Wolverine World Wide, Inc. (NYSE:WWW) Trades At A 44% Discount To Its Intrinsic Value

Published on September 24, 2024 | Ticker: WWW

The projected fair value for Wolverine World Wide is US$22.89 based on 2 Stage Free Cash Flow to Equity. Wolverine World Wide's US$12.71 share price signals that it might be 44% undervalued. Our fair value estimate is 59% higher than Wolverine World Wide's analyst price target of US$14.43.

Wolverine World Wide, Inc. (NYSE:WWW) is a leading global designer, marketer and licensor of branded footwear, apparel and accessories. The company reported annual revenue of $2,242.9 million, annual net income of -$39.6 million, annual operating cash flow of $121.8 million, and annual free cash flow of $107.2 million in its most recent fiscal year.

In the first quarter of 2024, Wolverine World Wide reported revenue of $394.9 million, a 34.1% decrease compared to the first quarter of 2023. Gross margin was 45.9% in the first quarter of 2024 compared to 39.4% in the first quarter of 2023. The effective tax rates in the first quarters of 2024 and 2023 were 4.1% and 36.3%, respectively. Diluted loss per share for the first quarter of 2024 was $0.19 per share compared to diluted earnings per share of $0.23 per share for the first quarter of 2023.

For the full year 2024, Wolverine World Wide expects revenue in the range of $1.68 billion to $1.73 billion, representing a decline of 14.4% at the midpoint compared to 2023 revenue of $1.99 billion for the company's ongoing business. Adjusted gross margin is expected to be approximately 44.5% at the midpoint, up 460 basis points compared to 2023. Adjusted operating margin is expected to be approximately 7% at the midpoint, compared to 3.9% in 2023. Adjusted diluted earnings per share is expected to be in the range of $0.65 to $0.85, including a $0.10 negative impact from foreign currency exchange fluctuations.

Business Overview

Wolverine World Wide is a leading global designer, marketer and licensor of branded footwear, apparel and accessories. The company's portfolio of owned and licensed brands includes

Bates, Cat, Chaco, Harley-Davidson, Hush Puppies, HYTEST, Merrell, Saucony, Stride Rite, Sweaty Betty and Wolverine

. The company's products are marketed worldwide through owned operations, licensing and distribution arrangements, and joint ventures. The company also operates retail stores and eCommerce sites to market both its own brands and branded footwear and apparel from other manufacturers.

Effective February 4, 2023, the company completed the sale of the Keds® business. In the third quarter of fiscal 2023, the company entered into a multi-year licensing agreement of the Hush Puppies® brand in the United States and Canada, and completed the sale of the Hush Puppies® trademarks, patents, copyrights, and domains in China, Hong Kong, and Macau. Effective August 23, 2023, the company completed the sale of the U.S. Leathers business and effective December 28, 2023, the company completed the sale of the Asia-based Leathers business. Effective January 1, 2024, the company completed the sale of the company's equity interest in the Merrell® and Saucony® joint venture entities in China. Effective January 10, 2024, the company completed the sale of the Sperry® business.

Risks and Challenges

Wolverine World Wide faces several risks, including changes in general economic conditions, employment rates, business conditions, interest rates, and tax policies affecting consumer spending in its markets. The company also faces risks related to its ability to effectively compete in global footwear, apparel and direct-to-consumer markets, maintain positive brand images, and effectively manage inventory levels. The company is also exposed to risks related to increases or changes in duties, tariffs, quotas or assessments in countries of import and export, foreign currency exchange rate fluctuations, and supply chain and capacity constraints.

Financials

Wolverine World Wide reported annual revenue of $2,242.9 million, annual net income of -$39.6 million, annual operating cash flow of $121.8 million, and annual free cash flow of $107.2 million in its most recent fiscal year. The company's financial ratios include a current ratio of 1.13, a quick ratio of 0.65, and a debt-to-equity ratio of 3.54.

In the first quarter of 2024, the company reported revenue of $394.9 million, a 34.1% decrease compared to the first quarter of 2023. Gross margin was 45.9% in the first quarter of 2024 compared to 39.4% in the first quarter of 2023. The effective tax rates in the first quarters of 2024 and 2023 were 4.1% and 36.3%, respectively. Diluted loss per share for the first quarter of 2024 was $0.19 per share compared to diluted earnings per share of $0.23 per share for the first quarter of 2023.

Liquidity

As of the end of the first quarter of 2024, Wolverine World Wide had cash and cash equivalents of $169.7 million and total debt of $856.9 million. The company had $728.1 million of borrowing capacity available under its revolving credit facility as of March 30, 2024. Cash flow from operating activities is expected to be sufficient to meet the company's working capital needs for the foreseeable future.

The company's Credit Agreement provides for a term loan facility and a revolving credit facility with a maturity date of October 21, 2026. The company also has $550.0 million of 4.0% senior notes due on August 15, 2029. As of March 30, 2024, the company was in compliance with all covenants and performance ratios under its credit agreements.

Segment Performance

Wolverine World Wide reports results in two reportable segments: Active Group and Work Group. The Active Group includes the Merrell, Saucony, Sweaty Betty and Chaco brands, while the Work Group includes the Wolverine, Cat, Bates, Harley-Davidson and HYTEST brands. The company also reports an "Other" category that includes the Sperry, Keds, Hush Puppies, and other brands and operations.

In the first quarter of 2024, the Active Group reported revenue of $289.8 million, a 24.9% decrease compared to the first quarter of 2023. The Work Group reported revenue of $90.1 million, a 21.3% decrease. The Other category reported revenue of $15.0 million, an 84.8% decrease.

The Active Group's operating profit decreased 30.5% in the first quarter of 2024 compared to the first quarter of 2023, primarily due to the revenue declines partially offset by gross margin expansion. The Work Group's operating profit decreased 18.1%, also due to revenue declines partially offset by gross margin expansion. The Other category's operating profit decreased 32.3%, driven by the revenue declines partially offset by significant gross margin expansion.

Conclusion

Wolverine World Wide's stock appears to be trading at a 44% discount to its intrinsic value of $22.89 per share based on our 2 Stage Free Cash Flow to Equity analysis. The company's recent divestitures, licensing agreements, and transformation efforts have positioned it for improved profitability, with expected adjusted operating margin of approximately 7% in 2024 compared to 3.9% in 2023. While the company faces near-term headwinds, the long-term outlook appears promising as Wolverine World Wide focuses on strengthening its core brands, improving its supply chain and inventory management, and driving growth in its direct-to-consumer channels. The current share price may present an attractive entry point for long-term investors.

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