Merrell and Outdoor Outpaces Solid Q2 Growth Seen Across Wolverine Business…

Wolverine World Wide, Inc. was the first public company out of the gate for the second quarter, delivering another quarter of strong results across most brand platforms. Three of the four operating groups delivered double-digit gains for the period, with the Outdoor Group, led by Merrell, taking the lead once again. Europe has delivered a big slice of the upside for the company, posting a 39% increase in the branded wholesale business and accounting for roughly two-thirds of the total revenue increase for the period.

The Hush puppies business saw a nice lift from international on its way to a 14% increase in quarterly revenues. The international business increased by more than 20% in the quarter and the U.S. grew 5% for the period. WWW sees the U.S. gain as a clear indicator that the business is again “gaining traction.”

The Heritage Group, which houses the Caterpillar and Harley-Davidson licensed businesses, posted an 11% sales increase for the period accompanied by a “significant increase in profit” for the period. The CAT Footwear business benefited from the conversion of its Canadian distributor to an owned-retail business, achieving “solid revenue gains” and profit gains in Europe and the U.S. The HD business saw earnings improvement for the period on “slightly lower revenues.”

The Wolverine Footwear Group, which consists of the Wolverine Boot, Bates, and Stanley brands, saw revenues decline roughly 12% for the quarter, with the entire $7 million decrease attributed to a reduction in Bates uniform footwear shipments during the period. WWW had forecast that Bates would see a $15 million to $20 million decline in deliveries this year and now sees that number at the high end of the range, or nearly $19 million. Wolverine Boot shipments were “down slightly” for the period due to the shift in timing of new product shipments and reorder demand from Sears, partially offset by the conversion to direct revenue sales in Canada.

Wolverine was also said to be gaining momentum in the rugged outdoor and sport boot categories with key partners in the outdoor specialty retail channel.

The Outdoor Group, which is home to the Merrell and Sebago brands and will play host to the newly inked license for Patagonia Footwear, posted a strong 25% increase in revenues.

Merrell outpaced the Group with a 27% gain in revenues for the period. Management said the increase at Merrell was driven by success of the Continuum project, which posted strong sell-through of key products. They also highlighted strength in women’s casual and performance as well as the children’s range. Management said that Merrell re-order activity was “robust” during the quarter thanks to better inventory support.

Merrell had approximately 135 shop-in-shops at quarter-end. The first Merrell store run by an independent retailer will bow this fall in Huntington, Long Island. WWW chairman and CEO Tim O’Donovan said they see additional partners coming on board and launching new additional stores, but this is the first firm location with a signed lease.

Sebago had its second consecutive quarter of double-digit revenue growth, with Europe showing “particular strength.” The conversion of the Europe business to sales agencies from distributorships continued, resulting in more competitive pricing and increased demand. There were obviously both winners and losers in the period, but management highlighted the classic hand-sewn mocs and the athletic-inspired marine product as key items at retail.

Turning to the new Patagonia Footwear license, Mr. O’Donovan said that product won’t hit the market until spring 2007. He said they will make an investment in dedicated resources on the project which will cost them about 10 basis points in the SG&A line on an annualized basis until they start generating revenues.

According to O’Donovan, Merrell is apparently in only 25% of the shops that currently carry Patagonia, a reality that could lead to some upside for Merrell in the deal. He also pointed to the strong presence Patagonia has in Japan and Europe, as well as the opportunity in Patagonia’s owned-retail, catalog, and Web businesses.

In WWW’s owned-retail, the eleven Track n’ Trail stores appear to be performing to plan, generating a low double-digit comp store sales gain for the YTD period.

The total company order backlog at the end of the quarter was up approximately 12%. HP, Heritage, and Wolverine Footwear were all said to be up 10% to 11%, but the Outdoor Group drove the number higher.

>>> The Patagonia deal certainly looks to provide some opportunity for Continuum…