(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.
The Company temporarily closed all U.S. and Canada retail stores on March 17, 2020. The stores will remain closed until further notice. However, the Company's distribution centers remain open and we continue to serve demand from retail customers and consumers through our direct on-line channels.
Due to the heightened uncertainty and recent volatility in the retail market relating to the potential impact of COVID-19 on the Company's operations, including its duration and effect on overall customer demand, the Company announced withdrawal of its guidance for 2020 issued on February 25, 2020.
The COVID-19 pandemic has had, and is expected to continue to have, a material adverse impact on the Company's financial results. 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; 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 and may implement further measures intended to improve liquidity.
Gross margin was 41.4% in the first quarter of 2020 compared to 42.1% in the first quarter of 2019.
The effective tax rates in the first quarters of 2020 and 2019 were (32.3)% and 13.2%, respectively.
Diluted earnings per share for the first quarters of 2020 and 2019 were $0.16 per share and $0.43 per share, respectively.
The Company declared cash dividends of $0.10 per share in both the first quarters of 2020 and 2019.
The Company repurchased $21.0 million of shares in the first quarter of 2020 at an average price of $23.93 per share prior to the suspension of further share repurchases in March.
RESULTS OF OPERATIONS Quarter Ended March 28, March 30, Percent (In millions, except per share data) 2020 2019 Change Revenue $ 439.3 $ 523.4 (16.1 )% Cost of goods sold 257.5 303.2 (15.1 ) Gross profit 181.8 220.2 (17.4 ) Selling, general and administrative expenses 156.1 164.0 (4.8 ) Environmental and other related costs 8.8 3.8 131.6 Operating profit 16.9 52.4 (67.7 ) Interest expense, net 7.8 6.9 13.0 Other income, net (0.6 ) (1.3 ) 53.8 Earnings before income taxes 9.7 46.8 (79.3 ) Income tax expense (benefit) (3.1 ) 6.2 (150.0 ) Net earnings 12.8 40.6 (68.5 ) Less: net earnings (loss) attributable to noncontrolling interests (0.2 ) 0.1 (300.0 ) Net earnings attributable to Wolverine World Wide, Inc. $ 13.0 $ 40.5 (67.9 )% Diluted earnings per share $ 0.16 $ 0.43 (62.8 )%
Wolverine Boston Group, consisting of Sperry(R) footwear and apparel, Saucony(R) footwear and apparel, Keds(R) footwear and apparel, and the Kids footwear business, which includes the Stride Rite(R) licensed business, as well as kids' footwear offerings from Saucony(R), Sperry(R), Keds(R), Merrell(R), Hush Puppies(R) and Cat(R).
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 environmental and other related costs. The reportable segment results are as follows:
Quarter Ended March 28, March 30, (In millions) 2020 2019 Change Percent Change REVENUE Wolverine Michigan Group $ 247.8 $ 302.7 $ (54.9 ) (18.1 )% Wolverine Boston Group 182.1 204.8 (22.7 ) (11.1 ) Other 9.4 15.9 (6.5 ) (40.9 ) Total $ 439.3 $ 523.4 $ (84.1 ) (16.1 )% Quarter Ended March 28, March 30, (In millions) 2020 2019 Change Percent Change OPERATING PROFIT (LOSS) Wolverine Michigan Group $ 43.1 $ 58.5 $ (15.4 ) (26.3 )% Wolverine Boston Group 18.8 32.0 (13.2 ) (41.3 ) Other (0.1 ) 0.8 (0.9 ) (112.5 ) Corporate (44.9 ) (38.9 ) (6.0 ) (15.4 ) Total $ 16.9 $ 52.4 $ (35.5 ) (67.7 )%
Further information regarding the reportable segments can be found in Note 16 to the consolidated condensed financial statements. Wolverine Michigan Group
of retail stores. The Kids' decline is due to lower demand in U.S. across all brands due to COVID-19, partially offset by eCommerce growth in the high-twenties. Keds(R) revenue declined due to lower revenue in the U.S. wholesale market and declines in the Asia Pacific region due to excess inventory with third-party distributors and the impact of the COVID-19 on the owned business in China, partially offset by eCommerce growth in the high-teens. The increase for Saucony(R) was due to the acquisition of the Saucony(R) distributor in Italy and eCommerce growth in the low-twenties, partially offset by lower demand in the U.S. wholesale market due to COVID-19.
LIQUIDITY AND CAPITAL RESOURCES March 28, December 28, March 30, (In millions) 2020 2019 2019 Cash and cash equivalents $ 472.6 $ 180.6 $ 80.6 Debt 1,226.1 798.4 771.3 Available revolving credit facility (1) 4.3 434.3 471.7
(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.
Quarter Ended March 28, March 30, (In millions) 2020 2019 Net cash used in operating activities $ (76.6 ) $ (132.4 ) Net cash used in investing activities (9.3 ) (7.9 ) Net cash provided by financing activities 379.3 77.5 Additions to property, plant and equipment 3.6 7.8 Depreciation and amortization 7.8 7.2
There is significant uncertainty regarding the future impact of the COVID-19 pandemic on the Company's statement of operations and cash flows. The actions the Company has taken and continues to take to improve the Company's liquidity are discussed above in this Item 2. The Company may pursue additional sources of liquidity, including seeking additional debt financing. Operating Activities
and Results of Operations in the 2019 Form 10-K and Note 5, Goodwill and indefinite-lived intangibles for discussion regarding the valuation of goodwill and indefinite-lived intangible assets. Management believes there have been no material changes in those critical accounting policies. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
The Company faces market risk to the extent that changes in foreign currency exchange rates affect the Company's foreign assets, liabilities and inventory purchase commitments. The Company manages these risks by attempting to denominate contractual and other foreign arrangements in U.S. dollars. The Company does not believe that there has been a material change in the nature of the Company's primary market risk exposures, including the categories of market risk to which the Company is exposed and the particular markets that present the primary risk of loss to the Company. As of the date of this Quarterly Report on Form 10-Q, the Company does not know of any material change in the near-term in the general nature of its primary market risk exposure.
Apr 29, 2020
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