NEW YORK — Despite seeing margins slip in the second quarter, Wolverine World Wide Inc. said it is well positioned to battle the impact of rising costs.
“[We are] looking at new countries and new factories, reengineering our product, putting in new collections such as Merrell Barefoot with higher margins,” and planning for “almost continual price increases season on season [and] year on year [while] China continues to appreciate at [around] 5 percent,” Blake Krueger, chairman and CEO of Wolverine, said in a call with analysts.
SVP and CFO Don Grimes said the company is guiding for full-year gross margin to end up flat, which implies some margin expansion in the back half.
“We actually had a nice net benefit from pricing versus product cost in the quarter. Our analysis shows our pricing contributed a little more than 300 basis points, a gross margin expansion,” he said.
The momentum in the company’s Outdoor Group, including Merrell Barefoot, which launched in February, should lead Wolverine to a strong finish for the year, said analysts.
“[Wolverine’s] revenue was up 20 percent for the quarter, and its top line for the rest of the year is likely going to be higher than what it’s hinting. These guys are good at delivering product and can outpace their competition,” said Sterne Agee analyst Sam Poser.
Susquehanna Financial analyst Christopher Svezia agreed: “The expectations this round were maybe a little high, but there’s no question … there’s still a lot of momentum in the core business, and clearly there is broad-based growth in the outdoor piece.”
Overall backlog at the end of the second quarter was up 13 percent, the firm said. Inventory, meanwhile, jumped 46 percent, a figure analysts said could worry investors.
Grimes noted that the bulk of the inventory increase was in the Outdoor Group, which has seen the most new activity. He said the firm “still feels comfortable with the composition of the inventory. We expected it was going to be more of a back-half improvement, [so it’ll] be down meaningfully by the end of the year.”
All three divisions — the Outdoor, Lifestyle and Heritage groups — posted double-digit revenue increases.
In the Outdoor Group, Merrell and Patagonia saw sales advance in the strong double digits, while revenue in the hiking category surged triple digits. Chaco grew modestly in the quarter, hampered by the cold, rainy spring in some parts of the country, which resulted in a soft sandal season.
Within the Lifestyle Group, Cushe sales were up triple digits and Hush Puppies saw strong double-digit revenue increases in the European and international distributor businesses. For the Heritage Group, CAT footwear grew in all global regions, with its international distributor market nearly doubling. Wolverine improved market share in the core U.S. work segment, and the brand’s international distributor sales increased triple digits.
On the acquisitions front, Krueger said, “money is still relatively cheap out there. We’re … constantly looking for the right fit with the company. It could be domestic; it could be offshore; it could be footwear; it could be apparel.”
For the period ended June 18, the Rockford, Mich.-based firm earned a net income of $24 million, or 48 cents a share, up from $17.2 million, or 35 cents, a year ago.
Revenue advanced 20 percent to $310.1 million, and the company finished the quarter with $118.5 million in cash and cash equivalents and no long-term debt.
Wolverine also reaffirmed its forecast for full-year revenue and earnings to grow at least 10 percent.