Referring to the momentous recent acquisition of Timberland by VF Corporation while commenting on the outstanding results reached by his own company's for its second quarter ended June 18, Blake Krueger, chairman and chief executive of Wolverine World Wide, noted that the “private equity folks” have come back after a relative one-year pause.

Feeling that there will be no slowdown in their activity in the near future, he and other company officials told investors Tuesday that Wolverine would like to participate in this process, looking for the “right fit” with the right companies specializing in footwear or apparel in any countries.

They failed to indicate whether the group was involved in any takeover negotiations at this stage, but they pointed out that the management wants to ensure the attainment of an operating margin of 13 percent (in terms of Ebit) for the group in the medium term.

Wolverine World Wide Income Statement

(Million $, Second Quarter ended June 18)

 

2011

2010

% Change

REVENUES

310,139

258,199

20.1

Cost of Goods Sold

188,022

154,093

22.0

Restructuring Costs

-

425

-

SG&A

88,751

76,720

15.7

More Restructuring

-

2,311

-

Net Interest (Income)

129

(4)

-

Other Expense, net

973

395

146.3

Pre-Tax

32,264

24,259

33.0

Tax

8,301

7,037

18.0

NET

23,963

17,222

39.1

Cent/share (diluted)

0.5

0.4

37.1

The group reported a strong operating margin of 10.8 percent for the latest quarter, up from 9.5 percent in the same period a year ago, pushing up the Ebit margin for the first half of this year to 12.9 percent.

Net revenues grew by 20.1 percent to $310.1 million, with double-digit growth in every category. Net earnings per share rose by 23.1 percent to 48 cents, enabling the group to post a net profit of $59.8 million for the whole first half on revenues of $641.0 million, up from a profit of $44.7 million on revenues of $543.1 million in the year-ago period.

Consisting of Merrell footwear and apparel and Chaco and Patagonia footwear, Wolverine's Outdoor Group posted the strongest growth in several years in the second quarter, with its revenues rising by 30.0 percent to $127.3 million. Including licenses, one-third of Merrell's growth in terms of pairage came from the high-margin Merrell Barefoot collection, which continued to gain momentum in sales and orders.

On the other hand, Chaco's sandals were negatively affected by a rainy spring season in the U.S. (more on this segment in SGI Europe and The Outdoor Industry Compass).

The Lifestyle Group, comprising Hush Puppies, Sebago, Cushe and SoftStyles, grew by 17.5 percent. Among these brands, Cushe, which was acquired last year, enjoyed a triple-digit increase in revenues. It's now one of the five best-selling men's shoe brands at Nordstrom's.

Double-digit growth was recorded at Sebago, which was aided by collaborations with Artisan and Filson. The brand will open a store in London's Covent Garden in the autumn.

Hush Puppies reported strong double-digit growth in sales to distributors in Europe and elsewhere. Globally, sales volumes went up by 14 percent, but average selling prices increased in the U.S. leading to higher margins.

Wolverine's Heritage Group, which includes the Wolverine brand of work and outdoor boots and other operations such as Bates, HyTest, and Caterpillar and Harley Davidson footwear, enjoyed revenue growth of 15.0 percent.

Group managers mentioned a triple-digit increase in sales of Wolverine boots to international distributors. Product collaborations helped CAT Footwear to record strong double-digit revenue increases in each major geographic area., but the U.S. still represented only 15 percent of the global volume for the line.

As the second half of last year was particularly strong, with many retailers ordering products earlier to avoid price increases and shipment delays, the company is now forecasting an overall sales increase of only 10.5 to 10.7 percent for the full financial year, with earnings per share rising by at least 10.6 percent.

As retailers' inventories have become more normal in the U.S. as well as in Europe, the total backlog of orders at the end of second quarter was up by 13 percent in value and just below 10 percent in volume.

Wolverine's management is anticipating flat gross margins for this year, as compared to 2010, in spite of continued increases in sourcing costs. The gross margin declined to 39.4 percent in the second quarter compared with an adjusted level of 40.3 percent a year ago, but this was due almost exclusively to temporary problems at the group's own manufacturing facilities in the U.S.

Cost increases depressed the gross margin by 1.3 percentage points, but the group managed to gain 3 percentage points through selective price increases. Further price increases and more favorable exchange rates should help the gross margin from falling in the next two quarters of this year. Krueger predicted further cost increases in the near future, despite a re-engineering of the sourcing apparatus, but said they will be lower in the first half of 2012 than they were in the first half of 2011.

Because of the higher turnover, the operating margin progressed in the latest quarter in spite of the lower gross margin and an increase of $88.8 million in operating expenses, especially on advertising and other marketing action, and especially around Merrell Barefoot. Marketing expenses grew to 4.2 percent of revenues in the first half of this year. The management said these investments will continue to rise, especially within the newly establishing international division of the group, focusing on key brands and key initiatives.