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Wolverine Worldwide Plots Sweaty Betty Relaunch

Wolverine Worldwide’s second-quarter revenue grew 12.9 percent to $713.6 million on net income of $124.5 million.

The Merrell and Saucony parent said sales were hampered by elevated wholesale channel inventory, foreign exchange rate pressures, and lingering supply chain delays. Unfavorable foreign exchange rates impacted revenue growth by $19 million, or 3 percentage points.

In a Nutshell: Wolverine Worldwide cut its revenue guidance for 2022 and now expects revenue to grow approximately 14 percent to 16 percent to $2.74 billion to $2.79 billion. Previous guidance called for 15 percent to 18 percent growth, or $2.775 billion to $2.85 billion.

The company raised its anticipated diluted earnings per share, which is now expected to be between $2.62 to $2.72. Initial projections called for a range of $2.30 to $2.45. However, adjusted diluted earnings per share are expected to be between $2.10 to $2.20, lower than the initially projected range of $2.50 to $2.65.

Gross margin is expected to be approximately 42.5 percent, down from original gross margin projections of 43 percent. The new total assumes an increased promotional and markdown cadence, a higher mix of lower-margin international third-party sales in the back half of the year and challenges related to moving inventory through wholesale channels.

In an earnings call, Wolverine Worldwide president and CEO Brendan Hoffman said second-quarter revenue was impacted by order postponements as some U.S. retail partners had too much inventory in their distribution centers and stores.

“We are working closely with partners to move through product and in some cases turning to drop shipping and direct-to-store shipments to help alleviate this current pressure,” Hoffman said. “As such, some of these sales will shift to later in the year.”

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Inventory at the end of the second quarter was $639.5 million, up 93 percent versus the prior year. While factory capacity and delivery performance have improved, logistics lead times and volatility still impact the business, the company said.

“We are seeing a normalization in production levels at our core factories. Transit times, which have been elevated and volatile, are starting to improve and there’s greater visibility in the supply chain,” Hoffman said. “Through our efforts earlier in the year, we were able to receive a majority of the fall inventory in time for the fall selling season.”

Excluding the Sweaty Betty activewear brand, organic inventory increased 80 percent or $264.9 million compared to last year when inventory levels were abnormally low. One-third of this increase, nearly $95 million, relates specifically to much higher in-transit inventory.

Organic inventory versus 2019 is up 47 percent. Approximately 85 percent of this inventory is expected to be sold through primary wholesale, digital and direct-to-consumer channels later this year or during the 2023 selling seasons. The company plans to liquidate the remaining excess inventory over the next several months.

Gross margin of 43 percent was 0.2 percentage points above the 42.8 percent gross margin in the year-ago quarter mostly due to lower-than-expected closeout sales. Organic gross margin, which excludes Sweaty Betty, was 42.3 percent, down 2.2 percentage points from 44.5 percent in the year-ago period.

Total debt at the end of the quarter was $1.23 billion. Total liquidity including cash and available borrowings under the company’s revolving line of credit was approximately $700 million.

Wolverine continues to realign its corporate business structure to optimize profitability and right-size cost structure. Wolverine Worldwide chief financial officer Michael Stornant said the company is “currently assessing how to address underperforming business units,” while launching an operational efficiency initiative this month.

The footwear company recently sold off the Champion footwear trademarks to longtime licensee Hanesbrands for $90 million.

Net Revenue: Wolverine Worldwide generated revenue of $713.6 million, representing 12.9 percent growth versus the prior-year period’s $631.9 million and 25.5 percent versus 2019.

Excluding Sweaty Betty, revenue was $666.2 million, improving 5.4 percent from $631.9 million in the 2020 quarter and up 17.2 percent compared to 2019.

In the U.S., Wolverine Worldwide sales dipped approximately 2 percent, according to Hoffman. The international business saw 45.3 percent revenue growth to $295.2 million including Sweaty Betty and up 26.4 percent to $256.8 million excluding Sweaty Betty. Direct-to-consumer revenue including Sweaty Betty was up 21.1 percent to $166.2 million, and excluding Sweaty Betty was down 8.2 percent to $125.9 million.

Total e-commerce sales dipped 7 percent on an organic basis, Hoffman said, and up 20 percent when accounting for Sweaty Betty.

Wolverine’s Michigan Group which consists of the Merrell, Wolverine, Chaco, Hush Puppies, Cat, Bates, Harley-Davidson and Hytest brands, saw growth of 10 percent to $389.7 million, up from $354.4 million in the 2021 second quarter.

The company’s second major division, the Boston Group, saw sales dip 1.6 percent to $253.9 million from $258 million. The division’s brands include Sperry, Saucony, Keds and the company’s kids’ footwear offerings such as the Stride Rite licensed business.

The footwear seller’s “other” category, which is mostly attributed to Sweaty Betty, saw sales soar 259 percent to $70 million from $19.5 million. The activewear brand brought in $47.4 million in revenue during the quarter.

Merrell saw second-quarter sales jump 14 percent to $203.6 million, from $178.6 million in the year-ago period. Saucony experienced year-over-year sales growth of 7.2 percent to $126.5 million. Of the major brands, Wolverine had the highest growth trajectory at 16.3 percent to $57.7 million, while Sperry declined 13.4 percent to $70.1 million.

Net Earnings: Net earnings were $124.5 million, up from the $44.4 million taken in during the 2021 second quarter. Diluted earnings per share (EPS) were $1.53, an increase from the 53 cents per share in the year-ago period. Organic diluted EPS, which excludes Sweaty Betty, was 67 cents.

Operating profit came in at $167.9 million, a significant improvement from the $63.8 million generated in the year-ago period.

CEO’s Take: Wolverine Worldwide plans to relaunch Sweaty Betty physical stores in the U.S. in 2023. The activewear brand initially shuttered all U.S. stores in 2020 during the Covid-19 pandemic prior to being acquired by the footwear seller, and has since offered select products in Nordstrom and Bloomingdale’s locations.

“While we are seeing some headwinds in this business currently, we are confident in the brand’s long-term potential given the $45 billion total addressable market, our global potential and the opportunity to expand into other categories,” Hoffman said. “The team is currently focused on penetrating the U.S. market, where we are in early stages of growth. In the U.S., a recent study showed strong affinity for the brand among attractive consumer segments.”

Hoffman also highlighted the brand’s momentum in China, indicating the the activewear brand beat first-half expectations in the market despite Covid lockdowns.