Wolverine Worldwide Sees Q2 Results Exceed Plan On Online Momentum

Wolverine Worldwide Sees Q2 Results Exceed Plan On Online Momentum

Wolverine Worldwide reported sales dropped 39 percent in the second quarter but came in better than expected with a boost from almost triple-digit owned e-commerce growth. The parent of Merrell, Sperry, Saucony and other footwear brands also managed to post a profit in the period and “exceptional cash flow”.

Wolverine World Wide, Inc. (NYSE: WWW) today reported financial results for the second quarter ended June 27, 2020 that significantly exceeded its expectations across every key financial metric and provided an update on initiatives implemented to navigate through COVID-19.

“The company’s second-quarter results were much stronger than expected despite the negative impact of unprecedented global market conditions and significant retail store closures for much of the time period,” said Blake W. Krueger, Wolverine Worldwide’s Chairman, CEO and President. “Our brands excelled online with nearly triple-digit-owned eCommerce revenue growth benefiting from strength in key product categories that are resonating with consumers and the digital capabilities we have invested in over the last several years. The acceleration of our digital direct offense, together with our diversified and agile business model, enabled the company to adapt to the rapidly changing marketplace and deliver positive earnings and exceptional cash flow in the quarter. We believe the company is positioned well to accelerate out of the current market downturn once the impact of the pandemic subsides.”

Liquidity And Cash Flow Update
During the second quarter, the company took precautionary steps to further strengthen its balance sheet by prioritizing liquidity and net asset management. These actions proved very effective and include the implementation of cash enhancement and expense reduction initiatives, amendment of its Senior Credit Facility to increase flexibility within existing covenant requirements, and the sale of senior notes to enhance liquidity and provide longer-term financing.

The successful implementation of cash flow initiatives coupled with better-than-expected revenue and profit in the second quarter enabled the company to generate $116 million of operating cash flow in the quarter. The company paid down its revolver debt by $665 million, leaving a balance of $125 million, and ended the second quarter with $423 million of cash on hand, total liquidity of $1.1 billion, including cash and available borrowing capacity under the revolver, and a much-improved debt leverage position when compared to the first quarter. Given the strong cash performance in the second quarter, the company now expects to generate $200 million to $250 million of operating cash flow for the full year.

Second Quarter 2020 Review
The company’s results for the second quarter significantly exceeded its expectations entering the quarter, including:

  • Reported revenue was $349.1 million, down 38.6 percent versus the prior year. On a constant-currency basis, revenue was down 38.3 percent versus the prior year. Owned eCommerce revenue grew 96.0 percent versus the prior year;
  • Wolverine Michigan Group’s revenues were down 31.2 percent on a currency-neutral basis and 31.7 percent reported to $217.4 million. Wolverine Michigan Group includes Bates, Cat Footwear, Chaco, Harley-Davidson Footwear, Hush Puppies, HyTest, Merrell, and Wolverine;
  • Wolverine Boston Group’s revenues plunged 46.7 percent on a currency-neutral basis, and 46.9 percent on a reported basis to $122.5 million. Wolverine Boston Group includes Keds, Saucony, Sperry Top-Sider, the Stride Rite licensed business, and the kid’s footwear businesses of Cat, Hush Puppies, Keds, Merrell, Saucony, and Sperry;
  • Reported gross margin was 42.2 percent compared to 40.5 percent in the prior year;
  • Reported operating margin was 2.1 percent compared to 9.8 percent in the prior year. Adjusted operating margin was 5.1 percent compared to 11.1 percent in the prior year;
  • Reported diluted loss per share was $0.02, compared to earnings per share of $0.45 in the prior year. Adjusted diluted earnings per share were $0.08 and, on a constant-currency basis, were $0.09 compared to $0.52 in the prior year;
  • Inventory at the end of the quarter was down 5.0 percent versus the prior year and down 7.0 percent when excluding the impact of new stores and the incremental cost of new tariffs.
  • Cash flow from operating activities in the quarter was $115.6 million compared to $136.3 million in the prior year;
  • Cash-on-hand at the end of the quarter was $422.6 million compared to $116.5 million in the prior year.

“The company’s response to the challenging environment has been exceptional,” said Mike Stornant, senior vice president and chief financial officer. “At the onset of the pandemic, we prioritized positive cash flow and a strong balance sheet, and we delivered approximately $116 million of cash flow from operations during the second quarter – significantly above our expectations. Our inventory position improved meaningfully during the quarter, while gross margin expanded 170 basis points. These financial results are very encouraging and, importantly, are clear evidence of an operating model that can adjust quickly to unexpected challenges. While we expect the second half of the year to remain challenging, we are well prepared for various scenarios that may play out and are confident that the company will remain strong during this volatile time.”