Wolverine World Wide Inc (WWW) 2015 Q4 法說會逐字稿

Good morning, and welcome to Wolverine Worldwide's fourth-quarter 2015 conference call. All participants will be in listen-only mode until the question-and- answer session of the conference call. This call is being recorded at the request of Wolverine Worldwide. If anyone has any objections, you may disconnect at this time.

I would now like to introduce Mr. Chris Hufnagel, Vice President of Strategy, Investor Relations and Communications for Wolverine Worldwide. Mr. Hufnagel, you may proceed.

Thank you, Ed. Good morning, and welcome to our fourth-quarter 2015 conference call. On the call today are Blake Krueger, our Chairman, Chief Executive Officer and President; and Mike Stornant, our Senior Vice President and Chief Financial Officer.

Earlier this morning we announced our financial results for the fourth quarter of 2015 along with our 2015 full-year results. 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 and these disclosures were reconciled with attached tables within the body of the release. Comments during today's earnings call will include some additional non-GAAP disclosures.

There is a document posted on our corporate website titled WWW Q4 2015 Conference Call Supplemental Tables that will reconcile these non-GAAP disclosures to GAAP. The document is accessible under the Investor Relations tab at our corporate website wolverineworldwide.com, by clicking on the webcast link at the top of the page.

Before we start, I want to provide some additional context and information. When speaking to revenue growth, Blake and Mike will primarily refer to underlying revenue growth, which adjusts for the impact of foreign exchange and excludes revenue from store closures and the exited Patagonia footwear and Cushe businesses. We believe underlying growth best reflects how our global businesses are performing in the marketplace.

In addition, we'll be providing adjusted financial results which exclude restructuring and impairment, acquisition-related integration costs and debt extinguishment costs and constant currency results. Where appropriate, we will also provide reported results and as always you can find tables reconciling these disclosures in our earnings release and on our corporate website.

As an additional note, our FY15 was a 52-week period versus a 53-week period in 2014. As such, our fourth-quarter 2015 had one less week when comparing to 2014. The extra week in 2014 accounted for approximately $7.5 million in revenue, or approximately 100 basis points of growth in 2015.

Finally, for the purposes of this call, we report our fourth-quarter and full-year 2015 results in our former brand operating group structure. We will begin reporting results in our new brand structure which was announced on February 4 with the first quarter of 2016.

Now, before I turn the call over to Blake to comment on our results, I would like to remind you that predictions and projections made during today's conference call regarding Wolverine World Wide and its operations are forward-looking statements under US 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 in our press releases.

With that being said, I would like to turn the call over to Blake Krueger. Blake?

Good morning, everyone, and thanks for joining us. Earlier this morning we reported our fourth-quarter and full-year results for 2015. We're pleased to have delivered strong adjusted earnings in the fourth quarter, $0.33 per share, which translates into a 33% increase on a constant currency basis.

The Company also delivered revenue in line with guidance, $751.2 million for the quarter. These results, especially our earnings performance, are noteworthy in what continue to be a choppy global retail environment impacted by soft consumer demand. In this challenging landscape, our business model, strong brand portfolio (technical difficulty) quickly to mitigate headwinds prove to be critically important in generating quality results, largely due to our early recognition of the overall retail and global consumer environment.

While our full-year financial performance did not live up to our original expectations, we continued to invest in our brands and talent to drive future growth. I was proud of our team's ability to adjust to the volatile and fast-changing retail marketplace and drive the business forward to close the year.

As we start the new year, I'm pleased to report that we have made significant progress against our key strategic initiatives. We took important steps to strengthen the Company and to position our portfolio brands for success in 2016 and beyond. Over the past 12 months, we better positioned Merrell, Sperry and Saucony, our three largest brands, for future growth expansion as leading head-to-toe lifestyle brands.

We further expanded our international footprint, already one of the best in the industry, by executing 121 distribution agreements in 2015. We accelerated e-commerce growth, which was up nearly 20% year over year and almost 25% in Q4 through investments in talent and resources and by leveraging our new digital platform. We continued to execute against our strategic realignment plan and further optimized the components of our store operations in pursuit of future growth and profitability.

And finally, we reorganized our brand operating group structure and senior leadership team which positions us to better capitalize on the global opportunities we have for our family of brands. Looking ahead, we remain committed to accelerating growth through key strategic initiatives focused on product innovation and deeper consumer insights and connections which I'll provide more detail on in a moment, all supported by our strong operating platform and extensive global distribution footprint.

For today's call, I'll touch on brand operating group results for the year and then spend the majority of my time taking you through a strategic overview of the Company. Mike Stornant will provide more detail on 2015 Q4 and full-year results as well as 2016 guidance.

Focusing on our full-year brand operating group performances, starting with the performance group, underlying revenue grew at 6.3% versus the prior year, led by exceptional growth in Chaco, which posted growth of better than 50%; Saucony, which grew at a low-teens rate; and Merrell, which added growth in the low single digits.

Underlying revenue for the lifestyle group was down less than 1%, with Sperry growing low single digits, Keds up mid single digits and Stride Rite down low single digits, driven primarily from planned store closures. Hush Puppies saw an underlying revenue decline in the low teens, (technical difficulty) our decision to exit some domestic distribution.

Encouragingly, the brand's international third-party business remains strong with revenue growth in the low teens on a constant currency basis. Underlying revenue for the Heritage group was flat with Cat and Harley Davidson growing low-single digits, Wolverine down low- single digits and Bates and HYTEST producing mid-single growth.

I'll now use this opportunity to outline the Company's strategic direction in our progress on the key priorities for the business in the coming year. We take a very active approach in managing our global brand portfolio to ensure that we aggressively fuel growth and take advantage of opportunities in key markets around the world. Over the last year, we have executed on our multiyear demand creation and investment strategy and also focused on Saucony, Chaco and e-commerce.

At the same time, we responsibly addressed underperforming businesses, including the exit of the Cushe brand and took actions to improve the performance of our retail stores. We have also recently taken action to accelerate our global apparel and accessories initiatives across the organization. All of these moves are designed to drive growth, increase profitability and create value for our shareholders.

Over the past few months we have taken a number of important steps. First, let's start with the actions we have executed in our retail store operations. Stride Rite plays an important role as a children's expert in our portfolio and has a profitable and healthy wholesale and e-commerce business. However, its store business has underperformed.

Consequently, in 2015 we accelerated store closures and improved the performance of the go-forward stores by infusing new leadership and applying a sharp focus to the business during the all-important back-to-school and holiday season. As a result, we saw the year-over-year comparative sales trend improve over 500 basis points in the fourth quarter relative to the first three quarters of the year. Encouragingly these better results have continued and accelerated in early 2016.

In November, to further align and leverage all of our direct-to- consumer operations, Stride Rite was moved into a consolidated consumer direct group. Looking ahead to 2016, we will close more stores as part of our strategic realignment plan, improve the profitability of our go-forward stores and fuel our rapidly growing e-commerce business. Performance of our retail stores has improved significantly and we're encouraged about the direction of the business today.

We recognize that our apparel and accessory initiatives have not evolved at an acceptable pace and during Q4 we took the action to accelerate growth in these important categories. Many of our brands have significant global lifestyle opportunities and continued expansion beyond footwear is a critical strategic initiative for the Company.

To accelerate our progress, we centralized all of our brand apparel and accessory teams under a new seasoned leader to coordinate efforts and to take advantage of the opportunities across the portfolio. There's much more to come here, but these changes put us in a much better position to win and thus far I'm encouraged by our progress.

We firmly believe that growth starts with intimately knowing our consumers, including who they are, what they want and how we can better exceed their expectations. In 2016 we will significantly increase our investments in consumer insight, more than doubling our people and resources in this area. Better and more meaningful consumer insights will directly benefit our product design and innovation engine.

We will amplify trend research and roll out a new innovation and design center focused on the consumer, product design and marketing. The innovation and design center will act as a powerful catalyst for innovation across the organization and play a critical role in influencing the future of the Company, directly driving vital growth projects and new technology introduction and fundamentally changing the way we operate. Through consumer insights, product innovation and compelling marketing, we remain focused on organically growing our brands around the world.

Turning briefly to external growth initiatives, we have a successful 20-year track record of adding brands to our portfolio and we'll continue our pursuit of potential acquisition opportunities. Our capital structure and organizational readiness gives us the capability to take on a strategic acquisition and M&A has been and continues to be a core competency of the organization.

Since the close of our most recent acquisition, we have reduced our net debt by nearly $550 million. This said, we have a well-defined set of acquisition criteria against which we evaluate all opportunities and are not operating against any internal timeline to execute the next acquisition. Today accelerating organic growth is our priority, but it's also important to monitor potential acquisitions in the event the right strategic fit and value enhancing opportunity becomes available to the Company.

Switching gears, I would now like to spend a few minutes focusing on Merrell, Sperry and Saucony, the three largest brands in our portfolio. Merrell is positioned to go-to-market in 2016 with a comprehensive and exciting plan, delivering new product, amplified marketing and strong execution at retail.

New product introductions are planned to create big stories, enabling the brand to build on its winning Moab and Capra collections through an expanded product line and strategic distribution segmentation. The Moab franchise is already the industry's best selling lightweight hiking shoe and Capra is expected to pass 1 million pairs this year.

Merrell also plans to lead our brands in introducing the game changing arctic grip anti-slip technology, which improves traction up to three times on wet, icy surfaces. This is a remarkable innovation to experience in person, as some of you did at the outdoor retailer show. Our global exclusive for this break-through technology, which will originally be incorporated in our Merrell, Saucony, Sperry, Wolverine, Cat and Hush Puppy brands for this fall delivers a meaningful competitive advantage for clearly differentiated product.

Merrell and our other brands will bring this technology to consumers through aggressive go-to-market strategies including significant retail partnerships to create an extensive point of sale present. Merrell will also be the first-ever presenting sponsor of Tough Mudder, the leading outdoor obstacle challenge which has been run by over 2 million participants around the world.

Our second largest bland, Sperry, is focused on moving beyond its franchise boat shoe category where it remains dominant to develop as a global lifestyle brand. Although the boat shoe category slowed this past year due to a shift towards more athletic-inspired silhouettes, the Sperry non-boat shoe styles grew nearly 20% and now account for nearly half of the total business.

The Saltwater Duck boot collection was a fantastic success in Q4 and propelled Sperry to the number two rank in the rainboot category according to NPD. The Saltwater was the number one boot in the United States for this fall. The Sperry boot program will be greatly expanded for fall 2016 and there's been an incredible early response from retailers to the broader program.

The brand will also introduce the new Paul Sperry collection this year, a modern and innovative collection to connect with our younger consumer and capitalize on the ath leisure trend. I'm excited about the great new product in the Sperry pipeline and encouraged by what I'm hearing in the marketplace, especially from our consumers.

Saucony, our third largest brand, remains intensely focused on product innovation. The brand has grown over the past several years with a steady introduction of cutting-edge technologies. Saucony launched the Everun cushioning and energy return technology in late 2015 and plans to expand this award-winning innovation across the product line in 2016. In fact, the first three styles from Saucony with Everun, all of them won Editor's Choice awards from Runner's World.

Footwear styles incorporating the iso-fit technology introduced in late 2014 also continue to build. In addition, the brand will ramp up its Life on the Run collection with new product introductions which we believe represents a significant growth opportunity in the athletic, casual ath leisure category. Finally the Heritage inspired Saucony originals business which grew over 60% in 2015 will continue to move forward with fresh product designs, compelling story-telling and strategic distribution expansion.

Finally, I want to spend a minute providing you with an update on our Omni-channel initiative and the strong growth we're seeing as a result of our efforts. E-commerce development across our portfolio continues to present a significant growth opportunity as we create a stronger bond with our consumers. We strategically invested in 2015 and drove accelerated growth, outpacing the industry, especially in the last quarter of the year with growth of nearly 25%.

We will continue to invest in this fast-growing, profitable channel in 2016, focusing on a seamless Omni-channel brand experience for the consumer, especially in mobile, which experienced growth of over 100% in 2015. The consumer and retail marketplace continue to evolve at a rapid pace and we're excited and energized about the new opportunities ahead in this area.

Transitioning now to our expectations for the year ahead. I feel very good about where the Company stands today and I'm excited about our efforts to take advantage of our many global opportunities and to address the segments of the business that we're not meeting our expectations. I am, however, a little cautious about the year ahead as the visibility into 2016 is less clear than normal.

Domestically we expect the hangover from a tepid holiday retail season, coupled with high inventory levels, to have a meaningful impact on the first half of 2016. The shift in consumer behavior is also continuing with consumers migrating to online channels and both consumers and retailers buying closer to need.

Globally some of the uncontrollable challenges, currency issues, economic slowdown in some key countries and geopolitical volatility are expected to continue and have become the new normal. While 2016 will present some challenges, we see the year ahead as real opportunity. We have a great brand portfolio, broad geographic reach, an exceptional operating platform and a talented and nimble team focused on the consumer and driving product innovation.

With respect to our 2016 outlook, we expect revenues to be impacted by over $100 million due to store closures, the Cushe exit, and currency. We also expect currency to have around an $0.18 per share impact on EPS. Despite these headwinds, we expect our revenue and earnings to be about flat with 2015, at the top end of our current 2016 guidance range.

While visibility into the current year is a little more murky than usual, we do expect revenue and earnings to be stronger in the second half as excess retail inventory clears and our largest brands introduce significant new product collections. For Merrell, growth in 2016 will be driven by the expanded product offerings in franchise collections, including Moab, Capra and All-Out, which will be released this summer and fall as part of the brand's go-to-market partnerships with key retailers.

The Arctic Grip program for Merrell and five of our other brands will roll out this fall. The first Merrell-sponsored Tough Mudder event will not happen until late March with over 50 events across seven countries scheduled for the rest of year.

We expect Sperry to have a challenging first half, given continued softness in boat shoes, with growth coming in the second half on the strength of its expanded boot and not boat product offerings. In 2015, Sperry grew non-boat shoe categories to nearly 50% of sales and we expect this trend to continue.

Finally, Saucony should continue to generate growth throughout the year on the strength of its technology, ath leisure, and originals product offering. Mike Stornant will provide more details in a moment and we'll, of course, provide additional insight and update as the year progresses.

Looking ahead, we are focused on our consumers and on delivering outstanding product innovation Our business model has been a differentiator in earnings generated during times of change and has allowed us to consistently invest in our strategic priorities while returning value to our shareholders. On that note, I want to sincerely thank our 6,000 Wolverine team members around the world for their hard work, dedication to the Company and, most importantly, their passion for our brands and consumers.

With that I'll now turn the call over to Mike Stornant, our Senior Vice President and Chief Financial Officer, who will provide additional commentary on our 2015 results, as well as provide guidance for 2016. Mike?

Thanks, Blake, and thanks to all of you for joining us on the call today. During his prepared remarks, Blake provided meaningful insight regarding our 2015 fourth quarter and full-year results. I would like to add that I'm extremely pleased with our performance during a volatile time.

After a very strong start to the year, in mid-September we foreshadowed the current environment and the Company responded quickly to the challenge. We acted early, swiftly, and with a strong sense of urgency, all consistent with Wolverine's culture and core values. As a result, our early actions allowed us to overcome tough conditions and we are now well-positioned to navigate the uncertain global landscape in front of us.

Let me review the specifics of the Company's fourth-quarter performance followed by greater detail on full-year results. The Company's earnings performance was strong relative to a challenging retail environment as global economic pressures worsened, holiday sales proved tepid, and the unseasonably warm weather persisted in certain regions. We proactively managed the business to deliver earnings growth and strong cash flow in the quarter.

Adjusted Q4 earnings per share of $0.33 were in line with our guidance, representing a 10% increase over the prior year's $0.30. On a constant currency basis, adjusted earnings per share were $0.40, representing significant growth of 33% versus the prior year. On a reported basis, earnings per share were $0.12 compared to $0.10.

Fourth-quarter reported revenue of $751.2 million was in line with our guidance. Underlying revenue declined 2.9% versus the prior year and reported revenue was down 7.1%. Our diversified brand portfolio helped mitigate risk in the quarter, led by exceptional double-digit growth from our third largest brand, Saucony. This performance included double-digit constant currency growth in all geographic regions, fueled by continued product innovation including Abberon and new originals offerings.

Chaco continued its positive momentum and contributed strong low-teens growth in the quarter and full-year growth of just over 50%. The Chaco business continues to generate great momentum.

The Stride Rite wholesale business performed well in Q4, growing strong double digits and benefiting from the new Surprize by Stride Rite program recently introduced at Target. The Sperry brand exceeded our expectations for the quarter, down low single digits against strong high-single digit growth last year. Sperry experienced very healthy triple digit growth in boots, specifically the Trendright Saltwater Duck boot collection, offset by projected lower boat shoe sales.

Merrell's Q4 constant currency revenue was down low-single digits, due mostly to softness in the cold weather performance boot category, offset by improvements in the active lifestyle category. Entering Q4, we anticipated a variety of headwinds, including troubling macroeconomic factors for some of our key international markets. However, a pervasive warm weather in certain regions of the US and other international markets presented an additional challenge for a few of our brands with significant cold weather product offerings, particularly boots.

Merrell, Cat and Wolverine experienced some softness in the quarter due to weather. Our work boot brands were also impacted by high unemployment in the oil and construction sectors and soft economic conditions in key international markets, especially Russia.

Fourth quarter constant currency revenue was down high-single digits for Wolverine brand and down high teens for Cat as a result of the challenging macroeconomic conditions mentioned above. E-commerce's strategic priority for the Company was a bright spot in Q4 and grew almost 25%, including strong double digit growth from our three longest brands, Merrell, Sperry and Saucony. Mobile grew triple digits in Q4.

As planned, we continued to close underperforming stores during the quarter. In addition, new leadership and operational improvements resulted in a much better year-over-year comparative store sales trend in Q4, which was up over 500 basis points relative to the first three quarters of the year.

Full-year reported revenue of $2.69 billion was in line with our guidance and represents underlying growth of 2.1%. On a reported basis, revenue was down 2.5%. Full-year adjusted growth margin on a constant currency basis was 39.7%, compared to 39.4% in the prior year, as a result of proactive strategic price increases early in the year and effective management of product costs. Reported gross margin was 39.1%.

For 2015, adjusted operating margin on a constant currency basis was 9.4%, compared to 9.9% last year. Higher pension expense and planned incremental brand investments accounted for approximately 150 basis points of de-leverage. Discipline over the remaining operating expenses resulted in approximately 100 basis points of improvement.

FY15 adjusted operating margin was 8.9% and reported operating margin was 7.5%. Net interest expense for the year was approximately $38.2 million; $7.2 million lower than the prior year, reflecting an $80.9 million reduction in debt principal, including $58 million of prepayments. The full-year adjusted effective tax rate was 27%, compared to 26.2% in the prior year and our reported tax rate was 25.2%.

Full-year adjusted earnings per share were $1.45, including a negative $0.13 per share impact from currency, compared to $1.62 in the prior year. On a reported basis, earnings per share were $1.20 compared to $1.30 in the prior year.

During 2015, the Company generated $165.5 million in free cash flow and maintained a strong balance sheet. We ended the year with cash and cash equivalents of $194.1 million and net debt of $625.9 million, down $51 million since year-end 2014 and down nearly $550 million since the acquisition of PLG in 2012.

As of yearend, our leverage ratio was 2.28 times compared to 4 times at the closing of the PLG acquisition. Adjusted EBITDA was $334.5 million for the year.

To return value to our shareholders, we repurchased $92.6 million in common stock during 2015, leaving $107 million of our share buyback authorization available as we entered 2016. We also paid out $24.4 million in dividends to our shareholders during FY15.

Networking capital was $660.5 million, down 5.8% versus the prior year. Accounts receivable improved by $13.8 million, while inventories increased 12.7% or $52.6 million. Ending inventory was approximately $15 million higher than expected, due to lower Q4 boot sales and the soft retail environment. Nearly all of that excess is comprised of core boot and other carry-over styles.

The quality of our inventory remains very high, with close-out and aged inventory at relatively low levels. We will continue to work through our inventory in a rational manner over the coming months and expect to reach normalized levels during the second half of 2016.

Overall our priorities for cash are as follows: Drive organic growth, primarily through investments and product innovation, Omni-channel growth and demand creation; return value to shareholders through share repurchases and consistent dividends; pay down our debt and pursue potential value-enhancing acquisitions.

Before moving to our discussion on 2016 and related guidance, I want to provide an update on the Company's strategic realignment plan which is primarily focused on addressing stores that are under-performing in today's difficult retail environment. This plan was initiated in 2014 and updated most recently during our Q3 2015 earnings call. We have closed 104 stores through 2015 and plan to close approximately 100 stores in 2016, including 60 at normal lease expiration.

In addition to store closures, we have restructured our DTC organization resulting in a more efficient, lower cost infrastructure, appropriate for the size and complexity of our fleet. The strategic realignment plan was focused mainly on addressing our under-performing Stride Rite stores. During the fourth quarter, we recognized noncash fixed asset impairment charges of $11.5 million related to the projected performance of stores that will close in the future and a trade name impairment of $2.5 million for Stride Rite.

Now I would like to transition to our 2016 revenue and earnings guidance. We believe that the soft consumer demand and challenging retail environment experienced in the fourth quarter of 2015 will continue into the New Year, both domestically and in key international regions. Limited visibility into the back half of 2016 is contributing to a higher level of uncertainty and conservatism for many of our global customers and distributors. As a result, we are taking a cautious position regarding our 2016 guidance.

While our current view may ultimately prove to be somewhat conservative, a number of unusual factors are impacting our outlook including higher than normal inventory levels at retail, resulting in limited open to buy until seasonal goods are liquidated; currency headwinds from a persistently strong US dollar, which have resulted in higher product cost in more international markets; financial instability for some of our domestic retailers and global customers; ongoing softness in global demand as evidenced by persistent downward pressure on commodity prices and a slowdown in China's economy; and strong trends in e-commerce growth which have put pressure on traditional brick and mortar retailers.

Revenue in 2016 will be negatively impacted by approximately $100 million due to FX translations, store closures and the exit of the Cushe business. With this in mind, we expect 2016 reported revenue in the range of $2.475 billion, to $2.575 billion, a decline in the range of approximately 4.3% to 8%, and 2016 underlying revenue to be almost flat with 2015 at the high end of our range.

Gross margin is expected to benefit from the price increases implemented midway through 2015 and lower product costs in the second half of 2016, offset by approximately 90 basis points of negative foreign currency impact. As a result, gross margin is expected to be flat to slightly down in 2016.

We expect flat to slightly lower adjusted operating margin versus the prior year, despite strong currency headwinds and slightly lower underlying revenue. Operating margin will benefit from our ongoing strategic realignment plan and other reorganization activities executed earlier this year along with meaningfully lower pension expense. We remain committed to our multiyear investment plan, focused on delivering future growth through demand creation, our Omni-channel e-commerce business, consumer insights and product innovation capabilities.

We expect 2016 net interest and other expenses of approximately $35 million to $38 million, an effective tax rate of approximately 28%, and diluted weighted average shares outstanding of approximately 97.5 million shares. As a result of these inputs, full-year FY16 adjusted diluted earnings per share are expected in the range of $1.30 to $1.40, which includes the negative impact from foreign exchange of approximately $0.18 per share.

On a constant currency basis, adjusted earnings per share are expected to be in the range of $1.48 to $1.58, growth of 2% to 8.9%. Additional store closures and other H1 nonrecurring restructuring costs of about $16 million, or approximately $0.10 per share, results in expected reported earnings per share in the range of $1.20 to $1.30.

We are forecasting full-year depreciation and amortization of approximately $46 million and adjusted EBITDA in the range of $280 million to $305 million. Capital expenditures are expected in the range of $65 million to $70 million, primarily for investments in Omni-channel initiatives, information technology and distribution center and other facility enhancements.

Focusing on Q1 2016, we expect reported revenue to decline in the range of approximately 9% to 11% and Q1 underlying revenue to decline in the range of approximately 6% to 8%. Adjusted diluted earnings per share for the first quarter are expected in the range of $0.21 to $0.24, reflecting lower revenue and negative foreign currency impact of approximately $0.06 in the earlier phasing of incremental brand investments compared to last year.

On a constant currency basis, adjusted earnings per share are expected to be in the range of $0.27 to $0.30. Reported earnings per share are expected in the range of $0.12 to $0.15.

During 2016, we will focus on those things that we can control and adjust to the current conditions, which we consider to be the new normal. In this environment we plan to continue our incremental investment strategy, focusing on our product innovation engine, consumer insights, the critical starting point for all of our initiatives and decisions as a Company, the organic growth of our brands, particularly Merrell, e-commerce and mobile infrastructure and apparel and accessories opportunities.

Let me simply conclude by saying that despite a cautious outlook for 2016, we will continue to be diligent and deliberate as we manage our business in a proactive manner. Most importantly, we continue to invest behind initiatives and capabilities that will drive future growth.

Thanks for your time this morning. We'll now turn the call back over to the operator. Operator?

Thank you. We'll now begin the question-and-answer session.

(Operator instructions)

Our first question comes from Erinn Murphy of Piper Jaffray. Please go ahead.

Great. Thanks. Good morning. I was hoping you could speak a little bit more about the inventory overhang that you referenced in the fourth quarter. How much of that was boots and colder weather product? And how does that affect your visibility as you think about the fall 2016 order book thus far?

I assume you are talking about retail inventory in general?

Exactly. In general.

Okay. I recently read some articles and retail inventory, at least domestically, is kind of at a 19-month high compared to sales. So it's one indication of where, in general, consumer soft goods and hard goods it stands. And I think someone else estimated current inventory is about 15% higher than last year's, so I think we've been fortunate here in the United States to have received some weather finally in January and February and I think that is helping to clear out some of the seasonal inventory.

I have heard a few reports about a few retailers packing and holding some carry-over stock, whether it's outerwear or boots, but there certainly is an over-hang right how. And, frankly, as we view the retail environment, it will take at least two quarters, maybe into the third quarter, to clear most of these goods and get down to a normal level.

Okay. Blake, as you guys are talking to your partners within the retail community, how are you seeing that order book shape up for you thus far for fall? If you were to parse out what you are hearing from some of your major versus some of your independents?

Listen, most of the retail community recoiled a bit from a very tough holiday season and so orders have been very stingy, very hard to get future orders, in general. For us, we have seen some sharp light in a couple of areas, the Sperry boot program, Arctic grip and some other initiatives that we have for fall. So we do see retailers stepping to the plate when they see some really fresh innovative product. It's going to be a while here as we recover from, in general, high inventory levels.

Okay. And then I guess, Mike, for you, just a clarification on the guidance, as you think about the first quarter in context to the balance of the year. When you talked about revenue being down 9% to 11% on a reported basis, how much of that is from foreclosures versus FX as you are starting the year here versus just kind of tepid sales quarter to date. Help us think about that, that revenue decline.

We talked about the difference between reported and underlying growth. It's about 2%, it has a 2% headwind, both currency and those store closures combined. The Cushe business, not a big impact in the first quarter. But I think the other factor which you are speaking to is the overhang on inventory and so just at retail. So what we're seeing right now is that kind of trend improving in the last three quarters of the year, but for Q1 we'll probably take the biggest decline in terms of revenue percentage against any of the other quarters in the year.

We think that overhang in inventory, we're starting to see some spark in at-once activities for some of our boot business, for instance, once we saw some cold weather, but we're certainly not planning on that to continue dramatically, so right now that is the headwind ahead of us.

And last is the EPS guidance you gave for the first quarter, can you balance out how you're thinking about the expense structure that's here? I think you have a pretty hefty marketing spend behind Merrell and I believe that's first-half weighted. Is that first quarter weighted in particular or should we continue to anticipate pressure, at least relative to the top line on the second quarter as well when you think about that spend?

Yes. I think the spend is certainly first-half weighted for the investments there. We're activating some of the go-to-market programs in March but a lot of that money obviously spent earlier in the quarter and will continue to be spent in the second quarter, so we are seeing front-weighting of that in the way the quarters are phasing out.

Got it. All right. Thank you very much. Best of luck. I'll let someone else hop in.

Our next question comes from Jessica Schmidt of KeyBanc Capital Markets. Please go ahead.

Thanks for taking my question. I know you made changes, organizational changes this quarter to consolidate initiatives in apparel and accessories, but given challenges you have had there, would you consider licensing these businesses out on soft brands or would you ever look to make an acquisition that might build up some competencies in the categories?

I think, frankly, we would consider the right strategic tuck-in acquisition in that area. You have to remember, we have licensed these areas maybe predominantly for our Hush Puppy brands since 1959 in a number of different countries around the world, especially a number of program in Asia-Pacific, so it's something we're certainly used to. It's just a critical strategic initiative for us as we look ahead to developing global head-to-toe lifestyle brands.

So we do have new leadership. Some years ago these efforts used to be consolidated under a single solid line reporting relationship in the Company. And, frankly, we have moved back to that structure to be more effective and efficient.

Great. I guess just quickly, how much of the $18 million in the Cushe business were you able to recapture under Merrell?

It's hard to really estimate. At the present time we'll get some of that under Merrell but I don't know today if it's 33.3%, if it's 50%. It would probably be something in that range.

Great. I'll pass it along. Thank you.

Thanks.

Our next question comes from Jim Duffy of Stifel. Please go ahead.

Thanks. Good morning. I hope you guys are --

Good morning, Jim.

My question is around SG&A and the restructuring specifics. Just looking through the outlook, the guidance seems to imply a reduction in SG&A that goes beyond the savings from restructuring. A year ago you talked about the $100 million in investment behind the brands. You mentioned some planned investment in consumer insights and innovation. I guess I'm wondering where you are finding savings in the ongoing business to show leverage and afford these additional investments even with down volumes?

Jim, we have been working really hard on that in the last quarter or so, and we have obviously made great headwind in restructuring our D to C group and getting more leverage on the store operation side of the business. So we're going to see benefits in 2016 and beyond for that. We have made other organizational changes, too, not quite as dramatic, but in the first quarter, you will see a little bit of additional kind of nonrecurring restructuring costs related to other changes we made in the organization, leaning up the group and positioning ourselves for the tough road ahead a little bit.

We have got some benefit from pension expense this year and that's going to be a tailwind for us for a change, so those are some of the main drivers. I think from the standpoint of just being able to maintain our operating margin, it's really important to realize that we've done a lot in the last year to really combat the FX headwinds we're dealing with.

So those product cost improvements, the cost engineering there and some of the benefits we're seeing from the lower input costs in the latter half of the year, price increases that we took, tough decisions we made last year to increase prices, those are all starting to pay dividends for us as we're able to maintain our gross margin in a pretty tough environment. So just being proactive and working through the organization for efficiency opportunities is putting us in a position to maintain our operating margin at a flat level.

Okay. And then, Mike, can I ask you to provide some more detail around the restructuring expenses? How soon do you expect to be able to get out of some of these leases? Can you break up the cash versus noncash components of that and then talk about how that all rolls up to cash flow objectives for the year?

Yes. For sure. We talked about another $16 million or so of expense in the first two quarters. Most of that is going to be cash related and it's primarily going to be related to our store closures. Most of those will be done by the end of the first quarter. There's a little bit of hangover into Q2, but not much, so at $16 million, say $15 million of that, maybe a little less than $15 million of that is cash and really driving the further improvements that we're talking about in terms of getting out of some stores.

And we've already incurred some of those costs in Q1, as we talked about, related to some of the organization changes that we made. So not a lot of additional sort of restructuring exposure in the back half of the year. We'll be done certainly by midway through the year and most of it will be behind us by the end of Q1.

Do you have a cash flow objective for the end the year you can share?

Free cash flow, probably in the range of $180 million to $190 million.

Thank you.

Sure.

Our next question comes from Taposh Bari of Goldman Sachs.

Good morning. It's Chad on for Taposh. My first question is on the new brand operating group structure. Can you tell us how the change in structure better positions your core brands for accelerated growth?

Yes. We don't do this lightly, obviously. We have done it every several five to six years historically as we have added or pruned back brands from the portfolio, but this is something we gave a lot of thought to and it developed over time.

Basically we wanted to put the right brands with the right leaders. So last year we had elevated Richie Woodworth to Group President and it made sense, given the location, for example, of Saucony in Boston for Saucony to report to Richie. It's a brand that he ran for almost nine years, growth there has been pretty spectacular and it made a lot of sense. So we grouped Saucony under Richie.

And with respect to Jim Zwiers, who most recently had been running our international group, we grouped all of our brands with probably the most international penetration under Jim. So when you look at Merrell, Hush Puppy, Cat, Sebago, those are all brands that have a substantial portion of their pairs offshore. And Jim was coming over from directly running our international group. As you know, Jim has been 18 years at the Company and has not quite held every job there is at the Company, but it's getting close.

And then under Ted Gedra for the Heritage Group, we grouped our four core boot brands that are largely focused on the US market and have a lot in common when it comes to consumers and to retail customers. So that's basically the logic behind the new group structure. We're going to be providing in a few weeks here to the investment community detailed historical sales data and stuff to help guide you throughout 2016 and beyond.

Great. That's helpful. Thank you. And one follow-up just on Stride Rite. Can you help us size how big that business is today, what the mix is between wholesale and retail, how many stores there are versus how many there were at the peak? Jut any parameters you are willing to give us on that business would be really helpful. Thanks.

I'm just kind of quickly looking here. Stride Rite today would have about 220 to 230 stores as it stands today. The vast majority of the closures in 2014 and 2015 were Stride Rite stores, although there were some other stores in our fleet that were also closed. So Stride Rite today is about 220 stores, very profitable e-commerce business and very profitable wholesale business. The wholesale business would be in the $140 million to $150 million range, just to give you some idea.

Thank you. How big is the retail business?

In dollars --

About the same, a little bit bigger. About 50% retail; 50% wholesale.

Okay. Great. Thank you.

Our next comes Jay Sole of Morgan Stanley. Please go ahead.

Good morning. I was wondering if you could dig into the sales guidance a little bit for next year within the difference groups of Performance group, Lifestyle and Heritage. Can you tell us what you see some of the growth rates for the different brands, being Sperry, Merrell, Saucony? Anything you can share with us on that regard would be helpful. Thank you.

We really don't go down that alley for a bunch of good reasons, and probably this year, for even better reasons, probably given the lack of clarity on what's going to happen here a little bit in the first half but especially in the back half of the year. So across the board, we're pulling all levers to drive growth this year.

Orders have been, frankly -- future orders, pretty stingy to this point in time, which is completely understandable given the retail situation with respect to inventory. So we'll certainly give you, in a couple of weeks here, some historical revenue parameters on the new operating group structure.

Okay. A different question maybe about sales. It sounds like there's two different themes here. On one hand, weather obviously impacted the boot system with Cat and Wolverine, but, at the same time, you are talking about macro, you mentioned China and different things that are continuing into 2016. Can you help us just aggregate what is really going on? How much is weather? How much is macro? It's not quite clear what the most important drivers are.

Yes. I mean, listen, first of all, I was proud that I think I got through my script without saying the word weather, which drives me crazy. But anyway, it was, obviously, a factor in setting that aside. Internationally, it's a little bit of an unusual time. The slowdown we are seeing, my personal view is that low commodity prices generally don't lead countries or regions to greater growth.

They are really a reflection of lower consumer demand. It can be lower consumer demand for soft goods or hard goods. You have got geopolitical risks in some countries and some countries are suffering. Russia, the millions of refugees pouring into Europe, this is all having an impact on business.

And then you have the internationally, the very strong US dollar. I think the pound, in just two days this, fell to an eight- or nine-year low against the dollar, for example, so you are seeing these wild swings in currency. Most of the world, virtually all of the l, buys its foot in US dollars and sells in local currency, so you can imagine a little bit of the disruption that can happen when the US dollar strengthens 20%, 25%, 30% over a period of only two years.

So what is interesting right now from my viewpoint is internationally there are a number of factors going on. Some of them are related; frankly, some of them are not related. China, for example, where our business is relatively small compared to our total, but continues to grow at a meaningful level. Is China going to have a hard landing or is China going to have a soft landing here as they migrate from a manufacturing export mindset and economy to an internally driven consumer consumption economy?

Those are some big issues certainly above my pay grade. We're just positioning our business to adjust to all possibilities as we look ahead here. Domestically in the United States, we have this slow burn recovery, so it's not bad, but it's not great.

On the other hand, the good news for us in the footwear industry is, if you are there with fresh innovative product, if you are there with the right products, Saucony Everun, Merrell Capra, Sperry Saltwater Duck boots, you can win. So that's the good news for us, that we have got a lot of chances to win in just about any environment. But it is, frankly, a bit unusual at the present time. I've been talking about this internally now for well over a year.

If I could ask you one more. You talked about Omni-channel. How are you defining Omni-channel right now? Is it going to be a big store build-out plus e-commerce? Is it going to be for all brands? Certain brands? What is the vision you have for the Company to make it the Omni-channel -- give the Omni-channel the capabilities it needs?

I go back to the consumer. What does the consumer want? The consumer wants their brand to be there on a consistent basis, whether they are on their mobile, whether they are in a store and they see something they wanted delivered to the house, whether they are on their computer.

Wherever the consumer wants to interact with the brand, that's frankly how I view Omni-channel. And especially over the last year, we have spent a lot of money on platform systems, talent, and other resources to really stay on a parallel course with our consumer.

We don't really see -- the consumer clearly is voting with their checkbook towards online. I think, in general, in the US in the holiday season, online was up about 13%. We were up about double of that for our own brands.

On the other hand, what is also interesting is retailers that started off as pure online brands are now finding a great need for stores. Everybody realizes today that the consumer will spend more money in a store and they still spend more in a store. And frankly, the consumer still enjoys that touch, feel, try-it-on experience. So Omni-channel really involves stores, online certainly, and then, of course, your work with your good wholesale customers.

Got it. Thanks, Blake.

Thank you.

Our next question comes from Steve Marotta of C.L. King & Associates. Please go ahead.

Good morning, Blake and Mike. I understand your reticence on commenting on specific brand sales expectations for 2016. Historically, however, you have given them for the near term, at least. Could you please speak to Merrell and Sperry sales expectations in the first quarter?

Well, yes, we expect, frankly, Sperry to be down at a pretty good clip in the first half from what we see today. Boat shoes continue to be soft, maybe a little bit more -- a little bit softer in men's, interestingly, than on the women's side of the business, but still trending down.

Sperry is introducing some athletic casual ath leisure silhouettes. Certainly for Sperry we're not seeing any pushback from retailers or the consumers to category extensions. I guess the Duck Boot, the Saltwater Duck Boot would be a good example of that. So for us, it's just getting the Sperry product innovation engine ramped up quickly enough, never fast enough for me, to counter the fall-off in boat shoes.

With respect to Merrell, Merrell should have a bit more of a level year, probably down a little bit here in the first half, but a lot of their initiatives around strategic partnerships with group retailers on Capra, All Out, Moab and the introduction of Arctic grip and really also the Tough Mudder affiliation which will really get ramped up here late spring, into the summer and next fall. A lot of those initiatives are really in mid-year or beyond for the Merrell brand. So maybe I would like it to be a little more balanced, but it is what it is, and we certainly like the initiatives going forward.

Thank you. That's helpful. Lastly, what is e-commerce in the aggregate as a percent to your consolidated sales?

About 5% or so.

Okay. And then --

Too low.

Sure. Right. If you include DTC in that, overall, what would the percentage be?

Right around 15%; 14%, 15%.

That's really helpful. Thank you.

You are welcome.

Our next question comes from Corina Van Der Ginst of Citigroup. Please go ahead.

Hi. Thank you for squeezing me in. I wanted to follow up quickly on the inventory discussion. You gave good color on caution in the marketplace. Did you actually take back any product from wholesale accounts and are you planning to clear that through your own retail stores or off-price throughout the year?

And then how are you strategizing your production for the year? Are you anticipating a higher level of at-once versus initial preorders this year and how are you planning your ability to chase if the season ends up better than expected this fall?

There's a lot of questions there. Let me see if I can tackle a few of them and Mike can tackle the rest. With respect to inventory, I don't believe we took back any inventory. Maybe we took back 10 or 20 pairs here and there, I don't know, but we really did not take back any inventory.

As the fall season and holiday progressed, we worked pretty closely with our retailers to make sure they were not stuffed, and that they had the right balance of inventory, our inventory, on their shelves. With respect to our mix, I know a lot of our peers have reported inventory levels substantially greater than ours and our 12.7% probably is, oh, 3% higher than our original expectations going into the fall. But for us it's virtually all core product, certainly core product, we're not going to dump in the close-out channel.

For our inventory, our close-outs compared to last year are down about 33.3% and our H inventory is down about 25%, just to give you some frame of that. So the first half, what we're seeing, is a continuing pretty volatile environment when it comes to orders. So for at once-orders, we can have some weeks with great spikes for some of our brands and then we can be flat for some other weeks.

I think it's just all an end result of retailers trying to deal with the situation they currently find themselves in. We see that kind of normalizing here as the year rolls out, but it's going to be some up and down for the time being.

The only thing I would just emphasize there is the fact that we certainly work closely with all of our retail partners and our distributors. So as we were coming out of Q3 and heading into Q4, we wanted to make sure there was not a great deal of overhang of our inventory in the marketplace in the first half of this year and there's still more probably with certain retailers than they would like.

But our ability to partner with them, to make sure that we're not in a position to have to take a lot of returns back and the fact that the sell-throughs on many of our brands are better than most, even though the overall inventories with some of these retailers is a little bit high, those are pretty good indications, another reason why we're not fearful of having to take significant markdowns in terms of liquidating the inventory we have.

We've been proactive managing our own inventories down and that's why we feel comfortable with where we're going to end the year with inventories, but also managing closely with our retail partners as we navigated the last three or four months.

That's helpful. If I could follow up with one big-picture question. How are you guys think about the long-term algorithm of the portfolio, now given the reorganization, some of the brands or the exits you have made and the appetite for acquisitions, are you still thinking about the top-line growth story as kind of a high-single digit long-term outlook?

Yes. I would say 2016 is going to be a year from a revenue growth perspective, we're not, frankly, not entirely happy with. We wish it was better but we are realistic and we understand it's a pretty dynamic environment, especially when you have about 49% of your pairs sold outside the United States. So we're realists and we're dealing with all those challenges.

We're happy with our portfolio right now. A few years ago we would have touted 15 brands, so we have pruned our portfolio and are focused on growth initiatives really for all of the existing brands that we still have in the portfolio. Certainly when you look at a Keds or a Saucony or a Merrell or a Sperry, some of our bigger brands, a lot of growth potential left there, both in the lifestyle area as well as footwear.

Okay. Thank you.

Our next comes from Christian Buss of Credit Suisse. Please go ahead.

I was wondering if you could talk a little bit about the accelerated capital expenditures in 2016 and also how you are thinking about share purchases for the year.

Sure. The CapEx number that we shared in the prepared remarks reflects a couple of big initiatives. One is, as you know, we're moving into a new office in the Boston area just down the road from our existing location, so there's some meaningful investment in that new space. I think we plan to move in sometime in June, so it's around the corner. That would be an unusual one-time impact on our normal CapEx.

We typically spend between $40 million and $50 million a year on CapEx, so the numbers we are showing are elevated from that. The other initiative, which we're still working through negotiating but we have it in the guidance, is an expansion of our distribution facilities and looking at some strategies around that outside of the current infrastructure that we have. We have a couple of leases that are expiring in a couple of older facilities, and so in an effort to look for future cost savings and synergies, we're re-evaluating our distribution footprint, so those are the two big drivers that would take us out of the normal CapEx levels.

That's helpful.

We're always in the market. We're looking for opportunistic buyback scenarios. And one of the things, again, as you would be aware of, our notes today carry financial covenants that put some restrictions on those share buybacks and we made some meaningful repurchases late in 2015.

We were able to do that because we built up the capacity over a period of time in the way the covenants worked to be able to do that, and then that got reset, and so we will have to work through those covenants during the course of the year. We have some other options and we're looking at other ways to get amendments to those covenants, but in the meantime, we don't have any meaningful share repurposes embedded in our guidance.

Thank you very much and best of luck.

Yes.

Our next question comes from Benjamin Bray from Robert W. Baird.

Thanks for taking our question. Can you provide some detail on the 25% e-commerce growth in Q4 specifically? What was driving that acceleration?

Frankly, a lot of work we had done over the prior year. We spent a lot of effort and time and resources this year putting as many brands as we could on a single platform and that has been very efficient and very useful to help drive growth. We added talent throughout the year in the digital social area for our brands.

I think that was a great contributor to the growth, as well, and then we're simply just paying more attention to it. It's an important growth opportunity for the Company, probably should be at least 10% of our overall sales, and that's how we're viewing the opportunity. Obviously highly profitable opportunity.

I would also add that we had some real wins in the fourth quarter from a product standpoint. And we mentioned earlier that our three biggest brands had very strong double-digit growth in e-com in the fourth quarter. So that very successful Sperry Saltwater Duck Boot was a big driver of success for their e-com business, as well. So where we go out with exclusive product opportunities and/or early opportunities on our own sites, we're seeing success with that and we'll be continuing that strategy going forward.

That's helpful. Thanks.

Our next question comes from Mitch Kummetz of B. Riley. Please go ahead.

Thanks for taking my question. Two questions. One, just in terms of the guidance, so you expect better performance in the back half than the first half, but you have said that visibility is limited and you have also said you expect retailers to be pretty cautious with the pre-books.

Does it really boil down to an easier back-half comparison and you are expecting more of a normalized winter, so better re-orders than what you experienced in this past fourth quarter or is it something else? Does it come back down to new product launches? And I have a follow-up.

Well, it's really all of those things, Mitch. It's some of the new product launches, a lot of which are aimed at the fall selling season across our brand portfolio. It will be some easier compares, certainly as we get into the fall next year.

I've given up trying to predict weather. One of the reasons, frankly, that the Saltwater boot did so well for Sperry this year, it's a transition product. Is it a cold weather product? Is it a hot? We sold the Saltwater boot in August, September, October, November, December, until we were sold out to the pair. So it's a great example of a good fashion fit but also a transition product. So all of our brands, like a lot of our competitors, are focused on transition product.

And then, listen, retailers have been, as you know, Mitch, for the last 10 years, trying to push more and more the inventory risk back onto brand owners. So we're seeing that a little bit as we roll forward here. There's a lot that is going on that's changing in the retail marketplace and it all relates to changing consumer behavior. So we understand that, we're working with our retailers in that, but there's been a lot of pushback on the brands to be more important to retailers in maybe the at-once side of the business than future orders.

Okay. And then on Sperry, I'm just trying to get a better understanding of the historical context on the boat business. I was hoping you could give us color as to -- I think you said it's like a little over half of the business now, boat is, for Sperry.

Correct.

Where is Sperry boat relative to peak? Is it down like 20%, 30% from peak? Where is it from maybe six, seven, eight years ago, prior to the big ramp on the boat shoe trend? Is it still well up from where it was back then before boat shoes ramped? I'm trying to understand where it is.

As you know, Mitch, this country in particular has always had an ebb and flow of boat shoe popularity. I would say starting seven, eight years ago, really Sperry almost single-handedly increased the overall level. There's still volatility as we know and our comments reflect it, but increase the over-all floor for the boat shoe business especially in the US market. So today the Sperry boat shoe business is still significantly bigger than it was seven, five, four years ago, three years ago.

Your other question really goes, where is bottom? It's always hard to judge. We're seeing some signs now that once we get through the first half of this year that we may be approaching bottom for that business. Our efforts are focused on keeping boat fresh, keeping it relevant. It's always going to be an incredible business and relevant silhouette in the United States market and making sure we maintain our dominant position of whatever that market is. Today Sperry has about 70% ownership of the boat shoe market and we're not giving up any of that high ground to anybody.

Got it. All right. Thanks. Good luck.

Thank you, Mitch.

Our next question comes from Scott Krasik of Buckingham Research. Please go ahead.

Yes. Hi, everybody. Thanks.

Hi.

So I don't think you specifically answered it from way back ago, Mike, so how much is FX a headwind, just the FX portion to 1Q sales and the full-year sales, please?

For the first quarter only?

The first quarter and then the full year.

Yes. For the first quarter only, it's about a 2% headwind.

Okay.

For the first quarter. And for the full year, it's about the same.

Okay. And then I'm assuming the gross margin is going to be down significantly in 1Q, but you are guiding it to flat. Can you talk about what you are expecting or the environment to allow you to get back to a flat gross margin for the year given the hole you are going to dig, please?

We talked a little bit about it. Q1 will be the biggest quarter. All of our FX earnings exposure is really in the gross margin line. It's the product cost related to the contracts that we have entered into in the last half of 2015, so sixth-sense headwind in the first quarter is all product cost.

We don't get the full benefit of some of the product cost reductions until later in the year so where we're seeing commodity price benefits and input cost benefits in our FOBs, those aren't going to show up until later in the year. We know what they are. We have ordered shoes against those prices but we have some carry-over there.

We're also being a little conservative on providing some provision, some preserve, if you will, for any additional liquidation of inventory that might pose an opportunity for us in the first and second quarter, so that puts some pressure on margin and would subside in the second half. So it's those factors and the timing of some of the benefits we expect to see. FX will loosen up a little bit later in the year and those product costs will start becoming a bigger tailwind for us as we move through the year.

Okay. Perfect. And then just last, Blake, you mentioned that you have some product wins, right, Capra and Duck Boots and some of the Saucony product, so it really feels like you don't have enough good product to grow the business at this point. You have been through [Fanny] and OR and Magic. What are the retailers telling you about the fall products?

You obviously have big platforms you are introducing. Is that when you will start to see growth? Do you have the orders in hand? Can you talk about visibility?

We certainly have the orders in hand for -- or largely in hand for some of our key initiatives. So our big partner retailers that have signed up with Merrell, for example, whether it's Capra, whether it's the expanded Moab line, we have got a lot of orders in hands for that particular program.

Obviously everybody ran out of Sperry boots this past fall, so they know they need a good business. Sperry has shown that it's got a great line of transitional products which is great. But other than some of these points of light, I would say retailers are, at this point in time, still being pretty conservative.

As you know, you can never have enough product wins. We are focused on our consumer and product innovation. It's one of the reasons why we're creating a new innovation hub to help supplement the brands' creative efforts in that particular area, so it's something we're keenly focused on. We know at the end of the day we're an industry where if the product is right, everything else matters, and if the product is not right, sometimes nothing else matters.

So we're focused on it. We always wish we had a few more big stories. We have done a good job in 2015 of really filling the product pipeline, especially for Sperry, for example, in non-boat, and in Merrell, as well, and across a number of brands for Arctic grip. So fundamentally it's going to be the focus on the consumer and product innovation that is going to drive organic growth.

We can't control currency; we can't control some of the geopolitical volatility and instability. We can't really control commodity prices, so as in 2015, we're focused on the controllables, whether it's gross margin, enhancing gross margin, we have not taken our foot off the pedal behind investing in our brands. So we're investing in our brands as we had originally planned, and we're especially investing in product creation and innovation.

Okay. Good luck. Thanks.

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

Good morning. Thanks for taking my question. I want to circle back on the inventory for a moment. On your books, when it's up 12.7%, could you talk about what brands or categories have the heavy inventory and what do you mean by it getting more in line as you go into the back half of the year?

Are you still expecting it to be up? How does that jibe with, I guess, what seems to be high-single digit reported declines in revenue? Just meaningfully slowing down incoming receipts? How does that math work?

Sure. I can walk you through it, Chris. First of all, we talked a little bit in the remarks about boot inventory being a little higher than we would like. Part of that was the slow-down in the fourth quarter in general. The oil industry and construction sector and some other areas have been hit pretty hard and our work boot business softened up a little bit because of that. Obviously the weather impacted boots across any of the brands that have cold-weather product.

But we have core inventory that was purchased mid-year last year that came in really across the portfolio. And that's something we have to rationally work through over the course of the year. The good news is in September, late August and September when we saw some of the softness, we started to act pretty quickly with our factories on that orders of core merchandise that are generally at a pretty regular cadence in the way we buy it, and we slowed that way down.

So we already had visibility to the in-flow side of the equation. We're going to see the in-flow of inventories start to come down dramatically the latter part of Q2 and Q3. We couldn't turn that off entirely and didn't really want to put that burden on our manufacturing partners and so we managed through that over a reasonable period of time.

So we have got visibility to that, a meaningful reduction in inbound goods over the next couple of quarters. Core inventory that we don't see necessarily as seasonal, even though, like Blake said, we have about 3% more at the end of year than maybe we wanted to, based on some of the more seasonal cold weather stuff. But other than that, it's core product that will sell through, not necessarily waiting until fall for it to liquidate.

And then at the end of the day, we are working closely with all of our retail customers on our projections there. So when we talk about where we think we're going to end up at the end of the year, it would be down meaningfully from where we ended this year and we're going to make steady progress every quarter towards that. We'll probably see, again, Q1 guidance, what it is, we won't see an improvement in our inventory at the end of the first quarter.

But after Q1 and certainly a meaningful reduction year over year, relatively speaking, by Q2 and then even better performance into the latter part of the year, so it's something we have pretty good visibility to and a high level of confidence that we can achieve it.

Okay. Thank you. And I have a question on pricing. In the past you have talked about the ability to try to push through some pricing. As you sit here today, given the dynamics in the world we're in, and I think last call you referenced you had some challenges on pricing in certain categories. How do we think about it for this year?

I would say really how our brands approach this, especially internationally, as carry-over product goes from price that is good, but it goes to better, and your better inventory and styles go from better to best, it's incumbent upon your brands to come back with appropriate pricing of product at that good category level. So a good, better, best scenario, a lot of our efforts from some of our brands, especially those brands with big international businesses, is focused on bringing out great product at the good price point level.

And obviously over the last several years we have usually been ahead of this game. We have been very proactive when it comes to pricing. We like to increase our gross margins and our operating margins every year, in most years, that's our focus. You can't do that if you don't price appropriately. It doesn't mean that you take a blanket increase across a whole product line for a particular brand. You have to be smart about it.

I would say for some of our brands, our more traditional boot brands in the work area, it's a little bit tougher because they have a lot of product that is carry-over product. And some of those styles have been around for two, three, five -- more than five years. So it's not an exact science, but it's just something you have to work on every week and you've got to get out in front of it.

Chris, we took that tough action last year early in the year and even with Sperry on their domestic business, they raised prices. And ultimately the consumer and the retailers out there, frankly, have responded well to that. So we don't have any meaningful or large-scale increases planned for this year. There will be some surgical increases where needed, but overall the benefit we're getting to margin is really a result of just getting a full-year benefit from some of the work we did last year.

Okay. Understood. Thank you very much. All the best.

Thank you.

Our next question comes from Laurent Vasilescu of Macquarie. Please go ahead.

Good morning; thanks for taking my questions. I wanted to follow up on the CapEx guide. How much of the 2016 CapEx should we anticipate for the new innovation and design center called out in the prepared remarks or is that something we should consider for 2017?

There will be some investment there, more in 2017. Luckily we have got some facilities and capacity in our current footprint to take advantage of this year. And as we build that hub up, it will become a more prominent investment beyond 2016, but there's a meaningful investment in 2016 as well.

And then in the prepared remarks, there was a lot of discussion about potential acquisitions. On the flip side, would you consider divesting a brand or a segment in order to improve profitability or to reallocate capital in order to fund future growth?

As you know, we have a great history when it comes to cash generation and increasing EBITDA, so we have never lacked, fortunately, for funds or resources to organically grow our brands or do acquisitions, so that would not really come into our thinking. Our thinking about our brands over the year -- and we routinely take a look at our portfolio.

And, as you know, years ago when I was COO, we got out of three businesses and we've exited a business or a brand from time to time when it did not make sense or meet our future growth or earnings parameters. We're pretty happy with the portfolio we have today. We have no plans to divest of any of our brands currently in our portfolio today.

We also have today, because of our fantastic performance over the last three years and our current leverage ratio, we have the ability to do more acquisitions. We're primarily focused on organic growth today, but Mike and I and the team here do spend an appropriate amount of time looking at potential opportunities.

Okay. Great. Thank you very much. And best of luck.

Thank you.

Thank you.

Our next question comes from Sam Poser of Sterne Agee. Please go ahead.

Good morning. Thanks for taking my questions. The difference between the adjusted number and the reported number is the store closing costs. Can you break that out by quarter for us?

For which year, Sam?

In your guidance.

Almost all in the first quarter. It's almost all in the first quarter.

So your net earnings in the first quarter, when you exclude that is $0.19, is that the correct number? Or when you include that? I'm just trying to get that guidance that you gave?

The guidance we gave of $0.21 to $0.24 excludes that number.

Okay. Thanks. And the $4.6 million benefit you have in the quarter, other income, can you tell us what that is?

In Q4?

Yes, in Q4.

We had a settlement on an outstanding legal issue that came through in Q4. Obviously that's something that won't recur next year, so it's sort of a one-time benefit for us.

Okay. So on a net net,that should be taken out of.

Yes. It's already reflected -- yes, when I provided the guidance on a net interest expense and other expenses, that's reflected in that number.

Okay. And then it looks like in the guidance, since you have done the PLG acquisition, your sales based on the midpoint of your guidance are going to be up about 80% since 2011, and the earnings numbers are going to be almost flat. So I just want to understand, when are we going to get cranking here?

Well, I don't have those historical numbers in front of me. But obviously the PLG acquisition is added, even today with the Stride Rite stores underperforming, has added well over $100 million on an annual basis of EBITDA. Those brands were not performing at the level of the historical Wolverine brands when we bought them. They were largely focused on the USA market. They didn't have a great deal of higher margin international business.

For us, I think we are seeing some growth in some of the brands. The overall success of those brands has been hurt by the Stride Rite stores. We've addressed that over the last 12 months and into this month.

When you take a look at the international penetration, just as an example, the Sperry brand in pairs grew 15% internationally last year. The Saucony brand grew 25%. The Keds brand, which has been a bit of a pleasant surprise to me, grew about over 170% last year. So we're finally getting some traction. It takes a while, as I've said before, with some of these brands, but we're finally getting some meaningful traction on the international front despite some of the macro challenges that we talked about earlier.

Sam, it's important to remember, between 2015 and 2016 now with the new guidance we're giving you, $0.31 of currency impact to results, so just to put that in perspective.

I just want to make sure I get this. The adjusted $1.30 to $1.40, that number takes out the currency but doesn't include that one-time --

That's reported results excluding the $16 million of restructuring that we talked about that is going to be mostly in Q1 and partially into Q2. That's our normal adjusted earnings per share. It's not currency neutral or anything else.

Okay. All right. Thank you very much for taking the questions.

You are welcome.

Thank you. The question-and-answer session has ended. I would now like to turn the conference back over to Mr. Chris Hufnagel. Mr. Hufnagel, you may proceed.

On behalf of Wolverine World Wide, I would like to thank you 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 March 23, 2016. Thank you and good day.

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