Wolverine’s Q2 Beat Driven By International & Wholesale

Wolverine Worldwide’s share price is up today after the firm beat market watchers’ estimates for the second quarter. The Rockford, Mich.-based company posted 3 percent gains in revenue — 5 percent currency neutral — driven by higher-than-anticipated international shipments as well as growth in its U.S. wholesale business.

Adjusting for the impact of FX, store closings and the termination of its Patagonia licensing agreement, the firm said sales would have increased 7 percent.

Among its conference call highlights, management announced that it will be exiting the Cushe business and has additional plans for store closures.

While the stock is up on the Street beat, the firm also posted declines in profits year-over-year, and performance by brand and division was mixed. Sperry remained flat year-on-year, while Keds posted low-teens growth in the quarter.

There was double-digit growth at Chaco, low-teens growth from Saucony and low-single-digit growth at Merrell. Saucony, the company’s third-largest brand by revenue, posted low-teens constant-currency revenue growth in the quarter.

During the conference call, CEO Blake Krueger said he plans to debut an integrated brand platform for Merrell and that he has already began to “socialize the new Merrell” with key partners in the U.S. and internationally.

Net Income: Profits declined 8 percent year-over-year, to $25.3 million from $27.5 million.

EPS: Earnings per diluted share declined 3 cents year-over-year, from 27 cents to 24 cents.

Net Revenue: Net revenues rose 2.7 percent, to $630.1 million, compared to revenues of $613.5 million in the year-ago quarter. On a constant-currency basis, revenue rose 4.9 percent.

Adjustments: Adjusting for the impact of foreign exchange, retail store closures and termination of the Patagonia license agreement, adjusted revenue grew 6.9 percent versus the prior year.

Hit, Miss or Beat: Wolverine beat Wall Street’s estimates for revenues and EPS. Analysts polled by Yahoo Finance had predicted revenues of $618.8 million and EPS of 20 cents.

Executive Insights: “All in all, a strong quarter for the company and a solid first half to the year. Our Q2 performance is reflective of our balanced business model as we are not dependent on one or two brands or geographies to deliver great results.”
– Krueger on the Q2 conference call

Krueger on omnichannel: “Our omnichannel transformation efforts include a new e-commerce platform for all of our brands, key enhancements to our digital infrastructure and new marketing and merchandising challenges for our digital-growth efforts. These efforts are critical as we now operate over 60 owned websites around the world, all driven by a common platform to provide our consumers a seamless, best-in-class brand and shopping experience.

Krueger on international growth: “It’s a steady build as we expand and enhance our pace of international partners and they establish their operations and growth paths. In the quarter, Sperry, Saucony and Keds posted strong double-digit international growth, with the Keds third-party international business leading the way with growth of well over 100 percent versus last year.”

Looking Ahead: The firm reiterated EPS guidance of $1.53 to $1.60, and currency-neutral EPS of $1.68 to $1.75, but sales expectations were adjusted down slightly, to $2.82 billion to $2.85 billion, or 2 percent to 3 percent growth (5 percent to 6 percent currency neutral). The firm’s previous guidance for sales growth had been 2 percent to 4 percent.

Analyst Insights: “While the sales pull-through from Q3 into Q2 causes the quarter to appear slightly stronger, overall we are quite pleased with the print. Investor concerns regarding FY15 EPS estimates being heavily back-end-weighted should be, at least on the margin, relieved. Concerns over recent trends of the domestic business should be alleviated with Q2 domestic wholesale sales up in the mid-single digits. Also, while the pressure the stock has been under in the recent week, particularly in the face of an overall strong equity market, pantomimed concern over a potential reduction in FY15 guidance, that bullet was dodged.”
— Steven Marotta, CL King & Associates analyst

“Although the EPS beat was impressive, we note that the beat wasn’t as strong as it initially appeared, as better sales were attributable to a shift forward in shipments …”
—Kate Mcshane, Citi Research analyst

“Our overhanging concern on the company is the management of their brands. The company has made and continues to make moves to drive topline at the expense of maintaining/elevating brand integrity.”
— Sam Poser, Sterne Agee CRT analyst

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