Wolverine Worldwide reported a drop in revenues of 3.7 percent to $581.3 million for the 13 weeks to Sept. 30. Adjusted revenues, which take into account an extra week added through a change in the financial calendar, were down by 8.0 percent. The year-ago quarter had 12 weeks and ended on Sept. 10.
Excluding operations being divested or licensed out, underlying revenues went up for the second consecutive quarter. They rose by 1.1 percent, boosted by an uptick in sales at Merrell and Saucony.
Thanks to an improved mix of brands and fewer markdowns, the gross margin of the group gained 0.4 percentage points, expanding to 39.7 percent, and the adjusted gross margin advanced by 1.3 percentage points on a constant-currency basis to 40.4 percent. The operating margin fell by 5.3 percentage points to 6.1 percent, but the adjusted operating margin on a constant-currency basis was up by 1.4 percentage points to 11.9 percent.
The management said the results were better-than-expected, prompting it to raise its revenue guidance for the full year. It is also projecting to hit its targeted operating margin of 12 percent as of 2018, one year ahead of schedule, and it is planning to invest an additional $20 million next year, mainly to support its growing digital business and various brand initiatives.
Going forward, the group wants to focus more on international growth in key markets, in addition to product innovation, consumer insights, demand creation and the digital space.
Underlying revenues grew by 4.9 percent during the past quarter in the company's Outdoor & Lifestyle Group. Merrell posted growth of more than 3 percent globally and Chaco delivered “very strong” double-digit growth, fueled in part by a 40 percent gain in e-commerce. Cat footwear was up slightly and Hush Puppies was down by a high single digit rate.
Merrell saw “broad-based growth” from every region around the world, the management said. The brand's online sales grew by over 30 percent for the second consecutive quarter. As part of the Wolverine Way Forward initiative, Merrell is focused on five “consumer territories:” hiking, nature's gym, outdoor lifestyle, urban trail and work.
Merrell is the pilot brand in Wolverine's turnaround program and is already seeing the benefits of faster product development, better consumer insights and marketing. Its momentum is expected to persist in the fourth quarter of this year.
Merrell's core performance outdoor business advanced at a mid-single-digit rate in the latest quarter, benefiting from the Moab 2 and strong sales for the Nature's Gym line. The brand's active lifestyle segment returned to growth, driven by men's styles, while the women's segment is improving, and the management continues to see a big opportunity there.
In Wolverine's so-called Boston Group, underlying revenues declined by 1.7 percent. While Sperry decreased by a mid-single-digit rate and Keds dropped by high-single digits, Saucony was up by a mid-single digit rate, supported by the launch of new products in the U.S. and Europe.
Wolverine's net income declined by 51.9 percent to $23.2 million, as the quarter included $31.2 million of restructuring costs related to transformation efforts, of which $5.6 million were non-cash.
The management said the results were the fruits of the company-wide strategic transformation it launched in March. As part of the reorganization, the company has closed 188 stores since the beginning of 2017 and plans another 27 closures before the end of 2017, leaving a remaining brick-and-mortar fleet of about 80 profitable stores.
Targeting the upper portion of its previous guidance, Wolverine is now budgeting an indicated net profit of around $75.4 million for the full financial year on revenues that should reach a level of between $2,340 million and $2,370 million – down by 2 percent on a reported basis but up 2 percent for continuing operations. The reported operating margin is expected to be in a range of 5.0 percent to 5.4 percent, while the adjusted operating margin should reach a level of 10.6 percent to 10.9 percent.