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Takeaway: With the European river card known and an increasingly favorable setup ahead just as the PLG acq hits the P&L, we continue to like WWW.

We like WWW on the long-side following 3Q results. After last week’s more bullish outlook reflecting the upside in PLG deal accretion, the key question headed into the quarter was the state of Europe. We now have that river card confirming continued weakness which is expected through year-end. Importantly, the deceleration in sales is flattening at the same time comps get increasingly more favorable through the balance of Q4 and headed into 2013. With the stock trading at its near-term TRADE line of support, we added WWW on the long-side of our Real-Time Positions into the close yesterday.

Here are a few additional callouts following Q3 results:

  • Tepid sales growth appears to be stabilizing with catalysts for reacceleration ahead. WWW’s largest brand Merrell is launching its M-Connect initiative in Q4 and has retailers already pulling orders forward. While helping near-term results, the bigger contribution will be in Spring 2013.
  • Global at-once orders are up +MSD quarter-to-date and comps only get easier in upcoming months and quarters. Incremental sales growth of faster growing PLG hit this quarter as well.
  • Despite modest sales declines in the qtr, the Sales/Inventory spread remains positive for the second consecutive quarter. PLG margins are expected to drive expansion as is geographic mix along with fewer closeout sales.
  • Investors are looking through NT results to $4+ in EPS power in F14.

The bottom-line here is that we think European weakness is likely to stabilize and start reaccelerating as the company realizes incremental earnings from the PLG business over the next 2-3 quarters and investors start looking at ~$3.15 and $4.05+ in EPS in FY13 and FY14 respectively as the Street takes estimates higher (the deal is not yet in consensus numbers). WWW has a solid management team and a global platform to leverage its growing portfolio of brands.

Idea Alert: WWW - WWW TTT

WWW Risk Management Levels:

Idea Alert: WWW - WWW TTT Chart

WWW Looking solid in our SIGMA

Idea Alert: WWW - WWW S