Wolverine’s Tariff-Dodging Strategy Pays Off in Q3

Date: Tuesday, November 12, 2019
Source: Sourcing Journal

Wolverine World Wide will go into the final quarter of the year feeling good about its year-end goals, confirming its FY19 outlook after turning in a strong Q3.

In a Nutshell: When Wolverine last spoke about its financial health at the end of the first half of the fiscal year in August, it said that it would be pulling forward inventory ahead of any tariff increase in order to save itself some money in the short term.

That plan appears to have worked out well for the company as its Q3 report shows an inventory increase of 28.8 percent compared to the prior year’s comparable period—which the company said was slightly better than its expectations. This result was also somewhat affected by the finalized acquisition of Saucony Europe and the net addition of new stores in the quarter.

Analysts have been closely watching Wolverine’s margins as a result of this strategy and so far, it appears the group has been able to toe the line. Gross margin increased by 80 basis points to 42.4 percent in the third quarter and operating margin “exceeded expectations” by improving by 150 basis points compared to the prior year.

Sales: Revenue for Wolverine World Wide’s brands, led by Merrell, Sperry and Saucony, rose by 2.8 percent to $574.3 million in the third quarter, just missing the $574.46 million expected by analysts. This was the highest quarterly revenue increase in FY19, the result of “demand creation” investments and execution of its global growth model, the company said.

Because of this strong performance,Wolverine World Wide was able to confirm its full-year revenue outlook of $2.28 billion with an expected 7 percent constant currency growth rate in the fourth quarter.

Earnings: Profit growth was another bright point for Wolverine in Q3, as the company turned in adjusted diluted earnings per share of 68 cents, 9.7 percent higher than the profit earned in the third quarter of last year. Wall Street analysts expected 62 cents from Wolverine, which would have been flat year-over-year.

Following suit with its revenue outlook from the beginning of the year, Wolverine said it expects its full-year earnings per share to reach $2.25. This outlook includes an expected impact of 3 cents from new tariffs on product sold in the fourth quarter.

CEO’s Take: Blake Krueger, Wolverine’s chairman, CEO and president, said the company had outperformed expectations based on its focus on ensuring its brands stay on top of what the customer wants in times of turbulence.

“We delivered our highest quarterly revenue increase of the year driven by constant currency growth of over 11 percent from Merrell, Sperry and Saucony. Our adjusted earnings per share of 68 cents was a record performance for the company and meaningfully better than our expectations heading into the quarter,” Krueger said. “The double-digit growth from our biggest brands is a direct result of our continued focus on building trend-right product that resonates with consumers and ongoing execution of our digital-direct offense.”

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