Wolverine World Wide, Inc. WWW is focused on continued introduction of products worldwide with creative designs, expansion of digital engagement to enhance the owned e-commerce business, and stronger investments in resources and systems to drive international growth. Impressively, this Rockford, MI-based company’s shares have registered an increase of 15.7% in the past three months compared with the industry’s 11.6% rally.
With the global economy reopening gradually, Wolverine is showing encouraging signs. Last month, management issued updates on business trends for the first nine weeks of the second quarter of 2020. Notably, total revenues during the period surpassed management’s expectations. A diversified global business model, enhanced digital capabilities and promising at-once order demand contributed significantly. Again, the sell-through trends in retail stores operated by Wolverine’s wholesale customers gradually improved during said period courtesy of impressive at-once order trends. Also, re-order demand from retailers who remained opened during the pandemic contributed to the company’s work and outdoor performance businesses.
Wolverine’s e-commerce business increased more than 90% year over year, generating more than 40% of the company’s overall revenue during the aforementioned period. Robust growth of performance brands Merrell and Saucony, as well as work brands Wolverine and Cat Footwear, led to this upside. In fact, this sturdy e-commerce performance has helped offset the loss of revenues on account of store closures. Moreover, online sell-through of its U.S. wholesale customers improved double-digits during the nine-week period. All these factors might show on its overall second-quarter performance.
Despite these solid growth drivers, concerns related to soft margins and stiff competition remain. The company continued to report weak gross and operating margins during the first quarter of 2020. While the new tariff impacts solely hurt gross margin in the first quarter, lower gross margin in turn marred the operating margin.
Nevertheless, Wolverine is closely focused on a disciplined cost structure. Management had earlier projected that strict cost-reduction and other liquidity measures are likely to result in more than $500 million of cash preservation and $150 million-$200 million of operating cash flow in 2020. It anticipates generating more than $20 million of operating cash flow in the second quarter. These measures include lowering of planned inventory receipts, deferring capital spend for 2020 and curbing operating costs for the rest of 2020. On top of these, Wolverine is encouraged by its relatively low fixed-cost structure, which provides efficiency and flexibility.
Given Wolverine’s business model, sturdy e-commerce business and robust strategies, we believe that the company is poised well for growth. At present, the stock displays a Zacks Rank #3 (Hold).
3 Key Picks
BJ's Wholesale Club BJ has an expected long-term earnings growth rate of 13.5% and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Activision Blizzard ATVI has an expected long-term earnings growth rate of 18.8% and currently has a Zacks Rank #2 (Buy).
Rent-A-Center, Inc. RCII, also a Zacks Rank #2 stock, which has delivered a positive earnings surprise of 13.6% in the last reported quarter.
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