Wolverine World Wide's managers displayed strong optimism about the prospects of the company as a whole this year, on the back of marked improvements in the last quarter. Furthermore, a slew of restructuring measures implemented in the last months should contribute to a significant increase in earnings this year.

Wolverine's sales still fell by 9.7 percent to $312.5 million for the fourth quarter ended on Jan. 2, with a tiny impact from exchange rates. Adjusting for the fact that the fourth quarter of last year included one week less than in the previous year, sales declined by only 4.1 percent for the quarter.

In fact, Wolverine's chief executive, Blake W. Krueger, pointed to a significant shift in the last quarter, with strong sell-throughs and an improvement in orders. The company's order backlog increased by more than 7 percent at the end of the financial year compared with the same time last year, and by 8 percent in the last week of January.

To fully capitalize on the improvements, the group is preparing a marketing blast for Merrell, Sebago, Chaco and Cushe, banking on these brands to drive the group's recovery this year. The latter two brands were both acquired and quickly integrated by Wolverine last year. Chaco is a U.S.-focused brand that started in white-water rafting and remains fairly specialized. Wolverine sees a larger upside for Cushe, a British brand of active lifestyle casual footwear for younger people. The extra marketing spending will chiefly go to social media platforms and in-store marketing.

The company's brands showed contrasted performances for the last quarter. Hush Puppies did better than expected internally, but it still suffered a double-digit sales drop to $33.4 million for the quarter. European markets actually did well, but this was more than offset by declines in the U.S. and other international markets. The most promising concepts picked out by management for this year are the Body Shoe, a casual range with an athletic construction, meant to ride on the toning trend; and the Hush Puppies 1958 vintage range.

Cushe remains a small component of the group, but its international distribution was considerably widened under ownership of Wolverine. It expanded to 49 countries, achieved strong sell-through and was introduced by some influential U.S. accounts.

The Heritage Brands division, containing Sebago and the licensed business with Caterpillar and Harley-Davidson footwear, suffered a double-digit sales decline to $51.7 million for the last quarter, primarily due to Caterpillar and Harley-Davidson. Caterpillar did well in Europe, and it took advantage of the American boot trend to expand into lifestyle. On the other hand, the strength of the dollar and tight credit conditions affected shipments of Caterpillar footwear to international partners.

For Harley-Davidson, the quarterly fall was partly blamed on the downturn of the motorcycling market. However, the decline came from the U.S. market only, while sales increased in international markets. Sebago's new management team contributed to robust, double-digit growth in Europe, with buoyant demand for Docksides. Then again, the Sebago brand's performance was hurt by sliding sales in the U.S. and international markets.

As for the Wolverine Footwear group, its sales dropped to about $76.8 million for the quarter. The Wolverine brand saw its sales decline for the quarter, but it increased its share in the work wear category, and growing interest in its vintage boots contributed to a robust double-digit increase in order backlogs for the brand. The quarter was flat for Bates, but this brand suffered a double-digit sales decline for the full year, due to a decrease in military shipments.

Sales hits in all these categories were attenuated by the outstanding performance of the Outdoor Group, grouping Merrell, Chaco and Patagonia footwear. The outdoor group lifted its sales at a mid-single-digit rate for the quarter, adjusting for the loss of a week compared with the previous year. In reported terms, the unit's sales reached about $110.4 million for the fiscal quarter ended on Jan. 2, which was roughly stable. It remains the largest source of revenues and earnings for Wolverine.

The Merrell brand reported underlying growth in the mid-single-digit to double-digit range in the last quarter for North American and European markets, adjusting for the impact of an extra week in the fourth quarter of the previous year. Its outdoor performance category scored double-digit growth, implying that it gained market share.

Meanwhile, Merrell's outdoor casual business expanded at a high-single-digit pace for the quarter. Under fresh leadership, the offering for this year is more tightly aligned with footwear, resulting in a strong double-digit order backlog for this year. Separately, the brand widened its retail network with new concept stores in Italy and in South Korea. By the end of the year it had about 100 branded stores and nearly 900 shop-in-shops around the world.

Wolverine managers pointed out that the Merrell brand consistently ranked first or second in U.S. surveys on conversion and intent to repurchase, among all footwear brands. At the same time, research found that Merrell's brand awareness was still relatively low. The two factors combined appeared to indicate particularly strong potential for the brand. This applies even more in Europe, where the brand is still at an earlier stage in its life cycle.

Patagonia footwear ended the year in strong shape, with high-double-digit growth in orders across all categories. Chaco achieved better-than-expected sales and earnings, both for the quarter and the full year, raising expectations of strong growth this year.

Another bright spot for the group in the fourth quarter was its own retail division, which manages 88 stores as well as online sales. Wolverine's managers stated that, since May, the company's stores had performed significantly better than the market. They enjoyed strong double-digit growth for the last quarter, including high-single-digit growth on a same-store basis and robust double-digit growth of online sales.

For the full year, the Wolverine group's sales were off by 9.8 percent to $1.101 billion, equivalent to a sales decrease of 6.7 percent in constant currencies. Adjusting for the shorter fourth quarter last year, sales were off by 5.1 percent.



Wolverine's gross margin slightly improved to 39.3 percent for the last quarter, up from 38.5 percent. The company ended the quarter with net earnings of about $16.7 million, down from $24.1 million, but this included non-recurring charges of $8.1 million. Excluding these charges, earnings were nearly flat.

For the full year, the company's gross margin retreated to 39.2 percent, down from 39.8 percent the previous year. Non-recurring restructuring and other charges amounted to $35.6 million for the year, which reduced earnings to $61.9 million, compared with $95.8 million the previous year.

The company was upbeat about its own financial performance and its much more efficient structure after the reorganization, which entailed the closure of several units. Wolverine said it would take another $2.5 million to $3.5 million this year to complete the reorganization. It already achieved benefits equivalent to about $13 million in 2009 and the company is confident that it will yield annualized savings of $19 million to $21 million once the restructuring is completed, probably by the end of the first half. Furthermore, Wolverine managers were pleased with their cash generation, as they achieved record operating free cash flow of $146.3 million, and inventories were reduced by 19.7 percent.

For this year, the company predicts that it will generate a turnover of $1.14 billion to $1.17 billion, which would represent an increase of 3.5 percent to 6.3 percent compared with last year. Exchange rates are not expected to have any significant impact on this turnover.

Furthermore, the company expects that its gross margin will firm up slightly for the year, excluding restructuring charges. Product costs should be lower for the first half, and Wolverine should manage to implement strategic price increases, but these factors should be partly offset by a little increase in costs in the second half, and the negative impact of foreign exchange contracts.

Adjusted for non-recurring restructuring charges, fully diluted earnings per share are expected to rise by about 6.2 percent to 10.7 percent. Taking away the potential currency impact, the growth in earnings is expected to reach between 8.5 percent and 13.0 percent compared with last year.