Wolverine Worldwide reported a 5 percent drop in its net income to $24.0 million for its second quarter, ended June 18, as its sales fell for the fourth quarter in a row, down by 7.4 percent to $583.7 million in dollars and by 5.2 percent on an underlying, currency-neutral basis. However, the stock price went up by more than 9 percent after the conference with the analysts as these results were higher than those that they had projected.
In constant currencies, sales declined by 0.8 percent for the Outdoor & Lifestyle Group, with Chaco posting percentage rise in the high teens, Merrell and CAT falling by low single digits and Hush Puppies going down by a high single digit. Merrell enjoyed mid-single-digit growth in performance outdoor and its online sales went up by more than 30 percent, but the active lifestyle segment was off by a double digit.
Across the group, e-commerce delivered a 20 percent sales increase in the quarter.
According to the management, the athletic lifestyle trend is growing more important in outdoor shoes than in the casual sector, but the market is flat overall. Across all categories, footwear sales declined by between 2 and 4 percent in the U.S. during the quarter, the management estimates.
In the U.S., the recent retail bankruptcies and a sluggish retail environment pulled down Merrell's wholesale revenues during the quarter, but product partnerships with key accounts in the U.S. and abroad resulted in high-teen gains. The introduction of Vibram's Arctic Grip technology should drive sales in the autumn at Merrell and five other group brands.
A mid-single-digit increase at Saucony partially offset declines at Sperry and Keds, resulting in an 8.9 percent drop for Wolverine's so-called Boston Group during the quarter. The retail bankruptcies hurt Saucony, but its Everrun line helped it to record a gain in the high teens in the running specialty channel, and its sales in the three major regions outside the U.S. grew at double-digit rates. Focused on work boots, the Heritage Group fell by 6.2 percent in the quarter, with Bates going up and the Wolverine brand going down due to weakness in oil patch regions.
Negative currency effects drove down the group's gross margin by 0.3 percentage points to 38.8 percent in the quarter, offsetting strategic price increases, a better product mix and fewer closedown sales.
Foreign currencies depressed the gross margin by one full percentage point. About 13 percent of the group's revenues come from Europe, the Middle East and Africa
The operating margin fell by 0.4 percentage points to 7.2 percent, but adjusted for currencies, it went up by 0.3 percentage points to 8.4 percent.
On a constant-currency basis, the gross margin went up by 0.7 percentage points. The management reiterated its forecast for revenues in the $2,475-2,575 million range for the full year, including foreign exchange losses of $40 million. That would mean a drop of between one and five percent on a currency-neutral basis.
Resigning itself to the “new normal” pattern of zero growth in revenues, the management is focusing on achieving higher levels of profitability. It is still targeting an operating margin of 12 percent by the end of 2018, with half of the gain coming from higher product margins and the other half from cost-cutting.
Wolverine is considering the divestiture of several brands that don't meet its metrics. It will continue to close underperforming stores and invest more in e-commerce, which generated 20 percent more turnover in the latest quarter across its brands.
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