08 Aug Wolverine World Wide’s Q2 Earnings Top Targets
Wolverine World Wide Inc. reported second-quarter sales increased 1.1 percent. Earnings dipped slightly but exceeded Wall Street’s consensus targets by two cents.
“Earnings were strong and exceeded our expectations going into the quarter,” said Blake Krueger, Wolverine World Wide’s Chairman, chief executive officer and president. “Despite unfavorable Spring weather and overall sluggish U.S. retail conditions, second quarter revenue increased 1.1 percent on a constant currency basis with our owned eCommerce business growing over 25 percent and four of our top-five brands meeting or exceeding revenue expectations. Merrell grew mid-single digits and Sperry improved to flattish growth in the quarter. As we look into the second half of the year, we expect to deliver mid-single digit revenue growth driven by strength in Merrell, Sperry and Saucony.”
Second Quarter 2019 Review
- Reported revenue of $568.6 million increased 0.3 percent as compared to the prior year and adjusting for currency, increased 1.1 percent.
- Reported gross margin of 40.5 percent, was in line with expectations, and compared to 41.3 percent in the prior year.
- Reported operating margin was 9.8 percent. Adjusted operating margin of 11.1 percent, was in line with expectations, and compared to 12.5 percent in the prior year.
- The reported tax rate was 19.4 percent, as compared to 18.1 percent in the prior year.
- Reported diluted earnings per share were $0.45, compared to $0.57 in the prior year. Adjusted diluted earnings per share were $0.52 compared to $0.54 in the prior year. Results topped Wall Street’s consensus estimate of 50 cents.
- Inventories increased 38.4 percent compared to the prior year, including $10 million from new stores and the acquisition of a distributor in Italy. The second quarter inventory position includes a significant pull forward of China-sourced production in anticipation of potential China tariff exposure.
- The company repurchased $104 million of shares in the quarter at an average price of $29.07, and has approximately $220 million available under its current $400 million share repurchase program.
“We are encouraged by the growth momentum of our largest brands and pleased with our earnings performance in the quarter,” stated Mike Stornant, senior vice president and chief financial officer. “Second quarter earnings per share benefited from our continued operational discipline without compromising our demand creation investments. Our strong capital structure allowed us to continue share repurchases. We also generated $136 million of operating cash flow during the quarter. We ended the quarter with approximately $1.25 billion of dry powder, giving the company significant flexibility and capacity to invest for growth.”
The company has very good visibility to a much stronger back half and is expecting approximately 5.5 percent constant currency revenue growth. This outlook includes approximately 10 percent constant currency growth in the second half for Merrell, Sperry and Saucony on a combined basis. As a result, the company is updating its full-year guidance as follows:
- Revenue is now expected to be approximately $2.28 billion, within the range of prior outlook and guidance.
- Gross margin is now expected to be approximately 41.0 percent, down from 41.3 percent to 41.8 percent previously
- Reported operating margin is now expected to be approximately 11 percent and adjusted operating margin is expected to be approximately 12 percent. Previously, reported operating margin was expected in the range of 11.3 percent to 11.6 percent and adjusted operating margin in the range of 12.2 percent to 12.6 percent
- The effective tax rate is expected to be approximately 19.0 percent versus 18.5 percent and 19.0 percent previously.
- Diluted weighted average shares are now expected to be approximately 88 million compared with approximately 91 million previously.
- Reported diluted earnings per share are now expected to be approximately $2.06 and adjusted diluted earnings per share are now expected to be approximately $2.28. Previously, EPS was expected between $2.00 and $2.15 and adjusted diluted earnings per share are still expected to be between $2.20 and $2.35.
- Cash flow from operations is now expected to be approximately $190 million, down from a previous range of $195 million to $215 million.