Outdoor And Lifestyle Shift Will Drive Strong Multi Year Upside Potential

Catalysts

About Wolverine World Wide

Wolverine World Wide designs, markets and sells global footwear and activewear brands across performance, lifestyle and work categories.

What are the underlying business or industry changes driving this perspective?

• Acceleration of performance and lifestyle running through Saucony, which is gaining market share in run specialty and lifestyle channels, expanding globally and adding new franchises like Endorphin Azura.
• Structural shift toward outdoor and hike driven lifestyles, where Merrell already leads in the hike category and is broadening into modern outdoor lifestyle and women focused product.
• Global expansion via key city strategies and selective new doors, including flagships and pioneer stores in Tokyo, Paris, China and other APAC and EMEA hubs.
• Digitally enabled direct to consumer focus, including less promotional e commerce, a new Sweaty Betty app with higher conversion and a tighter, brand accretive DTC footprint.
• Ongoing product cost savings, AI driven planning and inventory optimization, and tariff mitigation actions that are already more than offsetting near term cost headwinds.

Assumptions

This narrative explores a more optimistic perspective on Wolverine World Wide compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Wolverine World Wide's revenue will grow by 6.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 4.7% today to 8.0% in 3 years time.
• The bullish analysts expect earnings to reach $179.9 million (and earnings per share of $2.26) by about December 2028, up from $87.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $152.2 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 23.2x on those 2028 earnings, up from 17.4x today. This future PE is greater than the current PE for the US Luxury industry at 21.2x.
• The bullish analysts expect the number of shares outstanding to grow by 1.99% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.17%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Tariff headwinds are structurally increasing the company’s cost base, with management estimating an annual unmitigated impact of approximately $65 million by 2026. If mitigation efforts fall short or are delayed, this could cap gross margin expansion and compress operating margin and earnings over the long term.
• The Work Group and Wolverine brand remain in decline, with Work Group revenue expected to be down high single digits this year and Wolverine itself down 8% in the quarter. If the turnaround continues to lag despite new leadership, this structurally weaker segment could drag on consolidated revenue growth, dilute overall net margins and limit earnings progress.
• Direct to consumer remains under pressure, with DTC revenue down 5% in the quarter as the company intentionally pulls back on promotions to protect brand health. If consumer demand stays subdued or competitors remain more promotional, weaker DTC traffic and conversion could restrain top line growth and hinder gross margin and earnings expansion.
• Saucony’s rapid lifestyle and door expansion strategy depends on building brand awareness and healthy sell-through in many new accounts, and management already notes some underperforming doors tied to low awareness. If brand heat does not scale as fast as distribution, wholesale partners may reduce orders, pressuring revenue growth and potentially forcing more discounting that would hurt net margins and earnings.
• Merrell’s strategy to move beyond the trail into broader outdoor lifestyle and to capture more women consumers assumes sustained demand for hike and outdoor inspired footwear. If fashion cycles shift away from these categories or the brand fails to resonate with younger and female consumers, category growth could slow, limiting Merrell’s contribution to long term revenue growth and constraining consolidated profit margins and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Wolverine World Wide is $35.92, which represents up to two standard deviations above the consensus price target of $24.33. This valuation is based on what can be assumed as the expectations of Wolverine World Wide's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $38.0, and the most bearish reporting a price target of just $17.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $2.2 billion, earnings will come to $179.9 million, and it would be trading on a PE ratio of 23.2x, assuming you use a discount rate of 10.2%.
  
• Given the current share price of $18.56, the analyst price target of $35.92 is 48.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.