BUSINESS
Wolverine World Wide, Inc. designs, manufactures, sources, markets, licenses, and distributes footwear, apparel, and accessories in the United States, Europe, the Middle East, Africa, the Asia Pacific, Canada and Latin America. The company operates through two segments, Wolverine Michigan Group and Wolverine Boston Group. It offers casual footwear and apparel; performance outdoor and athletic footwear and apparel; kids’ footwear; industrial work boots and apparel; and uniform shoes and boots. The company sources, markets, and licenses a range of footwear styles, such as shoes, boots, and sandals under the Bates, Cat, Chaco, Harley-Davidson, Hush Puppies, Hytest, Keds, Merrell, Saucony, Sperry, Sweaty Betty, Wolverine, and Stride Rite brands.
INVESTMENT RATING
With future capital returns forecasted to be above the cost of capital, WWW is expected to continue to be a major Value Builder.
Wolverine World Wide has a current Value Trend Rating of F (Lowest Rating).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing consistent signals. Wolverine World Wide has a poor Appreciation Score of 27 and a very low Power Rating of 12, with the Lowest Value Trend Rating the result.
Wolverine World Wide’s stock is selling above targeted value. The current stock price of $9.33 compares to targeted value 12 months forward of $8.
This low appreciation potential results in an appreciation score of 27 (73% of the universe has greater appreciation potential.)
Wolverine World Wide has a Power Rating of 12. (WWW’s very low Power Rating indicates that it only has a higher likelihood of achieving favorable investment performance over the near to intermediate term than 12% of companies in the universe.)
Factors contributing to this very low Power Rating include: recent price action has been unfavorable; the trend in WWW’s earnings estimates has been unfavorable in recent months; and the Footwear, Except Rubber comparison group is in a slightly weakened position currently.
INVESTMENT PROFILE
WWW’s financial strength is low. Financial strength rating is 29.
Relative to the S&P 500 Composite, Wolverine World Wide Inc. has slightly more Value than Growth characteristics; its appeal is likely to be to Income-oriented investors; the perception is that WWW is extremely high risk. High expected growth is a positive for WWW. Relative weaknesses include: low forecasted profitability, low historical profitability, low financial strength, high stock price volatility, high financial leverage, and low historical growth. WWW’s valuation is low: high dividend yield, low P/E ratio, and moderate price/book ratio. WWW has unusually low market capitalization.
CURRENT SIGNALS
Wolverine World Wide’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
Wolverine World Wide’s current technical position is mixed. The stock price is in a 4.2 month up move. The stock has appreciated 27.8% from its prior low. The 200 day moving average is in a downtrend. The stock price is above its 200 day moving average.
ALERTS
Important positive changes in Wolverine World Wide Inc. (NYSE: WWW) investment behavior have recently occurred: its shorter term price trend turned up.
Marginal negative changes in Wolverine World Wide Inc. (NYSE: WWW) fundamentals have recently occurred: significant quarterly earnings deceleration occurred.
In light of this new information we are reviewing our current Overall Rating of F. This review will be completed in the next several days.
Wolverine World Wide Inc. (NYSE: WWW) has reported E.P.S. of $-1.15 for its fourth fiscal quarter (ending December 31) versus $-4.59 for the same period a year ago. For the latest four quarters through December 31, E.P.S. were $-0.51 compared to $-2.37 a year ago.
Wolverine World Wide Inc. (NYSE: WWW) stock closed at $9.33 on 2/21/24 after an increase of 2.0%. Moreover, unusually high trading volume at 163% of normal accompanied the advance. The stock has risen 2.5% during the last week but has been extremely weak relative to the market over the last nine months.
CASH FLOW
In 2022, Wolverine World Wide experienced a significant decline in cash of -$30.2 million (-19%). Sources of cash were lower than uses. Cash generated from 2022 EBITDA totaled +$177.7 million. Non-operating uses consumed -$347.9 million (-196% of EBITDA). Cash taxes consumed -$19.8 million (-11% of EBITDA). Withdrawal of investment from the business totaled +$100.4 million (+56% of EBITDA). On a net basis, debt investors provided +$180.1 million (+101% of EBITDA) while equity investors withdrew -$120.7 million (-68% of EBITDA).
WWW’s Non-operating Income, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Wolverine World Wide Peer Group. In most years, Wolverine World Wide was in the third quartile and lower quartile. Currently, Wolverine World Wide is lower quartile at -196% of EBITDA (-$347.9 million).
WWW’s Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Wolverine World Wide Peer Group. In most years, Wolverine World Wide was in the top quartile and lower quartile. Currently, Wolverine World Wide is slightly below median at -11% of EBITDA (-$19.8 million).
WWW’s Business Re-investment, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Wolverine World Wide Peer Group. In most years, Wolverine World Wide was in the top quartile and third quartile. Currently, Wolverine World Wide is at the upper quartile at +56% of EBITDA (+$100.4 million).
WWW’s Debt Investors, %EBITDA has experienced a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Wolverine World Wide Peer Group. (Since 2020 Debt Investors, %EBITDA has accelerated very sharply.) In most years, Wolverine World Wide was in the lower quartile and top quartile. Currently, Wolverine World Wide is upper quartile at +101% of EBITDA (+$180.1 million).
WWW’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Wolverine World Wide Peer Group. In most years, Wolverine World Wide was in the top quartile and lower quartile. Currently, Wolverine World Wide is lower quartile at -68% of EBITDA (-$120.7 million).
WWW’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Wolverine World Wide Peer Group. In most years, Wolverine World Wide was in the third quartile and top quartile. Currently, Wolverine World Wide is below median at -17% of EBITDA (-$30.2 million).
WWW’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Wolverine World Wide Peer Group as well. (Since 2020 Cash, %Revenue has experienced a very sharp decline.) In most years, Wolverine World Wide was in the third quartile and lower quartile. Currently, Wolverine World Wide is lower quartile at +5%.
PROFITABILITY
WWW’s return on equity has eroded very significantly since 2013. The current level is -90.5% versus the high of 12.0% and the low of -90.5%.
WWW’s very strong negative trend in pretax operating return significantly augmented by a very strong negative trend in non-operating factors is a major performance consideration.
The productivity of WWW’s assets declined over the full period 2013-2023: asset turnover has experienced a downtrend but it experienced a very sharp recovery after the 2020 low.
Reinforcing this trend, pretax margin experienced a very strong overall downtrend that accelerated very sharply from the 2021 level.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
WWW’s return on equity is lower quartile (-90.5%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is lower quartile (-17.8%) reflecting asset turnover that is at the upper quartile (1.07X) and lower quartile pretax margin (-16.7%).
Tax “keep” rate (income tax management) is slightly below median (78.0%) resulting in after tax return on assets that is lower quartile.
Financial leverage (leverage) is upper quartile (6.52X).
GROWTH RATES
There are no significant differences between Wolverine World Wide’s longer term growth and growth in recent years.
Wolverine World Wide’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth.
Annual revenue growth has been 1.2% per year.
Total asset growth has been 2.0% per year.
Annual E.P.S. growth has been -16.3% per year.
Equity growth has been -7.2% per year.
No consensus growth rate forecast is available for Wolverine World Wide.
Relative to the Wolverine World Wide Peer Group, Wolverine World Wide’s historical growth measures are generally third quartile. Total asset growth (2.0%) has been at median. Revenue growth (1.2%) has been below median. E.P.S. growth (-16.3%) has been substantially below median. Equity growth (-7.2%) has been substantially below median.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Wolverine World Wide’s stock price performance has been variable and significantly below market. Between April, 2013 and February, 2024, Wolverine World Wide’s stock price fell -61%; relative to the market, this was a -87% loss. Significant price moves during the period: 1) March, 2023 – October, 2023: -53%; 2) April, 2021 – December, 2022: -74%; 3) March, 2020 – April, 2021: +174%; 4) December, 2019 – March, 2020: -55%; 5) December, 2015 – August, 2018: +134%; and 6) March, 2015 – December, 2015: -50%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -46.3% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of -46.3% is substantially below median relative to Wolverine World Wide Inc. Peer Group.
Current 5-year total return performance of -23.0% is lower quartile relative to the S&P 500 Composite.
Through January, 2024, with lower quartile current 5-year total return of -23.0% relative to S&P 500 Composite, Wolverine World Wide’s total return performance is lower quartile relative to Wolverine World Wide Inc. Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, WWW’s overall valuation is low. Ratio of enterprise value/earnings before interest and taxes is slightly above median. Price/equity ratio is near the lower quartile. Ratio of enterprise value/assets is lower quartile. Ratio of enterprise value/revenue is lower quartile. Price/earnings ratio is unavailable.
Relative to Wolverine World Wide Peer Group, WWW’s overall valuation is quite low. Ratio of enterprise value/earnings before interest and taxes is at median. Price/equity ratio is at the lower quartile. Ratio of enterprise value/assets is at the lower quartile. Ratio of enterprise value/revenue is lower quartile. Price/earnings ratio is unavailable.
Wolverine World Wide has a major value gap compared to the median. For WWW to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.85X to 1.88X. If WWW’s ratio of enterprise value/revenue were to rise to 1.88X, its stock price would be higher by $31 to $40.
For WWW to achieve upper quartile valuation relative to the Wolverine World Wide Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.85X to 2.77X. If WWW’s ratio of enterprise value/revenue were to rise to 2.77X, its stock price would increase by $57 from the current level of $9.33.
VALUE TARGETS
With future capital returns forecasted to be above the cost of capital, WWW is expected to continue to be a major Value Builder.
Wolverine World Wide’s current Price Target of $8 represents a -16% change from the current price of $9.33.
This low appreciation potential results in an appreciation score of 27 (73% of the universe has greater appreciation potential.)
Reinforcing this low Appreciation Score of 27, the low Power Rating of 12 contributes to an Value Trend Rating of F.
Wolverine World Wide’s current Price Target is $8 (-28% from the 2022 Target of $11 and -16% from the 02/21/24 price of $9.33). This dramatic fall in the Target is the result of a -6% decrease in the equity base and a -23% decrease in the price/equity multiple. One Driver has a positive impact on the price/equity multiple, one has a negative impact, and one has no effect. The forecasted decline in cost of equity has a large positive impact on the price/equity multiple. The forecasted growth has no impact. The forecasted decline in return on equity has a very large negative impact.
PTR’s return on equity forecast is 21.7% — significantly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is well above the 2016 low of 14%.
PTR’s growth forecast is 0.0% — in line with our recent forecasts. Forecasted growth suffered a dramatic, steady decline between 2014 and 2022. The current forecast is significantly below the 2014 peak of 11%.
PTR’s cost of equity forecast is 12.3% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2014 and 2022. The current forecast is well above the 2016 low of 7.2%.
At Wolverine World Wide’s current price of $9.33, investors are placing a negative value of $-3 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 0.0% per year, and a return on equity of 32.3% versus a cost of equity of 14.0%.
PTR’s 2024 Price Target of $8 is based on these forecasts and reflects an estimated value of existing assets of $7 and a value of future investments of $0.
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