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Backed by strong balance sheet, Wolverine to pursue M&A opportunities ‘aggressively’

BY Friday, August 11, 2017 12:19pm

ROCKFORD — With strong cash flow in the first half of the year and backed by a positive outlook for the rest of 2017, executives at Wolverine World Wide Inc. are getting aggressive in pursuing new growth opportunities.

The Rockford-based marketer and manufacturer of footwear and apparel reported $412.8 million in cash on its balance sheet as of July 1, the end of its second quarter, an increase of more than 86 percent from a year ago.

That’s “plenty of dry powder” that the company can use to look for “the next right strategic fit,” said Chairman, CEO and President Blake Krueger in a call with brokerage analysts this week.

“(O)n the acquisition M&A front, I think we’re aggressively reviewing opportunities right now and we have been for some time,” said Krueger, noting that “multiples have maybe come down a little bit” recently. “We have a pretty long history and successful track record when it comes to integrating brands into the business and plugging and playing them into our international network.”

The company’s strategic restructuring plan, Wolverine Way Forward, started to yield “significant” benefits in the second quarter, driving cash flow and giving the company fuel to “pursue value enhancing acquisitions,” according to Senior Vice President and CFO Mike Stonant, who noted inventory was down 24.1 percent compared to the previous year.

“(W)e had healthier business, we’ve got a cleaner inventory, we’ve been able to recognize those improved product costs in our margins earlier than we sort of had initially expected. Our pipeline at retail is cleaner so our markdowns and our promotions have been lower,” Stornant told analysts. “So that’s really a function of groundwork we laid last year and before last year to kind of improve the business.”

For the second quarter, Wolverine (NYSE: WWW) generated $598.8 million in sales, a decrease of 3.3 percent when adjusted for a change in its calendar in 2017. However, underlying quarterly revenue increased 1.4 percent, according to the company’s earnings statement.

Wolverine reported $20.7 million in net earnings attributed to operations, or 21 cents per diluted share, down from $24 million, or 24 cents per diluted share, in the same quarter last year. Adjusted for restructuring and impairment costs, inventory markdowns related to store closures and other costs, the company would have had diluted earnings per share of 43 cents. As part of a previously announced retail store closure plan, the company has shuttered 180 stores since the beginning of 2017, 76 of which were closed in the second quarter.

Given the accelerated effects of the strategic plan and a “cautious” outlook for the rest of the year given current global market conditions, Wolverine raised its guidance to reflect underlying revenue to remain flat or grow 2 percent. The move comes despite expectations for lower reported revenue in the range of $2.32 billion to $2.37 billion, a decline of 5 percent to 7 percent, related to the licensing of the Stride Rite brand to Vida Shoes International.

Krueger also noted he has “a high level of confidence” in the company’s ability to hit its stated “bold goal” of achieving a 12-percent operating margin by the end of 2018.

“Our progress so far is encouraging and on plan but we remain intensely focused on fully executing the Way Forward transformation and harvesting the growth and operating profit benefits these efforts will deliver,” Krueger told analysts.

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