Wednesday, July 12, 2006

Calls of Note Part 4

- Prudential is out with a quick take on Wolverine World Wide (NYSE:WWW)'s results. WWW turned in EPS of $0.25, ahead of consensus of $0.23. Sales were ahead of firm's expectations and up 10.5%. Merrell was strong while Hush Puppies declined slightly.

Operating margin was 50 bps higher than our estimate as well, though gross margin was down and below expectations offset by better than expected SG&A. Management noted that the GM decline was due to a change in a distributor relationship. Backlog was up 8% dragged down by Bates military orders.

Firm thinks it was a good report, but history tells themn this stock reacts poorly to gross margin declines and slowing backlog regardless of the reason. Over the last 10 years, July has been the poorest performing month for WWW with 7 of 10 years declining and an average relative underperformance of 6.1%.

Notablecalls: Think it's an actionable call.

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