Wolverine World Wide, Inc. (WWW) Q1 2016 Earnings Report, Transcript and Summary

Good morning and welcome to Wolverine World Wide's First Quarter 2016 Conference Call. All participants will be in 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. 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. Christopher E. Hufnagel - VP-Strategy, Communications & Investor Relations: Thank you, Keith. Good morning and welcome to our first quarter 2016 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 first quarter of 2016. The release is available on many news sites or it can be viewed from our corporate website at wolverineworldwide.com. If you'd 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 Q1 2016 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 turning the call over to Blake to comment on our results I want to provide some additional context and information. When speaking to revenue, Blake and Mike will primarily refer to underlying revenue, which adjusts for the impact of foreign exchange and excludes revenue from store closures and the exited Cushe businesses. We believe underlying growth best reflects how our global businesses are performing in the marketplace. In addition, we will be providing adjusted financial results which exclude restructuring and impairment and constant currency results. Where appropriate, we will also provide reported results and as always you can find tables reconciling these disclosures in our earnings release and on our corporate website. Finally, for the purposes of this call we will report our first quarter 2016 results in our new brand operating group structure which was announced in a press release on February 4,. Wolverine's family of brands are now organized into four operating segments, the Wolverine Outdoor and Lifestyle Group which includes Merrell, Cat Footwear, Hush Puppies, Chaco and Sebago, the Wolverine Boston Group which includes Sperry, Saucony and Keds; the Wolverine Heritage Group which includes Wolverine, Bates, Harley-Davidson and HyTest and the Wolverine Multi-brand Group which includes the Stride Rite Children's Group and the company's multi-brand consumer direct businesses. As a reminder, we also report Other and Corporate categories. The Other category consists of the company's leather marketing operations and sourcing operations, that includes third party commission revenues, the Corporate category consists of unallocated corporate expenses. We filed an 8-K on April 27, that provides additional information on the new structure along with historical revenue and profit results. I'd also 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 prediction or projection, there are a 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'd like to turn the call over to Blake Krueger. Blake? Blake W. Krueger - Chairman, President & Chief Executive Officer: Thanks, Chris. Good morning, everyone, and thanks for joining us. Earlier this morning, we reported our first quarter results, highlighted by better than anticipated revenue and adjusted earnings per share of $577.6 million and $0.29 respectively. Nearly all regions around the world and most of our brands beat our plan for the quarter. Our diverse brand portfolio and global operational excellence continue to provide a competitive advantage and deliver strong earnings and cash flow in what remains a volatile global retail environment. The strategic actions that we've taken over the past six months were also important to our performance in the quarter. I'll provide more detail here in a moment, but in short, I am very pleased with our Q1 and the pace and urgency behind the key initiatives that are underway. For today's call, I am going to briefly review our results for the quarter in our new brand group structure, along with some commentary on our larger brands and then I'll provide an update on our recent actions and strategic initiatives as we move forward. Mike Stornant will provide additional detail on our financial results and we'll conclude with an update on our outlook for the remainder of 2016. Starting with the Wolverine Outdoor and Lifestyle Group, which saw all of its brands beat expectations in the quarter. Underlying revenue was down 2.8% compared to the prior year, with Chaco posting high double-digit growth, Merrell down mid-single digits, Hush Puppies down low single digits, Cat down high teens and Sebago up low single digits. Merrell delivered mid-single digit revenue growth in the U.S. and high single digit underlying growth in EMEA. Merrell's e-commerce and total direct to consumer business also saw strong revenue growth of over 30%. Overall, quarterly growth was offset by softness in the brands active lifestyle category, where we still have plenty of opportunity, our decision to exit the wholesale channel for Merrell Apparel and the conversion of our China distribution arrangement to a joint venture. New products drove solid Q1 performance for Merrell. In the performance outdoor category where Merrell is a leader, early sale throughs of new product introductions of the brands key franchises were positive, most notably the new Capra Bolt, the Moab Edge and the All Out Crush programs are performing well at retail. In the active lifestyle category, the Duskair collection and a new collection of sandals were launched for women's, while a variety of new casuals were introduced for men. Despite the slow growth start to this spring, the new women's lifestyle sandals collection, a meaningful part of Merrell's spring summer business is off to great start. I'm encouraged by the early success of Merrell's new product introductions, given that the full benefit of the brand's go-to-market strategy has not yet kicked in. New strategic partnerships with key retailers, focused on wider presentations of specific product collections and Merrell's lead sponsorship of Tough Mudder, a leading global outdoor obstacle challenge, are just beginning to ramp up. Some of the brand's most significant new products are yet to launch and one of its strongest introduction this year just dropped this month, the Moab FST, a lighter faster version of the industry leading style, offering superior fit, traction and comfort, just launched and early sell-throughs are very encouraging. The focus on product innovation and increasing brand awareness continues for Merrell. And I'm pleased with the excellent progress we've made so far this year for our biggest brand. Moving to the Wolverine Boston Group, underlying revenue declined 10.1% versus the prior year with Sperry, which was comping against mid teens growth last year, down low teens, Keds down low-single digits and Saucony down high-single digits. Sperry exceeded expectations in the quarter. As we shared on our February call we expected the first half of 2016 to provide some headwinds for Sperry with an expanded boot collection helping to drive growth in the back half of the year. As expected, the boat shoe category remained soft in the quarter but Sperry boat shoes performed better than anticipated. The boot category continued to perform exceptionally well, selling through to the pair (8:27) and the vulcanized product category drove growth in the back, on the back of the Seacoast, a top style for the brand in the quarter. The athletic inspired Paul Sperry collection successfully launched this quarter and is off to a good start with strong sale throughs at retail. Looking ahead to the back half Sperry plans to significantly expand its successful boot program including the Saltwater collection, the number one boot in its category this past fall according to NPD and deliver a broad range of segmented offerings. Retailers are making significant early commitments to these new programs. We continue to be encouraged by Sperry's ability to expand beyond its core category. Our outlook for Sperry has improved a bit since February due to a decent start to the year and healthy demand for boots in the second half. Turning to the Wolverine Heritage Group, underlying revenue was down 11.5% year over year with Wolverine and Bates down low teens, HyTest up low single digits and Harley-Davidson down high teens. Wolverine's performance in the quarter was negatively impacted by softness in the oil patch as this industry continued to be under pressure. Additionally boot inventories at retail remained elevated following our unseasonably warm fall and winter and several of the brand's key wholesale accounts continued to experience tough trading conditions. Recently we have seen at-once orders improve as retailers continue to rely on us to hold inventory and to support consumer demand. Mike will provide more detail on the first quarter's results in a few minutes but first I would like to take the opportunity to update you on the progress we are making as a company. Over the past several quarters we've executed a variety of significant initiatives to address underperforming businesses, drive improvement across the enterprise and ultimately drive the growth of our brands around the world. These initiatives were a direct response to the choppy global retail environment and slow-burn economic recovery, which led to a performance in 2015 that fell short of our expectations. We're taking the necessary steps to improve the top and bottom line performance of the company, and I want to take just a few moments to highlight some of these critical steps and talk about our progress. I'll start with one area where we knew we could be better and where we're already seeing progress, our store operations. Last year and into this year, we continued to close stores to right size the go-forward brick and mortar fleet to keep in step with the significant changes in consumer shopping behavior. In 2016, we plan to close up to 100 additional sub-par doors. We've initiated programs to refresh the go-forward stores to deliver a much richer consumer experience. We've also consolidated our Stride Rite Children's Group and our Michigan based Direct-to-Consumer group into one team and recruited new, experienced leadership to drive results. We've rationalized our retail overhead and created a new merchandising structure to support the smaller business. I'm pleased to report the business has improved significantly as a result of our efforts. Comp store sales improved materially during the fourth quarter and were up mid single digits during the first quarter, almost double the rate of the industry. In addition to improving our brick and mortar operations, we aggressively invested in our growing e-commerce business. We've successfully migrated every brand in the platform to a common new IT platform and we've added talent and tools to drive results. We continue to roll out new initiatives and programs across our digital platform to accelerate growth and deepen connections with consumers. Another key initiative relates to our apparel and accessories opportunity. We are focused on building global lifestyle brands, and to do so we believe having head to toe offerings for our consumers is critical, especially for our global distribution partners. We've underperformed in this area for several years and we recently overhauled and restructured our apparel and accessory operation, centralizing our various teams under new, seasoned leadership to maximize the global lifestyle opportunities for our family of brands. As just one example of this overhaul, we made the decision to close our Merrell apparel office in Portland, Oregon and move this operation to sit next to the Global Merrell team. Today, our Merrell team is focused on designing and building assortments for the 300-plus Merrell stores around the world, nearly 60 of which are located here in the U.S. We believe significant growth opportunity exists here for our brands and I feel very good about the recent moves we have made. We also recently reorganized our brands into new brand operating groups, strategically and geographically grouping the brands under our leadership teams. This transition has been executed quickly and seamlessly, enabling us to hit the ground running in 2016 without missing a beat. Additionally, we further consolidated and streamlined operations in Canada and EMEA over the past six months. Today, we have strong leaders at the helm in these important markets with the right organizational structure under them to support long term growth. We also plan to open our new state of the art Boston office in June. Perhaps, most importantly, to intensify focus on what we view as the most critical elements of our business, product innovation and big story demand creation, we're in the process of establishing a significant innovation, consumer and design center here at our global headquarters, which includes doubling our consumer research and market intelligence group and increasing resources for advanced concepts. With increased consumer and trend capability, our product development and marketing teams will be armed with extensive intelligence and meaningful insights to deliver fresh, innovative product and marketing stories, which frankly is paramount to today's empowered and discerning consumer. This project is already having an impact and will act as a powerful catalyst for innovation across the enterprise, directly driving vital growth projects, new technology introductions, and fundamentally changing the way we operate it. Finally, while we continue to investigate new brands to strategically add to our portfolio, we are also engaged in a portfolio review as part of a comprehensive top-to-bottom examination of our existing businesses and growth opportunities. Most critically, we are aligning that review with our future growth and operating margin goals. As a result of this process, we may seek strategic alternatives for some of the brands and businesses within the current portfolio. We've done this periodically over the years, and while we have nothing to really to announce today, we believe this review and assessment will better position the company for long term success and ultimately increase shareholder value. As you can see, we've been busy over the past several months, working to improve results by optimizing our talent and organizational structure and perhaps more importantly, laying a stronger foundation to build a larger and more continuous flow of innovative products to the market. There is more work to do here and I look forward to providing you with additional updates on future calls. In closing, we continue to believe the power, diversity and global reach of our brands, coupled with our continued operational excellence, provide a great foundation and distinct competitive advantage. As a company, we remain committed to driving growth for our brands around the world and are focused on the tenets of our strategy: consumer insights, product innovation, and compelling storytelling. 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 first quarter, as well as provide more details regarding our expectations for the balance of the year. Mike? Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: Thanks, Blake. And thanks to all of you for joining us on the call today. As Blake has outlined, the last six months have been a time of tremendous action, focused on accelerating product innovation through deeper consumer insights across the portfolio and on driving further operational excellence, one of our key strengths. We continue to build on this work and our action plans and investments are focused on driving growth and enhancing future operating margin and cash flow. Like Blake, I am encouraged by the strong progress we have made on these key initiatives for the first quarter of 2016 and by our ability to exceed our plan for revenue, earnings and inventory management in what continued to be a challenging retail environment. I will now provide more detail on the company's first quarter performance and I will conclude with an update on our outlook for the rest of the year. The company reported revenue of $577.6 million for the first quarter, which exceeded our plan. Underlying revenue declined 6.6% and reported revenue was down 8.5% versus the prior year. Nearly all of our regions positively contributed to the better than anticipated revenue results, with the U.S., EMEA, Latin America and Asia Pacific all beating revenue expectations. In addition, most of our brands including both Merrell and Sperry beat their revenue plans. This broad based contribution to revenue results is an encouraging start to the year. Adjusted diluted earnings per share of $0.29 were also better than our plan for the quarter. On a constant currency basis, adjusted diluted earnings per share were $0.34, compared to $0.37 in the prior year. On a reported basis, earnings per share were $0.18. Adjusted gross margin on a constant currency basis for the first quarter was 41.6%, an increase of 20 basis points compared to the prior year, as a result of the proactive strategic price increases implemented last year and the benefit of continued management of supply chain and product costs. Reported gross margin was 39.6%. Currency had a 130 basis points negative impact on gross margin in the quarter. But we expect this impact to wane as the year unfolds. In addition, Q1 gross margin was negatively impacted by one time royalty benefits recognized in 2015 that did not recur in 2016. Adjusted operating margin on a constant currency basis was 9.7%, compared to 9.9% last year. Selling expenses were down primarily due to our actions to close stores and reduce related overhead. Advertising spend was lower as a result of a shift in the timing of some of our incremental investment spend with Merrell's initiatives not ramping up until the second quarter. Total SG&A expense was down approximately $14.7 million. Reported operating margin was 5.9% compared to 10.1% last year. Restructuring cost of $14.6 million were higher than the prior year as much of the cost related to restructuring activities this year hit during the first quarter. In addition, recall that in the first quarter of 2015 we realized a net benefit of approximately $1 million related to the closure and lease sale off of a store location in London. Net interest expense for the first quarter was approximately $1 million lower than the prior year, as a result of a lower average debt principle balance and a lower interest rate. The first quarter adjusted effective tax rate was 29.6%, 40 basis points higher than last year, due to a shift in income among jurisdictions with differing tax rates. Our reported effective tax rate was 31.4%. Moving on to the balance sheet. Net working capital was $681.3 million, down 2.1% versus the prior year. Accounts receivable improved by $31.2 million as a result of a more balanced quarterly revenue delivery and organic improvement in DSO. Entering Q1, we expected our quarter and inventory position to be higher than last year and it was by approximately 14.5%, but this was nearly $6 million better than our inventory plan, due to our better than expected revenue performance. So far in Q2, we've made further progress in reducing inventory levels and we expect year-over-year inventory to be nearly flat by the end of the quarter. We remain on track to reach normalized inventory levels in the second half of this year and to finish the year with inventories meaningfully lower than the prior year. At quarter close, cash and cash equivalents were $158.2 million. Net debt was $712.1 million, down $11.5 million year-over-year. To return value to our shareholders, we repurchased $3.6 million or 200,000 shares during the first quarter, and an additional $2.4 million or approximately 137,000 shares early in the second quarter, leaving approximately $100 million available under our 2014 stock repurchase plan. Our priorities for cash remain the same. Drive organic growth primarily through investments in product innovation, consumer engagement and insights, omni-channel growth and demand creation. Return value to shareholders through share repurchases and consistent dividends, pay down our debt and pursue potential value-enhancing acquisitions. Now I would like to turn to our outlook for the rest of this year. For the full year 2016 we are reaffirming our original guidance. Reported revenue is expected in the range of $2.475 billion to $2.575 billion, a reported decline in the range of approximately 8% to 4.3%, with 2016 underlying revenue to be almost flat with 2015 at the high end of our range. Adjusted diluted earnings per share are expected in the range of $1.30 to $1.40 and on a constant currency basis in the range of $1.48 to $1.58. Growth of 2% to 8.9%. Reported diluted earnings per share are expected in the range of $1.16 to $1.26. While we are pleased that we exceeded our plan in the first quarter we remain appropriately cautious regarding our outlook for the reminder of the year. Revenue expectations for Q2 appear essentially inline with Street consensus, but visibility to the back half continues to be limited compared to historical norms. Retailers in the U.S. and Europe continue to deal with higher inventories, a change in consumer shopping behavior and an increasing number of retail bankruptcies and reorganizations. The full impact of recent and potentially developing bankruptcies is still unclear at this point. Looking forward, we are committed to delivering value to our shareholders through two primary levers. Driving the growth of our brands around the world by investing in our key strategic priorities including product innovation, consumer insights, omni-channel growth and demand creation, and delivering strong earnings and cash flow through operational excellence and diligent portfolio optimization. This will include a strong focus on supply chain opportunities, ongoing improvement in store performance, addressing underperforming segments of the business and efficient management of our working capital. We believe we have the best family of brands in the industry and operate a business model that mitigates risk and enables consistent performance in any macroeconomic environment. Thanks for your time this morning. We will now turn the call back to the operator to take some questions. Operator?

Thank you. And the first question comes from Jessica Schmidt with KeyBanc Capital Markets.

Hi, thanks for taking my question. Can you talk a little bit about what you're seeing in the wholesale channel, if you think that inventories have gotten better, and it does sound like the wholesale customers are still cautious with pre buys, but can you talk a little bit about – more about your reorder business and do you expect more of the business to permanently shift towards open to buy purchasing and I guess how are you positioning I guess your own inventory for this? Blake W. Krueger - Chairman, President & Chief Executive Officer: Yeah, let me take a stab at that, the wholesale channel obviously remains cautious retailers. We have been through this I have seen this cycle many times following a pretty mediocre holiday season; we have seen the overhang continue into the first – certainly the first quarter first half of this year. I would say that in the U.S. the cold weather we had in the first couple of months January and February helped to clear out some insulated and cold weather apparel and footwear. So that's good but retailers are still taking a more cautious approach to this year when placing orders. I will say though that the pace of incoming orders in the second quarter for us which is just five weeks old has picked up considerably from the pace in Q1, so maybe we're starting to see a more normalized futures orders approach by some of the retailers. As far as whether there is any permanent shift in inventory risk back to brand owners and wholesalers that's something that's probably been, that's a trend that's been going on for 10 or 15 years especially in times like these when retailers have a little bit too much inventory in whatever category and it's just again something we've lived with for the last decade and we've got to be attentive to having the right -- we need to be narrow and deep in the right inventory so we are there to service at-once needs. We've also seen a number of our brands have a tick-up in at-once orders as we've entered the second quarter here.

Great. Thank you. I will pass it along. Blake W. Krueger - Chairman, President & Chief Executive Officer: Thanks Jessica.

Thank you. And the next question comes from Jim Duffy with Stifel. Jim Duffy - Stifel, Nicolaus & Co., Inc.: Thanks good morning guys. Blake W. Krueger - Chairman, President & Chief Executive Officer: Good morning Jim. Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: Hi Jim. Jim Duffy - Stifel, Nicolaus & Co., Inc.: You guys have an awful lot in the works. I am particularly interested in the comments about exploring strategic alternatives across the portfolio. Blake can you maybe speak thematically about the key ingredients for the brands that are strategic to the ongoing portfolio and from a financials perspective how strategic alternatives could contribute to shareholder value? Blake W. Krueger - Chairman, President & Chief Executive Officer: Yeah, I mean -- certainly Jim as you know we've done this periodically in the past and have shed some businesses that didn't meet our operating margin or future growth goals. We are taking another strategic look at our top to bottom, at our portfolio. We currently operate a number of businesses and 12 brands. Some of which as you know have been underperforming here for a period of several years. And we are going to just take a longer term view and strategic kick the tires approach to whether we should keep some of those brands or businesses or whether we'd be better off shedding them and using the cash to fuel growth in other brands or initiatives. But we don't really have anything specific to report today, but we felt a heads up on this initiative was deserved. Jim Duffy - Stifel, Nicolaus & Co., Inc.: Fair enough. And then a follow up question. So you are starting from a hole in the first half. What is it that you're seeing in the business or the order book or product line that suggests underlying revenue approaching flat for the year is in the realm of possibility? Blake W. Krueger - Chairman, President & Chief Executive Officer: Yeah first of all I think our second half our comparisons in the second half are going to be easier as we roll forward into Q3 and especially Q4 of last year. In addition in some brands specifically like Sperry in the boot category we are seeing pretty substantial advance future orders that is very encouraging and we've also seen that for some classifications in new product introductions for Merrell and some of our other brands as well. Jim Duffy - Stifel, Nicolaus & Co., Inc.: That's helpful. Thanks I'll let... Blake W. Krueger - Chairman, President & Chief Executive Officer: And Jim I think retailers have had pretty good weather to clear out some of the excess inventory that carried over from the holiday season so eventually we and some other folks will be the beneficiaries of that. Jim Duffy - Stifel, Nicolaus & Co., Inc.: Very good. Thanks guys. Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: Thanks, Jim.

Thank you. And the next question comes from Taposh Bari of Goldman Sachs. Taposh Bari - Goldman Sachs & Co.: Hey guys good morning. Blake W. Krueger - Chairman, President & Chief Executive Officer: Good morning. Taposh Bari - Goldman Sachs & Co.: Chris, just a quick housekeeping when can we expect to see the segment sales for both the quarter on the history you might have mentioned it but I might have missed it? Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: Segment sales although the history was filed a week ago and then the segment reporting sales there is a supplemental table on our web site that you can find the breakout for the quarter. Christopher E. Hufnagel - VP-Strategy, Communications & Investor Relations: Okay, great. Blake for you on Saucony. I was surprised see that brand down for the quarter. Can you give us some more commentary on what happened there? Blake W. Krueger - Chairman, President & Chief Executive Officer: Yeah, there is really nothing unusual there. I think Saucony, in Q1 anyway, was affected a little bit by some of the bankruptcies we've read about in the sports sector here domestically. We had a transition to a new Canadian warehouse that did not go as smoothly as planned. That affected some of their shipments in Q1. And I think when they introduced EVERUN they had a pull forward into Q4 by some of the – by a number of retailers of the – especially the combined ISOFIT and EVERUN cushioning technology. And then probably I would say lastly, at the beginning of this quarter, January and February, frankly it was a wet, cold spring. As you know, substantial amount of their business is in the run specialty channel and that channel was challenged at the beginning of the quarter. So it was nothing permanent. The brand has great momentum in technology, performance run, athletic casual, that's its Life On The Run product in its Originals collection, so it's really – the brand has a one, two, three punch to finish off the year. It was just a number of factors that kind of contributed to a down Q1. Taposh Bari - Goldman Sachs & Co.: Got it. That's helpful. And then I wanted to – you gave us some color on Merrell's DTC business and the growth there. I know you've been making a lot of investments behind that initiative, can you help size up how big DTC is for some of your bigger brands, whether it be Merrell or Sperry, just to get some context there. And just remind us what type of investments you are making where you are in that, along that initiative. What inning if you can give us some better context there? Thanks. Blake W. Krueger - Chairman, President & Chief Executive Officer: Yeah, just Sperry, it's really obviously e-commerce, our new platform, investments in people and the digital social area, but it's also investments in stores especially a paced rollout of our new store design, which is having a pretty big beneficial impact. So today Sperry operates around 68 stores here most, almost all in the United States outlet, most of them specialty stores. The new store design, so far it's still early, is resulting an about a 14% comp store increase which we think is very good. So we've got some momentum certainly in Sperry not just in stores but in our e-commerce area. Merrell today I think operates about 55 stores here in the United States, specialty and outlet stores. Merrell has been frankly pretty strict about enforcing MAP and stewarding its brand through this highly promotional environment. I think that's had a direct benefit on the performance of its stores and on the performance of its e-commerce business, which in the quarter was up significantly. So still a lot of room for improvement but we feel good about some of the initiatives that we've kicked off in the last year or so and the impact they are finally having on the performance of two of our biggest brands. Taposh Bari - Goldman Sachs & Co.: Thanks so much. Good luck.

Thank you. And the next question comes from Steve Marotta with C.L. King and Associates. Steven L. Marotta - C.L. King & Associates, Inc.: Good morning, everybody. Mike, I might have missed it, you mentioned that Q2 expectation sales were in line with Street consensus; did you imply EPS as well? Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: When you look at EPS right now I would say Street expectations for EPS might be a little rich, based on what we are seeing; we have a couple of things moving against us in Q2. A little bit of the timing of some of the advertising spend that I alluded to in my comments for Merrell shifting into Q2, that's a smaller component. Also some of these bankruptcies and some of the impact on not just revenue, but on our bad debt exposure in the quarter, we will provide a little bit more coverage for that. So given those two main factors I would say from an EPS standpoint the current consensus is a slight bit high, but overall comfortable sort of with the general trends on the consensus estimates. Steven L. Marotta - C.L. King & Associates, Inc.: That's great. Actually that dovetails into the next question and that is has there been any permanent change in your annual marketing budget? Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: No. We have some puts and takes across the portfolio, but overall really we talked about an incremental investment plan this year, which is still completely intact and on track, Merrell being the biggest beneficiary of that. But I guess as we look at how that's being implemented on a quarter-to-quarter basis, how it's being phased in this year it's going to really start to ramp up in Q2 and then kind of accelerate into the balance of the year, given the new programs and products we're bringing to market. So no real changes overall to the marketing budget. Steven L. Marotta - C.L. King & Associates, Inc.: Okay and lastly, Blake, can you give us an update on what was previously known as the PLG brands and the international traction? Any sort of international update there would be helpful. Thanks. Blake W. Krueger - Chairman, President & Chief Executive Officer: Yeah we continue to make progress in that regard. I guess, taking a look just at Q1 our international pairs for those brands were up about 20% compared to last year's quarter which is, we believe, good progress. As we sit here today in Q1, about a third of Saucony sales were outside the U.S. Keds was actually closer to the high 30%s, 37% or so and Sperry sales have climbed to double digits. So, we continue to make progress across all those brands. Keds has been a bit of a pleasant surprise for us when we look at the international expansion for Keds, especially in Asia Pacific and we are happy with that progress. Steven L. Marotta - C.L. King & Associates, Inc.: Very helpful. Thank you.

Thank you. And the next question comes from Erinn Murphy with Piper Jaffray. Erinn E. Murphy - Piper Jaffray & Co (Broker): Great thanks good morning. Just a couple of questions. First on Sperry I think you talked about in the prepared remarks that retailers are making early commitments to the Saltwater collection the boot collection. Is that a specific comment just for that product line because that does seem contradictory to how you are talking about generally kind of the lack of visibility you see out there in the second half from retailers. So just curious on that specific nuance? Blake W. Krueger - Chairman, President & Chief Executive Officer: Yes, I think you are right there. It was a pretty specific spike related to not just the Saltwater collection, but an expanded Sperry Boot collection. Erinn E. Murphy - Piper Jaffray & Co (Broker): Okay. So you are not necessarily seeing that with Merrell and some of the other boot collections just this early in the season yet? Blake W. Krueger - Chairman, President & Chief Executive Officer: Erinn, I would say, the Sperry Saltwater program was such a huge success it's kind of a proven item right now and the reaction to that and the appetite for it from our customers is kind of proven out based on that early success from 2015. We are starting to see some momentum and some traction with new product introductions for other brands like Merrell, but this will be their first introduction. So we don't have the benefit of being able to anniversary such a strong performance in Q4 of 2015 like we did with Sperry. So I think that's why we have more certainty and more clarity and frankly more demand from our retail partners on that program. Erinn E. Murphy - Piper Jaffray & Co (Broker): Okay. Thanks for the clarification. And then just on the inventory build in Q1. I mean inventory is now outpacing sales about 23 percentage points, so just maybe help us understand the complexion of that inventory. I realize you guys are planning for it to kind of come down by the end of the year, but is there packaway of basics in that number? Is there anything else that you are holding on to for retailers as we get deeper into this season? Blake W. Krueger - Chairman, President & Chief Executive Officer: Yes, I mean I think it's – we've been pretty clear that we were lucky enough to have an early start back in September of last year, August of last year when things started to get a little noisy around retail inventories, and began to adjust our supply chain accordingly and so our focus has always been to be deep on the core inventory and we've been extra clear and extra cautious in that regard with respect to our portfolio making sure that we recognize the needs from our retailers. They are going to continue to expect us to have our core inventories to service their business and so we were able to adjust for that and make the necessary changes. Last year, at the end of Q1 inventories were fairly low, there was the pending port strike issue that was out there and some other delays that pushed some of the inventory into the first part of the second quarter. We've already closed the gap quite a bit so at the end of our first period of the quarter inventories are only up about 8% year-over-year compared to a year ago and as I mentioned in my comments we'll be flat year-over-year by the end of the quarter and at the end of the second quarter of last year, I think our inventories were in good shape. So as far as the quality of the inventory very good still very much focused on core items, the aging of the inventory remains very good, it's better than it was a year ago and we are going to see some quick improvement here over the course of the next eight weeks in terms of our year-over-year position. So closing the gap quickly and I think as I mentioned by the end of the year we should see inventories down dramatically on a year over year basis. Erinn E. Murphy - Piper Jaffray & Co (Broker): Got it and then just last question for me. You've mentioned a couple of times some of the exposure to retail bankruptcies that you have and can you just help us understand how exposed to some of these sporting goods retailers that have either addressed bankruptcies or potential bankruptcies and then what are you seeing right now from the independents? Thanks Blake W. Krueger - Chairman, President & Chief Executive Officer: With respect to the bankruptcies both here and in Europe obviously we've all read about them. They have a different impact on certain brands in our portfolio. It's not constant across the portfolio. So for some of these sporting goods outdoor bankruptcies, they will have a bigger impact on Merrell a little bit, Saucony for sure. Those would probably be the two biggest brands that will be impacted by the bankruptcies, those companies that have currently filed. Having said all that, we don't have a single retail customer that even approaches a material level for the company as a whole. So there will be some – there will be some hits, some of our brands will have to shift some of their sales to other retailers that are going to pick up the slack from some of these bankruptcies, but again nothing that we can't handle. Erinn E. Murphy - Piper Jaffray & Co (Broker): Okay. Thank you, guys. I'll let someone else jump in. Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: Thanks Erinn.

Thank you. And the next question comes from Mitch Kummetz with B. Riley. Mitch Kummetz - B. Riley & Co. LLC: Yeah, thanks for taking my questions. So Mike, you mentioned the inventory – you expect that to be down significantly by year-end. Do you have any projections for either free cash flow or cash flow from operations for the year? Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: Yeah we do. I mean I think a lot of puts and takes in there, but I think right in that $170 million to $180 million range is what we're targeting for free cash flow for the year. Mitch Kummetz - B. Riley & Co. LLC: Okay. And then either Blake or Mike, you mentioned that – a couple of things, you mentioned that both Merrell and Sperry outperformed in the quarter. Blake, I think you said that your Sperry outlook has improved for the year. I am also curious to know if your Merrell outlook has improved for the year, and is there any way you could say what those outlooks are? Blake W. Krueger - Chairman, President & Chief Executive Officer: Yeah it's hard for me to say obviously Mitch say what those specifically what those outlooks are. I would say we have a little more clarity on Sperry given the performance of its boot programs last year and the future orders that have flowed in for Sperry for boots and other fall programs this year. So we have a little more clarity right now than we do for Merrell. Having said that we see we're very positive about the flow of product for Merrell as the year unfolds. The Arctic Grip technology, the Moab FST, the Capra Bolt, the Siren, new Siren collection. We expect the Capra collection to be, hit a million pairs this year so when we look as the year unfolds for Merrell maybe a little less clarity but a pretty continuous string of new product introductions that are tied, some of which are tied to the Tough Mudder lead sponsorship in the rollout of the Do What's Natural brand platform and marketing campaign. Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: And Mitch just to be clear our outlook, our expectations for Merrell are about the same as they were when we gave you guidance back in February so. I think there is just a little more uncertainty around the Sperry business but there is no concern or higher level of pessimism or anything around Merrell at all. I think all those things that Blake talked about are on track if not trending a little bit better. Mitch Kummetz - B. Riley & Co. LLC: Got it. And then may be last question. Blake you talked about strong double digit growth at Chaco in the quarter. I know it's still a relatively small brand for you guys but can you just may be elaborate on it. I mean is this, I think at one point you said it was approaching $100 million has it exceeded that threshold yet? I would imagine Q1 is a big quarter for the brand, I am curious to know how much of an impact it had on the quarter and then when you say strong double digits, can you be a little bit more specific on that. Blake W. Krueger - Chairman, President & Chief Executive Officer: Yes, maybe I should have said really, really strong double digits. But Chaco is a very interesting brand, a brand that we picked up just several years ago. It was under $20 million and losing money when we brought it into the portfolio. It certainly is a brand that has caught fire, based primarily on its product and primarily on reaching its consumers through digital, social, customized product and any number of other activities. So I would say right now, it seems to be on the same growth path as Merrell was in the early years. The brand has more than tripled or quadrupled since we've had it. The brand has probably the highest margin of any wholesale brand in our portfolio. It still is primarily a USA only brand, very strong presence in the Southeast, but obviously a gaining presence across the United States. So we're excited about Chaco. It's small. It's very profitable. It's growing like a weed and this fall they are introducing some close toed footwear that frankly looks fantastic and we think it will be picked up by that loyal, very loyal Chaco consumer. Mitch Kummetz - B. Riley & Co. LLC: Okay. I appreciate it. Thanks. Good luck. Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: Thanks Mitch.

Thank you. And the next question comes from Christian Buss of Credit Suisse. Christian Roland Buss - Credit Suisse Securities (USA) LLC (Broker): Hello, thank you so much. I was wondering if you could talk a little bit about the launch plans for Arctic Grip and whether you are going to do a tiered launch there across the brands? Blake W. Krueger - Chairman, President & Chief Executive Officer: Yeah. We are going to do obviously Arctic Grip will be this fall season. So we have six brands that are participating. The technology in the footwear has won all kinds of awards in Europe and here in the United States. If you've ever – if you had the opportunity to try it I can't recall at the Outdoor Retailers Show or one of the other shows it's pretty incredible stuff three times the normal traction on ice and wet surfaces. So we are pretty excited about that. I think we may have some limitations here on the inventory that we can get in time for the launch – but we'll be launching that across six brands pretty much all at the same time. I would say the brand with probably the most style offerings at the moment is Merrell. Christian Roland Buss - Credit Suisse Securities (USA) LLC (Broker): Could you talk a little bit about how long you have the exclusive for that, what happens once it becomes more broadly available? Blake W. Krueger - Chairman, President & Chief Executive Officer: I think we have the exclusive on the compound for a year or a year and a half maybe as a practical matter that's four seasons and then Vibram is open to market that through other brands and other folks but certainly with a year to two year head start we think that's highly beneficial to our brand. Christian Roland Buss - Credit Suisse Securities (USA) LLC (Broker): Great. Thank you so much and best of luck. Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: Thanks.

Thank you. And the next question comes from Jon Komp with Robert W. Baird. Jonathan R. Komp - Robert W. Baird & Co., Inc. (Broker): Hi, thanks. If I could first just clarify on Merrill. I think in the prepared remarks there was mentioned it's not clear, if there was a change in the apparel distribution for Merrell or that was just a change in where the business is being managed and similarly on the China joint-venture comment? Blake W. Krueger - Chairman, President & Chief Executive Officer: Yeah, I mean there is a couple of things that are going to negatively impact Merrell's topline this year. One is certainly a decision to focus on our 300 to 310 Merrell stores around world for Merrell apparel and accessories. So we have elected to opt out of a frankly a smaller and unprofitable wholesale business and focus first on driving results in our own stores and in the owned-stores by our distributor partners. So that will effect Merrell's growth this year maybe by a couple of percentage points that decision. But it was the right decision for the brand and the program. And then in the China JV, we have a bit of a gap year where we ramped down from a distributor relationship we've had for a period of time and ramp up for a JV where we are going to have a controlling interest in Merrell for China. And so unfortunately that presents a bit of a gap on a fairly large international program for Merrell and that will be a little bit of a negative pressure on topline revenue for the year. But obviously the right thing for the brand in the long-term. Jonathan R. Komp - Robert W. Baird & Co., Inc. (Broker): Got it. And just to kind of clarify versus the prior comments. Were those two factors previously contemplated in the guidance back in February? It sounded like Merrell's guidance unchanged? Blake W. Krueger - Chairman, President & Chief Executive Officer: Yeah, the answer is yes to that. Jonathan R. Komp - Robert W. Baird & Co., Inc. (Broker): Okay great. And then broader question just back on the full year outlook, I know you discussed the top line drivers in the back half. When you look at the profit and the expectations for the profit growth to get much better in the second half of the year is it really a function of the revenue growth and lessening currency impacts or any other major moving parts that you can point to. Some of the store closures may be that are leading to the better profit expectation? Blake W. Krueger - Chairman, President & Chief Executive Officer: Yeah you hit on a few of them Jon for sure. I mean I think what we expect here is an acceleration of earnings improvement through the year because of some of the things that we talked about. The efforts and actions taken in Q4 and the early part of this year that are going to start to pay bigger dividends later in the year. The store closure and the reorganization there certainly one of those things. We made some other tweaks and changes in the business to help reduce some of our overhead expense and so forth that will benefit the latter half of the year. Currency certainly improves we talked about margin, gross margin in the first quarter having a 130 basis point negative impact from currency. That will improve over the course of each quarter. And then we didn't talk a lot about it but we did mention the fact that we're starting to gain some momentum on product cost and the commodity environment obviously is going to help us a little bit and as we start to get into Q4 and into the early part of 2017 that's when we'll realize some of the lower FOB prices that we are negotiating right now in this environment. And the last thing probably is as we've mentioned a couple times now, the business and the demand for some of our boot product in Q4 will have a nice healthy margin. And we see some growth there and as a result of both of those components, we'll some margin lift, especially in Q4 from a stronger boot business. So it's a number of factors Jon. I don't think any of them are aggressive or super reliant on an unrealistic level of growth, and we have an easier comp in Q4 versus any other quarter and so that may be another reason why things seem to be skewed a bit into the back half. Jonathan R. Komp - Robert W. Baird & Co., Inc. (Broker): Okay, very helpful. And last one, if I could, just in terms of framing up the context around any potential strategic actions or the review of the brand portfolio. It's been a while since you talked about kind of high level top line and profitability targets, and obviously a lot of moving parts in 2016 and changes to the organization, but any perspective with how to frame up some of those targets in light of the strategic review that you mentioned? Blake W. Krueger - Chairman, President & Chief Executive Officer: Yes, I mean if you take a longer term view, I mean we obviously operate a portfolio which is great. We've got some potential higher growth stocks in our portfolio and then we've got some more annuity-type businesses in our portfolio. So when you look at brands like Merrell and Sperry, they should be growing organically at a mid single to high single digit pace and that's our – kind of medium-term goal for those brands. When you look at our profitability goals, it's certainly, in the very near-term, to get back to a 12% operating margin for the company. We were there before the acquisition; yes, we've had some, a couple of years of turbulent times on a macro sense and then for one or two of our brands but we should be able as a company to get back to a 12% operating margin in the near to mid-term. So just that's kind of a big picture view. Jonathan R. Komp - Robert W. Baird & Co., Inc. (Broker): Great. Thank you very much. Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: Thank you, Jon.

Thank you. And the next question comes from Chris Svezia with Susquehanna Financial.

Good morning everyone. Thanks for taking my questions. Hi, so Mike, just for you, pension expense, or pension income, I guess. Just what was it in the quarter and what is the expectation for 2016? Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: I wish it was pension income, but it was just lower pension expense year-over-year. It was about a $4 million benefit in the quarter. It's a little, $17.5 million for the year I think, but that hasn't changed obviously since we guided that back in February.

Okay. Okay. Thank you. And then I guess one overarching question is when you guys talk about the business better than plan on Sperry, Merrell looks like it was slightly better than you expected, getting some reorders, backlog or futures improving for the Sperry on the boot side retail comps better or improving. Yet, you are keeping your outlook to way it is – which is fine and that's fair. What are the offsets to your thought process right now? Are they only sort of incremental feeling better, or was it just the fact that maybe you guided overly conservative for the first quarter relative to this plan and sort of getting it back more in line? Just maybe flesh that out a little bit for us. Blake W. Krueger - Chairman, President & Chief Executive Officer: Chris, I would just say, look, we certainly wanted to highlight where we saw some positive momentum and some maybe some green shoots in the business. There are so many variables still out there that are unresolved and I think our international business still sorting through and working through a tough currency environment, tough commodity environment and everything else, and so we have our conference coming up in May with all of our international distributors, and we'll learn a lot more about the health of their business and their outlook for the last part of this year, so a lot of the spring business that we book in the third and fourth quarter for our international business. We don't know about that yet; we don't have that firmed up. So, plenty of other headwinds out there that we talked a lot about when we gave our guidance are still out there. And I think our overall tone is, continue to keep that same attitude of cautiousness until we absolutely have quite a bit more clarity and visibility to make a change to the guidance.

And on Sperry, I am just curious, just an update on the boat shoe category, if you could: just sort of where we are, what inventory in the channel looks like, when do you anticipate to see some stability, any breakout between women's or men's, if you can talk to that. It looks like you had growth internationally, it looks like domestic must have been tougher, so I am just – maybe just flesh that out ex sort of what you are seeing in boots for the Sperry brand? Blake W. Krueger - Chairman, President & Chief Executive Officer: I mean as expected the boat shoe silhouette from a fashion standpoint continued to soften. We expect it to soften in the first half of this year. Right now, we are anticipating that it's going to overall in the U.S. it's going to stabilize this year, but we are certainly taking some significant hits in that category in the first half. Women's, probably men's for a quarter or so has gotten a little bit weaker than women's; maybe women's weakened a little bit earlier than men, but we see it stabilizing over the rest of the year. The good news is the consumer and the retailers want and need a big business from Sperry, and there is absolutely no brand or category impediment to the offerings and what the brand can do. I would say we're, we like the fact that the non boat business of Sperry has grown to about 47% in the quarter. That's a significant improvement from when we acquired the brand several years ago. So overall we think this is a year where we believe boat is going to stabilize for us and we continue to work diligently to build the non boat business.

Okay. Thank you and if I can just sneak one last one here just the 12% operating margin Blake that you threw out and I know you talked to this as a 2018 target in the past. But any sense about when the likelihood you said the mix for medium term that's a realistic target you can hit that, if you can narrow me down a little bit on that? Blake W. Krueger - Chairman, President & Chief Executive Officer: Yeah. For medium-term I would like to think for me I'd like to think in terms of two years.

Okay, okay thank you. I appreciate it, all the best.

Thank you. We have time for one more question and the last question comes from Scott Krasik with Buckingham Research.

Hi. Thanks for squeezing me in here. Just a follow-up on your comment that the orders in 2Q are picking up was that specifically related to the Sperry Boot piece of it? Or is that for sort of in-season demand. More clarification there would be great please? Blake W. Krueger - Chairman, President & Chief Executive Officer: I think it was a couple of different factors. Certainly some of it was Sperry Boot orders for fall, but some of it was increased at-once especially in the latter part of Q1 and the beginning of Q2 for some our boot brands. And it was really across the board. I would say overall the pace of incoming orders is still a little soft compared to historical norms, but a substantial improvement over Q1.

Okay, and then – thank you. And then just clarification, where are we on finding a permanent candidate to run Merrell and then just lastly, the euro has gotten stronger, but the pound has got a little weaker, the yen is getting stronger relative to the dollar. So how do we balance all of the various currency moves versus when you guided originally? Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: I'll go ahead and cover that last part and then Blake can talk a little bit about Merrell. Yes, you are right. I mean we've been watching a little bit of volatility obviously in the currency markets. We've kind of kept our full year assumptions intact just because it has been a little volatile. We're still obviously interested to see what the Brexit scenario is going to play out to be and everything else. So we've remained a little bit conservative in our currency assumptions. Also from an earnings – and that would mostly impact topline Scott because it would impact our translation rates, but really from an earnings standpoint, we've got at this point nearly all of our product cost covered with contracts and that's the real biggest driver of currency exposure for us, and so we have a pretty certain sense of that and really wouldn't change our guidance from what's out there right now relative to earnings or product cost impact. Blake W. Krueger - Chairman, President & Chief Executive Officer: With respect to the Merrell search, the Merrell search is ongoing. We have seen some excellent candidates – as you can imagine its one of the plumb jobs in the industry. I would say frankly we've had a couple of missteps in the past several years for this very important position and we're being extremely diligent in our search. So I can't really give you anything else right now as far as timing but we're in the midst of that process right now.

I guess just to follow that up as do you think any of the issues on the lifestyle part of the business has been because of the lack of direction or misdirection and can that be addressed until you find new leadership? Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: We are addressing those now. But was it a partial cause for some of the Merrell leveling off over the last several years I believe certainly, so I think it's being addressed right now with a reorganized team and Jim Zwiers involvement but we are not waiting until we hire a new president for Merrell to take advantage of that opportunity.

Okay good luck. Thanks. Michael D. Stornant - Chief Financial Officer, Treasurer & Senior VP: Thanks Scott.

Thank you. The question and answer session has now ended. I would now like to turn the call over to Mr. Christ Hufnagel. Mr. Hufnagel, you may proceed. Christopher E. Hufnagel - VP-Strategy, Communications & Investor Relations: On behalf of Wolverine World Wide I would 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 May 17, 2016. Thank you and good day.

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