Wolverine Increases Guidance on Strong Q3…

Wolverine World Wide saw earnings outpace high-single-digit sales increases for the fiscal third quarter and the company’s Outdoor Group again led the way. Wolverine’s Heritage Brands Group and Hush Puppies brand reported significant sales increases, while the Wolverine Footwear Group saw a double-digit decline in sales spurred by a slow military business. The company also gave investors and the media their first real insight into the performance and growth plans for the newly developed Patagonia footwear and Merrell apparel programs.

Wolverine’s order backlog was up by roughly 6% at the end of the quarter with double-digit increases in Hush Puppies, Heritage Brands, and the Outdoor Group partially offset by declines in the Wolverine Footwear group caused by the Bates military business. Excluding the effect of the lower Department of Defense order backlog, the company's overall backlog increase exceeded 10% at quarter end.

The 40 basis point improvement in gross margin consisted of a 110 basis point margin improvement from initial pricing margins, sourcing improvements, and manufacturing efficiencies, which was partially offset by 60 basis points of increased product cost on Wolverine’s European operations related to “dumping duties.” Selling and administrative expenses were impacted by investment in the Merrell apparel and Patagonia footwear initiatives. Excluding these investments, SG&A expense would have improved by 20 basis points.

The Outdoor Group revenues increased 19% during the quarter, led by the Merrell brand, which posted a 20% increase in sales. The group was also called out as the company's largest profit contributor in Q3. Merrell’s sales were driven by Continuum product, casual men’s, and fall women's casuals, which are generating double-digit sell through with a number of Merrell’s key retailers.

Sebago, also part of the outdoor group, reported revenue and profit increases for a second consecutive quarter.

The new Merrell apparel initiative is scheduled to be launched to the trade late this year and early next year with initial deliveries to retail beginning in the third quarter of 2007. A separate Merrell apparel sales team will be in place by November and with product and marketing materials, ready to begin calling on target retail accounts beginning by December. In addition, a significant number of Merrell's international distributors have also committed to participate in the apparel launch and are finalizing their plans for their respective markets.

Management said that the Patagonia footwear project “is progressing rapidly” with its initial 32 style spring '07 line. Merrell is partnering with the Patagonia apparel company to have footwear product in their retail stores, catalog, and website beginning early in 2007. There will be a few Patagonia early shipments late in Q4 with the bulk of the initial shipments planned for the first half of 2007.

Combined, the Merrell apparel and Patagonia footwear programs are expected to make up about 2.5% of Wolverine’s total revenue for fiscal 2007, which is roughly $30 million in sales. Management said that these two programs are “not too dissimilar” from their EU CAT initiative, which had a year of investment, a year of breakeven, and three years of marginal profitability before it ramped up to Wolverine’s average operating margin.

The Heritage Brands Group, which includes Caterpillar and Harley-Davidson, had a 10.9% increase in revenue led by the Caterpillar brand which achieved revenue increases in all regions.

On a year-to-date basis, revenue and profits are both up double-digits for the segment. International markets for the CAT brand have been strong in Canada, Russia, Latin America, and the Middle East.

Wolverine Footwear Group revenues declined more than 10% in Q3. The majority of the decline was due to the planned reduction in shipments to the U.S. Department of Defense and lower demand for private-label slipper product. While the branded Wolverine product is still up on a year-to-date basis, in Q3 revenues were down 2.3% due to lower shipments of rugged casuals and outdoor sport boots. Bates’ military revenue was down about $3 million during the quarter. Lower demand from the Department of Defense should impact Bates' 2006 revenue by about $12 million and Bates order backlog, which was “down significantly” at quarter end.

Hush Puppies revenue increased 4% during the quarter with the strongest gains in Canada and Europe. U.S. footwear revenue was “up slightly” with declining closeout sales offset by a strong increase in regular price shipments. Wolverine’s initiative to build Hush Puppies in key emerging markets including China, Russia, and India is on target to exceed the company’s 25% growth goal for the year.

Due to the company's third quarter results and current backlog, management increased 2006 earnings per share estimates to range from $1.41 to $1.44 up from $1.38 to $1.42. 2006 revenue range estimate remains $1.12 to $1.14 billion. Looking ahead to 2007, WWW management estimates revenue to range from $1.20 to $1.23 billion and earnings per share to range from $1.56 to $1.62.