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Wolverine Stock Slides as Company Misses Revenue and Profit Targets in Q3

Wolverine World Wide’s revenue and profit came in below expectations in the third quarter due to ongoing supply chain disruptions, heightened promotional activity at retail, and deteriorating macro conditions.

President and CEO Brendan Hoffman said on the company’s earnings call on Wednesday that the company continues to face congestion in its own U.S. distribution centers and inland transportation networks, with many wholesale customers currently dealing with heavier inventories and warehouse constraints. “These headwinds have resulted in certain shipping delays that impacted most of our brands,” Hoffman said. The brands effected include Sperry, Keds, Sweaty Betty, Wolverine and Saucony.

Total revenue in the third quarter of 2022 was $691.4 million, which represents growth of 8.6% versus the prior year. Net earnings were $38.8 million, down 0.8% from the same time last year.

By brand, Merrell, which will be honored as Brand of the Year later this month at the FNAAs, continued to be the bright spot in the company’s portfolio. Revenue for Merrell was $198.6 million in the quarter, up 33.6% compared to the same period last year. At Saucony, revenue was $129.7 million, down 0.6% compared to last year, and the company’s namesake brand Wolverine saw revenue of $59.1 million, down 1.2%.

What’s more Sperry saw a 12.4% decline in revenue in Q3 at $70 million, and Sweaty Betty’s revenue dropped 28.3% compared to the same time last year to $37.8 million.

The company said in its earnings presentation to investors on Wednesday that demand trends in the U.S. boat category and women’s sneakers softened tin the third quarter compared to earlier this year, which resulted in Sperry’s hit in Q3. “Sperry underperformed our expectations as logistics and warehouse congestion led to late deliveries and slowed the introduction of newness, which was further exasperated by declining trends in the boat shoe category,” Hoffman told investors. “And with the unusual warm weather, a sluggish start to the boot season, all of which led to shipping delays, discounts and order cancellations.”

At Sweaty Betty, the company noted continued macro headwind in the UK and throughout Europe as its main challenge in the quarter. Logistics delays and integration timing on Sweaty Betty’s U.S. wholesale business limited the brand’s ability to service its U.S. wholesale order as well this quarter.

This news sent Wolverine shares down 34.35% by the end of day on Wednesday.

To move the company through these headwinds, Hoffman announced the launch of the new “Profit Improvement Office,” which he said will be led by a yet-to-be-named chief profit improvement officer. Through this office, the company is targeting annual gross savings of $150 million, with the goal of recognizing $65 million of savings in 2023. “This office is an essential enabler of our new corporate strategy and long-term plans for our highest growth brands,” Hoffman said. “The benefits harvest will allow us to accelerate the return to our historical peak operating margin of 12% as a sustainable foundation upon which to leverage over time and also invest in the highest growth in ROI initiatives.”

Looking ahead, Wolverine expects revenue for the full fiscal year 2022 to be n the range of $2.670 billion to $2.695 billion, representing growth of approximately 10.6% to 11.6%. For the fourth quarter of 2022, the company expects revenue is expected to be in the range of $650 million to $675 million, representing growth of approximately 2.3% to 6.2%.

According to EVP and CFO Mike Stornant, Q4’s forecast includes a 4% negative impact from foreign exchange rate fluctuations. “We are anticipating a heavily promotional environment, especially in our North American wholesale and global DTC channels,” said Stornant. “These market conditions will put downward pressure on gross margin for the quarter.”

Stornant added that the company is prioritizing the liquidation of non-core inventory over the coming months to improve its working capital position in 2023. When pressed further by analysts on the call, Hoffman noted that there will be 80% of carryover inventory into 2023, but the real challenge is aggressive liquidating 20% that is not carryover and is stuck in warehouses. “We won’t have to produce a Moab for a year,” Hoffman said.

Today’s earnings coincide with the company’s new brand group structure and leadership moves. As of the fourth quarter of fiscal 2022, the Rockford, Mich.-based company said it has reorganized its portfolio of brands into three reportable segments and have promoted three company veterans to lead each group.

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