Investors have reason to enjoy owning shares of Wolverine World Wide
The new lines will be part of Wolverine's Outdoor Group, which accounts for more than a third of Wolverine's total sales. The other shoe groups, which include Hush Puppies, Harley-Davidson, Bates and CAT, are reliable in generating solid sales. But the Outdoor Group is Wolverine's most exciting and profitable business unit, having grown revenue at a double-digit rate for seven years. Patagonia shoes and Merrell apparel are expected to be key sources of future revenue growth for the Outdoor Group.
Patagonia shoes will ship in the spring of 2007, and Merrell apparel will launch in the fall of 2007. Wolverine is investing $6 million this year to develop the new product lines. Ultimately, success will depend on consumer taste, marketing, and Wolverine's ability to execute. However, both lines' strong brand names help position them for success.
Patagonia is a tremendous brand, setting the standard in outdoor performance apparel for over 20 years. Wolverine will be able to leverage Patagonia's extensive brand equity and distribution channels, which should drive sales and reduce its advertising expenses. Since Patagonia is internationally known, Wolverine is launching the shoes on a global basis, instead of country by country, which should result in faster sales growth.
Merrell was voted the "Outdoors Brand of the Year" by retailers for a fourth year in a row in a recent poll conducted by Footwear Plus. Considering Merrell's reputation for authenticity and brisk sales growth in footwear (17% last quarter), the new Merrell-brand apparel will probably sell well. Its competitor, Timberland
These two new lines will help the Outdoor Group grow over the next three to five years. If it can do so without shrinking profit margins, Wolverine's overall operating margin should improve. That could be a strong catalyst for share appreciation, considering that Wolverine's current operating profit margin of 11% lags other leading shoemakers such as Timberland, DeckersOutdoor Group
At the most recent price of $23.40 per share, Wolverine is a solid business at a reasonable, but not compelling, valuation. The forward earnings multiple of 15 is a slight premium to its five-year average of 14. On a comparable-company basis, Wolverine runs in the middle of the pack. It is more expensive than Nike (14.5), Timberland (13.3), K-Swiss (14.1), Deckers Outdoor (14), and Rocky Brands
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