Wolverine Worldwide reported a steep drop in earnings in the first quarter as sales slumped 16 percent while reiterating the company’s strength to navigate COVID-19.
“Following record financial results in the fourth quarter of 2019, the company delivered strong Q1 earnings results, despite challenging conditions caused by the COVID-19 pandemic late in the quarter,” said Blake W. Krueger, Wolverine Worldwide’s chairman, chief executive officer and president. “While prioritizing the health and wellbeing of our global team, we have quickly initiated a comprehensive set of measures over the last 30 days to proactively strengthen the company’s financial position, liquidity, and balance sheet in the face of the ongoing pandemic. Our supply chain and distribution centers continue to operate, enabling strong e-commerce growth and continued wholesale shipments. We believe our agile business model, which includes our well-established global distribution network and fast-growing digital channels, is well-suited for the future consumer landscape. Many of our brands are resonating with consumers faced with shelter-in-place restrictions, and our e-commerce business has accelerated following the close of the first quarter. We believe the company is strong, well-positioned to navigate the current challenges, and will emerge even stronger.”
Liquidity And Cash Flow Update
The company has prioritized liquidity, cash preservation, and asset management in response to the current environment. Over $500 million in cash preservation initiatives have been implemented, which are now expected to enable the company to generate $150 million to $200 million of operating cash flow in 2020. The key initiatives include:
- Drawing down the remainder of its revolving credit line, a total of $367 million.
- Reducing planned inventory receipts by approximately $300 million, resulting in an expected meaningful decline in year-end inventory compared to the prior year.
- Postponing $25 million of capital expenditures scheduled for 2020 until business conditions stabilize.
- Reducing planned operating expenses by an estimated $100 million for the remainder of 2020, including the implementation of select furloughs, organizational changes, and compensation changes for the company’s management team.
First-Quarter 2020 Review
- Reported revenue was $439.3 million, down 16.1 percent versus the prior year. On a constant currency basis, revenue was down 15.6 percent versus the prior year. Owned e-commerce growth for the quarter was 17.5 percent.
- Reported gross margin was 41.4 percent, compared to 42.1 percent in the prior year, in line with expectations.
- Reported operating margin was 3.8 percent, compared to 10.0 percent in the prior year. Adjusted operating margin was 6.9 percent, compared to 10.9 percent in the prior year.
- Reported diluted earnings per share were 16 cents per share, compared to 43 cents in the prior year. Adjusted diluted earnings per share were 28 cents per share, and, on a constant currency basis, were 29 cents, compared to 49 cents in the prior year.
- Inventory at the end of the quarter was up 8.4 percent versus the prior year and, excluding new businesses, was up 5.2 percent.
- Cash used in operating activities in the quarter was $76.6 million, compared to $132.4 million the prior year.
- Cash on hand at the end of the first quarter was $472.6 million.
“The company’s response to the current situation has been proactive and deliberate,” said Mike Stornant, senior vice president and chief financial officer. “As a result, we expect the company to deliver $150 million to $200 million of operating cash flow for the year in a very challenging global retail landscape. Our strong balance sheet and experience as disciplined operators provide critical advantages, and our business model enables great flexibility to optimize profits and cash flow. Based on all of our proactive measures, we expect to be well within the requirements of our current financial covenants throughout the year.”
The company’s portfolio of brands includes Merrell, Sperry, Hush Puppies, Saucony, Wolverine, Keds, Stride Rite, Chaco, Bates, and Hytest. The company also is the global footwear licensee of Cat and Harley-Davidson.
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