Wolverine World Wide Reports Third Quarter 2018 Results and Raises Full-Year Earnings Outlook

ROCKFORD, Mich., Nov. 7, 2018 /PRNewswire/ -- Wolverine World Wide, Inc. (NYSE: WWW) today reported financial results for the third quarter ended September 29, 2018. The Company also updated its full-year 2018 outlook.

"We reported strong earnings during the third quarter driven by healthy gross and operating margin expansion," said Blake Krueger, Wolverine Word Wide's Chairman, Chief Executive Officer and President. "Our Way Forward transformation initiatives continue to gain traction and deliver tremendous benefits as evidenced by better than expected operating leverage in the quarter. Underlying revenue growth in the third quarter was positive, and we expect underlying revenue growth for the fourth quarter to improve meaningfully as our growth initiatives take hold especially for our two largest brands, Merrell and Sperry."

THIRD-QUARTER 2018 REVIEW

• Reported revenue of $558.6 million decreased 3.9% during the third quarter. Underlying revenue increased 0.5% and further adjusting for currency, increased 1.1%.
• Reported gross margin was 41.6%, as compared to 39.7% in the prior year. On an adjusted basis, gross margin of 41.6% expanded 170 basis points compared to the prior year.
• Reported operating margin was 12.2%, compared to 6.4% in the prior year. Adjusted operating margin was 12.6%, an increase of 80 basis points compared to the prior year.
• Reported diluted earnings per share was $0.60, compared to $0.24 in the prior year. Adjusted diluted earnings per share were $0.62 compared to $0.43 in the prior year, an increase of 44%.
• Inventories declined $14.4 million, or 4.3% compared to the prior year.
• A discretionary pension contribution of $40.0 million was made during the third quarter to bring the Company's pension plan to substantially fully-funded status.
• The tax rate of 7.8% during the third quarter was favorably impacted by the pension contribution noted above, resulting in a $0.06 benefit to earnings per share.
• The Company executed approximately $20 million in share repurchases in the quarter bringing the year-to-date total to $70 million at an average price of $31.65, and has over $130 million still available under its current share repurchase program.

"Operating margin in the third quarter benefited from broad-based expansion of gross margin across our brands, primarily due to favorable mix, lower product costs, lower markdowns and benefits from a cleaner inventory pipeline," said Mike Stornant, Senior Vice President and Chief Financial Officer. "On a year-to-date basis, adjusted operating margin has expanded at a strong 120 basis points compared to the prior year which includes our significant incremental growth investments in the current year."

FOURTH QUARTER AND FULL-YEAR 2018 OUTLOOK

Fourth Quarter

"The Company remains on track to invest up to $45 million in incremental investments to drive future growth as part of our GLOBAL GROWTH AGENDA," stated Mr. Krueger. "We remain committed to this enhanced investment strategy for 2018 and expect to implement a number of new initiatives to drive accelerated revenue growth over the long term. We expect the fourth quarter to benefit from these investments, resulting in underlying revenue growth of 3% to 5% compared to the prior year. We expect Merrell to deliver low-teens growth and Sperry to deliver high-single-digit growth in the quarter. Growth in our eCommerce business is also expected to remain very strong in the fourth quarter."

2018 Outlook

The Company is updating its revenue and earnings projections for the full year. The full-year outlook is summarized below.

• Revenue is now expected to be approximately $2.24 billion, representing 2.5% underlying growth for the full year. The updated guidance includes the fourth quarter impact from weakness in the Latin America region and the bankruptcy of a work boot customer.
• Gross margin is now expected to expand approximately 150 basis points compared to the adjusted prior year.
• Reported operating margin is now expected to be approximately 11.7%, and adjusted operating margin is now expected to be approximately 12.1%, inclusive of up to $45 million of expected incremental investments to support the Company's GLOBAL GROWTH AGENDA.
• The effective tax rate is now expected to be in the range of 15.0% to 16.0%, reflecting the discrete benefit from pension contributions.
• Reported diluted earnings per share are now expected to be between $2.09 to $2.13 and adjusted diluted earnings per share are now expected to be between $2.12 to $2.16, an increase over our previous outlook.

NON-GAAP FINANCIAL MEASURES

This release contains certain non-GAAP financial measures. References to "underlying" revenue indicate reported revenue adjusted for the impact of retail store closures, the transition of Stride Rite^® to a license business model, the sale of the Sebago^® brand and the sale of the Department of Defense business. Measures referred to as "adjusted" financial results exclude environmental and other related costs, organizational transformation costs which include gains or losses from divestitures, restructuring and other related costs, a foreign currency remeasurement gain recorded in the second quarter that is not expected to reoccur and incremental store inventory mark-downs.

Beginning in Q1 2018, the Company has separately provided the impact of changes in foreign currency exchange rates on revenue, rather than including it as a part of underlying revenue, to better isolate this variable. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. The Company believes providing constant currency information provides valuable supplemental information regarding results of operations, consistent with how the Company evaluates performance. The Company calculates constant currency by converting the current-period local currency financial results using the prior period exchange rates and comparing these adjusted amounts to our current period reported results.

The Company has provided a reconciliation of the above non-GAAP financial measures to the most directly comparable GAAP financial measure. The Company believes these non-GAAP measures provide useful information to both management and investors to increase comparability to the prior period by adjusting for certain items that may not be indicative of core operating measures and to better identify trends in our business. The adjusted financial results are used by management to, and allow investors to, evaluate the operating performance of the Company on a comparable basis.

EARNINGS CALL INFORMATION

The Company will host a conference call today at 8:30 a.m. Eastern Time to discuss these results and current business trends. The conference call will be broadcast live and accessible under the "Investor Relations" tab at www.wolverineworldwide.com. A replay of the conference call will be available at the Company's website for a period of approximately 30 days.

ABOUT WOLVERINE WORLDWIDE

With a commitment to service and product excellence, Wolverine World Wide, Inc. is one of the world's leading marketers and licensors of branded casual, active lifestyle, work, outdoor sport, athletic, children's and uniform footwear and apparel. The Company's portfolio of highly recognized brands includes: Merrell^®, Sperry^®, Hush Puppies^®, Saucony^®, Wolverine^®, Keds^®, Stride Rite^®, Chaco^®, Bates^®, HYTEST^®, and Soft Style^®. The Company also is the global footwear licensee of the popular brands Cat^® and Harley-Davidson^®. The Company's products are carried by leading retailers in the U.S. and globally in approximately 200 countries and territories. For additional information, please visit our website, www.wolverineworldwide.com.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements, including statements regarding: the Company's ability to invest in growth, successfully execute key strategic initiatives, elevate brands with consumers, and deliver product innovation, organic and global growth and operational efficiencies; and the Company's fiscal 2018 outlook and guidance. In addition, words such as "guidance," "estimates," "anticipates," "believes," "forecasts," "step," "plans," "predicts," "focused," "projects," "outlook," "is likely," "expects," "intends," "should," "will," "confident," variations of such words, and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions ("Risk Factors") that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Risk Factors include, among others: changes in general economic conditions, employment rates, business conditions, interest rates, tax policies and other factors affecting consumer spending in the markets and regions in which the Company's products are sold; the inability for any reason to effectively compete in global footwear, apparel and consumer-direct markets; the inability to maintain positive brand images and anticipate, understand and respond to changing footwear and apparel trends and consumer preferences; the inability to effectively manage inventory levels; increases or changes in duties, tariffs, quotas or applicable assessments in countries of import and export; foreign currency exchange rate fluctuations; currency restrictions; capacity constraints, production disruptions, quality issues, price increases or other risks associated with foreign sourcing; the cost and availability of raw materials, inventories, services and labor for owned and contract manufacturers; labor disruptions; changes in relationships with, including the loss of, significant wholesale customers; risks related to the significant investment in, and performance of, the Company's consumer-direct operations; risks related to expansion into new markets and complementary product categories as well as consumer-direct operations; the impact of seasonality and unpredictable weather conditions; changes in general economic conditions and/or the credit markets on the Company's distributors, suppliers and customers; increase in the Company's effective tax rates; failure of licensees or distributors to meet planned annual sales goals or to make timely payments to the Company; the risks of doing business in developing countries, and politically or economically volatile areas; the ability to secure and protect owned intellectual property or use licensed intellectual property; the impact of regulation, regulatory and legal proceedings and legal compliance risks, including compliance with federal, state and local laws and regulations relating to the protection of the environment, environmental remediation and other related costs, and litigation or other legal proceedings relating to the protection of the environment or environmental effects on human health; the potential breach of the Company's databases, or those of its vendors, which contain certain personal information or payment card data; problems affecting the Company's distribution system, including service interruptions at shipping and receiving ports; strategic actions, including new initiatives and ventures, acquisitions and dispositions, and the Company's success in integrating acquired businesses, and implementing new initiatives and ventures; the risk of impairment to goodwill and other acquired intangibles; the success of the Company's consumer-direct realignment initiatives; changes in future pension funding requirements and pension expenses; and additional factors discussed in the Company's reports filed with the Securities and Exchange Commission and exhibits thereto. The foregoing Risk Factors, as well as other existing Risk Factors and new Risk Factors that emerge from time to time, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.  Furthermore, the Company undertakes no obligation to update, amend, or clarify forward-looking statements.

The following tables contain information regarding the non-GAAP adjustments used by the Company in the presentation of its financial results:

CONTACT:  Michael D. Stornant, (616) 866-5728

SOURCE Wolverine World Wide, Inc.

Related Links

http://www.wolverineworldwide.com

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