U.S. consumers are facing record-high credit card debt over $1.14 trillion, with interest rates around 25%, squeezing household finances.

With pandemic savings depleted, many rely on credit for daily expenses, impacting discretionary spending.

Wolverine World Wide (WWW), known for its Merrell and Saucony shoes, is feeling the pinch as consumers cut back on non-essential purchases.

The company faces additional challenges from high debt due to past acquisitions, including Sweaty Betty, which haven’t yielded expected returns.

Although new management is restructuring by focusing on core brands and selling non-core assets, the company’s turnaround remains uncertain as it works to regain profitability.

Investor Essentials Daily:
Wednesdays News-based Update
Powered by Valens Research

Consumers are in trouble with U.S. credit card debt surpassing $1.14 trillion, setting a new record.

Credit card interest rates, now around 25%, are making it harder for households to manage debt, and the days of pandemic-driven savings are over.

While spending surged during the pandemic recovery, driven by stimulus checks and pent-up demand, those reserves have mostly dried up.

Now, many consumers find themselves relying on credit just to keep up with everyday expenses.

This decline in consumer financial health is starting to weigh on companies that depend on discretionary spending.

As shoppers tighten their belts, brands that rely on consumers splurging on non-essentials are seeing sales slow down.

Discretionary spending has been hit across categories, including retail, travel, and restaurants. The effects are likely to be felt even more as we enter the holiday season.

Wolverine World Wide (WWW) owns a bunch of shoe brands, which makes it a very consumer-exposed company.

The company’s brand lineup includes outdoor, active, and work footwear, with Merrell and Saucony as leading names in hiking and running shoes.

Merrell’s Moab hiking shoe is a bestseller, while Saucony ranks high among running shoe brands. Together, these two brands make up about half of Wolverine’s sales.

On the work footwear side, the Wolverine brand is well-known but less competitive, with reviews often criticizing quality and price.

The work segment also includes licensed brands like Caterpillar, where licensing fees reduce Wolverine’s direct profit.

This brand lineup gives Wolverine a broad consumer focus, but it also makes the company highly vulnerable to shifts in consumer demand.

Furthermore, the company has struggled with financial challenges due to poor capital choices and high debt.

In 2012, Wolverine acquired its lifestyle segment, including Saucony, by taking on debt, but the deal didn’t pay off as expected. Margins fell, and sales growth stalled, leaving the company with heavy debt.

Another questionable decision was Wolverine’s 2021 purchase of Sweaty Betty, a women’s leisurewear brand.

This acquisition, made at the height of the COVID-driven activewear boom, added even more debt just as the market started to slow.

The debt isn’t a short-term risk, but it does limit Wolverine’s ability to take on new opportunities easily.

Lastly, the company expects a 15% drop in revenues for this year, with Merrell and Saucony projected to lose 10% and 20%, respectively.

However, the company is showing hopes of recovery, and analysts expect that ROA will recover to 14% in two years from 6.5% last year.

With a new management team in place, Wolverine has started restructuring to cut costs and focus on core brands. This includes selling non-core brands like Hush Puppies and Keds to manage debt.

The company needs to show strong, consistent improvement before the market changes its cautious view.

Debt is under control, and the focus on core brands is a step in the right direction, but the turnaround remains uncertain.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research