Tuesday, July 15, 2014

WWW 2nd Quarter Earnings

Wolverine World Wide reported 2nd quarter earnings before the market opened on July 15th, 2014. They reported earnings of $.31 per share beating estimates by over 14% while having sales come in at $614 million, just .77% above street estimates. This illustrates Wolverine's ability to increase margins during a tough retail environment focused on increased promotional activity. Although Wolverine increased margins leading to higher earnings, the stock still fell just over 3% today due to expected costs that come along with their "strategic realignment plan". Here they have unveiled their plan to close 140 stores by the end of FY 2015 with 60 of these coming by the end of 2014. The costs of the realignment plan are expected to be between $30 - 37 million between now and the end of 2015. This will lower EPS over the next 6 quarters but is the right move for the company going forward. Many of these planned closures are from one of the recently acquired and under performing brands, Stride Rite. They have also agreed to end their licensing agreement with a small brand from the performance group, Patagonia, that has generated small revenue and rarely contributes to their profit.

Retail has struggled mightily throughout the year and Wolverine is no exception. But while many company's have relied on promotions to drive traffic at the expense of lower margins Wolverine has instead experienced margin expansion. Through their "strategic realignment plan" they plan to consolidate certain consumer direct functions and experience additional synergies that will continue to drive margin expansion. Wolverine has continued to navigate this increasingly difficult retail environment head and after updating the model still has a potential upside of 19% from our original purchase price, $27.30, and a 27% upside from today's closing price of $25.64. While I believe this company has high earnings and stock price ahead of them I will continue to monitor them and watch for if they drop below their stop loss of $24.57 which would represent a 10% drop from our original purchase price.

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