Wolverine 3rd-Quarter Net Up 66 Percent

Wolverine 3rd-Quarter Net Up 66 Percent

Wolverine Worldwide reported earnings rose 65.9 percent in its third quarter ended Sept. 7, boosted by the successful integration of the company’s October 2012 acquisition of the Sperry Top-Sider, Saucony, Stride Rite, and Keds brands (the “PLG Acquisition”). Revenues grew 9.0 percent on a pro forma basis. Double-digit revenue increases across were seen at Merrell, Sperry Top-Sider, Saucony, Keds, Chaco and Cushe.

Wolverine boosted its adjusted per-share earnings forecast for the year, now expecting $2.73 to $2.83, ahead of its previous range of $2.60 to $2.75 a share. It narrowed its revenue estimate to $2.71 billion to $2.73 billion, from $2.7 billion to $2.775 billion.

Third quarter highlights:

Revenue grew to a record $716.7 million, representing outstanding growth of 9.0 percent versus prior year pro forma revenue and growth of 103.0 percent versus prior year reported revenue. All three of the company’s branded operating groups contributed to the excellent revenue performance in the quarter, with the largest contributions to growth coming from the Sperry Top-Sider and Merrell brands.

By segment, revenues in the Performance Group grew 67.0 percent to $254.1 million while increasing 13.4 percent on a pro-forma basis. Lifestyle Group sales jumped 678.4 percent to $295.8 million and increased 9.6 percent on a pro-forma basis. Heritage Group inched up 0.8 percent to $144.6 million and also grew 0.8 percent on a pro-forma basis.

Gross margin increased 70 basis points versus the prior year to 39.9 percent. The gross margin improvement during the quarter was driven primarily by favorable channel mix, partially offset by foreign exchange contract losses.
Excluding acquisition-related transaction and integration expenses in both years, fully diluted earnings per share in the quarter were $1.16, a 61.1 percent increase compared to 72 cents per share in the prior year’s third quarter. Reported earnings per share were $1.08 in this year’s third fiscal quarter compared to 66 cents in the prior year.

“The power of the company’s 16-brand portfolio, combined with strong execution of growth strategies by our team, led to an outstanding quarter,” said Blake W. Krueger, chairman and CEO.  “Double-digit revenue increases across many of our brands, such as Merrell, Sperry Top-Sider, Saucony, Keds, Chaco and Cushe, helped drive the phenomenal earnings performance.  Additionally, solid single-digit revenue growth in North America and excellent double-digit growth in Latin America, Asia Pacific and EMEA reflect the impressive global momentum of our business.”

Don Grimes, the company’s Chief Financial Officer, commented, “We remain focused on driving growth in both revenue and profits, while diligently paying down the debt taken on to finance the PLG Acquisition last year.  To that end, our net debt of $994.3 million at the end of the third fiscal quarter was approximately $179 million lower than on the transaction closing date last October, reflecting excellent business performance, voluntary debt repayment and continued operating discipline.”

Additional details for the quarter:

Excluding acquisition-related transaction and integration expenses of $7.4 million in the quarter, operating expenses were $192.3 million, or 26.8 percent of revenue. Adjusted operating expenses in the prior year’s third quarter were $89.3 million, or 25.3 percent of revenue. The increase in operating expenses as a percentage of revenue is driven by incremental pension and incentive compensation expenses, amortization expense related to purchase price accounting, a higher mix of consumer direct activities, and investments in key brand-building initiatives. Reported operating expenses were $199.7 million in the third quarter, compared to $92.3 million in the prior year.

Excluding acquisition-related transaction and integration expenses, the effective tax rate in the quarter was 27.7 percent. The reported tax rate, which benefits from the deductibility of the acquisition-related charges primarily in high statutory tax rate jurisdictions, was 25.9 percent.

Operating free cash flow was $22.8 million in the quarter and $95.6 million for the first three fiscal quarters of the year, well ahead of plan. Interest-bearing debt was reduced by $42.6 million in the quarter, reflecting both mandatory payments and a voluntary $35 million principal reduction made late in the quarter.

Based on the year-to-date results and the company’s expectations for the fourth fiscal quarter, the company is adjusting its full-year revenue guidance to a range of $2.71 to $2.73 billion, representing growth in the range of 6.4 percent to 7.1 percent compared to prior year pro forma revenue of $2.548 billion.  On the strength of the excellent year-to-date earnings performance, the company is raising its adjusted earnings per share guidance to a range of $2.73 to $2.83 per share, representing growth in the range of 19.2 percent to 23.6 percent, compared to prior year adjusted earnings per share of $2.29, and even stronger growth of 30.0 percent to 34.8 percent after further adjusting the prior year for $0.19 per share of non-recurring tax benefit.

(in millions, except per share data)
    12 Weeks Ended   36 Weeks Ended
    September 7,   September 8,   September 7,   September 8,
    2013   2012   2013   2012
Revenue   $              716.7   $              353.1   $           1,950.3   $          988.6
Cost of products sold   430.7   214.5   1,161.2   599.8
Gross profit   286.0   138.6   789.1   388.8
Gross margin   39.9%   39.2%   40.5%   39.3%
Selling, general and administrative expenses   192.3   89.3   584.3   274.8
Acquisition related transaction and integration costs   7.4   3.0   30.5   7.9
Operating expenses   199.7   92.3   614.8   282.7
Operating expenses as a % of revenue   27.9%   26.1%   31.5%   28.6%
Operating profit   86.3   46.3   174.3   106.1
Operating margin   12.0%   13.1%   8.9%   10.7%
Interest expense, net   11.9   0.3   37.3   1.0
Acquisition-related interest expense     1.4     1.4
Other expense, net   1.0   (0.3)   2.0   1.3
    12.9   1.4   39.3   3.7
Earnings before income taxes   73.4   44.9   135.0   102.4
Income taxes   19.0   12.1   32.7   18.1
Effective tax rate   25.9%   27.1%   24.2%   17.7%
Net earnings   54.4   32.8   102.3   84.3
Net earnings attributable to noncontrolling interests     0.1   0.2   (0.1)
Net earnings attributable to Wolverine Worldwide   $                54.4   $                32.7   $              102.1   $            84.4
Diluted earnings per share   $                1.08   $                0.66   $                2.03   $            1.71
Supplemental information:                
Net earnings used to calculate diluted earnings per share   $                53.4   $                32.2   $              100.2   $            83.0
Shares used to calculate diluted earnings per share   49.6   48.6   49.3   48.4
Weighted average shares outstanding   50.3   48.9   50.1   48.7
As adjusted for the two-for-one stock split                
Diluted earnings per share   $                0.54   $                0.33   $                1.02   $            0.86
Shares used to calculate diluted earnings per share   99.2   97.2   98.6   96.8
Weighted average shares outstanding   100.5   97.7   100.1