Wolverine World Wide Inc (WWW) 2009 Q4 法說會逐字稿

Good morning and welcome to Wolverine World Wide's fourth quarter and full year 2009 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 Miss Christi Cowdin, Director of Investor Relations and Communications for Wolverine World Wide. Ms. Cowdin, you may proceed.

Thank you, Nicky. Good morning everyone and welcome to our fourth quarter and full year 2009 conference call. On the call today are Blake Krueger, our Chairman, CEO and President and Don Grimes, our Senior Vice President and CFO. Earlier this morning, we announced our fourth quarter and full year 2009 results. If you did not yet receive a copy of the press release, please call Abby Brant at 616-233-0500 to have one sent to you and the release is also available on many news sites or it can be viewed from our corporate website at www.wolverineworldwide.com. This morning's press release included non-GAAP disclosures and these disclosures were reconciled with the cash tables within the body of the release. Today's comments during the earnings call will include some additional non-GAAP disclosures, there is a posting at our corporate website that will reconcile these non-GAAP disclosures to GAAP. To view the document please go to our corporate website, www.wolverineworldwide.com, click on investors in the navigation bar, click on webcast from the top navigation bar of the investors page and then click on the file called WWW Q4 conference call GAAP versus non-GAAP disclosures.

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 of 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.

Thanks, Christi. Good morning and thanks for joining us today. As we reported in this morning's earnings release, our team produced excellent financial results for Q4 and 2009 despite the challenges created by the protracted global recession. The Company is positioned very well for future growth. Our Q4 performance, which included one less week of sales compared to last year, was solid across our portfolio with very good results achieved by our Merrell brand and the retail division.

Before I begin my review of the branded businesses, I would like to take a moment to discuss some of the positive trends we see in the business. Certainly, we have seen very solid performance out of our business model and a very difficult economic climate. The strength of this platform holds up remarkably well in tough times and will deliver more impressive results as conditions improve. This is the basis for our optimism as we look forward to 2010 and beyond. We saw the economic tide begin to shift in favor of our brands during the fourth quarter. With continued strong sell through of our products at retail and a steady improvement in our incoming orders, this improving rate of incoming orders resulted in an order backlog increase of over 7% at year end. And the order book has continued to build in 2010. Also the momentum we experienced since May in our own 88 store retail division and our e-commerce business also continued in Q4, as we significantly outperformed the industry.

We continued to focus on product develop and brand innovation throughout 2009, across our portfolio. We are as driven as ever to deliver exciting new and fresh product that meets the style and performance demands of our many distinct consumers. From Merrell's new world collection in the Man Fusion category to Wolverine brand 1000 Mile Boot program or the Hush Puppies 1958 Heritage product or even the unique point of view from Cushe, our brands never stopped looking ahead. We are leaders in product innovation, not followers.

Our primary growth vehicles for 2010, Merrell, Sebago, Chaco and Cushe will benefit from additional support during the year to fuel their performance in both the near and medium term. We're going to invest in these brands with new marketing initiatives that will reach our consumers on their own terms. We will reach out to consumers with event marketing through social media channels and enhanced in-store presence, as well as more traditional media forums. We will also be investing in sales support for these brands as we stay focused on gaining market share and a recovering economy. While not every market is poised to recover at the same pace, we feel very confident about our brands and their strong presence around the world. Our multitude of countries and broad array of distribution channels have positioned us to grow, while continuing to deliver very solid profit increases in 2010.

Now let's take a look at how our brands are performing. We will start with the Hush Puppies group. The Hush Puppies group exceeded internal forecast for the year with the US, Canadian and International operations all reporting stronger than expected revenue as consumers embraced the brand's new product offering. Although ahead of forecasts, Q4 revenue was down double digits for the group as over-planned performance in Europe was offset by decreases in other regions. Our significant global network of Hush Puppies concept stores, and shop in shops continues to expand this quarter. In Company owned retail, we opened the second concept store this quarter in the fashion forward Montreal market. The products offered in these stores represent the best and most stylish products selected from the brand's global product range. Both Montreal locations are performing well and we have realized average selling prices well over $100 per pair.

During Q4 we also opened our fifth value store in the UK. All five locations in the UK are delivering strong results in a market that's still struggling to break free of the recession. In markets handled by our international partners, the brand's consumer direct footprint has strengthened to almost 1200 shop in shops and about 525 concept stores. With our global partners opening new concept stores in India, Pakistan, Saudi Arabia, Hong Kong, Singapore, Indonesia, Taiwan, Dubai, Spain Portugal and Venezuela. Looking ahead the Hush Puppies team launched two significant product collections that are gaining traction.

First the Body Chute collection which combines Hush Puppies' casual heritage with athletic construction and innovative technology to promote wellness has already produced strong spring '10 orders from major independent, Internet and better grade department stores in North America and also from the brand's international partners. Second is the Hush Puppies 1958 collection, which features vintage iconic product inspired from our archive of classic designs. This collection has also been well received by our international partners and better grade independent retailers in the US. We believe both initiatives represent game changing opportunities for the brand.

Moving to Cushe, our very first year with the brand was a solid success. This design-led active lifestyle brand targeting younger consumers continues to gain traction and is now selling in about 49 countries including internationally. In the US, the brand has secured distribution in a large number of US influencer accounts including Harry's, Littles, The Tannery, TipTop Shoes, Ron Jon Surf Shop, REI, Fred Segal, and many others. The product is selling through nicely and the brand is creating a buzz in the market. Although this brand is still very young, we believe Cushe has significant growth potential.

Let's turn to the Heritage brands group, which includes Sebago as well as our two largest license footwear businesses Caterpillar and Harley-Davidson. For the quarter, revenues were in line with forecasts but down double digits driven primarily by CAT and Harley-Davidson. For CAT, the Canadian business achieved a double digit increase in the quarter and the European business exceeded our expectation considering the very weak retail conditions that continued to affect consumer spending across the EU. To help gain additional sales traction in Europe, our CAT team introduced a new Earth Moves marketing campaign resulting in positive sell through of both the legendary Raw collection of premium boots and our on trend classic boot offering.

During the year we opened about 100 new premium retail doors in the UK. Internationally, CAT experienced exceptional strong sell throughs in south Asia, the Middle East and China, however, the strength of the US dollar and a continuing tight credit market resulted in lower Q4 shipments to several of our larger trading partners. In the US, we took advantage of the strong boot trend to expand the breadth of CAT's product offering beyond the industrial segment, into lifestyle market. As one example, the legendary Raw collection was launched in Q4 in a pop up store in the Bowery District of New York City with strong sell through.

Turning to Harley-Davidson footwear, the recession had a real impact on motorcycle sales as we all know, which has also had some affect on our Harley footwear business. While Q4 sales declined in the US, we experienced double digit increase in international distributer market driven by strong demand for classic riding looks in our fashion accounts.

Turning to Sebago. Our new management team is already having a great impact on the business. Our Sebago European business generated solid double digit revenue gains in Q4 due to strong demand for dock sides. These gains were offset by declines in the US and international distributer markets. Consumers and retailers are responding well to Sebago's exciting new product initiatives, including new collaborations with Collette in Paris and Vain in New York City. We view Sebago as one of our key growth opportunities.

Turning to the Wolverine footwear group, the Wolverine brand continues to be the leader in the core work category in the US with solid sell through rates reported by major retailers including our top ten customers who saw our innovative Contour Well product line move off the shelves at a quick pace during the quarter. A recent NPD report indicated the brand's share of the work market grew 140 basis points in Q4. For the group, Q4 sales were down in the low single digit range after adjusting for one less week of sales, as the US work boot market continued to feel the impact of the recession. As always product innovation and comfort technologies continue to be at the forefront of the Wolverine brand as evidenced by the early success of the recently introduced individual comfort system. The brand is also receiving substantial interest with cutting edge fashion and style accounts with the vintage 1000 Mile Boot program, that's priced at about $250 to $350, and the new 1883 collection which will be delivered this fall. Strong response to the new work product and vintage boot programs has resulted in a strong double digit backlog increase for 2010 delivery.

The base business is focused on being the leading provider of footwear solutions for all branches of the US military as well as being the leading provider to the US and global civilian uniform markets. Q4 revenue was essentially flat, but overall 2009 revenue was down double digits due to a planned decline in military shipment. The growth in the civilian market in 2009 was driven by the continued success of our proprietary ICS product and solid shipments of core product to major uniformed footwear retailers with a couple of our major big box retailers more than doubling the doors featuring Base products. Both the Wolverine and Base brands continue to have incredible brand loyalty and are still recognized as the gold standard in their respective category.

The outdoor group, which includes the Merrell, Patagonia footwear and Chaco brand had a good year as innovative product offerings from these brands continued to resonate with consumers. Revenue for the outdoor group up mid single digits after adjusting for one less selling week in the quarter and the group enters 2010 with a very healthy future orders position. In late January I attended the outdoor retailer show in Salt Lake City and had the opportunity to meet with many of our largest retail partners and gauge their reaction to our fall 2010 product offerings from Merrell, Patagonia footwear and Chaco. These brands performed very well for our retail partners throughout a tough 2009, which helped to fuel their enthusiasm for our upcoming fall offerings. Leisure Trends recently reported that Merrell ranked number one in the all important multisport category in the outdoor specialty and chain retail channels and Chaco was the top performance sports handle in the outdoor specialty channel. I'm excited about the opportunities that lay ahead for the outdoor group as we continue to drive product innovation, category expansion and consumer demand.

Turning to Merrell. Our own businesses US, Canada, and Europe posted mid single digit to double digit sales increases in the quarter. The outventure or outdoor performance category performed exceptionally well generating a double digit revenue increase. Merrell continues to gain market share and reinforce its position as the global leader in performance outdoor footwear. The new women's Chameleon Arc Wind, that's a light sleek hiker, has placed very well at retailers for spring '10 and Merrell's key product franchises continue to sell through at a strong velocity including the men's Moab, the women's Siren and the Water Pro collection. Merrell has also had excellent response to its lightweight construction for hiking, the new Coal collection.

Merrell's Fusion, that's the outdoor casual segment began to deliver new spring product that reflects the brand's heritage and cutting edge design, Ethos, we're receiving great response from our next generation of land sandals and spring selling for women's has been very good especially for the new Zenith collection. Despite our growth and success in this category we believe the Fusion category for both men and women remains a significant growth opportunity for Merrell. Fusion category achieved a high single digit sales increase during the quarter.

In the quarter, Merrell Apparel was prominently featured in outdoor and sport publications. While still small, this business is now under new seasoned leadership and the product is aligned much closer to footwear. The 2010 spring product line has been very well received resulting in a strong double digit order backlog for the first half of 2010. The Merrell apparel program has also enabled us to accelerate the opening of Merrell lifestyle stores around the world. Merrell's global retail presence continued to expand in the fourth quarter, with the opening of new concept stores in Italy and Korea and a Company owned store in the US. Merrell ended the year with about 100 branded stores and nearly 950 shop in shops globally. Although our largest business, Merrell is still early in its life cycle and represents our biggest opportunity for growth.

In the US, Merrell consistently ranks number one or number two in both the conversion and intent-to-repurchase survey categories among all athletic and nonathletic footwear brands and yet still has very low brand awareness. The opportunity here is obvious. We know that once consumers touch the Merrell brand they will be back for more. Internationally the brand is growing in importance but is even earlier in its life cycle. Merrell will continue to succeed by maintaining its fanatical focus on product, by reinventing what the outdoor and outdoor product can mean to consumers on and off the trail and by driving consumer demand.

Turning to Patagonia. Patagonia footwear had a solid quarter and is experiencing strong sell in key models with our top outdoor specialty retailers helping to elevate our future order backlog into the high double digits across all product category. Two successful introductions are the Drifter AC Hiker and the [Sali], a very lightweight trail runner. On the consumer front Patagonia footwear continues to benefit from a very loyal consumer base and the brands ongoing commitment to making the best possible product with no unnecessary harm to the environment.

Turning to Chaco, the rapid integration of this business early in the year resulted in a much better than planned revenue and earnings for Q4 and the full year. Chaco is a special brand and we've learned that it has a fiercely loyal consumer. Fall at-once business was very good, consumer loyalty remains very high, and we are poised for strong growth in 2010. We are excited as we head into our first full spring season with this pure outdoor adventure brand, which focuses on a younger consumer demographic. Many retailers are looking to expand the Chaco business in 2010, especially with the new closed-shoe product offerings we introduced for fall. Chaco is an important growth vehicle for the Company and has a very bright future.

The outdoor group continues to be the Company's largest revenue and earnings generator. Overall we are pleased with our 2009 performance and the momentum we are experiencing. We generated record levels of cash in 2009 and managed inventories to be significantly lower at year end. Looking ahead, while many regions of the world are still dealing with the impact of the recession, the global economy appears to be slowly stabilizing as evidenced by the recent improvement in a number of macroeconomic indicators. As we expected, the footwear category and our brands in particular, will be one of the leaders coming out of the recessionary environment. While our orders have steadily increased and retailers have begun to fill their shelves with new product, we still expect a somewhat conservative approach to inventory levels by retailers in the short-term, as consumer spending patterns improve at a measured pace.

A very good sign for our brands and product offerings is the performance of our Company owned retail division, which has since May substantially outperformed the industry. For Q4 our Company owned stores recorded a strong double digit revenue increase driven by a high single digit same store increase. Our most recent openings including the Hush Puppies concept stores in Montreal and our Merrell concept store in Boston, are easily exceeding our initial expectations. Our direct to consumer e-commerce business also continues to post very strong double digit revenue growth.

One final encouraging indicator is our improving rate of incoming orders, which at the end of last week had given us a solid backlog increase of over 8%.

I will now turn the call over to Don Grimes our CFO and Senior VP who will provide all of you with some additional information regarding our 2009 Q4 results and our full year results and as well our outlook for 2010. Don?

Thank you, Blake, and good morning to everyone. I'm very pleased to provide details on our fourth quarter and full year 2009 financial results, as well as offer initial guidance on our performance expectations and financial goals for 2010. Blake's comments from earlier are certainly worth repeating, for Wolverine World Wide, 2009 was a year defined by execution. In one of the most difficult and unpredictable economic environments in decades, our team was focused, disciplined and keenly intent on executing the initiatives that would not only produce excellent results in the midst of a financial crisis, but also position our brands to deliver accelerated growth once we cycled out the global recession. Our actions in 2009 and our strong current order backlog has us excited about our prospects for sales and profit growth for this new year and beyond.

As I review our financial results, I will focus on our adjusted performance prior to nonrecurring, restructuring and other charges related to our strategic restructuring initiatives. These initiatives which I will cover in detail shortly resulted in $13 million in permanent pretax benefits for the Company in fiscal 2009 and we remain on track to generate $19 million to $21 million of total benefits once the program is fully complete, which is expected during the first half of 2010. Nonrecurring, restructuring and related charges totaled $8.1 million, or $0.12 per diluted share, in the fourth quarter and $35.6 million, or $0.53 per share for the full year. The impact of these charges on our financial results is also detailed in our press release issued earlier this morning.

Now moving to review of the income statement. Earlier this morning, we reported financial results for the fourth quarter and full fiscal year ended January the 2nd 2010. Reported revenue for the quarter totaled $312.5 million, a 9.7% decrease compared to the prior year, driven in large part by the fact that the prior fiscal year's fourth quarter had 17 weeks of business versus only 16 weeks in this year's fourth quarter. There's not a definitive way to precisely calculate the impact of the 1 less week of business, but you simply add 1 more week of revenue to this year's fourth quarter, based on the average revenue per week in the quarter the year-over-year decline is only 4.1% versus the prior year. This decline was in part driven by the issue we talked about at the end of the third quarter, namely more cautious retailers delaying shipments to spring merchandise as long as possible. A slightly weaker US dollar had a very modest positive impact on reported revenue in the quarter. For the full year reported revenue was $1.101 billion, a decrease of 9.8%. In constant currency, revenue declined 6.7% to $1.139 billion. Applying the same math regarding 1 less week in fiscal 2009 to full year constant currency revenue, reduces the full year revenue decline to 5.1%.

On an adjusted basis fully diluted earnings in the quarter were $0.45 per share, an 8.2% decrease compared to the prior year. Foreign currency negatively impacted fourth quarter results by $0.11 per share, versus our previous guidance of $0.09 per share, driven almost exclusively by the impact in our cost of sales of foreign currency forward contracts that matured at less favorable rates. Earnings adjusted for both nonrecurring charges and negative FX were $0.56 per share, an increase of 14.3% versus the prior year. For the full year, adjusted fully diluted earnings per share were $1.77 down 6.8% versus the prior year, but above the high end of our most recent earnings guidance. Foreign exchange negatively impacted full year earnings by $0.16 per share, therefore constant currency earnings were $1.93 per share, 1.6% above the prior year.

Following the old adage that if you don't toot your own horn who will, let me pause just a second and reflect further on our 2009 performance. While enduring probably the worst economic crisis since the Great Depression, Wolverine World Wide delivered growth in earnings per share after adjusting for nonrecurring restructuring charges and negative foreign exchange while also absorbing almost $9 million of increased pension expense, driven by the precipitous decline in the value of pension plan assets in the fourth quarter of 2008. This performance underscores the core strength of our multibrand, multichannel, multicountry business model and a discipline in which we manage the business. The key takeaway is that our business model can deliver good results even when the global economy struggles and will deliver even better results when key markets are growing.

Prudently managing expenses was a priority for most companies in 2009. However, our focus went well beyond just that. The framework of our strategic restructuring plan was in place long before the economic upheaval that took full affect in the fall of 2008. The Company had already completed the initial phase of its restructuring plan which consisted of shedding noncore low margin businesses, which was then followed by the next phase of the plan in January 2009. We are pleased with the breadth of these restructuring initiatives that were initiated and in most cases completed during 2009; the consolidation of our US manufacturing operations into one facility in Michigan to drive efficiencies and reduce overhead, the consolidation of our North American distribution operation into existing Michigan warehouses, the consolidation of our third party European distribution operations into one facility in the Netherlands, the consolidation of satellite sales offices in Continental Europe into our new regional headquarters office in London, the closure of our Michigan tannery operations as part of a strategic realignment designed to significantly improve the profitability of our Wolverine leathers business by shifting production to larger, more efficient third parties, the closure of two facilities within our Wolverine procurement operations and finally, the implementation of selected work force reductions and redeployment as we increasingly focused on improving efficiencies of business processes.

As I mentioned previously, nonrecurring restructuring and related charges in fiscal '09 were $35.6 million, below the top end of our previous range of $33 million to $36 million. Of the $35.6 million total in 2009, $5.9 million is in cost of sales and the balance in operating expenses. We expect additional restructuring charges in the range of $2.5 million to $3.5 million to be recorded through the second quarter of 2010 in order to complete the domestic manufacturing consolidation and finalize some realignment in our product creation organization. Of the total nonrecurring charges over the two years, approximately $10 million are non-cash charges, primarily asset impairments. We still expect annualized benefits in the range of $19 million to $21 million once all initiatives are fully complete. We estimate the 2009 results benefited by approximately $13 million from the restructuring initiatives so we expect additional benefits in the range of $6 million to $8 million, most of which will be realized in fiscal 2010.

Full year adjusted gross margin, as we previously projected, was almost flat at 39.7% in 2009, compared to the prior year's 39.8%. Adjusting further for foreign exchange, gross margin was 40.1%, up 30 basis points over the prior year. Adjusted operating expenses for the year were down 8.3%, $316.4 million. Adjusting further for increased pension expense, foreign exchange and operating expenses directly associated with the Chaco and Cushe brands that were acquired in January of last year, SG&A declined at a double digit rate in both the fourth quarter and full year. These outstanding results were driven by our team's determined focus on reducing discretionary spending and the benefits from our restructuring program, not from guiding critical product development and marketing programs.

Our full year effective tax rate was 27.8%, a significant improvement from the prior year tax rate of 31.8%, driven by benefits from the implementation of tax planning strategies related to the Company's international operations and the net benefit from nonrecurring adjustments in the fourth quarter to prior year's tax provisions. The Company repurchased just over 406,000 shares in 2009 at an average price of $13.77 per share. Over the last ten years, Wolverine has used a strong free cash flow to repurchase over $450 million of its shares on the open market. Going forward we see periodic and opportunistic share buybacks as an important part of our cash utilization strategy.

Our year end inventory, as expected, was markedly lower than at the end of the prior year, down $38.7 million or 19.7%. This significant year-over-year improvement was driven by the absence of the one off factors that contributed to an inventory increase at the end of last year, solid at once order trends the last six weeks of the fiscal year and a continuing effort to control total SKUs and go narrower and deeper on key items in our product assortment. We are constantly mindful of balancing the need to have sufficient inventory on hand to meet customers' needs with the financial risk associated with having too much of the wrong merchandise. We are comfortable with the current inventory levels and feel that we have the right product in the pipeline to support a healthy spring 2010 season.

We improved our already strong balance sheet even more during 2009 bolstered by a record year of free cash flow of $146.3 million. We ended the year with cash and cash equivalents of $160.4 million, and 0 drawn on our $150 million revolving credit facility. During the fourth quarter we executed a legal entity restructuring that enabled us to repatriate approximately $38 million of offshore cash with minimal incremental tax cost. With one of the most pristine balance sheets in the industry and tremendous prospects for continued strong cash generation, we have the ability to invest in growth initiatives for existing brands, fund capital plans, return cash to shareholders in the form of both dividends and share repurchases, and pursue acquisitions. As 2009 drew to a close we became increasingly optimistic that the worst was behind us and that consumer confidence, as measured by real consumer spending and not by anonymous surveys, is starting to rise. Even with that a meaningful reduction in US and Euro zone unemployment rates in 2010, we believe business conditions will improve. Last year, particularly in the fist half, even consumers who could spend pulled back because they just weren't sure how dire things might get. The stabilization we've seen over the last six months, even though it hasn't resulted in improvements in all macroeconomic metrics, would appear to bode well for future retail spending.

Our optimism is even further spurred by an even stronger backlog position. We spoke at the end of the third quarter about the improvements we were seeing in our backlog for the first and second quarters of 2010 across almost every brand in the portfolio. As Blake mentioned earlier, our backlog adjusted for excessive cancellations in the prior year was up over 7% at the close of the year, and up and approximately 8% at the end of last week. As everyone can appreciate, we have less visibility to the back half of the year at the present time and we expect year-over-year comparisons will get a little tougher as we cycle through the year. Nevertheless, we are quite pleased with our current backlog position and believe it's an indication of excellent acceptance by retailers of both our spring and fall line as our brands continue to gain shelf space and market share in a very competitive consumer space.

As announced in our press release earlier this morning, our initial guidance for fiscal 2010 reflects a return to growth in both revenue and reported earnings in the coming year. This guidance is predicated on a continuation of the current, more stable environment in our major markets and no significant downturn, and excludes the effect of additional $2.5 million to $3.5 million of nonrecurring charges to complete the restructuring program. Highlights of our initial guidance for 2010 include reported revenue in the range of $1.14 billion to $1.17 billion, representing growth of 3.5% to 6.3% versus the prior year. This guidance assumes minimal impact for foreign exchange on reported revenue in 2010. Modest improvement in adjusted gross margin as lower first half product cost and strategic price increases more than offset full year foreign exchange down side from maturing foreign currency forward contracts. A moderate increase in operating expenses as we make measured investments in important strategies that we believe will result in accelerated growth, more specifically, we will increase our marketing and sales force investments behind Merrell, Sebago, Chaco and Cushe brands in order to increase consumer awareness of and receptivity to these brands in several of our most important subsidiary markets. Additionally, we will continue to invest in our high performing consumer direct businesses and our apparel and accessories initiatives, both of which are benefiting from the fresh ideas that come from new seasoned leadership. These investments, along with a modest increase in pension expense will be partially offset by the realization of incremental benefits from our restructuring program and ongoing spending discipline.

A full year affective tax rate at 29%, reflecting a continuation of the benefits from new tax strategies implemented during 2009. It's worth noting that the collective efforts we put to our tax planning are paying off with an average effective tax rate that is markedly lower than the effective rate of just a couple of years ago. We are projecting full year weighted average shares outstanding of 49.9 million up from 49 million in 2009, as the diluted impact of outstanding stock options reflect the higher average share price in 2010, than was experienced in 2009. Taking all this into account, we expect fully diluted earnings per share in the range of $1.88 to $1.96, representing growth of 6.2% to 10.7% versus the prior year. The foreign exchange downside for more maturing foreign currency forward contracts mentioned earlier, is currently estimated to be $0.04 per share. The range of earnings after adjusting for this FX downside is $1.92 to $2, or growth of 8.5% to 13% versus 2009.

For those of you who run models on Wolverine, I'd like to note that when you are calculating out the basic or fully diluted earnings per share, you need to reflect that during 2009 we adopted EITF 03-6-1. Under the guidance of this rule, unvested share base payment awards that contain non forfeitable rights to dividends such as our restricted share grants are considered participating securities and decrease the net earnings available to common shareholders. Therefore, calculating our earnings per share is no longer as simple as dividing net income by weighted average shares outstanding. We have noted the adoption of this EITF in our quarterly SEC fillings during 2009, but I have recently noticed a few analysts models that don't appear to be adjusting our net income accordingly. For reference, the adjustment of fiscal 2009 net income to arrive at income available to common shareholders for the calculation of fully diluted EPS was about $1 million. To complete the picture, we expect capital expenditures to return to historically normal levels in 2010 with a current target of $20 million to $25 million.

I'm going to end my comments where I started talking about execution. Wolverine is a Company with the brands, the talent, the infrastructure, the consumer following and a reputation for innovation that have positioned us well for 2010. We are closing the books on a challenging and rewarding 2009 and are looking forward to 2010. We believe that as the global economy continues its measured recovery, our lifestyle brands are uniquely positioned for great success in their respective markets, and it is our team's execution that will deliver on this promise. I will now turn the call back over to Blake for some closing comments.

Thanks, Don. We are obviously very pleased we performed well in 2009 despite the global recessionary environment. Our team remained committed to the execution of our business plan and to delivering exceptional product that exceeded the expectations of our consumers and retailers. Disciplined execution against our dynamic business model allowed the Company to take market share and deliver record amounts of cash and strong earnings all while significantly reducing inventories and limiting risk.

Looking ahead we enter 2010 as a more lean and nimble Company ready to take on the challenges of the market. We are excited about our prospects for the new year. Lastly, I want to especially thank our global team members who worked extremely hard all year to overdeliver in an incredibly challenging environment. Your only as good as your people and we have one of the very best teams in the industry. Thanks for your time this morning.

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

Thank you, we will now begin the question-and-answer session. (Operator Instructions). At this time, we will pause momentarily to assemble our roster. Our first question comes from the Jim Duffy of Thomas Weisel Partners.

Good morning, Jim.

Couple of questions for you guys, have you seen any change in order behavior from your retailers? You talked last year about increased reliance on at once businesses. Is that shifting back now, more towards a forward order business and what would you expect the impact on seasonality in 2010 to be?

We are seeing Jim, we are seeing a return, probably not all the way there yet, but seeing a return to more normalized ordering patterns. For example, for us, as you know, Q2 and Q4 tend to be a little bit more at once weighted especially at the beginning of the quarter but then with, for example, in Q4, future orders for spring coming in the door. So last year, 2009, obviously a very erratic ordering pattern from retailers, in Q4 though, kind of return to a more normalized pattern. Obviously we were very pleased with our, the rate of incoming orders especially future orders late in the quarter. I'm not sure we are all the way back yet to the level of the pre-recessionary environment but we are seeing a more normalized pattern.

Jim, I will say I don't envision a significant impact on the seasonality of our business because what is key is the ship date. Whether the order comes in as a future order or an at-once order, as long as we have the inventory in stock to ship, we'll do so. So, I don't envision a significant shift on the seasonality of revenue in 2010 as a result of modest shift in the order patterns.

That's a good lead in to next question. Inventory balances are down, you guys talked about going narrow and deep to be in stock on key items where you thought there might be replenishment opportunity. Are you comfortable with where your inventory position is and opportunity to capitalize on some of the reorder business?

We have been working on narrow and deep for at least four years. So we may not be perfect but we are pretty good at it. With our existing inventory on hand, and more importantly, our flow coming in as planned, we feel very comfortable.

Inventory came in quite frankly, a little lower than we thought, probably certainly since the last time we spoke to you guys at the end of Q3 in an official way. Recall that our inventory was exceedingly high at the end of 2008 for reasons we noted at that point in time. The low inventories contributed to the record free cash flow generation in 2009 and based on the orders in the pipeline and expectations of delivery of inventory from our third party factories, we feel good about where we are.

Okay. Final question I'm going to ask you to speak in more detail about the incremental SG&A that appears to be getting layered in the model. As I play around with the numbers, there is meaningful benefit, on-going benefit from restructuring, with the revenue growth, it implies that you are making a significant, I should not insignificant, investment behind some of the brands. Can you speak in more detail about what the specific initiatives are and the return you hope to get from that?

Yes, we have been pretty up front. We are going to invest in all of our brands. We singled out Merrell, Sebago, Chaco and Cushe as bigger growth drivers and the investments there are going to be in marketing, that's across the board all forms of marketing, as well as in some cases selling sales force. But we are also selectively overinvesting, if that's the term you want to use, in several other programs. You take the Wolverine brand for example, the thousand mile boot program and the 1883 boot program, very hot right now, and we are going to put some additional umph behind those initiatives too.

We talked about a moderate increase in SG&A. I prefer to not lead discussion on SG&A for next year as percentage of sales because the unknown is what your sales are going to be. But we are targeting a mid single digit increase in SG&A, we have some restructuring benefits that will benefit the SG&A line in 2010. We talked about $6 million to $8 million of additional total restructuring benefits portion will benefit the SG&A line, some of that will be offset by modestly higher pension expense in 2010 versus 2009. We have resumed, or we will later with merit increases for employees after foregoing those last year. We didn't want to go a third year with no merit increases for employees and then the investments that Blake talked about.

Blake, on the investments, where will the emphasis be on marketing, how will the dollars be spent, can you speak about what you are doing with the sales force?

On the marketing side, there will obviously be some up tick in traditional media form. But we are going to put a lot of effort for and it's appropriate behind some brands in social media channels and especially trying to win that last three feet at retail. Your brands, your footwear have got to look great that last three feet so your consumers pick up the shoe and simply try it on. We will be focusing a lot on retail and social media. When you look at brands like Cushe, or Merrell, those avenues are really important. Obviously on the sales force side you take Chaco and Cushe, those brands have been with us less than a year, and we are still in the process of ramping up. Those are both two key growth initiatives for us, they are not huge businesses now but the potential is there.

Thank you.

Thanks Jim.

Our next question comes from Kate McShane of Citi Investment Research.

Thank you, good morning. It was great to hear about Merrell apparel's backlog numbers for spring. I was wondering if you could tell us what is driving that. Is the business in new doors that you weren't in last year or are they all incremental orders from the original accounts?

I think there are always new doors there is always a few great additional doors you want to get in to. And Merrell apparel has done there but it's having more brand-right items for a lot of our existing accounts. It's not a huge business but we still view Merrell apparel as one of the keys to Merrell becoming our first billion dollar brand. And as you know, in the recessionary environment, we have been through the last 18 months or so new product categories, new brands such as Merrell apparel have especially had a tough go as retailers kind of consolidated brands and refocused on, and taken a conservative approach to merchandise mix.

I don't want to be dismissive of double digit backlog increase, it's always good to see that kind of performance, but the business is still relatively small but I think what we are seeing in the double digit increase along with new leadership is giving us increased confidence that Merrell apparel is going to be the type and side of business we envisioned and launched apparel in 2007.

Great, thank you. Is there any color you can give us around your currency assumptions to get to that $0.04 impact you talked about today. Can you tell us what you are assuming for the currencies for 2010?

The currency assumptions, I will give you, really result in flattish operating income impact the driver of the $0.04 has to do with the rates at which we entered in to contracts for inventory that will flow through cost of sales in 2010, compared to the inventory that flow through cost of sales in 2009. Having said that, the rates we are assuming are conservative in the spot rates assuming $1.55 for the British pound, $1.35 for the Euro and $0.90 cents for the Canadian dollar, each of those rates are conservative than this morning or yesterday's spot rates. But if you do the year-over-year comparisons that's a wash in terms of those rates versus the average rates in affect for 2009 that the single biggest driver, really the only driver of the $0.04 negative FX, has to do with the contract maturation rates for cost of sales for 2010.

Final question is on sourcing. We are hearing on the apparel side there seems to be accelerating rate at which some of the raw materials are increasing and also capacity seems very high at the factories currently. I wondered if you could talk about the second half of the year which I know you do expect inflationary trends, do you see them accelerating, how much there maybe to that scenario?

I will give you color on that. It's difficult predict the second half of the year. As we said before we expect first half product costs, this is footwear now, our collective apparel businesses are still relatively small, but we expect first half cost in footwear to be down compared to the prior year. We do expect and have planned for, costs to up tick in the second half for footwear. We expect full year net benefit on the plus side for us. But we do expect some increasing costs in the second half. Quite frankly all of us are going to know a little bit more in three or four weeks here after we get past Chinese New Year and see what the labor situation and capacity is in the southeast Asia factories, especially in southeast China.

Okay that's very helpful, thank you.

Thanks Kate.

Our next question comes from Mitch Kummetz of Robert Baird.

Thank you. Let me start out with a couple of modeling questions. Or I should say, housekeeping questions. Don what were the average share outside in the Q4?

49.5 million.

And then what were the Q4 revenues by group? Blake you touched upon increasing and decreases. Could you give us the actual sales numbers?

Sure. For the Hush Puppies company, $33.4 million. Wolverine footwear group, $76.8 million. Outdoor group, $110.4 million. Heritage brands group, $51.7 million. For the other segment retail and leathers, a little bit of corporate revenue, $40.3 million.

That's helpful, thank you. Then getting back to your guidance for 2010, starting with your sales guidance, 3.5% to 6.3%, growth for the year, and Don, you made the comment that comparisons get tougher in the back half. As we are modeling out the year, should we be modeling more growth in the first half than second half? I'm guessing FX has negative in the back half versus the first half and I guess you don't have full visibility on the fall orders yet. Is that how we should be thinking about our model?

Yes, pretty much. You're correct regarding FX having more negative impact on reported revenue in the second half of the year. That led to that comment. Just in terms of the business conditions that existed in the first half of last year, versus the first half of this year, things started to improve in the back half in 2009 in terms of consumer sentiment and different macroeconomic indicators so that leads us to believe that the second half, we're optimistic that the second half will be as encouraging as the first half.

That's fair.

Mitch, certainly comparisons will be a bit easier, should be a bit easier, in the first half given where the world was in the first half of 2009. Clearly as we progressed through the year, we saw improvements in underlying business.

I'm also wondering if now that the environment improved a little bit that that won't eventually be reflected in the fall order book as well, or too hard to say.

I hope you are right.

The early leads from our major retailers and customers would indicate that would be the case we will have to see what happens over the next couple of months.

Last question. On the gross margin outlook for 2010, your expected gross margin to be up modestly, I believe you said. Could you tell us what that means, is that ten, 20, 40 basis points of gross margin improvement? I would assume that more favorable gross margin outlook in the first half versus the second half given product thoughts and FX, but would you expect gross margin to be down in the back half given those two items?

We don't give quarterly guidance at that level of detail. We will stick to that modest gross margin expansion comment for now. I will say that in terms of cost of sales the foreign exchange hit that we are talking about, the $0.04 a share, is mainly going to flow through in the first half of the year. The benefits we will get from lower product costs in the first half in some respects offset by the foreign currency, forward contract hit versus prior year numbers. Beyond that we are still planning for and guiding to full year gross margin expansion and work hard to make sure that it's better the numbers we have written down.

Let me ask one last detailed question on the pension expense what do you expect the increase be for the year?

$1.1 million.

Thanks, good luck.

Thanks.

Our next question comes from Tom Shaw of Stifel Nicolaus.

Hey, Tom.

Good morning, guys. Let me ask a couple of clarifying questions here. With the outdoor group at 110.4, that looks flat year-over-year but some of the numbers you mentioned were more in the up mid single digits. Were you giving a comparable calendar to calendar?

That was adjusting for the one last week in this year's Q4.

Okay. I guess a shift over to more of a strategic type question, with the restructuring done this year, is there anything else we should be thinking about in 2010, 2011, you mentioned some opportunities on the sourcing side with Chinese factories. Any color there on how you may look at additional round of strategic opportunities?

No. This is Blake, Tom. I think we've addressed everything at this point that we think needs addressing. Obviously 2009 was a project filled year for the Company and our team but we pulled through it very well. We don't see any particular new strategic infrastructure issues that need to be addressed in the coming year.

When we complete this strategic restructuring plan in the first half of 2010, we will stop talking about nonrecurring charges except for comparing our results going forward to results in the past that are adjusted for that. That doesn't mean we will stop looking for opportunities to get better and smarter as a Company. We are going to keep doing that, finding ways to get more efficient, reducing discretionary spending. We are not going to be announcing charges that go along with that.

That's helpful. Last one, pardon me if I missed it looking at Merrell I know you mentioned in Europe or internationally, I know you're in the early stages of the life cycle, are there major performance differences you are seeing international versus domestic and terms of how the brand is being received maybe beyond the US borders?

Not really the brand is being widely accepted in just about every country where it's currently placed. Merrell is one of our most international businesses. It currently is sold in 162 countries around the world. They recognize innovative cutting edge product whether it's in Chili, Japan, whether it's in the United States or whether it's in eastern Europe. We are pleased with the broad acceptance of the spring product lines and early response to our fall product line. We haven't seen, especially for that brand, any kind of geographic shift or difference.

Thanks, guys.

Thank you.

Next question comes from Christopher Svezia of Susquehanna International Group.

This is [Christina Chen] for Chris Svezia. We wanted to clarify, could you give us some color by brand as to what your expectations would be for revenues next year. We know you would be focusing on Merrell, Sebago, Chaco and Cushe - but what about the other brands in the portfolio?

Those brands that you cited, that's what we talked about where we will be making investment next year that will benefit 2010 revenue but it's about investment for 2011 and beyond a reasonable doubt. Beyond that we don't offer revenue guidance by brand. That stops at the consolidated revenue guidance we gave.

I would say that we have plans in place to grow all of our brands in the upcoming year.

Do you would you expect Chaco and Cushe to be accretive to earnings by next year?

I think collectively those two will be accretive to earnings. Chaco even surprised us this past year. Obviously Cushe even much younger in brand development than Chaco, so we will still be investing in Cushe this coming year, but I believe collectively we expect those brands to contribute in 2010.

Great, that's all I had, thanks.

Our next question comes from Sam Poser of Sterne, Agee & Leach.

Good morning. I just have a couple of questions, I just want to follow up on your guidance outlook for 2010. The backlog numbers that you have in are through Q2 right now, correct?

A little bit in to Q3 but heavily weighted towards Q2.

You mentioned that the back half guidance of the back half of the comparisons are more difficult so we would be more apt to put more of a sales increase on weighted total first half of this time.

We said comps may get difficult in the back half of the year.

How much of your guidance is based on the currency comparison, a more difficult comparison in topline, versus just not having orders yet? That's the lack of knowledge which you should have in the next three to six weeks.

Its both Sam. We had the full knowledge that currency will be more favorable in the first half of the year, than the back half assuming current spot rates hold for the full year. But also it's a less, much lower visibility of the first half of the year than the back half of the year. To answer your question is both.

Could you weight them for us?

About 50-50.

How is it looking from a credit basis with your overall retail partners? Especially a lot of independent business throughout your brands, and how is that looking in to 2010 right now?

Our collections held up quite well. Obviously talking more on the global basis, but our DSOs at year end down one full day versus the prior year. Coming off the heels of a very very tough year in which credit was difficult to come by and some major events happened in the course of the year that maybe stuck credit away from certain customer base, DSOs were down at year end, we feel good about collection going in to 2010, that makes us feel good about that.

Same question about distributors, we have been hearing access to cash for distributors overseas is difficult.

When I talk about DSOs, that includes receivables from distributors as well.

Okay. Then just one last thing, I can't find. Can you break out other and retails in leather for us, since you gave the numbers.

We don't break that out separately. It's reported as one line item in the Q and K.

Thank you and good luck.

Thanks Sam.

Our next question comes from Todd Slater of Lazard capital.

This is [Dianna Katz] for Todd. Can you talk about retail expansion, what your store opening plans or square footage plans are for 2010. What are the average size for the stores? With a high single digit comp, what would lead you to accelerate store openings further?

We have about a 90 store company owned retail chain. We have opened some stores as tests in several countries over the last year or two. The two Montreal stores for Hush Puppies, we are looking for some US locations to continue that expansion, but the two Montreal stores for Hush Puppies performed very well. Our five outlet stores in the UK performing very well. The Merrell concept stores, although not large in number right now, are performing especially with the addition of better performing in apparel and accessories in those stores. So net-net we will probably close some under performing outlet stores under multi-brand formats in 2010 but will probably be adding six to ten stores in total new stores next year. These are company owned stores.

But you also have to step back and take a look at our global picture. Our global retail footprint is much larger than our 7% reported income number would indicate. Our partners, distributors, licensees have about, in total, well over 5,100 dedicated points of sale around the world for our brand. Lots of stores, lots of shop in shops and many global distributors are retailers as much as wholesalers or even more so. So our brands have a very large global retail presence and we are looking to expand our presence here in the United States. We said in the short and midterm we are working to take our own retail reported sales from 7%, to 15% of our overall sales.

Okay. Great. Thank you. You also mentioned that you had repatriated cash in the quarter, one usage would be potential acquisitions. Can you discuss what types of footwear companies are you looking to acquire, is it focused on younger consumers like Cushe and what kind of multiples are seeing out there?

A couple of general comments - as you know we have a very successful history when it comes to external initiatives integrating them in to the company and making them a success. It goes all the way back, probably 15 years to Cat and Harley and Merrell and Sebago and Chaco, and Cushe. We have a disciplined approach for external initiatives. Without going in to specifics, we like brands with some heritage. We like brands that are authentic. They don't necessarily have to be big, they don't necessarily have to be important yet in the United States. But we like brands with a heritage that we can plug and play in to our international distribution model. That's what we did for Merrell, that's what we are in the process of doing now for Cushe for example, even though it's a small brand. So we look at purposeful brands and brands with a heritage in general. I think on the acquisition front there wasn't much activity back last year but I think multiples are creeping up a little bit as there is some additional limited availability of cash. I certainly wouldn't say though that the capital markets are back to anything approaching a normalized level at this point.

And then finally Don is it possible to quantify the impact of the one less week on EPS in the quarter?

Good question. Not an easy way to do that given the variable versus fixed nature of our cost structure. We discussed that and wondered if someone would ask the question and congratulations, you win the prize. It's difficult to do. It's difficult to do given our cost structure.

Okay.

So we haven't.

Thanks a lot.

Thanks.

The next question comes from Scott Krasik of CL King.

Thanks, guys. She beat me to the EPS question. I assume it was negative impact, though?

Sure. Yes.

Okay. Blake, what's the comment from the retailers right now in terms of the spring orders, is this still a market share grab or are they increasing their inventories their receipt plans, their sales plans overall, and you're getting your share of that?

I think there is a couple of key factors. I think the good retailers have been working on their inventory levels for 18 months and everybody has been working on them for at least 12 months. It was a little frustrating for us in 2009 we would look at the MPD data for example for Merrell and see the sell through rates at retail still performing in a severe recessionary environment but we were not seeing fill in orders that we would normally frankly expect. We are starting to see that now. So I would say overall consumer traffic is certainly up-ticking somewhat. It's probably not back to pre-recessionary leveling but up-ticking compared to last year Q1. For example, we are seeing retailers that brought their inventories down to such a point that they have to plan some excitement in their stores. They are doing that with future orders. So the ones that are left are independents and specialty outdoor people that are the very best operators, so we are seeing those general trends.

Then you're entry in to the wellness toning category with the body shoe line of Hush Puppies, what are your retailers saying they see there. Are they saying, great, Hush Puppies is trying to get a little piece of the action. Is this something that they are truly committed to with a bunch of different brands? Do they want to keep it to a couple of brands, what's your reaction been?

I think in general retailers are going to feed the consumers what they want to eat. Right now you can call it walking. The new term of course is toning. There is not frankly, a lot of difference but Hush Puppies been in that arena for at least 25 years that I know of at the company. The buying shoe concept and brand name goes back to the early 1980s for example. It's clearly a trend right now. I don't know if it's going to be a fad or sustained trend, but I think in general it ties in to a more macro-trend that we seen over the last five or six years of tied to the outdoors, tied to being environmentally conscious, and I think it's going to continue here at least in the short run.

Have the department stores bought the wellness product from you guys or more of a independent?

Most of the body shoe product focused on placing with the key independents.

Okay. Thank you. Good luck.

Thanks, Scott.

Next question comes from Jeff Blaeser of Morgan Joseph.

Good morning, thanks for taking my question. On the retail front, outside of selling only your products are your retailers doing anything different than your customers to generate the positive comps in the back of 2009?

I think every retailer including our own retail division is obviously all year, especially in 2009, is working on conversions. You got to be focused on converting into actual sales the people that actually walk through the front door. That's true for us, that's simple blocking and tackling, and that's true for other retailers. I think the more forward looking retailers are looking for excitement. They understand that we've come through a very difficult period. We are probably not totally, the consumer is not totally out, of the bowl yet, so they need excitement in their stores. They need something new. They need something a little different, it can be a Cushe, it can be some of the product offerings from other brands but they need that kind of excitement in the store so they can convert the sales.

We are seeing positive comp store performance across all retail concepts, our retail formats so that's been encouraging. It's the focus on conversion, traffic has been spotty but the conversion rates have really gone up significantly and it's a testament to the new retail leadership team and the focus on retail blocking and tackling. It's been a very gratifying improvement in those metrics field to comp store sales increases across all the formats.

Okay. Thanks, over to Merrill you mentioned about brand awareness as an opportunity and in the past you talked about markets outside of your top 20 is also an opportunity for Merrill growth. Any additions that you can relay in terms of timing as to how to improve those two categories?

I think with respect to the first question it's just getting on the train and being steady at it for a period of time. The good news for us, when you number one or two number in intent to repurchase and a relatively low brand awareness, that's a big growth opportunity for the Company and that's where Merrill is today. We are going to ramp up some of the marketing initiatives that I talked about earlier whether it's social media or winning the last three feet in the retail store and that's a constant focus for us throughout this year and into next year. That same is true for Merrill on a global basis.

One last if I may, Cushe and Chaco, is there any way to compare pre your acquisition and today; doors, international markets, I'm sure you won't give specific sales, but magnitude of the growth you put in the two categories?

Chaco started out, I would say Chaco today is still more USA focused. It started out as a performance sandal brand for white water rafting in the United States about 15-16 years ago, that's still where it's heritage is. Cushe is really casual shoes for younger people. We got lots of fancier names than that, but it's really casual shoes for younger people. And although smaller than Chaco now I have to say probably the bigger upside in the midterm is certainly with the Cushe brand.

Blake mentioned in his remarks that Cushe is approaching 50 countries of distribution now, which makes the brands sound like it's bigger than it really is. But you have to get distribution before you can get sales and then repeat sales and so on. We feel reasonably encouraged about, more than reasonably encouraged, about where we are getting distribution, it's a matter of building the brands from that point.

Thank you very much.

Thank you. At this time we have no further questions. I would like to turn the call over to Christi Cowdin.

Thank you. On behalf of Wolverine World Wide, I would like to thank everyone for joining us today and as a reminder our conference call replay is available on our website at www.wolverineworldwide.com. Replay will be available through Wednesday February 17th, 2010. Thank you and good day.

Thanks.

This concludes today's conference call you may now disconnect