Wolverine Worldwide, concerned about inventory escalation in various U.S. retail channels and the likelihood of higher wholesale order cancellations in the market for the remainder of the year, has lowered its FY22 outlook downward. Lingering supply chain delays and currency exchange rates also contributed to the revision. The adjustment was simultaneous with the company’s reporting of Q2 results that exceeded revenue and earnings per share expectations.
The company now expects FY22 revenues to increase by 14.0-16.0 percent, down from May guidance of 15.0-18.0 percent expansion and direct-to-consumer to contribute close to 25 percent of all sales, down from prior guidance of 30 percent. Higher promotional and inventory handling costs will impact the annual operating margin, which is forecast at 11.5 percent (9.5% on an adjusted basis). Meanwhile, a higher mix of lower-margin third-party sales from international distributors and the combined promotion and markdown environment are factors in an annual gross margin forecast of 42.5 percent. Wolverine, amid an organizational reporting structure with the assistance of Boston Consulting Group that is expected to address underperforming business units, says its top five brands in Merrell, Saucony, Sperry, Wolverine and Sweaty Betty will contribute 75 percent of its FY22 revenues now expected between $2.74 to $2.79 billion. Management said that annual marketing spend across brands will remain at approximately 8 percent of all revenues.
In Q2, net income soared 180 percent to $124.5 million from $44.4 million for the period ended July 2. Ebit was 191 percent higher at $157.2 million versus $54.0 million as operating margin improved to 23.5 percent from 10.1 percent, aided by a $90 million gain on the sale of the Champion footwear trade name. The gross margin was up slightly at 43.0 percent against 42.8 percent. Total revenues rose 12.9 percent to $713.6 million from $631.9 million. On a reported basis, the Michigan Group reported a 10.0 percent sales growth to $389.7 million, with Boston Group sales down 1.6 percent on a reported basis at $253.9 million. Period-end inventory was up 93 percent year-over-year at $640 million, with logistics lead times still impacting the total. Excluding Sweaty Betty, organic inventory rose 80 percent, or $265 million, compared to last year when inventory levels were historically low. The company intends to focus on moving the 15 to 20 percent of its inventory considered to be in a closeout position or near end of life. An estimated 85 percent of current inventory is described as being in the “core carryover” category and will be liquidated at or near normal selling prices.
By brand, three of Wolverine’s top five labels reported a sales increase in the period. Merrell met expectations with 14 percent sales growth to $203.6 million as stronger-than-expected revenues in markets outside the U.S. offset a “choppy” supply flow in the U.S. Saucony increased by 7.2 percent to $135.5 million but fell short of internal expectations due to lower closeout sales of excess inventory. Saucony sales outside the U.S. were 32 percent higher, helped by the brand’s presence at Paris Fashion Week. Wolverine and its work boot business generated a 16 percent increase in quarterly sales to $58 million. On the downside, Sperry, hurt by isolated order cancellations caused by late-arriving products and order postponements, saw Q2 sales slip 13.4 percent to $70.1 million. Sweaty Betty sales slid 11 percent to $47.4 million, although Wolverine did not own the business in the year-ago quarter.
Sweaty Betty stores will be re-launched in the U.S. in 2023. The business unit’s team is currently assisting other brands in Wolverine’s portfolio in designing and building modular, flexible pop-up retail stores, primarily for use in the U.K. market.
