Moody’s Investors Service upgraded Wolverine World Wide Inc.’s ratings, including the company’s Corporate Family Rating to Ba1 from Ba2 and the company’s Probability of Default Rating to Ba1-PD from Ba2-PD. Moody’s also upgraded the company’s Senior Unsecured Notes due 2026 to Ba2 from Ba3. The company’s Speculative Grade Liquidity Rating was affirmed at SGL-1. The rating outlook is stable.
“The upgrade reflects our expectation for continued improvement in operating performance and credit metrics over the next 12-18 months” said Moody’s Lead Apparel Analyst Mike Zuccaro. Having completed its Way Forward transformation and restructuring initiatives, Wolverine activated its new Global Growth Agenda in early 2018, focusing on three key elements including product innovation and design, enhancing its digital-direct offense and international growth. Zuccaro added, “despite plans to increase investment between $40 million and $45 million in 2018, we expect Wolverine to drive continued revenue and profit growth that, together with positive free cash flow and lower debt levels, should lead to further improvement in credit metrics.”
Upgrades:
..Issuer: Wolverine World Wide, Inc.
…. Corporate Family Rating, Upgraded to Ba1 from Ba2
…. Probability of Default Rating, Upgraded to Ba1-PD from Ba2-PD
…. Senior Unsecured Notes due 2026, Upgraded to Ba2 (LGD5) from Ba3 (LGD5)
Outlook Actions:
..Issuer: Wolverine World Wide Inc.
…. Outlook, Remains stable
Affirmations:
..Issuer: Wolverine World Wide Inc.
…. Speculative Grade Liquidity Rating, Affirmed SGL-1
Ratings Rationale
Wolverine’s Ba1 Corporate Family Rating reflects its meaningful scale in the global footwear industry and its sizable portfolio of brands which appeal to a broad range of consumer needs. The rating also reflects the company’s moderate financial leverage with lease-adjusted debt-to-EBITDA of 3.4x as of March 31, 2018 and very solid EBITA-to-interest coverage of 5.75x, both of which have significantly improved since the end of 2016 following that year’s challenging economic conditions, inventory overhang and foreign currency pressures.
The company has returned to positive underlying revenue growth while improving profit margins following its strategic realignment and the Wolverine Way Forward transformational plans, and debt has declined by over $570 million since the end of 2012. Liquidity is very good, supported by balance sheet cash, positive free cash flow and ample availability under its revolving credit facility, although its unrated Senior Secure Revolver and Term Loan are set to mature in July 2020. Wolverine’s credit profile is constrained by its narrow product focus in the footwear segment and greater degree of fashion risk for certain brands such as Sperry.
The stable rating outlook reflects Moody’s expectation for stable revenue and profit growth over the next 12-18 months. In addition, while acquisitions will likely be a part of the company’s growth strategy, Moody’s expects that the company will look to maintain moderate debt and leverage over time.
While not likely over the near-to-intermediate term given its small revenue scale and narrow product focus, over time, Wolverine’s ratings could be upgraded if it were to sustainably reduce financial leverage through further debt reduction and profitable growth. An upgrade would also require increased diversification via international expansion or an expanded portfolio of brands or products. Quantitatively, ratings could be upgraded if adjusted debt/EBITDA was sustained below 3.0 times, EBITA/Interest above 5.0x and FFO/Net Debt above 35%.
Ratings could be downgraded if the company were to see a meaningful decline in operating performance or if the company were to undertake more aggressive financial policies such as a sizable debt-financed acquisitions or share repurchases. A downgrade could also occur if liquidity were to weaken, such as an inability to refinance bank debt well ahead of the obligations becoming current. Quantitatively, ratings could be downgraded if lease-adjusted debt/EBITDA was sustained above 3.5x or EBITA to interest coverage below 4.0x.
Wolverine’s portfolio of brands includes: Merrell, Sperry, Hush Puppies, Saucony, Wolverine, Keds, Chaco, Bates, HYTEST, Stride Rite and Soft Style.
