Analysts Cautious on Wolverine

Analysts are closely watching Wolverine World Wide Inc. after the firm said Tuesday its acquisition of Collective Brands’ Performance & Lifestyle Group contributed more than expected to earnings per share, while the core brands did not perform up to scratch.

“We still have some concerns over the [core] business after [it reported] lower net earnings in the quarter and likely [flat] performance for the year,” said Christopher Svezia, an analyst at Susquehanna Financial.

“Recent cold weather has led to a slow start to spring, and second-quarter reorders will likely be softer than expected. [In the back half], retailers continue to take a conservative approach to orders after two consecutive warm winters,” he added.

Sterne Agee analyst Sam Poser agreed: “Weak guidance [overshadows] the first-quarter beat.”

Noting the firm’s core business’s contribution to EPS fell 10 percent on an adjusted basis, he added, “They lowered the top end of their revenue guidance but kept earnings exactly the same, with inventory levels slightly higher than they should be. They’ve got a lot on their plate.”

Don Grimes, Wolverine’s SVP and CFO, acknowledged in a conference call to analysts that the revenue outlook for the rest of the year is conservative.

“We are expecting an improvement in the at-once order environment late in the third quarter and into the fourth. We are expecting a tick up, and we’re not forecasting any kind of massive double-digit increase in at-once orders year over year,” he said.

Blake Krueger, Wolverine’s chairman, president and CEO, said, “We continue to follow our narrow and deep inventory philosophy. Winter really didn’t start here in the United States until January this past year. So retailers [have] been burned a little bit twice over the past two years, and they’re being a little more conservative.”

He added, “We’re still forecasting mid-single-digit revenue growth for the pre-acquisition portfolio compared to double-digit revenue growth for the newly acquired brands. We still think solid mid-single digit revenue growth and gross margin expansion for the pre-acquisition portfolio in this economic environment, particularly with Europe being flat year over year, are good results.”

For the quarter ended March 23, the Rockford, Mich.-based firm earned a net income of $29.8 million, or 60 cents a share, compared with $31.2 million, or 64 cents, in the same period a year ago. Revenue doubled to $645.9 million, from $322.8 million. Analysts were expecting EPS to come in at 55 cents, on revenue of $631.5 million, as polled by Yahoo Finance. 

Among the PLG labels, Sperry Top-Sider, Saucony and Keds grew at a double-digit clip, while Stride Rite improved in the mid-single-digit range.

Brands from the core portfolio, including Merrell, Chaco, Cushe and Patagonia, all delivered a high single-digit revenue increase. The Heritage Group reported flat sales, as revenue increases in the Wolverine brand, Bates, Harley-Davidson and Hytest were offset by Cat and Sebago, primarily related to their European operations.

Wolverine said it now expects full-year revenue to total between $2.7 billion and $2.78 billion, representing year-over-year growth of between 6 percent and 9 percent. EPS is expected to increase between 9.2 percent and 15.7 percent, and come in between $2.50 and $2.65.

The firm also reduced its long-term interest-bearing debt by $33.9 million in the quarter. Cash and cash equivalents totaled $82 million, down from $123.3 million at the end of the same period last year.

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