Wolverine Worldwide plans to divest or license the Keds brand and Wolverine Leathers business, after cutting staff at the start of December.
The employer of roughly 3,700 did not reveal how many workers were laid off, but expects this initiative to save approximately $30 million in 2023.
“These decisions, particularly those related to our impacted team members, were not taken lightly,” said Brendan Hoffman, Wolverine Worldwide’s president and CEO, in a statement. “We greatly value the contributions of our talented colleagues and are committed to supporting impacted team members in their transitions.”
The footwear firm did not respond to Sourcing Journal’s request for comment on the layoffs.
The owner of Wolverine, Saucony, Merrell and Sweaty Betty called Keds and Wolverine Leathers “low-profit contributors” to its larger business. The strategic alternatives come shortly after the company established a profit improvement office targeting annual gross savings of $150 million.
The office was created to help Wolverine Worldwide prioritize brands with the biggest growth opportunities and optimize brands that can create value through strong profit and cash flow contribution, Hoffman said in the firm’s third-quarter earnings call.
At the time, Hoffman said the assessment of the overall brand portfolio “may require some tough decisions as we address underperforming businesses. This work is one of our top priorities.”
Putting the two brands on the chopping block is yet another step for Wolverine Worldwide’s overhaul. Formerly segmenting its labels into the Michigan Group and Boston Group, the company revealed in November that it implementing a new group structure, partitioning its brands across three divisions: Active, Work and Lifestyle.
The Active Group includes Merrell, Saucony, Sweaty Betty and Chaco, the Work Group includes Wolverine, Cat, Bates, Harley-Davidson and HyTest and the Lifestyle Group is comprised of Sperry, Keds and Hush Puppies. The reorganized groups each include a new president. Wolverine Leathers, which offers performance pigskin leathers for partner apparel and footwear brands, is a standalone business.
“We believe the recent changes to our group reporting structure and the announcement of strategic alternatives for Keds and Wolverine Leathers, as part of our regular assessment of the portfolio, will put the business on an accelerated path to improved profitability and restore Wolverine as a best-in-class brand house,” Hoffman said. “In this rapidly evolving retail environment, agility is more important than ever. As such, I firmly believe that portfolio simplification and prioritization are essential to achieving our goals.”
The work kicked off in July when Keds sold the Champion trademarks in the U.S. and Canada back to its longtime licensee Hanesbrands for $90 million in cash. Under the agreement, Wolverine Worldwide retains a perpetual license to continue using the Champion trademark on certain footwear, including the Keds Champion sneaker.
And Wolverine’s priorities seem to be shifting, with the company planning a relaunch of Sweaty Betty physical stores in the U.S. in 2023. The U.K.-based activewear brand, which the outdoor footwear manufacturer acquired in 2021 for $410 million, initially shuttered all U.S. locations prior to the deal due to the Covid-19 pandemic. But the label still offered select products in Nordstrom and Bloomingdale’s locations.
Including the $30 million impact from the job cuts, Wolverine Worldwide expects to realize total savings of approximately $45 million in 2023 from organizational synergies and other indirect cost areas.
In addition, the company plans to build on its supply chain cost initiatives, expecting to save another $20 million in 2023. Wolverine’s operations team engaged AlixPartners to support the cost savings project related to raw material procurement, which is anticipated to yield savings for the 2023 second half. As the company streamlines its factory and supply base, it is also negotiating for better costs and on-time performance to benefit SKU management next year.
Mike Stornant, executive vice president and chief financial officer, Wolverine Worldwide, said in the November earnings call that supply chain costs represent approximately 65 percent of the cost structure.
Wolverine Worldwide says it is continuing to focus on optimizing working capital as a meaningful source of cash over the coming months. On Tuesday, the company finalized a new accounts receivable securitization program that is expected to generate $175 million in accelerated cash flow at favorable pricing.
The Sperry and Hush Puppies parent will provide additional details on its strategic alternatives and update its fourth quarter and fiscal year 2022 performance when it presents at the 25th Annual ICR Conference on Jan. 10.
Through two months of the fourth quarter, Wolverine said revenue is “in line with expectations.” The quarter’s revenue is expected to be in the range of $650 million to $675 million, representing growth of approximately 2.3 percent to 6.2 percent. This includes approximately $28 million (or 4.4 percent) negative impact from foreign exchange rate fluctuations.
The company also said inventory reduction remains a top priority, with “meaningful progress made” thus far in the fourth quarter. To close the third quarter, inventory came in at $880.9 million, skyrocketing 113.8 percent up compared to a year ago, when the footwear firm had “unusually low levels,” according to Stornant.
Future cash flow generated from the inventory reduction will be used to pay down outstanding debt.