Wall Street Concerned About Wolverine’s Ongoing Challenges

Wolverine World Wide Inc.’s share price hit a 52-week low Tuesday after the company’s third-quarter earnings revealed continual revenue and profit declines stemming from global economic pressures and weakening product demand.

In reaction to the earnings release, Sterne Agee CRT analyst Sam Poser downgraded his rating for the company’s stock, to underperform, and reduced his EPS estimates for the fiscal year, noting that while there are macroeconomic issues, Wolverine’s problems “appear company-specific.”

“Weak domestic businesses, FX headwinds, lack of compelling product across many [Wolverine] brands, elevated inventories and a history of missing numbers lead us to lower our FY15/FY16/FY17 EPS estimates from $1.46/$1.67/$1.84 to $1.42/$1.47/$1.61,” Poser wrote on Oct. 21. “With the combination of cautious retailers, who appear to be reacting to the soft business, and [Wolverine’s] history of providing overly optimistic guidance, we would not be surprised if even our revised estimates prove to be too aggressive.”

For at least the past year, the firm has struggled with flat revenues for its once-popular Sperry label, while Merrell, according to Blake Krueger, Wolverine’s chairman, CEO and president, “ranks low in consumer awareness.”

Merrell generated low-single-digit growth in the quarter, while Chaco posted double-digit gains and Saucony saw mid-single-digit growth.

The Lifestyle Group was down 5.1 percent, with Sperry down less than 1 percent, Keds down by low single digits and Stride Rite falling by high single digits, Krueger said during the firm’s Q3 conference call.

We continue to remain on the sidelines until we see more credible evidence that key brands can return to sustainable growth,” wrote Susquehanna Financial LLLP analyst Christopher Svezia.”We lower our price target to $21 from $23 on lower estimates.”

Wolverine now expects to close an additional 25 Stride Rite doors, increasing the ultimate closure count from 175 stores to 200 across the portfolio due to ongoing weakness.

Still, many market watchers — although they’re adjusting down their forecasts — see light at the end of the tunnel.

Maintaining a buy rating on the stock, CL King & Associates analyst Steve Marotta said his assessment “looks beyond current global challenges.”

“Wolverine World Wide reported Q3 sales and earnings largely in line with our previous, albeit lowered, expectations,” Marotta wrote. “Constant current growth of 1 percent reflects the challenging operating environment, though the previous few weeks’ stock action implied there were much larger problems. FY15 sales guidance was a bit lower than expectations, but EPS were within our estimates and Street consensus, alleviating worst-case concerns.”

Management lowered full-year diluted EPS expectations to $1.44 to $1.47, from the previous range of $1.53 to $1.60. Constant-currency diluted EPS is now forecast in the range of $1.57 to $1.60, versus the previously provided range of $1.71 to $1.78. Revenue growth is now expected in the range of 2.1 percent to 2.8 percent, compared with the earlier forecast of 2 percent to 4 percent. (Constant-currency revenue growth was expected in the range of approximately 5 percent to 7 percent in prior guidance.)

Citi Research analyst Kate McShane pointed to possible sources of upside despite her expectations that current challenges may leak into the holiday season and first half of 2016.

“Potential upside to expectations could come from: Sperry’s non-boat-shoe categories grew double digits in Q3, and we could see stronger momentum going into ’16 as women’s boat starts to stabilize; Merrell will lap easy comps in ’16 with continued strength in performance; and further potential upside from share buybacks,” McShane wrote.

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