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Wolverine Significantly Pulls Forward Inventory in the Face of Tariff Increase

Wolverine World Wide reported its second-quarter financial report Wednesday, revealing efforts to protect its brands from tariff-related headwinds.

In a Nutshell: Wolverine—which counts Wolverine, Keds, Sperry Top-Sider and Saucony among its portfolio of brands—significantly increased its inventories in the second quarter, growing its available stock by 38.4 percent over the comparable period, including an additional $10 million put toward new stores and the opening of Saucony Italy. It’s also scaling back on what it sources in China.

“In 2019, the percentage of our footwear sold in the U.S. from China factories is substantially smaller than the footwear industry as a whole. As a result, we plan to only import approximately 3.5 million pairs into the U.S. from China during the last four months of 2019. Our healthy inventory position will also help minimize the impact of any new tariff, should they be imposed,” Black Kreuger, chairman, CEO and president of Wolverine World Wide explained to reporters on the group’s quarterly conference call Wednesday. “For 2020, we expect China imports to decline dramatically to approximately 7.5 million pairs for the entire year, less than 10 percent of the global pairs sold by our brand. We expect to further the dramatic decline to approximately 3.5 million pairs in 2021…we’ve been able to move very quickly because approximately 75 percent of pairs transitioning out of China are moving to factories owned by existing sourcing partners.”

Meanwhile, Wolverine World Wide brands earned more trust from investors after turning in a weak first quarter. Sales were up or flat at each of the group’s three major brands, Saucony, Sperry and Merrell, in Q2.

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Sales: Total revenue for Wolverine came to $568.6 million in the second quarter, up 1.1 percent over the comparable period but still below average analyst expectations for the brand at $575.6 million.

“Despite unfavorable Spring weather and overall sluggish U.S. retail conditions, second-quarter revenue increased 1.1 percent on a constant currency basis with our owned e-commerce business growing over 25 percent and four of our top-five brands meeting or exceeding revenue expectations,” Kreuger said in a statement. “Merrell grew mid-single digits and Sperry improved to flattish growth in the quarter.”

In terms of outlook, Wolverine now expects to deliver mid-single-digit growth over the second half of the year based on the performance of its top three brands.

Earnings: The group reported earnings per share of 52 cents in the quarter, down from 54 cents in the comparable period but above the average analyst prediction of 50 cents. This most recent earnings beat means Wolverine has successfully surprised on its earnings expectation in each of the last six quarters.

The company predicts diluted earnings per share will be approximately $2.28, landing directly in the middle of the previously announced outlook of between $2.20 to $2.35 in earnings by year-end.

CEO’s Take: Speaking to reporters, Kreuger said Wolverine World Wide is currently focused on improving its “organic growth” and it believes it has adequately prepared its business for any headwinds related to the trade war.

“As a company, we remained focused on delivering annual mid-single-digit organic growth,” Kreuger said. “Though Q2 did not meet our longer-term goal, momentum is building and our brands are poised for a much better second half topline performance. The recent news on the tariff front is not expected to have a material impact on the business in the second half or on next year’s results.”