Wolverine Worldwide Is A Tenacious Consumer Stock
Wolverine Worldwide (NYSE:WWW) reported its fiscal 4th/calendar 3rd quarter earnings and it looks like the rebound is on. The company is still struggling with the headwinds of COVID but all the data is positive. Assuming the trends hold up this stock is on track not only for strong growth in fiscal 2021 but for another dividend increase and it could be a big one.
Wolverine Worldwide Revenue Falls, Shares Rise
Shares of Wolverine Worldwide are moving higher in the early pre-market action despite a 14.1% YOY decline in revenue. The decline isn’t awesome to see but it was less than expected by nearly 625 basis points. Strength was seen on a sequential basis across all segments with notable increases in eCommerce and sales of Merrel and work-related footwear. The Saucony and Chaco brands, geared more toward athletics and outdoor lifestyle, both saw solid YOY growth. On a segment basis, the Michigan Group saw its revenue decline -10.2% while the Boston Group declined a more-substantial 20.3%. eCommerce is up 56% YOY and a growth avenue the company plans to exploit over the next year.
Moving down, the company’s margins were impacted at the gross level by 90 basis points but that was more than offset by an improvement in operating margins. At the operating level, margins improved 180 basis points to drive better than expected GAAP and adjusted earnings. The GAAP earnings of $0.27 beat by $0.04 while the adjusted EPS of $0.35 bat by $0.07. Cash flow from operating came in at $96.5 million, up on a sequential basis but down more than 50% YOY, with cash on hand of $342 million.
"While consumer demand exceeded our expectations during this time, we have been able to service the business at a high level and manage our inventory levels down by 22% compared to last year at quarter-end. We expect that headwinds caused by the pandemic will persist in the near-term and that Q4 revenue will be down no more than 25% year-over-year, including the effects of a partial shift in revenue from our international business into Q1 of 2021. We will continue to invest behind the ongoing momentum of our key brands to enable accelerated growth in Q1 of 2021,” said Blake W. Krueger, Wolverine Worldwide’s Chairman, and Chief Executive Officer.
Wolverine Worldwide is guiding revenue down no more than 25% which sounds bad but is actually well ahead of the consensus. The YTD total plus the new target for the 4th quarter is $1.16 per share versus the FY consensus of $0.88. Looking forward, the consensus estimate for 2021 is $2.10 representing an 81% YOY increase.
Wolverine Worldwide Is A Deep-Value For Income Investors
Wolverine Worldwide is trading about 25X this year’s earnings, no bargain I know, but only 13X next year’s. With earnings growth expected to be so robust and this year’s results exceeding expectations the stage is set for a multiple expansion. The dividend isn’t what I would call fantastic, the yield is less than 1.5%, but it is safe and there is some expectation for future increases. The company opted out of increasing this year because of COVID but there is room on the balance sheet and within cash-flow.
The payout ratio is about 35% of this year’s earnings, not bad at all, and less than 20% of the FY 2021 consensus. Add in the high levels of cash, relatively low debt, and coverage it looks like it is possible to increase the payout know. I don’t expect a dividend increase before the end of the year but before the end of next year is a safe bet.
The Technical Outlook: Wolverine Worldwide Is Moving Up To New Highs
Wolverine Worldwide has been a laggard during the rebound but that is changing. Over the past few trading days, the stock has moved up to a new high and looks ready to move higher. The key level to watch now is support at the $27.75 level. Support at this level looks strong and is likely to hold up. If we get a bullish confirmation today the next target is up near the pre-COVID high or about 15% upside.
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