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Wolverine's (WWW) Q1 Earnings Beat Estimates, Revenues Down

Zacks Equity Research

Wolverine World Wide, Inc. WWW released first-quarter 2019 results, with earnings surpassing the Zacks Consensus Estimate and revenues missing the same. In fact, the top and the bottom line declined year over year.

The quarter’s performance was adversely impacted by weakness in season footwear categories. This marred investors’ sentiments, evident from the stock’s 9.9% decline during the trading session on May 9. Also, this Rockford, MI-based company’s shares lost 12.2%, against the industry’s 0.6% decline in the past three months.

Q1 Highlights

Wolverine’s first-quarter adjusted earnings of 49 cents per share beat the Zacks Consensus Estimate of 47 cents. Notably, this marked the company’s fifth straight quarter of positive earnings surprise. However, the bottom line declined 2% from the prior-year quarter’s levels. Lower margins affected the bottom line.

Revenues totaled $523.4 million that lagged the Zacks Consensus Estimate of $534.2 million. The top line declined 2% year on year, while on a constant-currency (cc) basis the metric inched down 0.9%. Results were impacted by late spring arrival and slow seasonal footwear demand, especially boat shoes.

Gross profit amounted to $220.2 million, down nearly 3.3% year over year. Gross margin amounted to 42.1%, which contracted 60 basis points (bps) year on year due to lower revenues from high-margin businesses as well as unfavorable-product and business mix. Also, adjusted operating profit went down 10.9% to reach $57.2 million. Adjusted operating margin slipped 110 bps to 10.9%.

Wolverine World Wide, Inc. Price, Consensus and EPS Surprise


Wolverine World Wide, Inc. Price, Consensus and EPS Surprise

Wolverine World Wide, Inc. price-consensus-eps-surprise-chart | Wolverine World Wide, Inc. Quote


Segmental Performance

In the reported quarter, the company integrated the Outdoor & Lifestyle Group and the Heritage Group into a newly formed unit — Wolverine Michigan Group.

Revenues in the Wolverine Michigan Group rose 2.3% (up 3.7% in cc) year over year, owing to impressive performance of several brands. The Merrell brand grew at a low-single digit rate, while revenues at Cat improved 30%. Additionally, brands like Wolverine, Harley-Davidson and HYTEST performed well. These upsides were offset by declines in Chaco, Hush Puppies and Bates.

In the Wolverine Boston Group, underlying revenues declined 5.7% (down 6.5% at cc) compared with the year-ago quarter’s figure, thanks to sluggishness across certain brands. The Sperry brand declined more than 10%, while the Saucony brand went down at a mid-teens rate.  These were partially mitigated by growth in Keds and improvement in the kids businesses.

Other Financials

The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $80.6 million, long-term debt of $435.3 million and stockholders' equity of $917.3 million. Inventories in the reported quarter increased 28.7% to $374 million.

Further, net cash used in operating activities reached $132.4 million.

During the first quarter, the company repurchased shares worth approximately $103.1 million. Management is left with nearly $325 million under its approved share repurchase plan of $400 million.

Also, during the quarter, management approved 25% hike in its quarterly dividend rate.

Other Developments

Wolverine provided details regarding certain key capital investment plans, which amounts to nearly $40 million. The growth plans include a joint venture agreement with Xtep International Holdings Limited for expanding the prospects of Merrell and Saucony brands across Mainlan China, Macau and Hong Kong. The company is planning to augment operations in Europe through the acquisition of a key distributor. Further, as part of improving the DTC business, the company is on track with store expansions, especially for the Sperry and Merrell brands. Additionally, we note that Wolverine is on track with its GLOBAL GROWTH AGENDA, wherein the company continues to make investments to drive innovation, strengthen digital capabilities and expand internationally.

2019 Guidance

Wolverine reiterated view for 2019. Management continues to expect revenues in the range of $2.28-$2.33 billion, which indicates 3% rise from the mid-point.

Gross margin for the year is expected in the 41.3-41.8% band. Further, it expects adjusted operating margin in the range of 12.2-12.6%. This includes a $40-million impact from ongoing investments related to the Global Growth Agenda.

Cash flow from operations is expected between $195 million and $215 million. Management envisions adjusted earnings in the range of $2.20-$2.35 per share for 2019.

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