Wolverine’s Q3 Meets Forecasts, Management ‘Refocusing’ Stride Rite

Stride Rite Kids' Shoes
A selection of looks from Stride Rite’s Made2Play collection.
Courtesy of brand

Although Wolverine World Wide Inc.’s third quarter hit most of Wall Street’s expectations, the firm continued to feel the pressure of currency woes and softer demand for its product offerings.

“The strong U.S. dollar put pressure on the cost of footwear and the ultimate retail price to consumers, as most of the world purchases shoes in U.S. dollars,” Blake Krueger, Wolverine’s chairman, CEO and president said during the firm’s Q3 conference call. “Earlier this year, we chose the proactive path to protect gross margins by selectively increasing prices in our own international markets. We believe this action was appropriate for the long-term health of our brands and business.”

Although Sperry continued to disappoint with flat revenues, it was Stride Rite, Krueger said, that posed the biggest obstacle in Q3.

Stride Rite’s exposure to the domestic brick-and-mortar store channel created the most significant challenge for the company in the third quarter,” Krueger said. “Sluggish macro retail traffic trends in an aggressive promotional environment presented some headwinds, especially as we sought to be less promotional. Although our store conversion improved, traffic declines persisted.”

As a result, management plans to “refocus the Stride Rite business” and will reallocate resources to “fuel e-commerce, mobile and omni-channel initiatives” for the brand.

Krueger also acknowledged the negative impact of other macroeconomic pressures, including China’s economic perils and its “manufacturing slowdown,” as well as struggles in Europe.

Net Income: Wolverine’s net income for the third quarter, ending Sept. 12, 2015, totaled $45.8 million, a 21 percent decline from the year-ago quarter, when income totaled $57.8 million.

EPS: Reported diluted earnings per share were 44 cents, compared with 57 cents per share in the prior year’s third quarter.

Net Revenue: Revenues declined 4.5 percent year-over-year, to $678.9 million, from $711.1 million in the prior year.

Adjustments: Adjusted diluted earnings per share were 48 cents, compared with an adjusted EPS of 63 cents in the prior year.

Hit, Miss or Beat: The firm’s revenues and EPS were roughly in-line to slightly below Wall Street’s expectations. Analysts polled by Yahoo Finance had predicted EPS of 48 cents and revenues of $681.3 million.

Executive Insights: “While we expect the near-term global retail environment to remain somewhat challenging, this landscape creates some great opportunities for our brands to expand internationally. In the short term, we are especially focused on executing against our business model, which has consistently produced strong cash flow in a high-quality earnings stream to help drive our strategic brand investments.” — Krueger on Q3 conference call

Krueger on Merrell: “
Increasing brand awareness for Merrell is a critical opportunity, as consumers who know the brand love it. But today, the brand ranks relatively low in consumer awareness. This is a significant opportunity. The new leadership team has developed a new brand platform and product initiatives along with an aggressive go-to-market strategy designed to amplify Merrell in the marketplace and increase awareness.”

Looking Ahead: Management adjusted down its earnings outlook. Revenue growth is now expected in the range of 2.1 percent to 2.8 percent versus the prior year. Reported revenue is expected in the range of $2.69 billion to $2.71 billion, representing a decline in the range of approximately 2.6 percent to 1.8 percent versus the prior year. Adjusted diluted EPS is expected to be in the range of $1.44 to $1.47. Constant currency adjusted diluted EPS is expected in the range of $1.57 to $1.60.

Analyst Insights: “Given the timing and magnitude of the downward Q3 revenue pre-announcement combined with the withdrawal of FY sales and earnings guidance at the time of the pre-announcement, a major reduction of current fiscal-year expectations had been feared. However, given the in-line Q3 results and updated guidance, we believe those fears will be largely alleviated, and we reiterate our buy rating on the name.” — CL King & Associates analyst Steve Marotta