After posting record financial results in the fourth quarter of 2019, Wolverine Worldwide also fared relatively well in the first quarter ended on March 28, given the challenging conditions caused by Covid-19, thanks mainly to higher online sales, a strong performance in Europe and the Saucony brand.
The group’s total revenues fell by 16.1 percent to $439.3 million in the first quarter, or by 15.6 percent in local currencies. However, online sales jumped by 17.5 percent across the group’s websites, compensating for the shutdown of many stores. In particular, the company’s work boot category, which represents 15 percent of overall revenues, experienced increased demand online for core work, military, police, fire and other first-responder products.
For the full financial year, directly operated and third-party e-commerce are expected to represent 50 to 60 percent of total revenues, up from 40 percent in 2019.
In line with expectations, the group’s reported gross margin declined by 0.7 percentage points to 41.4 percent as compared to the year-ago quarter, mostly hampered by additional tariffs on Chinese imports. The adjusted operating margin dropped by 4.0 percentage points to 6.9 percent, while net earnings fell by 68.0 percent to $12.8 million, despite a gain from a foreign tax refund.
While U.S. sales went down, the group’s revenues from outside the U.S. went up by 10 percent overall, with Europe being the standout region, driven by strong performance by Saucony - and to a lesser extent Merrell - despite the U.K., France, Spain and Italy being severely impacted by the coronavirus epidemic toward the end of the period.
In constant currencies, revenues from Wolverine’s so-called Michigan Group dropped by 17.6 percent to $249.5 million. Within this division, Merrell started the year well, with growth in the mid-teens, but ended the quarter down by low double digits. However, Merrell’s online sales jumped by about 25 percent.
Across the whole Michigan Group, e-commerce rose by strong double digits. The Wolverine brand was down by high teens and CAT Footwear slipped by double digits. Chaco’s sales fell by double digits and the other smaller brands in the group were all down.
In the so-called Boston Group, revenues fared better, with a drop of 11.1 percent in constant currencies to $183.0 million. Sperry, the biggest brand in the division, saw sales decline by double digits on the back of strong growth in the fourth quarter, but recorded a high-single-digit improvement in direct-to-consumer sales, lifted by its new Plushwave cushioning technology.
Saucony was a bright spot, with double-digit growth driven by a good reception to its new Triumph and Guide models. Both franchises utilize a new PWRUN+ (power run plus) midsole cushioning technology which, the company claims, delivers enhanced flexibility, fit, durability and energy return, while weighing one-third less than comparable models. A more selective wholesale distribution had a positive impact on the gross margin generated by the brand.
The worst performance occurred in the Other segment, where sales tumbled by 40.9 percent at constant exchange rates, down to $15.9 million.
The management has not provided guidance for the full financial year but said that online sales have accelerated since the start of the second quarter and that the company is well positioned to navigate the Covid-19 crisis.
To deal with the coronavirus crisis, the management reminded investors that it has quickly initiated a comprehensive set of measures over the last 30 days to strengthen the company’s financial position, liquidity, and balance sheet. The supply chain and distribution centers continued to operate, supporting robust e-commerce growth and ongoing wholesale shipments.
Over $500 million in cash preservation initiatives have been implemented, such as drawing down the remainder of the company’s revolving credit line and reducing planned inventory receipts by $300 million. These measures are now expected to enable the company to generate $150 million to $200 million of operating cash flow in 2020. As reported, the group has also slashed management pay and placed its retail staff on temporary layoffs to reduce expenses.