A Wolverine In The Hen House (WWW)

By Dean Lundell | October 03, 2007 AAA

There isn't anything hush about this puppy. Wolverine (NYSE:WWW), maker of such popular brands as Hush Puppies, Bates, HyTest, Merrell, Sebago and Wolverine shoes, reported record revenue and earnings for its 2007 third quarter.

Record-Setting Q3
Third-quarter revenue climbed to $310.2 million from $298.9 million in the same quarter a year ago and earnings per share increased to $54 cents per share from 46 cents per share in the year prior. If you work the math, you'll see a 17.4% gain in earnings on a 3.8% increase in revenue.

For the first nine months of its fiscal year, the numbers are bit more sedate, but they are still impressive. Revenue amounted to $841.5 million compared with $800.2 million a year ago and earnings per share came in at $1.21 per share, up from $1.05 per share during the same period in 2006. That is a 15.2% gain in earnings on a 5.2% gain in revenue. (For more on earnings, see Earnings: Quality Means Everything and Earnings Forecasts: A Primer.)

Blake Krueger, Wolverine's president and chief executive officer, has pointed out that this is Wolverine's 21st consecutive quarter of increased revenue and earnings. He acknowledged a difficult retail environment that has led to lower store traffic, but that the company has still managed to end the quarter with an 11% order backlog. Krueger also indicated that the company had made a decision to transition out of its lower-margin businesses to focus more on the higher-margin ones.

Stephen Gulis, Wolverine's chief financial officer, reiterated that this strategy had the effect of reducing overall revenue somewhat but expanding the firm's gross margin by 100 basis points.

A Comfortable Fit
Looking ahead, the company's guidance statements were fairly conservative and pretty much in line with street estimates. Wolverine is transitioning out of its military contracts as they expire and will otherwise continue its present course of action. The firm raised its estimates by a penny per share for the entire year (to $1.60-$1.64). Analysts polled by Thompson Financial expect to see an average of $1.64 per share on revenue of approximately $1.2 billion.

For 2008, the company's goals are revenue of $1.25 billion to $1.28 billion and generating earnings of $1.78 to $1.84 per share. Analysts are expecting $1.85 on revenue of $1.3 billion.

It should be noted that Wolverine's return on equity has improved from averaging 14.8% over the previous five years to come in at 18.4% last year. For a stock that appears to be very conservative, it has done quite well over the last few years. Over the last two years it has risen from the low $20s to the high $20s. Five years ago it was trading at roughly $9 per share.

Bottom Line
Let's think about this business for a minute. While shoes are not nearly exciting as fighter jets or the latest biotech gadget, when you need a pair of shoes, you absolutely have to get a pair. Unless you plan on going barefoot, there is no other alternative. That simple fact may help explain why Wolverine has been so consistently successful, and why it may continue to be successful in the future.

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