Why Wolverine World Wide Stock Was Down Over 20% on Wednesday

What happened

Wolverine around the world (NYSE: WWW) shares fell hard on Wednesday, with shares down 29% at 12:30 p.m. ET, compared with a 0.6% decline in the S&P500. The decline added to a painful year so far for investors in the clothing and footwear specialist, whose shares have fallen more than 50% in 2022.

It was triggered by an earnings announcement that described a surprisingly weak third quarter for the company.

So what

The company released its third-quarter results before the market opened on Wednesday. This announcement showed a 12% increase in sales after taking into account changes in exchange rates and stable profits on this basis. The revenue and profit figures were below management’s expectations, he said in a presentation to investors.

Executives said challenges in the apparel industry were partly to blame, including slowing economic growth and increased promotional activity from rivals. But Wolverine World Wide also struggled with supply chain and inventory issues. Gross profit margin fell 3 percentage points to 40% of sales and adjusted operating margin fell to 9% from 11% a year ago.

Now what

A few bright spots emerged in the company’s portfolio, including continued strong sales and market share gains for footwear brand Merrell. The international segment also outperformed the US market. Still, executives forecast a weaker fourth quarter on the earnings front, suggesting a tough holiday shopping season as peers compete on price.

Wolverine World Wide has announced a management shakeup and further cost-cutting efforts. Still, shareholders can expect operating trends to worsen towards the end of 2022, as these moves will take time to show up in metrics such as sales growth and operating margin. Given the surprisingly slow growth and deteriorating profitability, it makes sense that investors would punish Wolverine World Wide shares this week.

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Demitri Kalogeropoulos has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

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