The following column was originally published by TheStreet on a company with a market cap of $3 billion
Earlier this month, the footwear company Wolverine World Wide () released impressive quarterly results in which it managed to beat both top- and bottom-line estimates. Wolverine has a portfolio of footwear brands that includes Cat, Harley Davidson, Hush Puppies, Merrell and Sperry, and has reported phenomenal growth (on the back of a major acquisition I'll get to shortly).
Wolverine has also reported "pro forma" results for its revenues presented under the assumption that Wolverine had acquired PLG on January 2012. These results eliminate the unusual impact of the massive acquisition on the company's quarterly revenues and, therefore, provide a fair assessment of its performance.
In January 2013, Wolverine started reporting its results in three segments: Performance, Lifestyle and Heritage. Wolverine now owns more than a dozen different brands in these segments. Before the acquisition, Wolverine counted about 43% of its revenues from Performance Group, 40% from Heritage Group and just around 11% from Lifestyle Group. Now the company gets around 41% of its revenues from the Lifestyle Group, 36% from Performance Group and just 20% from Heritage Group.
This is far from ideal; the industry's average is just 6%. Although Wolverine's financial health has been improving as its D/E ratio has dropped from 190% in December 2012, which clearly shows that the business has been moving in the right direction, but it still has a long way to go.
So far this year, Wolverine has generated free cash flow of $96 million but investors should note that Wolverine is currently focused on using its cash flow to deleverage. Therefore, I believe that the company's management is not going to indulge in any meaningful buyback activity.
Therefore, despite delivering strong results in its previous quarter, Wolverine World Wide is certainly not a buy at the moment.