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Investing.com -- S&P Global Ratings has revised its outlook for U.S.-based footwear company Wolverine World Wide Inc (NYSE:WWW). to stable from negative, citing improved operating performance and expected modest growth in 2025. The company’s issuer credit rating was affirmed at ’B’. S&P also affirmed its ’B+’ issue-level rating on the senior secured debt with a ’2’ recovery rating and the ’B-’ issue-level rating on the senior unsecured notes with a ’5’ recovery rating.
The revised outlook is due to a significant improvement in Wolverine’s leverage, which decreased to 5.3x at the end of 2024, down from 9.2x at the end of 2023. The company managed to reduce its total debt by approximately $270 million in 2024, applying its free operating cash flow (FOCF) and proceeds from asset sales towards debt reduction.
Wolverine’s revenue for ongoing businesses grew 3% year over year in the fourth quarter of 2024. The company’s Merrell revenue increased by 1% year over year, while Saucony revenue saw a growth of 7% year over year. The company’s adjusted EBITDA margin also increased by 500 basis points in 2024, due to supply chain and product cost savings, improved mix of full price sales, and the absence of restructuring costs and costs from divestiture.
Wolverine is currently in the transformation and growth stage of its turnaround plan. In 2025, the company expects a 2% growth in topline, driven mainly by Saucony, due to the category’s momentum, new product launches, and expanded distribution. The company also anticipates an EBITDA margin expansion of 40 basis points, due to more full-price sales and product cost and SG&A savings, partially offset by investments to support topline growth. As a result, the company’s adjusted leverage is projected to improve to about 4.6x by the end of 2025.
Wolverine anticipates generating positive FOCF of more than $60 million in 2025, as it builds up inventory to support topline growth. The company generated $160 million of FOCF in 2024 due to the improvement in EBITDA as well as working capital improvement. Inventory at the end of the fourth quarter was $241 million, down 36% year over year, due to improved planning and execution.
Wolverine has also reduced its production in China to around mid-teens percentage at the end of 2024, down from about 40% at the end of 2019, and plans to further reduce its exposure to China. The company’s exposure to Mexico and Canada is limited. Tariffs are expected to have a modest impact on the company’s margin in 2025.
The stable outlook reflects S&P’s expectation that Wolverine will modestly improve its topline and EBITDA growth in the next 12 months, such that adjusted leverage improves to the mid- to high-4x area by the end of 2025.
S&P could lower its ratings if the company is unable to refinance on satisfactory terms or its operating performance deteriorates, such that adjusted leverage rises to and sustains above 7x. Conversely, the ratings could be raised if the company continues to improve its operating performance by prioritizing growth brands and focusing on profit improvement, such that adjusted leverage sustains below 5x.
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