Why Is Wolverine (WWW) Down 16% Since Last Earnings Report?

A month has gone by since the last earnings report for Wolverine World Wide (WWW). Shares have lost about 16% 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 drivers.

Wolverine Q1 Earnings Beat Estimates, Revenues Rise Y/Y

Wolverine reported mixed results for second-quarter 2022, wherein the bottom line beat the Zacks Consensus Estimate, while the top line missed the same. The top line increased year over year, while the bottom line dipped.

The company posted second-quarter adjusted earnings of 66 cents a share, dipping 1.5% from the year-ago quarter’s level but surpassing the Zacks Consensus Estimate of 64 cents.

Revenues of $713.6 million lagged the Zacks Consensus Estimate of $740 million but increased 12.9% year over year, courtesy of healthy international sales and brand strength. Excluding Sweaty Betty, revenues increased 5.4% year over year to $666.2 million. On a pro-forma basis, Sweaty Betty’s revenues of $47 million declined 23% year over year and 11% in constant currency.

We note that Wolverine Michigan Group’s revenues rose 10% year over year to $389.7 million, while Wolverine Boston Group’s revenues dipped 1.6% to $253.9 million. Other revenues jumped to $70 million from $19.5 million in the year-ago period.

In the reported quarter, Merrell revenues climbed 14% year over year to $203.6 million, Saucony revenues grew 7.2% to $135.5 million, Sperry revenues decreased 13.4% to $70.1 million and Wolverine revenues rose 16.3% to $57.7 million. Sweaty Betty generated revenues of $47.4 million.

Including Sweaty Betty, DTC revenues advanced 21.1% year over year to $166.2 million. Excluding Sweaty Betty, DTC revenues fell 8.2% to $125.9 million. Wolverine saw softness in the e-commerce channel, where revenues dropped 7% on an organic basis year over year and increased 20%, including Sweaty Betty. Changing shopping behavior with consumers partly returning to in-store shopping and shifting toward experiential spending might have hurt sales. Since 2019, the organic business has nearly doubled, and including Sweaty Betty, e-commerce as a rate of global sales is roughly 20%.

Margins

Gross profit was $307.2 million, almost flat year over year. However, gross margin contracted 150 basis points (bps) year over year to 43% due to an increased mix of international distributor shipments and supply-chain costs. This was partly offset by higher selling prices and royalties, and the contribution from Sweaty Betty.

Adjusted SG&A expenses jumped 13% to $228.5 million on higher variable costs. Excluding Sweaty Betty, SG&A as a rate of revenues improved 180 basis points. Adjusted operating profit dipped 1.1% year over year to $78.7 million, while adjusted operating margin decreased 160 bps to 11%. Excluding Sweaty Betty, adjusted operating margin was 12.2%.

Other Financials

Wolverine ended the quarter with cash and cash equivalents of $149.3 million, long-term debt of $727.4 million and stockholders' equity of $661.8 million. Total debt was $1,227.4 million at the end of the reported quarter. WWW had total liquidity, including cash and available borrowings under its revolving line of credit, of nearly $700 million.

Inventory at the end of the reported quarter was $639.5 million, reflecting an increase of 93% year over year. Excluding Sweaty Betty, organic inventory rose 80% from the prior-year period’s level.

In the second quarter, Wolverine had repurchased 2.4 million shares at an average price of $19.47 per share. WWW had $367 million available under the share buyback plan.

Outlook

Revenues are now projected in the range of $2.740-$2.790 billion, representing growth of nearly 14-16%. Foreign currency exchange rate fluctuations are expected to hurt revenues to the tune of $72.0 million or 3%.

Gross margin is likely to be 42.5%, considering the increased promotional and markdown cadence, and an elevated mix of lower-margin international third-party sales. Operating margin is expected to be 11.5%, while adjusted operating margin is forecast to be 9.5%, induced by higher promotional and inventory-handling costs.

Earnings per share are expected between $2.62 and $2.72, while adjusted earnings per share are likely to come in the bracket of $2.10-$2.20, indicating growth of 0.5-5.3% year over year. Currency is likely to hurt the metric to the tune of 11 cents a share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -31.29% due to these changes.

VGM Scores

Currently, Wolverine has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Wolverine has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Wolverine belongs to the Zacks Shoes and Retail Apparel industry. Another stock from the same industry, Deckers (DECK), has gained 6% over the past month. More than a month has passed since the company reported results for the quarter ended June 2022.

Deckers reported revenues of $614.46 million in the last reported quarter, representing a year-over-year change of +21.8%. EPS of $1.66 for the same period compares with $1.71 a year ago.

For the current quarter, Deckers is expected to post earnings of $3.58 per share, indicating a change of -2.2% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Deckers. Also, the stock has a VGM Score of C.

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