“The acquisition has turned out better financially — from a team standpoint and from an integration standpoint — than I could have predicted,” the president, chairman and CEO of Wolverine World Wide Inc. told Footwear News in a phone interview.
Not only did the former PLG brands perform better than expected during the recent third quarter but Wolverine also reported renewed strength in its heritage business, including Merrell.
Overall, Sperry Top-Sider proved to be a big winner, posting double-digit increases for the 16th consecutive quarter. Krueger said that while the brand’s U.S. growth could slow, international opportunities — including a recent agreement with E-Land Group to distribute both Sperry and Keds in China — will fuel expansion.
“There’s a lot of runway in front of us yet,” the CEO said. “It’s an opportunity that will sustain itself and grow every year.”
In fact, Krueger added, the lifestyle brand could overtake Merrell as the company’s largest label. “Sperry’s trying to catch Merrell. They’re in a race to get to $1 billion first,” he said.
Merrell also registered double-digit growth in the third quarter. Driving results were stronger sales in the performance and athletic segments. For the first time in several seasons, the casual part of the business saw momentum, which Krueger attributed to an improved offering under Martin Dean, the new VP of product creation.
“Fundamentally, in our industry, it’s always about product, product, product,” Krueger said.
Addressing overall industry challenges, Krueger admitted the retail climate could weigh on the company in the fourth quarter, but he affirmed that Wolverine is prepped.
“We’ve been predicting for a quarter or two now [that] retailers [are] hunkering down a little bit, [being] very stingy with future orders, but expecting brand owners to be there with the product when they need it at once,” he said during a conference call with analysts. “Certainly, [we] experienced that … [with] a pretty strong double-digit increase in our at-once business in the quarter. It may be the new normal that we’re migrating to in this regard.”
For their part, analysts were upbeat about Wolverine’s third-quarter performance, which soundly beat Wall Street expectations.
“They blew away what they had planned for the quarter, and the brands within the PLG portfolio continue to trend very well,” said Mitch Kummetz, an analyst with Robert W. Baird & Co.
For the quarter ended Sept. 7, the company earned $54.4 million, or $1.08 a share — a 66 percent rise over the comparable year-ago period. On the strength of the new brands, revenue more than doubled to $716.7 million. Analysts had predicted earnings per share of $1.02 and revenue of $713 million.
Despite the strong performance, analyst Christopher Svezia of Susquehanna Financial said there could be challenges ahead.
“Backlog moderated from [high-single-digit] growth in [the second quarter] and we remain cautious since recent retail sales are showing declines at Merrell,” he wrote in a note. “We believe a more cautious view of the [fourth quarter] and a softening backlog are reflecting recent sales trends.”
Kummetz also saw potential for drag in future quarters. “The environment is very choppy, and the onus is on the vendor” to forecast and fill at-once orders from increasingly conservative retailers, the analyst said.
Despite the uncertainty, Krueger remains bullish. In fact, Wolverine raised its earnings guidance for the second time this year. (The firm now expects EPS of $2.73 to $2.83, above the $2.60-to-$2.75 range offered in July.)
“Looking at the fourth quarter, whether it’s the macroeconomic issues or the political environment in Washington, D.C., [the consumer confidence picture is] a little fuzzy right now,” the CEO said. “But our teams are feeling very positive and optimistic.”