Market Cap Trumps Revenue

April 11, 2005
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ROCKFORD — When Wolverine World Wide Inc. released its 2004 fiscal year numbers this past winter, there was just a hint of frustration in its statement.

The Rockford-based footwear manufacturer had achieved its fourth consecutive year of record results. Its 2004 revenue was up 11.6 percent, a year-over-year spike of more than $100 million.

Everything that was supposed to be up was up; everything that was supposed to be down was down.

"Globally, we've never been stronger," said Wolverine President and CEO Timothy J. O'Donovan.

He later ended his statement, "Looking ahead to 2005, we are one step closer to realizing our vision of becoming the world's premier non-athletic footwear company as we anticipate crossing the $1 billion mark in revenue for the first time in the company's history."

Wolverine is within a select group of West Michigan companies inching toward the 10-digit mark.

It was a narrow miss for Wolverine in 2004, with revenue totaling $991.9 million. While the company does project 2005 revenue of $1.04 to $1.06 billion, it will wait another year for that billion-dollar title.

"They've been trying to reach it for so many years (that) when they do, it'll probably be a big event," said Tom Oaks, vice president of investments for Kent King Securities Co., in Grand Rapids. "They'll be proud and they should be, but there are plenty of more important factors to consider."

Within the investment community, revenue is not generally of utmost importance, Oaks said.

"It's significant, don't get me wrong.

But Wall Street
doesn't grade companies by what they reach in revenue," he said. "We'll be happy when they meet that goal, but we won't look at the company any differently from the day before."

While the general public may notice a difference between the billion dollar revenue companies and those with less, the investment community does not.

Instead, investors focus on market capitalization.

These metrics do not represent earnings or quality, but a representation of the active marketplace, defined as the number of outstanding shares in the market times the price per share. Through this, companies are classified as large, mid- or small cap.

Here, the billion-dollar mark is significant, representing the difference between a small and mid-market rating.

"Revenue is a significant milestone for its psychological impact and the momentum it creates for the business, but from a financial perspective, it is really more market cap than the sales number," said Kristi Cowdin, Wolverine's director of investor relations and corporate communications.

Wolverine crossed the billion-dollar threshold in market capitalization eight months ago.

"There were a lot of people who were interested in our story but quite simply couldn't look at us because we were under a billion-dollar market cap," Cowdin said. "They can't own you because of their fund parameters. Now we're not just a small cap player anymore. We get more play and more attention. We're playing to be a bigger audience."

Kent King's Oaks pointed to Spartan Stores as a local example of an unfavorable market capitalization situation.

In fiscal 2004, Spartan Stores had over $2 billion in revenue, but at press time, Reuters listed Spartan's market cap at just over $200 million, making it a small cap stock.

On the flip side, Wolverine boasted a market cap of $1.21 billion.    

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