The year 2020 was a difficult one for Wolverine Worldwide. Looking on the bright side, the management said it delivered better-than-expected results for the fourth quarter and is poised to drive an accelerated recovery over the next 12 to 16 months. The group posted a double-digit sales decline in the three months to Jan.2, 2021, and ended the quarter in the red with a net loss of $170.7 million, compared with a net loss of $0.9 million for the same period of the previous financial year, largely due to a $222 million impairment charge taken on the Sperry trade name.
The outlook for the new financial year is good, however. Wolverine expects the positive momentum of its performance, athletic, outdoor, and work brands to continue in 2021. For the full year, it is projecting revenues in a range of $2,190 million to $2,250 million, representing a growth of 22 to 26 percent from last year, with 40 percent of the turnover coming from DTC and sales to third-party e-tailers
The management said the pandemic had a strong impact on the casual footwear market and has put pressure on many of Sperry’s key retail customers. The impact of coronavirus-related restrictive measures on retail was partly offset by a growth of 31.7 percent in the group’s own e-commerce operations. Wolverine’s performance brands benefited from the popularity of outdoor activities.
The company took steps to strengthen its balance sheet by prioritizing liquidity and asset management. The actions included the implementation of cash enhancement and expense reduction initiatives. Cash on hand at the end of the quarter was $347.4 million, compared with $180.6 million a year earlier. Inventory levels were down by 30.2 percent over the same period.
Overall, Wolverine’s sales across the group’s entire portfolio of 12 footwear brands dropped by 16.1 percent to $509.6 million or by 16.4 percent in constant currencies. The management highlighted an $85 million negative impact related to lower sales to its third-party international distributors due to carried-over inventory, as well as a planned shift in the timing of several key Saucony product launches.
The Americas was the strongest growing region, led by high-single-digit growth for Saucony and Merrell. Other regions, including EMEA, were impacted by carried-over inventory and were down in the 13 to 14 percent range.
Sales went down by 17.3 percent in constant currencies for Wolverine’s Michigan Group, including Merrell, Chaco and the Wolverine brand. Merrell’s sales declined by a low double-digit rate, largely due to overstocks at some foreign partners. A 60 percent increase in e-commerce helped the brand to record high single-digit growth in North America. The management expects Merrell to grow by about 20 percent in the current first quarter.
The group’s Boston Group, comprised of brands such as Sperry and Saucony, saw sales decline by 16.1 percent on a currency-neutral basis. Sperry was down by just over 20 percent in the quarter, but Saucony enjoyed mid-single-digit growth in the quarter, thanks in part to a 65 percent increase in DTC and e-commerce. Performance running was up by a double-digit rate, and retro heritage was also positive. The momentum is expected to drive a 50 percent sales increase for Saucony in the current first quarter. The joint venture with Xtep in China has led to the opening of 32 Saucony stores in the country.
Overall, the company’s gross margin rose by 2.3 percentage points to 40.1 percent due to more sales at full price, reduced close-outs and an increased mix of direct-to-consumer sales, which carry higher margins.
However, the operating margin was an extremely negative rate of 40.1 percent, due to the impact of the previously mentioned non-cash impairment on Sperry’s trade name, compared to a negative 0.9 percent in the prior year. The adjusted operating margin was 6.6 percent, down from 10.1 percent last year.
For the full financial year, sales were down by 21.2 percent to $1,791.1 million in constant currencies, but e-commerce surged by 49.9 percent. The U.S. accounted for 70 percent of revenues, while EMEA represented 15 percent, Asia-Pacific 7 percent, Latin America 4 percent and Canada 4 percent.
The gross margin increased by 0.5 percentage points to 40.6 percent, and the adjusted operating margin declined by 4.0 percentage points to 7.5 percent. The company recorded a net loss of $138.6 million for the year, compared with a profit of $128.9 million in the prior year, but the management is guiding for a net profit of at least $146 million this year.