Analysts Look to 2013 for Wolverine

Wolverine World Wide Inc. remains a wait-and-see story, though the acquisition of Collective Brands Inc.’s Performance & Lifestyle Group is reason for cheer, said market watchers.

While Susquehanna Financial analyst Christopher Svezia noted Wolverine is moving into the second half with clean inventory after aggressively clearing out excess winter product, he added, “[This] remains a fiscal 2013 story with the PLG acquisition as the main catalyst.”

Mitch Kummetz, analyst at R.W. Baird & Co., said, “We’re encouraged by the strength of incoming orders in the second quarter, but we remain weary of the European [macroeconomic situation] and are also hesitant, despite an easy comparison, to assume that significant fourth-quarter improvement is a foregone conclusion.”

Kate McShane, analyst at Citi Investment Research, agreed. Noting that the second quarter is an unlikely catalyst for the stock, McShane said, “Based on our conversations with investors, those interested in [this firm’s stock] are waiting to get through this earnings announcement based on the notable exposure — about 40 percent — of sales to Europe and [waiting] for its acquisition of [PLG] to close in late summer before putting money to work.”

Wolverine’s management was more upbeat. Speaking to analysts on a conference call Tuesday, Blake Krueger, the firm’s chairman, president and CEO, said, “Frankly, the retailers for the last six or nine months have been a little more conservative than the actual consumer … wondering what’s going to happen [in Europe and] trying to push a little bit more of the inventory-carrying burden back on vendors like us. [For] the actual consumer, especially in the U.S., it has been a pretty robust environment for footwear.”

He added that despite the macroeconomic challenges, incoming orders rose at a strong double-digit clip in the quarter, demonstrating the strength of the firm’s product lines.

The exec also gave an update on Wolverine’s acquisition of PLG’s Sperry Top-Sider, Saucony, Stride Rite and Keds brands, which was announced on May 1.

“Our transition and integration planning is in full swing and, frankly, ahead of schedule,” he said. “The acquisition will immediately address five targeted growth areas for our company: women’s, athletic, casual, kids’ and retail. While about two-thirds of Wolverine’s pairs are currently sold outside the U.S., less than 10 percent of PLG’s revenue is generated offshore. The international opportunity for PLG is huge, and we have already received a tremendous amount of interest from international distributors and partners who are looking to expand the existing global footprint for these brands.”

“We joke a little bit internally here that we’re not sure which is going to be our first billion-dollar brand — Merrell or Sperry,” said Krueger.

Wolverine’s core business continues to do well. Revenue for the Outdoor Group, which includes Merrell, Chaco and Patagonia Footwear, increased low single digits in the second quarter, with the Merrell Barefoot collection helping to drive a high single-digit rise in the U.S.

Revenue was flat in the Lifestyle Group, which includes Hush Puppies, Sebago, Soft Style and Cushe, as gains in the U.S. Hush Puppies and global Cushe businesses were offset by a decline in Sebago and Hush Puppies in Europe.

In the Heritage Group, the Wolverine brand saw double-digit sales growth, although it declined slightly during the quarter as strong growth in the U.S. was also offset by softness in Europe.

Wolverine reaffirmed its full-year revenue guidance of $1.46 billion to $1.50 billion, representing growth of 3.6 percent to 6.4 percent, and EPS guidance for $2.70 to $2.80, representing growth of 8.9 percent to 12.9 percent.

Don Grimes, SVP and CFO, said these expectations are based on strong at-once orders driven by extensive and ongoing dialogue with key retail customers and their assertions that they under-ordered for the fall season, the assumption of a normal weather pattern this coming fall and winter, and continued strong performance from Wolverine retail.

For the second quarter ended June 16, the Rockford, Mich.-based firm earned a net income of $20.5 million, or 42 cents a share, a 14.6 percent decline from $24 million, or 48 cents, a year ago. 

Revenue advanced 0.8 percent to $312.7 million, a sharp fall from the more than 20 percent sales growth the firm saw in the second quarter of 2011.

The firm ended the quarter with $156.6 million in cash and no debt.

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