10 May Wolverine Worldwide’s Q1 Beats Plan
Wolverine Worldwide reported first-quarter earnings slid 4.0 percent in the first quarter amid store-closing efforts but results still surpassed expectations as progress was made on its Wolverine Way Forward initiative. The company raised its earnings guidance for the year.
“We had a solid start to the year, highlighted by first-quarter revenue and earnings that surpassed expectations and strong progress toward our holistic, enterprise-wide strategic transformation initiative, the Wolverine Way Forward,” said Blake W. Krueger, Wolverine Worldwide’s chairman, chief executive officer and president. “The transformation of our business is well underway with our strategy focused on elevating our most powerful brands with consumers, delivering continuous product innovation and sustained organic growth, and unlocking incremental operational efficiencies, with an emphasis on pace and speed. We believe that the Wolverine Way Forward will put us in the best position to compete and win in the “new normal” fast-changing global consumer retail environment.”
Wolverine Way Forward Transformation Update
- The Wolverine Way Forward transformation includes key operational excellence initiatives with incremental operating profit benefits, further solidifying the company’s confidence in achieving its stated goal of 12 percent adjusted operating margin by the end of 2018.
- The previously announced Store Restructuring Plan has accelerated, with 180 stores now closed since the beginning of 2017. The company incurred approximately $9.2 million of operating losses in Q1 2017 for stores within the Plan that will not reoccur next year. The losses include $4.4 million of inventory mark-downs related to accelerated store closures. All Stride Rite and Track-N-Trail concept stores are now closed. These store closures allowed the company to liquidate inventory totaling approximately $20 million during the quarter.
First-Quarter 2017 Review
Prior to fiscal 2017, the company reported its quarterly results of operations on the basis of 12-week periods for each of the first three fiscal quarters and a 16 or 17-week period for the fiscal fourth quarter. Beginning in fiscal 2017, the company’s fiscal year will be comprised of 13-week quarters for each of the first three fiscal quarters and a 13 or 14-week period for the fiscal fourth quarter. There is no change to the company’s fiscal year-end date. References to the “quarter ended” or “fiscal quarter” refer to the 13-week period ended April 1, 2017 or the 12-week period ended March 26, 2016.
- Reported revenue of $591.3 million decreased 4.8 percent after taking into consideration the impact of the additional week of operations in the first quarter of fiscal 2017. Underlying revenue declined 2.0 percent.
- Reported gross margin of 39.7 percent, compared to 39.6 percent in the prior year. Adjusted gross margin on a constant currency basis was 41.7 percent, up 120 basis points versus the prior year.
- Reported operating margin was 5.5 percent, compared to 5.9 percent in the prior year. Adjusted operating margin on a constant currency basis was 11.0 percent, up 260 basis points versus the prior year and excludes $4.4 million of incremental inventory markdowns related to the accelerated store closings.
- Reported diluted earnings per share were 17 cents, compared to earnings per share of 18 cents in the prior year. Adjusted diluted earnings per share were 37 cents, and, on a constant currency basis, were 40 cents, compared to 31 cents in the prior year.
Inventory at the end of the quarter was down 25.9 percent versus the prior year, meaningfully better than expected.
- The company successfully exited 104 underperforming stores during the quarter and an additional 76 stores subsequent to quarter-end.
“We are pleased to deliver better-than-expected results for the first quarter, demonstrating the success of our strategy focused on operational excellence, growth and speed,” stated Mike Stornant, senior vice president and chief financial officer. “Our proactive efforts aimed at overcoming the challenging global market conditions paid off in Q1, with nearly all brands in the portfolio exceeding their revenue plans for the quarter, while also over-delivering on our operating profit goals. We made tremendous progress on our store realignment plan including the closure of all Stride Rite stores, and now have line-of-sight to our go-forward store-fleet. We managed our working capital well in the quarter, with inventory down over 25 percent and DSOs improving by 1.1 days. We believe the strength of our global brands combined with the continued discipline in the management of our business and implementation of our Wolverine Way Forward plan leaves us well placed to achieve our goals.”
Fiscal 2017 Outlook
A good first quarter, coupled with some improving trends in the business have resulted in the following update to the company’s full-year 2017 outlook:
- Reported revenue in the range of $2.270 billion to $2.370 billion – unchanged from the company’s original outlook. This is a decline of approximately 9.0 percent to 5.0 percent. Underlying revenue is expected in the range of down 2.3 percent to growth of 1.9 percent, reflecting approximately $160 million to $180 million of impact from currency and retail store closures.
- Reported operating margin in the range of 5.2 percent to 5.9 percent and adjusted operating margin in the range of 10.2 percent to 10.7 percent, resulting from operational excellence initiatives focused on supply chain optimization, omnichannel transformation, and operational efficiencies.
- Reported diluted earnings per share in the range of $0.73 to $0.83 compared to $0.89 in fiscal 2016. Adjusted diluted earnings per share are now expected in the range of $1.50 to $1.60 compared to $1.36 in fiscal 2016 adjusted on the same basis. On a constant currency basis, adjusted earnings per share in the range of $1.58 to $1.68.
When it reported fourth–quarter results on February 22, Wolverine had projected reported diluted earnings per share in the range of $1.19 to $1.29. Adjusted diluted earnings per share was expected in the range of $1.45 to $1.55. On a constant currency basis, adjusted earnings per share in the range of $1.53 to $1.63.