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Wolverine's (WWW) Q4 Earnings & Sales Top Estimates, Drop Y/Y

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Wolverine World Wide, Inc. (WWW - Free Report) delivered better-than-expected results in fourth-quarter 2020. Adjusted earnings of 21 cents per share outpaced the Zacks Consensus Estimate of 17 cents. However, the metric declined 64.4% from 59 cents earned in the year-ago quarter. On a constant-currency (cc) basis, adjusted earnings were 22 cents per share.

Moreover, revenues of $509.6 million surpassed the Zacks Consensus Estimate of $479 million but fell 16.1% year over year. On a cc basis, revenues declined 16.4%. Top-line results included an $85-million adverse impact from some discrete issues such as lower sales to the company’s third-party international distributors, an expected timing shift of various key Saucony product launches and lean inventory for few of its stronger selling product collections. Notably, the company’s owned e-commerce business was the key growth driver, up about 31.7%.

We note that North America was the strongest performer owing to high single-digit growth from Saucony and Merrell. However, EMEA, Latin America and Asia Pacific were hurt by the carryover inventory adjustment.

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

Margins & Costs

Adjusted gross profit amounted to $210.9 million, down 8.3% year over year. However, adjusted gross margin expanded 360 basis points (bps) year over year to 41.4%.

Further, adjusted selling, general and administrative expenses rose 5.2% to $177.4 million. This is mostly owing to the higher mix of D2C revenues, including more than $7 million of increased investment in digital e-commerce marketing. Also, adjusted operating profit tumbled nearly 45.4% to $33.5 million, with adjusted operating margin contracting 350 bps to 6.6%.

Segments & Brands Discussion

Revenues at Wolverine Michigan Group decreased 17.1% year over year to $298.5 million. At cc, the segment’s revenues dropped 17.3%.

Wolverine Boston Group revenues tumbled 15.6% to $197.6 million from the year-ago quarter. At cc, the segment’s revenues dropped 16.1%.

Coming to this Zacks Rank #4 (Sell) company’s brand performance, we note that Saucony revenues rose mid-single digits, with growth in all key product categories. Also, saucony.com registered growth of above 65% and the brand’s operating margin in this channel expanded over 800 bps. Looking at 2021, management plans to launch products across Saucony brands at most of its biggest franchises like Kinvara, Guide, Peregrine and Ride franchises as well as expand the Endorphins series in the first half of 2021. This brand is likely to continue its momentum throughout 2021, expecting growth of about 50% in the first quarter.

Merrell brand’s revenues were down low-double digits owing to right-sizing of the inventory position for some of its international partners. The brand generated high single-digit growth in North America with merrell.com rose above 60% fueled by more than 70% growth in new consumers. The brand is anticipated to grow about 20% in the first quarter and even greater in the second quarter and beyond.

Further, Sperry brand revenues declined more than 20% in the reported quarter. The pandemic continued to have a profound impact on consumer soft goods, including the casual footwear market, thus putting pressure on majority of Sperry's key retail customers. However, Sperry's full-price business mix was strong, particularly in boots accounting for about 500 bps of gross margin expansion for the brand in the quarter. Management expects this brand to revert to double-digit growth in 2021.

The Wolverine brand continues benefiting from the U.S. work boot category and the work boot portfolio captured more than 30% market share in 2020. This brand is projected to grow 20% in the first quarter on advanced technology as well as product launches and collaborations.

Other Financials

The company ended the quarter with cash and cash equivalents of $347.4 million, long-term debt of $712.5 million and stockholders' equity of $573 million. Net inventories at the end of the fourth quarter decreased 30.2% year over year to $243.1 million.

Notably, Wolverine has delivered nearly $173.6 million of cash flow from operations in the fourth quarter. Net cash generated from operating activities were $309.1 million during 2020.

Outlook

Despite these pandemic challenges, management believes the positive business trends will improve in 2021. In 2020, the company’s owned e-commerce revenues surged 50% year over year. Management expects further investment in this area to drive growth of 40% in 2021. Also, the company is focused on mobile via the launch of mobile apps for brands, starting with Merrell later this spring. Management targets accomplishing $500 million in digital revenues in 2021.

The company will continue seeing strength in brands, including with Saucony and Merrell and especially in performance, athletic, outdoor and work categories. Markedly, the company’s global D2C e-commerce business has been pretty strong. For 2021, management expects revenues in the bracket of $2,190-$2,250 million, suggesting growth of 22-26% year over year. Gross margin is likely to be at least 43% in spite of increased freight and logistics costs in 2021.

Further, the company's cost structure will reflect significant growth in its D2C e-commerce with increased normalized incentive compensation cost. Adjusted operating margin is likely to come in at 11.5% and effective tax rate is envisioned to be 19-21%. Reported earnings per share are forecast in the range of $1.75-$1.90, while adjusted earnings per share are anticipated in the band of $1.90-$2.05. We note that the company delivered adjusted diluted earnings per share of 93 cents, and 95 cents at cc in 2020. The Zacks Consensus Estimate for 2021 earnings is currently pegged at $2.06, which is likely to witness downward revisions in the coming days.

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