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Wolverine World Wide Inc.’s disappointing recent quarterly results are indicative of industry-wide challenges for the North American wholesale footwear market that was previously boosted by a pandemic-related e-commerce boom.
As Wolverine’s revenues dipped nearly 20% last quarter, and the company ousted its former CEO and consolidated U.S. operations to Rockford, industry observers say the company is sharing the financial pain with other footwear brands.
The North American wholesale footwear industry over the past year or so has encountered a consumer preference shift to more in-person retail and more selective buying decisions because of broader economic headwinds, said Shoshy Ciment, business editor for shoe industry publication Footwear News who regularly reports on business and financial updates from various retail companies.
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These consumer and economic shifts, combined with factors such as excessive inventory across the broader athletic footwear industry, have created a change in the wholesale market across North America — and Wolverine “is not alone in this,” Ciment said.
“The wholesale chains are kind of being more conservative with their orders of these brands because people are buying less footwear,” Ciment said. “So since people are buying less and since there is already an excess of product in the existing market, (the wholesalers) are buying less. That, in turn, impacts the brands because they’re not selling as much as they thought, and that’s why they’re all seeing wholesale declines.”
‘Everything has changed’
Last week, Wolverine said it generated $589 million in revenues in its second quarter that ended July 1. The quarterly revenues fell more than 17% from the $713 million reported for the same period last year.
The company said the declines were widespread among its business segments, with lower revenue reported for Merrell (15.7%), Sperry (23.5%), Wolverine (28.2%) and Sweaty Betty (7.2%), while Saucony’s revenues were up slightly at 1.6%. As well, the company’s Lifestyle group experienced the biggest decline of Wolverine’s three apparel groups, declining 38% from last year.
On the day of Wolverine’s earnings report and leadership change, the company’s stock price tumbled nearly 26% from $11.80 to $8.77, and closed on Aug. 17 at $8.15 — less than half of its peak in April of this year.
Chris Hufnagel, Wolverine World Wide Inc. Credit: Courtesy photo
Wolverine issued the weak earnings report and simultaneously made a sudden leadership transition, when the company’s board named Christopher Hufnagel as CEO in addition to his existing role as president of Wolverine.
Hufnagel immediately replaced former CEO Brendan Hoffman, whose employment was terminated without cause and “was not the result of any dispute or disagreement relating to the company’s operations, policies or practices,” according to a filing with federal securities regulators.
Hufnagel declined a Crain’s Grand Rapids Business request for an interview for this story.
Ciment said Hoffman, who assumed the CEO role at Wolverine at the end of 2021, came in at a time when the COVID-19 pandemic prompted more sales of sneakers and athleisure wear across the industry.
“It was a great time for Hoffman to come in and have these big ideas about expanding the company’s D2C capabilities, expanding e-commerce, looking at acquisitions. Those were things that were kind of all on his bucket list,” Ciment said. “Then, all of a sudden in the last year or so, everything has changed.”
Jim Duffy, an analyst with Stifel who spoke during last week’s earnings call, noted the challenging environment for Hufnagel.
“Congratulations to you, Chris. I think you’ve got a good skill set and temperament for the role,” Duffy said. “You are not, however, stepping into an easy situation.”
Wolverine executives said the underlying industry shift contributed to the company’s declining revenues.
“As it relates to issues coming out of the pandemic in more recent memory, we walked ourselves into a pretty significant inventory issue with a lot of other brands, and we’re working to extricate ourselves from that,” Hufnagel said during last week’s earnings call. “We’re sort of caught in that maelstrom right now, and having a heavy dependence on the U.S. wholesale market exacerbates that.”
Mike Stornant, executive vice president and CFO at Wolverine, added that a change in wholesale around mid-May and early-June specifically hampered the company’s business.
“We’re highly dependent on the wholesale channel for our brands, especially in the U.S. market; it’s over 40% of our total revenue that’s just in U.S. wholesale,” Stornant said. “We saw declining trends … with both really accelerated cancellations, well beyond what we’d expect during a timeframe that we’ve navigated over the last 10 or 12 weeks. The level of new orders coming in really stalled … (and) we saw very little new order activity.”
Wolverine Worldwide’s headquarters in Rockford. Credit: Courtesy photo
Not alone
Ciment cited similar challenges with other brands like Adidas, Steve Madden, Puma and Deckers, which owns brands such as Hoka and Teva.
Even Skechers, which reported record quarterly sales of $2.01 billion for the second quarter that ended June 30, reported a dip of 5.9% with wholesale.
“Despite anticipated headwinds in the domestic wholesale market, we successfully navigated the challenges and achieved record quarterly sales in addition to a new second quarter earnings record,” John Vandemore, CFO of Skechers, said in the company’s latest earnings statement.
Looking ahead, Ciment said analysts and industry experts generally forecast 2023 to be a reset year for Wolverine and other footwear companies.
“They’re kind of giving them that grace to then come out with a stronger business overall in 2024 and for the future,” Ciment said.
With Wolverine, Ciment noted analysts appear generally happy about the new CEO move, adding that other retailers like Under Armour and Adidas also made C-suite changes this year.
“It looks like it’s a trend when a company really needs to make a dramatic shift sometimes — a new leader they might see as necessary,” she said. “I think there’s confidence just in the idea that there’s a fresh face, someone who knows the company and someone who seems to have a strong plan to move ahead.”
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