Wolverine Misses, Maintains Outlook - Analyst Blog
July 11 2012 - 4:00AM
Zacks
Wolverine World Wide
Inc. (WWW), one of the leading designers, manufacturers
and marketers of branded footwear and apparel, recently posted
lower-than-expected second-quarter 2012 results.
Unhurried sales and decline in
profitability took a toll on the company’s earnings as Wolverine
reported adjusted quarterly earnings of 41 cents a share, down
14.6% from the prior-year quarters’ earnings of 48 cents and missed
the Zacks Consensus Estimate of 44 cents.
Including one-time items, earnings
came in at 42 cents a share, down 12.5% from the year-ago
quarter.
Wolverine, the seller of products
under Harley-Davidson Footwear, Hush Puppies, Merrell and other
brands, marked an increase of 0.8% in its top line to $312.7
million. However, the reported revenue came below the Zacks
Consensus Estimate of $314 million.
Secular headwinds and lingering
concerns over the European market spoiled sales during the quarter.
Further, foreign exchange added fuel to the fire by negatively
impacting revenue.
Coming to the operating groups,
revenues increased 2.7% year over year to $130.7 million for
Outdoor, while it decreased 3.4% to $99.4 million for Heritage and
0.5% to $41.3 million for Lifestyle. Other business units,
comprising Wolverine retail and leathers, posted a revenue growth
of 8.5% to reach $37.8 million.
Gross profit decreased 3.4% year
over year to $118.1 million during the quarter, whereas gross
margin contracted 160 basis points to 37.8%. Management stated that
increased input costs and unfavorable sales mix shift pulled down
gross margins.
Adjusted operating profit plunged
16.7% to $27.8 million in the quarter, while adjusted operating
margin shrinked 190 basis points to 8.9%. However, including
one-time items, operating profit decreased 31.5% to $22.8 million,
whereas operating profit margin decreased 350 basis points.
In a separate development,
Wolverine announced the acquisition of Collective
Brands’ (PSS) Performance + Lifestyle Group (PLG) unit.
The PLG unit sells footwear and related products, both wholesale
and retail, for children and adults under popular brands including
Stride Rite, Sperry Top-Sider, Saucony, and Keds.
The deal is expected to provide
ample opportunities to Wolverine to boost its growth prospects
while facilitating the company to enhance its portfolio of brands.
The company expects to close the deal during third quarter or early
in fourth quarter.
Other Financial
Aspects
Wolverine ended second-quarter 2012
with cash and cash equivalents of $156.6 million with no long-term
debt and shareholders’ equity of $627.6 million.
Management Backs
Guidance
Despite soft results, management
remains optimistic for the coming quarters and maintained its
earnings guidance for the current fiscal. Wolverine 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.
Moreover, Wolverine 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 6.4%.
For the third quarter of 2012, the
company expects revenues to be in the low-to-mid-single-digit
range, while earnings are expected to remain flat year over year.
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 #3 Rank that
translates into a short-term ‘Hold’ recommendation.
DECKERS OUTDOOR (DECK): Free Stock Analysis Report
COLLECTIVE BRND (PSS): Free Stock Analysis Report
SKECHERS USA-A (SKX): Free Stock Analysis Report
(TBL): ETF Research Reports
WOLVERINE WORLD (WWW): Free Stock Analysis Report
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