Analysts Mixed on Wolverine

Analysts Mixed on Wolverine
Blake Krueger

It’s a wait-and-see game for Wolverine World Wide Inc.

Given the near-term challenges, analysts are cautious about the year ahead for the company.

“There’s still a lot of muddiness in the next couple of quarters with Europe being such a big part of their business and being so weak,” said Kate McShane, analyst at Citi Investment Research. “We have confidence in the [Collective Brands] acquisition, but … Wolverine is a more mature business in western Europe, so part of what they’re seeing is just comp-store weakness from retailers being cautious with their business.”

Mitch Kummetz, analyst at Baird & Co., said the firm’s fourth-quarter guidance “is achievable, but not conservative,” while Sterne Agee analyst Sam Poser called it “too optimistic. … We are concerned that there are a rocky path and high seas ahead.”

In a conference call with analysts, Wolverine SVP and CFO Donald Grimes gave color on the Rockford, Mich.-based firm’s businesses by region.

“We clearly believe that the challenges in Europe will continue over the near term. The macroeconomic environment is not showing any signs of improvement, the sovereign debt crisis has not yet been resolved and the European consumer is feeling the pinch,” he said. “In general, European footwear retailers are seeing decreases in customer traffic, and those consumers who are buying are being very selective in their purchase decisions.”

Canada, which makes up about 9 percent of the business, is a mixed picture, with a solid performance in the work category, but outdoor has been impacted by shifting consumer tastes to more athletic profiles, said Grimes.

A bright spot is the U.S. market, expected to continue to see double-digit increases into the next year, particularly with the contribution from the newly acquired Performance & Lifestyle Group brands, whose business is disproportionately skewed to the U.S. market.

Wolverine’s chairman, president and CEO Blake Krueger said, “PLG is an excellent, well-managed business that has been growing at a solid, double-digit rate over the last several years, with fiscal 2012 revenue expected to top the $1.1 billion mark — another record for PLG.”

For the third quarter ended Sept. 8, Wolverine’s net income was 72 cents a share, compared with 82 cents a share in the same period a year ago. Revenue also slipped 2.4 percent to $353.1 million.

The Outdoor Group remained the company’s largest revenue contributor, but slipped 7.9 percent despite Merrell’s Barefoot collection seeing growth.

Sales at the Heritage Group advanced 1.3 percent to $129.6 million across all major brands. The Lifestyle Group fell 5.1 percent to $52.7 million, as a strong double-digit increase at Hush Puppies in the U.S. was more than offset by revenue declines in other markets.

The firm’s other business units — consisting of Wolverine Retail and Wolverine Leathers — grew 20.5 percent to $34.8 million, driven by continued double-digit growth in e-commerce, high-single-digit growth from brick-and-mortar and increased demand for Wolverine Leathers from third-party customers.

Wolverine expects full-year revenue to be in the range of $1.645 billion to $1.655 billion, with earnings per share coming in between $2.26 and $2.31. 

PLG’s contribution to EPS is expected to be between 35 cents and 50 cents in 2013; and between 60 cents and 80 cents in 2014.