Wolverine World Wide, Inc. (WWW) Q2 2015 Earnings Report, Transcript and Summary

Good morning and welcome to Wolverine World Wide's Second 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 World Wide. 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 World Wide. Mr. Hufnagel, you may proceed.

Thank you, Andrew. Good morning and welcome to our second quarter 2015 conference call. On the call today are Blake Krueger, our Chairman, Chief Executive Officer, and President; and Mike Stornant, our Senior Vice President and Chief Financial Officer. Earlier this morning, we announced our financial results for the second quarter of 2015. The release is available on many news sites or it can be viewed from our corporate website 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 Q2 2015 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 World Wide 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. Earlier this morning, we reported our second quarter results, highlighted by the strong global growth of our brand. Both revenue and earnings exceeded the internal forecast we had going into the quarter, as our team's excellent execution of our business model across geographies and brands, continued to deliver in a somewhat difficult global macroeconomic environment. I'm going to briefly review our consolidated financial results and will primarily speak to constant currency revenue performance. I'll then offer some specific commentary on our operating groups and brands, and close with an update on three key strategic initiatives; our global brand-building efforts, the omnichannel transformation of our business, and the continued expansion of our international footprint. Well, I'm pleased with the results we have delivered in the first half and equally encouraged by the significant progress we are making around the world in these areas. Starting with the consolidated results. We finished the first half of the year with constant currency revenue growth of 4.1%. Excluding the impact of store closures in the Patagonia Footwear asset, our organic growth in the first half was 6% versus the prior year. Growth accelerated in the second quarter where we delivered record revenue of $630.1 million, representing growth of 4.9% on a constant currency basis. On a reported basis revenue grew 2.7%. Adjusted diluted earnings per share for the quarter were $0.27, again strong performance. Mike will provide you with much more color on our solid start to the year, along with our expectation for the second half in a few minutes. Moving to the results by operating group, along with some specific brand commentary. The Lifestyle Group delivered a solid quarter in line with our expectations, with revenue down 3.1% on a constant currency basis. Strong constant currency, low-teens revenue growth from Keds, was offset by a decline of less than 1% for Sperry, a high single-digit decline in Stride Rite, driven primarily by our store closure program, and the low-teens decline for Hush Puppies, due primarily to the realignment of our domestic distribution strategy. Keds posted low-teens growth in the quarter. A very good result considering we comped against an exceptional quarter from a year ago where the brand grew more than 30%. The brand's product and marketing stories to continue to resonate with young women in the U.S. and at an even faster pace around the world. Today well over 20% of the brand's revenue is generated outside of North America, and in the quarter, Keds grew over 100% in Latin America, and more than 200% in Asia-Pacific. Sperry, as we expected and guided, finished the quarter essentially flat to last year on a constant currency basis, following two consecutive quarters of strong growth. The brand continued to extend its new platform Odyssey's Await with a global introduction of the Odyssey's project. This past week the brand launched its new fall campaign which is focused on linking the new brand narrative to exciting new product stories. The Sperry business is more robust in only a year ago. In the first half, gross margins have expanded 300 basis points, and the brand has been strategically less promotional on a year-on-year basis. The steps we've taken over the last year, coupled with new brand investments are taking hold. And I'm pleased with Sperry's progress. Our revenue forecast for the brand remains unchanged. We expect Sperry to deliver high single-digit revenue growth for the year. Turning to the Performance Group. The Performance Group delivered constant currency revenue growth of 9.4% in the quarter, driven by exceptionally strong double-digit growth from Chaco, low teens growth from Saucony, and low single-digit growth from Merrell. Chaco has exceptional momentum this year and delivered revenue growth north of 60% in the quarter. Classic Z sandals remained the key franchise item driving excellent growth in all channels and virtually all accounts but importantly the brand's newest offering the Outcross Evo, a closed toe program, launched successfully and is helping to expand Chaco into a four season brand. In addition, our own consumer direct channel Chacos.com continues to perform exceptionally well, up over 85% in the quarter, driven by the custom Made in USA MyChacos program. Chacos.com also featured exciting new product exclusives such as the limited edition Grateful Dead collection which sold out in less than an hour, something that surprised even me. Saucony, the company's third largest brand by revenue posted low teens constant currency revenue growth in the quarter. The brand's innovation platform with new technology such as ISO-Fit, combined with its heritage inspired original collection, continued to drive strong growth in the U.S. and around the world. International revenue was up over 40% in the quarter with strong momentum across EMEA, Asia-Pacific, and Latin America. Moving to Merrell. As we expected the brand's growth accelerated in the second quarter at a low single-digit pace on a constant currency basis. We continued to win in the critical performance outdoor market, the largest footwear category for the brand. This year's launch of Capra, the brand's pinnacle outdoor hiking collection, helped solidify the brand's market leading position in the category. Performance sandals, hiking, light hiking, and multisport products continued to sell through very well globally. The active lifestyle category representing about a third of the brand's business and a category we've been giving a lot of attention to internally, improved materially in the quarter, as retailers and consumers responded positively to new sandal and footwear offerings. For the full-year, we remain on track for Merrell to deliver solid mid single-digit constant currency revenue growth. For 2016, Merrell plans to debut a new integrated brand platform. And we have already begun to socialize the new Merrell with our key partners both here in the U.S. and around the world. Merrell remains one of the most loved brands in the industry and the global leader in the outdoor footwear space. And last, as noted in our earnings release, we made the strategic decision to end operations for Cushe, the smallest brand in our portfolio at the end of the year. This change allows us to redeploy time, talent, and resources, to other high value opportunities within the portfolio. Finally, the Heritage Group. The Heritage Group had a great quarter and delivered very strong constant currency revenue growth of 14.6% as all brands contributed to the exceptional performance. With strong double-digit growth from Bates, high teens growth from Cat Footwear, low teens growth from Wolverine, Sebago, and HYTEST, and high-single-digit growth from Harley-Davidson. The monument in Cat continued into the second quarter with excellent revenue gains in North America and Asia-Pacific. Internationally the brand's lifestyle offerings continue to resonate with men and women or domestically Cat's core work in industrial product offerings performed well due to continued innovation and unique and useful product esthetic. The Wolverine brand delivered a strong second quarter following some product delays in Q1 related to the West Coast port slowdown. The brand remains the category leader in work and experienced nice growth domestically across all distribution channels. Lead by new product innovation such as EPX and Carbonmax, along with continued growth from core collections such as Contour Welt. The Heritage collection featuring Made in USA 1000 Mile products also performed well growing at a nice mid teens pace. All in all, a strong quarter for the company, and a solid first half to the year. Our Q2 performance is reflective of our balanced business model as we are not dependent on one or two brands or geographies to deliver great results. Looking ahead, I want to provide a brief update on three of our key strategic initiatives all designed to drive long-term sustained profitable growth and enhanced value for our shareholders. First, as we announced in January, we initiated a multiyear incremental investment plan behind our largest brands and key growth opportunities. I'm excited about where our progress is to-date and encouraged by what I see on the horizon. While we've made significant investments over the past six months, we plan to accelerate our investments in the third quarter. Sperry is receiving a majority of our 2015 spend, which coincides with the launch of the new global brand platform Odyssey's Await. In support of the new platform we have already delivered nearly 500 million digital and print impressions. In addition, new end store fixtures for over 600 key domestic wholesale partner doors are planned to be in store by the end of the month. We've also begun to remodel program in our Sperry specialty source to bring the new brand experience to life for our consumers. Our incremental investments also supported the global launch of Merrell's pinnacle product Capra, and we added key personnel to Merrell's product, marketing, and field tech rep teams. We've also spent to build about consumer awareness and drive growth for our newest brands Sperry, Saucony, and Keds in key international markets. Our second initiative, we focused on our omnichannel transformation efforts, including a new e-commerce platform for all of our brands, key enhancements to our digital infrastructure, and new marketing and merchandising talent to support our digital growth efforts. These efforts are critical as we now operate over 60 owned websites around the world, all driven by a common platform to provide our consumers a seamless, best-in-class brand and shopping experience. Mobile commerce continued to become a more important piece of the omnichannel experience, with traffic up over 35% year-to-date. Mobile revenue has grown over 80% this year, driven in part by a strong lift in conversion following the migration to our new e-commerce platform. We are also working to provide our consumers who come to our websites with additional custom product alternative, initially focusing on offerings for the Chaco, Sperry, and Keds brand. This omnichannel transformation remains one of our most critical initiatives and I continue to be encouraged by the progress we're making and how our consumers are responding to these efforts. Finally, I want to speak briefly on the progress we've made in expanding our international presence, especially for our newest brands. As we previously said, it's a steady build as we expand and enhance our pace of international partners, and they establish their operations and growth path. In the quarter, Sperry, Saucony, and Keds posted strong double-digit international growth with the Keds third-party international business leading the way with growth well over a 100% versus last year. Saucony, the most global of our newest brands with over 30% of the brand's revenue generated from outside the U.S., expanded into six new countries in the quarter. On a year-over-year basis our Boston-based brands grew their international business by over 40% in the quarter, and have added 400 new dedicated points of global distribution since the acquisition close. For the company as a whole, our international performance in the quarter was excellent. On a constant currency basis our revenue growth was up over 20%, an exceptional quarter in what continues to be a choppy global marketplace. Our intense efforts and investments around the world are paying off and we're clearly gaining share. With that, I'll now turn the call over to Mike Stornant, 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. Mike?

Thanks, Blake, and thanks to all of you for joining us on the call today. We are very pleased with our strong financial performance in the second quarter, which was fueled by our diversified brand portfolio and expanding global business. Both components of the business performed well. Our U.S. wholesale revenue grew mid-single digits in the quarter, constant currency growth for Asia-Pacific exceeded 50%, and the EMEA region had a double-digit constant currency gain. In addition, we believe omnichannel investments are beginning to show results evidenced by healthy double-digit e-commerce revenue growth for the first half of the year. This early success allowed us to overcome external headwinds from foreign currency and challenging macroeconomic conditions in certain third-party markets. We also overcame the short-term negative revenue impact from the strategic decisions we've made to improve the health of our business, by closing underperforming stores, and exiting certain distribution for some brands in our own markets. In January, we introduced a multiyear incremental investment plan for several of our largest brands. This plan is on track and we believe these related strategies and actions coupled with the ongoing operating discipline characteristics of Wolverine has positioned the company for accelerated revenue growth. I will now provide some additional information about our second quarter which ended June 20, 2015, and then conclude my prepared remarks by commenting on the company's expectation for the balance of fiscal 2015, including some insight regarding the third quarter. We reported revenue for the second quarter of $630.1 million and this represents constant currency growth of 4.9%, and reported growth of 2.7%, both as Blake previously noted, ahead of our expectations entering the quarter. Revenue for the second quarter benefitted from the timing of approximately $7 million of third-party distributor orders that shipped earlier than we projected. Adjusting for the currency impact noted above, the negative impact of store closures and our exit from the Patagonia license, second quarter organic revenue growth was a very healthy 6.9% versus last year. Our global diversity allowed us to navigate challenges in certain markets during the quarter. We experienced healthy constant currency growth outside of North America with very strong double-digit growth in Asia-Pacific, double-digit growth in EMEA, and mid single-digit growth in Latin America. On a reported basis, strong double-digit revenue growth in Asia-Pacific and low single-digit revenue growth in the U.S. were partially offset by low single-digit declines in EMEA and Latin America. Moving on to the rest of the income statement, gross margin for the second quarter was 39.1%, down 100 basis points versus the prior year but in line with our expectations. Selling prices increases had a favorable impact on gross margin in Q2 but were offset by a lower mix of higher margin store revenue due to closures, a higher mix of lower margin top-line revenue for certain third-party distributors, and product cost increases, finally, a negative impact from foreign currency. Adjusted operating expenses for the second quarter were $195.1 million, an increase of 2.2% versus the prior year. This slight increase was driven primarily by the planned incremental brand investments, and $3.6 million of incremental non-cash pension expense, partially offset by excellent expense discipline throughout the rest of our cost structure. As a percentage of revenue, adjusted operating expenses were 31.0%, 10 basis points lower than the prior year, and better than we projected. Certain planned costs, including some incremental investments, have shifted into the back half of the year, especially into Q3. Reported operating expenses for the second quarter were $198.8 million, an increase of 1% versus the prior year. Adjusted operating margins was 8.1%, 90 basis points lower than last year but better than we expected due to the stronger revenue performance and lower than planned operating expenses. Reporting operating margin was 7.6%. Net interest expense in the quarter was $9 million, $1.5 million lower than the prior year reflecting year-over-year principal reductions, including year-to-date voluntary principal payments of $58 million made earlier in the first quarter, and a low interest rate on our term loan or a lower interest rate on our term loan driven by our declining leverage ratio. The adjusted tax rate for the second quarter was 30.4%, up 190 basis points compared to the prior year, and the increase is primarily driven by a negative jurisdictional mix shift. We still expect our full-year tax rate to remain in line with our previous guidance. The reported effective tax rate for the second quarter was 31.4%. Diluted weighted average shares outstanding for the second quarter were 101.6 million and adjusted diluted earnings per share were $0.27, a much stronger performance than projected but lower than last year's $0.31 per share driven by incremental demand investments, higher pension expense, unfavorable foreign exchange, and a higher tax rate. Reported diluted earnings per share were $0.24 compared to $0.27 per share in the prior year. Now, turning to the balance sheet. Accounts receivable of $355.3 million were 18.2% lower than the prior year. The decrease was driven by the accounts receivable financing facility that was put in place at the end of fiscal 2014, and an organic improvement in consolidated DSO. Inventories decreased $7.6 million or 1.7% versus the prior year and our channel checks indicate that retail inventory levels are in a good position as we head into the back-to-school season. The company's leverage position continued to improve and our business model continued to generate significant cash. Year-over-year operating free cash flow improved by nearly $31 million in the first half of the year and we finished Q2 with cash and cash equivalents of $220.7 million, and net debt of $612.4 million which is down $286.5 million from the same period last year. We have significantly improved our net debt and leverage position since closing the PLG acquisition in October of 2012, including cumulative voluntary principal payments of $368 million during that time, and a reduction of our leverage ratio from 4.0 times at closing to 2.17 times at the end of Q2. Taking advantage of our strong credit standing and the favorable market environment, last week we finalized and announced an amendment to our senior secured credit facility, which among other things extended the term by nearly two years, upsizes the revolver capacity to $500 million, and offers favorable pricing. This amendment is projected to provide us greater capacity as we pursue strategic acquisition opportunities, and more flexibility related to certain restricted payments, including future dividends and share repurchases. During the second quarter, we repurchased nearly 200,000 shares for $5.9 million at an average price just under $30 per share. We have $194.1 million reaming under the stock buyback program approved by our Board of Directors in 2014, and we will continue to look for favorable buyback opportunities over the balance of the year. Turing to our 2015 full-year guidance. We are pleased with our financial performance for the first half of the year, as Blake mentioned. Revenue results met our expectations and earnings were very strong. We expect some revenue pressure for the back half of the year, including challenges from some third-party markets, a tougher retailer and overall trading environment in Latin America, continued soft retail traffic trends in the U.S., and continuing uncertainty related to foreign currency. As a result, we are tightening our estimate for full-year revenue to a range of $2.82 billion to $2.85 billion, representing reported growth in the range of approximately 2% to 3% versus the prior year. Constant currency revenue growth is expected in the range of approximately 5% to 6%. Our strong year-to-date earnings performance will allow us to stay the course with respect to our incremental investment plan of up to $30 million for the year, a substantial portion of which is planned to be incurred in the third quarter. We are reaffirming our expectations for full-year adjusted diluted earnings per share in the range of $1.53 to $1.60. Constant currency adjusted diluted earnings per share is expected in the range of $1.68 to $1.75. Some of the key factors impacting our outlook for fiscal 2015 include accelerated revenue growth from our largest brands, including anticipated high single-digit constant currency growth for Sperry and mid single-digit constant currency growth for Merrell, a negative revenue impact from the exit of the Patagonia Footwear license, store closures, distribution rationalization for certain brands in own markets, and challenges in certain distributor markets, ongoing revenue and earnings headwinds related to foreign currency, and finally, continued challenging traffic trends in our brick-and-mortar retail stores. Related to weaker store traffic, let me provide a brief update on our current plans for store closures. As you know, we closed 58 stores in 2014, and have a robust and continuous assessment process to evaluate future closures. Based on store performance and discussions with key partners and major real estate developers, we now anticipate closing approximately 60 locations to 65 locations during 2015, with a vast majority anticipated to close toward the end of the year. This would bring our store closure count to approximately 120 by the end of 2015. In addition to store closures executed under out strategic realignment plan, approximately 55 underperforming Stride Rite stores have now been identified for future closure upon normal lease termination over the next several years. On the earnings front, our 2015 reported earnings results will now be impacted by two new items. One-time cost associated with the Cushe exit, and early debt extinguishment cost from the debt refinancing. We now expect reported diluted earnings per share in the range of $1.39 to $1.46 for fiscal 2015. I will now provide a little more color on our expectations for the third quarter that ends September 12. As previously mentioned, second quarter revenue benefited from a shift in approximately $7 million of third-party orders that were previously expected to ship in the first week of Q3. In addition, we are seeing a shift, a slight shift in wholesale demand from the third quarter into Q4. These factors result in a slightly lower growth outlook for the third quarter, and we now expect constant currency growth in the mid single-digits, with reported growth in the low single-digits. It's worth noting that foreign currency is expected to have a nearly 350 basis points negative impact on revenue growth in Q3, the largest impact of any quarter. We expect that third quarter earnings will be impacted by the following factors. A shift in earnings benefit of around $0.02 per share from Q3 to Q2 related to those early third-party shipments; preferred timing of discretionary operating expenses from Q2 into Q3; a projected 40% increase in marketing and advertising spend in the third quarter, driven mostly by planned incremental investments; higher non-cash pension expense; and finally, slightly higher tax rate than last year. As a result we now expect Q3 adjusted earnings in the range of $0.47 to $0.49 per share. The guidance just provided for the third quarter clearly implies a very strong revenue and earnings performance for Q4, as Merrell and Sperry accelerate growth, and our other wholesale businesses continue their momentum into the back half of the year. Thanks for your time this morning. We'll now turn the call back to the operator to take some questions. Operator?

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Ed Yruma with KeyBanc Capital Markets. Please go ahead.

I guess first just on some of the revenue shifts you cited, you did indicate I think that some revenue is shifting from 3Q to 4Q. I guess does that then imply that some 4Q revenue will get shifted out and kind of what are the drivers behind some of those shifts? And then I guess second as a follow-up, Mike, you guys have been really focused on delevering. Given kind of the existing leverage ratio, I know you are open to share buybacks, but kind of how should we think about share buybacks versus continued deleverage? Thank you.

Sure. When we look at the shift from Q3 to Q4 for revenue it's a very, it's relatively small shift. It's just having better information based on the order book today than may be we did a quarter ago. But we talked about $7 million really shifting from Q3 to Q2 and our growth rate in the quarter is really being impacted most significantly by FX in Q3 and to a lesser extent we had that that same pressure in Q4 but it's at a much lower level. Related to sort of our deleverage position and share buybacks, absolutely we indicated in the prepared remarks that we're going to continue to look for those opportunities. Our new credit agreement, our amended credit agreement gives us a little more flexibility in that regard as we move forward and we're going to continue to be optimistic as we look at the share price over the coming months.

The next question comes from Jon Komp of Robert W. Baird. Please go ahead.

Hi, thanks, may be just one question and then a follow-up on the guidance. Mike, just want to clarify, it's not exactly clear, parsing through some of the pieces on the revenue guidance and I know you are tightening towards the lower end of the range or bringing down the high end. It sounds like you will have less store closures, so that may be is a little bit of a benefit to the top-line, but may be not if they are closing late in the year. So could you maybe just walk through exactly some of the moving pieces on the revenue guidance update?

Yes, sure. On your point on store closures it really isn't having any impact at all, I mean, we would any stores that we might have considered closing, we were going to run to the end of the year pretty much anyway. So there is really no impact there. The big impact in terms of our kind of taking the range really has to do with some of the challenges we cited in the international part of our business in some of our third-party markets and that's just more clarity on the situations there as we enter into the back half, and a little bit a weaker performance frankly in our stores than we would like and so both of those things are probably the biggest contributors to our sort of being a little more conservative on the revenue guidance.

Got it. And may be just a follow-up on the Sperry brand. I know it sounds like you are pointing to high single-digit growth for the year. I think previously this may be parsing too closely, but I think you said mid-to-high-single digits previously. So could you just maybe clarify what you are expecting there for the year and either of those ranges I think imply a slight acceleration in the back half? So can you just talk about why you're confident in projecting that today?

Yes, you're right about -- Jon, you're right about the acceleration in the back half. Sperry had a very good first half of the year; we are anticipating a better second half of the year for a variety of reasons. The investment behind Odyssey's Await brand platform, what we're seeing as for as timing on the order book, what we're seeing from the consumer and retailer in the pickup of new product categories, especially vulcanized footwear and the boot category that's been very, very strong. So there is a number of factors that go into our outlook. There is Sperry in Q3 and Q4, but certainly right now we are anticipating some acceleration on top of a very good first half.

The next question comes from Taposh Bari of Goldman Sachs. Please go ahead.

I was hoping you could comment more on Sperry, point-of-sale or sell-through trends, specifically what you've seen either year-to-date or in the second quarter regarding point-of-sale and also same store sales trend?

Yes, you've got -- I have kept there in the background.

I know.

I remember those days. Anyway, yes I mean for Sperry kind of focusing on product, as you know, we subscribed a couple of different services in the United States. We've never found those to be a really totally accurate forecast or reflection of what Sperry is actually doing in the marketplace. I would say in Q2 boat seem to stabilize, so the men's boat business was up, the women's still down, but frankly the women's side of the business was made up by substantially higher sales in vulcanized products as I've mentioned and especially boot product. So we see that trend as far as product categories continuing on into the second half of the year.

Okay, so can you just -- holistically, can you just give us a sense -- I know that we see the reported revenue numbers that you quoted, but can you give us a sense of directionally where point-of-sale is trending year-to-date just to get a better sense of what's happening at the ground level versus the shipment level?

I think what we were -- I mean our channel checks say that we're having good sell-through I think the position or kind of the slowdown in Q2 had a little bit to do with making sure that that inventory that we sold in Q1 sell-through successfully, I think it did, and we're seeing more of optimism in the second half based on some of those trends from retailers. So it's not reasoning in every single channel the same way, but overall I think the sell-throughs for Sperry are good. And more importantly, the reaction again to this evolving brand platform and the Odyssey's program that's being launched right now is very positive, and the fall campaign, as Blake mentioned, was launched last week. All those things are sort of aligning to put some great momentum behind the brand right now.

Just to kind of hit the second-half guidance question a different way, it seems like a lot more dependence on fourth quarter revenue growth against you obviously had the benefit of the extra week last year. So a lot of dependence on fourth quarter success, which typically is more at once reordered-based than backlog and I believe last quarter when Don at the time was answering questions regarding the back half outlook, it was supported by the order book. So I'm trying to get a better handle of what your confidence is really being driven by. Is it supported by the backlog? Is it based on the assumption that reorders will come through in light of some of these investments that you're making? Just any more color would be helpful. Thank you.

Sure. Yes, I mean, our current guidance is based obviously on our order book. You have to also remember to push that Q2 and Q4 are really initial shipment orders for our international business, which is about 45% of our global pairs at the moment. So, yes, in the domestic market here in the United States a bit more of that once but we usually have a little more insight into our international businesses for Q2 and Q4. And so there are a number of factors that have gone into our guidance, certainly the timing of our order book across the 14 brands and our international outlook.

One of the other things to think about -- I'm sorry, is to think about the strength we had in the first half from our Heritage Group and the momentum there in those brands is still pretty strong. So the at-once trends in Q4 there, we're not expecting anything significantly better than what we're seeing. But those are going to be strong in Q4 for those brands and the U.S. wholesale continues to show a lot of promise. We also mentioned Merrell and Sperry are accelerating right into the back half of the year. So we expect growth at the Sperry from the boot programs and the wet weather programs that they've introduced and Merrell, just based on their order book right now. So it really is more of a trend coming from two different signals but we're very confident in that fourth quarter sort of performance guidance that we gave.

The next question comes from Jim Duffy of Stifel. Please go ahead.

A few questions for you. First question, can you guys elaborate on what you are seeing and hearing from distributors in regions where FX is a pronounced challenge? How are they thinking about managing their business? What are your strategies to work through those dynamics? Are you adjusting pricing for them? And then I have a follow-up question.

Sure. I mean, I guess, Jim, starting from the top, we think the strong U.S. dollar we believe is going to continue for two or three years. Beyond that we don't have any kind of a magic ball but we're planning our business for a strong U.S. dollar. As you know, some local currencies continue to weaken against the dollar even though for the moment the euro seems to have stabilized, the pound seems to have stabilized a little bit earlier but I think we're feeling the full brunt of the stronger U.S. dollar here in Q3 and into Q4 next year for our international partners. As you know, most of the world's footwear is purchased in U.S. dollar. So as a practical matter there's no choice here but to increase prices on a global -- across brands on a global basis. And we've been doing that judiciously here for several months, certainly the first half of this year. So when I look at just regionally we continue to see strong growth for us in Asia-Pacific given the size of our brands and some of the opportunities in that region. We do have some specific distributor challenges in certain countries, Russia that probably doesn't surprise anybody. I'm leaving today for Moscow for a quick trip. Italy, Mexico, a few other countries that. With respect to Latin America, just to give you a little more color, that region has been leaning left politically for at least a couple of years. We see commodity prices have been declining which we also see having an impact on the overall Latin American business environment. So we see a little bit tougher going in Latin America for the next two or three or four quarters. EMEA continues to be -- Europe continues to be a bit volatile its Greece in, its Greece out, where do they stand. From a consumer spending standpoint though it seems to have stabilized especially in the UK and northern Europe. That's just kind of a little more color on how we kind of view internationally here over the next several quarters.

I do think, Jim, we're also -- just to your point about how are we partnering with these distributors, I mean we are partnering with them. We recognize the challenges that they are facing whether its product cost or just kind of the macroeconomic issues that the stronger dollar is posing in their market. So our teams are very close with them, working with them. And again, one of the reasons why we're seeing a little bit tougher challenge for the international group in the second half has to do with that. But obviously part of that strong partnership and that long-term relationship means we work through that with them.

Thanks for that. Next question is on the Merrell brand. Blake, I'm intrigued by your talk of an integrated brand platform you're launching for 2016. Can you share a little more thoughts around that and updated views on the positioning of the Merrell brand into 2016?

Yes. It's some new creative work, really quite nice, kind of revolves around the tag line, "Do what's natural." But with more imagery focused on group and team participation. So we're quite excited. The campaign, the new brand platform has supported, Jim Gabel and his team have been working on this for some time. We've discussed with some of our key domestic customers and international distributors and had a very strong reaction. If you're going to be -- I don't know if you're going to the outdoor retailer show, there's going to be a little peek under the covers at the outdoor retailer show on some of the more specifics of the platform and the campaign. So frankly, we're exited; it kind of gives the Merrell brand a true north and a direction to pull to.

The next question comes from Jay Sole of Morgan Stanley. Please go ahead.

Hi, this is Joe Wyatt, on for Jay this morning.

Okay. Hi, Joe.

Hi, Joe.

Two quick questions. One, I mean, you gave a lot of color on the 2Q puts and takes between those change of mix between the third-party and the lower mix of the retail. Can you give us further color on how you see what the puts and takes of the gross margin for the remainder of the year? And then a second question on e-commerce, I mean, you mentioned how you're operating a lot of different brands across the same platform now. You've seen a lot of growth. I think you said 30% growth in Q1, strong double-digits for the first half of the year. Do you have any updated views on what kind of e-commerce penetration you're looking for on a total company basis? Thanks.

Yes, let me answer this second question first, and then we'll let Mike answer the first. In the whole e-commerce area omnichannel transformation, we continue to make significant progress there. A lot of that has to do with some capital projects, Wi-Fis in store, seamless aisle, ordering anywhere, any time. I would say in Q2, we had a strong growth in e-commerce itself, across our e-commerce sites in Q1, slightly lower -- or our lower growth in Q2 primarily because we made the conscious decision to be less promotional. Especially, on our Sperry site but also on our Keds site. So we made that decision for a variety of reasons. Consumer shopping behavior is changing dramatically here in United States. We continue that -- to see that shift in power to the consumer. The power they have in their hand through a smart phone every time they are out shopping. So we put a lot of -- we've hired some talent, we are going to hire some more talent in the e-commerce area. One bright spot, and it's been a big project for us, was to get all of our certainly domestic websites initially on one platform for e-commerce. When we do that and institute it we see a bit of a dip by brand for a short period of time and then a pretty significant pickup. But certainly that's then the new website platform is then a key platform with us. I would also say that the new platform and some of the other talent and initiatives we have taken in the area have allowed us to expand the product customization, nature of our business. As you know we're already doing that on a pretty large scale for Chaco, that's been expanded, but we also have custom product initiatives for Sperry and Keds underway as well.

Joe, I can answer your general question on gross margin. First of all, I think make it clear that for the year we still expect gross margin to expand. And we saw 100 basis points decline in Q2. We kind of expected that. That was right in line with our internal expectations. As we go into Q3, we're going to -- we'll see a flat gross margin. And the reason is that we -- part of the reason that we are actually going to see some revenue growth in Q4 is the benefit we're getting from some price increases that were implemented here over the last month and a half or so for various brands in the portfolio. And so we'll have some benefit from that in Q3. The impact overall, as mentioned on the revenue side for FX is also most prominent in Q3, on the product cost side as well. So real the headwind on margin there from FX that will be the biggest quarter of all four quarters where product cost will have a negative impact on gross margin. But despite that given some of the improved mix and the higher average selling prices, we expect gross margins to flatten, to be flat in Q3, and that will have a strong expansion in Q4 not just because of the growth in -- coming from selling price increases, but also with Q4 last year we had some significant, I guess headwinds related to gross profit, some markdown allowances for some of our brands as we're trying to navigate the U.S. Department Store marketplace. We had some deductions and write-downs in inventory, some closed-out inventories, and some promotional activities that are not going to repeat in Q4 of 2015. So our prospectus for gross margin expansion in Q4 very good, again kind of driven off of higher selling prices, the lack of some of those headwinds that we saw in Q4, and then a healthier mix and a healthier business overall, given the fact that Sperry has increased their projected gross margins for the year by 300 basis points. So we've got a nice strong mix in the fourth quarter and we'll see the expansion in margin that will flow down to -- flow through down to earnings in Q4.

The next question comes from Christian Buss of Credit Suisse. Please go ahead.

Yes, I was wondering if you could talk a little bit about your comfort with inventory levels in the channel particularly with distributors in international markets.

Yes, I think overall, let me focus on international distributors first. We probably have a few countries where the currency has continued to weaken. This is in our portfolio of 200 countries and territories where our brands our marketed, where the distributors are bit out over their skis on inventory. We are working with them to adjust the inflow so they can work through the inventory they have on hand. But I would say, our distributor -- international distributors have been through all this before, many of them been with us 30, 40 years. They've seen currency fluctuations, they've seen business environments change, they are very tuned to their markets, they respond very quickly when circumstances change. So we don't see other than a particular distributor issue here and there, we really don't see any significant inventory problems at the international distributor level. Domestically in the United States retail inventories appear to be in line. The U.S. economy seems to be on a fairly stable growth pace right now. Consumer spending seems to be settling into more of a historical norm versus some of the volatility we probably saw over the last three quarters. People are starting to spend a little bit of their gasoline expenditure savings. And so we feel pretty good by channel in United States. Certainly, independence, independent outdoor retailers appear to be fine. The better grade retailers are also in line. And as you know, we've been focused the last year too on rationalizing our business in the middle and with the mid-tier department stores. We've got some great businesses there, but we've been watching those trends pretty closes.

I think that latter point is why we feel so good about margins in Q4, because last year we did have to clean that up a little bit. And there was a cost of doing that and we just feel good about the inventory position that we have from -- on our books, as well as our retailer's books and the management of that whole distribution as we go into the back half of the year.

Okay. That's very helpful. And if I could ask about gross margins going forward. Can you talk about when we start to normalize the retail closures and what the outlook is for gross margins on a more normalized basis?

I think, I mean again, we have a another decent slug of closures planned for the latter part of this year, that will have an impact on that -- as we move forward on the mix I guess overall for our gross margin. But I think that -- I think we're at a point now where one of the big drivers on our -- on our year-over-year gross margin a headwind for sure has been FX. We have the opportunity and are now in a better position to price products according to that trend in the marketplace and that with a couple seasons behind us now we're in a better position to do that. So I would say, as we head into 2016, we will be in much more normalized position.

That's very helpful. Thank you so much and best of luck.

The next question comes from Andrew Burns of D.A. Davidson. Please go ahead.

Good morning. With the Patagonia exit and the wind-down of Cushe, are these decisions entirely unrelated, or is there a concerted effort to perhaps rationalize some of the smaller brands? I believe you still have at least five or so that each represent a few percent of sales. Thanks.

Yes. As you Andrew, as you know, we take a strategic view of our brands periodically. What's in our portfolio, what we should invest behind? Those two decisions are totally unrelated. We are mind -- always very mindful of strategically investing against our biggest opportunities. Yet on the other hand we all remember when Merrell was $23 million business losing money. And today it's a $600 million juggernaut, one of the best footwear businesses in the entire industry. So I think we all appreciate the fact that when you operate a little bit here in the fashion world sometimes it only takes a collection or two to have a $100 million business. But the Cushe decision and the Patagonia Footwear exit were totally unrelated.

Great, thanks. And in the prepared remarks, you mentioned the Sperry remodel effort. Could you discuss may be the timing, the magnitude of some of those store investments, as well as how the Sperry apparel business is evolving here in the DTC? Thanks.

Yes. As -- we currently operate with about 60 Sperry stores, around 37 or 38 of those stores are specialty stores. Well, we will start this year to remodel half a dozen or so, six or eight of those stores, there will be a bigger rollout next year. We feel very good about the remodel; we've had a great reaction from our international partners and also within the business itself. Obviously, our apparel and accessory initiatives are important to the performance of those stores. As you know, we have a number of license program, small leather good, swimwear, which has been spectacular, eyewear, and several other lifestyle categories that will go into those stores and are in those stores. We did have a shift in our apparel strategy probably about a year ago and have gone to a decision make model focused on our DTC business that would be our store, the international stores of our partners as well as our e-commerce sites. So that apparel will be hitting our stores and our e-commerce site within the next several weeks. We'll have more -- we'll have an update on that certainly by Q3.

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

I guess just rounding out some of the conversation on gross margin. In the second quarter, the big reversal, what was the biggest versus the first quarter -- what was the biggest incremental delta there because it sounds like pricing has been an ongoing benefit? I know it was in the first quarter. It sounds like it was in the second quarter. So what was the biggest swing factor there?

It was really the mix, the two mix elements there that I talked about, our store mix, if you will. Not just mostly from the closures but also a little bit lower performance there from our stores than we'd hoped and then the mix on the royalty side as well; I think we foreshadowed that going into the quarter. So those were the bigger drivers. Selling prices for sure helped, Erinn, but again, a lot of the more meaningful selling price increases were really implemented either right at the end of Q2 or after Q2. So we're going to be see a bigger benefit from that as we head into the back half.

Okay, that's helpful. And then I guess on the U.S. environment I mean you said and you've alluded to this a couple of times during the Q&A, but the inventory being a little bit cleaner in the channel, but traffic being still soft. I guess two questions on that. One, are you seeing a significant step function change in traffic as we've gone into the early parts of back-to-school, or has it just been kind of malaise across the entire kind of first half? And then secondly, how are you anticipating kind of marrying those two factors together as you think about the ordering patterns from some of your major retail partners in the back half?

Well, I think the traffic challenge at brick-and-mortar retail in the U.S. is across the board and it's been lower traffic for certainly regional malls but even strip centers and other retail venues. So we don't -- our plans, our projections for the remainder of this year certainly are not premised up on any spectacular uptick in brick-and-mortar store traffic. We know e-commerce is going to make up for some or all of that slower brick-and-mortar traffic. As you know, most retailers in the United States now are taking a hard look at the brick-and-mortar fleet in what they really need in this changing consumer environment to service their consumer. So I think the traffic issue is across the board. We don't see it changing frankly anytime soon. I think that has also been reflective of the relatively high level of promotional activity certainly here in the U.S. markets. And all you have to do is walk a couple of malls and look at the level of promotional activity that's going on. And Erinn, did you have another question? Was there an order?

Yes, that's just I mean if inventory is clean, but traffic is still relatively soft, it sounds like the traffic comments are a little bit more related to brick-and-mortar. But I'm just curious on the wholesale side if there's any kind of major delta in terms of what you're anticipating in terms of order patterns coming from your major retail partners?

No, not really. I mean, I think again, I think we've done a good job. All of our brands it's been a good deal of time making sure that the quality of their order book is as good as it can be. I know we cleaned out some of the bulk order or contract order activity in some of our key brands for instance. So I think the visibility that we have to demand is pretty clean and we're having those conversations on regular basis in terms of how our selling trends are comparing with the sell-throughs. But overall feedback again not just from our teams but from our retail partners suggests we're on a good place right now. Obviously, in the future that could change but right now we feel like there is a good alignment there.

Okay. And then just a last one, I'm not sure if you have any comments on the Nordstorm anniversary sale, but if there are any key highlights from your perspective, would you be able to share them at this point? Thank you.

Yes, nothing really there. We usually don't comment that specifically on some of the actions of our good retailers customers but nothing unusual one way or the other to report there.

The next question comes from Mitch Kummetz from B. Riley. Please go ahead.

A few questions, I think quick ones. One, Mike, on the Merrell guide you said mid-single-digit constant dollars -- I just heard constant currency. I just want to make sure was that a full year guide or was that a back half guide? I think previously you guys were saying mid-single-digits constant currency for the full year?

Yes. And that’s full year guidance.

Okay. And then on I think you mentioned in terms of the revenue guidance adjustment, one of the things you attributed it to was slightly worse store performance. Could you talk a little bit about that? Is that concentrated in the Stride Rite stores? I don't know if there is any way you can give us kind of what the cost has been there and kind of the what the cost outlook is for the balance of the year?

Yes.

Go ahead.

I mean, in general, obviously because it's a such a big portion of our overall fleet. A big impact is coming from the Stride Rite, the Stride Rite business, the Stride Ride stores. I mentioned in my comments just the extra effort we're putting behind evaluating the performance there. We see an improvement in comp performances as we head into the back half, a little back weighted into Q3 and into Q4 just based on the initiatives and tactics that the teams are putting into place but their overall the comp performance has been below our expectations on across the fleet and that would certainly include Stride Rite as well.

Okay. And then lastly, I think you'd also mentioned that Q3 versus Q4 there had been some deliveries that are pushed out from Q3 to Q4. Is that a function of Sperry and may be some shift in mix more towards boots, may be away from boat shoes here? Retailers wanting to take that type of product later because they're shifting the way they are -- kind of the product that they're buying within some of your brands particularly Sperry?

Yes. And I want to just be clear, Mitch, it's not really a shift in deliveries. It's just sort of the way the order book and the demand looks today, shifting into Q4. And I will say I'm sure a good portion of that is a very strong response we're getting for Sperry's cold weather boot programs and wet weather programs that are more likely to ship a little bit later into Q4 for sure, but not any sort of intentional delivery shifts or delays that that would have any impact at all.

The next question comes from Chris Svezia from Susquehanna Financial Group. Please go ahead.

Good morning, everyone. So I have a couple here. One, I guess, could you tell us what the Sperry DTC comp was in the quarter? You're usually pretty good about doing that. Just curious what it is and what the expectation is?

Yes, I don't have a blended comp. I would say e-commerce was -- mobile was probably up mid-teens but e-commerce was flat for Sperry. But again we made a conscious decision not anniversary some friends and family events that occurred in the prior year. Sperry stores had a negative comp for the quarter but probably were one our best performing concepts, as well as the Merrell -- just behind the Merrell stores on a comp basis. Traffic was down across the board like most retailers. Brick-and-mortar traffic was down across the board for all of our concepts.

Okay. And then for Merrell, could you may be just walk through between international wholesale and U.S. wholesale what has transpired so far year-to-date and what sort of your expectations are for the balance of the year? Kind of how we should think about the growth rates between those two segments?

Yes. I mean -- I think really nothing out of your ordinary or significantly different from past a year is Chris. So, as you know, Merrell's largest single market is the U.S. market, but it's in about a 160 other countries and territories around the world. A few of those countries and territories are challenged right now Russia and a few others. And others are continuing to grow. So as with all of our brands on a -- usually on a peerage or a percent of revenue basis, we would expect even our more developed brands to grow more internationally than they do in just the USA market. That would be true for Merrell but certainly for all of the Boston-based brands and most of our brands.

So let me ask the question this way, would it be fair to say Merrell U.S. wholesale is more like a low single-digit growth this year and international comes in more at high single to get to that mid-single-digit growth? Is that a fair characterization?

Yes. I mean there is obviously a range for mid single-digit constant currency growth, but I would say that that's probably fair.

Okay.

I can't quantify to that extent right here for the full year right now obviously, but we would expect international growth to be somewhat higher than domestic growth.

Okay. And then the last --

But they might not be material Chris, quite honestly.

Okay. And then the last question I have is just on your adjusted 2015. I think if you take out currency, used to be $1.71 to $1.78; now it's $1.68 to $1.75. Is that -- do you have less FX? Is that just because you took down your international growth a bit, so there's less FX pressure? What is driving that?

Some of that would come from that and that's really the translation flow through from that. But really as we go through the year, Chris, we are able to lock into forward contracts and we've been able to do that in the first half of the year, slightly better rates than we had forecasted in the previous plan. So some of which is locking in better rates and some of it have to do with retraction and less exposure on translation.

Okay. Last thing, how big is Cushe? Is it -- just give us an idea pattern?

I think 2014 Cushe was $17, $17.50 million in 2014, yes.

2014?

Yes. In 2014 just to put it in perspective.

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

So two questions. One, just to frame this year, so your confidence on the revenue guidance is based on pre-booked orders and then just confirm your expectation for reorders versus -- or at-once versus potential cancellations in the back half of the year generally is similar to what you saw in the first half, similar to what you saw last year, more aggressive? Thanks. And then one --

I'd say -- our -- we -- I talked a little bit about sort of the quality of our backlog. We've seen a nice decline in cancellations in the first half of the year. We're not banking on all that improvement the second half, but we're going to see a similar trend in the second half. Otherwise sort of the mix of at-once and futures and so on are pretty similar. I mean we had a little bit of a shift in that in the first quarter, because of the port delays and some retailers got little nervous and gave us orders a little earlier than the normally would, but that sort of normalized in Q2. So we only think it's much of a shift. We have good at-once trends and good sell-in trends, but our cancellations are down and I think that's -- again a testament to how we're managing the order book right now.

Okay. That's helpful. And this is the time of the year you start to book spring. You talked about this cohesive message from Merrell. I think the original plan was to do something like the Paul Sperry collection and try and coordinate some sort of initiative for the non-boat shoe business for the women, for girls in Sperry. Is that still going on and how are you thinking about bookings for Sperry next year, next spring?

Yes. We're still little bit early in that process for spring, for Sperry may be a little bit further down the road with some of our international distributors. But clearly the Paul Sperry collection, which is focused on vulcanized product, younger product, especially younger product for women and girls continues to be a priority for the brand. It's -- we are already seeing some good success there with strong double-digit increases in our vulcanized business. And of course the boot business for Sperry, rain, cold weather, and a little bit on the fashion boot side is off the chart. So the Paul Sperry collection would be younger, more affordable for the consumer, a little bit edgier and more vulcanized sneaker type product. It's still a major focus for the brand.

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

Good morning. Thanks for taking my questions. I noticed that Stride Rite launched a new marketing campaign this week called Built for Childhood. Can you provide a little bit more color around this marketing initiative and does the $30 million in annual incremental marketing spend announced in January, does that encapsulate this initiative?

Yes. It really doesn't encapsulate that initiative. The majority of the 2015 spend was focused on the Sperry brand, their new brand platform, new product introduction. I would say the campaign for Stride Rite going on at the present time -- as you know, the Stride Rite brand is probably our -- the back-to-school would be the most important for the Stride Rite brand compared to any of our other brands. So this campaign although large is more normalized, it also revolves around some key product categories made to play and obviously some of the Star Wars introductions and other character introductions that we have planned for this summer and fall for that particular brand. But the spend behind it was not really part of our incremental investment spend this year.

Okay. Great. And then for the $18 million in Cushe revenues, how should we think about the annual revenues for the first half versus the back half and how should we expect the revenue impact to start, is it in the third quarter or is it a -- a 4Q event?

We would really see it beginning to start a little bit in Q4, but it's really going to be a 2016 impact on overall revenue.

Yes.

We're going to finish off this year with Cushe fill our orders. And listen, we would probably look to transfer some of that product to other brands in our portfolio where appropriate as well to try and recapture as much as that $17 million, $18 million next year as possible.

Okay, great. And lastly, I think last quarter you announced that you changed vendors for your Sperry apparel line. Could you provide an update on the apparel initiative?

Yes. The kind of design and build business model that we've gone to that that apparel will be hitting our e-commerce and our brick-and-mortar stores in several weeks and will be flowing in throughout this early fall. We don't have any hard consumer reads right now. We have an update on it certainly when we get around to Q3 but it's a line that is focused on our stores, brand appropriate but focused on driving incremental sales and enhancing the brands through our own DTC channel.

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

A question on international. You talked about the challenges there and how you are having to raise prices. How do you balance raising prices versus what the consumer is willing to buy in the international markets because the consumers -- they still have the same amount of money in their pocket.

Right.

So how do you balance not pricing yourself out when you have to raise prices there?

I mean, it's a good question, Sam. I mean, frankly, as your good, better, best offering slide up in scale a little bit on retail pricing to better and best, one, you do what you can to engineer the product; two, you adjust your sourcing network for duty rates and hopefully TPP will become a reality here for us and the rest of industry. We've been pretty heavily involved in Vietnam for some period of time. And then you backfill at the good product level with new product. So sometimes when you have certain great carryover product there is not much you can do expect simply raise your prices. You try and backfill at the good product category offering.

I think the other thing there, Sam, too just as an example for Merrell, we recognize that a price increase in a couple of our own markets needed to take place and they have come at a little bit of a hit to volume there. But now, again, Blake referred to the fact that we can have a point of view that the U.S. dollar is going to stay strong for a little while may be for the next couple of years. We're seeing our competitors who didn't necessarily take that action now start to have to raise their prices to deal with the FX headwind. So I think we may have been ahead of the curve on that a little bit, but based on where we are today we like our position relative to some of our competitors.

I have a follow-up and then one other question. Is that when you say it's a reengineered product, does that mean that in order to make sure you don't price yourself out, you have to de-spec some of your stuff, number one? And number two, given your working of the financing, what kind of acquisition -- if you're looking very specific -- would you see fitting in to what -- to your structure at this time?

We don't de-spec the product, Sam. When I say reengineer I'm talking about sourcing better, I'm talking about manufacturing smarter. So it may mean piecing leathers here where appropriate where maybe we used one piece ramp in the path, it just means getting smarter and sourcing better, not de-specing products. On the acquisition side, obviously with our significant deleverage, we're in the market we're looking at domestic opportunities with our offshore cash. We're certainly looking at international opportunities, certainly with the stronger U.S. dollar, international brands that we might acquire that have a global upside -- expansion upside if they're on sale right, 15%, 20%, 25% off compared to just a year or five quarters ago. So we're looking domestically or globally. We're obviously looking at footwear. If it was the right strategic apparel or Accessories Company we would also be interested. And you know, Sam, you're pretty familiar with our criteria. We're looking for brands that have a heritage, that have withstood the test of time, that stand for something. We're looking for brands with global potential with our international distribution network. As we're seen right now with our Boston-based brands we have a pretty good plug and play operational mindset and success. We're looking for brands that have a lifestyle potential, potential to be not just footwear only brands. And then we're also looking for brands that can kind of benefit from our operational, efficient operational expertise as we operate around the world. So those are just some of the general criteria we have that really haven't changed over a period of time.

Via the PLG acquisition brand as to the progress you expected to make there, and if you're not where you need to be there would that preclude you from stepping into something else just given these you really want to get where you need to get to on those brands?

No, I think the PLG acquisition, Sam, has been one of the industry's big success stories for a successful acquisition. As you know, historically big acquisitions often do not play out well in the long run in our industry, not so certainly for PLG. We were able to integrate those brands in less than a year, put them all on our common one box IS systems. We're going to open some great new offices in the Boston area about a year from now that will another attractor for East Coast talent, so. And we've generated cash far, far ahead of our original projection. So the PLG acquisition for us is not only transformational but it's been basically a home run.

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

On behalf of Wolverine World Wide, I'd like to thank you for joining us today. As a reminder, our conference call replay is available on our website at wolverineworldwide.com. The replay will be available until August 20, 2015. Thank you and good day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.