Wolverine Worldwide reported a lower than expected net loss of $3,499,000 for the fourth quarter ended last Dec. 29, which compares with a profit of $23,011,000 in the year-ago period, and its net earnings for the year were down to $80.7 million from $123.3 million in 2011.

The group would have still been profitable in the latest quarter without extraordinary charges of $29.1 million related to its $1.25 billion acquisition last Oct. 7 of the Performance & Lifestyle Group (PLG) of Collective Brands, which added four major shoe brands – Saucony, Sperry Top-Sider, Keds and Stride Rite – to its already impressive lineup of 12 brands. However, those costs came out lower than planned, and PLG's profit contribution was higher than expected.

Wolverine World Wide Inc. - Consolidated Income Statement - ('000 $, Year Ended Dec. 31)

 

2012

2011

% Change

REVENUES

1,640,838

1,409,068

16.4

Cost of Sales

1,008,197

852,316

18.3

Exc. Acquisition Cost

4,481

-

-

SG & A*

481,899

386,534

24.7

Interest Expense

14,032

1,025

1269.0

Acquisition-Related Interest

5,197

-

-

Other Expense

317

283

12.0

Pre-Tax

94,178

168,910

-44.2

Tax

13,414

45,623

-70.6

NET INCOME

80,764

123,287

-34.5

Earnings/Share (Diluted)

1.63

2.48

-34.3

* Selling, General and Administrative Expenses.

The momentous takeover contributed to a huge 60.5 percent increase in the group's quarterly revenues to $652.2 million for the quarter. Excluding PLG, Wolverine's quarterly sales rose by 6.5 percent to $432.8 million, but those of its former Outdoor Group, which comprised Merrell, Patagonia Footwear and Chaco, rose by only 1.7 percent to $143.5 million. The company's segments have since been renamed to include the PLG brands.

For the full financial year, the group's sales went up by 16.4 percent to $1,641 million, with growth of 0.9 percent for Wolverine's continuing operations, but they would have been 0.8 percentage points higher if currency exchange rates had remained the same.

The revenues of the Outdoor Group declined by 1.2 percent to $545.2 million in the course of the year. Merrell improved slightly. It performed relatively well in the U.S. in spite of an estimated 10 percent decline in the U.S. outdoor market over the last 12 months, due to unseasonable weather patterns, but its sales fell in foreign markets, which represent about 40 percent of its total sales. Merrell suffered from retail consolidation in Canada, and its European sales declined by between 5 and 10 percent, but they stabilized in the fourth quarter.

The management claims that Merrell realized market share gains in outdoor performance categories such as hiking and light hiking and in minimalist footwear, and it remained optimistic about the launch of the new M-Connect series this spring. Merrell has been performing less strongly in the active lifestyle sector.

Chaco's sales grew by double-digits, driven by its expanded offerings of closed-toe shoes. In the company's Heritage Group, the Wolverine brand of work boots recorded a double-digit increase as well in the rugged outdoor segment. As it is doing with Merrell, the company wants to develop a more comprehensive range of products “head to toe” around the Wolverine brand.

 Two more casual brands of Wolverine – CAT and Hush Puppies – suffered declines in Europe, due apparently to the macroeconomic situation in the region (more on these and other group brands in Shoe Intelligence), but the management feels that it has reached the bottom.

Looking ahead, the management forecasts a further sales increase for the group of between 64 and 70.6 percent for this year to a level of between $2.7 billion and $2.8 billion, with growth of between 6.0 and 9.9 percent on a pro forma basis, i.e. assuming that PLG was part of the group for all of 2012. Strong sales growth is expected in Asia-Pacific and Latin America.

Wolverine World Wide Inc.- Revenue by Operating Group (‘000 $, Year Ended Dec. 31)

 

2012

2011

% Change

Outdoor Group

545,259

551,790

-1.2

Heritage Group

502,738

500,283

0.5

Lifestyle Group

203,457

206,277

-1.4

Performance + Lifestyle Group

150,238

-

-

Other

17,372

15,718

10.5

Total branded footwear, apparel & licensing revenue

1,419,064

1,274,068

11.4

Retail*

183,926

101,960

80.4

Other business units

37,848

33,040

14.6

Total Revenue

1,640,838

1,409,068

16.4

Includes PLG's direct to consumer business.

The integration of most back-room functions with PLG has been completed, and better results are expected for this year. The management predicts that gross margins will expand moderately, thanks to more stable purchase costs, lower closeout sales and a higher proportion of consumer-direct revenues. Fully diluted earnings per share will grow by between 9.2 and 15.7 percent, in spite of additional acquisition and integration costs. In the fourth quarter of 2012, the gross margin of the group's continuing operations slipped by 2 percentage points to 35.0 percent.

Blake W. Krueger, chairman and chief executive, feels that retailers' inventories are cleaner and lower than a year ago in the U.S., thanks to a recent cold spell. However, the group is responding to the recent warm winters by stocking a higher proportion of transitional early autumn and early spring models. It is holding narrow and deep inventories of key categories and styles available for reorders.