Shares in the Merrell, Saucony, Keds and Sweaty Betty declined more than 34 percent yesterday after the company missed its third-quarter earnings target and lowered its guidance for the FY. Wolverine World Wide Inc.’s shares are down 59 percent year-to-date. The full-year outlook calls for 14 percent currency-neutral revenue growth at the midpoint to a range of $2.67-$2.695 billion.
The group reported a 10 percent drop in Q3 adjusted operating profit to $62 million, largely due to higher promotional sales in the direct-to-consumer (DTC) channel, discounts in the wholesale segment due to late product deliveries, and currency headwinds. The year-over-year gross margin slipped to 40.2 percent from 43.2 percent. Reported revenues rose 8.6 percent (+12% currency neutral) to $691.4 million from $636.7 million, fueled by a 34 percent sales increase by Merrell to $198.6 million as the outdoor brand generated strong gains across regions, channels and categories.
Saucony’s Q3 sales were essentially flat (+4% currency neutral) at $129.7 million, below internal projections, due to late deliveries caused by warehouse and transportation network congestion and weakness in U.S. wholesale distribution. But the brand’s e-commerce sales rose 30 percent on demand for its Endorphin 3 and Triumph 20 launches, and international was positive, with sales through a China joint venture more than doubling. Saucony’s lifestyle Originals, largely a European business, continues to be strong, the company said. The brand, which generates more than 40 percent of its business outside the U.S., is forecast to generate more than 20 percent growth in the fourth quarter.
Elsewhere, Keds’ Q3 revenues increased 36 percent on a currency-neutral basis due to strong growth outside the U.S. But the brand experienced shipping delays in the U.S., causing it to miss internal revenue targets. Sperry revenues declined 12.4 percent to $70.0 million on softening demand for boat shoes, and Wolverine brand sales inched 1.2 percent lower to $59.1 million but are forecast to rise high-single digits in Q4 on a timing shift of orders from Q3. Sweaty Betty sales slipped by 3.3 percent to $37.8 million and are projected to fall high-single digits in Q4 on near-term macro challenges.
Wolverine Worldwide has established a new brand group structure and an office of profit improvement to help the company identify $150 million worth of initiatives with a target of recognizing at least $65 million in 2023. Alix Partners has been hired by the operations team to work on a raw material procurement cost-saving project that will streamline the group’s factory and supply base, negotiate for better costs, and deliver more on-time deliveries in 2023. Year-end inventories are projected to be approximately $840 million, a $40 million improvement from the Q3 end inventories that were up 114 percent year-over-year due partly to higher logistics and handling costs. The company has identified approximately $125 million in end-of-life inventory that will be liquidated through own DTC channels and key partners.
Senior management is feeling better about product flow for the Spring 2023 season with the company working to make room in the pipeline for growth brands in the portfolio and new products.
As for the new brand structure, the Active group, reporting to Chris Hufnagel, will consist of Merrell, Saucony, Sweaty Betty and Chaco. In Q3, Active revenues rose 13.0 percent to $398.2 million. Katherine Cousins will lead the Lifestyle group, made up of Sperry, Keds and Hush Puppies, which suffered a 6.9 percent decline in Q3 revenues to $117.7 million. The third group, Work, consists of the Wolverine, Caterpillar, Hy-test, Bates and Harley Davidson brands. It is forecast to produce stable growth and contribute cash flow and steady profit. Work sales, which rose 11.2 percent in Q3 to $157.8 million, will be led by Tom Kennedy.
