Wolverine World Wide(WWW) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a 9% increase in third-quarter sales to $691 million, with a 12% increase on a constant currency basis. However, both revenue and profit fell below expectations due to supply chain disruptions and heightened promotional activity [9][14]. - Adjusted operating profit decreased by 10% to $62 million, primarily due to higher promotional sales in the direct-to-consumer (DTC) channel and discounts in wholesale [14][66]. - Adjusted gross margin for Q3 was 40.3%, below expectations, mainly due to higher promotions and lower than expected wholesale revenue [65][80]. Business Line Data and Key Metrics Changes - Merrell brand achieved a remarkable 34% revenue growth, 39% on a constant currency basis, demonstrating strong product innovation and market engagement [10][31]. - Saucony's revenue was $130 million, down 1% year-over-year but up 4% in constant currency, affected by late deliveries and order cancellations [39][44]. - Sweaty Betty's revenue declined by 3%, but increased by 13% on a constant currency basis, with significant challenges in the UK market impacting performance [45][46]. Market Data and Key Metrics Changes - International revenue grew by 43% on a constant currency basis, indicating strong growth potential despite macroeconomic challenges [23]. - The U.S. wholesale channel faced significant challenges, with logistics and warehouse congestion leading to late deliveries and order cancellations [15][16]. - The company noted that its international business, particularly in China, showed strong growth, with sales through the China joint venture more than doubling [42][56]. Company Strategy and Development Direction - The company is refining its corporate strategy to prioritize brands with the highest growth potential and optimize those that contribute strong profit and cash flow [11][30]. - A new brand group structure was approved to enhance collaboration and efficiency across brands, focusing on innovation and market engagement [25][26]. - The establishment of a profit improvement office aims to identify and execute initiatives for margin expansion, targeting annual gross savings of $150 million [29][83]. Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain disruptions and deteriorating macro conditions but expressed confidence in the company's ability to navigate these challenges [9][24]. - The outlook for Q4 includes expected revenue of $650 million to $675 million, reflecting growth of approximately 4% at the midpoint [79]. - The company anticipates a challenging environment but remains optimistic about long-term growth potential and brand positioning [59][61]. Other Important Information - The company ended Q3 with net debt of $1.35 billion and liquidity of $400 million, with a leverage ratio of 3.4 times [78]. - Inventory levels reached $881 million, a 114% increase compared to the previous year, primarily due to logistics and handling costs [68][72]. - The company plans to normalize inventory levels by Q3 of 2023, with key actions to liquidate end-of-life inventory [73][75]. Q&A Session Summary Question: Advantages of the realignment of segments and profit improvement office initiatives - Management is in the process of identifying a Chief Profit Improvement Officer to oversee the new office, emphasizing its importance [94][95]. Question: Impact of inventory levels on new product introductions - Higher inventory levels will necessitate a more disciplined approach to SKU management, focusing on core products while balancing newness [100][102]. Question: Performance of Saucony and wholesale partner behavior - The challenges faced by Saucony are broad-based, with retailers showing low tolerance for delays, leading to order cancellations [106][108]. However, international growth remains strong [111]. Question: Gross margin outlook and SG&A expenses - Management expects some pressure on gross margins due to aggressive promotions and logistics costs, but anticipates improvements in SG&A expenses in 2023 [117][118].