Would the real footwear market please stand up? Athletic shoe companies like Nike (NYSE:NKE) and Adidas (OTCBB:ADDYY) have been quite strong, and so has fashion-oriented Steven Madden (Nasdaq:SHOO). And then there are the likes of Collective Brands (NYSE:PSS), Brown Shoe (NYSE:BWS) and Skechers (NYSE:SKX) with weak sales and even weaker stocks.

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Wolverine (NYSE:WWW) is on the stronger end of the range, even if the Street was not falling over itself to reward the company for solid second quarter results. Then again, if conservatism is the biggest sin of Wolverine, long-term shareholders should not be bothered by the quarterly noise. (For related reading, see Strategies For Quarterly Earnings Season.)

The Great Outdoors was Great
Wolverine delivered just over 20% growth in revenue for the Q2, beating even the highest estimate on the Street. Growth was led by the company's Outdoor group (which includes hiking boots and specialty sport footwear) at 30%. Lifestyle group sales rose over 17%, while Heritage was weakest at 15% growth. Given the generally poor job environment, it is not altogether surprising that work boot sales were softest (even allowing that many people choose to wear "work boots" for style or comfort reasons).

Margin performance was not bad either. Gross margin skidded a bit and was something of a disappointment. Wolverine did better on the SG&A line. (For related reading, see Understanding The Income Statement.)

Conservatism Leads to Concern
Although Wolverine looks like one of the better growth footwear companies today, there were concerns coming out of the earnings release. Backlog grew just 13%, down significantly from the 30% growth in the Q1 (and the 38% growth in the Q4). Inventories climbed 46%, which is a worry if Wolverine's competitors - like Timberland (NYSE:TBL), which is being acquired by VF Corp (NYSE:VFC) - Red Wing or R Griggs (parent company of Doc Martens) decide to get really aggressive on pricing.

All in all, it seems to be management's conservatism that riled up Wall Street. The company beat estimates by less than its accustomed margin, and management was fairly conservative about its forward guidance. But that's Wall Street for you - it would rather a company lie today and disappoint tomorrow than be cautious today and surprise tomorrow.

Still Plenty of Levers for Growth
Wolverine has been around quite a while, but that does not mean there's nothing left for the company to do to boost growth. International markets are a real opportunity for the company; Collective Brands has not had breakout success here yet, but overseas markets have been huge for Nike. Wolverine will probably find it easier to make headway with its lifestyle and outdoor brands, as there is no doubt good potential demand for work boots, but Wolverine's price point could be tricky in some markets.

Acquisitions could be another opportunity for Wolverine. Collective Brands, Brown Shoe, Columbia Sportswear (Nasdaq:COLM), Nike and many others have all grown through acquisition. Maybe a company like Sketchers or K-Swiss (Nasdaq:KSWS) could fit into the Lifestyle group, or a company like Doc Marten could fit in as a Heritage brand. Who knows, maybe even expansion into traditional athletic shoes could ultimately make sense.

The Bottom Line
Wolverine has strong brands and a good record of returns on capital. Cash flow growth has been erratic, but Wolverine has almost always delivered predictable sales growth, so management's conservatism today should not really be a concern to long-term shareholders. The stock is not terribly cheap and does not seem to offer great long-term potential at these levels, but it is a fine hold and a good candidate for acquisition on a 10% (or greater) pullback. (For more on cash flow, see The Essentials Of Corporate Cash Flow.)

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