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Wolverine on Vietnam Production: ‘Recovery Is Happening More Slowly Than Planned’

Inventory constraints and supply chain challenges impacted top-line growth in the quarter for Wolverine World Wide Inc., but the four largest brands—Merrell, Saucony, Sperry and Sweaty Betty—should help the company expand its foothold in direct-to-consumer (DTC) and international.

In a Nutshell:We firmly believe that the consumer and marketplace trends that accelerated during the pandemic will continue to provide tailwinds as evidenced by the strong demand we see across our brands as we emerge from the pandemic,” president and CEO Brendan Hoffman said during a conference call on Wednesday. “We believe that consumers will maintain healthy lifestyles that will fuel continued growth in the outdoor and active categories for some time and we are competitively well positioned to capitalize on this opportunity.”

While inventory constraints stemming from Vietnam factory closures and ongoing supply chain challenges dampened sales at its top brands, Hoffman noted how Sweaty Betty diversifies its portfolio and expands its DTC presence. The company acquired the global lifestyle and fitness brand in August for $410 million.

The female-founded activewear brand’s products can help to inform other brand extensions in Wolverine’s portfolio, Hoffman added. At the end of the year, one-third of the activewear brand’s sales came from outside the U.K., following the launch of its first stores in Singapore and Ireland. “The brand will continue to grow globally with confirmed retail expansion plans in several markets, including the U.S.,” Hoffman said.

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International grew more than 50 percent versus 2020, with Asia Pacific and Latin American revenue expanding 30 percent and 50 percent, respectively. International growth should accelerate to pre-Covid rates during the first half of the year.

“In addition to prioritizing the biggest brands that can generate the largest financial payback, we will invest in international markets where we have a long runway for growth and then driving accelerated growth in our direct-to-consumer business,” Hoffman said. “As we become more global, we’ll continue to invest in key international regions, including China with [joint ventures] for Merrill, Saucony and expand e-commerce capabilities globally.” The footwear firm is also refining its wholesale strategy, focusing on brick-and-mortar and e-commerce partners. Sperry, for example, will be adding 14 new distributors in the EMEA (Europe, Middle East and Africa) region.

Inflation and freight costs drove “very digestible” price adjustments at Wolverine’s brands, Hoffman said. Merrill’s Moab increased from $125 to $135 and Saucony’s Endorphin Shift jumped $10 to $150. “[A]s things start to normalize I think we’ll be able to hold those prices,” Hoffman added. “We got no pushback from our retailers as we made those price adjustments in the back half of last year. Just starting to get them to market and, anecdotally, haven’t seen any pressure and feel good about what the competition did in relation to where we took the price changes.”

Other brands in Wolverine’s portfolio include Chaco, Harley-Davidson Footwear, Hush Puppies, Keds and Stride Rite.

In January, the Wolverine brand worked with unCommon Construction, a nonprofit creating awareness about skilled trade career opportunities, on a boot and apparel capsule collection. “It’s imperative we reach students in more relevant ways so they can learn more about the skilled trades and consider them as a potential future path,” said Tom Kennedy, global brand president for Wolverine. “Organizations like unCommon Construction introduce kids to the rich opportunities to be found in the trades that they aren’t learning about in school.”

Program participants collaborated with Wolverine on the footwear’s design after spending months wearing boots while constructing homes in New Orleans. A portion of the proceeds from each sale of the boot or full kit, including T-shirt, socks and footwear, will help to fund additional unCommon Construction apprenceticeships. Future Market Insights projects a 6.3 percent combined annual growth rate for the industrial safety footwear market through 2032, pegging the sector’s value at $18.99 billion in 10 years’ time.

Wolverine on Vietnam: 'Recovery Is Happening
Wolverine x unCommon Construction Courtesy

Net Sales: For the three months ended Jan. 1, net sales rose 25 percent to $635.6 million from $509.6 million. Excluding Sweaty Betty, revenue rose 9.4 percent in the quarter. E-commerce revenue rose 58.3 percent in the quarter.

Gross margin for the quarter was 41.3 percent, versus 40.1 percent in the year-ago period. Inventory at the end of the quarter was up 50.3 percent to $365.5 million, with Sweaty Betty accounting for 19.4 percent of the increase.

For the year, net sales were up 35 percent to $2.41 billion from $1.79 billion.

Earnings: The footwear firm narrowed its fourth quarter loss to $14.6 million, or 18 cents a diluted share, from a net loss of $170.7 million a year-ago, or $2.10. Adjusted diluted earnings per share (EPS) was 41 cents.

Senior vice president and CFO Michael Stornant said air freight costs totaled $4.7 million, with $2.3 million considered more than the usual amount. He expects air freight prices will come down, but sees higher ocean freight rates and other costs persisting.

Plus, “production in our Vietnam factories has improved to about 70 percent of pre-closure levels, but the recovery is happening more slowly than planned,” he added.

Total debt at the end of the quarter was $966.8 million, or $244.3 million more than the prior year due to the impact of the Sweaty Betty acquisition. Total liquidity, including cash and available borrowings from a revolving credit line was $900 million.

For Full Year 2022, the company projected adjusted diluted EPS between $2.50 to $2.65 on a revenue range of $2.78 billion to $2.85 billion. Gross margin is expected in the range of 43.5 percent to 44.0 percent.

For the year, the company posted net income of $68.6 million, or 81 cents a diluted share, against a net loss of $136.9 million, or $1.70, in 2020.

CEO’s Take: “We have the tailwinds of favorable industry dynamics and active outdoor and work categories that we believe are sustainable,” Hoffman said. “As consumers returned to experiential activities, the elasticity and use and portability of our products help us to adapt these changing lifestyle trends.

Additional reporting by Jessica Binns.