During the fourth quarter, the company completed the $1.25 billion acquisition of the Performance+Lifestyle Group ("PLG") from Collective Brands, Inc., adding four world-class lifestyle brands — Sperry Top-Sider, Saucony, Stride Rite, and Keds — to the company's impressive portfolio of brands.
Fourth fiscal quarter revenue for the legacy WWW business grew to a record $432.8 million, growth of 6.5 percent versus the prior year. Foreign exchange had minimal impact on the quarter's reported revenue. Full-year revenue for the legacy WWW business grew to a record $1.421 billion, an increase of 0.9 percent. Foreign exchange negatively impacted full-year reported revenue for the legacy business by $10.6 million.
Full-year operating expenses for the legacy WWW business increased only 2.1 percent, as the company demonstrated excellent operating discipline in a challenging global business environment. Reported operating expenses, including both PLG and recurring and non-recurring transaction and integration costs, increased 33.1 percent.
The effective tax rate for the full fiscal year was 14.2 percent, reflecting both non-recurring tax benefits realized in the first half of the year and acquisition-related expense deductions in high statutory tax rate jurisdictions in the second half of the year.
Excluding non-recurring transaction and integration expenses, full-year fully diluted earnings per share were $2.29, compared to the company's prior guidance of $1.96 to $2.06 per share. In the fourth quarter, excluding non-recurring transaction and integration expenses, earnings per share were $0.48 – comprised of $0.53 per share from the legacy WWW business and $0.05 of dilution from the PLG acquisition – compared to the company's prior guidance of $0.12 to $0.22 per share.
These excellent results were due to better than forecasted
operating performance from both the legacy and PLG businesses and lower
than anticipated costs related to the acquisition. Reported earnings
per share were $1.63 for the full fiscal year and ($0.08) in the fourth
fiscal quarter.
The company generated strong cash flow from operating activities in 2012 and ended the year with $171.4 million of cash and cash equivalents and net debt of $1.080 billion. The net debt reflects a voluntary prepayment of $25.0 million of principal during the fourth fiscal quarter.
"Fiscal 2012 was a milestone year – the third consecutive year of record revenue and the completion of the transformational acquisition of the four PLG brands," said Blake W. Krueger, Chairman and Chief Executive Officer. "With continued successful execution of global growth initiatives and expansion of our direct-to-consumer platform, we delivered solid performance in a challenging global environment. The U.S. market proved to be an important contributor to our consolidated performance in 2012, with many brands growing at a double-digit pace in the company's most significant market, helping offset the yearlong headwinds in Europe and, to a lesser extent, Canada.
"With the addition of Sperry Top-Sider, Saucony, Stride Rite, and Keds, our portfolio of global brands has never been stronger. We are diversified across most consumer groups, distribution channels and geographic regions, and have multiple brands in the portfolio that are delivering accelerated growth. We are focused on delivering excellent growth, strong profitability and impressive returns to our shareholders, and we look forward to building on our brands' momentum in 2013 and beyond."
Don Grimes, Senior Vice President and Chief Financial Officer, commented: "The company is very well-positioned for accelerated growth in revenue, profitability and cash flow. We expect to complete the full integration of the PLG brands in fiscal 2013, after which we should begin to realize incremental operating efficiencies. Our priorities for the use of our growing cash flow are clear – invest for organic growth, return cash to our shareholders in the form of a stable dividend, and pay down the debt we incurred in connection with the PLG acquisition."
Although the company expects strong performance in the U.S., Latin America and Asia Pacific markets in fiscal 2013, it also expects continued challenging trading conditions in Europe. In light of those expectations, the company is offering the following guidance for fiscal 2013, excluding non-recurring transaction and integration expenses:
- Full-year consolidated revenue in the range of $2.7 to $2.8 billion, representing growth in the range of 64.5 percent to 70.6 percent versus reported fiscal 2012 revenue of $1.641 billion and growth in the range of 6.0 percent to 9.9 percent vs. pro forma combined fiscal 2012 revenue of $2.548 billion for PLG and the legacy WWW business.
- Moderate full-year gross margin expansion.
- Full-year SG&A expenses as a percentage of revenue to modestly increase due to:
- Incremental purchase price amortization of approximately $17 million;
- Incremental non-cash pension expense of approximately $10 million;
- Normalized incentive compensation expense compared to an unusually low level in 2012; and
- Importantly, brand investments to fuel future growth, especially in support of Sperry Top-Sider, Keds and Merrell.
- Full-year interest expense in the range of $55 million to $60 million, including the amortization of deferred financing costs of approximately $6.7 million.
- Full-year effective tax rate in the range of 24 percent to 26 percent. On a reported basis, including the tax benefit of non-recurring charges, we expect a tax rate in the range of 21 percent to 23 percent.
- Fully diluted weighted average shares outstanding of approximately 50 million.
- Fully diluted earnings per share, adjusted to exclude non-recurring transaction and integration expenses, in the range of $2.50 to $2.65, representing growth of 9.2 percent to 15.7 percent versus the prior year's adjusted earnings per share. Year-over-year earnings growth will be positively impacted by the full-year inclusion of the acquired brands, but will be suppressed by the absence of the $0.19 per share of non-recurring tax benefits recorded in the first half of 2012 and the incremental SG&A discussed above. Reported fully diluted earnings per share are expected in the range of $2.10 to $2.25.
- Full-year adjusted EBITDA in the range of $330 million to $345 million versus prior year adjusted EBITDA of $220.8 million
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