TBL Timberland Co. (The)

Wolverine World Wide Inc. (WWW), one of the leading designers, manufacturers and marketers of branded footwear and apparel, recently posted soft first-quarter 2012 results.

Lower sales and decline in margins took a toll on the company’s earnings as Wolverine reported quarterly earnings of 64 cents a share, down 11.1% from the prior-year quarters’ earnings of 72 cents. However, the earnings exceeded the Zacks Consensus Estimate of 54 cents.

Wolverine, the seller of products under Harley-Davidson Footwear, Hush Puppies, Merrell and other brands, marked a 2.4% decrease in its top line to $322.8 million. However, the reported revenue was below the Zacks Consensus Estimate of $334 million.

As per the company, macro headwinds and lingering concerns over the European market dragged down sales for the quarter. Further, foreign exchange added fuel to the fire by negatively impacting revenue.  

Coming to the operating groups, revenues decreased 0.7% year over year to $137.1 million for Outdoor, 7.3% to $103 million for Heritage, and 2.7% to $50.6 million for Lifestyle.  Other business units, comprising Wolverine retail and leathers, posted a revenue growth of 4.8% to reach $27.8 million.

Gross profit decreased 4.1% year over year to $132.2 million during the quarter, whereas gross margin contracted 60 basis points to 41%. Management stated that increased input costs and unfavorable sales mix shift pulled down gross margins.  

Operating profit plunged 25.3% to $37 million in the quarter, while operating margin shrinked 350 basis points to 11.4%, reflecting an increase of 280 basis points in operating expenses as a percentage of sales.

Joint Venture in India

In a separate story, Wolverine announced a joint venture in India with Tata International, a unit of the Tata Group, to promote its footwear and apparel. Further, the company planned to initially start the wholesale distribution of Merrell and Caterpillar Footwear brands with the joint venture. 

The deal is expected to provide ample opportunities to Wolverine for boosting its growth prospects while facilitating the company to hedge against economic cycles. Indiais one of the fastest growing markets in the world and owing to its huge population it offers huge scope for growth.  

Other Financial Aspects

Getting back to the numbers, Wolverine ended first-quarter 2012 with cash and cash equivalents of $123.3 million and shareholders’ equity of $607.1 million with no long-term debt. The company repurchased $2.4 million shares in the quarter at an average price of $37.09 per share.

Management Guided

Despite soft results, management remains optimistic for coming quarters and raised its earnings guidance for the current fiscal. Wolverine now expects fiscal 2012 earnings between $2.70 and $2.80 a share, representing a growth of 8.9% to 12.9% from the prior year.

Earlier, the company forecasted earnings between $2.60 and $2.70 per share, representing a growth of 4.8% to 8.9% from the prior year.

Moreover, Wolverine revised its sales guidance and expects total revenue in the range of $1.46 billion to $1.50 billion for fiscal 2012, reflecting a year-over-year growth of 3.6% to 6.5%.

For the second quarter of 2012, the company expects revenues to remain flat or increase in low single digits, while gross margin is forecasted to be slightly down or remain flat. Earnings are expected to be in the range of 40 cents to 45 cents per share.

Rockford, Michigan-based Wolverine enjoyed increased momentum in fiscal 2011, which we expect to continue into fiscal 2012. Moreover, we believe that the company remains well positioned to increase its market share on the strength of its brand portfolio. The Merrell brand has been the key growth driver in the past decade, and we expect it to catalyze future growth.

Currently, we are maintaining a long-term ‘Neutral’ rating on the stock. Moreover, Wolverine, which competes with Timberland Co. (TBL), Deckers Outdoor Corporation (DECK) and Skechers USA Inc. (SKX), has a Zacks #2 Rank that translates into a short-term ‘Buy’ recommendation.

 
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