Wolverine World Wide, Inc. — Form 10-Q Summary
Period discrepancy: The request identifies 2019 Q3, but the supplied filing is for the quarter ended September 26, 2020, with comparisons to September 28, 2019. 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, Sperry, Wolverine and others. It reports Wolverine Michigan Group and Wolverine Boston Group, plus Other and Corporate categories. The filing covers the third quarter and first three quarters of fiscal 2020; fiscal 2020 has 53 weeks. COVID-19 significantly affected operations and results.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | YTD 2020 | YTD 2019 |
|---|---|---|---|---|
| Revenue | $493.1 million | $574.3 million | $1,281.5 million | $1,666.3 million |
| Gross margin | 41.0% | 42.4% | 41.4% | 41.6% |
| Operating profit | $42.6 million | $68.3 million | $67.0 million | $176.2 million |
| Net earnings attributable to Wolverine | $22.4 million | $48.7 million | $33.8 million | $129.4 million |
| Diluted EPS | $0.27 | $0.57 | $0.41 | $1.44 |
| Operating cash flow | Not separately stated in the financial statements | Not separately stated in the financial statements | $135.5 million | $16.0 million |
Q3 operating cash flow was separately reported in MD&A as $96.5 million, versus $12.1 million in Q3 2019. YTD capital expenditures were $6.0 million, compared with $28.7 million. Cash and equivalents were $342.0 million at September 26, 2020, versus $125.2 million a year earlier. Debt was $876.6 million, including $162.5 million of current maturities; available revolving credit capacity was $794.0 million. The company reported compliance with debt covenants. Declared dividends were $0.10 per share for the quarter and $0.30 per share YTD.
Material changes versus comparable periods
- Q3 revenue fell 14.1%; YTD revenue fell 23.1%. Michigan Group revenue declined 9.9% in Q3 and 19.9% YTD; Boston Group declined 19.7% and 26.4%, respectively.
- Owned eCommerce revenue increased 56.4% in Q3 and 59.9% YTD, partly offsetting weakness in wholesale and other channels.
- Q3 gross margin declined 1.4 percentage points. Management cited increased closeout sales, tariffs and lower royalty revenue, partly offset by improved product mix.
- Q3 operating profit decreased 37.6%, while YTD operating profit decreased 62.0%; Q3 diluted EPS was down 52.6% and YTD diluted EPS down 71.5%.
- Interest expense increased with higher average debt balances. YTD cash generation benefited from working-capital changes and a $55.0 million payment from 3M related to environmental litigation.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance is provided. Management said the pandemic’s financial effects could not be reasonably estimated and expects operating cash flow to meet working-capital needs for the foreseeable future.
- COVID-19 risks include renewed store closures, lower consumer spending and wholesale orders, supply-chain disruption, customer financial distress, added operating costs and impairment risk. Management reported $24.9 million of pandemic-related expenses YTD, including severance, credit-loss and other costs.
- The company issued $300 million of 6.375% senior notes due 2025 and borrowed a $171 million incremental term loan due May 2021; it repaid $21 million of that term loan in Q3. Share repurchases were suspended in March 2020.
- A consent decree requires environmental remediation and water-system work, subject to a $69.5 million aggregate cap for extending municipal water service. The company recorded a $97.3 million remediation reserve, including $23.7 million expected within 12 months. A separate $55 million 3M settlement was received in Q1. Additional individual and class-action PFAS litigation remains unresolved; no reserve was recorded for those claims because adverse verdicts were not considered probable.
- Management reported no triggering impairment events for goodwill or indefinite-lived intangibles at quarter-end, but warned deterioration in Sperry results or macroeconomic conditions could lead to a non-cash impairment charge.
Important facts for investors to verify
- Confirm the intended period: the supplied filing is 2020 Q3, not 2019 Q3.
- Track recovery in wholesale demand and whether eCommerce growth offsets continued weakness across brands, particularly Sperry and other declining businesses.
- Review liquidity, debt maturities and refinancing needs, especially the incremental term loan due May 2021 and the $162.5 million of debt classified as current.
- Monitor the scope, timing and cost of PFAS remediation, insurance recoveries and litigation exposure beyond recorded reserves.
- Assess continuing COVID-19 impacts, including customer credit losses, inventory and closeout activity, and potential goodwill or intangible-asset impairment.