A month has gone by since the last earnings report for Wolverine World Wide (WWW - Free Report) . Shares have added about 10% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Wolverine’s Q2 Earnings & Sales Beat, Decline Y/Y
Wolverine delivered better-than-expected results in second-quarter 2020. However, both earnings and sales declined on a year-over-year basis. Majority of the company’s physical stores were shut for most of the quarter.
Going forward, management expects a challenging second half and projects third-quarter revenues to decline less than 25% based on current trends. Although the company has been managing costs, it expects SG&A expenses in the third and fourth quarters to increase from the second quarter on higher business demands and growth investments.
Wolverine’s second-quarter adjusted earnings of 8 cents per share outpaced the Zacks Consensus Estimate of a loss of 13 cents. However, the metric significantly plunged from 52 cents earned in the year-ago quarter. On a constant-currency (cc) basis, adjusted earnings were 9 cents per share.
Moreover, revenues of $349.1 million came above the Zacks Consensus Estimate of $321 million but fell 38.6% year over year. On a cc basis, revenues declined 38.3%. The year-over-year downside can mainly be attributed to the ill impacts of the pandemic. However, the company’s e-commerce business excelled in the quarter, surging 96% year over year on accretive margins. Notably, the digital and e-commerce platforms accounted for nearly two-thirds of the overall U.S. sales in the second quarter.
Gross profit amounted to $147.2 million, down 36.1% year over year. However, gross margin expanded 170 basis points (bps) year over year to 42.2%, mainly driven by its full-priced wholesale business and the increased mix of e-commerce business. Majority of its brands delivered impressive gross-margin expansion in the quarter.
Further, adjusted selling, general and administrative expenses plunged 22.5% to $129.6 million owing to reduced sales and immediate action undertaken to adjust to the downturn in the global economy. Furloughs and compensation changes for its management team made up for almost half of these savings. Lower traditional marketing and travel expenses also contributed to the decline. However, adjusted operating profit tumbled nearly 72% to $17.7 million, with adjusted operating margin contracting 600 bps to 5.1%.
Revenues at Wolverine Michigan Group decreased 31.7% (or 31.2% at cc) year over year to $217.4 million, owing to adverse impacts of COVID-19 and related retail-store closures. While Merrell and Cat Footwear were down over 30%, Wolverine, which gained from many essential retail consumers remaining open, declined less than 30%. Also, Chaco declined mid-teens, reflecting a tied digital penetration and its latest Chillos product’s success. The smaller brands declined in double digits. However, e-commerce remained sturdy with merrell.com growing roughly 140% in the quarter while almost tripling new-customer acquisition on a year-over-year basis.
Wolverine Boston Group’s revenues tumbled 46.9% (or 46.7% at cc) to $122.5 million from the year-ago quarter. The segment’s Sperry and Keds brands were hurt by the stay-at-home realities owing to the pandemic and sluggish trends in casual-footwear sales. However, Saucony.com revenues almost tripled, primarily buoyed by product innovation and new-customer acquisition.
The company ended the quarter with cash and cash equivalents of $422.6 million, long-term debt of $715.9 million and stockholders' equity of $735.9 million. Net inventories in the reported quarter decreased 4.9% to $386.5 million.
Notably, Wolverine has delivered nearly $116 million of cash flow from operations in the second quarter, which significantly exceeded management’s expectations. Net cash generated from operating activities was $39 million during the first half of 2020.
Furthermore, net interest expenses grew $3.8 million owing to the proactive liquidity actions, and raised $471 million of new debt in the reported quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -48.43% due to these changes.
At this time, Wolverine has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
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.