With first-quarter revenue improving 14.3 percent to $510.7 million on a constant-currency basis and net earnings jumping to $38.4 million, Wolverine Worldwide is confident that it can recapture its pre-Covid magic. In fact, the quarter marked the first sales increase for the footwear giant since the fourth quarter of 2019—and all brands played a part.
In a Nutshell: For the full 2021 fiscal year, Wolverine Worldwide now expects revenue in the range of $2.24 billion to $2.3 billion, which amounts to growth of 25 percent to 28 percent versus the prior year. The new guidance adds $50 million from the initial outlook in February, with the high end of the range exceeding 2019 revenue totals.
“I would say that the upside for the year is pretty broad-based, across all of our outdoor brands or work brands, Saucony in the running category,” said CEO Blake Kreuger in the company’s earnings call. “We expect a very good return to growth for the rest of the year. it’s not a single brand, it’s not a single channel and it’s not a single geographic region.”
The company remains focused on delivering its aspirational target of $500 million in owned e-commerce revenue, more than doubling 2019 levels. Kreuger said profitability in the e-commerce channel has been “really strong.”
Reported net earnings are expected to be $145 million to $158 million, while adjusted net earnings are expected to be between $166 million and $179 million.
Reported diluted earnings per share are now expected to be in the range of $1.70 to $1.85, a slight downturn from the initially projected $1.75 to $1.90. Adjusted diluted earnings per share are now expected to be in the range of $1.95 to $2.10, a slight uptick from the range of $1.90 to $2.05.
Covid-19-related air freight costs are above normal levels and are included in the updated guidance, and will be adjusted from reported results for the remainder of the year, Mike Stornant, senior vice president and chief financial officer at Wolverine Worldwide said during the call.
“In the face of unpredictable, near-term supply chain delays, the company will continue to invest in air freight to ensure our ability to service the very strong demand we are seeing in the business,” Stornant said.
The company’s earnings presentation indicated that Wolverine Worldwide has significantly reduced its reliance on products sourced from China since 2018. While the footwear giant sourced 40 percent of its products from China three years ago, that number was nearly halved to 22 percent in 2020.
The average order-to-warehouse lead time on fast-tracked replenishment orders is 75 days.
Inventory held at the end of the quarter dipped 20.8 percent to $320.9 million versus the prior-year quarter, in which the company had $405.3 million in product. Due to the supply chain delays, Wolverine sees about $40 million of inventory “slippage” from the first quarter into the second quarter, as well as the same amount from the second quarter into the third quarter.
“Our global sourcing team continues to adjust to the supply chain headwinds impacting our industry,” said Stornant. “Our inventory position has improved nicely in the second quarter, allowing us to fill nearly all of the orders that slipped from the first quarter and the second quarter.”
Wolverine’s two largest brands exceeded first-quarter expectations with Merrell sales up nearly 25 percent year over year, and Saucony up nearly 60 percent. Merrell.com saw sales increases of 135 percent, with Saucony.com improving 150 percent.
The company once again alluded to the upcoming launch of Merrell’s mobile app in the call. While the app was said to debut late in the spring in a February earnings call, it still doesn’t have an official launch date. Merrell will be the first of Wolverine Worldwide’s brands to have its own mobile app.
Saucony’s road running category nearly doubled in the quarter with the launch of new models for several of its biggest product franchises, while its Originals heritage lifestyle sneaker business grew double digits in the first quarter.
Meanwhile, Merrell saw performance footwear grow by nearly 30 percent in the quarter, while its lifestyle business grew approximately 20 percent.
The work business, which represented almost 20 percent of Wolverine Worldwide’s revenue in the first quarter, also delivered significant growth, led by Wolverine’s work boots category, which was up nearly 30 percent, and Cat footwear, which was up more than 30 percent. The category saw strong contributions from smaller brands.
Kreuger highlighted in the call that Sperry is “back on the growth path for the remainder of the year” despite a 10 percent dip in revenue the first quarter. Kreuger is expecting “double-digit growth” for the Sperry brand, with first quarter highlights including a 40 percent increase in sales on Sperry.com and gross margin expansion of nearly 500 basis points (five percentage points).
Reported gross margin across Wolverine Worldwide was 43.5 percent, compared to 41.4 percent in the prior year. Adjusted gross margin improved was 44.3 percent, compared to 41.4 percent in the prior year due to the company’s continued e-commerce expansion and favorable product mix.
Cash and cash equivalents at end of the quarter totaled $364.8 million. Cash flow from operating activities generated $26.3 million in the quarter, or $102.9 million more than in the prior year. Total debt at the end of the quarter was $720.4 million, or $505.7 million less than in the prior year. Total liquidity at the end of the quarter was $1.2 billion.
Net Sales: Reported first-quarter revenue was $510.7 million, up 16.3 percent versus the prior year. On a constant-currency basis, revenue was up 14.3 percent versus the prior year. Owned e-commerce reported revenue grew 83.6 percent versus the prior year.
The company’s international business was up 40 percent, with every region growing over 35 percent.
Wolverine Michigan Group, which includes the Merrell, Wolverine, Chaco, Hush Puppies, Bates, HyTest and the licensed Cat and Harley-Davidson footwear brands, grew revenue 20.1 percent on a reported basis to $297.7 million in the quarter, and 18.2 percent on a constant-currency basis. Wolverine Boston Group, which includes Saucony, Sperry, Keds and Stride Ride alongside its kids’ businesses, revenue was up 10.3 percent on a reported basis to $200.9 million, and up 8.2 percent on a constant-currency basis.
Net Earnings: First-quarter net earnings were $38.4 million, compared to the $12.8 million generated to start 2020.
Reported diluted earnings per share in the quarter were 45 cents, compared to 16 cents in the first quarter of 2020. Adjusted diluted earnings per share were 40 cents, and on a constant currency basis, were also 40 cents, compared to 28 cents in the prior year.
CEO’s Take: Kreuger says he expects “selective” product cost increases in the back half of 2021 due to the rising supply chain and logistics costs, as well as growing costs of rubber, cotton, leather and other materials.
“If we have to, we’re going to take some selective price increases, we frankly think that consumer right now is expecting it,” Kreuger said. “There wasn’t a lot of pushback to the industry price increases that were pushed through when we had directly tied to tariffs of the last 18 months to two years. So we think the consumer is poised to expect some product price increases. As we approach this, it’s very selective for us, it’s different within each brand and our brands do a selective basis.”