S&P Global Ratings revised its debt ratings outlook Wolverine World Wide to negative from stable. The negative outlook reflects the potential for a downgrade if the company’s leverage is sustained at or above 3x. This could occur if the company’s share repurchase plan is accompanied by operating performance that is weaker than S&P expected.
S&P affirmed all ratings, including its ‘BB+’ issuer credit rating.
S&P wrote in a note, “The outlook revision reflects S&P Global Ratings’ view that there is little cushion in the WWW rating to absorb declines in operating performance given its elevated leverage. The company’s 2019 share buyback plan is larger than past programs and has been funded primarily with debt, which has resulted in leverage increasing to 3x. While we forecast that the company will be able to reduce leverage to below 3x in 2020, there is risk that this will not occur if the company has a weak fourth quarter due to unfavorable weather dampening boot sales or if demand for its product weakens because of a slowdown in the economy.
“The negative outlook reflects the potential for a downgrade if we expect Wolverine’s leverage to be sustained above 3x in 2020.
“Leverage is currently high for the rating category. We could lower our ratings on WWW if its leverage is sustained above 3x. Leverage could remain elevated if the company continues its more aggressive share repurchase plan and has a weak winter/holiday season, or if the U.S. economy shows increasing signs of weakness, resulting in a decline in product demand, reduced profitability, and an inability to reduce leverage to a level consistent with the current rating. We estimate this could occur if the company’s EBITDA does not improve by 5 percent from current levels.
“We could revise our outlook to stable if the company performs in line with our base-case assumption and reduces share repurchases closer to historical levels, such that we believe leverage will remain comfortably below 3x.”