Following a similar move by S&P Global Ratings, Moody’s Investors Service changed Wolverine World Wide, Inc.’s outlook to negative from stable.
Concurrently, Moody’s affirmed the company’s Ba1 corporate family rating, Ba1-PD probability of default rating, and Ba2 senior unsecured notes rating. The company’s speculative grade liquidity rating was changed to SGL-2 from SGL-1.
Moody’s said the outlook change to negative reflects the risk that Wolverine may not substantially reduce leverage from its current level of 4.5x Moody’s-adjusted debt/EBITDA over the next 12 months. In addition, the change in outlook reflects governance factors, including the company’s decisions to finance the Sweaty Betty acquisition with debt and to continue share repurchases rather than reduce debt levels.
“Debt reduction following the Sweaty Betty acquisition has been delayed as the company is replenishing its inventory, returning capital to shareholders and paying for environmental remediation and associated litigation,” stated Moody’s Vice President, Raya Sokolyanska. “In addition, while consumer demand for footwear and apparel is strong, earnings could be hampered by supply chain challenges, inflationary pressures and a potential moderation in outdoor and athletic footwear as consumer spending pivots to travel and leisure.”
Moody’s wrote in its analysis, “Wolverine’s Ba1 CFR reflects 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. About half of the company’s revenue is generated from its well-recognized, large brands Merrell, Saucony and Sperry, and its product portfolio appeals to a broad range of consumer needs and demographics. Moody’s expects credit metrics to improve over the next 12-18 months, to high-3x debt/EBITDA from 4.5x as of April 2, 2022, driven by earnings increases and modest revolver repayment. The rating is also supported by the company’s 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, the company’s growth strategy has included acquisitions, which introduce event, execution and financing risk. In addition, as a footwear company, Wolverine is subject to social and environmental risks related to responsible sourcing, the treatment of workforce, and data protection.”
