Wolverine World Wide Inc. reported earnings per share grew 9.7 percent in the third quarter ended September 28 and exceeded Wall Street’s targets as currency-neutral sales of Merrell, Sperry and Saucony expanded over 11 percent. The company slightly lowered its earnings outlook due to the impact of tariffs.
“We delivered our highest quarterly revenue increase of the year driven by constant currency growth of over 11 percent from Merrell, Sperry and Saucony. Our adjusted earnings per share of $0.68 was a record performance for the company and meaningfully better than our expectations heading into the quarter,” said Blake Krueger, Wolverine World Wide’s Chairman, Chief Executive Officer and President. “The double-digit growth from our biggest brands is a direct result of our continued focus on building trend-right product that resonates with consumers and ongoing execution of our digital-direct offense.”
THIRD QUARTER 2019 REVIEW
- Reported revenue of $574.3 million increased 2.8 percent as compared to the prior year and adjusting for currency, increased 3.6 percent.
- Reported gross margin of 42.4 percent, was in line with expectations, and increased 80 basis points compared to 41.6 percent in the prior year.
- Reported operating margin was 11.9 percent. Adjusted operating margin of 14.1 percent exceeded expectations expanding 150 basis points compared to the prior year.
- Reported diluted earnings per share were $0.57, compared to $0.60 in the prior year. Adjusted diluted earnings per share increased 9.7 percent to $0.68 compared to $0.62 in the prior year.
- The reported tax rate was 20.3 percent, as compared to 7.8 percent in the prior year. The prior year effective rate was favorably impacted by a $40 million voluntary pension contribution, resulting in a $0.06 benefit in the prior year.
- Inventories increased 28.8 percent compared to the prior year, slightly better than expectations, and include $8.4 million related to new stores and the Saucony Europe acquisition.
- The company repurchased $107 million of shares in the quarter at an average price of $25.13, and has approximately $513 million available under its authorized share repurchase programs.
Adjusted earnings of 68 cents a share exceeded Wall Street’s consensus estimate of 63 cents.
“The strong results from Merrell, Sperry and Saucony demonstrate the benefits of our demand creation investments and steady execution against our global growth model. This revenue performance combined with continued operational discipline led to excellent earnings leverage in the quarter, with adjusted earnings per share growth of nearly 10 percent and gross margin of 42.4 percent, the highest of any third quarter for the company,” stated Mike Stornant, Senior Vice President and Chief Financial Officer. “Our well-positioned capital structure allowed us to continue to opportunistically repurchase stock. Our strong liquidity position provides considerable flexibility to drive future long-term shareholder return.”
FULL-YEAR 2019 OUTLOOK
The company is maintaining its full-year revenue guidance and updating its full-year earnings outlook to reflect estimated new tariff costs in the fourth quarter.
- Revenue is still expected to be approximately $2.28 billion including approximately 7.0 percent constant currency growth in the fourth quarter.
- Gross margin is still expected to be approximately 41.0 percent matching the prior year’s record level.
- Reported operating margin is now expected to be approximately 10.5 percent and adjusted operating margin is expected to be approximately 12.0 percent. Under its previous guidance, operating margins is expected to be approximately 11% and adjusted operating margin was expected to be approximately 12%.
- The effective tax rate is still expected to be approximately 19.0 percent.
- Diluted weighted average shares are now expected to be approximately 86.4 million versus approximately 88 million under the previous guidance.
- Reported diluted earnings per share are now expected to be approximately $1.96 and adjusted diluted earnings per share are now expected to be approximately $2.25 including $0.03 related to new tariffs on products expected to be sold in the fourth quarter. Previously, reported EPS was expected to be $2.06 and adjusted diluted earnings per share were expected to be approximately $2.28.
- Cash flow from operations is still expected to be approximately $190 million.
Wolverine’s brands include Merrell, Sperry, Hush Puppies, Saucony, Wolverine, Keds, Stride Rite, Chaco, Bates and HYTEST. The company also is the global footwear licensee of Cat and Harley-Davidson.
Photo courtesy Merrell