Wolverine World Wide has reiterated its intention to carry out acquisitions. The focus remains on buying new brands, but the group does not rule out a move that could increase its retail activity. There is speculation that Wolverine is interested in Saucony, Sperry Top-Sider and other properties of Collective Brands (see the News Briefs)
The group had about $140 million in cash on its balance sheet at the end of 2011 and has only drawn $11 million on its $150 million revolving credit facility. The management noted that there are a number of opportunities but that it will be “very disciplined” in its acquisition policy. It did not set a limit on the size of a possible takeover.
Wolverine can increase its borrowing capacity, but the management stressed that it does not want the company to become highly leveraged. The group has repeatedly said that it would like the next acquisition to be bigger than the Chaco or Cushe brands bought separately in 2009.
All the divisions of the group booked double-digit increases in the past financial year, but the heritage and lifestyle divisions outperformed its outdoor segment in the fourth quarter because of unseasonable weather patterns.
The heritage division increased its full-year revenues by 10.1 percent to $500.3 million. CAT Footwear was the largest contributor to the activity's expansion in the full year and fourth quarter thanks to growth reaching mid-teen, or higher, rates in its main markets. Quoting the research group SportScanINFO, the management noted that CAT Footwear increased its market share in the U.S. by 4.0 percentage points in work boots and is now among the top five brands in that segment.
Wolverine points out that CAT did not take market share from Wolverine, which remains leader in the American work boot category. In the fashion segment, Wolverine's 1000 Mile and 1883 Collection enjoyed a nearly triple-digit growth rate in the fourth quarter.
The lifestyle unit, which includes Hush Puppies, Sebago, Soft Style and Cushe, increased turnover by 12.8 percent to $208.3 million for the full year. Sebago achieved double-digit growth rates in the fourth quarter and full year, driven by its waterproof collection. The brand had almost 50 concept stores at the end of the year worldwide and is studying the opening of new locations. Sebago's stores are exceeding the group's expectations and Wolverine is considering opening more of them in the U.K. and other parts of Europe.
Cushe booked “very high” double-digit growth in the fourth quarter and the full year. Hush Puppies' international licensee business also posted a very strong double-digit growth pace in terms of revenues and volumes. At the end of the year, the brand had 625 mono-brand concept stores worldwide and more than 2,000 shop-in-shops.
As already reported more extensively in our sister publication, SGI Europe, the group's outdoor division saw its revenues rise by only 4.5 percent to $141.1 million in the fourth quarter, slightly underperforming the rest of the group, whose total revenues rose by 5.6 percent during the period to $406.5 million thanks to a 13.4 percent rise in the lifestyle segment. Fourth-quarter results were affected by soft at-once orders, hit by a moderate fall in most of the U.S. and Europe as retailers focused on keeping inventories lean. Re-orders for cold-weather products are being hit by some excess inventory at retail because of a tough business environment.
For the full financial year, the group booked a 12.9 percent increase in revenues to $1.409 billion and shoe sales rose by more than 12 percent to over 52 million pairs. Turnover in the U.S. rose by a high-single-digit rate, while international revenues registered a double-digit growth. The increase was strongest in Latin America, Greater China and India.
More than half of the group's sales volumes were achieved through its distributors and licensee partners, channels that are “enormously profitable,” generating substantially higher operating margins than the already “very profitable” subsidiary markets. The group has subsidiaries in the U.S., Canada and most of Western Europe, including the U.K. Revenues grew by a very strong double-digit pace at licensees and distributors, with sales volumes up by almost 20 percent, while revenues booked by subsidiaries nearly reached 10 percent.
During the year, the outdoor division increased sales by 18.0 percent to $551.8 million. Wholesale revenues of the Merrell brand exceeded $500 million, but this doesn't include sales under license. The Merrell Barefoot collection sold more than 1 million pairs in its first year, as it managed to make inroads in the athletic and running specialty retail channels. The Chaco and Patagonia Footwear brands, which are also part of the outdoor division, each registered growth reaching upper-teen rates. In the fourth quarter, the group opened 50 new accounts in the U.S. for the Chaco brand partly thanks to the introduction of the closed-toe footwear range. Chaco is currently present in 25 countries.
Among other businesses, Wolverine's retail operations enjoyed growth in comparable store sales and a strong double-digit growth pace in e-commerce. The business finished the year with 101 stores, lifted by 16 openings, which were partially offset by three closures. The group plans to open 12 to 15 new locations this year, mainly in the U.S. The retail business had full-year same-store sales about 30 percent higher than the average reached by footwear shops in the U.S., based on a survey by the Footwear Distributors and Retailers of America (FDRA). The group said that direct-to-consumer sales represented 7.0-7.5 percent of overall sales in the full-year and that it aims to bolster the percentage to 15.0 percent.
In the fourth quarter, the group's gross margin narrowed by 0.2 percentage points to 36.9 percent, but in the full year it remained unchanged at 39.5 percent. The outdoor division delivered a 0.6 percentage point increase in its full-year gross margin thanks to the higher-margin Barefoot collection.
Selling, general and administrative expenses dropped to 27.4 percent of full-year sales, from 28.1 percent a year earlier, despite a significant increase in marketing. Advertising expenses for Merrell increased by 25 percent in the full year and by 75 percent for Cushe. In a conference call, Wolverine's chairman, Blake Krueger, said that the company does not plan to take the “foot off the gas pedal” this year in terms of marketing efforts.
The group's operating margin narrowed to 7.6 percent from 8.1 percent in the last quarter but widened to 12.1 percent from 11.4 percent in the full year. The net profit dropped to $23.0 million in the fourth quarter from $25.6 million a year earlier, but rose in the full year to $123.3 million from $104.5 million.
The company expects 2012 full-year revenues to rise by 5.4-8.2 percent to $1.485-1.525 billion and to book a moderate increase in gross margins. Earnings per share are forecast to grow by 4.8-8.9 percent to $2.60-2.70.
This year's turnover will be affected by an expected strengthening of the American dollar against the pound sterling, the Canadian dollar and the euro. On a constant currency basis, sales are due to rise by 8.2-11.1 percent. Wolverine anticipates that revenues will be flat in the first quarter and will book modest growth in the second quarter. Growth will pick up in the second half of the year, building up to a double-digit pace. The increase will be strongest in the fourth quarter.
The company indicated that the sourcing environment is much more stable than two years ago and that it will be able to adopt a less aggressive stance on pricing to offset higher production cost. Product costs are expected to rise by “mid to mid-high” single digits in the first half and be below that level in the second part of the year. Production costs in China continue to rise due to higher labor costs but factories are trying to contain prices.
Wolverine has outgrown its distribution facilities, including its Michigan-based distribution center, and is studying options to expand its infrastructure both in the U.S. and in Europe. It expects to make progress on the issue over the next couple of months and plans to spend about $2.5 million in the second half of the year in preliminary costs. These expenses are included in the $25-30 million in investments the company penciled in for 2012.
Additional costs are expected in 2013 to upgrade the distribution platform, whose expansion is expected to be completed around the middle of next year. Wolverine says the investment will lead to a reduction in freight costs and delivery times.