Wolverine Worldwide reported overall declines in revenues of 7.1 percent to $751.2 million for the fourth quarter and 2.5 percent to $2.69 billion for the full financial year ended Jan. 2. On an underlying basis - before currency conversions, retail store closures and the phase-out of Patagonia footwear - the group's revenues declined by 2.9 percent in the quarter and were up by 2.1 percent for the full year, in line with the management's latest guidance.

On the other hand, the bottom line turned out to be higher than expected. The reported operating margin fell to 1.9 percent of sales in the quarter from 3.7 percent in the year-earlier period, but the net income went up by 8 percent to $11.6 million, thanks in part to an extraordinary gain and a tax credit. On an adjusted basis - excluding asset impairment charges and restructuring, integration and debt estinguishment costs - the quarterly operating margin actually improved on a constant-currency basis by 0.6 percentage points to 7.2 percent.

For the full financial year, the adjusted, currency-neutral operating margin was down by 0.5 percentage points to 9.4 percent due to planned incremental brand-building investments and higher pension expenses. The gross margin fell to 36.2 percent in the quarter and to 39.1 percent in the year, but it improved to 37.8 percent and 39.7 percent in adjusted, currency-neutral terms.

Selective price increases helped keep gross margins from falling further last year. Some more price increases will also be implemented this year, the management indicated, but they will mostly be “surgical.”

Wolverine Worldwide Income Statement

(Million US$, Fiscal Year Ended Jan. 2)

 

2016

2015

%
Change

Lifestyle Group

1,004.8

1,059.3

-5.1

Performance Group

991.3

990.7

0.1

Heritage Group

590.8

607.0

-2.7

Other

104.7

104.1

0.6

REVENUES

2,691.6

2,761.1

-2.5

Cost of Goods Sold

1,636.9

1,673.8

-2.2

SG&A*

816.0

815.2

0.1

Restructuring Costs

3.0

1.0

-

Net Interest Expense

38.2

45.4

-15.9

Debt Extingusihment Costs

1.6

1.3

23.1

Other Expense (Income), net

(3.3)

1.7

-

Pre-Tax

164.6

181.5

-9.3

Tax

41.4

47.6

-13.0

NET

123.2

133.9

-8.0

Cent/Share (Diluted)

1.2

1.3

-7.7

       

*Selling, General and Administrative

In commenting on its sales performance, no breakdown was offered by the management between domestic and international sales, but it seems that most of the drop late last year occurred in the U.S., and perhaps also in Europe, due to unseasonably high temperatures that affected sales of cold-weather products. The management only said that the “Boston brands” acquired by Wolverine in 2012 continued their progress overseas in 2015 with growth of 15 percent for Sperry, 25 percent for Saucony and 107 percent for Keds. While much of its foreign business is carried out under license, 49 percent of the group's total pairage was sold outside the U.S. in 2015.

Market research indicates that U.S. retailers' inventories were 15 percent higher than a year earlier after the latest holiday season. Feeling that it will take about two quarters for them to reach more reasonable levels, Wolverine's management does not foresee a recovery until the second half of this year. Its current guidance calls for a drop in total revenues of between 4.3 and 8.0 percent in 2016, including a decline of 0.5 to 4.3 percent on an underlying basis, excluding the impact of new store closures and the disposal of Cushe, which was generating annual revenues of $18 million. Exceptional items and foreign currencies could wipe out more than $100 million from this year's turnover.

New products are expected to create new demand in the market for brands such as Merrell, Sperry and Saucony, as they did last year. All three brands will feature Vibram's new Arctic Grip technology exclusively in the next autumn/winter season, for example. Merrell's new Capra range is expected to reach a volume of more than one million pairs this year.

Wolverine is also supporting Merrell with its new integrated global marketing campaign, kicking out this month under the “Do What's Natural” tagline,

In the past year, the introduction of the Salt Water Duck rainboot helped Sperry to diversify out of the declining boat shoe business, where it remains the U.S. market leader, and the lifestyle-oriented Saucony Originals line grew by 60 percent.

Wolverine would like to see rainboots and other products other than boat should grow from 20 to 50 percent of the brand's total turnover, as part of an effort to build it up as a more comprehensive lifestyle brand. The brand's sales are epxted to grow in the second half of this year.

Merrell got some traction last year in the lifestyle segment, but both Merrell and Sperry saw their sales decline at a low single-digit rate in the final quarter of the year. Saucony grew at a double-digit rate and Chaco was the star, rising in the low teens for the quarter and by over 40 percent for the year.

On a constant-currency basis, the group's sales declined by 5.4 percent in the latest quarter, due in part to the closure of many Stride Rite children's shops. The Performance Group performed best in the quarter, rising by 3.5 percent, while the Lifestyle Group declined by 6.7 percent and the Heritage Group by 13.8 percent. For the full financial year, sales were off by 0.9 percent on a currency-neutral and comparable basis in the Lifestyle Group. They were up by 6.3 percent in the Performance Group and flat in the Heritage Group

Wolverine has made several changes in the organizational structure to optimize market penetration for all its brands. For examples, as previously reported, it has grouped Merrell, Chaco, Cat Footwear, Hush Puppies and Sebago into a newly formed division, the Wolverine Outdoor & Lifestyle Group, because they are all international-oriented and based in Michigan. They have been placed under the management of a veteran of the group, Jim Zwiers, who most recently ran the Wolverine International Group.

Wolverine also plans to consolidate its fledgling apparel and accessories operations into a single unit that will work for all the brands. Blake Krueger, chairman, chief executive and president of the group, reiterated his interest in an acquisition in the apparel sector to help develop these product categories. Another new initiative is the establishment of an “innovation center” that will focus on new products and new technologies.

The company plans to double its research budget for “consumer insights.” For the past six months or so, it has been building up a market intelligence team to collect feedback on styles, colors and pricing from an online consumer panel on a monthly basis for various product lines, particularly in the lifestyle, outdoor and running segments. The initiative is being pursued in the U.S. as well as in Europe in order to develop distinct offerings for the two markets.

The biggest portion of Wolverine's investment budget for this year is set to go into the development of the group's omni-channel capabilities. Since last August, all the brands of the group are represented in a global internet platform powered by Demandware. E-commerce grew by 20 percent for the group last year, with sales made through mobile devices up by 100 percent. A 25 percent increase in the last quarter led e-commerce to represent about 5 percent of the group's turnover, but Krueger feels that it should be twice as high.

Direct-to-consumer sales represented around 15 percent of its total business in the last quarter. However, the group went ahead with its plans to close 106 stores in the past year, mostly under the Stride Rite banner, and it will shut down another 100 or so in 2016, mostly during the first quarter.

Stride Rite is generating wholesale revenues of $140-150 million. It will reach a similar turnover at retail this year with fewer, but profitable stores.

More in our Outdoor Industry Compass.