunities and growth plan.”

Chaco again delivered strong growth in the quarter, led by a 30 percent gain in e-commerce. The brand also made “real headway” in expanding its geographic base in the U.S. and growing its product offerings outside of the core Z Sandal franchise, said Krueger.

In the Wolverine Boston Group segment, underlying revenue declined 3.1 percent with Sperry down mid-single digits and Saucony up slightly. Keds, as expected, was down low double digits as the brand continued to implement its strategic distribution realignment plan.

Krueger said Sperry performed better than anticipated in the quarter.

“While the boat shoe category stabilized somewhat, this category continued to experience trend headwinds,” said Krueger. “The Sperry team has accelerated efforts to diversify the brand’s product category mix and drove strong double digit growth during Q2 in its second largest spring-summer category, vulcanized footwear, with women’s styles like the Seaside, Crest, and Lounge Away all performing well.”

In the back half of this year, Sperry plans to build on its recent success in the boot category with new updates. Said Krueger, “Sperry has also developed new programs to expand its classic casual business and the premium Sperry Gold Cup collection.”

The Saucony brand was led by high teens growth during the quarter in both e-commerce and international, two areas of focus for the brand. The gains were “all driven by new product innovation,” Krueger said. The award-winning Freedom ISO continued to perform well and the new Ride 10 is “off to a strong start with robust sell through in stores.” Saucony is expected to see a “solid second half,” Krueger added. The new Triumph and Hurricane, both with full-length Everun cushioning technology, and the new Liberty ISO and Liteform Feel are all planned to launch over the next several months.

In the Wolverine Heritage Group, underlying revenue for the group was up high single digits, excluding its Bates Department of Defense contract business. The flagship Wolverine brand was up double digits while the Bates commercial business was up low single digits.

“The Wolverine brand saw strong revenue growth across its key categories and channels and posted strong digital growth with e-com up over 30 percent,” said Krueger. “New product introductions continued to perform well and drive growth for the brand, and we’re reaping the benefits from the strategic distribution decisions the brand actioned in the latter part of 2016.”

Net earnings in the quarter slumped 14.9 percent to $20.5 million, or 21 cents a share, from $24.1 million, or 24 cents, a year ago. Restructuring and impairment costs amounted to $22.6 million in the latest quarter against $1.8 million a year ago.

Adjusted diluted earnings per share were 43 cents, a record second-quarter performance for the company. Wall Street’s consensus estimate had been 29 cents a share. On a constant currency basis, adjusted earnings per share were 44 cents, compared to 26 cents in the prior year.

Reported gross margin was 37.9 percent, compared to 38.8 percent in the prior year. Adjusted gross margin on a constant currency basis was 39.1 percent, up 60 basis points versus the prior year and came despite a negative 210 basis points impact of store closures.

Reported operating margin was 4.9 percent, compared to 7.2 percent in the prior year. Adjusted operating margin on a constant currency basis was 11 percent, up 380 basis points versus the prior year, and excludes $3 million of incremental inventory markdowns related to the accelerated store closings.

Inventory at the end of the quarter was down 24.1 percent versus the prior year, reflecting the store closings. DSOs improved by 1.7 days.

Detailing progress on its Wolverine Way Forward initiatives, Wolverine noted that under its previously announced store restructuring plan, 180 stores, largely Stride Rite, have closed since the beginning of 2017, including 76 closures during the second quarter. An additional 33 closings are planned before the end of 2017, leaving a remaining retail store fleet of approximately 80 stores. Approximately $5.3 million of operating losses were incurred in the second quarter for stores closed. The losses include $3 million of inventory markdowns related to accelerated store closures. These store closures allowed the company to liquidate inventory totaling approximately $8.4 million during the quarter.

On July 2, the company entered into an agreement to license the Stride Rite brand to Vida Shoes International. On July 31, the company entered into an agreement to sell the intellectual property and certain other assets related to the Sebago brand for $14.3 million. Wolverine will sell off its remaining Sebago inventory through the end this year.

Looking ahead, Wolverine’s updated guidance now calls for:

  • Reported revenue in the range of $2.32 billion to $2.37 billion, which includes a $40 million reduction in revenue from the conversion of the Stride Rite business to a license model. This is a reported decline of approximately 7.0 percent to 5.0 percent. Under its previous guidance, reported revenue was expected in the range of $2.27 billion to $2.37 billion, representing a decline of approximately 9 percent to 5 percent.
  • Underlying revenue is now expected to increase and be within the range of flat to growth of 2.0 percent, reflecting approximately $175 million impact from retail store closures, the Stride Rite change noted above and currency. Previously,, underlying revenue was expected in the range of down 2.3 percent to growth of 1.9 percent, reflecting approximately $160 million to $180 million of impact from currency and retail store closures
  • Reported operating margin in the range of 5.2 percent to 5.8 percent and adjusted operating margin in the range of 10.4 percent to 10.9 percent, resulting from operational excellence initiatives focused on supply chain optimization, omnichannel transformation and operational efficiencies. Fiscal 2016 adjusted operating margin was 8.5 percent. Previously, reported operating margin was expected to to come in the range of 5.2 percent to 5.9 percent and adjusted operating margin in the range of 10.2 percent to 10.7 percent.
  • Reported diluted earnings per share in the range of 82 cents to 92 cents compared to 89 cents in fiscal 2016. Under its previous guidance, reported diluted earnings per share was expected in the range of 73 to 83 cents a share.
  • Adjusted diluted earnings per share is now expected in the range of $1.55 to $1.65 compared to $1.36 in fiscal 2016 adjusted on the same basis. On a constant currency basis, adjusted earnings per share in the range of $1.62 to $1.72. Previously, adjusted diluted earnings per share was expected in the range of $1.50 to $1.60. On a constant currency basis, adjusted earnings per share was expected in the range of $1.58 to $1.68.

Photo courtesy Sperry