Wolverine World Wide (WWW, Financial) has been struggling thus far in 2014. The stock hasn’t performed nicely for investors, and the recent earnings report wasn’t great, either. However, the company is making some smart moves and should start to get better going forward. Hence, the company looks like a great buy at present valuation. Let’s take a look at the company’s recent earnings report along with its prospects.
Mixed quarter
After the results of third-quarter earnings, shares of Wolverine increased 3.2% as the leap of 63 cents per share in earnings was way ahead of the consensus estimate of 59 cents per share. This marked a year-over-year improvement of almost 9%.
Apparently, Wolverine’s revenues of $ 711.1 faced marginal decline of 0.8% on year-over-year basis and missed the consensus estimate of $720 million. Lifestyle group sustained decent runs by its performance at the heritage and performance groups. Revenues of lifestyle group fell down 6.7% to $ 277.9 million whereas sales of Heritage group and Performance group was up 4.6% and 22%, respectively.
Canada, Asia-Pacific, Europe, Middle East and Africa showed good performance while brandwise Merrell, Saucony, Chaco, Patagonia Footwear and Wolverine were brawny performers. Sperry brand minor sales remained company’s issue of focus.
The company’s gross margin expanded 10 basis points (bps) to 40%; its gross profit fell by 0.5% to $284.7 million in third quarter. Favorable product mix and selected price hikes led to the increase in gross margin. Company’s adjusted operating margin expanded by 70bps to 13.8%.
Bright future
Wolverine administration has chosen to close around 140 stores in the next 16 months and will unite its store operations to enhance productivity. This realignment ought to profit the company to the tune of around $11 million yearly, which can be utilized to fuel development in its wholesale operations. This is a big step ahead as getting rid of unprofitable outlets can really help the company invest money in the right places. The company’s management said:
"The realignment of the consumer-direct business is intended to optimize the fleet of retail locations, right-size the supporting infrastructure, address a fundamental shift in consumer shopping behavior and allow for greater focus on important omni-channel initiatives."
Wolverine has rolled out several key leadership improvements in the Sperry brand, such as enrolling new senior executives to head the advertising and sales teams. Also, Sperry has kept up its No. 1 position in the aggressive casual footwear market. Wolverine aims to make Sperry its first billion-dollar brand going ahead so it is making moves consistent with this target to enhance its execution.
Proceeding onward, Wolverine has a strong distribution system with around 11,500 distribution centers. Its brands are accessible in a number of the world's best malls and high streets, as per administration. In the previous quarter, it opened around 150 new model-marked stores or shop-in-shops far and wide. Wolverine cites development in China and Latin America as its key development drivers. As a result, it expects to open an alternate 800 stores and shop-in-shops before the year's over to catch a greater amount of the business.
So, it is clear that Wolverine is closing down the unprofitable stores and is using the cash to open up new stores in other locations. This should increase Wolverine’s reach to the customers and should benefit the company in the long run.
Conclusion
As mentioned above, Wolverine is making the right moves to increase its appeal to the customers, and the company’s initiatives look great. Although Wolverine’s earnings report wasn’t great, the company managed to beat the estimates on bottom-line and the closure of stores will further boost its profits. Hence, Wolverine looks like a great buy at present valuation.
