Wolverine Worldwide recorded an at least $60 million revenue hit in the third quarter due to unplanned supply chain disruptions.
Also facing $10 million in costs directly related to the acquisition of Sweaty Betty, $17 million of costs related to an ongoing environmental lawsuit and $34 million of costs related to bond retirements, the Michigan-based footwear company broke even in reported diluted earnings despite recording a 29 percent year-over-year increase in reported revenue.
In a Nutshell: Though Wolverine’s inventory position has improved over the last two quarters, Michael Stornant, chief financial officer and senior vice president, said it is still not in line with higher demand. Merrell, the brand “most heavily” impacted by factory restrictions in southern Vietnam, “continues to manage” through the recovery, he said. According to Brendan Hoffman, Wolverine’s president, this summer’s closures resulted in missed revenue opportunities of at least $25 million at the outdoor footwear brand.
Though Wolverine Worldwide CEO Blake Krueger warned that there will be “a bit of a ramp up” before factories in Vietnam return to normal, he said the company has been “proactive” this past year on adding capacity—including “substantial new capacity” with its existing factory base and sister factories, as well as “a couple of dozen” new factories.
“Supply chain is going to continue to be a bit of a slowpoke here compared to historical timelines, but again, in that regard, we’ve taken a number of actions—air freight, the use of fast boats, shipping directly, bypassing the distribution centers,” Krueger said. “So, we feel very good about where we stand today and the actions we’ve taken to control what we can control.”
Looking to Wolverine’s products and brands, Krueger highlighted the positive impact of continued consumer interest in running, hiking and the outdoors. The company’s work category, he added, has also shown strong growth “supported by healthy macro industry conditions and workwear fashion tailwinds.”
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“Warehousing jobs have more than doubled since 2005, and construction companies are expected to hire hundreds of thousands of additional workers over the coming months,” Krueger said. “Looking ahead, the passage of a major infrastructure plan in the U.S. will further boost momentum in this category.”
Hoffman called out the performance of Wolverine’s boat shoe brand Sperry, which he said saw “significant” market share growth. “From a fashion standpoint, there are clear indications that we are at the forefront of a boat shoe trend, with very encouraging demand from key retailers for the first half of 2022,” Hoffman said.
The company’s total inventory, though down versus 2019, grew approximately 26 percent year- over-year to $412 million. Not including Sweaty Betty, which it bought for approximately $410 million during the quarter, inventory was up 10 percent.
Wolverine is now forecasting full-year revenue of approximately $2.4 billion, in line with the upper end of its guidance a quarter ago. The total would represent nearly 35 percent growth versus the prior year and mid-single-digit growth against 2019. Not including Sweaty Betty, sales would be up in the low single digits on a two-year basis.
The company downgraded its guidance for reported diluted earnings per share from between $1.85 and $1.95 to between $1.16 and $1.21. Its adjusted diluted earnings per share are now expected to be in the range of $2.05 to $2.10, which is below the $2.20 to $2.30 guidance it offered a quarter ago.
Net Sales: Wolverine saw revenue climb 29 percent—28 percent on a constant-currency basis—versus the prior year to $636.7 million. Compared to 2019, sales grew 11 percent. E-commerce reported revenue grew 45 percent versus 2020 and 126 percent against 2019.
Wolverine’s running brand Saucony grew more than 40 percent over 2020 and 60 percent versus 2019, Hoffman said. The brand’s online store, meanwhile, ended the quarter up more than 50 percent against last year and triple where it was in 2019. Saucony’s success has been global, Hoffman added, with the Asia-Pacific region “a big opportunity” moving forward after it delivered more than 60 percent growth in the third quarter.
Merrell, hurt by factory closures in Vietnam, saw mid-single digit growth in the third quarter. Its direct-to-consumer business grew in the mid-single digits, as its e-commerce store built on sales that nearly doubled last year. Merrell stores also “continued to outperform our expectations,” Hoffman said.
Sweaty Betty grew more than 50 percent compared to the prior-year period. At Sperry, meanwhile, revenue jumped more than 40 percent. The company’s work business saw sales climb more than 20 percent
Net Income: Net earnings attributable to Wolverine came in flat during the third quarter, compared to $22.4 million, or $0.27 per share, a year earlier.
The company’s adjusted diluted earnings per share totaled $0.62—$0.61 on a constant-currency basis—versus $0.35 in the prior year.
CEO’s Take: “Over the last several years, we’ve consistently invested behind digital and DTC capabilities, technology, talent, and e-commerce, as well as product innovation and design,” Krueger said. “In Q3, we made an important acquisition of Sweaty Betty, which will be an important catalyst for growth across our performance brands. Our product pipeline is robust, consumer demand is surging and brand heat and ongoing trends favor our brand. We are confident as we plan for double-digit growth in 2022.”