A month has gone by since the last earnings report for Wolverine World Wide (WWW). Shares have added about 5% 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 drivers.
Wolverine Q2 Earnings Beat Estimates, Revenues Dip Y/Y
Wolverine World Wide reported mixed second-quarter 2024 results, wherein top and bottom lines surpassed the Zacks Consensus Estimate. However, both metrics fell year over year.
Wolverine posted better-than-expected revenues and earnings for the second quarter, reflecting significant progress in its ambitious turnaround plan initiated a year ago. The company has focused on becoming more consumer-centric and adopting a global brand-building model.
This strategy has been executed with speed and urgency, resulting in substantial business improvements, including reduced debt and inventory levels, and an expanded gross margin. Wolverine is witnessing early signs of growth, driven by stronger product pipelines and enhanced demand creation. The company is confident that these ongoing efforts will position it for sustained growth, and deliver better performance and returns for shareholders.
Q2 Insights
The company posted second-quarter adjusted earnings of 15 cents a share, which beat the Zacks Consensus Estimate of 10 cents. However, the figure declined 21.1% from 19 cents in the prior-year quarter. At constant currency, the company’s earnings per share were 16 cents, down 15.8% from 19 cents in the prior-year quarter.
Revenues of $425.2 million surpassed the Zacks Consensus Estimate of $410 million and fell 27.8% year over year. The decline was attributable to lower revenues in most segments and brands. Revenues declined 27.7% in constant currency. Direct-to-consumer revenues of $113.4 million were down 14.4% year over year. WWW’s international business dropped 19.3% to $216 million.
Coming to segments, Active Group’s revenues dipped 20.2% year over year to $305.9 million. Revenues at the Work Group tumbled 10.9% year over year to $105 million. Revenues of the Other segment fell 83.8% year over year to $14.3 million.
Brand-wise, Merrell’s revenues slipped 19.2% year over year to $142.7 million, Saucony's revenues fell 28% to $102 million and Wolverine's revenues dipped 3.1% to $40.1 million. Sweaty Betty generated revenues of $44 million, flat year over year.
Margins
Adjusted gross profit was $182.9 million, down 10.1% year over year. However, the adjusted gross margin increased 400 basis points year over year to 43.1%. This resulted from reduced supply-chain costs, fewer sales of end-of-life inventory, less promotional activity in e-commerce sales, and a more favorable mix of distribution channels.
Adjusted operating expenses moved down 8.2% to $156.1 million. The metric, as a percentage of revenues, declined 10 basis points year over year to 6.3%.
Other Financials
Wolverine ended the quarter with cash and cash equivalents of $148.3 million, long-term debt of $579.7 million and stockholders' equity of $270.4 million.
Net debt was $666 million at the end of the second quarter, down approximately $270 million from the previous year. Inventory at the end of the reported quarter was $297.1 million, down 54.1% from the year-earlier quarter.
Outlook
Wolverine is pleased with its performance during its strategic transformation, as reflected in the second-quarter results. While there is still work to be done to advance the company's strategy, the actions taken so far are positioning it for long-term growth and value creation for shareholders.
For the third quarter of 2024, Wolverine anticipates revenues of $420 million, which represents an 11% year-over-year decline. This decline, however, indicates an improvement in the revenue performance from the previous two quarters. The third-quarter gross margin is expected to be 45%, an increase of 300 basis points from last year, consistent with the first half's performance.
Additionally, Wolverine expects improvements in its operating margin and earnings. It projects the third-quarter adjusted operating margin at 7% and adjusted earnings per share at 20 cents.
For 2024, the company expects revenues from its ongoing business to be $1.71-$1.73 billion compared with the previously mentioned $1.68-$1.73 billion. This implies a year-over-year decline of 13.2-14.2%, with a constant-currency decline of 13.1-14.1%.
The gross margin is expected to improve significantly to 44.5% for the third quarter of 2024, suggesting a rise of 460 basis points from that reported in 2023. The company anticipates adjusted selling, general and administrative expenses of $640 million, indicating 37% of the total revenues. The metric was $716 million in 2023, which accounted for 36% of the total revenues.
The operating margin is anticipated to be 6%, with an adjusted operating margin of 7.4%, suggesting a rise of 350 basis points from that reported in 2023. The company previously expected a 5.7% operating margin and a 7% adjusted operating margin.
Adjusted earnings are projected between 75 cents and 85 cents. The previous outlook was pegged at 65-85 cents per share. These earnings figures include an expected negative impact of 10 cents from foreign exchange rate fluctuations. Notably, the company delivered adjusted earnings of 5 cents in 2023.
Wolverine aims to reduce its inventory by at least $75 million by 2024. The company expects a net debt of $565 million at the end of 2024, indicating a reduction of $175 million from that reported in the prior-year end. Wolverine projects the operating free cash flow between $110 million and $130 million. The company also anticipates capital expenditure of $35 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -43.24% due to these changes.
VGM Scores
Currently, Wolverine has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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. Notably, Wolverine has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Wolverine is part of the Zacks Shoes and Retail Apparel industry. Over the past month, Skechers (SKX), a stock from the same industry, has gained 8.1%. The company reported its results for the quarter ended June 2024 more than a month ago.
Skechers reported revenues of $2.16 billion in the last reported quarter, representing a year-over-year change of +7.2%. EPS of $0.91 for the same period compares with $0.98 a year ago.
Skechers is expected to post earnings of $1.15 per share for the current quarter, representing a year-over-year change of +23.7%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Skechers. Also, the stock has a VGM Score of A.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
