Wolverine World Wide Inc (WWW) 2007 Q1 法說會逐字稿

Good morning and welcome to Wolverine World Wide first-quarter earnings conference call.

All participants will be in a listen-only mode until the question-and-answer session of the conference call. This call is being recorded at the request of Wolverine World Wide. If anyone has any objections, you may disconnect at this time.

I would now like to introduce Ms. Christi Cowdin, Director of Investor Relations and Communications for Wolverine World Wide. Ms. Cowdin, you may proceed.

Thank you, Connie. Good morning, everyone, and welcome to our first-quarter conference call. On the call today are Tim O'Donovan, our Chairman and CEO, Steve Gulis, our Executive Vice President and CFO, and Blake Krueger, our President and Chief Operating Officer.

Earlier this morning, we announced record first-quarter results. If you did not yet receive a copy of the press release, please call [Libby Neinheight] 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 Web site at www.WolverineWorldWide.com.

Before I turn the call over to Tim O'Donovan to begin commenting on our results, I would 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 now being said, I would like to turn the call over to Tim.

Good morning and thanks for joining us today.

I'm pleased to report record revenue and earnings for our first quarter of 2007. This marks the Company's 19th consecutive quarter of record revenue and earnings per share. Revenue for the quarter of 281.1 million increased from the prior year by 6.9% and earnings per share of $0.39 were up $0.05, a 14.7% increase from the prior year.

We achieved strong operating leverage while continuing to make important long-term investments in the business. One of those investments was in Patagonia footwear, where initial shipments of Patagonia's inaugural 2007 spring line contributed about 1.3% of the Company's revenue gain in the quarter. As expected, this gain was sufficient to offset the planned decline in revenue from the Department of Defense and private-label businesses.

The most significant contributor to the Q1 revenue increase was the Outdoor Group, where solid gains in the Merrell and Sebago businesses, along with the initial Patagonia shipments, produced a double-digit revenue gain. The Heritage Brands group also enjoyed double-digit revenue gains while Hush Puppies revenue was up low single digits and the Wolverine Footwear Group revenue declined due to the previously mentioned lower revenues in the Department of Defense and private-label businesses.

We made good progress during the quarter in building our long-term global brand franchises with solid results in the U.S., Canadian and European wholesale businesses, as well as in our international licensing and distribution businesses. Revenue in Europe was up 7.4% with increases in most of our brands. While our European management and sourcing teams were effective in mitigating a sizable portion of the impact of European anti-dumping duties, the 1.9 million of additional duty we incurred during the quarter did have an impact on profits in Europe.

Our other international efforts continue to develop strongly with revenue and earnings in the Company's licensing and distribution operations around the world growing at a double-digit pace in the quarter and making a meaningful contribution to the earning leverage we achieved during the quarter.

Overall, I'm pleased with our start to the year and the very solid Q1 results. I would now like to turn the call over to Blake Krueger, the Company's President and Chief Operating Officer and soon-to-be CEO, who will provide you with more specifics regarding the first-quarter results for our brand groups.

Thanks, Tim.

I would like to begin with the Hush Puppies Company. Overall, revenue was up 1.6% and improved gross margins and operating efficiencies led to a strong, double-digit earnings improvement for the quarter. This was Hush Puppies' 21st consecutive quarterly earnings increase. Results were strong in international markets with substantial revenue gains in the international licensing and UK businesses, which offset lower revenues in North America. The Hush Puppies UK business had an excellent quarter with double-digit revenue growth and improved profitability. The upmarket strategy in the UK continues to work with the placement of new Hush Puppies product in top-tier department stores such as Harrod's, Selfridges and House of Fraser, as well as key independents, including John the Bootmaker, Dulce's and [Shue].

In the U.S., first-quarter revenue was impacted by a planned shift of spring 2007 deliveries of transitional women's products into last year's fourth quarter. This is something we mentioned in our year-end conference call, and it was also impacted by lower shipments to close out in mid-tier channels. The trend toward the higher average price and higher-margin product continued during the quarter, as the quality of distribution improves with each season. Recent retail sales in key Hush Puppies accounts such as Macy's have been good. Key product successes have been wedges and ballerina flats, especially in metallic colors.

Hush Puppies continued to expand its global base of controlled distribution in the quarter and now has over 1000 dedicated points of sale around the world. Stand-alone Hush Puppies concept stores increased to 370 at quarter end. We are excited about the opening of a second Hush Puppies lifestyle store in Beijing, which features Hush Puppies footwear, apparel and accessories. This store will also provide strong brand visibility during the 2008 Summer Olympics.

India is another emerging market for Hush Puppies where we generated 40% growth during the quarter, primarily on the strength of an expanding wholesale business. Overall, it was a very solid quarter for Hush Puppies business with good progress on the brand's strategic agenda and strong profit improvement.

The Heritage Brands group, which includes our two largest licensed footwear businesses, Caterpillar and Harley-Davidson, also had a very good quarter with revenue up 11.8%. This was fueled by growth in our own wholesale markets as well as strong demand from our international distributors. Profit increased at a strong double-digit pace with improvement in the U.S., Canada, Europe and other international markets.

The CAT brand achieved its fourth consecutive quarter of double-digit revenue gain. This was driven by new product introductions, including the iTechnology patented comfort system and the legendary raw collection of boot product which is aimed at the global premium denim market. In the quarter, profits for CAT footwear improved in every geographic region.

Harley-Davidson footwear also contributed to the successful first quarter with a high single-digit revenue increase. New product and merchandising programs tailored specifically for the Harley-Davidson dealer network continued to produce positive momentum in the business.

Revenue in the Wolverine Footwear Group exceeded plan but declined from the prior year's first quarter by 3.4% due to lower Department of Defense shipments and a planned decrease in revenue for the private-label business. As expected, reduced demand from the Department of Defense resulted in a decline in base revenues of $2.8 million during the quarter. As we discussed in our year-end conference call, we expect continued weakness in demand from the Department of Defense to negatively impact Bate's full-year '07 revenue by 13 to $15 million. A mid-single-digit increase in Wolverine boot brand sales for the quarter helped drive group revenues above our plan.

Wolverine continues to lead its segment of the market with innovative work in sport boot product that deliver superior performance to its core consumer. New product introductions, including the patented MultiShox comfort system and the new CarbonMax safety toe technology helped drive this increase.

As a result of a better mix of higher-margin product, profits for the Wolverine Footwear Group increased at a double-digit pace in the quarter. We expect this favorable margin trend to continue throughout the year as the Group deemphasizes low-margin businesses and focuses on increasing market share with higher-margin, higher value-added product.

The Outdoor Group, which consists of Merrell, Sebago and Patagonia footwear brands, was the largest contributor to the Company's Q1 revenue gain with an increase of $12.2 million or 12.1%. Merrell contributed about half of the revenue increase with the remainder evenly divided between Sebago and Patagonia. The momentum in the Merrell brand remains strong with solid first-quarter increases in the U.S., Canada and international markets.

The business in Europe was down slightly, 1.7%, due to a shift in shipments to the second quarter for our largest European customer. Overall, Merrell revenue was up 6.4% for the quarter and would have been up double-digit except for the previously mentioned shift in timing of European shipments. Merrell footwear enters the second quarter with a backlog increase of over 20%. The Merrell brand is now reaching consumers in over 100 countries, and growth is being achieved in all product categories. For the spring, there was strong consumer response across the product line, including the women's Siren offering, a collection of women-specific multi-sport products which is selling well in department stores and outdoor and footwear specialty stores. Women's sandals, plastic jungle knots, (inaudible) land sandals and core multi-sport products also experienced significant growth.

The Merrell trail running (inaudible) is also gaining consumer momentum. Merrell continues to forge strong relationships with its consumers and NPD market research reports that the intent to repurchase Merrell product is among the highest for any footwear brand. Merrell's dedicated points of sale around the world are expanding and we currently stand at 23 concept stores and over 500 shop-in-shops. We expect an accelerated opening of global Merrell stores in the mid-term, as the introduction of Merrell apparel this fall will enable our global distribution partners to present Merrell as a lifestyle brand and a dedicated retail concept. We are actively looking for locations and plan to open our first company-owned Merrell store in the U.S. this fall.

Merrell apparel will launch this fall with initial shipments coming late this summer. Interest among retailers was widespread at the outdoor retailers show in Salt Lake City and ISPO in Munich. Initial season shipments of Merrell apparel are expected to be in the $10 million range. There has been a positive retailer feedback regarding Merrell apparel's unique design point of view and fresh approach. Like Merrell footwear, Merrell apparel will offer a (inaudible) between style and performance to meet the needs of the modern outdoor consumer.

Momentum in the Sebago business continues to build as evidenced by the 30% revenue increase in the quarter. Growth was achieved in all global markets. Retailer and consumer response has been very good across the classic [hand sewn] and performance marine categories. This was the third consecutive quarter of revenue and earnings increases for the Sebago brand.

Patagonia footwear is also off to a very good start with the spring 2007 launch of the brand. (inaudible) reports for the initial 32-style line introduction have been strong with positive consumer response across the outdoor performance, casual, and water lifestyle product offerings. During the quarter, Patagonia footwear was also introduced to consumers via the Patagonia Web site and was prominently featured in the Spring 2007 catalog. Patagonia ships about 7 million catalogs a year to its loyal consumers around the world. The Patagonia footwear team is focused on delivering the best possible product with the least possible harm to the environment. We expect Patagonia footwear revenues to be in the 15 to $18 million range for 2007.

The Outdoor Group continues to be the Company's largest revenue and earnings contributor. Despite less-than-ideal weather conditions this spring in many parts of the country, our retail group had a very good first quarter. Same-store sales in our 16 multi-brand, full-price Track 'n Trail stores were up strong double digits, and our consumer-direct Internet business also experienced a significant double-digit revenue gain as consumers responded to our new branded product offering.

Overall, we are encouraged by the Company's strong performance in the first quarter, which was spread across our brand portfolio. We are also encouraged by the positive response to our fall product offerings. Our quarter-end backlog was up over 8%.

I will now turn the call over Steve Gulis, our Executive Vice President and CFO, who will provide you with some additional information regarding our first-quarter results and our outlook for 2007. Steve?

Thank you, Blake, and good morning, everyone. This morning, I will review the first-quarter 2007 highlights and give a brief update on our estimates for the remainder of the year.

We are extremely pleased to announce our record financial results for the first quarter of 2007. Revenue of $281.1 million exceeded 2006 results of $262.8 million by $18.3 million or a 6.9% increase. The revenue increase was led by double-digit increases in the outdoor and Heritage brand groups.

Additionally, our owned retail operations reported solid results with same-store sales increases at 4.5% for the quarter. A weakened U.S. currency, when compared to 2006 levels, had a 1.7% positive impact on revenue growth. Overall, we were pleased to report revenue in line with our long-term objective of consistent revenue increases in the mid to upper single-digit range.

Record earnings per share in the quarter totaled $0.39, versus $0.34 reported in 2006, for an increase of 14.7%. Record gross margin of 40.6% was reported for the quarter, a 30 basis-point increase over 2006 record levels of 40.3%.

Gross margin improvements resulted from an improved business mix of higher-margin goods being shipped -- approximately 80 basis points -- and 20 basis points of contribution resulting from the positive impact of foreign currency in our Canadian wholesale operations. These improvements more than offset 70 basis points of additional product costs resulting from the anti-dumping duties being levied on our EU operations.

The Company's general and administrative expenses totaled $81.3 million in the first quarter of 2007. As a percentage of revenue, general and administrative expenses were 28.9% in 2007, which compares to 29.0% in 2006 for a 10 basis-point improvement.

We were pleased that we were able to report expense leverage in the business while investing in future growth initiatives for the Company. The gross margin improvement mentioned earlier and the expense leverage we obtained should assist us in reaching our targeted operating margin goal of 11.5% for fiscal 2008.

Record first-quarter 2007 net earnings of $22.3 million exceeded the first quarter of 2006 by $2.7 million. This increase includes an improvement in net interest income approximating $800,000 and a tax rate of 33.5% for the quarter. Average shares outstanding of 56.8 million shares were used in the fully diluted EPS calculation, and net earnings as a percentage of revenue improved 40 basis points in 2007 when compared to 2006 levels.

From a balance-sheet perspective, Accounts Receivable increased 5.3% on a 6.9% revenue increase. Our Days Sales Outstanding improved to 56.8 days and compares to 57.5 and 58.7 days for the year-end and first quarter 2006, respectively. We are pleased that we are maintaining our DSO level below our target of 60 days.

Inventories of $196.1 million at first quarter end 2007 represented an increase over first quarter end 2006 of 9.3%. Inventories at quarter end, which were below our internally planned level, are in line with our revenue increase and support the overall backlog. Additionally, the majority of our inventory increase supports demand for Patagonia footwear and the continued momentum in the Merrell footwear business. We continue to aggressively manage our inventory levels and are driving for additional improvements in the second half of the year.

We were active in our share repurchase program in the quarter, and we've repurchased approximately 1.165 million shares. The average share price approximated $28.40, and we used $33 million of cash for the repurchase. This repurchase activity principally exhausted the 3 million share program authorized by our Board of Directors in December of 2005, and we will be reviewing our future repurchase strategy at our Board of Directors meeting later today and tomorrow.

The Company's cash position remains strong, and we ended the quarter with approximately $63 million of cash on hand. We used cash in our operating activities totaling $23.5 million, which is in line with planned levels, and we estimate cash generation from operating activities to approximate $110 million for the full year. Capital expenditures are in line with our annual plan and the slight increase over 2006 levels reflects systems initiatives supporting our global product development and supply-chain programs.

The quarter's strong operating results and continued Asset Management of our -- and continued management of our balance sheet have generated further improvements in our return on assets and return on equity. On a trailing 12-month basis, return on assets has improved to 12.7%, a 50 basis point improvement over 2006 levels, and return on equity has improved to 17.4%, also a 50 basis-point improvement. The improvement in these metrics, our consistent earnings-per-share gains and continued generation of cash flow from operating activities, have created value for our long-term shareholders.

The strong results reported in the first quarter and our solid 8% (inaudible) is allowing us to increase our estimate for the full year of 2007. We are maintaining our revenue estimate in the range of 1.2 billion to $1.23 billion and are increasing our earnings per share estimate to a range of $1.57 to $1.63, up from the $1.56 to $1.62 range. The increase in our earnings per share estimate reflects the first quarter of 2007 exceeding our internal plan by $0.01 per share. We are estimating continued gross margin expansion for the remainder of year and offsetting general and administrative expense increases, which will include continued investments in growth initiatives for the future.

In closing, we are very pleased with our first-quarter results and our strong start to 2007. We are expecting another solid year of operating results, cash generation, and further development of our brand portfolio on a global basis. Consumers continue to endorse our brands around the world, and this supports our enthusiasm for continued success in the business.

I thank you for your time and attention and will now turn the call back to Tim for some closing comments.

Thanks, Steve. As Steve and Blake have indicated, we are pleased with the first-quarter results and feel confident about shaving achieving record results in 2007. I'm also pleased that we have a seamless management transition well underway with Blake stepping up to the CEO position tomorrow at the Company's annual meeting. Blake has the support of the Company's board, management team and our global retail and distribution partners. He's an experienced, energetic and talented executive who will do an excellent job as CEO.

I look forward to my new role as non-executive Chairman and hope to see many of you at trade shows and other industry events. Since this is my final conference call as CEO, I would like to thank you for your support over the past seven years. I've enjoyed the interaction and thoughtful advice I've received from you.

We will now turn the call back to the operator so we can take your questions.

Thank you. The Q&A session will be conducted electronically today. (OPERATOR INSTRUCTIONS). Matt [McClinton], Lehman Brothers.

Good morning. Just two quick questions. One, I just wanted to get your thoughts on the Sebago numbers -- pretty impressive, and I know that you had some trouble last year, first quarter with the brand. I just want to know what your expectations are for the year so I can kind of gather what that number represents.

Well, I think, you know, our efforts on Sebago really go back 12, 18 months, when we refocused the product line. I think we are just beginning to see the fruits of our refocused and reenergized product line in Sebago. We had excellent growth in the first quarter obviously at over 30%, and we expect growth for the rest of the year probably not at that level but we expect solid growth this year in the Sebago business, both domestically and internationally.

Okay. The second question -- is the Bates DoD business still impacting backlog numbers, or has that worked its way through?

No, Bates business is impacting the backlog numbers, so it's a reduction in our private-label and Hush Puppies slipper businesses, as we talked about in our year-end conference call. Those numbers, those businesses are all having an impact on our backlog. That is being offset only in part by Patagonia and Merrell apparel, which are some of our newer growth initiatives in businesses, but it is having an impact.

Could you quantify that at all?

Well, I would say there's at least a 5 to $6 million hit to our backlog number. You know, our backlog would have been up maybe close to double digit if all five of those businesses had been excluded and we were going pure apples-to-apples.

Okay. All right, thank you.

John Shanley, Susquehanna.

Good morning, guys. Tim or Blake, the Heritage division sales performance in the first quarter was really impressive, that you were up against pretty tough numbers in Europe with the antidumping duties kicking in in April of last year. Can you give us an idea of what you've done to be able to stimulate the Caterpillar and Harley business and other products to be able to generate that kind of a sales gain, specifically in Europe? If you could comment on that, I would appreciate it.

Yes. I think, focusing first on Caterpillar, really it's true for both of those brands. John, as you know. it kind of starts with [Braddock], Braddock, Braddock, and that's been the focus.

For CAT, especially in Europe, the iTechnology category, both men's and women's, continues to build. That is now a significant portion of the line. In addition, in especially in Europe and some of our other international markets, until legendary Raw collection which is really focused on the premium global denim market, which is you know very, very big in Europe, has done very well, opening up some new, better-grade distribution. So I would say it's been just a consistent focus on product.

On the Harley Davidson side, it's really the same thing, bringing a little more color maybe into the Harley Davidson line, bringing some fabrics into the Harley Davidson line, and again focusing on the needs of that dealer network. We've got about 1,400 dedicated Harley dealers around the world, about 800 here in the United States, and a substantial portion of our business is still done through those dealers.

Blake, have you increased the ASPs for Caterpillar and Harley noticeably over the past year?

On a select basis we have, partially in response to some of the anti-dumping duty stuff, but just on a select basis, not across the entire line.

Okay. Staying on Europe for a second, our research data in Europe shows that all of your brands, particularly Merrell and Hush Puppies and Sebago as best we can get our hands around it, are showing nice market-share gains. Can you tell us if the product margins in Europe are comparable for those brands to what you're able to obtain in the U.S.?

Yes, John, this is Steve. You know, when we look at our business models in Europe and in North America, there's no difference in those models. So, we really look to achieve the same operating margin levels. I think what really shows that is, when you go back to 2002 when we brought the Caterpillar business in-house, you know it was a breakeven business and we said we would expand those operating margins over the next four to five years to levels equal with the North American and corporate averages. We've been able to achieve that, so you know, growth in Europe is just as profitable as growth in the North American markets.

Is the growth, Steve, in Europe coming at a faster pace than it is in the U.S. markets for those brands?

It's a little bit higher, yes, okay. So we feel good about that. But it's at a level that we are very comfortable with.

Okay, that's fair enough. Blake, the Hush Puppies gains in revenue that you mentioned in your commentary seemed to be coming from upper-tier department stores in both the U.S. and UK. Is there a noticeable improvement in terms of operating margins the dealing with those channels of distribution as opposed to perhaps the general merchandise guys that you may have been dealing with in the past?

I would say there's been a slight uptick in our margins in some of those, that distribution channel both in America and in the United States. We had some good increases in the United States. Some of our better Hush Puppies accounts during Q1 obviously impacted by lower closeouts and the timing of some shipments in the fourth quarter of last year, but we feel good about the progress we are making in the Hush Puppies business, both domestically and really around the world.

Super. The last question I have is really to Steve. I'm not sure I understand the commentary in the press release about the inventory up 9.3% on a sales increase of 6.9. But the comment was that it was lower than your business plan. Is there something I'm missing? I don't quite understand what's happening there with (multiple speakers) inventory needs to be bigger than you have in the past?

No. If you reflect back to the year, John, our inventories were up 14.2%, and we commented that was a higher percentage increase than what we wanted and that we were going to work over the first half of the year to start getting that down.

Our plan was not quite as low as where we ended up the quarter. So we actually beat the planned reduction in the first quarter. It resulted in a 9.3% increase. But also, where the inventory is higher is in the Outdoor Group, supporting the introduction of Patagonia and that 20% backlog that Blake mentioned about the Merrell product. So that's really whether inventory is focused.

Okay, I get it. And lastly, I would just like to, on the behalf of my clients, to thank Tim in terms of the stellar performance that you've given the shareholders over the last seven years. You've really done a marvelous job in managing the Company, and best of luck in your new pursuits and hopefully you're going to stay involved with the Company going forward.

I will be, and thanks, John; I appreciate it.

Take care.

Jeff Edelman, UBS.

Thank you. Good morning. Blake, I was wondering if you could give us a little bit of insight as to the rollout and distribution of both the Patagonia footwear and Merrell apparel. On the Patagonia side, are you benefiting in the same channels where the apparel is currently distributed now, or is it through your existing footwear channels?

No, I think there is a little bit of both. As we previously told you, Patagonia has not restricted us in the footwear roll-out to their current stores and distribution channel. Sol, we have the benefit and luxury, for example, of having Patagonia footwear in our Track 'n Trail stores with Patagonia apparel and that's been kind of a good one-two punch there. So we are seeing some of that growth, initial growth, initial roll-out in some new stores. However, Patagonia as a brand does about 40% of all their apparel sales on their Web site and their catalog business, for example, and their stores. So, we've just, in the first quarter, have gotten on their Web site. We are prominently featured in their catalog's back cover and a big inside insert in the first quarter, so we've seen that business begin to grow quite nicely. So we feel good about where the Patagonia business is.

Okay. Then on the Merrell apparel, you talked about building out some stores that will offer the Merrell lifestyle look and approach. Up to this point, it appears as if a lot of footwear companies have had difficulty with apparel inasmuch as that distribution has typically been different channels. How are you going to overcome that?

Well, I guess let me address your question a couple of ways. First, we're going to focus domestically and in Europe on the outdoor specialty channel for Merrell apparel. That's the heart beat of the footwear; that's where the footwear got started; that is still our bread and butter. We expect the initial sell-in of Merrell apparel to be 50%-plus into that distribution channel.

But secondly, I think you have to remember, we are in 180 countries around the world. Many of our international partners are as much retailers as they are wholesalers, and a lot of these markets, they are great markets but probably not as over-stored as the United States, not as competitive as the United States. There's a big opportunity in a lot of those markets for specialty concept stores. Obviously, lifestyle brands have a competitive advantage over a single category, product category brand. So in the mid-term, we see upside in Merrell stores around the world.

We are sitting today with only about 23 Merrell concept stores around the world. Frankly, we believe, over the longer term, the opportunity there is at least as big as Hush Puppies, which currently stands in 370 stores around the world.

Okay, great. Thanks. Tim, best of luck to you and Blake as you move up into the CEO position.

(OPERATOR INSTRUCTIONS). Jim Duffy, Thomas Weisel Partners.

This is actually Christian; Jim is traveling right now. I just wanted to wish you guys the best of luck going forward, and also a question about the Merrell apparel. I'm wondering if you can talk about sort of the balance of the mix between Europe and the U.S. and how you see that shaking out.

Yes, just to -- I mean, it's still a little bit early but we really see Merrell apparel breaking down, maybe 50%, in terms of units right now domestically, maybe 50% in the international market. It seems to be about evenly split, 50-50, between men's and women's, which we think is a very big plus for this initial roll-out.

Just to give you a little more flavor, maybe tops about 45% outerwear, about 35% in the rest, bottoms and accessories. That's kind of a product category mix and geographic mix that we see this initial season.

That's very helpful. Thank you. Then just one other question, just kind of wondering what kind of doors you have had the most success in, in sort of the pre-orders for the apparel line.

Well, I think, obviously, as I have talked about it, it's been with our international distributors for sure. But then in our own territory -- Canada, the U.S. and greater Europe -- it's a concentration on outdoor specialty. So it would be, in the U.S., the Lewis and Clarks, the (inaudible), the Dicks. In Canada, it might the Back Country, Coast Mountains Sports, Campers Village, in the EU, Decathlon, Field and Track, you know those kind of stores. So obviously, we've got some department store interest; we have some other interest from some other channels but we've made a concentrated effort to focus on that outdoor specialty channel.

All right, that's very helpful; thank you.

Mitch Kummetz, Robert W. Baird.

Yes, thanks. Let me add my congratulations. The first question on backlog, which is actually a couple of parts and then I've got a follow-up -- but could you first, in discussing your backlog, just give us some color as to how it breaks out by operating group? I would imagine outdoor heritage, probably strongest backlog there, maybe Hush Puppies, Wolverine, a little weaker. I mean, are any of these groups up double digits, any of them down in terms of the backlog?

I think, as Blake mentioned, the Merrell business has a very strong backlog position, Mitch. It's in excess of 20%. Part of that is some of the timing difference in Europe, where we had that significant retailer not take -- really delay goods coming into the first, at the end of the first quarter and really wanted the shipments received in the second quarter. So that has had some impact there.

You know, looking at the other groups, the other groups are solid enough to reach their plans for the year. Again, our backlog right now looks out about six months, so we don't have -- you know, we have a good look at the beginning of the fall season, but we don't have the full fall season on the books yet. So we are pretty comfortable where our backlog position is, with what that impacts are that Blake referred to with the private label and Bates businesses, that we can achieve the sales range that we've put out there for the Street.

Okay. Let me ask you about -- you mentioned fall, you don't have the full fall backlog in yet. Your backlog at the end of Q1 is typically more fall than spring, though, correct?

At the Q1 -- yes, you know, there's still a pretty good chunk of second-quarter goods in there. One thing that we are seeing this year, Mitch, that has changed a little bit is the retailers' flow of the goods seems to be a little bit more systematic than what it was historically, where they didn't take all of their seasonal goods for spring all in the first quarter, and they layered it out over the full season. So I think that may have something to do with some of the weather patterns that they've experienced historically of getting too much goods in too early, but we still have some strong spring backlog for the second quarter.

Okay. Just in terms of ordering patterns on the part of the retailers, do you think that they were -- you know, this wasn't the greatest holiday season this past year. Do you think that they are being a little bit more conservative with their orders, and maybe trying to flow things a little bit more towards the fourth quarter than the third quarter in terms of fall deliveries, too?

We are seeing a little bit of that, and obviously weather has been a factor here for the last six months in certain parts of the country. But frankly, where the weather has been good, business has been pretty good. We are not seeing any real indication of a consumer pullback. There is some issues tied to weather. We had some of our own retail stores closed for more than half of the weeks in the first quarter, for example, so we had some unusual weather patterns.

So I would say, our feeling is there is less of an impact on footwear. I would say that where some retailers have been a little bit heavier into outerwear apparel, for example, they are maybe taking a little more cautious approach to this coming fall and all good retailers are just attempting to flow their goods towards just-in-time scenarios a little bit more.

Okay. Then my follow-up question has to do with you outlook for Merrell apparel and Patagonia. If I recall correctly, your initial expectation was for those two businesses to combine for about $32 million in revs this year. Now, it sounds like you're thinking a little bit less than that, if I did the math right. I believe, Blake, you said 15 to 18 on Patagonia and about 10 on Merrell apparel. Is that correct? I mean, has the outlook changed there or is something happening there that I'm not --?

I don't think the outlook has changed significantly. I think that we feel very good about where Merrell apparel is, for example, given the pretty tough fall outerwear season and ski season that existed not just in our country but in really around the world. But we feel pretty good about that 10 million for initial season launch for Merrell apparel. It still a little early yet on Patagonia but we just thought you guys deserved a range of what we're currently thinking for the year.

So, in our minds, I think we were originally thinking in the 28 million to $32 million range. If we go back six months, that was pretty much well in advance and we are able to focus that a little bit now. We're looking at about the $28 million range for the two for this year.

Okay, sounds good. Thanks.

Angelique Dab, Nollenberger Capital Partners.

First, let me add my congratulations, Tim and Blake. It seems like you've been making some solid progress in the upper-tier business for Hush Puppies. Could you talk a little bit about the progress that you're seeing, both on the men's and women's side?

I guess, as we always say, it begins with product and Hush Puppies product for both men's and women's has been developed for that better-grade, upper-tier business, especially in Macy's. The Macy's business was up pretty nicely in the first quarter, for example. In addition, they've had some new product introductions on the men's side with some of the patented bounce comfort technology and some other new introductions that have performed very well at retailer. So it's really a question of staying ahead of the competition and developing some superior product that the consumers want to see in those retail channels. Angelique, I would add to that comment that one other thing or a couple of things -- the Macy's business continues to be solid, and we are expanding doors with them, but we're doing it a pace that is profitable for both them and for us, so we've talked about that in the past.

Also, the independents -- we have focused, over the past 12 to 18 months, with the strong independent dealers out there, and they are starting to embrace some of the new product introductions that Blake was talking about. That's very solid business out there. The Merrell Brand does very good business in those channels, and we think we can duplicate that with the Hush Puppies brand.

Thank you. Steve, could you just give us a quick update on your expectations for the tax rate going forward?

Yes, in our year-end filings, we had an estimated range of 33.3 to 33.5%. We were at the high end of that range at the end of the first quarter and we think we will still be in that range.

Thank you.

Robert Samuels, JPMorgan.

Have you guys seen any pushback from retailers with the Merrell apparel launch, given perhaps their reluctance to add a new outerwear brand coming off the warmer-than-normal winter season?

I would say we haven't seen any pushback. I think there has been a pretty widespread positive response. The retailers are always looking for something that's unique and fresh and a different point of view. They want to discover a new brand, and we think we've captured some of that interest with Merrell apparel. Obviously, first season, you're not going to get a lot of retailers turning the whole line or half of a line, so there's a lot of tests across a large number of retailers, and we feel pretty good about where we stand right now.

Great. Then can you maybe just give us a few more specifics around the Merrell Brand with regards to performance, perhaps call out some of the distribution channels you're seeing the most strength?

Boy, it's (multiple speakers) that's a hard question to answer because really we have domestic strength, international strength with our distributors. It's in the effusion casual portion of the line; it's in the strength in the multi-sport outventure performance section of the line. It's women's casual sandals, men's land sandals. We are really seeing a strength in an increasing shelf space share at those key retailers where we are at and across the product line. It seems overly simplistic but it's a well-balanced growth that we are experiencing.

Great, thanks a lot. Congrats.

Todd Slater, Lazard.

Good morning and congratulations on delivering another strong quarter. Just to follow up on the European push-out, just how significant is that shift in the second quarter, in terms of dollars?

Yes, I think it was pretty significant. We are, frankly, expecting another record year with that European customer, but the shift-out was in the -- it looks like it was in the 3.5 to $4 million range.

Okay.

So pretty significant from our standpoint.

Thanks, that's helpful. Then on the Bates business, you expect those declines to subside in the second half, or if not when does this become less of a drag?

No, Todd, it looks like the way that the demand for the contract business is developing right now, it's going to be throughout the year. You know, we initially thought that the majority of the base impact was going to be in the first half of the year, but it looks like they are scheduling it out so it's not going to be as dramatic in any one quarter, but it will probably impact all four quarters but still totaling that 13 million to $15 million range that Blake referred to.

I see. Okay, great. Then lastly, if retailers are getting more conservative, of course this has been a trend for a long time in terms of ordering. Are you seeing any pattern of sort of, towards the end of the quarter, an increasing in at-once orders or reorders that come through? Or is it just a total push-out?

I think it's really just a question of them trying to increase their own turns and economic returns, and obviously, you have to have -- you have to be pretty good, too. As wholesalers, we have to have the right goods and have to have them ready and ready to ship to service those accounts. But I think it's just a question of really a question of them trying to flow the goods differently.

I think the one thing it does demand is working closer with your retailers and understanding what they own and sometimes you have to identify for them what they don't own that they should own. But I think having those relationships and making sure you're working on a partnership basis is very important to keep the flow of goods strong so that your brand continues to perform in their retail channels.

Does that make you more conservative in terms of your own production and inventor commitments. Should we start to see that reflected in the inventory (multiple speakers) changes as we go forward?

What I think you are seeing us do is continue to go narrower and deeper from an SKU assortment and make sure that the retailers understand that so that we can have very high service levels but it's going to be on a narrower product mix, which is okay with them because service is important to them. If they know where they are going to be able to be served, they will go along with that.

SKU management is as important at the retail level as it is at the wholesale level, so it's kind of a win-win for both parties. So that's the strategy and the philosophy we are doing. You know, we had some significant SKU contraction over the past few years. We are looking for more SKU contraction at a smaller rate, but it will be focused.

That's great. Thank you.

(OPERATOR INSTRUCTIONS). At this time, we have no further questions. I would now like to turn the call over to his Christi Cowdin. Ms. Cowdin, you may proceed.

Thank you. On behalf of Wolverine World Wide, I would like to thank you all for joining us today. As a reminder, our conference call replay is available on our Web site at www.WolverineWorldWide.com. The replay will be available through Wednesday, May 2, 2007. Thank you and good day.