Wolverine Worldwide Sees Progress in Turnaround Efforts
Wolverine Worldwide is simplifying its business, reducing inventory, morphing into more of a direct-to-consumer business, and focusing on smarter investments to “move the needle.”
That was the essence of what Brendan Hoffman, Wolverine’s chief executive officer for the past year, told investors at the ICR Conference in Orlando, Florida, on Tuesday.
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He said last year’s reorganization from its former Michigan and Boston groups to active, lifestyle and work groups clarified the business and “allows us to think about ways to get synergies out of the business, including creating products and marketing messages that could be shared.”
Through the brand portfolio reorganization, “We feel more agile,” and there’s greater clarity about which businesses the company feels most strongly about for future growth and for “distorting investments.”
“We were too peanut buttery with investments,” said Hoffman.
The active group, where the company is most bullish, includes Merrell, Chaco, Sweaty Betty and Saucony. The work group includes Wolverine, HyTest, Cat, Bates and Harley-Davidson. Lifestyle includes Sperry, Hush Puppies and Keds.
As part of the simplification process, Keds was put up for sale or possible licensing last month. The Wolverine Leather business is being shed as well.
Wolverine is simplifying the business by reducing excess inventory. Hoffman said there’s been “great progress” in cutting inventory and “reducing the gridlock in our warehouses.”
Last year, the company formed a “profit improvement office to provide us some cover to some of the headwinds, involving taking out costs, finding ways to improve margins, and determine investment for the future.”
“Agility is something this company needs to learn,” said Hoffman.
Referencing the plan to sell Keds, Hoffman said that previously, “The thought of divesting a brand was kind of off limits, but now we can’t have any sacred cows.…It’s pretty obvious that Keds is a great legacy business, but it’s under $100 million, with low profit margins.” Significantly growing other brands in the Wolverine portfolio requires far less of a lift.
Regarding Wolverine Leathers, Hoffman, who formerly ran Vince and earlier Lord & Taylor, said, “I really didn’t sign up to run a tannery business.”
Though it’s not a “frothy” market for mergers and acquisitions, “Getting Keds and Wolverine Leathers done will be a good step forward.”
He noted that Wolverine Worldwide has been “so broad in our SKUs and assortment, trying to be too many things to many people. This breadth of [stock keeping units] is not providing any payback. Look for simplicity in everything we do. It’s one of our guiding principles. That’s a theme you will hear us talk a lot about,” said Hoffman.
Wolverine Worldwide has a goal of achieving a midteens operating margin rate, and eventually surpassing the 12 percent operating margin in 2018, which was derailed by the pandemic
With inventory, the goal is “normalizing” it down to $600 million by the end of 2023, while generating more normal levels of cash to pay down debt and de-leverage the balance sheet. Year-end inventory is seen at approximately $805 million, down from $880 million at the end of the third quarter. The year-end inventory includes approximately $40 million for Keds and Wolverine Leathers.
Hoffman also said the company is “morphing into more of a direct-to-consumer business, from being wholesale-driven,” and “to really become brand builders.”
On Monday night, Hoffman issued an update on the business, and stated, “During the fourth quarter, we achieved our revenue, inventory management and cash flow goals. The acceleration of our inventory-reduction efforts is expected to pressure fourth-quarter earnings toward the low end of our guidance. We are executing well against a 100-day action plan that establishes near-term operational improvements needed to set the foundation for growth and profit improvement moving forward. The continued liquidation of end-of-life inventory is critical to this plan and we are encouraged by the progress made and options available to further clear these goods in early 2023.”
Last December, the company revealed the possible selloffs, as well as layoffs.
The company began laying off workers earlier this week but did not disclose how many of its 3,700 or so employees are affected.
In releasing preliminary results, the company cited full-year revenue of $2.69 billion, representing approximately 11 percent or 14 percent growth on a constant currency basis.
Fourth-quarter revenue is seen at $665 million, representing approximately 5 percent and 8 percent growth on a constant currency basis.
Adjusted diluted earnings per share are seen at the low end of its previous guidance, of down 15 cents to 5 cents for the fourth quarter, and $1.41 to $1.51 for the year.
Year-end net debt is seen at $1 billion, down from $1.3 billion at the end of the third quarter. Fourth quarter operating free cash flow is seen in the range of $280 million to $300 million.
