|Shares Out. (in M):||85||P/E||0||0|
|Market Cap (in $M):||2,559||P/FCF||0||0|
|Net Debt (in $M):||871||EBIT||0||0|
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Wolverine World Wide (WWW) is a competitively advantaged, LDD% earnings compounder that is recession resistant. Recent one-time earnings miss and trade war headlines have disrupted valuation, creating an attractive entry point. The Company generates HSD% FCF yield and has started to become more aggressive with their buyback activity.
WWW is a branded footwear manufacturer with strong brands that are primarily purpose built (i.e. outdoors, work) and not so much fashion driven. Some of their top brands include: Merrell (~25% of sales), Sperry Top-Sider (~15%), Saucony (~15%) and Keds (~5%). While reputation varies by brand, WWW’s brands are generally known for being highly functional.
The Company’s distribution is largely through the wholesale channel (~87% of sales) with the remainder sold through ecommerce (~9%) and own stores (~4%). Manufacturing is done primarily through third parties and substantially all units are sourced from Asia Pacific.
The Company has stated that the incremental 10% tariff on Class 4 items from China, which includes footwear, will have a relatively minimal impact on the business in both the short and long term. Over the last 5 years, WWW has implemented a Strategic Action Plan to migrate product out of China and has accelerated this effort more recently due to tariff negotiations. For 2020, the Company expects to only import ~7.5 million pairs of shoes, which is less than 10% of total global pairs sold. This is expected to drop further to ~3.5 million pairs by 2021
1. Competitively advantaged, recession resistant compounder
2. Growth inflection point nearing after a multi-year period of restructuring and macro headwinds
With these restructurings behind them, the Company should be able accelerate EPS growth from HSD% to low‐teens % driven by industry growth, eCommerce share gain and harvesting prior investments (the Global Growth Agenda)
Macro headwinds: from 2015 to 2016, the global retail industry went through a recessionary period of soft consumer demand, higher inventory levels at retailers, increasingly competitive promotional environment and multiple retail bankruptcies, some of which occurred in subsequent years
3. Valuation is disrupted due to temporary factors
4. Uniquely positioned amongst consumer brands as Amazon/eCommerce takes share from brick & mortar retailers
1. Amazon execution issues may have benefited Wolverine’s eCommerce (Brand.com) growth in 2018, which may create a difficult comp in 2019
2. Retail customer bankruptcies
3. Environmental liability is worse than expected
4. WWW may have over‐earned in 2018 due to 2 consecutive favorable winters
5. WWW states they are actively looking for acquisitions and that they have $1.25 billion of liquidity so there is the risk they overpay or purchase an asset that is unattractive
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