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Wolverine's (WWW) Q2 Earnings Beat Estimates, Revenues Miss

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Wolverine World Wide, Inc. (WWW - Free Report) released second-quarter 2019 results, with earnings surpassing the Zacks Consensus Estimate and revenues missing the same. While the top line inched up year over year, the bottom line declined from the prior-year quarter’s level. Tough market conditions adversely impacted the quarterly outcome.

Meanwhile, the stock declined 5.6% during the trading session on Aug 7. Also, this Zacks Rank #4 (Sell) company’s shares have plunged 27.7% in the past three months compared with the industry’s 2.7% decline.

Q2 Highlights

Wolverine’s second-quarter adjusted earnings of 52 cents per share beat the Zacks Consensus Estimate of 50 cents. Notably, this marked the company’s sixth straight quarter of positive earnings surprise. However, the bottom line declined 3.7% year over year. The downside can be accountable to lower margins.

Revenues of $568.6 million lagged the Zacks Consensus Estimate of $575.6 million. The top line inched up 0.3% year on year and on a constant-currency (cc) basis the metric improved 1.1%. Although the company witnessed unfavorable spring weather impacts and tough retail conditions in the United States, it managed to achieve revenue improvement on e-commerce business growth and advancements in brands like Merrell and Ked.

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



Gross profit amounted to $230.4 million, down nearly 1.6% year over year. Gross margin amounted to 40.5%, which contracted 80 basis points (bps) year on year due to higher closeout costs and unfavorable mix.

Adjusted operating profit went down 10.7% to $63.3 million. Adjusted operating margin slipped 140 bps to 11.1%.

Segmental Performance

Revenues in the Wolverine Michigan Group rose 1.3% (up 2.4% at cc) year over year, owing to impressive performance of several brands. The Merrell brand grew at mid-single digit rate, while revenues at Cat improved 25%. The Ked brand also performed well on the back of growth in the international business

In the Wolverine Boston Group, underlying revenues inched up 0.3% (down 0.2% at cc) from the year-ago quarter’s figure. The Sperry brand was sluggish during the quarter, thanks to weakness in the U.S. boat shoe category. The Saucony brand fell at a mid-single digit rate due to weaknesses in the technical run segment in the United States and EMEA region. These were partially mitigated by growth in the Ked brand.

Other Financials

The company ended the quarter with cash and cash equivalents of $116.5 million, long-term debt of $433 million and stockholders' equity of $855.2 million. Net inventories in the reported quarter increased 38.4% to $406.5 million.

Further, net cash provided by operating activities reached $3.9 million on a year to-date basis.

During the second quarter, the company repurchased shares worth approximately $104 million. Management is left with nearly $220 million under its approved share repurchase plan of $400 million. The company paid out dividends paid worth $16.8 million on a year-to-date basis.

Other Developments

Wolverine provided details regarding certain key growth plans. The company made investments worth nearly $10 million during the second quarter pertaining to the global growth agenda. For 2019, the company expects to invest nearly $38 million in initiatives related to the agenda. Additionally, it plans to spend $40 million for opening new stores and undertaking growth efforts in the global markets. This includes the buyout of Saucony's Italian distributor in the second quarter and a joint venture in China. The company is on track to boost e-commerce operations and brand capabilities internationally. The company plans to reduce imported items from China in the forthcoming years. This is part of the company’s long-term strategy to improve sourcing.

2019 Guidance

Wolverine updated the view for 2019. Management expects revenues of $2.28 billion, which is at the lower end of its earlier projection of $2.28-$2.33 billion. The company delivered revenues of $2.24 billion a year ago. Growth across the Merrell, Sperry and Saucony brands are likely to support revenue growth in 2019. The Zacks Consensus Estimate for revenues is currently pegged at $2.30 billion.  

Gross margin for the year is expected to be 41%, down from the earlier view of 41.3-41.8%. Further, Wolverine expects adjusted operating margin at 12% compared with the earlier projection of 12.2-12.6%.

Cash flow from operations is expected to be nearly $190 million compared with the earlier view of $195-$215 million.

Further, management envisions adjusted earnings to be $2.28 for 2019, compared with the prior expected range of $2.20-$2.35. Also, the anticipated bottom line is in line with the current Zacks Consensus Estimate. The company generated adjusted earnings of $2.17 a year ago.

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