Wolverine Issues Brighter Forecast

Restructuring charges took a toll on Wolverine World Wide Inc.’s bottom line in the second quarter, but analysts were encouraged by the company’s improved forecast.

The Rockford, Mich.-based firm last week raised its full-year earnings guidance and said it expects higher gross margins, improved cost management and restructuring benefits to kick in later this year.

“There’s a range of possible outcomes on the top line, but the company has very good visibility into the drivers of gross margin and operating expenses for the second half of the year,” explained Scott Krasik, an analyst at CL King & Associates. “Despite another couple quarters of expected revenue decline, [Wolverine] still feels confident they can get their earnings per share up.”

For the second quarter, the company’s Outdoor Group led the way again, reporting double-digit revenue growth after a slight decline during the first quarter. The group’s largest brand, Merrell, posted a double-digit increase for the period and benefited from retailers’ contraction in other brand assortments, Donald Grimes, Wolverine’s CFO, said during a conference call.

“Merrell’s increase in the quarter really didn’t come from new doors and new distribution,” Grimes said. “For the most part, it just came from excellent sell-throughs, primarily at our existing base.”

Patagonia also experienced double digit growth during the second quarter, while Chaco, which was acquired in January 2009, had a “strong start,” according to the company.

The rest of Wolverine’s portfolio, though, including the Hush Puppies, Heritage Brands and Wolverine Footwear groups, reported declines.

Jeff Mintz, a research analyst at Wedbush Morgan Securities, noted that “outside of Merrell, Wolverine doesn’t have a growth driver of any significant size.” Although Merrell has done “extremely well and is one of only a handful of brands out here that are still growing,” he explained, “[Wolverine’s] other brands are not in that position.”

Mintz also expressed concern with the company’s full-year revenue guidance, which is expected to total between $1.07 billion and $1.12 billion, or $1.12 billion to $1.17 billion adjusted for the foreign exchange
impact, below prior forecasts.

“When they initially gave guidance, they were planning for a recovery in the second half of the year, and [now] they don’t see the economy recovering as quickly as they had expected,” said Mintz. “The issue is not specific to Wolverine, but it does make the point that it’s not getting a lot better out there for the consumer.”

Still, he continued, “Wolverine is doing a good job managing their business and
controlling the things they can control.”

The company last week reported a 53 percent drop in second-quarter profits to $7.9 million, or 16 cents a diluted share, for the 12 weeks ended June 20.

Those results compare to a net income of $16.8 million, or 33 cents a diluted share, for the year-ago period. However, adjusted for one-time restructuring charges of $7.9 million, the company’s second-quarter earnings registered at 27 cents a share, in line with estimates from analysts polled by Yahoo Finance.

Wolverine’s revenues totaled $246.4 million for the second quarter, down 8 percent from the same period a year ago. For the first half of 2009, net earnings were $18.4 million, or 38 cents a share, versus $40.5 million, or 79 cents, from the first half of 2008. First-half revenues were $501.8 million, down 10 percent from $555.6 million a year-ago.

Looking ahead, Wolverine now forecasts its full-year EPS to range from $1.07 to $1.25. Excluding restructuring charges, earnings will range from $1.55 to $1.73 a share, up from earlier estimates of $1.50 to $1.70.

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