A month has gone by since the last earnings report for Wolverine World Wide (WWW - Free Report) . Shares have added about 19.1% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Wolverine’s Q1 Earnings Beat Despite Coronavirus Woes
Wolverine’s first-quarter 2020 earnings outshined the Zacks Consensus Estimate defying coronavirus concerns. However, the top line bore the brunt of the pandemic, as the metric lagged the consensus mark and also fell year over year. March revenues were mainly affected, which hurt the overall top line in the quarter. This also marked the company’s second straight sales miss. The bottom line also declined year over year.
Although management did not provide any updates with respect to 2020 guidance, its proactive measures will help the company address the coronavirus-induced challenges. It anticipates the combined e-commerce and third-party online businesses to represent between 50% and 60% of its U.S. revenues in the current year. Management also projects that the international business will perform better than its traditional U.S. wholesale distribution. Also, brands like Merrell and Saucony will perform well on the nature of their product offerings.
Wolverine’s first-quarter adjusted earnings of 28 cents per share outpaced the Zacks Consensus Estimate of 18 cents. However, the metric plunged 42.9% from the year-ago quarter. On a constant-currency (cc) basis, adjusted earnings were 29 cents per share.
Moreover, revenues of $439.3 million missed the consensus estimate of $469 million and fell 16.1% year over year. On a cc basis, revenues declined 15.6% mainly due to the ill impacts of the pandemic. Although revenues and profits advanced as planned for the first two months of the quarter, the pandemic-induced store closures mainly hurt revenues in March, which is generally the strongest month in the quarter.
Gross profit amounted to $181.8 million, down nearly 17.4% year over year. Also, gross margin contracted 70 basis points (bps) year over year to 41.4%, mainly owing to the impact of new tariffs.
Further, adjusted selling, general and administrative expenses contracted 7.1% to $151.6 million. However, adjusted operating profit fell nearly 47% to $30.3 million, with adjusted operating margin contracting 400 bps to 6.9%.
Revenues at Wolverine Michigan Group declined 18.1% (or 17.6% at cc) year over year to $247.8 million owing to softness across all brands. While Merrell was down low double-digits, Wolverine decreased high teens and Cat was down double digits. Also, Chaco declined double-digits and the smaller brands in the Group were also hit by the virus outbreak.
Wolverine Boston Group’s revenues fell 11.1% (or 10.6% at cc) to $182.1 million from the year-ago quarter on softness in the Sperry brand. The brand declined double-digits in the quarter. However, the Saucony brand reported high double-digit growth year over year.
The company ended the quarter with cash and cash equivalents of $472.6 million, long-term debt of $423.6 million and stockholders' equity of $735.9 million. Net inventories in the reported quarter increased 8.4% to $405.3 million. Further, net cash used in operating activities were $76.6 million during the first quarter.
We note that Wolverine has prioritized liquidity and asset management with response to the prevailing backdrop. More than $500 million cash preservation activities have been implemented, enabling the company to deliver about $150-$200 million operating cash flow in the current year. These activities include lowering of planned inventory receipts by nearly $300 million, drawing down the balance on its revolving credit line with a total of $367 million, deferring $25 million in capital spend for 2020, and curbing operating costs by an anticipated $100 million for rest of 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -705.56% due to these changes.
Currently, Wolverine has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Wolverine has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.