Wolverine World Wide Reports Strong Second Quarter Earnings and Updates Full-Year Outlook
“Earnings were strong and exceeded our expectations going into the quarter,” said
SECOND QUARTER 2019 REVIEW
- Reported revenue of
$568.6 millionincreased 0.3% as compared to the prior year and adjusting for currency, increased 1.1%.
- Reported gross margin of 40.5%, was in line with expectations, and compared to 41.3% in the prior year.
- Reported operating margin was 9.8%. Adjusted operating margin of 11.1%, was in line with expectations, and compared to 12.5% in the prior year.
- The reported tax rate was 19.4%, as compared to 18.1% in the prior year.
- Reported diluted earnings per share were
$0.45, compared to $0.57in the prior year. Adjusted diluted earnings per share were $0.52compared to $0.54in the prior year.
- Inventories increased 38.4% compared to the prior year, including
$10 millionfrom new stores and the acquisition of a distributor in Italy. The second quarter inventory position includes a significant pull forward of China-sourced production in anticipation of potential Chinatariff exposure.
- The Company repurchased
$104 millionof shares in the quarter at an average price of $29.07, and has approximately $220 millionavailable under its current $400 millionshare repurchase program.
"We are encouraged by the growth momentum of our largest brands and pleased with our earnings performance in the quarter,” stated
The Company has very good visibility to a much stronger back half and is expecting approximately 5.5% constant currency revenue growth. This outlook includes approximately 10% constant currency growth in the second half for Merrell, Sperry and Saucony on a combined basis. As a result, the Company is updating its full-year guidance as follows:
- Revenue is now expected to be approximately
$2.28 billion, within the range of prior outlook and guidance.
- Gross margin is now expected to be approximately 41.0%.
- Reported operating margin is now expected to be approximately 11% and adjusted operating margin is expected to be approximately 12%.
- The effective tax rate is expected to be approximately 19.0%.
- Diluted weighted average shares are now expected to be approximately 88 million.
- Reported diluted earnings per share are now expected to be approximately
$2.06and adjusted diluted earnings per share are now expected to be approximately $2.28.
- Cash flow from operations is now expected to be approximately
NON-GAAP FINANCIAL MEASURES
Measures referred to as "adjusted" financial results exclude environmental and other related costs, business development related costs, the impact of tax reform updates and a foreign currency remeasurement gain that is not expected to reoccur. The Company also presents constant currency information, which is a non-GAAP measure and excludes the impact of fluctuations in foreign currency exchange rates. The Company believes providing constant currency information provides valuable supplemental information regarding results of operations, consistent with how the Company evaluates performance. The Company calculates constant currency basis by converting the current-period local currency financial results using the prior period exchange rates and comparing these adjusted amounts to our current period reported results.
The Company has provided a reconciliation of the above non-GAAP financial measures to the most directly comparable GAAP financial measure. The Company believes these non-GAAP measures provide useful information to both management and investors to increase comparability of current period results to the prior period by adjusting for certain items that may not be indicative of core operating results and to better identify trends in our business. The adjusted financial results are used by management to, and allow investors to, evaluate the operating performance of the Company on a comparable basis. Management does not, nor should investors, consider such non-GAAP financial measures in isolation from, or as a substitution for, financial information prepared in accordance with GAAP.
EARNINGS CALL INFORMATION
The Company will host a conference call today at
ABOUT WOLVERINE WORLDWIDE
With a commitment to service and product excellence,
This press release contains forward-looking statements, including statements regarding: the Company’s revenue growth during the rest of fiscal 2019 and focus on leveraging its strong liquidity and financial position to drive shareholder returns; and the Company’s fiscal 2019 outlook and guidance. In addition, words such as "guidance," "estimates," "anticipates," "believes," "forecasts," "step," "plans," "predicts," "focused," "projects," "outlook," "is likely," "expects," "intends," "should," "will," "confident," variations of such words, and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions ("Risk Factors") that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Risk Factors include, among others: changes in general economic conditions, employment rates, business conditions, interest rates, tax policies and other factors affecting consumer spending in the markets and regions in which the Company’s products are sold; the inability for any reason to effectively compete in global footwear, apparel and consumer-direct markets; the inability to maintain positive brand images and anticipate, understand and respond to changing footwear and apparel trends and consumer preferences; the inability to effectively manage inventory levels; increases or changes in duties, tariffs, quotas or applicable assessments in countries of import and export; foreign currency exchange rate fluctuations; currency restrictions; capacity constraints, production disruptions, quality issues, price increases or other risks associated with foreign sourcing; the cost and availability of raw materials, inventories, services and labor for contract manufacturers; labor disruptions; changes in relationships with, including the loss of, significant wholesale customers; risks related to the significant investment in, and performance of, the Company’s consumer-direct operations; risks related to expansion into new markets and complementary product categories; the impact of seasonality and unpredictable weather conditions; changes in general economic conditions and/or the credit markets on the Company’s distributors, suppliers and retailers; increases in the Company’s effective tax rates; failure of licensees or distributors to meet planned annual sales goals or to make timely payments to the Company; the risks of doing business in developing countries, and politically or economically volatile areas; the ability to secure and protect owned intellectual property or use licensed intellectual property; the impact of regulation, regulatory and legal proceedings and legal compliance risks, including compliance with federal, state and local laws and regulations relating to the protection of the environment, environmental remediation and other related costs, and litigation or other legal proceedings relating to the protection of the environment or environmental effects on human health; the potential breach of the Company’s databases or other systems, or those of its vendors, which contain certain personal information, payment card data or proprietary information, due to cyberattack or other similar event; problems affecting the Company’s distribution system, including service interruptions at shipping and receiving ports; strategic actions, including new initiatives and ventures, acquisitions and dispositions, and the Company’s success in integrating acquired businesses, and implementing new initiatives and ventures; the risk of impairment to goodwill and other intangibles; the success of the Company’s restructuring and realignment initiatives; changes in future pension funding requirements and pension expenses; and additional factors discussed in the Company’s reports filed with the
| WOLVERINE WORLD WIDE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In millions, except earnings per share)
|Quarter Ended||Year-To-Date Ended|
|Cost of goods sold||338.2||332.7||641.4||638.9|
|Selling, general and administrative expenses||168.7||163.3||332.7||327.0|
|Environmental and other related costs||6.2||2.8||10.0||5.5|
|Operating expenses as a % of revenue||30.8||%||29.3||%||31.4||%||30.2||%|
|Interest expense, net||6.7||5.7||13.6||12.9|
|Other income, net||(1.0||)||(5.3||)||(2.3||)||(5.9||)|
|Total other expenses||5.7||0.4||11.3||7.0|
|Earnings before income taxes||49.8||67.7||96.6||122.6|
|Income tax expense||9.6||12.2||15.8||20.5|
|Effective tax rate||19.4||%||18.1||%||16.4||%||16.8||%|
|Less: net earnings attributable to noncontrolling interests||—||0.2||0.1||0.1|
|Net earnings attributable to Wolverine World Wide, Inc.||$||40.2||$||55.3||$||80.7||$||102.0|
|Diluted earnings per share||$||0.45||$||0.57||$||0.88||$||1.05|
|Net earnings used to calculate diluted earnings per share||$||39.4||$||54.1||$||79.2||$||99.9|
|Shares used to calculate diluted earnings per share||88.3||95.0||90.1||95.3|
|Weighted average shares outstanding||87.4||94.9||89.2||95.3|
|WOLVERINE WORLD WIDE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
|Cash and cash equivalents||$||116.5||$||354.9|
|Accounts receivables, net||363.7||297.2|
|Other current assets||42.6||36.3|
|Total current assets||929.3||982.2|
|Property, plant and equipment, net||138.2||130.4|
|Lease right-of-use assets, net||157.8||—|
|Goodwill and other indefinite-lived intangibles||1,043.0||1,031.5|
|Other non-current assets||174.6||156.2|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Accounts payable and other accrued liabilities||$||336.1||$||324.7|
|Current maturities of long-term debt||10.0||45.0|
|Borrowings under revolving credit agreements and other short-term notes||368.0||1.3|
|Total current liabilities||744.9||371.0|
|Lease liabilities, noncurrent||146.0||—|
|Other non-current liabilities||263.8||298.4|
|Total liabilities and stockholders' equity||$||2,442.9||$||2,300.3|
|WOLVERINE WORLD WIDE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
|Adjustments to reconcile net earnings to net cash provided by operating activities:|
|Depreciation and amortization||15.0||15.1|
|Deferred income taxes||(1.2||)||0.9|
|Stock-based compensation expense||10.2||14.2|
|Pension and SERP expense||2.8||3.0|
|Cash payments related to restructuring costs||(0.1||)||(4.3||)|
|Environmental and other related costs, net of cash payments||(3.5||)||(3.4||)|
|Changes in operating assets and liabilities||(90.8||)||(49.7||)|
|Net cash provided by operating activities||3.9||65.1|
|Business acquisition, net of cash acquired||(15.1||)||—|
|Additions to property, plant and equipment||(18.3||)||(8.3||)|
|Proceeds from sale of assets||—||1.7|
|Investment in joint ventures||(8.5||)||—|
|Net cash used in investing activities||(42.4||)||(7.4||)|
|Net borrowings under revolving credit agreements and other short-term notes||243.0||0.8|
|Payments on long-term debt||(2.5||)||(122.6||)|
|Payments of debt issuance and debt extinguishment costs||(0.3||)||—|
|Cash dividends paid||(16.8||)||(13.4||)|
|Purchase of common stock for treasury||(207.4||)||(49.9||)|
|Employee taxes paid under stock-based compensation plans||(16.5||)||(8.0||)|
|Proceeds from the exercise of stock options||5.8||16.4|
|Contributions from noncontrolling interests||5.7||—|
|Net cash provided by (used in) financing activities||11.0||(176.7||)|
|Effect of foreign exchange rate changes||0.9||(7.1||)|
|Decrease in cash and cash equivalents||(26.6||)||(126.1||)|
|Cash and cash equivalents at beginning of the year||143.1||481.0|
|Cash and cash equivalents at end of the period||$||116.5||$||354.9|
The following tables contain information regarding the non-GAAP financial measures used by the Company in the presentation of its financial results:
|WOLVERINE WORLD WIDE, INC.
Q2 2019 RECONCILIATION TABLES
RECONCILIATION OF REPORTED REVENUE
TO ADJUSTED REVENUE ON A CONSTANT CURRENCY BASIS*
|GAAP Basis 2019-Q2||Foreign Exchange Impact||Constant Currency Basis 2019-Q2||GAAP Basis 2018-Q2||Constant Currency Growth (Decline)||Reported Growth (Decline)|
|Wolverine Michigan Group||$||318.2||$||3.3||$||321.5||$||314.1||2.4||%||1.3||%|
|Wolverine Boston Group||230.7||1.2||231.9||231.1||0.3||(0.2||)|
|RECONCILIATION OF REPORTED OPERATING MARGIN
TO ADJUSTED OPERATING MARGIN*
|GAAP Basis||Adjustments (1)||As Adjusted|
|Operating Profit - Fiscal 2019 Q2||$||55.5||$||7.8||$||63.3|
|Operating Profit - Fiscal 2018 Q2||$||68.1||$||2.8||$||70.9|
|(1) Q2 2019 adjustments reflect $6.2 million of environmental and related costs and $1.6 million of business development related costs. Q2 2018 adjustment reflects $2.8 million of environmental and related costs.|
RECONCILIATION OF REPORTED DILUTED EPS
TO ADJUSTED DILUTED EPS*
|GAAP Basis||Adjustments (1)||As Adjusted|
|EPS - Fiscal 2019 Q2||$||0.45||$||0.07||$||0.52|
|EPS - Fiscal 2018 Q2||$||0.57||$||(0.03||)||$||0.54|
|(1) Q2 2019 adjustments reflect the impact of environmental and related costs and business development related costs. Q2 2018 adjustments include the impact of environmental and related costs and a foreign currency remeasurement gain that is not expected to reoccur.|
2019 GUIDANCE RECONCILIATION TABLES
RECONCILIATION OF REPORTED REVENUE GUIDANCE
TO ADJUSTED REVENUE GUIDANCE ON A CONSTANT CURRENCY BASIS*
|GAAP Basis 2019
||Foreign Exchange Impact
||Constant Currency Basis 2019
||GAAP Basis 2018
||Constant Currency Growth
|Revenue - Q3 and Q4||$||1,190.0||$||8.0||$||1,198.0||$||1,138.2||5.3||%||4.6||%|
|RECONCILIATION OF FISCAL 2019 FULL-YEAR REPORTED OPERATING MARGIN
GUIDANCE TO ADJUSTED OPERATING MARGIN GUIDANCE*
Full-Year Operating Margin
|Adjustment (1)||As Adjusted
Full-Year Operating Margin
|Operating Margin Guidance||11.0||%||1.0||%||12.0||%|
|(1) Adjustment includes the impact of estimated environmental and related costs and estimated costs related to business development activities.|
RECONCILIATION OF FISCAL 2019 FULL-YEAR DILUTED EPS
GUIDANCE TO ADJUSTED DILUTED EPS GUIDANCE*
|Adjustment (1)||As Adjusted
|Diluted earnings per share guidance||$||2.06||$||0.22||$||2.28|
|(1) Adjustment includes the impact of estimated environmental and related costs, estimated costs related to business development activities and the impact of tax reform.|
|*||To supplement the consolidated condensed financial statements presented in accordance with Generally Accepted Accounting Principles ("GAAP"), the Company describes what certain financial measures would have been if environmental and other related costs, business development related costs, the impact of tax reform updates and a foreign currency remeasurement gain that is not expected to reoccur were excluded. The Company believes these non-GAAP measures provide useful information to both management and investors to increase comparability to the prior period by adjusting for certain items that may not be indicative of core operating measures and to better identify trends in our business. The adjusted financial results are used by management to, and allow investors to, evaluate the operating performance of the Company on a comparable basis.|
|The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. The Company believes providing constant currency information provides valuable supplemental information regarding results of operations, consistent with how the Company evaluates performance. The Company calculates constant currency by converting the current-period local currency financial results using the prior period exchange rates and comparing these adjusted amounts to our current period reported results.|
|Management does not, nor should investors, consider such non-GAAP financial measures in isolation from, or as a substitution for, financial information prepared in accordance with GAAP. A reconciliation of all non-GAAP measures included in this press release, to the most directly comparable GAAP measures are found in the financial tables above.|
Source: Wolverine World Wide