20 Oct Wolverine Worldwide Reduces Full-Year Guidance
Wolverine Worldwide reported third-quarter results were down on softer-than-expected sales but came in line with guidance. However, the company lowered its guidance for the year due to special charges and ongoing margin pressures.
The quarter ended Sept. 12. Adjusted financial results exclude restructuring and impairment and acquisition-related integration costs.
“We again delivered earnings in line with our expectations for the quarter, while continuing to fuel our long-term strategic investments,” said Blake W. Krueger, Wolverine Worldwide’s chairman, chief executive officer and president. “Our earnings performance is a testament to the power of our diversified brand portfolio and disciplined business model and our ability to deliver solid results in a challenging global macroeconomic environment. Looking ahead, the company remains focused on accelerating the growth of our brands around the world through product innovation and deepening our consumer connections through our demand creation investment strategy.”
THIRD-QUARTER 2015 REVIEW
- Adjusted diluted earnings per share were 48 cents a share, in line with guidance, compared to an adjusted 63 cents in the prior year. Reported diluted earnings per share were 44 cents, compared to 57 cents per share in the prior year.
- Gross margin was 40.0 percent, better than projected and flat with the prior year’s gross margin despite challenging foreign exchange headwinds.
- Adjusted operating margin of 11.9 percent was better than expected but 190 basis points lower than the prior year, due primarily to planned incremental brand investment and higher pension expense. Reported operating margin was 11.2 percent.
- Adjusted revenue grew 0.7 percent after adjusting for the impact of foreign exchange, retail store closures and termination of the Patagonia license agreement. On a reported basis, revenue was $678.9 million, a decline of 4.5 percent versus the prior year.
- Marketing spend increased approximately 26 percent versus the prior year as the company continued its incremental demand-creation investment strategy.
- Cash and cash equivalents were $196.4 million. Net debt was $629.2 million, a reduction of $235.9 million from the same period last year.
- Inventories were $495.5 million, representing a 6.3 percent increase versus the prior year.
- The company repurchased $6.7 million of its common stock in the quarter.
“We are pleased to deliver a strong earnings performance in light of softer-than-expected revenue for the quarter,” stated Mike Stornant, senior vice president and chief financial officer. “The company also delivered better-than-expected gross margin in the quarter, despite very challenging foreign currency headwinds in many key international markets. Our operating margin was also well ahead of our expectation, benefiting from continued discipline over discretionary spending without compromising our demand creation investments, and we continued to generate positive cash flow.”
By segment, the Lifestyle Group ((Hush Puppies, Keds, Sperry Top-Sider, Stride Rite, Soft Style) saw revenues decline 3.1 percent on a currency-neutral basis to $253.4 million and was down 4.1 percent on a reported basis.
In the Performance Group segment (Merrell, Saucony, Chaco, Patagonia and Cushe), sales jumped 9.4 percent to $231.1 million on a currency-neutral basis and grew 5.7 percent on a reported basis.
In the Heritage Group segment (Wolverine, Cat, Bates, Sebago, Harley Davidson and Hytest), sales jumped 14.6 percent on a currency-neutral basis to $127.4 million and grew 12.2 percent on a reported basis.
By region, sales on a currency-neutral basis grew 1.3 percent in North America, 10.0 percent in EMEA, 56.9 percent in Asia Pacific, and 5.1 percent in Latin America. On a reported basis, sales were up 0.6 percent n North America, declined 1.4 percent in EMEA, gained 55.3 percent in Asia Pacific, and were down 1.4 percent in Latin America.
FISCAL 2015 GUIDANCE
Certain trends and conditions experienced during the third quarter are now expected to continue and to put pressure on the company’s top line performance during the fourth quarter of fiscal 2015. As a result, the company is updating its full-year guidance as follows:
- After adjusting for the estimated impact of foreign exchange, retail store closures and the termination of the Patagonia license agreement, revenue growth is expected in the range of approximately 2.1 percent to 2.8 percent versus the prior year. Reported revenue is expected in the range of $2.69 billion to $2.71 billion, representing a decline in the range of approximately 2.6 percent to 1.8 percent versus the prior year.
- Adjusted diluted earnings per share is expected to be in the range of $1.44 to $1.47. Constant currency adjusted diluted earnings per share is expected in the range of $1.57 to $1.60.
When issuing second-quarter results on in July, the company predicted adjusted diluted EPS in the range of $1.53 to $1.60. Constant currency adjusted diluted earnings per share is expected in the range of $1.68 to $1.75. Revenues had been expected in the range of $2.82 billion to $2.85 billion, representing growth in the range of approximately 2 percent to 3 percent versus the prior year. Constant currency revenue growth was expected in the range of approximately 5 percent to 6 percent.
The company now expects to incur total pre-tax charges of approximately $50 million to $54 million related to the previously announced Strategic Realignment Plan, exit of the Cushe business, certain organizational changes across the business and debt extinguishment costs from the debt refinancing. Of this amount, $26 million was recorded in fiscal 2014, and $25 million is expected to be incurred in fiscal 2015 with the balance of the charges to be recorded in fiscal 2016. As a result, reported diluted earnings per share in fiscal 2015 is expected in the range of $1.28 to $1.31.
Previously, the company had expected to incur total pre-tax charges of approximately $48 million to $51 million related to the Strategic Realignment Plan, exit of the Cushe business, and certain organizational changes. Of this amount, $26 million was expected to be recorded in fiscal 2014, and $23 million of the charges were expected to be incurred in fiscal 2015 with the balance recorded in fiscal 2016. As a result, reported diluted earnings per share in fiscal 2015 was expected in the range of $1.39 to $1.4
The company’s portfolio of brands includes: Merrell, Sperry, Hush Puppies, Saucony, Wolverine, Keds, Stride Rite, Sebago, Cushe, Chaco, Bates, and HYTEST. The company also is the global footwear licensee of the popular brands Cat and Harley-Davidson.