Wolverine World Wide has reported a 4.8 percent increase in revenues to $258.2 million for the second quarter ended June 19. The growth would have been even higher if a big shipment to an unnamed distributor had not been delayed until the third quarter. The group also had lower close-out sales than in the same period a year ago, though this had a beneficial impact on the gross margin for the quarter.
Wolverine said that the U.S. and international distributor markets enjoyed the strongest growth within the group. Europe was described as a “mixed bag”; while recovery is expected, it will come slowly, and lag one to three quarters behind the recovery in the U.S. Overall, European sales were lower than in last year’s second quarter, but this was largely because of currency exchange rates with the euro and the pound. Wolverine noted that footwear is usually one of the first categories to show improvement after a recession.
Comparable store sales were up in the double-digits in the quarter. Wolverine said that all of its operating segments saw good results, and both retail and e-commerce did very well, with e-commerce up by extremely strong double digits.
As usual, the company’s Outdoor Group performed strongly in the quarter, with revenues growing by 5.4 percent to $97.9 million. It contributed 37.9 percent of the overall company’s total revenues, making it the biggest segment. In the first half of the year, its growth exceeded the other divisions. Merrell has been the key growth engine for the last decade, and will continue in that role for the foreseeable future.
The management noted that the new Barefoot Collection done in collaboration with Vibram is generating tremendous buzz, and is expected to be a significant growth driver. The outdoor casual segment has record good sell-out figures and a strong double-digit increase in orders. Merrell apparel is becoming a stronger component of the Outdoor Group, helping to open new stores for a total of 122 branded stores and 950 shop-in-shops. New locations opened in Japan, Philippines, Mexico, Panama and Korea in the last quarter.
Patagonia Footwear is gaining momentum, and the company is expanding its offering to focus on women and young, progressive consumers. For the Chaco brand, online sales have tripled since it was bought by Wolverine last year, making it the No. 2 branded website of all of Wolverine’s brands, behind Merrell’s. The company is optimistic about the closed-toe Chaco styles coming out for autumn, and sees the brand as a major growth opportunity.
The Wolverine label had a 10 percent rise in sales to $54.9 million. Among its Heritage Brands group, Sebago saw a decrease of 2 percent to $44.3 million, and Hush Puppies dropped by 6 percent to $25.6 million.
Adjusted for restructuring and related charges in both years, the gross margin of the whole group rose by 2.5 percentage points to 40.3 percent, due in part to lower product costs and increases in selling prices. The reported gross margin increased by 2.9 percentage points to 40.2 percent.
Wolverine’s operating margin almost doubled to 9.5 percent from 5.0 percent for the same quarter in 2009, in spite of a double-digit rise in marketing spending. Net earnings jumped by 118 percent to $17.2 million.
Because of the good year-to-date results, combined with a huge 38 percent increase in orders, Wolverine is raising its full-year revenue estimate to a range of $1.190 billion to $1.220 billion, which would mean growth of between 8.1 and 10.8 percent over 2009. With double-digit increases in orders, all groups are showing growth for the second half of this year. The company did note, however, that the order figure is being compared with a period when retailers were ordering closer to when they needed the merchandise, while this year they’re back to a more normal time frame, and even ordering early enough to mitigate coming price increases and secure shipments on time.
It will continue its increased marketing spend for high-growth brands. About two-thirds of the marketing money should go toward Merrell, with the rest spread among Sebago, Chaco and Cushe.
For the full year, Wolverine has increased its guidance for earnings per share to $198-2.04, or about $100 million net earnings. It has increased prices on some brands already to make up for higher costs, and plans to post more price increases in the fourth quarter and into next year. The price increases will be lower than the mid-single-digit inflation in Wolverine’s sourcing costs. About 55-60 percent of the increase is coming from higher materials costs, with another 10 percent from higher wages in Asia. Another 10 percent is because of increased factory overhead, 7 percent is attributed to high duty rates, and 3-4 percent is from higher transportation costs (more in The Outdoor Industry Compass)..
