Wolverine World Wide Reports Strong Third Quarter Results and Maintains Full-Year Revenue Outlook
In line revenue growth and record gross margin lead to 10% adjusted EPS growth, ahead of expectations for Q3
“We delivered our highest quarterly revenue increase of the year driven by constant currency growth of over 11% from Merrell, Sperry and Saucony. Our adjusted earnings per share of
THIRD QUARTER 2019 REVIEW
- Reported revenue of
$574.3 millionincreased 2.8% as compared to the prior year and adjusting for currency, increased 3.6%.
- Reported gross margin of 42.4%, was in line with expectations, and increased 80 basis points compared to 41.6% in the prior year.
- Reported operating margin was 11.9%. Adjusted operating margin of 14.1% exceeded expectations expanding 150 basis points compared to the prior year.
- Reported diluted earnings per share were
$0.57, compared to $0.60in the prior year. Adjusted diluted earnings per share increased 9.7% to $0.68compared to $0.62in the prior year.
- The reported tax rate was 20.3%, as compared to 7.8% in the prior year. The prior year effective rate was favorably impacted by a
$40 millionvoluntary pension contribution, resulting in a $0.06benefit in the prior year.
- Inventories increased 28.8% compared to the prior year, slightly better than expectations, and include
$8.4 millionrelated to new stores and the Saucony Europe acquisition.
- The Company repurchased
$107 millionof shares in the quarter at an average price of $25.13, and has approximately $513 millionavailable under its authorized share repurchase programs.
"The strong results from Merrell, Sperry and Saucony demonstrate the benefits of our demand creation investments and steady execution against our global growth model. This revenue performance combined with continued operational discipline led to excellent earnings leverage in the quarter, with adjusted earnings per share growth of nearly 10% and gross margin of 42.4%, the highest of any third quarter for the Company,” stated
FULL-YEAR 2019 OUTLOOK
The Company is maintaining its full-year revenue guidance and updating its full-year earnings outlook to reflect estimated new tariff costs in the fourth quarter.
- Revenue is expected to be approximately
$2.28 billionincluding approximately 7.0% constant currency growth in the fourth quarter.
- Gross margin is still expected to be approximately 41.0% matching the prior year's record level.
- Reported operating margin is now expected to be approximately 10.5% and adjusted operating margin is expected to be approximately 12.0%.
- The effective tax rate is expected to be approximately 19.0%.
- Diluted weighted average shares are now expected to be approximately 86.4 million.
- Reported diluted earnings per share are now expected to be approximately
$1.96and adjusted diluted earnings per share are now expected to be approximately $2.25including $0.03related to new tariffs on products expected to be sold in the fourth quarter.
- Cash flow from operations is 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, reorganization costs, other 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 that 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
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In millions, except earnings per share)
|Quarter Ended||Year-To-Date Ended|
|Cost of goods sold||331.0||326.5||972.4||965.4|
|Selling, general and administrative expenses||165.9||161.6||498.6||488.6|
|Environmental and other related costs||9.1||2.1||19.1||7.6|
|Operating expenses as a % of revenue||30.5||%||29.3||%||31.1||%||29.9||%|
|Interest expense, net||8.2||5.8||21.8||18.7|
|Other income, net||(0.9||)||(1.3||)||(3.2||)||(7.2||)|
|Total other expenses||7.3||4.5||18.6||11.5|
|Earnings before income taxes||61.0||63.9||157.6||186.5|
|Income tax expense||12.4||5.0||28.2||25.5|
|Effective tax rate||20.3||%||7.8||%||17.9||%||13.7||%|
|Less: net earnings (loss) attributable to noncontrolling interests||(0.1||)||0.1||—||0.2|
|Net earnings attributable to Wolverine World Wide, Inc.||$||48.7||$||58.8||$||129.4||$||160.8|
|Diluted earnings per share||$||0.57||$||0.60||$||1.44||$||1.65|
|Net earnings used to calculate diluted earnings per share||$||47.7||$||57.6||$||126.9||$||157.5|
|Shares used to calculate diluted earnings per share||83.9||95.3||88.0||95.4|
|Weighted average shares outstanding||83.5||94.9||87.3||95.2|
CONSOLIDATED CONDENSED BALANCE SHEETS
|Cash and cash equivalents||$||125.2||$||228.1|
|Accounts receivables, net||357.3||364.0|
|Other current assets||48.4||32.2|
|Total current assets||948.6||948.7|
|Property, plant and equipment, net||143.0||131.4|
|Lease right-of-use assets, net||163.9||—|
|Goodwill and other indefinite-lived intangibles||1,041.5||1,032.0|
|Other noncurrent assets||171.5||157.0|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Accounts payable and other accrued liabilities||$||297.1||$||296.1|
|Current maturities of long-term debt||10.0||60.0|
|Borrowings under revolving credit agreements and other short-term notes||493.3||1.5|
|Total current liabilities||833.9||357.6|
|Lease liabilities, noncurrent||151.0||—|
|Other noncurrent liabilities||259.0||248.2|
|Total liabilities and stockholders' equity||$||2,468.5||$||2,269.1|
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
|Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:|
|Depreciation and amortization||23.3||22.6|
|Deferred income taxes||0.3||12.3|
|Stock-based compensation expense||17.3||21.2|
|Pension and SERP expense||4.2||4.0|
|Cash payments related to restructuring costs||(0.1||)||(4.8||)|
|Environmental and other related costs, net of cash payments||(3.7||)||(6.3||)|
|Changes in operating assets and liabilities||(145.3||)||(190.1||)|
|Net cash provided by (used in) operating activities||16.0||(34.0||)|
|Business acquisition, net of cash acquired||(15.1||)||—|
|Additions to property, plant and equipment||(28.7||)||(15.3||)|
|Proceeds from sale of assets||0.1||2.2|
|Investment in joint ventures||(8.5||)||—|
|Net cash used in investing activities||(53.4||)||(14.8||)|
|Net borrowings under revolving credit agreements and other short-term notes||368.3||1.0|
|Payments on long-term debt||(5.0||)||(122.6||)|
|Payments of debt issuance and debt extinguishment costs||(0.3||)||—|
|Cash dividends paid||(25.4||)||(21.0||)|
|Purchase of common stock for treasury||(314.2||)||(69.9||)|
|Employee taxes paid under stock-based compensation plans||(16.7||)||(8.1||)|
|Proceeds from the exercise of stock options||7.0||23.2|
|Contributions from noncontrolling interests||5.7||—|
|Net cash provided by (used in) financing activities||19.4||(197.4||)|
|Effect of foreign exchange rate changes||0.1||(6.7||)|
|Decrease in cash and cash equivalents||(17.9||)||(252.9||)|
|Cash and cash equivalents at beginning of the year||143.1||481.0|
|Cash and cash equivalents at end of the period||$||125.2||$||228.1|
The following tables contain information regarding the non-GAAP financial measures used by the Company in the presentation of its financial results:
WOLVERINE WORLD WIDE, INC.
Q3 2019 RECONCILIATION TABLES
RECONCILIATION OF REPORTED REVENUE
TO ADJUSTED REVENUE ON A CONSTANT CURRENCY BASIS*
|GAAP Basis 2019-Q3||Foreign Exchange Impact||Constant Currency Basis 2019-Q3||GAAP Basis 2018-Q3||Constant Currency Growth (Decline)||Reported Growth (Decline)|
|Wolverine Michigan Group||$||318.8||$||2.8||$||321.6||$||327.7||(1.9||)%||(2.7||)%|
|Wolverine Boston Group||241.3||1.8||243.1||214.6||13.3||12.4|
RECONCILIATION OF REPORTED OPERATING MARGIN
TO ADJUSTED OPERATING MARGIN*
|GAAP Basis||Adjustments (1)||As Adjusted|
|Operating Profit - Fiscal 2019 Q3||$||68.3||$||12.5||$||80.8|
|Operating Profit - Fiscal 2018 Q3||$||68.4||$||2.1||$||70.5|
|(1) Q3 2019 adjustments reflect $9.1 million of environmental and other related costs, $2.5 million of reorganization costs, $0.6 million of business development related costs and $0.3 million of other costs. Q3 2018 adjustment reflects $2.1 million of environmental and related costs.|
RECONCILIATION OF REPORTED DILUTED EPS
TO ADJUSTED DILUTED EPS*
|GAAP Basis||Adjustments (1)||As Adjusted|
|EPS - Fiscal 2019 Q3||$||0.57||$||0.11||$||0.68|
|EPS - Fiscal 2018 Q3||$||0.60||$||0.02||$||0.62|
|(1) Q3 2019 adjustments reflect environmental and other related costs, reorganization costs, business development related costs and other costs. Q3 2018 adjustment reflects environmental and other related costs.|
2019 GUIDANCE RECONCILIATION TABLES
RECONCILIATION OF FISCAL 2019 Q4 REPORTED REVENUE GUIDANCE
TO ADJUSTED REVENUE GUIDANCE ON A CONSTANT CURRENCY BASIS*
|GAAP Basis 2019||Foreign Exchange Impact||Constant Currency Basis 2019||GAAP Basis 2018||Constant Currency Growth||Reported Growth|
RECONCILIATION OF FISCAL 2019 FULL-YEAR REPORTED OPERATING MARGIN
GUIDANCE TO ADJUSTED OPERATING MARGIN GUIDANCE*
Full-Year Operating Margin
|Adjustment (1)||As Adjusted
Full-Year Operating Margin
|Operating Margin Guidance||10.5||%||1.5||%||12.0||%|
|(1) Adjustment includes the impact of estimated environmental and other related costs, estimated costs related to business development activities, estimated reorganization and other costs.|
RECONCILIATION OF FISCAL 2019 FULL-YEAR DILUTED EPS
GUIDANCE TO ADJUSTED DILUTED EPS GUIDANCE*
|Adjustment (1)||As Adjusted
|Diluted earnings per share guidance (2)||$||1.96||$||0.29||$||2.25|
|(1) Adjustment includes the impact of estimated environmental and other related costs, estimated costs related to business development activities, estimated costs related to reorganization, the impact of tax reform and other costs.
|(2) Per GAAP, the Full-Year EPS calculation reflects Net Earnings attributable to Wolverine World Wide, Inc. adjusted for earnings allocated to non-vested restricted common stock (for 2019, adjustment estimated at 97.2% of Net Earnings available to Wolverine World Wide, Inc.) divided by shares used in calculating earnings per share.|
|*||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, reorganization costs, other 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