Wolverine’s Q2 Exceeds Guidance

The quarter included a full 12 weeks contribution from the company's October 2012 acquisition of the Sperry Top-Sider, Saucony, Stride Rite, and Keds brands (the “PLG Acquisition”).

Second quarter highlights:

Revenue in the second fiscal quarter ended June 15 was a record $587.8 million, up 88.0 percent versus prior year reported revenue of $312.7 million and within the company's expectations going into the quarter.  The quarter's revenue was up 5.5 percent versus prior year pro forma revenue.  Sperry Top-Sider, Keds, Saucony, and Harley-Davidson Footwear led the revenue growth in the quarter.

Reported gross margin increased 320 basis points to a record 41.0 percent.  The strong gross margin performance was balanced across the company's portfolio of brands and was driven by pricing discipline, favorable brand and channel mix, and better inventory management.
Excluding acquisition-related transaction and integration expenses, fully diluted earnings per share in the quarter were 46 cents, substantially ahead of the company's previous guidance of 31 cents to 35 cents per share and a 12.2 percent increase compared to the prior year's second quarter earnings adjusted for both acquisition-related transaction and integration costs and a non-recurring tax benefit.  The excellent earnings results were driven primarily by better-than-expected earnings from the recently-acquired brands.  Reported earnings per share, including acquisition-related transaction and integration expenses, were 36 cents in this year's second quarter compared to 42 cents in the prior year.

Operating free cash flow in the fiscal second quarter was a record $165.1 million and the company reduced its interest-bearing debt by $73.6 million in the quarter, including fully paying off its revolving line of credit and a voluntary principal payment of $25 million on a term loan.

“We are extremely pleased to report excellent financial results in our most recent quarter,” said Blake W. Krueger, chairman and chief executive officer. “The combined power of our brand portfolio is virtually unmatched in the industry, and the continuing global consumer interest in authentic brands anchored in performance and heritage positions us well for future growth.  We continue to believe that the power of our 16-brand portfolio, a strong global infrastructure, and talented team have us poised to deliver growth and exceptional shareholder value.”
 
Additional details for the quarter:

Foreign exchange translation decreased the quarter's reported revenue by $0.9 million and foreign exchange contract losses reduced reported gross margin by 24 basis points.          

Excluding acquisition-related transaction and integration expenses of $7.9 million in the quarter, operating expenses were $196.2 million, better than plan at 33.4 percent of revenue, compared to 28.9 percent of revenue in the prior year's second quarter.  Year-over-year SG&A comparisons were impacted by purchase price accounting amortization, a greater percentage of revenue derived from consumer direct activities, incremental pension and incentive compensation expense, as well as investments in key brand marketing initiatives.  Reported operating expenses were $204.1 million in the second quarter.  
Excluding acquisition-related transaction and integration expenses, the effective tax rate in the quarter was 26.6 percent.  The reported tax rate, which benefits from the deductibility of the acquisition-related charges primarily in high statutory tax rate jurisdictions, was 24.2 percent.

The company ended the quarter with net debt of $1.014 billion, down $159 million from the net debt after the close of the PLG Acquisition in October 2012.

The company is reaffirming its full-year revenue guidance in the range of $2.7 to $2.775 billion, representing growth in the range of 6.0 percent to 8.9 percent compared to prior year pro forma revenue of $2.548 billion.  On the strength of the excellent year-to-date earnings performance, the company is raising its adjusted earnings per share guidance to a range of $2.60 to $2.75 per share, representing growth in the range of 13.5 percent to 20.1 percent, compared to prior year adjusted earnings per share of $2.29, and even stronger growth of 23.8 percent to 31.0 percent after further adjusting the prior year for $0.19 per share of non-recurring tax benefit.  On a reported basis, full-year earnings per share for the current fiscal year are now expected in the range of $2.06 to $2.21 per share.