Bulletin
Investor Alert

New York Markets Open in:

Nov. 5, 2020, 1:48 p.m. EST

10-Q: WOLVERINE WORLD WIDE INC /DE/

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

or Cancel Already have a watchlist? Log In

(EDGAR Online via COMTEX) -- ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following is a discussion of the Company's results of operations and liquidity and capital resources. This section should be read in conjunction with the Company's consolidated condensed financial statements and related notes included elsewhere in this Quarterly Report. BUSINESS OVERVIEW The Company is a leading global designer, marketer and licensor of branded footwear, apparel and accessories. The Company's vision statement is "to build a family of the most admired performance and lifestyle brands on earth" and the Company seeks to fulfill this vision by offering innovative products and compelling brand propositions; complementing its footwear brands with strong apparel and accessories offerings; expanding its global consumer-direct footprint; and delivering supply chain excellence. The Company's brands are marketed in approximately 170 countries and territories at September 26, 2020, including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. At September 26, 2020, the Company operated 97 retail stores in the U.S. and Canada and 36 consumer-direct eCommerce sites. COVID-19 In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. COVID-19 has had a negative effect on the global economy and on the Company's 2020 operating and financial results to date. The full financial effects of the COVID-19 pandemic cannot be reasonably estimated at this time due to uncertainty as to its severity and duration. The Company has taken the following proactive and precautionary measures to mitigate known areas of risk and navigate the future environment: To increase liquidity and flexibility of the Company's capital structure, the Company borrowed $171 million in incremental 364-day term loan under its senior credit facility, $21 million of which was repaid during the third quarter, and sold $300 million of 6.375% Senior Notes (refer to Note 7, "Debt"), delayed most capital projects, suspended share repurchases, implemented select employee furloughs and organizational changes, compensation changes for the Company's management team and Board of Directors, delayed or canceled certain future product purchases across its portfolio of brands, took additional steps to reduce discretionary spending and other expenditures, and initiated conversations with landlords to seek lease concessions. Lease concessions have been received for some of the Company's leased properties and other discussions are still ongoing. The Company temporarily closed all U.S. and Canada retail stores on March 17, 2020. Stores began reopening in May under a phased approach and during the second quarter all stores had reopened with newly instituted health and safety protocols for customers and employees following regulatory guidance and protocols promulgated by health authorities and government officials. During the period stores were closed, the Company's distribution centers remained open and the Company's direct on-line channels continued to serve customer demand. The COVID-19 pandemic has had, and is expected to continue to have, a material adverse impact on the Company's financial results. Expenses related to the COVID-19 pandemic in the first three quarters of the year include $10.2 million of severance expenses, $8.9 million of credit loss expenses, and $5.8 million for other costs that includes costs to modify office workspace, purchase masks, and inventory related costs. Expenses related to the COVID-19 pandemic in the third quarter include $5.5 million of severance expenses and $2.1 million of other costs. The full nature and extent of the impact will depend on future developments, including, among other things; the continued spread and duration of the pandemic; the negative impact on global and regional economies and economic activity; actions governments, businesses and individuals take in response to the pandemic; the effects of the pandemic, including all of the foregoing, on the Company's manufacturers, distributors, suppliers, joint venture partners, wholesale customers and other counterparties, and how quickly the global economy and demand for the Company's products recovers after the pandemic subsides. The Company continues to monitor the situation closely. 2020 FINANCIAL OVERVIEW Revenue was $493.1 million for the third quarter of 2020, representing a decline of 14.1% compared to the third quarter of 2019. The change in revenue reflected a 9.9% decline from the Michigan Group and a 19.7% decline from the Boston Group. Changes in foreign exchange rates increased revenue by $2.5 million during the third quarter of 2020. Owned eCommerce revenue increased during the third quarter of 2020 by 56.4% compared to the third quarter of 2019. Gross margin was 41.0% in the third quarter of 2020 compared to 42.4% in the third quarter of 2019. Table of Contents The effective tax rates in the third quarters of 2020 and 2019 were 28.5% and 20.3%, respectively. Diluted earnings per share for the third quarters of 2020 and 2019 were $0.27 per share and $0.57 per share, respectively. The Company declared cash dividends of $0.10 per share in both the third quarters of 2020 and 2019. Cash flow provided by operating activities was $135.5 million and $16.0 million for the first three quarters of 2020 and 2019, respectively, and was $96.5 million and $12.1 million for the third quarter of 2020 and 2019, respectively. Compared to the third quarter of 2019, inventory decreased $92.0 million, or 22.0%. RESULTS OF OPERATIONS Quarter Ended Year-To-Date Ended September 26, September 28, Percent September 26, September 28, Percent (In millions, except per share data) 2020 2019 Change 2020 2019 Change Revenue $ 493.1 $ 574.3 (14.1) % $ 1,281.5 $ 1,666.3 (23.1) % Cost of goods sold 291.1 331.0 (12.1) 750.5 972.4 (22.8) Gross profit 202.0 243.3 (17.0) 531.0 693.9 (23.5) Selling, general and administrative expenses 157.5 165.9 (5.1) 457.2 498.6 (8.3) Environmental and other related costs, net of recoveries 1.9 9.1 (79.1) 6.8 19.1 (64.4) Operating profit 42.6 68.3 (37.6) 67.0 176.2 (62.0) Interest expense, net 12.8 8.2 56.1 31.1 21.8 42.7 Debt extinguishment and other costs - - - 0.2 - - Other income, net (0.6) (0.9) 33.3 (2.9) (3.2) 9.4 Earnings before income taxes 30.4 61.0 (50.2) 38.6 157.6 (75.5) Income tax expense 8.7 12.4 (29.8) 6.0 28.2 (78.7) Net earnings 21.7 48.6 (55.3) 32.6 129.4 (74.8) Less: net earnings (loss) attributable to noncontrolling interests (0.7) (0.1) (600.0) (1.2) - - Net earnings attributable to Wolverine World Wide, Inc. $ 22.4 $ 48.7 (54.0) % $ 33.8 $ 129.4 (73.9) % Diluted earnings per share $ 0.27 $ 0.57 (52.6) % $ 0.41 $ 1.44 (71.5) %

REVENUE







        Table of Contents
        GROSS MARGIN
        Gross margin was 41.0% in the third quarter of 2020 compared to 42.4% in the
        third quarter of 2019. Gross margin was 41.4% in the first three quarters of
        2020 compared to 41.6% during the first three quarters of 2019. The decrease in
        the third quarter and the first three quarters is due to increased closeout
        sales, the impact of tariffs, and lower royalty revenue, partially offset by
        improved product mix.
        OPERATING EXPENSES
        Operating expenses decreased $15.6 million, from $175.0 million in the third
        quarter of 2019 to $159.4 million in the third quarter of 2020. The decrease was
        primarily driven by lower selling costs ($9.5 million), lower product
        development costs ($2.9 million), lower distribution costs ($0.7 million), lower
        general and administrative costs ($10.3 million), and lower environmental and
        other related costs, net of insurance recoveries ($7.2 million), partially
        offset by higher advertising ($6.0 million), higher incentive compensation ($6.3
        million), and higher non-operating costs incurred due to the COVID-19 pandemic
        ($2.9 million).
        Operating expenses decreased $53.7 million, from $517.7 million in the first
        three quarters of 2019 to $464.0 million in the first three quarters of 2020.
        The decrease was primarily driven by lower selling costs ($29.9 million), lower
        product development costs ($8.7 million), lower distribution costs ($4.6
        million), lower incentive compensation ($1.2 million), lower general and
        administrative costs ($21.8 million), and lower environmental and other related
        costs, net of insurance recoveries ($12.3 million), partially offset by higher
        advertising ($5.9 million) and higher non-operating costs incurred due to the
        COVID-19 pandemic ($19.1 million).
        INTEREST, OTHER AND INCOME TAXES
        Net interest expense was $12.8 million in the third quarter of 2020 compared to
        $8.2 million in the third quarter of 2019. Net interest expense was $31.1
        million in the first three quarters of 2020 compared to $21.8 million in the
        first three quarters of 2019. Interest expense increased in the current year
        periods due to higher average debt balances in 2020.
        Other income was $0.6 million in the third quarter of 2020, compared to $0.9
        million in the third quarter of 2019. Other income was $2.9 million in the first
        three quarters of 2020, compared to $3.2 million in the first three quarters of
        2019. The decrease in other income in the first three quarters of 2020 was
        driven by higher non-service pension costs ($1.5 million) and higher losses from
        equity method investments ($0.7 million), partially offset by higher sublease
        income ($0.7 million) and gains on foreign exchange derivatives reclassified
        from accumulated other comprehensive loss ($1.3 million).
        The effective tax rates in the third quarter of 2020 and 2019 were 28.5% and
        20.3%, respectively. The effective tax rates in the first three quarters of 2020
        and 2019 were 15.5% and 17.9%, respectively. The increase in the effective rate
        for the current quarterly period reflects a negative impact from current period
        discrete items, as well as a shift in income between tax jurisdictions with
        differing tax rates. The decrease in the current year-to-date effective tax rate
        is driven by the positive impact of discrete items partially offset by the
        negative impact of a shift in income between jurisdictions with differing tax
        rates.
        REPORTABLE SEGMENTS
        The Company's portfolio of brands is organized into the following two operating
        segments, which the Company has determined to be reportable segments.
         Wolverine Michigan Group, consisting of Merrell� footwear and apparel, Cat�
        footwear, Wolverine� footwear and apparel, Chaco� footwear, Hush Puppies�
        footwear and apparel, Bates� uniform footwear, Harley-Davidson� footwear and
        Hytest� safety footwear; and
         Wolverine Boston Group, consisting of Sperry� footwear and apparel, Saucony�
        footwear and apparel, Keds� footwear and apparel, and the Kids' footwear
        business, which includes the Stride Rite� licensed business, as well as Kids'
        footwear offerings from Saucony�, Sperry�, Keds�, Merrell�, Hush Puppies� and
        Cat�.
        The Company also reports "Other" and "Corporate" categories. The Other category
        consists of the Company's leather marketing operations, sourcing operations that
        include third-party commission revenues and multi-branded consumer-direct retail
        stores. The Corporate category consists of unallocated corporate expenses, such
        as COVID-19 related costs, environmental and other related costs.
        








                                                                     Quarter Ended                                                                      Year-To-Date Ended
                                      September 26,           September 28,                                                 September 26,           September 28,                              Percent
        (In millions)                     2020                    2019                Change         Percent Change             2020                    2019                Change             Change
        REVENUE
        Wolverine Michigan Group    $        287.3          $        318.8          $ (31.5)                (9.9) %       $        752.5          $        939.7          $ (187.2)              (19.9) %
        Wolverine Boston Group               193.8                   241.3            (47.5)               (19.7)                  498.4                   676.8            (178.4)              (26.4)
        Other                                 12.0                    14.2             (2.2)               (15.5)                   30.6                    49.8             (19.2)              (38.6)
        Total                       $        493.1          $        574.3          $ (81.2)               (14.1) %       $      1,281.5          $      1,666.3          $ (384.8)              (23.1) %
                                                                     Quarter Ended                                                                      Year-To-Date Ended
                                      September 26,           September 28,                                                 September 26,           September 28,                              Percent
        (In millions)                     2020                    2019                Change         Percent Change             2020                    2019                Change             Change
        OPERATING PROFIT (LOSS)
        Wolverine Michigan Group    $         52.3          $         66.0          $ (13.7)               (20.8) %       $        133.8          $        183.8          $  (50.0)              (27.2) %
        Wolverine Boston Group                33.0                    46.5            (13.5)               (29.0)                   60.4                   115.7             (55.3)              (47.8)
        Other                                  0.7                     0.7                -                    -                     1.0                     3.0              (2.0)              (66.7)
        Corporate                            (43.4)                  (44.9)             1.5                  3.3                  (128.2)                 (126.3)             (1.9)               (1.5)
        Total                       $         42.6          $         68.3          $ (25.7)               (37.6) %       $         67.0          $        176.2          $ (109.2)              (62.0) %
        


Further information regarding the reportable segments can be found in Note 16 to the consolidated condensed financial statements. Wolverine Michigan Group

Table of Contents







        LIQUIDITY AND CAPITAL RESOURCES
                                                            September 26,           December 28,           September 28,
        (In millions)                                           2020                    2019                   2019
        Cash and cash equivalents                         $        342.0          $       180.6          $        125.2
        Debt                                                       876.6                  798.4                   934.0
        Available revolving credit facility (1)                    794.0                  434.3                   303.1
        


(1)Amounts are net of both borrowings, if any, and outstanding standby letters of credit in accordance with the terms of the Revolving Credit Facility.







                                                                                    Year-To-Date Ended
                                                                          September 26,            September 28,
        (In millions)                                                          2020                    2019
        Net cash provided by operating activities                       $     135.5              $         16.0
        Net cash provided by (used in) investing activities                     9.6                       (53.4)
        Net cash provided by financing activities                              15.4                        19.4
        Additions to property, plant and equipment                              6.0                        28.7
        Depreciation and amortization                                          23.8                        23.3
        


Liquidity

Nov 05, 2020

COMTEX_374002818/2041/2020-11-05T13:47:46

Is there a problem with this press release? Contact the source provider Comtex at editorial@comtex.com. You can also contact MarketWatch Customer Service via our Customer Center.

(c) 1995-2020 Cybernet Data Systems, Inc. All Rights Reserved

This Story has 0 Comments
Be the first to comment

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.