Wolverine Worldwide has reported net income of $20.7 million for the 13 weeks to July 1 as compared to $24.0 million in the 12 weeks ended on June 16 last year. The extra week, added through a change in the financial calendar, helped the group to improve total revenues by 2.6 percent to $598.8 million, beating analysts' consensus forecast of $573 million. Without the extra week, sales fell by 3.3 percent.
On an adjusted basis, excluding the extra week and the impact of restructuring measures and foreign exchange rates, store closures and changes in the brand portfolio, net earnings would have risen by 70 percent to $45.6 million, while underlying revenues would have risen by 1.4 percent.
The gross margin declined by 1.1 percentage points to 37.9 percent in the quarter, but on a constant-currency basis it was up by 0.6 percentage points to 39.1 percent, despite a negative impact of 2.1 percentage points from store closures.
Similarly, the reported operating margin fell by 2.3 percentage points to 4.9 percent, but the adjusted operating margin moved up by 3.8 percentage points to 11.0 percent on a constant-currency basis excluding inventory markdowns related to the store closures.
Revenues grew by 14 percent to $231.9 million in the company's Outdoor & Lifestyle Group, which includes Merrell, Chaco, CAT Footwear and Hush Puppies. They went up by 11.4 percent on an underlying basis.
Merrell continued to show momentum. After posting low single-digit growth in the first quarter, the pace accelerated up to mid-single-digit growth in the second quarter, boosted by e-commerce and some changes in distributors.
Merrell's core performance outdoor business advanced at a mid-single-digit rate in the latest quarter, benefiting from the launch of the Moab 2 and strong sales for the Nature's Gym line. The brand's active lifestyle segment improved moderately, driven by men's styles, and the management continues to see a big opportunity there. The momentum should continue in the second half of this year with the introduction of the new Camaleon 7 and MQM collections, plus an expanded Arctic Grip range.
Chaco registered a sales increase in the mid-teens in the second quarter. Caterpillar was up at a strong double-digit rate. Hush Puppies suffered a high single-digit decline. Both Chaco and Merrell enjoyed an increase of about 30 percent in online sales.
In Wolverine's so-called Boston Group, sales went up by 1.6 percent to $221.7 million on a reported basis but were off by 3.1 percent on an underlying basis. While Sperry grew at a mid-single-digit rate, Saucony gained slightly, thanks to e-commerce and higher sales outside the U.S. As expected, Keds fell by a low double-digit rate.
Sperry performed better than anticipated, showing strong double-digit growth in vulcanized shoes, its second-largest category. Sales stabilized for the brand's main category - boat shoes.
In the two other segments of Wolverine's operations, sales were flat at $74.1 million in the Heritage Group and down by 26 percent to $51.7 million in the Multi-Brand Group.
The management said the results were the fruits of recent investments in market intelligence, consumer insights, digital infrastructure and analytics, and the development of innovative products. It plans to accelerate some investments in the second half based on the progress made so far through its Wolverine Way Forward plan in a difficult market.
Wolverine is now budgeting revenues in a range between $2,320 million and $2,370 million for the full financial year. The new forecast would imply a decline of between 5 and 7 percent from last year on a reported basis, but on an underlying basis, sales would be flat or grow by up to 2.0 percent. The company's previous worst scenario called for a sales decline of 9 percent on a reported basis and a drop of 2.3 percent on an adjusted basis.
Excluding restructuring charges of around $35.3 million, the operating margin should reach a level of between 10.4 and 10.9 percent for the year. On a reported basis, it should settle at between 5.2 and 5.8 percent.