Moody’s lowers Wolverine’s debt outlook

Next to a similar move from S&P Global RatingsMoody’s Investors Service has changed Wolverine World Wide Inc.’s outlook to negative from stable.

At the same time, Moody’s affirmed the family of companies’ Ba1 rating, Ba1-PD probability of default rating and Ba2 senior unsecured note rating. The company’s speculative grade liquidity rating has been upgraded from SGL-2 to SGL-2.

Moody’s said the change in outlook to negative reflects the risk that Wolverine will not significantly reduce leverage from its current level of 4.5x Moody’s debt/adjusted EBITDA over the next 12 months. Additionally, the change in outlook reflects governance factors, including the company’s decisions to finance the acquisition of Sweaty Betty with debt and to pursue share buybacks rather than reduce debt levels.

“Debt reduction following the acquisition of Sweaty Betty has been delayed as the company replenishes inventory, returns capital to shareholders and pays for environmental remediation and related litigation,” the vice-president said. President of Moody’s, Raya Sokolyanska. “In addition, while consumer demand for footwear and apparel is strong, earnings could be hampered by supply chain challenges, inflationary pressures and a potential moderation in outdoor and athletic footwear as as consumer spending shifts to travel and leisure.”

Moody’s wrote in its analysis, “Wolverine’s CFR Ba1 reflects its diverse distribution in the global footwear industry and the footwear category’s reliable replenishment demand cycle due to normal product wear and tear. About half of the company’s revenue comes from its well-known brands Merrell, Saucony and Sperry, and its product portfolio meets a wide range of consumer needs and demographics. Moody’s expects credit metrics to improve over the next 12-18 months, from 4.5x to 4.5x on April 2, 2022 at high debt/EBITDA, driven by earnings increases and to a modest revolver reimbursement. The rating is also supported by the company’s balanced financial strategies and its good liquidity. At the same time, the ratings are limited by the company’s relatively low income scale, narrow product concentration primarily in the footwear segment, and fashion risk. In addition, the Company’s growth strategy has included acquisitions, which introduce event, execution and financing risks. Additionally, as a footwear company, Wolverine is subject to social and environmental risks related to responsible sourcing, labor handling and data protection.