Although Wolverine Worldwide reported declines in third-quarter earnings and revenues Thursday, the footwear company has plenty of faith that it can facilitate a bounce back in 2021, thanks to an improved holiday start, stronger emphasis on direct-to-consumer sales, growth at Saucony brand, and a rebooted supply chain come spring.
Revenue for the third quarter, which ended Sept. 26, fell 14.1 percent to $493.1 million, but Wolverine already saw a much-improved October that generated flat revenue compared to last year, in part due to the length of the earlier holiday season.
With owned e-commerce revenue growing 56.4 percent versus the prior year’s period, Wolverine is the latest footwear company, like Nike and Under Armour, to further its positioning as a DTC player.
The company expects owned e-commerce revenue to continuing growing at a 50 percent clip across all brands throughout 2021, bringing the company to $500 million in total owned digital sales throughout the year.
This $500 million aspiration would more than double the total e-commerce sales driven in 2019, Mike Stornant, senior vice president and chief financial officer at Wolverine Worldwide, told Sourcing Journal.
“You have to control your own destiny. Owning your brands in this environment is an advantage,” Stornant said. “Having the direct relationship with the consumer and being able to react to the consumer’s needs and activities in a real time way is in advantage. Obviously, the challenges of the pandemic have just magnified that. We just don’t have the luxury of relying on anybody but ourselves to control that destiny going forward. It hasn’t been a quick decision or a spontaneous decision. It is something that we’ve planned to do.”
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When taking wholesale partners into account, e-commerce on the whole represents 40 percent of Wolverine’s U.S. revenue. The Wolverine and Saucony brands nearly doubled their e-commerce sales in the quarter, while Merrell.com saw an 80 percent revenue increase.
Stornant highlighted these three brands as the keys in Wolverine’s portfolio, noting that the footwear firm is placing big bets on Saucony’s lifestyle running brand in the year ahead. Seeing “low-teens” revenue growth in the third quarter, Saucony is a major international hit—with Italy the leading market for the brand’s Originals collection—as evidenced by the 17 stores that opened in China in the third quarter. The brand will launch new iterations of its Guide, Ride and Kinvara running shoes in the first half of 2021.
“We’re going to see a strong year [for Saucony] based on the new products coming to market, the reaction we’re getting from the consumer and the retail leaders in the category, and then just the way we think the category in general is going to continue to be important to the consumer going into the next year,” said Stornant.
Overall, Chaco had the best individual showing among Wolverine’s bundle of brands with 30 percent growth in the quarter, capitalizing on outdoor footwear‘s popularity during the pandemic. Boat-shoe brand Sperry suffered a 45 percent sales drop in the period.
Inventory at the end of the quarter was down 22 percent versus the prior year and down 22.8 percent when excluding the impact of new stores and the incremental cost of new tariffs.
“We are entering the fourth quarter with lean inventory positions for some key items, as a result of stronger demand in the second and third quarters that have outpaced projections made earlier in the year when inventory commitments were set,” Stornant said during the earnings call. “We expect the availability of goods will improve to meet the projected strong demand for the first quarter of 2021.”
Stornant noted that he expects lean inventory will negatively impact fourth-quarter revenue. He expects revenue to be down no more than 25 percent in the quarter, with gross margin remaining the same quarter-over-quarter at 41 percent. Gross margin declined 140 basis points (1.4 percent) year over year due to an elevated DTC mix that was more than offset by lower royalties in its international business, the reopening of stores worldwide and the impact of higher tariffs.
Certain factors of the potential decline include “lower December sales to our international distributors for spring 2021 product due to the heavy carryover of inventory from spring 2020 and a partial shift of deliveries into the first quarter, a planned timing shift and key franchise launches from Saucony pushed back from the fourth quarter of 2020 to the first quarter of 2021,” Stornant said. “And finally, a resurgence of the pandemic that started to impact certain global markets and could create headwinds for our U.S. businesses.”
Wolverine is shifting approximately $5 to $10 million of its internationally distributed December inventory into the spring, since they “just don’t need new merchandise right now,” Stornant said in the call. This will help Wolverine’s distributor partners to get their inventories clean ahead of the warm-weather season.
“This time last year we were buying spring in December,” Stornant told Sourcing Journal. “We loaded the wagon and then Covid hits and we’re stuck with a lot of carryover inventory. This year, we’re pulling back to allow them to get that inventory through their retail channels more effectively, and also just to take pressure off of these international markets so that we have a smoother, easier business to run in 2021. We think Q1’s going to be a really good quarter for international because we’ve done that.”
Wolverine’s international business typically comprises 30 percent of total revenue and 50 percent of total units sold in a normal year, Stornant said.
The Rockford, Mich.-based company’s portfolio includes Sperry, Hush Puppies, Wolverine, Keds, Stride Rite, Bates and HyTest, as well as Saucony, Chaco and Merrell. Wolverine Worldwide is also the global footwear licensee of Cat and Harley-Davidson.