As reported in a separate article, Wolverine Worldwide was one of the companies operating in our industry that got the biggest hit on the stock exchange between Jan. 24 and March 31. On March 26, Wolverine released a detailed statement about the proactive and precautionary measures that it is taking to navigate in the current environment. It said it will leverage on its relatively agile supply chain to reduce inventories to adjust to the lower demand in the market. It will also reduce operating expenses, delay most of its capital spending projects and suspend planned repurchases of its own shares on the stock exchange.
These actions are expected to result in up to $500 million worth of cash savings for the balance of 2020, with most of the benefits expected in the next two quarters, which will likely be most challenging. They should also result in the company being still able to generate a positive operating cash flow of more than $150 million.
As a precautionary step, the company has also drawn down on the balance of $800 million still outstanding on a revolving credit line of $1.75 billion expiring in December 2023, raising its cash position up to about $450 million. VF Corp. and other companies in the sporting goods and outdoor sector have drawn down on part of their existing credit facilities. In addition, Wolverine still has an incremental borrowing capacity of around $760 million under its credit facility, subject to certain specified conditions.
Wolverine earlier said that it was closing all its 90-odd directly operated stores. The company is now stressing that it and its retail partners are still able to honor orders placed by customers over the internet, which recently represented nearly 40 percent of its sales in the U.S. Like other companies, Wolverine has been making donations to help out in the Covid-19 emergency. It recently donated some 25,000 face-masks to a local hospital group in Michigan and plans to supply more of them in its home state of Michigan and in the Boston area, where some of its brands are based. It has started leveraging its U.S.-based ReChaco manufacturing facility for further mask production and similar donations. In addition, several of the company’s brands have donated footwear to healthcare workers and other first respondents to requests for help in the current relief efforts.
In spite of its announcement, the company saw its rating slightly downgraded by Moody’s, which changed its outlook for the company from stable to negative. The rating agency indicated that the Covid-19 epidemic will put pressure on Wolverine’s revenues and profits, hampering its ability to reduce leverage over the near to medium term. It noted that the company had increased its leverage in 2018 to fund share buybacks, capital expenditures and higher inventories.