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Wolverine World Wide (WWW) Beats on Q3 Earnings, Raises View

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Wolverine World Wide, Inc. (WWW - Free Report) came up with mixed third-quarter 2018 results, wherein earnings surpassed the Zacks Consensus Estimate but sales lagged. The company’s bottom line also improved year over year, buoyed by impressive operating and gross margins.

Notably, the impressive bottom-line performance prompted management to raise full-year earnings view. However, the top-line performance was unimpressive and marked five straight quarters of decline.

During the trading session on Nov 7, shares of Wolverine World Wide decreased more than 9%. Also, this Zacks Rank #4 (Sell) stock has lost 9.4% in a month, underperforming the industry’s 3.2% decline.



Q3 Highlights

Wolverine’s adjusted earnings came in at 62 cents per share, which outpaced the consensus mark of 56 cents. This was the third straight quarter of positive earnings surprise. The bottom line also surged 44.2% from the figure registered a year ago, primarily owing to decline in cost of goods sold, fall in SG&A expenses and lower interest expense.

Revenues in the reported quarter declined 3.9% to $558.6 million, which fell short of the Zacks Consensus Estimate of $581.5 million. Nevertheless, underlying revenues inched up 0.5%, while on constant-currency basis the metric increased 1.1%.

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

The Outdoor & Lifestyle Group underlying revenues grew 2.9% (3.9% in constant currency) compared with the prior-year figure. The uptick was driven by impressive performance of the Merrell brand, which grew at a low-single digit rate. However, the improvement was partially offset by low-double digit decline in Hush Puppies and Chaco.

At the Boston Group, underlying revenues remained flat with the prior-year number. While the same was flat at Sperry brand, at Saucony the metric declined in high single digit.

Underlying revenues at the Heritage Group increased by 2.6% compared with the prior-year number. Wolverine brand revenue grew in double-digit, while the metric at Bates, Harley-Davidson and HYTEST decreased in the quarter.

Moving on, the company’s adjusted gross profit remained almost flat at $232.1 million, while gross margin expanded 170 basis points (bps) during the third quarter to reach 41.6%, courtesy of gains from WAY FORWARD initiative, strong e-commerce growth and lower closeout sales. Also, most of the company’s brands witnessed favorable gross margin during the quarter.

Further, adjusted operating profit came in at $70.5 million, up from $68.4 million, while adjusted operating margin expanded 80 bps to 12.6%. Operating margin gained from gross margin expansion on account of favorable product mix, reduced product costs, lower markdowns and benefits from a cleaner inventory pipeline.

SG&A in the quarter declined 5.2% to $161.6 million, which includes $13 million associated with GLOBAL GROWTH AGENDA.

Other Financials

Wolverine ended the quarter with cash and cash equivalents of $228.1 million, long-term debt of $601 million and stockholders' equity of $1,062.3 million.

During the quarter, the company repurchased shares worth $20 million. The company still has $130 million remaining under its current share repurchase program.

Other Developments

GLOBAL GROWTH AGENDA encompasses three key strategies, namely Powerful Product Creation Engine, Digital-Direct Offense and International Expansion with focus on China. The company seeks to create a strong, innovative and fast product pipeline, and remains on track to invest $40-$45 million incremental investment to drive top-line growth in near future. Also, it is making efforts to enhance digital capabilities and has allocated approximately $15 million of incremental investment to this area.

Management expects Merrell to post low-teens growth, while Sperry is anticipated to register high-single-digit growth in the final quarter of 2018. Also, the company envisions e-commerce business to remain strong.

Guidance

Wolverine now expects revenues to be around $2.24 billion for 2018, reflecting a 2.5% underlying growth for the year. This includes the fourth quarter impact of the bankruptcy of a work boot customer and softness in the Latin America region. For the fourth quarter, underlying revenues are anticipated to grow in the range of 3-5%.

Additionally, gross margin for the year is expected to expand roughly 150 bps, up from the prior view of a 100-130 bps increase. Management expects fourth-quarter gross margin to improve by roughly 80 bps. Further, adjusted operating margin is expected to be approximately 12.1%.

Management now envisions adjusted earnings in the range of $2.12-$2.16 per share compared with the earlier view of $2.08-$2.15. The Zacks Consensus Estimate for full-year earnings is pegged at $2.13.

Looking for High-Performing Stocks? Check These

Rocky Brands, Inc. (RCKY - Free Report) delivered an average positive earnings surprise of 53.3% in the trailing four quarters. The company carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Deckers Outdoor Corporation (DECK - Free Report) delivered an average positive earnings surprise of 69.1% in the trailing four quarters. The company has a long-term earnings growth rate of 11.3% and a Zacks Rank #2 (Buy).

Ralph Lauren Corporation (RL - Free Report) has a long-term earnings growth rate of 9.6% and a Zacks Rank #2.

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