Wolverine (WWW) Q3 Earnings Miss Estimates, Revenues Rise Y/Y

Wolverine World Wide, Inc. WWW reported lower-than-expected results for third-quarter 2022, wherein the top and the bottom line missed the Zacks Consensus Estimate, and the latter fell year over year. However, the top line increased year over year.

Shares of this currently Zacks Rank #4 (Sell) stock have lost 47.7% in the past three months compared with the industry’s decline of 18.4%.

Q3 Insights

Wolverine posted third-quarter adjusted earnings of 48 cents a share, plunging 14.3% from the year-ago quarter’s level and lagging the Zacks Consensus Estimate of 57 cents.

Revenues of $691.4 million missed the Zacks Consensus Estimate of $715 million but increased 8.6% year over year, courtesy of healthy international sales and higher Merrell revenues. Revenues increased 12.2% in constant currency. Direct-to-consumer (DTC) revenues climbed 4.5% year over year to $160 million. WWW’s international business was robust in the reported quarter and improved 33% to $303 million.

Wolverine Michigan Group’s revenues rose 20.1% year over year to $390.2 million, while Wolverine Boston Group’s revenues dipped 4.3% to $247.7 million. Other revenues inched up 0.8% to $53.5 million year over year.

Most of the brands’ revenues fell on a year-over-year basis. In the reported quarter, Merrell revenues surged 33.6% year over year to $198.6 million, Saucony revenues slipped 0.6% to $129.7 million, Sperry revenues decreased 12.4% to $70 million and Wolverine revenues dipped 1.2% to $59.1 million. Sweaty Betty generated revenues of $37.8 million, down 3.3% year over year.

Margins

Adjusted gross profit was $278.5 million, up 0.5% year over year. However, adjusted gross margin contracted 320 basis points (bps) year over year to 40.3%.

Adjusted SG&A expenses increased 4.2% to $216.4 million. SG&A as a rate of revenues fell 130 basis points to 31.3%.

Adjusted operating profit declined 10.4% year over year to $62.1 million. Adjusted operating margin also contracted 190 bps to 9%.

Other Financials

Wolverine ended the quarter with cash and cash equivalents of $136.4 million, long-term debt of $725.2 million and stockholders' equity of $674.2 million. Net debt was $1.35 billion at the end of the reported quarter. WWW had total liquidity of nearly $400 million. During the first month of the fourth quarter, net debt and liquidity increased about $100 million each. Inventory at the end of the reported quarter was $880.9 million, reflecting an increase of 113.8% year over year.

In the year-to-date period, Wolverine has paid out cash dividends of $24.7 million.

Outlook

For the fourth quarter, revenues are likely to come in the band of $650-$675 million, representing an increase of about 2.3-6.2%. Foreign currency fluctuations are anticipated to hurt revenues by approximately $28 million or 4.4%.

Adjusted gross margin is forecast to be nearly 38% compared with 42.4% in the preceding year. This decline shows WWW’s efforts to reduce seasonal inventory, including anticipation that the fourth-quarter holiday period will be hugely promotional, and increased logistics and handling costs with adverse foreign exchange rates.

Loss per share is expected between 9cents and 19 cents, while adjusted loss per share is envisioned to be 5-15 cents. Foreign currency fluctuations are likely to hurt to the tune of 3 cents per share.

Management forecasts its inventory actions to help the company reduce inventory at the year-end compared with the third quarter of 2022. For 2022, revenues are now projected in the range of $2.670-$2.695 billion, representing growth of nearly 10.6-11.6%. Foreign currency exchange rate fluctuations are expected to hurt revenues to the tune of $76 million or 3.1%. Earlier, management guided revenues of $2.740-$2.790 billion, representing growth of nearly 14-16%.

Gross margin is likely to be 41% compared with the earlier projection of 42.5%, considering the higher promotional and markdown cadence, and an elevated mix of lower-margin international third-party sales in the back half of 2022. Operating margin is now expected to be 9%, while adjusted operating margin is forecast to be 7%, induced by higher promotional and inventory-handling costs. Previously, Wolverine anticipated an operating margin of 11.5% and an adjusted operating margin of 9.5%.

Earnings per share are expected between $1.90 and $2.00 compared with the earlier forecast of $2.62-$2.72. Adjusted earnings per share are likely to come in the bracket of $1.41-$1.51, suggesting a decline of 18.7-24.1% from the year-ago reported figure’s level. Earlier, adjusted earnings per share were predicted to be $2.10-$2.20. Currency is likely to hurt the metric 13 cents a share. The effective tax rate is likely to be 21%.

Eye These Solid Picks

Here we highlighted three better-ranked stocks, namely Oxford Industries OXM, lululemon athletica LULU and Caleres CAL.

Oxford Industries, which designs, sources, markets, and distributes products of lifestyle and other brands, sports a Zacks Rank #1 (Strong Buy), currently. Oxford Industries has a trailing four-quarter earnings surprise of 91.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for OXM’s current financial-year EPS suggests growth of 31.2% from the year-ago reported number.

lululemon athletica is a yoga-inspired athletic apparel company. LULU has a Zacks Rank #2 (Buy) at present.

The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS suggests 26.7% and 27% growth, respectively, from the year-ago corresponding figures. LULU has a trailing four-quarter earnings surprise of 10.4%, on average.

Caleres, a footwear dealer, has a Zacks Rank of 2 at present. CAL has a trailing four-quarter earnings surprise of 34.9%, on average.

The Zacks Consensus Estimate for Caleres’ current financial-year sales and EPS suggests growth of 5.6% and 0.9%, respectively, from the year-ago corresponding figures.

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