Evolving Wolverine Worldwide forecasts meaningful profit progress in H2

Wolverine Worldwide, having already taken numerous actions in Q4 that included staff cuts and the divestiture of its Keds business, is targeting flat to 2 percent sales growth in FY23 and a 210-basis point improvement in adjusted gross margin to approximately 42.0 percent as it continues to transform its business, reduce costs and inventory levels, and reshape key business segments. 

“The strong work executed by our teams in 2022 will allow us to navigate 2023 with clear priorities and fewer supply chain and working capital obstacles,” president and CEO Brendan Hoffman told analysts. “Changes made to our sourcing, logistics and warehousing operations and systems will make us nimbler in the future.” 

But Wolverine management admits that the retail environment “remains volatile,” with some wholesale partners delaying orders, so they have additional time to address emerging consumer demand trends.

Group revenues adjusted earnings per share were in line with expectations in Q4 as the inventory position was lowered from the prior quarter. Revenues rose by 4.6 percent (+8.4% in constant currency) to $665.0 million for the period ended Dec. 31. EMEA revenues increased by 21 percent as the Caterpillar brand generated 40 percent year-over-year growth in the region. The operating loss was $454.7 million versus a loss of $8.7 million as the net loss came in at $361.6 million versus a loss of $14.6 million. Gross margin slid to 33.7 percent from 41.3 percent as excess inventory was moved and additional supply chain costs persisted. Year-end inventory of $745.2 million was up by 106 percent year-over-year but down $93 million from Q3 end. During the quarter, the company shipped or secured orders for approximately 4.5 million pairs of end-of-life merchandise.

The Merrell and Saucony businesses each rose by double-digits – 27.0 percent and 24.8 percent, respectively – but Sperry sales were down by 28.0 percent, and Sweaty Betty revenues fell by 7.0 percent in Q4. Wolverine brand sales rose 9.6 percent to $71.8 million on e-commerce growth and gains in the farm and fleet channels. By brand group, Active (consisting of Merrell, Saucony, Sweaty Betty and Chaco) was the most successful, rising by 16.8 percent to $397.6 million. Merrell accounted for $194 million of the total, with Saucony representing $121 million. Work segment sales increased by 3.3 percent to $154.5 million, but Lifestyle segment sales fell by 20.6 percent to $100.7 million. With Keds sold and the Hush Puppies brand being licensed out, Sperry is the Lifestyle segment’s lone business going forward. Management said the problems with Sperry have centered on lower sell-throughs of certain boot styles, a slowdown in the boat shoe category and the brand’s inability to stay a step ahead of market trends over the last four years. 

For FY22, Wolverine reported a net loss of $188.3 million against a profit of $68.6 million despite an 11.2 percent revenue growth to $2.68 billion from $2.41 billion. The annual operating loss was $208.4 million against a profit of $155.7 million as the operating margin turned to -7.8% from 6.4% in FY21. The gross margin for the year was 39.9 percent against 42.6 percent. 

Annual sales by brand showed growth for Merrell, up 18 percent to $764 million year-over-year, and Saucony, up by 6 percent to $505 million, and declines for Sperry of 10 percent to $294 million and a 14 percent drop for Sweaty Betty to $212 million. Wolverine brand FY22 sales rose by 9 percent to $248 million. The group generated 74 percent of revenues from the wholesale channel and the remaining 26 percent from direct-to-consumer. Markets outside the U.S. were responsible for 42 percent of annual sales or an implied $1.13 billion. 

Wolverine’s key priority for the Merrell brand, which is forecast to grow by mid-single digits in FY23, is to expand the brand’s lifestyle business. At Saucony, management said the brand’s multichannel strategy is working well as the brand’s China joint venture tripled its year-over-year sales in Q4. The go-forward strategy will be to expand Saucony’s reach beyond core runners to everyday active and lifestyle consumers. Saucony sales are expected to increase by mid-single digits in FY23. At Sweaty Betty, where the brand acquired 12 percent more customers in the U.K. in Q4 and 33 percent more in the U.S., margins were negatively impacted by increased discounting in the highly promotional U.K. market. Last year, 18 new standalone Sweaty Betty stores and concessions were opened in the U.K., Northern Ireland, Hong Kong and Singapore. The 10 doors planned for FY23 are primarily in the U.K. and Ireland. With a projection of low single-digit growth in FY23, Sweaty Betty has been collaborating with the group’s broader EMEA team on best practices, including leveraging the fitness label’s direct-to-consumer and apparel expertise.