Wolverine World Wide announced a new operating model for its Saucony and Merrell business in China as well as a plan to sell its Asia-based leathers business.
The moves are intended to hone the focus of the company’s portfolio and grow the business, according to a release.
“Our actions over the past four months have served to simplify our business model, reduce our cost structure, and strengthen our balance sheet,” said Chris Hufnagel, president and chief executive officer of Wolverine.
“While our work isn’t done, we enter the new year with a clear vision for the future, enhanced ability to invest in our brands and platforms, and ultimately, a better position to deliver stronger returns for our shareholders.”
In November, Wolverine Worldwide, parent company of Merrell, Saucony, Chaco, and Sweaty Betty, announced layoffs and other cost saving measures to save up to $215 million as the company grappled with inventory and wholesale challenges.
New Operating Model for Merrell and Saucony in China
The actions include entering into agreements for a total amount of $61 million to accelerate the sale of a minority ownership interest in the entity that owns the Saucony intellectual property in China to Xtep, its joint venture partner, and sell the company’s equity interest in the Merrell and Saucony joint venture entities to Xtep.
Wolverine Worldwide formed a joint venture with Xtep in 2019 to launch the Merrell and Saucony brands in China.
Xtep owns over 8,200 stores in the Asia-Pacific, North America, and EMEA regions, and a strong network of distributors and shopping mall operators.
Under the joint venture agreement, Xtep held the option to purchase a 40% minority ownership interest in the entity that owns the Saucony intellectual property in China if the business met certain financial targets.
Due to the early success and profitability of Saucony in China, the company and Xtep have agreed to accelerate the exercise of this purchase option.
Wolverine and Xtep have also agreed for the company to sell its equity interest in the Merrell and Saucony joint venture entities to a wholly-owned subsidiary of Xtep, transitioning the business from a joint venture model to a license and distribution rights model under which Xtep will exclusively carry out the development, marketing, and distribution of footwear, apparel, and accessories for the Saucony and Merrell brands in China.
This evolution underscores the growth prospects of these two brands in China, and is the result of the early success and maturity of the joint venture, the company said in a release.
According to Wolverine, the new operating model is expected to further leverage Xtep’s expertise and significant resources in China, “unleashing the brands’ full potential in this key market” while allowing Wolverine to focus on brand-building.
In November, footwear brand Merrell posted revenue of $157 million for the quarter, down 25.2% in constant currency compared to the same quarter last year, and Saucony’s revenue was $116.4 million for the quarter, down 14.6% in constant currency compared to the prior-year quarter.
Selling Asia-based Leathers Business
Wolverine Worldwide has also entered into a definitive agreement to sell its Asia-based Wolverine Leathers business to Interhides Public Company Limited, a current materials vendor of the company, for approximately $9 million.
The actions announced today are in addition to the company’s previously-announced transactions, including:
- Selling Keds in February 2023 for over $90 million.
- Selling the Hush Puppies intellectual property in China, Hong Kong, and Macau in August 2023 for approximately $58.8 million.
- Selling the U.S. Wolverine Leathers business in August 2023 for approximately $6 million.
The previously announced strategic alternatives process for the company’s Sperry brand is ongoing.
Wolverine will provide more detail regarding these actions and other strategic initiatives at its Annual ICR Conference on January 8, 2024.