Wolverine World Wide Inc (WWW) 2014 Q3 法說會逐字稿

Good morning and welcome to the Wolverine World Wide's 2014 third-quarter earnings conference call.

(Operator Instructions)

This call is being recorded at the request of Wolverine World Wide. If anyone has any objections you may disconnect at this time.

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

Thanks, Emily. Good morning everyone and welcome to our third-quarter 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 the third quarter of 2014. This release is available on many news sites or it can be viewed from our corporate website at www.wolverineworldwide.com. And if you 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 including non-GAAP disclosures and 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 was a posting on our corporate website that will reconcile these non-GAAP disclosures to GAAP. To view the document please go to our corporate website, www.wolverineworldwide.com, click on Investor Relations in the navigation bar, click on webcast at the top of the page, and then click on the link to the file named WWW Q3 2014 conference call supplemental tables.

Before I turn the call over to Blake to comment on our results, I'd like to remind you that the predictions or projections made in today's conference call regarding Wolverine World Wide and its operations may be considered forward-looking statements by securities laws. As a result, we must caution you that as with any prediction or projection there are a number of factors that could cause results to differ materially. These important risk factors are identified in the Company's SEC filings and also in our press releases.

And with all of that being said, I would now like to turn the call over to Blake.

Thanks, Christi. Good morning everyone and thanks for joining us today. Earlier this morning, we reported our third-quarter financial results, highlighted by record earnings and adjusted earnings per share growth of 8.6%. Revenue met our expectations as we had anticipated and guided to flat revenue for the quarter. Our strong earnings performance reflects our team's disciplined execution against our global diversified business model, a model that helps mitigate risk, as we are not dependent upon any single brand, channel, category, region, or consumer group.

For the third quarter, revenue was $711.1 million, down less than 1% from the prior year, which was consistent with our expectations going into the quarter. The Performance Group comprised of Merrell, Saucony, Chaco, Cushe, and Patagonia footwear, the Heritage Group, which consists of Wolverine, Cat Footwear, Bates, Sebago, Harley-Davidson Footwear, and HyTest delivered low- and mid-single digit revenue increases respectively. These solid top line results were offset by the Lifestyle Group consisting of Sperry Top-Sider, Hush Puppies, Keds, and the Stride Rite Children's Group, which posted a mid-single digit revenue decline compared to last year's third quarter.

On a global basis, we had another exceptionally strong quarter of growth in Asia Pacific, along with solid growth in Canada and EMEA. Latin America, after a strong first half, was down in the third quarter as several countries in the region experienced various political, economic, and currency headwinds.

The US experienced a slight revenue decline mostly due to Sperry Top-Sider, which was up against a very strong quarter from a year ago when revenue grew approximately 20%, and Stride Rite where growth in the children's wholesale business was offset by the performance of the US stores and our decision to close unprofitable locations as part of our strategic realignment plan. The strategic realignment plan is being executed to address the shift in consumer shopping habits, optimize our consumer direct operations, drive profitable growth, and ultimately increase shareholder value. It is progressing much as we anticipated.

Consumer shopping behavior is changing dramatically and we are evolving our go-to-market strategies to meet and exceed the demand for this new consumer. We intend to reinvest the benefits from the brick and mortar store closures into eCommerce, digital, social, and other omnichannel capabilities and opportunities.

On that note, I'm pleased to report that our past and current investments in digital eCommerce are already paying dividends. Following the acquisition of Sperry Top-Sider, Saucony, Keds, and Stride Rite, we made the strategic decision to replatform all eCommerce and mobile brand sites to one common platform, and that work is on track and yielding positive results. We are seeing improved conversion rates, average order value, and time on site as a result of the conversion. All very positive indicators.

The last of our brands are set to migrate to the new platform next year. Don will provide more details about the strategic realignment plan, specifically the expected store closures, timing, costs, and benefits in his prepared remarks.

Going forward, we will continue to make significant investments into our digital consumer direct initiatives, investments in functions, capabilities, and people. We believe having strong consumer direct connections where our consumers can engage directly with our brands, specifically digital connections, is critical to the long-term success of the Company and will benefit every channel of distribution.

I also want to briefly review the great progress we're making on the international front, specifically for our Boston-based brands. As we said in the past, the international ramp up for newly acquired brands always takes a little time as we develop the required country coverage and internationally-focused product and marketing initiatives to drive brand awareness and consumer engagement into new markets.

I'm pleased to report we're making significant progress and our time, effort, and investments are beginning to be rewarded. Today, these four brands are selling nearly three times the number of units in international markets than they were on the closing date, and we have increased the number of countries by almost 40%.

While some very good progress has been made, we anticipate accelerated growth and more good news to report in the future. We believe our Boston-based brands have tremendous global potential and that we have the best international platform and partnerships in the industry to leverage this opportunity.

I'm proud of the strong bottom line results the team delivered this quarter and I'm excited about where our Company stands today. We believe our brand portfolio, global distribution platform, and our operation functions are second to none.

As a Company, we remain strategically focused on leveraging our diversified portfolio of global lifestyle brands and will drive growth by maintaining a fanatical focus on innovation, especially product creation, expanding and strengthening our already extensive global distribution footprint, focusing on deepening our connections to consumers and creating strong global demand for our products, continuing to invest in consumer direct initiatives, specifically digital investments that support the omnichannel experience, expanding the lifestyle opportunities for our largest brands, and finally, by fielding the best team in the industry.

I want to take just a few minutes this morning to share some insights into our team and our pursuit of great ideas and products. First, our team. This year, we have added some experienced new talent to the organization, and at the same time we've made some well-deserved internal promotions to position us for accelerated future growth.

We also recently finished rolling out our updated strategic and cultural platforms to our nearly 7,000 associates around the world. I had the privilege of doing that in Michigan and Boston, and as always, I was inspired by our people and the passion they have for our brands and our consumers.

Today, I couldn't be more excited about the Wolverine team. We have assembled the strongest, deepest, and most talented team in the Company's history.

Just as our team's well positioned for the future, our product and marketing engines are hard at work to drive even more consumer and brand excitement in the upcoming seasons. We pride ourselves on our product pipeline and our ability to innovate across our brand portfolio. Our family of brands cover virtually all ages, genders, channels, passions, and pursuits, and I'd like to share just a few of our new initiatives that are being brought to market over the next season or two.

Starting with the Performance Group. We're very excited about our first global product and marketing launch for Merrell in several years, a fully-integrated launch utilizing social media, print, digital, PR events, and compelling in-store presentations. The Capra collection is a pinnacle, speed hiking product line that reinforces Merrell's position as the best outdoor performance brand on the planet. We plan to introduce Capra to the world at the Sundance Film Festival in Park City, Utah this January, followed by the global launch on March 12.

Also for Merrell, the All Out collection continues to gain momentum around the world with orders to date of over 1 million pairs. Spring 2015 orders are up significantly and we are developing new iterations of the All Out platform, including an amazing amphibious traction collection called the All Out SIV, a performance sandal concept that is getting tremendous reviews here in the US and around the world.

Saucony, one of the elite running brands in the market today with a heritage based in innovation, plans to introduce its next game changing concept, the ISO series. The ISO series showcases two of the brand's most progressive technologies, ISOFIT and PWRGRD+. This dynamic fit system adapts to the runner's foot in motion, allowing the shoe to move in harmony with the foot.

We plan to support the ISO series launch with a new multi-channel global marketing campaign that articulates just in one word the sensation that runners experience when they step into these shoes. This campaign is set to debut on November 1 at the New York City marathon in support of the ISO series global product launch.

Our innovation doesn't stop at best-in-class outdoor performance in running. We are also innovating in the Lifestyle Group.

While I'm very excited about the new products and categories we have in development for the coming year from Sperry Top-Sider, I'm especially pleased with the Sperry Gold Cup collection, the brand's most premium offering constructed with the best materials, craftsmanship, and styling. Men's Gold Cup has terrific momentum in the market, up nearly 60% year-to-date, and in the third quarter represented a significant portion of the total men's footwear sales in our Sperry Top-Sider specialty stores.

We are introducing women's Gold Cup in November with an expanded assortment slated for spring 2015. The Gold Cup collection is contributing to the brand's accelerated transition from the leading boat shoe brand to a lifestyle brand with a much expanded product offering in the broader casual footwear market. Outside of Gold Cup, the loyal Sperry consumer has also responded positively to the brand's expanded women's boot, casual, sandal, and active footwear offerings, up at a strong double-digit pace.

Moving to Keds, which is one of the great brand resurgent stories in the industry today. The momentum continues behind the Brave Girl campaign and Brave Girl number one, Taylor Swift. The Grammy-winning super star is set to drop her fifth album, 1989, in a couple of weeks, and her first single off that album quickly went to number one on iTunes and is still on top of the chart today.

In collaboration with Taylor, we've designed a limited edition shoe which launched exclusively on www.Keds.com on October 1, and is being delivered to key accounts globally this week. Keds had a strong back-to-school season, and in addition to our partnership with Taylor Swift, we plan to continue our relationships with Kate Spade and Hollister with more fashion collaborations coming to retail next spring.

Moving from Lifestyle to the work and rugged footwear categories and our Heritage Group. The Wolverine brand is ready to continue its steady introduction of innovative products by introducing the Carbon Max Nano Toe collection, which combines leading technologies like Contour Welt and DuraShocks to create the most comfortable and lightest safety boots on today's job site.

Wolverine brands premium Heritage Collection, which includes the 1000 Mile and 1883 product lines, continues to check at retail and resonate with consumers here in the US and around the world. In 2015, we plan to introduce expanded, made-in-USA offerings for the 1000 Mile line.

Finally, Cat, a brand that continues its very strong double-digit global growth and momentum. On October 1, Cat Footwear opened a pop-up store in midtown Manhattan at the corner of 47th Street and Lexington, very close to Grand Central Terminal.

This pop-up store showcases the entire Cat range of rugged, work, and lifestyle offerings, and we believe that over 0.75 million people will see this store this month. Great exposure for one of our most important global brands. In 2015, Cat is scheduled to introduce a number of fresh lifestyle collections to capitalize on the global boot trend.

There's a lot to be excited about and is a Company we remain intently focused on the most important aspects of the business, our consumers, bringing innovative products to market, and generating strong global consumer demand for our family of brands. Today we have what we feel is the best portfolio of brands in the industry, an extensive global footprint, and most importantly, a great team. We expect to deliver both record revenue and record earnings in 2014, and while I'm excited about where we are today, I'm even more excited about the future.

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 remarks we will open the call up for questions. Don?

Thank you, Blake and thanks to all of you for joining us on the call today. As Blake noted we're pleased to have delivered another solid quarter of earnings growth and excellent cash flow, driven by the global appeal of our brands and outstanding operating discipline. Collectively we're focused on driving growth across our portfolio, and we believe that our innovation pipeline, diversified business model, and continued rigorous execution will help deliver record full-year revenue and earnings in FY14.

I'll now provide more details on the quarter's results, discuss our revised full year outlook, and update you on the strategic realignment plan for our consumer direct business that we announced in July. I'd like to remind you that all 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 2013 closure and sale of our Dominican Republic manufacturing facilities, restructuring charges related to the Company's strategic realignment plan, and costs associated with last year's debt refinancing.

We reported revenue for the third quarter of $711.1 million, representing a slight decrease of 0.8% versus the prior year, but essentially in line with our expectations going into the quarter. The revenue result was driven by growth in the Heritage and Performance Groups, offset by the anticipated decline in our Lifestyle Group.

We were pleased with solid revenue performances from many brands in the quarter, particularly Saucony, Keds, Chaco, and Cat Footwear. Foreign exchange had a minimal impact on revenue growth in the quarter, increasing reported revenue by approximately $1 million or 0.2% versus the prior year.

Moving on to results by operating group. The Lifestyle Group delivered revenue of $277.9 million, a decrease of 6.7% compared to the prior year. Mid-single digit revenue declines from Stride Rite and Hush Puppies and a double-digit decline from Sperry were partially offset by double-digit growth from Keds.

Keds continued to build on its global momentum by extending its fashion collaborations with Kate Spade and Hollister to include additional silhouettes. The brand launched its fall campaign during Q3 focused on the core Brave Girl target consumer and generated over 400 million brand impressions.

During the quarter, Keds also sponsored a takeover of Vevo, the popular web-based video hosting service, in conjunction with the release of the first single from Taylor Swift's new album. The Taylor Swift partnership continues to yield strong results for the brand and is creating meaningful connections for this target consumer.

Keds also saw increased penetration with key retailers in the North American wholesale business with solid sell-through of its expanded product offerings. As we look to 2015, Keds will continue its category expansion by introducing new fall product to further develop its relevance as a four-season brand.

As expected, and previously communicated, Sperry Top-Sider experienced a challenging quarter with revenue down approximately 11% versus the prior year's third quarter. Continued softness in the women's fashion boat shoe category and the impact of the brand's strategic distribution realignment away from the family channel, negatively impacted reported results.

As we look ahead, we expect to see improving trends for our Sperry women's business. The brand is introducing fresh women's boat silhouettes and is seeing growth in its expanded product offerings, especially women's casual, sandal, vulcanized, and active categories.

The men's business remains strong, and a resurgence in the AO, the brand's Authentic Original boat shoe, is driving positive results. Additionally as Blake discussed, the premium Gold Cup collection is generating positive sell-through across multiple channels and we're pleased with early interest in the women's Gold Cup collection that is set to debut in the market next month.

Entering the fourth quarter, the brand is well positioned with clean inventory levels at retail and new fresh product for the autumn/winter and upcoming holiday seasons; however, given continued challenges in the fashion boat shoe category, we expect Q4 sales from Sperry to be essentially flat with last year, which would represent a nice improvement over Q3's results.

Lastly, Stride Rite Children's Group experienced a mid-single digit revenue decline in the quarter as growth in the domestic wholesale, eCommerce, and international businesses was offset by declines in brick and mortar stores. While store traffic declined across Stride Rite's retail fleet in the quarter, higher average transaction size tells us that the brand remains solid and that our product is in line with consumer's expectations.

The Performance Group posted revenue of $257.1 million, an increase of 2.2% versus the prior year. Saucony had another solid quarter, delivering mid-single growth as the brand capitalized on its momentum in the important run specialty channel. The brand's franchise technical running models, the Guide 7 in stability, the Ride 7 in neutral, and the Kinvara 5 in natural motion, have all earned leading positions in their respective categories.

Further, the brand continued to experience increased global demand for its product with very strong double-digit growth in EMEA, driven by solid demand for both technical running product and the Saucony Originals collection, which is the popular retro sneaker style from the brand's archives. Moving forward, the brand will look to accelerate its momentum with the November launch of the ISO series, the new innovative cushioning and fit platform as Blake discussed.

Merrell's reported revenue grew at a low-single digit rate in the quarter. Strong growth in Latin America and Asia Pacific were offset by softer results in North America, with the latter driven by declines in the brand's outside athletic offerings. Merrell's performance outdoor category continued to deliver, achieving its fifth consecutive quarter of double-digit growth.

Consumer demand for speed and light-hiking products such as Merrell's [Antic] style helped drive strong sell through in global markets. Merrell's active lifestyle product category also grew in the quarter, driven by demand for men's rugged sandal programs like the Moab program. Merrell continued to deliver to its core consumers and will accelerate this effort through the global launch of the new Capra program, which Blake spoke to earlier in early 2015.

The Heritage Group posted revenue of $151.3 million and growth of 4.6% over the prior year. Strong double-digit growth from Cat footwear, double-digit growth from Harley-Davidson Footwear, and low-single digit growth from Wolverine and HyTest more than offset revenue declines in Sebago and in our Bates military business. Cat Footwear had an exceptional quarter with growth coming from nearly every major geographic region, most notably the US and Asia Pacific.

Our North American business continued its momentum during quarter, with next-gen industrial product in both men's and women's driving the work category and enabling the brand to expand its reach to the younger consumer that grew up in sneakers. Early reads on the brand's autumn/winter product line have been very positive, and strong sell-through of the Legendary Raw collection and core product like the Colorado Boot are opening up new points of distribution for the brand.

The Wolverine brand delivered another nice quarter driven by growth in North America and Asia Pacific. All three of the brands product segments, outdoor, heritage, and work, contributed to the revenue gain in the quarter.

Particularly strong results in the outdoor segment benefited from the launch of a new brand campaign for fall 2014 that's targeted towards this important consumer. The brand also successfully launched a new Centennial Edition 1000 Mile boot in the quarter, capitalizing on momentum in top-tier accounts.

Turning back to consolidated results, gross margin in the quarter was 40%, an increase of 10 basis points compared to the prior year. Selected price increases and favorable product mix had the most positive impact on gross margin, only partially offset by higher product cost and increased promotional activity, particularly in the US.

Adjusted operating expenses in the third quarter were $186.8 million, 2.9% lower than the prior year. The improvement was driven primarily by lower pension and incentive compensation expense and tight discipline around discretionary spending. Marketing spend was essentially flat with the prior year.

Adjusted SG&A was 26.3% of revenue, a very solid 50 basis point improvement compared to the prior year. Reported operating expenses were $197.1 million, down 1.3% compared to the prior year.

Net interest expense in the third quarter was $10 million, nearly $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. We made voluntary principal payments on our term loan of $25 million early in Q3, and an additional $50 million shortly after the third quarter ended. Consolidated net debt is now approximately $320 million lower than two years ago when the PLG acquisition closed.

The reported effective tax rate for the quarter was 25.7%, down slightly versus the prior year. The adjusted effective tax rate was 27% in the third quarter, a 70 basis point improvement over the prior year, due primarily to a shift in the mix of earnings to lower tax jurisdictions. Diluted weighted average shares outstanding for the third quarter were approximately 100 million.

Adjusted diluted earnings for the quarter were $0.63 per share, an increase of 8.6% versus the prior year's adjusted $0.58 per share. Reported earnings per share were $0.57, compared to $0.54 per share in the prior year.

Turning to the balance sheet, while quarter end accounts receivable were slightly up, wholesale DSOs were down versus the prior year and significantly better than the prior fiscal year end. Inventories also increased slightly, up 0.8% versus the prior year. We believe that our inventory levels as well as levels at our retailers are in balance as we enter the holiday season.

Free cash flow in the quarter was $39.6 million, a strong increase over the prior year, and $90.4 million for the first three fiscal quarters of the year. We finished the quarter with cash and cash equivalents of $231.5 million, and net debt just over $865 million.

We remain focused on our previously stated objectives to use our free cash flow to invest in organic growth opportunities, maintain our cash dividend, and pay down debt. However, as our net leverage continues to decline, we are increasingly open to acquisition opportunities that would add additional scale to our current business model or address white space in our portfolio.

Turning to the full-year outlook. We believe the Company's strong earnings performance to the first three quarters of the year demonstrates the advantage of our diversified operating model, the discipline with which we operate, and our ability to generate efficiencies across our business. As we look to the fourth quarter, we expect the soft and highly promotional environment at retail, particularly in the US, to pressure our fourth-quarter revenue performance.

We now expect fourth-quarter revenue to be up approximately 7% versus the prior year, with performance driven by continued solid results in EMEA and excellent performance in Asia Pacific, a deeper assortment of cold and wet weather boot products than in the prior year, a healthy wholesale backlog positioned for most brands, and stable FX rates. Further, recall that this year's fourth fiscal quarter, which ends January 3, contains 17 weeks versus the normal 16 weeks.

Based on the outlook for Q4, full-year revenue is now expected to be approximately $2.745 billion, representing full-year growth of approximately 2%. While this would represent another year of record revenue, we expect to return to a much healthier growth rate in 2015. We now expect full-year gross margin to be essentially flat with the prior year due to lower revenue from the higher gross margin consumer direct channel.

We're confident in our ability to maintain discipline over discretionary spending while continuing to support the organic growth opportunities within our portfolio. As a result, we are reaffirming our guidance for full-year adjusted earnings per share in a range of $1.57 to $1.63, representing growth of 10% to 14% versus the prior year's adjusted earnings per share of $1.43. On a reported basis earnings per share are expected in the range of $1.32 to $1.38 per share.

Full-year capital expenditures are now expected in a range of $35 million to $40 million. We continue to execute on the realignment plan related to our consumer direct business, and the team continues to engage in discussions with our partners and our major real estate developers.

At the time we announced this initiative, we stated we plan to close approximately 140 retail locations with approximately 60 closing in FY14 and the balance closing in FY15. The timing of these projected store closures remains on track.

We continue to estimate pretax charges related to the realignment plan in the range of $30 million to $37 million, with approximately $13 million to $15 million of this range being non-cash charges. Our year-to-date results include $11.4 million in pretax charges related to the realignment plan, of which $5.9 million are non-cash. We expect to record the balance of these charges through the end of FY15 as the plan is executed.

When fully implemented, we continue to expect annual pretax benefits of approximately $11 million, and as Blake noted, we intend to redeploy these benefits as well as make additional investments to further build out consumer direct omnichannel capabilities and accelerate wholesale growth. We will provide further detail on the FY15 revenue impact of this plan when we provide our initial guidance for the year during our fourth-quarter and full-year earnings call in February.

Before we open up the call for questions I'd like to note this will be the last quarterly earnings call for Christi Cowdin, our Director of Investor Relations and Corporate Communications. Christi has decided to leave Wolverine World Wide for an exciting career opportunity here in the West Michigan area. Christi has been a valued and dedicated member of the Wolverine team for many years and we'll certainly miss her.

Moving forward, Chris Hufnagel, Vice President of Strategy, Investor Relations, and Communications, and Greg Crane, Director of Strategy and Investor Relations, will serve as the primary day-to-day contacts for our shareholders and analysts. Updated contact information will be posted to our website shortly.

Thanks for your time and attention this morning. We'll now turn the call back over to the operator so Blake and I can take your questions. Operator?

(Operator Instructions)

Our first question is from Ed Yruma of KeyBanc Capital Markets.

Hi, this is Jessica Schmidt on for Ed. Thank you for taking my question. So on Sperry, now that you've gotten through the difficult comparison, you have a stronger Lifestyle collection, when do you expect the brand to return to growth? And I guess can you talk about how the new non-boat shoe offering is resonating with consumers, and how this differs between men's and women's? And then any early comments you can give on the apparel line for holiday?

Let me take those questions in the order you asked them. We remain excited about Sperry. We're expecting -- as you know the boat shoe silhouette has cooled a little bit, especially on the women's side over the past year, and Sperry is the dominant player in that particular category, also felt that drag.

The Sperry business right now is -- the downward trend is stabilizing. We expect a return to -- probably a flat Q4 and return to growth in 2015. And our return to growth is not due to any single factor, certainly it's the expansion into non-boat categories.

We are seeing absolutely no retailer or consumer impediment to expanding that brand into other categories, especially in the casual and boots arena, and in active and performance. So whether it's Gold Cup, new categories of footwear and apparel that has been placed in better department stores for spring 2015, we're excited about the growth prospects.

The international momentum, we expect that to continue with Sperry. Men's is a pretty solid business right now and seems to be improving, and we've got a new leadership team in place, so growth in stores, in eCommerce, new product categories, international expansion, we all look at that coming to fruition in 2015. What was the other question on the holiday season?

Apparel on the holiday season.

Yes, it's no surprise the world is cooling down a little bit. The United States had a pretty lackluster, maybe a bit of a tepid back-to-school season.

We had one brand, Keds, that had a very strong back-to-school. We had some other brands that are like Stride Rite that was hurt by lower mall traffic for sure, but I think retailers' inventories this fall are more in line than they were last fall.

On the other hand I think retailers are cautiously optimistic and are looking forward to the holiday season, but they're more promotional than they were last year. So I think our mindset at least with respect to the USA is consistent with that, cautiously optimistic and we look at just getting our new product out to the consumers.

Jessica, I'll follow-up another comment on two on Sperry apparel, which you asked at the tail end of your question. The biggest impact for Sperry apparel in Q4 is selling through our own retail stores. We're forecasting kind of mid-single digit comp store sales gains for the Sperry Top-Sider fleet in Q4, and a big part of that assumes comp store sales growth is coming from the launch of apparel into the specialty stores in particular.

Recall that it is a license program with our licensee, so the wholesale sales of Sperry apparel, which will be more of a spring 2015 launch, will impact our reported revenue only in a slight way, via royalty revenue, but that which we sell-through our own retail stores obviously we get the full retail sale of that. So that's a big benefit for our expected Q4 performance of the brand.

Okay, great. I'll pass it along.

Thank you.

Our next question is from Christian Buss of Credit Suisse.

Yes, hello. I was wondering if you could provide some perspective on what you're seeing in the European market right now? And then as a follow-up if you could talk a little bit about what your expectations are for order flow from your Asia Pacific distributors given some of the disruptions that we're hearing about there?

First with respect to Europe right now, as you know about half of our pairs in Europe are sold in the UK, so at the present time, the UK market is a pretty solid market for our brands. With respect to other European markets, there's been a little macro slowdown in Germany in the export area, but Southern Europe, Italy, France, even Spain seems to be snapping back a little bit.

We watch the macro numbers and predictions as close as anybody, and the EU zone is frankly predicted to be soft at the moment and approaching another recessionary cycle. But for our brands, Europe this year has been a very good year and the outlook for Europe is pretty good.

With respect to order flow from our distributors and licensees in Asia Pacific, nothing really has changed there. It's been normal for us. Asia Pacific as you know has been one of our strongest regions year-to-date and frankly, we believe that strength is going to continue into Q4 and beyond. So we haven't seen any major disruptions in the order for our ability to get great product to our distributor partners in Asia Pacific.

You also have to remember at 100 million pair a year, we do have a big pencil. We do have some sourcing clout and that certainly helps us in maybe a little bit of a volatile sourcing environment.

Christian, as I think you know, we do almost 20% of our consolidated unit volume in the Asia Pacific region, and that region has grown its revenue on a year-to-date basis north of 30%, so we're seeing very strong growth in that region and we expect that strong growth to -- maybe not that same rate but that strong rate of growth to continue in Q4.

That's very helpful, thank you. And also wanted to wish Christi luck on her next endeavor. She's really been the best benchmark for Investor Relations for me here, so you'll be missed.

Thank you, Christian. Thank you very much.

Don't make her cry, Christian.

Our next question is from Erinn Murphy of Piper Jaffray.

Great, thank you, good morning, and all the best to Christi as well. Could you speak a little bit more about the strategic realignment plan? It sounds like you've been pretty pleased with what you've been able to accomplish thus far. If you could just speak to how this as you're thinking about it dovetails into your 2018 plan that you currently have out there?

Yes, we're on track to close the number of stores that we thought we would close in FY14. As of today, we've actually closed 10 stores, 7 of which closed late in Q3, and 3 more stores closed early in Q4, and we're on track to close the other expected 50 stores kind of at year-end after the holiday shopping season, and that will leave an additional 80 stores to close in FY15. Some closing throughout the year but most closing near year end.

As it relates to the realignment plan and the impact on the 2018 long-range target that we laid out about a year ago at our Investor Day, obviously closing 140 retail stores would represent a drag on the long-term revenue target, but the stores that we're closing, we're closing them obviously because they are not penciling today. They are either four wall negative today or based on current trends we would expect those stores to be four wall negative in the not too distant future.

So as I indicated in our last earnings call, closing money-losing stores and taking out some back room costs that are needed to support a larger retail fleet that will become smaller after the store closures, that was about $8.5 million to $9 million of the $11 million benefit that we're talking about. That in and of itself in a vacuum would give us more confidence in our ability to hit long-term earnings target, so we're doing this in the best interest of the Company and the shareholders.

It's recognizing pretty significant and sudden change in consumer shopping behavior; and stores that were in great locations 10 years ago or longer when they first opened, they are in less ideal locations today. And so we're taking this move to close those money-losing stores and to redeploy those resources elsewhere.

So then in terms of when we hear the next update, it sounds like would you be looking to update the street maybe on the fourth-quarter call, as you think about reestablishing that top-line revenue guidance for the 2018 plan?

We probably wouldn't do it that early. The team collectively hasn't taken its eye off the 2018 aggressive revenue target. It's obviously a little more aggressive today given the realignment plan, the exit from Patagonia Footwear, and the reset year that we've had this year in the boat shoe silhouette. But we feel even more confident about our EPS targets over the next four years.

Thank you, Blake that's helpful. And just last for you, Blake, last winter you were pretty confident about this year being another solid boot season. Could you just update us on how you're thinking about this winter season from a boot perspective?

Yes, kind of taking a macro approach to begin with, there is a healthy and growing boot trend going on around the world, and it can be rain boots, it can be utility boots, it can be work boots, it can be fashion boots. At the moment we don't see any signs of that abating, so we think this fall is going to be a very good boot season here in the US, but it's also going to be a great boot season around the world.

I would say although we're seeing strong growth on the women's side in fashion boots, we're seeing probable growth at the 3X level in the men's fashion area. Men's fashion boots right now are clearly a trend here and clearly a trend in Asia Pacific and in EMEA, so we think generally almost irrespective of the individual category, it's going to be a good boot season. And I'm not going to say a word about weather.

Great, thanks. And one more for Don. On the SG&A side you've done a great job keeping that tight, and I think dollars have been down year over year for the entire year-to-date period. How should we think about the fourth quarter here, and then what has been the biggest bucket that you've been able to defer year to date? Thank you.

Obviously, as a percent of revenue the biggest wildcard in the fourth quarter as a percent of sales is what the revenue number is going to be. We expect to continue to operate in a very disciplined fashion.

Year to date, the biggest benefit has been from lower pension expense, which obviously doesn't necessarily reflect operating discipline, but other discretionary spending in the areas of headcount adds, third-party spend. We've been able to really focus on that intently and respond to what's been more of a challenging top-line environment than we had expected going into the fiscal year.

We expect that to continue in the fourth quarter, enable us to overcome the revenue shortfall versus the previous guidance, and a slightly more modest gross margin outlook to still deliver earnings in a range we talked about previously. So I think you'll see a continuation of what we've been able to deliver on a year-to-date basis, Erinn.

Great, thank you guys, and best of luck.

Thanks.

Our next question is from Jim Duffy of Stifel Nicolaus.

Thanks, good morning everyone. Christi say it isn't so.

It is so, Jim, it is.

Thanks for all your help over these years, you'll be missed.

Thank you.

Couple other things. First operationally execution has been strong, cash flow continues to be strong, the brand portfolio momentum, however, generally lacking. Don, can you make necessary investments behind the brands without SG&A deleverage as we look out to 2015?

We think we can. Like we said, we think we're going to deliver a higher rate of growth, a significantly higher rate of growth in 2015 than what we're going to deliver in 2014. I purposely noted in my comments that marketing spend in Q3 was flat because I didn't want people to try to extrapolate adjusted SG&A being down as we were gutting the marketing budget, which we're not. So we are continuing to invest in our brands.

Going forward, we have the opportunity to redeploy the [statements] in the realignment plan into driving both consumer direct as well as wholesale growth; we conducted an exercise here two weeks ago in which we had brands come in and pitch their best and brightest ideas for 2015 to kind of compete for the dollars that are going to be freed up from the realignment plan benefits. It was a refreshing exercise and it took place over the course of a full day, kind of parading the brands through.

So we intend to incrementally invest in 2015, Jim, beyond what our level of investment is in 2014. But I think the approach we've taken in 2014 with year-to-date marketing spend being about flat with the prior year has been a prudent approach given the challenge we were experiencing on the top line this year.

Fair enough. And then with respect to your acquisition commentary, so the existing portfolio is facing some challenges, you're going to do further restructuring. At this juncture does it make sense to add additional brands into the mix and increase the complexity? Where is Management and the Board's head with respect to that?

First of all, we have no near-term or immediate plans to add any brands to the portfolio. We're certainly open minded about the possibility now with our debt coming down, that we are capable of adding brands to the portfolio given our current capital structure.

I don't think that the brand-specific challenges that we're experiencing is any way related to the complexity of our current portfolio. The way we're structured with operating group leads with the brands beneath them, I think we're actually structured very well to add additional brands and to further leverage our back room infrastructure and our international infrastructure, so that's not the issue.

I think the brand-specific challenges we're working very hard to overcome, and as Blake indicated in his response to the first question, we expect Sperry to return to growth in 2015. We expect Merrell's rate of growth which will be on the full-year basis this year kind of in the mid-single digit range to accelerate to a faster rate of growth next year.

That will happen regardless of whether we add additional brands to the portfolio, so I think we're looking at those things kind of separate. Not incognizant of any potential impact of challenges in the current business as it relates to our ability to integrate a new brand, but I clearly think we have the ability to add the right medium-sized brand to the portfolio without in any way hurting the momentum we expect to generate next year on some of the larger brands in our current portfolio.

I would also say Jim, we've proven over the last 20 years as we've added 12 brands to our portfolio that we're frankly excellent at selecting new brands and assimilating them, integrating them into the business, and keeping them very distinct, and letting them operate very distinctly in a global market. Don and I are, we probably have not acquired our last brands. We have a pretty firm set of acquisition criteria that we grade opportunities against and we're always looking for the appropriate white space opportunity.

Great, thank you for that.

Our next question is from Taposh Bari of Goldman Sachs.

Good morning, everyone. Congratulations as well to Christi. Couple of housekeeping items on Sperry, Don I think you'd mentioned it was down 11% this quarter. What was your expectation?

About that. I'm sorry Taposh, just to elaborate a little bit on that, I never gave a specific number to you guys or our investors after the Q2 earnings release, but I repeatedly said just so everyone is clear, Q3 is going to be a very tough quarter for Sperry. They had a very strong back-to-school selling season last year.

Not as strong of a sell-through, which kind of precipitated the problems that the brand had in Q4 and beyond. But we knew going into the quarter based on the order backlog it was going to be a very tough quarter for the brand and likely down double digits as it was.

Okay. Can you give us a Sperry comp store sales performance by quarter for this year?

I have the -- Q3 was down very low-single digits, specialty and outlet, and on year to date, down a little bit more than that but not much more.

And you're expecting it to be up mid-single digits in the fourth quarter; is that correct?

Yes, we are. And in Q4 we're comping against the easier performance last year. The Sperry retail store started to comp down last year early Q4, and they were much stronger than that year to date through Q3 last year. So we have easier comps, we have the launch of apparel, we have the brand we feel like stabilizing, so that's what's driving that comp store assumption.

Got it. And last one is Sperry international, I know it is a big part of the brand story. Can you just kind of frame how big international is today for that brand? I think [care] mix would probably be best given the differing kind of business models you operate internationally, and maybe compare what that looks like versus when you first acquired it two years ago?

Yes, when we take a look back and take a look at Sperry year to date in 2012 before we acquired the brand, and it was right about now and year to date this year; as you know it takes a little while to get ramped up but the revenue this year is up almost 23% internationally for Sperry, compared to a much lower figure in 2013 for example. Units are up almost five times on a year-to-date basis what they were year to date in 2012.

Number of countries is up from about 60 at that time to about 100 today, so we're starting to gain momentum. I would say on the international front, Sperry has this year become one of our fastest growing brands.

And then just to return to Sperry a little bit to put things in perspective, we expect Sperry sales after four years of rocket ship growth to be down 7% or 8% this year. But more than half of that is due to our decision to really exit one family channel account about 18 months ago, so really even with this year mostly behind Sperry, we expect Sperry's real decline this year to be more in the 3% range for the brand, certainly less than $20 million when you compare it to $2.7 billion or $2.8 billion in overall sales for the Company.

That's helpful. And just to return to international for a quick second, the 23% growth internationally this year, is that kind of where you were expecting that growth to be, and how do we think about that growth over the next couple years? Does it accelerate or is that the natural growth rate as you expand that brand overseas?

I would say it's still not on a huge base of business but we would expect that that pace is probably ahead of our expectations going into the year, and we would expect it to continue or maybe even accelerate. And I think when you compare Sperry where it's currently at in its global cycle compared to Merrell, even last year from Q3 to Q3 end, Merrell had over 1,000 additional dedicated points of distribution work created around the world out of a total of 2,400. So in my mind even Merrell today is still early on its growth path internationally, and of course Sperry is a couple steps behind Merrell.

Thanks a lot guys, good luck.

Thanks.

Our next question is from Mitch Kummetz of Robert W Baird.

Yes, thanks for taking my questions and Christi thanks for all of the help over the years, appreciate it. Couple questions. I guess that I'm still a little confused that the weather revenue guidance has gone down $30 million. How much of that is specific to Sperry versus anything else that you're seeing within the Company?

And then as it relates to the Sperry guidance, I know that Don you previously were expecting growth in Q4 and now you're saying flat, so could you specifically address what's changed on the Sperry guidance as well. And I've got a follow-up.

Yes, I'd say the biggest drivers in our changed revenue guidance or our lower revenue guidance, not surprisingly the biggest drivers are the larger brands in the portfolio; we had slightly less fewer contract conversions for our Merrell brand in Q3, and so we've taken down our assumptions regarding at once orders for the brand in Q4. We still expect the brand to grow mid-single digits full year and grow at a rate that is in excess of the growth rate we delivered in 2013, but lower than we had forecasted when we were going into Q2 earnings call.

Sperry's wholesale business was a little bit softer. The orders that came in in Q3 were a little bit softer than we had expected for Q4, so our outlook for Sperry wholesale in Q4 is a little bit lighter than we had previously thought.

And then finally, Stride Rite Children's Group on the brick and mortar front in particular, we have more conservative comp store sales assumptions in Q4 related to Stride Rite than we had in July. So those three brands comprise the bulk of the change revenue outlook from where we were in July.

Okay, thanks for that. And then Blake, I think in your prepared remarks you'd said that Merrell spring orders were up, and up nicely. I don't know if that was in relation to a special collection or was that Merrell orders across the brand? So if you could clarify that.

And then to the extent that you're addressing spring orders, is there any way you could talk about spring orders for the overall Company or Sperry in particular? And then Don just lastly, sales earnings impact of the 17th week, could you quantify that for us?

Of the what?

17th week.

Oh, sorry.

Yes, I mean with respect to the Merrell momentum right now, Merrell's had several quarters now of strong double-digit growth in its outdoor performance category, so the heart of the Merrell business continues to grow very nicely at a double-digit pace. We see Capra and some other introductions especially in the All Out collection contributing to maintain momentum there for Merrell.

Outside athletic with the shrinking of barefoot has been a different story. Lifestyle had low-single digit growth overall in Q3, but the men's business in the Lifestyle, which would be the more casual segment of the line, has been also very strong. So when it comes to orders we see this trend continuing over the next couple of quarters, and then we've got obviously introductions planned for the second half of the year.

Yes, just as it relates to Merrell, Mitch, we based on the backlog for the brand going into the quarter and our assumptions regarding at once, we expect Q4 for Merrell to be the strongest rate of growth of any quarter in the fiscal year, so I think the tide is turning on Merrell and things are going to be a lot stronger in Q4 and then going into 2015. Obviously, Merrell like all the brands in the portfolio, are benefiting from the extra week in the fiscal year in the fourth quarter this year.

Easier to quantify the lift on the consumer direct side which we've done and we've calculated, the extra week and given when it occurs between December 27 and January 3, is about $10 million of incremental revenue to the quarter in the fiscal year. Minimal if any contributions to earnings given that it's still in the consumer direct side of the business, which is not the most profitable piece of our business anyway.

On the wholesale side it's more difficult to quantify. I can't say that having an extra week doesn't have any wholesale revenue benefit, but it's less easy to quantify, so we haven't really attempted to do so. We just talked about the benefit we have calculated and estimated on the consumer direct side of the business.

Okay, thanks.

As you know we don't comment on specific order backlog or order position. I will say it was certainly better than it was a year ago at this time.

That's helpful, thanks guys.

(Operator Instructions)

Our next question is from Danielle McCoy of Wunderlich Securities.

Good morning guys, and again Christi definitely going to miss you.

Thanks, Danielle.

Just a few questions. Can you just talk a little bit more about some of the extensions of the lifestyle collections that you guys have been doing in some of your larger brands?

Yes, frankly Merrell is a good example. When we acquired the Merrell brand it was essentially a men's hiking boot brand.

Since then about half of its business today is in the women's side of the business and many categories and performance/outdoor, lifestyle/casual, or even athletic. So Merrell continues to go down all three of those lanes, product development lanes, and will bring forth some fresh new product in each of those particular categories.

Sperry of course had rocket ship growth based on the boat shoe silhouette, I will say that the boat shoe silhouette is still a staple in virtually every person's closet here in America, and there are certainly no brand drag or impediment to the Sperry brand. We've seen a pretty quick pick up on just about everything we offer in adjacent categories for Sperry. It can be winter boots, it can be women's espadrilles, it can be more casual product in both the men's and women's side.

The Gold Cup collection, which has historically been really only men's, we're going to introduce women's this fall, also has a product range that certainly is broader than just boat shoes. So again the consumer and retailers are inviting Sperry to participate in adjacent product categories and we plan to take advantage of that.

Great. And could you just give us a little bit of color on what you are seeing in the M&A market?

Well, let's be frank. Things are expensive in the United States. Brands are less expensive in Europe. There's increasingly foreign piles of capital that have built up over the last decade or so that are also interested real brands.

As you know we're always interested in real, authentic, heritage brands. Our own research indicates that those are precisely the type of brands that appeal to today's millennial consumer.

They are looking for something real, that's been around, stands for something, and has withstood the test of time. So there has been a pretty continuous stream over the last two years of brands and opportunities coming on the market and we really don't see that changing any time soon.

No, I'll say there's no shortage of brands that are out there available to be evaluated. There's no shortage of investment bankers that want to get in front of Blake and me to pitch ideas. Some are real live deals and some are more theoretical in nature looking to match a buyer and a seller.

But we've been pretty disciplined over the years with our acquisition approach. We bought Chaco and Cushe in early 2009 and the next acquisition we did closed almost four years later, and not that we didn't look at anything over the interim period, but either we looked at it and decided it wasn't the right fit or wasn't the price or a combination of the two. So even though we commented on our increased interest in adding other brands to the portfolio, we're still going to take a very disciplined and measured approach and make sure that whatever we do add is the right brand, fits in well from a strategic standpoint, and is at the right price of course.

As you know some of the best acquisitions you do are the ones you don't do and have the fortitude not to do. But certainly as we look ahead we know that M&A and acquisitions is a core competency of the Company.

Okay, great. Thanks guys, good luck.

Thank you.

Our next question is from Chris Svezia of Susquehanna Financial Group.

Hi, good morning everyone. Christi, all the best to you in the future. Thanks for all your help.

Thanks, Chris.

I guess a couple questions. First, could you maybe just touch on the women's Merrell business, lifestyle in particular just sort of what's going on there?

Second question is just regards to Sperry. A lot of buckets, men's, kid's, women's, retail stores, could you talk about kind of the growth profile for each of those as you look forward? Is women's a growth driver as we go into next year or is it really men's accelerating, kid's moderate, you've got retail stores, maybe just walk through that as well.

And then I have a follow-up.

Okay, let me try and take them. The Merrell women's lifestyle business has been a bit of a soft spot for the brand. Recently the brand has added some new design talent and is refocusing its efforts on the whole women's side. As you know, that business is about 50% of the Merrell total.

The women's performance side has done quite nicely but we certainly have room for improvement on the women's side. I would say we probably had some misses in just core casuals in the sandal area in particular.

I would say encouragingly, the active lifestyle category in total delivered growth in Q3, Chris, with decent growth, strong growth on the men's side of the business more than offsetting a decline on the women's side of the business, but still lots of work to be done there and working hard at it.

When we turn to Sperry we do see growth coming from any number of areas. We're going to continue to add Sperry stores ourselves, so will our international partners. We are going to continue to grow the eCommerce side of the business.

As I stated earlier, we continue to see international momentum to be very strong in Sperry and that will continue. It's not on a huge base right now but it's almost like an annuity that builds over time for us.

The men's side of the business including the boat shoe silhouette has been less affective this year and been much stronger than the women's side. So we see the men's business -- especially it also has an additional anchor in Gold Cup as performing nicely when we look to the future. And as I said earlier, retailers and consumers are picking up adjacent categories as Sperry expands into adjacent footwear categories.

Certainly the new leadership team is bringing a new energy, passion, focus, and digging in on a new brand platform for the brand. So frankly we still see Merrell and Sperry as our first $1 billion brand.

Okay. And then just a quick housekeeping one. Pension expense, Don as you sort of put your hat on thinking about next year, how do we think about that?

Yes, there's still too much of the fiscal year left to really give an accurate estimate or even a projection of next year's pension expense. Based on where market interest rates have gone despite decent year-to-date investment returns, I would expect pension expense to be a slight to moderate headwind in 2015, but I can't be more precise than that.

Okay. Last thing I have for you is just on this -- I'm going to hit you on the long-term growth target for a second. As you kind of step back, in theory this year is year one of this plan and you think out over the next several years and the teams are kind of focused on trying to hit those revenue growth targets there mathematically call it 10% or so in the next four years ballpark, as you think about that, you still think that's realistic or do you think it's sort of people are waiting for you guys to come out -- maybe set the bogey a little bit lower because this year you started at 3% to 6% growth and you're going to do 2% growth, I'm just curious about when maybe you guys could say something along the lines of let's maybe be a little bit more realistic on the growth target.

We said in the last quarter's earnings call given the realignment plan, closure of 140 retail stores, given the exit of Patagonia, which is a small brand but is still a contributor to revenue, and given the soft start to the five-year time period that we've experienced from Sperry Top-Sider, some brands have over delivered in the first year versus the forecast from a year ago like Cat and Chaco and Keds, but Sperry being the second biggest brand of the portfolio, its soft performance coming out of the gate in that five-year time period certainly have been a hindrance.

We said about as clearly as we could have said in last quarter's earnings call that although we're all working hard, it's less likely we're going to hit $4.1 billion in 2018 than we had thought a year prior. And I will repeat that as clearly as I can today that although we're working to deliver as much revenue growth as we can, given the changes in the business and some self-inflicted closing retail stores and some macroeconomic inflicted that we're going to deliver as much revenue growth and more importantly we're going to deliver as much profit and cash flow growth as we can.

When you suggest the brands are hands down working as hard as they can to deliver the 2018 revenue number, the brands are working to deliver the best they can the next quarter, the next fiscal year, so it's our job to manage what the long-range financial outlook is. Yes, the brands have long-range strategies, but I don't think they're looking at their individual brand 2018 revenue number as the one focus they have; they're looking at the next quarter, next year, next season, next two or three seasons.

And so I think we want to be clear today that although we're going to work as hard as we can to deliver as much revenue as we can each fiscal year between now and 2018, given some of the developments we've experienced, it may be below $4.1 billion. But as Blake said in his response to a question earlier, closing retail stores and doing some of the other things we're doing and making these investments to accelerate our digital growth as well as accelerating wholesale growth, we feel like we still have a good chance of hitting the EPS target that we laid out there for 2018.

Okay, thank you very much. All the best.

Thanks.

Our next question is from Laurent Vasilescu of Macquarie.

Good morning, thank you for taking my call. I have a question on input costs, I believe during the Investor Day it was mentioned that Wolverine would purchase about $300 million in leather for 2013. I was curious to know what that number stands for this year and whether prices continue to creep up, how much of a potential gross margin drag is leather for FY14? And then I have a follow-up question.

I mean when you look around at the commodity, what oil down, cotton down, or at least stabilized, any number of other categories down, not so with leather, so leather continues to remain at virtually an all-time high. We frankly don't expect that to change any time soon. We see a lot of demand for leather coming from the automobile industry and several other industries, so we're doing what you would expect us to do to offset those input costs.

One, a lot of our shoes are being reengineered with materials that are not leather or not 100% leather. Frankly, the millennial consumer is growing up mostly in non-leather shoes. And we are reengineering product, not taking the quality or aesthetics out, but reengineering the product as appropriate and then we continue to diversify our factory base.

Although we are in China, we're far below the industry average in China and we're constantly on the lookout for great factories or factories that we will open in conjunction with our existing factory partners in other countries that offer us a competitive advantage. I would say that maybe we'll get fortunate on the leather side, but leather is one of the commodities that frankly has continued to climb here over the last nine months.

Great, thank you. And as a follow-up question, I think a number of Boston based media outlets reported there's a potential relocation of your Lexington office to a new Boston based location over the next year or so. Can you possibly share some insights on how we should think about this potential move? Will this move allow for greater build out of the Boston team, are there any SG&A implications we should consider going forward? Any color would be great, thank you.

Well let me tell you what you all know, real estate is expensive in Boston. So it continues to be a very hot market.

We are going to build or have someone build for us technically a state-of-the-art new facility just a few miles from our existing offices in Boston. We're not taking the leap to move our Boston headquarters from the Lexington area down to downtown or some other significant move like that.

We're excited; the building we're in now is a good building but it's a building that is showing its age. It's not going to be conducive to team building or some of the transportation benefits as the new building, so we're very excited. We expect to be in our new offices in Boston in well maybe a little less than two years, and I know the Boston team's excited about that as well.

Thank you very much.

I'm sorry, substantially all of the capital is provided for the buildout is provided by tenant improvement allowance provided by the developer, so no significant capital outlay on the part of the Company for the new office space. And then in terms of the lease expense going forward once we are in a new space, it's not significant to our overall SG&A.

Okay, thank you. Best of luck.

(Operator Instructions)

Our next question is from Sam Poser of Sterne, Agee.

Thank you for taking my question. Christi really going to miss you, great job, so thank you. I just have a couple questions. What percent is international right now of the total Sperry business versus what it was when you bought it?

Today, it's right at 10%. I don't have --

It's just about double.

We quoted about 5% and I was looking at the year-to-date last year at this point it was 8%, so it's gone up about 200 basis points as a percent of the total wholesale from last year to this year. And Blake's right, we did say consistently or repeatedly it was about 5% international when we bought the brand.

Okay, and is that, I mean like how does that compare to what you were thinking when you gave the five-year plan a year ago?

I think right now the overall growth for our PLT brands for this year will be about on target internationally for our long-range plan. And we'll probably have some that will grow a little bit faster and some that will lag a little bit from our expectations a year ago.

Thank you. Then when do you expect, you've said that most likely the $4.1 billion number is off the table for various reasons. Are you going to be giving us a revised 2018 plan sometime soon?

I personally don't see us doing that any time soon. You may have taken the number off the table, I know our team collectively kind of have a growth on their mind and in their eyes, and at least Don and I are still focused on that number, even though we probably feel a little better today about the earnings and cash flow number that we laid out a year ago.

Well since I have to ask a tough question, at the Goldman Sachs conference, Don said point blank that that number was probably off the table, so there's some disconnect here.

Yes, Sam you know I can't control Don.

And then the Merrell business from what I understand a lot of the changes take time and the big launch of the new team's impact is 2016 more than this year, so how do we think about -- you have a lot of competition from a lot of other people that seem to be doing pretty well, especially in the lifestyle part of the business; how do we look at how you don't sort of seed business to those people and have a tougher time getting it back regardless of how good your product may be when we get to 2016?

I think you have got to remember MPD and FDRA just did a proprietary survey of over 100 brands on the men's side and over 120 brands on the women's side, and Merrell came out as the brand with the highest brand loyalty rating of all those brands that they surveyed. So there continues to be a very loyal Merrell consumer out there and our job is to expose the brand to additional consumers because Sam, as you know, Merrell has one of the highest, behind only usually one athletic brand, intent to repurchase.

So fundamentally it hasn't changed, we are going to have opportunities in 2015, the Capra collection, the pinnacle collection is just one of our initiatives. But fundamentally you've got to be out there with great product, tell big product marketing stories, and connect with your consumers. So those basics, those fundamentals haven't changed. That's why we are looking at mid-single digit, maybe upper-single digit growth for Merrell next year.

Lastly, the currency. You said it wasn't going to be much of a small headwind. How do we think about -- I wonder why it's only that much given how much the European currencies have become a headwind, and how should we think about that next year too? Because it appears as if it should get significantly more challenging.

Yes, it was a small tailwind in Q3, Sam, and based on where current spot rates are and the rate we used to forecast our rest-of-year revenue, if current spot rates hold, there will be no impact on our revenue forecast. So we already baked in where the dollar is versus the pound, euro, and Canadian dollar into our revenue forecast.

Given where rates are today for those three big currencies, those are the three currencies that impact us the most, there would be some headwind in 2015 in terms of year over year. But obviously, rates can change quite quickly. And we'll provide more details on that once we actually give our official guidance for revenue.

Thank you very much.

Thanks.

The question and answer session has now ended. I would now like to turn the call over to Miss Christi Cowdin. Miss Cowdin, you may proceed.

Thank you. On behalf of Wolverine World Wide, I'd 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 that replay will be available through December 5, 2014. Thanks and good day.

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