Wolverine World Wide continues to rely on its Outdoor Group and its licensing business in its Heritage Brands Group for the majority of quarterly revenue gains while the Bates military business is showing more weakness in the face of slow government orders. At the same time, the Hush Puppies brand is showing double-digit increases in revenue globally and improved margins are boosting profitability. WWW margins increased slightly due to more sales of higher margin merchandise in the Hush Puppies brand group and the Wolverine brand group. Management said that reduced demand for leather products impacted revenue growth by 1.5% in the quarter, reflecting an industry-wide shift towards the use of synthetic materials in global branded footwear, a trend that will likely continue in the back half of the year.  Additionally, foreign currency had a positive impact on revenue growth of 1.6% for the quarter.


European and international businesses had a “very strong quarter” with double-digit revenue increases while sales were down slightly in North America. Overall order backlog for all of the WWW brands was up roughly 6.5%. Excluding Bates and any discontinued businesses, backlog is up in the double-digits. Excluding new businesses, like Merrell apparel and Patagonia footwear, backlog was up about 8%.


During the second quarter, the most significant contributor to sales growth was the Outdoor Group, which consists of Merrell, Sebago and Patagonia footwear. Sales for the group were up over 17% with Merrell contributing a significant majority of the increase.


The Merrell global footwear business was up mid-teens in the second quarter. Sales for the brand were “significantly higher” in all regions with the exception of Canada where the timing of shipments to Merrell’s “largest customer” had an impact on Q2 sales.  Merrell footwear currently has a “strong double-digit” order backlog.


Management said that “a little bit more than half” of Merrell’s revenues, year-to-date, came from the U.S. with the rest international. About half of Merrell’s international business came from Europe and Europe’s share of the brand’s business is growing.


At the end of Q2, Merrell had 27 stand-alone concept stores and over 500 dedicated shop-in-shops globally. In the U.S., the brand has almost 60% of all sales in the outdoor and footwear specialty store channels. Wolverine will open the first company-owned Merrell specialty store this fall in Whistler, Canada and management also expects Merrell store openings in the international markets to accelerate.


The two new businesses in the Outdoor Group, Merrell Apparel and Patagonia footwear, continue to perform well.  Management expects initial shipments of Merrell Apparel to be in the $9 million to $10 million range.  Patagonia footwear is now expected to generate $13 million to $15 million in revenues compared to previous projections of $15 million to $18 million.


“The initial season sell-throughs of Patagonia footwear have exceeded our expectations and this new growth initiative is off to an excellent start. Sales are building in the Patagonia website, catalog and brand store venues,” said Blake Krueger, Wolverine’s CEO.  “Our goal of marketing the best possible footwear with the least possible harm to the environment is resonating with this consumer.”


A high-single-digit increase in the U.S. coupled with strong double-digit growth in Europe contributed to Sebago’s Q2 global revenue   increase of 9.1%.


The hand-sewn classics line had a “strong spring   season” and the global women's business has doubled in size this year.


In Wolverine’s other business segments, the Heritage Brands Group, which consists of WWW’s two largest licensed footwear businesses, Caterpillar and Harley Davidson, had quarterly revenues and earnings increases in the mid-single-digit range. Growth was exceptionally strong in international markets.


The Hush Puppy businesses grew roughly 10% during the quarter and the Wolverine brand business grew in line with the overall footwear market.  The main shortfalls in revenues for the quarter were from the rest of the Wolverine Footwear Group and due to “planned reductions” in Bates military and private label businesses.  Profits in the quarter for the Wolverine brand group exceeded plan by a healthy margin due to a better mix of higher-margin product. The core Wolverine brand grew by 3% in the quarter and exceeded plan.


On the balance sheet, management said that inventories were in good shape in terms of quality, and that they are choosing to stock narrow and deep on key styles. They also intend to have further inventory improvements in the back half of the year. In addition, management said that retail inventories are relatively clean.


Looking ahead, management increased their FY 2007 earnings guidance due to strength in the Outdoor, Hush Puppies and Heritage brand groups. WWW management now believes diluted EPS for the year will range from $1.60 to $1.64, up from previous estimates of $1.57 to $1.63.