Moody’s Investors Service downgraded Wolverine World Wide, Inc.’s debt ratings. The downgrade reflects Wolverine’s elevated leverage compared to Moody’s original expectations and similarly rated peers and risks to the pace of deleveraging given macroeconomic, foreign currency, supply chain pressures, and the more promotional retail environment.

The downgrade also reflects governance factors, specifically Wolverine’s continued high debt levels following the Sweaty Betty acquisition, reduced cash flow generation and share repurchases which prevented debt repayment.

Moody’s took the following rating actions for Wolverine World Wide, Inc.:

  • Corporate Family Rating downgraded to Ba2 from Ba1
  • Probability of Default Rating downgraded to Ba2-PD from Ba1-PD
  • Senior Unsecured Global Notes downgraded to Ba3 (LGD5) from Ba2 (LGD5)
  • Outlook changed to stable from negative

Ratings Rationale
Moody’s said, “Wolverine’s Ba2 CFR benefits from its diversified distribution in the global footwear industry and the dependable replenishment demand cycle of the footwear category due to normal product wear and tear. The company’s product portfolio appeals to a broad range of consumer needs and demographics. About three-quarters of Wolverine’s revenue is generated from its Top 5 brands, including Merrell, which is established, differentiated and well-positioned in its segment. Financial leverage is currently high, with debt/EBITDA at 5.0x for the twelve months ended July 2022, in part because of the incremental debt from the 2021 Sweaty Betty acquisition. Moody’s projects debt/EBITDA to decline to high-3x over the next 18 months, driven by revolver repayment with free cash flow generation and modest earnings growth. Moody’s expects inflationary pressures to be mitigated by the still solid spending for casual and sports footwear in the US in the near term, pent-up demand internationally, and improved supply chain conditions. The rating is also supported by the company’s overall balanced financial strategies and good liquidity.

“At the same time, the ratings are constrained by the company’s relatively small revenue scale, narrow product focus primarily in the footwear segment, and fashion risk. In addition, Wolverine’s growth strategy has included acquisitions, which introduce event, execution and financing risk. As a footwear company, Wolverine is also subject to social and environmental risks related to responsible sourcing, the treatment of the workforce, natural capital, and customer relations.

“The stable outlook reflects Moody’s expectation that Wolverine will reduce leverage and maintain good liquidity.”

Wolverine World Wide’s portfolio of brands includes Merrell, Saucony, Sperry, Sweaty Betty, Hush Puppies, Wolverine, Keds, Chaco, Bates, Hytest, and Stride Rite. The company also is the global footwear licensee of the Cat and Harley-Davidson brands.

Photo courtesy WWW/Sweaty Betty