Outdoor footwear and apparel manufacturer Wolverine World Wide, Inc. (NYSE: WWW)
stock has finally regained its February pre-COVID price levels but is still underperforming the benchmark S&P 500 index (NYSEARCA: SPY)
. This leaves more upside for the shares compared to competitor Deckers Outdoors Corporation (NYSE: DECK)
stock which is hitting all time highs trading nearing 50% above its February pre-COVID price levels. The Company may have low-balled Q4 guidance due to the pandemic
. Ironically, Wolverine would be a pandemic benefactor, but the market apparently thinks otherwise. As the race
for COVID-19 vaccine
FDA and European approvals near the finish line, WWW shares have been recovering. As a recovery play, there is room for prudent investors to gain exposure on opportunistic pullback price levels.
Q3 FY 2020 Earnings Release
On Nov. 5, 2020, Wolverine reported its Q3 2020 results for the quarter ending September 2020. The Company reported an adjusted earnings-per-share (EPS) profit of $0.35 versus consensus analyst estimates of $0.28, a $0.07 EPS beat. Revenues fell (-14.1%) to $493.1 million beating analyst estimates for $463.66 million. Adjusted operating margin fell to 10.6% versus 14.1% YoY. Cash flow from operations was $96.5 million and ending the quarter with $342 million cash on hand. Inventory levels fell by (-22%) YoY. The Company anticipates pandemic headwinds to impact Q4 revenues “to be down no more that (-25%) YoY. Quite an interesting guide down to say the least.
Conference Call Takeaways
Wolverine World Wide CEO, Blake Kruger, noted the continued follow-through of the direct-to-consumer (DTC) digital first strategy. He noted, “Our owned e-commerce business nearly doubled in Q2 and continued its robust growth in Q3, up 56%... online channel of our customers has now also becomes the largest U.S. wholesale channel.” The combination of owned e-commerce and the wholesale partners’ online business made up over 40% of U.S. sales for the quarter. Global online business will be the strongest growth driver in 2021. The Company's products are seeing robust demand that will fuel growth. The Saucony brand of apparel and shows in the running category has seen a resurgence during the pandemic. The Merrell brand remains #1 in the hiking category. Sperry is an iconic brand seeing a resurgence as the leader in boat shoes category. Owned stores were down single digits YoY. Demand for Wolverine rugged boots “outpaced” expectations as work in “rugged outdoor categories” continue to trend higher. Wolverine.com e-commerce revenues doubled in Q3 as the Company, “integrates lightweight athletic technology with rugged durability.” Wolverine plans to launch its next-gen version of its largest brand franchise, the Radar collection in 2021.
Wolverine World Wide CFO and Senior Vice President, Mike Stornant, chimed in, “Wholesale reorder trends, a key indicator of sublevel city at retail were better-than-expected and up nearly 10%.” The Merrell and Saucony brands “outpace the macro environment” and drove sequential improvement in EMEA with mid-single-digit YoY growth with 41% gross margins. The effective tax rate was 28.5%, up 800 basis points YoY. Full-year 2020 cash is expected to exceed $250 million. The Company paid off the $125 million remaining balance on the credit revolver and a $21 million discretionary loan payment. Total liquidity at quarter’s end was in excess of $1.1 billion including $342 million in cash and $794 million revolver. Due to various factors including lower December sales to international distributors for spring 2021 products, key planning timing shift in key franchise launches including Saucony for Q4 2020 to Q1 2021, pockets of lean inventory for certain brands, and resurgence of the global pandemic that, “could create headwinds for our U.S. business.” However, the Company expects a return to meaningful growth in Q1 2021 driven by an acceleration in online sales which could comprise an estimated 50% of total revenues. The Company has set the bar low for Q4 2020 sales with no mention of impact from a COVID-19 vaccine approval. This can provide opportunistic pullbacks for prudent investors already looking forward to 2021.
WWW Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for WWW stock. The monthly rifle chart formed a mini pup breakout triggered above the monthly market structure low (MSL)triggered above $27.85. The monthly 5-period moving average (MA) support is a $27.39. The key resistance sits at the $30.92 Fibonacci (fib) level. The weekly rifle chart has a strong grinding pup breakout with 5-period MA support rising at $28.68. The weekly stochastic crossed back up as another test of the $30.92 fib is forming. Prudent investors should await opportunistic pullback levels at the $28.13 fib, $27.39 monthly 5-period MA/fib, $26.99 fib and the $23.99 fib. The shares are still trading below its pre-COVID 2020 highs at the $33.90 fib. The upside trajectories range from the $33.90 fib to the $47.50 stinky 2.50s range.
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