Featured Company: Wolverine World Wide Inc. (WWW)

Based in the northern suburb of Grand Rapids, Michigan, called Rockford, Wolverine World Wide Inc. engages in the design, manufacture, and marketing of a line of casual shoes, outdoor footwear, and constructed slippers, primarily in the United States. Its products are distributed in about 170 countries.

For some time, it's been putting its best foot forward. The company - which offers brand names such as Hush Puppies, Wolverine and Harley-Davidson footwear - has managed to achieve seventeen consecutive quarters of record earnings per share and revenue.

It's continued to show improvements in gross margin, earnings before interest, and tax EBIT margin. For the year, gross margins were 38.2%, compared to the previous year's 37.7%. The EBIT margin improved to 10.7% from the previous year's 10.1%. In addition, its free cash flow generation has historically been higher than its net income. Free cash flow was at $100.49 million in 2005, over twice the free cash flow seen in 2001.

On Oct. 4, Wolverine reported earnings for the third quarter - the period during which it tends to see its strongest sales - of $0.46 per share, $0.02 better than the Reuters Estimates consensus of $0.44. Revenues rose 7.1% year over year to $298.9 million versus consensus of $299 million.

The company issued in-line guidance for the full year of 2006, saying it sees earnings per share of $1.41 to $1.44, up from $1.38 to $1.42, and versus the $1.42 consensus estimate. Full year 2006 revenues are estimated to be $1.12 to $1.14 billion versus the $1.14 billion consensus estimate.

Solid gross margin expansion drove an increase in operating margin in the latest quarter, while the company continued to invest in its brands and apparel growth initiatives. While accounts receivable growth was below the rate of its revenue growth, and inventories increased modestly, it ended the quarter with a cash balance of a healthy $70 million.

Worth noting is that the company's international business contributed significantly to the quarter's revenue increase, particularly in Europe. In 2005, revenue from international operations represented over 30% of the company's revenue. Because its investments in foreign subsidiaries are considered long term, the company generally doesn't hedge its foreign investments. For the year ended Dec. 31, 2005, the strengthening of the U.S. dollar decreased the value of these investments in net assets by $11.5 million.

The company's solid footing in the industry is particularly impressive considering it faces upwards of thirty major competitors in connection with the sale of its casual, work and outdoor shoes alone. Success of the company's operations also depends to an extent upon factors affecting disposable consumer income, such as economic conditions and employment.

Some ponder though whether the fact that the company has not repurchased any stock recently means Wolverine executives see the stock's price losing some traction over the next few quarters. The company does appear to be going though somewhat of a transitional phase, with Blake Krueger appointed president and chief operating officer, and Timothy O'Donovan elected to the spot of chairman and chief executive officer in the last year.

Further raising concerns is that O'Donovan told regulators on Oct. 9 that he had entered into a plan to sell 200,000 shares of the common stock owned by him and 20,000 owned by his family foundation starting Dec. 4. 

However, O'Donovan has said the transaction in the stock - which represents less than 17% of the total number of shares that are beneficially owned by O'Donovan or subject to options held by him - was done merely for investment portfolio diversification.

Company executives have said that Wolverine will continue to invest in initiatives in 2007 while driving further operating leverage. The company has issued in-line guidance for the full year of 2007, saying it expects earnings per share of $1.56 to $1.62 versus the $1.60 consensus estimate. It also sees full-year 2007 revenues of $1.20 to $1.23 billion versus the consensus estimate of $1.22 billion.

At about 19.1x trailing 12-month earnings, the stock is trading at a slight premium to its 10-year average of about 18.2x; however, with a solid balance sheet and a history of being only marginally more volatile than the market, price pullbacks in the stock should be viewed as buying opportunities for investors who are willing to be in it for the long haul. Furthermore, the fact that Wolverine will declare a quarterly cash dividend equal to the last period's dividend (at $0.075) indicates the company continues to keep an eye toward creating shareholder value.