21 Oct Wolverine Trims Sales Outlook For Year
Wolverine World Wide Inc. reported earnings improved slightly in the third quarter ended September 10, 2016, in line with expectations. The company, however, now expects full-year sales to come in at the lower end of its guidance range due to a “tepid” environment.
Adjusted financial results exclude restructuring and impairment costs as well as debt extinguishment and other costs. References to underlying revenue indicate reported revenue adjusted for the impact of foreign exchange, retail store closures and the exit of the Cushe business.
“We delivered strong earnings results on revenue in line with our expectations for the third quarter, despite the tepid retail environment,” said Blake W. Krueger, Wolverine Worldwide’s chairman, chief executive officer and president. “Importantly, we also continued to make excellent progress in strengthening our product innovation pipeline with an intense focus on our consumers. The company’s position – premised on a core portfolio of global, industry-leading brands – remains strong, and we believe the investments and initiatives we’re pursuing today will deliver greater value to shareholders in 2017 and beyond.”
Third-Quarter 2016 Review
- Reported revenue of $603.7 million was in line with expectations, declining 11.1 percent versus the prior year. Underlying revenue declined 8.6 percent versus the prior year.
- Reported gross margin of 39.3 percent, compared to 40.0 percent in the prior year, was slightly better than expected. Adjusted gross margin on a constant currency basis was 40.0 percent, flat versus the prior year.
- Reported operating margin was 11.4 percent, compared to 11.2 percent in the prior year. Adjusted operating margin on a constant currency basis was 12.2 percent, up 30 basis points versus the prior year’s adjusted operating margin.
- Reported diluted earnings per share were 49 cents, compared to 44 cents in the prior year. Adjusted diluted earnings per share were 49 cents, in line with expectations and, on an adjusted constant currency basis, were 51 cents compared to 48 cents in the prior year.
- Inventory at the end of the quarter was down 7.6 percent compared to the prior year.
- Cash generated by operating activities in the quarter was a strong $70.4 million, compared to $14.9 million in the prior year.
- The company successfully issued $250 million of 5.000 percent Senior Notes due 2026 and, subsequent to the close of the quarter, used the net proceeds together with borrowings under its Senior Credit Facilities and cash on hand to fund the redemption of its outstanding $375 million, 6.125 percent Senior Notes due 2020.
- The company announced a new four-year share repurchase program, authorizing up to $300 million in share repurchases, that replaces the remaining balance of the company’s 2014 share repurchase program, and repurchased 417,816 shares during the quarter at an average price of $23.55 per share.
By segment, underlying revenue in the Wolverine Outdoor & Lifestyle Group slumped 10.4 percent, Wolverine officials said on a conference call with analysts. Chaco saw strong double-digit growth while Hush Puppies was down mid single digits, Cat was off high single digits and Merrell dropped in the mid teens.
In the Wolverine Boston Group segment, underlying revenue declined 8.6 percent in the third quarter versus the prior year. Sperry and Keds were down in the mid-single digits and Saucony was off in the mid teens.
In the Wolverine Heritage Group, underlying revenues were down 1.4 percent year over year in the quarter. Bates was up strong double digits, while Wolverine was down mid teens.
“While the macro environment remains challenging, we are pleased with our ability to drive operating margin expansion and earnings per share growth in the quarter,” stated Mike Stornant, senior vice president and chief financial officer. “We effectively managed inventory and expenses, generated very strong cash flow, and improved our working capital position, all of which we expect to continue into the fourth quarter. Looking ahead, we remain focused on driving operational improvements across the portfolio, including a review of strategic alternatives for some areas of the business.”
Fiscal 2016 Outlook
The company’s outlook range for full-year reported revenue and adjusted diluted earnings per share remains unchanged. Given tepid conditions, it now expects full-year reported revenue at the lower end of the range and full-year adjusted diluted earnings per share near the midpoint of the range. Inventory expectations for year end have improved.
The company’s fiscal 2016 outlook ranges are as follows:
- Consolidated reported revenue in the range of $2.475 billion to $2.575 billion, a decline of approximately 8.0 percent to 4.3 percent.
- A decline in consolidated underlying revenue of approximately 5.6 percent to 1.8 percent, reflecting the updated impact of currency and store closures.
- Reported diluted earnings per share in the range of $1.02 to $1.12, updated to incorporate the impact of debt extinguishment costs.
- Adjusted diluted earnings per share in the range of $1.30 to $1.40. On a constant currency basis, adjusted earnings per share in the range of $1.48 to $1.58.
- Inventory levels to be down low teens by year end versus 2015.
Wolverine World Wide Inc.’s brand portfolio includes: Merrell, Sperry, Hush Puppies, Saucony, Wolverine, Keds, Stride Rite, Sebago, Chaco, Bates, and Hytest. The company also is the global footwear licensee of the brands Cat and Harley-Davidson.