Wolverine's Solid Earnings Reflect Improvement Across Board


Consistent robust performance of its brands helped Wolverine World Wide Inc. (WWW) to post better-than-expected second-quarter 2014 results. Moreover, to hasten the growth pace, the company announced a number of strategic initiatives including closure of 140 stores.

The company’s adjusted quarterly earnings per share of 31 cents beat the Zacks Consensus Estimate of 27 cents and increased 34.8% year over year. Including certain one-time items, earnings increased 50.0% to 27 cents per share.


Wolverine’s revenues of $613.5 million for the quarter increased 4.4% on a year-over-year basis and was way ahead of the Zacks Consensus Estimate of $607.0 million. All the three operating groups namely Lifestyle, Prestige and Heritage performed well in the quarter.

Brand-wise, Keds, Saucony, Chaco, Caterpillar Footwear and Wolverine were strong performers whereas region wise, Latin America, Asia-Pacific and EMEA (Europe, Middle East and Africa) all registered a double digit revenue growth.

As regards to the company’s operating groups, second-quarter revenues at its Lifestyle group came in at $264.1 million, a 3.5% rise from the year-ago quarter. The Performance group’s revenues rose 5.8% to $211.2 million, while Heritage group’s revenues increased 2.6% to $113.5 million. Further, revenues derived from the company’s other brands climbed 10.8% to $24.7 million in the quarter.

The company’s gross profit grew 1.9% to $245.7 million in the quarter, however, gross margin shrunk 90 basis points (bps) to 40.1%. Higher discounting activity had a profound impact on the gross margin. Wolverine’s adjusted operating margin expanded 140 bps to 9.0%.

Other Financial Aspects

Wolverine ended the second quarter with cash and cash equivalents of $232.4 million, long-term debt of $1082.9 million and shareholders’ equity of $907.9 million. Additionally, inventories during the quarter fell nearly 5.1% to $459.8 million, highlighting the company’s focus on efficient management of working capital. In the quarter, the company generated operating cash flow of $113.6 million and fully paid off its revolving debt.

Strategic Initiatives

To improve profitability, Wolverine has outlined a set of initiatives. These include consolidation of consumer-direct functions like store operations and field support teams. The company will also make managerial and infrastructural changes to achieve increased synergies. Moreover, it will close about 140 outlets over the next one and a half year time frame. By the end of 2014, the company expects to close about 60 stores.

These initiatives are likely to result in pre-tax charges of $30—$37 million. The company expects $11 million in annual pretax benefits after the implementation of these initiatives, which will be utilized for expanding omni-channel reach and wholesale operations.


Following the better-than-expected second quarter results, the company reiterated its earnings outlook for 2014. Wolverine continues to expect adjusted earnings per share in the range of $1.57–$1.63, reflecting year-over-year growth of 10%–14%. The Zacks Consensus Estimate is currently pegged at $1.61 per share, falling within the company’s guidance range. However, reported earnings are now envisioned to be in the range of $1.32—$1.38 per share as against earlier projection of $1.48–$.54 per share.

However, Wolverine, a Zacks Rank # 4 (Sell) stock, now expects its revenues to be $2.775 billion, which dovetails with the lower end of its earlier guided range of $2.775–$2.85 billion.

Other Stocks to Consider

Other better-ranked stocks in the same industry include Brown Shoe Co. Inc. (BWS), Iconix Brand Group, Inc. (ICON) and Sequential Brands Group, Inc. (SQBG), all carrying a Zacks Rank #2 (Buy).

Read the Full Research Report on WWW
Read the Full Research Report on ICON
Read the Full Research Report on BWS
Read the Full Research Report on SQBG

Zacks Investment Research

View Comments (0)