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Wolverine Shares Tumble After Missing Wall Street Estimates in FY18

On Wednesday, investors punished Wolverine World Wide, the footwear conglomerate behind Merrell, Sperry, Keds and Saucony, for missing Wall Street expectations after the company released its full-year and Q4 financial report.

Despite a year of revenue growth and widening margins, Wolverine’s stock fell by nearly 8 percent once trading began Wednesday morning, falling from $39.49 per share to $36.41 at publication time.

In a Nutshell: During FY18, Wolverine refinanced its debt, leading to an estimated savings of $2.5 million in interest payments in 2019. The company repurchased $105 million worth of shares, as well, and recently announced another $400 million buyback program for the coming fiscal year.

Overall, Wolverine invested $50 million in growth initiatives for its brands in FY18. This included $41 million in operating expenses and $9 million in growth-related capital spending.

The company also filed a lawsuit against chemical manufacturer 3M in December, alleging the firm misrepresented the environmental and health impact of the water-repellant solutions Wolverine incorporated into its footwear.

Sales: Wolverine reported revenue of $579.6 million in Q4, up 0.2 percent from the prior year but lower than Wall Street expectations. However, when incorporating underlying revenue and adjusting for currency, revenue was actually up 4.6 percent at Wolverine in the fourth quarter.

This was the best quarter of sales for FY18, which the company credits to solid performances from Sperry and Merrell.

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For the full year, Wolverine reached $2.24 billion in revenue, down 4.7 percent year-over-year. Yet, when adjusting for currency and underlying revenue, Wolverine’s full-year total was actually up 2.3 percent from FY17.

The company also reported gross margins for the year at 41.1 percent compared to 38.9 percent the year before, up 150 basis points on an adjusted basis. It marked a company record for gross margins, Wolverine said.

For FY19, the company expects revenue in the range of $2.28 billion and $2.33 billion, a growth of 3 percent.

Earnings: Wolverine’s adjusted Q4 earnings were $0.52 per share, compared to $0.41 in Q4 of last year and slightly above Wall Street estimates of $0.50 EPS. However, analysts at the Telsey Advisory Group say Wolverine’s earning performance was “driven entirely” by a lower tax rate—amounting to an impact of an estimated $0.10 EPS for the quarter.

This effect was also reflected in the difference between reported and underlying revenue and the reaction from the stock market on Wednesday morning.

Wolverine’s full-year EPS was $2.17 in FY18, up from $1.64 in FY17.

The company issued earnings guidance for FY19 in the range of $2.20 to $2.35. According to the Telsey Advisory Group, this is in line with a conservative estimate for the year.

CEO’s Take: Blake Krueger, Wolverine World Wide’s chairman, CEO and president touted the company’s revenue performance and said he expects Wolverine to carry its momentum into 2019.

“Our Global Growth Agenda gained momentum in the fourth quarter, with underlying revenue growing 4.6% on a constant currency basis. This was the highest quarterly revenue growth of the year driven by our two largest brands Merrell and Sperry,” Krueger said. “For the full-year, we achieved attractive underlying revenue growth and our efficient business model allowed us to deliver significant profit leverage including record gross margin and earnings. Looking forward into 2019, we expect to build on this momentum and continue to invest in a variety of initiatives to drive revenue growth and continued earnings leverage.”