Wolverine Results Miss Expectations, Company Regroups Its Brand Portfolio
Wolverine World Wide reported third-quarter top- and bottom-line gains that missed expectations but in an effort to improve results and increase shareholder value, the brand portfolio has been reorganized into three groups: Active, Work and Lifestyle.
For the third quarter ended Oct. 1, operating profit came to $58.8 million versus $42.5 million in the year-ago period, and net profit was $38.8 million, versus a loss of $800,000 in the year-ago period.
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Revenue grew 8.6 percent to $691.4 million, and 12.2 percent on a constant currency basis. The international business was strong, up 33 percent to $303 million. Direct-to-consumer revenue was up 4.5 percent to $160 million.
The purveyor of such popular footwear brands as Saucony, Merrell, Keds, Sperry and Hush Puppies is grappling with excess inventory, which at the end of the quarter was $880.9 million, up 113.8 percent compared to unusually low levels last year. Higher freight, handling and other inventory costs represented about 15 percent of the increase. In-transit inventory of $281 million was up from $57 million last year, and caused by inland logistics congestion and limited capacity in Wolverine’s distribution centers.
In reporting its third-quarter results on Wednesday, Wolverine forecast a fourth-quarter loss of between 19 cents and 9 cents in earnings per share. Revenue is expected to be in the range of $650 million to $675 million, representing growth of about 2.3 to 6.2 percent.
Between the expected fourth-quarter loss and the missed expectations for the third quarter, Wall Street sent Wolverine’s stock price plummeting 34 percent, or $6.18, to $11.87 at the closing bell on Wednesday, when the stock market fell a couple of percentage points lower following the midterm elections.
“While we were pleased to deliver third-quarter revenue growth of 9 percent and 12 percent on a constant currency basis, both revenue and profit came in below our expectations, reflecting ongoing supply chain disruption, heightened promotional activity at retail, and deteriorating macro conditions,” Brendan Hoffman, Wolverine Worldwide’s president and chief executive officer, said in a statement.
“We are facing congestion in our own U.S. distribution centers and inland transportation networks and many wholesale customers are currently dealing with heavier inventories and warehouse constraints. These headwinds have resulted in certain shipping delays that impacted most of our brands. Sperry’s performance was further impacted by softer-than-expected trends in the boat category and a sluggish start to boot sales due to unusually warm weather.
“Despite these external headwinds, we saw notable strength in our international business, and within our portfolio, Merrell continued its strong momentum delivering 39 percent constant currency growth.”
Under the new portfolio structure, Wolverine’s Active Group consists of Merrell footwear and apparel, Saucony footwear and apparel, Sweaty Betty activewear, and Chaco footwear.
The Work Group includes Wolverine footwear and apparel, Cat footwear, Bates uniform footwear, Harley-Davidson footwear and HyTest safety footwear.
The Lifestyle Group consists of Sperry footwear, Keds footwear, and Hush Puppies footwear and apparel.
“The new group reporting structure announced today is a natural progression of our business as it combines brands that share similar traits under one segment, which we expect will pave the way for increased collaboration, sharing of best practices, and ultimately value creation for our shareholders,” said Hoffman. “Our company possesses exceptional talent, powerful brands, and a strong operating platform. I believe this new group structure will unlock our potential to not only grow faster but also become a more efficient and simplified organization that delivers industry-leading margins.”
“Our new reporting structure will allow us to focus on the brands and product categories that have the biggest opportunities to maximize future value creation. We will prioritize future investments and resource allocation to the areas that we expect to generate the greatest return,” added Michael Stornant, executive vice president and chief financial officer. “This new segment presentation also provides investors and other stakeholders improved visibility into the underlying performance and results.”
Three insiders were selected to lead each group of brands.
Chris Hufnagel has been appointed president of the Active Group. The Saucony and Chaco brands will report to Hufnagel, who will also continue to lead Merrell. The Sweaty Betty brand will continue to report into Hoffman.
A 14-year veteran of the company, Hufnagel has held several key leadership roles, including global president of Merrell since September 2019, global president of Cat Footwear and corporate senior vice president and head of strategy. Prior to joining Wolverine, Hufnagel held senior roles at Under Armour, Gap and Abercrombie & Fitch.
Tom Kennedy has been appointed president of the Work Group, and the Wolverine, Cat Footwear, Bates, Harley-Davidson Footwear and Hytest brands will continue reporting into him. Kennedy is a seven-year veteran of the company and has held several key roles, including global president of Sperry and president of apparel and accessories. Prior to joining Wolverine, Kennedy held senior positions at Nike, Gap, Fossil and PacSun.
Katherine Cousins has been appointed president of the Lifestyle Group. The Hush Puppies brand will now report into Cousins, who joined the company as president of Sperry in 2021 and has also overseen Keds since the beginning of 2022. Prior to joining Wolverine, Cousins served as vice president and general manager of the Kodiak, Terra and Work Authority brands at VF Corp., and led global strategy, consumer research, licensing and accessories for Timberland.
“Chris, Tom and Katherine are each uniquely qualified for their new leadership appointments and bring significant breadth and depth of experience in leading global brands that deliver consistent and profitable growth,” said Hoffman. “I am equally confident that the range of changes announced today will unlock efficiencies and value creation across the business, laying a strong foundation for robust and sustainable future growth.”
In addition, Wolverine established a Profit Improvement Office to generate greater cost savings and efficiencies that will support future investments. “Our overarching goal is to deliver consistent and enhanced revenue and profit growth that will put the business on an accelerated path to return to and ultimately exceed 12 percent operating margin,” said Hoffman. “I firmly believe the changes announced today are fundamental steps toward achieving our goals.”
