Wolverine World Wide, Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter ended April 3, 2021, compared with the quarter ended March 28, 2020. This differs from the request metadata’s “2020 Q1” label. Amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $510.7 million | $439.3 million | +16.3% |
| Gross profit / margin | $222.3 million / 43.5% | $181.8 million / 41.4% | Margin +2.1 percentage points |
| Operating profit | $58.1 million | $16.9 million | +243.8% |
| Net earnings attributable to Wolverine | $38.5 million | $13.0 million | +196.2% |
| Diluted EPS | $0.45 | $0.16 | +181.3% |
| Operating cash flow | $26.3 million | $(76.6) million | Improved $102.9 million |
| Cash and cash equivalents | $364.8 million | $472.6 million | Down $107.8 million year over year |
| Total debt | $720.4 million | $1,226.1 million | Down $505.7 million year over year |
Gross-margin improvement reflected favorable eCommerce and product mix, partly offset by incremental air freight costs. The effective tax rate was 16.0%, versus a tax benefit rate of 32.3% in the prior-year quarter; the prior-year rate reflected larger discrete tax benefits. The company declared a $0.10-per-share dividend in both periods.
Business trends and material changes
- Revenue rose in both reportable groups: Wolverine Michigan Group increased 20.1% to $297.7 million, and Wolverine Boston Group increased 10.3% to $200.9 million. Other revenue was $12.1 million.
- Owned eCommerce revenue increased 83.6%. Management cited continued digital investment and consumer preference shifts toward online purchasing.
- Brand results were mixed. Merrell, Cat, Wolverine and Saucony grew; Chaco, Hush Puppies, Sperry and Keds declined. Supply constraints and late spring deliveries affected several brands.
- Operating profit increased in both groups: Michigan Group to $59.2 million from $43.1 million; Boston Group to $34.1 million from $18.8 million. Corporate costs improved to $35.5 million from $44.9 million, partly reflecting lower environmental-related costs and insurance recoveries.
- Inventory was $320.9 million, up from $243.1 million at fiscal year-end but down 20.8% from March 2020. Operating cash flow benefited from higher accounts payable, while receivables and inventory increases used cash.
Liquidity, debt and cash flow
Cash was $364.8 million and available revolving-credit capacity was $793.9 million at April 3, 2021. The company reported $720.4 million of debt, including $177.5 million under Term Loan A and $550.0 million of senior notes, net of deferred financing costs. The revolver was undrawn, apart from letters of credit. The company was in compliance with its credit-facility covenants. Cash from operations is expected to meet working-capital needs for the foreseeable future; excess cash is expected to support organic growth, debt reduction and dividends.
Quarterly investing cash outflow was $2.7 million, including $2.2 million of capital expenditures. Financing cash outflow was $4.9 million, including $8.5 million of dividends paid; the company received $4.8 million from noncontrolling owners of its China joint venture. No shares were repurchased under the public repurchase program during the quarter.
Outlook, risks and contingencies
- The filing provides no quantified revenue or earnings guidance. Management expects aspects of global supply-chain disruption—including vessel and container shortages and U.S. port congestion—to continue and potentially affect results through the remainder of fiscal 2021. The quarter included $4.0 million of incremental air freight costs.
- COVID-19 remains a material source of uncertainty for demand, operations, counterparties and liquidity. Other stated risks include consumer spending and preferences, competition, inventory management, foreign exchange, sourcing and labor constraints, customer relationships, cybersecurity, and legal and regulatory matters.
- Environmental remediation reserve was $100.8 million: $24.7 million expected within 12 months and $76.1 million over as long as 25 years. A consent decree requires, among other measures, funding a municipal water-system extension, subject to a $69.5 million aggregate cap. Long-term remediation costs remain uncertain.
- Separate PFAS-related individual and putative class-action litigation has no recorded reserve because the company said adverse verdicts were not considered probable and liability was difficult to assess. The company is defending the claims and pursuing additional insurance recoveries.
- The company identified no impairment trigger for goodwill or indefinite-lived intangibles at quarter-end. The $296.0 million Sperry trade name could require a non-cash impairment if performance, assumptions or economic conditions deteriorate.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the intended period: this filing is Q1 2021, not Q1 2020.
- Track whether supply delays, air freight expense and product availability continue to affect sales and gross margins.
- Assess the sustainability of eCommerce growth and brand-level performance, particularly declines at Sperry, Keds, Chaco and Hush Puppies.
- Monitor cash conversion and working capital as inventory and receivables rose from fiscal year-end, despite improved year-over-year inventory.
- Review debt maturities, interest expense, covenant headroom and the company’s use of available revolver capacity.
- Follow PFAS remediation spending, insurance recoveries, litigation developments and potential changes to the $100.8 million reserve.