Wolverine Worldwide blamed the recession that is hitting many of Europe's economies for a 2.4 percent drop in its revenues to $322.8 million in the first quarter ended March 24, falling below the company's and financial analysts' expectations. The situation in Europe also affected the group's order backlog, down by a mid-single-digit rate.
Sales in the U.K., which make up half of European sales, were hit hard by the bankruptcy of two of the company's largest clients. The proceedings affected mainly the company's Hush Puppies and Merrell brands. Market conditions were also described as tough in southern Europe, comprising Spain, Portugal, France, Italy and Greece, while the German and Nordic economies performed better.
Quarterly revenues by operating unit showed that the outdoor division's sales fell by 0.7 percent to $137.1 million. The top line was affected by a drop in Merrell's sales, while Chaco and Patagonia Footwear posted a mid-to-high-single-digit increase. Merrell was dragged down by lower demand in Europe, while sales were flat in the U.S.
The group's heritage division booked a 7.3 percent decline in revenues to $103.0 million due to lower sales for Bates and Harley-Davidson Footwear. Instead, the Wolverine and Caterpillar Footwear brands enjoyed growth in the U.S. and in third-party distributor markets. Caterpillar achieved double-digit growth in the U.S. and abroad.
The lifestyle unit registered a 2.7 percent decline to $50.6 million, weighed down by European markets. Hush Puppies maintained stable sales in the U.S. and in third-party licensee markets. The Cushe and Sebago brands both increased sales during the quarter.
The group's own retail business was lifted by a strong double-digit growth rate at brick-and-mortar and online stores. Comparable store sales were up by a mid-single-digit rate.
The group's gross margin slipped by 0.6 percentage points to 41.0 percent as higher selling prices and foreign exchange were more than offset by higher product costs, an unfavorable sales mix and a 50 percent rise in closeout sales. The operating margin narrowed to 11.4 percent from 14.9 percent and the net profit fell to $31.2 million from $35.9 million despite a cut in the tax rate to 12.4 percent from 28.0 percent.
Wolverine said that reorders were up by almost 20 percent for all brands so far in the second quarter. About half of the group's sales are generated by at-once or replenishment orders and the management expects that business will become very strong over the rest of the year. The company added that inventories across its retail channels are lean and the sell-through of its products remains strong.
The group ended the quarter with cash and cash equivalents of $123 million.