Greetings and welcome to the Wolverine World Wide Second Quarter Fiscal 2019Results Conference Call. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce to your host Mike Harris, Vice President, Corporate Finance. Thank you, Sir. You may begin.

Good morning, and welcome to our second quarter 2019 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 2019. 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 Francesca Filandro at 646-677-1814. 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 titled WWW Q2 2019 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. During our call, we are providing adjusted financial results which adjust for the impact of environmental and related costs, business development related expenses and foreign exchange rate changes. 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 actual 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.

Thanks Mike. Good morning, everyone, and thanks for joining us. Earlier this morning we reported adjusted earnings per share of $0.52, despite overall sluggish U.S. retail conditions second quarter revenue increased 1.1% on a constant currency basis, while four of our top five brands met or exceeded our revenue expectation going into the quarter. As a company we remained focused on delivering annual mid single-digit organic growth. For Q2 did not meet our longer term goal, momentum is building in our brands are poised for much better second half topline performance. The recent news on the tariff funds is not expected to have a material impact on the business in the second half or on next year's results. More on that in a few minutes. Let me quickly review the quarterly results for our brand groups and key brands. I'll then provide an update on the status of our key 2019 investments and our view and outlook given last week's announcement of additional tariffs on footwear imports from China. Starting with the Wolverine Michigan Group, revenue grew 1.3% compared to the prior-year and 2.4% on a constant currency basis with several brands delivering attractive growth. Merrell's results exceeded expectations as the brand grew mid-single-digits in the quarter and is poised for a strong second half. Cat had another strong quarter growing almost 25%, and we also saw gains in HYTEST. The growth in these brands was partially offset by declines in Wolverine and some of our smaller brands. Merrell's growth was driven by strength across most performance categories and excellent consumer acceptance of new collection, highlighted by the Nova and Tora, Fiery,[ District] and Gridway offering. New product launches help drive the brand DTC business. Merrell's e-commerce business grew 27% in the quarter. Consumer, digital and social media trends for…

Thanks Blake. And thank you all for joining us today. Our diversified portfolio serve the company well during the second quarter as several brands delivered solid revenue growth and Sperry's performance improved significantly versus Q1. The success helped to offset the headwind faced by some of our smaller brands and enabled the company to achieve low single-digit constant currency growth. Despite the revenue results that were slightly below our expectation, the company delivered earnings and cash flow ahead of our plan for Q2. Gross margin for the quarter was 40.5% in line with expectations, but down 80 basis points from the prior year. This was mostly related to unfavorable mix and higher closeout costs. These factors were partially offset by the favorable impact of strong growth and a higher gross margin direct-to-consumer businesses. Adjusted selling, general and administrative expenses of $167.3 million were up only $4 million compared to last year and benefited from discipline discretionary spending and lower incentive compensation costs. The second quarter effective tax rate was 19.4% versus 18.1% in the prior year. The increase is due primarily to the favorable impact from discretionary pension contributions made last year. Second quarter adjusted diluted earnings per share of $0.52 exceeded our expectations. Reported earnings per share or $0.45 and included the impact of environmental related costs and certain business development expenses. We generated $136 million in cash from operations during the quarter. Our earnings performance and strong cash flow reflect our discipline operating model and our ability to deliver solid bottom line performance even in a softer macro environment. On a year-to-date basis, we continue to leverage our strong capital structure, we have been active with share repurchases and made strategic capital investment to drive overall long-term shareholder return. In Q2, we repurchased $104 million of our stock…

[Operator Instructions] Thank you. Our first question comes from the line of Jim Duffy with Stifel. Please proceed with your question.

Couple of questions for me. During second quarter obviously business softer than expectations, can you be more specific about what was light of expectations within the brand portfolio and then to what extent does this have impact on inventories on your books and then what did channel inventories look like as you go into the back half of the year, given what you suggest were slow just sell-through trends?

Yes, I’ll start with the last part of your question, Jim. Obviously, we had a slow start to spring here in the U.S., weather impacted. I would say there was a build-up of seasonal product at the retail level, something we've seen and retailers are now at work acquiring some of that sandal and other seasonal products. And so things that were certainly improved in June and then into July as we've gotten into more normalized weather pattern with consumer demand. First part of your question?

I would say just to clarify on the performance by kind of by brand. We mentioned in the prepared remarks that Merrell and Sperry both delivered on plan for the quarter, no major surprises with Saucony and that Ked actually delivered over 25% or almost 25% growth in the quarter. The seasonal inventory issues that Blake talked about, certainly impacted Chaco, even though it's one of our smaller brands that had a bigger impact on the quarter after they got off to a decent start in Q2 things reverse sort of midway through the quarter and we saw that fall off. Wolverine brand was the other brand that came short of expectations in the quarter, a little bit having to do with just some at-once demand trends and they continue to work through the transition out of their shoes business as you know, so that had a little bit more of an impact in the quarter and well on the back half of the year more than we had originally expected. So some other small changes in our smaller brands frankly, in the quarter Jim, but those are the big issues I would say just to add on the channel inventory point. You'll see that in the first half of the year our gross margins were under a little bit of pressure. I think that our brands did a nice job of monitoring inventories both ours and retail inventories to make sure that that pipeline was being cleaned out. We certainly didn't force product in into the retail pipeline, and some of our promotional dollars in markdown spend in the second quarter in particular were really intended to make sure that that seasonal product kind of cleared through to give us a clean runway for the back half of the year. So I think we feel good about that approach and about the quality of the inventory that we have going forward.

And then if I may just a question on the tariffs. You guys spoken in tariffs terms. I recognize that's an improvement in the amount of volume coming from China sourcing, still doesn't seem insignificant in terms of number of millions of tariffs. Can you speak in terms in dollar terms and how should we think about the timing of that product coming in and the actual tariffs sit in the P&L?

Yes. I would say with respect to the - and these are current estimate. The $3.5 million pair that we expect to hit the U.S. from China in the last four months of the year, if we multiplied, used our FOB and multiplied it times 10% without any additional remedial action concessions from the factory, price increases or any number of actions we could take, we see something in the - in the growth area of maybe $5 million.

And obviously, a lot of that merchandise Jim is spring merchandising its coming in the fourth quarter and - we spoke pretty specifically about our mitigation activities going forward production, not only production but obviously pulling in inventory as fast as we could not knowing exactly when or if these tariffs will be imposed by taking that queue and moving pretty aggressively. And so for this year, the impact even though we didn't put anything particular specific in our guidance because nothing has been imposed yet and we don't necessarily want to reflect something that could change in the next couple of weeks. The impact this year will be very minimal just based on the inventory position we have and the timing and the product its coming late in the year which is mostly for next year sales. And as it relates to next year, I think the numbers that Blake quoted again it’s a significant decrease from where we've been over the last even 18, 24 months. I think the improvement there and now the fact that we have visibility to do specific product that might be exposed to tariffs fast in the future. We will have a much more specific mitigation strategy around pricing and other things that we can do to mitigate the impact. So really difficult and not - premature to even suggest what the impact would be next year, but I think based on Blake's comments and kind of how we feel about it we feel like we have it well in hand and have plenty of time to act accordingly to mitigate any cost to impact for next year.

Yes Jim, there is another point of reference. Our period expected period next year will be about 25% or less than what it was just as we look back to just 2014. So that gives you some idea some of our mitigation effort.

Our next question comes from the line of Chris Svezia with Wedbush. Please proceed with your question.

I guess the first one I just want to step back for a moment and if you think about sort of how the first half has played out so they are little short on revenues and the guidance you’ve given for the back half implying 5% or so counting for growth. Just what level of confidence maybe walk through that a little more specifically in terms of hitting that I guess. More specifically could you give or talk to a backlog number or backlog numbers relative to your revenue growth expectations for Sperry or for Merrell or for Saucony exceedingly. So we have greater confidence that the revenue guidance that you're giving is achievable just based on what happened in the first half of the year any color around that to start at least will be helpful?

I mean we don't usually give backlog numbers - at that level of detail, but I can say that - we've looked at that in quite detailed brand by brand. Our second half backlog is probably the strongest it’s been in five or more years at the present time. So fundamentally we have a lot of confidence in our backlog and what it’s going to deliver in the second half. Sperry in particular has a very strong backlog a lot of it tied to its pretty diverse boot offering, but Merrell's backlog is also strong. And we're seeing some good order trends across the portfolio at the time. Again, we've taken a little bit of a conservative view when it comes to at-once trend. So we looked at-once trends in the first half were frankly volatile and you could see it from the overall U.S. industry trend up one month down a month, back to flat another month and at-once trends were volatile in the first half sometimes for no apparent reason given the strong sell-through as we experienced, but we take a conservative approach to the second half and are actually in our numbers modeling at once to be slightly worse than it was in the first half.

I think that's where most of the first half shortfall came from Chris right at the end of the day I think of visibility into the business for each quarter was good. The backlog was solid and our at-once while our at-once expectations weren’t necessarily aggressive the outcome was obviously worst than we projected. So I think that approach is sound. I think the other things in addition to the backlog numbers that Blake talked about we - will have in total in the back half of the year 20 new stores. We will have addition of stock in the Italy which is about a $14 million or $15 million lift in the back half of the year. Our e-commerce growth continues. And so as we talked about all along obviously that reflecting in the backlog, but 25% growth in the first half that will taper down a little bit in the back half because we're going up against much stronger comps in the prior year, but up still at least 20% in the back half. So I think those other areas of growth and opportunity are really important and I would also emphasize the fact that especially for EMEA and Latin America in Q4 we had some really rough result into 2018. So the comparisons for international business in Q4 are quite a bit easier and we’ll see high teens growth in the international business in Q4. So just at high level that should round out some of the way we’re thinking about back half accelerated growth and the level of confidence we have there.

And just a follow up on that just from the backlog perspective if you look something like Sperry for example I guess our backlog in excess to the revenue guidance that you have given number one. And correct me if I'm wrong and I guess how are you thinking about and you talk about reorders and you taking more conservative view, but how are you thinking about cancellation relative to that backlog in the revenue outlook?

Yes, when we talk about at-once we include cancellation assumptions in there to and maybe a broader way to think about it is kind of what would we think our replenishment level will be combining cancellation experience and at-once experience. And so those are both being kind of reflected here in a more conservative way in the back half. More conservative even than what we saw in the first half when the weather was cloudy and all that other stuff that impacted some of our seasonal businesses. So I think that's the way to think about it. Again, we don’t give backlog by brand, but I think - if I was to kind of prioritize the level of confidence we have the level of demand we have on boots, lifestyle boots in the various categories including our growing men's boot business for Sperry this year is very high.

Okay.

I would also Chris with respect to Sperry, the early indications we have from the marketplace the north from sale et cetera. The few we have although very early are all strong in the boot category for Sperry all very positive.

Final one from me just on the capital allocation you had bought back lot of stock I am curios as I know you have given share count for the year just how are you thinking about stock price ability to buyback additional stock relative to the guidance here no additional buyback in factor but?

We’ve proven to be pretty active there in the first half and obviously have capacity and flexibility to do more than the back half of the year. Our share count guidance doesn’t reflect that, but we certainly and don't intend to change your approach.

Our next question comes from the line of Jonathan Komp with Baird. Please proceed with your question.

Wanted to follow-up first just on the second half revenue projection. I guess when you look at the big three brands guiding up 10% I am curious how you think about the sustainability of that like when you look at the projection. How much is kind of unique factors whether it’s cycling low inventories last year or some of the international comments you just had. And how much of it is sustainable as you look beyond the second half. And I guess relatedly with your big three up so strong do that change your view at all in terms of kind of optimization of the current portfolio of brands?

Yes, I would say Jonathan that as we take a view on organic growth into the future we’re still firmly fixed on mid-single digit growth. Certainly, we would expect that and would try and achieve at that level at a minimum for our largest brand and these were the brands that were the early adopters of the brand growth model and some of the other skills tools and processes that we developed through our transformation initiative. We’re in the process of taking some of those tools and skill set to our smaller brands but they are clearly a half a lap behind Merrell, Sperry, Saucony and Ked in that regard. And what was the second part of your question?

[indiscernible]?

When we look forward to the future, we would look for these brands to deliver mid-single-digit growth next year or better.

Okay. And the second half, so maybe like do you think you are kind of at underlying mid-single-digit growth rate in the second half and then some of the unique factors are added into that.

We feel very confident about the second half. We feel like we’re there. We understand those things outside of our control like Brexit, currency and few other challenges, but we have been pretty nimble at responding to those challenges, those global challenges as they arise. So we think we’re going - in the back half the year, we think all regions in the world are going to be positive for the year in terms of growth. We know that Asia-Pacific is going to be challenged a little bit in Q4 because of some bankruptcies in Korea, but we feel very confident right now as we look ahead and the future is pretty bright for most of our larger brands.

I think the portfolio mix, the different challenges that we had there - we're going to have them every year, it's just the way it is and especially with a 12 brand portfolio you have some brands and some regions that win and some that don't every quarter. So I think the fact that we've kind of transitioned out of the first half where we had some negative surprises around some seasonal merchandise, a strengthening Sperry business going into next year, not just in the boot categories but in other categories. And obviously, Merrell really frankly accelerating as we move into next year as well. So I think you know, getting the results from the first half behind us I think second half is more reflective of kind of how we see the business going forward.

I would say lastly we’re very happy with our brands. The configuration of our brand portfolio right now and we wouldn't have any near-term plans to trim our portfolio.

Our next question comes from the line of Ed Yruma with KeyBanc. Please proceed with your question.

Thanks for taking the question. I guess first just on the order book again. How much of the uptick in boots is driven by the saltwater boot, how big of the portfolio is that, I know that's been a great product story but just trying to understand where that is in its life cycle? And then second, obviously nice job diversifying away from China. We've heard complaints from others that, as you move away you see other impacts particularly on the cost to good side, have you started to see higher cost and does that change, how you think about kind of the medium-term gross margin opportunity? Thank you.

Yes. First of all with respect to the Sperry’s saltwater boot, this very boot offering this fall is going to be substantially larger than just the expanded saltwater collection. Given - having said that it probably obviously been a roaring success here, the last three outfall seasons. We think that success is going to continue. If I was going to put a rough figure on it for the overall Sperry boot business, I’d say the salt - the expanded saltwater category is two-third, approximately of the overall business. But Sperry continues to expand its lifestyle and performance boot business, as does Merrill and several of our other brands. With respect to the migration out of China, we frankly have not seen any significant uptick in prices, in fact some of the FOB prices we've been quoted as we migrated away from China have actually been a little lower than what we were getting from China, maybe that'll change a little bit here into the future but right now it's been steady on. I think you do have to remember though that much of the migration has gone to a factory groups that were already using in China that also have factories outside of China, so in that respect for us at least it's been maybe an easier transition then some other folks in the industry.

Our next question comes from the line of Sam Poser with Susquehanna. Please proceed with your question.

This is Will on for Sam. So you guys mentioned Saucony, the Italy acquisition that’s going to be a $14 million to $15 million top line left that's an FY 2019, correct?

Yes, that’s in the back half guidance.

Okay.

We have a little bit of a drag in Q2, the other quarter we did our acquisition.

Okay. And is that business, is that margin accretive from an operating margin perspective?

It is both from a gross margin, gross profit standpoint and in operating margin.

Remember, this is a distributor that we operated on a fairly lean margin top line basis in the past and obviously now's operating as a subsidiary business with full margin in a very healthy operating margin.

And can you guys just discuss a little bit, I know you’re opening some new stores, can you just discuss the performance of those newly opened stores and just comps in general for your sample stores?

As far as the performance is concerned, many of the stores that we are referencing in the back half guidance are not open yet. So we did open nine stores in the second quarter, mostly Sperry outlet stores in very strategic outlet locations that we felt were right for the brand, but I would say early reads on those stores have been very good. And it's a little bit too early to call you the way but we like - we like to start and we’ve taken a similar approach for both Sperry and Merrell outlet stores in the back half of the year. Our expectations there are pretty modest as it relates to store openings but we're excited about the early reads on the nine stores we’ve already opened.

Our next question comes from the line of Erinn Murphy with Piper Jaffray. Please proceed with your question.

This is Eric on for Erinn this morning. Thanks for taking the question. First, I was just curious in an average year or let’s say your second half business is at-once and is there a way to quantify what you're planning is to be this year or if you can?

We don’t give that level of detail. It’s so dynamic, right. Every brand quite a bit different and as you know the different parts of our international business grow ebb and flow if you will that changes. But obviously, Q3 is much more kind of a futures oriented selling quarter for us and so the demand there is more around future orders. And when we talked about being more conservative, if you will are cautious around are at-once demand. It really more impacts the fourth quarter which is more reliant on reorders. So not a significant increase necessarily in Q4, but certainly more impacted by sell-through trends, seasonal implications around weather or anything else. So that's where we put a little bit more of our conservatism in the outlook for the back half the year.

And then on Chaco, I know its little softer getting in Q2, we’re seeing some digital promotion, assume extremely fairly aggressive here of late. I was just curious you can provide any more context on what's going on there and then how you're planning that business for the full year may be compared to how you were say 90 days ago?

Chaco, primarily our sandal brand, and a premium price sandal brand certainly had a bit of a challenging first half of the year, given the weather and the slow start to trading this year. It is seen some off price pressure at the moment as excess stock is cleared. They have taken some corrective actions for next year, recall that Q1 and Q2 are really the big - the big quarters for the Chaco business. So they've got several new collections coming to market next year that are going to be priced under $100.And they’re going to certainly have more of a good, better, best product offering than they've ever had. We think that will smooth out some of the volatility we’ve seen in the business this year.

I would say do they did has some of that product this year, enough obviously to offset the challenges with the sandal but where they did have product in those price points or new offerings are sell-in, the sell-through and the success to online was very strong. So that's a good indication of the opportunity for that category or that expansion of different categories into next year.

Our next question comes from the line of Ross Licero with Telsey Advisory. Please proceed with your question.

Just wanted to get a little bit more color on the gross margin guide for the back half of the year. What's driving the lower outlook?

Well, I think for us gross margins are going to expand nicely in the back half of the year. The overall I think pressure in the first half was a little bit worse - more difficult and that's where I think the overall guide for the year brings our margin right kind of in line with last year kind of flattish in the last year. So we’re still see nice expansion in gross margin in both Q3 and Q4. We've got much of the promotional and sort of inventory risk reserve for or partly experience in the first half of the year we’re going to see that improve in the back half. Sperry with all the momentum we have there and the strong growth that we’re going to see in the back half of the year their boot business is very profitable, high-margin and that's good to see. Our gross margin for stores and e-commerce obviously are higher than our wholesale margins and that will become a bigger part of our overall business in the back half of the year. The Chaco business frankly the headwinds that we just talked about with respect to Chaco all of that really isolated in the first half of the year. So we saw some gross margin pressures in H1 inventory, promotional, some of the things that we talked about to make sure the channel was clean. We did take some aggressive approaches to move through and try to drive some at-once demand, but also to move through some inventory. We see that being behind us now and with stronger results expected and projected for the back half of the year based on those factors.

So from a gross margin perspective really no change to the back half in terms of the promotional environment?

Right. Yes, we're still being cautious there just like we were there at-once in replenishment demand. We’re being somewhat cautious on that side of the business. So a little bit of a reduction if you will on our mix expectations on fill-ins. Our fill-in orders are always the highest margin wholesale orders we get because it's merchandise coming out of our inventory and we tend to get the highest margin there. As we drive that down as a percentage of our mix, that has a slight impact on gross margins but those are already reflected in the outlook which is still very strong.

Our next question comes from the line of Michael Kawamoto with D.A. Davidson. Please proceed with your question.

I think on the last call you talked about an online retailer maybe overstepping and you take some brand protection actions. Have those issues been work through?

In a word yes they have, and so we’re back on expected business relationships and practices with that particular retailer.

And then just coming out of the retailer little over month ago, what were your takeaways from your retail partners as we enter the back half its around your product or are there expectation from here?

Yes, I would say the reaction was very positive across the range both performance and lifestyle. So the new product offerings in the high category, light high category, trail running category where Merrell continues to gain share were frankly all positive. And then on the lifestyle side, the range, the sustainable product Gridway continues to get shelf space. So really was quite positive across the whole range.

Our next question comes from line of Laurent Vasilescu with Macquarie. Please proceed with your question.

Good morning, thanks for taking my questions and thank you Mike for all the color on the third quarter and fourth quarter guidance. Based on the gross margin and operating margin metrics given, it looks like we should see some nice leverage around SG&A what's driving that. And then for the remaining investments around the global growth agenda which I think is about $19 million for the second half. Should we think about that $19 million equally spread between 3Q and 4Q?

Yes, essentially and that last part of your question yes, it's pretty well straight line through the back half of the year. I think it’s important right, I mean we obviously are looking at the business every month adjusting our discretionary spending where we can. As a corporate team here, we’re obviously keeping a very close eye on that and because we do that, I think it gives us a lot of opportunity to be proactive and we've made some adjustments to our spending in the back half of the year. But obviously the stronger growth SG&A as a percent of revenue improves, the leverage there really comes of our ability to leverage what is essentially going to be organic 5% growth in the back half of the year and a large portion of our overall spend being on a fixed basis. So part of it is an adjustment to our planning in the back half of the year trying to be sensitive and proactive around any revenue risk that we see in the business. And I think fundamentally it’s our operating model and our ability to leverage SG&A when we have growth like this.

And then my question is on Merrell, we've seen pretty different growth rates by quarter, forgive me if I missed this. But when we expect high single-digit growth in 2H 2019 especially with the compares, I think they get tougher in the fourth quarter. How should we think about the growth between the third and fourth quarter and - maybe just a little bit high level on that would be great?

Yes, I mean for Merrell right now when we look at the order book and a few other factors, we’re looking at high single-digit growth in Q3, and we're also looking at balance high single-digit growth in Q4. So for Merrell there isn’t a big swing between the quarters - high single digit growth quarter.

Okay, thank you very much that. My last question I think in the first quarter 10-Q the Boston Group showed a 10% decline in wholesale, but an 18% increase in DTC. How did those numbers shake out for the second quarter and how should we think about those numbers for the third quarter and the full year?

Yes, I think for the whole business Laurent we our obviously seeing accelerated growth in our DTC businesses. That's going to continue into the back half of the year not just for the Boston Group but for all brands right. We had 25% DTC growth, we’re adding stores that will continue to be a bigger contributor to our overall growth at those growth levels as we go forward. And the guidance kind of reflects 20% growth in our e-commerce business in the back half of the year for our portfolio not just Boston and some incremental revenue coming from the addition of new stores.

Thank you. We have reached the end of the question-and-answer session. Mr. Harris I would now like to turn the floor back over to you for closing comments.

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@wolverineworldwide.com. The replay will be available until September 7, 2019. Thank you and good day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. And have a wonderful day.