Wolverine World Wide experienced accelerated growth in at-once orders during the third quarter ended on Sept. 10, as retailers were increasingly concerned about the business environment due to uncertainty about the economic outlook in the U.S. and in Europe.
In the three-month period, at-once orders rose by a “mid-teens” rate, as compared to one year earlier, and the increase even reached more than 20 percent in the last eight weeks of the quarter. The company expects at-once orders to be on the rise in the final quarter but the growth pace will likely slow down to below 20 percent.
Wolverine does not expect a repeat of the 2009 situation when retailers “basically shut the spigot on all future orders,” as they had shun from placing orders until they understood where the market was heading in the midst of the recession, said Blake Krueger, chairman and chief executive, during a conference call on the third-quarter results.
He stressed that there are sharp contrasts between the U.S., Europe and the rest of the world. He noted that in the U.S., retailers seem more concerned about the situation than their clients. According to a survey carried out by Footwear Distributors and Retailers of America, third-quarter sales in the U.S. were “pretty darn good,” he said. Nevertheless, retailers are being cautious, holding back future orders and relying on companies to have inventory on hand to place at-once orders, he added.
In Europe, retailers are expected to become very conservative and shift toward a higher ratio of at-once orders as eurozone countries seek to overcome sovereign debt issues and define the future of the region, according to Krueger. He said the rest of the world is “roaring along” and Wolverine and its distributors have been enjoying a “stupendous” year so far.
The company indicated that, while production costs will be higher for the spring/summer 2012 collection, the situation could improve for the autumn/winter season thanks to more available manufacturing capacity globally. Some factories are pledging that there will be no overhead or labor cost increases for that collection. Lesser production constraints, and consequently shorter lead times, have prompted retailers to place orders later than last year.
In the third quarter, the group booked a 12.9 percent increase in revenues to $361.6 million, led by its outdoor, lifestyle and retail businesses. Foreign exchange rates, due to the dollar's weakness against sterling, the Canadian dollar and the euro, contributed $8.3 million to the top line.
The outdoor division, comprising Merrell, Chaco and Patagonia footwear, bolstered sales by 19.9 percent to $145.4 million, with all three brands posting double-digit growth. Merrell performed especially well in the U.S. and in Europe. The brand's sales were lifted by the launch in February of the Barefoot line, whose shipments have exceeded expectations in the year to date. Merrell's Origins line, which includes heritage-inspired models, has enabled the brand to expand penetration with existing accounts and enter new lifestyle stores such as Urban Outfitters.
Chaco expanded distribution in the U.S. especially with specialty retailers. The brand obtained a very positive response to its closed-toe models, which is part of the group's strategy of turning Chaco into a year-round line. Sales of Patagonia footwear were underpinned by a triple-digit growth rate for its hiking shoes.
The heritage group, including Wolverine, Caterpillar, Harley-Davidson, HyTest and Bates, increased sales by 6.8 percent to $128.0 million.The lifestyle unit, which groups Hush Puppies, Sebago, Soft Style and Cushe, boosted sales by 21.6 percent to $55.5 million. Among other businesses, Wolverine's retail operations enjoyed a mid-single digit growth rate in comparable store sales and the group's e-commerce unit posted strong double-digit growth.
Sales volumes continued to show sustained growth outside the U.S. as Wolverine is expanding globally, rising by more than 25 percent in each of the Latin America, Europe-Middle East-Africa (EMEA) and Asia-Pacific regions. Sales outside North America represented 64 percent of unit deliveries and 52 percent of operating income in the quarter.
The group's gross margin rose to 40.6 percent in the quarter from 40.1 percent a year earlier thanks to a favorable brand mix, increased selling prices and lower air freight costs. The operating margin widened to 15.6 percent from 15.0 percent.
The order backlog at the end of the quarter was up by 8 percent. Inventories rose by 33.4 percent, but the management said the increase will help better serve at-once orders.
On the back of its third-quarter results, Wolverine raised its forecast for full-year revenues to $1.40-1.43 billion, representing year-on-year growth of 12.1-14.5 percent, from a previous guidance of $1.38-1.42 billion. The estimate for diluted earnings was lifted to $2.46-2.52 from a previous forecast of $2.40-2.50. The gross margin is expected to be flat or slightly higher compared with the prior year.
Wolverine's management confirmed that it's actively seeking additional brands but noted that acquisition prices remain high and the uncertain economic environment has not pushed them down. The company had $97.9 million of cash on its balance sheet at the end of the third quarter. In the past three months, it bought back 948,000 of its own shares for a total cost of $32.7 million (more in The Outdoor Industry Compass and Shoe Intelligence).
