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This Company Is Set To Have A Bright Future

August 06, 2014 | About:
Suravi Thacker

Suravi Thacker

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The retail numbers have shown up well in the month of June. U.S. retail sales rose 0.2% in June. Excluding the autos, retail sales have gained 0.4%. This is mainly because of strength in the apparels, food and department stores. Even the footwear industry is making its presence felt. Demand for footwear is also on the rise. Therefore, footwear retailers are enjoying the ride, helped by higher customer demand.

A typical example here is that of Wolverine World Wide (WWW), provider of casual and designer footwear. This company is doing well and its second quarter results were not an exception. It reported better than expected numbers, beating the Street’s estimates. Let us take a look.

By the numbers

Revenue surged 4.4% over last year to $613.5 million. This was higher than the analysts’ expectations of $608.5 million. The top line was driven by growth across all the three segments. Also, a shift in Easter and an increase in product prices helped in boosting sales during the quarter.

Out of the three segments, Lifestyle Group makes most of the revenue and grew 3.5% over last year. Even Performance Group registered growth of 5.8% to $211.2 million, over the prior year’s quarter. Revenue from Heritage and Other Group jumped 2.6% and 10.8%, respectively. Further, Wolverine witnessed double-digit revenue gains in regions such as Asia-Pacific, Latin America and EMEA.

Adjusted earnings for the quarter jumped to $0.31 per share from $0.23 per share in the previous year. The bottom line too surpassed the analysts’ estimate of $0.27 per share. However, gross margin fell to 40.1% from 41%. This decline was due to higher input costs and increase in promotional activity.

Restructuring measures

In order to overcome the problems of increasing costs and shrinking margins, the retailer has come up with a restructuring program. This program will not only help in reducing costs, but also in focussing on the core business, which give higher profitability.

So Wolverine World Wide plans to close 140 stores in the next 18 months. It will close 60 stores by the end of this year and another 80 by the end of FY 2015. These stores mostly include the Stride Rite stores and will make the store operations better and more profitable. This effort will result in a total cost of $30 million to $37 million. However, this plan will lead to a benefit of $11 million on an annual basis.

Thus, the footwear retailer lowered its guidance for the year. It now expects revenue to be in the lower range of $2.75 billion and $2.85 billion. Further, it reduced its earnings forecast to a range of $1.32 per share and $1.38 per share from a previous forecast of $1.48 per share to $1.54 per share.

Conclusion

The consumer direct business of the footwear giant is set to gain from the restructuring efforts. Although the plan will be weighing on the bottom line, its benefits will be reaped in the years to come. Also, it will help the company remain focussed on its core operations. Further, Wolverine is firing on all cylinders, since all the segments have been doing well. Its innovative products, wide geographical presence and strong bonding with customers should work in its favor. Therefore, the retailer’s performance, coupled with the increase in consumer spending in the U.S. should be beneficial for its investors.


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