Wolverine World Wide Inc (WWW) 2007 Q4 法說會逐字稿

Good morning and welcome to Wolverine World Wide's fourth-quarter and fiscal 2007 year-end 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.

Thanks, Kim. Good morning, everyone, and welcome to our fourth-quarter conference call. On the call today are Blake Krueger, our CEO and President, and Steve Gulis, our Executive Vice President and CFO. Earlier this morning we announced record fourth-quarter and fiscal 2007 year-end results. If you've not yet received 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 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 join us today. It was a great year for our company and I'm pleased to report revenue and earnings for our fourth quarter and fiscal 2007. This marks our seventh consecutive year of record revenue and earnings per share.

Our record financial performance is a testament to the consistent execution of our long-standing business model. This model is focused first and foremost on marketing a portfolio of eight powerful lifestyle brands. Second, leveraging our global reach which already extends to 180 countries. For 2007 well over half of our profit was generated offshore. Third, expanding our diverse distribution strategy which is focused on exciting a variety's of global consumer groups in multiple retail channels.

This operating model and our team's rigorous execution against it enables us to consistently post great results even when we face difficult macro economic headwinds in a particular country or region. Revenue for the quarter of $357.4 million increased from the prior year by 4.6%, and revenue of $1.199 billion for 2007 increased 5%. You would have thought we could have got that last $1 million.

Anyway, our 2007 results included a revenue reduction of about $40 million in our transition businesses, that's slippers, Stanley and private-label, and expected lower sales to the Department of Defense and lower leather demand. Q4 earnings per share of $0.49 were up 16.7% from last year's $0.42. Earnings per share of $1.70 for 2007 were up 15.6% from the $1.47 reported in 2006. At year-end inventories were down 10%.

I am very pleased with our fourth-quarter and 2007 results which were achieved despite a challenging retail and economic environment. Our year-end order backlog was up nearly 10%. We believe 2008 will be another great year for the Company and we are increasing our 2008 earnings per share estimate to a range of $1.80 to $1.88.

I would now like to begin my operations review with the Hush Puppies company which achieved both revenue and earnings increases for 2007. Hush Puppies' revenue for the quarter declined slightly due to our planned exit from the low margin slipper business. Strong growth in Europe, international and Canadian businesses caused revenue to increase at a high single digit level during the quarter; but lower shipments in the slipper business offset the overall Q4 increase for the Group.

For the full year Hush Puppies' global revenue increased about 2.5%. Lower revenue in the slipper business offset the overall 2007 increase by approximately 50%. Earnings for the quarter increased at a solid double-digit rate fueled by a 280 basis point increase in gross margin. Earnings for the year also increased at a strong double-digit rate.

The Hush Puppies international licensing business had another strong quarter and year with double-digit increases in both revenues and earnings. 13 new Hush Puppies concept stores were opened in the quarter including our first two Hush Puppies concept stores in India. There are now over 1,050 Hush Puppies concept stores and dedicated shop in shops operating around the globe.

The Hush Puppies Canadian division also had a strong performance with high double-digit earnings increases for the quarter and the year. Revenue increased at a strong double-digit rate for the quarter and very close to a double-digit increase for 2007. Strong double-digit revenue and earnings increases were also achieved by Hush Puppies UK for the quarter and the year. This was the sixth consecutive year of revenue increases for this business. Brand performance has been strong in better grade fashion multiples such as Shoe who sold over 100,000 pairs of Hush Puppies at retail last year.

In the U.S. sell-through on fall 2007 Hush Puppies product was solid, substantially stronger than last year, but Q4 revenue declined. In part this was the result of our decision to separate the soft style business from Hush Puppies and a conscious decision to reduce inventories to limit our risk at retail. We ended the year in the U.S. with 33% less inventory than last year.

We were pleased with our customers' response to the fall 2008 Hush Puppies collection at the FFANY show in New York where we also introduced the new guest designer series as part of our 2008 50th birthday celebration. It's hard to believe that the Hush Puppies brand will be 50 years old this year.

The product was designed by celebrity stylist Phillip Bloch from New York and Rachel Fanconi from London. It was another solid year and quarter for Hush Puppies. This marks the sixth consecutive year of revenue increases and the 24th straight quarterly earnings increase for the brand.

The Heritage Brands Group, which includes our two largest licensed footwear businesses, Caterpillar and Harley-Davidson, also had a solid year with revenue up in the mid single-digit range. In spite of tough trading conditions and the decision to refocus the distribution of Harley-Davidson footwear in the U.S. the Group achieved a slight revenue increase in the fourth quarter.

2007 earnings for the Heritage Brands Group were up double-digits with a strong performance in the fourth quarter. This earnings gain reflects continued gross margin expansion, about 120 basis points, and timely operational controls to offset difficult retail conditions in certain territories. As a result, 2007 represents the fourth consecutive year of strong profit gains for the Heritage Brands Group.

For CAT full year growth was driven by another explosive year in the international markets which grew by over 35% in pairs. And in the U.S. market we also achieved a double-digit growth. Revenue was down slightly in our European operations for CAT. Positive momentum for the CAT brand has been driven through continued focus on strong integrated product marketing concepts including iTechnology which has now shipped well in excess of 2 million pairs to the market since its launch, and the legendary RAW collection which has helped position the brand to a younger consumer and better grade distribution. We also continued to focus on taking market share in the work category. Dedicated shop in shops also contributed to 2007 growth as CAT opened 180 new locations during the year, an increase of almost 40%.

Harley-Davidson continues to deliver against its goal of expanding distribution outside the U.S., showing positive momentum in Canada, Europe and in international markets. For Harley-Davidson a refocus on true performance product for the rider and appropriate fashion forward brand collections in [vulcanize] and skate inspired product have refreshed the footwear offering and have been well received. Overall it was another good year for the Heritage Brands Group. That group this year delivered a profit increase that was almost three times the rate of its revenue growth.

Turning to the Wolverine Footwear Group, revenue was down as planned in the mid single-digit range for the quarter and the year as lower sales in certain transition businesses, that's private-label and Stanley, and lower planned sales to the Department of Defense had a negative impact on top-line growth. The core Wolverine boots and shoes business posted a low single-digit revenue increase for the year and this was done in part due to a significant increase in the mobile distribution channel where we are taking market share with a multibrand offering of great work product.

Revenue in the Wolverine Footwear Group exceeded plan for both the quarter and the full year. The Wolverine brand continues to focus on delivering great new product and the new comfort technology program, Contour Welt, was launched in the fourth quarter. Initial sell-throughs have been very good for this premium priced product. The brand's commitment to product innovation was once again recognized by the retail community as retailers polled by one of the industry's leading trade publications voted Wolverine boots and shoes the winner of the Design Excellence Award in the work boot category for the ninth consecutive year.

The base business continues to be recognized by the military for cutting-edge product innovation as we developed highly technical solutions that led to contract awards for elite military units such as the Special Ops Forces. The Bates civilian uniform in the international businesses grew at a strong double-digit pace for the year and, frankly, we expect that growth to continue into next year. The Wolverine brands and the Bates brands continue to have incredible consumer brand loyalty and are recognized as the gold standard in their respective categories.

The outdoor group, which consists of Merrell, Patagonia Footwear and Sebago brands, had an excellent quarter. Q4 sales for the Group were up over 17% with Merrell contributing a significant majority of the increase. The Group achieved excellent leverage as earnings in the quarter were up almost three times the rate of the sales increase.

2007 was another great year for the Merrell brand and the global momentum continues with overall revenue up at a strong double double-digit pace. Sales were significantly higher than last year in all regions. We expect Merrell to have another great year 2008. Merrell's growth over the last seven years has been driven by superior product and the brand's extension into new product categories.

Today Merrell has a diversified product offering that appeals to men, women and children across a wide range of ages. Merrell continues to dominate the multi-sport and trail running categories and the Merrell's women's casual product is performing well at retail. And frankly on that product we've experienced higher than expected reorders. Sales of performance outdoor product were especially robust in the U.S.

Merrell continues to rack up industry and retail awards as the brand received the Footwear News Brand of the Year Award in December. More recently Merrell's consumer appeal was again confirmed by the retail community which voted Merrell the winner of the Design Excellence Award in the outdoor category for the seventh consecutive year. The affinity of the Merrell consumer and the intent to repurchase is the highest for any footwear brand, and that's athletic or casual, as reported by NPD Market Research.

The global retail presence for Merrell also continues to grow. The Merrell store count grew by 46% last year to 41 locations at year-end. We expect the store count to approach 100 by year-end 2008 as new footwear offerings coupled with Merrell apparel and bags will enable our global partners to accelerate the opening of Merrell stores. In 2007 we opened three company-owned Merrell stores in North America including Whistler, Canada, home of the 2010 Winter Olympics. We also ended the year with over 450 dedicated Merrell shop in shops around the world.

In the first full year of business Patagonia Footwear captured the essence of the brand and we delivered products that met the expectation of the brand's core consumers. Distribution was achieved this first year with leading retailers in over 30 countries and we expect the international business to build in the future. Strong sell-through, especially in men's, led to increased door expansion after initial testing with key U.S. and global retailers.

Patagonia achieved some notable highlights in Q4 where sales of the men's line in our Track 'n Trail stores accounted for 10% of all footwear sales during the last month of the year. The sales increase was driven by a strong reaction to the new fall '07 line. Strong sell through in our test with REI saw the men's line expand from 2 to 20 doors. While the women's business remains an opportunity, reaction to the fall '08 line has been very good.

Sebago had an excellent year with strong 20% plus revenue increases in the fourth quarter and the year, and even stronger increases in the U.S. and Europe. The enthusiastic consumer and retail response was across all categories including Marine, dress casual and kids. Sebago ended the year with 25 retail stores and 68 shop in shops installations. Women's product this year was well received as the Sebago women's business grew over 50% in 2007. We continue to view this 62-year-old iconic American brand as a strong growth driver for the Company.

The Outdoor Group continues to be the Company's largest generator of revenue and earnings and had a very strong 2007. Overall we are very pleased with our performance this year and are encouraged by the momentum in our business going into 2008. We view the current macroeconomic headwinds as an opportunity for our business model to shine and, frankly, to increase our market share. We will continue to take a fanatical approach to product innovation across our eight brands.

Our spring 2008 productlines were well received and we entered 2008 with our order backlog up nearly 10%. I will now turn the call over to Steve Gulis, our Executive VP and CFO, who will provide you with additional information about our fourth-quarter and year-end results along with our updated 2008 projections. Thanks.

Thank you, Blake, and good morning, everyone. Today I will review the financial highlights for the fourth quarter and full year 2007 and I will finish my portion of the prepared remarks with insight into the Company's financial goals for fiscal 2008. We are very pleased with the Company's strong fourth-quarter results, especially given the difficult environment which is affecting many consumer product and retail companies.

There should be no doubt that the breadth of our business model has differentiated us from many of our peers as we reported record revenue and earnings per share for both the fourth quarter and full year 2007. Fourth-quarter 2007 revenue of $357.4 million exceeded the $341.7 million reported in the fourth quarter of 2006 by $15.7 million or 4.6%. Earnings per share improved 16.7% to $0.49 per share in the fourth quarter of 2007 which compares to $0.42 per share reported in the same quarter of 2006. Strong gross margin expansion and solid expense controls generated this record performance.

For the full year 2007 revenue totaled $1.199 billion which compares to the $1,141.9 million for fiscal 2006. This 5% improvement was driven by organic growth in our ongoing branded businesses and positive foreign exchange increases approximating 2%. The organic growth experienced in the year more than offset the sales reduction attributable to the Stanley, private-label, slipper and certain leather and military contract businesses.

These changes reduced fourth-quarter and full year 2007 revenue by 3.1% and 3.3% respectively. These reductions were anticipated as we determined that the financial models of these businesses were not in line with the long-term goals of the Company.

Revenue growth for the business was broad based with the Merrell brand posting solid double-digit increases for both the fourth quarter and full year. The Hush Puppies, Wolverine, Sebago and Caterpillar footwear brands posted revenue increases for the year while the Harley-Davidson business was flat as we rationalized distribution strategies for this brand. Overall we were pleased with our revenue performance given the environment which existed, particularly in the back half of the year.

Record earnings per share of $1.70 for the full year of 2007 compares to the $1.47 per share which was reported for fiscal 2006. Double-digit increases in operating performance were reported in three of the four business groups with the Wolverine Footwear Group's operating results being impacted by the eliminations discussed earlier. Additionally, we achieved profit improvements in every region of the world, contributing to the fifth consecutive year in which the Company posted a double-digit improvement in earnings per share.

Operating margins were strong in the quarter and full year as full-year operating margin of 11.6% was reported, a 90 basis point improvement over fiscal 2006 results. Strong gross margin expansion in the quarter and full year, 110 and 70 basis points respectively, drove the majority of the operating margin expansion, and expense leverage of 10 basis points was obtained in both the quarter and year on a comparative basis.

The gross margin improvement resulted from increased initial pricing margins, strong inventory management programs, improvements in our sourcing and footwear manufacturing operations and foreign currency gains. These improvements were partially offset by increased shipments to international distributors where the business model operates off of lower gross margin levels. These positive trends in gross margin expansion are expected to continue in 2008.

Selling and administrative expenses as a percentage of revenue was reduced to 27.8% for both the fourth quarter and full year 2007. Strong expense controls throughout the business generated the expense leverage. Additionally, the business continued to fund its brand building and marketing programs as increased expenditures were experienced in these areas while improvements were generated in other core expense categories. We are continuing to evaluate and implement programs to drive efficiencies, consolidate operations and reduce cost in our global operations and will continue to challenge our overall cost and expense structure in 2008.

For the full year net interest income was up due to the increased cash balances which the Company generated during the year. Additionally, the Company reported an annualized tax rate of 33% for the full year and fully diluted shares outstanding were reported at 54.6 million shares. The combination of these factors contributed to the generation of full-year earnings per share totaling $1.70 which was an increase of $0.23 per share over 2006 or a 15.6% increase.

The company's balance sheet continues to strengthen with a total debt to total capital ratio of 2.2% and a net cash position of $65.4 million. Our after-tax return on assets improved to 14.1%, a 160 basis point improvement, and the after-tax return on equity improved 190 basis points to 19.1%.

The Company's working capital position was reduced by $41.9 million as we exited businesses which were not meeting our financial goals and strong inventory management programs resulted in reduced inventory levels. Inventories at year end were reduced by $18.3 million or 10% when compared to year end 2006. This was accomplished while continuing to deliver world-class service to our customers around the globe.

An Accounts Receivable increase of $27.3 million or 17.9% was reported at year end 2007 resulting from spring shipments being made to three significant customers in international markets during December. Shipments to these same accounts were made in November during 2006 and the cash collections related to these shipments were made prior to year end 2006. Significant cash collections were experienced in the first four weeks of 2008 and our aging accounts receivable and days outstanding are very strong.

During 2007 we repurchased 4,741,400 shares of Wolverine stock in open market purchases at an average price of $27.38 totaling $129.8 million. While the repurchases were executed at levels above our current share price, the repurchases support management's belief that the long-term value of the Company is significantly above its current level. Additionally, the Company has approximately 3.5 million shares remaining under its previously authorized repurchase program and it is the Company's intention to continue its active repurchase initiative.

In addition to the repurchases, the Company paid out annual dividends to its shareholders totaling $18.5 million. In total more than 100% of the Company's net earnings were returned to its shareholders through these initiatives in 2007.

We are entering 2008 with a solid backlog position which approximates 10%. While reorders in the back half of the year were lower than the prior year, retailers continue to make future order commitments for the market right products which are offered by our strong family of brands. Based on our expectations of market conditions in 2008 we are providing revenue estimates of $1.230 billion to $1.260 billion for fiscal 2008. We are expecting soft retail conditions in the first half of 2008 with a slight pickup in the second half of the year.

As noted earlier, we are planning gross margin expansion for 2008. This expansion will be driven by continued weakness in the U.S. dollar, a strong year-end inventory position, elimination of underperforming businesses and growth in our higher margin businesses. Additionally, there should be little if any incremental impact related to antidumping duties in 2008. Product cost increases have been occurring as the China economy grows and appropriate actions are being taken to mitigate these pressures.

While we continue to drive further cost control initiatives in the business, we are anticipating a slight increase in expenses as a percentage of revenue in 2008. The increases will be focused in brand development, product innovation, marketing and retail initiatives. Corporate and core expenses are planned to be equal to 2007 levels in 2008. We have increased our 2008 earnings per share estimate to a range of $1.80 to $1.88 per share. Included in this estimate is an estimated annualized tax rate of 32.8% which is a 20 basis point improvement over 2007. This reflects continued global growth initiatives where the tax rate is slightly favorable to that in the U.S. Additionally, our share repurchase program in 2007 and anticipated repurchases in 2008 should drive our fully diluted shares outstanding to the 51 to 52 million share range.

In closing, we are confident in our business model as it continues to drive strong financial performance for the Company. While we cannot control the financial marketplace, we can focus our efforts on continued execution of our business strategies, and if we do so we feel that the business will receive its proper value and that our long-term shareholders will be rewarded appropriately. We are excited about the prospects for the business and look forward to driving consistent growth and financial performance. I thank you for your time and will now turn the talk back over to Blake for some closing comments.

Thanks, Steve. We are obviously pleased to have delivered our seventh consecutive year of record revenue and earnings per share. Our strong business model, which is focused on a portfolio of brands, a diverse distribution strategy and a geographic reach expanding to 180 countries, permits us to outperform in a variety of economic climates. We are able to deliver excellent financial results while investing in new growth initiatives and product innovation and we expect that to continue next year. We will now turn the call back to the operator so we can take your questions.

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

Good morning, Blake and Steve. Blake, can you give us a sense as to how the outdoor business brands are doing, specifically in Europe? And in particular can you give us an idea of how much of Merrell's global revenues are now being derived from the European sector?

Yes, I've got Steve looking up some specifics, John, but we had great growth in Merrell and Sebago in Europe this year. Patagonia, you know this was the first year for Patagonia. The brand itself had a good presence in a few European countries, but not like the United States. So we had excellent growth in the Outdoor Group in Europe and, frankly, in many of our other brands as well. And as you know, it has grown from probably less than 5% of our overall business in 2001 and 2002 to over 20% today and we had a strong (technical difficulty) digit increase in Europe this year across all our brands.

Are the product margins richer in Europe than they are domestically, Blake?

Not really. They're right in line with what we do in all of our own territories.

While Steve is looking that up let me ask one other question. The inventory was down an impressive 10% as you noted in your comments. And particularly, if I heard you correctly, the Hush Puppies inventory was down 33%, is that correct?

That's correct in the USA.

Can you give us a sense of how you're driving that inventory level down and are you going to be able to still attain the 10% or be able to support the 10% increase in the forward order levels that you have with that kind of a marked decrease in your inventory position?

John, this is Steve. We've been focusing over the last several years of a merchandising strategy which is going narrower and deeper. And we continue to sell in and sell through at the retail level a narrower inventory mix which allows us to drive efficiencies in our overall inventory turns and while we're servicing our customers appropriately. So the fringe products and the fringe SKUs are the pieces that we really are taking action on. And if inventory is not productive that's where we're really evaluating whether it is appropriate to have or not.

Do you see this process continuing in fiscal '08?

Inventory management processes and efficiency programs will continue forever, John. We will continue to drive whatever efficiency we can out of the business. Whether we can continue to reduce the working capital investment given the growth, I don't know, but we can gain more efficiency by having any inventory increases which may potentially occur be slower than what our rate of revenue growth would be.

That is great to hear. The last question I have is, Blake, maybe you can comment on the fashion trends that our driving the Hush Puppies business. Are there some specific items either on the apparel industry or something else that is going on that is helping to increase Hush Puppies business, both domestically and internationally?

Yes, I can comment. I think there are a few continuing macro trends around the world. One is the outdoor, and I see that as a trend that continues to build and gain some momentum, whether it is in China or any other region. Another trend is you might call it the green trend, and that kind of relates to outdoor and feeling good about your relationship with the outside.

Hush Puppies, for example, they have had great success with their Harmony collection. That is an environmental-friendly collection. I know you have seen it. It is based on recycled materials, natural materials, comfort, and it had a very good response. And that is premium priced product in the $80 to $90 range, for example. That concept is being expanded to men's as well for this upcoming year. So I think Hush Puppies in the U.S. and certainly in Canada and Europe had some product that was fashion correct, but they're also developing some big product marketing concepts to drive further growth.

Great. Thank you very much. Appreciate it.

John, just to answer your first question, the Merrill growth in Europe was the strongest region of the world; it actually exceeded the overall growth. So that was very positive and it represents about 20% of Merrell today.

Thank you.

Robert Drbul, Lehman Brothers.

This is actually Don [Conowitz], I'm stepping in for Bob today. Two quick questions actually. The first is if you can give any detail around the inventory levels, specifically in the channel retail. And the second question was within that backlog number, how much of that increase was domestic versus international?

I'll handle the first question. I guess trying to take a look at inventory levels, I think to put everything in its proper context, I think most retailers have been working on their inventory levels since mid-year last year. So I don't think anybody has been kind of surprised by the -- maybe by the magnitude, but the volatility of the market and consumer spending a little bit of a slowdown. So everybody has been working on their inventory levels.

I would say my impression right now is it may be a little bit of a mixed bag out there. I think some of the department stores, maybe especially in the mid-tier, may have more inventory than they might like. I also have a feeling that there's more athletic inventory out there from store to story than maybe the brown shoe area. But for example, the footwear independents and related to that the outdoor specialty independents where we do a big chunk of our business, I think these are smart operators, the best of the best are really left and their inventories are in pretty good shape.

And from a backlog perspective, I would tell you that our backlog is well balanced around the globe. And that's one thing that we always look for in our overall business model is balance and diversification. And so we're very pleased with both the balance amongst the brands in our overall backlog and also geographically the balance in our backlog.

Okay, great.

Jim Duffy, Thomas Weisel Partners.

Thanks so much. Great job. A couple questions. Expense controls, can you give us a little bit more flavor as to what you're doing there, what are some of the areas where you're looking to save on expenses and so forth?

I think there are a couple of areas that we're always looking at, Jim, and some of it is pure expense controls, other is more efficiencies, whether it's in our distribution and transportation initiatives to get product to market faster and more efficiently, that's one of the areas that we're looking at. If we don't have to take it through a distribution center we can go direct to the customer, that's a lot more efficient and a lot less costly.

In the product development area, while we continue to invest we look for areas of waste that we may have. In our PLM project which we're initiating we're looking at areas to reduce cost there. We continue to look at all of our needs from an employee base, our healthcare costs, our employee benefit costs, areas like that. So there's nothing that we're not attacking at this point in time. It's very broad based and it's working.

Great. And then I'm encouraged by the tax rate guidance. It strikes me that there's probably more opportunity there. Are there things that you can do such as establishing a presence in lower tax jurisdictions to bring that rate down even further?

We continue to look at areas to do that, Jim. It's always a fine balance to make sure you're aggressive enough, but don't be overly aggressive to where you get greedy and that's a tough balance to make sometimes. But I think that we are. But if you look at our peer group that we look at, I think we rank quite low as far as the percentage and I think we're in the upper quartile as far as what our tax rate is versus our peer group. So we're already in a very good position, but that's another opportunity. We're looking at what we're doing in the Far East, in our Dominican Republic and European operations to continue to drive tax efficiencies on a global basis.

Great, keep up the good work.

Jeffrey Edelman, UBS.

Thank you, good morning and great job. Steve or Blake, a couple of questions on international. Could you give us a sense how much international overall grew in the quarter, what it represented as a percentage of the quarter and full year?

Well, I guess speaking of the full year I think, we had growth this year in all regions, Jeff. We grew in the United States, but if you look offshore at Canada, Europe and international, we had accelerated growth rates in all of those three other regions. I haven't done a mathematical total up, but we had double-digit growth in Europe, close to double-digit growth in other international markets and upper single-digit growth in Canada for example. So our growth was really spread amongst our brands and really across all regions.

And specifically to the fourth quarter, Jeff, our overall revenue mix internationally was a little bit lower than our 40%, it was around 35%. But that is expected to be that way because in the fourth quarter we traditionally have stronger U.S. shipments, especially in some of our work and other utility businesses. So our overall mix for the full year continues to be very balanced and solid.

Okay. And then I believe you mentioned currency helped you about 2% for the year in terms of sales, was it similar in the fourth quarter or a little less than that because of the mix?

It was just about the same for the both the full year and the quarter.

Okay. And then the gross margin impact from FX, was that significant?

It was about 50 basis points for the full year, so it was a positive move for us. But we feel that we had strong improvements in other areas of the business also with our inventory management programs, the fact that we got out of lower margin businesses and some other initiatives. So it's not all coming from FX.

Right, okay. And then finally, thinking about the first half of the year, with orders up 10, inventory down 10, are the orders more weighted towards the end of the first half? And you talked about a soft first-half environment, pickup in the second half, would we expect your own trends to follow a similar pattern?

Yes, this is Blake. I think so. If you looked at a rough breakup of our order backlog, we feel very good about our current position in our year-end position. It probably is more heavily weighted to Q2, for example, than Q1 right now. And we're just expecting conditions to be a little bit tougher in the first half of the year, that's probably consistent with many companies across the board out there.

Okay. Would this imply that all of the earnings would be generated in the back half of year?

No.

No.

Okay. Fair enough, thank you.

Mitch Kummetz, Robert Baird.

Thanks and congratulations on the quarter. I've got a few questions. Let me start -- I think the comment was made early in the call that businesses in transition were about a $40 million sales hit to the year. What about new businesses, both Patagonia and Merrell apparel, what did they contribute from a top-line standpoint for the year?

I would say those businesses were around $15 million to $20 million in total.

Okay. And what is the expectation for businesses in transition and new businesses in '08, what's assumed in the guidance there? Because I think at one point you guys were saying that some of these businesses in transition begin to normalize in '08, is that still the expectation?

We're still going to take about a 1% hit to our growth on those businesses in '08, Mitch.

Okay, all right. But the combination, if you kind of net-net the two together it should be less of a sales drag in '08 than '07, correct?

Yes, that's correct.

That's what we're planning.

Okay. And then, Steve, on the backlog I think you had said that you look for a balance across the businesses, the brands, but I assume that when you look at that near 10% backlog increase by Merrell is up double-digits. Are there any other brands within the portfolio that are up double-digits? And should I assume that all the brands are up in terms of backlog?

I'm going off of memory here, but I believe all of our brands are up, Mitch, at this point at year end. And the weighting with Merrell's growth is consistent with your comment, yes.

Okay.

I think we had ended the year with pretty good backlog numbers for the Wolverine brand also and also for Caterpillar.

Okay, great. That's helpful, thanks. And then just a couple housekeeping items. What were the average shares outstanding in the fourth quarter?

In the fourth quarter? For the full year it was 54.6 and for the fourth quarter it was -- you'd think I'd know that off the top of my head. I'll get back -- I'll send you an email -- 52.8.

52.8 for the quarter. And then where do you expect the interest line to go in '08? I think you said that --

That's going to be primarily be driven, Mitch, based on where our share repurchase activity goes. We ended the year in a net cash position, but if we repurchase shares at the rate that we did this year we may end up into the revolver a little bit more during the peak working capital period. So the interest cost is expected to go up next year.

Okay. All right, that makes sense. Okay, that's all I had. Thanks.

Todd Slater, Lazard Capital Markets.

Thank you very much. A couple quick questions. Just how much of the inventory reduction -- which is terrific by the way year-over-year -- is due to areas that were discontinued or planned down like the slippers or the DOD versus the continuing areas?

I think, Todd, one of the things you have to look at also is that we're carrying inventory on the new initiatives which offset a pretty significant portion of that. So I think when you look at the overall balance that it really is in the core operations of the business.

Okay, that's great. And any issues regarding raw material cost increases that you anticipate for '08 or '09?

No, we're getting some costing pressures out of China, both on the outsole side and on the labor side and we're working through those issues. And we know that that will happen and we're mitigating whatever we can there and we're working to improve efficiencies in other areas of our supply chain to offset as much of that as possible. And if we need to we will have to take price increases where appropriate as we have done in the past.

I see this year as a year that the footwear industry is going to have some price increases probably across the board. The truth is costs and expenses in China are going up for the footwear factories there. The fact is that the world still makes most of the footwear in Southern China; 86% of all footwear consumed in America today comes from China. So that's not going to move anywhere anytime quickly.

So I think whether you're in the athletic or brown shoe arenas you're going to see some pricing pressure this year and some product cost increases. The one positive that is happening in that area though, Todd, is leather prices seem to have stabilized and actually have contracted a little bit. So some of the pressure that we had there in '0 7 has been eliminated.

That's great, so it sound like there are some offsets. And then with respect to your '08 guidance, I'm just wondering what presumptions you might be making relative to the dollar and ForEx in that range?

Well, one of the things that we're fortunate on -- if you want to call it fortunate, I don't know if that's the right word. But we actually -- because of our product orders that we have on plan, we have a significant amount of our contracts already hedged with forward currency contracts, probably about 60% of our requirements are already contracted. So the first half of the year we're pretty well locked into knowing what our exchange rates are going to be for the product that's going to be going into Europe and in Canada.

So we're in a good position on that and the fluctuation of the dollar will have an impact on the back half of the year. But there again, we have time to price our product appropriately. If the dollar all of a sudden strengthens quickly we'll know what our product cost out of China is going to be and we can price our product accordingly at wholesale to protect our initial pricing margins.

So what you're saying is it's pretty much all hedged, not required (multiple speakers) a change in the dollar is not going to change your outlook?

That's correct.

Great, thank you.

Robert Samuels, JPMorgan.

Good morning. Can you comment a little bit more on your own retail strategy and just give us an update on where you are with some of your formats and plans for this year?

Sure. I think we all know that this was a challenging year for retail footwear, at least in the United States. FDRA, their comp store numbers were down about 2% this year which is the toughest year in the last five or six or seven years. Our own retail business had comps this year that were almost 3% positive. We currently have around 72 outlet stores and those stores, like everybody's outlet stores, suffered a bit this year from lower traffic counts. Everything was on sale in department stores and gas prices were high and so traffic counts were down there.

Our Track 'n Trail stores, we have 17 of those currently. They had a very good year. They had a double-digit comp store increase for the year, so in this environment that was pretty impressive performance. Our eCommerce business, which is a growing business for us, was up almost 40% for the year. So we've opened just in the last quarter or so three Merrell stores for example, company-owned Merrell stores including the one I referenced in Whistler, they're all performing over plan.

So when we step back and look at retail we view it a couple of different ways. One, we view it globally and we've got great partners around the world and most people today don't realize we have up close to 400 stand-alone Hush Puppies stores around the world. So our retail presence on a global basis is large, almost 3,000 dedicated points of sale around the world.

Here in the U.S. though, and the way we report retail, retail is only about 5% of our sales. We see a growth opportunity here for a company like us with our portfolio of brands in the midterm and a little bit longer that should be at least double. So we plan to next year open full concept stores, maybe a few Track 'n Trail stores, but we're going to focus on Merrell stores and the Merrell opportunity next year at least domestically. But the Merrell stores we expect on a global basis to approach 100 by the end of next year.

Great, thanks.

Jeff Blaeser, Morgan Joseph.

Good morning and thanks for taking my call. Have you seen any purchasing changes or patterns within the construction market? And then of your entire productline which do you believe to be relatively resistant or potentially vulnerable, is probably a strong word, but to a possible U.S. slowdown?

You know, it's hard to really say. For instance, our HYTEST business, which is our mobile distribution business in kind of the work industrial category, had a great year. The Wolverine boots and shoes business here, a premium price product in the United States, had growth this past year. We try not to be overly concerned with macro economic conditions. Frankly, the footwear industry is a little less volatile than some other consumer product industry.

If you have superior products, if you stay focused on delivering a great product to the consumer you're going to do good in tough times and in great times. So we don't see any significant slowdown in the construction industry or any other particular industry as having any kind of significant impact on our momentum.

Okay, great. On the Merrell apparel side, it may be too early to say, but any update on some of the line adjustments and initiatives that you mentioned last quarter in terms of retail acceptance or on that nature?

Sure. We remain as excited as ever about the opportunity for Merrell Apparel; we think it's one of the keys for us in helping to create our first billion dollar brand. We probably could not have picked a tougher year to introduce apparel than this past year. So in that respect our conservative approach I think was very, very good.

As you know, we've aligned the new lines in apparel, we've aligned it closer to the footwear. We've made the apparel a little bit more outdoor athletic and performance based, the branding is more prominent. The early reads on that are very good. The outdoor retailer show occurred in Salt Lake City just within the past 10 days. The feedback from that, the buzz at the show was very good. We don't have a lot of hard data at this time, but the reaction to the fall '07 line was very good.

Our presence at [Scheal's] is going up, Dick's is giving us at least 25 doors, we've got a test in Gander Mountain. We're in some of the key independents around the USA -- Peter Glenn, Blue Ridge Mountain Sports, BackCountry. In Europe we're in outdoor specialty shops like Black's and Field & Trek and Snow+Rock and Decathalon. So it's starting out small, we're going to grow it the light way. But it's going to be one of the key success factors to really accelerate the opening of Merrell branded stores around the world.

Okay, great. Thank you very much.

Sam Poser, Sterne Agee.

Good morning. Great quarter. You talked about the front half being weighted a little softer than the back half for 2008. How will that apply to the margins in the SG&A as well? Can we expect the margin acceleration to follow that as well?

No, I think the margin improvements, Sam, are irrespective of what's going on in the environment here. I think that given that our inventory positions are very strong we feel that our exposure to closeouts or markdowns are fairly limited. Our inventory management programs, the things we're doing to improve our margins overall should occur in the first half of the year as well as the back half of the year. I think our comment on the softness that we think in the first half of the year is primarily the retail environment we're working in and through, not necessarily on where it's going to hit our gross margin opportunities.

Okay. And then you mentioned on the China pricing that you were taking the necessary steps to do what you had to do, but at the same time prices may go up. And some of your core businesses -- and with your inventory so low you have some replenishable businesses with some of your Wolverine product and so on and so forth. How do you adjust for that if the prices go up in three months and you've already established pricing within a season?

Well, it's a process, Sam, that we're really -- we're looking at staying flexible, looking at alternative sources of supplies. It can be in different regions, it can be in Vietnam, it can be in India. We're constantly looking at reengineering product, not to take any quality out of the product but to reengineer the product to address some of the cost concerns. And that's an ongoing process for us.

And what percentage of your production right now is China?

For us we would be roughly, well --

The Far East is probably 80% and a piece of that is Vietnam, so it would probably be 65 to 70%.

And the other 20?

Some of it is India, some of it is Dominican Republic. It's very -- a little bit coming out of Brazil, Michigan. All of our military product is bottom tier and required to be made in the U.S. So we have a different mix because of that portion of our business also.

And if you're looking ahead would you look ahead to see that China, with all the things going on there, go down to like 50% as you're seeing it?

Well, I think yes, we'll get to 50% for us and the rest of the footwear industry someday, but I think that's going to be a long process. The world has spent the last 20 years concentrating the vendors, the suppliers, the factories in Southern China and that kind of migration is not going to happen overnight.

Where do you see the biggest opportunity -- like the next place? Where are you looking most carefully?

I think we're thinking as flexible as we can. Obviously a lot of the factories and brands are looking at India, but some are looking at -- a lot of people are looking at Vietnam and any number of other countries.

I think our Dominican Republic facilities can be a great resource for us long-term also, Sam.

Okay, great. Congratulations again.

[Jay Sole], Morgan Stanley.

Good morning. Just had a question. You mentioned that you thought that the environment that we're seeing right now could present an opportunity to take share. Can you tell us more about that? What brands in the portfolio do you think have the best opportunity to do so, or maybe what categories in general is there opportunity to take share in?

Well, we always believe we have opportunities in all of our brands. And in our industry you better have a fanatical focus on product because product is king and if you've got great product you're going to do well even in tough times. And the design excellence awards that the Wolverine brand received for the ninth year and Merrell received for the seventh year are just a couple of the indications of the investments we're making in product innovation. I mean, really for us, we view all of our brands as having growth potential in these times.

Okay, thanks a lot.

And at this time we have no further questions. I would now like to turn the call over to Ms. Christie Cowdin. Ms. Cowdin, you may proceed.

Thank you. On behalf of Wolverine World Wide I would like to thank you for joining us today. And as a reminder, our conference call replay is available on our website at www.WolverineWorldWide.com. The replay will be available through Wednesday, February 13, 2008. Thanks and good day.

And this concludes today's conference. Thank you for your participation. You may disconnect at this time.