Merrell and Europe outperform at Wolverine

Wolverine Worldwide reported yesterday a 2.8 percent drop in its revenues to $627.6 million for the first quarter of its financial year, ended on March 22. However, the management told financial analysts that Merrell grew by a “very strong” double digit during the period, and that the group's overall sales went up by double digits in the Europe, Middle East and Africa (EMEA) region as well as in Asia-Pacific, offset by a single-digit decline in North America.

The upturn in EMEA follows a modest increase in the fourth quarter of 2014 that had come after many quarters of stagnant or negative sales results. The management was quick to add that the latest increase took place mostly in the U.K., the largest market for the company in the region, and that EMEA sales will probably go up by only a mid-single digit for the full year.   

Globally, the Performance Group of Wolverine, which comprises Merrell, Saucony and Chaco, raised its sales by 3.5 percent to $248.8 million in the quarter, representing 39.6 percent of the total turnover, and it delivered the strongest operating profit. Merrell stores in the U.S. generated strong increases on a comparable store basis.

Saucony delivered growth in the mid-single digits during the quarter, with strong performance in technical running as well as in lifestyle products. The Saucony Originals collection is doing exceptionally well in Europe (it is doing particularly well in Russia, according to our latest market research report on that region) and building up momentum in other markets.

The Lifestyle Group of Wolverine saw its sales decline by 11.9 percent, with sharp drops for Sperry Top-Sider and Stride Rite, while the Heritage Group raised its sales by 1.8 percent. These two other segments will be discussed in Shoe Intelligence, our newsletter on the non-athletic shoe market.

The profitability of the group improved for the third year in a row, thanks in part to initial synergies with the brands acquired in October 2012. While the gross margin rose by only 0.2 percentage points to 40.8 percent for the group, which was better than expected, and the operating margin expanded to 10.1 percent from 7.9 percent a year earlier for the quarter, thanks to greater cost discipline. The group ended up with net income of €37.2 million against $29.8 million. The results were negatively affected by foreign currency translations, which lowered revenues by $1.5 million, and even more so by the effective tax rate, which increased to 28.5 percent from 20.9 percent.

In spite of the modest sales decline in the first quarter, which was expected, the management is confident that the group will achieve another record year in 2014, with particularly strong growth in the fourth quarter. Sales are predicted to rise by between 3 and 6 percent, with less than one percentage point coming from higher revenues outside the U.S. and the Performance Group contributing the most to the sales increase. Adjusted earnings after extraordinary charges should increase by between 10 and 14 percent as compared to 2013.

The company signed 25 new distribution or licensing contracts outside the U.S. for its newly acquired brands, although many of them involve royalties on licenses. That brought the total number of new foreign contracts up to 55 since their acquisition, covering 85 different countries. As a partial result of these deals, the number of single-brand stores and shop-in-shops increased by 150 in the first quarter of 2014 and 800 more should follow during the rest of the the year.