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Wolverine (WWW) Up 3.8% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Wolverine World Wide (WWW - Free Report) . Shares have added about 3.8% 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 its most recent earnings report in order to get a better handle on the important drivers.

Wolverine Q3 Earnings Beat Estimates, Revenues In Line

Wolverine reported robust third-quarter 2019 results, wherein revenues and earnings increased year over year. While the company’s top line met the Zacks Consensus Estimate, the bottom line surpassed the same. Notably, the third quarter marked the seventh straight quarter of positive earnings surprise. Also, management revised its full-year earnings view, keeping revenue projection intact.

Q3 Highlights

Wolverine’s third-quarter adjusted earnings of 68 cents per share beat the Zacks Consensus Estimate of 63 cents. Moreover, the bottom line improved 9.7% year over year.

Revenues of $574.3 million came in line with the Zacks Consensus Estimate, and rose 2.8% year over year. On a constant-currency (cc) basis, the metric improved 3.6%. The upside was prompted by the company’s three largest brands, namely Merrill, Sperry and Saucony, which on a combined basis delivered constant-currency growth of 11.5%.

Gross profit amounted to $243.3 million, up nearly 4.8% year over year. Gross margin expanded 80 basis points (bps) year over year to 42.4% driven by favorable product mix within global wholesale business. Adjusted operating profit came in at $80.8 million, up 14.6% from the year-ago period. Adjusted operating margin expanded 150 bps to 14.1%.

Segmental Performance

Revenues in the Wolverine Michigan Group declined 2.7% (or down 1.9% at cc) year over year to $318.8 million. Cat brand was down at high-teens digit. However, Merrell brand grew at high-single digits in the third quarter. Also, the company delivered growth in Harley-Davidson and HyTest brands. Wolverine expects Cat brand to show robust growth in the fourth quarter and double-digit increase for 2019.

Wolverine Boston Group’s revenues grew 12.4% (or up 13.3% at cc) to $241.3 million from the year-ago quarter’s figure driven by solid growth in all the brands of the group. The Sperry brand grew in low teens while Saucony brand improved in mid teens. The kids group increased in high teens and Keds brand grew at a low single-digit pace.

Other Financials

The company ended the quarter with cash and cash equivalents of $125.2 million, long-term debt of $430.7 million and stockholders' equity of $793.9 million. Net inventories in the reported quarter increased 28.8% to $417.7 million.

Further, net cash provided by operating activities reached $16 million for the period ended Sep 28, 2019.

During the third quarter, the company repurchased shares worth $107 million. Management is left with $513 million under its approved share repurchase plan.

Other Developments

Wolverine provided details regarding certain key growth plans. The company made investments worth $10 million during the third 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 a distributor business in Europe and a joint venture in China. The company is on track to boost e-commerce operations and brand capabilities internationally. It 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 its view for 2019. Management still expects revenues of $2.28 billion, which include 7% constant-currency growth in the fourth quarter. The company delivered revenues of $2.24 billion a year ago. Growth across the Merrell, Sperry and Saucony brands are likely to support revenues in 2019.

Gross margin for the year is still expected to be 41%. Further, Wolverine continues to expect adjusted operating margin at 12%.

Cash flow from operations is estimated to be $190 million.

Further, management now envisions adjusted earnings to be $2.25 per share for 2019, which includes 3 cents related to new tariffs on products anticipated to be sold in the final quarter. Earlier, management projected adjusted earnings of $2.28. The company generated adjusted earnings of $2.17 a year ago.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -12.01% due to these changes.

VGM Scores

Currently, Wolverine has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Wolverine has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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