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Despite Earnings Beat Wolverine Stock Falls on Weakness at Sperry, Saucony

Wolverine World Wide Inc. (WWW) shares fell by more than 7 percent in early trading on May 9 on weakness at Sperry and Saucony despite outperforming analyst expectations for income and earnings.

In a Nutshell: The first quarter was a period of change and investment for the group as it reduced itself to two parts, Wolverine Michigan and Wolverine Boston, condensing the previous Wolverine Outdoor and Lifestyle Group and Wolverine Heritage Group into the new Michigan branch. Additionally, it announced $40 million in capital investments during the quarter to drive long-term growth, including its agreement with Xtep International Holdings Limited to develop, market and distribute Merrell and Saucony products in the greater China region.

Other investments include a buyout of one of Saucony’s key footwear distributors in Europe to expand the brand’s market presence and strengthen growth in the area. Wolverine said it is also investing in “several” new outlet locations for Sperry and Merrell and making improvements to its corporate HQ in Rockford, Mich.

Sales: Revenue for Wolverine was down 2 percent year-over-year on $523.4 million in sales in Q1 but still beat analyst expectations of $512.7 million. Wolverine said this was likely due to the late start to spring and a slow start for seasonal footwear—in particular, Sperry’s boat shoes—but maintained that, otherwise business went as expected in the first quarter.

Overall, Wolverine felt that a weak footwear market in the U.S. explained any discrepancies in its previous outlook. Blake Krueger, chairman, president and CEO of Wolverine, called the quarter “tepid” for footwear and said that pairs had fallen by 4 percent, industry-wide, during the quarter.

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Sperry declined 10 percent in the first quarter although Wolverine said the brand had “gained significant market share” during the quarter despite the headwinds. As a result of Sperry’s decline, Wolverine said that inventories had increased by 28.7 percent over the comparable period in 2018, 7 percent higher than was expected.

Keds was a standout for Wolverine during the quarter, up 20 percent on growing U.S. market share and its bustling e-commerce business. Merrell also grew in the low-single digits in Q1 thanks to strength in performance categories and positive reactions to new releases. A 30 percent jump in e-commerce sales at Merrell was one of the highlights of Q1 for the group. Wolverine said that it expects high-single-digit growth in the second half of the year for Merrell.

Saucony, however, fell in the mid-teens during the quarter as Wolverine executes a turnaround initiative for the brand. Despite the significant loss, the group said that Saucony had actually performed better than expected during the quarter.

Wolverine said that it still expects FY19 revenue to be in the range of $2.28 billion to $2.33 billion, a growth rate of 3 percent.

Earnings: Wolverine’s Q1 EPS came in at 49 cents, compared to 50 cents in the first quarter of FY18, and above the 47 cents predicted by analysts. Net income fell to $40.6 million from $46.6 million in the comparable time period but Wolverine still managed to surpass Wall Street earnings expectations for the fourth quarter in a row.

The company expects EPS between $2.20 and $2.35 for the full year, the same outlook given in its Q4 financial report.

CEO’s Take: In a statement, Kreuger reiterated that Wolverine was pleased with its earnings beat and continued growth in online sales.

“We are pleased to report first-quarter earnings per share which exceeded our expectations,” Krueger said. “Four of our top-five brands delivered revenue above plan during the quarter, including Merrell and Saucony, and our owned e-commerce business continued to be robust, growing 28 percent over the prior year.  This strength helped to offset some unforeseen challenges at Sperry and the late start to Spring which impacted certain product categories.  Overall revenue declined less than 1 percent during the quarter on a constant-currency basis.  We expect revenue growth to resume in the second quarter and accelerate during the second half of the year as we continue to invest in a variety of initiatives to drive topline growth and attractive earnings leverage.”