Wolverine World Wide Earnings Preview

Wolverine has met or beaten analyst estimates across the past four quarters.

Company History

Founded in 1883, Wolverine World Wide manufactures, designs, licenses, and distributes a wide variety of footwear and apparel brands. The company's brands and licensing efforts include Hush Puppies, Patagonia Footwear, CAT CAT Footwear, Harley-Davidson HOG footwear, and Merrell. Wolverine birthed Hush Puppies in 1958, launched the brand in 1959, and went public in 1965 after rebranding from "Wolverine Shoe and Tanning".

Wolverine picked up CAT Footwear in 1994, and purchased the Merrell brand in 1997. The company acquired Harley-Davidson footwear licensing in 1998. The 2000's encompassed a whirlwind of licensing and acquisition activity including its purchase of Sebago in 2003, its Patagonia Footwear license in 2006, and its acquisitions of Chaco and UK-based Cushe in 2009. Company sales hit $1 billion for the first time in 2005, according to Wolverine's website.

More recently, Wolverine made headlines in May after its announced definitive agreement with Blum Capital and Golden Gate Capital , to acquire Collective Brands PSS for $21.75 per share on a purchase valued at $2 billion including debt. Collective Brands reported a $35 million loss the previous year and announced its intention to close 475 stores. The deal is expected to close in Q4 2012.

Collective Brands' holdings include Keds, Sperry, Stride Rite, Saucony, and Payless ShoeSource (Editor's note: Payless turned into Collective Brands following its acquisition of Collective Licensing and Stride Rite in 2007). A few days after the announcement, investor Gregory Dusablon filed suit against Collective Brands citing a deprivation of "ability to participate in the company's long term prospects," according to Bloomberg. The takeover represents the largest footwear consolidation since VF Corp VFC bought Timberland for $1.97 billion last year.

In the takeover, Wolverine is slated to acquire the Sperry, Saucony, Stride Rite, and Keds brands, with Blum Capital and Golden Gate picking up the Payless brand as well as Collective Brands' international licensing arm.

Shares of Wolverine at Monday levels have a price to earnings (P/E) ratio of 16.05 and a forward P/E of 12.92, compared to Steven Madden's SHOO P/E of 14.47 and forward P/E of 10.98; Deckers Outdoor's DECK P/E of 9.40 and forward P/E of 8.28; and Crocs' CROX P/E of 12.12 and forward P/E of 9.20. Of the four competitors year-to-date, SHOO is down 2.41 percent, DECK is down over 41 percent, CROX is up 3.42 percent, and WWW is up almost 7 percent.

Wolverine shares have a short ratio of 3.4 and PEG of 1.41. The company offers a $0.48 per share (1.30 %) dividend.

Analyst Insight

Sterne Agee lowered its fiscal year 2012 estimates on July 2 from $2.69 EPS on $1.46 billion to $2.59 EPS on $1.7 billion, versus Wolverine's previous guidance of $2.70 to $2.80 EPS on $1.46 to $1.50 billion, leading into the company's earnings. Sterne Agee maintained its $36 price target and Underperform rating, citing concerns on slower trends in key initiatives, long-term viability of the company's PLG acquisition, and increased competition in the sector. For second quarter adjusted EPS, the ratings firm lowered its Q2 2012 guidance from $0.45 to $0.43.

In the report, Sterne Agee stated, "We contend that WWW has overcommitted to the category and has not paid enough attention to the core business, which can present pressures going forward. While some of the other brands such Hush Puppies and Chaco are preforming well, they are simply not large enough to make up for the slowing of Merrell."

Conversely, Jefferies stated in a July 5 report that it expects Wolverine to be "relatively in line with expectations," modeling its second quarter EPS at $0.45 - a penny above the Street's consensus - and stated that the company's previous guidance appropriately reflected Merrell's Barefoot product line debut anniversary as well as macro and European risk factors. Jefferies has a Buy rating and $49 price target on the company.

In the report, Jefferies stated, "We view WWW as a relatively defensive name that it appears poised to outperform in an uncertain macro environment. The combination of a diverse footwear portfolio and strong management provide earnings stability at a time like this. The upside case comes from the pending PLG (PSS, $21.45, NC) acquisition but also an easy winter comparison along with a moderating product cost environment in the second half."

D.A. Davidson maintained its Buy rating and lowered its price target by a dollar from $50 to $49 on July 5, citing a bullish outlook on Wolverine's growth and a favorable position on the company's PLG acquisition.

In the report, D.A. Davidson stated, "With economic uncertainty abound, we believe the growth and earnings accretion provided by the PLG acquisition will look increasingly attractive to investors. Furthermore, we believe initial PLG 2013 accretion guidance of $0.25-$0.40 will prove conservative, providing a valuable lever for either offsetting economic-related shortfalls in the core business or upward earnings revisions."

Sector Trends

Nike's NKE earnings miss shook up the footwear industry, reporting Q4 2011 net income of $549 million or $1.17 per share versus $594 million or $1.24 per share on June 28. Shares gapped significantly lower the next trading day - bottoming around $85 - and then rallying into the open, sitting at $89.54 in intraday trading. Shares of Nike closed Thursday at $92.20, down over 4 percent year-to-date.

Luxury retailers have also felt the pain of slower-than-expected sales in the sector, with shares of Coach COH down almost 6 percent year to date and Vera Bradley VRA down over 33 percent year to date. Atlantic Securities raised its Coach rating to Overweight on Monday, however, and Canaccord Genuity upgraded fellow competitor Tiffany TIF to Buy last week. With the weakness seen across the board in various retail and cyclical companies, some traders may see these pullbacks as a buying opportunity.