Wolverine World Wide, Inc. — Form 10-K Summary
Period note: The supplied filing is for the 53-week fiscal year ended January 2, 2021, not 2019 Q4 as indicated in the request metadata. Comparisons below are primarily with fiscal 2019, ended December 28, 2019. Amounts are in U.S. dollars.
Business context and reporting period
Wolverine designs, markets and licenses footwear, apparel and accessories across brands including Merrell, Wolverine, Saucony, Sperry, Keds and others. Products are sold in approximately 170 countries through wholesale, licensing and distribution partners, owned stores and eCommerce. Reportable segments are Wolverine Michigan Group and Wolverine Boston Group.
Financial performance and liquidity
| Metric | Fiscal 2020 | Fiscal 2019 |
|---|---|---|
| Revenue | $1,791.1 million | $2,273.7 million |
| Gross profit / margin | $735.6 million / 41.1% | $923.8 million / 40.6% |
| Operating profit (loss) | $(137.1) million | $171.0 million |
| Net earnings (loss) attributable to Wolverine | $(136.9) million | $128.5 million |
| Diluted earnings (loss) per share | $(1.70) | $1.44 |
| Cash from operating activities | $309.1 million | $222.6 million |
- Cash and cash equivalents at year-end were $347.4 million, compared with $180.6 million a year earlier. Available revolving-credit capacity was $793.9 million.
- Year-end debt was $722.5 million, down from $798.4 million. The company had no revolver borrowings outstanding and reported compliance with its credit-facility covenants.
- Operating cash flow benefited from a $187.9 million working-capital source, including lower inventory and accounts receivable. It also included environmental-related activity, including a $55.0 million settlement payment received from 3M.
- Capital expenditures were $10.3 million, versus $34.4 million. Dividends declared were $0.40 per share in both years; a $0.10 quarterly dividend was declared in February 2021.
Material changes versus fiscal 2019
- Revenue fell 21.2%, reflecting declines of 19.1% in Wolverine Michigan Group and 23.6% in Wolverine Boston Group. Owned eCommerce revenue rose 49.9%, but did not offset declines across brands and channels.
- Gross margin increased 50 basis points to 41.1%, mainly from product mix and eCommerce growth, partly offset by lower international royalties, tariffs and pandemic-related costs.
- The company recorded a $222.2 million non-cash impairment of the Sperry trade name. This contributed substantially to the operating loss; the remaining carrying value of the trade name was $296.0 million.
- Operating expenses also reflected $11.1 million of environmental and other related costs, compared with $83.5 million in 2019. Net interest expense rose to $43.6 million from $30.0 million, and the company recorded $5.5 million of debt-extinguishment, swap-termination and other costs.
- Inventory declined by $105.1 million, or 30.2%, year over year. The fiscal 2020 result also included a $3.9 million favorable LIFO liquidation effect on cost of goods sold.
Outlook, commentary, risks and contingencies
- The filing does not provide specific fiscal 2021 revenue or earnings guidance. Management said operating cash flow and revolver capacity were expected to meet working-capital needs for the foreseeable future; cash was expected to support organic growth, debt reduction and dividends.
- Management stated that the COVID-19 pandemic materially harmed fiscal 2020 results and that the extent and duration of further effects were uncertain. Pandemic-related actions included cost reductions, delayed or canceled purchases, suspended share repurchases, delayed capital projects and seeking lease concessions.
- Disclosed pandemic-related costs included severance, credit losses, inventory charges, air freight, facility exit costs and refinancing/swap-termination costs. The filing reports individual categories, but not a single consolidated total for these items.
- The principal risks include continued pandemic disruption, changing consumer demand, inventory execution, wholesale customer health and cancellations, foreign sourcing and shipping disruptions, tariffs, currency movements, competition, cyber and systems risks, and potential further brand or goodwill impairment.
- Environmental matters remain material. The recorded remediation reserve was $101.8 million, including $23.6 million expected within 12 months and $78.2 million expected over as long as 25 years. A consent decree requires water-system and remediation work subject to a $69.5 million cap for specified municipal water improvements. The company said it could not estimate any possible loss in excess of established reserves for certain ongoing remediation.
- Individual and putative class-action PFAS-related lawsuits remained unresolved; no amounts were reserved for those claims because the company could not conclude adverse verdicts were probable. The company intends to defend the claims.
- The company issued $300 million of 6.375% senior notes due 2025 and repaid a temporary $171 million incremental term loan by fiscal year-end. It suspended share repurchases in March 2020; the filing reports $21.0 million of program repurchases for the year.
Important facts for investors to verify
- Confirm the requested period: this filing covers fiscal 2020, not 2019 Q4.
- Assess whether the 49.9% eCommerce increase and improving gross margin can persist while overall demand and wholesale sales recover.
- Review the assumptions behind the Sperry valuation and potential for further impairment; the valuation depends on projected revenue, operating profit and discount rate.
- Track cash conversion: 2020 operating cash flow benefited from substantial working-capital release and the 3M settlement, which may not recur at the same level.
- Monitor environmental spending and litigation developments, including costs beyond the recorded reserve and the terms and remaining obligations under the consent decree.
- Review debt service, covenant headroom, and the company’s ability to maintain dividends and fund investment if operating conditions weaken.
The auditor issued an unqualified opinion on the consolidated financial statements and reported effective internal control over financial reporting as of January 2, 2021.