Wolverine Cites Healthy Operations Despite Supply Chain Challenges
Wolverine World Wide Inc., the footwear giant operating such brands as Saucony, Hush Puppies, Merrell, Keds and Sperry, reported strong revenue gains in the third quarter despite confronting supply chain disruptions, and a profit gain on an adjusted basis.
Adjusted diluted earnings per share in the quarter ended Oct. 2 were $0.62, compared to $0.35 in the prior year. Diluted EPS were $0 compared to $0.27 in the prior year.
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Revenues last quarter rose 29.1 percent to $636.7 million, versus $493.1 million in the year-ago period.
However, the company also reported a small bottom-line loss of $800,000 for the quarter ended Oct. 2 compared to a net profit of $21.7 million in the year-ago period. The loss was largely due to charges related to the acquisition of Sweaty Betty, debt refinancing costs, certain litigation costs and air freight charges from production and shipping delays caused by COVID-19. As reported, Wolverine acquired Sweaty Betty, a digitally native women’s activewear brand, last August, in a $410 million deal marking Wolverine’s first major foray into women’s apparel and efforts to enhance its e-commerce business.
The company met Wall Street expectations for profits but didn’t on the revenue side, resulting in the stock price dropping 10.9 percent, or $4.10 to $33.39 after the market closed Wednesday.
The company issued new guidance for the year, lowering EPS to $1.16 to $1.21, and adjusted diluted EPS to between $2.05 and $2.10. Previously, the company projected diluted EPS in the range of $1.85 to $1.95, and adjusted diluted EPS to between $2.20 and $2.30.
The company expects annual revenue of approximately $2.4 billion resulting in nearly 35 percent growth versus the prior year, and similar to previous guidance of $2.34 billion to $2.4 billion. The outlook assumes no meaningful deterioration of current market conditions due to COVID-19 for the remainder of 2021.
“The company delivered strong double-digit revenue growth and exceptional earnings leverage, despite the increased supply chain disruption caused by Vietnam factory closures and global logistics delays,” said Blake W. Krueger, chairman and chief executive officer. “Merrell was hit hardest by Vietnam factory closures but still delivered mid-single-digit growth. Saucony and Sperry both drove over 40 percent revenue growth. The unplanned supply chain disruptions resulted in at least a $60 million negative revenue impact in the third quarter. Demand for our brands remains very strong as evidenced by continued strength in sell-through trends at retail and a robust order book that extends into third-quarter 2022.
“We remain bullish on our outlook for the future in light of these trends and the composition of our portfolio which over-indexes on performance categories like hiking, running and work,” Krueger said. “We are also excited about the addition of Sweaty Betty to our portfolio — a fast-growing brand that enhances the digital and apparel capabilities of the company.”
In other results, Wolverine reported its e-commerce revenue rose 45 percent versus the prior year and 126 percent versus 2019.
Reported gross margin was 43.2 percent, compared to 41 percent in the prior year. Adjusted gross margin was 44.6 percent compared to 41.3 percent in the prior year.
Reported operating margin was 6.7 percent compared to 8.6 percent in the prior year. Adjusted operating margin was 12 percent compared to 10.6 percent in the prior year.
“Looking forward, our product lines are robust across the brand portfolio and order demand continues to strengthen,” said Brendan Hoffman, president, CEO designee, during a conference call. “We have been flexible and responded quickly to navigate the ongoing macro supply chain challenges to service the increased demand we are seeing in nearly every brand. We believe strong product coupled with more precise merchandising and consumer focus as well as healthier inventory positions will drive growth over the next year.”
“We are pleased with the third quarter’s strong double-digit revenue growth and even stronger adjusted earnings growth versus 2020,” said Mike Stornant, senior vice president and chief financial officer, in a statement. “Operating margin was stronger than expected and benefited from healthy gross margin performance across the portfolio. In addition, our nimble operating model and diverse portfolio allowed us to navigate the short-term disruption caused by Vietnam factory closures. We are encouraged to see factories re-open but the recent closures will impact our ability to fully service the incredibly strong demand we are seeing in the fourth quarter. As a result, we adjusted our full-year outlook for fiscal 2021.”
