Wolverine World Wide Inc (WWW) 2014 Q2 法說會逐字稿

Welcome to the Wolverine Worldwide's 2014 second quarter earnings conference call. All participants will be in listen-only mode until the question-and-answer session of the conference call. The call is being recorded at the request of Wolverine Worldwide. If anyone has any objections, you may disconnect at this time. I would like now to introduce Ms Christi Cowdin, Director of Investor Relations and Communications for Wolverine Worldwide. Ms Cowdin, you may proceed.

Thank you very much, Keith. Good morning all. Welcome to our second quarter conference call. On the call today are Blake Krueger, our Chairman, CEO and President and also Don Grimes, our Senior Vice President and CFO. Earlier this morning, we announced our financial results for the second quarter of 2014. The release is available on many news sites or it can be viewed from our Corporate website at WolverineWorldwide.com. If you would prefer to have a copy of the news release sent to you directly, please call Tyler Deur, at 616-233-0500.

This morning's press release included non-GAAP disclosures. These disclosures were reconciled with attached tables within the body of the press release. Comments during today's earnings call will include some additional non-GAAP disclosures. There is a posting on our Corporate website that will reconcile these non-GAAP disclosures to GAAP. To view that document, please go to our Corporate website WolverineWorldwide.com, click on Investor Relations in the navigation bar, click on webcast at the top of the Investor Relations page and then finally, click on the link to the file named WWW Q2 2014 Conference Call Supplemental Tables. It appears 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 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 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 of that being said, I would now like to turn the call over to Blake.

Thanks, Christi. Good morning, everyone. Thanks for joining us. Earlier this morning, we reported our second quarter financial results highlighted by record revenue and record adjusted earnings, an excellent performance in what continues to be a volatile retail environment, particularly in the US. The Wolverine Worldwide business model which is predicated on a diverse portfolio of brands and an extensive global distribution footprint and Best-in-Class operations continues to deliver consistently strong results.

For the second quarter, we generated solid revenue growth of 4.4% over the prior year. The Lifestyle Group, consisting of Sperry Top-Sider, Hush Puppies, Keds and the Stride Rite Children's Group rebounded from a challenging first quarter and posted mid single-digit revenue growth compared to last year's second quarter. Sperry delivered a better than expected revenue performance in the quarter, which was flat with the prior year. The Performance Group comprised of Merrell, Saucony, Chaco, Cushe and Patagonia Footwear continued on its growth trajectory and also generated a Q2 mid single-digit revenue gain.

The Heritage Group, which consists of Wolverine, Cat Footwear, Bates, Sebago, Harley-Davidson Footwear and HYTEST delivered a low single-digit revenue increase compared to the prior year. Our solid revenue growth combined with our disciplined approach to managing the business drove exceptional earnings results. Adjusted earnings per share of $0.31 represents growth of 34.8% versus the prior year. Earnings leverage was excellent, especially in the retail climate, as promotional and unpredictable as the one we're currently experiencing.

On a regional basis, we experienced very strong double-digit growth in EMEA, Asia-Pacific and Latin America, compared to the prior year, highlighting the global momentum in our business. I'm especially pleased to see strong performance again out of EMEA, a second consecutive quarter of double-digit revenue growth. The last several years have been challenging for Europe, but we continued to make investments in our brands, people and infrastructure to ensure we were well-positioned to accelerate growth once the macro conditions improved. I'm happy to report those investments are beginning to pay off. I'm excited about the progress we're making in our second largest region. Finally, for North America, a market I'll talk about in more detail in a minute, our business was up low single-digits in the quarter.

Moving away from specifics on the quarter, but staying on the topic of international growth, I want to briefly focus on our efforts to broaden the international scope of our brands, especially our newest brands, an important initiative for us. Over the last 50 years, we've developed an industry-leading distribution network that enables us to engage directly with consumers across the world. We've worked diligently with our international partners to capitalize on the global opportunities for our new brands since the acquisition of the Performance and Lifestyle Group in October of 2012. We've signed and executed almost 60 new distribution agreements in key growth markets, covering over 85 countries since the closing. Based on our history, we know that it takes several seasons for brand introductions to gain momentum. We expect these efforts will play an increasingly important role for the Company in 2015 and beyond.

Before Don provides more specifics related to our financial performance in the quarter, I'd like to provide you with my perspective on the current retail climate and macroeconomic environment, discuss efforts we are undertaking to optimize our consumer direct platform and review the key leadership additions that we announced a few weeks ago. The consumer malaise in the US retail market persisted into the second quarter and is reflected in the government's recently announced lower growth expectations for the US economy. There are a number of factors impacting the tepid consumer mindset in the US. Unusual weather was certainly a factor last fall and this spring, but the US consumer, at least mid-market on down, continues to be stressed.

This consumer mindset is partially attributable to the weak economic recovery in the US but is also the result of a number of other factors, including the continued dysfunction in Washington, DC, the challenging roll-out and uncertainty regarding the US healthcare reform, and the lack of a dominant apparel fashion trend. I guess I would also say that price increases in non-discretionary items: food, fuel, utilities, has also had an impact. These factors have also negatively impacted US brick-and-mortar traffic in general and resulted in a highly promotional retail environment that has taken its toll on many retailers.

As a result, we have a somewhat more cautious outlook for the US market for the balance of the year. This is reflected in our updated full year revenue guidance which Don will speak to shortly. I would also say, however, that our store performance has trended better across most of our retail fleet so far in Q3. Outside of the US, despite lingering regional macroeconomic and political uncertainties, our portfolio and business model continue to perform well, as reflected in our strong double-digit growth outside the US in the second quarter. We believe the diversity of our brand portfolio, target consumers, and distribution channel enables us to deliver consistent results despite a volatile global marketplace.

Switching gears, I'd like to take this opportunity to discuss an important initiative we announced this morning that is intended to optimize our consumer direct operations, drive profitable growth and ultimately, increase shareholder value. As you know, consumer's shopping behavior is evolving dramatically, especially in the US. Consumers have embraced the ease and convenience of online shopping, a trend that has only accelerated for the last several quarters. Today's consumers demand a sophisticated omni-channel shopping experience and have the available technology to make informed shopping and purchasing decisions. As a Company, it is paramount that we evolve to meet and exceed the needs and demands of this new consumer.

Today, after an extensive review and strategic analysis of our retail operations, we announced a realignment of our consumer direct priorities and resource allocation. To expedite the realignment, we announced the planned closure of up to 140 brick-and-mortar retail locations over the next 18 months and the related consolidation of store operation functions. We also took this opportunity to evaluate several other related areas of the business to identify further efficiency opportunities.

When fully implemented, we expect the annual pretax benefits of the realignment plan to be approximately $11 million. We anticipate reinvesting much of this benefit into e-commerce, mobile and other omni-channel capabilities and opportunities, intended to enable our consumers to engage with our brands anywhere, anytime. Don will share the timing and additional financial details of this strategic realignment plan with you in his prepared remarks.

Finally, I want to take a moment to speak to you about the key leadership additions to the Company's Senior Management team that we recently announced. Bill Brown is retiring after a long and successful 27-year career with the Company, most recently as Head of our International Group. We wish Bill all the best in his well-deserved retirement. With change comes opportunity. Given the strategic importance of our global business, I'm very pleased that Jim Zwiers will replace Bill as President of the International Group. Jim has had numerous and increasingly significant leadership roles during his tenure at Wolverine and is uniquely qualified to lead the International Group as we continue our brand building efforts around the world. We are excited to have Jim's talent, passion, and experience dedicated to the many international initiatives and opportunities for our brands.

I'm also pleased that Jim Gabel has joined Wolverine to succeed Jim Zwiers as President of the Performance Group. Jim was most recently President of adidas Group Canada, where he led the successful growth and development of the adidas, Reebok, Rockport, Ashworth, Adams Golf and TaylorMade brands. Jim is a recognized industry leader with a passion and talent for building Performance brands. His track record of driving growth across multiple consumer channels makes him the ideal leader for the Performance Group.

We're also very pleased that Andy Simister has joined the Company as President of the Lifestyle Group. Andy joins us from Pentland Brands, where he most recently held the position of President of Lacoste Footwear and also served on Pentland's Executive leadership team with responsibilities for setting the strategic direction of the company and its portfolio of brands. Andy's global perspective and the brand-building capabilities will be a wonderful addition to this great family of brands.

Jim Gabel is headquartered in our Michigan office. Andy is based in our Boston office. Both bring a proven track record of successfully leading great teams and growing brands around the world. These leadership changes represent the next step in the evolution of Wolverine Worldwide as we position the Company for future global growth and success. We're extremely pleased to be able to attract some of the industry's best and brightest and also develop key talent within our own organization.

As a Company, we remain strategically focused on: leveraging our diversified portfolio of the global lifestyle brand, which cover all ages, genders, and most product categories; to drive growth by maintaining a fanatical focus on innovation, especially product creation; expanding our already extensive global distribution footprint; focusing on forging stronger connections with our consumers, with a continued emphasis on consumer direct initiatives, specifically digital efforts that support the omni-channel experience; expanding the lifestyle opportunities for our largest brands; and lastly, executing against our business model which mitigates the risks associated with an ever-changing global marketplace.

Thanks for your time this morning. I'll now turn the call over to Don Grimes, our Senior VP and CFO, who will provide additional commentary on our performance in the quarter and our updated outlook for the full year. Following his prepared remarks we'll open the call up for questions. Don?

Thank you, Blake. Thanks to all of you for joining us on the call today. As Blake noted, we're pleased with the quarter's financial results which include record revenue, record earnings, very strong operating free cash flow and the lowest level of net debt since we closed the acquisition of the Performance and Lifestyle Group in the fall of 2012. When we announced the PLG acquisition two years ago, we stated that one of the most important priorities for our free cash flow was to pay down our acquisition debt. We stayed true to our word, with net debt just a shade below $900 million at quarter end.

I'll now provide more details on the quarter's results, discuss our full year outlook, and share some additional information regarding the strategic realignment plan that we announced this morning, most of which relates to actions we are taking within our consumer direct business. I'd like to remind you that all the current and prior year financial results discussed today have been adjusted to exclude integration expenses related to the PLG acquisition, restructuring charges related to the late 2013 closure and sale of our Dominican Republic manufacturing facilities, non-cash restructuring charges related to the Company's international operations and costs and non-cash charges associated with last year's very successful debt refinancing.

We reported record revenue for the second quarter of $613.5 million, representing growth of 4.4% versus the prior year, slightly better than our forecast going into the quarter. Each of our three brand operating groups contributed to the revenue performance by posting solid year-over-year growth. Foreign exchange had minimal impact on revenue growth in the quarter, increasing reported revenue by less than $1 million. The Lifestyle Group consisting of Sperry Top-Sider, Hush Puppies, Stride Rite Children's Group, and Keds delivered revenue of $264.1 million in the second quarter, growth of 3.5%.

Exceptionally strong double-digit revenue growth from Keds and mid single-digit growth from the Stride Rite Children's Group more than offset a high single-digit revenue decline from Hush Puppies. Sperry Top-Sider's revenue was down less than 1% in the quarter versus the prior year, when revenue grew 34% versus pro forma FY12 revenue. Sperry's revenue growth was negatively impacted by approximately 400 basis points by the distribution realignment in the family channel that we discussed last quarter. So the brand would have grown in the quarter but for this change in distribution strategy.

The momentum in Keds continues to be one of the great growth stories in the industry. The brand's partnership with Taylor Swift and product collaborations with Kate Spade and others continues to resonate with the brand's target consumers. During the quarter, Keds sponsored Taylor Swift's Red Concert Tour throughout Asia. We saw positive sell-through and consumer engagement in dozens of important markets in that region. Keds also saw an increased penetration with key retailers in the North American wholesale business, especially with core product classifications such as the Champion. With compelling new product on the horizon for early 2015, we believe the future for the Keds brand is quite bright.

Sperry Top-Sider's revenue performance in the quarter exceeded our expectations. While the Men's business reported stronger performance, partly on the strength of the higher margin Gold Cup collection, the Women's business declined in the quarter. Women's categories such as sandals, flats and espadrilles, key categories for the brand's future global expansion, are driving positive sell-throughs across multiple channels. However, the growth in these categories was offset by continued softness in the Women's boat shoe category. The brand plans to introduce fresh Women's boot and casual styles for fall and will launch Women's Gold Cup casual product for the holiday selling season.

The Stride Rite Children's Group rebounded from a challenging first quarter, benefiting from the shift of Easter holiday business to Q2 this year from Q1 in the prior year. The business' brick-and-mortar performance continued to be hampered by lower mall traffic, which despite a nice improvement in conversion negatively impacted fleet productivity and profitability in the second quarter. I'll share more on our efforts to address the shifting consumer buying habits in a few minutes.

Turning to Hush Puppies. The US business continued to grapple with tough retail conditions, particularly weaker demand in the department store channel for casual products. As has been the case for many years, however, the brand's highly profitable international licensee business delivered excellent results. Our Performance Group which consists of Merrell, Saucony, Chaco, Cushe, and Patagonia Footwear posted revenue of $211.2 million, a solid increase of 5.8% versus the prior year. Saucony and Chaco were the leading performers in the quarter, with both brands posting a strong double-digit year-over-year revenue growth.

During the quarter, Saucony continued to strengthen its position in the important run specialty channel with a key win coming from the Guide 7, which is now the number two shoe in the run specialty channel's stability classification. Additionally, the Ride 7 was named Editor's Choice by Runner's World Magazine. Globally, the brand continued to expand at EMEA, where it now does more than 20% of its business. Excellent performance in third party markets is being driven by demand for both technical running product and the Saucony Originals Collection which are retro sneaker styles from the brand's archives.

Merrell grew its revenue at a low single-digit rate in the quarter, after adjusting for the transfer of the Merrell Kids business to the Stride Rite Children's Group. Strong performance in EMEA and Asia-Pacific was offset by softer results in the US and Canada. In the US, specifically, the cool, wet spring, a highly promotional retail environment and the prior year launch of the M-Connect Collection made for difficult year-over-year comparisons.

The brand's performance outdoor product category performed very well in the quarter with excellent double-digit growth. Innovative offerings such as the All Out Blaze and core franchises like the Moab performed especially well. Merrell continued to invest in the expansion of its Outperform brand platform allowing better connections with its key retailers and consumers all designed to position Merrell as the leader in outside performance footwear and apparel.

Chaco continued to produce outstanding results, with exceptionally strong double-digit growth in the quarter, driven by unprecedented demand for its classic Z sandals. The brand's classic sandal profile continued to gain momentum with younger consumers. Its leather sandals are also gaining in popularity, particularly in Women's offerings, while the MyChaco's custom sandal program is up more than 50% year-to-date. Chaco is a great example of a brand that was struggling prior to its acquisition by Wolverine, but is now flourishing under new leadership and with the benefit of the Company's infrastructure to support it.

One additional comment related to the Performance Group. It was recently decided that our license agreement for Patagonia Footwear, one of the smallest brands in our portfolio, would come to an end. As a result, fall 2014 will be the last season that the Company will ship product. We have notified the retail trade and distributor partners of this change. Although a wonderful brand, Patagonia currently generates a relatively small amount of revenue and profit for Wolverine. We expect no impact on FY14 financial results and an immaterial impact on 2015 results. We look forward to focusing our brand building efforts on the many more meaningful growth opportunities in our portfolio.

The Heritage Group which consists of Wolverine, Cat Footwear, Bates, Sebago, Harley-Davidson Footwear and HYTEST posted revenue of $113.5 million, a growth of 2.6% over the prior year. Strong double-digit growth from Cat Footwear, high single-digit growth for the Wolverine and HYTEST brands and low single-digit growth for Harley-Davidson were only partially offset by declines in Sebago and Bates, the latter of which felt the impact of a reduction in low margin US military contract business. Cat Footwear had an exceptional quarter, as every major geographic region grew at a double-digit rate.

Globally, the brand is resonating with both men and women, especially with its Lifestyle Collection. The core Colorado boot in new materials and colors performed quite well. The North American business also saw a nice lift from updated work offerings and the addition of resources dedicated to selling the new Women's product through new channels of distribution. The Wolverine brand delivered a solid quarter driven by strong growth in its North American business. The core work and Heritage Collections continue to deliver solid results across multiple channels. Offerings from the brand's 1000 Mile collection in the US grew strongly within top tier accounts, performance that continued to drive opportunities for the brand globally.

Turning back to consolidated results. Gross margin in the quarter was 40.1%, compared to gross margin of 41.0% in the prior year's second quarter. Challenging retail conditions drove higher than expected promotional activity in our brick-and-mortar fleet, contributing 40 basis points to the decline. The positive impact of wholesale selling price increases was more than offset by the negative impact of higher product costs for a net negative impact of 50 basis points. Adjusted operating expenses in the second quarter were $190.8 million, 2.8% lower than the prior year.

Lower pension and incentive comp expense and tightened discipline around discretionary spending helped deliver the excellent results. Adjusted SG&A was 31.1% of revenue, an outstanding 230 basis point improvement compared to the prior year. Reported operating expenses were $196.7 million, down 3.6% versus the prior year. Interest expense in the quarter was $10.9 million, $2.2 million lower than the prior year, reflecting the impact of year-over-year principal reductions and a lower interest rate on our term loan debt which is driven by both our lower average leverage ratio and last year's debt refinancing.

The reported effective tax rate for the quarter was 28.2%, higher than in the prior year, due mainly to a higher mix of earnings coming from the United States and the expiration of the US Federal Research and Development Tax Credit. Fully diluted weighted average shares outstanding for the second quarter were almost exactly $100 million. Adjusted net earnings for the quarter grew 36.9% to a record $31.8 million. Fully diluted earnings per share grew 34.8% to $0.31 per share, demonstrating the earnings power of Wolverine's global business model. On a reported basis, earnings increased 50% to $0.27 per share, compared to $0.18 per share in the prior year.

Turning to the balance sheet. Total inventories at quarter end were down 5.1% to just under $460 million, as we continued our disciplined approach to managing inventory. Free cash flow in the quarter was an outstanding $113.6 million. As a result, we finished the quarter with cash and cash equivalents of $232.4 million and net debt of $898.9 million, a decrease in net debt of more than $108 million since the end of the first quarter and a decrease of more than $0.25 billion since the transaction closed less than two years ago. We took advantage of our strong cash position by making a voluntary principal payment of $25 million on our term loan earlier this month.

Turning to the full year outlook. While we're obviously pleased with the Company's solid revenue and excellent earnings performance through the first two quarters of the year, we expect continued challenging retail conditions in the US during the important back-to-school and holiday shopping seasons. As a result, we now expect full year consolidated revenue to approximate $2.775 billion, or growth of just over 3% versus the prior year.

Based on this revenue outlook, the expectation of very modest full year gross margin expansion and continued operating expense discipline, we're pleased to reaffirm our guidance for adjusted full year earnings in the range of $1.57 to $1.63 per share, representing growth of 10% to 14% versus the prior year's adjusted earnings per share of $1.43. Excellent performance, we believe, in such a tepid retail environment. More specifically to Q3, we expect that both revenue and earnings per share will be flat versus the prior year, when excellent 9% revenue growth in 2013 driven by strong back-to-school shipments in the US and double-digit growth in EMEA and benefits from the PLG acquisition helped drive a 61% increase in adjusted earnings per share.

We expect to deliver solid revenue growth in Q4, due in part to: continued recovery in EMEA, where our year-to-date revenue has grown at a double-digit rate; a deeper assortment of cold and wet weather boot products for many brands in our portfolio; solid comp store sales gains from our Sperry retail fleet, based in part on the launch of a full range of apparel into the stores prior to the holiday shopping season; a healthy wholesale backlog position for most of the other brands in the portfolio; and an extra week in this year's 17-week fiscal fourth quarter. Also, keep in mind that we are comping against a fiscal fourth quarter in the prior year when consolidated revenue was essentially flat.

Our full year earnings guidance excludes carryover acquisition integration expenses and charges related to the strategic realignment plan that we announced today. The portion of the realignment plan that relates to our consumer direct business is the outcome of a comprehensive strategic review and analysis that's been going on for several quarters. The market shift in consumer shopping preferences, particularly here in the United States, has led us to implement this strategic realignment. We believe that closing retail locations that do not meet our profitability requirements, commensurately reducing infrastructure costs and redeploying most of those savings to build a Best-in-Class omni-channel consumer shopping experience will enhance future shareholder value.

The realignment plan announced today contemplates: closing up to approximately 140 retail locations, primarily Stride Rite stores over the next 18 months, of these, it's expected that approximately 60 stores will close in FY14 with the balance closed in 2015; consolidating certain consumer direct functions, specifically store operations and field support teams to allow for a more effective and efficient management of the retail fleet; and implementing additional organizational and infrastructure changes designed to realize further synergies. We're estimating pretax charges related to the plan in the range of $30 million to $37 million and expect to record these charges between now and the end of FY15 as each component of the plan is executed.

Approximately $13 million to $15 million of this estimate represents non-cash charges, primarily asset write-offs related to closed retail locations, impairment charges relate to our remaining store fleet and restructuring charges relating to our international operations. Of this amount, we recorded $3.4 million in the second fiscal quarter. When fully implemented, we expect annual pretax benefits of approximately $11 million. As we've noted, we intend to reinvest most of these benefits to further build out consumer direct omni-channel capabilities and accelerate growth in our wholesale operations, investments that we believe will better position our brands for growth and drive meaningful shareholder value. Thanks for your time this morning. We'll now turn the call back over to the operator so Blake and I can take your questions. Operator?

(Operator Instructions)

Taposh Bari, Goldman Sachs.

Just a question, first on the guidance for the year. Just curious to know why you're reducing the guidance to the low end, given that you actually beat your internal plan for the second quarter? Also, for Sperry? Is there something that you're seeing out there? Is there some kind of imbalance between sell-in versus sell-through? Or some sort of inventory backup in the channel? Or is it just conservatism on your part?

I wouldn't necessarily attribute it to conservatism on our part. But I think our outlook for the back half of the year is probably most influenced by softness we're seeing in our Stride Rite retail fleet in particular. The store closings that we're talking about, really, are expected to happen kind of at the end of the year, so the revenue guidance isn't impacted by store closures necessarily, Taposh. But it's really more softness in overall retail channels that we're seeing that are impacting a lot of the brands in the portfolio, but probably impacting our Stride Rite brand and its retail fleet more than any other brand in the portfolio.

I would guess with respect to Sperry. Sperry obviously had a very good Q2. Sperry had a big quarter in Q3 last year, so we're expecting a decrease in Sperry in Q3, but a return to growth in Q4. Certainly no unusual inventory patterns or situations there driving the Sperry business at all.

Within certain channels, Taposh, I think Sperry was over inventoried going into the fiscal year, but we worked through that. I think inventories at retail are very much in balance for that brand which, as you know, is the second biggest brand in our portfolio.

Okay. That's helpful.

Yes. I guess, just looking at Q4 for Sperry, they're going to have an expanded fall collection, fresh boat, but their boot orders are way up, new casuals and flats. The store count is up. Men's has remained strong in all categories, boat, non-boat and Gold Cup in particular. We do expect a bump-up in the store performance given the addition of a full apparel line closer to the -- before the holiday season. Last year, they had, frankly, the compare is a little bit easier in Q4 because they had a relatively challenging Q4 last year.

Just so I'm clear, the reduction in the full year revenue outlook is primarily being driven by what you're seeing at Stride Rite retail?

That is correct. Probably the second most significant change in the outlook probably relates to Hush Puppies in the US department store channel. Then other brands are up or down in a very small range, but mainly Stride Rite and Hush Puppies.

Okay. Then the second question I had was just on -- if you could provide some more detail on Sperry. You mentioned the boat shoe silhouette within Women's being soft, but the other categories which are your growth categories internationally being stronger. Can you provide some context? How big is -- within the Women's business in Sperry, how big is boat versus non-boat in North America?

In North America for Women's boat would be over 50% of their business. The Women's boat shoe business continues to be challenged. Our revenue forecast for the Company for Sperry for the entire year really doesn't assume any change in that trend. At the same time, Men's has been trending up. The Sperry Women's business is going to offer a broader range of non-boat shoe product. We've had a broad pick-up from retailers around the United States of that product and feel very good about that. But it's not going to be enough to offset the decrease in the Women's boat shoe.

Taposh, as we've talked about for a couple years, it's always been our intention to grow the non-boat portion of the Sperry business, both Men and Women. But our preference would have been to grow the non-boat percentage by growing both and non-boat but growing the non-boat at a faster rate, not necessarily having the boat shoe category take a step back which is what we're experiencing this year. But as boots and sandals and espadrilles, as new products are introduced and well received by the retail trade and consumers as they have been, the reliance on boat will come down over time.

Feels like the non-boat piece of the business could be big enough to withstand the correction or whatever you want to call it within the boat piece on the Women's side. Is that fair?

Yes, I think the brand remains very strong. As you know, it's front and center at most retailers and retail locations. It has no brand drag with retailers or even more importantly, consumers. So we see lots of opportunities on the Women's side for Sperry.

Yes, but to one of your questions, Taposh, in 2014, the growth of the other categories is not offsetting the decline in Women's boat. We're reiterating our outlook for the brand for the full year, that it will be down in the mid to high single-digits. But we think the brand has stabilized. As Blake mentioned, we expect the brand to return to growth in Q4.

Good to see. One quick one and I'll hop, on housekeeping. Can you quantify the extra week, Don, in the fourth quarter?

From a retail sales standpoint -- the retail stores being open an extra week, we calculate about worth $10 million of revenue. But that week of the year really nothing in terms of profitability. On the wholesale side it's less that we even quantify. So, we really kind of look at it in terms of a $10 million revenue lift but no impact on earnings per share.

Got it. Thank you. Best of luck, guys.

Thanks.

Mitch Kummetz, Robert Baird.

Let's see, I've got a couple of questions. Don, just back to your updated revenue guidance for the year. I think coming up on the last call, you mentioned a few things. You said that the Performance Group would be your fastest growing group. Just curious if that's still the expectation? Kind of what your outlook for Merrell is in the back half?

We still expect the Performance Group to be the fastest growing of the three operating groups for the fiscal year. That's been true year-to-date and will be true for the full fiscal year.

Okay. Then by geographic region I think you had also said that Asia-Pac and Latin America fattest growing, EMEA sort of up mid singles, North America low singles. Are those still your expectations? Or anything changed there?

By the time we get to the end of the fiscal year that will be our expectations. On a year-to-date basis, EMEA is the second fastest growing geographic region. But I expect by the end of the year that Latin America will, which had some timing issues on revenue in Q1 in particular, Latin America will be growing at a double-digit rate to surpass EMEA. It's all a very positive story as relates to the diversification of our business model. I will say, I'm sorry, Mitch, just to clarify. You didn't ask about Canada, but Canada on a reported basis was actually down in the quarter, revenue. But there was -- as you're probably aware, there's a pretty significant strengthening of the US dollar versus the Canadian dollar. So on a constant currency basis, Canada actually grew at a mid single-digit rate in the quarter.

Okay. Great. Then on PLG, I think you had previously, again, said that incremental revenue from PLG international would be, I think, like less than 1% -- or less than 1% of the revenue contribution. Is that still the case? Or how is -- let me ask you, just phase it different. How is PLG international trending in terms of incremental revenue from that business?

Yes. I guess, Mitch, maybe one way to look at this, we tried to quantify it in terms of new contracts signed and number of countries. Another way to kind of cut it is to look at what overall revenue was in North America, the USA, prior to the -- at the time of the acquisition and what it is today. So, we've seen a pretty marked diversification for Saucony for example. Saucony was in the low 80 percentile range for USA business at the time of the acquisitions. In Q2, it's down to about 67% for example. A lot of that being driven internationally by their performance product, but a lot of it being also driven by the start of an originals, an interest in the originals collection, especially in Japan, Italy, UK, some other pretty influential fashion markets.

Keds, at the time of the acquisition, was 90% plus USA. Today, in Q2, that would be about 80%. Sperry was 95% plus USA at the time of the acquisition. So today, it's about 90%, maybe a little bit below that. So it always takes a little time we know from our past history with the roll-out of Merrell and many of the other brands in our portfolio, it takes several seasons to get the engine going. Once we get the engine going, it's almost like an annuity. So --

Not to bury you with numbers, Mitch, because sound like you may not be in your office. But since the acquisition closed, we've signed 58 -- executed 58 distribution agreements for the 4 newly acquired brands, of which 33 are brand new territories or countries and 25 would be renewals of existing relationships. It's going to take -- the data that Blake was sharing with you and flip it in a little different way, the international wholesale revenue for the four brands that we acquired on a year-to-date basis, so through the first half of the year, is up in the mid-teens. If you exclude Stride Rite, which is probably of the four brands maybe I might say, I'll look to Blake to nod his head in agreement, that maybe has the least international opportunity of the four brands that we acquired.

If you exclude Stride Rite, the international wholesale revenue for the three newly acquired brands is up about 20% on a year-to-date basis. So, off of the base that we're talking about, we're not throwing parties here, about 20% year-to-date growth, but as we've consistently talked about, this is a kind of an accelerating type thing. You sign the distribution agreements and it takes a few seasons for that really to pick up. So, what's 20% growth year-to-date today ought to be stronger growth in the back half of the year and even stronger growth in 2015.

Okay. That's helpful. Really appreciate that color. Thanks.

Thanks.

Edward Yruma, KeyBanc.

First, Don, on the last call -- when you guys beat, you beat mainly because of SG&A. I think you had indicated that SG&A would of be kind of reinvested, 2Q, 3Q and 4Q this year. What's your perspective on whether that was in fact reinvested and SG&A for the back half?

A portion of the, what I'll call, deferral spend in Q1 was invested in Q2, but we continue to look for every opportunity to drive efficiencies in the business. Those efficiencies manifest themselves in reduced SG&A. As it relates to the back half of the year, we do expect to deliver SG&A leverage for the full fiscal year. So, if you take our revenue guidance of $2.775 billion and that's growth of about 3% year-over-year, we expect full year SG&A to grow at a rate lower than that but not necessarily decline at the same rate that it has in first two quarters of the year. So, I think full year, we'll expect very modest growth in SG&A, but below the rate of revenue growth.

Got it. As it relates to the US Hush Puppies business, I know you said obviously there was some weak trends in the department store casual footwear market now. Are there any other things you can do from an execution perspective or product perspective to improve performance of that brand in US wholesale? Thanks.

Yes. I mean, Hush Puppies frankly has doubled down on its product creation and innovation. Some of the core -- this is true for other brands as well, some of the traditional core casual product frankly just didn't perform in the first half of this year. Hush Puppies suffered the impact of that kind of shift in consumer buying habits. Canada was up nicely and the [oxford] trend was up nicely in the quarter. It's a very profitable international business which is probably 80%, 85% of all pairs continue to perform extremely well.

Great. Thanks, guys.

Thanks.

Christian Buss, Credit Suisse.

Could you talk a little bit about the expected revenue impact from the Stride Rite closures? How you expect that to flow through to the bottom line if we think about it on a fully completed basis?

Well, a lot of this, it's sort of fluid. We make it sound so neatly packaged in the earnings release and in the prepared remarks this morning. But we're going to start having conversations with all the leasers this afternoon as a matter of fact. The timing of the store closures and ultimately, that final number of store closures will depend in large effect how those conversations go. I guess we'll have more information to share during the Q3 call, as we've had those conversations as to the specific impact on 2015 revenue. Obviously, the number of stores we close at the end of this year will negatively impact our 2015 reported revenue but obviously help profitability for the portion of those savings that we don't reinvest in other areas of the business.

Then the closures that occur during the course of 2015 or at the end of 2015 will have an impact on 2016 revenue. So I guess this is a very long way of saying, Christian, that given that the conversations are just going to be starting today that we've announced the Strategic realignment plan, we'll have more details on the impacts on revenue as we move forward. But clearly, a very positive impact on profitability, both from the avoidance of four-wall operating losses on the stores that are losing money as well as the efficiencies we can gain in the supporting infrastructure.

That's helpful. Could you talk a little bit about your gross margin expectations for the balance of the year? You've done a nice job protecting gross margin up until this quarter. How should we think about 3Q and 4Q gross margins?

We still expect full year gross margin expansion. I use the phrase, very modest full year gross margin expansion. Q2 was tough due to kind of the promotional activity at retail. I do believe that -- we do believe that the product costs exceeding the benefit from selling price increases in Q2 was a one quarter kind of a timing issue. Recall that we'll also get the benefit in the second half of the year of the closure late last year of our Dominican Republic facility that we referenced having an annualized benefit of about $4.5 million.

So that benefit will start flowing through cost of sales in the back half of this fiscal year. So those are all things that lead us to believe that when it's all said and done, without giving you specific gross margin commentary on Q3 versus Q4, that we'll deliver that very modest full year gross margin expansion, recovering from the slight negative position year-to-date.

Thank you very much. Best of luck.

Thank you.

Jim Duffy, Stifel.

Can you guys speak to your current level of visibility for revenue in the third quarter and fourth quarter? Then I have a question on the restructuring.

I think we have --

Pretty good visibility.

-- pretty good visibility.

-- into wholesale for Q3. Now recognize that we have 465 retail stores where our visibility is kind of day by day. But as it relates to the wholesale, which is about 85% of the consolidated revenue, we're dependent on what the reorders are going to be. But as you know, Q3 tends to rely more heavily on future orders than at-once or fill-in orders, Jim. Q4, we referenced specifically, a healthy backlog position for most of the other brands in our portfolio that we didn't talk to specifically in my prepared remarks. That is true.

You know better than anybody that we don't talk specifically to backlog numbers for the Company or at a brand level. But I will state -- repeat what I said in my prepared remarks, that our backlog position looks quite healthy for Q4. That's what led us to believe -- leads us to believe that we're going to deliver the revenue growth in Q4 designed to get to that full year revenue outlook.

Great. Then related to the restructuring, we've been through a couple year period, we've seen a lot of integration, operational realignment. When we get beyond the Stride Rite repositioning, are there other lingering pockets of unprofitable revenue to target in the future? Or do you foresee a time, Don, when we get to a period where GAAP EPS and the pro forma EPS are more closely aligned?

We're smiling when you say that because that's our goal as well. But while that's our goal, we're not going to let that goal dissuade us from doing things that we think are in the best interest of the business. When you do things that are non-recurring in nature, you're compelled to treat them as such. So, yes, as we cycle through the store closures -- there's no significant pocket of the business that is money losing that we think, okay, once we get through a retail restructuring, then we're going to do this in 2016. But no one can predict the future for sure. But --

I think, Jim, most of -- after this realignment and with this realignment, we've captured most of the low hanging fruit. There's always further future efficiencies you can generate, but most of the low hanging fruit's been taken care of.

Great. Thank you, guys.

Thanks.

Danielle McCoy, Brean Capital.

I was just wondering if you could give us a little insight on maybe some upcoming campaigns or social media things that you guys are planning on doing for Keds as we enter the back-to-school season?

Yes. I would say, Keds, the turnaround strategy for Keds has really been a spectacular success. I give Rick Blackshaw and his team full credit for that amazing less than two-year turnaround. I think they're approaching it in a multi-pronged fashion, not just with collaborations with Hollister and Kate Spade and obviously Taylor Swift and her Asian tour, but their connections through the Million Brave Acts campaign, it's really an online connection at the brand. I wouldn't call it a campaign, as much as a social media event, that they're implementing for this fall has been a resounding success. Also, I think their Brave Life Project has resonated not just with Taylor Swift but with that whole 14 to 25-year-old female consumer. So, I would say they're on the cutting edge. They're doing some great things in the omni-channel area to really drive future growth.

All right. Great. Then I was wondering if you guys could just remind us about the impact from Sperry from more of the limited distribution type model that you guys are going forward with?

About $5 million a quarter and related to one particular customer in the family channel. The decision was made last October and really the negative impact started to be felt in the first quarter this year. It's -- in rough numbers $5 million a quarter, Danielle, through every quarter this fiscal year.

All right. Great. Thanks so much. Good luck, guys.

Thanks.

Steve Marotta, CL King.

Don, you commented that discretionary spend was cut a bit in the second quarter. Can you talk about what specific category was cut the most? Was it marketing? What specifically was that? The other was, I just want to review Q3, you mentioned I believe revenue and earnings are expected flat on a year-over-year basis. Do you expect SG&A deleverage in the third quarter because of that? Thank you.

Yes. In terms of what we -- the discretionary spend that was held, it really was in a lot of areas other than advertising and marketing, which was still a very healthy 5.1% of revenue in the quarter, down just about 20 basis points from the prior year. But still very much in the sweet spot of what we strive to. So it was really more in the things that are more -- they're not customer or consumer-facing at all. They're more in the back room area, in travel and entertainment, third-party spend, et cetera. Just the things you're doing to drive efficiencies and run a better business. As relates to Q3, with flat revenue, I would expect some deleverage in SG&A to get to the full year SG&A outlook that I talked about in response to someone earlier's question.

That's helpful. Thank you.

Thanks.

Erinn Murphy, Piper Jaffray.

Just given the US environment and how you're thinking about the second half, did that change at all how you're thinking about your 2018 target to get to that $4 billion or $4.1 billion target?

Don and I and the team have discussed that quite a bit. We feel, frankly, very comfortable with our EPS targets that we've laid out, our five-year EPS targets to basically double the earnings of the Company over that period of time. We're in the midst of really studying the impact of the realignment plan and maybe Patagonia Footwear to a much lesser extent on our revenue targets for that five-year period. Again, some of that quite honestly is in flux right now as we talk to the landlords. But we'll be in a position here in a quarter or two to provide some additional detail on that.

Okay. That's helpful. Then just following up on the gross margin question from a little bit ago. On the second quarter, could you just parse out what you said was either product costs or labor costs? What are you seeing on that line item? I completely understand the promotional environment, I just wanted to dig a little bit more onto the costing side?

Yes. Labor costs continue to go up. You tend to see about a 20% increase in the minimum wage in China, kind of year-over-year. That's been a consistent drag on gross margin. But thankfully labor's a relatively small portion of the total landed costs. Leather continues to be at or near record highs, so that's putting pressure on product costs. In the quarter itself, given the timing of our selling price increases, they ended up just not covering what we calculated as the impact of higher product costs. We've done a very good job as a Company kind of getting ahead of product cost increases and taking our prices up, I don't want to say aggressively, but assertively, in order to earn a full margin on our brands. Given the timing of some selling price increases in Q2, that didn't happen in Q2. But we expect it to be more of a one quarter blip than a full year trend.

Got it. Thank you. Then just last question, just as your culture kind of continues to evolve to focus more on omni-channel, can you speak to if there's any other incremental investments you need to be making to enhance the platform across your brands? Maybe just detail for us what are some of your key omni-channel kind of initiatives over the next several years? Thanks.

We're in the middle of a complete roll-out of a new e-commerce platform called Demandware, which was chosen amongst multiple options, Best-in-Class e-commerce platform. So we'll continue to roll that out to all the brands in the portfolio. Certainly, building an infrastructure that's more conducive to the mobile shopper today is an important part of our future investments going forward. Actually improving our supply chain, such that we do a better job of getting products to our consumers in the time frame that they expect them as opposed to -- we have been going back and using a traditional wholesale Company that wasn't set up years ago to deal with more shipping directly to consumers. That has changed dramatically in the last handful of years and improving our infrastructure such that we can get one and two payer orders to consumers very quickly and efficiently and process returns. Well, those are all things you need to do to be a Best-in-Class omni-channel Company. That's what we intend to pursue.

Great. Thank you, guys. Best of luck. Yes?

Maybe just to put it in perspective, just to let you know, our mobile traffic in the quarter was up over 44% and now represents about 25% of our overall e-commerce business, just to kind of quantify the magnitude and accelerated shift in this area.

Great. That's helpful context. Thank you, guys.

Bye, Erinn.

Scott Krasik, Buckingham Research.

Last call you made the comment that you thought Merrell would accelerate from here. You had an easy comparison this quarter. But it didn't work out that way. You have a really tough compare in 3Q. So, I'm just wondering how you expect Merrell to grow now in the back half?

Yes. When I looked at Q2 for Merrell, outstanding performance in their Performance category, outdoor performance category up a strong double-digits. Also, a real solid growth in their Men's active lifestyle, their more casual product, again, up double-digits, offset by frankly, weakness in their Women's active lifestyle and their outdoor athletic categories. We would look for that imbalance to improve as we go forward into Q3 and Q4. We still expect Merrell for the year to be mid single-digits or a little bit better in overall revenue growth, based on our current backlog position and the feedback we're getting from retailers. But clearly in Q2, with some hindsight here, we had some weakness on the Women's side especially in Women's casuals.

I'll say, Scott, the launch of M-Connect last year which was officially launched in Q1 but had kind of a lingering launch into Q2. That put a real pressure on our Q2 Merrell growth, which after you adjust for the transfer of Merrell Kids to Stride Rite, Merrell was up kind of low single-digits in Q2. But ex the launch of M-Connect, or the impact last year of that, Merrell would have been up stronger, really driven by the strength of the outdoor performance category.

Okay. Then just two more. On Sperry, in Women's, are you thinking that longer term boat shoes in Women's is going to be negative? Or do you expect that to recover next year?

We would -- it's a difficult question to answer right now.

You said longer term and then you said next year, so I guess --

(laughter) I would say that we -- you know that boats shoes especially the fashion element goes in waves and has traditionally gone in some waves in the US market. So we would expect to see that leveling out on the Women's side, certainly in 2015, for example.

But I will also say, related to that is that, we don't necessarily think that the boat shoe category is going to determine Sperry's fate. Sperry has a significant enough market share in boat shoes for Men and Women to kind of drive the direction on the growth of the category. So it's incumbent upon us and the Sperry brand to develop the right product to reignite the boat shoe category to where it was a few short quarters ago. So we're not just being buffeted by the category itself. It's our job as the dominant leader in that category to drive the category growth.

Okay. No, that's fair. Then just last, when you bought Stride Rite I think it was about $330 million in sales. Can you give us some idea how big it was at the end of last year? Now? Then once you do these store closures, how big of a business Stride Rite Group will be?

It's about the same size business today as it was when we bought it in terms of top line revenue. Again, the store count -- the impact on revenue for Stride Rite -- we will be negatively impacted by the store closures. I guess in rough numbers, about two-thirds of the identified store closures are in fact Stride Rite. Average revenue per store is about $0.5 million. So you can do the math on that in terms of the impact on reported revenue for Stride Rite. But more importantly, I think, is that this is going to be very positive to the bottom line for the Stride Rite business.

Now the goal of this is to get Stride Rite's profitability, not to the Company average, but to a minimum acceptable level of profitability which is not today. So we're working in concert with the Stride Rite leadership team. The President of Stride Rite is new to the Company, less than one year on-board. So we've been working very closely, partnering with them as to what the right decisions are to make to improve the profitability of that business. So regardless of what it means in terms of top line revenue, we're getting out of stores that are either losing money today or the prospects going forward is a marginally positive four-wall profit margin today will likely be a negative profit margin if current trends continue.

Okay. So then just what brands are the other one-third of the store closures?

It's kind of across the board.

Yes, it's probably closer to -- currently planned 75% of all store closures would be Stride Rite and the other ones would just be a potpourri across Canada, the UK and the United States.

Hush Puppies, Sebago and just small number of Track 'n Trail stores, not all of them, Scott. But just a small percentage of the existing Track 'n Trail fleet.

Okay. Thank you. Good luck.

Bye.

Chris Svezia, Susquehanna Financial.

Most of my questions have been answered. But I guess, two of them here. One just on Merrell, when you guys think about growth, that mid single-digit thought process for the year. Help us just think about US versus international? More particularly as you think about I guess the third quarter, is I guess, Merrell poised for growth? Or is it more -- pretty much everything put into that fourth quarter?

First of all, domestic versus international, I would say Merrell continues to -- is pretty early on in its international growth cycle. So we continue to see increases in international store count quarter-after-quarter, increases in shop-in-shops and increase in just the level of the business. The USA market is the largest market for Merrell. As you know, there was a bit of a pause 18 months ago, two years ago in the outdoor category. But that seems to have reignited for the Merrell brand. It's certainly been one of the reasons why that's reignited. We'd like to see -- we expect to see annuity type and strong growth internationally going forward for Merrell. But we would also anticipate growth here in its biggest market, the USA.

I would say, Chris, that to answer that one question, at least to halfway answer it. We would expect stronger growth from Merrell in Q4 than Q3.

Okay. Thank you. Then just on Sperry, just to go back to Scott's question a bit. When you guys think about what you're doing for spring 2015 and what you're doing in the boat shoe business, whether it's materials, canvas, et cetera or leather, what are your merchants doing? What's the reaction from retailers in terms of the direction you're taking that business? So just some thoughts about how we think about that.

Yes. I would think -- first of all, the Men's side, boat and non-boat continues to be very strong for Sperry, up in all categories in the quarter and anticipated to be up in all categories most likely for the full year. On the Women's side, it's inherently the job of the brand to keep boat fresh. All the retailers I speak with still have a huge Sperry business and a huge Sperry boat shoe business, maybe not quite as white hot as it was at the peak of the fashion trend but still a very, very large business. So whether it's bottoms, whether it's uppers, whether it's materials, whether it's new silhouettes just in the boat shoe category, the merchandise team, product development team is focused on all that. The responses to the spring 2015 line have been very good, both internationally and domestically.

With a lot of new canvas in the line for spring 2015. We had our Board meeting last week, Chris. One of our Board members commented that he was in a Nordstrom store I think it was in Phoenix the week before and went to both Men's and Women's footwear and saw, big front and center collections of Sperry in both Men and Women's footwear departments. He noted especially, that less than half of what was on the floor were boat shoes. So a big, big assortment and presentation of the non-boat shoe expressions, maybe it was on the Women's side in particular. That's very positive. That's indicative of the retailer's response to what we're doing on the product side.

Okay. That's all I have. All the best. Thank you.

Thanks.

Sam Poser, Sterne Agee.

A couple things. The incentive comp plan, I assume that you're coming in under that, you're planning on coming under that for the year? I mean, just looking ahead and that's part of the SG&A savings? Am I thinking about that correctly?

I hope you're wrong, but I guess we'll see (laughter). Certainly in Q2, it was about $1.5 million lower this year than last year. When you look at quarterly -- when you look at quarterly comparisons it gets kind of mucked up by accrual true-ups and such. But for the full fiscal year, without having the numbers in front of me, I'd would say our incentive comp expense is projected to be about flat with prior year. That's not a big driver of our SG&A efficiency for the full year.

As you know, Sam, we adjust that every quarter up or down depending on the forecast across 16 brands and 3 operating groups.

Right. Exactly. Did you reverse the accrual for the first quarter accrual in Q2?

We true-it up. So we make revised estimates at the end of every quarter, when we're closing our books based on what the forecast is for the Corporation as well as the individual brands and individual geographies. Then we rerun our bonus calculation and true-up the accrual on the balance sheet to that number. Then there's a resulting P&L impact. So the P&L impact in Q2 was about $1.5 million lower than last year, very small.

Thank you. Then I just want to go back to the 2018 target. With everything in place, it looks like you're going to have a low single-digit revenue growth this year. You had it last year. So even if you don't exclude the Patagonia business, nor the restructuring of the retail, I mean, you'd still be challenged I think to get to the -- you would be challenged to get to that 8.5% CAGR you spoke of. So could you sort of tell us where your head's at on a -- in terms of what is happening?

Yes. As Blake mentioned, there are a lot of moving pieces right now. We, at a high level, looked at our long range financial projection through 2018 that we shared last year. We'll look at it in a more detailed fashion over the next handful of months. We've been kind of busy with the strategic realignment plan. We will share new details in the not too distant future regarding what our revised outlook for revenue is.

But what I will say -- I'll repeat what Blake said earlier, our confidence level in delivering the $2.90 EPS is as high if not higher today than it was last year because of some of the actions we're taking to improve the profitability of a challenged retail fleet. So ultimately at the end of the day, Company value's determined by cash flow and EPS is probably a better proxy for cash flow than is revenue. We're going to be driving operating margin up and driving earnings per share and then the resulting cash flow.

Thank you. Then lastly, could you give us some idea of what the Sperry same store sales were? How many Sperry stores you have currently? What the Sperry same store sales were in Q2? How you're thinking about that in the back half of the year as well?

Yes. In Q2, I think for our overall fleet, our comp store sales for all of our stores would have been down just a little over 1%. Sperry would have been a little worse than that across its specialty and outlet stores. We're anticipating a rebound here when we add in apparel and have more of a lifestyle presentation here in the fall.

We're looking at -- we think, we'll deliver against challenged comps last year but mid single-digit comp store gains in the fourth quarter this year.

Then you'll remain challenged in Q3, you think as a transition?

Yes. Not as bad as year-to-date but not as strong as what we're expecting for Q4.

Yes. We've already seen, as I mentioned earlier, Sam, we've already seen a pick-up across most of the fleet in better performance in Q3 to date. That would include the Sperry stores.

All right. Thank you very much.

Thanks.

Taposh Bari, Goldman Sachs.

Hey, Don, I just wanted to ask a quick follow-up. I'm trying to piece together your full year guidance and the 3Q comments that you made earlier, it seems like, just correct me if I'm wrong, but it seems like you're saying revenue growth for the first three quarters is going to be about 1% positive and then accelerate to about 10% positive in the fourth quarter which is your largest quarter of the year. Does that sound about right? Am I doing the math right?

Your math is correct.

Okay.

I will say, of all the items that I ticked off in terms of supporting the Q4 revenue outlook, the wholesale backlog position is the one that's most relevant.

Okay. Isn't 3Q usually the big delivery quarter for backlog though?

Yes. But backlog and future orders are significant for every quarter but more significant as a percent of the total for Q1 and Q3 but still obviously very indicative of what the outlook is for the fourth quarter.

Okay.

Don't think -- I don't want you to think that future orders are only 20% of Q4's business. They're much more significant than that.

Okay. What kind of -- I don't know if you can quantify this, but what are your views on reorder activity in the fourth quarter as you stand here?

When I looked at retailer inventories today, it's actually despite some of the USA macroeconomic conditions, they're pretty clean. Being pretty clean was largely driven off a highly promotional environment in the first half of this year. But retailers are in a pretty good position with respect to their inventory. I would say they're overall cautiously optimistic, looking ahead to the second half.

I don't have at-once assumptions by brand in front of me or even for the Company as a whole for Q4. But what I will say, Taposh, is that we left -- like a lot of other footwear brands, left a lot of business on the table last year by running through our inventory of cold weather boot products kind of earlier in the season. So we could have delivered more revenue in Q4 last year had we had more inventory. So we're kind of managing our inventory flow, we hope in a better way this year so we don't leave that business on the table.

Is it fair to say that the inventory position at retail is cleaner for a cold weather goods than it is for things like espadrilles and fashion footwear this time of year?

No --

Yes. I would say cleaner or almost non-existent for cold weather goods. Last fall and this unusually cold spring cleaned out everybody at least in the USA market -- the big USA market for cold weather and boot product.

I know you're asking about retail inventory. But one comment as it relates to our expectations for wholesale inventory, we would expect our inventory levels year-over-year to kind of grow commensurate with our revenue growth in Q4. So, you can only -- we've done a great job of managing our inventory levels for the last four or five quarters, but we would expect inventory by the end of the year to be modestly up versus the prior year. But that's just, if you deliver the growth that we're talking about, that's part of the process.

Got you. Thanks, guys.

Bye.

Thank you. As there are no more questions at the present time, I would like to turn the call back over to Management for any closing comments.

Thank you very much. On behalf of Wolverine Worldwide, I would like to thank everyone for joining us today. As a reminder, our conference call replay is available on our website at WolverineWorldwide.com. The replay will be available until September 5, 2014. Thanks. Good day.

Thank you. The conference is now concluded. Thank you for participating. You may now disconnect your phone lines. Have a nice day.