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Wolverine CEO: ‘E-Commerce Did Not Meet Our Expectations’ in Q1

Wolverine Worldwide saw revenue jump 20.4 percent in the first quarter to $614.8 million, up from last year’s $510.7 million in quarterly revenue, on net income of $8.4 million.

In a Nutshell: Brandon Hoffman, president and CEO of Wolverine Worldwide, said the Merrell and Saucony parent is still experiencing logistics delays with lead times almost twice as long as pre-Covid levels.

“Although factory production levels have meaningfully improved, freight movement in the first quarter was affected by China’s zero-tolerance restrictions, the Russia-Ukraine war, ongoing U.S. port congestion and trucking capacity limitations,” Hoffman said. “We expect supply chain [delays] to be lessening, but still meaningful headwinds throughout the year with evolving Covid issues in China presenting a new potential challenge at the end of the quarter.”

Wolverine Worldwide expects the direct-to-consumer (DTC) business to grow over 20 percent for the full year, and 5 percent when excluding activewear brand Sweaty Betty, which it acquired in August. In total, DTC is expected to drive nearly 30 percent of total revenue in 2022.

The footwear giant has been vocal about its DTC ambitions to reach $500 million in owned digital, but its organic revenue growth in the channel has hit a snag. DTC revenue increased 24 percent including Sweaty Betty, but without its newest brand, it decreased 14 percent. The DTC declines reflected an e-commerce sales decline of 16 percent and store revenue dip of 8 percent.

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“As consumers shift back to stores…combined with the impact of delayed product launches due to supply chain challenges, and shifts in consumer sentiment towards experiential spending, e-commerce sales did not meet our expectations during the quarter,” Hoffman said.

As expected, higher freight and product costs are leading to certain price increases, which “will be more meaningful in the back half of the year, with sequential improvement each quarter,” said Mike Stornant, Wolverine Worldwide chief financial officer.

Inventory at the end of the quarter was $483.3 million, up 50.6 percent versus the prior year. Excluding Sweaty Betty merchandise, inventory increased 36.1 percent. This increase reflects abnormally low inventory levels last year from excessive supply chain challenges. In-transit inventory represented 20 percent of total inventory.

“Our available inventory on core and carryover styles is currently very healthy,” Stornant said.

Saucony entered the quarter with a good inventory position and carryover styles as well, Hoffman noted, but new product launches were delayed as expected due to supply chain challenges, holding back the running brand’s growth in the quarter.

Gross margin of 42.5 percent was in line with the company’s internal plan and includes incremental supply chain costs and a revenue mix shift toward the international distributor business. The metric is down 100 basis points (1 percentage point) from last year’s 43.5 percent gross margin total.

The company reiterated its original guidance for 2022, expecting revenue to grow approximately 15 percent to 18 percent, which would fall within the range of $2.775 billion and $2.85 billion.

For the full-year, Merrell should deliver high-teens growth, Hoffman said. The brand is expected to grow in the low-teens in the second quarter, before improving sequentially in the third and fourth quarters. Saucony is expected to bounce back to double-digit growth in the second quarter, with high-teens growth throughout 2022.

Sperry is projected to grow mid-single-digits in the second quarter, which is partially impacted by shift of revenue, and should deliver low-teens growth for the full year. The Wolverine brand should see a high-teens revenue boost in the second quarter, with full-year growth forecast in the mid-teens.

Hoffman said Wolverine Worldwide expects Sweaty Betty’s quarterly revenue to be down mid-single-digits, with a return to double-digit growth in the second half of the year resulting in a low-teens sales jump in 2020.

Diluted earnings per share are expected to be between $2.30 to $2.45 and adjusted diluted earnings per share are expected to be between $2.50 to $2.65, representing growth of 19.4 percent to 26.5 percent. Gross margin is expected to be approximately 43 percent.

The outlook assumes that there will be no meaningful deterioration of current market conditions related to the Covid-19 pandemic during the remainder of 2022.

Total debt at the end of the quarter was $1.09 billion. Total liquidity including cash and available borrowings under the company’s credit line was approximately $800 million.

Net Revenue: Across all brands, Wolverine Worldwide revenues jumped 20.4 percent in the first quarter to $614.8 million, up from the prior-year period’s $510.7 million.

The company’s Michigan Group, which consists of the Merrell, Wolverine, Chaco, Hush Puppies, Cat, Bates, Harley-Davidson and Hytest brands, saw strong growth of 10.6 percent to $329.3 million, up from $297.7 million in the 2021 first quarter.

Wolverine’s second major division, the Boston Group, saw sales increase 5.7 percent to $212.3 million from the $200.9 million from a year ago. Boston Group brands include Sperry, Saucony, Keds and the company’s kids’ footwear offerings such as the Stride Rite licensed business and owned labels including Saucony, Sperry, Keds, Merrell, Hush Puppies and Cat.

The firm’s “other” category largely consists of Sweaty Betty, which propelled first-quarter sales to skyrocket 505 percent to $73.2 million. In total, the activewear brand brought in $53.6 million in revenue during the quarter.

Excluding Sweaty Betty, total revenue at Wolverine Worldwide increased 9.9 percent to $561.2 million from the 2021 first quarter’s $510.7 million.

From a brand perspective, Merrell remains the largest label at $147.9 million in total sales, but that total is down 1.5 percent from 2021 first-quarter revenues. Saucony experienced year-over-year growth at 3.7 percent to $106.4 million.

Sperry was the highest-growing brand for Wolverine Worldwide, jumping 18.7 percent to $67.4 million in the quarter. Behind the boat shoes maker was the namesake Wolverine brand, which saw a 12.2 percent revenue increase to $58.8 million.

Net earnings: First-quarter net earnings dipped to $8.4 million, or diluted earnings per share of 12 cents, from last year’s $38.4 million, or diluted earnings per share of 45 cents.

Earnings before income tax (EBIT) totaled $12 million, compared to the 2021 period’s $45.7 million. Adjusted earnings per share totaled 41 cents in the first quarter, up from 40 cents in the year-ago period.

CFO’s Take: Wolverine Worldwide is working with Boston Consulting Group to realign its corporate strategy, namely in prioritizing brand investment going ahead.

“This includes developing new enterprise-level and brand-level strategic goals and initiatives geared towards the optimization of our portfolio and capital structure to maximize value to complement this work,” Stornant said. “We are also in the early stages of a comprehensive cost and efficiency review and may partner with some outside experts to help us accelerate these opportunities.”