Wolverine World Wide Inc: Form 10-Q for the period ended Mar 29, 2025

The following is a discussion of the Company’s results of operations and liquidity and capital resources. This section should be read in conjunction with the Company’s consolidated condensed financial statements and related notes included elsewhere in this Quarterly Report.

BUSINESS OVERVIEW

The Company is a leading global designer, marketer and licensor of branded footwear, apparel and accessories. The Company’s strategic vision is to build and grow high-energy footwear, apparel and accessories brands that inspire and empower consumers to explore and enjoy their active lives. The Company seeks to fulfill this vision by offering innovative products and compelling brand propositions; complementing its footwear brands with strong apparel and accessories offerings; expanding its global direct-to-consumer footprint; and delivering supply chain excellence.

The Company’s brands are marketed in approximately 170 countries and territories at March 29, 2025, including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. At March 29, 2025, the Company operated 120 retail stores in the U.S., United Kingdom, Ireland and Italy and 39 direct-to-consumer eCommerce sites.

Effective January 1, 2024, the Company completed the sale of the Company’s equity interests in the Merrell® and Saucony® China joint venture entities.

Effective January 10, 2024, the Company completed the sale of the Sperry® business.

Effective May 4, 2024, the Company entered into global multi-year licensing agreements relating to Merrell® and Saucony® kids footwear and Merrell® apparel and accessories.

2025 FINANCIAL OVERVIEW

• Revenue was $412.3 million for the first quarter of 2025, representing an increase of 4.4% compared to the first quarter of 2024.
• Gross margin was 47.3% in the first quarter of 2025 compared to 45.9% in the first quarter of 2024.
• The effective tax rates in the first quarters of 2025 and 2024 were 7.5% and 4.1%, respectively.
• Diluted earnings per share for the first quarter of 2025 was $0.13 per share compared to diluted loss per share of $0.19 per share for the first quarter of 2024.
• The Company declared cash dividends of $0.10 per share in the first quarters of both 2025 and 2024.
• Cash flow used in operating activities was $83.8 million for the first quarter of 2025 compared to cash flow used in operating activities of $37.2 million for the first quarter of 2024.
• Compared to the first quarter of 2024, inventory as of the end of the first quarter of 2025 decreased $83.6 million, or 23.6%.

RESULTS OF OPERATIONS

(In millions, except per share data)

REVENUE

Revenue was $412.3 million for the first quarter of 2025, representing an increase of $17.4 million compared to the first quarter of 2024. The change in revenue reflected a $36.9 million, or 12.7%, increase from the Active Group, a $15.3 million, or 17.0%, decrease from the Work Group, and a $4.2 million, or 28.0%, decrease from Other. The Active Group’s revenue increase was primarily driven by an increase of $29.6 million from Saucony® and $17.6 million from Merrell®, partially offset by a decrease of $7.1 million from Sweaty Betty® and $3.2 million from Chaco®. The Work Group’s revenue decrease was primarily driven by a decrease of $7.5 million from Cat®, $3.8 million from Wolverine®, $2.2 million from HYTEST® and $1.2 million from Harley-Davidson®. The decrease in Other revenue was primarily driven by a decrease of $4.1 million from Sperry® which was sold in 2024, partially offset by an increase of $1.0 million from Hush Puppies®. Changes in foreign exchange rates decreased revenue by $4.7 million during the first quarter of 2025. Direct-to-consumer revenue decreased during the first quarter of 2025 by $10.0 million, or 9.4%, compared to the first quarter of 2024.

GROSS MARGIN

Gross margin was 47.3% in the first quarter of 2025 compared to 45.9% in the first quarter of 2024. The gross margin increase in the first quarter was primarily due to healthier sales mix, lower promotional activity and the benefit of supply chain cost initiatives within the Active Group.

OPERATING EXPENSES

Operating expenses decreased $9.4 million, from $184.5 million in the first quarter of 2024 to $175.1 million in the first quarter of 2025. The decrease was primarily driven by lower impairment of long-lived and intangible assets ($6.1 million), lower reorganization costs ($4.1 million), lower general and administrative costs ($3.3 million), lower selling costs ($1.6 million), lower distribution costs ($0.5 million) and lower incentive compensation costs ($0.2 million), partially offset by higher advertising costs ($4.9 million) and higher environmental and other related costs, net of insurance recoveries ($1.5 million). Environmental and other related costs were $3.1 million and $1.9 million in the first quarter of 2025 and 2024, respectively.

INTEREST, OTHER AND INCOME TAXES

Net interest expense was $8.0 million in the first quarter of 2025 compared to $12.0 million in the first quarter of 2024. The decrease in interest expense is primarily due to lower average principal balances of variable rate debt and lower weighted average interest rates on variable rate debt.

Other income was $1.5 million in the first quarter of 2025, compared to other income of $0.8 million in the first quarter of 2024.

The effective tax rates in the first quarter of 2025 and 2024 were 7.5% and 4.1%, respectively. In the current year, the Company recognized discrete tax benefits resulting in a decrease to the effective tax rate. In the prior year, the Company recognized discrete tax expenses which also resulted in a decrease to the effective tax rate and reduced the tax benefit of the pretax loss.

REPORTABLE SEGMENTS

The Company’s portfolio of brands is organized into the following reportable segments.

• Active Group, consisting of Merrell® footwear and apparel, Saucony® footwear and apparel, Sweaty Betty® activewear, and Chaco® footwear; and
• Work Group, consisting of Wolverine® footwear and apparel, Cat® footwear, Bates® uniform footwear, Harley-Davidson® footwear and HYTEST® safety footwear;

Kids' footwear offerings from Saucony®, Merrell®, Hush Puppies® and Cat® are included with the applicable brand.

The Company also reports “Other” and “Corporate” categories. The Other category consists of Sperry® footwear, Hush Puppies® footwear and apparel, sourcing operations that include third-party commission revenues, multi-branded direct-to-consumer retail stores and the Stride Rite® licensed business. The Corporate category consists of unallocated corporate expenses, such as corporate employee costs, corporate facility costs, reorganization activities, impairment of long-lived assets and environmental and other related costs.

The reportable segment results are as follows:

(In millions)

Further information regarding the reportable segments can be found in Note 16 to the consolidated condensed financial statements.

Active Group

The Active Group’s revenue increased $36.9 million, or 12.7%, in the first quarter of 2025 compared to the first quarter of 2024. The revenue increase was primarily driven by increases of $29.6 million from Saucony® and $17.6 million from Merrell®, partially offset by decreases of $7.1 million from Sweaty Betty® and $3.2 million from Chaco®. The Saucony® increase was primarily driven by the strength and expanded sales of lifestyle product, including ProGrid Omni 9 and ProGrid Triumph 4, and strong performance in the international channel. The Merrell® increase was primarily due to growth in the core brand franchises, including Moab 3, Moab Speed, and Speed Strike, particularly in the wholesale and international channels. The Sweaty Betty® decrease was primarily driven by softer consumer demand in direct-to-consumer channels and lower closeout sales compared to the prior year. The Chaco® decrease was primarily due to lower closeout sales compared to the prior year and softer consumer demand.

The Active Group’s operating profit increased $21.9 million, or 60.5%, in the first quarter of 2025 compared to the first quarter of 2024. The operating profit increase was due to revenue increases and a 340 basis point increase in gross margin, partially offset by a $5.7 million increase in selling, general and administrative expenses. The increase in gross margin in the current year period was primarily due to healthier sales mix, lower promotional activity and the benefit of supply chain cost initiatives. The increase in selling, general and administrative expenses in the current year period was primarily due to higher advertising costs.

Work Group

The Work Group’s revenue decreased $15.3 million, or 17.0%, during the first quarter of 2025 compared to the first quarter of 2024. The revenue decrease was primarily driven by decreases of $7.5 million from Cat®, $3.8 million from Wolverine®, $2.2 million from HYTEST® and $1.2 million from Harley-Davidson®. The Cat® decrease was primarily due to timing of shipments in the U.S. and international channels and softer consumer demand in the international channel. The Wolverine® decrease was primarily due to timing of shipments in the U.S. and international channels and softer consumer demand in the U.S. wholesale channel. The HYTEST® decrease was primarily due to softer consumer demand in the U.S. wholesale channels and high inventory levels at certain retail customers. The Harley-Davidson® decrease was primarily due to declines in top dealer accounts.

The Work Group’s operating profit decreased $5.6 million, or 44.1%, in the first quarter of 2025 compared to the first quarter of 2024. The operating profit decrease was due to revenue decreases and a 130 basis point decrease in gross margin, partially offset by a $1.2 million decrease in selling, general and administrative expenses. The decrease in gross margin in the current year period was primarily due to unfavorable sales mix changes. The decrease in selling, general and administrative expenses in the current year period was primarily due to lower employee costs and selling expenses.

Other

The Other category’s revenue decreased $4.2 million, or 28.0%, in the first quarter of 2025 compared to the first quarter of 2024. The revenue decrease was primarily driven by a decrease of $4.1 million from Sperry®, partially offset by an increase of $1.0 million from Hush Puppies®. The Sperry® decrease was due to the divestiture of the business effective January 10, 2024. The Hush Puppies® increase was primarily due to strong performance in the international channel.

Other operating profit increased $3.3 million, or 78.6%, in the first quarter of 2025 compared to the first quarter of 2024. The operating profit increase was primarily due to higher Hush Puppies® royalty income on higher revenue and losses incurred in the prior year associated with the Sperry® business.

Corporate

Corporate expenses decreased $3.2 million in the first quarter of 2025 compared to the first quarter of 2024, primarily due to lower impairment of long-lived and intangible assets ($6.1 million) and lower reorganization activities ($4.1 million), partially offset by business model change gain recorded in the prior year that did not reoccur ($6.5 million) and higher environmental and other related costs ($1.5 million).

LIQUIDITY AND CAPITAL RESOURCES

(In millions)

(1) Amounts are net of both borrowings, if any, and outstanding standby letters of credit in accordance with the terms of the revolving credit facility.

Liquidity

Cash and cash equivalents of $106.5 million as of March 29, 2025 were $63.2 million lower compared to March 30, 2024. The decrease is due primarily to repayments less borrowings of debt of $147.5 million, cash dividends paid of $32.9 million, additions to property, plant and equipment of $22.7 million, and employee taxes paid under stock-based compensation of $8.7 million, partially offset by cash provided by operating activities of $133.5 million, proceeds from divestitures of $9.9 million, and proceeds from company-owned life insurance policies of $7.9 million. The Company had $659.0 million of borrowing capacity available under the Revolving Facility as of March 29, 2025. Cash and cash equivalents located in foreign jurisdictions totaled $95.0 million as of March 29, 2025.

Cash flow from operating activities is expected to be sufficient to meet the Company’s working capital needs for the foreseeable future. Any excess cash flow from operating activities is expected to be used to fund organic growth initiatives, reduce debt, pay dividends and for general corporate purposes.

The Company did not repurchase shares of its common stock during the first quarter of both 2025 and 2024.

A detailed discussion of environmental remediation costs is found in Note 15 to the consolidated condensed financial statements. The Company has established a reserve for estimated environmental remediation costs based upon an evaluation of currently available facts with respect to each individual affected site. As of March 29, 2025, the Company has a reserve of $37.2 million, of which $17.0 million is expected to be paid in the next 12 months and is recorded as a current obligation in other accrued liabilities and the remaining $20.2 million recorded in other liabilities and expected to be paid over the course of up to 25 years. The Company's remediation activity at its former Tannery site and sites where the Company disposed of Tannery byproducts is ongoing. It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods.

Developments may occur that could materially change the Company’s current cost estimates. The Company adjusts recorded liabilities as further information develops or circumstances change.

Financing Arrangements

The Company’s credit agreement provides for a term loan A facility (the “Term Facility”) and for a revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Senior Credit Facilities”). The maturity date of the loans under the Senior Credit Facilities is October 21, 2026. The credit agreement provides for a debt capacity of up to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $2.0 billion unless certain specified conditions set forth in the credit agreement are met. The Revolving Facility allows the Company to borrow up to an aggregate amount of $800.0 million.

The Company’s $550.0 million 4.0% senior notes issued on August 26, 2021 are due on August 15, 2029. Related interest payments are due semi-annually. The senior notes are guaranteed by substantially all of the Company’s domestic subsidiaries.

As of March 29, 2025, the Company was in compliance with all covenants and performance ratios under the credit agreement.

The Company’s debt at March 29, 2025 totaled $710.8 million compared to $648.0 million at December 28, 2024. The Company expects to use the current borrowings to fund organic growth initiatives, pay dividends and for general corporate purposes. The increased debt position is due to higher borrowings under the Revolving Facility mainly resulting from operating cash outflows.

Cash Flows

The following table summarizes cash flow activities:

(In millions)

Operating Activities

The principal source of the Company’s operating cash flow is net earnings, including cash receipts from the sale of the Company’s products, net of costs of goods sold.

For the first quarter of 2025, an increase in net working capital represented a use of cash of $100.9 million. Working capital balances were unfavorably impacted by an increase in accounts receivable of $26.6 million, an increase in inventories of $25.8 million, a decrease in accounts payable of $29.2 million, and a decrease in other operating liabilities of $21.6 million, partially offset by a decrease in other operating assets of $2.3 million. Operating cash flows included non-cash add back for environmental and other related costs, net of cash payments and recoveries received, cash outflow of $4.5 million, depreciation and amortization expense adjustment of $6.1 million, stock-based compensation expense adjustment of $5.7 million, pension expense adjustment of $0.2 million, and deferred income taxes of $0.1 million.

Investing Activities

The Company made capital expenditures of $7.6 million and $5.1 million in the first quarter of 2025 and 2024, respectively, for corporate headquarters building improvements, and eCommerce site and information system enhancements.

Financing Activities

The current year debt activity includes net borrowings under the Revolving Facility of $65.0 million. The Company paid $2.5 million and $24.2 million in principal payments associated with its long-term debt during the first quarter of 2025 and 2024, respectively. The Company paid $7.7 million and $1.6 million during the first quarter of 2025 and 2024, respectively, in connection with shares or units withheld to pay employee taxes related to awards under stock incentive plans. The Company did not repurchase shares in the first quarter of 2025 or 2024.

The Company declared cash dividends of $0.10 per share during the first quarter of 2025 and 2024. Dividends paid in the first quarter of 2025 and 2024 totaled $8.5 million and $8.1 million, respectively. A quarterly dividend of $0.10 per share was declared on April 30, 2025 to shareholders of record on July 1, 2025.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the Company’s consolidated condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions.

The Company has identified the critical accounting policies used in determining estimates and assumptions in the amounts reported. For information regarding our critical accounting policies refer to Part II, Item 7: “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in the Company’s 2024 Form 10-K. Management believes there have been no material changes in those critical accounting policies.

The Company faces market risk to the extent that changes in foreign currency exchange rates affect the Company’s foreign assets, liabilities and inventory purchase commitments. The Company manages these risks by attempting to denominate contractual and other foreign arrangements in U.S. dollars. The Company does not believe that there has been a material change in the nature of the Company’s primary market risk exposures, including the categories of market risk to which the Company is exposed and the particular markets that present the primary risk of loss to the Company. As of the date of this Quarterly Report on Form 10-Q, the Company does not know of any material change in the near-term in the general nature of its primary market risk exposure.

Under the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 815, Derivatives and Hedging, the Company is required to recognize all derivatives on the balance sheet at fair value. Derivatives that are not qualifying hedges must be adjusted to fair value through earnings. If a derivative is a qualifying hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings.

The Company conducts wholesale operations outside of the U.S. in Canada, continental Europe, the United Kingdom, Hong Kong, China and Mexico where the functional currencies are primarily the Canadian dollar, euro, British pound, Hong Kong dollar, Chinese renminbi and Mexican peso, respectively. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business as well as to manage foreign currency translation exposure. As of March 29, 2025 and March 30, 2024, the Company had outstanding forward currency exchange contracts to purchase primarily U.S. dollars in the amounts of $255.3 million and $273.0 million, respectively, with maturities ranging up to 538 and 531 days, respectively.

The Company also has sourcing locations in Asia, where financial statements reflect the U.S. dollar as the functional currency. However, operating costs are paid in the local currency. Revenue generated by the Company from third-party foreign licensees is calculated in the local currencies but paid in U.S. dollars. Accordingly, the Company’s reported results are subject to foreign currency exposure for this stream of revenue and expenses. Any associated foreign currency gains or losses on the settlement of local currency amounts are reflected within the Company's consolidated condensed statement of operations and comprehensive income.

Assets and liabilities outside the U.S. are primarily located in the United Kingdom, Canada and the Netherlands. The Company’s investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. As of March 29, 2025, a weaker U.S. dollar compared to certain foreign currencies increased the value of these investments in net assets by $7.7 million from their value as of December 28, 2024. As of March 30, 2024, a stronger U.S. dollar compared to certain foreign currencies decreased the value of these investments in net assets by $8.4 million from their value as of December 30, 2023.

The Company is exposed to interest rate changes primarily as a result of interest expense on the term loan borrowings and any borrowings under the Revolving Facility. The Company’s total variable-rate debt was $165.0 million at March 29, 2025 and the Company held a forward-dated interest rate swap agreement, denominated in U.S. dollars, that will effectively convert $14.5 million of this amount to fixed-rate debt.

The Company does not enter into contracts for speculative or trading purposes, nor is it a party to any leveraged derivative instruments.

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on, and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures, as defined in Securities Exchange Act Rule 13a-15(e), were effective as of the end of the period covered by this report. There have been no changes during the quarter ended March 29, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have been no material changes in the assessment of the Company’s risk factors from those set forth in the Company’s Annual Report on Form 10-K for the year ended December 28, 2024, filed with the SEC on February 20, 2025.

In addition to the other information set forth in this report, you should carefully consider the risks and uncertainties discussed in Part I, Item 1A. Risk Factors in the Company’s 2024 Form 10-K, which could materially adversely affect our business, financial condition, or future results. The information presented below updates, and should be read in conjunction with, the risk factors disclosed in our 2024 Form 10-K. Otherwise, except as presented below, there have been no material changes to the risk factors disclosed in our 2024 Form 10-K.

The Company is subject to risks from changes to the trade policies, tariffs and import and export regulations of the U.S. and foreign governments.

Changes in import and export policies, including trade restrictions, new or increased tariffs or quotas, embargoes, sanctions and counter sanctions, safeguards or customs restrictions by the U.S. and foreign governments, could materially adversely affect the Company’s business performance, financial condition, results of operations, and relationships with customers, suppliers, and employees. Similarly, changes in laws and policies governing foreign trade, manufacturing, development, and investment in the territories or countries where the Company currently manufacture or sell products or conduct business, and adverse changes in, or withdrawal from, trade agreements or political relationships between the U.S. and such countries and territories could materially adversely affect the Company’s business.

Substantially all of the units the Company sources are procured from third-party manufacturers in the Asia Pacific region. Restrictions on international trade, such as tariffs, can materially adversely affect the Company’s operations and supply chain and limit the Company’s ability to offer and distribute products. The impact can be particularly significant if these restrictive measures apply to countries and regions where the Company has significant supply chain operations or from which the Company derives a significant portion of revenues. These restrictive measures can substantially increase the cost to procure products and the raw materials the Company uses, and may require the Company to take various actions, including raising prices on products, changing manufacturers or suppliers, renegotiating purchase prices with suppliers and material vendors, ceasing to offer and distribute certain products, or reducing investments. Changing operations and supply chain in response to new or changed restrictions on international trade can be expensive, time-consuming and disruptive to the Company’s operations. These restrictions may be announced with little or no advance notice, which can create uncertainty, and we may not be able to effectively mitigate all resulting adverse impacts on the Company’s business, financial condition and results of operations. In addition, if the Company is required to raise prices on products but competitors do not take similar price increases, the Company’s competitive position may be materially adversely affected.

The extent and duration of the effects on the Company’s business of recent U.S.tariffs, tariffs proposed by other countries in response, and the resulting impact on general economic conditions are uncertain and will depend on various factors, including future actions of the U.S. and other countries, negotiations between the U.S. and other countries, exemptions or exclusions that may be granted, availability and cost of alternative manufacturers and sources of supply, and demand for the Company’s products in affected markets.