Wolverine World Wide Inc (WWW) 2003 Q4 法說會逐字稿

Good morning, and welcome to Wolverine World Wide's fourth quarter and year-end conference call. All participants will be in a listen-only mode until the question-and-answer session of the conference call. This call is being recorded at the request of Wolverine. If anyone has any objections, you may disconnect at this time. I would now like to introduce Ms. Christie Cowden Director of Investor Relations and Communications for Wolverine World Wide. Ms. Cowden, you may proceed.

Thank you, Wendy. Good morning, and welcome to our fourth quarter and year-end conference call. Presenting on the call today are Tim O'Donovan, our President and CEO and Steve Gulis, our Executive Vice President and CFO. Other members of the Wolverine management team are sitting in as well.

Earlier this morning, Wolverine World Wide announced record fourth quarter and year-end results, another great achievement for the company. If you did not yet receive a copy of the press release, please call Stacy Craig at 616-233-0500 to have one faxed to you. The release is also available on many news sites or it can be viewed from our corporate website at www.wolverineworldwide.com.

Before I turn the call over to Tim O'Donovan to comment on our results, I'd like to remind you that the predictions and 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, 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 would like to turn the call over to Tim O'Donovan. Tim?

Thanks, Christie. And good morning, thanks for joining us today. I'm pleased to report record sales and earnings for our fourth quarter and full year of 2003. This is our third consecutive year of record sales and earnings and also a year of strong cash generation as Steve Gulis will speak to in a few minutes.

While Merrell continues to be the growth driver, it is also encouraging to see major contributions from our other major footwear groups. All of our footwear groups with the exception of Caterpillar footwear achieved improved sales for the quarter and the full year, and all footwear groups reported improved earnings for both the quarter and full year.

Hush Puppies global sales were up mid-single digits for the quarter and for the year. Profits were up strongly in both the quarter and year to principally to improve gross margins as the brand sold higher-priced, higher-quality products to upper-tier retailers. In our national wholesale operations in both Canada and the UK, also had very strong results, as did the international licensing business. Hush Puppies global pairage [ph] sales exceeded 15 million pairs in the year which ranks the brand as a global leader in the casual footwear catagory.

Hush Puppies U.S. wholesale sales declined 1.6% in the quarter and 2.3% for the full year. Profits in the U.S. business were up as gross margins increased 190 basis points as a result of a change in mix to more contemporary market-right product and reduced inventory markdowns.

In order to attract a younger, more contemporary consumer, Hush Puppies has de-emphasized lower priced. more mature products. This has had some negative impact on sales but is a necessary step to achieve the long-run potential for the brand. The brand repositioning efforts in the U.S. market continue to gain traction during the fall season with strong retail sell-throughs of the brand's upgraded more contemporary product. Consumers are responding favorably to the new brand imagery and product.

One example of increased distribution is Federated Department Stores. Successful results in Federated for fall '03 have led to expanded commitments for the spring '04 season. Hush puppies had an expanded women's presentation in 47 Federated doors this past fall. This will increase to 132 Federated doors for spring '04. While fall '04 commitments will not be finalized for several more weeks, we believe there will be further door expansions for the fall season. Overall, I'm pleased with the progress we are making with the Hush Puppy brand.

The Wolverine Footwear Group, which includes the Wolverine boots and shoes, Harley-Davidson, Bates Uniform and Stanley businesses had a strong fourth quarter and a record year in both sales and profits. Bates and Harley-Davidson drove double-digit sales gains while our Wolverine boots and shoes sales were off 2% in the quarter and 4% for the year, due entirely to a change in mix as the brand executed a strategy to expand product in the $80 to $100 retail price point category to compliment it's over $100 retail price point category product. Unit sales of Wolverine boots and shoes expanded during the year, and as a result, we believe Wolverine gained market share.

Wolverine continued to be the dominate marketer in the work category, the brands television, radio, print and public relations efforts produced over 400 million consumer impressions. This consistent long-term marketing support for the brand is producing increased consumer awareness. Ranking Wolverine as the fourth largest volume brand of men's nonathletic footwear in the U.S. market, according to NPD Research. The brand's strong consumer acceptance opened opportunities for additional line extensions in the outdoor support sport and rugged casual category.

Wolverine continued to enjoy strong sell-throughs at retail in the Gortex sport boot category. Based on point of sales data from sports scan, Wolverine's Big Horn boot was the number one performing outdoor sport boot this fall/winter season. Retail performance for cold weather work and sport boots was generally strong which should bode well for the fall '04 sell-in.

Harley-Davidson had a double-digit sales increase in both the quarter and for the full year, exceeding our plans for this business. This marks the 5th consecutive year of double-digit sales increases for the brand. The combination of exciting new product, strong support from the Harley-Davidson dealer network, and expanding distribution in upper-tier retailers is continuing to drive growth in this business.

Our Bates uniform business also achieved record sales and earnings for both the quarter and full year. Both our civilian uniform footwear sales and military sales were strong. Bates now holds seven multiyear footwear contracts with the U.S. Department of Defense to provide a variety of footwear from uniform Oxfords to highly technical Gortex waterproof boots.

The strategy to extend successful new technologies from our Wolverine boot business to the civilian and military uniform footwear market is proving to be a winning approach. We expect continued strong growth in this business in '04 as we meet the growing needs of the U.S. military, as well as expand our distribution in the civilian uniform market.

Caterpillar footwear sales were down about 4% in the quarter and 2% for the full year due to weaker U.S. sales. Profits for the full year were up significantly, as the European business benefited from increased gross margins, and lower expenses as a result of our new central services structure for all of our European business. A popularity of retro-athletic footwear among young consumers clearly had an impact on our Caterpillar business, which historically has been very boot driven.

We have now added rugged casual product in the Caterpillar assortment which is market ripe for today's young consumer and we'll further expand our offering in this category. Additionally, there are opportunities in the work industrial segment of our Caterpillar business for growth. We are excited about the positive feedback we've received on the new I-technology lifestyle and industrial product which will be launched at the upcoming WSA and GDS shoe shows. The global response to this new technology and footwear has been universally good.

The Merrell business had another phenomenal year with sales momentum accelerating in the fourth quarter. Sales for the year grew over 20%, exceeding our original 15% growth plan for '03. All regions reported double-digit sales increases with the largest increases in Continental Europe, all-be-it on a relatively small base, the business more than doubled in 2003.

Merrell's growing position in the sports fashion segment of the market is helping drive the international business and opening premiere distribution and who's who of European specialty and outdoor specialty stores. In the U.S. market Merrell had a very strong fourth quarter. Sell-throughs were unusually good, resulting in aggressive level of reorders.

In the rugged performance casual catagory, the women's Tetra and Men's World collections were strong performers. The Pulse multi-sport hiker was very strong in both men's and women's as were Jungle Mocs and Slides. Merrell's Tundra waterproof Gortex boot and Yettie Shearling [ph] collections sold out to the pair following the snow and cold weather along the I-95 corridor.

The Merrell shop and shop roll out continued strongly in Q4 with a total of 60 shops in operation by year end. Retailers participating in the shop and shop program have seen excellent results, with 50% to 400% increases in sales at Merrell footwear. In the U.S., we have targeted an additional 70 shop and shop openings for 2004 and will also pilot a shop and shop program in several key European markets during the year.

Merrill's strong performance at retail in 2003 sets the stage for continued growth in 2004. We have another strong lineup of innovative product for both the spring and fall seasons and continue to be gratified with the amazing brand loyalty being expressed by consumers who have enjoyed the Merrell experience.

Our consumer direct business grew at a double-digit pace during the quarter and increased 4.9% for the year. The increase was the result of two new Track and Trail store openings during the quarter and strong gains in e-commerce. We ended the year with four Track and Trail stores and will plan to open an additional six to eight stores in 2004.

Finally, I wanted to update you on the Sebago acquisition which was completed last November. The transition process has moved ahead rapidly and the Sebago business is now headquartered out of our Rockford, Michigan offices, running on our systems and utilizing one of our existing distribution centers. Production in Sebago's remaining main facility will be transferred to the Dominican Republic in the second quarter. The cost associated with this move will not be material.

Our emphasis with Sebago is now on brand-building product development sales and marketing. While some new product will be at retail for the fall '04 season, the major brand reintroduction will take place mid-year or late 4th quarter '04 and spring '05 delivery. As a result, we have modest expectations for this business in '04 and are planning volume at about $30 million with a small profit contribution.

Longer term, we continue to be enthused about the Merrell brand -- the Sebago, rather, brand business opportunity. We believe we can develop an exciting global business which will be a serious contender in the performance marine in premium handcrafted casual categories.

As reported in our press release, we ended 2003 with a strong 20% increase in our order backlog. Each of our 4 major business groups ended the year with a backlog increase. It's certainly very rewarding to see the strong retail response to our spring '04 product lines. Given our strong 4th quarter finish and the level of backlog increase, we are encouraged about our prospects for 2004. As a result, we have increased our '04 earnings estimates by 3 cents per share to a range of $1.37 to $1.43 per share.

I will now turn the call over to Steve Gulis to give you additional commentary about our '03 results and '04 expectations.

Thanks, Tim and good morning, everyone. As Tim has already noted, we are very pleased with our record 2003 sales and earnings performance, and I would like to review some of the financial highlights of the fourth quarter and year. During this review, I will give you some additional insight into our financial goals for 2004.

For the year, we reported record sales of $888.9 million for a 7.5% increase over 2003. Fourth quarter sales reached $282.8 million reflecting an 8.2% increase over the fourth quarter of 2002. This year's sales represent the fourth consecutive year of sales increases for the business, and we have generated 12 consecutive quarters of sales gains in excess of 5%, excluding the 4th quarter of 2001, which was impacted by the events of 9/11.

In 2004, foreign currency gains provided 1.5% and 1.9% of the sales increase for the fourth quarter and year respectively. International revenues accounted for 24% of our revenue mix, and European revenues provided 16.2% of our overall revenue base. Our record earnings per share of $1.27 for 2003's full year, equates to a 10.4% increase over 2002 levels. Additionally, our fourth quarter earnings per share increased to 46 cents, a 4 cent per share improvement over 2002.

All of our major brand and footwear operations contributed to our record results for the quarter and year. In our strategy of building a strong portfolio of global footwear brands continues to gain momentum. Our global presence continues to strengthen and for the full year of 2003, international wholesale and licensing operations produced approximately 45% of our operating income.

We are continuing to drive strong gross margin expansion in the business as we ended the year with gross margin of 36.7%, a 110 basis point improvement over 2002's full-year results. For the fourth quarter, reported gross margin was 37.1%. A strong 170 basis point improvement over the fourth quarter of 2002. This gross margin expansion is being driven by the increased sales mix of our lifestyle product offerings, less required markdowns on slow-moving inventories, a higher percentage of our overall sales being generated from in-line goods, and favorable foreign exchange rate changes.

For the full year of 2002, selling and administrative expenses increased to 27.7% of net sales which compares to the 26.3% reported in 2002. The increase in employee pension costs, as discussed in previous quarters, accounted for 80 basis points of the difference. The impact of foreign currency changes and the incentive-based profit sharing provisions accounted for the balance of the increase. With the exception of the above-noted items, our core selling and administrative costs as a percentage of net sales were flat on a constant dollar basis.

Interest expense for the year was reduced by $1 million which reflects the 2002 senior debt principal reduction of $15 million. Interest expense is anticipated to decrease by an additional $1 million in 2004, as we paid down an additional $15 million of senior debt during 2003.

Our overall tax rate for 2003 was 31%, which is a decrease of 1.9% from the 2002 levels of 32.9%. This reduced effective tax rate reflects the overall profit mix from our foreign entities, and the cumulative impact of research and development tax credits recorded in 2003. The research and development tax credit will have an ongoing positive benefit to the corporation. Based on this, our estimated annualized tax rate for fiscal 2004 is 32%.

Shares outstanding for the year approximated $40.7 million and reflect the impact of the share repurchases which occurred throughout the year. During the year we repurchased approximately 1.3 million shares of stock, under the August 2002 repurchase program. The shares were repurchased at an average price of $18.85, which is a 16% discount to our recent 52-week high stock price. Further share purchases will be executed as deemed appropriate by management and we are projecting approximately 41.3 million shares of stock outstanding for fiscal year 2004.

The company generated a record $100 million of cash from operating activities for the year. This cash was generated through strong operating performance and solid improvements in cash collections and inventory management. The corporation reduced its day sales outstanding by 7.6%, and reduced its SKU levels by 13% during the year. Total inventory was reduced by 2.4% and accounts receivable was reduced by 6%. These actions contributed to a $25 million reduction in accounts receivable and inventory, excluding the assets acquired for the Sebago business. We were very pleased with the continued progress in reducing our working capital requirements.

Capital expenses for 2003, approximated $16 million, and depreciation and amortization approximated $18 million. For 2004, capital expenditures and depreciation are both projected to approximate $19 million. The strengthening of our balance sheet continued during the year as working capital utilization improved and we were able to further reduce debt. We ended the year with total interest-bearing debt of $59.9 million which was a $13 million reduction from year-end 2002 levels.

The year-end cash balance of $55.4 million is a $28.3 million increase over year-end 2002 levels. Additionally, our total debt to total cap ratio is 12.2%, which is the lowest it has been in several decades. We continue to use the cash generated to repurchase shares, increase dividends, reduce debt and invest in new business initiatives, we will continue this approach as deemed appropriate.

I would now like to take a few minutes to discuss the upcoming year. We are starting the year with a strong order backlog position, and this gives us good visibility into the first half of 2004. Our brand portfolio is evolving as we continue to develop strong performance and casual sandal offerings in our Merrell, Harley-Davidson and Hush Puppy businesses. This combined with the Sebago acquisition should provide us with accelerated growth in the first half of the year and solid growth in the back half of the year.

As outlined in our October 1st press release, we expect 2004 revenues to range between $945 and $965 million. The mid-point of this range approximates a 7.5% increase which is in line with the mid to upper single digit growth rate outlined in our three-year plan. Within 2004, we are anticipating a growth rate in excess of 7.5% in the first half of the year, and a more moderate growth rate in the back half of the year.

Gross margin for 2004 is anticipated to improve during the year by 20 to 30 basis points. Quarterly improvement should be stronger in the first half of the year, as first and second quarter margins have historically been lower than back half levels. Additionally, we expect margins to become more normalized throughout the year, and we are anticipating lower levels of clearance goods being sold in the first half of 2004.

Leverage is forecasted on our selling administrative costs for 2004 on a constant dollar basis. We feel that an additional 20 to 30 basis points of improvement can be achieved by keeping our core cost increases at a level below our sales increase, while funding the required investments in the Sebago business. These metrics combined with reduced interest costs and a projected annualized tax rate of 32% would yield an estimated earnings per share range of $1.37 to $1.43 cents per share for 2004. This is an increase of 3 cents per share from our estimate in October of 2003.

We are proud of the operating results and shareholder returns we have generated and feel we have the brand portfolio and operating model to provide further returns. By consistently delivering solid mid to upper single-digit sales growth and double-digit earnings growth, we are optimistic that the investment community would value the company with an earnings multiple at a rate above that of the average of our peer group, thus giving our shareholders additional returns on their investments in the company.

I thank you for your time, and I would now like to turn the call back to Tim for some closing comments.

Thanks, Steve, 2003 marked the company's 120th anniversary. What started in 1883 as a small West Michigan work boot manufacturer is now a leading global marketer of premium branded footwear to consumers in 150 countries. Strategically, we are positioned with strong global brands in market segments which provide opportunities to grow our business at several times the industry's overall growth rate. Organizationally, we have the right team on the field.

Operationally, we have state of the art business systems and infrastructure in place to meet the demands of the market on a global basis. Financially, the company has never been stronger and has a business model in place to produce consistent and improving results. We have successfully expanded our boundaries for 120 years and believe the best is yet to come for Wolverine World Wide and its shareholders.

Thank you for joining us this morning, and we'll now take your questions.

Thank you. At this time, we are ready to begin the question-and-answer session. If you would like to ask a question, please press star one on your touch-tone phone, you will be announced by name prior to asking your question. Once again, to ask a question, please press star one at this time. Our first question comes from Scott Krasik. You may ask your question and please state your company name.

Yeah, hi. C.L. King. Good morning, Tim. Good morning, Steve. Congratulations.

Thanks, Scott.

Thanks, Scott.

On Merrell Europe and CAT Europe, were you expecting to become profitable this quarter or is that slightly ahead of plan?

Scott, yes, we were expecting to turn profitable this year in those combined businesses. And in fact we did, so it was pretty much on track to our overall plan.

Where are you now in terms of Merrell European sales?

In terms of the total business in Merrell, it's in Europe. It's still a relatively small business. It was really in a start-up mode a year ago.

Right.

It would represent, in terms of the overall corporation, about 2% of our sales.

Right.

But it is a rapidly growing business and the brand is performing really extremely well in the retailers where we have it placed in Europe.

If you look at the guidance you've given, is there a lot of upside opportunity for Merrell Europe, I mean could that provide upside to the numbers?

We've got, in our estimates for 2004, we've got a pretty aggressive plan for the Merrell business in Europe. Because we do believe it's still at a relatively early stage of its development.

Scott, I think also to add to that point was that we outlined back in October that we expected the European initiatives to grow at double-digit rates. And we're in line with that, so we still think that's the proper thing to look at.

Okay, but based on the success of Merrell in the U.S., not saying it's going to duplicate, I mean, that would be very conservative, right?

I think over time, we should have a business in Europe for Merrell that is a much larger business. The overall market potential in Europe is, if you define Europe in the broad sense, it's a market that has potential, it's probably about 120% of the U.S. market potential.

So we would certainly expect to build a big business there, it's not all going to happen in one year, but we're making very good progress.

Okay, good. And then just lastly on Hush Puppies, you talked about going from, I think 47 to 132 doors, is that for the spring or for the fall of '04.

In fall, we had a Hush Puppies assortment in 47 Federated doors, and as we look to the spring season, we're going to be significantly expanding it. And the expansion that we talked about is to 132 doors, and that's for spring '04. I think in our discussions there, we believe there's going to be opportunities for further expansion in fall of '04, based on our strong retail sell-throughs this past fall season.

Okay. Great. Oh, and just one housekeeping question, what was the share count for the quarter?

Use 40.7 million there, Scott.

Okay. Thanks, guys.

Thank you.

Thank you. Bob Drbul, you may ask your question and please state your company name.

Lehman Brothers, good morning.

Good morning, Bob.

Two questions, I guess the first one, Tim, for you would be, can you discuss your views in terms of the continued profit opportunity in Hush Puppies, and I would say tie that together with the top-line opportunity, as well as the bottom-line opportunity. The second question would be, can you give us an idea in terms of the level of at once versus the backlog futures related business that you are doing these days with the different brands?

Sure, Bob, starting with Hush Puppies, we have in our plan for '04, anticipating growth in our Hush Puppy business, in about the mid-single digit range. In terms of profitability, we have a very good profit model in our business in the U.K., and Canada, our international licensing business, the profit opportunity for rapid expansion is in the U.S. market. And we would expect our profits in the U.S. markets to grow much faster than our sales, because we think we have the right plan in place in terms of making margin improvements. We have much better inventory controls and as a result, we would expect further gross margin improvement on top of the 190 basis point gross margin improvement we saw in the U.S. business in '03.

Thank you.

Your second question related to at once versus futures. Our model there varies somewhat by business, we have some businesses that are more basic, more at once driven, overall, I think looking at about half of our business coming from reorders is still a pretty good way to look at it.

Okay, great. Thanks.

Thank you, our next question comes from John Shanley. Sir, you may ask your question, and please state your company name.

Wells Fargo Securities. Good morning, guys.

Good morning, John.

Tim, I wonder if you could drill down for us a little bit more, on the 20% increase in the order backlog, was that weighted by specific brands to a heavier degree, or any geographic parameters that may have been stronger than the company as a whole?

John, the good thing about that backlog increase is, we had an increase in all four of our major business units, so that was -- it's not centered in any one business unit, it's broadly across the business.

Right.

We are benefiting in that backlog from our acquisition of Sebago, along with the business when we acquired it in November, there were orders in the system for shipment in '04, and Sebago would make up about 5% of that backlog increase. But aside from that, it's really quite evenly spread across our business units which is good.

Okay. And the same thing in geographic, you ordered backlogs in Europe, up about the same degree as they are domestically?

Yes, John, they are. Again, we do have some currency benefit too, in that backlog that adds a constant dollar basis, it probably added about 4% to the overall backlog.

Okay. That was going to be my next question, you saved me on that one. Tim, also, you had a very significant 2% reduction in inventory despite an 8% increase in sales. What allowed the company to do that, and is that sustainable going forward in terms of a tight control on inventory levels versus the sales plan you just gave us?

John, yes, it is sustainable. I think the key to what was something that Steve mentioned and that is we reduced our overall company SKUs, individual stock keeping units by 13%. So when you take that into consideration, in the remaining 87% of our SKUs, we had a 2% inventory reduction, so in effect we were narrower and deeper in terms of our inventory. There is additional opportunity, we believe to further improve our inventory levels. And we're going to be working on that, and that's an objective for all of our operating businesses in '04.

Does that mean further SKU reductions, Tim?

Yes, it does, John.

John, this is Steve, just to add one point there, just to make sure you're looking at the numbers right, that 2% reduction you noted included some Sebago inventories in there, because we owned it at the end of the year, if you excluded the Sebago numbers, the inventories on a business-to-business basis were down about 7.5%.

Okay. That's impressive. Also, talking about Sebago, the announced closing yesterday of the main Sebago facility. Will that have any impact on the earnings in fiscal '04 period?

John, it would be not at all material. The facility has about 100 employees right now. It will be phasing down, and we expect to have the transition completed by the end of the 2nd quarter, but we're not expecting that it would have any material impact on our operations.

Great. The last question I have is on the Track and Trail. Do you have enough of a window of where this business may be going, Tim, to be able to give us an assessment of how many stores or how big a market opportunity you think the Track and Trail business could be longer term, two years, three years out?

We're excited about the opportunity, we have additional work to do to refine the model, and these additional store openings in '04, we're going to need a little more time before we have a model that we want to roll out on a larger scale. Clearly, we'd like to have that opportunity and we're going to be working very hard to try to create an economic model that we feel good about.

What's been encouraging this year is that as we cycled on our first full year of the first two stores being converted into that concept in the Grand Rapids market, is we continued to drive mid to high single digit same-store sales gains. It appears that over time, we continue to build consumer loyalty for the concept, and that gives us encouragement that we can achieve a level of volume in these stores that makes it economical to position these stores in better malls and other similar kinds of locations.

Great. Sounds exciting. Thanks a lot, guys, appreciate it.

Thanks, John.

Thank you. As a reminder, to ask any further questions, please press star one on you're touch-tone phone. Star one to ask a question. And our next question comes from Mitch Clements. Sir, you may ask your question, and please state your company name. Mr. Clements, your line is open.

Okay. Sorry about that. A few quick questions, on the sales guidance, I think, Steve, you said the mid-point gives you 7.5% growth, which is in line with what you guys did in '03, and I noticed at the end of last year your backlog was also up around 20%, and then you achieved 8.5% sales growth in the first half, about 7% sales growth in the second half which would be consistent with what your thoughts are for the breakout this year, is that a pretty good percentages to use? I know you haven't given those, but I'm just curious.

I think that's a pretty good interpretation of our comments, yes.

Okay. And then also on the guidance, Steve, you mentioned on the SG&A line, core SG&A down 20 to 30 basis points, but then you also said that you have got Sebago coming into the mix. What would be sort of the combined number for the two of those then?

The 20 to 30 basis points, Mitch, would include the Sebago investments.

Okay.

Okay? One of the main focuses for us this year is to start driving some SG&A leverage. And so we're intent on doing that.

Okay, good. I just wanted a clarification on that. And then, you mentioned SG&A was flat, I think you said for the year in '03, or core SG&A was flat. I'm not sure if that was meant for the year or for the quarter, because the SG&A percentage, I think, was up.

That was for the full year.

Okay.

And that was after you adjusted for the increase in the incentive compensation programs and the pension piece, which was 80 basis points.

So what was the core for the quarter then? Was it up? Because the number came in a little higher than what I had modeled.

It might have been up just slightly, but not much.

Okay. And then for Merrell, I heard you guys mention up 20%, I believe that was again for the year, I didn't hear a fourth quarter number, I was hoping you'd give me a fourth quarter number?

Merrell business grew at a slightly faster pace in the fourth quarter, and so the full year was up just over 20%.

Okay. So it's up obviously more than 20% for the fourth quarter since you weren't --

Yes, it was.

Okay. And then a couple last items, on the Hush Puppies, the U.S. Hush Puppies business, sales down again for the quarter, when would you expect -- obviously, you're going into a lot more Federated stores, would you expect an uptick in the sales already in the first quarter for Hush Puppy U.S.?

I think overall in the first half of '04 we would expect a modest increase in the U.S. sales in the first half based on our backlogs and where we're beginning the year from a backlog perspective.

Okay.

And then also Hush Puppies, Nordstrom, I know that that's also a retailer that you're targeting, but I didn't hear you mentioning anything about that. Are you also expanding the distribution into their doors for spring?

Yes, we are probably not moving quite as quickly in terms of the number of doors that we're in Nordstrom as we have with Federated. But clearly, they're a major opportunity for us, and we're doing quite well in the capital region, for example, and in a couple other regions, and are hoping to, as we did with Federated, take those success stories and expand that to other Nordstrom doors.

Okay.

And then lastly, in Track and Trail, if I'm not mistaken, the four stores you currently operate are either in or around the Michigan area. Where will the new six to eight stores be open? Are they also going to be basically in the same geographic region? Or are you going to go a little further out?

Our plan is to, for the time being, to keep those stores in about a 300 mile radius of Grand Rapids.

Okay.

A couple reasons for that, one is in looking at the history of the original Track and Trail stores, that was where some of their very most successful stores were located. Michigan, for example, was a very strong state for the original Track and Trail stores, so we believe there's still some residual consumer recognition of the Track and Trail name in those markets. So for the time being, these new stores will be in that 300 mile radius. Longer term, we hope we have a concept here that would be relevant in all parts of the country.

Okay. Great. Thank you very much.

Thank you. Sam Pozer, you may ask your question, and please state your company name.

Mosaic Research, good morning. Just a quick question. Most of my questions have been answered in regard to Hush Puppies. I've been hearing there's a good deal of -- the kids are starting to wear a more dressier product of Polo-type shirts and so on, are you seeing any people requesting any of the Hush Puppies that came on strong about ten years ago or eight years ago, again with all the colors and all?

I think there's always that opportunity with a brand like Hush Puppies, I think it's not going to be retro driven so much as it is just playing to the brand strength. The brand stands for fun. It stands for color. And it has spanned product categories from very casual to somewhat more tailored shoes. So I think we have a good opportunity with the brand to matchup well against the overall trends in ready to wear.

Okay. And one last question, could you just restate your margin guidance for 2004?

Our gross margin in guidance was 20 to 30 basis point improvement for 2004, Sam.

Both in margin and SG&A?

And in SG&A, yeah.

Okay, great. Thank you.

Thanks, Sam.

Thank you. And our final question comes from Scott Krasik. Sir, you may ask your question. Please state your company name.

Yeah, hi. C.L. King again. The Merrell pack and luggage program, is that still on plan for the spring? And if you could talk a little bit about what the distribution is going to be in the first year and how you expect it to affect earnings and sales?

Sure, Scott.

Yes, we'll be delivering, the initial deliveries will begin in the second quarter with the bulk of the deliveries in the back half of the year. We've gotten quite a nice response to that program from a lot of the core Merrell customers, recently at the outdoor retailer show and also at ISPO. And I would say initially, it's really the core Merrell accounts who people like REI and Eastern Mountain Sports and those types of outdoor specialty stores that are very enthused about the program.

Of course, everywhere where we have a Merrell shop and shop, represents a great opportunity for us also. In terms of that program's overall impact on our business in '04, it's going to be relatively minor, but we believe over time we can build a strong program.

So the Merrell shop and shops, do you have some then control over the product that goes into those, more than just when you're selling into a retailer?

Well, what we have in those shop and shops are retailers that have the sufficient enthusiasm about the brand to want to take and give us dedicated square footage within their retail establishments. And we've got those shop and shops in really some terrific retail locations. And when you have a retailer who's making that kind of commitment to the brand they believe in it, they're results have been very strong, so they're very open to looking at new opportunities.

Okay. I guess lastly, on CAT U.S., it was down 4% for the quarter, and I guess a couple percent for the year, are you modeling CAT U.S. to be flat for 2004? Or is that still the --?

The numbers we quoted, Scott, were for the overall CAT global business. We are planning the CAT business in the U.S. up modestly in 2004.

And we believe we've got a product lineup that can make that happen.

Is that going to be driven by the work boots or the more euro casual stuff?

Really by both those categories.

Thanks, guys.

You bet.

Thank you. At this time, we have no further questions. I would now like to turn the call over to Ms. Christie Cowden. Ms. Cowden, you may proceed.

Thank you. On behalf of Wolverine World Wide, I would like to thank you all for joining us today. Just as a reminder, our conference call replay is available on our website at www.wolverineworldwide.com. The replay will be available through February 18th, 2004. This concludes our conference call, and thank you very much for participating. Good day.