Wolverine World Wide, Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter ended April 2, 2022 (first quarter of fiscal 2022), not 2021 Q1 as stated in the request metadata. Comparative figures are for the quarter ended April 3, 2021. Amounts are in U.S. dollars.
Business context and results
The company designs, markets and licenses footwear, apparel and accessories, including Merrell, Saucony, Sperry, Wolverine and Sweaty Betty. It sells through wholesale and consumer-direct channels and operates in about 170 countries and territories. Sweaty Betty, acquired in August 2021, contributed $53.6 million of quarterly revenue.
- Revenue was $614.8 million, up 20.4%. Wolverine Michigan Group revenue rose 10.6% to $329.3 million; Wolverine Boston Group rose 5.7% to $212.3 million; Other rose to $73.2 million, primarily reflecting Sweaty Betty.
- Gross profit was $261.3 million, up 17.5%; gross margin declined to 42.5% from 43.5%. The filing attributes pressure to channel mix, direct-to-consumer freight and volume, and higher product, labor and materials costs, partly offset by price increases and Sweaty Betty.
- Operating profit fell to $19.6 million from $58.1 million. Net earnings attributable to Wolverine were $9.7 million versus $38.5 million; diluted EPS was $0.12 versus $0.45.
- Net interest expense declined to $8.7 million from $9.6 million. The effective tax rate increased to 30.4% from 16.0%, reflecting lower pretax earnings and discrete tax expense versus tax benefits in the prior-year quarter.
Cash flow, liquidity and debt
- Operating cash flow was negative $92.5 million, versus positive $26.3 million. Working capital used $131.5 million, including a $122.8 million inventory increase and a $52.2 million accounts receivable increase, partly offset by higher accounts payable.
- Investing cash outflow was $3.8 million, including $7.5 million of capital expenditures. Financing cash inflow was $86.0 million, including net revolving-facility borrowings; the company also repurchased $33.8 million of shares and paid $8.4 million in dividends.
- Cash was $149.6 million at quarter-end. Total debt was $1,094.6 million, up from $966.8 million at January 1, 2022; debt included $355.0 million in revolving borrowings. Available revolving-facility capacity was $639.0 million. The company reported compliance with credit-facility covenants.
- Inventory was $483.3 million, up $162.4 million (50.6%) year over year; the filing says Sweaty Betty contributed 14.5% of the increase. Current assets were $1,077.9 million and current liabilities $967.4 million.
Material changes, outlook and risks
- Environmental and other related costs, net of recoveries, were $30.4 million in the quarter versus a $10.2 million net recovery in the prior-year quarter. The filing reports $40.4 million of gross environmental and related costs in the current quarter, versus $5.5 million in the prior-year quarter. These costs were a major factor in the decline in operating profit.
- Separately, the company recorded $86.4 million of liabilities for certain PFAS-related litigation matters and increased its accrual by $37.8 million since January 1, 2022. A putative class action remained in settlement discussions, and one private individual action remained pending. The company cautions that potential liability for pending matters is difficult to assess.
- The environmental remediation reserve was $75.2 million, including $21.6 million expected to be paid within 12 months and $53.6 million over up to 25 years. The company says future remediation costs could change materially as information, regulations, cleanup methods or allocation of responsibility develop.
- COVID-related supply-chain disruption, port congestion, labor and container shortages delayed shipments and prevented fulfillment of some customer orders; higher logistics costs also pressured results. The company expects some disruption to continue, with potential effects on revenue and profitability.
- The company temporarily suspended business operations in Russia in March 2022; Russia represented less than 1% of revenue, and the company reported no assets or employees in Russia or Ukraine. Management said operating cash flow should meet working-capital needs for the foreseeable future. The filing provides no specific earnings or revenue guidance.
Important facts for investors to verify
- Confirm the period: the filing is for Q1 2022, despite the request metadata stating 2021 Q1.
- Track whether supply-chain delays, freight and input-cost inflation, and elevated inventory improve or continue to constrain margins and cash conversion.
- Monitor PFAS litigation outcomes, insurance recoveries, and revisions to the $86.4 million litigation liability and $75.2 million remediation reserve.
- Assess debt and revolver usage alongside working-capital needs, planned repurchases, dividends and management’s stated liquidity expectations.
- Review Sweaty Betty’s contribution and performance: it generated $53.6 million in revenue and a $0.1 million net loss in the quarter.