Wolverine Worldwide announced new initiatives to accelerate product development, boost e-commerce and drive expansion abroad, while releasing mixed results for 2017, with lower revenues but higher margins. The group's management also indicated that it may be willing to consider new acquisitions after its recent disposal of several brands including the sale of Sebago to BasicNet last summer.
The management said the results reflect the benefits of the company-wide strategic transformation it launched in March last year. As part of the reorganization, Wolverine has closed 215 stores since the beginning of 2017, leaving a remaining brick-and-mortar fleet of about 80 profitable stores. The extra costs required to execute the transformation have been completed, and the company is now about to implement new tools and capabilities as part of its new initiative, called Global Growth Agenda.
The company expects to invest $40 million to $45 million this year in this project. About 45 percent of the budget will go into its product creation effort for a more frequent introduction of new products, taking full advantage of new creative design capabilities, stronger consumer insights and a faster supply chain. The process has already been successfully tested with the group's biggest brand, Merrell.
The company will also use about 30 percent of the incremental budget to implement a more effective digital engagement. The goal is to boost the growth of its e-commerce beyond last year's annual rate of 20 percent, with less promotional activity, while improving the online businesses of its retail customers and enhancing the positioning of its brands in the digital marketplace.
Finally, it will focus on international expansion, with greater investment in regional resources and systems to accelerate the group's growth outside the U.S., with a specific focus on China and the Asia-Pacific region.
During 2017, about 50 percent of the pairs delivered worldwide were sold outside of the U.S., generating about 30 percent of revenues, including sales to distributors and income from licenses. However, the management said its brands remain underpenetrated in the fast-growing Asia-Pacific region, especially in China. During 2017, less than 10 percent of its global revenues came from this part of the world. To address this situation, the company plans to allocate nearly 25 percent of its incremental investments to strengthen its teams in the region. It expects its international business to be a source of high single-digit revenue growth in 2018.
The group's revenues decreased by 20.7 percent in the fourth quarter ended Dec. 30, going down to $578.6 million. Adjusted revenues, which take into account a change in the financial calendar, declined by 7.1 percent. The year-ago quarter had 16 weeks, while the fourth quarter of 2017 had 13 weeks.
Excluding operations being divested or licensed out, underlying revenues went up for the third consecutive quarter. They rose by 1.7 percent, boosted by an uptick in sales of nearly 18 percent at Merrell.
In the company's Outdoor & Lifestyle Group, underlying revenues grew by 14.4 percent during the past quarter, led by Merrell. Chaco posted an increase of nearly 30 percent, fueled in part by a 40 percent gain in e-commerce. CAT footwear was up slightly and Hush Puppies was down at a high single-digit rate.
Merrell benefited from the successful launch of the Chameleon 7 and the good performance of its expanded Arctic Grip offering, whose sales grew by over 50 percent. Merrell is the pilot brand in Wolverine's turnaround program and is seeing the benefits of faster product development and better consumer insights and marketing.
In Wolverine's so-called Boston Group, underlying revenues declined by 6.5 percent. While Sperry decreased by a high single-digit rate and Keds fell by a low single digit rate, Saucony was down by a mid-single digit rate. Saucony performed well internationally and its classics business, but its U.S. sales were hurt by softness in the running specialty channel and by delivery and quality control problems. The Sperry women's boot category exceeded expectations for the quarter with very strong e-commerce performance, up by over 30 percent and strong retail sell-through.
In Wolverine's Heritage Group, excluding Bates' contract business with the U.S. Department of Defense, underlying revenues were down by approximately 10 percent.
Overall, Wolverine's gross margin gained 1.8 percentage points to 38.4 percent, and the adjusted gross margin advanced by 1.4 percentage points on a constant-currency basis to 38.5 percent. The operating margin was a negative 12.7 percent, as compared with 2.1 percent for the year-ago quarter. But the adjusted operating margin on a constant-currency basis was up by 2.6 percentage points to 10.7 percent.
For the full financial year, revenues were down by 5.8 percent from the prior year to $2,350 million. Underlying revenues grew by 0.6 percent. The gross margin inched up by 0.4 percentage points to 38.9 percent, and the adjusted gross margin advanced by 1.2 percentage points on a constant-currency basis to 40.0 percent. The operating margin dropped by 5.4 percentage points to 1.0 percent, but the adjusted operating margin on a constant-currency basis was up by 2.7 percentage points to 11.2 percent.
In the end, Wolverine posted a net loss of $10.6 million for the year, as compared to net income of $110.5 million for 2016, as 2017 included some $90 million in restructuring costs related to transformation efforts. In the fourth quarter alone, it booked a net loss of $60.3 million that included impairment charges of $68.6 million and environmental remediation costs of $35.3 million (more on this in Shoe Intelligence).
Wolverine is now budgeting revenues of between $2,240 million and $2,320 million for the full 2018 financial year, with a gross margin expansion in the range of 0.4 to 0.8 percentage points. Merrell is seen rising at a high single-digit rate, Sperry should stabilize, and the rest of the brand portfolio should experience some growth.