Wolverine Worldwide Stock Is Showing Its Claws

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Wolverine Worldwide (NYSE:WWW) may sound like a company right out of Marvel’s X-Men series, but I assure you this firm is not nearly as popular as that franchise. However, the company can probably make you a lot of money. It designs, manufactures, sources, and markets footwear, apparel, and accessories. The company operates through a Lifestyle Group, a Performance Group, and a Heritage Group segment.

It offers casual footwear and apparel, performance outdoor and athletic footwear and apparel, children’s footwear, industrial work boots and apparel, and uniform shoes and boots. The company sources and markets a range of footwear styles for men, women, and children like shoes, boots and sandals under various brand names, including Bates, Cat, Chaco, Cushe, Harley-Davidson, Hush Puppies, HyTest, Keds, Merrell, Patagonia, Saucony, Sebago, Soft Style, Sperry Top-Sider, Stride Rite, and Wolverine.

It also markets apparel and accessories under Merrell, Saucony, Sebago, Sperry Top-Sider, and Wolverine, as well as licenses its brands for use on non-footwear products, including Hush Puppies apparel, eyewear, watches, socks, handbags, and plush toys; Wolverine brand eyewear and gloves; and Keds, Saucony, Sperry Top-Sider, and Stride Rite brand apparel. In addition, the company markets pigskin leather under the Wolverine Warrior Leather, Weather Tight, and All Season Weather Leathers trademarks for use in the footwear industry.

The company competes with brands like Nike (NYSE:NKE). Given Nike’s amazing quarter but the overall retail funk happening, it was anyone’s guess as to how Wolverine would perform. While I don’t think the quarter was a blowout like Nike’s, it was quite strong. Thus, I think the stock is a good buy on a pullback moving forward.

Let’s face it, Nike’s results were a slam dunk (pun intended). However, Wolverine did well. Its revenue in the quarter reached $613.5 million, a decent increase of 4.4 percent versus the prior year. Its adjusted operating expenses in the quarter were $190.8 million, a decline of 2.8 percent versus the prior year. As a percentage of revenue, adjusted operating expenses were 31.1 percent compared to 33.4 percent in the prior year. Things are moving in the right direction. Even reported operating expenses decline in the quarter. These were $196.7 million, a decline of 3.6 percent versus the prior year.

What’s more, adjusted operating margin expanded 140 basis points to 9 percent while reported operating margin was 8 percent. Adjusted fully diluted earnings per share increased 34.8 percent to 31 cents, compared to an adjusted 23 cents per diluted share in the prior year. Reported fully diluted earnings were 27 cents per share, an increase of 50 percent compared to the prior year’s reported earnings of 18 cents per share.

But it was not all good news. One small issue was a narrowing gross margin. Gross margin was 40.1 percent compared to the prior year’s gross margin of 41 percent. The lower gross margin resulted from increased promotional activity designed to combat sluggish U.S. retail traffic in the company’s consumer-direct business and higher-product costs. Another issue was that the reported effective tax rate in the quarter was 28.2 percent, significantly higher than the prior year due to a higher mix of earnings in the United States and the expiration of the research and development federal tax credit.

The company did, however, reduce its interest-bearing debt by $43 million in the quarter, including fully paying off its revolving line of credit. The company ended the quarter with cash of $232.4 million and net debt of $898.9 million, with the latter down $108.6 million from prior quarter end.

Blake W. Krueger, the company’s chairman and CEO, said: “We are extremely pleased to deliver a record quarter in what continues to be a volatile global retail environment, particularly in the U.S. All of our operating groups achieved a revenue increase in the quarter, which was spread across nearly every region of the world. Our Saucony, Keds, Caterpillar Footwear, Chaco and Wolverine brands posted very strong year-over-year results, and double-digit revenue gains in EMEA, Latin America and Asia-Pacific highlight the broad geographic reach of our portfolio.”

Looking ahead, the stock is a decent buy on any weakness. It has the growth. Debt is coming down. Expenses are being reduced as a percentage of sales. Margins are fine. Further, based on revised expectations for the remainder of the year, the company expects its full-year consolidated revenue to approximate $2.775 billion, representing growth of approximately 3 percent compared to prior year revenue of $2.69 billion. The company is reaffirming its adjusted earnings per share estimate in the range of $1.57 to $1.63 per share growth of 10 percent to 14 percent compared to prior-year adjusted earnings per share of $1.43. As such, I have a buy rating on the stock and a $32 price target.

Disclosure: Christopher F. Davis holds no position in Wolverine Worldwide or any other stocks mentioned and has no plan to initiate a position in the next 72 hours. He has a buy rating on Wolverine Worldwide and a $32 price target.

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