Wolverine Boots Expectations, Profits

April 24, 2006
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ROCKFORD — Wolverine World Wide Inc.’s profits are kind of like the shoes it makes: sturdy, not fancy, but stylish and well-built enough to keep people coming back for more. In recent months, Wall Street analysts have been hinting that the strength of Wolverine’s performance is ebbing, but the company’s first-quarter performance shows that it still has plenty of kick.

Analysts were right to expect single-digit revenue growth from Wolverine, but they guessed wrong on most of the company’s other important figures. Sales increased by 7.3 percent from the first quarter of 2005, rising to $263 million. Cost of goods grew at just 5 percent, resulting in a gross margin of $106 million, up more than 10 percent from 2005. Other expenses were also held in check, resulting in net income growth of 22 percent. On a diluted per-share basis, income was up 26 percent.

“Record first quarter earnings were driven by strong gross margin expansion,” Stephen L. Gulis Jr., Wolverine’s CFO, said in a statement released along with the results. “Gross margin during the first quarter of 2006 grew to an all-time record 40.3 percent, a 100-basis-point improvement over first quarter 2005. This improvement resulted primarily from increased sales of higher margin lifestyle products, strong inventory management and a positive impact from foreign currency.”

The impact of foreign currencies has slightly offset another cost of doing business abroad: foreign regulation. Earlier this month, Wolverine announced that it would likely be performing on the low end of its earnings forecast range, after news that the European Commission would increase import duties on shoes manufactured in southeast Asia, where Wolverine has contract manufacturing partners. Based on those tariffs, the company announced that sales would likely fall on the lower end of the expected $1.11 to $1.13 billion range. Likewise, profits would be closer to the bottom end of their forecast range of $1.34 to $1.40 per share.

But due to the strength of the first quarter’s performance, Wolverine Chairman and CEO Timothy J. O’Donovan reversed his earlier earnings warning.

“Based on the strength of margins in the first quarter and continuing consumer demand for our global brands, our earnings outlook has improved, and we now expect earnings per share to be in the upper half of the range,” he said.

Wolverine is currently working to expand two popular consumer brands. In 2007 the company will introduce an apparel line for its Merrell outdoor footwear brand. It is also preparing to launch a footwear line for a popular outdoor apparel company. Wolverine will team up with Patagonia Inc. to create that company’s first branded footwear lines, also slated for a 2007 debut.

Those brands and others like them hold the key to Wolverine’s future performance.

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