Wolverine Worldwide saw its net profits jump by 65.9 percent to $54.4 million excluding extraordinary items in its third quarter, ended on Sept. 7, leading the group to forecast higher earnings than previously expected for the full financial year. The quarterly revenues nearly doubled to a record level of $716.7 million and went up by 9.0 percent on a comparable pro-forma basis, assuming that it had been managing the so-called PLG brands - Sperry Top-Sider, Saucony, Stride Rite and Keds – during the corresponding period of 2012. They were consolidated into the company's results in October one year ago.

The group's gross margin improved by 0.7 percentage points to 39.9 percent as compared to the year-earlier quarter thanks to a better mix and in spite of foreign exchange losses. Strong at-once orders pushed the level of inventories down. With a double-digit increase, sales were better than expected in Europe, Middle East and Africa (EMEA), indicating that the worst may be over in the region.

The management also said that the group is ahead of schedule in the integration of the PLG brands in terms of back-office functions and sourcing. Wolverine completed the integration into its SAP platform at the wholesale level in the past quarter, with retail likely to follow by the year end.

The management is now predicting an increase in net profits before extraordinary items of between 30 and 34.8 percent for the full financial year. It has revised its sales forecast downwards, predicting an increase in the range of 6.4 to 7.1 percent on a pro-forma basis because the back-to-school period has been “tepid” in the U.S., especially for Stride Rite, and the holiday season will probably not be much better. Sales should be stable overall in the EMEA for the year as compared to the previous one.

In commenting on its quarterly results, Wolverine's chief financial officer, Don Grimes, announced its pullout from its two manufacturing facilities in the Dominican Republic, which were mainly making Sebago and Wolverine branded shoes. One of the two will be shut down while the other one may be sold to another producer. The move will involve extraordinary charges of between $7 million and $10.4 million, most of which will be charged to the fourth quarter. In the longer run, however, Wolverine expects annualized pre-tax savings of $4 million from these measures as the production will then be outsourced to larger and more efficient manufacturers.

Wolverine Worldwide Income Statement

(Million US$, Third Quarter ended Sept. 7)

 

2013

2012

%
Change

Lifestyle Group

295,8

38,0

678,4

Performance Group

254,1

152,2

67,0

Heritage Group

144,6

143,5

0,8

Other

22,2

19,4

14,4

REVENUES

716,7

353,1

103,0

Cost of Goods Sold

430,7

214,5

100,8

SG&A*

192,3

89,3

115,3

Restructuring Costs**

7,4

3,0

146,7

Net Interest (Income)

11,9

0,3

3 866,7

Other Expense, net

1,0

(0,3)

-433,3

Pre-Tax

73,4

44,9

63,5

Tax

19,0

12,1

57,0

NET

54,4

32,8

65,9

Cent/Share (Diluted)

1,08

0,66

63,6

*Selling, General and Administrative

**Acquisition Related Transaction and Integration Costs

Blake Krueger, chairman, president and chief executive of the group, indicated that it was able to obtain better conditions from manufacturers as it is now placing orders for some 100 million pairs of shoes annually. Sourcing costs have become stable for the group, which is now trying to put through price increases on innovative models. Another source of additional revenues and profits is going to be the gradual internationalization of the recently acquired brands, he indicated.

The group, which already has a presence in 130 countries, has signed 34 new distribution agreements covering 67 countries. One of most recent deals has been struck for Sperry and Keds with E-Land, the powerful Korean group. It calls for the opening of many full-standing Sperry shops and shop-in-shops starting this autumn, the first of which is opening in Shanghai.

In the past quarter, Merrell, Sperry, Saucony, Keds, Chaco and Cushe stood out with double-digit sales increases as compared to a year ago. Merrell and Sperry made the biggest contribution to the quarterly growth. Sperry's expanding network of stores in the U.S. enjoyed a sales increase of more than 20 percent on a comparable store basis. The brand's growth at the wholesale level was a little lower than in the previous quarter, and men's shoes fared better than women's shoes for the brand.

At Merrell, which was not doing so well before, the growth was well-balanced across its various categories during the third quarter. Its Active Lifestyle segment finally turned around. The brand performed well in the U.S. as well as in Europe and Latin America, in contrast with the past, and its momentum is likely to continue for the rest of the year.

In the Performance Group – consisting of Merrell, Patagonia Footwear, Saucony and Chaco – the group's total sales rose by 67.0 percent to $254.1 million, or by 13.4 percent on a comparable basis. They jumped by 678.4 percent to $295.8 million in the Lifestyle Group (Sperry Top-Sider, Stride Rite Children's Group, Hush Puppies, Keds and Soft Style), up by 9.6 percent pro-forma. Sales rose by 0.8 percent to $144.6 million in the Heritage Group (Wolverine, Caterpillar Footwear, Bates, Sebago, Harley-Davidson Footwear and HyTest).

The group is going to open five to seven kiosks for Keds in American shopping malls over the next few weeks to make the brand more apparent to young consumers.

Wolverine is holding an Investors' Day next Tuesday where it will discuss its future strategies, among other things. Hopefully it will also shed more light into the performance of its individual brands as, unfortunately, the lack of direct or indirect guidance in this matter has delayed the publication of our annual Brown Shoe Charts…seems a bit aggressive in the original.