Wolverine World Wide, Inc. (WWW) Q1 2015 Earnings Report, Transcript and Summary

Good morning and welcome to Wolverine Worldwide's First Quarter 2015 Conference Call. All participants will be in a listen-only mode until the question-and-answer session of the conference call. This call is being recorded at the request of Wolverine Worldwide. If anyone has any objections, you may disconnect at this time. [Operator Instructions] I would now like to introduce Mr. Chris Hufnagel, Vice President of Strategy, Investor Relations and Communications for Wolverine Worldwide. Mr. Hufnagel, you may proceed.

Thank you, Zelda. Good morning and welcome to our first quarter 2015 conference call. On the call today are Blake Krueger, our Chairman, Chief Executive Officer, and President and Don Grimes, our Senior Vice President and Chief Financial Officer. Earlier this morning, we announced our financial results for the first quarter of 2015. The release is available on many news sites or it can be viewed from our corporate site at wolverineworldwide.com. If you would prefer to have a copy of the news release sent to you directly, please call Tyler Deur at 616-233-0500. This morning's press release included non-GAAP disclosures and these disclosures were reconciled with attached tables within the body of the release. Comments during today's earnings call will include some additional non-GAAP disclosures. There is a document posted on our corporate website entitled WWW Q12015 conference call supplemental tables that will reconcile these non-GAAP disclosures to GAAP. The document is accessible under the Investor Relations tab at our corporate website wolverineworldwide.com by clicking on the webcast link at the top of the page. Before I turn the call over to Blake to comment on our results, I'd like to remind you that predictions and projections made during today's conference call regarding Wolverine Worldwide and its operations are forward-looking statements under U.S. securities laws. As a result, we must caution you that as with any predictions or projections, there are number of factors that could cause results to differ materially. These important risk factors are identified in the company's SEC filings and in our press releases. With that being said, I would like to turn the call over to Blake Krueger. Blake?

Thanks Chris. Good morning everyone and thanks for joining us today. Earlier this morning, we reported our first quarter results, highlighted by constant currency revenue growth in virtually every region of the world and better than expected adjusted diluted earnings per share. Our strong earnings performance was driven in part by favourable consumer reaction to our multiyear brand building investment strategy, excellent growth in our e-commerce operations, solid year-over-year gross margin expansion, and the disciplined execution of our global business model. The diversity of our brand portfolio coupled with the geographic reach of our international distributions footprint mitigates risk and continued to serve the company well in the first quarter. I'm going to briefly review our consolidated financial results and will primarily speak to constant currency revenue performance as that is more reflective of the progress our brands are making in the global markets. I'll then offer some specific strategic commentary and our operating groups and brands. For the quarter we delivered revenue of $631.4 million. On a constant currency basis, this represents growth of 3.4% versus the prior year, and were potentially in line with our expectations going into the quarter. On a reported basis, revenue grew 0.6% reflecting a negative 170 basis point impact of the retail store closures associated with our strategic realignment plan and the exit of the of the Patagonia Footwear brand. On a constant currency basis all three operating groups grew their revenue in the quarter. Additionally, every region of the word also delivered constant currency revenue growth with the single exception of EMEA, which was down low single digits and up against a strong performance during last year's first quarter. Adjusted diluted earnings per share for the quarter were $0.37 exceeding our expectations going into the quarter. Foreign exchange hurt our earnings in the quarter by $0.02 a share. Don will provide additional color regarding our overall financial results in a minute, but before that, I want to provide some details on our operating group and brand performance. The Lifestyle Group, delivered revenue of $243 million, which represents a constant currency growth of 3.6% versus the prior year and reported growth of $2.1%. On a constant currency basis, strong mid-teens revenue growth from Sperry and low single digit revenue growth from Keds were partially offset by declines from Stride Rite and Hush Puppies. Sperry continued its resurgence. Following its high single digits growth in the fourth quarter of last year, the brand continued its positive performance by posting strong mid-teens reported growth in the quarter. Our focus on compelling stories in product drove a strong performance in North America highlighted by a double-digit increase in men's and a high single digit growth in the women's business. For the important boat category a category where Sperry has around 70% domestic market share, the brand delivered lower double-digit revenue growth in the quarter. And I'm pleased to report that with the women's boat category return to growth. Sperry e-commerce posted very nice double-digit revenue growth in the quarter, driven by increases in both traffic and conversion. We're beginning to see the rewards of our investments in our omnichannel initiatives as virtually all key performance metrics for sperry.com were up in the quarter led by 600 basis point gain in mobile penetration. Internationally, Sperry had a very strong performance in the quarter with our global third-party business growing nearly 50% year-over-year and owned operations in EMEA growing nearly 20%. As you know, Sperry's new brand platform Odyssey's Await was launched this spring via our global campaign inspired by and targeting what we are calling Intrepids, a consumer group united by a shared mindset, seeking meaning and unique experiences in their lives. This campaign is the first expression of Sperry's new brand platform, which taps into the invented and irreverent mindset of the brand's founder, Paul Sperry an inventor and the original intrepid. The centerpiece of the new platform is an initiative entitled Odyssey Project. Sperry is sending 80 influential consumers on a variety of global odysseys creating millions of inspiring moments and fueling Sperry's narrative throughout the year, all collected under the hash-tag Odyssey's Await. The stories will also be housed on a new Tumblr platform and fully integrated with sperry.com. I couldn’t be more pleased with the progress we've made in Sperry in just a few short quarters. There is tremendous energy within the brand, retailers are engaged and excited about the new brand direction, and most importantly, our consumers are reacting positively to the new brand platform and products. Moving on to Keds. After several consecutive quarters of strong double-digit growth, Keds posted constant currency revenue growth in the low single digits for the quarter and reported revenue growth that was essentially flat to last year. The unseasonably cold spring and frustrating West Coast port situation put some pressure on the core North American business or the brand's business in EMEA was negatively impacted by the shift from a top line to a distributor based model for some key markets. We remain very positive on Keds outlook for the balance of 2015, as expanded fashion collaboration, strong momentum in international markets, especially Asia Pacific and Latin America and the sponsorship of Taylor Swift upcoming 1989 tour are expected to drive strong year-over-year growth for the brand. If we go to Lifestyle Group, both Stride Rite and Hush Puppies posted revenue decline from the quarter in both constant and reported dollars. Stride Rites decline was driven by store closures and continued pressure in brick-and-mortar retail operations. Hush Puppies revenue was impacted by our decision to change distribution strategies relative to the low margin department store channel, which more than offset excellent double-digit revenue growth in third-party markets. Turning to the Performance Group. Performance Group delivered revenue of $243.4 million constant currency growth of 2.1% and 2.2% decline on a reported basis. From a constant currency standpoint, exceptionally strong double-digit growth from Chaco, low single digit growth from Saucony and flat year-over-year performance from Merrell drove the quarterly increase. Merrell's flat constant currency revenue translates to a mid-single digit decline on a reported basis reflecting the global nature of that brand. The brand's Performance Outdoor category posted a high single digit gain in the quarter on the strength of Merrell's global Capra launch and several new innovative product introductions including updates to the iconic Chameleon franchise. This marked the seventh consecutive quarter of growth in the Performance Outdoor category for the brand. The men's active lifestyle business generated nice gains, but softness in the women's Capra business continued. As expected, the brands smaller segment outside athletic posted a decline in the quarter as we comped against the highly successful All Out introduction from last year. This past quarter, Merrell.com launched on the company's new e-commerce platform and with similar launches for our other brands, we have seen a very positive uptick in most key metrics since the new site went live. Online traffic in convergent have increased at a strong pace for Merrell resulting in e-commerce growth exceeding 30% in the quarter. Looking ahead, we're excited about the many positive trends in the Merrell business. The extension of the Capra franchise this fall with new product introductions in leather and Gore-Tex the recent sell-through of the All Out collection, the positive performance of the women's Terran collection and the Active Lifestyle sandal category and the continued global momentum in Merrell's iconic Moab collection. Moving to Saucony. On a constant currency basis the brand posted a low single digit revenue increase. Reported revenue was down slightly as a result of the FX impact on the larger base of offshore business. The innovative and premium priced ISO-Fit series is performing very well at retail and continues to generate grades from the trade and runners alike. Saucony Originals continued to perform phenomenally well around the world, especially in key influential markets such as the U.S., the UK, Italy and Japan. After doubling in size in 2014 Originals grew at an exceptionally strong double-digit base in the quarter and we expect this momentum to continue. Staying with the Performance Group, the momentum in Chaco continued to build with the brand posting growth over 70% for the first quarter, largely on the strength of its new closed-toed collection. The classic Z sandals also continue to performance exceptionally well at retail and site visits at chaco.com were up over 50% for the quarter, further evidence of the brand's heat, with the custom MyChacos program up over 85% versus the prior year. Finally, the Heritage Group delivered revenue in the quarter of $126.1 million representing constant currency growth of 7% and reported growth of 4.5% versus the prior year. On a constant currency basis, strong double-digit growth from Bates, nearly 20% growth from Cat Footwear, mid-single digit growth from HyTest and low single digit growth from Harley-Davidson were partially offset by a revenue decline from Wolverine and Sebago. The momentum in the Cat Footwear business continued with its revenue growth in the first quarter geographically balanced. Nearly all regions contributed to the brand's strong constant currency double-digit revenue increase. The important work category continued its double-digit growth pace, where both men's and women's lifestyle products posted gains over 40% in the quarter. On the innovation front, ease [ph] the brand's proprietary cushioning technology continues to perform very well. Finally, the performance of the Wolverine brand in the quarter was impacted by timing delays associated with the West Coast port situation. We expect to recruit much already of these sales in the second quarter and expect strong growth from Wolverine for the full year. The brand remains a category leader in work while the Heritage category continues to post strong results driven by the iconic 1000 Mile and since 1883 collections. All-in-all, an excellent quarter for the company, and a good start to the year. Before turning the call over to Don, I want to provide some brief updates regarding two of our most important strategic growth initiatives, the international expansion of our newest brands and our omnichannel transformation initiative. First, we continue to focus on expanded international distribution for Sperry, Saucony, Keds and Stride Rite, the most recent additions to our portfolio and brands that we believe have tremendous global growth opportunity ahead of them. We continue to make great progress here and as we said in the past it is a steady build as we bring partners online and they establish operations, including the opening of retail stores in their respective countries and regions. Since the acquisition closed, we've executed over 80 new distribution agreements and our newest brands are now distributed in 50 more countries than they were just over two years ago, more than 50% increase. Additionally, over 400 new points of global controlled distribution have opened an increase of almost 150%. These locations are building blocks for progress and driving brand awareness and generating consumer loyalty. Obviously I'm very pleased with the progress we've made and the solid foundation that's been built to accelerate the global growth of these iconic brands. Second, I'm very pleased with the recent progress we've made in our omnichannel transformation efforts. Our time and investments in this critical initiative are showing early signs of strong returns. In the quarter, our consolidated owned ecommerce business grew over 30%. Our total site visits were up nearly 20% across the portfolio and conversion also increased. Mobile penetration increased nearly 700 basis points and today business from smartphones and tablets represents more than 30% of our total ecommerce sales. The consumer is clearly engaging with brand in a new way and shopping preferences continue to evolve. We will continue to invest in these omnichannel efforts and expect in the year ahead that we will have a unified consumer database across our brand portfolio. Our consumers will have new and enhanced mobile payment options, both online and in store. Many of our stores will also be Wi-Fi enabled providing our consumers the distinguished shopping experience they desire. Our consumers will have enhanced shopping opportunities through an endless isle capability, meaning all inventory whether designated for retail or wholesale will be available online to our consumers and several of our key brands will offer new and exclusive custom products online. Consumer behavior in the global marketplace continue to evolve at a rapid pace and we've been working hard to get ahead of the curve to meet and exceed the needs and desires of the new consumer. We believe the power, diversity and global reach of our brands coupled with our continued operational excellence remains a distinct and competitive advantage and provides us with a platform to deliver consistent results for our shareholders. While the global marketplace and strengthening U.S. dollar provides some challenges, it also creates some great opportunities for us to expand and take market share in countries and regions where the competition is less strategically or operationally sound. We have authentic brands, the broadest and strongest global operating platform and most importantly, a great team. I am excited about the many opportunities that lay ahead for our family of brands. With that, I'll now turn the call over to Don Grimes, our Senior Vice President and Chief Financial Officer, who will provide additional commentary on our performance in the quarter as well as provide more details regarding our expectations for the balance of the year. Don?

Thank you Blake and thanks all of you for joining us on the call today. As Blake noted, we were pleased with the company's performance in the first fiscal quarter. Our first quarter results underscored the combined power of our brands, diversified business model and strong international footprint that together continue to deliver excellent financial results. Our consumer shopping preferences continue to evolve at a rapid pace. We believe the investments we are making in our brands including investments in consumer demand creation and omnichannel initiatives position us to capitalize on the many opportunities we've identified to accelerate our growth around the world in 2016 and beyond. I'll now provide more details on the quarter ended March 28, 2015 and conclude my prepared remarks by commenting on the company's expectations for the balance of fiscal 2015 including some insights on the second quarter. I'd like to remind you that all current and prior year financial results discussed today have been adjusted to exclude integration expenses related to the PLG acquisition, costs associated with our 2013 debt refinancing and restructuring charges related to both the 2013 closure and sale of our Dominican Republic manufacturing facilities and the strategic realignment plan announced last year. We reported revenue for the first quarter of $631.4 million, representing growth of 0.6% versus the prior year. Mid-single digit growth in the Heritage Group and low single digit growth from the Lifestyle Group are partially offset by a low single digit revenue declines in the Performance Group. Constant currency revenue growth is 3.4% as foreign exchange had a $17.3 million unfavorable impact on first quarter reported revenues. As noted by Blake, all three of the companies operating groups delivered constant currency revenue growth in the quarter with high-single digit growth from the Heritage Group, mid-single digit growth from the Lifestyle Group and low single digit growth from the Performance Group. First quarter revenue growth was negatively impacted by the retail store closures associated with the previously announced Strategic Realignment Plan and the exit of the Patagonia Footwear license. Together these factors negatively impacted reported revenue by approximately $10 million and as noted by Blake negatively impacted revenue growth by about 170 basis points. On a reported basis strong double-digit revenue growth in Asia Pacific and low single-digit revenue growth in the U.S. and Latin America were offset by a high single-digit revenue decline in Canada and a mid-teens revenue decline in EMEA. However, constant currency growth was significantly better with very strong double-digit growth in Asia Pacific, high single digit growth in Latin America, mid-single digit growth in Canada, low single digit growth in the U.S. and a low single digit revenue decline in EMEA a region that would comp in against double-digit growth in last year's Q1. These international regions continue to be critical to growth across our portfolio and we believe the constant currency revenue performance has evidenced that the investments we are making are paying dividends in these regions. Moving on to the rest of the income statement, gross margin for the first quarter was 41.4%, an excellent increase of 60 basis points versus the prior year on both a reported and adjusted basis. The gross margin expansion was driven primarily by strategic selling price increases and lower closed out sales only partially offset by product cost increases. Given foreign exchange forward contracts that were in place at the beginning of the fiscal year at more favorable rates, FX had minimal impact on gross margin in the quarter. Consistent with our expectations and the commentary that we provided during our February earnings call, adjusted operating expenses for the first quarter were $198.8 million, an increase of 4.4% versus the prior year. This increase was driven primarily by the planned 18% increase in marketing expense and $3.4 million of incremental pension expense partially offset by excellent discipline throughout the rest of our cost structure. As a percentage of revenue, adjusted operating expenses were 31.5%, an increase of 110 basis points versus the prior year. Reported operating expenses for the first quarter were $197.8 million, an increase of 3% versus the prior year. Adjusted operating margin decreased 60 basis points to 9.9%, while reported operating margin was flat to the prior year at 10.1%. Net interest expense in the quarter was $9.5 million, $1.4 million lower than the prior year reflecting year-over-year principle reductions, including voluntary principle payments of $58 million made early in the first quarter and a lower interest rate on our term loan driven by a lower leverage ratio. The adjusted tax rate for the first quarter was 29.3%, up 60 basis points compared to the prior year. The increase is primarily driven by a modestly negative jurisdiction of mix shift. The reported effective tax rate for the first quarter was 27.3%. Diluted weighted average shares outstanding for the first quarter were 100.8 million. Adjusted diluted earnings per share for the first quarter were $0.37 better than we had anticipated earlier in the quarter, but down compared to prior year earnings of $0.38 per share. The decrease versus the prior year was driven by the consumer demand investments for taking primarily behind the Sperry, Merrell, Saucony and Keds brands, the higher pension expense and unfavorable foreign exchange with the latter negatively impacting earnings by $0.02 per share. Reported diluted earnings per share were $0.39 compared to $0.36 per share in the prior year. Turning to the balance sheet, accounts receivable were down 26.2% versus the prior year to $357.2 million. The decrease was driven by both the accounts receivable financing facility that was put in place at the end of fiscal 2014 and an organic four-day reduction in consolidated DSO. Inventories decreased $45.9 million or 9.8% versus the prior year driven by retail store closures, delays in the receipt of goods due to the West Coast port situation and continued aggressive management of inventory. We believe that our inventory is in very good condition and that retail inventory is balanced with consumer demand. With the benefit of $12.7 million of improvement in year-over-year operating free cash flow, we finished the first quarter with cash and cash equivalents of $121.3 million and net debt of $736 million which is down $271.5 million from the same period last year. We remain focused on our previously stated objectives for cash, investing behind our brands to fuel organic growth, maintaining our cash dividends, paying down debt and pursuing strategic acquisition opportunities. While we did not execute any share repurchases on the open market in the first quarter, we plan to continue to assess opportunities to do so depending on market conditions and other factors. Let me turn now to our 2015 full year guidance. There are many things to be excited about in our business and we're very pleased with the initial response from both retailers and consumers to the incremental brand building investments we're making behind several key brands. However, as we've discussed, we expect a much stronger U.S. dollar that will have a meaningful negative impact on reported revenue and earnings this fiscal year. Today, we are reaffirming our estimate for full year revenue in the range of $2.82 billion to $2.87 billion representing reported growth in the range of approximately 2% to 4% versus the prior year. We are also reaffirming our expectations for constant currency revenue growth in the range of approximately 5% to 7%. Finally, we are also reaffirming our expectations for full year adjusted diluted earnings per share in the range of $1.53 to $1.60 and constant currency adjusted diluted earnings per share in the range of $1.71 to $1.78. Just to highlight a few of the key factors included in our outlook for fiscal 2015, accelerated growth from our largest brands including anticipated mid to high single digit full year report growth for Sperry and mid single digit constant currency growth for Merrell, headwinds related to the exit of the Patagonia Footwear license and the retail store closures associated with the strategic realignment plan and continued challenging traffic trends for our brick-and-mortar retail stores. As it relates specifically to the strategic realignment plan, we continue to evaluate the appropriate number of store closures. Based on store performance to-date and discussions with key partners and major real estate developers we still anticipate closing approximately 85 locations during 2015 with the vast majority anticipated to close towards the end of the year. However, we now expect to incur total pretax charges of approximately $44 million to $48 million related to the overall realignment plan of which $18 million is expected to be incurred in fiscal 2015. The increase in our restructuring charge estimate is driven by three factors. Higher lease termination costs, primarily for retail stores in the U.K., increased inventory write-downs, the stores that are closing and an increase in the scope of the plan to consolidate some of our international operations in order to create efficiencies and stimulate the sharing of best practices across our portfolio. As a result of the revision to the estimate of our realignment plan charge, we now expect reported diluted earnings per share in the range of $1.42 to $1.49 for fiscal 2015. While the comment of just thinking you through, cover expectations for the full fiscal year, I'd like to provide a little more color on our expectations for the second quarter that ends June 20. Based on quarter-to-date results and anticipated business over the balance of the quarter, we expect constant currency revenue growth in the range of 3% to 4% and reported revenue growth of approximately 1%. We expect the Sperry brand to be approximately flat in Q2 due to the shift of the Easter buying season from Q2 last year to Q1 this year and to retailers taking spring shipments a bit earlier this year, which had some benefit on the first fiscal quarter. For the first half of the fiscal year, we expect Sperry's reported revenue to be up in the mid-single digit range and as noted, we expect full year reported revenue to grow in the mid to high single digit range. Great performance after what was a challenging year for the brand in fiscal 2014. Based primarily on a negative mix shift away from high margin royalty business and a more significant impact from FX, we expect Q2 gross margin to be moderately down versus the prior year and we expect an increase in operating expenses specifically brand investments and incremental pension expense similar to what we experienced in Q1. Further, the stronger U.S. dollar is expected to have a more significant impact on earnings in Q2 than was experienced in Q1. As a result, we expect Q2 reported and adjusted earnings in the range of $0.18 to $0.20 per share. Thanks for your time this morning. We'll now turn the call back over to the operator to take some questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Taposh Bari with Goldman Sachs. Please go ahead.

Hi, good morning everybody. Don, a quick question for you on Stride Rite, Patagonia. I know you've quantified the revenue impact. How impacts for both of these exclusions on EPS growth for the first quarter and for the full year?

Yes, for the full year the loss of Patagonia is about $0.02 per share negative impact and the retail store closure related to the realignment plan for the full year is a benefit in the $5 million to $6 million range or about $0.04 a share.

Okay. So, Patagonia hurt you $0.02, Stride Rite helps you $5 million to $6 millions, correct?

I'll call it $0.04 right.

Okay, and how does the pace of Stride Rite flow throughout the year?

Of the store closures probably more of a help in Qs 1 through 3 and less of a help in Q4 given that Q4 will be more even for stores that are, for the full fiscal year money within stores will be marginally profitable in Q4.

Great and then just quickly on Sperry, you had mentioned apparels, hoping you can comment on the performance of that new category within your stores over the past couple of quarters and how the stores are comping?

Yes, we've done a change in direction with Sperry apparel. We've gone through a new vendor, kind of a design and make with our own D2C business including the stores and e-commence business of our international partners. So it's a more retail appropriate and retail focus product line versus the original product line that was probably aimed a little bit more at wholesale and U.S. department stores. So we do that as kind of a big plus for the Sperry brand. As far as the Sperry stores are concerned, we had a, like virtually all of our formats we had tough traffic comparisons in Q1. We anticipate that's going to improve, but pretty challenging overall traffic declines across our fleet in Q1. On a comp store basis, the Sperry stores probably were still down, we had low single digits in Q1, but frankly performed better than many of the other formats we have in our fleet.

And what we experienced. The answer to your question isn't specific to apparel in comp store sales, just the overall Sperry stores, but we had obviously like a lot of retailer had a number of store closures during the quarter due to weather, but even for stores that didn't close traffic were so negatively impacted by the cold weather, that they really had a negative impact on comp store performance across our fleet of retail stores and Sperry was one of the better performing concepts, but still down low single digits in terms of comp store performance in the quarter.

Okay.

I will also say Taposh, that clearly apparel and our six or seven or eight license agreements that are also working to place products in Sperry stores is having a beneficial impact on those stores.

Okay. May be just a quick followup on Sperry. I mean, it sounds like the brand is heading in the right direction even if we adjust for the calendar shift between 2Q and 1Q, if you could talk about how you're feeling about that brand and wholesale and retail if the trends are kind of similarly positive or if there is a diversion between the channels?

I think we feel very, given what was frankly a tough 2014 we feel very good about the change in direction and momentum in the Sperry brand and we're seeing it certainly here in North America, which is the largest market for Sperry, but we're also seeing some pick up overseas, Asia Pacific and Latin America in particular and we're seeing really Sperry now performed very well in just about every distribution channel in the United States. I would say, especially in those stores and store chains that are aimed at a younger consumer it continues to perform very well. Women's boat has bounced back, which is a very good sign for the brand and men's continues to perform at a high level.

And Taposh, I will say that given some of the dislocation between Q1 and Q2 it is really kind of a first half story for Sperry and a second half story for Sperry that I mentioned by the time we conclude Q2 we expect Sperry to be up in the mid single digit range on a reported basis, but the outlook for the second half of the year it's a stronger growth in that. And importantly, the outlook for fiscal 2016 based on the investments we're making this year is even better than where the expectations were for all of 2015.

Great. Thanks guys.

Thanks.

The next question comes from Jonathan Komp with Robert W. Baird. Please go ahead.

Hi, thank you. If I could just ask a question about the revenue outlook for the year and really the context here is obviously the reported results in Q1 and the guidance for Q2 on a constant currency basis you'll be in kind of that 3% to 4% revenue growth range for the first half of the year. So in context of reaching 5% to 7% full year constant currency revenue growth, could you may be just talk about some of the factors more specifically, what gives you the confidence to get there and may be tie that in with the backlog that you're seeing currently?

I'll start and then let Blake fill in. It kind of dovetails from the last comment I made regarding Sperry Jon, in terms of a more favorable outlook for the second half of the year. That pertains to a number of the brands in our portfolio. If you look at the brands that with Q1 performance trails what we expect the brand to deliver for the full fiscal year that would include Merrell, Saucony, Wolverine, Keds and Harley-Davidson and I am ignoring some of the even smaller brands in our portfolio in that. So in some respects due to timing either Q4 versus Q1 or Q1 versus Q2, we have about six brands whose Q1 performance trails what we expect the brand to deliver for the full fiscal year and really our outlook for we have a lot more better visibility into Q3 in particular, which is a more of a Q2 weighted quarter than is Q4. For example, based on where the backlog fits today and everyone knows that the backlog we disclosed in our 10-k that we filed few weeks ago that backlog year-over-year growth clearly not represented in the mid teens range, not represented what we expect for full year revenue growth, but the visibility we have in the Q3, more limited visibility in the Q4, but still decent visibility in the Q4. And we feel good about what we are citing as our constant currency revenue growth and so clearly we expect a pick up in the back half of the year. Some of that is driven by timing. Some of it is driven by the investments that we are making in the first half of the year. We know that in our Q4 earnings call in February that unlike years past, when our incremental investments, our investment plans have been more back half weighted we came out of the gate investing behind key brands early this fiscal year as evidenced by the 18% increase in marketing spend in Q1 and we're seeing that benefit in our backlog, which gives us confidence in delivering the back half revenue growth.

Great, that’s helpful and then maybe just one more specifically on Merrell, I think you lowered the full year constant currency revenue growth target just slightly to mid-single digits, I think you said last quarter mid to high, so any major callouts there in terms of what you're seeing or in confidence for that brand?

Not really, I would say the major call out there would be around women's casuals in the active lifestyle area. That's our biggest opportunity right now that sub categories under performed for the brands for several quarters. The brand is taking, has a number of action plans in place to improve that. The Performance Outdoor category continues to perform very well. We've got a strong product pipeline there and a strong product pipeline in Outside Athletic, although that's the smallest of the three categories. Men's casuals and the active lifestyle arena also continue to be very strong. So I would say our outlook for the full year is tied not just to our order book, but really our view of how women's casuals are going to perform for the last three quarters.

I will add to that Jon, that our view about the brands performance this fiscal year in EMEA in particular, the Russian market is a little bit more bearish now than it was when we just provided our initial outlook back in February, so we've clearly taken down our revenue expectations for that market given the tumultuous situation there. So that certainly was the driver and we revised forecast for the Merrell brand.

Got it, thank you.

Thanks.

The next question comes from Ed Yruma with KeyBanc Capital Markets. Please go ahead.

Hi good morning guys. Thanks for taking my question. I guess this was a followup to the previous question. You know the guidance for 2Q is it just obviously different flow of earnings than maybe you had last year. Obviously you talk about some of the confidence in 3Q, but is there, how should we think about the seasonality of earnings for the back half of the year, particularly given the deviation to the consensus estimate for 2Q?

Oh you're asking about Q3 and Q4?

Yes the balance of earnings between the two since you've adjusted it, is going to be different than may be you had last year?

Yes, I mean, I'm not going to give the Q3 and Q4 earnings guidance Ed, but what I will say is, if you look at our full year earnings guidance and compare that to the slight shortfall versus the prior year in Q1 and the more meaningful shortfall versus the prior year in Q2, when you get full year earnings guidance that's although the prior year in total, not surprising as certain quarter that is below the prior year in terms of the earnings. But if you take our outlook for $0.18 to $0.20 of adjusted EPS for Q2, clearly down from the $0.31 per share last year, we would expect to deliver earnings growth in the back half of the year and each of Q3 and Q4 of certainly for the back half of the year, so clearly in order to get the full year earnings guidance which we feel good about we're going to deliver earnings growth in the back half of the year in order to get within the range that we're talking about.

Got it. I know you provided some brand specific details on the port delays, but I guess any kind of top down view what was the overall impact and did you have any kind of impact to gross margin because of late deliveries?

We were pretty proactive on the whole West Coast port situation. We did have some impact in the quarter primarily in the Keds and Wolverine brands I would say, but I'm not sure it was a really material. In total it was probably in the $10 million range for the quarter and we would expect especially for the Wolverine brand to acquire most of that back in Q2 and on the Keds brand we'll get a portion of that back, although we may have a little bit of turn at the retail level there. So, not frankly, sort of super material, about $10 million in the quarter.

Got it, and one final question, I know you guys didn’t really focus on the Merrell performance piece and I guess you're seeing some good growth there. I guess just any innovation, how should we think about the Merrell Casual piece and how are you thinking about that for the balance of the year? Thank you.

Yes, I think on the Casual piece for Merrell, men's remains strong and growing, women's it is primarily a design and fashion issue. And so that's where the brand is focusing on new talent and some new initiatives and working on an accelerated introduction for several new programs.

Great, thanks so much.

Thanks.

Your next question comes from Jay Sole with Morgan Stanley. Please go ahead.

Hi good morning.

Good morning.

It sounds like the incremental $30 million that's being invested this year is being spread over than more beyond just Sperry and Merrell which is where it sounds like in January that you committed some of that money to Saucony and to Keds. Is that true? And then the second part of that question is if there is, do you still see $30 million as the right number for this year or maybe flex it up or down?

I think we always have the ability to flex it up or down. I suspect the number for the full year is going to be in the $25 million to $30 million, $32 million range. A lot is going to depend frankly on what happens at retail here in the U.S. over the next quarter or two. We've kind of, Don said we came out of the gate spending as planned. I would also say most of the money has been spent behind Merrell including the Capra launch and especially the new brand platform for Sperry. There has been a little money allocated, incremental money is allocated to Saucony and to Keds, but the majority of it certainly behind Sperry and then the Merrell brand.

And the Saucony and to Keds investments Jay, will be primarily in international markets to drive the continued international growth of those two brands there. But as we noted in our – and throughout, even the last quarter we've noted that the $30 million of incremental investment, that $18 million that's going behind Sperry and primarily behind the Odyssey's Await campaign.

Got it. And then if I can ask one other, Blake you mentioned some issues you talked about the steady international build that's going on with the PLG brands can you offer some checkpoints as to how you see those brands developing internationally in terms of when they will really begin to ramp from where they are now and where they are going to be going forward a couple of years?

Yes, I would say, as I said in the past, international expansion for new brands it's like building an annuity. It is an annuity overall that's there for us and grows year after, year after year. It is always a bit of a steady and slow build in the beginning and then gains some momentum. So we expect in terms of actual peerage and dollar revenues for and of course the profit that drops to the bottom line for that to continue. I'll also say that out of the box we probably see accelerated expansion more on Saucony and the Keds brands, Saucony especially in Europe and Keds in Latin America, but especially in Asia Pacific. We've seen excellent growth as well out of Sperry and probably of the four newest brands, probably the brand that is the lowest growth rate so far is Stride Rite children's group.

And Jay, just to give you some additional color, Blake mentioned in his prepared remarks a number of new, the number of distributions that have been sort of been executed for our Boston based brands since the acquisition closed, but to provide you another data point to illustrate progress that we've made and not that we're there yet, but in the first quarter of 2013 if you looked at the wholesale business for our core Boston based brands, they did 12% of their units in markets outside of the United States. That percent increased over 18% in the first quarter of 2015, so 50% increase in the percentage of unit volume done outside the United States and that would be, that would follow a similar trend in terms of the operating profit contribution. So, we made significant progress and we're pleased, but there is still a lot more progress to be made and a lot more revenue and profit to be generated and so that's what we're continuing to do.

Got it. And what you said, the units, the percent of units from those brands, can you go over the percent of units as for the company as a whole over time?

Yes for sure, if not more.

If not more. We had it for Keds and Saucony and Sperry that is true.

Yes, we have certain brands in our legacy portfolio that may be do not have the same international potential as some of the Boston based brands that we acquired a couple of years ago.

Got it, thanks so much.

The next question comes from Erinn Murphy with Piper Jaffray. Please go ahead.

Hi this is Erik Korn [ph] for Erinn today. I just had a quick question. I know you guys had talked about Merrell and Sperry having pricing power as you go to market with improved marketing strategies and spending. I was wondering if you could quantify how this impacted sales and gross margin and if that can continue throughout fiscal year 2015?

There was a, first in particular about Q1 and for the full fiscal year, sharper pricing supported by the marketing investment is where they have contributed to Q1 gross margin and for the full year gross margin for the brand and as the company as a whole given the size of the Sperry brand. Merrell, a little bit less gross margin expansion in Q1 for the full fiscal year than Sperry, but clearly those two brands of other 15 brands in our portfolio have the most pricing pattern and the ability to price accordingly and to drive gross margin up through selective price increases and that was prominent for the Sperry brand in Q1 and we ought to continue to see that over the balance of the fiscal year.

Okay, great and then, just from Europe overall, I know you have another pretty challenging compare in Q2, how do you think that can be positive on a constant currency basis given the, starting to accelerate in the second half and do you think that market can turn overall for the year?

Yes, I mean we're not giving specific by region for Q2, but I would think it would be in the similar range of what we experienced in Q1 we did have tough comps for the first half of the fiscal year for EMEA, but I know we're taking that fact out of the equation talking about comps and currency performance, but I would expect it would be a similar result to what we delivered in Q1. Erik [ph] are you there?

Yes, yes, perfect thank you guys.

Okay. Anything else?

The next question comes from Scott Krasik with Buckingham Research Group. Please go ahead.

Yes, hey everybody. Thanks for taking my question. Just a couple of clarifications, first Don last quarter you said that the only quarter you would expect earnings growth was 4Q, now you said maybe 3Q and 4Q is that right?

Yes, I kind of qualified it when I was saying that. In my head I filter that. I think really for the back half of the year we expect earnings growth. So I don’t want to - I want to clarify, I'm not saying Q3 and Q4 each but for the back half of the year for sure based on the earnings guidance that we've reaffirmed today.

Okay, okay.

Thank you for the opportunity to clarify that.

Okay, so TBD [ph]. And then just on Merrell, it is really a tale of two businesses, right? You seem to be growing solidly in outdoor and you have been for some time, but it just hasn’t flown through because of all these other offsets. When do we start to see a more sustained growth from Merrell?

Yes, if you are taking in particular about the women's casual category, I would say we'll begin to see some progress in the fall season a little bit with a late fall introductions and in spring of next year.

And that's been sold…?

We are frankly trying to accelerate that timetable, Scott, but I am just giving you our current view.

And there is some visibility there that you sold that in and?

No.

Okay and then…

Yes, but, hey Scott, I'm sorry, just before you ask the next question, what I'll say is that with the challenges we've had in the Active Lifestyle part of the business and the decline candidly we've had in the outside athletic part of the business, the Performance Outdoor and with seven consecutive quarters a strong growth in Performance Outdoor now represent over 60% of Merrell's overall business with about 30% in the lifestyle product and then far less than 10% being outside athletic. So as we continue to deliver growth and performance outdoors is going to have an increasingly positive impact on the brand's overall results. But what I will say, full stop on that point, the next point is for the brand to get back to the level of growth that we have experienced in the past and that we intend to get the brand back to which is the consistent tightening of digital low double-digit growth that trend of performance outdoor being a bigger and bigger part of the business for Merrell need to reverse and the lifestyle part of the business needs to regain footing, no pun intended, which is now what Blake said. So that is the goal going forward and we have, we're working really hard at making sure the lifestyle product is in both retailers and consumers.

Okay, that's helpful and then just on Sperry the decline last year 1Q sort of much softer growth. So just to put into perspective, obviously strong selling, can you may be talk about some of the sell-through trend that you are seeing at retail for Sperry to give us confidence that the brand can achieve the high single digit growth for the year?

Yes, I mean, we continue to see great performance on the men's side in boat that never really slowed down that much. It looks more of the stable business. It is certainly refreshing to see woman's boat pick up and deliver some growth. We are seeing the new women's boat product and there is a bigger pipeline coming for refreshing product in the women's boat category. So we feel very good about the boat category. We also feel especially good about vulcanized, which had a significant uptick in Q1 and a number of other areas include boots. So I would say Sperry is one of the reasons why we have confident looking into the back half is the fact that the response we've had back from retailers and consumer panels on category extensions for Sperry has been very, very positive especially in the boot arena.

And Scott I know you rely heavily on SportScan data and we use more NPD, the March NPD data for Sperry turned positive mid single digits, which was very encouraging to see after several quarters in a row of negative results from NPD for Sperry on the sell-through. So, we're seeing a turnaround in the brand's performance at retail, not just what we're shipping in, but actually what is being purchased by consumers.

Yes, exactly, okay cool, thanks guys.

All right, thanks.

The next question comes from Sam Poser with Sterne, Agee. Please go ahead.

Thank you for taking my questions. I just want to follow up on Sperry and you just mentioned NPD and SportScan, how much of your Sperry sales are helped by selling the goods back to the two retailers or one and a half of the two retailers that you pulled it out of last year?

I would say, are you taking specifically about a couple of retailers from the family channels, Sam?

Correct.

I would say it was in Q1, it was helped that it would be, those are all from North American sales and low single digits maybe 3% or 4% range. I don’t have the exact…

Yes, but I'm sorry but Blake it was a few million dollars. The brand still would have grown double-digits Sam even without that expansion of distribution.

You know Sam, as we've discussed before, historically Sperry has had a very good business in the family channel, but quite frankly before the acquisition and shortly thereafter they didn’t probably have adequate discipline or product segmentation that required us really to take a couple of steps back and then as we're reentering a couple of those retailers, we're doing so on the understanding they are going to be less promotional, but most importantly, it is going to be strict product segmentation strategy that we put into place.

Thank you and then secondly, you talked about using cash still looking at acquisitions. On the flip side of acquisitions are you happy with all the brands that you currently have, are any of them, are you shopping any of those brands right now?

Yes, we usually don’t comment on that Sam obviously, but we've got a pretty disciplined approach to reviewing our brand portfolio. As you know over the years we've shared a few businesses and a few smaller brands and we look at that on a routine basis. But certainly with respect to the four newest brands that we have acquired we're very comfortable with their performance and potential.

And then lastly, can you be somewhat specific on how, on what you see from our additional marketing into this very brand or into any other brand for that matter and sort of how you expect that, how are you going to judge that payoff and how are you thinking about that sort of the marketing against the brands over the longer period of time?

Yes, as you know, it is always a bit hard to measure precisely the impact on marketing spend and other investments behind the brand. I would say with respect to Sperry which is our primary focus, one of our primary focuses in 2015 a good chunk of the mid teens reported and constant currency growth for the brand in Q1 relate to the new brand platform. It is hard to measure that precisely, but I do not think we would have been there without our investment behind the brand and the focus on the brand. I think the new brand platform and the Odyssey's Await executions under that platform have been very well received by retailers, have kind of acted to reenergize the brand and the entire boat so that category. And so we believe we are getting a very good return right now. It is just difficult to measure with any kind of precision.

And what I will say Sam, I think we've had this conversation, but if not, I had you with someone else, but when we were evaluating the decision to invest incrementally behind the Sperry brand we looked at where the brand was and where we all kind of agreed the brand would however trend if we did not change the brand platform and the brand message. And then we looked at what the brand team was willing to sign up for in terms of revenue growth and profit growth if we invested the incremental investment dollars. And it was clear that it was a positive net present value investment opportunity if we could deliver on what the brand team thought they could deliver. And so far they are tracking at or above what the commitment was nine months ago. So we feel good about where we are because kind of exactly where the brand would be if we weren’t making any incremental investment. No, we can't say with precision, but we feel confident that we're getting a return on the investment dollars.

And can I ask one more question?

Sure.

Sure.

Okay, you talked about the average selling prices, raising the price is helping the margins, could you talk about the relationship of with whichever brand you'd like or in total or maybe it's Merrell and Sperry, your unit versus ASP the unit versus the ASP dynamic and how sustainable that is going forward I guess?

Yes, I mean Sam, I really, I separate that into two buckets, the U.S. markets and the world. As you know, most of the world buys their shoes in U.S. dollars and we see now very strong appreciation of the U.S. dollar over the last year. So, we're seeing our ability to pass on price increases domestically, I won't say easier but easier to understand especially when it is coupled with the marketing expense and new exciting product. Internationally it is a little bit of a different situation, especially in those countries that have had a significant weakening of their currency. So, our international distributors are hedging a little bit more. They are focused on some lower price point products, maybe more in the good, better categories as opposed to the best categories. They are all for passing on some price increases and we're working with several of our partners on local sourcing which helps mitigate the currency situation. So it's really the U.S. market has a different set of criteria versus the rest of the world right now.

And I will add to that Sam just quickly, that from my perspective as CFO and we're all mindful of the power of revenue growth that comes via price increases, particularly if you are not selling any issue to payers but gotten the price increases that flows right down the P&L with very little incremental cost to go against it. But revenue performance at the end of the day is the combination of unit volume growth and what you are doing on the pricing side. But I prefer revenue growth to come from additional sales price increases because that's more powerful impact to the bottom line, but the reality is it comes from both. And so a brand like Sperry in fiscal 2015 will deliver its revenue growth via both significant price increases supported by the marketing program as well as unit volume increases.

Thank you.

Your next question comes from Chris Svezia with Susquehanna Financial. Please go ahead.

Good morning everyone. I just have a couple of things here for me, one talk to your gross margin, what was better I guess in the first quarter, just maybe cost through if you think about the balance of the year relative to, I guess the modest increase that you talked about last time. So how do you think about it and relatively at Q2 outlook is that where the most pressure on gross margin should be?

Yes, to answer to the last question first, the most pressure will be on Q2. Our outlook for the fourth fiscal year hasn’t really changed. We've probably delivered, had a little bit better gross margin from this in Q1 then we had expected will be, I think gross margin will be down as I said in Q2, but for the full fiscal year, we expect gross margin to be about where we thought it was going to be, when we gave our initial guidance back in February.

Okay and with regard to, I just wanted to talk about, I know backlog is not a perfect indicator, but I just want to understand this for one second, when you, tail is up 67 or something on those last numbers, as of mid February, your guidance is what it is 2% to 4% obviously you'll find some acceleration in Q3 based on that backlog and shipment and timing. Can you maybe just talk to either, A] what has happened sort of came to that backlog or B] what are you assuming for either and at once and/or cancelation rate relative to that backlog within about the balance of the year?

Yes, I would think Chris, that one, we expect our cancelation rate to be down this entire year. Our inventories were down almost 10% in Q1. We’ve been very disciplined there. We think inventories are balanced at retail and so we think our cancelation rate, one it is going to be down, on the other hand we’ve had some significant shifts in order windows which probably accounted for a bit of a spike up in our order backlog when the 10-K was filed, especially in the boot and rubber arenas across a number of our brands. It was just frankly, we were required to take a view in palace earlier as were our retailers, so that accounted for some of the spike you've probably seen in our 10-K filing.

And I will say as we expected post filing of the 10-K, our backlog has moderated as we expected because that was not indicative of what we thought our full year revenue growth is going to be. So it has moderated, but we still feel we’re in a good spot as it relates to the back half revenue growth as reflected in our revenue guidance.

And anything on that one, any color about that ?

I think given the timing of the future orders At Once [ph] business would be reasonable to expect it to be a little down, that’s what were forecasting versus prior year because a lot of the orders have come in earlier and so there might be less. And obviously a big portion of At Once [ph] business in Q2 and Q4 is going to be a function of sell-through, as well as you get, the filling orders that come through. So similar to prior year, but may be given the order book going into the last three quarters in the fiscal year may be net-net a little down.

Okay.

I would say, I hate to mention weather, but I would say after we finally got to spring year on the East Coast and then the Midwest and then a good chunk of the country, we have seen a pickup in business in certainly At Once [ph] or spring offerings.

Okay, and last one I had is just not to beat this to death, but you know I would love to beat this to death, on Sperry, just could you may be just talk to why the delta in same-store sales performance we see comps were down in the quarter, which you would have thought may be down a little less from the timing of these talk a little bit, towards the tail end of March and between the U.S. wholesale division being up as much as it was?

Yes, I think, yes I said this. Sperry stores were on a comp basis probably our best performing segment across our fleet. So in that respect it was good, but any mall based operation and as you know with the weather, the outlet arena has been was really suffering in Q1 and a bit into our Q2 here. So we would have preferred a positive comp store increase for Sperry in Q1. It was down lower signal digits, which is pretty good, but the performance was actually pretty good, especially when you consider the traffic was all substantially more than that.

I mean the brand had a very solid, if not very strong Q1 Chris, with both two are up double digits, vulcanized product up over 20%. The boot business obviously in the first part of the quarter, most within the later part of the quarter up very strong double-digits continuing the results that the brand delivered in Q4, but I will say that, you are talking about the divergence between our overall brand revenue which is primarily wholesale driven versus our comp store sales performance, I would say as someone noted earlier in a question, we did have an easier comp in Q1. Retail inventories were quite high going into Q1 last year as we had really a tough Q4, so there were far more order cancelations in Q1 last year and fewer outgoing shipments that we were comping against this year, which kind of helped drive that mid teens quarterly revenue growth and that would be probably the primary different point I would make in terms of trying to explain the difference between the overall revenue growth and the comp store performance.

Right, okay, I mean I was, I just mentioned that you would think your company on retail would be sort of a forward indicator for the brand. I mean obviously if you had some good strength – vulcanize that product could be in the stores, customer is gravitated, you will get a positive comp there directionally drive also the wholesale business is sort of forward indicator, so that’s why we try to understand the delta between the two of them.

I understand.

I think it was just primarily a traffic issue in Q1.

All right, fair enough. Okay thank you very much.

Thanks Chris.

[Operator Instructions] The next question comes from Laurent Vasilescu with Macquarie. Please go ahead.

Thank you very much. Good morning and thank you for taking my question. It was outlined that this quarter's gross margin increases offset by product cost. I think last quarter it was mentioned that you are seeing benefits from lower crude prices for raw materials and freight, could you pass out further the product cost increases you’re seeing, is it coming from leather, is it coming from labor and it is still by how much.

Yes, I will tell you we’re in a pretty benign sourcing environment right now certainly petroleum based components, the prices on those components said at eased, leather is still high by historical standards but has also ease a little bit in the 5% to 8% range here over the last couple of months, so mostly the increases were seeing now, our labor increases, labor and overhead increases and although we for the year expect to see some overall price increases across our 100 million pair of sourced product, it’s a reasonable benign environment I would say right now with the labor increases kind of offsetting some of the savings in the component side.

And I will say Laurent that we worked very hard to mitigate the impact of cost increases but I tend to now look that cost increase and vacuum or look at selling price increases then vacuum, but look at those to kind of in tandem and in the quarter the gross margin benefit from selling price increases across the brand in our portfolio was more than double the negative impact of product cost increases so that was a big contributor to the overall gross margin performance in the quarter.

Okay, great and then on international, last quarter it was outlined that you had nearly 70 international agreements, I think this quarter it was 80, curious to know how many agreements you are envisioning for the end of 2015 and potentially for 2016 and any additional colors on the existing agreements by region that will be great.

It's pretty difficult to quantify. We’ve got a number of agreements, number of countries and number of regions in the work across our four newest brands and I would say the international rollout here has met our expectations and we believe it is going to continue to meet our expectations, but it’s almost impossible to identify when specific agreements are going to be signed and the marketing process begins.

Well, I would suggest that the revenue benefit in 2016 internationally for the Boston based brands will come more from the agreement that we have signed in 2013, 2014, and to a lesser extent 2015 and last from any new agreements we might sign over the balance of this year or the first part of 2016.

Okay, great and then lastly Asia Pacific grew double-digits, could you pass out further in terms of particular brands?

Yes, I would say for Caterpillar remains very strong in Asia Pacific, but we’ve also seen some large businesses build fairly quickly on Keds and Saucony. And so as a region, I know we keep reading articles that there is a slowdown in Asia Pacific and China is only posting an anemic 7% GDP growth rate and this and that, but for our brands certainly Asia Pacific is a sweet spot right now and we expect that to continue.

Okay, thank you very much, best of luck.

Thank you.

The next question comes from Danielle McCoy with Wunderlich. Please go ahead.

Good morning everyone. Thanks for taking my questions. I was wondering if you could just give us a little bit more color on the West Coast port situation when you’re going to see that normalizing? And how much of the decline in inventories were related to the ports? Thanks.

Yes, as I said before, we probably only had $10 million the impact on revenue side in Q1 for us I would say the situation is back to normal. I am told the situation is going to be completely back to normal for Long Beach and other ports in the next several weeks. Of course now we’ve got some picketing going on by truckers with a disagreement over their status whether they are independent contractors they shouldn’t be considered employees. We’re monitoring that very carefully. We'll keep an eye on that, but right now we don’t think that’s going to have any kind of material impact on our performance.

I would say Danielle about half of the inventory decline might be related to the port situation with the remainder of the inventory decline driven by the retail stores that we closed at the end of last year. And kind of just overall aggressive inventory management, just think I’m moving out the inventory that’s classified as closed out. If you look at our balance sheet you also see our accounts payable down year-over-year and that relates to just a delay in the receipt in the inventory, which at the end of the quarter would have actually obviously caused inventory to go up and cause the accounts payable to go up. So we exited that in the first part of Q2.

All right great, thanks and then just a few housekeeping questions, just an expectations that if you can give around D&A, share count and tax rate from a full year?

D&A about $50 million plus or minus, the tax rate would be similar to the guidance we provided last quarter 27.5% and CapEx in the $45 million range plus or minus. What was the other point? Share count 101.6 will be our guidance for the full year, while average share is outstanding.

Great, thank you guys, good luck.

Thank you.

Thank you. The question-and-answer session has now ended. I would now like to turn the call over to Mr. Chris Hufnagel. Please sir, go ahead.