TBL Timberland Co. (The)

Wolverine World Wide Inc. (WWW), one of the leading designers, manufacturers and marketers of branded footwear and apparel, recently posted soft fourth-quarter 2011 results.

Decline in margins took a toll on the company’s earnings as Wolverine reported quarterly earnings of 47 cents a share, down 9.6% from the prior-year quarters’ earnings of 52 cents a share. However, the earnings exceeded the Zacks Consensus Estimate by couple of cents.

Wolverine, the seller of products under Harley-Davidson Footwear, Hush Puppies, Merrell and other brands, marked an increase of 5.6% year over year in its top line to $406.5 million. The company’s multi-brand portfolio, multi-distribution channel strategy and growth across all branded operating groups led to the increase.

However, the reported revenue lagged behind the Zacks Consensus Estimate of $412 million.

Coming to the operating groups, revenues increased 4.5% year over year to $141.1 million for Outdoor, 4.6% to $158.4 million for Heritage, and 13.4% to $57.3 million for Lifestyle.  Other business units, which comprise Wolverine retail and leathers, posted a revenue growth of 23.6% to reach $5 million.

Gross profit increased 5.2% to $150.2 million during the quarter, reflecting growth in its top line. However, gross margin contracted 20 basis points to 36.9% compared with the prior-year quarter, reflecting a rise of 20 basis points in the cost of goods sold as a percentage of sales.

Operating profit inched down 0.7% to $30.9 million in the quarter, while operating margin contracted 50 basis points, reflecting an increase of 30 basis points in operating expenses as a percentage of sales.

Rockford, Michigan-based Wolverine enjoyed increased momentum in fiscal 2011, which we expect to continue into fiscal 2012. Moreover, we believe that the company remains well positioned to increase its market share on the strength of its brand portfolio. The Merrell brand has been the key growth driver in the past decade, and we expect it to catalyze future growth.

Other Financial Aspects

Wolverine ended fourth-quarter 2011 with cash and cash equivalents of $140 million and shareholders’ equity of $575.2 million with no long-term debt. The company repurchased approximately 1.8 million shares in fiscal 2011 for $65.3 million with an average price of $35.49 per share. The company has approximately $89 million shares remaining under its prevailing share repurchase authorization.

Management Guided

The company now expects total revenue in the range of $ $1,485 million to $1,525 million for fiscal 2012, reflecting a year-over-year growth of 5.4% to 8.2%.

Moreover, Wolverine expects revenues to remain flat in the first quarter of fiscal 2012, while the second quarter revenue is expected to mark a modest growth compared with the prior-year quarter. 

Further, the company forecasted a modest increase in gross margin for fiscal 2012 on the back of favorable product mix and planned increases in selling price. On the cost front, the company expects to deleverage SG&A modestly in fiscal 2012.

The company aims to increase the share of its consumer direct business to 15% of total revenue through opening new stores. In fiscal 2012, Wolverine expects to open approximately 12 to 15 new locations.

Fiscal 2012 earnings are now projected between $2.60 and $2.70 per share, representing a growth of 4.8% to 8.9% from the prior year. The analysts considered by Zacks expect the company to post earnings of $2.66 per share for fiscal 2012.

Currently, we are maintaining a long-term Neutral rating on the stock. Moreover, Wolverine, which competes with Timberland Co. (TBL), Deckers Outdoor Corporation (DECK) and Skechers USA Inc. (SKX), has a Zacks #4 Rank that translates into a short-term Sell recommendation.

 
DECKERS OUTDOOR (DECK): Free Stock Analysis Report
 
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