Highlights From WWW's Q3 Conference Call: Raises FY EPS Outlook, Revenue Guidance Below Consensus

October 7, 2009 12:45 PM EDT

This morning, Wolverine World Wide Inc. (NYSE: WWW) reported Q3 earnings of $0.62 per share, ex-items, 7 cents better than the consensus of $0.55. Revenues fell 10% to $286.8 million, versus the consensus of $291.4 million. Investors feel a comfy fit...shares are up 4.3% today.

Highlights From WWW's Q3 Conference Call:

• Wolverine World Wide sees FY09 EPS of $1.65-$1.75, ex-items, up from its previous range of $1.55-$1.73 and the consensus of $1.69. The company sees FY09 revenue fo $1.08-$1.11 billion, versus the consensus of $1.12 billion. The midpoint of the revenue range remains unchanged at $1.095 billion.
  
• (CEO) A somewhat sad day here at Michigan given the Tiger's loss late last night, but we'll proceed with the call.
  
• While retailers are cautious and continue to be very conservative with their inventory levels, our brands are selling through nicely on a full price, nonpromotional basis.
  
• For Q3, our 94 company-owned stores reported a strong double-digit revenue increase on a comp store increase of over 4%. In addition, we've seen our 2010 order backlog build to a solid increase.
  
• Overall, Hush Puppies Group revenue in Q3 exceeded our internal forecast but was down upper single digits on a constant currency basis. Majority of the decrease was centered in our international licensing business and in our UK wholesale business, both of which felt the impact of a stronger US dollar.
  
• The Hush Puppy business in North America was down only 1% in constant dollars.
  
• During the quarter we opened our first company owned full price Hush Puppy concept store in Montreal, Canada. This store is performing exceptionally well and it's exceeded our internal sales plans by a substantial margin.
  
• Our consumer direct business in the UK also continues to outperform the market.
  
• Our back-to-school business was especially strong as our proprietary children's measuring and fitting proposition "Fit Left Fit Right" drove strong back-to-school sales in the quarter.
  
• Cushe, our new design led active lifestyle brand targeting younger consumers is generating positive buzz in many footwear markets.
  
• Early sell through in the U.S., Canada and Europe for Cushe has been very encouraging. To date, we have signed distribution agreements covering 25 countries for Cushe and our first pop-up store recently opened in Manila.
  
• Let's turn to the Heritage Brands Group, which includes Sebago as well as our two largest licensed footwear businesses Caterpillar and Harley-Davidson. Overall revenues were in line with our forecast but down upper-single digits versus last year on a constant dollar basis.
  
• For CAT, our European business in the quarter experienced a mid-single-digit revenue increase in local currency driven by the continuing trend towards classic boots looks, a style trend what I guess contributed to a double-digit revenue increase for Italy in the quarter. Italy is our most fashion-forward
  market.
  
• While our international CAT distributor business continues to have strong support at both the retail and consumer levels, the stronger U.S. dollar and tighter credit controls resulted in restricted shipments to a handful of large international markets.
  
• Turning to Harley-Davidson. We experienced revenue increases against the prior year in our owned European and international distributor operations, which were offset by a planned decline in the U.S.
  
• While our top 40 retail accounts were up 12% in the U.S., this did not offset broader-based at once weakness especially with second and third tier Harley-Davidson retailers.
  
• Internationally, we launched the Harley-Davidson dealer exclusive e-commerce website servicing almost 500 international dealers with a broad selection of styles shipped direct to the dealer from the U.S. Harley-Davidson footwear continues to be one of our most profitable and highest return businesses.
  
• Our Sebago business experienced a strong double-digit revenue increase in Canada and Europe during the quarter. These increases were offset by revenue declined in the U.S. primarily due to soft reorders in our international distributor business due to slower-moving premium-priced products.
  
• Turning to the Wolverine Footwear Group, Q3 revenue was down double-digits compared to the prior-year year due primarily to the domestic economy, which has seen increased factory closings and workforce reductions.
  
• The Outdoor Group which consists of Merrill, and Patagonia Footwear and Chaco generated strong quarterly earnings on a low-single-digit revenue decline on a constant-currency basis.
  
• Merrell's Outventure, that's its outdoor performance category of footwear, had an exceptional quarter with a healthy revenue increase.
  
• During the quarter, Merrell Apparel was prominently featured in many outdoor and sport publications. New products for trail activities, sun protection and cycling in the 2010 spring product line have been very well received by retailers resulting in a strong double-digit order backlog increase for spring 2010.
  
• Patagonia is experiencing strong sell through of key models with our top retailers this fall. This momentum will carry forward as the spring 2010 product have booked in very well and our order backlog is up high double-digits across all product categories.
  
• (CFO) We reported Q3 revenue of $286.8 million, a decline of 10.1% compared to prior year revenue of $318.9 million.
  
• About one third of the revenue decline in the quarter was driven by a stronger U.S. dollar, but the revenue decline in constant dollars was approximately 6.9%.
  
• Gross margin in the quarter after adjusting for the non-recurring and restructuring charges was 40.2% compared to 40.4% in the prior year's Q3.
  
• Operating expenses were down 11.1% in the quarter after adjusting for restructuring and related charges, foreign exchange, operating expenses directly resulting from our newly acquired brands and finally increased pension expense.
  
• Adjusting only for the non-recurring, restructuring and related charges, operating income in the quarter was $41.3 million and operating margin was 14.4% versus last year's 14.5%.
  
• Accounts receivable up $223.5 million at quarter-end decreased 7.1% compared to the prior year as we continue to effectively monitor customer's creditworthiness and collect amounts due.
  
• The inventories were down 5.2% versus the prior year compared to be up 6.9% at the end of Q2 and up 15.6% at the end of Q1.
  
• We've reduced our revolver balance by quarter end to $9.9 million, down significantly from 34.8 million at the end of the second quarter. The company ended the quarter with $78.5 million in cash and cash equivalents and total interest-bearing debt of 11.6 million.
  
• (Q&A) You mentioned that in your comments that retailers are placing futures on a more normal basis. I know that in the last year there has been a shift away from the pre-book with more retailers skewing towards at once orders. So how much of the solid spring backlog do you think is just a reflection of that pendulum swinging back the other way where maybe as you go into the first half of the next year more of your businesses are going to be captured by your pre-books and less at once, and may be your ultimate sales aren't going to be as strong as what's your pre-books might be indicating? If that make sense? (A)What's happening is not unexpected I guess. Last year Q1, Q2 even Q4 of last year, we saw the retailers scramble to adjust their inventory. So there were almost no future, I mean future orders fell off significantly for retailers and they only placed at once orders on really a needed basis. The pendulum we hope and believe is swung back to a more normalized order placement for future orders. They need their stores looking fresh, they need to plan their inventory. Inventory levels are a lot thinner today than they were a year ago. So we're not surprised. So we're seeing at once may be fall-through a more normalized level. And that may take another quarter or two but future orders hopefully have reached a normalized level.
  
• And then a question on FX. Don, you mentioned minimal impact on sales for Q4 about a $0.09 impact on earnings I think you said. So does that earnings hit then come through the gross margin line based on your hedges? And then how should we be thinking about the impact of FX beyond the fourth quarter given your hedges and the weakening of the U.S. dollar. At what point does that negative turn in to a positive or potentially turn in to a positive? And where should we see that on the P&L again? Does that come in the gross margin side? (A) The answer to your first question is yes. The contract impact will probably cost of sales and therefore impact gross profit and gross margin in the fourth quarter. So we're still forecasting gross margin expansion in the fourth quarter, even with that regard for that. Second part of your question is, we'll start seeing some of the turnaround in Q1 of next year, Mitch, but probably more so in Q2 in terms of when we start having contracts maturing they reflect the more recent weakening of the dollar.
  
• And then last question, when I look at your Outdoor business through the first three quarters of this year, the trend has been pretty lumpy, having sales down 9%, Q1 up 6%, Q2 like I think you set down low-singles in constant for Q3, which I'm guessing is probably mid-singles in reported dollars. I mean is that largely a function of -- again, just kind of the pattern that retailers are taking deliveries later in the season? And should we think that the Outdoor business is better in Q4 than it was in Q3, just like it was better in Q2 than it was in Q1? (A)I would really view this as -- you have to remember, the outdoor specialty distribution channel went into the recession a little bit later than other, later than department stores and some other distribution channel. So that's part of the reason for some of the up and down.
  Clearly in the quarter though, the Outdoor Group was our best performing group from a revenue standpoint. It's a little frustrating to us, we're not getting more at once orders especially when we look at the sell through data and reports that we're getting across our product range, including some existing key styles, but new styles. But I think the Outdoor Group will continue to be one of our fastest growth vehicle.

Wolverine World Wide, Inc. engages in manufacturing, sourcing, marketing, licensing, and distributing footwear, apparel, and accessories to the retail sector primarily in the United States, Europe, and Canada.

Related Categories

Corporate News
Earnings

Stocks Mentioned

Related Entities

• Life, Style and Real Estate

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?