Wolverine World Wide Inc (WWW) 2003 Q1 法說會逐字稿

Good morning, and welcome to Wolverine World Wide’s First Quarter Conference Call. All participants will be in a listen-only mode until the question-and-answer session for the conference call. This call is being recorded at the request of Wolverine. If anyone has any objections, you may disconnect at this time.

I would now like to introduce Mr. Tom Mundt, Vice President of Corporate Strategy and Communications for Wolverine World Wide. Mr. Mundt, you may proceed.

Thank you, Julie, and good morning to everyone. And I’d like to welcome all of you to our first quarter record conference call. On the call today are Tim O’Donovan, our President and CEO; Steve Gulis, our Executive Vice President and CFO; Steve Duffy, our Executive Vice President; Blake Krueger, our Executive Vice President and General Counsel; and Nick Ottenwess, Vice President of Finance and Corporate Controller.

Earlier this morning, Wolverine World Wide announced record first quarter results, another great achievement for our company. IF you did not yet receive a copy of the press release, you may call [Stacy Craig][ph] at 616-253-0500 to have one faxed to you. The release is also available on many new sites and on the wires, or it can be reviewed from our corporate website at www.WolverineWorldWide.com. That’s all one word.

Before I turn the call over to Tim O’Donovan to comment on our first quarter, I’d like to remind you that the predictions or projections made in today’s conference call regarding Wolverine World Wide and its operations may be considered forward-looking statements by Securities laws. As a result, we must caution you that with any prediction or projections, 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 on our press releases.

With that being said, I’ll turn the call over to Tim. Tim?

Tim O’Donovan: Thanks, Tom.

Good morning, and thanks for joining us today. I’m pleased to report record sales and earnings for our first quarter of 2003. Sales were strong for the quarter, up 8 percent to $191.5m, and earnings per share of $0.18 were up $0.03 from the prior year for a 20-percent increase.

Gross margins continued to improve as we reduced the percentage of closeout sales during the quarter quite significantly, and margins also benefited from a higher proportion of sales from our best margin businesses.

While Merrell continues to be our major growth driver, it is encouraging to see solid sales and profit increases in a number of our businesses.

Hush Puppies had a very good first quarter, with double-digit revenue increases in the U.K., Canada, and the international licensing businesses. Sales were up modestly in the U.S. business on the strength of stronger shipments of full-margin spring merchandise. We have a [market-right] women’s sandal package in the stores this spring, and where we’ve experienced warmer weather, sell-throughs have been very strong. The more contemporary casual product is supported with a marketing campaign featuring young and exciting lifestyle graphics, which have appeared this spring in the New York Times Magazine and several other high-profile venues.

I’m also encouraged by the positive U.S. Hush Puppies order trends. Both average price and margin are trending upward as the Hush Puppy team has developed a higher taste level and more focused product line. The international Hush Puppy business remains very strong, also. Adoption of global product and marketing initiatives are the key drivers. The international business has also benefited from the weaker U.S. dollar.

Wolverine Footwear Group sales were also up modestly in the quarter, with strong results from our Bates uniform footwear and Harley-Davidson brands offsetting weaker sales of Wolverine boots. The lower level of Wolverine boot reorders experienced in the first quarter appears to be improving in recent weeks. Wolverine’s spring TV, print and radio media campaign is now in full swing, and this has historically accelerated sell-throughs at retail, which, in turn, leads to stronger reorders.

Harley-Davidson sales in the quarter were up mid-single digits. Harley-Davidson is now in the women’s sandal business, which provides an opportunity to better balance our presentation at retail so that it is not entirely dependent on boot product. We believe this strategy affords consumers the opportunity to wear Harley product that is more appropriate for their spring/summer wardrobe.

The Bates uniform shoe business is off to a very strong start this year, and we anticipate another record year for this business. Bates is growing in both the military and civilian uniform segments of the market. The Bates brand is the gold standard for uniform footwear, and through product innovation and a very close connection to its core consumer has brought service men and women and law enforcement and security industry employees a technically superior and more comfortable product.

You may have seen an article Monday in USA Today describing the advances in military combat footwear. The Marine Core Desert Boot featured in this article is a new boot we recently developed for the Marines.

Sales for the Caterpillar business on a global basis were flat for the quarter. Margins were stronger as inventories are clean and fewer markdowns were experienced in the quarter. Sales in the U.S. were up modestly as shipments of the younger lifestyle product to mall-based retailers more than offset somewhat weaker sales in the industrial segment of the product line. Sales in Europe were ahead of plan but down slightly from year-ago levels due in part to the timing of distributor shipments and lower levels of closeout shipments.

As in the U.S., the younger lifestyle segment of the Cat line is retailing strongly in Europe, and this strong interest in the brand’s younger consumer, combined with renewed interest in the classic Caterpillar lug-soled boot, is a very encouraging trend. Fall order bookings in both Europe and the U.S. are very solid, and we expect to have a strong back half in this business.

Our new Central Services structure in Europe is also working well. By the end of May, we will have all of our European businesses up and running on our SAP operating system. We will also have all warehousing and distribution consolidated into two state-of-the-art contract distribution centers. The result is much improved service to our customers and an infrastructure that will handle our planned growth in Europe while providing a long-term competitive advantage.

On the strength of major increases in spring future order bookings, Merrell had another very strong quarter with sales exceeding our 15-percent annual growth plan. The gains were very broad based, with double-digit increases in the U.S., Europe, Canada and the international distributor businesses. Merrell gross margins were up in the quarter, which affords us the opportunity to continue to invest in the brand.

In addition to media and outdoor events sponsorships, the marketing emphasis in the near term is concentrated on obtaining premium retail positioning for Merrell through shop-in-shops with our best retail partners. There are 18 shop-in-shops slated to open in the second quarter. The first one has just been completed at Paragon Sports, a landmark institution in the Manhattan sporting goods scene. Other shop-in-shops will open in premiere outdoor specialty stores, upper-tier independent shoe stores, and several better-grade department stores.

Merrell’s strategy of growing its business principally with the brand’s best retail partners is working. During the first quarter, Merrell’s sales were up with eight of the brand’s top 10 accounts. We believe the focus on creating a broader assortment of Merrell product in the very finest retail locations will build brand credibility and lead to repeat purchases by the growing number of consumers who have come to love the fit, performance and styling of Merrell products.

The Merrell business in Europe had a great quarter, exceeding our aggressive growth plan. While still at a very early stage of development in Europe, the brand is being well accepted, and sell-throughs are strong even in tough markets, such as Germany. Overall, I was very pleased with our results in the first quarter. Clearly, we are in an environment that is unpredictable. However, given our solid start to the year and our 14.7-percent increase in order backlog at the end of the quarter, we continue to believe our sales goal for 2003 of $875-885m and our earnings per share goal of $1.21-1.24 are achievable.

Before I turn the call over to Steve Gulis, Wolverine’s CFO, I wanted to make a few brief comments regarding SARS, an acronym that’s grown all too familiar, which stands for Severe Acute Respiratory Syndrome.

Although the full impact of the SARS crisis is uncertain at this stage, thankfully, none of our people in Asia or people in the factories we utilize have been affected. Manufacturing and shipping are progressing normally. We have 65 employees based in China overseeing our production efforts. We, along with most other footwear companies, have restricted travel to Asia for the time being and are utilizing phone, fax and other digital transmissions to communicate with our team in China, as well as 60 additional employees in Taiwan, who are supporting our efforts in China. While travel restrictions are an inconvenience, we have a strong team on the ground executing our needs.

I will now turn the call over to Steve Gulis, Wolverine’s CFO, to provide additional details on the Company’s financial results.

Good morning, everyone, and thank you, Tim.

This morning we were pleased to announce record first quarter sales and profits for Wolverine World Wide. Net sales of $191.5m exceeded first quarter 2002 net sales of $177.3m by 8 percent. Additionally, record earnings of $0.18 per share exceeded the $0.15 per share reported for 2002’s first quarter by 20 percent. This year’s improvement was against record results in 2002 as we obtained strong earnings leverage off of our sales increase.

The sales increase was driven by Merrell as the brand increased its sales at a rate exceeding our plan. Strong increases were also noted in the global Hush Puppies business and the Bates military business as each of these businesses recorded sales increases in excess of 10 percent. These increases were partially offset by weaknesses in our core work business.

Our operational diversification continued to provide balance to our earnings as all of our major branded operating groups – Hush Puppies, the Wolverine Footwear Group, Merrell and Cat – reported profit increases over the first quarter of 2002. As stated many times in the past, we feel that this diversification is an inherent strength to Wolverine when comparing our company to others in the footwear industry.

Gross margins of 36.1 percent improved significantly in the first quarter and exceeded the first quarter of 2002 by 110 basis points. The improvement was primarily driven by reduced requirements for markdown provisions resulting from our aggressive inventory management programs and an improved mix of shipments as Merrill continues to grow at a pace in excess of our overall business, and this business carries higher initial margins. With this margin improvement, the first quarter margins are more in line with our annualized margin rates, and while we anticipate margin improvement on an annualized basis, we do not anticipate improvements of this magnitude for the remainder of the year. We continue to project annualized margin improvement of approximately 50 basis points.

Total Company selling and administrative expenses were $56.9m in the quarter. Total expenses increased $6.0m over 2002 levels, with $1.6m, or approximately $0.03 per share, relating to the increase in pension expense and a $1.3m increase in marketing expenditures. Excluding these increases, core selling and administrative expenses were reduced as a percentage of net sales by 30 basis points. One additional item to note is the $300,000 reduction in interest costs, which reflects the Company’s reduced debt levels.

First quarter net earnings of $7.4m exceeded 2002’s first quarter by $1.0m. These earnings resulted in earnings per share of $0.18, which is a 20-percent increase over the $0.15 per share reported in 2002. The net earnings calculation included an estimated annualized income tax rate of 32.5 percent, and average sales of $40.6m were used in the fully diluted EPS calculation.

From a balance sheet perspective, accounts receivable totaled $165.7m as of the end of the quarter, which was a $3.1m or 1.9-percent increase over the end of 2002’s first quarter. During the quarter, we improved our day sales outstanding by 1.7 percent when compared to the year-end day sales outstanding. Inventories were $5.5m, or 3.1 percent lower than the respective period of 2002, reflecting the continued efforts of our ongoing inventory management initiatives. All inventory levels within the operating groups appear to be in line to properly service demand while improving customer service.

We ended the quarter with $17.5m of cash, which is an $11.3m increase over 2002, and our total debt levels are lower by $12.8m. We used approximately $6m of cash during the quarter, which was higher than the $1.5m used in the first quarter of 2002. This result is in line with our plan to generate $75m of cash flow from operations during 2003.

During the quarter, we increased our annualized dividend rate by 22.2 percent. This dividend increase reflects the tenth consecutive year in which we reported an increase.

We also repurchased 361,800 shares of our stock in the open market and have an additional one million shares available under our previously authorized repurchase program, and we anticipate completing this program on an opportunistic basis.

In closing, we continue to strengthen our company while producing record operating results. We have a strong start to the year and continue to provide annualized guidance of sales ranging from $875-885m and earnings per share ranging from $1.21-1.24.

I appreciate you joining us for our first quarter update, and I will now turn the call back to Tim for a couple of closing comments.

Timothy O’Donovan: Thanks, Steve. I wanted to conclude today’s call with a few comments regarding Wolverine’s overall strategic objectives.

Our vision for the Company is to become the premiere global footwear company in the non-athletic segment of the market. Our strategic objectives which support that vision include consistently growing our sales at two to three times the industry’s growth rate. This equates to a mid- to high-single-digit growth rate. Secondly, consistently growing our earnings at one-and-a-half to two times the rate of our sales growth. Third, efficiently utilizing our working capital to generate strong cash flow. And, finally, providing an excellent return to shareholders through consistent top- and bottom-line growth, as well as increasing dividends and share repurchases. We took one more step in meeting these objectives during the most recent quarter and look forward to reporting on our future progress in the months ahead.

Thank you for joining us this morning, and we will now invite your questions.

Julie, go ahead, please.

[Caller instructions.]

[Lee Backus][ph], you may ask your question. Please state your company name.

Buckingham Research. First, very good quarter, guys.

Thanks, Lee.

Thanks, Lee.

At WSA, I sort of – I got the sense from just about all retailers that they were very reluctant in placing fall business and they were being ultra cautious. But yet you ended up with pretty good backlog. Could you give me a sense of what retailers are thinking about fall right now?

Timothy O’Donovan: Lee, I wish I totally knew the answer to that question, but, you know, we’re encouraged by the commitment we’re getting to our brands for the fall season. There’s still plenty of open to buy that we believe is uncommitted, but clearly we have gains in our order backlog for fall delivery. And the other comment I would make about it is those gains are quite broad based. We have an increase in backlog in the Hush Puppy company. We have an increase in backlog in our Wolverine Footwear Group, an increase in our Caterpillar business, as well as an increase in Merrell.

Can you compare fall bookings just – of the increase in just fall bookings? Because I know your bookings usually include, you know, more bookings sort of further out. How do actually the fall – just the bookings to be shipped in the second half of the year look?

Timothy O’Donovan: I think, Lee, that the overall percentage increase that we’re reporting for backlog would be representative of the backlog for second-half shipments.

Good. Also, at WSA, there seemed to be real interest in the new Hush Puppy line from some of the better department stores, an area that you really haven’t had much penetration. Could you sort of give us an update on how that’s looking?

Timothy O’Donovan: Yes, we’re continuing to make progress there, Lee. You know, we began a year ago to get some penetration in Nordstrom stores. That’s continued to roll forward. We have – you know, just got some selling reports on performance of our women’s sandals in Nordstrom’s in the Northwest, and the sell-throughs look quite good. We’ve made some considerable progress in Federated, particularly with the Macy’s group. We will have women’s product in all of the Macy’s East stores this fall season. If you go down to the flagship 34th Street store, you’ll see a nice Hush Puppy presentation right now. We have a commitment for about 20 stores from Macy’s West and a few other smaller commitments from other parts of Federated. So, you know, I think we’re making progress. I’d like it to be even faster, but it’s good solid progress.

Okay. Thank you.

[Bob Gerbel][ph], you may ask your question. Please state your company name.

Lehman Brothers. Good morning.

Good morning, Bob.

Morning, Bob.

Congratulations. Nice quarter.

Thank you.

Two questions for you. First one is, on the gross margin, where do you think you are in terms of, you know, continuing to expand your gross margins, and how much further do you think we have going forward this year and into the next few years?

You know, Bob – this is Steve – I think we’ve indicated in our call that for the year we think we can generate about 50 basis points of improvement in our gross margin, and there’s a couple pieces to that. One, obviously, is our inventory management programs. That is helping us improve our margins.

A second piece would be the impact from our European acquisitions. Last year, you know, we had some inventories that were – that came along with the acquisition that we had to dispose of, and that had some negative impact on our overall margins, and we basically are through that inventory today, so our margins will be improving in both our Merrell and Caterpillar European operations.

I think the third piece is, you know, as our brands become more lifestyle driven, you know, Merrell is already there, the Cat brand is selling more lifestyle product, the transition of Hush Puppies into the contemporary casual arena provides us the opportunity to get better initial margins on those products. So where will we go in 2004? I would imagine, you know, that we will project some type of margin improvement, but I don’t think it will be dramatic. But I think we can continue to get gross margin improvement as we go forward.

Okay. And on your – Steve, can you talk a little bit about, you know, are you happy with the progress that you’re making there? Is the accretion estimate is $0.04 to $0.05 still good for that business? And sort of where do you see that going from here?

You know, we indicated I think in our last conference call that long-term, the European operations, you know, in a 24- to 36-month period should be, you know, at the same operating level from a margin perspective as what our U.S. businesses are, and we expected to get there kind of a third, a third, a third. And our first quarter was right on plan to get us that first third of it this year, so we’re real pleased with where we’re at there. You know, our service levels are improving, and the retailers are much more positive about the operations over there because they always liked the product. We were just having trouble getting it to them, and we really have our systems and our processes in place to really capitalize on getting the product to them timely so that they hit the retail venues on time.

Okay, great. Thank you.

Thanks, Bob.

[Mitch Comas][ph], you may ask your question. Please state your company name.

D.A. Davidson. Thanks. Let me also add my congratulations.

Thanks, Mitch.

I’ve got a few quick questions. Let me start with Merrell. You mentioned on the call and also in the press release that it was up, that it exceeded plan. But can you quantify what the increase was, like you did last quarter?

Timothy O’Donovan: Mitch, I think we indicated in our previous conference call that our plan for Merrell this year was to grow the business 15 percent. We began the first quarter with a very strong backlog of Merrell orders, particularly for the women’s sandal product and some other segments of the product line. So we exceeded our plan in the first quarter. You know, we think the 15-percent plan for the year is still a realistic plan for Merrell.

Okay. And continuing with Merrell, you mentioned that you’re focusing your marketing efforts on the shop-in-shops there. Could you tell us how many you now have and then maybe speak a little to the performance there, you know, post-shop versus pre-shop, and with those accounts where you’ve added the shops?

Timothy O’Donovan: Sure. We did some early prototyping last fall in a couple of venues. We used that to refine the actual configuration of the shop-in-shop, and now we’re rolling them out. We’ve installed about three of them this week. I said one in Paragon Sports, lower Manhattan, which would be a good place to take a look at the shop. Based on testing we did last fall, we got a very significant increase in sales where we installed shop-in-shops. We have 18 planned to be installed by the end of the first quarter, 60 by the end of this year, and over an 18-month period, we expect to have 100 of them in place.

Okay. And on Hush Puppies, you mentioned that business was up, domestic as well as internationally.

Right.

Was it up internationally on a constant-dollar basis?

Yes, it was.

Okay. And then was it also up in men’s as well as women’s?

Timothy O’Donovan: In the U.S. market you’re speaking of?

Yeah, and overall.

Timothy O’Donovan: Yeah, I think – I’d actually have to go back and look by gender, but I think our women’s business in terms of actual shipments in the first quarter was probably a little bit stronger than our men’s business although we feel good about our men’s business. Our future order of bookings for men’s Hush Puppies are looking very good for fall. So, you know, I think as we look on our expectations for the year, we would expect to have an increase in men’s as well as women’s. But certainly the women’s – we have much better sandal content in our women’s product line, and that helped our first-quarter shipments.

Okay. Great. And then last question on the Harley business. You also mentioned that business was up, and then you mentioned that you were introducing sandals. I assume that hit in the first quarter. What was that business? Was it also up excluding sandals? And how big of a launch is the sandals?

Timothy O’Donovan: On the scheme of things, it’s still a business that’s dominated by boots. I think what was encouraging to us about the sandal fell in the spring, two things – one, that the brand – we can extend the brand beyond just boots into a broader mix of product and we’ve got not only retailer acceptance of it, but we’ve seen consumer acceptance of it. In total, it wasn’t a huge portion of our first-quarter shipment, but it – I think it’s more – it’s encouraging from the standpoint that it offers us a broader opportunity to expand the range over time into other than just the boot category.

Are all the dealers taking it in, or is this just being tested in select locations or --?

Timothy O’Donovan: We’ve got, I would say, pretty good acceptance on the dealer network. I’m sure not all dealers took in sandal products, but certainly a significant number of them did.

Okay, great. Thanks again.

[John Shandly][ph], you may ask your question. Please state your company name.

Wells Fargo Securities. Very nice quarter and very impressive, guys.

Thanks, John.

Tim, I wonder if you can give us just a little more insight on the Merrell domestic product line? Can you give us an indication of whether sales grew equal to the overall performance of the brand and also a little bit more color on what’s driving the international Merrell product performance? Is it the newly acquired distribution network? Is it broader than that? Are you penetrating new markets through distributors? I wonder if you can just give us some better flavor in terms of what we expect in Merrell going forward?

Timothy O’Donovan: Sure. First, in the U.S. market, we had increases in Merrell across all three genders – men’s, women’s and children’s. Most of the increase came from our existing account base. As I mentioned, we had very nice increases with a vast majority of our major accounts, so they’re put – these accounts are putting in a more extensive breadth of Merrell product, and, you know, we think that’s important because it really gives us a presence at retail.

In terms of the international markets, clearly, we got some nice uplifts from the fact that we had acquired our Merrell distribution business in Europe. That was really a start-up business when we acquired it a little over a year ago. While the percentage gains in Europe were very significant in, you know, in total dollars, it’s still a relatively small business, but it’s going to be our fastest-growing part of the Merrell business, we would envision, over the next – probably the next year or two. And the growth is coming in Europe from the fact that we have a strong team on the ground. We made a lot of investments last year in terms of infrastructure, the sales team, and that’s paying off now as we had a good sell-in for spring, we’re getting good sell-throughs at retail, bookings for fall are coming in strongly to the – and, again, the Merrell in both the U.K. and Canada, our own wholesale businesses there were very good. And we’re getting some – also some good insights from our other distributors around the world. We’re seeing increased commitment to the brand from our distributors in Asia and South America, other parts of the world. So it’s quite broadbased right now.

Great. That sounds impressive. In Hush Puppies’ domestic operation, has there been any noticeable shift in terms of the retail distribution channels? Have you altered your position, for example, with Penney’s and increased your position with some of the more traditional department stores or anything that has helped to drive the average price point increase that you referred to in your opening comments?

Timothy O’Donovan: John, certainly the fact that we’re getting better penetration inn the upper tier, not only at department stores but also better independent shoe stores, is helping us place higher-priced and more contemporary styled product. But, frankly, we’re employing that strategy across all channels, and we’re providing our mid-tier distribution with better product at higher average prices, also, so that the average price uplift is pretty broad across the Hush Puppy product line as we improve the quality and taste level of the product for all of our customers. And I think the other thing that’s impacted it is we have narrowed our product focus considerably. We have dramatically less inventory. We’re taking fewer – we’re having fewer sales at – on an off-price basis with the Hush Puppy brand, and that’s certainly helping our average price. And it also, you know, gives us a cleaner distribution for the brand.

Okay. Good enough. Also, Tim or Steve, you seem to be exceeding your original expectations, particularly with the first quarter results coming in stronger than most of us anticipated, and you’ve got a very healthy forward-order backlog. Just kind of curious as to why you didn’t take guidance up a little bit in terms of the previous guidance of $1.21 to $1.24 seeing that business looks a little bit healthier than the conservative guidance you seem to be giving us, though.

Yes, John, this is Steve. I think one of the real challenges that we don’t have our arms around yet is what the reorder activity from the retail perspective is going to be, and the first quarter is much more future-dominated than what the second quarter will be. And once we get a feel for what the appetite at retail is for reordering, I think we might be a little more aggressive. But retailers are still playing it very cautious. Right now, you know, their desire to get product in, sell it at full margin, is strong, but then they’re very hesitant to reorder and bring stuff in because they’re nervous about getting hung with inventory. So they’re playing pretty cautious. So, you know, 50 percent of our sales come in on a weekly basis through the mail, and we need a little better feel for what that is going to be. That’s on the top-line side.

You know, I think we’re still going to have nice significant gross margin expansion, and we’re able to – you know, if we do that and achieve that, we’re going to be able to do the investing in our brands that we want to. You know, we mentioned in our last call that we were going to increase the rate of our spending and our marketing initiatives at twice the rate of our sales increase, so that’s going to cost us a little bit, but we think it’s the appropriate thing to do for the long term, especially with the position that our brands have in the marketplace right now. Merrell’s on a roll, and we want to continue to drive that business. Hush Puppy and Cat lifestyle businesses are repositioning, and we need to support those. So we need some funds from a marketing support perspective, and we don’t want to – we don’t want to pull back from those initiatives.

Sure. That’s understandable, but the reorder activity you spoke about in the second quarter, does that also hold true for the back half of the year as well, or are there particular quarters that this is more of a pronounced factor in terms of being able to get a handle in terms of what your business prospects are? Or is it pretty much confined to the second quarter?

It would be second quarter and fourth quarter, mostly. Again, our future orders for the back half of the year will be more third-quarter focused, and that’s where the domination of that future backlog comes into play. So it would be both the second quarter and the fourth quarter would be higher at once order rates than what the first and third quarter would be.

Okay. The last question I have is, inventory turns – was there a noticeable increase in term of the turn rate? And, also, what’s your expectation in terms of turns in the back half of the year?

We did improve our turns slightly versus a year ago and where our year-end levels were on a 13-period rolling average. You know, if we continue to bring our inventories down, you know, our turn will continue to improve, and we’re looking for further improvements. I think the one thing that we didn’t talk about, our SKUs. We talked about our inventory management programs from an SKU perspective being narrower and deeper, more focused. We consolidated our SKUs another 15 percent first quarter ’03 versus first quarter ’02, so we’re continuing to make improvements there, and all those things add up to better inventory turns and better utilization of our investments.

Great. Okay. Thank you very much. Appreciate it.

Thanks, John.

Thanks, John.

[Steven Martin][ph], you may ask your question. Please state your company name.

Slater Capital Management. Most of my questions have been answered. Just two quick ones. Timberland yesterday talked a little bit about leather pricing in the back half of the year. And, second, could you – I know you guys handled the dock strike very well last year. However, were there incremental costs associated with that that we won’t see this year?

Timothy O’Donovan: Steve, this is Tim. First, with regard to leather pricing, during the first quarter, hide prices were up on average from the first quarter of a year ago. But hide prices in the last couple of weeks have actually come back off a bit. And the hide prices as of last week are within a dollar or two of where they were a year ago. There seems to be, you know, pretty readily available supply of hides, so we’re not seeing or anticipating, as we look out over at least the next couple of quarters, that leather pricing is going to be a significant issue.

With regard to, you know, how we handled the dock problem last year, fortunately, our folks made a very wise decision to move everything to Vancouver last July. That added a small incremental cost on a per-pair basis, but we’re probably talking a magnitude of $0.10, $0.15 a pair, so there’s, you know, a small opportunity for improvement there in the back half, but it’s not really a very significant number.

All right. One last question. The untoward weather we had in the first quarter – can I presume that that left your inventory pretty clean?

Timothy O’Donovan: Yes, Steve, it did leave our inventory pretty clean. I think we have to keep in context our boot business relative to perhaps some other people’s boot businesses. We don’t have an I-95 core-door-driven boot business. In terms of both our Wolverine and Caterpillar businesses -- are geographically -- are very balanced against, you know, the overall population and market demand, so we’re not as highly focused as some other people are in a particular regional part of the country. So while those things, you know, have some impact, our business is very broadbased and spread pretty evenly throughout the U.S.

All right. Thank you very much.

Timothy O’Donovan: Thanks, Steve.

[Mike Shrekas][ph], you may ask your question. Please state your company name.

Mike Shrekas, Delaware Investments. Hi, guys. Good quarter. Wanted to see, what’s capex expected to be for the year?

Mike, this is Steve. We’ve got budgeted capex of about $15m. It was just up slightly. I think last year we were at $13.2m or somewhere in that range, so just a very minor increase.

Okay. And the amount you guys had disclosed for what you expect the pension impact to be this year, I think you gave out on the last conference call?

Yes, it was $0.11 per share on an annualized basis, $7.1m pre-tax.

And just, lastly, with regards to your military orders, could you just comment on are they stronger than you expected and what you had planned for it this year? And do they continue to pick up?

Timothy O’Donovan: Mike, this is Tim. We have secured a number of different military contracts. Historically, at least the last couple of years since we’ve been a little more aggressive in that business and successful at transferring some of our state-of-the-art boot technology to upgrade the kind of product the military’s purchasing, that business has amounted to about, in rough numbers, about 3 percent of our sales.

Okay.

Timothy O’Donovan: It’s probably going to be roughly that same amount this year. Might be slightly above that, but not dramatically above that. But one good thing we do have now is because a lot of these contracts are multi-year contracts, we have good visibility on that business that goes out several years now, and so it looks like it would be a very – sort of very solid, dependable, predictable business over -- at least for the next several years.

And this is just sort of a general question. Industrywide, do you guys expect a little bit more consolidation to occur among the – you know, the number of brands that are out there and maybe the efficiencies you could get from, you know, distribution efficiencies and maybe sales force efficiencies from maybe acquiring some additional brands?

Timothy O’Donovan: Mike, I think, in general, in our – you know, if you look at the economics of our industry, currently, there could be some operational efficiencies, but, you know, it’s not quite the same dynamics as if you take two banks and merge them and, you know, close overlapping branches and get terrific synergy. I think in our industry, there’s not quite the same economic incentive. I think the incentives are more based on building a strong brand portfolio. We clearly believe in the concept of a brand portfolio and have over the – you know, over the last seven or eight years, through acquisitions like Merrell, through starting up new businesses like the Harley-Davidson brand, the Caterpillar-branded footwear business, you know, expanded our portfolio. We certainly have the infrastructure to, you know, I think add value, and we’re always looking for the right opportunity, and I think if you look at the historical track record of what we’ve done over the years, it gives you a pretty good perspective of what our approach is there. But we believe very strongly there needs to be a very good strategic fit in this industry to make a start-up of a brand or an acquisition of a brand, you know, really pay off.

Okay. And just, lastly, on the Merrell brand, do you guys ever consider going into maybe more, I guess, commercialized – like, say, more like a Foot Locker, if they were to ask to have your shoes in their stores?

Timothy O’Donovan: Mike, we’ve been very cautious about the distribution channels at this stage of the brand’s development, and we have kept our distribution focused, you know, very strongly at first on the outdoor specialty stores because they are the heritage for the brand. And then selectively we’ve added distribution in the very top tier -- independent footwear stores and top-tier department stores. And I think for the time being at this stage of our brand development, that’s the right strategy.

Okay, thanks.

[Caller instructions.]

[Brandon Winkler][ph], you may ask your question. Please state your company name. Mr. Winkler, you line is open. Mr. Winkler, your line is open. You may ask your question.

Julie, we should move on.

The last question comes from [Seth Posner][ph]. Please ask your question.

Hi. I’m with Mosaic Research. I just want you to talk about – if you could talk to the balance in the U.S. and Europe on your Merrell men’s and women’s business?

Timothy O’Donovan: This is Tim O’Donovan. The balance between the U.S. and Europe on – in terms of our gender sales?

Well, in the U.S. and in Europe on the gender, separately, on the retail.

Timothy O’Donovan: Just in general, because our U.S. business is a more developed business, we have a stronger mix of women’s sales in the U.S. than we currently do in Europe. You know, our mix in the U.S. is roughly 50 percent women’s, 40 percent men’s, 10 percent children’s.

In Europe, we would skew at this point in time more strongly toward men’s because a lot of our distribution in Europe initially has been in the outdoor sports store and sporting goods stores that have a, you know, higher proportion of men’s sales. Over time, we would expect that ratio in Europe to more closely align with the gender mix in the U.S.

Thank you. The gentleman before asked about acquisitions. Are there people out there right now? I’ve heard little rumblings here and there.

Timothy O’Donovan: We really don’t make any comments on rumors, Seth. Again, I would just, you know, direct anyone to look at the history of the Company over the last decade, and I think it’d give you a pretty good feeling for our approach to growth.

Thank you very much.

There are no further questions.

Thank you, Julie, and I would like to thank everyone for tuning in to our conference call this morning. Just as a reminder that if you want to re-listen to our replay of the conference call, it’s available on our website at www.wolverineworldwide.com, and again, thank you very much, and have a good day.