Wolverine Worldwide Reports Record Q2 Results, Retail Consolidation

15 Jul Wolverine Worldwide Reports Record Q2 Results, Retail Consolidation

Wolverine Worldwide reported revenue  reached $613.5 million in its second fiscal quarter ended June 14, up 4.4 percent versus the prior year.  All three of the company’s brand operating groups contributed to the quarter’s revenue growth.

• Gross margin was 40.1 percent compared to the prior year’s gross margin of 41.0 percent.  The lower gross margin resulted from increased promotional activity designed to combat sluggish U.S. retail traffic in the company’s consumer-direct business and higher product costs.
• The reported effective tax rate in the quarter was 28.2 percent, significantly higher than the prior year due to a higher mix of earnings in the United States and the expiration of the research and development federal tax credit.
• INventory at the end of the second quarter was down 5.1 percent compared to the prior year, reflecting the company’s continued effective working capital management.
• The company reduced its interest-bearing debt by $43.0 million in the quarter, including fully paying off its revolving line of credit.  The company ended the quarter with cash of $232.4 million and net debt of $898.9 million, with the latter down $108.6 million from prior quarter end.

Guidance
Based on revised expectations for the remainder of the year, the company expects its full-year consolidated revenue to approximate $2.775 billion, representing growth of approximately 3 percent compared to prior year revenue of $2.69 billion.  The company is reaffirming its adjusted earnings per share estimate in the range of $1.57 to $1.63 per share – growth of 10 percent to 14 percent compared to prior year adjusted earnings per share of $1.43.  On a reported basis, earnings per share are expected in the range of $1.32 to $1.38 per share and reflect the impact of the Strategic Realignment Plan outlined below.

Strategic realignment plan

In a move designed to accelerate growth and improve overall profitability, the company also announced a strategic realignment plan that includes store closures – primarily within the Stride Rite fleet – and several other initiatives.  The realignment of the consumer-direct business is intended to optimize the fleet of retail locations, right-size the supporting infrastructure, address a fundamental shift in consumer shopping behavior and allow for greater focus on important omni-channel initiatives.

Key components of the Plan include:

• Closing approximately 140 retail locations – primarily Stride Rite stores – over the next 18 months.  Of these, the company expects that approximately 60 stores will close by fiscal year end, with the balance closed by the end of 2015;
• Consolidating certain consumer-direct functions, specifically store operations and field support teams, intended to allow for a more effective and efficient management of the retail fleet; and
• Implementing organizational and infrastructure changes to realize further synergies.

The company estimates pretax charges related to the Plan in the range of $30 million to $37 million, and expects to record these charges between now and the end of fiscal 2015 as it executes each component.  Approximately $13 million to $15 million of this estimate represents non-cash charges, primarily asset write-offs related to closed retail locations and restructuring charges related to the remaining retail store fleet and international operations.  Of this non-cash amount, $3.4 million was recorded in the second fiscal quarter.

Once the plan is fully implemented, the company expects annual pretax benefits of approximately $11 million and intends to redeploy a meaningful portion of these benefits to further build out consumer-direct omni-channel capabilities and accelerate growth in its wholesale operations.

“The Strategic Realignment Plan announced today is an important step in the evolution of the company’s consumer-direct operations to meet the changing behavior of today’s consumer,” said Krueger.  “We are confident that these actions will set a new foundation for our consumer-direct business, help position our company for future growth and increase shareholder value.”