Wolverine (WWW) Q4 Earnings In Line, Covid-19 Mars 2020 View

Wolverine World Wide, Inc.’s (NYSE:WWW) fourth-quarter 2019 earnings met the Zacks Consensus Estimate, while revenues lagged the same. Nevertheless, the top and bottom line grew year over year.

However, the top line is likely to bear the brunt of the rapid spread of coronavirus. Taking this into account, the revenue guidance calls for an impact to the tune of roughly $30 million in the first half of 2020. The company continues to monitor and adjust to the crisis and notifies that the outbreak could further impact the global supply chain or dent customer demand. These factors coupled with a quarterly sales miss weighed on investors’ sentiments. Consequently, shares of the Rockford, MI-based company fell 4.4% during the trading session on Feb 25. In the past three months, shares of this Zacks Rank #4 (Sell) stock has lost 12.6% wider than the industry’s 2.7% decline.

Q4 Highlights

Wolverine’s fourth-quarter adjusted earnings of 59 cents per share met the Zacks Consensus Estimate and improved 13.5% year over year.

Although revenues of $607.4 million missed the Zacks Consensus Estimate, the metric rose 4.8% year over year. On a constant-currency (cc) basis, revenues improved 5.1%. The year-over-year upside was driven by mid-teens growth in two of the company’s largest brands — Merrill and Sperry. Also, its global growth agenda has been paying off, as is evident from 21% growth in the company-owned e-commerce platform and about 10% increase in international markets.

Gross profit amounted to $229.9 million, up nearly 1.2% year over year. However, gross margin contracted 140 basis points (bps) year over year to 37.8%, mainly driven by greater-than- expected close-out sales and retail promotional activity in the holiday period. A shift in mix across brands and regions as well as FX trends has hurt gross margin further.

Adjusted operating profit came in at $61.3 million, down 1.3% from the year-ago quarter. Also, adjusted operating margin declined 60 bps to 10.1%.

Segmental Performance

Revenues at Wolverine Michigan Group increased 7.6% (or up 8% at cc) year over year to $360 million. Notably, Merrell and Cat brands grew mid teens in the reported quarter. However, growth was partly offset by decline in the Wolverine brand and few smaller brands.

Wolverine Boston Group’s revenues grew 1.4% (or up 1.6% at cc) to $234.1 million from the year-ago quarter on solid growth in the Sperry brand. The brand witnessed a strong boot season and grew mid teens. The kids’ category delivered low single-digit growth. This was somewhat compensated with Saucony, which fell low double-digits mainly due to lower close-out sales.

Other Financials

The company ended the quarter with cash and cash equivalents of $180.6 million, long-term debt of $425.9 million and stockholders' equity of $778.4 million. Net inventories in the reported quarter increased 9.6% to $348.2 million. Further, net cash provided by operating activities were $222.6 million during 2019.

During the fourth quarter, the company repurchased shares worth $4.9 million. Further, it bought back shares for $319.2 million during the year and had roughly $508 million available under its approved share repurchase plan.

2020 Guidance

Management issued guidance for 2020, which takes the impact of coronavirus in the first half into account. We note that Wolverine has diversified supply chain away from China in recent years. As a result, China is expected to reflect less than 20% of the company’s global production in 2020, down from roughly 40% witnessed last year.

For 2020, management projects revenues of $2.29-$2.34 billion, which suggests about 3% growth at the high end of the range. At cc, the metric is likely to grow 3.5% at the high end. Excluding the estimated coronavirus impact, the metric is estimated to grow 4.5% at cc, at the high end of the guidance.

Gross margin is anticipated at 41%. While reported operating margin is likely to come in at 11%, adjusted operating margin is expected at roughly 12%. Moreover, the effective tax rate is projected at 19%.

Furthermore, reported earnings per share are estimated between $2.05 and $2.20. Adjusted earnings per share are envisioned at $2.25-$2.40. Both the reported and adjusted earnings per share view include the adverse impact of 10 cents, each from foreign currency and coronavirus. Excluding the impacts, adjusted earnings per share at cc are expected at $2.60 (high end of guided range). The Zacks Consensus Estimate for 2020 earnings is currently pegged at $2.49.

For 2020, cash flow from operations is estimated at $240 million.

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