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| WWW > SEC Filings for WWW > Form 10-Q on 22-Oct-2009 | All Recent SEC Filings |
22-Oct-2009
Quarterly Report
• Diluted earnings per share for the third quarter of 2009 were $0.54 per share compared to $0.62 per share for the same quarter in the prior year, including the impact of $0.08 per share of non-recurring restructuring and other transition costs.
• Accounts receivable decreased 7.1% in the third quarter of 2009 compared to the third quarter of 2008 due in part to the 10.1% decrease in revenue.
• Inventory decreased 5.2% in the third quarter of 2009 compared to the third quarter of 2008.
• The Company ended the third quarter of 2009 with $78.5 million of cash on hand and interest-bearing debt of $11.6 million.
• The Company declared a quarterly cash dividend of $0.11 per share in the third quarter of 2009, payable on November 2, 2009 to stockholders of record on October 1, 2009.
RECENT DEVELOPMENTS
Strategic Restructuring Plan
On January 7, 2009, the Board of Directors of Company approved a strategic
restructuring plan focused on generating efficiencies in supply chain,
distribution and backroom functions. This plan will allow the Company to create
significant operating efficiencies, improve its supply chain, and create a
stronger global platform. On October 7, 2009, the Company announced that two
initiatives in its restructuring plan had been expanded to include consolidating
domestic manufacturing into the Company's Big Rapids, Michigan facility and
significant improvements in the Outdoor Group's footwear and apparel product
creation activities. The Company now estimates that the total implementation
costs relating to the strategic restructuring plan will range from $35 million
to $38 million, and all initiatives will be completed in the first half of 2010.
Approximately $10 million to $11 million of the estimated costs represent
non-cash charges. Year-to-date through the third quarter, $27.5 million of
restructuring and other transition costs have been incurred. It is currently
estimated that approximately $5.5 million to $8.5 million of restructuring and
other transition costs will be incurred in the fourth quarter of 2009.
Continuing annualized pretax benefits once all initiatives are fully implemented
are estimated to range from $19 million to $21 million, compared to a previous
estimate (before the two expanded initiatives were announced) of $17 million to
$19 million. The Company estimates that approximately $3.9 million in pre-tax
benefits relating to the strategic restructuring plan are reflected in the third
quarter's results and $9.3 million have been realized year-to-date.
The Company incurred non-recurring restructuring and other transition costs of
approximately $5.1 million, or $0.08 per diluted share, for the twelve weeks
ended September 12, 2009.
Effective Tax Rate
The effective tax rate in the third quarter decreased to 26.6%, reflecting the
year-to-date benefits from the implementation of tax planning strategies,
related primarily to the Company's international operations.
The following is a discussion of the Company's results of operations and
liquidity and capital resources for the third quarter of 2009. This section
should be read in conjunction with the consolidated condensed financial
statements and notes.
RESULTS OF OPERATIONS - THIRD QUARTER 2009 COMPARED TO THIRD QUARTER 2008
FINANCIAL SUMMARY - THIRD QUARTER 2009 VERSUS THIRD QUARTER 2008
2009 2008 Change
% of % of
(Millions of dollars, except per share data) $ Total $ Total $ %
Revenue
Branded footwear, apparel and licensing $ 262.8 91.6 % $ 292.5 91.7 % $ (29.7 ) (10.1 %)
Other business units 24.0 8.4 % 26.4 8.3 % (2.4 ) (9.1 %)
Total Revenue $ 286.8 100.0 % $ 318.9 100.0 % $ (32.1 ) (10.1 %)
% of % of
$ Revenue $ Revenue $ %
Gross Profit
Branded footwear, apparel and licensing $ 103.7 39.5 % $ 119.9 41.0 % $ (16.2 ) (13.5 %)
Other business units 10.3 42.8 % 8.8 33.5 % 1.5 16.1 %
Total Gross Profit $ 114.0 39.7 % 128.7 40.4 % $ (14.7 ) (11.5 %)
Selling, general and administrative expenses $ 74.0 25.8 % $ 82.4 25.8 % $ (8.4 ) (10.2 %)
Restructuring and other transition costs 3.8 1.3 % - 0.0 % 3.8 100.0 %
Operating Expenses $ 77.8 27.1 % $ 82.4 25.8 % $ (4.6 ) (5.6 %)
Interest expense - net $ 0.0 0.0 % $ 0.3 0.1 % $ (0.3 ) (100.0 %)
Other (income) expense - net (0.3 ) (0.1 %) (0.9 ) (0.3 %) 0.6 62.2 %
Earnings before income taxes $ 36.5 12.7 % $ 46.9 14.7 % $ (10.4 ) (22.2 %)
Net earnings $ 26.8 9.3 % $ 31.2 9.8 % $ (4.4 ) (14.1 %)
Diluted net earnings per share $ 0.54 - $ 0.62 - $ (0.08 ) (12.9 %)
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The Company has one reportable segment that is engaged in manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Within the branded footwear, apparel and licensing segment, the Company has identified four primary operating units, consisting of the Outdoor Group (consisting of the Merrell®, Chaco® and Patagonia® Footwear brands), the Wolverine Footwear Group (consisting of the Wolverine®, HyTest®, Bates® and certain private label branded products), the Heritage Brands Group (consisting of the Cat® Footwear, Harley-Davidson®Footwear and Sebago® brands) and The Hush Puppies Company (consisting of the Hush Puppies®, Soft Style®, and CusheTM brands). The Company's other business units, which do not collectively comprise a separate reportable segment, consist of Wolverine Retail and Wolverine Leathers (comprised of the leathers and procurement operations). The following is supplemental information on total revenue:
TOTAL REVENUE - THIRD QUARTER
2009 2008 Change
% of % of
(Millions of dollars) $ Total $ Total $ %
Outdoor Group $ 114.8 40.0 % $ 123.1 38.6 % $ (8.3 ) (6.7 %)
Heritage Brands Group 55.3 19.3 % 64.5 20.2 % (9.2 ) (14.2 %)
Wolverine Footwear
Group 53.4 18.6 % 59.4 18.6 % (6.0 ) (10.2 %)
The Hush Puppies
Company 36.4 12.7 % 42.4 13.3 % (6.0 ) (14.1 %)
Other 2.9 1.0 % 3.1 1.0 % (0.2 ) (7.5 %)
Total branded
footwear, apparel and
licensing
Revenue $ 262.8 91.6 % $ 292.5 91.7 % $ (29.7 ) (10.1 %)
Other business units 24.0 8.4 % 26.4 8.3 % (2.4 ) (9.1 %)
Total revenue $ 286.8 100.0 % $ 318.9 100.0 % $ (32.1 ) (10.1 %)
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REVENUE
Revenue for the third quarter of 2009 decreased $32.1 million from the third
quarter of 2008 to $286.8 million. The impact of translating foreign denominated
revenue to U.S. dollars decreased revenue by $10.1 million. Declines in unit
volume for the branded footwear, apparel and licensing operations, partially
offset by price increases for selected brands, caused revenue to decrease
$19.6 million. Revenue from the other business units decreased $2.4 million.
International revenue represented 42.9% of total revenue in the third quarter of
2009 compared to 43.5% in the third quarter of 2008, with the decline resulting
primarily from the stronger U.S. dollar.
The Outdoor Group generated revenue of $114.8 million for the third quarter of
2009, an $8.3 million decrease from the third quarter of 2008. The Merrell®
brand's revenue in the third quarter of 2009 decreased at a high single-digit
rate compared to the third quarter of 2008, due to the strengthening of the U.S.
dollar and soft retail conditions in many of the brand's major markets.
Patagonia® Footwear's revenue decreased at a rate in the mid teens in the third
quarter of 2009 compared to the third quarter of 2008, due primarily to tough
economic conditions. Revenue from the recently acquired Chaco® brand contributed
to the group's overall revenue performance in the quarter.
The Heritage Brands Group had revenue of $55.3 million in the third quarter of
2009, a $9.2 million decrease compared to the third quarter of 2008. Cat®
Footwear's revenue in the third quarter of 2009 decreased at a rate in the low
teens compared to the prior year, reflecting the impact of the stronger U.S.
dollar on the brand's extensive international operations as well as negative
economic conditions in most of its major markets. Harley-Davidson® Footwear's
revenue declined in the third quarter of 2009 at a mid twenties rate compared to
the third quarter of 2008 due primarily to soft retail conditions. The Sebago®
brand's revenue also declined in the third quarter at a rate in the low teens
due to weaker consumer spending and the stronger U.S. dollar.
The Wolverine Footwear Group recorded $53.4 million in revenue for the third
quarter of 2009, a $6.0 million decrease from the third quarter of 2008. Revenue
for the Wolverine® brand declined at a rate in the mid-single digits over the
prior year due to negative economic conditions in the U.S. work sector. Revenue
from the Bates® footwear business in the third quarter of 2009 declined from the
third quarter of 2008 at a rate in the mid-single digits as a result of the
earlier timing of shipments to the U.S. military. HyTest®'s revenue for the
third quarter of 2009 declined at a rate in the low forties from the third
quarter of 2008 due to continued difficulties in the U.S. manufacturing sector
and related workforce reductions, resulting in decreased demand for safety
footwear products.
The Hush Puppies Company recorded revenue of $36.4 million in the third quarter
of 2009, a $6.0 million decrease from the third quarter of 2008. Hush Puppies®
revenue in the third quarter of 2009 decreased at a rate in the mid teens due
primarily to customer bankruptcies, consolidations of key retailers caused by
weaker consumer spending and the strengthening of the U.S. dollar compared to
the third quarter of 2008. Soft Style® experienced a revenue decline at a rate
in the mid-twenties in the third quarter as a result of a weak retail
environment and a reduction in shipments driven by production delays from third
party factories. Revenue generated by the recently acquired CusheTM brand
partially offset these revenue declines, with a very modest contribution to the
unit's revenue for the third quarter of 2009.
Within the Company's other business units, Wolverine Retail's revenue increased
in the third quarter of 2009 at a rate in the mid teens compared to the third
quarter of 2008. Wolverine Retail operated 94 retail stores worldwide at the end
of the third quarter of 2009 compared to 90 at the end of the third quarter of
2008. The increase in revenue is due to the increase in the number of stores,
increased eCommerce business, and increases in comparable stores sales
performance. Wolverine Leathers revenue decreased at a rate in the high forties
in the third quarter of 2009 compared to the third quarter of 2008 due to a
decline in demand for its proprietary products and a significant decline in the
market price for finished leather.
GROSS MARGIN
The gross margin for the third quarter of 2009 of 39.7% was 70 basis points
lower than the gross margin for the third quarter of 2008. Non-recurring
restructuring and other transition costs of $1.3 million included in cost of
products sold in the third quarter of 2009 accounts for 50 basis points of the
decrease. The remainder of the decrease resulted from increases in product costs
and the impact of translating foreign currencies to the U.S. dollar.
OPERATING EXPENSES
Operating expenses of $77.8 million for the third quarter of 2009 decreased
$4.6 million from $82.4 million for the third quarter of 2008. The decrease was
related to lower general and administrative costs resulting from the Company's
restructuring and cost-savings initiatives of $3.9 million, the impact of a
stronger U.S. dollar of $2.1 million, and decreases in variable operating
expenses (such as selling commissions and distribution costs). These decreases
were partially offset by non-recurring restructuring and other transition costs
of $3.8 million, operating expenses associated with recently acquired brands of
$0.8 million, and increased pension expense of $2.0 million.
INTEREST, OTHER AND TAXES
The decrease in net interest expense reflected lower outstanding debt as a
result of the repayment in full of the Company's senior notes during the fourth
quarter of 2008 and lower average balances outstanding on the Company's
revolving line of credit.
The decrease in other (income) expense resulted primarily from the change in
realized gains or losses on foreign denominated assets and liabilities.
The Company's effective tax rate for the third quarter of 2009 was 26.6%
compared to 33.5% for the third quarter of 2008. The reduced rate reflects a
higher portion of earnings from foreign jurisdictions with lower tax rates, tax
benefits from the strategic restructuring plan, the extension of the Federal
research and development tax credit by the U.S. Congress in the fourth quarter
of 2008, and the current year-to-date benefits from new tax planning strategies,
related primarily to the Company's international operations. The Company
estimates the full year effective tax rate for 2009 to be approximately 29.0%,
which is lower than the previous estimate of 32.3%, due to the implementation of
tax planning strategies, related primarily to the Company's international
operations.
NET EARNINGS AND EARNINGS PER SHARE
As a result of the revenue, gross margin and expense changes discussed above,
the Company had net earnings of $26.8 million for the third quarter of 2009,
compared to $31.2 million in the third quarter of 2008, a decrease of
$4.4 million.
Diluted net earnings per share decreased 12.9% in the third quarter of 2009 to
$0.54 from $0.62 in the third quarter of 2008. The decrease attributable to
lower net earnings is partially offset by fewer average shares outstanding in
the third quarter of 2009 compared to the third quarter of 2008 as a result of
repurchases of the Company's common stock over the prior twelve months.
RESULTS OF OPERATIONS - FIRST THREE QUARTERS OF 2009 COMPARED TO FIRST THREE
QUARTERS OF 2008
FINANCIAL SUMMARY - FIRST THREE QUARTERS OF 2009 VERSUS FIRST THREE QUARTERS OF
2008
2009 2008 Change
% of % of
(Millions of dollars, except per share data) $ Total $ Total $ %
Revenue
Branded footwear, apparel and licensing $ 716.0 90.8 % $ 796.1 91.0 % $ (80.1 ) (10.1 %)
Other business units 72.5 9.2 % 78.4 9.0 % (5.9 ) (7.5 %)
Total Revenue $ 788.5 100.0 % $ 874.5 100.0 % $ (86.0 ) (9.8 %)
% of % of
$ Revenue $ Revenue $ %
Gross profit
Branded footwear, apparel and licensing $ 283.5 39.6 % $ 326.3 41.0 % $ (42.8 ) (13.1 %)
Other business units 25.4 35.0 % 26.4 33.7 % (1.0 ) (3.8 %)
Total Gross Profit $ 308.9 39.2 % $ 352.7 40.3 % $ (43.8 ) (12.4 %)
Selling, general and administrative expenses $ 222.2 28.2 % $ 244.2 27.9 % $ (22.0 ) (9.0 %)
Restructuring and other transition costs 22.8 2.9 % - 0.0 % 22.8 100.0 %
Operating Expenses $ 245.0 31.1 % $ 244.2 27.9 % $ 0.8 0.3 %
Interest (income) expense - net $ 0.2 0.0 % $ 0.7 0.1 % $ (0.5 ) 66.9 %
Other expense - net 0.0 0.0 % 0.0 0.0 % 0.0 nm
Earnings before income taxes $ 63.7 8.1 % $ 107.8 12.3 % $ (44.1 ) (41.0 %)
Net Earnings $ 45.2 5.7 % $ 71.7 8.2 % $ (26.5 ) (37.0 %)
Diluted net earnings per share $ 0.91 - $ 1.41 - $ (0.50 ) (35.5 %)
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The following is supplemental information on total revenue:
Total Revenue - First Three Quarters
2009 2008 Change
% of % of
(Millions of dollars) $ Total $ Total $ %
Outdoor Group $ 305.8 38.8 % $ 318.0 36.4 % $ (12.2 ) (3.8 %)
Wolverine Footwear
Group 156.5 19.8 % 177.7 20.3 % (21.2 ) (12.0 %)
Heritage Brands Group 146.5 18.6 % 174.1 19.9 % (27.6 ) (15.8 %)
The Hush Puppies
Company 98.2 12.5 % 117.5 13.4 % (19.3 ) (16.4 %)
Other 9.0 1.1 % 8.8 1.0 % 0.2 2.8 %
Total branded
footwear, apparel and
licensing revenue $ 716.0 90.8 % $ 796.1 91.0 % $ (80.1 ) (10.1 %)
Other business units 72.5 9.2 % 78.4 9.0 % (5.9 ) (7.5 %)
Total revenue $ 788.5 100.0 % $ 874.5 100.0 % $ (86.0 ) (9.8 %)
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REVENUE
Revenue for the first three quarters for 2009 decreased $86.0 million from the
first three quarters of 2008 to $788.5 million. The impact of translating
foreign-denominated revenue to U.S. dollars decreased revenue by $40.8 million.
Declines in unit volume for the branded footwear, apparel and licensing
operations, partially offset by price increases for selected brands caused
revenue to decrease $39.3 million. Revenue from the other business units
decreased $5.9 million. International revenue represented 39.6% of total revenue
for the 36 weeks ended September 12, 2009 compared to 42.2% for the 36 weeks
ended September 6, 2008, with the decline resulting primarily from the stronger
U.S. dollar.
The Outdoor Group recorded revenue of $305.8 million for the first three
quarters of 2009, a $12.2 million decrease over the first three quarters of the
prior year. The Merrell® brand's revenue decreased at a high single-digit rate
compared to the first three quarters of 2008, primarily as a result of the
strengthening of the U.S. dollar and soft retail conditions in many of the
brand's major markets. This decline was partially offset by Patagonia®
Footwear's low single-digit revenue increase and revenue from the recently
acquired Chaco® brand.
The Wolverine Footwear Group generated revenue of $156.5 million during the
first three quarters of 2009, a $21.2 million decrease from the first three
quarters of 2008. The Wolverine® brand realized a mid single-digit decrease in
revenue during the first three quarters of 2009 compared to the first three
quarters of 2008 due primarily to a challenging retail environment. The
Bates®uniform footwear business realized a decrease in revenue at a rate in the
mid teens due primarily to planned reduction in purchases by the U.S. Department
of Defense. HyTest®'s revenue declined at a rate in the low thirties due to
negative economic conditions in the U.S. market and related workforce
reductions, resulting in decreased demand for safety footwear products.
The Heritage Brands Group recorded revenue of $146.5 million for the first three
quarters of 2009, a $27.6 million decrease over the first three quarters of the
prior year. Cat® Footwear's revenue decreased at a rate in the high teens
compared to the first three quarters of 2008, reflecting the impact of the
stronger U.S. dollar on the reported results of the brand's extensive
international operations. Harley-Davidson® Footwear revenue decreased at rate in
the low teens due primarily to a weak retail environment and the continued
impact of the modification of the brand's distribution strategy in the U.S.
market that started in 2008. The Sebago® brand experienced a decline in revenue
at a rate in the mid teens for the first three quarters of 2009, compared to the
first three quarters of 2008, as a result of tough economic conditions in many
of the brand's most important markets and the stronger U.S. dollar.
The Hush Puppies Company recorded revenue of $98.2 million in the first three
quarters of 2009, a $19.3 million decrease from the first three quarters of
2008. Hush Puppies® revenue decreased at a rate in the mid teens due primarily
to customer bankruptcies, consolidations of key retailers caused by weaker
consumer spending, and the strengthening of the U.S. dollar compared to the
first three quarters of 2008. The Soft Style® brand experienced a decline in
revenue at a rate in the high twenties as a result of a weak retail environment
and production delays at third-party factories. Revenue generated by the
recently acquired CusheTM brand partially offset these revenue declines with its
contribution to the group's revenue for the first three quarters of 2009.
Within the Company's other business units, Wolverine Retail's revenue increased
in the first three quarters of 2009 at a mid single-digit rate compared to the
first three quarters of 2008. Wolverine Retail operated 94 retail stores
worldwide at the end of the third quarter of 2009 compared to 90 at the end of
the third quarter of 2008 The increase in revenue is due to the increase in the
number of stores and increases in eCommerce business. Revenue from the
Wolverine®Leathers operation decreased at a rate in the mid twenties in the
first three quarters of 2009 as compared to the first three quarters of 2008 due
to a decline in demand for its proprietary products and a significant decline in
the market price for finished leather.
GROSS MARGIN
The gross margin for the first three quarters of 2009 was 39.2%, a 110 basis
point decrease from the first three quarters of 2008. Non-recurring
restructuring and other transition costs of $4.6 million included in cost of
products sold in the first three quarters of 2009 accounted for 60 basis points
of the decline, with the remainder of the decrease resulting from expected
increases in product and freight costs, increased sales of lower margin product
during the first three quarters of 2009 and the impact of translating foreign
currencies.
OPERATING EXPENSES
Operating expenses of $245.0 million for the first three quarters of 2009
increased $0.8 million from $244.2 million for the first three quarters of 2008.
The increase was related to non-recurring restructuring and other transition
costs of $22.8 million, operating expenses associated with recently acquired
brands of $5.5 million, and increased pension expense of $6.0 million. These
increases were offset by the impact of foreign exchange of $9.9 million, lower
general and administrative costs as a result of the Company's restructuring and
cost-savings initiatives, as well as significant decreases in certain operating
expenses that vary with revenue, such as selling commissions and distribution
costs.
INTEREST, OTHER & TAXES
The decrease in net interest expense reflected lower outstanding debt as a
result of the repayment in full of the Company's senior notes during the fourth
quarter of 2008 and lower average balances outstanding on the Company's
revolving line of credit.
The decrease in other expense is primarily related to the change in realized
gains or losses on foreign denominated assets and liabilities.
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