Wolverine World Wide (WWW) recently partnered with Golden Gate Capital and Blum Capital Partners to purchase Collective Brands (PSS), the holding company of Payless Shoe Stores and several shoe brands. The $1.32 billion purchase by Wolverine and two private equity groups will see Collective Brands split up.
Including debt, the deal is valued around $2 billion for the three acquiring companies. Collective Brands saw sales of $2.4 billion in 2011. Golden Gate Capital and Blum Capital will take over the struggling shoe chains Payless stores. Wolverine World Wide will take control of the Collective Brands individual shoe brands. The newly acquired shoe brands are:
· Sperry Top-Sider
-Created in 1935
-Has several Olympic athletes in the 2012 Summer games wearing its shoes
-New license agreement for branded luggage, watches, and eyewear
-Created in 1898
-Sold in local running stores
-Potential to expand internationally and into big box retailers
· Stride Rite
-Children's shoe market
-Created in 1919
-Total of 340 Stride Rite stores (231 children's, 102 outlet, 7 in Macy's)
-Has collaborations with Disney (DIS), Star Wars, and Sesame Street
-Canvas shoe with rubber sole
-Created in 1916
-Pro-Keds line of basketball shoe
-Have been seen in tv shows and movies like Twilight, "Saved by the Bell", "Full House", and Dirty Dancing
-New deal with Li & Fung
The move takes Wolverine's previous twelve brands into a sixteen brand shoe company. Chief Executive Officer said the company was, "thrilled to add these four iconic brands to our proven global platform." He also said the move adds "additional horsepower in five of our targeted growth areas - women's, athletic, casual, kid's, and retail."
Back in a January article, I listed myself as "slightly bullish" on shares of Wolverine World Wide due to guidance and the rumors of a Collective Brands buyout.
Wolverine World Wide breaks its shoes into several categories listed below:
Hush Puppies - casual
Sebago - casual, marine
Cushe - fresh, casual
Soft Style - casual
Merrell - running, athletic
Chaco - adventure, running
Patagonia - outdoor, environmental friendly
Caterpillar - durable, work
Wolverine - work, rugged
Bates - armed services, uniform
Harley Davidson - biker shoes-riding and fashion
I wrote an article about international expansion of Wolverine's brands that centered on Kate Middleton and a new Sebago store in London back in December. Wolverine has its shoes for sale in 190 countries around the world. The company has 90 stores in the United States and is opening stores around the world to capture international sales. Sperry and Saucony have minimal exposure in international markets, and Wolverine's pre-existing relationships should immediately strengthen the brands.
Three recent international joint ventures will further Wolverine's growing global expansion.
· Lifestyle Brands of Colombia
In April, Wolverine announced the formation of this joint venture with Forus to market its shoe brands into Colombia. Wolverine owns 51% of the new joint venture. Shoe brands like CAT Footwear and Merrell will be offered, while Forus will bring in its outdoor brand RKF.
· Fours SA Colombia
Along with the Lifestyle Brands of Colombia deal, Wolverine bought 49% of Forus SA Colombia, an already existing company. The company has the rights to two of Wolverine's brands (Hush Puppies, Cushe) in Colombia. Forus SA Colombia operates 300 retail locations and also sells products in shoe stores and large department stores. The company represents Wolverine's largest partner in Latin America. For over 30 years, Forus SA Colombia has sold Wolverine brands and others in Colombia, Chile, Peru, and Uruguay.
· India Joint Venture
Last week, Wolverine World Wide partnered with Tata International to form a new joint venture to sell footwear in India. Two Wolverine brands, Merrell and CAT footwear, will be the foundation of the joint venture. The company will own 50% of the joint venture, with Tata International owning the remaining half. The newly formed joint venture also has an agreement with TRENT, a leading operator of department stores in India. TRENT, is owned by Tata Group, and will showcase Wolverine brands in its fifty plus department stores.
In 2011, Wolverine earned $1.4 billion, an increase of 12.9% from 2010's annual sales. Earnings per share came in at $2.48, which was a large increase over the $2.11 earned in 2010. The earnings per share fell in the lower range of the $2.46-$2.52 analysts had expected for the full year.
Wolverine has said that the addition of the shoe brands will create annual sales of $2.5 billion. Wolverine's 2012 earnings will see a minimal impact. Wolverine has said that 2013 earnings will see an addition of $0.25-$0.40. The earnings in 2014 will see an addition of $0.50-$0.70. In the earlier article I wrote, Wolverine had called for earnings per share of $2.60-$2.70 in 2012.
Analysts on Yahoo Finance are predicting earnings per share of $2.73 for 2012. The website has a listed forecast of $2.98 for 2013 earnings. When we add in the new earnings from the acquisition, the earnings per share target jumps to $3.30 (using mid range $0.32). For 2014, assuming 10% growth the earnings per share targets jump to $3.88 ($2.98 +10% growth =$0.60 added earnings from acquisition).
Wolverine World Wide shares traded down 4% on news of the buyout of Collective Brands. Shares traded at $40.10 at the time of writing. This places them close to my previous target price of $42.30. Shares are also fast approaching their all time high of $43.36. I have stated before that I think shares of Wolverine should be trading at fifteen times earnings. My new target price rises to $58.20, based on implied 2014 earnings of $3.88.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in WWW over the next 72 hours.