Analysts React to Wolverine Q2

Analysts React to Wolverine Q2
Sperry Top-Sider's A/O spring '13

Newer brands continue to drive growth at Wolverine World Wide Inc., said analysts.

Citigroup analyst Kate McShane noted that the Rockford, Mich.-based company’s estimate for how much Collective Brand Inc.’s Performance & Lifestyle Group brands would add to the full year’s bottom line could be conservative, given the momentum of Sperry Top-Sider in particular.

Mitch Kummetz, analyst at Baird & Co., agreed: “We see no reason why better-than-expected accretion couldn’t continue into the back half of the year, and we’re also encouraged by the firm’s more conservative view on Merrell for the second half. All told, we’re now more bullish on Wolverine’s outlook relative to the company’s guidance.”

Sterne Agee analyst Sam Poser, however, expressed concern that weakness in Merrell may continue further than management expects. “The current strength in Sperry is disproportionately coming from increased penetration in the family footwear channel,” Poser said. “The international ‘plug and play’ strategy will be very difficult when domestic Sperry sales slow.”

In a conference call to analysts Tuesday, Blake Krueger, chairman, president and CEO of Wolverine, said that Merrell still plans to deliver a low-single-digit revenue increase for the full year, as well as more robust growth in 2014.

“Merrell is a double-digit growth brand, and the steps we’re taking now will help the brand achieve this growth level within the next couple of seasons. Our expectations for future growth are supported by the current order backlog position, which is up high-single digits,” he explained.

Don Grimes, SVP and CFO, also said that a good indication of Sperry’s momentum in the second quarter is that “Sperry’s standalone retail stores posted outstanding mid-teens comp-store sales gains, and the brand’s e-commerce business delivered impressive double-digit growth.”

Wolverine’s second-quarter results beat the Street, thanks to better-than-expected earnings from the recently acquired brands.

For the period ended June 15, the firm earned $17.9 million, or 36 cents a share, compared with $20.5 million, or 42 cents, in the same period a year earlier. Excluding acquisition-related transaction and integration expenses, earnings per share were 46 cents. Analysts had expected EPS to come in at 34 cents as polled by Yahoo Finance.
   
Revenue surged 88 percent to $587.8 million. Gross margin increased 320 basis points to a record 41 percent, the firm said.

The Lifestyle Group, consisting of Sperry Top-Spider, Hush Puppies, Stride Rite and Keds, posted 20 percent revenue growth, reaching $255.2 million in the quarter.

The Performance Group, made up of Merrell, Saucony, Chaco, Cushe and Patagonia Footwear, posted revenue of $199.7 million, a decline of 4.8 percent from the same period a year ago.

The Heritage Group, composed of Wolverine, Cat Footwear, Bates, Sebago, Harley-Davidson Footwear and HyTest, also slipped slightly to $110.6 million.

The firm now expects the PLG acquisition will add 55 cents to 65 cents a share to total full-year profit, up from its previous expectation of 40 cents to 50 cents a share.

Wolverine also raised its adjusted EPS guidance to between $2.60 and $2.75 a share, representing year-over-year growth of between 13.5 percent and 20.1 percent. The firm’s stock price closed at $57.92 on Wednesday.