23 Feb Wolverine Worldwide’s Fourth-Quarter Earnings Rise 33 Percent
Wolverine World Wide Inc. reported financial results for the fourth quarter and full year ended Jan. 2, 2016. Adjusted financial results exclude restructuring and impairment, acquisition-related integration costs and debt extinguishment costs. References to underlying revenue indicate reported revenue adjusted for the impact of foreign exchange, retail store closures, and the exit of certain brand businesses (Patagonia footwear in 2015 results and Cushe in 2016 guidance).
“We finished the year with both revenue and adjusted earnings per share in line with our expectations for the fourth quarter, highlighted by significant growth in adjusted earnings per share on a constant currency basis,” said Blake W. Krueger, Wolverine Worldwide’s Chairman, Chief Executive Officer and President. “Our ability to deliver strong earnings in a challenging global retail and consumer environment continues to validate the power of our diversified brand portfolio and disciplined operational execution. Looking back on the full year, we made significant progress against our strategic priorities, including investing in global organic growth for our key brands and eCommerce.”
FOURTH-QUARTER 2015 REVIEW
Reported revenue of $751.2 million was in line with guidance. Underlying revenue declined 2.9 percent versus the prior year. On a reported basis, revenue declined 7.1 percent versus the prior year.
Adjusted gross margin on a constant currency basis was 37.8 percent, an increase of 70 basis points versus the prior year. Reported gross margin was 36.2 percent, compared to 37.1 percent in the prior year.
Adjusted operating margin on a constant currency basis was 7.2 percent, up 60 basis points versus the prior year. Reported operating margin was 1.9 percent, compared to 3.7 percent in the prior year.
Adjusted diluted earnings per share were $0.33. On a constant currency basis, adjusted diluted earnings per share were $0.40, an increase of 33.3 percent versus $0.30 in the prior year. Reported diluted earnings per share were $0.12, compared to $0.10 per share in the prior year.
Cash and cash equivalents were $194.1 million, and net debt was $625.9 million, a reduction of $51.1 million from the same period last year.
Reported eCommerce revenue growth accelerated in the fourth quarter to approximately 25 percent.
FULL-YEAR 2015 REVIEW
Reported revenue of $2.69 billion was in line with guidance. Underlying revenue increased 2.1 percent versus the prior year. On a reported basis, revenue declined 2.5 percent versus the prior year.
Adjusted gross margin on a constant currency basis was 39.7 percent, an increase of 30 basis points versus the prior year. Reported gross margin was 39.1 percent, compared to 39.3 percent in the prior year.
Adjusted operating margin on a constant currency basis was 9.4 percent, which was 50 basis points lower than the prior year due primarily to planned incremental brand investment and higher pension expense. Reported operating margin was 7.5 percent, compared to 8.3 percent in the prior year.
Adjusted diluted earnings per share were $1.45. On a constant currency basis, adjusted diluted earnings per share were $1.58, compared to $1.62 per share in the prior year. Reported diluted earnings per share were $1.20, compared to $1.30 per share in the prior year.
Operating free cash flow was a strong $165.5 million, allowing the company to repurchase $92.6 million of its common stock, pay $24.4 million of dividends, pay down $80.9 million in debt and make investments intended to drive future growth.
Full-year reported eCommerce revenue grew approximately 20 percent.
When reporting third-quarter results, Wolverine had said it expected 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.
“The company delivered solid fourth-quarter earnings despite a very tough environment, resulting from in-line revenue performance and continued discipline over operating expenses,” stated Mike Stornant, Senior Vice President and Chief Financial Officer. “This last quarter was incredibly volatile for the whole industry as global economic pressures worsened, holiday sales were tepid and unseasonably warm weather impacted many regions. We foreshadowed these challenging conditions in mid-September, and over the last few months we have been proactive to mitigate our short-term exposure and position the company to be even stronger in 2016,” continued Stornant. “Since early September, we’ve made important leadership and organizational changes focused on fixing under-performing areas of the business. We are confident we are well-positioned to navigate the challenging global landscape in front of us.”
FISCAL 2016 GUIDANCE
The company expects the global retail environment to remain challenging in 2016, with the current domestic retail channel inventory overhang and the slowdown in China potentially impacting key markets. The significantly stronger U.S. dollar is also a meaningful headwind on the company’s outlook for fiscal 2016. Planned retail store closures and the exit of the Cushe business will also impact the year ahead.
For fiscal 2016, the company expects:
Consolidated reported revenue in the range of $2.475 billion to $2.575 billion, representing an underlying revenue decline in the range of approximately 4.3 percent to 0.5 percent. Foreign exchange, planned store closures, and the exit of the Cushe business represent approximately $100 million of revenue impact to fiscal 2016. Reported revenue is expected to decline in the range of approximately 8.0 percent to 4.3 percent.
Flat to slightly lower gross margin resulting from lower product costs offset by approximately 90 basis points of negative currency impact.
Flat to slightly lower adjusted operating margin compared to the prior year, including 90 basis points of negative currency impact. Reported operating margin is expected to increase approximately 70 basis points compared to the prior year.
A higher adjusted effective tax rate of approximately 28.0 percent. The reported tax rate is expected to be approximately 27.0 percent.
Diluted weighted average shares outstanding of approximately 97.5 million.
Adjusted diluted earnings per share in the range of $1.30 to $1.40. Constant currency adjusted earnings per share in the range of $1.48 to $1.58. Reported diluted earnings per share in the range of $1.20 to $1.30.
“Our business model is well-suited for challenging retail environments, built on our diversified brand portfolio, extensive global reach and history as strong operators,” said Blake W. Krueger. “The company’s omni-channel investments have accelerated eCommerce growth in the past year, and our Strategic Realignment Plan is proceeding as planned. We believe our recent actions to strategically reorganize our brand operating groups under the right leadership and to plan for a meaningful investment in consumer insights and product innovation position us well as we enter the new year. I am excited about the year ahead.”