Wolverine World Wide Inc (WWW) 2011 Q3 法說會逐字稿

Good morning, and welcome to Wolverine Worldwide's third-quarter 2011 earnings results conference call. All participants will be in a listen-only mode until the question-and-answer session of the conference call. This call is being recorded at the request of Wolverine Worldwide. If anyone has any objections you may disconnect at this time. I would now like to introduce Miss Christi Cowdin, Director of Investor Relations and Communications for Wolverine Worldwide. Miss Cowdin, you may proceed.

Thank you very much. Good morning, everyone, and welcome to our third-quarter 2011 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 record third-quarter 2011 results and, if you did not yet receive a copy of the press release, please call Brad Van Houte 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 are reconciled with attached tables within the body of the press release. Today's comments during the earnings call will include an additional non-GAAP disclosure. There is a posting at our corporate website that will reconcile this non-GAAP disclosure to GAAP.

To view the document please go to our corporate website, www.WolverineWorldwide.com, click on Investor Relations in the navigation bar, click on Webcast at the top of the Investor Relations page, and then click on the link to the file called Q3 Conference Call GAAP versus Non-GAAP disclosure.

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 Worldwide and its operations may be considered forward-looking statements by securities laws.

As a result we must caution you that, as with any project 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 all 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 exceptional financial results for the third quarter. The strong momentum in our business continues and we closed the quarter with record performance against almost all financial measures, including revenue, gross margin, operating margins and earnings per-share.

Q3 represented our fifth consecutive quarter of record revenue and seventh consecutive quarter of record earnings per share. The incremental brand building investments we discussed last quarter helped fuel strong consumer demand for new products like Merrell Barefoot.

In addition, product innovation and the ongoing success of our expansion strategies led the balanced growth across all brand groups and geographic regions. We will continue to invest in our brands to heighten consumer interest and drive market share gains going forward.

Operationally we also performed very well in Q3. We achieved significant gross margin and operating margin expansion despite product cost pressure in a tough macroeconomic environment. This reflects the strength of our brands and product assortment as well as the disciplined execution of our business model by our team.

Don will provide more details on the financials in a few minutes as well as our full-year guidance which we've raised based on the continued strength of our global business. We remain very optimistic about the remainder of the year and are enthusiastic about our competitive position and our ability to maintain our favorable performance in 2012 and beyond.

Now I'd like to spend a few moments talking about the performance of our brands starting with the Outdoor Group. The Outdoor Group, which includes Merrell, Chaco and Patagonia footwear, continues to be the Company's largest revenue and earnings contributor and was the biggest source of revenue growth in Q3. All three brands grew revenue at a strong double-digit pace in the quarter.

Merrell led the pack for the Outdoor Group with an outstanding global performance, particularly in the US and Europe. As I have mentioned in the last few calls, Merrell Barefoot, which launched in February, has been the most successful new product introduction in the history of the Company. Year-to-date global shipments have exceeded our expectations and retailer and consumer interest continues to build.

Merrell is a market leader in the growing minimalist category and is positioned for global growth as this trend gains traction in other parts of the world. Merrell also had success in the quarter with the new Origins collection which reintroduces consumers to heritage inspired product and the founding principles of the brand that began 30 years ago.

The interest in Origins has been strongest from younger more fashionable consumers and has allowed Merrell to expand penetration within existing accounts and achieve distribution with new lifestyle retailers like Urban Outfitters. Origins will continue to be a major focus for Merrell going forward.

Chaco, our pure outdoor adventure brand, turned in exceptional Q3 results. The brand continues to expand distribution in the US, especially in key specialty footwear retailers. The early response to the Chaco closed toe program has also been very strong. This program will be the cornerstone for making Chaco a four season brand.

Patagonia footwear also performed very well in Q3 led by triple-digit growth in the hiking category and continued momentum in casual boots and shoes. The Outdoor Group had an outstanding quarter and we are confident the team will continue to deliver strong results in Q4 and beyond.

Let's now turn to the Heritage Group which includes the Company's oldest brand, Wolverine; our two largest licensed footwear businesses, Caterpillar and Harley-Davidson; as well as HyTest and Bates.

CAT footwear led the way for the Heritage Group in Q3, capitalizing on the global consumer trend for rugged American heritage products and delivering strong double-digit revenue growth in all geographic regions. CAT's strong global performance was fueled by new breakthrough product initiatives targeting a younger audience. Domestically innovative breakthroughs in anti-fatigue work product helped drive CAT's exceptional results.

CAT's new association with Mike Rowe is already producing results as the Mike Rowe Works by Caterpillar Footwear Collection has been enthusiastically received by nearly all of CAT's top accounts. Mike's message of hard work through his dirty jobs TV series is inspirational and this passion has generated a great deal of excitement for the CAT brand.

Turning to the Wolverine brand -- the momentum continued into Q3 as revenue grew at a strong pace. Led by the Contour Welt assortment Wolverine continued to take market share and became the utility and work boot category market leader according to the SportScan info data.

Wolverine also reported triple-digit growth in its international business as the premium priced 1000 Mile collection continued to gain traction in major fashion hubs around the world. The Heritage Group had a great Q3 and is well positioned for future growth.

Next I'd like to discuss the Lifestyle Group which includes Hush Puppies, Sebago, Soft Style and the most youthful consumer brand in our portfolio, Cushe. All brands contributed to the Group's strong double-digit revenue growth in the quarter.

Hush Puppies, our classic American casual brand, delivered outstanding growth in Q3 behind the continued success of global product initiatives. The iconic 1958 collection generated strong consumer demand with more fashion savvy consumers and sold through very well at retail during the quarter. In the US both men's and women's collections had increased penetration at premier independents as well as department stores like Nordstrom and Macy's.

Hush Puppies remains the Company's largest brand in terms of global pairs and retail door count. In the third quarter 18 new concept stores and 142 new shop-in-shops were open globally making the brand's total number of dedicated points in global distribution to over 2,200.

Sebago, our premium new England Heritage brand, turned in a very good quarter. The brand benefited from some unexpected but much appreciated global publicity in Q3 as one of Duchess Kate Middleton's favorite shoes during the recent trip to Canada was a pair of Sebago moccasins.

Sebago's strong momentum was also driven by the Artisan collection and other collaborations. These premium products are performing exceptionally well in upscale retailers around the world and have had a halo effect on the core Sebago brand. Sebago continues to be a major growth opportunity for the Company.

Finally Cushe, our action sports inspired brand, continued its triple-digit pace growth in Q3. Cushe's exceptional product continues to perform well at key influential retailers like Nordstrom where Cushe remains a top five selling men's brand. Cushe's growth continues to exceed our expectations and the brand remains a major source of growth for the Company in 2012 and beyond.

I'm obvious proud of the record results delivered by the team in Q3. We're on track to exceed our aggressive 2011 plan while navigating the challenging sourcing and product cost environment as well as macroeconomic headwinds in key regions. Despite these challenges we were able to deliver gross margin expansion in the quarter which is a testament to the team's operational execution of our strategic growth plan.

Strategically we remain focused on connecting with our core consumers, maintaining a robust new product pipeline and a keen focus on product innovation, expanding our global reach and consistently delivering excellent results to our shareholders. Our global business model allows us to perform in all economic environments as we are not dependent on any single brand, country, distribution channel or consumer group.

I want to thank everybody on the Wolverine team around the world for making another record quarter possible. I'll now turn the call over to Don Grimes, our Senior Vice President and CFO, who will provide you with some additional information regarding our Q3 results and our revised 2011 guidance. Don?

Thank you, Blake, and good morning, everyone. I'm extremely pleased to be able to discuss the details of yet another outstanding quarter of financial results. We delivered record revenue, record gross margin, record operating margin and record earnings per share while continuing to make critically important investments in both brand building and international infrastructure that we believe will help deliver great results in 2012 and beyond.

The challenge of delivering outstanding near-term financial results while making appropriate investments for the future is a delicate balancing act and our success in doing so has been a continuing storyline for Wolverine Worldwide over the last couple fiscal years.

We are leveraging our business model and driving momentum in our brands throughout the world. This momentum is convincingly evidenced by unit growth in excess of 25% in each of the Asia Pacific, Latin America and Europe, Middle East, Africa regions during the third quarter.

In some emerging markets within these broader regions some growth is approaching or exceeding triple digits albeit on a much smaller base. For the quarter 64% of our unit volume and 52% of our operating income was from outside of North America. On a year-to-date basis 63% of our unit volume and 48% of our operating income is from outside of North America.

While we're both pleased with and proud of the international business that we've built today, what is really exciting is the likelihood of even stronger growth in the future for key brands in our portfolio in these fast-growing markets. Our international group has had a very busy year thus far and we look forward to the exciting things to come.

Moving on to some details for our fiscal third quarter that ended September the 10th, revenue grew 12.9% to a record $361.6 million, our fifth consecutive quarter of record revenue. Foreign-exchange, mainly a weaker US dollar versus the British pound, Canadian dollar and euro, contributed $8.3 million to reported revenue in the quarter.

Our Outdoor Group consisting of Merrell footwear and apparel, Chaco and Patagonia footwear grew its revenue 19.9% in the quarter to $145.4 million. Notably all brands And the Outdoor Group had double-digit increases during the quarter representing balanced performance within our largest and most profitable operating group.

The Group's strong performance continues to be led by Merrell's new Barefoot collection. However, it's important to note that the Group still delivered excellent revenue growth even without the incremental contribution from Barefoot. The buzz behind minimalist footwear continues to grow and we clearly like the position that Merrell occupies in this exploding footwear category.

The Lifestyle Group had an excellent quarter as well growing reported revenue 21.6% to $55.5 million. Strong double-digit growth for the Hush Puppies brand with particular strength in the United Kingdom, Canada and in third-party licensing markets and continued outstanding performance from Cushe, who's year-to-date revenue is up over 100%, led the way.

The Heritage Group had a solid quarter as revenue grew 6.8% to $128.0 million. Continued outstanding global performance from Caterpillar footwear and the Wolverine Brand was only partially offset by lower sales in the niche Bates and HyTest businesses, as well as the Harley-Davidson footwear operation, the latter of which reflects a brand repositioning and more restrictive distribution guidelines by the parent company.

Turning to our other business units, Wolverine Retail delivered another excellent quarter with mid-single-digit comp store sales gains and continued strong double-digit organic growth from our eCommerce business. Sales per square foot in our brick-and-mortar fleet were up almost 12% in the quarter and we believe that our entire consumer direct business is poised for an outstanding holiday shopping season.

Our lower margin Wolverine leathers business experienced a revenue decline in the quarter due to reduced customer demand for pigskin leather. The Company delivered record gross margin in the quarter of 40.6%, up 44 basis points versus the prior year.

The year-over-year gross margin expansion was driven by a very favorable brand mix, the benefit from selling price increases taken earlier in the year, and lower air freight costs this year, all of which more than offset higher product costs.

Not to pat ourselves on the back too much, but it's worth noting that our year-to-date gross margin is approximately flat with the prior year; truly outstanding performance in what has been a very challenging sourcing environment. Our performance is a testament to both the power of our brand portfolio and the discipline and vigilance with which we manage our business.

We continued to invest on important growth initiatives in the quarter and accordingly increased or marketing spend at a double-digit clip. Even after making those investments for the future we still generated 20 basis points of operating expense leverage in the quarter as SG&A dropped to 25.0% of sales.

The weaker US dollar contributed just over 20% of the $9.5 million increase in reported operating expenses in the quarter with the balance attributable to increases in brand building investments, expenses associated with the build out of our international infrastructure, and expenses that vary with sales activity such as distribution costs and sales commissions.

Fully diluted weighted average shares outstanding in the quarter were 48.9 million, up slightly from the prior year's 48.7 million. We took advantage of the stock market volatility in the quarter and repurchased approximately 948,000 shares at an average cost of $34.45 per share. The Company has approximately $98 million remaining under its current share repurchase authorization.

Bottom line, diluted earnings pressure grew 17.1% in the quarter to a record $0.82 per share. This is not only a record for the third quarter; it's the highest quarterly earnings per share in the Company's history regardless of fiscal quarter.

We generated excellent earnings leverage in the quarter with diluted EPS growing more than 1.3 times the rate of our revenue growth. Our year-to-date earnings leverage is a very similar story with EPS growth about 1.35 times the rate of the strong 16.1% year-to-date revenue growth.

Due to working capital fluctuations that haven't followed our normal historical pattern, our fiscal 2011 operating free cash flow will be much more heavily weighted towards our fiscal fourth-quarter which, as a reminder, is a 16-week quarter.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, has been strong all year. On a trailing 12-month basis our EBITDA is just over $187 million, up 15.7% versus the prior 12-month period adjusted for restructuring charges. We continue to be very mindful of cash flow generation as the ultimate barometer of shareholder value creation.

Consolidated inventories at the end of the quarter were $278.2 million, an increase of 33.4% versus the prior year and a meaningful percentage reduction compared to our inventory position at the end of Q2. Of the approximate $70 million year-over-year increase about $12 million is specifically to support the new Merrell Barefoot and Merrell Origins collections; $9.9 million is due to the higher year-over-year product cost; and $4.7 million is due to the weaker US dollar. These items explain about 40% of the total increase.

The remainder of the increase will enable us to better serve a burgeoning at-once order environment. Our at-once orders have been up over 20% in the last couple of months, the timing of which coincides with a pretty significant downward shift in the macroeconomic environment.

We don't know how long this trend in order patterns will last, but our experience tells us that it benefits suppliers with strong balance sheets who can invest in core inventory which we have done. We believe the quality of our inventory is very high and we continue to project year-end inventory growth in line with our full-year revenue growth.

We ended the quarter with cash and cash equivalents of $97.9 million and approximately $60 million drawn on a revolving line of credit. Our plans for Q3 uses of cash remain the same -- sustain mix and accelerate the growth of our existing brand portfolio, fund potential new acquisitions and share our cash flow with shareholders in the form of dividends and opportunistic share repurchases.

Our backlog at the end of Q3 was up over 8% versus the prior year with all three branded operating groups contributing to the positive position. The reported backlog is impacted both by the trend towards at-once orders that I just discussed and by the fact that in 2010 retailers were placing orders very early because of concerns over delivery lead-times from Asian factories.

Based upon the strength of Q3 and the solid Q4 outlook we are raising our full-year revenue estimate to a range of $1.4 billion to $1.43 billion representing growth at 12.1% to 14.5% compared to the prior year, and also rates in our full-year estimate for diluted earnings per share to a range of $2.46 to $2.52 per share representing growth of 13.4% to 16.1% over prior year adjusted earnings per share of $2.17.

We now expect full-year gross margin to be flat to very slightly up versus the prior year with the benefit from a better-than-expected Q3 gross margin performance only partially offset by higher Q4 LIFO expense than we previously forecast. Also we are still estimating modest full-year operating expense leverage.

Let me add just a few more comments to help put our expectations for fourth-quarter earnings in a better perspective. Last year's fourth-quarter effective tax rate was an abnormally low 20% due to the benefit of a couple nonrecurring items. The difference between last year's effective tax rate and this year's forecasted tax rate is close to $0.05 per share in the quarter.

Additionally, last year's fourth quarter benefited from a gain on the sale of our Wolverine procurement business which was about $0.015 per share.

Finally, we will be continuing our investments in marketing and advertising to drive brand awareness, particularly in support of an expanded spring 2012 Merrell Barefoot collection. The total expected incremental marketing investment in Q4 is about $0.06 per share. So when you add these up you get over $0.12 per share of either prior year benefits we don't expect to recur this year or specific incremental investments we're making to drive future growth.

I hope you find that expanded commentary helpful to you. Thanks for joining us on the call today and I'll now turn the call back over to Blake for some closing comments.

Thanks, Don. We're obviously thrilled to have delivered another record quarter for our shareholders and look forward to future success during the rest of 2011. Thanks for your time this morning; we'll now turn the call back to the operator so we can answer your questions. Operator?

(Operator Instructions). Mitch Kummetz, Robert Baird.

Yes, thank you. Let's see, I've got a few questions. Let me start with the backlog. Don, to your point, I understand what's happening with the shift to at-once and early ordering a year ago; I'm just curious though, what's the Barefoot piece of the backlog? I don't know if you guys can address that.

And then also, if you could just maybe talk about the backlog by group. Is the growth coming from Outdoor, I would assume? Is it up across all groups? And then is there any way to address the backlog, what you're seeing for the balance of this year, what's -- fall pre-books versus already what you're seeing into early next year with spring orders?

Mitch, this is Blake. We usually don't get into that kind of detail on our backlog, especially since over the last two and a half years it's become a less accurate predictor of what our future sales are going to be with the big swings between futures and at-once and back to future orders and now again for the last several months back to at-once orders.

So we've got a pretty healthy backlog across all brand groups. We feel pretty good about our position right now; our products continue to sell through at retail. We've got a couple of regions that are economically challenged in a macro sense, but, as you know, footwear continues to perform pretty well in tougher economic conditions.

So I'd say lead-times in 2010 were extremely long and people were placing -- retailers were placing their future orders much, much earlier. That's not the case today as we've seen factory capacities and -- begin to open up.

Okay.

Just a couple other comments, Mitch -- this is Don. But the backlog is up across all three of the operating groups, as I mentioned in the prepared remarks. It's being held down a little bit by a negative backlog from our leathers business. So including that it's a little bit higher closer to that double-digit mark and it's pretty balanced across -- as you go into Q4 into the first part of 2012, Q1 and Q2. We see no evidence of any market shift in demand based on the backlog.

Okay, that's very helpful. And then, I think you guys won't give your 2012 guidance until the Q4 call, or is there anything you'd like to say at this point in terms of how -- any visibility on the sale side into the first half of next year? Anything you want to talk about maybe on the cost side in terms of how the cost outlook is shaping up going into next year?

Well I mean, the truth is on the cost side, Mitch, we can speak to that a little bit. Obviously we know our spring prices; they were up again from all of this year. But we're seeing capacity open up at the factories. We're seeing commitments from factories that there will be no overhead or labor increases for the fall 2012 season. So that's all very encouraging. Obviously we have a pretty big pencil as well.

On our macroeconomic environment, obviously we've got the situation in Europe that everybody is watching to see what's going to happen there. There's a couple of soft markets in Europe, but for us it's a very good time to have our brands in 190 countries around the world because it really dissipates risk in this kind of environment.

But as it relates to even unofficial revenue guidance for 2012 or any other guidance beyond what Blake just talked about in terms of the cost environment, you're right, we will wait until we announce our Q4 earnings. We kick off our internal planning meetings here in about a week or two, so we haven't had a chance to inflict any pain yet on the operating groups which we'll do over the next month or two.

Okay, I'm sure they're looking forward to that. Last question, just in the Q3 results top-line, could you talk a little bit about what were the increases North America versus outside North America? I know you talked about units and things like that, but is there any way you could talk about the sales increase US versus international? And then specifically how your business performed in Europe and maybe kind of what your outlook is in the fourth quarter for Europe?

We suspected there would be a few questions about our European performance, and actually our business and what we're calling -- more broadly defining as the EMEA region now, has been strong on a year-to-date basis. We were up 21% in the quarter and 24.5% on a year-to-date basis. The strength is pretty strong across the board.

Our Latin America and Asia Pacific regions off smaller bases continue to grow even stronger than that. But we continue to see a very strong performance across the board in Europe. You look at Merrell, Caterpillar and Hush Puppies, our three biggest international brands; they performed very strongly on both the quarter and year-to-date in Europe. So again, off of a smaller base of business in Europe we continue to navigate very successfully through the challenging economic headwinds.

Is your EMEA backlog consistent with the consolidated as a whole?

I don't have the numbers in front of me.

I would say yes.

I would say yes. And without speaking from facts I would say maybe even a little stronger than the backlog as a whole, but I'll have to confirm that.

Okay, great. Thanks, good luck.

Edward Yruma, KeyBanc Capital Markets.

Question on share repurchases and how we should think about that number going forward. I know that a bit of your cash is held offshore and I think that makes it more difficult to do share repos. How should we think about that going forward and is there some attempt to repatriate the cash?

Well, in terms of share repurchases, I mean as we frequently say, they're kind of opportunistic in nature. As I think you and I have talked about, Ed, we have our own calculation of intrinsic value for Wolverine's stock. And when the market price is inordinately below that internal calculation we get a little more aggressive in terms of share buyback.

Our going-in position in any fiscal year is an attempt to offset the dilution for new equity grants which share buyback has done throughout the year, as the share price indicates we should.

As it relates to the offshore cash, you're right, that does present a bit of a challenge in terms of using that cash for share repurchases or other corporate purposes, but we have ample liquidity. We had $60 million drawn on the line of credit at the end of Q3, but our forecast is for that balance to be paid off midpoint in Q4 and for Q4 to be an exceptionally strong cash flow generating quarter.

Great. And I know that you've talked in the past about being opportunistic with M&A. Can you talk about the current environment and do you think that the current macro weakness will give you potentially an opportunity to pick up a brand in the back half?

Well, Ed, as you know, we've been very active in the current environment and over the past year or two were kicking the tires with a lot of potential brands that we'd like to add to our portfolio. We obviously have a very good track record of adding brands and keeping them distinct and expanding them internationally.

Don and I and some of the other members of the team are actively looking at brands right now. We've got a great business model that generates a lot of cash, we have a lot of or wherewithal and we know we can take a brand, as we have with Merrell and Sebago and several others and plug it into our operating network and expand it rather quickly.

If you look at the multiple that deals have been done at in the last six months or so, they continue to be quite rich. We haven't seen any evidence yet of macro challenges causing deal multiples to contract or compress in any way. We look a lot and I guess we're under no false impressions that we're going to steal a brand necessarily, but we think we can add value to a lot of brands that we would acquire that a seller can't necessarily bring.

So there's shareholder value creation opportunities for Wolverine as we add brands to the portfolio. But to the latter part of your question, Ed, we're not going to sit here and say that because of X, Y, and Z we think we'll add a brand to the portfolio over the balance of the year. But we continue to work quite hard to do that and the goal is to make sure that adds value when we do accomplish that goal.

Great. And one final question -- do you have any update on the Bates boot recall and kind of how that's moving going forward? Thank you.

Yes, that issue has been completely behind us, is completely behind us, in fact they're drumming us for more orders and more production. So that issue has been taken care of, frankly.

Great. Thank you.

Jim Duffy, Stifel Nicolaus.

Blake, what's the tone you're hearing from retailers given the macro and political backdrop looking into coming periods?

Well, I think you almost have to split it into Europe, the United States and the rest of the world. And right now the rest of the world is still frankly roaring along; we're not receiving any pushback or great deal of concern from retailers. Outside of Europe and America our international distributors are doing great, our international businesses have had really a stupendous year so far.

Europe I think the macroeconomic environment is starting to weigh in certain countries a bit on retailers minds. Obviously I think this goes to the at-once order trend. They're just going to be very conservative this time around and people are just waiting to see if Europe is going to migrate from a common currency to a common fiscal policy and see if they can get their act together. But there is a challenge in Italy and a few countries obviously in the European region.

In the United States I'd have to tell you retailers are probably more concerned than the actual consumers. If you look at the FDRA comp store sales numbers for our third quarter for 13,000 doors in the United States across the country, comp store sales have been pretty darn good. If you have the right product in this environment, if you have compelling product the consumer is still buying.

That being said, retailers are being more cautious, they're holding back their future orders a little bit, they're relying on companies to have inventory on hand so that they can freshen their shelves through at-once orders. So it's really -- it's really a different story where you -- it's not a United States story, it's not a European story, it's a global story and that makes it a little more complex.

That's a very helpful perspective, thank you. And then can you offer some thoughts around the competitive landscape surrounding Barefoot and maybe some perspective on Merrell's direction in minimalist going forward as you try to separate yourself from the competition?

Yes, I think, like any footwear category, we have plenty of competitors here. Merrell was one of the first and entered it in a fully unique fashion, not only with compelling product on the performance side, but aesthetically as they always do. But also on the educational front for their Micro eCommerce and information website and then also through special in-store displays for the consumer.

We see the category continuing to grow. We see the category continuing to grow especially outside the United States. It probably had it start here in the United States. Merrell remains a leader in this category. We have lots of competition like we do in our other categories, but Merrell, frankly, remains a leader and when you look at their spring and fall assortment that are coming with expansion into water product, into casual product, into walking product -- it's a pretty compelling story.

Okay, great. And then, Don, one for you. In '11 we're looking at low teens SG&A growth projected for the year. As you characterize it, that includes some incremental investments. If we strip out those incremental investments what would a baseline SG&A growth rate look like?

Well, I guess the phrase "incremental investments" can be interpreted kind of broadly. Marketing and advertising, building out our international infrastructure, some additional sales force investments for some smaller brands in the portfolio and some additional product development investments.

I guess if you defined it more broadly, you strip those out you get into the kind of mid-single-digit range in terms of SG&A growth. We do expect Jim to continue to be very aggressive, particularly on the marketing and advertising side. We feel that we're getting a return on that investment. We believe -- we look at pretty closely any specific discrete marketing investments to try to determine what the return on it will be and what it actually is.

We feel like that a lot of the acceleration we're seeing on the top-line is a result of the more aggressive posture we're taking on the marketing and advertising side. So you should fully expect that to continue in 2012 in terms of that rate. However, some of the other areas of incremental investment might -- may be dialed back a bit in 2012.

That's very helpful. Thank you.

(Operator Instructions). Oliver Chen, Citibank.

It's Oliver Chen for Kate McShane. We were curious about the incremental distribution of the Merrell Barefoot product in the mall locations. How long have you guys been in the mall and can you help us quantify the contribution it has made to growth in terms of your Outdoor division? And are you still adding points of distribution in the mall with respect to Merrell Barefoot?

For the Merrell brand, obviously Barefoot has been very important with the Outdoor specialty retail channel, which has been the core of the Merrell brand since day one. We have some mall distribution, but at this point it's still relatively small.

As you know, Merrell only has about low double digit of its US sales with department stores in general. So the focus has been on running shops, specialty footwear, the specialty footwear channel in outdoor independents. I would say the incremental distribution that's really accreted to the Barefoot category has come at pure running shops.

As you know, the running category continues to be very strong. Maybe a year ago there was no dedicated minimalist wall in running shops, and today every running shop I go into has a minimalist wall and Merrell is on that wall.

So if you look at Merrell shoes, the Barefoot category, the shoes are gorgeous. I mean for every pair that's actually going to probably be worn to run on the tarmac we're going to sell hundreds or thousands of pairs that will be worn to grocery shop and watch a soccer game and for general casual wear. So I would say at the moment our mall exposure is relatively small.

Oliver, in terms of its contribution to growth, we have consistently said in each of our earnings calls this year that even without Barefoot's incremental contribution to the Outdoor Group it would still add strong double-digit revenue growth. It's 23.5% on a year-to-date basis and even without Barefoot's contribution the Outdoor Group would have very strong growth.

Great. And also regarding another topic, could you offer some commentary with respect to the consumer receptivity of price increases? Are there any kind of characterizations with either channel or pricing tiers in terms of how that's happening and what's happening? And maybe the last question is -- what are the key attributes which really fuel your conviction on a constructive holiday this season? Thank you.

Well, I think the answer to really both questions comes down to compelling innovative product. And I would say, knock on wood, the consumer reaction to price increases that we've taken selectively here and there over the last 18 months or 24 months has been almost nonexistent. And frankly, the reaction from retailers to those same increases hasn't been much larger than that.

Retailers know -- they're fighting the battle every day; they know if you have compelling product the consumer is still out there opening their wallet. When we look at our fall season and the holiday season, frankly we feel pretty encouraged -- our sell-throughs at retail from those retailers where we get that information continues to be very strong. So absent some huge macroeconomic meltdown when we look out two, three, four months, we feel pretty good.

Thank you very much.

Jessica Bornn, Sterne, Agee.

Good morning, thanks for taking my call. I was wondering of the eBilling contribution from FX to the top-line, could you break out by operating group which one had the biggest impact from foreign currency maybe by brand?

Yes, I don't have that in front of me but by offering group but just kind of speaking based on my knowledge, we have said in the past that we are most exposed to the British pound, second most exposure to the Canadian dollar and third most exposed to the euro. If you think about how our operating groups and the major brands within those operating groups, how their business is distributed, I would say probably that the Heritage Group probably has the least FX exposure even though it has a brand, Caterpillar, which is quite large. It has fairly significant FX exposure. But the other brands in the Heritage Group are not as much dependent on or subject to FX.

Hush Puppies within the Lifestyle Group has a fair amount of FX exposure given that it is distributed in so many countries particularly in the world's [EM] license fee side. And then the Outdoor Group is -- probably has pro rata FX exposure. So we took the $8.3 million -- again I don't have the calculation by brand or operating group in front of me, it would probably be 40% Outdoor Group, maybe 40% Lifestyle Group and 20% Heritage Group.

Okay, great. Thank you, that is very helpful.

Christian Buss, Credit Suisse.

Hello, congratulations on a nice quarter.

Thanks.

Hello, congratulations on a nice quarter. You had mentioned a shift to at-once orders a little bit. And I was wondering if you could provide some sense of how this shift compares to what happened in 2007 and 2008?

Yes, if you go back and look at -- and really for us we didn't feel any -- frankly any impact from the recession in our business until 2009. So if you go back to the very beginnings of it in 2009 I would say there was even a more significant shift to at-once orders.

I say that in terms of percentage because retailers at that time basically shut the spigot off on all future orders. They did not order anything until they could have a sense of whether or not there was a bottom here.

So we're not seeing that as much as -- that big a dramatic shift now, but it is dramatic. When we had to have some -- when these macroeconomic concerns started a couple of months ago we saw a pretty significant uptick in our at-once businesses and retailers naturally being a bit stingy with future orders. So I think Don in his notes said our periods eight and nine, at-once business was up (multiple speakers).

Yes, for the full quarter it was up in the mid-teens. So we're seeing nothing like we saw in late 2008, early 2009 in which both at-once and future orders were down. We're just seeing a pretty marked shift between futures and at-once over the last eight weeks or 12 weeks if you want to define it more broadly.

Okay, that's helpful. And could you provide us with a little status update on the international group and how that's coming together?

Yes, as you know, we had that organizational change. Frankly I had been thinking about it for years. We implemented it in January and I would say it's exceeded our expectations. As you know, we're putting talent and attention around the world regionally to really leverage the collective strength of our brands.

And not that there was anything wrong with our current international business distributor business, which is the envy of the industry. We just needed to leverage the collective strength of our brands and look a little more -- be a little more aggressive in some local opportunities. So I would say that's been an overwhelming success so far.

Great to hear and good luck.

Thanks.

Thanks, Chris.

(Operator Instructions). Taposh Bari, Jefferies & Company.

A question for Blake just on the cycle, both I guess men versus women. I guess, A, can you just remind us what your gender mix is roughly either by units or sales? And then a lot of focus on the women's footwear cycle vis-a-vis the denim silhouette. But just wanted to get a sense of what you're seeing in your business particularly on the men's side and what's driving that trend? Obviously a lot of innovation, but any more color on that would be helpful.

Yes, if you look at our global pairs, 50 million pairs under our brand in 190 countries around the world, we'd be approximately 50-50 men's, women's. We might be a little more heavily skewed in the women's category. We continue to see a number of strong trends around the world that frankly is a bit of wind at our backs right now. So we continue to see a strong group trend and these are both fashion boots and authentic performance boots.

We're seeing the consumer focus on real brands, brands with some heritage, brands that stand for something. There's also a strong preppy Americana heritage trend going on in most markets around the world. So we haven't been able to discern any fall-off in the denim trend, especially on a global basis.

Okay, that's helpful. And would you say the women's cycle is kind of in the same place as the men's cycle or has one preceded the other?

You know, to be honest to with you, we really don't view it that way internally. We've got several brands that have some -- obviously some upside opportunities on the women's side in a few markets and we're just focused on taking market share. So we -- at this point we all know that women buy far more shoes than men do and they buy a pretty good percentage of men's shoes as well around the world. On the acquisition side, Don and I are -- we take a hard look at women's brands when they become available.

Thanks. And then I just wanted to -- was hoping to get some context around that 25% unit volume growth in what seems to be your, quote unquote, emerging market geography. I guess the first question is, can you give us a rough sense of how big those markets or how much those markets account for, whether it's, again, either on a units or kind of an income mix basis? And then separately, is that trend comparable to what you've been seeing so far year-to-date?

Yes, I mean the growth year to date isn't quite as strong; actually I'm looking at my notes here. For EMEA it's still high-teens, but for Latin America it was -- year-to-date growth actually is in excess of the growth we had in the quarter. 32% of our unit volume in Q3 the push was in the US, so 68% outside the US; on a year-to-date basis 67.5% of our unit volume is outside the US. So those represent meaningful pieces of the business on a unit volume basis.

As you know, the way our business model works, on a reported revenue basis it tends to be a less meaningful contributor to reported revenue, but a more meaningful contributor to bottom-line or operating profit.

Okay. And then just final question I have is just a housekeeping question for Don. Can you just repeat what your tax rate assumption is for the fourth quarter?

For the full year it's just under 28%.

Okay. Thanks a lot. Best of luck.

Thanks.

Diana Katz, Lazard Capital Markets.

Don, can you possibly break out the gross margin buckets in the quarter, breaking out the headwind from the cost increase followed by the benefits from the price increases, the lower airfreight and the favorable brand mix on ForEx?

And then if you can also just go over then for the full year, expecting margins to be flat to up now, for it to be flat fourth-quarter [gems] would have to be down. I know you discussed a higher Q4 LIFO expense, but any change to the expectation for favorable ForEx with regards to the forward contracts as they mature? Or is that LIFO expense enough to make it down for the quarter in 4Q?

Yes. Your first question we continue to see pretty significant favorable contribution from pricing in Q3. Our pricing contribution -- increase in selling prices was over 300 basis points of positive contribution in the quarter. Higher product cost was about 200 basis points of a headwind. Foreign exchange was about a wash; we calculated about 15 basis points of deterioration in gross margin due to FX in Q3.

We have a favorable brand mix of about 100 basis points, and so the plug there is kind of unfavorable channel and business model mix in the quarter. So favorable brand mix, but unfavorable on the channel mix. So that nets out to the 44 basis points of gross margin expansion in the quarter.

As it relates to the full fiscal year, we are guiding to flat to slightly up. Gross margin on a year-to-date basis is about flat. So if gross margin is going to be flat full year that would imply kind of flat gross margin in Q4.

We're still expecting to see favorable contribution from FX of around 80 basis points in Q4, and then that's pretty locked-in in terms of the contracts that are maturing this year's Q4 and benefiting or impacting cost of sales versus last year's Q4. So that's kind of a locked-in number. The other numbers are kind of forecasted based on what we think is going to happen in Q4 which could obviously change between now and then.

But we have other puts and that kind of get us to the full-year guidance of flat to slightly up gross margin. I don't want to go into more detail about Q4 because we are sort of giving the broad picture that we expect full-year gross margin to be flat to slightly up.

I know you guys can appreciate the difficulty of forecasting gross margin across 12 brands in a portfolio with so many different countries of distribution and so many different channels of distribution it makes it more challenging. But that's why I would like to leave the commentary essentially at flat to slightly up, which we think is a great accomplishment for the full year given the challenging environment.

Okay, great. And just to piggyback off of Taposh's question. So year-to-date 67% of your unit volume outside the United States, is there a way to parcel out how much of that breaks out between Europe and the emerging markets? Like how much is Europe versus emerging markets?

Yes, I mean Europe is about -- year-to-date was about -- EMEA was about 27%; Latin America at 17%; Asia-Pacific 19%. So what people sometimes fail to appreciate is that on a year-to-date basis about -- more than a third, about 36% of our unit volume comes from Latin America and Asia Pacific, which for our brands are higher growth areas, which we think positions us quite well for future growth. And then Canada would be about 5% of unit volume on a year-to-date basis.

Great. And then I know you guys touched on your competitors, but there's been some specific investor concern regarding New Balance's version of its barefoot shoe considering it shares some of the same Vibram barefoot technology as Merrell. I guess is there any more color you can add to the differentiators in your Barefoot shoe and maybe touching on the backlog in particular for the Barefoot shoe?

Yes, I think one of the strengths of the Merrell Barefoot offering has been it's a zero drop forefoot to heal from the very beginning. I mean it is a pure barefoot shoe. A lot of the competitors that are trying to get into the category still have a 6 millimeter, 4 millimeter drop forefoot to the back of the foot. So I think that's been a bit of a differentiator for Merrell so far.

We don't usually like to comment on specific competitors. We're going to have a lot of competitors in this particular category like we do in every category. We seem to be winning and taking market share. I would say clearly though Merrell, starting with this spring, is going to have the broadest offering of Barefoot product out there in any number of categories -- trail running, road running, casual, water. There's going to be no Barefoot offering as broad as the Merrell offering.

Great. And then finally, are you going to be replacing or have you replaced Michael McBreen as President of Global Ops? Or given your structure is there really no need to replace that position? Thank you.

No, when we announced internally that Mike was leaving the Company we also announced his replacement. So we've been very excited to add some seasoned senior talent, really are number one choice in the industry to become President of the Global Operations Group. We really, because he's completing an assignment right now, we're not at liberty to talk about his name quite yet. But he's going to be joining us no later than January 1.

Great. Best of luck. Thank you.

Thanks.

Chris Svezia, Susquehanna Financial Group.

Good morning, everyone. Nice job.

Good morning, thanks, Chris.

So I guess first, Don, for you -- percentage of at-once in the quarter, you mentioned it grew I think mid-teens you said or something along those lines. Can you just (multiple speakers)?

Our at-once orders for the full quarter, the orders that came in that we classified as at-once, it was up mid-teens versus last year. The last eight weeks of the quarter they were up over 20%. So the at-once order trend accelerated during the course of the quarter.

So it's fair to say when you look at inventories up 33% given the structure of at-once, which in theory would have I guess pretty good margins, you're not -- I mean, when you look at that inventory number you feel pretty confident as you work down that inventory. A lot of that, too, is some degree being driven by at-once? So in (multiple speakers).

Yes, to the extent at-once orders were to maintain that very robust pace, or maybe even accelerated more in response to some of these economic issues, that could even put more downward pressure on our inventory. We have a certain assumption of at-once business built into our year-end inventory projections, but we didn't really see the at-once business being as strong as it was going into the third quarter as ended it up being.

So we feel really good about the inventory that we have on hand and our ability to use that inventory very smartly to fill at-once orders to help our retail customers, which is something that we've seen play out in the past.

So is your projection maybe for -- as you go into fourth quarter for at-once being in the 20% range, or does it kind of maintain that level you saw in Q3?

I don't have the number in front of me, but it would not be plus 20% performance in at-once business in the quarter, it would be something less than that, I'm sure.

Okay. And then when you guys talk about Merrell and Barefoot domestic versus international or I guess more specifically Europe, where -- I mean can you just give us a break out in terms of percentage of the business? Is 80% of it done in the states, 20% of it unit volume outside? Kind of where does that balance stand and maybe some thoughts as you head into early next year how that balance may start to swing?

Yes, I would start say this first year, 2011, it's predominately in the United States. There's a double-digit and growing quickly percentage of the business that's being done offshore. We see it really taking hold in most places -- in a lot of territories, countries around the globe, but especially Europe.

So Europe is showing some very early signs of following the United States trend in a significant way. But we also see it catching hold in Asia-Pacific and Latin America and some other regions. We -- next year for 2012 and beyond we would expect that to become more balanced.

Okay. And then when you look at your margin structure for international versus domestic, and if you strip out Hush Puppies for a second, can you give us any color in terms of the trend line from an operating margin perspective? Is international below that of domestic, is it comparable, is it accelerating? Or given the investments you're making it's deleveraging? Just kind of give us an idea of where that stands given the growth you feel on the international side.

Yes, I mean our international business has been frankly just on fire all year. And by international, I mean outside the United States and maybe outside most of the countries in developed Europe. So we obviously -- on our model, as you know, have our bottom-line contribution from our international business is a higher percentage than our own territories obviously. And that's probably benefited us this year and kind of helped dissipate some of the risk from these macroeconomic conditions.

Yes, I mean when you look at our non-US business, Chris, there's the -- the business and subsidiary markets, Canada, UK, certain major countries in Continental Europe that would be on a profit -- an operating margin that would be consistent with -- comparable to what we have in the US. And then the other brand, even if you exclude Hush Puppies, as you suggested, for the business that goes through distributors, that would be a higher operating margin because of the nature of the business.

Okay. And then on the backlogs, can you give me any color between price versus units? And your commentary about continuing to see sequential increases in cost, is that -- do we assume that you go into your spring orders and that has higher prices for your retailers?

Yes. I mean we've already -- with respect to spring that's obviously baked. We know pretty much what we've sold in. Obviously we know what our costs are. There were some incremental cost increases that we've addressed for spring/summer '12. But I would tell you overall we feel better about the sourcing environment today than we did a year ago -- probably much better. And we feel even better about the sourcing environment going into fall '12.

Okay. So I mean just more specifically, when you look at spring you're basically seeing some modest sequential price increases in terms of input. But in terms of how you already looked at pricing for retailers, you took up pricing to offset that, is that a fair general statement?

Yes. We've interested it in a number of ways, obviously. We've focused on new factories, new countries, we've looked at our complete supply chain, taking cost out of the supply chain when. Possible we've re-engineered product and then we've taken some slight or selective price increases in some of our brands and some of our carryover collections. Obviously new product that's being introduced, that's a different issue and you can price that appropriately as the product is introduced. But we've addressed all that for the spring/summer season already.

I would say putting aside what we're doing on the cost side for a second in terms of re-engineering product and diversifying our sourcing base and everything else, I think one of the biggest learnings for us in 2011 is that when you have the right product and you do a great job supporting it with marketing and advertising you can be aggressive on the selling price side.

Q3 is the third consecutive quarter this year in which the benefit to our gross margin from higher selling prices or from selling price actions that we've taken has exceeded the take away from higher product costs. And so I think as a company we have convinced ourselves that pricing is a lever that we can maybe use more judiciously or selectively going forward as a mechanism to drive gross margin expansion. So that's been a very valuable learning experience for us, I think more so maybe than any other fiscal year in our recent history.

Okay, very helpful. And best of luck to you guys. Thank you very much.

Thank you.

Mitch Kummetz, Robert Baird.

Thanks. Just a couple things; I'll try to be real quick. Apparel performance in the quarter. I think Merrell was up over 60% in Q2, just an update there?

Yes, I mean both of our apparel businesses, Wolverine and Merrell, frankly, had an excellent quarter. I'm just trying to see if I can get (multiple speakers).

Merrell apparel -- again, we don't give revenue performance by brand and I would kind of talk in generalities. But Merrell in particular, which is where we're investing probably inordinate resources in our apparel business, was up very, very strong double digits again in Q3 and on a year-to-date basis the performance is very strong, almost -- I don't want to say unsustainably strong, but very, very strong.

Okay.

And Wolverine apparel was also up solid double-digit (inaudible).

And then last question, Don, in terms of your Q4 -- well I guess sort of implied Q4 revenue guidance given the update to the full year, is there a comp assumption that's embedded in that on your retail business and then also FX assumption?

There is. I mean retail comp assumption would be mid-single-digit comp store increases kind of in line with what we delivered in Q3. And on the FX, yes, the assumptions are not as conservative as they would be if we had more than one quarter left in the fiscal year.

But we're -- I think the forecast reflects above $0.56 on the pound, which is close to where the current spot is, $1.36 on the euro, which actually is unfavorable to the spot rate, at least over the weekend that I saw. And then on the Canadian dollar the forecast is $0.97 versus a spot rate of $0.95. So it's pretty close to current spot rate.

Got it. All right, great. Thanks again.

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

Thank you. On behalf of Wolverine Worldwide I would like to thank you all 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 January 30, 2012. Thank you and good day.

Thank you for attending today's presentation. You may now disconnect your lines.