The Wide World of Wolverine

In its quarterly results, Wolverine World Wide (NYSE: WWW  ) showed that it's waltzing right through the downturn in the economy. The owner of Merrell, Sebago, and Hush Puppies posted a 17% increase in earnings per share and an 11% boost in backlog. The company upped its 2007 earnings guidance based on the strong results.

The only disappointment was the modest revenue growth of 3.8%. I don't view this as a long-term issue, though, as the company has a solid track record of growing its revenue. Over the past five years, compounded annual revenue growth has been, on average, 9.1%.

Additionally, several temporary setbacks, primarily lower military sales and the closure of private brands and Stanley business, were responsible for lower revenue this quarter. However, I don't view these issues as posing material problems for the business going forward. The company doesn't rely on a large chunk of revenue to come from its military contracts, and military sales were expected to fall back to prewar levels at some point. And by shedding some of its businesses (the Stanley brand, Hush Puppies slippers, and various private label contracts), the company can focus on its larger and more profitable segments -- particularly Merrell.

Merrell had another great quarter. Footwear sales and backlog increased by double digits this quarter, and management believes customers are already becoming more loyal to its newer clothing line. The just-launched clothing business is focused on the casual and active outdoor segments, and it will face stiff competition from apparel makers like Columbia Sportswear (Nasdaq: COLM  ) , which has recently been deemed worth trying on, lucky VF Corp's (NYSE: VFC  ) North Face, and Under Armour (NYSE: UA  ) , which recently underwent a reality check. Even so, management is expecting Merrell clothing to generate $7.5 million in revenue during its first season. While that's a modest start, management expects great things out of Merrell. In the most recent earnings call, CFO Stephen L. Gulis stated, "Merrell can be our first billion-dollar brand."

I'm not sure that Merrell will be a billion-dollar brand, but this stock is definitely worth trying on. The company has produced 21 consecutive quarters of record revenue and earnings per share, and its stock trades at only 18 times trailing earnings. Meanwhile, struggling Timberland (NYSE: TBL  ) is selling at 16 and K-Swiss (Nasdaq: KSWS  ) at 15.

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