Reaching the upper end of its projections, Wolverine Worldwide reported a decline of 2.9 percent to $729.6 million in its total turnover during its fourth financial quarter, ended Dec. 31, with a high single-digit increase outside the U.S. more than offset by a low single-digit decline in its domestic market, due especially to declining retail revenues. Wolverine has closed some 200 stores since 2014, partly under the Merrell brand name but mostly under its Stride Rite banner for children's shoes.
Anyhow, the group's underlying sales – adjusted to eliminate the impact of foreign exchange rates, store closures and the disposal of Cushe - inched up by 0.1 percent in the quarter, despite an unfavorable retail environment in the U.S.
Moreover, the group raised its adjusted gross margin by 1.1 percentage points to 37.76 percent and its operating margin by 1.4 percentage point to 7.3 percent for the quarter. Higher restructuring costs of $4.1 million and other one-time charges of $28.6 million led Wolverine to post a net quarterly loss of $24.0 million against net income of $11.9 million in the year-ago period.
Improving from the third quarter, Merrell saw its revenues decline by 7 percent during the fourth quarter. The management said that the brand gained market share in the U.S. and that it grew internationally. Its exclusive Arctic Grip range sold out very well.
The brand delivered good results in the performance segment. Its active lifestyle category remained a challenge for the group, but the management is committed to build it up to represent half of the sales for the brand. Merrell's revenues from e-commerce grew by 30 percent in the quarter as well as for the full financial year.
Very strong double-digit growth was recorded in the latest quarter at Chaco, which is now reaching an annualized turnover of around $100 million. Adding two other brands to Merrell and Chaco – CAT Footwear, which was up at a double-digit rate, and Hush Puppies, whose sales were flat – Wolverine's entire Outdoor & Lifestyle Group suffered a 1.7 percent decline on an adjusted basis in the quarter.
Another division of Wolverine, the so-called Boston Group of brands, posted a 6.2 percent increase in revenues on a comparable basis in the fourth quarter, with Saucony and Sperry growing at a mid-digit rate and Keds registering a very strong double-digit increase. Their sales outside the U.S. rose by more than 20 percent.
Underlying revenues declined by 6.1 percent in Wolverine' Heritage Group. The Wolverine brand declined at a low single-digit rate, but its operating profit rose considerably. The group will soon launch a major new product under this label.
On a reported basis, the quarterly revenues declined by 4.8 percent to $250.8 million in the Wolverine Outdoor & Lifestyle Group and by 6.2 percent to $118.0 million in the Heritage Group. It rose by 5.8 percent to $259.7 million in the Boston Group.
For the full year, Wolverine Worldwide's revenues dwindled to $2,494.6 million, down by 7.3 percent in reported dollars and by 4.9 percent on an adjusted basis. The group's adjusted gross profit and operating profit margins improved slightly for the year in terms of constant currencies, reaching levels of 39.7 percent and 9.3 percent, respectively. However, the reported margins were lower and the group ended 2016 with net earnings of $87.5 million, down by 28.5 percent from the previous year.
The management says it is on track to raise its operating margin to 12 percent by the end of 2018, with gains of 1.6 to 1.7 percentage points, by working with fewer factories at different locations. Other cost initiatives will add between 0.3 and 0.4 percentage points to the operating margin.
The company closed 101 under-performing stores in the course of last year as part of a transition to an omni-channel sales structure. Further store closings should stop a $20 million drain on profits, half of which occurred in 2016. Wolverine plans to shut down about 110 more stores in the first quarter of 2017, mostly under the Stride Rite banner, and another 105 later on.
Wolverine managed to cut its inventories by 25.3 percent by the year-end and cash generated by operating activities rose by 37.5 percent to $296.3 million. As previously reported, the group started implementing the “Wolverine Way Forward,” a strategic platform that is meant to make the company more consumer-focused and to raise earnings through operational improvements (see Vol. 10 N° 1+2 of The Outdoor Industry Compass, Jan. 13, 2017). With these investments, Wolverine says it's well-positioned to perform in a consumer and retail environment it previously described as “the new normal.”
For the current fiscal year, the company predicts that sales will tumble by between 5 and 9 percent, but the trend for underlying revenues should range from a decline of 2.3 percent to an increase of 1.9 percent. The adjusted operating margin is predicted to reach a level of between 9.9 and 10.4 percent.