European Tariffs Hit Home
For Wolverine World Wide

April 2, 2006
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ROCKFORD — Wolverine World Wide is truly a global company. It’s an American company that sells shoes made in Asia — among other places — to consumers around the world. While the company benefits from many aspects of the “flat world” economy, it also has to deal with the occasional intergovernmental challenge.

Such is the case after a recent ruling by the European Commission, which decided to increase import duties on leather footwear from China to a rate of 19.4 percent, and 16.8 percent for similar products made in Vietnam. Those fees are gratuitous, but they won’t disrupt Wolverine’s strong growth in the European marketplace, according to Chairman and CEO Timothy J. O’Donovan.

“We believe these protectionist measures are unwarranted, and we will continue to partner with European importers, retailers and consumers to limit the impact of any final trade measures which will be evaluated by the commission over the coming months,” read a statement from O’Donovan.

Wolverine’s European sales account for nearly $200 million in annual sales, a figure that has seen a double-digit growth rate for the past several years. But not all of those sales would be affected by the increased duties, according to Christie Cowdin, Wolverine’s director of investor relations and communications.

“Europe represents about 19 percent of our revenue. And you can back down from that and say how much of that 19 percent would be sourced out of factories in China or Vietnam? Then you get a smaller number. And then, of those, how much is children’s footwear, which are exempt from these duties? The number’s going to go down a little bit more. Then you can back it down even further. Of our patterns that we’re putting into the European market, what qualifies for exemptions under the performance, technology and athletic exemption? So the number keeps getting smaller,” she said. “Now, we’ve backed that number down quite a ways. Of those that are still ‘at risk,’ what are our potential solutions?”

Cowdin said that the least desirable solution is simply to accept the higher duties, raise prices, and pass the increases along to the consumer. One option would be to re-source the footwear in question, so that the final assembly would be done in a country that would not be subject to import duties, such as Turkey.

“You could have uppers made, and then have them bottomed in another country to circumvent those duties,” she said. “That’s a possibility.”

The most likely option is to continue to have the lobbies that represent the footwear industry argue in favor of decreasing or removing the tariffs. While that goes on, Wolverine will look for short-term fixes to the increased cost burden.

“It’s a political thing, and we’re producing a product that is going to be affected by this push and pull if it keeps going on,” Cowdin said.

The “push and pull” will, however, result in lower profitability for Wolverine investors. O’Donovan said that the company will stick to its previously stated earnings and revenue targets, but he expects this hindrance to cause Wolverine to perform at the bottom end of those ranges. Per-share earnings were forecast at $1.34 to $1.40. The increased tariffs will likely mean a four- or five-cent reduction in actual earnings, O’Donovan said.

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