Wolverine World Wide, Inc. (WWW) Q1 2014 Earnings Report, Transcript and Summary

Good morning and welcome to Wolverine World Wide 2014 First Quarter Earnings Conference Call. All participants will be in a listen-only mode until the question and answer session of the conference call. This call is being recorded at the request of Wolverine Worldwide. If anyone has any objections you may disconnect at this time. I would now like to introduce Ms. Christi Cowdin, Director of Investor Relations and Communications for Wolverine Worldwide. Ms. Cowdin, you may proceed.

Thanks, Maurine. Good morning everyone and welcome to our first 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 first quarter of 2014. If you do not yet received a copy of the press release, please call Jessica VanSolkema at 616-233-0500 to have one sent to you. The release is also available on many new sites or can be viewed from our corporate website at WolverineWorldwide.com. This morning’s press release included non-GAAP disclosures and these disclosures are reconciled with attached tables within the body of the press release. Today’s comments during the earnings call will include an additional non-GAAP disclosure. There is a posting at our corporate website that will reconcile this non-GAAP disclosure to GAAP. To view the document, please go to our corporate website WolverineWorldwide.com, click on Investor Relations in the navigation bar, click on webcast at the top of the Investor Relations page, and then please click on the link to the file called Q1 2014 Conference Call Supplemental Table located below the webcast link. Before I turn the call over to Blake to comment on our results, I’d like to remind you that the predictions and projections made in today’s conference call regarding Wolverine Worldwide and its operations may be considered forward-looking statements by securities laws. As a result, we must caution you that as with any prediction or projection there are 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. Earlier this morning we reported our first quarter highlighted by better than expected earnings per share. I am obviously pleased with our team’s ability to outperform our bottom-line expectations given some of the challenges facing the U.S. retail market in Q1. Our global business model mitigates risk as we are not dependent on any single country, region, fashion, trend, brand or distribution channel, a solid start to the year. As we anticipated and as we guided to in our last earnings all, revenues of $627.6 million was down modestly versus the prior year. The softer top-line results were limited to a few brands in the portfolio and we'll provide further color in a moment, along with some of the highlights from the quarter. The diversity of our brand portfolio and our global reach is reflected in our solid performance this quarter, with the Asia-Pacific and EMEA regions posting double-digit growth. However, we have not been immune to the general U.S. retail malaise, which has also impacted the U.S. footwear market. In 2013 the U.S. market reached its lowest level since 2008 and this trend has continued through Q1 with the exceptionally long and severe winter. Encouragingly, we have seen a significant uptick in business over the last several weeks, as spring has finally arrived and consumers are beginning to shop and react positively to our new spring and summer product offerings. Now moving to some specifics by operating group. First, the performance group, consisting of Merrell, Saucony, Chaco, Cushe, and Patagonia footwear posted solid mid single-digit revenue growth in the quarter. Merrell continues to benefit from the actions of investments made in 2013, which included the appointment of a new Brand President, the addition of a new Creative Director for…

Thank you, Blake, and good morning to everyone listening in today. Earlier this morning, we announced financial results for Wolverine’s first fiscal quarter ended March 22, highlighted by double-digit operating margin, growth in adjusted pre-tax income, better than expected adjusted earnings per share, lower inventories, and significant improvement in year-over free cash flow. Our consolidated revenues consistent with the guidance we offered in February declined modestly versus the prior year. However, as I just mentioned, adjusted earnings per share substantially exceeded our internal forecast driven by better-than-expected gross margins and solid operating expense discipline. I’ll now provide some additional insight into our financial results and give an update on our expectations for the balance of the year. All current and prior-year financial results discussed today have been adjusted to exclude any integration expenses related to the October 2012 acquisition of the Performance and Lifestyle Group, restructuring charges related to the closure of our Dominican Republic manufacturing facilities, and expenses related to our October 2013 debt refinancing. We reported first quarter revenue of $627.6 million, a decrease of 2.8%. We were pleased with solid revenue performances from many brands in our portfolio in the quarter, particularly Merrell, Saucony, Keds, and Cat Footwear, where we have many product and marketing initiatives working well. In addition to significantly lower retail traffic in the U.S., a number of factors impacted consolidated revenue in the quarter including the strategic realignment of Sperry Top-Siders U.S. distribution which Blake mentioned earlier; unusually harsh and prolonged winter weather, causing a much higher than normal number of temporary retail store closures, both our own retail stores and those of our retail customers. The shift in timing of the Easter holiday business to the second quarter; and a continuing soft U.S. casual footwear category, which according to NPD, was down…

Thank you. We will now begin the question and answer session. (Operator Instructions) Our first question is from Jim Duffy from Stifel. Please go ahead. Jim Duffy – Stifel, Nicolaus: Thanks, good morning everyone.

Good morning Jim.

Hi, Jim. Jim Duffy – Stifel, Nicolaus: Couple questions and the outlook for the balance of the year, with the fourth quarter call you gave some context around the shape of your expectations for growth between the first half of the year, the second half of the year, Don, could you update on that please? And then, If I have to choose a second question, it would be around the areas where you are finding room to tighten the belt for the cost savings, you did a nice job on the SG&A, I am just wondering how much more there is there and at what point we might see that flatten out or perhaps the incremental dollars as you invest behind the brands?

Yes, as it relates to your first question, we certainly expect stronger growth in the second half of the year, particularly weighted to the 17 week fourth quarter. We are up against tougher comps in Q3 when last year our consolidated revenue grew about 9%, but I would say our expectations are still for stronger second half growth compared to what we expect to deliver in the first half of the fiscal year. And as it relates to your second question, we did overdelivered on our expectations for earnings in the quarter with a substantial part of that overdelivery coming from lower SG&A than expectations. Most of that SG&A we expect to be invested in over the balance of the year Q2 through Q4. We do expect to see contribution in each quarter from incremental synergies. Recall, that last year, we talked about a $10 million full year benefit from synergies as we kind of completed the integration and we expect that to be kind of the run rate that we saw or the expectation that we – the performance that we saw in Q1 is we would expect to see in each of the three remaining quarters of the year. Jim Duffy – Stifel Nicolaus: Great. Thanks.

Thanks.

Our next question is from Kate McShane Citi Research. Please go ahead. Kate McShane – Citigroup: Thanks. Good morning.

Good morning. Kate McShane – Citigroup: My questions are centered around the supply chain and I wondered if you could walk us through, how you are progressing in expanding the capacity of supply chain to serve the increased distribution internationally and can you address the disruption at UN and how it could impact your business for the rest of the year?

Yes, I would say, for a number of years now, we’ve been focused on expanding our supply base out of Southern China and out of China. We made considerable progress. The overall percentage of our footwear sourced from that country continues to decline and certainly we started out far below the U.S. average for example. And it’s just a question of blocking and tackling, Kate, really. New factories, forming some relationships, testing products and new products in a prudent way and then expanding our capacity with them. With respect to the UN situation, it was – it didn’t really have any impact on any of our brands except maybe for Saucony a little bit. We follow that situation closely. We think it’s been resolved. UN is a material supplier for us primarily the Merrell brand, but the factory is making for Merrell and several of our other brands were frankly unaffected. Kate McShane – Citigroup: Thank you.

Our next question is from Taposh Bari, Goldman Sachs. Please go ahead. Taposh Bari – Goldman Sachs: Hey, good morning everyone.

Good morning. Taposh Bari – Goldman Sachs: A question on the EMEA region, obviously very encouraging trend there. How are you planning that business for this year and in the event that you actually beat on that revenue plan, walk us through if you can just the kind of EPS implications, so I believe it’s a lower tax region, so higher margins?

Yes, I mean, the double-digit growth out at the EMEA in Q1, we are not expecting, we would like to see but we are not expecting double-digit full year growth after two consecutive years of decline with last year being close to flat but still it’s actually decline for EMEA. We are forecasting kind of the mid single-digit growth for EMEA which is a nice turnaround from where it’s been in the last two years. You are right about a lower tax rate out at that region, but the benefit from EMEA growing mid single-digits is already captured in our earnings guidance, I wouldn’t categorize that as upside to the earnings guidance necessarily.

Taposh, as you know, the UK is our biggest market in that region and the UK seems to have a little bit more of a bounce back right now than the region as a whole. But I mean, the greater European region is still only estimated to GDP growth of about 1.7% to 1.9% this year. So, they are recovering, but albeit on a pretty slow pace. Taposh Bari – Goldman Sachs: Okay. Helpful and then the second question I had was on Sperry, I believe last quarter you were calling for 2014 to be a flat year in terms of revenues for Sperry and now you are calling for it to be down mid to high single-digits. Just curious to see what the difference is?

Yes, I mean, we just try to be very transparent with you and give you our current estimate and that estimate was frankly based on how the brand performed in Q1. We expect that Q1 to be a down quarter for Sperry, but the prolonged winter, the fact that most of the Sperry product at this point is anchored in spring and summer collections. Frankly, everything really had an impact on the brand. So, when you factor in their revenue decrease in Q1 and as we look ahead at the order book and how the business is shaping up for the entire year, that's our best estimate for the full year.

I would say, while we met our consolidated expectations for revenue in Q1, Taposh, some of the brands’ overdelivery, as you would expect across a 16 brand portfolios, some are going to do better than bet expectations, some worse than expectations, and certainly we didn’t expect Sperry to be as down as much it was, but other brands pulled up the slack to a certain extent and we delivered on the consolidated expectation for the quarter.

The good news, yes, the good news right now is, we're seeing very strong at-one three orders for Sperry, is kind of spring is slightly broke around the country and the pick up on not – the non-boat shoe category for fall, boots, rubber boots, casual boots and several other flaps and in other categories has been very good. Taposh Bari – Goldman Sachs: On the pickup, are you able to discern how much of that is actual kind of improvement in the fundamental trend versus say, a favorable Easter shift, because we're hearing a lot of companies saying the same thing. But I think investors are trying to figure out what's real and what's not?

Yes, I would think that, well, Easter is important to the footwear market but it's really not important for a number of our brands and Sperry would fall into that category. The Easter and three week Easter shift would be far more important for the Stride Rite children's group, for example. So, really our outlook for Sperry for the year and its current performance is really not overly based on the shift in Easter. Taposh Bari – Goldman Sachs: Okay. Thank you. I’ll pass it on

Our next question is Christian Buss, Credit Suisse, please go ahead. Christian Buss – Credit Suisse: Yes, thank you very much. You've shown pretty tremendous inventory discipline over the last several quarters. Could you provide some perspective on how are you planning your inventories for the back half of the year?

Yes, I think, in terms of year-end inventory, we would expect year-end inventory to be up modestly versus the prior year. I’d say our inventory was very low and very clean at the end of 2013. So we are looking at our planned cash flow generation for fiscal 2014. We're certainly expecting to make some investments in net working capital both inventory and accounts receivable at year-end versus the prior year. I think our inventory will still be very much in balance and very clean at the end of the fiscal year, I think, trying to replicate where we were at the end of 2013 might be somewhat of a challenge. So if you're modeling out the free cash flow generation for the year, I would expect inventories to be up modestly kind of in the mid single-digit range versus the prior year. Christian Buss – Credit Suisse: That’s very helpful. And the pendulum has been swinging over the last couple of years between preorders and at-once orders. Where are we on that pendulum right now?

Well, I would say, not much has changed, frankly. , I think retailers are playing as close to the vest as they possibly can. They try and push back on brand owners like us as much as the inventory risk is possible. We've responded over the years by having kind of a narrow and deep philosophy. We want to carry a little of everything, but we want to be narrow and deep in the core products and the core colors. So, sometimes it gets frankly a little frustrating to us when we don't think a particular retailer has placed as many future orders as they should and especially when they come back with large at-once reorders, but that's the nature of the business and we've learned how to be pretty good at it. Christian Buss – Credit Suisse: Thank you, so much and best of luck going forward.

Thanks.

Our next question is Mitch Kummetz from Robert Baird, please go ahead. Mitch Kummetz – Robert W. Baird: Yes, thanks for taking my questions. A little bit more color on Sperry. Could you quantify the impact from the distribution alignment – realignment on the quarter? And then, when does that normalize? And any help just kind of men's versus women's performance on the quarter. It sounds like the women's boat show piece was the most difficult? And then I have a follow-up.

Yes, let me address the boat shoe piece. Yes, I would think the impact in the quarter was fairly even on a percentage basis between men's and women's. I have seen the boat shoe silhouette remain, I believe, stronger on the men's side. It's become a – over the last seven or eight years a real staple in the men's closet, especially, here in the United States with 25% to 30% of all men's shoes are being tied to that boat shoe silhouette. Less on the women's side and we detected a more significant, it was hard to measure, but a more significant fall-off in the fashion component on women's boat shoes in the quarter. And, we think that's stabilized right now. We really don't think period one and two and most of there was a good indication. The boat shoe look itself is front and center at all of our major retailers and customers. So as you know, Sperry is the dominant player in that category.

And then Mitch, what was your – the first question about the one decision to exit that one – the family channel account that hurt the brand’s year-over-year growth in the quarter by about five percentage points. And I think as Blake mentioned in his prepared remarks, about half of the brand's decline in U.S. wholesale in the quarter was driven – was from the family channel accounts which would include that one specific decision to exit the account. Mitch Kummetz – Robert W. Baird: Got it and that normalizes by Q4.

I'm sorry, it would be a negative impact each quarter of the year. Mitch Kummetz – Robert W. Baird: Okay, and then – got it. And then could you guys speak a little bit to performance in the quarter wholesale versus direct and how you expect that to play out over the course of the year?

Yes, I would say, certainly period one, as I said in our last call and as I said in January at ICR, we didn't expect the turning of the calendar page to change the retail environment and that's exactly what happened. So the tough trading conditions at retail continued certainly into period one and two and most of three exacerbated by the weather. So it's been a challenging Q1 for retail in general. And overall, across our 16 brands, the wholesale business was stronger than consumer direct in Q1. We would expect that, because we've already seen it, expect that to reverse here in Q2 a little bit and get back to a more normal shopping environment. As spring has finally gotten here and people are actually starting to look at new spring and summer styles. Mitch Kummetz – Robert W. Baird: Okay. Thank you. Good luck.

Thanks, Mitch.

Our next question is Edward Yruma, KeyBanc Capital Markets. Please go ahead. Edward Yruma – KeyBanc Capital Markets: Hi, good morning. Thanks for taking my question.

Good morning. Edward Yruma – KeyBanc Capital Markets: I know you discussed at length for the transition with Sperry, particularly as you exit some of these family channel doors. I guess, can you just talk about Sperry's distribution overall? I know it was unique that you had some premium positioned retailers. Have you been losing retailers? And how does the skew of the customer base how has that changed this year versus last year?

Really, the customer base hasn't changed at all from what we can ascertain and we're in as many mid-tier and premium retailers as the brand has ever been in with a probably even an expanded assortment as the brand has redoubled its effort to move beyond boat shoes. So, you can take a quick tour at retail and you can see, frankly, Sperry is front and center in the mall, whether it's at key retailers or at department stores or better-grade department stores and very, very strong with independence. So the brand is strong. There is no brand drag with retailers or customers. And this will be a bit of a normalizing year for the brand, but after four, five years of growth at a CAGR of 30% plus, not totally unexpected. Edward Yruma – KeyBanc Capital Markets: Got it and a follow-up if I may, I know there was a confluence of unusual things that took place between whether the Easter shift that impacted the Stride Rite Children’s group but you've had a number of kind of weak quarters there. I know you have a new leader in place, I guess, any early unlockings and things you can do to improve performance there should mall traffic remain weak? Thank you.

Yes, I think Ira is focused on the right things. He is taking a hard is very strategic look at their whole Omni channel experience and structure of that organization. As you know, we operate almost 300 Stride Rite children's stores here in the U.S., but he is also taking a hard look at Millennial Moms, how Millennial Moms are shopping. And he has got a number of initiatives focused on short and mid-term increase to store productivity. So we feel great about Ira. He is doing a great job. Certainly a challenging environment in Q1 out of the box for him. But he is looking at all the right things. Edward Yruma – KeyBanc Capital Markets: Great, thanks so much.

Our next question is Scott Krasik, Buckingham, please go ahead. Scott Krasik – Buckingham Research: Yes, hey everyone. Thanks for taking my questions. Can I just ask a question on Q2 and then a sort of second half follow-up? On Q2, you alluded to DTC growing faster than wholesale and then I think you also said that, you don't intend to reinvest as much either, so, should we see a sequential increase in gross margin improvement and should we still continue to see SG&A down year-over-year?

Well, yes, Scott, first maybe I just spoke, but, I said, consumer direct was going to bounce back to what we consider normalized levels. So, we don’t see any – we don’t anticipate and we are currently not seeing any fall-off in our wholesale business which really remains pretty strong around the world.

Yes, and I would say, we are not giving specifically quarterly guidance, Scott, but we wouldn’t stand behind our comment from February that we expect modest full year gross margin expansion, And I also mentioned, I think in response to one of the first – Jim Duffy’s question that, we would expect the – some of the SG&A that we did not invest in Q1 to be invested over the balance of the fiscal year to be only – maybe partly offset by the realization of the synergies on a quarter-by-quarter basis from the integration of the PLG. Scott Krasik – Buckingham Research: So not down year-over-year is what you are saying?

No, no, I would not – SG&A be down though. Scott Krasik – Buckingham Research: Okay and then, just in terms of giving us comfort around the sales acceleration in the back half, because that's really key here, Do the backlog support this acceleration? I know you sort of alluded to retailers still playing it coy with commitments, but how do we get comfortable really with the acceleration?

Well, I mean, fundamentally, not much has changed. We obviously look at our order flow at-once and future orders. We look at how our newest products are selling through in the market, especially here in the United States and a number of other factors. We get pretty detailed sell-through reports from all of our largest retailers and collectively across our portfolio we are probably the largest footwear brand owner suppler to a number of our- the biggest retailers here in the U.S. So, our outlook certainly has not changed since our last call and its current sell-through and the current order position have only reconfirmed what we said during the last call.

I would say, Scott, it’s not just – it’s a backlog, that's obviously one data point, but it’s also the quality of the backlog in terms of what we expect to actually ship out of that backlog this year, versus last year also frame, but what we expect our at-once business to be framed by what we experienced last year in Q3 and Q4 and also what we expect to do on the consumer direct front, both in terms of e-commerce growth, new store openings, as well as comp store sales growth on existing stores. Scott Krasik – Buckingham Research: Okay. Thanks, good luck.

Thanks.

Our next question is Steve Marotta, CL King & Associates. Please go ahead. Steve Marotta – CL King & Associates: Good morning everyone. Another question on Sperry considering that the first quarter was down in that upper teens; the second quarter is expected to be down mid-single-digits; the full year, down, I believe you said mid to high single-digit. Can you talk a little bit about – in a little more granularity about second half 2014 expectations? I am unsure of the particular sales mix of Sperry in first half versus second half, maybe you can offer a little granularity there.

Yes, I would just give you maybe a little bit more insight. As we look at the end of the second half of the year, we would be anticipating for a number of reasons, growth for Sperry in Q4, still a tougher comparison in Q3. So we would expect our revenue shortfall from last year in Q3, but, we are pretty confident about getting Sperry back on the growth track in Q4.

And the brand – Steve, I am sorry. Steve Marotta – CL King & Associates: And the backlog order book supports, obviously, that fourth-quarter projection?

The answer is yes, it’s still early. We’ve got a couple of open order windows yet. Obviously, for Q4 and then we do as you know a good chunk of our business in the at-once category, but, the answer is yes. Steve Marotta – CL King & Associates: Okay and the follow-up question I had as it pertains to operating expenses in the first quarter. Don, could you aggregate what was discretionary versus synergies just for the decline on a year-over-year basis?

A couple million dollars of synergies really would be what the run rate would be per quarter. So, for the full fiscal year, year-over-year synergy benefit of about $8 million and so the balance of the SG&A discount would be more in a form of s discretionary spending that, some of its timing-related, some of it just was purposely delayed until the latter part of the year. Steve Marotta – CL King & Associates: Okay. That's very – was any completely eliminated? In other words, you mentioned the course of the reinvestments, but of that difference?

Obviously, there is a lot of the fiscal year lapse, but our expectation now is that the vast majority of the under spend in Q1 will be reinvested over the balance of the year. That’s why the earnings overdelivery in Q1 did not result in a increase in our full year EPS guidance, because we expect to invest that over the balance of the year. Steve Marotta – CL King & Associates: I understand. Thank you very much.

(Operator Instructions) Our next question will be Danielle McCoy, Brean Capital. Please go ahead. Danielle McCoy – Brean Capital: Good morning. Thanks for taking my question.

Good morning. Danielle McCoy – Brean Capital: Regarding some of the trends that you guys have been seeing come about in the second quarter, can you give us a little bit of color of where you are seeing the pockets of upside or strength and where still some weaknesses might exist?

Well, I guess, if you want to focus first on the general consumer trends, and amongst our 16 brands, we have one or more brand that will just cover just about any targeted consumer group. We continue to see a strong interest in boots, especially in Europe, kind of a resurgence of the mid-90s grunge boot trend. We also see that picking up on the coast here in the United States. That’s good for obviously, a number of our brands and it’s an early trend that just continues to build. Obviously, we are just beginning to see specifically sell-through on spring and summer products over the last three or four weeks as the weather has broken in about two-thirds of the country. Color is a general consumer trend remains a very high on the consumers’ mind and that’s good usually when that trend is done there for footwear. It’s – it means for a pretty strong footwear business. Do you have any other trends – any categories in the line? Danielle McCoy – Brean Capital: No, I mean, I was just trying to get a little bit of a sense of how, I guess what some of the consumers are really focused on and what have been selling better than others?

I would say, frankly, boat shoes have been very strong here over the last several weeks. I think you are going to see, especially in the U.S. market strong espadrille season and a strong sandal seasons, as well, for spring and a strong sandal season as well for spring and summer. I would say, in the apparel category generally, it’s my belief from just tour in retail and talking to some folks around the industry that there isn’t a single one or two white hot fashion trends that is driving apparel at the moment. And so, I think that kind of flows down to the footwear category as well and we’ll just have to see what the future holds. Danielle McCoy – Brean Capital: All right. Great, and then a little housekeeping, \what should we expect for D&A and the tax rate for the year?

I would use the Q1 tax rate as the best estimate for the full year tax rate Danielle. And D&A in the $50 million range. Danielle McCoy – Brean Capital: Okay, great. Thank you, guys. Good luck.

Thanks.

Our next question is Erinn Murphy, Piper Jaffray. Please go ahead. Erinn Murphy – Piper Jaffray: Great, thank you for taking my question and I apologize if this has been asked; I've been toggling on a couple of conference calls. On the Keds business, it sound like that's been a point of strength. Can you talk about how that brand has been translating internationally?

Yes, I mean, as I said at the beginning, when we acquired the PLG brands, I was surprised at the very beginning at the strong interest our international partners showed in Keds. I expected strong interest out of the box and in Saucony, I expected strong interest out of the box certainly in Sperry Top-Sider, the number one casual brand in the U.S. but the Keds brand and business had a pretty strong pick up across our international partners. The brand continues to perform quite well. Obviously, very early on in its international expansion probably EMEA and Canada and the rest of the countries around the world in Q1, it would be less than – certainly less than 25% of top-line sales. So, tremendous upside there and we’ve got some big programs going in China and other bigger countries around the world. I would also say that, in the U.S. Keds given the nature of its product and the brand, the weather also had a negative impact on the Keds brand in Q1 despite its strong double-digit revenue increase. Certainly, if we had a normalized spring, it would have been even higher.

What’s really encouraging about the Keds brand Danielle, is an addition to the revenue growth, both U.S. and outside the U.S., we continue to see nice gross margin expansion, not the same rate of expansion that we had in 2013 when the brand grew its gross margin by almost 1000 basis points, but a significant increase in gross margin in Q1 versus last year’s Q1 as it’s really driven by favorable product mix. Erinn Murphy – Piper Jaffray: Okay, and I guess, that was a follow-up question, just given the promotional environment..

I am sorry, Erinn, not Danielle. I’m sorry. Sorry Erinn. Erinn Murphy – Piper Jaffray: That's okay. I knew what you meant, no, but just given the promotional environment in general, I mean that was impressive to see the gross margin gains in the quarter. Was that more a mix shift as you just alluded to or kind of how are those conversations with your wholesale accounts going as we think about what was a very, very soft weather patch during the first quarter?

Are you talking overall or for Keds? Erinn Murphy – Piper Jaffray: Overall.

Overall, really, it was driven by price increase. Our price increases was more than offset the impact of higher product cost by about 40 basis points and then it’s partly offsetting that was – is a negative foreign exchange that I alluded to, that was about 20 basis points – to the 20 basis point increase in margin. So, there was a solid gross margin quarter we think in a tough environment, especially when we had softness in our consumer direct business which obviously had a negative impact on gross margins. So we were really pleased with the gross margin performance in the quarter. Erinn Murphy – Piper Jaffray: Great, thank you guys and best of luck.

Thanks Erinn. Sorry I called you Danielle.

Our next question is Sam Poser, Sterne, Agee please go ahead. Sam Poser – Sterne, Agee: Good morning. And thanks for taking my questions. I've got a handful. I'll make it in one long question. One, can you give us EBIT? I know it's comes on the Q, can you give us the EBIT by group? Number two, could you give us an update on the five-year plan given sort of the slow revenue start? Number three, the pre-book, Q1 is a pre-book quarter. Could you discuss how that might have moved around to at-once? Number four, you said you are going to aggressively pay down the debt, but there wasn't that much of it appears in the first quarter. And lastly, the GAAP EPS guidance went from $152 to $158 to $148 to $154, yet the non-GAAP numbers stayed the same. Can you talk about what changed there. Sorry for that one long multiple question. Thanks.

Okay, Sam, I was writing quickly, you’ve clearly violated the rule, but we’ll try and answer as many as we could remember.

I would say that's par for the course for you Sam, but I'll handle the first, I‘ll , you think that's a compliment right. Operating profit that will be in the Q1 it’s filed, the performance group $58.0 million, lifestyle group $25 million and Heritage Group $17.7 million. Sam Poser – Sterne, Agee & Leach: And the other?

I don’t have it – $15 million I don’t have the exact number.

Yes, with respect to our five year plan, we haven’t changed our growth targets over the five year. We would still expect at this point to hit $4.1 billion by 2018 despite the unusual Q1 this year and our outlook for 2014. We know our international business, especially with our newest brands are going to build over time, it takes a couple of years four, five seasons through really get those brands going in international markets. So those start to kick in, in the future as well. And then Sam, I think your third question was on order – I think retailers, especially in periods one or two, we are very cautious with the reorders and future orders that has begun to open up. We’ve seen kind of a resurgence in four at-once business especially in the Sperry brand here just over the last few weeks, just generically, when I look at our consolidated order book, it’s certainly built week-by-week since the end of Q1 which is a very good sign.

As it relates to your question on debt repayment, and I think, you know from our past conversations, our ability to actually pay down the debt or pre-pay the debt, paying more than the mandatory principal payments is a function of our U.S. cash flow and as indicated by the fact that we had a $34 million draw on our revolver at the end of Q1 which is a cash usage quarter for us given our – the seasonality of our working capital requirements. There really wasn’t any excess cash flow in the U.S. in Q1 with which to pay down our debt. So, that still is an important part of our strategy to delever as quickly as we can, but it’s a function of delivery – of generating cash in the U.S. that really determines our ability to do that. And as it relates to the reported EPS guidance, as we continue to move through with some of the lingering integration projects, the most significant of which is the integration of our customer service and consumer relations department and the back half integration of European distribution. We continue to fine tune and refine the expenses that we would incur to accomplish those two things that are still to be accomplished in 2014. And so that’s why there is a bigger spread between the adjusted EPS guidance and the reported EPS guidance now than what we talked about in February. Sam Poser – Sterne, Agee & Leach: Thank you for helping me break the rules.

You are welcome, bye-bye. Sam Poser – Sterne, Agee & Leach: Bye-bye

Our next question is a follow-up, Mitch Kummetz from Robert Baird. Please go ahead. Mitch Kummetz – Robert W. Baird: All right, thanks. Yes, two quick follow-ups on the full-year revenue guidance. Don, I think you said on the last earnings call that lifestyle would likely – I'm sorry, not lifestyle. Heritage would likely be your strongest growing group this year. But in the quarter, obviously performance was the strongest and actually, performance was a little better than what I thought given the lapping of the M-Connect launch. Can you update us on how you are thinking about the growth by operating group?

I guess, we don’t have our plan right in front of us Mitch, quarter-over-quarter. Mitch Kummetz – Robert W. Baird: By operating group.

But I will say, say Merrell had a very strong Q1, and this has been the only, since Q4 of last year. The outdoor performance category for Merrell in particular had a very strong double-digit increase in Q1. So Merrell and Saucony are clearly the largest drivers for the performance group. The unusual spring weather probably had a bit of a dampening impact on Saucony’s growth in Q1, but it’s back on track towards an accelerated growth rate. So, this year, on the performance group side, I would see still continued very strong performance from Chaco and strong performance from both Merrell and Saucony contributing to a very good year.

Yes, I’ll say Mitch, I am sorry, I've been proven wrong before, but I don't have a specific recollection of saying in February that we expect to hear the Heritage Group to be the strongest revenue performer up for the full year. And maybe I did, but as I sit here today, even without the benefit of the full year re-forecast in front of me by brand and by operating group, I think the performance group is going to be strongest year-over-year grower of the three operating groups, but I will confirm that and I am sure, we are going to talk later today. Mitch Kummetz – Robert W. Baird: Okay, great. And then just a last follow-up. On the benefit from international expansion of acquired brands, I know your overall revenue growth plan is 3% to 6% growth. Is there any way you could give us a sense as to kind of what incremental benefit you expect to get from the international expansion required brands. Is it 1 point or 2 point of that growth or is it not even that much?

Again, I would say, Mitch, it’s less important frankly in terms of revenue as it is in terms of bottom-line impact on the company. Most of the contracts we are signing will be royalty, there will be a blend, but there will be royalty income. Let us do, let us do a little more work and we will be happy to give you an update on that at our Q2 call when we have maybe a little more insight into the year.

Let’s say it’s not for the pretty small base as starting point particularly for Keds and Sperry Mitch. So, I think Saucony would be in the one of the four brands that we acquired that has the most business outside of the U.S. but I would say, it’s less than a percentage point to that 3% to 6% growth. But, it’s still high teens to above that in terms of the year-over-year growth outside the U.S. for Keds, Sperry and Saucony. Mitch Kummetz – Robert W. Baird: Okay.

I would – just another point of reference for you, when we acquired these brands, the Saucony had the most international business with about 18% of its top-line outside of the United States that has fallen by a double-digit percentage here as even for Saucony international operations that expanded and additional contracts have been signed, especially given its growth in EMEA. So today, for the quarter if you look to the Saucony business, only about two-thirds of top-line revenues would be from the U.S.. It just gives you an indication of how it builds over time. Mitch Kummetz – Robert W. Baird: Great, thanks again.

Thank you, bye.

Thank you. 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 Worldwide I would like to thank everyone for joining us today and as a reminder, our conference call replay is available on our website at WolverineWorldwide.com and that replay will be available until June 20, 2014. Thank you, good day.