Wolverine World Wide Inc (WWW) 2010 Q4 法說會逐字稿

Good morning. Welcome to Wolverine World Wide fourth quarter and full year 2010 earnings conference call. All participants will be in listen-only mode until the question-and-answer session of the conference call. This call is being recorded at the request of Wolverine World Wide. If anyone has any objections, you may disconnect at this time. I would now like to introduce Ms Christi Cowdin, Director of Investor Relations and Communications for Wolverine World Wide. Ms Cowdin, you may proceed.

Thank you Amy. Good morning everyone and welcome to our fourth quarter and full year 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 both fourth quarter and full year 2010 record results. If you did not yet receive a copy of the press release, please call [Abby Brandt] at 616-233-0500 to have one sent to you. The release is also available on Money news sites or it can be viewed from our corporate website at www.WolverineWorldWide.com. This morning's press release included non GAAP disclosures. These disclosures were reconciled with attached tables within the body of the release. Today's comments during the earnings call will include some additional non GAAP disclosures. There was 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 please click on the file called WWW Q4 and Full Year Conference Call GAAP vs 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 with any prediction or projections 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 to everyone and thanks for joining us. This morning we reported outstanding financial results for the fourth quarter and the full year 2010. Including record revenue and earnings per share. We closed the year with significant positive momentum as our pace of growth increased for the fourth consecutive quarter. Our Q4 revenue increase was well over 20%. Every brand in our portfolio posted revenue increases in Q4. All brand groups delivered strong double-digit sales increases. Additionally, the geographic breadth of the revenue growth was widespread as all regions grew at a double-digit pace. Our unique business model which includes 12 brands over 190 countries and territories and multiple product categories and nearly 6,300 dedicated retail points of sale around the world continues to deliver strong financial results for our shareholders.

We see tremendous momentum in all aspects of our business heading into 2011. Our Company and brands are thriving despite the slower pace of the economic recovery in a few regions. The order backlog in each brand group is up substantially from the prior year with a consolidated year end backlog increase of over 38%. All of which is helping to fuel our view of the strong 2011 performance. I'm extremely proud of the team's efforts this year and our 2010 performance and very enthused about the prospects for 2011. Now I'll spend a few moments talking about the performance of our brand, followed by a few comments on our recently announced reorganization. Let's start with the Hush Puppies group.

The Hush Puppies group which also includes Cushe and Soft Style had a strong quarter and delivered a double-digit revenue increase. Hush Puppies continues to be one of the largest and most successful global footwear brands and is a cornerstone in our brand portfolio. In case you missed it yesterday, the Hush Puppies brand was featured in an entertaining segment on The Today Show. Revisiting how the brand brought casual to America in the late 1950s and early 1960s. It was a great piece of very positive public relations for the brand and was titled - How Hush Puppies Changed The World. Revenue growth in Q4 in 2010 was strong for Hush Puppies with the biggest regional increases in Europe, Asia-Pacific, and Latin America. India was especially successful with growth of 60% in 2010. Hush Puppies global retail presence continued to grow in Q4 with concept stores added in Saudi Arabia, Malaysia, Singapore, Indonesia, and Pakistan. The Latin American countries of Colombia, Costa Rica, Nicaragua, Peru, and Venezuela, also added concept stores in Q4. Hush Puppies ended the quarter with a global count of 580 concept stores and almost 1,400 dedicated Shop-in-Shops around the world.

We are very excited about the 2011 Hush Puppies product assortment, in particular the vintage 1958 collection continues to gather consumer and retailer interest, most notably with premier accounts like Nordstrom in the US and The Bay in Canada. Additionally, The Body Shoe concept which is marketed globally continues to gain momentum. We will launch two major new concepts for autumn-winter 2011. First, the Anna Sui Collection for Hush Puppies is a perfect combination of Hush Puppies' colorful, casual style and Anna's ultra feminine appeal. It will appear at a runway show during New York Fashion Week later this month. Also launching is the Laidback Lux concept, a new modern and younger breed of casual shoe. Hush Puppies continues to grow as casual lifestyles in the Americana trend expand around the world.

Now to Cushe. Our action sports lifestyle brand for younger consumers continues to take shelf space and finished the year with a triple-digit revenue increase. The response from retailers and our international partners continues to be very positive and the brand is now available in 55 countries. Cushe is winning with cutting-edge product design and that is attracting a younger consumer. 2011 will be another year of significant growth for the Cushe brand. Next, the Heritage brands group which includes Sebago as well as our two largest licensed footwear businesses, Caterpillar and Harley-Davidson. The group had an exceptionally strong Q4 and finished the year with a double-digit sales increase. Turning first to Sebago. This brand is one of our focus growth initiatives and finished 2010 with its strongest quarterly performance of the year. The brand continues to be trend right delivering fresh, innovative product inspired by its New England marine heritage. Following up on the success of our Nexus Project and Artisan Collection collaborations, we unveiled our alliance with the Filson Company at our international sales conference in November. The co-branded footwear, apparel and accessories offering will feature Filson's famous oil Tin Cloth fabrics and are already generating trade show buzz and interest from younger consumers. Increased focus on product innovation has certainly helped Sebago open better grade to retailers in 2010. This premier distribution will continue into 2011. Sebago will have an exclusive Shop-in-Shop within the Saks Fifth Avenue flagship store in New York City, a Shop-in-Shop in Galeries Lafayette in Paris and an all door offering at Nordstrom's by the first half of the year. Sebago expanded its retail presence in Q4 with the addition of two new concept store locations in Norway and Venezuela and ended the year with 45 stores and around 150 dedicated Shop-in-Shops. Additional openings are planned for 2011. We're obviously very pleased with the growth trend of the Sebago brand.

Turning to Cat Footwear. The brand finished a strong 2010 with an outstanding Q4 sales increase, boasting exceptional revenue growth in all markets. Cat's product development and brand building investments paid dividends this year in the form of stronger sales and placement in premium distribution such as Galeries Lafayette in Paris, The Tannery in Boston, Kurt Geiger in London and [Zachy's] in New York City. The brands unique position as both an authentic work brand and on-trend street fashion brand allowed Cat to capitalize on the rugged work wear trend. Cat's premium legendary Raw collection experienced its best year ever and the continued rollout of the Earth Movers creative campaign has resonated especially well with retailers and younger trend conscious consumers. During Q4, 3 more Cat retail stores were opened in Mexico, Chile and Peru. Currently industrial product launches like the Flexion collection which focuses on anti-fatigue ergonomics met with a very positive consumer response and posted exceptional sell throughs. Cat enters 2011 with a very strong backlog position based in part on continued momentum in the legendary Raw collection and in the women's product categories. We are very bullish about the future of the Cat Footwear brand.

Finally Harley-Davidson Footwear posted a very good sales increase during Q4 and finished 2010 with positive growth in each region for the full year. In particular, the brand achieved a double-digit growth in Europe and with our international distributor partners. Driven primarily by new Lifestyle product offering. We are very excited about the new performance riding product including the new collection that features the unique vibration response system, designed to reduce vibration for the rider. Now let's turn to the Wolverine Footwear group which includes Bates, Hytest and the Company's oldest brand, Wolverine. The Wolverine brand had a spectacular quarter and finished the year with a strong double-digit sales growth in all markets. These results reflect new vintage fashion product, but even more importantly, excellent momentum in the core US work business, where the Contour Wealth collection growth increases. The rugged casual category also experienced excellent growth led by the more fashion oriented 1000 Mile Boot and 1883 collections which are priced from $180-$325 at retail.

The Wolverine continues to benefit from the global consumer trends favoring True Heritage brands, Americana styling, and boots in general. The new 2011 product offerings are in very high demand as evidenced by the brands year-end backlog. The Wolverine booth at the recent Bread & Butter show in Berlin was simply mobbed, pretty much standing room only. Wolverine is also on its way to becoming a Head to Toe Lifestyle brand. The apparel program continues to be well received by retailers and this business doubled in 2010 and has a triple-digit backlog increase for Spring 2011. The program has developed into a year-round business. We will continue to expand our assortment with existing retailers, add new accounts, and look for international growth opportunities. The Wolverine brand recently contracted with Do-It-Yourself Network host, Jason Cameron, to serve as the brand spokesperson and promote the brand through a national media campaign, brand and product videos and in-store promotion. This marketing initiative will showcase our Head to Toe concept to a large number of core consumers and drive demand and consumer awareness.

Now, turning to Bates, our US military and global civilian uniform brand. Bates finished the year on a strong note as it began shipping US Marine Corps hot weather all-terrain boots as part of a major contract awarded during Q3. The civilian segment also performed well, up double-digits for the year as demand for our iCS and C3 product continues to be strong. We remain focused on growing both the civilian and military segments of the business by leveraging our innovative technology and unmatched comfort features. The outdoor group, which includes the Merrell, Patagonia footwear and Chaco brands is the Company largest revenue and earnings generator and had a record Q4 and full year 2010 performance in both revenue and earnings. Merrell led the way in Q4, achieving 20% brand growth and increased market penetration in every geography, category and channel. The outdoor performance category continues to shine led by updates to our core programs.

We also made substantial gains in our casual footwear and kids categories. Merrell's core collections such as the Men's World and the Women's Encore offerings have performed well this season along with new collections such as the Refuge, the Whiteout, and Thermo boots. The Merrell apparel program continues to gain momentum with very good performance in leading outdoor specialty retailers and apparel shops. Merrell apparel finished the year up over 40%. The success of the apparel program is helping accelerate the opening of Merrell Head to Toe concept stores around the world. Merrell's global retail footprint continued to expand in Q4. We added 12 new branded stores globally and finished the year with 146 total stores and over 1,000 dedicated Shop-in-Shops. 2011 marks a special year for Merrell as the brand celebrates its 30th anniversary. What began in 1981 as a simple hiking boot has grown into an iconic global outdoor performance and lifestyle brand. We are very enthusiastic about the future and our goals to grow Merrell to be the Company's first billion-dollar brand. We will do this by staying true to the brand heritage, continuing to be the product innovation leader and increasing our consumer connections.

We put, this past year, considerable marketing resources behind the Merrell brand, up over 20% which helped contribute to the very strong Q4 and full-year performance. Our 360 degree marketing approach, which utilizes traditional, digital, and in-store techniques, targeted outdoor inspired consumers and communicated the Merrell - Let's Get Outside message in an integrated fashion. One example of cutting-edge innovation is the Merrell Barefoot collection which is being delivered to retailers this month. Retailer excitement for the product which leverages the Minimal and Barefoot running trend has simply been exceptional. The groundbreaking Connection collection addresses a number of different categories and consumer end-uses from running to walking to yoga to everyday wear. Our year-end backlog was approximately 400,000 pairs for this program exceeding all previous product launches for the brand, even that of the Jungle Moc in 1998. Barefoot had an early launch in a handful of US stores in January and the initial results have been encouraging as a consumer response and sell throughs have been very strong. Retailers have told us they expect Merrell Barefoot sales to be largely incremental to their existing Merrell business. Turning to Patagonia.

This business achieved double-digit sales increases for the quarter and the year and continues to gain momentum with strong sell through at retail. We've introduce products that resonate well with the brand's core consumers and will introduce several new product collections in 2011 including the P26 eco-friendly technical hiking boots. Chaco, our pure outdoor adventure brand, also ended the year with high double-digit Q4 and full-year sales growth as the product assortment evolved into a four season brand offering. We continue to execute our channel expansion strategy in Q4 and have added over 200 new US accounts in 2010, mostly in footwear specialty stores. We do remain inspired by the fierce loyalty of the Chaco consumers, we post pictures daily of their Chaco tans on our Facebook page. As you may be aware, we also run a re-Chaco program that gives consumers the opportunity to send us their worn or damaged Chaco's for refurbishment at a cost not far below that of a new pair. The program passed an annual milestone recently as the 20,000 pair of Chaco sandals was restored and saved from ending up in a landfill.

I would also like to provide a brief update regarding our consumer direct business which had a very good year. We operate about 90 brick and mortar retail stores, most of which are in the US. These stores posted comp store increases for the year ahead of the industry average and are off to a great start in 2011. Our e-commerce business also had a great year and achieved a sales increase of over 50%. We view our consumer direct business as a huge growth opportunity for the Company. As it currently only accounts for about 7% of our reported sales. Our global consumer direct business which includes that of our distributors and licensees continued its multi-year growth trend ending up the year with nearly 6,300 dedicated points of sale around the world. That is stores and Shop-in-Shops. Switching briefly to product costs and the sourcing environment. Over the last couple of months, Don and I have received a number of questions regarding the cost of source product out of Asia and other supply chain challenges. While what will vary from brand to brand, we currently anticipate product cost increases in the mid-single-digit range for the first half of the year the upper single-digit range in the second half. While a challenge for the entire industry, this is an environment that we have worked through before and one that has existed for the last 18 months or so.

For several years we have been very focused on taking cost out of the entire supply chain to offset product cost increases. To this end, we have resource product to other countries and factories and lower cost regions, re-engineered product with a view to lower duties or decreased product manufacturing costs, introduce new product collections with higher gross margins and continue to focus on product innovation and design to increase the value proposition to our consumers, irrespective of the retail price. Ultimately our brands have passed on some of the higher cost by raising wholesale prices. Over the last 18 months we've worked closely with our retail partners to strategically implement these price increases. Our branded product offerings continue to perform for retailers and even more importantly, for our consumers. Our value proposition remains excellent. We are confident that a variety of the measures already taken will allow us to keep gross margins flat in 2011.

Changing gears, I'd like to discuss the new organization structure for the Company which was announced last Friday. The primary purpose of this reorganization was to align and increase our resources dedicated to accelerating growth in increasingly important international markets. Our new international group which will be led by Bill Brown will be responsible for driving regional strategies and global growth for all of our brands in all markets outside of North America. Obviously, we are in a position of strength with our current structure and business model as evidenced by our Q4 and full-year results. Our current international business is the envy of most in the industry and this reorganization will build on this base and help us accelerate our international growth. One of our key strengths lies in our diverse global footprint. Last year about 60% of all pairs were marketed to consumers outside of North America in over 190 countries and territories around the world. Our portfolio of brands and global reach means that our success is not tied to any single consumer group, distribution channel, country or region.

We have reorganized to take advantage of the many significant opportunities for global growth that still remain for our brand. Bill Brown will report to me in this new role. Onder Ors, a 13-year veteran of the Company will assume overall responsibility for Europe, the Middle East and Africa which includes all subsidiary, distributor and licensee operations in that important region. He will report to Bill as will the current international organizations within the branded groups. We have recently also recruited two senior executives, one for India one for greater China who will also report into the new international group. We have also reconfigured our brand groups, consolidating from 4 to 3 as part of these moves. This new structure will offer greater opportunities for our brands to share resources and drive synergies while continuing to maintain individual brand product and marketing focus. The three groups will be -- the Outdoor group comprised of Merrell, Chaco, and Patagonia footwear brands led by Jim Zwiers; the Heritage group which will consist of Wolverine, Caterpillar Footwear, Bates, Harley-Davidson Footwear and Hytest brands led by Ted Gedra; and the Lifestyle group comprised of the Hush Puppies, Sebago, Soft Style and Cushe brands, led by Mark Neal. Going forward we will report our results and financial comparisons based on this new branded group structure.

Overall, we are extremely pleased with our record 2010 and Q4 performance. And even more excited about our momentum going into 2011. The state of the business has never been better and the prospects for the future have never been brighter. Our international distribution network and the global reach of our brand provides us with a key competitive advantage. Our very positive backlog position and our new product assortments for 2011 also lead us to be very optimistic for the coming year. We expect strong organic growth in 2011 and remain committed to our culture of innovation and to generating a new level of excitement for each of our brands. I would just like to say thanks to everybody on the Wolverine team who is listening, for making our success possible. I will now turn the call over to Don Grimes, our Senior Vice President and CFO who will provide you with additional information regarding our Q4 and full-year results and our outlook for 2011. Don?

Thank you Blake. Good morning to everyone joining the call today. Earlier this morning we announced exceptional financial results for both the fourth quarter and full fiscal year that ended January 1, 2011. We are always happy to talk of our record financial performance, so I will discuss those results in a little bit of detail and then I'll share our initial guidance for the upcoming fiscal year. Before diving down into the details of the quarter, let me step back and offer some observations on the full fiscal year. As we frequently note, we have a portfolio of 12 dynamic Lifestyle brands that compete in approximately 190 countries and territories around the world. This past year has been about generating momentum and accelerating growth for our brands. Blake has talked about us not forsaking product development and innovation during the depths of the global recession, when it would have been easy to do so. And we are now reaping the benefits of that strategy.

We are a portfolio company with no single brand in no single geography representing more than about one third of our business. We believe that doing the right things over and over and over on behalf of our entire portfolio of brands will produce outstanding financial results. The most recent fiscal year proved that out as we delivered record revenue in the last two quarters and record earnings per share in all four quarters. Although our full-year gross margin was relatively flat in a challenging product and freight cost environment, operating expense discipline helped us deliver record full-year adjusted operating margin of 11.7%. That same discipline carried over to the balance sheet as our adjusted return on average invested capital was a record 21.4%. This very strong ROIC reflects the transformation of our business over the last decade or so. Higher profitability and lower capital intensity as we produced our reliance on own manufacturing and turned our focus more toward the global brand building.

Recall that we completed the second phase of our comprehensive strategic restructuring plan in this year's second quarter. Therefore this year's fourth-quarter results contain no restructuring charges but the prior year's results do. As previously disclosed full-year restructuring charges were $4.2 million or $0.06 per share. Unless otherwise noted I will be speaking to full-year results in both years and fourth-quarter results in the prior year that have been adjusted for the nonrecurring restructuring and other transition costs associated with the restructuring initiatives. Turning now to our financial results, earlier this morning we reported outstanding financial results for the fourth quarter and full fiscal year. Reporter revenue for the quarter was a record $385.0 million gross of 23.2% versus the prior year. Foreign exchange hurt reported revenue growth in the quarter by 70 basis points.

For the full-year reported revenue was a record $1.249 billion a 13.4% increase over the prior year and foreign exchange helped revenue growth by 40 basis points for the year. The strong revenue performance was broad-based in both the quarter and full year with every significant region delivering double-digit growth versus the prior year. Asia-Pacific was the fastest growing region with full-year revenue growth of 39%, followed by Latin America at 17% growth, and Canada at about 16% growth. As an example of our geographic diversification, note that of the approximately 50 million units of branded footwear and apparel sold last year, fully one third comes from the Asia-Pacific and Latin American regions, a fact that frequently surprises those who don't follow the Company closely. Let me provide a little more color on our revenue performance by operating group. I'm going to be speaking to our former operating group structure, not to the recently announced reconfiguration that Blake just discussed. Our Outdoor group which consists of Merrell's Footwear and Apparel, Chaco and Patagonia footwear had an outstanding fall selling season with Q4 revenue of $134.9 million, growth of 22.3% versus the prior year and full-year revenue of $467.6 million an increase of 12.4%. Every brand and major geography in the Outdoor group contributed to the excellent revenue results.

With product innovation such as the Merrell Barefoot and Origins collections on the horizon plus international growth opportunities and product category extensions for a brand like Chaco, the future here is exceptionally bright. The Wolverine Footwear group consistent of our Wolverine, Bates and Hytest brands logged another impressive quarter of performance with revenue of $97.9 million, 27.6% growth versus last year and revenue of $274.9 million for the full year, an increase of 17.9% compared to 2009. Innovative product, great marketing and smart selling combined to deliver outstanding results and that has been a consistent storyline for the Wolverine Footwear group all year. Business grew steadily throughout the year in the core work boot business and the more fashion oriented 1000 Mile and 1883 collections have delivered both financial results and buzz for the Wolverine brand. The Heritage brands group consistent of Caterpillar Footwear, Harley-Davidson Footwear and Sebago also had a blockbuster quarter with revenue of $65.1 million, a 25.8% increase over the prior year and full-year revenue of $222.3 million, a 12.1% increase over 2009. The excellent performance was led by double-digit growth from both Caterpillar and Sebago.

The Hush Puppies group which includes the Hush Puppies, Soft Style and Cushe brands grew revenue 16.4% in the fourth quarter to $38.9 million, as very nice growth for Cushe and for the Hush Puppies brand in both Europe and third party licensee markets more than offset some Hush Puppies softness in the US. For the full-year Hush Puppies and Soft Style's global unit volume exceeded 18 million pairs, an impressive rebound from the effects of the global recession. Reported revenue for the group was $140.3 million for the year, 6.6% growth versus 2009 led by strong revenue growth from Cushe and from Hush Puppies licensee markets. Our other business units comprised of Wolverine retail and Wolverine leathers both posted strong double-digit revenue growth for both the fourth quarter and full year with revenue for the quarter of $44.1 million, up 17.9% versus prior year and revenue for the full year of $130.9 million, up 19.1% compared to 2009. Strong demand from third-party customers for Wolverine's proprietary pigskin leather and great performance from our consumer direct operations fueled the excellent results. At the risk of sounding repetitive, it was an outstanding finish to an outstanding fiscal year broad based revenue growth across the portfolio and across the most significant regions in which we compete.

As we previously projected full-year adjusted gross margin was nearly flat at 39.6% compared to the prior year's adjusted gross margin of 39.7%. As we anticipated, positive mix shift and selected selling price increases were offset by higher year-over-year product and freight costs. Gross margin in the fourth quarter was, as expected, down significantly to 37.1% versus the prior year's 39.7%. In addition to higher year-over-year product costs a negative $3.5 million LIFO swing from $2.2 million of LIFO income in the fourth quarter of 2009 to $1.3 million of LIFO expense this past year contributed significantly to the margin decline. We achieved meaningful operating expense leverage for the year with SG&A as a percent of revenue dropping 90 basis points to 27.8% of revenue. Operating expenses for the full-year were $347.5 million, growth of 9.8%. The single biggest driver of the growth in operating expenses was an almost $10 million increase in advertising and marketing, representing planned investments behind key growth brands in the portfolio such as Merrell, Cushe and Sebago. Although return on marketing investment is a somewhat elusive metric to pin down with absolute precision, especially considering that investments to drive brand awareness today pay dividends over time, I would like to cite a few examples of the momentum we're seeing in the Merrell brand in particular, the recipient in most of our incremental marketing investments.

Expanded catalog distribution and increased investments in social media, event sponsorship and traditional print in out of home placement throughout 2010 helped grow revenue from Merrell's own website over 62% compared to the prior year. Additionally, Merrell finished the year with about 6 times more Facebook fans than it had at the beginning of the year. These results demonstrate that brand building activities are resulting in greater brand awareness, a key component of our brand's growth strategies. As we have been highlighting all year, the Company has been balancing these critical brand building investments with ongoing discipline and general and administrative expenses. For the full year, these expenses, exclusive of incentive compensation and pension expense increased only 1.5%. We achieved 110 basis points of operating expense leverage in the fourth quarter despite a 43% increase in advertising investment and $3.4 million of incremental incentive compensation expense that reflects a very strong close to the fiscal year. We closed on the sale of our small Wolverine procurement business in late December and recognized a very modest gain on sale that is reflected in the other income line on the P&L.

Our full-year effective tax rate came in at 27.1% reflecting a net benefit from nonrecurring adjustments including the favorable settlement of a foreign tax audit and the reinstatement in the United States of a tax credit for qualified research and development investments. Fully diluted weighted average shares outstanding for the full year were 48.9 million, compared to 49.0 million in the prior year. In 2010 the Company repurchased approximately 1.8 million shares in the open market for $51.2 million at an average price of $28.52 per share. The Company still has approximately $154 million remaining under the share repurchase authorization that was announced last February. Fully diluted earnings in the quarter were a record $0.52 per share and represent a 15.6% increase over the prior year, reflecting a very strong revenue growth, the expected gross margin contraction and the lower effective tax rate. For the full year, fully diluted earnings were a record $2.17 per share, an impressive 22.6% increase over the prior year. As we foreshadowed in our last earnings call, our year-end inventory position is higher than it was in 2009, up 32% to $208.7 million. It's important to note that our 2009 year-end inventory levels were very low, reflecting the economic environment and the uncertain outlook at the time for the upcoming 2010 fiscal year.

Our inventory investment at the end of 2010, which is weighted more towards core product and the faster growing brands in the portfolio reflects some strategic pre-buys ahead of announced factory cost increases and more importantly, the very bright outlook for our business in the first half of 2011. Although mindful of the need to manage inventory as tightly and efficiently as possible, we also recognize benefits from having sufficient inventory on hand to fill at-once and seasonal replenishment orders. Our balance sheet remained extremely strong and we finished the year with cash and cash equivalents in excess of $150 million and zero drawn on our revolving credit facility. Operating free cash flow in 2010 of $49.2 million was muted by the incremental working capital investment to support organic growth and 2010 capital expenditures of $16.4 million. As a Company we generate significant free cash flow which we use to invest in and support organic growth, reward our shareholders in the form of regular dividends and consistent share repurchases and fund strategic acquisitions. We continue to seek the right brands to add to the portfolio although we will remain disciplined and are committed to only pursuing acquisitions that enhance shareholder value.

As we've discussed this morning, we have incredible momentum across our portfolio and across geographies. We are pleased to announce our initial guidance for fiscal 2011 as follows. Reported revenue in the range of $1.36 billion to $1.39 billion representing growth of 8.9% to 11.3% versus the prior year. Full-year gross margin in line with the prior year as higher year-over-year product cost, particularly in the second half of 2011 are expected to be offset by strategic price increases and favorable brand and business channel mix. Modest operating expense leverage reflecting continued marketing and advertising investment to drive brand awareness. Incremental investments to expand our consumer direct business including both new brick and mortar openings and e-commerce infrastructure. Modest incremental costs associated with the important organizational realignment designed to deliver accelerated growth in international markets. Lower incentive compensation expense. Finally, slightly higher pension expense.

As part of our drive to become more and more efficient throughout the organization, late last year we kicked off an important project that will examine approximately $150 million of annual indirect spend. We have retained an outside consultant and formed a small internal team to help us identify cost savings opportunities, drive efficiencies and importantly, develop a core competency in the indirect procurement area. We expect to deliver several million dollars of net savings in SG&A in 2011 as a result of this important initiative. These benefits are reflected in today's guidance. We are forecasting an effective tax rate of 29.0% and weighted average shares outstanding between 49 million and 50 million shares. Finally, fully diluted earnings per share in the range of $2.35 to $2.45 reflecting growth of approximately 8% to 13% versus the prior year. Thanks for your time and attention this morning. I will now turn the call back over to Blake for some final comments.

Thanks Don.We're obviously excited to have delivered another record quarter and year for our shareholders and look forward to capitalizing on the momentum into 2011. Thanks for your time this morning. We'll now turn the call back to the operator so we can take your questions. Operator?

Thank you. (Operator Instructions)Our first question comes from Mitch Kummetz at Robert Baird.

Thank you. Congratulations on a great quarter. A few questions, Don, maybe starting on the guidance for 2011 and your gross margin outlook. You said flat. I understand you went through some of the puts and takes there and talked about what the cost pressures are. I was hoping you could elaborate on that a little bit and maybe quantify some of that a little bit more. The cost pressures. How much pressure do those costs put on the gross margin? A point or two of pressure and then you get that back with the offsets on mix and pricing and could you quantify the impact of those offsets or at least put them in order of magnitude?

In the fourth quarter of 2010 product costs had a negative 150 basis points impact on our gross margin. Our recollection from Q3 was that we called out about a 250 basis point negative impact from higher product costs. We talked about the product costs being up in the mid-single digits in the first half of 2011 and a bit higher than that in the second half of 2011. You want to quantify in terms of basis point impact on gross margin, you're looking at probably in the 200 to 250 basis point negative impact in the first half of the year and a bit more than that in second half of the year. As Blake and I both talked about, we expect those higher product costs to be offset both by positive mix shift both across brands, geographies and channels as well as the selective selling price increases. So I guess the off is that it would be about half from selling price increases and half from positive mix shift.

Okay that is helpful. I appreciate that. On the sales guidance for the year, obviously the backlog is very strong at year end. Up more than 38%. Can you talk a little bit about how you expect that sales growth to play out over the course of the year? I mentioned you got pretty good visibility on the first half of the year given your spring backlog. You probably got some indications on the back half, through conversations and pre-lining and all of that. Do you expect more growth in the first half than the second half of the year and just maybe a little bit more color on the directional increase there?

Both of us want to answer.

None of us want to answer, actually.No, we don't offer revenue guidance by quarter, I will say that up front. I will say also that our plus 38% backlog accelerates as you look from Q1 to Q2 to Q3, but also it's smaller dollar amounts in Q2 and Q3. We expect the backlog to normalize, we've actually been talking about it for the last six months of 2010. We expect the backlog to normalize as we move forward. Certainly, finally from the end of Q3 to the end of Q4, the backlog did start training down from plus 55% at the end of Q3 to the plus 38% at the end of Q4. We would expect as we cycle through Q1 that our backlog will revert to more normalized levels that reflect or come close to reflecting the organic growth rate of the portfolio which is strong. I don't to diminish the organic growth opportunities we have in the portfolio. But beyond that, we don't really -- we're not offering revenue guidance by quarter or by half.

Mitch, you'll recall in 2009 everybody froze, frankly at the wheel and there was a huge swing to at-once orders. Going into 2010, everybody was obviously very concerned about the supply chain and the lengthening supply chain period lead times and so there was a huge swing to future orders. So the pendulum keeps swinging. It's on its way back, we believe, to normal, nevertheless, we view our backlog position as obviously very positive.

Okay. Let me ask one last question on the SG&A outlook for 2011, you are talking about some modest expense leverage there. Sounds like you expect marketing piece to continue to grow. I think you said it was up, what? $10 million for the year in 2010 and up over 20% or around 20% for Merrell. Can you talk about how you expect the marketing piece to grow in 2011? Is it going to be concentrated on Merrell again?

I would say -- I'm not just saying. I will tell you that the bulk of the -- Merrell will be the biggest recipient of incremental advertising funds in 2011. But Merrell's our biggest brands, so that is perhaps not surprising. Our advertising expense in 2010 increased 24% for the full fiscal year. But as a percent of sales, it grew from only 3.7% in 2009 to 4.1% 2010 but we think that there is still opportunities to smartly invest incrementally behind key brands in our portfolio, Merrell being the most prominent example of that. We think we're well below the industry average in terms of the percent of revenue of marketing and advertising spend. The key is to do it smartly, which we have smart people to do that. So yes, marketing spend will increase at, at least, a double-digit clip in 2011 being partially offset by some of the efficiency gains we talked about during the prepared remarks.

I've got it. Great, thanks guys, good luck.

Thanks Mitch.

The next question comes from Kate McShane at City Investment.

Hi, thank you. Good morning.

Good morning, Kate.

I was wondering if you could tell us a little bit more detail behind where you're seeing most of your cost pressures this year. Is it in raw materials or is it in labor and will your factories be adding capacity and will that be enough to offset some of the labor cost pressure you're experiencing?

Yes, Kate, I can give you a little more insight on that. I would say, we've seen cost pressures across the board, whether it's rubber, whether it's products, whether it's synthetic fabrics, tied to oil. Whether we don't use a lot of cotton but there's some of that in our apparel offerings and in our footwear as well. We have ever increasing labor prices especially from China where the US, for example, still gets 87% of all of its footwear this past year. So we have factored all of that into our guidance. We are seeing some signs though that capacity is freeing up. Historically, when capacity freed up, it meant at least more stabilized or potentially lower prices. I don't know if I would count on that for 2011. So we may be in an environment where capacity is freeing up a little bit but the higher commodity costs are still going to drive -- and higher labor costs, especially in Asia, are still going to drive some of the product cost increases that we outlined.

Great that is really helpful. Then, with your commentary about raising prices on your footwear. I know you've had success in passing through higher prices in the past. What can we expect to see this year? Will you be raising prices in line with the cost increases you're seeing and do you have any concern that there might be irrational competitors out there that don't increase price?

Yes, there are always some irrational competitors. But that aside, I don't see our price increases falling directly in line with the anticipated cost increases. As I said in my remarks, we are doing any number of things to take cost out of the total supply chain. We have over the last 18 months selectively, strategically working with our retail partners taking some, taken some cost increases. Amazingly, the pushback on those has been very minimal. And frankly from the consumer standpoint, if the value proposition is there, if you're there with cutting edge design and the product is sparkles on the retailers shelf, the consumer is still buying the product. I've always said if the product is right, a consumer is going to buy at $100 or $110. If the product is not right the consumer is not going to buy it at $50. It is really the value proposition that we look at. We will be passing on some selected price increases there is no way to really get out of some of the commodity side leather pricing that we see at the moment but it certainly will not be across the board. It will be more strategically focused than that, it won't be at the levels of the underlying FOB increases that we talk about.

Kate, this is Don. When you have 12 brands in the portfolio, one of my comments recently has been that's it's an obvious observation I guess. That different brands have different levels of pricing power and a brand like Merrell you would expect would have greater pricing power given it's more of a must stock brand in its key retail accounts. So it has more ability to offset the increase in product cost percent -- by percent in terms of selling price increase of other brands in the portfolio may be not quite as strong. So on a weighted average basis across the portfolio, I would say that the impact of our selling price increases will fall a little bit short of the net cost increases with that difference made up by anticipated positive mix shift.

I guess one last comment, Kate. You have to remember that a lot of our biggest customers also have private label programs. They know firsthand what is going on out there in the supply chain and that maybe part of the reason why we have had relatively little pushback.

Okay, that's really helpful. Thank you.

Thanks.

The next question comes from Jim Duffy at Stifel Nicolaus.

Good morning. Don, a point of clarification to one of your responses to Mitch's question. You mentioned that the backlog accelerates in the second and third quarter. But then you expect it to moderate more towards the --

No, I'm saying -- I'm sorry, just to clarify. The backlog as it stood at year end in terms of year-over-year percentage growth, the percentage growth was less than the full 38% in Q1 although at a higher dollar amount obviously, more orders on the books now for Q1 delivery than for Q2 or Q3. Then it's a little bit higher percentage growth in Q2 and Q3, all the smaller dollar amounts. That wasn't a comment on expectations regarding orders in Q2 or Q3. It was just a to date -- as of the year end, the backlog position, how it decomposed.

Okay. One of the things I'm trying to get my arms around. You've got retailers ordering more aggressively, your inventory position is more aggressive. Do you have any concern that the industry is getting too optimistic? What do you see as the risk factors that there is a mismatch between supply and demand?

I guess that risk is always out there, potentially every year at least with respect to our brands. Remember, we have got a portfolio approach in over 190 countries and territories around the world. We are not seeing that at all. At least at the moment, when we look into the first half at least, we're not -- with respect to our brands, we have not seen any stabilization of consumer demand. We have not seen any kind of leveling off in the response to our 2011 product offering.

The best measure we have in our largest market, the United States in terms of consumer take away is the FDRA report that's come out weekly. It's a survey of 14,000 footwear doors across the United States and although our own retail group has fairly consistently been out performing the FDRA, it's still showing pretty robust consumer demand for the footwear category. You can measure inventory levels and imports which at all don't reflect in consumer demand. They're indicative perhaps of in consumer demand, but really take away measures and reported by FDRA shows a pretty robust footwear category still in the United States.

Jim, you have to remember, footwear is a category traditionally goes into a recessionary environment later than most and it's a much more shallow dip. So there is more stability over all to footwear as a category than there is to a lot of other consumer product categories. It is usually one of the first categories to come out, but there isn't a lot of big swings in the pendulum for footwear. We are certainly not seeing demand -- we're not certainly not seeing that on a global basis.

I've got you, okay. Shifting gears a bit, the Barefoot running offering, how big do you see that category currently and what are your expectations for where that is going? It seems pretty niche at the moment, I am just wondering if your expectations are for it to go more mainstream.

We anticipate it will go more mainstream. The spark for this, I would say globally is centered on the United States. We see it catching on through our global distribution network around the world. We frankly think it can be pretty big. It isn't just Barefoot running although I understand they are making a movie about the book that kind of introduced this concept to the specialty running shops. For us, anyway, it's opened up distribution in specialty running shops and some other distribution that we simply didn't have before in any material respect for the Merrell brand. Merrell, as always, has done it the best, has done it earliest, the shoes look fantastic. I appreciate that for every pair that may be used on the tarmac to run, there may be 99 pairs that go to the grocery store, to watch soccer games or other uses. But we see this as a significant and growing category.

Okay great. Thanks. Best of luck.

Thanks Jim.

(Operator Instructions)Our next question comes from Sam Poser at Sterne Agee.

Good morning. I just have a couple questions. Number one, in that backlog number, can you give us the differential between the units and dollars or the average price point?

If I had the schedule in front of me I could. It's obvious that the unit volume increase is less than the 38% increase in dollars because of the price increases that we took throughout 2010 and we have planned to take in 2011. I don't have the number at my fingertips, Sam so I will have to get back to you on that.

Would you expect that number -- you'd still expect that number to be up nicely double-digit in units though?

Oh, yes.

Clearly.

The difference between those two numbers would not be significant.

I would wage a guess, it's certainly in the 20%, plus 20% range if not plus 30%. I don't have the number in front of me, I'm sorry --

You see that kind of momentum carrying forward as well? Not to the degree, but the relative.

The same timing issues would impact the unit volume backlog increase as effect the dollar backlog increase, but certainly embedded in that number is fairly -- not fairly, very healthy organic growth.

So you're not getting pushback necessarily on these price increase -- the prices you're establishing?

Yes, knock on wood right now we're not really getting any kind of significant pushback. Haven't frankly over the last 12 or 18 months as we have taken selective price increases.

Okay, thank you. Then, let me talk to you a little about Hush Puppies. The Hush Puppies has been a roller coaster if you look at the revenue history here, up down. Beginning of the year you were up 13%, end of the year up 16%. In the middle it was down and flat, last 2009 it was down. When do you think we are going to be at an inflection point where that business really start -- where we start to see some positive momentum because there has been a lot of head fakes.

I think, I would not use that term but 2011 we're at that point. We've gotten out of a lot of distribution in the US, narrowed the line, focused on better grade product. It's hurt us on the top line here in the US. But I think one of the things you have to remember about Hush Puppies, there has been no letup over the last several years in growth. Hush Puppies is a great international brand. In terms of pairs, it is the largest brand in our portfolio at about 18 million plus pairs around the world. So substantially less than 20% of those pairs are sold in the United States. There is 580 stand-alone Hush Puppies stores around the world, almost unheard of for [Brown] shoe brand. Hush Puppies brand is still about the only brand with that dog that makes people smile. I have always said that. In most countries around the world, it's a better grade premier brand. And our goal, frankly, is that we have been up front with everybody is to correct some of the distribution mistakes we made 10, 15 years ago with the brand and we have taken that pain.

Is there a chance that we could get a -- something that shows us by brand or at least on these -- on the more established brands - Merrell, Caterpillar and so on, the units, the total unit sales and how that has run over the years, most inclusive of both those in subsidiaries and in your distributor arrangements which might help paint that picture more clearly?

Yes, we can probably dig up that information. We have never really made information like that public. I will tell you today that Hush Puppies is about an 18 million pair brand around the world. Merrell is about a 14 million pair brand and closing the gap. Our other brand, Caterpillar, 6 or 7 million pairs. And it varies from there. Just to give you some general guidance.

I'm just wondering, as you put it, it's been rocky roads as far as the top line on the Hush Puppies brand. I was wondering what that unit increase looks like so you can say okay -- let's take the subsidiary or the owned portion out and understand how it relates to that distributor part of the business.

We'll see if we can --

Certainly talking about the trend in total unit volume is one thing and breaking it down over those years in terms of what has gone through our owed operation versus distributor operation, we will have to evaluate that but I hear what your request is and understand why you're asking it.

Thank you very much, good luck.

Thanks Sam.

The next question comes from Diana Katz at Lazard Capital Markets.

Hi, congratulations. Good morning. You mentioned some SG&A investments to extend consumer direct next year. Can you talk about your store opening plans next year. Also for just your total plans of distribution, new Shop-in-Shops and stores, where do you see that growing next year as well?

As it relates to our own brick and mortar, we actually have -- we're going to probably open in the range of 10 to 12 new stores next year. But we'll also have some stores coming off-line, some leases that are expiring and those stores are in less profitable outlet centers. So we'll be letting those leases expire. On a net store opening basis we will be in the low to mid single digit range. A lot of our SG&A investment will reflect the new store openings and some of the capital plan we have for next year reflects those gross new store openings as well.

Okay. Then for your total points distribution, Shop-in-Shops coming on board?

It is hard to say. We know we get a tremendous lift when we put in Shop-in-Shop's around the world. I will tell you that over the last eight years we have had well over 20% average growth a year around the world for dedicated retail points-of-sale. That would include concept stores and Shop-in-Shop. It has been a very beneficial and very consistent, at least eight year trend and we don't see really any letup in that trend.

Even a conservative 10% estimate for growth next year would push us up, near, or over 7,000 dedicated points of distribution.

Okay. Then on the EU tariff, is there any color we can get on the current dollar amount that you are paying on those EU tariffs? Or anyway we can try to quantify what benefit you could possibly get there?

Yes. With respect to EU anti-dumping duties, we now believe and hope they will expire here sometime in the first half of this year. We have been in this position before in past years so I'm kind of a bit of a skeptic but right now, it looks good. For us, next year, the expiration of those anti-dumping duties will have a pretty insignificant impact and that is really due to a number of reasons. One, a good portion of the goods we are bringing into the Europe are going to hit before they expire and we are going to pay those anti-dumping duties. Secondly, we made a lot of sourcing moves the past -- really over the past several years but especially last year, to move to new countries and different factories to reduce those duties.

We would have anticipated a substantially less EU ADD burden this year than we did in 2010. Frankly, we have also applied for more exemptions for our footwear's and designed our footwear to fit within exemptions from anti-dumping duties. With all that being said, there would be some, normally be some benefit from the expiration even this year there may be more benefit frankly in 2012. But that benefit will probably be more than offset by the MTB tariff duties that were passed. Although that bill was passed they were at higher tariff duties and that product is going to be coming in at least to the United States at higher than historical duty rates so neither of the two are material certainly. They probably offset each other for SG&A --

Yes, I was going to say, that whatever modest net benefit might exist in 2011 from ADD going away effective April 1, would be about offset by incremental tariffs in the US from the August passage of the Miscellaneous Tariff Bill which is although, better than the published tariffs are still not as favorable as the tariff reduction that existed in the old MTB. We had inventory at the end of 2009 that enabled us to avoid or -- to get the benefit of the old, lower MTB for the first few months of 2010. We won't have that benefit in 2011. So that offset the ADD benefit whatever might exist.

Okay, last question, international revenues, can you tell us what percentage of your top line and EBIT was this year. Where do you see that growing and also what were your currency assumptions for this year?

Don is looking up some of the detailed information. I will tell you, this past year 2010, we may have had a slower economic recovery in some parts of Europe and the United States but many, most, virtually all of our international markets around the world experienced robust growth this year. It was like globally that the economic recession, the great recession had almost not occurred. It was pretty widespread from Russia to Chile to greater China, to Australia so it was a very good year to have the global distribution and spread that we have as a Company. I think Don has got some more specific top --

Yes, for 2010, 62% of our imported revenue was from the United States and about 44% of operating income was from the US. In terms of FX rates we're using in our revenue guidance, we are using $1.55 for the pound, $1.30 for the euro and $0.95 for the Canadian dollar. Those are fairly close to the average exchange rates we experienced in 2010. There is a very modest cushion if you will, between those rates and current spot rates.

Okay, great. Thank you very much.

Thanks.

The next question comes from Jeff Blaeser at Morgan Joseph.

Good morning, thanks for taking my question. Q4 trends, clearly a very strong top line year-over-year as well as those of your expectations going in. What is -- did they start off strong and remain strong throughout the quarter or did sales pick up towards the back half of the year with the reorders in terms of what you are seeing?

Really, we experience pretty strong performance out of the gate and it continued right through the end of the quarter.

I would say we probably had a little bit of an acceleration of business in December but we started off the fourth quarter fairly strongly. I am trying to recall how it flowed period by period. There was probably -- our at-once business was a little stronger the last few weeks of the year as there was some cold weather in most parts of the country in the United States, so a bit of an acceleration, but fairly strong throughout.

Did that strength out of the gate, did that give you added ammunition to invest a little bit more than you probably anticipated going into the fourth quarter, building off of that strength on the --

Not really. We had made those decisions well -- probably most -- virtually all of them well before the start of the fourth quarter. If they were going to have any impact on this year or early 2011 they were made earlier in than the start of Q4.

The investment posture was the same. We didn't back off that investment plans as we finished the fiscal year but we also incurred variable costs associated with the higher revenue and also I talked to the additional incentive comp expense in the fourth quarter. I think it was about $3.5 million versus the prior year in the fourth quarter because we finish the year with record revenue and record pre-tax earnings which are the two major drivers of our internal incentive comp plans.

Okay. This may be a little bit too granular on the top line growth and expectations. Any way to breakout in terms of the Cushe and Chaco gains. You expanded their distribution, market share gains within existing shelf space and then some new door openings -- Nordstrom's and whatnot that you've been putting some new product into as well as price point increases?

Yes, I think that both of those brands are not the -- obviously not the largest brands in our portfolio right now. They are both experiencing great growth. We would expect Cushe given its size, to double in size or come close to that every year for the next several years. Chaco, probably not at that level. Chaco remains a more US-centric brand. It always has since the brand's inception. We are expanding our global base for Chaco. A year ago we were in 17 countries. This year we're in about 42 countries for the Chaco brand, just to put some perspective on that. But it is all with starter type programs in those markets. We remain very enthusiastic about each of those brands for different reasons. Cushe remains the youngest brand in our portfolio. The product is just spectacular. We're having great success on a number of different styles and categories at Nordstrom's. Cushe is in virtually every great independent here in the United States and there's been a very strong pick up internationally. Although it is coming off a much smaller base, we continue to expect accelerated growth for Cushe.

Thank you very much.

Thanks Jeff.

(Operator Instructions)Our next question comes from Taposh Bari at Jefferies & Company.

Hi guys. Congrats on a great quarter. A question for Blake, looking at this favorable product cycle you guys are clearly capitalizing on. I just wanted to get a sense of where you think we are in that cycle and based on history, how long do these cycles typically last? I'm talking about this Vintage, Americana, Boot cycle.

I would say right now -- well, it's hard to say. If you go back 30 years, there used to be a nice regular, steady progression of fashion. Italy, Paris, finally New York City and several years later, the Midwest. That doesn't happen anymore. Everything happens in real time around the world. But I think we are still on the early stages of the global boot trend which is obviously good for brand owners like us and good for retailers. As people have come out of this recessionary environment, the consumer has fallen back on brands that stand for something. Brands that are real. Brands that have withstood the test of time. Even when those brands command more premium pricing. So we don't see the boot trend, the Americana stylings, the Heritage trend frankly ending anytime soon. We certainly see it continuing through 2011, beyond that we are just all guessing.

Okay, great. Just a follow up for Don on the cost side of the equation, I appreciated the color. I'm trying to reconcile your flat gross margin guidance for next year. It makes sense with the price increases in the mix. I'm just trying to reconcile that versus what you did in the fourth quarter here even if ex our the LIFO move there, it was about, I guess a negative 150 type basis point contraction. So just trying to get a better understanding of the comfort behind the flat gross margins for next year from 4Q of this year versus next year.

It's a good question actually. In the fourth quarter we had a negative mix impact that was driven by a higher percentage of our volume, what we call volume direct which is at a lower than average gross margin. So while -- in one quarter there was a negative mix shift which gives to the question you're asking Taposh, for the full year of 2011 we expect there to be a positive mix both brand, channel and geography to help supplement the selling price increase and to help combat the cost increases.

Great. Finally, I just wanted to get a better sense how I'm thinking about the licensing distributor business. I know it's a small piece of your overall sales mix. Obviously a much greater piece of your income, but it just seems to me like that business would be completely immune from any kind of cost inflation given the fact that it's a royalty stream. You guys basically just get a check based on the amount of volume that your partner do. I'm trying to get a sense if that is the right way of thinking about it?

I would say that is pretty close to accurate. I mean, obviously if prices went up 100% there would be some impact on the business that we're doing in a 190 countries around the world. Not just for us but for every brand in the industry. But given the kind of pricing increases we are saying -- as you know, we take a royalty income or license fee on the FOB cost of a huge amount of our footwear, about 60% of all units outside of North America. Maybe about 50% excluding Europe where we have owned subsidiaries. So those are a passed through automatically if you want to use that term under our business model.

All right, great. Thanks and best of luck.

Thanks.

The next question comes from Scott Krasik at BB&T.

Hi guys, thanks. Really congratulations.

Thanks Scott.

Two questions, Blake, with formalizing the international division you've conceded most of the point-of-sale or the consumer direct to your partners. What is the opportunity going forward? You spoke very, very generally about it being a big opportunity -- but international growth directly owned by you guys.

Fundamentally, if you take a look at our new structure, the key underpinnings are more resources, more talent, and more talent on the ground, real-time in critical markets. So there is nothing wrong, certainly nothing is broke with our current business model today. It served our Company very well since 1959 when we first took the Hush Puppies brand international. But there are big-time opportunities out there, not just China, not just India, but any number of significant markets around the world. So we are investing behind retail. We are going to drive a global distribution strategy in conjunction with the brand leadership, but we are also going to develop regional specific strategy with talent on the ground real-time. That is a significant change for us. That is going to hopefully lever up our accelerated growth in those markets around the world over the next several years and I would say the whole organization here is very enthusiastic about that. That doesn't mean, however that we are not going to operate our brands in brand [silos].

The critical things, what is a brand? What makes it distinctive? Is still going to sit within the branded groups and brand silos. Sometimes I refer to this as -- where are the brand champions? They are in the branded groups. That is where product is developed. That's where compelling marketing strategies are developed. That is where strategies are developed to really attack with and expose your brand and product to your core consumers more often. That kind of magic, that kind of brand champion functions are still within the branded groups. As always we will continue to get feedback on styles, colorations, local variances from our international partners and now, to an increasing degree, from our own talent on the ground in those markets. It has been viewed very positively within the organization. We have got a great international scope and structure right now but we believe this is going to have a slingshot effect.

Just to clarify, you're not planning on opening points of distribution yourself in a larger way? Or in regions, perhaps region by region, it depends?

It would depend, country by country. You take a country like China, we need a more developed team there to work with -- we're already partnered with two of the largest players in that important market and they need additional help and guidance from us and we are going to give it to them. It doesn't mean that we wouldn't -- as you know over the years, we took over all of our brands in Canada. We have taken over all of our brands in Western Europe. We have not had a vertical geographic expansion for a period of years but I would not rule that out either.

I would say the primary intent of this reorganization is not to change the business model anywhere. But across the 190 countries it's probably fair to say that over the next handful of years, they'll be at least a few changes to business models as opportunities present themselves. But the real driver of this is to bring the full power of our portfolio of brands to bear in these key international markets and to have a more connected and cohesive approach across our brand portfolio.

That is fair, thanks. Don, elaborate a little bit on your comment on the $150 million of indirect expenses that you are looking at now. Are there any big chunks or groupings there that have opportunities to go away and what the outlook for that is?

I would not say go away, their opportunities are going to be meaningfully reduce. We recognized that we have pretty -- historically had a very decentralized purchasing function within the Company. There is an opportunity to partner with an outside consultant. We interviewed about three as we kicked off this project last year and a number of other companies that are both close to us in proximity as well as we have relationships with them, have had successful experiences using an outside consultant to develop a core competency and indirect procurement.

We are examining every single dollar of that $150 million of indirect spend. No area is immune from examination. We are renegotiating with existing vendors. We're considering changing vendors, if appropriate, as a last resort. But we have a -- as I mentioned in the prepared remarks, we have a few million dollars of net savings in the plan in 2011. We expect those savings to accelerate and be accumulative in 2012 and beyond as we examine more and more areas and get smarter and smarter about it. So, we're pretty excited about it.

Do you expect the same type of returns ultimately that you got on your restructuring initiatives in 2009?

It could be more than that actually, eventually.

Great, thank you.

Our next question comes from Sam Poser at Sterne, Agee.

Just a real quick follow-up. In what you were discussing there regarding places to cut. Can you discuss any changes that may have happened over the last few years where there might have been sacred cows or are there any sacred cows right now? How do you think about that when you're looking at cutting or adding and so on. You made many changes, so it is a very general question but I'd love to know how you think about that.

Well, we think about it less in terms of a cutting and more in terms of getting more efficient and probably the expected cliche to answer is -- there are no sacred cows, Sam, within the organization. That is kind of the truth, we're looking at everything. Nothing really pops to mind as something that I might offer up as something that heretofore might have been considered a sacred cow and we decided to not consider it as such. So I can't give you a gray answer to that but the we look at it, Sam is we're trying to do the best job we can every quarter on behalf of the shareholders and that means every dollar of SG&A has to somehow generate some sort of return, either a near-term return or a long-term return to the shareholders. When you have that perspective and orientation it enables you to find ways to become more efficient that maybe aren't otherwise obvious. That is a very superficial answer but I really can't offer any more specific than that.

Thank you very much.

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

Thank you. On behalf of Wolverine World Wide, I would like to thank everyone for joining us today. As reminder our conference call replay is available on our website at www.WolverineWorldWide.com. The replay will be available through February 16, 2011. Thank you and good day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.