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Wolverine World Wide Inc. (WWW - Snapshot Report) posted strong second-quarter 2013 results, owing to the robust performance of its newly acquired brands. Wolverine’s quarterly earnings of 46 cents a share zoomed past the company’s previous guidance range of 31 cents to 35 cents and handily surpassed the Zacks Consensus Estimate of 34 cents. Moreover, the quarterly earnings jumped 12.2% year over year.

Including one-time items, the company reported earnings of 36 cents a share compared with 42 cents in the year-ago quarter.

Benefiting largely from the acquisition of Collective Brands’ Performance + Lifestyle Group (PLG) group, Wolverine, which competes with Deckers Outdoor Corporation (DECK - Analyst Report), reported net sales of $587.8 million. Net sales surged 88% year over year but fell short of the Zacks Consensus Estimate of $591 million. However, on a pro-forma basis, revenue increased 5.5% during the quarter.

Wolverine acquired PLG unit for $1.25 billion. The PLG unit sells footwear and related products, both wholesale and retail, for children and adults under popular brands including Stride Rite, Sperry Top-Sider, Saucony and Keds.

Coming to the operating groups, revenue at its Lifestyle group came in at $255.2 million, signifying a massive rise from $28.5 million in the year-ago quarter. Performance group’s revenue jumped 33.8% to $199.7 million, while Heritage group’s revenue declined 0.8% to $110.6 million. Revenue derived from the company’s other brands decreased 4.7% to $22.3 million during the quarter.

On account of the top-line improvement, the company’s gross profit more than doubled to $241.1 million, while gross margin expanded 320 basis points to 41%, reflecting increased contribution of high margin consumer direct operations.

Operating profit came in at $37 million, rising 62.3% year over year. However, operating margin contracted 100 basis points to 6.3%.  

Other Financial Aspects

Wolverine ended the quarter with cash and cash equivalents of $171 million and reduced its net debt by $159 million. Net debt now stands at $1,014 million, while shareholder equity was $704.6 million.

Guidance Remains Strong

This Zacks Rank #2 (Buy) company raised its earnings guidance. Earnings per share are now expected to be in the range of $2.60 – $2.75, up from its earlier guidance range of $2.50 – $2.65, and reflecting year-over-year growth of 13.5% to 20.1%.

Revenue is expected in the range of $2.7 – $2.775 billion, up 6% to 8.9% year over year on a pro-forma basis.

Wolverine expects gross margin to improve moderately in 2013 due to the product mix shift toward high margin consumer direct business and lower markdowns. However, operating margin is projected to remain marginally low when compared with the prior year. Capital expenditure is projected to be in the range of $40 million – $50 million.

Other Stocks to Consider

Besides Wolverine, other stocks in the consumer discretionary sector worth considering include Brown Shoe Co. Inc. (BWS - Snapshot Report) and Big 5 Sporting Goods Corp. (BGFV - Analyst Report), both carrying a Zacks Rank #1 (Strong Buy).

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