TBL Timberland Co. (The)

Tough macro and retail conditions in Europe took a toll on Wolverine World Wide Inc.’s (WWW) third quarter 2012 earnings, wherein the company reported adjusted quarterly earnings of 72 cents a share, down 12.2% from the prior-year quarters’ earnings of 82 cents. However, the reported earnings came in line with the Zacks Consensus Estimate.  

Including one time items, earnings came in at 66 cents a share, down 19.5% from the year-ago quarter.

Wolverine, the seller of products under Harley-Davidson Footwear, Hush Puppies, Merrell and other brands, reported a decrease of 2.4% in its top line to $353.1 million. Moreover, the reported revenue came in below the Zacks Consensus Estimate of $363 million.

Secular headwinds and lingering concerns over the European market spoiled sales during the quarter. Further, foreign exchange negatively impacted the revenue by $5.4 million. Amid this gloom, strength across United States provided some cushion to the results.

Coming to the operating groups, revenues decreased 7.9% year over year to $134 million for Outdoor and 5.1% to $52.7 million for Lifestyle, while it increased 1.3% to $129.6 million for Heritage. Besides these groups, revenue derived from the company’s other brands fell 46.5% to $2.1 million while business units, comprising Wolverine retail and leathers, posted a revenue increase of 20.5% to reach $34.8 million.

Gross profit waned 5.5% year over year to $138.6 million during the quarter, whereas gross margin contracted 140 basis points to 39.2%. Management stated that increased input costs, higher closeout sales and unfavorable sales mix shift pulled down gross margins.  

Adjusted operating profit decreased 12.6% to $49.3 million in the quarter, while adjusted operating margin shrinked 160 basis points to approximately 14%. However, including one time items (acquisition related costs), operating profit decreased 17.9% to $46.3 million, whereas operating profit margin decreased 250 basis points.

In a separate development, Wolverine sealed the previously announced acquisition of Collective Brands’ Performance + Lifestyle Group (PLG) unit for $1.24 billion. The PLG unit sells footwear and related products, both wholesale and retail, for children and adults under popular brands including Stride Rite, Sperry Top-Sider, Saucony, and Keds. 

The deal is expected to provide ample opportunities to Wolverine to boost its growth prospects while facilitating the company to enhance its portfolio of brands. Owing to the acquisition, the company expects earnings dilution in the range of 25 cents to 30 cents a share for the rest of fiscal 2012. 

However, Wolverine added that the acquisition will be accretive to the earnings of fiscal 2013 and 2014 in the range of 35 cents to 50 cents and 60 cents to 80 cents, respectively. 

Other Financial Aspects

Wolverine ended the quarter with cash and cash equivalents of $144.3 million with no long-term debt and shareholders’ equity of $666.6 million.

Guidance Goes Down

The company stated that lingering macro concerns in Europe will continue to hamper the results in the near term and now expects total revenue in the range of $1.425 billion to $1.435 billion for fiscal 2012, reflecting a year-over-year growth of 1.1% to 1.8%. However, including the impact of the PLG acquisition, revenue is expected in the range of $1.645 billion to $1.655 billion.

Earlier, the company forecasted 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 6.4%.

Wolverine expects fiscal 2012 adjusted earnings between $2.26 and $2.31 a share. Including the impact of the acquisition, earnings are expected to be in the range of $1.96 to $2.06 a share.

Earlier, the company forecasted earnings between $2.70 and $2.80 a share, representing a growth of 8.9% to 12.9% from the prior year.

For the fourth quarter of 2012, the company expects revenue to be approximately $441 million, up 8.6% from the prior-year quarter. Moreover, it is expected to be in the range of $655 million to $665 million including the impact of the PLG acquisition. Earnings are expected to be in the range of 42 cents to 47 cents a share compared with 47 cents in the year-ago quarter. 

Moreover, excluding the impact of the acquisition, fourth quarter gross margin is expected to be marginally down compared with the prior-year quarter, reflecting negative product mix.

Given the current macroeconomic environment and intense competition from Timberland Co. (TBL), Deckers Outdoor Corporation (DECK) and Skechers USA Inc. (SKX), we prefer to have a long-term “Underperform” recommendation on the stock. However, Wolverine holds a Zacks #3 Rank that translates into a short-term “Hold” rating.

 
DECKERS OUTDOOR (DECK): Free Stock Analysis Report
 
SKECHERS USA-A (SKX): Free Stock Analysis Report
 
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WOLVERINE WORLD (WWW): Free Stock Analysis Report
 
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