Wolverine World WideWWW came up with second-quarter 2018 results, wherein earnings surpassed the Zacks Consensus Estimate, while sales lagged. The company's bottom line also improved year over year, buoyed by impressive operating and gross margins. However, top-line performance was unimpressive but growth in underlying revenues in the quarter marked its highest since second-quarter 2015. The underlying revenue growth indicates progress in its GLOBAL GROWTH AGENDA. Better-than-expected bottom-line results prompted management to raise full-year earnings view
Shares of Wolverine World Wide increased more than 2% during the trading session on Aug 8. Also, we note that the stock has gained 8.5% in a month outperforming the industry 's upside of 3.2%. Further, shares of this Zacks Rank #2 (Buy) are hovering close to the 52-week high of $37.20.
The company posted adjusted earnings of 54 cents per share that came ahead of the consensus mark of 45 cents. This was the second straight quarter of positive earnings surprise. Notably, the bottom line surged 26% from the prior-year period, primarily due to improved margin performance.
Revenues in the reported quarter declined 5.3% to $566.9 million in the second quarter that missed the Zacks Consensus Estimate of $570 million.
Further, underlying revenues across most of the company's operating segments registered growth owing to impressive performance of Merrell brand that grew at a high-teen rate, marking its highest quarterly growth rate over the past few years. Also, Boston Group's Sperry brand contributed to revenues, marking its second consecutive quarter of growth.
Notably, the Outdoor & Lifestyle Group and the Heritage Group segments registered 8.6% and 9% rise in revenues, respectively, during the quarter. Additionally, the top-line performance was negatively impacted by 1.6% decline in Boston Group sales, flat revenues at Chaco brand, and low-single digit decline in Cat and Hush Puppies brands.
Nevertheless, underlying revenues increased 3.9%, while on constant-currency basis revenues were up 3.3%.
Moving on, the company's adjusted gross profit rose 0.8% to reach $234.2 million. Moreover, gross margins improved 250 basis points (bps) during the period to reach 41.3%, courtesy of gains from WAY FORWARD initiative, strong e-commerce growth and lower closeout sales. Also, most of the company's brands witnessed favorable gross margin during the quarter.
Further, adjusted operating profit increased 6.6% to $70.9 million, while adjusted operating margin expanded 140 bps to 12.5%. Operating margin gained from gross margin expansion on account of favorable product mix, reduced product costs and benefits from a cleaner inventory pipeline.
SG&A in the quarter was down 5.7% to $163.3 million, which includes $11 million associated with GLOBAL GROWTH AGENDA.
Wolverine World Wide, Inc. Price, Consensus and EPS Surprise
Wolverine ended the quarter with cash and cash equivalents of $354.9 million, long-term debt of $615.6 million and stockholders' equity of $1,015.3 million.
During the quarter, the company repurchased shares worth $5.3 million. Effective tax rate for the quarter was 18.1% and is now expected to be in the range of 18-20%.
In the first half of 2018, the company invested nearly $20 million toward GLOBAL GROWTH AGENDA that encompasses three key strategies namely Powerful Product Creation Engine, Digital-Direct Offense and International Expansion with focus on China. The company expects the above-mentioned efforts to drive top-line growth in near future.
The company seeks to create a strong, innovative and fast product pipeline, and expects to dedicate 45% of the $45 million incremental investment toward towards creating innovative, strong and fast product pipeline. Wolverine is also making efforts to enhance its digital capabilities, which have led to approximately 24% growth in its e-commerce business during the first half of 2018. Further, it plans to spend 30% of the investments in boosting digital growth. Wolverine intends to spend 25% of the total investments for international expansion. Also, it sees revenue growth in high-single digit internationally this year.
Although Wolverine continues to expect revenues in the range of $2.24-$2.32 billion for 2018, management sees improving sales trend during the second half of the year owing to launch of several collections. For the third quarter, underlying revenues are anticipated to grow 4%.
Additionally, gross margin for the year is expected to expand in a band of 100-130 bps, up from the prior view of a 50-90 bps increase. The rise may be attributable to introduction of higher margin products, enhancement of supply chain, cost-cutting and other pricing actions taken related to the transformation initiative. This updated view includes negative impacts of 20 bps from store closures carried out in 2017.
Further, the company anticipates delivering adjusted operating margin in a band of 12.1-12.4%, a rise from the prior view of 12-12.3%.
Management now envisions adjusted earnings in the range of $2.08-$2.15 per share compared with the earlier view of $2.00-$2.10.
The Zacks Consensus Estimate for full year is currently pegged at $2.08, which may witness an upward revision in the coming days.
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