Wolverine World Wide Inc (WWW) 2012 Q4 法說會逐字稿

Good morning. And welcome to Wolverine World Wide 2012 fourth-quarter and full-year 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 you now like to introduce Ms. Christi Cowdin, Director of Investor Relations and Communications for Wolverine World Wide. Ms. Cowdin, you may proceed.

Thank you, Keith. Good morning, everyone, and welcome to our fourth-quarter and full-year 2012 conference call. On the call today are Blake Krueger, our Chairman, CEO and President, and Don Grimes, our Senior Vice President and CFO. Earlier this morning we announced our financial results for both the fourth quarter and full year 2012. 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 also be viewed from our corporate website at www.wolverineworldwide.com.

This morning's press release included non-GAAP disclosures and these disclosures were reconciled with attached tables within the body of the press release. Today's comments during the earnings call will also include some additional non-GAAP disclosures. There is a posting at our corporate website that will reconcile these non-GAAP disclosures to GAAP. To view the document, please go to our corporate website, www.wolverineworldwide.com, and click on Investor Relations in the navigation bar. Then click on Webcast at the top of the Investor Relations page, and then click on the link to the file called WWW Q4 2012 Conference Call Supplemental Tables below the webcast link.

Before I turn the call over to Blake to comment on our results, I'd like to remind you that the predictions and projections made in today's conference call Wolverine World Wide and its operations may be considered forward-looking statements by securities you laws. And, as a result, we must caution you that, as with any prediction or projection, there are a number of factors that could cause results to differ materially. These important risk factors are identified in the Company's SEC filings and also in our press releases. 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. I'm pleased to report that we closed fiscal 2012 on a strong note. With revenue from our legacy business, representing the 12 brands in our portfolio prior to last year's acquisition of the Performance and Lifestyle Group, reaching record levels during the quarter, driven by increases in all operating groups. Geographically, our owned US and third-party distributor and licensee businesses produced the highest increases. Which were partially offset by shortfalls in Europe due to the impact of the double dip recession that persists in that region. Earnings leverage was also good as we delivered better than expected results from our legacy brand portfolio. In addition, our four newly-acquired brands posted revenue in line with our high expectations. And generated better-than-anticipated earnings during the stub period, which was from the close of the acquisition in October to fiscal year end. Don will provide some more details on that in a bit.

We're ahead of schedule in realizing the collective benefits from our unparalleled portfolio of 16 brands that are currently distributed in over 200 countries and territories, reach all genders and age groups, and cover most product categories. We're also very pleased with the strong interest in our four new brands from our established international partners. Let me start with some comments about our four new brands, beginning with Sperry Top-Sider. Sperry had a great close to the year, generating an extremely strong double-digit revenue increase during the stub period. This stellar performance was achieved through rigorous execution of the brand's strategic growth plan, that is focused on elevating the business to a global dual-gender, multi-category Performance and Lifestyle brand. For Sperry Top-Sider, non-boat shoe product continues to grow at an even faster pace than boat shoes. With especially strong gains in fashion flats and cold weather boots for women, as well as the Gold Cup collection of men's premium footwear. Over the past couple of years, the brand has developed into a powerful dual-gender business, with the women's side now accounting for more than 50% of all sales.

Sperry Top-Sider's flagship boat shoe business also delivered excellent growth in the stub period, maintaining the leading position in this category where it has a dominant share of the US market. Sperry Top-Sider also expanded its consumer-to-direct platform. And ended the year with 25 specialty stores, compared to 12 specialty stores at the end of 2011. The four-wall profit continues to exceed plan. The evolution of Sperry Top-Sider from a footwear brand to a true lifestyle brand also continues to accelerate, with seven new license programs developed in 2012 for early 2013 launch. Early indicators from retail are very positive, with especially good acceptance in the swim wear and sock categories.

I'll now turn to Saucony, which experienced accelerated momentum in the back half of the year. Saucony's business was driven by strong double-digit domestic gains across its focused channels of distribution, including the specialty run and sporting goods channels. These gains were moderated by planned sales reductions in close-out product and lower-tier distribution, resulting in flat sales for the short stub period. Saucony continues to receive accolades as a performance leader and innovator, winning many of the industry's most important awards. In the quarter, the Guide 5, one of the brand's flagship franchises, received the Editor's Choice Award as Best Shoe of 2012 from the International Editors of Runners' World. And the Kinvara 3 was awarded Best Shoe in the performance category from the Running Network.

Moving on to Keds. This iconic American brand delivered strong double-digit revenue growth in the stub period, with solid increases across all product categories. The repositioning of the brand with younger, fresher product is accelerating on the strength of the multi-year partnership with seven-time Grammy-winning multi-platinum singer songwriter Taylor Swift. The Keds partnership with Taylor Swift coincided with the launch of her latest album, Red, which quickly became the best-selling album of the last decade. Keds is an official sponsor of the upcoming 45-city Red album tour. And fresh product is hitting retail stores to capitalize on this momentum.

Finally, the Stride Rite Children's group continued to post excellent results. This was the eighth consecutive quarter of strong growth for the group's wholesale business. The Stride Rite consumer direct business also continued its winning streak, achieving yet another high teens comp store increase in the quarter. This strong performance at retail was supported through a higher level of in-store product and marketing stories, strategic inventory investment in key styles, an increasingly effective loyalty program, and an improved retail service model.

Before moving on to our legacy Wolverine brands, I'm excited to report that the PLG integration is going especially well, with the transition plan ahead of schedule and under budget. This could not have been achieved without the cooperation, effort and collaboration of the leadership teams in Michigan ands Boston, who have been working for months to meld these two businesses into a single, cohesive global powerhouse. This past January, we took another significant step to facilitate PLG's integration by migrating from four to three brand operating groups. This new structure strategically organizes our brands around shared target consumers, distribution channels and retail customers. This structure also allows for a more efficient operating platform. And will help us realize our vision of creating dominant global brands by forging even stronger connections with our consumers worldwide, all while we continue to create remarkable product.

Going forward, our brand operating groups will include the Heritage Group, led by Ted Gedra, which includes the Wolverine Cat Footwear, Bates, Sebago, Harley-Davidson Footwear, and HyTest brands. The Lifestyle Group led by Mark Neal, comprised of the Sperry Top-Sider, Hush Puppies, Keds, and Soft Style brands, as well as the Stride Rite Children's Group. And finally, the Performance Group, led by Jim Zwiers, which consists of the Merrell, Saucony, Chaco, Patagonia Footwear, and Cushe brands. This new operating group structure was effective at the beginning of fiscal 2013.

I'll now move on to our legacy business and provide some additional insight within the context of our prior operating structure, beginning with the Outdoor Group. The Outdoor Group, which included the Merrell, Chaco and Patagonia Footwear brands in fiscal 2012, produced a low single-digit revenue increase in the quarter. For the quarter, Merrell footwear revenue was up slightly, despite challenging market conditions in the outdoor retail channel, which has retracted by approximately 10% in the past 12 months. The absence of cold weather and snow in key regions -- for the second year, I might add -- resulted in generally slower retail sales across this distribution channel. Despite these conditions, Merrell continued to build upon its leadership position in the performance outdoor category. With market share gains across the entire category. And especially strong gains in the hiking, light hiking and minimalist segments.

Merrell also continues to attract opportunities in the outside athletic category. Merrell first entered this market in 2011, with its Barefoot collection, which at that time quickly became the largest product launch in the Company's history. From this base, Merrell has successfully launched M-Connect for spring 2013, which offers a wide range of products targeted at consumers who engage in specific outdoor athletic activities. M-Connect, which will be the largest new product introduction in the brand's history, extends far beyond pure barefoot running products. And substantially broadens the business opportunity by extending the range of consumer product solutions, all while expanding Merrell's distribution base. Merrell has also moved quickly to address several quarters of good but less than spectacular performance in the active lifestyle category. The product development organization has been restructured to create a dedicated team focused on this important category. And we're already seeing signs of progress as the reaction to the Merrell active lifestyle offerings at the recent Outdoor retailer show were very positive.

Turning now to our legacy Heritage Group, which in fiscal 2012 included the Wolverine, Cat Footwear, Bates, Harley-Davidson Footwear and HyTest brands. The Wolverine brand had a double-digit Q4 increase. And remains the leader in the core US work category. In the rugged casual segment, the Wolverine 1000 Mile and 1883 collections all posted double-digit gains. Our New York City Wolverine Company store, which opened this past September, also continues to outperform our expectations. The Wolverine brand apparel program is focused on core work and outdoor products in lockstep with the DNA of Wolverine's footwear offerings. This initiative continues to generate momentum, finishing the year with a solid double-digit revenue increase. Over the long term, the execution of our apparel growth plan will be a key leverage point in the migration of Wolverine to a head-to-toe lifestyle brand. Cat Footwear also continued to register with consumers during the quarter, as the brand realized a strong double-digit revenue increase in the US across its casual, boot and work collections. In the core work category, Cat has moved from fourth to third in the US over the past year, as reported by SportsScanInfo.

Turning to our legacy Lifestyle Group, which in fiscal 2012 included the Hush Puppies, Sebago, Cushe and Soft Style brands. Hush Puppies' solid double-digit growth in the US was driven by the new women's casual product. And the increased popularity of many of its men's casual styles and dress casual styles. In third-party international markets, the Hush Puppy business posted solid growth, fueled in part by over 150 new dedicated points of distribution around the world, including 11 new mono-branded Hush Puppy specialty stores. As a result, our global network of Hush Puppies licensees closed the year with approximately 680 global specialty stores and 3,200 shop-in-shops. Finally, our legacy Consumer Direct business, which operates 99 brick-and-mortar retail stores in the US, Canada and the UK, as well as 38 global websites, turned in another solid quarter with an upper single digit revenue increase, fueled by growth both online and in our stores.

Let me close by saying that 2012 was the most transformative year in the Company's 130-year history. The addition of the iconic Sperry Top-Sider, Saucony, Keds and Stride Rite brands to our existing strong 12-brand portfolio nearly doubled the size of the Company. The momentum continues in all four of our new brands, led by very talented brand leaders and management teams. The international opportunity is as big as we could have hoped for. And the integration has gone smoother than planned, with the team over-delivering on every integration project. Bottom line, there has been a great cultural fit. We believe that our current portfolio of 16 powerful, authentic brands, that have a combined heritage and brand equity of more than 1,000 years, is unmatched in the industry. We now market over 100 million pairs of footwear and units of apparel to consumers in most countries and territories around the world. And of course we have a very strong and deep management team. I'm very pleased with the momentum they delivered as we closed the year.

For 2013, we will drive record growth and market share gains by delivering innovative product across our portfolio, expanding our international footprint, especially with our newest four brands, continuing to capitalize on the lifestyle brand opportunity for our largest brands, and growing our global consumer direct business. I really couldn't be more excited about our future prospects. And the Company is on track to deliver another record year in 2013 and beyond.

I'll now turn the call over to Don Grimes, our Senior Vice President and CFO, who will provide additional detail -- a lot of detail, I might add -- on our Q4 results and expectations for fiscal 2013. Don?

Thank you, Blake, and good morning to everyone. Earlier this morning we were pleased to report our fourth-quarter and full-year financial results for the fiscal year ended December 29, 2012. Results that were highlighted by a third consecutive year of record revenue for our legacy Wolverine business. And included the contribution of the four brands from the PLG group that we acquired on October 9, 2012. We delivered a strong close to the fiscal year with consolidated fourth-quarter revenue of $652.2 million, growth of 60.5% versus the prior year. Excluding the revenue contribution from the PLG brands in the stub period, revenue was a record $432.8 million, up 6.5% versus the prior year. Including modest dilution from the PLG acquisition in the stub period, fully diluted earnings, excluding nonrecurring transaction and integration costs, were $0.48 per share, well above the guidance of $0.12 to $0.22 per share communicated in October.

Before I go into a detailed discussion of our results, I'd like to underscore Blake's comments about 2012 being a transformational year for the Company. Although to be candid, one that was not without its share of challenges. Uncooperative weather and challenging economic conditions in Europe, in particular, were both a drag on the legacy Wolverine business for most of the year. However, solid results in other regions, particularly the US, our largest market, and double-digit growth in both Latin America and Asia-Pacific, helped offset the weakness from Europe, once again demonstrating the strength of our diversified business model.

Now I'll provide a little more color on both the quarter and the full fiscal year. As just noted, we closed on the acquisition of PLG during the second week of October. And the contribution from the acquired businesses in the stub period is reflected in both the fourth-quarter and full-year reported results. Unless otherwise noted, all financial results discussed today related to the legacy business exclude all transaction and integration expenses. And consolidated results discussed today are adjusted to exclude nonrecurring transaction and integration expenses.

The reported revenue in the fourth quarter of $652.2 million was comprised of $219.4 million from the newly-acquired PLG brands, and $432.8 million from the legacy business. With the latter, as noted, representing 6.5% growth versus legacy revenue in the prior year's fourth quarter. For the full year, reported revenue was a record $1.641 billion, an increase of 16.4%. And full-year revenue for the legacy business grew approximately 1% to $1.421 billion. Foreign exchange fluctuations had no significant impact on reported revenue growth in the fourth quarter, for either the legacy Wolverine business or the consolidated whole. But did decrease full-year reported revenue by approximately $11 million, reducing reported growth by about 80 basis points.

Although we announced a brand and operating group realignment early last month, going from four operating groups to three, our 2012 results are being reported under the previous structure, with PLG wholesale and retail reported as a separate operating group during the stub period. Our Outdoor Group, consisting of Merrell, Chaco and Patagonia Footwear had a mixed year, with full-year revenue of approximately $545 million, a decline of a little more than 1% over the prior year. Merrell, by far the largest brand in this group, was significantly impacted by retailer consolidation in Canada and most acutely the macroeconomic environment in Europe. And the brand's full-year revenue in these markets was down in the mid to high single-digit range. We did see some stabilization from Merrell in Europe in the fourth quarter, with Merrell's reported revenue almost flat with the prior year. Chaco posted a very strong increase in revenue in the fourth quarter, and was up double digits for the years as the brand's new closed toe product complemented its popular sandal offerings.

The Heritage Group in fiscal 2012 consisted of our Wolverine Caterpillar Footwear, Bates, Harley-Davidson Footwear and HyTest businesses. In total, the group delivered full-year revenue of $502.7 million, and growth of 0.5% versus the prior year. Economic conditions in Europe were particularly challenging for Cat Footwear, the brand in the Heritage Group that has by far the most exposure to international markets. The shortfall in Europe was partially offset by strong double-digit growth for Cat in the US. The softness in Cat footwear was offset by excellent performance in the Wolverine brands footwear and apparel business, which took advantage of a more stable economic and consumer environment in the US to deliver full-year revenue growth in the high single-digit range. Rounding out the group, Bates and HyTest each delivered revenue growth, helping offset the expected full-year revenue decline for our Harley-Davidson Footwear business, whose results were impacted by more restrictive distribution guidelines imposed by the brand's parent company.

The Lifestyle Group finished the year with reported revenue of $203.5 million, down 1.4% versus the prior year. Strong double-digit full-year revenue growth for Hush Puppies in the US, and globally for both Sebago and Cushe, were offset by tough conditions for Hush Puppies in Europe. As previously noted, the Performance and Lifestyle Group delivered revenue of $219.4 million in the stub period, reflective of the very positive momentum of this group, and in line with the revenue guidance we offered in October. This reported revenue, which includes the Consumer Direct business for Stride Rite, Sperry and Saucony, represents outstanding growth of 17.1%, versus the comparable year-ago stub period. On a full-year pro forma basis, PLG's revenue was $1.127 billion, growth of 12.8% versus the prior year.

Stub period results were highlighted by double-digit domestic wholesale growth for each of the four PLG brands, with particular strength in Sperry, Top-Sider and Stride Rite. It's notable that STride Rite retail delivered revenue growth in the stub period despite operating 50 fewer retail locations at fiscal year end compared to the end of fiscal 2011, reflecting robust mid-teens comp store sales gains. Finally, Wolverine's legacy retail business and Wolverine leathers both delivered double-digit revenue growth for the full year.

Many of you have been asking about the impact of the brand and operating group realignment on historical results. To assist with the restatement of your models, this morning we added a schedule to our website that provides 2012 quarterly revenue, both reported and pro forma, under the new operating group structure. An important point to note is that the restated 2012 revenue now includes mono brand consumer direct activities, both mono brand brick-and-mortar, and brand-specific e-commerce revenue within each operating group. We will be adopting the practice, like many of our competitors, including the former PLG, of combining our branded wholesale and retail business in order to give a fuller measure of each brand's and each operating group's performance. And we will report results in fiscal 2013 using this approach.

Shifting back to the Company's full-year results, including PLG and the stub period, gross margin was 38.6%, a decline of 90 basis points versus the prior year. And in line with the guidance we provided in October. For the legacy business, gross margin was 38.0%. As we previously noted, negative channel mix in the form of higher closeout sales, and negative geographic and brand mix in the form of better sales performance in the US by some of the lower gross margin brands in the portfolio, contributed to the full-year gross margin decline. Additionally, higher product costs, particularly in the first half of the year, were only partially offset by selling price increases and foreign exchange contract gains.

Full year non-cash LIFO expense of $3.6 million was about $500,000 lower than the prior year. Reported gross margin for the Company was 38.3%. And includes the impact of $3.7 million of nonrecurring transaction-related cost of sales tied to the write-up of PLG's inventory to fair market value as of the closing date. And $800,000 of nonrecurring severance expenses incurred in the fourth quarter in our combined Asian sourcing organization. Operating expenses for the legacy business were $394.7 million for the full fiscal year, an increase of 2.1% versus the prior year. And $119.9 million for the fourth quarter, an increase of only 0.6%. For the full year, brand building investments and $10.4 million of incremental non-cash pension expense were partially offset by significantly lower incentive comp expense, strong discipline in corporate cost centers and the favorable impact of foreign exchange fluctuations. (technical difficulty)

Legacy Wolverine SG&A for the full year was 27.8% of revenue. Including PLG, operating expenses in fiscal 2012 were $481.9 million, or 29.4% of sales. This latter amount includes both SG&A and supported PLG's operations in the stub period and amortization expense related to purchase price accounting of $6.9 million. Total reported operating expense for the Company of $514.4 million includes $24.9 million of nonrecurring transaction-related expenses, and $7.6 million of nonrecurring integration expenses. The transaction-related expenses consist primarily of investment banker, legal and accountancy fees, and Wolverine shares of other expenses incurred at closing related directly to the transaction itself. Integration expenses consist primarily of software licenses, consulting fees and retention bonus expenses.

Full-year net interest expense, excluding nonrecurring items that are recorded as interest expense, totaled $14 million. Most of this amount is plain vanilla interest expense on the new acquisitions debt, offset by a small amount of interest income. But it also includes $1.5 million of amortization of capitalized financing costs. We also recorded $5.2 million of nonrecurring cost as interest expense, the vast majority of which is the commitment fee for the bridge financing that we needed on the day we signed the agreement to acquire PLG, but thankfully never had to use. The Company's reported effective tax rate for the full year was a very low 14.2%. And reflects both the $0.19 per share of nonrecurring tax benefits reported in last year's first and second quarters, and the deductibility of almost all of the nonrecurring transaction and integration expenses in high statutory tax rate jurisdictions. The effective tax rate applicable to the legacy business was approximately 19.1%, and reflects the nonrecurring tax benefits from the first half of fiscal 2012.

In early 2012, the Company repurchased approximately 65,000 shares in the open market at an average price of $37.09 per share. We have approximately $86 million remaining under our 2010 share repurchase authorization. We also shared cash with our shareholders in the form of dividends paid during the year, totaling $23.6 million. Fully diluted weighted average shares outstanding for the full year were $48.5 million. Fully diluted earnings for the full year, after adjusting for $0.66 per share of nonrecurring transaction and integration expenses, were $2.29 per share. Comprised of $2.34 per share for the legacy business, and $0.05 per share of dilution from PLG in the stub period. In the fourth quarter, fully diluted earnings, after adjusting for $0.56 per share of nonrecurring expenses, were $0.48 per share. Comprised of $0.53 per share for the legacy Wolverine business, up 12.8% versus the prior year, and the same $0.05 per share of dilution from PLG.

Compared to prior expectations, legacy Wolverine earnings in the quarter benefited from slightly better gross margins, slightly lower operating expenses, and a slightly lower effective tax rate. PLG earnings compared to prior guidance benefited from a modestly higher gross margin and significantly lower operating expenses. The lower than forecasted operating expenses were driven by lower discretionary spending, reversals of balance sheet reserves, and lower than anticipated costs for transition services provided by PLG's former parent company. Full-year depreciation and amortization, including new amortization related to purchase price accounting, was $27.7 million. And full-year adjusted EBITDA, as defined by our senior secured credit agreement, was $220.8 million.

Turning to the balance sheet. Year-end inventory, excluding inventory for the four recently acquired brands, was down 4.3%, reflecting excellent management of our most significant component of working capital. We believe that our consolidated inventory across the entire portfolio, including the PLG brands, is in excellent shape as we enter fiscal 2013. Full-year capital expenditures were $14.9 million, lower than the prior year's $19.4 million, as certain retail openings and other capital projects were delayed while the organization's attention was directed toward integrating PLG into Wolverine.

As expected, we generated a significant amount of cash in the fourth quarter, and were able to prepay $25 million of principal on our term loans in November. Even after the voluntary debt payment in the fourth quarter, we finished the year with cash and cash equivalents of more than $171 million, resulting in net debt of $1.08 billion at year end. And we are well within the financial covenants associated with our senior secured credit agreement. Additionally, We made about $8 million of mandatory principal payment in January of this year. And yet another $25 million voluntary principal payment just a few weeks ago, underscoring our stated intent to delever as quickly practical. Our priorities for cash are to invest in our brands to fuel organic growth, maintain a stable cash dividend to our shareholders, and aggressively pay down debt.

Turning to 2013. We believe that Europe will be in a status quo position, and that trading conditions will remain challenging through most of the fiscal year. Which will negatively impact the growth of our brands that have the most significant exposure to that region -- Merrell, Hush Puppies, Cat and Sebago. Additionally, we expect the US Outdoor channel to experience sluggish growth in 2013, driven partly by two consecutive fall and early winter weather seasons that were much tamer than normal, resulting in retailers being even more cautious about orders for the fall 2013 season. Given these challenges, we expect the Merrell brand, even with the successful launch of its new M-Connect collection, to grow its global revenue in the low single-digit range in 2013.

Offsets to these macroeconomic challenges include the expectation of continued outstanding performance from our Sperry Top-Sider brand, which by establishing itself as the go-to choice in casual footwear, has grown its revenue by over 30% in each of the last three fiscal years. Additionally, based on the current backlogs and retailer feedback, we expect strong global revenue growth from Stride Rite, Keds and Saucony, as well as excellent performance from Hush Puppies in the United States.

Based on the above inputs, we're forecasting record full-year 2013 revenue in the range of $2.7 billion to $2.8 billion, representing growth in the range of 6% to 9.9% versus 2012 pro forma revenue of $2.548 billion. Further, based on quarter-to-date results and expectations for the balance of the quarter, we expect record first-quarter revenue in the range of $620 million to $640 million, representing growth in the range of 3.9% to 7.3%, versus 2012 pro forma first-quarter revenue of $596.7 million. Foreign exchange is expected to negatively impact Q1 reported revenue in the range of $3 million to $5 million.

We're forecasting moderate full-year consolidated gross margin expansion based on a more stable product cost environment, the benefit of selling price increases, significantly lower close-out sales, expected efficiencies in our sourcing operations. And, importantly, the benefit from a shift in mix towards higher-margin Consumer Direct business, driven by the full-year inclusion of the PLG brands, in particular Stride Rite. These contributors to gross margin expansion will be only partially offset by the anticipated negative impact of foreign exchange forward contracts that mature in the fiscal year.

Turning to SG&A, the Company's 2013 operating expenses will be impacted by the following items. First, non-cash pension expense will be approximately $10 million higher in 2013, driven primarily by the low 4.3% discount rate used to calculate the year-end pension liability. This compares to last year's discount rate of 5.4%. I think it's worth noting that the same trend in market interest rates that has driven pension expense higher the last few years is now providing a benefit by helping reduce overall interest expense.

It's also worth noting that we did take the important step late last year to close the legacy Wolverine pension plan to new participants effective January 1, 2013. Although this action doesn't benefit pension expense in 2013, it will have a modest but growing positive impact on pension expense in 2014 and beyond. The legacy Wolverine pension plans will require no cash funding in 2013. And the frozen legacy PLG pension plan will require cash funding of only about $2 million.

Next, after a low level of incentive comp expense in 2012, we expect to return to more normalized levels in fiscal 2013, with a year-over-year increase in the range of $9 million to $11 million. Third, purchase price accounting requires the appropriate allocation of the acquisition purchase price to both tangible and intangible assets. Some intangible assets are deemed to have indefinite lives, and therefore are not amortized. Those that have determinable lives are amortized over various time frames. We currently expect full-year non-cash amortization expense related to purchase price accounting of approximately $23 million in fiscal 2013 versus approximately $7 million in fiscal 2012 stub period.

Next, as we have previously noted, we have been incurring and will continue to incur incremental costs related to operating the acquired businesses and managing our new capital structure. Examples of these expenses include the cost of transition service agreements with PLG's former parent Company, the cost of creating store development and loss prevention teams, and the cost of adding resources to our treasury staff. Due to the expected timing of completing some significant integration activities, including information systems conversion, the synergies that will eventually more than offset these incremental costs won't occur to any great extent until the latter half of fiscal 2013. Therefore, in fiscal 2013, the incremental ongoing costs we're incurring are expected to modestly exceed the partial year of synergy benefits. In fiscal 2014 the benefit from retiring nearly all the transition service agreements, a full year of synergies, and additional cost-reduction opportunities, will significantly accelerate earnings accretion. We still expect the run rate of net synergies to be north of $10 million per year once all integration activities are completed.

Finally, and perhaps most importantly, we're investing behind our brands to fuel future growth. We expect year-over-year increases in marketing, product development and sales force infrastructure, and support key growth strategies for Sperry Top-Sider, Keds and Merrell, in particular. Taking all these factors into consideration, we expect fiscal 2013 SG&A as a percentage of sales to be modestly above the 29.4% reported in fiscal 2012. We're forecasting net interest expense in the range of $55 million to $60 million in fiscal 2013. This forecast assumes relatively stable market interest rates. And includes the non-cash amortization of capitalized financing costs of $6.7 million. Excluding the impact on the tax rate of nonrecurring charges, we're projecting a full-year effective tax rate in the range of 24% to 26%. This estimate reflects the benefit from last year's favorable court ruling and the deductibility of acquisition-related expenses, such as interest expense and purchase price amortization, offset by the current profit skew of the acquired brands to the US and its higher statutory tax rate. On a reported basis, including the tax benefit of nonrecurring charges, we expect a tax rate in the range of 21% to 23%.

We're projecting weighted average shares outstanding for the full year of approximately 50 million. Also, please don't forget that because the Company has restricted shares that have rights to dividends, we have to adjust reported net income in order to calculate the fully diluted earnings per share. That adjustment, which bridges from net income attributable to Wolverine World Wide, to net earnings used to calculate diluted earnings per share, was $1.6 million in 2012. And we're projecting the adjustment to be approximately $2 million in 2013. Excluding nonrecurring transaction and integration expenses, we expect fiscal 2013 full-year diluted earnings per share in a range of $2.50 to $2.65, which represents growth in the range of 9.2% to 15.7%, versus 2012 adjusted earnings per share of $2.29.

Year-over-year earnings growth, although helped by the full-year inclusion of the former PLG brands, is suppressed by the $0.19 per share of nonrecurring tax benefits recorded in last year's first half. Adjusting prior-year earnings for the nonrecurring tax benefit, means our fiscal 2013 earnings guidance represents growth in the range of 19% to 26.2%. Based on quarter-to-date performance and expectations for the balance of the quarter, we expect first-quarter diluted earnings in the range of $0.53 to $0.56 per share, representing growth in the range of 1.9% to 7.7%. Versus the prior-year earnings adjusted for the $0.12 per share nonrecurring tax benefit.

Foreign exchange, particularly the negative impact of foreign exchange forward contracts, is expected to reduce earnings by approximately $0.04 per share in the quarter. We're forecasting full-year depreciation and amortization, including approximately $23 million of purchase price amortization, in the range of $45 million to $50 million. And adjusted EBITDA between $330 million and $345 million. Representing growth of approximately 49% to 56%.

Capital expenditures are expected in the range of $40 million to $50 million. And included in the capital plan is approximately $10 million for projects specifically related to the integration of the two businesses, primarily information systems investments. Additional investments are expected for e-commerce infrastructure, maintenance capital within our own manufacturing operations, and new retail store openings. Included in the fiscal 2013 guidance is GAAP accretion from the PLG acquisition in the range of $0.40 to $0.50 per share, compared to our prior guidance of $0.35 to $0.50 per share. Given the seasonality of the PLG brands, we expect modest accretion in the first fiscal quarter, slight dilution in the second fiscal quarter, strong accretion in the third fiscal quarter, and modest accretion in the fourth fiscal quarter. Adjusted for the non-cash purchase price amortization expense, fiscal 2013 accretion is in the range of $0.70 to $0.80 per share. For fiscal 2014, we now expect GAAP accretion in the range of $0.70 to $0.90 per share, compared to prior guidance of $0.60 to $0.80 per share. And adjusted accretion in the range of $1 to $1.20 per share.

Thanks for your time and attention this morning. And I now turn the call back over to Blake for some final comments.

Thanks for your time this morning. And I apologize for the technical difficulties. Just for the record, neither Don or myself touched anything. But it is what it is. Hopefully now we'll turn the call back to the operator so we can take your questions. Operator?

(Operator Instructions) Christian Buss from Credit Suisse.

I was wondering if you could talk a little bit about what's embedded in your assumptions for the core Wolverine business for 2013. It looks like, if I adjust for the relative accretion versus dilution last year, you're not modeling for much EBIT growth. Could you talk us through that a little bit?

Yes. For legacy Wolverine, what's embedded in our revenue guidance, to break it down between the legacy brands and the PLG brands, we're looking at mid single-digit full-year revenue growth for the legacy Wolverine brands, and high single-digit to low double-digit revenue growth for the PLG brands. When you think about the legacy business going from revenue to earnings, the legacy business, obviously, is going to be -- the earnings are going to be negatively impacted by the incremental $10 million of pension expense. And most of the incremental $10 million is $9 million to $11 million of incremental incentive comp expense. So if you back out the PLG accretion from the earnings guidance that we gave you, and further adjust for the incremental pension, adjust the prior-year numbers for the tax benefit, obviously, and adjust further for the incremental incentive comp, you get legacy earnings growth in the low double-digit range, Christian.

Certainly when you take the earnings guidance and back out the accretion without making any other adjustments you get somewhat modest year over year growth rates. But if you adjust for the $0.19 per share of nonrecurring tax benefit in fiscal 2012, and also recognize that we have certain things that are beyond our control, such as market interest rates that affect the non-cash pension expense, and certain things that we're certainly going to plan for, which is a more normalized level of incentive comp, you get to legacy earnings growth that are in the double-digit range.

That's very helpful. And can you talk a little bit about what you're seeing as we head into spring here with the cold weather that we've had? And also with M-Connect starting to go into stores.

Just taking maybe a little more detailed look at the US market, I think it's a bit of a mixed bag right now. I think we did get some weather, a little bit late. I think everybody would appreciate it. It's a couple of months before it finally hit, but it had the benefit of cleaning out inventories. So our view is that, really, across a number of distribution channels, inventories are domestically very clean at retail.

Looking ahead in a macro sense, the US consumer has been very resilient. I think we're going to digest higher taxes this year. I know tax refunds are coming slower than normal. We're going to have to deal with the sequester and debt ceiling overhang, as it impacts the market. And we're going to feel the effects of two very warm winters. Although the recent weather has cleared some of that out.

So overall, the US consumer over the last couple of years, especially in footwear, has been resilient. And we expect that to continue despite some of these macro headwinds. The early reads on M-Connect -- turning to the second part of your question -- the early reads on M-Connect are very good. Although some retailers requested early delivery in December for a very small portion of the line that was available, it's just hitting retailers right now and it's beginning to check out. So we're pleased so far. But we'll obviously have more to report on that in our Q1 call.

That's great. Thank you very much and best of luck.

Jim Duffy with Stifel.

A couple questions for you. Don, as I'm looking at the fourth quarter, the lower dilution versus guidance, was that a result of savings that are permanent, or just the shift in timing of merger-related expenses? And then can you talk about the reversal of the balance sheet reserves from PLG?

Yes. I would say, to answer your question, that's an example of one thing that's not recurring or permanent. It's a one-time thing. As we got into the closing process and evaluated some of the reserves, in particular it was a vacation accrual that was a halfway significant amount, worth calling out anyway, and explaining why the PLG results were better than the October guidance. But it was material enough to call it. That would not be a recurring type thing. The lower discretionary spending, I wouldn't say that's necessarily a recurring type thing. You will note that -- in fact, one of the conversations we had internally, Jim, was the over-delivery on dilution versus the prior guidance, we don't want someone to think that our prior $0.35 to $0.50 of accretion guidance for 2013 is significantly understated. We did adjust it, taking the lower end of that range from $0.35 to $0.40 per share. But we feel pretty confident that the $0.40 to $0.50 accretion range for 2013 is a reasonable number given where we stand today.

Got you. Okay. And then the adjusted EBITDA number in the guide, there's some non-cash expenses excluded. There's also some cash expenses. Trying to drill down to what cash flow might be for the year. Don, do you have any forecast you'd be comfortable sharing with respect to that?

The adjusted EBITDA, per the definition in the credit agreement, we wanted to stick to that definition. And the credit agreement does allow us to add back the non-cash stock comp expense and the non-cash pension expense. So taking the EBITDA number and reducing it by, say, the capital expenditure range, and then further reducing obviously for expected dividends to be paid, would get you to a true cash flow number for the year.

Okay. Can you help me through that?

Adjusted also, Jim, by, obviously, Increases in working capital. It's a long way of saying, I don't have a cash flow number to share with you, nor are we going to give one. But you can come close to the number if you adjust according to what I just suggested.

Okay. Final two questions. Are things getting any easier in Europe, and then if we're looking for sources of upside to the numbers in '13, where would you expect that comes from?

Just to focus on Europe a little bit, the double-dip recession continues over there. As you know, Jim, we have about 50% of our European pairs in the UK, which was especially challenged last year. We're not planning on Europe getting any better this year. On the other hand, we're not planning on Europe getting materially worse. So we think Europe is at a bottom. There will probably be some volatility from country to country or regions within Europe, but we think it's going to bounce along this bottom, at least for footwear, for the next year or two. And what was the second part of your question?

Fiscal year guidance.

When we look at current momentum in the brands, operating 16 brands now, if you start with our largest brands, obviously Merrell, M-Connect, we'll be monitoring that closely. We have high expectations for that. That business and that offering is in the smallest segment of the Merrell line. The Sperry momentum just frankly continues. Sperry is probably the best-performing brand for virtually every better grade retailer that it currently partners with.

We've seen strong demand continuing across men's and women's. Interestingly enough, the last couple of months, especially strong performance on the men's side. So certainly we see Sperry as a real performer in a significant way for the coming year. But we also expect strong double-digit performance from a number of our brands, including some of our smaller brands -- Chaco and Cushe and Sebago. And the Wolverine brand also had a great 2012, and we expect that momentum to continue into '13. So it's not just a one-brand or two-brand story. Really, it's across the entire portfolio.

Jim, I'll go a little more granular. As you go down the income statement, from revenue down to EPS, Blake was talking to potential sources of revenue upside. But, obviously we have a plan all the way down to EPS that supports the revenue, or supports the guidance that we issued, the earnings guidance. But to the extent we have a more positive mix shift in our portfolio, that could generate some potential gross margin upside to what helped frame the guidance that we gave. Any upside on SG&A would probably be in response to revenue growth that maybe doesn't materialize the way we think. So I wouldn't necessarily think of lower SG&A as a source of earnings growth versus the guidance that we gave because that would probably be taken if we are under-delivering on the revenue line. So, really, gross margin might be the biggest source of potential earnings in excess of guidance, in addition to revenue that Blake talked about.

Jim, I'll also say that the momentum also continues in Keds. It will probably be more top-line momentum in 2013 given the investments in Taylor Swift. But also Saucony and Stride Rite, which continue to outperform.

Very good. Thank you, guys.

Kate McShane with Citi Research.

Blake, I think you said during your comments that the integration of PLG is ahead of schedule and under budget. I wondered if you could just give a little more detail around what's driving this? And does that mean anything for synergies, maybe later during the year.

I think that Don gave you a pretty accurate view of the synergies we expect in 2013. I really don't want to jinks us at this point, but I will say the integration has gone better than I could have hoped for. And a lot of that has to do with the efforts from the Boston team as well as the Michigan team. Back room integration is virtually complete at this point. We haven't missed a single shipment of shoes.

I would say one of the largest projects we have in front of us is to bring them on our systems, SAP, for this coming year. They're on SAP in Europe but their European business is smaller, and we need to get them on our system. That being said, the integration of the back room, the sourcing, the compensation, the HR areas have all gone exceptionally smooth and well. We went into the transaction thinking there would be a good cultural fit here, and, frankly, the cultural fit has been great.

Okay. Great. And then my second question is with regards to your commentary about the warm weather. I wondered if you had any flexibility with your sourcing to better service the retailers if they do start to order product differently for the next few winters.

I think we've been, as you know, Kate, we've been on a narrow and deep inventory philosophy for some time. You need to carry a little built of everything, but you need to be narrow and deep in the key styles and the key colors. I don't think that's going to change for us. On the other hand, a lot of people said we couldn't have two warm winters in a row. We did. At least here in the United States. And a number of people are currently saying we can't have three in a row, but who knows. It just puts a little more pressure on us to do the research on the consumer side and have deep consumer insights. So we're there with the right product when the retailers need it. I would say overall retailer inventory this year is at a better position than it was at the end of last year.

Thank you.

(Operator Instructions) Edward Yruma from KeyBanc Capital Markets.

Could you talk a little about your projected interest expense? I think you said it was $55 million to $60 million including amortization. Does that anticipate continued debt paydowns during the year? And if not, how should we think about -- obviously, this is a priority for your free cash -- but percentage of free cash used to repay the debt?

Yes, that doesn't presume any significant reduction in our principal balance beyond the mandatory payments that we made over the balance of the year. As you probably realize from looking at our quarterly results, Q1 is typically a cash use quarter for us. Q2 is typically a small amount of cash generation. Q3 is usually a cash usage quarter for us. And our full-year cash flow generation is very heavily weighted to the fourth quarter, Ed.

We are going to be limited in terms of what we could voluntary pay down by the cash that we generated in the US because, obviously, our offshore cash is deemed to be permanently reinvested offshore, not to be repatriated without some significant tax costs. So, therefore, it's only our US cash flow generation that is available to pay down the debt voluntarily, if you will. And so we're not modeling any significant further reduction in our principal beyond the mandatory principal amounts that are due over the course of the year. I think any additional meaningful amount may be a Q4 event, not something that would have a significant impact on full-year interest expense.

Got you. Thanks for the updated FX guidance for 1Q. It sounds like you're taking most of the impact from unfavorable FX rates in the first quarter. Is that a fair read, based on what you provided from an annual basis?

We're expecting negative FX based on our current outlook for FX rates over the balance of the year, each quarter. I think the most significant quarter is Q1. But then we have Q3 is close to the Q1 amount, and then Q2 and Q4 are both expected to be negative FX impacts, as well. So full-year earnings per share we think will be negatively impacted north of $0.10 per share.

Got you. And one bigger picture question. I know during '12 you saw significant shift in retailers moving to more at-once versus pre-book. Obviously some of that at-once business did not come through. How are you positioning the business for this year? And do you think that that trend will continue?

I think retailers, at least here domestically, are going to approach the coming year with a little more caution. And it's going to put a little more pressure back on brand owners like us to operate our businesses efficiently, and be there with inventory when they need it. But I will say the weather that we did have across most of the US in January and February has really helped to clean out inventories. So retailers right now, at least for the moment, have returned to a normalized at-once order cycle.

Got you. Thanks so much.

Taposh Bari, Goldman Sachs.

Don, thanks for all that commentary. It was quite a mouthful.

Yes, I started to run out of steam, especially since I did most of it twice.

Apparently it broke the phone.

I actually have another question, though, in light of all that detail. Can you just give us the fourth-quarter legacy gross margin in SG&A? Because I'm a little confused. You said in your commentary that Wolverine legacy business is slightly better on gross margin and slightly lower on operating expenses. Can you just give us the actual numbers?

Sure. The legacy gross margin was 35%. I did give the legacy SG&A, $119.9 million. You must have missed that. But the legacy gross margin was 35%.

Okay. So basically that gets me to about 200 basis points of gross margin compression, and about 160 basis points of SG&A leverage. But if I look at your prior guidance, unless I'm wrong, I have gross margins down slightly for the fourth quarter legacy business, and then flat to slight deleverage for SG&A. Am I missing something there?

I'm sorry, I was looking at numbers while you were saying the last. Let me address the first part of your last comment or question, and then you can ask the second part again.

Legacy gross margin in the quarter was down about 200 basis points versus the prior year. My analysis shows that pricing contributed about 300 basis points of gross margin expansion, which was partially offset by the impact of higher product cost of about 250 basis points. FX was a drag of about 25 basis points in the quarter. The lower LIFO expense that I mentioned during my prepared remarks contributed about 15 basis points to gross margin. And then the negative mix, which, as I addressed in my prepared remarks, is really higher closeout sales. And the US continuing to grow at a faster clip than the higher margin non-US markets was a drag of about 64 basis points in the quarter. So, with that as context, can you ask the second part of your question again?

Sure. If I go back, in my notes I have here that you were guiding fourth-quarter gross margins for the legacy business to be down slightly, down 200 basis points. And then you were also guiding SG&A to be flat to slightly delevered year over year. It seems like that contradicts your comments in your prepared remarks. I just want to make sure that that was in fact your guidance going into the quarter for the legacy business.

I don't have my last quarter script in front of me. But I thought the guidance that we offered was in the context of full-year guidance.

Okay, I'll have to go over that.

Christi's nodding her head. But that doesn't mean we're right and you're wrong. I'd have to go back and look. But I thought what we said in October was we expect full-year gross margin to be slightly down, et cetera. And let people force out what the fourth quarter was based on that full-year guide. I'll check, Taposh, and we'll see.

All right. Nonetheless, that leads me into my second question.

Nonetheless, the Q4 results are the Q4 results.

Exactly. As we look at '13, without getting into specifics on legacy versus PLG and quarterly, I'm just trying to get a sense of that 200 basis point gross margin contracting run rate. Is that the trough? Is that going to continue to bleed into the first half of the year? How do we think about just the cadence of legacy gross margins in '13? And then the second part of that question is, if we look back, this is the second mild winter in a row for you guys. Last year when you gave guidance you were implying some rate of reorder acceleration in the back half, I think. Some people might have thought that was a little aggressive. As we look at the way you're presenting 2013 guidance this year, do you feel like you're taking a more prudent approach to those types of assumptions? I you can just comment on that.

Yes, as it relates to gross margin, we clearly believe that 2012 represents the trough of our gross margin. And particularly Q4 represents the trough. We'll be getting the benefits right out of the gate in 2013 from the higher contribution from Consumer Direct activity, which we only got the stub period contribution from PLG retail in 2012. That, plus a more benign product cost, year over year product cost environment. Recall that in the first half of 2012, we had very significant year over year product cost increases versus 2011. And that environment stabilized a bit in the last half of 2012. But we believe that what we'll see in 2013 will be meaningful year over year gross margin expansion each quarter. I always like to talk about the second part of the question, or the second question.

And then, Taposh, I think when we look at next fall, I think it really goes back to the product development cycle of our brands. We've had two warm winters in a row. I think it's really incumbent on the brands to be there with their normal insulated product. But, frankly, to offer a higher percentage of transition product, what I would call early spring or fall product. And just to cover that eventuality. I think we'll be playing it a little bit closer to the vest when it comes to weather for this coming fall, as retailers will, as well.

Great. Thank you very much. Good luck.

Mitch Kummetz with Robert Baird.

Don, let me begin on PLG. Do you happen to have a breakout of that business by brand for full-year 2012? Just to give us some context on how to think about that as we go into 2013.

I do, but we don't disclose revenue by brand.

Okay. I know Collective used to do it.

They got bought by somebody. We don't give revenue by brand for the Outdoor Group or for the Heritage Group. So we're not going to do it for the former PLG group.

Fair enough. On the margin, so for 2013 you're saying moderate gross margin expansion. Just to be clear, that's off of 38.6% that you guys are reporting pro forma for 2012, right?

That's right. That's off -- well, that's actually not pro forma. That was including PLG in the stub period, just to be clear.

Right.

That's correct, yes.

Okay. Could you give us -- do you happen to have a gross margin and an SG&A number for 2012 pro forma PLG for the full year, just so we can think of it that way, as well?

I don't have pro forma for the full year. We gave you the stub period, operating expenses for PLG, in the tables to the Earnings Release. And that $86 million number included $7 million of purchase price amortization. The stub period, whether it's the stub period gross margin versus the pro forma full-year gross margin, you could argue about where there's a different mix in the stub period versus the full year. But it would be approximately the same. It was just north of 40%, just to give you the context of it as to how that, combined with the legacy Wolverine gross margin, that Taposh asked about. I don't have the exact number in front of me, but it was just north of 40%.

Okay. And then I know on the PLG side, you guys have talked a lot about growth opportunities longer term in terms of international expansion. Is there anything happening in 2013 that you could speak of? Any distributors or licensees being signed up in the back half that could benefit the international expansion of that business this year?

I would say we've been very busy since October 9, talking with various international partners. We have several programs signed up already. A few of those will come into fruition in the back half. Initial product seedings will occur in the back half of 2013. We don't expect those to be material, frankly, this year.

So we're really spending a lot of calories now getting the programs in place, getting the management teams around the world in place, getting product introductions scheduled. We'll start to see a more material impact in 2014 and beyond. And Mitch, as you know, our international business historically has really operated almost like a one-way ratchet. So it's been really over a period of 20 or 25 years, just on a steady climb. And we expect that to be the case here for PLG, as well.

When we were at the ICR conference, Mitch, last month we noted that we had signed six new distribution agreements for the PLG brands since the date of closing. A couple of those were in Eastern Europe. I think one was in Asia -- one or two were in Asia-Pacific. And I'd suspect we've added another two to that list since early January.

Okay. That's helpful. All right. Thanks, guys. Good luck.

Chris Svezia with Susquehanna Financial.

Could you just maybe, Don, go back just on the fourth quarter? I know you answered part of this in relation to an earlier question. But what can you call out dramatically changed from your previous guidance when you gave the guidance for the fourth quarter about the dilution of PLG and the actual results? I think you mentioned some reserves related to some vacation time, some other odds and ends. But maybe you could parcel out what were the big dramatic swings to that business.

We delivered on the revenue numbers. So it really wasn't revenue upside. But there was a different mix of revenue. Sperry Top-Sider grew at a faster clip versus forecast and some of the other brands. So there was a pretty significant increase to gross margin versus what the forecast had been. And an equally meaningful reduction in operating expenses. Some of the discretionary operating expenses that -- marketing and filling some open positions -- didn't occur, as had been forecasted.

PLG and Wolverine had been using former allocations from their former parent company as a proxy for what the cost of the transition service agreements were going to be. And to drag you into the gory details, the actual cost of the transition service agreements is based on actual costs incurred by Collective Brands providing those services. And that came in meaningfully below what the place holder had been used to forecast those. And that's really the biggest driver. The balance sheet reversal, that was bigger than a bread basket but was far from the biggest contributor to the over-delivery versus the dilution range.

Okay. And your new forecast for PLG accretion, $0.40 to $0.50, what changed in that assumption going from $0.35 to $0.50?

We took the bottom end of the range up $0.05. Just increased confidence that, as we were a few months further down the road, and we have more visibility to certainly the first-half backlog, and better view on the back half, that gave us increased confidence to take the bottom end of the range up $0.05. We didn't take the higher end of the range up. Our goal is to over-deliver on that, but time will tell.

What, in your speech, just to talk about moderate gross margin for the year in terms of expansion, to put a number on that, is it more of a 30 to 50 basis point expansion? And the color on SG&A, you said moderate deleverage, is that in the same ballpark? How do we think about operating margins for the combined Company when you gave your guidance?

Yes. I would say, going back to a conversation you and I have had in the past about slight versus modest versus moderate, that moderate is that the -- and that falls short of robust -- but moderate is north of the range you said. So it's clearly north of 50 basis points. And as it relates to the second half of your question, we would expect to see operating margin expansion. Meaning that our gross margin expansion would exceed the amount of the SG&A deleverage.

Okay. All right. And then just lastly, from a geographic perspective, obviously you're talking about Europe. You're not really seeing any improvement. But maybe you can parcel out between the different geographies -- North America, Europe, Latin America and Asia -- just your thought process about how we think about maybe growth for the core legacy business, that mid single-digit growth. US being strong. Latin America and Asia, Europe, is that just because it's stagnant? Does that mean it's down for you guys? Just maybe parcel out how we think about the geographies.

When we look around the world regionally now, it's really the haves and the have-nots. Europe is clearly in the have-not category, from our view at the moment. I think everybody saw the GDP numbers for the Eurozone, that came out last week. So there's some sober news still coming from the that region of the world. For us, we're not planning on any significant revenue increase this year in Europe, is how I would put it.

On the other hand, Latin America and Asia-Pacific were very strong for us this year. We believe they're going to continue to be strong for us next year. We are putting quite a bit of our efforts on the international side in those particular regions. And we expect strong growth from both Asia-Pacific and Latin America next year. Then on the US side, I've already talked about it. Frankly, the US consumer in footwear has been pretty resilient. But between higher taxes, slower tax refunds, sequester, debt ceiling, general uncertainty, is the housing market really going to truly begin to recover, there's a number of question marks out there. But frankly, domestically those question marks have been out there the last couple of years, and it's been a pretty good footwear cycle. So conceptually that's how we view the world right now.

Chris, let me go back to your first question for one second, just to give a more complete answer for your benefit and everyone else's benefit. As it relates to full-year gross margin expansion, we're going to do a number of things in 2013 that I think we'll deserve full credit for and pats on the back. Whether it's taking our selling prices up, or managing our inventory better such that we have fewer closeout sales. Things that I've mentioned. But I also don't want to under-emphasis or understate the importance of the full year of PLG, and PLG retail, in particular, into Wolverine results versus only the stub period in 2012. That will be a meaningful contributor to gross margin expansion in 2013. Particularly the Stride Rite business, which has a really heavy Easter sales season and back-to-school season, that really we didn't capture in our results in 2012. So that will be a not insignificant contributor to gross margin expansion.

So let me ask it this way. The gross margin on the legacy business, you would expect some slight expansion, but the bigger driver is really coming from PLG and the mix of business. Is that fair?

Both legacy and PLG by themselves in a vacuum are planning gross margin expansion. Then when you combine full-year PLG versus only a partial year in 2012, that's another contributor to gross margin expansion.

All right. Thank you. I appreciate it. All the best.

Sam Poser with Sterne Agee.

Could you give us a little detail on where the marketing expenses have been as a percent of sales? And how you're thinking about that for this year, this coming year. Because you did say you were going to step up.

They've been in the mid single-digit range, Sam. And somewhat surprising to me, they were that way for both the PLG business, as well as legacy Wolverine. I would have guessed, before we got into the acquisition work, that PLG would have spent more of their revenue on marketing. But that's not true. We certainly expect, particularly with the Taylor Swift investment in 2013, plus incremental marketing investment behind the Sperry Top-Sider brand, which clearly deserves it given its three years in a row growing over 30%, we clearly expect the marketing spend in the aggregate dollars, as well as a percent of sales, to increase in 2013.

Again, I'm going to follow up on Chris's question about modest versus -- within your guidance, are we looking at -- to get in the range of your earnings, are we looking at -- can you give us a range of basis points for the gross margin and the SG&A of the range of what your guidance means? And then I have one more question around the stub first quarter.

The short answer to your first question is no, we're not going to give a range. But we'll let the comments stand for themselves and let you guys, just based on my comments regarding the hierarchy of slight, modest, moderate, frame it that way. I don't want to give a specific range.

Okay. All right. And then on the first quarter, you commented that inventory levels at retail are in much better shape because it got cold. But inventory levels weren't as good. And I assume, as somebody else said, that the at-once business probably didn't live up to your expectations in the fourth quarter with some of the legacy brands. Can we expect the legacy gross margin in Q1 to be challenged just because of the products you probably sold so far in Q1 was at a lower margin, just because it came later and everybody had to get clean at the same time?

I don't think our legacy businesses are facing any significant pressure on gross margin in Q1, Sam. I think retailers in general -- let's put it this way. They were more prepared this year for a warmer than normal winter than they were a year ago. So I think they went in prepared a little better. And then they got some help here in January and February to clear out some inventory. So they're in good shape right now. But even from our legacy brand viewpoint, we wouldn't view Q1 as being under any unusual pressure from a margin standpoint.

Okay. One more question, then. You mentioned that the retailers are going to be riding conservatively, given the way the weather's been and everything, looking into the more seasonal products in the back half of the year. How are you going to decide how much business are you going to leave for at-once versus spec? Are you going to handle that more conservatively this year than you did last year, given, I think, that a lot of the retailers, as you mentioned, are putting more onus on you guys? How does that balance work?

We like to think of ourselves as scientists when it comes to inventory management. But Sam, as you know, it's also a bit of an art form. And so we're going to be using as much market and consumer intelligence from our own stores, as well as what we can get our hands on. But we expect, not so much this spring but next fall, for retailers to take a conservative view again on their inventory levels, and try to put a little more burden back on the brand owners. So I don't know if that helps you or not, but certainly for spring --.

I more asking how you're going to think about it. For instance, if you saw they sold 1,000 units of something, and they're going to give you an order for 500, and say -- but we want you to hold the rest in case we need it -- how are you thinking about that relative to the orders you get? How much are you going to support it? Are you going to err on the side of selling out versus supporting the retailers? Just a general sense, how do you think about that.

I think, Sam, our brands have a very detailed analysis in that regard. Retailer by retailer. So we have a lot of history with a number of our largest customers and we use that. Every season we do, the last couple of years, we have had a few of our very good partners come to us and frankly confess -- listen, we know we're under-bought with this particular brand or that particular brand. That's their viewpoint. And then they'll also say -- but if things go good, we expect you to have some product for us when we need it. So we do place backup orders, and it gets down to the style and color analysis by retailer, and even regionally for some of the bigger retailers. So it's pretty sophisticated. It's never perfect. But it's also pretty sophisticated.

Sam, even in normal times, when we would historically get 40% of our wholesale revenue in the form of at-once orders, that requires judgment on the part of the people running the business in terms of what to order, what inventory to carry, what's going to generate reorders, and what's not. And one thing I can guarantee is we don't get it all right every quarter, even in normal times. We love it if 100% of our orders were placed six months ahead of time. But they're not, so that's the reality we have to deal with. In the last 12 months, that 40% of business being from at-once orders was pushed up to north of 50%. But whether it's 40% or 50% there's always some element of risk in how you balance the inventories. The question you're asking is legitimate. but there's really no better answer to it than what we just said.

Thanks very much and good luck.

Scott Krasik from BB&T Capital Markets.

First, pro forma revenue growth first half versus second half, how are you thinking about that? And what factors would get you to the high end of your pro forma revenue growth of 9.9% for the full year?

I would say, based on the revenue guidance I gave for Q1, which we didn't give revenue guidance for Q2, but I think it's safe to say we're expecting slightly higher revenue growth in the back half of the year than the first half of the year. That's the answer to the first part of your question. And the second part of the question, again, is what do we need to happen to get to the high end of the revenue guidance? Is that the question?

Exactly.

I think for that part of the question I think, one, continued momentum in some of our largest brands that we're seeing right now. We would need that to continue beyond Q1 and Q2, and extend into the fall season. And we'll have some more insight on that as the year progresses, and give you updates on our Q1 and Q2 calls.

So could you get to 9.9% without an improvement in Europe, per se?

Yes. As we've been pretty up front, we expect Europe for this coming year, and probably for the next year, we're planning Europe flat. We're planning no revenue increase in Europe.

But Europe being flat in 2013 will be an improvement over 2012 when it was down.

Sure. I appreciate that. And then, just what's your rationale for expanding Merrell in the family footwear channel?

I think that issue has probably got blown a little bit out of proportion. As you know, really Merrell has been very diligent over the last 15 years when they look at their distribution policies. They run a strict policy. It's strategic and they enforce it. Merrell's always had some business in the family channel. They're planning on a pretty modest and discrete increase this year, well thought out. The brand has never been structured to compete on price. And it always operates at the premium segment of the market. So even with the planned pretty small increase, modest increase this year in the family channel, that entire channel's going to be very low single digits in sales compared with the overall revenue of the brand.

But different price points, Scott, and products specifically to that channel.

Right. It would be special makeup product. It would be no in-line product. It would be none of the new current production or introductions.

It's interesting. In most of my five years with the Company, I've had probably more questions about why don't you expand Merrell's distribution so people can find the brand more, than any other type of question. And then when there's a comment about doing that on a very small scale, some people are taking it the wrong way. But I appreciate you asking the question. I know why you asked it.

Obviously we're impossible to please. And then just last, what's your thought on the running category? You obviously guided Saucony to solid growth this year. I'm assuming Merrell outdoor athletic, as well. What's your thoughts on the running category? Is it just a matter of you taking share?

Yes, but we also see the running category -- our view is it continues to be very strong. People have not stopped running overnight and switched to basketball shoes. I can assure you there's more races, half marathons and marathons, 10-Ks, triathlons going on than ever. Virtually every community. So we're not seeing at this point any significant falloff in running. As you know, running has been the top growth category, coming out of the recession for the last three years in terms of growth, and we're still seeing strong demand. Albeit with Saucony. Our two main channels of distribution, number one is the run specialty channel, full service, full price, sit and fit environment, and sporting goods. So we haven't seen any significant slowdown in the running trend. Certainly, at least as evidenced by Saucony's performance.

Okay. Thanks. And good luck.

Thank you. That was the last question so I'd now like to turn the call back over to Christi Cowdin for any closing remarks.

Thank you. On behalf of Wolverine World Wide, I would like to thank everyone for joining us today. And, as a reminder, our conference call replay is available on our website at www.wolverineworldwide.com. And the replay will be available through April 16, 2013. Thank you and good day.

Thank you for participating. This concludes today's teleconference. You may now disconnect your phone.