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Wolverine CEO Explains ‘Why Our Future Order Backlog Is Up So Much’

Wolverine Worldwide saw fourth-quarter revenues decline 16.1 percent to $509.6 million and net losses that amounted to $171.2 million, but the footwear giant—which owns brands including Wolverine, Saucony, Chaco, Merrell, Sperry, and Hush Puppies—is shooting for renewed strength this year.

With the company’s push to reach $500 million in owned e-commerce revenue in full swing and the anticipated demand for its Saucony and Merrell banners expected to rebound significantly in the coming year, Wolverine Worldwide is aiming for growth of as much as 26 percent in 2021, which would bring the footwear giant back to 2019 levels of sales.

In a Nutshell: The Saucony brand is leading the way for Wolverine both home and abroad, with revenue for the lifestyle shoe brand growing mid-single digits in the quarter and sales jumping 65 percent. Saucony continues to serve as bright spot for Wolverine, with growth occurring across all product categories in the quarter. In Q1, Wolverine has high expectations for Saucony, expecting the brand’s sales to jump 50 percent year over year.

The brand is leading Wolverine’s push into China, which is spurred by the company’s joint venture with Xtep International Holdings Limited, a leading Chinese sportswear retailer. The joint venture opened 32 Saucony stores in China in 2020.

Wolverine’s other primary brand, hiking and outdoor footwear banner Merrell, saw low-single digit sales declines, largely due to right-sizing from some of the company’s international wholesalers. But in North America, the brand saw high-single digit growth. Overall, sales jumped 60 percent in the quarter, thanks to 70 percent growth in new online customers.

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Merrell is expected to bounce back to 20 percent total growth in the first quarter, with even “stronger growth expected in Q2 and beyond.” Wolverine anticipates Merrell’s e-commerce presence, which is the largest across its brands, will drive the greatest online dollar growth throughout 2021.

Total inventory at the end of the fourth quarter was down 30.2 percent year over year, dropping from $348.2 million to $243.1 million to close 2020, entering 2021 with a “lean inventory position.”

While there is significant backlog in the supply chain due to port congestion issues, Blake W. Krueger, Wolverine Worldwide’s chairman and CEO, said during the call that Wolverine has “probably the best visibility into future demand that I’ve seen in 25 years.”

Gross margin for the quarter increased 230 basis points (2.3 percentage points) to 40. 1 percent, from 37.8 percent in the fourth quarter of 2019. Adjusted gross margin was 41.4 percent, expanding 360 basis points over the prior year from the 37.8 percent. The adjustment reflects expenses related to the coronavirus pandemic including $3.2 million of inventory charges and $3.1 million of air freight charges related to production delays.

Brendan Hoffman, president of Wolverine Worldwide, said that the improved gross margin on its full-price business came from reduced markdowns and an increased mix of DTC business, partially offset by a negative impact from foreign exchange transaction costs.

During the quarter, Wolverine recorded a $222 million non-cash impairment related to Sperry, which performed poorly throughout the pandemic, down 20 percent in the fourth quarter. The company expects the brand to return to double-digit sales growth in 2021.

Cash flow from operating activities in the quarter was $173.6 million, compared to $206.6 million in the prior year. Cash on hand at the end of the quarter and year was $347.4 million, compared to $180.6 million in the prior year.

For the full fiscal year, the company expects revenue in the range of $2.19 billion to $2.25 billion, growth of 22 percent to 26 percent year over year, with the range’s high end approaching 2019’s $2.27 billion revenue. Wolverine expects gross margin to be at least 43 percent, despite increased freight and logistics costs, which will continue to be a headwind in 2021, Stornant said.

“We continue to see some delays and bottlenecks in the global supply chain, partially caused by the pandemic and partially by pent up consumer demand, but believe this pressure will wane over the course of the year,” Krueger said during the call. “For the first quarter, we currently expect a $20 million shift in revenue (into the second quarter)…directly related to logistic delays, but still expect to deliver mid-teens growth.”

The Saucony and Merrell brands are expected to reel in 50 percent of total revenue at Wolverine in 2021. In total, DTC sales are expected to comprise 40 percent of the company’s total sales.

The suite of brands is also focused on delivering its aspirational target of $500 million in owned e-commerce revenue, more than double 2019’s figures. Reported diluted earnings per share are expected to be in the range of $1.75 to $1.90, and adjusted diluted earnings per share are expected to be in the range of $1.90 to $2.05.

Net Sales: Reported revenue for Wolverine Worldwide was $509.6 million, down 16.1 percent versus the prior year’s total of $607.4 million. On a constant currency basis, revenue was down 16.4 percent versus the prior year.

E-commerce sales through Wolverine’s own channels grew 31.7 percent versus the prior year, and representing approximately 22 percent of quarterly revenue.

On a reported growth basis, Wolverine Michigan Group, which includes Merrell, Wolverine, Chaco, Hush Puppies, Bates, HyTest and the licensed Cat and Harley-Davidson footwear brands, generated $298.5 million in sales for the quarter, a 17.1 percent decline. The Wolverine Boston Group, which includes Saucony, Sperry, Keds and Stride Ride alongside its kids’ businesses, took in $197.6 million, a 15.6 percent decline.

Revenue for the full 2020 was $1.79 billion, down 21.2 percent on a reported and constant currency basis from $2.27 billion. Owned e-commerce sales grew 49.9 percent year over year.

Net Earnings: Net losses for the quarter were $171.2 million, compared with only approximately $500,000 in total net losses in the prior-year quarter. Operating losses were $204.1 million, including the impact of the Sperry impairment, compared to $5.2 million in operating losses in the prior year quarter. Adjusted operating margin growth was 6.6 percent, compared to 10.1 percent last year.

Reported diluted loss per share was $2.10, including the $2.07 per share trade name impairment, compared to a loss per share of 1 cent in the prior year. Adjusted diluted earnings per share were 21 cents, and, on a constant currency basis, were 22 cents, compared to 59 cents in the fourth quarter last year.

For the full year, net losses totaled $138.6 million, compared to a gain of $128.9 million in 2019.

CEO’s Take: “I would say, as we look ahead into the future, our industry is driven by innovation, and design, and you get rewarded for bringing freshness to the marketplace. Even our wholesale customers have realized that this past year, and currently, I think it’s one of the reasons why our future order backlog is up so much,” Kreuger said. “They need to plan a constant flow of freshness, and getting the right consumer trends into their stores. And certainly we’re seeing that in our own e-comm and DTC business. So fundamentally, it comes back to product, product, product, as I always say, coupled with a powerful marketing story. And we focused on that in 2020, we doubled down, we continue to invest in talent and in those capabilities, digital and otherwise, and we’re starting to reap the benefits of that now. Certainly, we think the industry as a whole is in pretty good inventory position right now.”