Wolverine World Wide, Inc. - 10-Q Summary
Business Context and Reporting Period
This report covers the second twelve-week accounting period ended June 16, 2007. Wolverine World Wide, Inc. is a global designer, manufacturer, and marketer of branded footwear, apparel, and accessories. The company operates through one reportable segment (Branded Footwear, Apparel, and Licensing) and other business units including retail and leather operations. The company reported record revenue and earnings per share for the 20th consecutive quarter.
Key Financial Metrics
| Metric | 12 Weeks Ended June 16, 2007 | 12 Weeks Ended June 17, 2006 | 24 Weeks Ended June 16, 2007 |
|---|---|---|---|
| Revenue | $250.3 million | $238.5 million | $531.4 million |
| Gross Margin | $95.5 million (38.2%) | $90.4 million (37.9%) | $209.5 million (39.4%) |
| Operating Income | $23.6 million | $21.7 million | $56.2 million |
| Net Earnings | $15.5 million | $14.2 million | $37.8 million |
| Diluted EPS | $0.28 | $0.25 | $0.67 |
| Cash and Equivalents | $77.0 million | $81.0 million | $77.0 million |
| Total Debt | $21.5 million | $32.2 million | $21.5 million |
| Operating Cash Flow (24 wks) | $33.7 million | $34.4 million | $33.7 million |
Material Changes vs. Prior Period
- Revenue Growth: Second-quarter revenue increased 5.0% year-over-year, driven by a 7.2% increase in the Branded Footwear, Apparel, and Licensing segment. International revenue now accounts for 35.9% of total revenue.
- Segment Performance: The Outdoor Group (Merrell, Sebago, Patagonia) saw a 17.2% revenue increase. Conversely, the Wolverine Footwear Group declined 8.9% due to planned reductions in U.S. Department of Defense orders and the phase-out of private label business.
- Margin Expansion: Gross margin improved by 30 basis points to 38.2%, aided by favorable foreign exchange contract rates, partially offset by anti-dumping duties on products sourced from China and Vietnam.
- Liquidity: Cash on hand decreased to $77.0 million from $124.7 million at year-end 2006, primarily due to $70.6 million in share repurchases and $9.0 million in dividends paid during the first half of the year.
Outlook, Risks, and Management Commentary
- Guidance & Strategy: Management aims for mid-to-upper single-digit annual revenue growth and double-digit EPS increases. The company is investing in new product initiatives (Merrell Apparel, Patagonia Footwear) and expanding retail presence (83 stores as of Q2 2007).
- Capital Allocation: The company continues an aggressive share repurchase program, buying back 1.2 million shares in Q2 2007. Dividends were increased 20% to $0.09 per share.
- Risks: Key risks include foreign currency fluctuations, anti-dumping duties in Europe (16.5% on Chinese leather footwear), raw material costs (leather, petroleum), and dependence on specific customers (e.g., U.S. Department of Defense).
- Contingencies: The company is subject to routine tax audits and environmental claims, though management does not expect these to have a material adverse effect on financial position.
Investor Verification Checklist
- Inventory Management: Verify the impact of inventory turns decreasing to 3.6 (from 3.7) and the adequacy of reserves for potential product returns.
- Foreign Exchange Exposure: Assess the sustainability of margin benefits from hedging contracts versus the headwinds from anti-dumping duties and currency translation.
- Customer Concentration: Monitor the impact of the planned reduction in U.S. Department of Defense orders on the Bates brand and overall Wolverine Footwear Group revenue.
- Debt Structure: Confirm the status of the $150 million revolving credit facility (currently $0 outstanding) and the maturity schedule of senior notes.
- Share Repurchases: Track the remaining authorization under the April 2007 program (5.8 million shares remaining) and its impact on future liquidity.