03 Jan Wolverine Worldwide Makes Progress On Strategic Initiatives
Wolverine Worldwide shared an update on the progress of its ongoing strategic initiatives, which includes the divestiture of its Robeez brand.
Highlights of the update on strategic initiatives include:
- Announcement of the Wolverine Way Forward, a comprehensive strategic platform designed to drive growth and expand profitability in today’s global marketplace
- Progress on expanding adjusted operating margin to a mid-term target of 12 percent through a healthier supply chain, omni-channel transformation, portfolio management and operational efficiencies
- Strengthening of the capital structure and improvement of working capital management, expected to result in a larger year-over-year reduction in year-end inventory and better cash flow than previously anticipated
“We’ve made tremendous progress against our key initiatives in 2016, and I am excited to provide an update as we transition into the year ahead,” said Blake W. Krueger, Wolverine Worldwide’s chairman, chief executive officer and president. “As we enter 2017, we have formalized our most important strategic initiatives into the next evolution of our strategic platform – the Wolverine Way Forward. We are intent on protecting our brands through responsible brand stewardship and delivering growth by leveraging our focus on our consumers, product innovation and speed, all while driving operational excellence and expanding operating margin. To help drive this, we will open a new, 14,000-square-foot consumer and innovation hub next month, co-locating consumer insights, strategy, advanced concepts, and product development teams in a modern, collaborative environment.”
Krueger added, “At the same time, our work to position the company for improved profitability through our operational excellence initiatives continues, and we remain on track to deliver against our 2018 adjusted operating margin goal. We believe we have the right strategies in place, and I am enthused by the opportunity ahead of us.”
The company has previously outlined the primary components of its operational excellence initiatives, which are intended to achieve 12 percent adjusted operating margin by the end of 2018. Below is an update on the meaningful progress on these initiatives to date and current expectations:
- Healthier Supply Chain. During 2016, an assessment of third-party manufacturing was finalized and resulted in a tightening of the factory base by nearly one-third. This rationalization strengthens the company’s position with key manufacturing partners around the world. While consolidating manufacturing partners, the geographic sourcing base has been diversified, with more than half of the Company’s products expected to be produced outside of China by the end of 2017. Many of these actions have helped drive lower product costs, which are anticipated to improve by 2 to 3 percent across the portfolio in 2017. Speed and agility are key elements of the company’s new strategic platform, with brands keenly focused on streamlining the innovation pipeline to allow new products to reach the consumer in an accelerated timeline. The new consumer and innovation hub aims to facilitate this, while the supply chain team enables faster production lead times for core product initiatives. In addition, the company plans to open its first distribution center on the West Coast by mid-2017, which is expected to reduce time to market and provide logistics cost savings in 2018.
- Omni-channel Transformation. In order to proactively address changing consumer behaviors, the company has increased investment in e-commerce while addressing unprofitable brick-and-mortar stores through closures, rent relief negotiations and performance improvement initiatives. Based on timing, store closures are expected to reduce 2017 revenue by $125 million to $175 million. Once completed, the company’s store rationalization efforts are expected to improve operating profit by $20 million on an annualized basis.
- Portfolio Management. An evaluation of the brand portfolio was completed this fall to allow the company to focus on the biggest opportunities. Strategic alternatives for several brands were considered, including divestiture. Harris Williams & Co. has been exclusively retained and is currently assisting with the process. Robeez was the first brand to reach resolution with the completion of a sale transaction on December 16, 2016. Additional progress on divestitures and other changes is anticipated in the first quarter of 2017
- Operational Efficiencies. Efforts began last year to streamline the organization, including the restructuring of the Direct-to-Consumer, Apparel and Accessories, EMEA and Canadian operations. Additional initiatives intended to drive greater efficiency, speed and agility are ongoing.
- Capital Structure and Working Capital Management. The company took actions to improve its capital structure in the third quarter of 2016, which included refinancing its debt and securing 5 percent Senior Notes due 2026. The new structure has added capacity, is expected to deliver estimated interest savings of $30 million through 2020, and provides more flexibility for use of cash. A new $300 million share repurchase program was recently approved, and over 2 million shares have been repurchased for over $47 million in 2016. Strong management of working capital has been a key priority as well. Year-end inventory is now expected to be down high teens, compared to the previous expectations of a low-teens decline, and cash flow generation is anticipated to be better than expected. As a result of a more flexible debt structure and very strong cash generation, the company is well positioned for additional share repurchases and potential future acquisitions.
“We have made significant progress against our plan to position the organization for improved growth and profitability,” said Mike Stornant, senior vice president and chief financial officer. “Our continued rationalization of stores and strategic portfolio review are important steps down this path. Looking ahead, we believe the strong focus of our team will allow us to deliver at least 150 basis points of adjusted operating margin expansion in 2017. While the macro environment remains challenging, we are focused on controlling what we can control, encouraged by the progress we’ve made and excited about the initiatives we have underway.”
Wolverine World Wide’s brands include Merrell, Sperry, Hush Puppies, Saucony, Wolverine, Keds, Stride Rite, Sebago, Chaco, Bates, Hytest and Soft Style. The company is also the global footwear licensee of the brands Cat and Harley-Davidson.