Wolverine World Wide is up 3.2% on the day since reporting earnings. This is despite earnings that showed mixed results. They have lowered their sales guidance for the year while also missing on sales estimates for the quarter. They now estimate sales to be $2.75 billion for FY 2014 which represents a 2% annual growth down from original expectations of $2.78 billion which would've been 3% annual growth. This revision is due to weakness in US retail as well as weakness in their lifestyle group.
However despite missing sales and lowering guidance they have reaffirmed their full-year earnings guidance and also beat earnings estimates of $.59 adjusted earnings a share reporting $.63 a share. This is the eighth straight quarter that they have beat analyst estimates for adjusted earnings. The primary reason Wolverine was able to beat earnings while coming up short on revenue was due to increased efficiency. They showed a 2.8% year over year decline in operating expenses. This caused operating expenses as a percentage of sales to fall 50 bps and improved operating margin for the quarter by 70 bps. While the investment thesis that the company will begin to grow their margins by cutting costs has proved effective, we need to look for further evidence that Wolverine can start to increase sales in their lifestyle group or we may need to look for an exit opportunity in the near future.