Wolverine World Wide Inc (WWW) 2007 Q2 法說會逐字稿

Good morning and welcome to Wolverine World Wide second-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, please go ahead.

Thank you, Steve. Good morning everyone and welcome to our second-quarter conference call. On the call today are Blake Krueger, our CEO and President and Stephen Gulis, our Executive Vice President and CFO. Earlier this morning we announced record second-quarter results. If you did not yet receive a copy of the press release, please call [Libby Nienhuis] at 616-233-0500 to have one sent 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 Blake Krueger today 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 now like to turn the call over to Blake.

Good morning and thanks for joining us today. I am pleased to report record revenue and earnings for our second quarter of 2007. This marks the 20th consecutive quarter of record revenue and earnings per share. Revenue for the quarter of $250.3 million increased from the prior year by 5% and earnings per share of $0.28 was up 12% from last year's $0.25. Our multibrand, multichannel and multimarket operating model is strong and we achieved solid leverage while continuing to invest in the business.

The most significant contributor to the Q2 revenue increase was the Outdoor Group where the excellent gains in the Merrell and Sebago businesses together with another quarter of Patagonia shipments contributed to a strong double-digit increase. The Hush Puppies business also grew at a double-digit pace in the quarter and the Heritage Brands Group posted solid mid single-digit growth. As expected, revenue for the Wolverine Footwear Group declined in the quarter due to planned decreases in the Department of Defense and private label businesses.

Our European and international businesses had a very strong quarter with double-digit revenue increases. Sales were down slightly in North America. Our brands are now marketed in over 180 countries and this geographic diversity mitigates against any single market risk while helping us deliver consistent growth and earnings performance. The strength of our global operating model allowed us to achieve earnings leverage in Q2 despite incurring approximately $0.02 per share of additional expense for European anti-dumping duties and stock option expensing.

I am pleased with our Q2 results and the momentum in the business. We are increasing our earnings per share estimate for the year to a range of $1.60 to $1.64 up from our previous estimate of $1.57 to $1.63.

Turning to our key business units, Hush Puppies global revenue increased by 10% during the quarter and improved gross margin and operating efficiencies led to a very strong double-digit earnings improvement. This was Hush Puppies' 22nd consecutive quarter of earnings increases. Results were strong with substantial gains in the European and international markets offsetting lower revenues in the United States.

The Hush Puppies UK business posted strong double-digit revenue and earnings increases. This was especially noteworthy considering the relatively weak retail environment in the UK. Hush Puppies UK performance also bucked the general trend during the Q2 with excellent sellthrough on women's and men's sandals. Strong brand presentations in fashion accounts including Shoe, Jones the Bootmaker, Dolce's and other stores drove the brand's UK business during the quarter.

The U.S. Hush Puppy business had a challenging second quarter with revenue below year-ago levels. The spring season in the core Hush Puppy distribution channels was relatively weak which when combined with soft sellthrough on Hush Puppy's sandal product substantially impacted reorder business. This was especially true in more moderate distribution.

Looking ahead we were encouraged by the reception to the new Spring 2008 collection at the recent New York shoe show as retailers embraced the brand's Harmony Collection, strengthened assortment of ballerinas and flats, and innovative men's collection.

The Hush Puppy International licensing business had another strong quarter with double-digit increases in both sales and earnings. During the quarter we continued to build on the brand's base of over 375 international standalone concept stores with new store openings in the Philippines and the United Arab Emirates.

In addition, four new department store shop-in-shops were opened in China bringing the total number of Hush Puppy concept stores and shops in China to 151. Globally there are now more than 1000 dedicated points of sale for Hush Puppy around the world. Overall it was another strong quarter for Hush Puppy's business as the brand continued its string of double-digit earnings increases.

The Heritage Brands Group which consists of our two largest licensed footwear businesses, Caterpillar and Harley Davidson, also had a solid quarter with revenue and earnings up in the mid-single-digit range. Growth was exceptionally strong in international markets. The CAT brand achieved its fifth consecutive quarter of double-digit revenue gains. New product in the iTechnology, Legendary RAW and women's categories and good results from the new active equipment productline drove the sales increase across a broad spectrum of global markets. The iTechnology product category with over one million pair projected for this year has become a powerful product marketing concept for CAT.

The Q2 gains in the CAT brand were partially offset by lower overall sales in Harley-Davidson. Increases in the European and Canadian Harley-Davidson businesses were offset by lower revenue in the U.S. and other international markets. However, reception to the new Harley-Davidson lightweight shock absorber productline as well as women's fashion product has been very good.

Revenue in the Wolverine Footwear Group was above plan but below last year as lower planned shipments to the Department of Defense and the continued phaseout of the private label business accounted for the high single digit sales decrease for the group. Profits in the quarter for the group exceeded plan by a healthy margin due to a better mix of higher-margin product.

The Bates business continues to be recognized by the military for its product innovation and leadership position. During the quarter, Bates was awarded a relatively small but influential contract to make a chemical [bio boot] for the special forces. Despite our leadership position with the military, we continue to expect demand from the Department of Defense to negatively impact the full year '07 revenue for Bates by $13 million to 15 million.

The core Wolverine brand grew by 3% in the quarter and exceeded our plan. New product incorporating the patented MultiShox and carbon Mocs safety toe technologies contributed to this increase and helped the Wolverine brand maintain its number one ranking in the core U.S. work market.

The relatively new Wolverine apparel program continues to gain momentum. The Pioneer Jacket from the 2007 apparel line recently received the Polartec Apex Design Award which is awarded to the apparel brand that features unique style, function and design innovation incorporating Polartec fabrics. The Wolverine brand was also recently awarded the Sears Partners in Progress Award which is awarded each year to less than 2% of Sears' suppliers. This award is based on product innovation, quality and overall service excellence.

The Outdoor Group which consists of the Merrell, Sebago and Patagonia footwear brands had an excellent quarter. Sales for the group were up over 17% with Merrell contributing to a significant majority of the increase. Earnings for the group were also up strong double digits. The momentum in the Merrell brand continues with overall revenue up over 15% for the quarter. Sales were significantly higher in all regions with the exception of Canada where the timing of shipments to our largest customer had an impact on Q2 sales.

Merrell Footwear enters the second half of the year with a strong double-digit order backlog. Merrell product is now marketed to dedicated consumers in over 100 countries. There continues to be a strong response across all global markets to the brand's Outventure, that's performance-based product, and Fusion lines which is more a casual based product. While it is hard to single out any particular product category for special mention, the sellthrough of the new women's multisport Siren collection has been very strong. The Merrell Trail running multisport and women's land sandal categories also continue to outperform.

The global distribution base for Merrell is broad and continues to expand. At the end of Q2, Merrell at 27 standalone concept stores and over 500 dedicated shop-in-shops around the world. In the U.S., the retail base is very diverse with almost 60% of all sales being in the outdoor and footwear specialty store channels. We will open our first company-owned Merrell specialty store this fall in Whistler Canada, home of the 2010 Winter Olympics. We also expect the opening of Merrell stores in the international markets to accelerate as the introduction of Merrell apparel this fall enables our global partners to present the brand in a lifestyle format.

Our new Merrell apparel program is on track for a fall introduction with product just being delivered to stores. We still expect initial season shipments to be in the $9 million to $10 million range. We recently hired a 20-year veteran of Nike Apparel and Polo Ralph Lauren to run our Merrell apparel business and we are excited about his joining our team. In fact he joined us just last Monday.

Our Sebago business continues to build with a Q2 global revenue increase of 9.1%. A high single-digit increase in the U.S. coupled with strong double-digit growth in Europe contributed to the momentum in the quarter. This was the fourth consecutive quarter of revenue and earnings increases for the Sebago brand. The handsewn classics had a strong spring season and the global women's business has doubled in size this year as consumers have responded enthusiastically to the new line.

The initial season sellthroughs of Patagonia footwear have exceeded our expectations and this new growth initiative is off to an excellent start. Sales are building in the Patagonia website, catalog and brand store venues where the response of the loyal Patagonia consumer has been very good. Our goal of marketing the best possible footwear with the least possible harm to the environment is resonating with this consumer.

The Outdoor Group continues to be the Company's largest generator of revenue and earnings. Overall we are encouraged by the momentum in our business and our performance in Q2 that was really spread across our brand portfolio. Our order backlog was up over 6% at quarter end.

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

Thanks, Blake and I would like to thank everyone for joining us this morning for our second-quarter 2007 conference call. Earlier today we released record second-quarter revenue and earnings per share results. Revenue for the second quarter of 2007 totaled $250.3 million which is a 5% increase over the $238.5 million reported in 2006. Earnings per share of $0.28 for the quarter improved 12% over the $0.25 per share reported for the second quarter of 2006.

Including this quarter, we have achieved a double-digit increase in earnings per share in 12 of the last 14 quarters which reflects the strong business model of the Company. Year to date, revenue totaled $531.4 million which equates to a 6% increase over the $501.3 million reported in 2006. Earnings per share of $0.67 compares to $0.59 for an $0.08 per share increase or 13.6%.

We continued to achieve strong operating leverage on our revenue growth as the rate of earnings per share growth exceeded the revenue growth rate by a factor of two which surpasses our overall financial objective.

In the second quarter, we were pleased to report strong revenue growth in the Outdoor Group which was fueled in large part by the Merrell brand. The Merrell global footwear business was up mid-teens in the second quarter. The global Heritage Brands Group and Hush Puppy businesses grew at a mid single-digit and low double-digit rate respectively. The Wolverine brand business grew in line with the overall footwear market and the shortfall in the rest of the Wolverine Footwear Group reflected the planned reductions in Bates military and private label businesses.

Reduced demand for our leather products impacted revenue growth by 1.5% in the quarter reflecting an industrywide shift towards the use of synthetic materials in global branded footwear, a trend that will likely continue in the back half of the year. Additionally, foreign currency had a positive impact on revenue growth of 1.6% and 1.9% for the quarter and year to date respectively.

Reported gross margin for the second quarter of 2007 is 38.2% which compares to the 37.9% reported in the second quarter of 2006 for a 30 basis point improvement. Our overall business mix continues to improve with a higher portion of our business coming from higher margin businesses. However, the benefits from the improved mix were offset by lower than planned contribution levels from the global operations group as production levels in our leather operations were lowered and unit production of footwear was reduced as part of our overall inventory reduction and management program.

The improved gross margin also reflected a positive FX impact of 70 basis points in our international wholesale operations and a portion of this gain was offset by 40 basis points of negative impact of European anti-dumping duties.

On a year-to-date basis, gross margin has improved 20 basis points to 39.4%. A stronger business mix generated the improvement and the impact of FX gains was offset by the increased duties in the EU as previously mentioned.

Reported selling and administrative expenses as a percentage of revenue were 28.7% and 28.8% for the second quarter and year-to-date 2007. For both the second quarter and year to date, improvements in our overall distribution costs and reductions in our employee benefit expenses have reduced our overall selling and administrative costs as a percentage of revenue. Additionally, reductions in our core administrative expenses have allowed us to invest in growth initiatives, Merrell Apparel and Patagonia Footwear without incurring an increase in our overall expense structure as a percentage of revenue.

The Company reported interest income for the second quarter and year to date as we are maintaining a net cash position in the business. Income taxes were recorded at an expected annualized rate of 33.5% for 2007 which is an increase over the 33.2% rate used in 2006. This increase reflects a higher percentage of our income being generated in taxable jurisdictions.

Additionally, average shares outstanding of 55.4 million were used in the quarter for the fully diluted EPS calculation. And this lower share count reflects the impact of our recent share repurchases.

From a balance sheet perspective, accounts receivable of $173.4 million at the end of 2007 second quarter is an increase of 2.3% over the $169.5 million balance at the end of the second quarter of 2006. Cash collections remain strong as our days sales outstanding continues to be below 58 days and the aging remains very solid.

Our inventory management programs drove solid results in the quarter as we ended the second quarter of 2007 with inventories down at $184.7 million compared to a 6% year-to-date revenue increase. We have significantly lowered our inventory position since year-end 2006 when we had inventory levels over 14% higher than the previous year. We continue to mine further improvements in our overall inventory efficiency and expect to gain further improvements over the remainder of the year while providing world-class service to our customers.

Our overall working capital position has increased 2.5% over 2006 levels while other financial metrics continue to improve. On a trailing four-quarter basis, our after-tax return on assets has improved 70 basis points to 12.9% and our after-tax return on equity has improved 60 basis points to 17.6%. Both of these ratios are at historical high levels.

Our cash position remains solid, ending the second quarter of 2007 with $77 million of cash and interest-bearing debt of $21.5 million. Our cash generation from operating activities in 2007 is slightly ahead of 2006 levels and we expect this trend to continue through the end of the year.

In the quarter we repurchased 1.2 million shares of stock for $34.4 million and paid a quarterly dividend of $4.9 million. We have 5.8 million shares remaining for repurchase under the April 2007 authorization and we will continue to repurchase shares as deemed appropriate by the Board of Directors and management.

Looking at the remainder of 2007, we are starting the back half of the year with a backlog position in excess of 6% and expect total revenue for the year to be at the lower end of our $1.2 billion to 1.230 billion guidance. The backlog position reflects the transition out of the Hush Puppy slipper and private label businesses in a lower level of Bates military contracts.

Additionally the transition out of these operations which are not providing the required financial returns we desire and the weakness which is expected to continue in our leather operations will impact the back half revenue base by more than $25 million impacting our revenue growth rate by approximately 4%.

Gross margin levels are anticipated to be strong for the remainder of the year and continued improvements are expected. This will result from an improved business mix, FX contributions, and the anniversary of EU anti-dumping duties that went into effect in the back half of 2006.

As communicated in our February 2007 conference call, we expect full-year gross margin to improve by 70 to 90 basis points. Expenses as a percentage of revenue in the back half of the year will increase as additional expense will be incurred to support the marketing and distribution of Merrell apparel and Patagonia footwear.

Full-year expenses as a percentage of revenue are expected to increase 40 to 60 basis points and if these gross margin and expense targets are achieved, operating margin will expand to a level in excess of 11% for fiscal 2007.

We are confident that our business model can drive continued results and this is reflected in the increase in our full-year 2007 earnings per share estimate. We have increased our fiscal 2007 guidance from $1.57 to $1.63 per share to $1.60 to $1.64 per share which reflects the anticipated improvements noted above. If the midpoint of this guidance is achieved, 2007 will be the fifth consecutive year of double-digit earnings per share improvements for the business.

Our product performance around the world continues to be strong and this performance will continue to drive operating success in our business. The management team is committed to driving improved shareholder returns on a consistent basis.

We thank you for your past support and your continued support in the future. I would now like to turn the call back to Blake for some closing comments.

Thanks, Steve. We are obviously very pleased to have achieved our 20th consecutive quarter of record revenue and earnings per share. Our global business model is strong and we have positive momentum in the business. The most rapid growth is coming in our higher-margin businesses allowing us to invest in new growth initiatives while continuing to enhance the return to our shareholders.

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

(OPERATOR INSTRUCTIONS). John Shanley, Susquehanna Financial Group.

Thank you and good morning guys.

Good morning.

Good morning, John.

Blake or Steve, I wonder if you could just make sure we clarify for us your guidance of the sales will be somewhat on the lower end of the range that you had previously given us. Is that due primarily to the military orders and the slipper business or is there also a factor of the lower reorder business from Hush Puppies and the weaker Harley orders also part of that lower sales guidance?

John, this is Steve. If you take a look at the lower end of our range, you are probably talking mid single-digit growth for the back half of the year. And the impact of the slipper business and the military contract business which we have been talking about combined with some softness in our leather operations is going to impact that growth rate by about 4%. So if we were on an apples-to-apples comparison and the leather business was a little bit more solid, you would be in that high single-digit rate. So that implies that the rest of the businesses are in pretty solid shape.

Okay. That clarifies that. Thank you very much, Steve. Also on North American sales, I believe you mentioned to us, Blake, was done in the second quarter but overall sales were up 5%. Obviously your international business is doing particularly well. Can you give us an idea of the percentage of some of the key product areas particularly Outdoor and Hush Puppies that are now generated internationally versus in North America?

Yes, I can just quickly to review that, John. I mean if you look at our Hush Puppy business, as we report under GAAP, about half of our sales come domestically and about half from offshore. Due to our royalty streams on the licensing side and our other base business on the distribution side, our profits, more than half of our profits are generated offshore at this time. Hush Puppies for example, has about 20% of its global pairs in the United States. I would say Caterpillar for example, has about the same on a pairage basis domestically. And obviously during the quarter, we had very strong performance from Caterpillar, Hush Puppies and really all of our brands on a global basis.

And what percentage is Merrell for example now being done in Europe versus the U.S.?

The Merrell business has grown nicely. The precise --

I would tell you a little bit more than half of the revenue base of Merrell year to date is U.S. and the rest is international with about half of their international business being Europe.

Okay. Where was that just to refresh me, where was that at this time last year, Blake?

It would have been below those figures. We have had accelerated growth in Merrell in Europe and frankly in a number of our European businesses which over the last three or four years, John, have grown from about 5% of our overall sales to probably over 21%.

And the product margins, is there much of a difference there?

No, no real difference in the product margins.

Okay. Great. And lastly, what percent of Wolverine's European sales are impacted by the new tariff on Chinese and Vietnamese footwear entering the country? Or entering the continent?

I guess it is hard to put a percentage on that, John. We have been very proactive as you know trying to address -- reengineering our products, seeking exemptions, changing our sourcing strategies. So frankly the impact on us has been much smaller than many other companies. It is hard to put a percentage on that. I would say in the quarter last year in Q2, we had no European anti-dumping duties and this year we had about $0.015 in the second quarter.

Okay. Great. Thank you very much. I really appreciate it.

Thanks John.

Thanks John.

Bob Drbul, Lehman Brothers.

Good morning Bob.

This is actually Matt McClintock filling in for Bob today. Good morning, everybody.

Good morning.

I just have two quick questions. First off for the Merrell business, I believe that last quarter you mentioned that there was a shift in timing of a shipment from a European customer to the second quarter. And I was just wondering how much that benefited the second quarter this year?

I think at the end of our Q1 conference call, we said that would be about $3.5 million. We did have a shift of shipments in our Canadian business into Q1 that did not occur in Q2, hence the little bit of a downtick in our Canadian Merrell business for the quarter, still a great business up there. If you look at Merrell in total for the first half, it was still up over double digits, the sales increase, so we have had a couple of timing differences today.

If you take Canada and Europe into account for Q2, our Merrell sales in the second quarter would have still been up over double digits.

Okay. That's good. And the second question is year to date and going forward for the second half of the year, what distribution channels are proving to be the most challenging and where do you see the challenges I guess in the second half?

Well I guess just kind of looking at the general retail environment; I think it is a little less rosy today than it was maybe a year ago. From a macro standpoint of course, energy prices, the wild swings in leather over the last six months and you know a few other things that are having an impact. Consumer spending is still pretty good although the rate is slow but overall our economy domestically is very good.

I would say generally for general retail, the upper tier and some of the discount people continued to perform pretty well. The mid tier is a bit mixed. I think retailers if you look at the FDRA, which is the comp store footwear survey of about 13,000 stores domestically here, it was down pretty significantly in April. But it was down even when you combine March and April to make up for the change in the Easter weekend it was down over 2% in May and it has just broken even the first four weeks of June.

So overall comp store sales footwear stores in the United States are down about 1% year to date. So I think retailers are approaching the fall with a little more caution, watching their inventories very closely. It just puts a little more pressure on all of us to have the right stuff in stock when they come back for it.

Great. Thanks a lot.

Jim Duffy, Thomas Weisel Partners.

Good morning.

Good morning, Jim.

How is everybody?

We are doing great. Yourself?

Doing well, thank you. A question for you. On the inventories it was a tough winter for many retailers coming out of last year. To what extent do you think that entered the backlog? And then as you look into the fall season here, are you comfortable that you have enough inventory to chase business if the business in fact shows up because retailer (inaudible)?

I think Steve has an opinion on our inventory.

I don't think I have ever said, Jim, we don't have enough inventory. But the key that we have been working on over the last several years, Jim, has been to go narrower and deeper with core inventories and keep our SKUs in line and make sure we can service core product and that is what the retailer really wants. They want to be able to turn core product and get back into it. So that has really been the focus of what we have been doing and we have been servicing our retailers in a very good manner. We are not getting any issues or complaints from retail and we think we have the right inventories in the right spots.

I mean there is always a pocket or two you wish you didn't have and I would tell you today is no different than that. But we do expect to have some further inventory improvements in the back half of the year and continue to service the retailer very well.

I think one of the positives from my perspective is we are not hearing of inventory problems at retail. I think retail inventories in the footwear sector you know are in pretty good shape so that is always something that we look for and that may not be necessarily true in other product classifications.

Okay, great. And then Steve, a question on the gross margins. If you strip out some of the external factors such as FX and anti-dumping duties, you know is it the same formula for improvement as we look forward, continued growth in some of the higher margin businesses? Or what are some of the other levers there are to pull to help the gross margins in future periods?

I think the mix, Jim, is definitely two things are impacting that mix. It is our higher-margin business growing the fastest, the Outdoor Group. But it is also the trimming of our portfolio and getting out of business that does not produce the gross margins and operating margins which we desire. So that is having a positive impact on our business model.

I don't think you can ever forget the impact of proper and strong inventory management on your margins because if you are keeping your SKUs aligned and you keep your inventories tight, the exposure to markdowns on the fringes is -- I won't say it is eliminated -- but it is not as large and that is another big benefit from merchandising narrower and deeper. So it is a combination of those.

Okay. And then the final question, Steve, the outlook for the tax rate going forward. What should we be working with and are there any opportunities on the tax rate?

As we look at our tax rate compared to our peer companies and other businesses, you know we actually do pretty well. And so we are pretty pleased with where we are at. The reason the rate is up is that we are making more money in taxable jurisdictions. And so we think that 33.5% is a good range probably for this year and into next year.

Great. Thanks everybody.

Mitch Kummetz, Robert W. Baird.

Yes, thanks. I have got a few questions. Let me start with the quarter itself. And I was hoping to get a little bit more color on the quarter particularly with regard to the business segments. I don't know if you can either give kind of the exact percentage increases or the dollar amounts per business segment. You kind of gave some I would say some sort of vague explanation there.

You know, Mitch, we have given the type of review that we have in the past as far as what was going on in the quarter and I think that the Hush Puppy business on a revenue basis being up double digits on a global basis from a revenue perspective, strong double-digit profit improvements. You know the Wolverine Footwear Group actually being down high single digits which I believe Blake mentioned but that it is primarily the result of the Bates and the private label business.

The Outdoor Group was up very strong with Merrell being up over 15% in the quarter and the Heritage Brands Group are right in line with what our planned growth is. So I -- I don't think that there is anything really that we haven't covered there.

Okay. I guess what I am saying is Hush Puppy is up I think you said up 10%; Heritage you are saying mid single. Should I be thinking 5% then and then Wolverine down high single, should I be thinking like around 8% down?

Yes, 8 or 9. That would be reasonable.

Okay. I just need that for modeling purposes. And then in terms of the Department of Defense business, how much was that down in the quarter?

It was down -- our overall business was down a little over $2 million. Okay, and we are expecting that to impact us another $5 million to $7 million in the back half of the year. So we're going to have as much if not more impact in the back half of what we had in the first half.

Right. Okay. And then thinking about your outlook, your backlog you said is up 6%. I know there is a lot of moving parts there in terms of businesses that you are scaling back on or getting out of and then some new businesses. I know in the last quarter you gave kind of a backlog number X moving parts. Could you do the same for backlog at the end of this quarter?

I hope I didn't set a bad precedent. Let me see if I can help you there. You know our backlog was up overall over 6%, a little over 6.5% at Q end. If you took away Bates and private label and Hush Puppy slippers, the businesses either in transition or that we expect to be lower, frankly our backlog would have been up double-digit. But then if you also go apples-to-apples and subtract out Patagonia Footwear and Merrell Apparel, our backlog would have been up over an 8% range, let's say.

Okay.

Just to give you some additional insight.

That's very helpful. And then you had mentioned that Bates you are still looking for about 13, $15 million drop this year, Merrell Apparel addition of 9 to 10. I think on the last call you had said Patagonia was sort of in the 15 to $18 million range. Is that still where you are expecting that business to be?

Yes, I think we really now expect our Patagonia Footwear business to be in the $13 million to $15 million for the whole year. Frankly we are very pleased with the sellthroughs. The sellthroughs have been excellent just about in every distribution channel. But I think retailers are a little bit cautious on the reorder side even on the brands that are selling through. May not be the smartest thing but that is the natural effect. So we have taken that back to a 13 to $15 million range for Patagonia Footwear for the year.

Okay. And then a last question, you just mention some caution on [soft] reorders and then in your prepared remarks, Blake, you talked about Hush Puppy some weaker sellthrough on the slippers particularly in the moderate channel and that resulting in some soft reorders. Are you seeing just challenging reorders kind of across the board? Or is it really concentrated in the Hush Puppy's sandal business?

I think it seems to be concentrated a little bit in the mid tier. I think we have got a number of retailers that are waiting to see those especially where back-to-school is important. They are waiting to see how that is going to go. And I think people are just a little bit more cautious in the footwear arena with comp store sales being down about 1% year to date.

So obviously on the upper end or at the stores where my youngest daughter shops, there doesn't seem to be any problem. And some of the discount people are doing pretty good as well. So it is really a mixed bag. You almost have to look -- I haven't seen all the detail yet for June comp store sales. That will probably be out in a day or two here. But I am not sure June is going to be spectacular.

Okay, thanks. Good luck.

Scott Krasik, C.L. King.

Hi guys, thanks.

Good morning, Scott.

On Hush Puppies, you mentioned that the moderate distribution channel was weak. Does that refer than just to your soft styles business?

No, I think it includes the soft style business but it includes some of the other moderate department stores where Hush Puppy branded product lives.

Was your better Hush Puppies business up again in the quarter?

Yes, I think for example, our business at Macy's for example was up high single digits in the quarter so I think the performance of Hush Puppies USA this quarter was really a couple of things just the issues going on with some of its moderate distribution. And I think Hush Puppies also frankly was just a little bit of a victim of the maybe the trend away from sandals, especially fashion sandals to flats and ballerinas and canvas product.

Maybe you just missed that a little bit. Okay. And then it's a small shift but it's a shift in strategy opening your own Merrell Company store. What led to that and where do we expect this to go from here?

Well I think we continue to look for at domestically and in North America the right Merrell locations. We need some locations to show the brand in its lifestyle format with footwear, accessories and apparel. Obviously if you look at the Merrell brand in Whistler Canada, there couldn't be a better match. So we are continuing to look at appropriate locations like that that really are consistent with the DNA and spirit of the Merrell brand.

How many third-party Merrell stores are open?

I think we have got to open now, one still in Long Island, one in Atlanta. I think we may have another one opening in the South domestically. We have got about 25 stores that are opened internationally. I think there is a strong appetite by our international partners to open Merrell stores. Many of our better international partners and distributors are frankly as much retailers as they are wholesalers. And with the advent of Merrell apparel, they have the ability to open lifestyle stores.

But in the U.S., are you abandoning the strategy of going with partners to open the stores?

Oh no. I think we will still consider the right partnership with the right great independence. We still get a lot of inquiries from people.

Okay. And then just -- you know you have got the Patagonia Merrell Apparel stuff up and running. How has your attitude towards acquisitions changed? Are you seeing deals or the valuations becoming more reasonable -- not? What's going on?

Well we really don't comment. We have got our stated acquisition criteria. If you read the Wall Street Journal, some of the multiples are -- seem to be fully priced by historical standards.

Sure. Okay. Well congratulations again. Thanks.

Thanks, Scott.

Sam Poser, Sterne, Agee

Good morning. I don't have very much. Just quickly on Hush Puppies, how much growth are you expecting to see out of the remaining Macy's stores now looking ahead because you have grown that nicely just by door count over the last few years?

I think, Sam, right now we are well over 300 Macy's doors. I think our focus right now is increasing our shelf space in the right Macy's doors as opposed to going just for a raw door number increase. I think Macy's is still digesting some of the May stores as well so we are really focused on increasing our shelf space. We may grow our current total modestly as we roll forward here for the next several quarters but we are over 315, 320 doors today.

And are you making the progress that you want on the assortment expansion sort of the way you have done so well with the Merrell brands and so on in existing locations?

I think we are pretty happy, overall we are pretty happy. Of course I always want more but I think right now we are pretty happy.

Okay, great. Look forward to seeing you in Vegas. Thanks.

Thanks, Sam.

Todd Slater, Lazard Capital Markets.

Hi, this is Jackie Anderson in for Todd. I just -- you've answered most of our questions -- just could you remind us as to what your initial distribution plans are for Merrell Apparel this fall?

Yes, this is Blake. I think on Merrell Apparel, you know we wanted to really focus on a global launch domestically here in North America but also with our key international partners. In both the USA, Europe, and in Canada, we try to focus on the heart and soul of the Merrell brand where it got its start and that is kind of the outdoor specialty channel. And then some footwear stores that wanted to add the apparel in to see if there was going to be a slingshot effect with apparel and footwear.

So in the USA for example, you would see apparel maybe in [Campoor], Lewis and Clark, [Shields], at Dick's in Europe, a [Field and Track], a [La Redoubt], a Decathlon in Canada, Coast Mountain Sports, Campers Village, [Baron] Sports Center, those type of stores. Obviously First Seasons, you are going -- you will see some items of apparel and some good presentations but it will be expanding as we roll the program forward.

Do you have an approximate number of doors?

You know frankly I don't right now.

Also another reminder is when should we anniversary the Hush Puppies slipper discontinuation?

That will not impact the models until first quarter 2008. In the back half of the year as I indicated in my notes, that there is going to be an impact from the Hush Puppies slipper business and that will approximate around $5 million of back half revenues.

Okay. And are we also done with Bates in the first quarter of '08?

At the end of fiscal 2007, Bates should be at a more normalized level so we would anticipate that going into '08. You are correct, Jackie.

And one last thing on the inventory you say improvements. Should we look for inventory levels to be down year-over-year for the rest of the year then?

We look at two things. One would be the absolute dollar level and I think that we should have improvements from that perspective. We are also internally really focused on efficiency and that would be our inventory turns. And we think that you know our business should be in the 4 time to 4.2 time turn and we are at a 3.6 type level today so we are looking at the absolute dollars but also the efficiency out of those dollars.

Okay, great. And actually one more. On your guidance, how much visibility do you have and confidence do you have in those earnings estimates -- or guidance that you put out there? Just in terms of 70 to 90 basis points of gross margins, I mean you have FX in there.

Our guidance has always been based on our best knowledge of our business at this point in time. But situations change and they can change relatively quickly in our environment. So our guidance is it is what it is and that is our best shot at where we are at today.

All right. Thank you.

Angelique Dab, Nollenberger.

Good morning.

Good morning, Angelique.

Most of my questions have been answered but maybe you could just talk to ASPs for the brands year-over-year and your expectations for them going forward?

I think, Angelique, on the Hush Puppy business, that is probably one of the easiest where average selling prices are going up. Better product and better channels of distribution primarily but that is continuing and that is what is driving the operating margin expansion in the Hush Puppy business. Blake, you might want to talk about some of the others.

Yes, I think in the Merrell brand, I don't see any significant change. They have got the water pretty well covered with higher end GORE-TEX product down to where the kill zone is at retail, $80 to $90, and a very strong women's sandal business even below that. The Wolverine boot product here domestically I don't see any significant change. There are growing sales in the Carbon Max which is a non-steel toe safety toe technology and the MultiShox which is higher price point product. But as you know, the Wolverine brand has always been a premium priced brand and that is why it has been able to attain its number one position in the core U.S. work market.

And no significant changes either on the CAT side. You may see because of European anti-dumping duties, you may see a little upward tick in retail prices in Europe. But so far, we haven't seen any (technical difficulty) pull back from the consumers in Europe for what uptick in prices there have been due to EU ADD.

Thank you. And then on Merrell specifically, are you seeing any competitive pressures from other brands that maybe sharper with price or initiatives?

I think -- listen, one of the hallmarks of Merrell's success is they deliver a spectacular product at their suggested retail price and they continue to do that whether it is design, coloration, their fanatical focus on product has served them well. So I don't think it is a price issue with Merrell. I think it is really a question of the other people trying to catch up and close the gap.

Thank you.

Thanks, Angelique.

At this time we have no further questions. I would now like to turn the conference over to Ms. Christi Cowdin. Ms. Cowdin, you may proceed.

Thank you. On behalf of Wolverine World Wide today, I would like to thank you for joining us. And as a reminder, our conference call replay is available on our website at www.wolverineworldwide.com. The replay will be available through Wednesday, July 25, 2007. Thank you and good day.

Thanks.

This does conclude today's conference. Thank you for your participation. You may now disconnect.