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Wolverine (WWW) Down 2% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Wolverine World Wide (WWW - Free Report) . Shares have lost about 2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Wolverine due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Wolverine World Wide, Inc. continued with its solid performance in fourth-quarter 2021 despite supply-chain challenges. While the top line beat the Zacks Consensus Estimate, the bottom line met the same. Remarkably, revenues and earnings per share increased meaningfully from the year-ago period. A robust portfolio of iconic brands coupled with operational strategies contributed to the company’s performance. The recently acquired women’s activewear brand Sweaty Betty also fueled growth.
Q4 Insights
Wolverine posted fourth-quarter adjusted earnings of 41 cents a share that increased significantly from 21 cents earned in the year-ago quarter, thanks to higher sales and margin expansion. On a constant-currency basis, adjusted earnings came in at 39 cents a share. Excluding the Sweaty Betty, adjusted earnings were 31 cents a share.
Revenues of $635.6 million surpassed the Zacks Consensus Estimate of $629.4 million and increased 24.7% year over year, courtesy of solid consumer demand. On a constant currency basis, revenues grew 24.6%. Sweaty Betty, the newest addition to the company’s portfolio of brands, contributed more than $75 million of revenues in the quarter under discussion. Excluding Sweaty Betty, revenues increased 9.4% year over year.
We note that Wolverine Michigan Group’s revenues rose 7.9% year over year to $322 million, while Wolverine Boston Group’s revenues grew 10.4% to $218.1 million. Other revenues jumped to $95.5 million from $13.5 million in the year-ago period.
Including Sweaty Betty, direct-to-consumer (DTC) revenues advanced 60% year over year and represented 35% of total revenues. DTC e-commerce revenues surged 58.3%, while DTC store revenues jumped 68%. Excluding Sweaty Betty, DTC revenues increased 12%, reflecting e-commerce growth of 12.7% and store revenue growth of 11%.
Wolverine's Merrell brand registered low single-digit decline in revenues. However, the brand’s lifestyle category grew mid-single-digits and the work category increased by roughly 30%. Merrell’s DTC business rose about 10% compared with the year-ago quarter. Merrell's global business remains fundamentally sound, with a strong order book entering 2022.
The company’s Saucony brand registered revenue growth of approximately 25%. A relatively strong inventory position helped mitigate the impact of Vietnam factory closures. Saucony continues to increase its DTC mix, with e-commerce revenues surging roughly 38% from the prior-year period.
International sales increased approximately 51% during the quarter. Excluding Sweaty Betty, international revenues grew 10% led by the Asia Pacific and Latin America regions. Revenues in the APAC region grew 27% in the quarter. The company witnessed over 60% revenue growth in China predominantly driven by Maryland Saucony. EMEA revenues were roughly flat due to the impact of late product deliveries and factory delays. Nonetheless, the company remains encouraged by the strong order book demand in EMEA. Wolverine plans to invest in key growth markets and continue to invest in international regions, including China, with joint ventures for Merrell and Saucony and expand e-commerce capabilities globally. For Sperry, the company is adding 14 new distributors in EMEA.
Margins
Adjusted gross profit was $273.4 million, up 29.6% year over year. Adjusted gross margin expanded 160 basis points (bps) year over year to 43% despite an 80-bp headwind from higher ocean freight costs. The company incurred total air freight costs of $4.7 million in the quarter.
Adjusted SG&A expenses jumped 26.4% to $224.3 million. Higher variable costs, the addition of Sweaty Betty, higher labor rates in distribution centers and increased marketing investments drove the increase.
Adjusted operating profit surged to $49.1 million from $33.5 million in the prior year, while adjusted operating margin increased 110 bps to 7.7%.
Other Financials
Wolverine ended the quarter with cash and cash equivalents of $161.7 million, total debt of $966.8 million, and stockholders' equity of $644.4 million. Total debt was $244.3 million more than in the prior year owing to the buyout of Sweaty Betty. Inventory at the end of the quarter was $365.5 million, reflecting an increase of 50.3% year over year. Sweaty Betty contributed 19.4% to the increase. At the end of the quarter, the company had nearly $450 million available under the share repurchase program.
Outlook
Management anticipates the demand for its brands to remain strong in 2022. It stated that measures undertaken to enhance supply capabilities as well as inventory position should allow the company to meet higher demand. Performance-focused categories like hiking, running and work are expected to do well.
Wolverine’s four largest brands, Merrell, Saucony, Sperry and Sweaty Betty, are estimated to contribute approximately two-thirds of revenues in 2022. The addition of Sweaty Betty to the portfolio facilitates the expansion of DTC and international businesses. The company expects DTC business to be approximately 30% of global revenues and international markets to be more than 35% of global revenues.
Wolverine envisions 2022 revenues in the range of $2.775-$2.850 billion, indicating growth of approximately 15-18%. The company guided adjusted earnings between $2.50 and $2.65 per share. This represents an increase of 19.4-26.5% on a year-over-year basis.
Management expects 2022 gross margin in the range of 43.5% to 44% compared with adjusted gross margin of 44.1% reported in 2021. It projected operating margin of approximately 10.2% and adjusted operating margin to be about 11%, up approximately 35 bps versus 2021. Adjusted SG&A expenses are expected to be approximately 33% of revenues.
For first-quarter 2022, Wolverine projected revenues between $595 million and $610 million, suggesting growth of approximately 16.5% to 19.5%. The company expects Merrell and Saucony brands to be approximately flat for the quarter. Management forecast first-quarter adjusted earnings in the band of 37-40 cents a share and adjusted operating margin to be 8%.
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 -20% due to these changes.
VGM Scores
At this time, Wolverine has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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.
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Wolverine (WWW) Down 2% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Wolverine World Wide (WWW - Free Report) . Shares have lost about 2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Wolverine due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Wolverine Q4 Earnings Meet Estimates, Revenues Rise Y/Y
Wolverine World Wide, Inc. continued with its solid performance in fourth-quarter 2021 despite supply-chain challenges. While the top line beat the Zacks Consensus Estimate, the bottom line met the same. Remarkably, revenues and earnings per share increased meaningfully from the year-ago period. A robust portfolio of iconic brands coupled with operational strategies contributed to the company’s performance. The recently acquired women’s activewear brand Sweaty Betty also fueled growth.
Q4 Insights
Wolverine posted fourth-quarter adjusted earnings of 41 cents a share that increased significantly from 21 cents earned in the year-ago quarter, thanks to higher sales and margin expansion. On a constant-currency basis, adjusted earnings came in at 39 cents a share. Excluding the Sweaty Betty, adjusted earnings were 31 cents a share.
Revenues of $635.6 million surpassed the Zacks Consensus Estimate of $629.4 million and increased 24.7% year over year, courtesy of solid consumer demand. On a constant currency basis, revenues grew 24.6%. Sweaty Betty, the newest addition to the company’s portfolio of brands, contributed more than $75 million of revenues in the quarter under discussion. Excluding Sweaty Betty, revenues increased 9.4% year over year.
We note that Wolverine Michigan Group’s revenues rose 7.9% year over year to $322 million, while Wolverine Boston Group’s revenues grew 10.4% to $218.1 million. Other revenues jumped to $95.5 million from $13.5 million in the year-ago period.
Including Sweaty Betty, direct-to-consumer (DTC) revenues advanced 60% year over year and represented 35% of total revenues. DTC e-commerce revenues surged 58.3%, while DTC store revenues jumped 68%. Excluding Sweaty Betty, DTC revenues increased 12%, reflecting e-commerce growth of 12.7% and store revenue growth of 11%.
Wolverine's Merrell brand registered low single-digit decline in revenues. However, the brand’s lifestyle category grew mid-single-digits and the work category increased by roughly 30%. Merrell’s DTC business rose about 10% compared with the year-ago quarter. Merrell's global business remains fundamentally sound, with a strong order book entering 2022.
The company’s Saucony brand registered revenue growth of approximately 25%. A relatively strong inventory position helped mitigate the impact of Vietnam factory closures. Saucony continues to increase its DTC mix, with e-commerce revenues surging roughly 38% from the prior-year period.
International sales increased approximately 51% during the quarter. Excluding Sweaty Betty, international revenues grew 10% led by the Asia Pacific and Latin America regions. Revenues in the APAC region grew 27% in the quarter. The company witnessed over 60% revenue growth in China predominantly driven by Maryland Saucony. EMEA revenues were roughly flat due to the impact of late product deliveries and factory delays. Nonetheless, the company remains encouraged by the strong order book demand in EMEA. Wolverine plans to invest in key growth markets and continue to invest in international regions, including China, with joint ventures for Merrell and Saucony and expand e-commerce capabilities globally. For Sperry, the company is adding 14 new distributors in EMEA.
Margins
Adjusted gross profit was $273.4 million, up 29.6% year over year. Adjusted gross margin expanded 160 basis points (bps) year over year to 43% despite an 80-bp headwind from higher ocean freight costs. The company incurred total air freight costs of $4.7 million in the quarter.
Adjusted SG&A expenses jumped 26.4% to $224.3 million. Higher variable costs, the addition of Sweaty Betty, higher labor rates in distribution centers and increased marketing investments drove the increase.
Adjusted operating profit surged to $49.1 million from $33.5 million in the prior year, while adjusted operating margin increased 110 bps to 7.7%.
Other Financials
Wolverine ended the quarter with cash and cash equivalents of $161.7 million, total debt of $966.8 million, and stockholders' equity of $644.4 million. Total debt was $244.3 million more than in the prior year owing to the buyout of Sweaty Betty. Inventory at the end of the quarter was $365.5 million, reflecting an increase of 50.3% year over year. Sweaty Betty contributed 19.4% to the increase. At the end of the quarter, the company had nearly $450 million available under the share repurchase program.
Outlook
Management anticipates the demand for its brands to remain strong in 2022. It stated that measures undertaken to enhance supply capabilities as well as inventory position should allow the company to meet higher demand. Performance-focused categories like hiking, running and work are expected to do well.
Wolverine’s four largest brands, Merrell, Saucony, Sperry and Sweaty Betty, are estimated to contribute approximately two-thirds of revenues in 2022. The addition of Sweaty Betty to the portfolio facilitates the expansion of DTC and international businesses. The company expects DTC business to be approximately 30% of global revenues and international markets to be more than 35% of global revenues.
Wolverine envisions 2022 revenues in the range of $2.775-$2.850 billion, indicating growth of approximately 15-18%. The company guided adjusted earnings between $2.50 and $2.65 per share. This represents an increase of 19.4-26.5% on a year-over-year basis.
Management expects 2022 gross margin in the range of 43.5% to 44% compared with adjusted gross margin of 44.1% reported in 2021. It projected operating margin of approximately 10.2% and adjusted operating margin to be about 11%, up approximately 35 bps versus 2021. Adjusted SG&A expenses are expected to be approximately 33% of revenues.
For first-quarter 2022, Wolverine projected revenues between $595 million and $610 million, suggesting growth of approximately 16.5% to 19.5%. The company expects Merrell and Saucony brands to be approximately flat for the quarter. Management forecast first-quarter adjusted earnings in the band of 37-40 cents a share and adjusted operating margin to be 8%.
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 -20% due to these changes.
VGM Scores
At this time, Wolverine has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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.