Wolverine World Wide, Inc. - Q1 2009 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the 12-week period ended March 28, 2009. Wolverine World Wide, Inc. is a global marketer of branded footwear, apparel, and accessories, operating under brands such as Merrell, Wolverine, Hush Puppies, and Chaco. The company operates one reportable segment (Branded Footwear, Apparel, and Licensing) alongside other business units including retail and leather operations. The reporting period was characterized by a difficult global economic environment and a strengthening U.S. dollar.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Revenue | $255.3 million | $288.2 million |
| Gross Profit | $102.9 million (40.3% margin) | $121.6 million (42.2% margin) |
| Operating Profit | $15.5 million | $36.3 million |
| Net Earnings | $10.5 million | $23.7 million |
| Diluted EPS | $0.21 | $0.46 |
| Cash and Equivalents | $56.8 million | $47.5 million |
| Revolving Credit Borrowed | $93.0 million | $60.1 million |
| Net Cash Used in Operating Activities | ($41.1 million) | ($33.8 million) |
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 11.4% year-over-year. Approximately $18.0 million of the decline was attributed to the strengthening U.S. dollar against the British pound, euro, and Canadian dollar. The remaining decline was driven by lower unit volumes across most brand groups.
- Restructuring Costs: The company incurred $14.5 million in non-recurring restructuring and transition costs ($12.1 million in operating expenses and $2.3 million in cost of goods sold). This initiative aims to create $17.0 million to $19.0 million in annualized pretax benefits.
- Acquisitions: The company acquired the Cushe footwear brand (Jan 8, 2009) and the Chaco footwear brand (Jan 22, 2009). These acquisitions contributed to inventory levels and goodwill but were not material to consolidated results on a pro forma basis.
- Inventory Build: Inventory increased 15.6% compared to Q1 2008, driven by strategic pre-buys of core products, higher freight costs, and inventory from new acquisitions.
- Brand Performance: The Heritage Brands Group saw the largest revenue decline (-19.5%), followed by The Hush Puppies Company (-17.2%). The Wolverine Footwear Group was the most resilient, declining only 7.0%.
Guidance, Outlook, and Risks
Outlook: Management expects 2009 to remain a difficult economic environment with unpredictable consumer spending. They project a continued strengthening of the U.S. dollar against major foreign currencies. The strategic restructuring plan is expected to be completed by the end of 2009.
Capital Allocation: The company repurchased 406,200 shares of common stock in Q1 2009 at an average price of $13.77. A quarterly dividend of $0.11 per share was declared.
Risks and Contingencies:
- Foreign Exchange: Significant exposure to currency fluctuations, particularly the strengthening dollar impacting international revenue.
- Economic Conditions: Global recession and credit crisis impacting consumer demand and retailer solvency.
- Supply Chain: Risks related to raw material costs (leather, petroleum) and contract manufacturer availability.
- Restructuring Execution: Risks associated with integrating new brands and achieving projected cost savings from the restructuring plan.
Investor Verification Checklist
- Verify the progress and cost realization of the $31M-$36M strategic restructuring plan.
- Monitor the integration performance of the newly acquired Chaco and Cushe brands.
- Track the impact of the strengthening U.S. dollar on international revenue and margins in subsequent quarters.
- Review inventory levels and potential markdown risks given the 15.6% increase in stock.
- Assess the sustainability of the dividend and share repurchase program given the cash burn in operating activities.