Small-Cap Wolverine Worldwide Is A Deep-Value
The shoe business has been good for Wolverine Worldwide (NYSE:WWW) and it should continue to be good for the remainder of the year. The company’s business is supported by secular trends that should sustain growth in the high teens this year and into the next and there is margin improvement in the forecast as well.
Supply chain improvements and pricing actions are expected to combine in the second half to drive EPS growth to the 20% range on a YOY basis which is more than double what the S&P 500 is looking to do.
Trading at only 7.15X its earnings and outperforming the Marketbeat.com consensus, Wolverine Worldwide looks like a value to us. Paying a dividend of 2.2% with an outlook for distribution growth, Wolverine Worldwide also looks like a nice fit in a small-cap income portfolio, or any income portfolio, as well.
Wolverine Worldwide Has Solid Quarter In Q1
Wolverine Worldwide had a very solid quarter supported by growth in all three of its channels. The company reported $614.8 million for a gain of 20.4% that beat the Marketbeat.com consensus estimate by 150 basis points.
The strength was supported by gains in both segments led by a 10.6% increase in the Michigan Group’s sales. Excluding the impact of the Sweaty Betty purchase, the company’s revenue grew 9.9% and helped drive a good result on the bottom line as well.
As for brands and channels, the company reports strong sales across all brands and channels and a greater than 50% increase in inventory that should sustain sales momentum.
Moving down to the earnings, there is some bad news with the margins, but it is not as bad as it could be. The company reports a contraction in both the gross and operating margin that cut into the bottom line.
The adjusted gross margin contracted by 180 basis points and the operating margin by 210, but neither were enough to fully offset the revenue strength. On the bottom line, the $0.41 in EPS is up 2.5% from last year versus the 20.4% gain in revenue and beat the consensus by $0.02 as well.
The guidance is also good if not enough to spark a rebound in the price action now. The company is looking for revenue and earnings in tight ranges that bracket the consensus and, in our opinion, leave room for upside surprises.
As it is, the company is expecting growth to slow over the course of 2022, but full-year results should come in the range of 15% to 18% with a slightly higher rate of growth for the earnings as inventory flow improves.
“We are encouraged by the strong start to the year with revenue and earnings per share exceeding our expectations,” said Mike Stornant, Executive Vice President and Chief Financial Officer. "Looking forward, the continued strong demand for our brands combined with improving inventory flow supports our reiteration of full-year revenue and EPS guidance.”
The Technical Outlook: Wolverine Worldwide Pulls Back To Support
Price action in Wolverine Worldwide has been in a steady downtrend since hitting the post-pandemic peak, but it may have hit bottom. The candle forming has a long lower shadow pointing to support at the $16.60 level, the lowest level since just after the pandemic bottom was induced.
Assuming this bottom holds, we see the stock moving sideways at these levels until a bottom and base can form. Later in the year, if supply chain and margin improvement materialize, we see price action resuming an upward course and possibly retesting the COVID highs.
If not, shares of this blue-chip quality consumer staple company will become a deeper value and higher yield.
