Soft 1Q for Wolverine - Analyst Blog
April 24 2012 - 4:30AM
Zacks
Wolverine World Wide
Inc. (WWW), one of the leading designers, manufacturers
and marketers of branded footwear and apparel, recently posted soft
first-quarter 2012 results.
Lower sales and decline in margins
took a toll on the company’s earnings as Wolverine reported
quarterly earnings of 64 cents a share, down 11.1% from the
prior-year quarters’ earnings of 72 cents. However, the earnings
exceeded the Zacks Consensus Estimate of 54 cents.
Wolverine, the seller of products
under Harley-Davidson Footwear, Hush Puppies, Merrell and other
brands, marked a 2.4% decrease in its top line to $322.8 million.
However, the reported revenue was below the Zacks Consensus
Estimate of $334 million.
As per the company, macro headwinds
and lingering concerns over the European market dragged down sales
for the quarter. Further, foreign exchange added fuel to the fire
by negatively impacting revenue.
Coming to the operating groups,
revenues decreased 0.7% year over year to $137.1 million for
Outdoor, 7.3% to $103 million for Heritage, and 2.7% to $50.6
million for Lifestyle. Other business units, comprising
Wolverine retail and leathers, posted a revenue growth of 4.8% to
reach $27.8 million.
Gross profit decreased 4.1% year
over year to $132.2 million during the quarter, whereas gross
margin contracted 60 basis points to 41%. Management stated that
increased input costs and unfavorable sales mix shift pulled down
gross margins.
Operating profit plunged 25.3% to
$37 million in the quarter, while operating margin shrinked 350
basis points to 11.4%, reflecting an increase of 280 basis points
in operating expenses as a percentage of sales.
Joint Venture in
India
In a separate story, Wolverine
announced a joint venture in India with Tata International, a unit
of the Tata Group, to promote its footwear and apparel. Further,
the company planned to initially start the wholesale distribution
of Merrell and Caterpillar Footwear brands with the joint
venture.
The deal is expected to provide
ample opportunities to Wolverine for boosting its growth prospects
while facilitating the company to hedge against economic cycles.
Indiais one of the fastest growing markets in the world and owing
to its huge population it offers huge scope for
growth.
Other Financial
Aspects
Getting back to the numbers,
Wolverine ended first-quarter 2012 with cash and cash equivalents
of $123.3 million and shareholders’ equity of $607.1 million with
no long-term debt. The company repurchased $2.4 million shares in
the quarter at an average price of $37.09 per share.
Management
Guided
Despite soft results, management
remains optimistic for coming quarters and raised its earnings
guidance for the current fiscal. Wolverine now expects fiscal 2012
earnings between $2.70 and $2.80 a share, representing a growth of
8.9% to 12.9% from the prior year.
Earlier, the company forecasted
earnings between $2.60 and $2.70 per share, representing a growth
of 4.8% to 8.9% from the prior year.
Moreover, Wolverine revised its
sales guidance and expects total revenue in the range of $1.46
billion to $1.50 billion for fiscal 2012, reflecting a
year-over-year growth of 3.6% to 6.5%.
For the second quarter of 2012, the
company expects revenues to remain flat or increase in low single
digits, while gross margin is forecasted to be slightly down or
remain flat. Earnings are expected to be in the range of 40 cents
to 45 cents per share.
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.
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 #2 Rank that
translates into a short-term ‘Buy’ recommendation.
DECKERS OUTDOOR (DECK): Free Stock Analysis Report
SKECHERS USA-A (SKX): Free Stock Analysis Report
WOLVERINE WORLD (WWW): Free Stock Analysis Report
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