Wolverine (WWW) Up 21.8% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Wolverine World Wide (WWW). Shares have added about 21.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Wolverine due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Wolverine Q1 Earnings Beat Estimates, Revenues Rise Y/Y
Wolverine reported strong results for first-quarter 2022 despite supply-chain disruptions and macro headwinds. Both the top and the bottom line beat the Zacks Consensus Estimate and improved year over year. A robust portfolio of iconic brands coupled with operational strategies contributed to WWW’s performance.
Q1 Insights
Wolverine posted first-quarter adjusted earnings of 41 cents a share that increased 2.5% from the year-ago quarter’s level and beat the Zacks Consensus Estimate of 39 cents.
Revenues of $614.8 million surpassed the Zacks Consensus Estimate of $605 million and increased 20.4% year over year, courtesy of healthy wholesale and international distributor sales. Excluding Sweaty Betty, revenues increased 9.9% year over year to $561.2 million.
We note that Wolverine Michigan Group’s revenues rose 10.6% year over year to $329.3 million, while Wolverine Boston Group’s revenues grew 5.7% to $212.3 million. Other revenues jumped to $73.2 million from $12.1 million in the year-ago period.
Including Sweaty Betty, direct-to-consumer (DTC) revenues advanced 24% year over year and represented 35% of total revenues. DTC e-commerce revenues grew 16% from the prior-year level, while DTC store revenues jumped 60%.
Wolverine’s Saucony brand registered revenue growth of approximately 25%. A relatively strong inventory position helped mitigate the impact of Vietnam factory closures. Saucony continues to increase its DTC mix, with e-commerce revenues surging roughly 38% from the prior-year period’s level.
Margins
Gross profit was $261.3 million, up 15.5% year over year. However, gross margin contracted 180 basis points (bps) year over year to 42.5%.
Adjusted SG&A expenses jumped 21.2% to $211.3 million. Increased variable expenses, the addition of Sweaty Betty and higher labor rates in distribution centers drove the increase.
Adjusted operating profit dipped 3.7% year over year to $50 million, while adjusted operating margin decreased 210 bps to 8.1%.
Other Financials
Wolverine ended the quarter with cash and cash equivalents of $149.6 million, a long-term debt of $729.6 million and a stockholders' equity of $615.3 million. Total debt was $1,094.6 million at the end of the reported quarter. WWW had a total liquidity, including cash and available borrowings under its revolving line of credit of nearly $800 million.
Inventory at the end of the first quarter was $483.3 million, reflecting an increase of 50.6% year over year. Excluding Sweaty Betty, inventory rose 36.1% from the prior-year period’s level.
In the first quarter, Wolverine had repurchased 1.4 million shares for an average price of $24.37 per share. WWW had $413 million available under the share buyback plan.
Outlook
Wolverine continues to envision 2022 revenues in the range of $2.775-$2.850 billion, indicating growth of approximately 15-18% year over year. Wolverine guided adjusted earnings between $2.50 and $2.65 per share, implying an increase of 19.4-26.5% from the year-ago reported figure.
Management expects 2022 gross margin of 43%, indicating a fall from an adjusted gross margin of 44.1% reported in fiscal 2021. It projected an operating margin of 10.2% and an adjusted operating margin of about 11%, up approximately 35 bps from the 2021 figure.
Wolverine anticipates Sweaty Betty revenues to decline mid-single digits in the second quarter, with a return to a double-digit increase in the second half and low teens’ growth for the whole year. Management expects Sperry to increase mid-single digits in the second quarter and grow in the low teens for the current year. Wolverine brand’s revenues are likely to grow in the high teens for the second quarter and mid teens for the full year.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -13.83% due to these changes.
VGM Scores
At this time, Wolverine has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Wolverine has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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