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01/11 04:43
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights strong revenue growth for Saucony and Merrell, improved gross and operating margins, and reduced net debt, indicating solid financial health. Despite some declines in Sweaty Betty and Work Group revenues, strategic resets and mitigations are in place. The Q&A section reveals positive sentiment towards Saucony's growth and strategic investments. While there are some uncertainties in long-term plans, the overall sentiment is positive, with growth in key areas and effective cost management, suggesting a positive stock price reaction over the next two weeks.
Revenue Revenue grew approximately 7% year-over-year, driven by strong performance from Merrell and Saucony brands. The growth aligns with the company's long-term target of mid- to high single-digit growth.
Adjusted Earnings Per Share (EPS) Adjusted EPS was $0.36, a 29% increase from $0.28 in the prior year. This growth was attributed to healthy revenue growth, record gross margin, and disciplined business management.
Saucony Revenue Saucony revenue increased 27% year-over-year, driven by strong performance in both performance run and lifestyle categories, expanded distribution, and positive sell-through trends.
Merrell Revenue Merrell revenue increased 5% year-over-year, supported by low double-digit growth in wholesale and market share gains in the hike category. This was partially offset by a decline in the DTC channel due to reduced promotional activity.
Sweaty Betty Revenue Sweaty Betty revenue declined 4% year-over-year. The decline was attributed to a strategic reset of the business, including a focus on premium positioning and reduced promotional activity.
Work Group Revenue Work Group revenue declined 3% year-over-year, with Wolverine brand revenue down 8%. The decline was due to lower-than-expected sell-through impacting replenishment orders.
Gross Margin Gross margin was 47.5%, an increase of 240 basis points year-over-year. The improvement was driven by product cost savings, lower promotional activity, and a timing benefit from tariff mitigation efforts.
Adjusted Operating Margin Adjusted operating margin was 9.1%, an increase of 150 basis points year-over-year. This was driven by gross margin expansion and strategic reinvestments in brands and talent.
Net Debt Net debt was $543 million, down $20 million or 4% compared to the same time last year. The reduction was attributed to disciplined financial management.
Revenue growth: Revenue grew approximately 7%, driven by Merrell and Saucony brands. Saucony grew 27% in Q3, while Merrell grew 5%.
Product innovation: Saucony introduced new products like the Endorphin Azura and expanded its Endorphin series. Merrell plans to launch the Agility Peak 6 and new lifestyle products in 2026.
Brand collaborations: Saucony collaborated with METAGIRL, Westside Gunn, and others to enhance brand visibility.
Key city strategy: Saucony expanded in Tokyo, China, and Europe, with plans for Paris in 2026. Merrell focused on Paris and broader EMEA growth.
International expansion: Sweaty Betty launched in China, New Zealand, and plans further expansion in Australia and India.
Accounting policy change: Shifted inventory accounting from LIFO to FIFO for consistency.
Operational efficiencies: Improved demand and inventory management, integrated Sweaty Betty's tools, and adopted AI for business processes.
Leadership changes: Justin Cupps appointed as Work Group President to address underperformance.
Focus on premium positioning: Sweaty Betty and Wolverine brands are being repositioned for premium markets.
Work Group Revenue Decline: The Work Group revenue is expected to finish the year down high single digits compared to 2024, with inconsistent performance and challenges in product pipeline and marketplace recalibration.
Tariff-Related Margin Pressures: The company faces an annualized unmitigated impact of $65 million from tariffs, with $10 million expected in 2025 and $55 million in 2026, creating significant cost headwinds.
Sweaty Betty U.S. Operations Reset: The transition to a full-price, premium online DTC business in the U.S. is expected to take time and put pressure on global growth numbers in the near term.
Wolverine Brand Inconsistencies: The Wolverine brand's performance remains inconsistent, with challenges in product innovation, marketing, and inventory management, delaying its return to steady growth.
Evolving Consumer Environment: The company is managing through a dynamic macro backdrop, including an evolving consumer environment that could impact demand and sales.
Supply Chain and Inventory Management: Efforts to improve demand and inventory management processes are ongoing, but inefficiencies could impact operational performance.
Revenue Growth: Fiscal year 2025 revenue is expected to be in the range of $1.855 billion to $1.87 billion, reflecting a 6.4% increase at the midpoint. Fourth quarter revenue is projected to grow by approximately 2.2% year-over-year at the midpoint.
Gross Margin: Gross margin for fiscal year 2025 is expected to be approximately 47.1%, an increase of 280 basis points compared to the prior year. Fourth quarter gross margin is projected to be 46.3%, up 270 basis points year-over-year.
Adjusted Operating Margin: Fiscal year 2025 adjusted operating margin is expected to be approximately 8.9%, up 160 basis points from the prior year. Fourth quarter adjusted operating margin is projected to be 10.5%, an increase of 60 basis points year-over-year.
Adjusted Earnings Per Share (EPS): Fiscal year 2025 adjusted diluted EPS is expected to be in the range of $1.29 to $1.34, representing a 50% growth at the midpoint compared to the prior year. Fourth quarter adjusted diluted EPS is projected to be between $0.39 and $0.44.
Capital Expenditures: Capital expenditures for fiscal year 2025 are expected to be approximately $25 million.
Active Group Performance: Active Group revenue is expected to grow low double digits in fiscal year 2025, driven by strong performance from Merrell and Saucony. Fourth quarter Active Group revenue is projected to grow high single digits year-over-year.
Work Group Performance: Work Group revenue is expected to decline high single digits in fiscal year 2025 and low double digits in the fourth quarter year-over-year.
Tariff Impact: The unmitigated impact of tariffs in 2025 is expected to be approximately $10 million, with an annualized impact of $65 million in 2026. Gross margin in 2026 is expected to be between the lower end and midpoint of the aspirational range of 45% to 47%.
Key Brand Projections: Merrell and Saucony are expected to represent nearly two-thirds of the company's total revenue in 2025, with combined mid-teens year-over-year growth. Saucony is on track to deliver all-time record revenue and profit in 2025.
The selected topic was not discussed during the call.
The earnings call highlights strong revenue growth for Saucony and Merrell, improved gross and operating margins, and reduced net debt, indicating solid financial health. Despite some declines in Sweaty Betty and Work Group revenues, strategic resets and mitigations are in place. The Q&A section reveals positive sentiment towards Saucony's growth and strategic investments. While there are some uncertainties in long-term plans, the overall sentiment is positive, with growth in key areas and effective cost management, suggesting a positive stock price reaction over the next two weeks.
The earnings call summary presents mixed signals: strong financial performance with record gross margins and revenue growth, but also significant uncertainties due to tariff impacts and withdrawn full-year guidance. The Q&A highlights positive momentum for brands like Saucony and Merrell, but concerns about growth deceleration and tariff impacts remain. The market cap suggests moderate sensitivity to news. Overall, the positive elements are balanced by significant uncertainties, leading to a neutral prediction for stock price movement.
The earnings call reveals mixed signals: improved financial metrics (EPS and revenue growth) and optimistic guidance, but challenges like competitive pressures, inconsistent brand performance, and significant tariff impacts. The Q&A highlights management's evasive responses on key issues, adding uncertainty. Despite positive elements like increased revenue and a healthier balance sheet, concerns about tariffs, competitive pressures, and unclear management responses temper enthusiasm. Given the small market cap, the stock might react more strongly, but the mixed signals suggest a neutral outlook with potential volatility.
The earnings call summary shows strong improvement in operating and gross margins, debt reduction, and optimistic EPS guidance. Despite a revenue decline, the company's strategic focus on brand positioning and sourcing diversification is positive. The Q&A reveals positive sentiment from analysts, particularly regarding brand growth and margin improvements. The lack of specific guidance for 2025 and unclear responses are minor concerns. Given the company's small-cap status, the positive factors are likely to result in a stock price increase of 2% to 8% over the next two weeks.
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