Wolverine World Wide, Inc. — Form 10-Q Summary
Period discrepancy: The request metadata says 2022 Q1, but the supplied filing is for the 13 weeks ended April 1, 2023, compared with the quarter ended April 2, 2022. This summary covers the filing provided.
Business context and reporting period
Wolverine designs, markets and licenses footwear, apparel and accessories through brands including Merrell, Saucony, Wolverine, Cat, Sperry and Sweaty Betty. It operates wholesale and direct-to-consumer channels, including 159 retail stores and 58 eCommerce sites. Effective February 4, 2023, it sold the Keds business. The Wolverine Leathers business was classified as held for sale; its results were not presented as discontinued operations.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $599.4 million | $614.8 million |
| Gross profit / gross margin | $236.3 million / 39.4% | $261.3 million / 42.5% |
| Operating profit | $45.3 million | $19.6 million |
| Net earnings attributable to Wolverine | $19.0 million | $9.7 million |
| Diluted earnings per share | $0.23 | $0.12 |
| Operating cash flow | $(97.8) million | $(92.5) million |
| Capital expenditures | $7.3 million | $7.5 million |
Revenue declined 2.5%, while gross margin contracted 310 basis points. Operating profit and earnings improved substantially, but comparisons were affected by a $20.1 million Keds sale gain and substantially lower environmental and related costs than in the prior-year quarter. Net interest expense rose to $15.8 million from $8.7 million. The effective tax rate increased to 36.3% from 30.4%.
At April 1, 2023, cash and cash equivalents were $120.6 million in the cash-flow/liquidity presentation, including $4.4 million of cash classified as held for sale; balance-sheet cash was $116.2 million. Total debt was $1,180.8 million, including $450.0 million drawn on revolving facilities. Available revolving capacity was $543.5 million. The company reported compliance with its credit-facility covenants. Inventory was $725.9 million, up 50.2% year over year, but down $19.3 million from year-end 2022.
Material changes versus the prior comparable period
- Active Group revenue rose 11.5% to $385.9 million, led by Merrell and Saucony; segment operating profit slipped 2.1% to $52.1 million.
- Work Group revenue fell 17.3% to $114.5 million and operating profit fell 39.2% to $15.5 million.
- Lifestyle Group revenue fell 21.1% to $85.3 million, reflecting the Keds divestiture and lower Sperry sales; operating profit declined 78.6% to $2.8 million.
- Direct-to-consumer revenue declined 10.5% to $126.5 million. Foreign exchange reduced revenue by $12.3 million.
- Cash used in operations increased to $97.8 million from $92.5 million, with a $102.6 million working-capital cash use. Investing cash flow included $81.9 million of proceeds from the Keds sale.
Outlook, commentary, risks and unusual items
Management said it expects inventory levels and seasonal product flows to normalize by fiscal year-end 2023, following reduced purchases and increased promotions. It expects operating cash flow to meet working-capital needs for the foreseeable future. No specific full-year revenue or earnings guidance is provided in the supplied filing.
Management cited excess inventory, promotional activity, inflation, higher logistics, labor and product-input costs, rising interest rates, softer discretionary consumer spending and a stronger U.S. dollar as headwinds. Higher promotions, closeout sales, product costs and direct-to-consumer pricing/mix contributed to gross-margin pressure. The company said it would continue evaluating product pricing.
The quarter included a $20.1 million gain on the Keds sale; the sale generated $81.9 million in cash proceeds, which were used to reduce revolver borrowings. Environmental remediation reserves were $73.3 million, including $49.7 million expected to be paid within 12 months. A further $40.5 million liability was recorded for certain litigation matters. One landfill-related lawsuit remained pending; the company said long-term remediation costs could change materially as information, regulations and cleanup requirements evolve. The company also cited potential future impairment risk for the Sperry and Sweaty Betty trade names and Sweaty Betty goodwill, although its April 1 assessment found no impairment trigger.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing covers Q1 2023, not Q1 2022.
- Track inventory reduction, promotional intensity, gross margins and management’s expectation of normalization by fiscal year-end.
- Assess cash conversion and working-capital needs alongside revolver usage, total debt and interest expense.
- Monitor the timing, proceeds and use of proceeds from the planned Wolverine Leathers divestiture.
- Review environmental remediation and litigation exposure, including the $73.3 million reserve and potential changes in future estimates.
- Separate underlying operating performance from the Keds gain and the prior-year environmental-cost comparison.