Wolverine World Wide Inc (WWW) 2010 Q1 法說會逐字稿

Good morning, and welcome to Wolverine World Wide's first quarter 2010 earnings conference call. (Operator Instructions).

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

Thank you, Nikki. Good morning, everyone, and welcome to our first quarter 2010 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 first quarter 2010 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. 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 recognized with attached 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 investor's page, and then click on the file called WWW Q1 2010 Conference Call, GAAP versus non-GAAP Disclosures. Before I turn the call over to Blake Krueger to comment on our results, I would like to remind you that the predictions and projections made in today's conference call regarding Wolverine World Wide and its operations may be considered forward-looking statements by securities laws.

As a result, we must caution you that, as with any prediction or projection, there are a number of factors that could cause results to differ materially. These important risk factors are identified in the Company's SEC filings and in our press releases. And with that being said, I would now like to turn the call over to Blake.

Thanks, Christi. Good morning to everybody, and thanks for joining us today. This morning, we reported excellent results for the first quarter of 2010. Revenue was up double digits and our earnings leverage was very strong. All operating groups posted significant revenue increases, but the Outdoor group, the Hush Puppies group and the Retail division all achieved strong double-digit growth. Our earnings performance in Q1 was an all-time record, and our asset management was also excellent. The positive trends in the business that started in Q4 last year continued and accelerated during the first quarter.

The actions we took last year to streamline our infrastructure, re-double our focus on product development and brand innovation and maintain the non-promotional, full-price nature of our brand all contributed to an excellent Q1 performance. The global economic tide has clearly turned in favor of our brands, with most of our major markets showing steady economic improvement. Our multi-brand, multi-country and multi-category business model delivered solid results in a challenging environment, and even better results in an improving global economy. Product innovation and compelling marketing fueled impressive growth across our business, and our consistent track record of attracting and growing new brands led to a better than expected performance for our Cushe and Chaco brands.

Our performance is leading to further opportunities to expand in existing channels, as well as opening new door opportunities for our brands. Overall, we are very pleased with our Q1 performance, and are increasing our sales and earnings guidance for the full year. Now let's take a look at how our brands are performing, and we'll start with the Hush Puppies group. The Hush Puppies group, which now includes Cushe, delivered very strong results for the quarter, with both sales and earnings up double digits. Revenue for the quarter was $39.2 million, an increase of 13%.

Turning specifically to Hush Puppies, the brand posted a high single-digit revenue increase for the quarter, with increases in the US, Europe, and our international distributor businesses more than offsetting a slight decrease in Canada. The global network of Hush Puppies stores and shop-in-shops also continued to expand in the quarter. New stores were opened in Saudi Arabia, Malasia, and India, bringing the global total to about 530 concept stores, along with over 1200 dedicated shop-in-shops. Product innovation certainly contributed to the Hush Puppies Q1 growth, and is critical for the continued success of our initiative to take the brand more up market in the US. The new Hush Puppies 1958 Collection, featuring vintage products inspired from our archives, has been enthusiastically received around the world. In addition to resonating with better independent specialty stores in the US, our Men's 1958 product will be featured in all Nordstrom stores this fall, and Bloomingdale's has ordered the product from our 1958 Women's collection for its top 10 doors. This is obviously very positive news for the brand.

The Body Shoe collection, which is targeted at consumers desiring a more active and healthier lifestyle, is also performing well. Retail sell-throughs have been good, and plans are in place to aggressively expand this offering and capitalize on the momentum in the toning and shaping category. Our Cushe brand, which has the youngest consumer demographic of all of our brands, delivered strong results, well above our internal Q1 plan, as consumers are responding favorably to Cushe's unique product offering. The Cushe Coastal Supremacy segment of the line features the Manuka series of sandals and the newly delivered Surf-Slipper collection, which are quickly becoming signature products for the brand. Substantial progress was made in opening new Cushe wholesale customers in North America. In addition to the extensive base of better grade independent specialty stores I mentioned last quarter, premium retailers, including Nordstrom, Orbis and Whole Earth, have placed orders for delivery in Q2 and Q3.

During the quarter, we also signed four new international distributors, bringing the total number of markets where Cushe brand is available to 50. The first Cushe concept store opened in the Philippines, and we have plans for additional international concept stores later this year. While Cushe is very early in its brand cycle, the global reach of our business model and a growing North American presence reinforces our belief that Cushe represents a significant mid-term growth opportunity for the Company. Overall, it was a very good quarter for the Hush Puppies group. Let's turn to the Heritage Brands group, which includes Sebago, as well as our two largest licensed footwear business, Caterpillar and Harley-Davidson. The first quarter marked a return to growth for the group, with revenue of $49.4 million, up almost 7%, helping to drive a strong double-digit earnings performance.

Geographically, Europe was the strongest region for growth. For Cat footwear, revenue increased in the mid-single digit range, driven by our European business, which continued to capitalize on the current trend towards vintage rugged boot products. The Cat brand remains strong internationally, with increased sell-through rates in many of our key markets, including China, the Middle East and Russia, despite some financing issues with a couple of international partners. For Cat, product innovation is driving a healthy order position, with particular strength in both Europe and the US. These increases in part reflect a positive reception to our autumn winter product line, as well as the continuing strength in key product concepts, including the patented [I] technology and the premium legendary raw collections.

Turning to Harley-Davidson footwear, revenue was down low single digits for the quarter, reflecting the effect that the continuing weak motorcycle market in the US is having on related footwear sales. Outside the US, revenue was up double digits, driven by the continuing strength of the global fashion trend towards classic American profiles, including harness and biker boots. Our Sebago business posted an impressive double-digit revenue increase for Q1, with particular strength in Europe and other international markets.

Unique trend-right product is driving this growth, with recent product collaborations with London-based Kurt Geiger and New York City based [Vain] and Billykirk helping to expand Sebago awareness to a younger consumer segment. This has led to further expansion into premium retail channels, including Harrods and (Inaudible) in the UK, as well as Nordstrom and Saks Fifth Avenue in the US. Sebago has a long tradition of being associated with world-class competitive sailing, and we recently signed with the Quantum Sailing Team, which is a top tier competitive of the European-based Audi MedCup circuit. This multi-year arrangement showcases Sebago footwear and apparel which will be worn by the team. With the strong revenue increase in Q1, along with a strong backlog position, we are optimistic about the outlook for the Heritage Brands group.

Turning to the Wolverine Footwear group, revenue for the quarter was $56.7 million, up 6%, with earnings up at a significant double-digit pace. The Wolverine brand had a very good quarter, achieving a double-digit sales increase. The Wolverine brand continues to be a leader in the core work category, with solid sell-throughs in our major retailers. Our top 20 customers have generated double-digit growth in 2010, driven in part by continued success at retail by the brand's innovative Contour Welt product line. The brand's commitment to product innovation was again recognized by the retail community, as retailers polled by one of the industry's leading trade publications voted the Wolverine brand the winner of the Design Excellence award in the Work Boot Category for an unprecedented 11th consecutive year.

This commitment to product innovation and design excellence was also evidenced by the success of the premium Wolverine 1883 and 1000-Mile Boot programs, which have driven a significant increase in Wolverine's rugged casual business, and which have also expanded the brand's distribution to include retailers such as Neiman Marcus, Nordstrom, and Urban Outfitters. Our Wolverine brand apparel program also continues to gain momentum. Revenue for the quarter exceeded both plan and prior year by a strong double-digit margin. Looking forward, our fall 2010 offering has been well received by our retail partners, resulting in a bright outlook for fall. Although still a relatively small business, we expect it to double this year. For the Bates business, revenue for the quarter was flat due to a planned reduction in military shipments, but the success of our Bates ICS technology and expansion in big-box accounts fueled strong double-digit growth in the civilian sector.

Internationally, Bates continues to focus on becoming a global leader in the uniform and military sector, as evidenced by increased growth from international police and military customers. The Wolverine and Bates brands continue to have incredible brand loyalty and are still recognized as the gold standard in their respective categories. The Outdoor group, which includes the Merrell, Patagonia footwear and Chaco brands, had an excellent quarter, with sales of $113.5 million, up almost 16%. Sales and earnings for each brand increased at a strong double-digit pace, reflecting their innovative product offerings which continue to resonate with consumers. I am excited about the opportunities that lay ahead for the Outdoor group, as we continue to drive product innovation, consumer demand, and category expansion.

Starting with Merrell, the Outventure -- that's the Outdoor Performance category -- performed exceptionally well this quarter and continued to reinforce the brand's position as a global leader in the Performance Outdoor segment. This category is showing strong double-digit increases in 2010 by virtue of its multi-sport, water sport and hiking offerings. Key product successes include the Women's Chameleon Arc wind program -- a light, sleek hiker -- and continued retail momentum with established product platforms, including the Men's Moab, the Women's siren and the Water Pro collections. The new Cole hiking program was featured in the Backpacker Magazine Editor's Choice Gear Issue, and has also sold through well at retail. Spring sell-through of Merrell's Fusion -- that's its Outdoor Casual category -- has been very good, including the next generation of women's land sandals and the new Zenith collection. Our men's casual programs have also been gaining momentum for fall, especially the updated World and Encore programs. Despite the recent successes, the Fusion category for both men and women remains a significant growth opportunity for Merrell.

Retailers also recently awarded Merrell the winner of the Design Excellence award in the outdoor category for the eighth year. Merrell Apparel shipments significantly increased in Q1, as retailers have reported strong sell-throughs during the spring season. During the quarter, Merrell Apparel was prominently featured in many outdoor and sport publications, including the Backpacker Magazine Editor's Choice Gear issue previously mentioned. Future orders for fall '10 product offerings are up strong double digits. Merrell Apparel remains grounded in technical elements that include many environmentally friendly materials and constructions. This program has enabled us to accelerate the opening of Merrell Lifestyle stores around the world. Merrell's global retail presence continued to expand in the first quarter with the opening of new stores in Korea, Italy, Mexico, and New York. Merrell ended the quarter with almost 110 branded stores and nearly 950 shop-in-shops.

Company-owned Merrell concept and value stores had an exceptional quarter, posting a substantial double-digit comp store sales increase. Patagonia footwear had an excellent quarter, and it's experienced strong sell-through of key styles with our top outdoor specialty retailers. All of our performance products, such as the Drifter AC Hiker and the (Inaudible), a very light weight trail runner, as well as our new women's casual products, are contributing to this growth. On the consumer front, Patagonia footwear continues to benefit from a very loyal consumer base and the brand's ongoing commitment to making the best possible product with no unnecessary harm to the environment.

Turning to Chaco, sales increased double digits in the quarter, reflecting the fiercely loyal consumer base for this pure Outdoor Adventure brand. We've now owned this brand for just over a year and have dialed in enhanced consumer marketing programs and built sufficient inventory to deliver faster replenishment programs for all of our retail partners. As a result, many retailers are looking to expand their Chaco business, especially with the new closed shoe product offerings we introduced for fall 2010. 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. The first quarter also included a continuation of the exceptional comp store performance we experienced in Q4 in our Company-owned stores, which reflects the strong consumer response to our branded product offering.

For Q1, our Company-owned stores recorded a strong double-digit comp store sales increase well over twice the rate of the industry. Our direct-to-consumer eCommerce business also continued to post very strong double-digit revenue growth. Overall, we are obviously very pleased with our Q1 performance and the positive momentum in the business, and we have increased our revenue and earnings expectations for the year. Many of our key global markets are showing signs of economic recovery; and the Footwear sector, consistent with our expectations, is one of the consumer categories that is on the leading edge of the recovery.

Lastly, another encouraging indicator is our improving rate of incoming orders, especially future orders. Our order backlog at the end of Q1 was up very strong double digits, with all brand groups showing significant increases. While retailers appear to be placing orders somewhat earlier to make sure their shelves are full and to ensure fresh product is available when needed, the increased flow of incoming orders is consistent with the global economic recovery and the momentum we see in our business. I'll now turn the call over to Don Grimes, our CFO and Senior Vice President, who will provide with you some additional information regarding our Q1 results and our outlook for the remainder of the year. Don?

Thank you, Blake, and good morning to everyone joining us today. Earlier this morning, we were very pleased to report an outstanding start to the fiscal year, with double-digit revenue growth, significant operating margin expansion, record earnings per share, and continued strong double-digit return on invested capital. We had reasonably high expectations for the first quarter, and our brands and our teams delivered on all fronts. Congratulations to everyone on the Wolverine team listening in today for an excellent job. Reported revenue for the first quarter was $284.9 million, a strong 11.6% increase compared to the prior year.

All four branded wholesale operating groups contributed to the impressive revenue performance in the quarter, with the Outdoor group, comprised of Merrell Footwear and Apparel, Chaco, and Patagonia footwear leading the way, with robust results across all major geographies. The Hush Puppies group, which includes our new Cushe brand, delivered a very encouraging 13% revenue growth, and our Heritage Brands group and Wolverine Footwear group each delivered solid single-digit revenue increases. Comp store sales increases of nearly 16% across our 85 brick and mortar retail stores, continued strong double-digit growth in our eCommerce business and improved results from our Wolverine Leathers business complete the impressive revenue story for the first quarter. Management believes that Wolverine's geographic diversification, reflected by the fact that our portfolio is marketed in over 180 countries and territories around the world, is a key competitive advantage.

In the quarter, revenue from outside the United States increased from 38% to 41.5% of total revenue, reflecting both solid organic growth and the benefits from a modestly weaker US dollar. We've discussed in the past, but it's worth repeating here, that Wolverine's business model, which relies in part on long-standing relationships with third party distributors in most our international markets, actually understates our geographic diversification, because we record only royalty income on the vast majority of sales in those markets. On a unit volume basis, 67% of our wholesale footwear and apparel business in the first quarter was outside the United States, which is much more reflective of our earnings distribution. This reduced dependence on any single market helped soften the impact of weakness in any one regional economy.

The Company's comprehensive restructuring plan announced in early 2009 was focused on driving efficiencies in our supply chain and back room operations, and is now nearly complete. We are pleased that the Wolverine team, particularly our global operations group, was able to so successfully execute such a wide range of productivity initiatives during last year's global economic upheaval. Total restructuring charges of $38 million to $39 million, of which approximately $10 million are noncash asset impairment charges, and most of which were recorded last year, will result in ongoing pretax cash benefits in a range of 19 million to 21 million, a compelling financial return to our shareholders. During this year's first quarter as the restructuring plan was winding down, we incurred $1.5 million of charges, 1 million of which was recorded in cost of sales related to the consolidation of our domestic manufacturing operations.

Adjusting for restructuring charges and cost of sales in both years, gross margin expanded 40 basis points to 41.6%, due primarily to lower product costs, benefits from the restructuring initiatives, a mid single-digit increase in average selling prices and a positive mix shift from the strong revenue growth in the quarter from some of our highest gross margin businesses -- the Outdoor group, Hush Puppies and Retail. These positives were partially offset by year-over-year negatives from maturing FX forward contracts. In the second half of this year, we expect modestly higher product costs and less of a benefit from pricing as we begin cycling against quarters in which the price increases were in place.

However, these second half gross margin headwinds will be offset by projected year-over-year benefits from maturing FX contracts and continued positive mix, such that we are still expecting moderate full-year gross margin expansion. Turning to operating expenses, adjusted for restructuring charges in both years, SG&A in the first quarter increased 4.3% to $78.5 million or 27.6% of sales, compared to $75.3 million or 29.5% of sales in the prior year. The stronger US dollar accounted for 2.5 million of the 3.2 million net increase in SG&A. Consistent with the strategy that we discussed during our Q4 earnings call in February, the Company increased its investment in advertising and promotion in the quarter by 15%. The incremental investments are weighted more towards consumer-direct communication, our designed increased brand awareness, which will in turn drive trial and adoption and will be a key driver at future growth in sales and profits.

Additionally, we filled important new sales positions in the US, Canada and Europe, organizational investments aimed at maximizing the growth opportunities for key brands in the portfolio. These incremental investments in the quarter were partially offset by ongoing financial discipline over discretionary spending and by modest year-over-year benefits from our restructuring plan. We strongly believe that being consistently vigilant on discretionary spending and driving efficiencies in every corner of the organization, and then allocating these dollars to incremental and impactful brand and organizational investments is the right approach for the business. Over time, this strategy -- consistently and correctly executed -- will result in market share gains and sustained growth in shareholder value.

To underscore the power of this brand investment strategy, according to data from NPD, Merrell's market share of the outdoor and hiking categories for the three months ended this past February increased 230 and 260 basis points respectively, and Merrell remains the top brand in each category by a wide margin. Merrell also gained 250 basis points of market share in the men's dress casual category for the same time period. The same NPD data shows that the Wolverine brand gained over 300 basis points of market share and Bates gained about 70 points of market share in the men's work boot category. This excellent performance reinforces our belief that our brands have compelling propositions that resonate with consumers, and we're doing a better job of communicating the story.

As a Company, we're not content to just be buffeted around by macroeconomic factors growing at the same rate as the industry. Our goal is to continually expand market share in every single channel of distribution and in every category in which we choose to compete. The modest gross margin expansion in the quarter and excellent operating expense leverage combined to drive a significant expansion in our adjusted operating margin from 11.7% in last year's first quarter to a record 14.1 % in this year's first quarter. The attractiveness of our business model to an investor is underscored by the fact that our operating income grew at almost three times the rate of our revenue growth. Our 29% effective tax rate in the quarter was substantially below the 32.3% rate from the prior year, reflecting the benefits from international tax planning strategies implemented in the prior year. We are very mindful of the benefits that result from thoughtful tax planning, and intend to continue to evaluate other opportunities to minimize our tax rate.

Finally, fully diluted weighted average shares outstanding in the quarter were 49.5 million. Taken all together and adjusting for restructuring charges in both years, fully diluted earnings were $0.56 per share in the quarter, a 37% increase compared to the prior year's $0.41 per share, representing an outstanding start to the fiscal year. I mentioned earlier that the US dollar was modestly weaker in the first quarter against each of our most significant foreign currency exposures -- the British pound, the Euro and the Canadian dollar. Just a few comments to clarify the FX impact on our operations. Foreign exchange increased reported revenue by $9.2 million or 3.6%, and increased reported cost of sales by $8.1 million. Included in the $8.1 million impact on cost of sales is a $2.5 million negative swing from maturing FX forward contracts. And as noted earlier, FX increased reported SG&A by $2.5 million.

Net-net, reported operating income in the quarter was negatively impacted by $1.4 million, and fully diluted earnings were negatively impacted by $0.02 per share. Inventory at the end of the first quarter was $171.8 million, 21% lower than the prior year's $217.6 million, reflecting both successful inventory management in the current year and the fact that the prior year's inventory levels were inordinately high due primarily to inventory investments ahead of factory price increases. We feel very comfortable with our inventory position and believe the quality of our inventory has never been higher. The Company repurchased approximately 884,000 shares of its own stock in the open market during the quarter for $24.6 million, an average price of $27.80 per share.

Approximately 200,000 of these shares were purchased under the April 2007 share repurchase authorization, which is now exhausted, and the remaining shares were purchased under the new $200 million four-year share repurchase plan we announced in February. The Company continues to have a very strong balance sheet and outstanding liquidity. Given the seasonality of our business, the first quarter typically has negative free cash flow due to necessary investments in working capital. Having said that, we still ended the quarter with almost $85 million of cash and cash equivalents and with full availability of our $150 million revolving credit facility. Our revolver matures in July of this year, and we're well into the process of refinancing.

As expected, we have received a very positive response from the lending community, as every participant in the current bank has expressed interest in remaining, and several prospective new lenders are also being considered. It's very gratifying to be consistently recognized as a strong, financially viable and well-run Company. As Blake alluded to earlier, our order trends in the first quarter have been very encouraging. In fact, we have positive year-over-year growth in incoming orders in 11 of the 12 weeks of the quarter, and the pace of incoming orders accelerated as the pace progressed. As of the end of this past week, our footwear and apparel backlog was up about 30%. As one of my former colleagues used to say, "The trend is our friend" and we're obviously pleased with the direction of our backlog.

But before everyone gets excited and tries to extrapolate 30% revenue growth for the balance of the year, we need to note that a meaningful but difficult to quantify portion of the year to date order pattern has been driven by a shift in the timing of orders this year versus last, and is reflected by the fact that our year-to-date futures orders are up very significantly, while at-once orders are up only a modest amount. This shift in order patterns is being driven not only by retailers confident about consumer behavior in the second half of the year, but also by concerns about factory capacity in Asia as the global economic recovery continues. Retailers and wholesalers are concerned that factory capacity taken offline last year will not be reinstated at the same pace, and about the potential impact on lead times as factories shift to other locations both within and outside of China.

While we're extremely pleased with our first quarter results and with retailers' response to our Fall product offerings, we're not getting ahead of ourselves, and we're not fooling ourselves into thinking that our current backlog position versus the prior year is reflective of organic revenue growth; and we would caution those of you listening today to not succumb to that temptation either. Despite that cautionary note, we are increasing today both our full year 2010 revenue and earnings guidance. We are now projecting revenue in a range of 1.16 billion to 1.19 billion, representing growth of 5.4% to 8.1% over the prior year, up from prior guidance of 1.14 billion to 1.17 billion. We expect revenue growth in Q2 to moderate versus Q1 and then pick back up in the back half of the year, resulting in full year reported revenue in the indicated range.

This view for the balance of the year is based on, one, our assessment of our current backlog aging; two, our expectations for at-once business over the remainder of the second quarter; and three, an absence in this year's Q2 of business that occurred in last year's Q2 to help reduce inventory levels. We still expect minimal full-year impact from foreign exchange on reported revenue, as a projected stronger dollar in the second half of the year will offset the FX benefit in Q1. We're still projecting moderate full-year gross margin expansion and a modest increase in full-year operating expenses. Adjusted for restructuring charges in the range of $0.03 to $0.05 per share, 2010 fully diluted earnings per share are now expected in the range of $1.92 to $2 per share, representing growth of 8.5% to 13%, up from prior guidance of $1.88 to $1.96 per share.

Further adjusting for a projected full year negative foreign exchange impact of $0.02 per share, fully diluted earnings are in the range of $1.94 to $2.02, representing growth of 9.6% to 14.1% versus the prior year. Reported earnings are anticipated to range from $1.88 to $1.96 per fully diluted share. Finally, as another reminder to those of you running models, new accounting guidance from last year requires an adjustment to reported net income in the calculation of fully diluted earnings per share if a company pays dividends on invested restricted shares, as is the case of Wolverine. For the full year, we are projecting a $1.4 million adjustment to reported net income, and this adjustment is reflected in the earnings guidance just mentioned. I'll now turn the call back over to Blake for some final comments.

Thanks, Don. We're obviously very pleased to have delivered another quarter of excellent results, which is the end result of a great team proactively managing a proven business model. We believe the Company is positioned for an outstanding 2010. Thanks for your time this morning. We'll now turn the call back to the operator so we can take your questions. Operator?

(Operator Instructions). Our first question is from Mitch Kummetz of Robert Baird.

Yes, thanks, and congratulations on a great quarter. A few questions, first is on the backlog. Don, you gave a lot of color there, talked about the shifts in receiving orders and some impact on at-once. I'm just trying to get a better sense in terms of how we should be thinking about the sales over the balance of the year, because your sales guidance at the high end -- I think it's about 8% sales growth or about 7% over the balance of the year. And you made some comments about Q2 and the back half, so maybe you can give us a little more color on how you think those sales should play out over the balance of the year.

Well, first of all, we're obviously pleased with our current backlog position. We spent a lot of time trying to analyze how much of it is timing, how much of it are orders that are coming in early versus last year, how much of it's reflective of the environment this year versus last year in terms of a shift just more towards future orders as their increased confidence regarding consumer behavior in the back half of the year. I guess, Mitch, to answer your question, we spent a lot of time internally trying to seasonalize our revenue expectations over the balance of the year. We expect growth in Q2 to moderate versus the growth -- the revenue growth we had in Q1. We expect the growth rate to pick back up again -- not to exceed obviously the Q1 growth rate of 11.6%, but to be stronger revenue growth in Q3 and Q4 this year, such that the total revenue we think will end up in the revenue range that we have cited.

Now, we have certain expectations regarding what at-once business will be over the balance of the year based on what we have experienced in Q1 and what we've experienced to date in Q2. To the extent at-once business is stronger than what we have currently built into our forecast -- there's a possibility it could be stronger than that -- but certainly we've spent a lot of time trying to come up with what we think the full year revenue projection ought to be based on current trends.

Okay, do you think that sales growth in the back half will be stronger than the first half? I would think that open-to-buy would be stronger in the back half than in the first half, and I would think that you guys would be getting an increasing allocation of that open-to-buy just based on the strength of your brand. So how do you -- I mean, back half versus first half could you potentially see stronger growth in the back half?

We're presuming or projecting negative FX on the back half of the year in terms of reported revenues, so that will be a headwind for sure compared to the first half of the year. But for the reasons I cited in terms of analyzing our current at-once order trends, or how the current backlog ages out and also adjusting for some business that occurred in last year's Qs that will not recur this year, we expect Q2 growth rate to moderate a bit and then based on how the backlog ages, picking up again in the back half of the year.

Sure. Okay. Then, Blake, could you comment a little more on the retail environment and to the extent that retailers are chasing inventory now, and to what extent you've been able to fulfill that and with your inventory down as much as it is at quarter end, how are you guys thinking about inventory going forward and just having open stock available for reorders?

Yes, with respect to the retail environment, I guess we had expected the footwear category to lead out of the recession. It historically had in the past out of a recessionary environment, and it's doing so again in macro terms. I would say focusing just on consumer soft goods and footwear in particular, confidence has built more quickly than it has for the economy, maybe as a whole. So maybe the recovery in our sector is going to be a little more V than U. That's just my general impression right now. We do expect confidence to continue to build with consumers and our retail customers. But the smart retailers have spent the last 18 months or so really trimming their inventories down. So this may be a little bit quicker than expected bounceback for them, has got them scrambling to fill their shelves, especially fill their shelves with exciting product. And as Don alluded to, there's concern about some of the supply chain issues in the Far East with factories moving inland and going to new countries and not bringing capacity back online at an accelerated pace.

So the smart retailers are also placing their orders a little bit earlier than normal. That's our impression. But overall, I think there's a general optimism. The footwear retail environment is significantly improved in Q1. We've certainly seen it in our own stores, which in the US had over 16% comp store sales increase. That kind of a consumer response to our branded offerings is obviously very good.

Okay, and then maybe a last question for Don. On the SG&A, on the Q4 call, you talked about it being up or expecting it to be up mid-single digits for the year, and then now you're saying modest increase. Are you still looking for kind of in the mid single-digit range, or has that bumped up a little bit just because your sales outlook has bumped up?

No, it's in the same range. I think we probably said moderate increase in SG&A during the script in Q4, and then we maybe got a little more specific and said mid single. But that's still the same range we're expecting.

Okay, great. Thanks, and good luck.

Thanks, Mitch.

Your next question is from Jim Duffy of Thomas Weisel Partners.

Morning, Jim.

Good morning.

Good morning. So I'm going to follow up on Mitch's questions. I just want to make sure I understand the backlog and shipment trends, because it's kind of an about-face from what you were saying coming out of the fourth quarter. You were saying that retailers were ordering less and buying more to need. Are the retailers so concerned about factory capacity that they are building inventories now?

Well, I think there has been a significant switch. I think it's been a quicker bounceback for footwear compared to some product categories and some industries, and retailers need to plan fresh assortments in their stores and on their shelves. So we're seeing some of that as well. But we have seen a significant shift back to future orders. So the pendulum once again seems to have swung, like it swung in Q1 last year, more towards at-once business, and it has swung back to future orders.

With the benefit of 20/20 hindsight, Jim, we really started to see a subtle shift toward the end of Q4 in terms of the order pattern. I think we talked during the Q4 earnings call that we thought that the orders we had received year to date through the 1st period of our first quarter, where retailers kind of just ordering based on anticipated consumer take-away, but certainly from early February through now we've seen just an acceleration of that order pattern. And the pendulum really has -- to use the overused metaphor, the pendulum has swung back towards future orders, and it's been pretty dramatic over the last eight weeks.

I'm glad to see it swinging that way. Let's try to put it in the context of the Q1 numbers, Blake or Don. Do you feel that what you're seeing from a sell-in standpoint is matching what the retailers are seeing from a sell-through standpoint? Or can you quantify any disconnect that there might be?

It's really hard to match it up precisely, Jim. But I would say that generally when we look at the sell-through reports we get when we look at the published data, whether it's NPD or other sources, our brands are performing well at retail. They are performing for our retail customers, and so those people are obviously coming back to us with not just future orders, but at-once orders.

I mean, there are always going to be some anomalies or timing issues from quarter to quarter, Jim. But I would say to answer your question, we reported 11.6% revenue growth in the first quarter, and our guidance is for a range of 5.5% to 8% revenue growth for the full year. The key takeaway would be there's some revenue in Q1 that is kind of refilling the shelves and not necessarily reflective of the consumer takeaway in that quarter.

Okay. That's very helpful. And then on the topic of factory capacity, your inventories are lean. How do you feel your fix for factory capacity in a rebounding consumer demand environment?

Well, Jim, as you know, it's comforting to be one of the largest players in the industry and have a big pencil. So I think the factory capacity and lead times are going to be an issue for the whole industry the rest of this year. But obviously, when you're a bigger player and have a bigger pencil, you move to the head of the line. I suspect you're going to see some smaller -- very good, but smaller brands and businesses have more significant problems as the year unfolds. But we are keenly focused on our supply chain and simply doing things better, faster, and less expensive.

And then final question, does that bigger pencil help you with some of the smaller brands like Chaco and Cushe?

It certainly does. Absolutely.

Okay, great. Thanks very much, and nice quarter.

Thanks, Jim.

Thanks, Jim.

Thanks, Jim.

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

Hi, it's Oliver [Chen] for Kate McShane. Congratulations on a great quarter.

Thanks.

We were curious if you could speak to the current inflationary environment and what assumptions are incorporated in your guidance. In the last several weeks, have you seen inflationary pressure?

Are you speaking specifically in the footwear space, or broader macroeconomic inflation?

In the footwear space related to potential cost pressures.

Yes, I think, Oliver, we're anticipating cost increases in the second half of the year. We have been anticipating that for sometime. I think the price of oil increasing over the last six months and leather going up significantly -- maybe from an unusually low level for side prices, but leather going up; and just the number of parts that are moving in the supply chain are all going to contribute to some pricing pressure, and we see that hitting primarily in the second half of this year. It's hard to really quantify right now. We're in some of those discussions as we speak, but we do see some price pressure and some higher prices coming through the industry as a whole.

But despite those cautionary notes, everything Blake said is correct. We're still expecting full-year gross margin expansion, so we have plans in place. We're seeing the benefits in Q1 and Q2 this year of selling price increases that were taken last year mid year. We'll begin cycling against those in Q3 and Q4, but having some year-over-year gains on maturing FX forward contracts, as well as some positive mix shift, makes us comfortable that we'll still have full year gross margin expansion.

And kind of thinking about the back half for Q3, Q4, how would you think about ASPs in that context? Do you think the momentum is going to moderate from that perspective?

Yes, across the portfolio, our average selling price is up mid-single digits in the first quarter. You would see probably something a little less than that in Q2, and that mitigating in Q3 and Q4 again as we cycle against periods last year when those price increases were already in place.

Okay, great. And then if we could ask you about inventory, regarding your negative 21 this quarter, do you expect that to become a lot less negative or positive going into '10?

Yes, certainly.

We would expect the inventory levels to increase here, and that (inaudible) to shrink by a substantial margin as we progress through the year.

Do you think next quarter will be in the positive territory?

It's hard to say right now, but we would believe right now we would kind of be flat to down to 5%, somewhere in that range. Again, it's difficult to predict. We had -- frankly, we had better than expected sales in Q1, and that contributed to our lower inventory. Hopefully, we'll have the same situation in Q2.

We made substantial progress each quarter last year working our inventory down. We started the fiscal year off with very high inventories for very legitimate reasons, and we worked the inventories down during the course of the year. So we're comparing inventory at the end of this year's Q1 to inventory last year that was still higher than normal. And so we would expect the inventory comparison to become more normal. And if the business is growing, you make investments in inventory, so that's really a good thing, as long as you're investing in the right inventory.

Great. Sounds very encouraging. Thank you very much.

Thank you.

Thanks.

(Operator Instructions). Our next question is from Chris Svezia of Susquehanna Financial Group.

Good morning, everyone.

Good morning, Chris.

Nice job. I guess first a question for you, Don. Just so I'm clear about this, can you walk through your thoughts with regards to currency and how it impacts the gross margin timing, maybe more specifically in terms of what you're seeing and how we should think about that?

Sure. I mean, over the balance of the year, we expect FX, based on our current assumptions, to be a negative on reported revenue, a positive on reported cost of sales from a translation perspective, but then a negative in terms of the maturing of FX contracts, which will be another drag on gross margin in Q2, for example.

Right.

But net-net, when it all shakes out for the full year, we expect gross profit to be just modestly negatively impacted by foreign exchange with a very small benefit on SG&A such that the full year impact on operating income is about a negative 1 million or 1.5 million or about $0.02 a share.

Okay.

Really when it all shakes out, it's really minimal impact on the bottom line $0.02 cents; but $0.02 on a $1.92 to $2 is relatively small.

Okay. Helpful. And then I have just a question on the Hush Puppies business. Over many years we've heard certainly a migration in terms of to improve the positioning here in the US, opening up additional Macy's stores, seems like you're getting some additional traction now at Nordstroms. That's good to hear. So I'm just curious, based on just kind of past history, are we at a point now where potentially based on what you're seeing, we might see more just kind of consistent growth in the Hush Puppies business in the US as we kind of progress throughout this year?

Yes, I would say really from a macro standpoint, we've turned the corner. So we're looking to build this business now with better grade product and better grade retailers. Our business at Macy's is very good, but Hush Puppies being in all Nordstrom stores for Fall is very good news. The women's product being in the Ten Best Bloomingdale doors is very good news. So we've got some product developments and innovation initiatives underway where we're looking to grow that business at a steady pace from here on forward.

And, Chris, as you know, I'm not a shoe guy or product guy. I tend to react more as a consumer might react. And I'm as excited now about the Hush Puppies Fall offerings as I've been in the two years that I've been with the Company just in terms of the product itself and the distribution that they are gaining in Nordstrom's and Bloomingdale's makes me reasonably excited about what the Fall 2010 and 2011 can represent for the brand.

Oh, come on, Don, don't sell yourself short there.

Okay. So one other question, not to beat this to death, just on the backlogs, so I understand this, when you came through fourth quarter, you were up, I think, 7 or so. On your 10-K reference, looks like it was up 18 or 19. You're now up 30. And I understand the switch and what's going on. Last year backlog came down significantly in terms of what was driving your business, became more at-once. I guess when you look at what you have on order, can you maybe talk about how you think your cancellation rates will look this year versus last year? Maybe how your at-once will look this year versus last year? And maybe on the backlog itself, is that for product delivery -- assuming Q2 is sort of an at-once quarter, is that really for Q3? So I'm just wanting you to kind of flush some of those thoughts out.

Yes, cancellations year to date are lower than they were last year. Cancellations are a normal part of the business, so we're always going to have -- not inconsequential cancellations in any quarter, but they are running the a lower rate this year than last year, not surprisingly, given th at we had orders going into the books going into last year from Fall of '08, and that was a pretty dramatic cancellation, right? Which is why we kept adjusting the backlog last year for excessive cancellations. Just in terms of the backlog, as it sits now, there has been some questions asked or some confusion about how long out in time the backlog goes. As we sit here today and we looked at our current backlog as of the end of this past week, the backlog really extends early into 2011; but in broad strokes, without giving you specific numbers, we have backlog orders on the books now that represent about 80% of kind of expected Q2 revenue, about 70% of expected Q3 revenue and about 40% of expected Q4 revenue. So it gives us some pretty deep visibility into the back half of the year.

So when I gave that -- I won't call it guidance, when I gave that viewpoint about how we think revenue is going to skew over the balance of the year, it's based on fairly good information. But recognize that the backlog is in place now, and a not inconsequential portion of that will ultimately be canceled and be replaced by at-once orders that come in during the course of the quarter. So at-once orders have been weak, but they have been weak because they have been replaced by very strong future orders, which net-net is very good for the supply chain, because we have visibility into what our retail customers want, and then consumers have a greater likelihood of finding what they want on the shelves when they go into the stores. So net-net, we're very pleased to see the shift back towards future orders. It bodes well for our ability to place orders with factories well ahead of time.

Okay, okay. It seems like when you think about revenues for Q2, which is typically a reorder quarter if I'm not mistaken, you're assuming a percentage of that business is obviously reorder, which you would say year-over-year is down for the second quarter?

I don't know. I think you have to remember that last year, like just about everybody in our industry, we had a higher percentage of closeout sales than we are expecting this year, or in a normalized year.

Right.

So even flat at-once business compared to last year would be probably a pretty significant uptick from a normalized level.

Okay --

I think you also have to remember that unlike the athletic guys, about 45 to 50% historically of our business in any given year is at-once business -- skewed more towards Q1 and Q4, but about 45 to 50%.

Okay, okay. Helpful. Congratulations, then. Best of luck to you guys.

Thanks, bye.

Thanks.

The next question is from Sam Poser of Sterne Agee.

Good morning.

Good morning, Sam.

Can you give us the sales -- the actual dollar sales of the leather and retail business?

You mean separately?

Yes, you usually break it out in the Q, but just wondered if you had it.

We included what we disclosed in the Q in the attachment to the earnings release. There's a schedule that shows revenue by operating group and then the other business units in the quarter, which is the combination of retail and leathers.

Oh, got it, all right. And then, you gave the percent of your international business in total. Could you break that out by Europe, Canada and Other for us?

I don't have the breakdown for the quarter in front of me. We have in the past said that our business in Europe ranges between 20% and 22% of total business. That was pretty consistent in Q1 of this year, without having the exact numbers in front of me. I don't have the exact numbers in front of me. I don't think in the past we've ever actually broken out business in Latin America or Asia-Pacific in terms of the reported revenue.

Okay, and I mean just to follow-up on all this futures, I mean, you broke out the amount of percent of total revenue. But I mean, this is the first time over five years you've had every single division -- every single segment -- up on a given quarter. And I guess my question is, how the trend seems to be working your way. You talked about it with that vintage American trend that's helping Cat and it's probably helping some of the 1958 collection and so on. Is this something that you see accelerating throughout the rest of the year? Because I mean, especially when you're looking at your Heritage businesses, that theoretically should be much, much stronger when we look towards the back half.

I would say, Sam, I agree with you. There's no getting around it. This was obviously a block buster quarter from a number of different viewpoints -- from sales, from incoming orders, from a quicker maybe than expected turnaround or our brands and our performance at retail. So this clearly was a block buster quarter. When you go back historically, an unusually positive quarter. It's hard to extrapolate that to the rest of the year. We are trying to take a realistic view. We spend a lot of time analyzing trends and where we think we're going to go, and we're providing our best guidance. I think we have to all remember, only 12 weeks have gone by in this fiscal year. We'll know more at the end of the Q2 and we'll obviously give everybody some additional guidance at that time. But no, it was a very good quarter. There are some fashion trends that are in our favor right now. The wind is in our sails, and we're going to take advantage of those.

Thanks. And then one last thing, on Hush Puppies, with that increase, how much of that increase was driven by the new -- essentially that 1958? I mean, that sounds like what a lot of the growth is to get into Nordstrom and Bloomingdale's and stuff. But I mean, how much of that is that increase versus let's call it the core women's shoe business?

Yes, I would say we haven't hit the high tide mark for the introduction of the 1958 collection, for example. So all of the virtually -- a good substantial portion of the Q1 increase relates to the Body Shoe and other collections in our line. The full force of our 1958 collection hitting all Nordstroms stores this Fall and some of the Bloomingdale's stores, that's still to come.

Okay, and then lastly, we haven't seen a men's boot trend in a long time, probably since the '90s.

Yes, when we had grunge.

Yes, and it looks like we're moving towards something like that. That would in theory drive higher ASPs and also probably negate some of the margin pressures, just because this almost could be regarded as potentially new businesses, in that there seems to be a real move that way and you really probably sold less pairs over the last three years in those categories than you may into the back half of this year.

Yes, I agree, Sam. I mean, obviously a strong boot trend and accelerating boot trend is going to be good for our Company. And it's especially going to be good for our retail customers for higher average selling prices.

All right. Well, thank you, and continued success.

Thanks.

Thanks, Sam.

The next question comes from Jeff Blaeser of Morgan Joseph.

Good morning. Thanks for taking my question. This might be a little too granular, but when you look at the 5% to 8% growth estimate for this year, any way you can break it down in terms of new product introductions -- new products, Cushe, Chaco, apparel, new doors such as Nordstrom for core product growth?

That's too granular.

It would frankly be too difficult to do that, especially when you look at the portfolio, ten primary brands we operate. Obviously, you take some of the work boot brands, they would have a higher percentage of carry-over product. Some of our other brands would have a higher percentage of new product introductions. But --

I mean, obviously we have more detail, and you should be pleased that we have more detail than just the numbers that we gave you. But we typically don't disclose revenue outlook on a brand level.

I know, I have no doubt you have more detail. I had no doubt you probably wouldn't answer that either (LAUGHTER). You also mentioned obviously it was a very positive quarter. Was weather a negative factor domestically? Obviously on the East Coast there wasn't a lot of outdoor activity going on earlier in the year, and in the southern states. Did that have any impact?

It may have had an impact, but I think that weather issues -- even though we had some 80-degree days here even in the Midwest in March -- I think frankly any impact that the weather had was overshadowed by the bounceback in our industry sector.

Okay, and international obviously seems stronger. Anything you can point to? My view is the international has been bouncing back slower than the domestic. Is it lower retail levels, easier comps, more fashion focused consumer, timing?

I think there's a lot of different stories around the world. I mean, you've got countries like Australia that sell into the abyss but had an almost immediate bounceback. You've got other regions from a macro standpoint, like Europe, that may lag the US a quarter or two coming out of the recession when you look at GDP data and some of the other economic factors. That being said, all of our brands had a very good business in Q1 in Europe. So we're seeing general strength build across our international network of about 180 countries where our brands are sold.

Okay, great. And then finally, on the SG&A, do you still have what -- 6 to 8 million in savings left from the cost cutting? And just how would that compare to your planned brand building investments that you spoke --

Again, the number you cite, 6 to 8 million, will be total restructuring benefits year to year. A portion of that would be SG&A and portion and cost of sales. I think in the first quarter, we had about 3 million of year-over-year benefits, 2 million was in the cost of sales line and 1 million in SG&A. So certainly we talk about moderate increases and SG&A for the full year. We expect our incremental investments in brand building and organizational investments to outpace the savings. That will manifest on the SG&A line from the restructuring program.

All right, great. Thank you very much.

Thanks.

Bye, Jeff.

Your next question comes from Jonathan Grassi of Longbow Research.

Good morning, guys. On that 6 to 8 million should we expect 3 million or 5 million in the second quarter have come through for the cost savings?

We don't give it by quarter. It's over the balance of the year. So there will be some savings that occur even as late as Q3 and Q4, because some of the initiatives were just kind of getting under way last year during those quarters. So of the 3 million in Q1, another 3 to 5 million over the balance of the year.

Okay, thank you. And then part of your plan for Merrell in 2010 was to shelf presence on existing doors. Can you kind of discuss the progress you've made on that so far and kind of how we might see improvement in the second half of the year?

Yes, I mean, success and sell-through at retail usually leads to more shelf space, and that's what frankly we expect for Merrell. Merrell's performing well across all of its categories, especially in its multi-sport and some of its other performance categories. There are always some new doors that we will open. But I think the primary focus in some of our more mature markets, like the United States, is to focus on expanding product categories and taking additional shelf space. So we see strength really across the entire Merrell line, men's and women's, and in just about all distribution channels.

Okay, thank you.

Thank you.

And the next question comes from Scott Krasik of BB&T Capital Markets.

Hey, guys. Thanks for taking my call.

Welcome back. Good morning, Scott.

The question on Merrell -- good to see the Fusion is starting to get better. At its peak, sort of what was the split between Outventure and Fusion, and what's the outlook maybe for this year and next year -- can that meaningfully regain share?

Yes, I mean it's hard for me to sit here and give you any kind of percentage breakdown. I think the performance category has always been larger for Merrell. When you go back several years, we probably didn't follow up fast enough on the World collection, and a couple of other collections in the Fusion casual category where we had great success. We're doing that now. Some of that new product is just hitting as we speak now. The full force of that, we probably won't see until Fall and next year's Spring season, but we view the whole Fusion category as a big potential growth opportunity for Merrell. Certainly NPD data from this past spring indicates that we're already having some success, for example, in dress casual, but it's a big, big time opportunity for men's and women's.

Yes, well, the NPD data was certainly a positive. What channels of distribution are you growing in for men's dress casual?

Really, all channels, including our outdoor specialty channels. You know, if you look up at the Outdoor specialty business in the United States, 10, 12 years ago, their footwear wall was pretty boring and pretty narrow; and Merrell's really the brand that enabled them to take that wall, expand out into multi-sport, Jungle Mocks and other categories increase their overall footwear business. And so we see the Fusion category being relevant not just to Dillard's and a lot of our other great retail partners, but also to our independent and even the outdoor specialty people.

Okay. That's good to hear. And then you mentioned, I think with Cat, you still have some international distributors that are struggling financially. How big of a problem is that? And is that getting better every day? Is this an issue that's going to last through 2010 into 2011?

It's clearly not a material problem. When you have the international scope that we have -- 180 countries -- even in great times, you're always going to have a few distributors that are going to have financing issues. But overall, we do see it improving. Credit, slowly, but surely, is opening up, not just here in the United States, but around the world. So we have a couple of issues right now, but certainly not at the material level.

And anywhere we have exposure, Scott, certainly we believe we're fully reserved. And then just a sample of one, that we received some good news last week from a key Cat and Hush Puppies distributor in terms of getting individual credit insurance to getting their business back on track. So a sample of one of the things that appear to be getting, and hopefully that will continue over the balance of the year.

Okay, I was actually looking at it from the other side. Can you get a lift as these guys come through that you're not even seeing yet?

Oh, you're putting a positive spin on it.

Yes, that was my point.

I would say the lift we're going to get from our international partners is coming from a general increase in their business. It hasn't been hand strung to a material level by their lack of financing.

All right. Well, good work. I'll talk to you soon.

Thanks.

Thanks, Scott. Bye.

Thank you. At this time, we have no further questions. I would now like to turn the call back over to Ms. Christi 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, and the replay will be available through Tuesday, May 1, 2010. Thank you, and good day.

Thanks.

This concludes today's conference. You may now disconnect.