Greetings and welcome to Wolverine Worldwide’s Third Quarter Fiscal 2019 Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the conference over to your host Mr. Paul Feyen. Thank you. You may begin.

Good morning and welcome to our third quarter 2019 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 third quarter 2019. 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 Francesca Filandro at 646-677-1814. 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 Q3 2019 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. During our call, we are providing adjusted financial results, which adjust for the impacts of environmental and related costs, business development-related expenses, re-organization costs and foreign exchange rate changes. I'd also like to remind you that predictions and projections made during today's conference call regarding Wolverine Worldwide and its operations are forward-looking statements under U.S. 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 actual 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'd like to turn the call over to Blake Krueger.

Thanks, Paul. Good morning everyone and thanks for joining us. Earlier this morning, we reported revenue growth of nearly 4% on a constant currency basis, which marks our highest quarterly growth rate of the year. This growth was driven by Merrell, Sperry and Saucony, our three largest brands, who on a combined basis delivered over 11% constant currency growth. Adjusted earnings per share of $0.68, a 10% increase over the last year was very strong despite a much higher tax rate in the current year record. Record third quarter gross margin and disciplined approach to managing the business drove adjusted operating margin expansion of 150 basis points. We're extremely pleased with these results, which reflect the strength of our brand portfolio, excellent global execution by our teams, solid progress against our global growth agenda and the implementation of our brand growth model. For today's call, I'll provide some additional detail on the results for our branded group and key brands as well as an update on our global growth agenda. Mike Stornant will then provide additional details on the third quarter financial results and our updated outlook for the remainder of 2019, starting with the Wolverine Michigan Group. Revenue declined 2.7% compared to the prior year and 1.9% on a constant currency basis. Merrell grew high single digits in the quarter. We also saw gains in Harley-Davidson and HyTest. Due entirely to the timing of some international shipments, Cat was down high teens, but is expected to show robust growth in the fourth quarter and double-digit growth for the full year. A flattish quarter from Wolverine and declines from some of the remaining smaller brands led to the group's overall revenue performance in the quarter, starting with the Merrell brands. Strong quarterly results were led by the EMEA, Canada and…

Thanks Blake, and thank you all for joining us today. During the third quarter, we delivered revenue of $574.3 million resulting in growth of 2.8% or 3.6% on a constant currency basis. This growth was led by our three largest brands, Merrill Sperry and Saucony on a combined basis delivered constant currency growth of 11.5%. The companies owned direct to consumer businesses were also strong achieving mid-teens growth driven by both e-commerce and stores. Our e-commerce growth exceeded 20% year-to-date as we focus our efforts on customer retention, this business is becoming more efficient leading to operating margin expansion of nearly 300 basis points in Q3. We delivered record Q3 gross margin of 42.4% which was up 80 basis points from the prior year and better than expected. Gross margin benefited from favorable product mix within our global wholesale business, including an increase in higher margin boot sales. The impact of our European Saucony business and strong growth within our higher margin DTC businesses, this was partially offset by slightly higher closeout sales and a shift in business model related to some of our international distributors. Adjusted selling, general and administrative expenses of $162.8 million were slightly lower than expected and down approximately 60 basis points as a percentage of revenue due to our solid revenue increase, disciplined discretionary spending and lower year-over-year incentive compensation costs. As a result of these factors adjusted operating margin of 14.1% expanded 150 basis points over the prior year and it was the highest quarterly operating margin rate since 2011. The third quarter reported effective tax rate came in at a more normalized rate of 20.3% versus 7.8% in the prior year. The prior year effective tax rate benefited primarily from the favorable impact of $40 million of voluntary pension contributions. Third quarter adjusted…

Thank you. [Operator Instructions] Our first question comes to the line of Matthew DeGulis with KeyBanc Capital Markets. Please do their question.

Good morning, thanks for taking our questions. It seems like you met and exceeded your third quarter guidance, but can you talk about if there are any surprises, positive or negative in the quarter, either by brand or channel? And can you also comment on the composition of inventory heading into holiday?

Yes. This is Blake. I'll take the first one. No real surprises in Q3. Obviously September was exceedingly warm here in the U.S. We think that did have an impact on the retail market in general. That's obviously changed. I'm looking out my window right now. Our pond is half frozen and we have two or three inches of fresh snow on the ground here in Michigan. But other than that maybe the only – not a surprise, but continuing issues, it has been the global volatility, whether it's geopolitical risks in some region, whether it's tariffs, whether it's been increasing strength of the U.S. dollar, whether it's Brexit, whether it's some economic retail consumer situations in a few countries like South Korea. Maybe was there really a surprise, but that's sort of volatility on an international basis continued.

I'd add to the – to that in terms of both your first and second question, I think on the inventory side, that volatility in the U.S. was reflected in inconsistent at once. But as we talked about last time, we expected some of that; we factored that into our outlook for the quarter and for Q4 as well. We continued to see that. I think a lot of it at the end of September, early October was driven by weather as Blake mentioned. But we managed to do that with our retail partners. I think our inventory positions continue to strengthen or improve at retail just given the, the better weather conditions and just some stronger holiday traffic that we're seeing across the business. So I think inventories today are better than they were when we started the quarter and appear to be continuing to improve week-by-week.

Maybe, maybe the only other, a bit of a surprise was how strong our boot business was in Q3. I know a number of other companies that struggled given the weather situation, but our boot sales, whether Merrell work in tactical or Wolverine brand work in safety or Sperry were pretty good and continue to take market share.

Thanks. And one follow-up if I could. Can you talk about the – like what capabilities having a Chief Merchant Officer bring to the company? And I just want to understand, I guess, how this changes things, what’s his role mostly handled that the brand level before and now it's being centralized?

Not at all. The brands are still fundamentally responsible for trend, wide space, thinking, design, growing their brands, but in today's world you cannot have enough merchant commercial – merchant experience. So Angelo joined us. Obviously he has 25 years of experience in fashion and apparel with Levi's, Dockers and Europe, America, Asia, Nike and Europe. And his main job is to make sure we have kind of a continuous flow of on-trend craveable product. That's also the brands primary responsibility that that has not been centralized. I would think of Angelo’s function, think of it is being additive to the efforts of the brand and a partner with our brands. So we believe it's a critical function to shape the future. He's also going to be in-charge of our consumer insights, market intelligence group, trend, advanced concepts and he has already taken on a few special projects like the Saucony lifestyle business for the world, maximizing that opportunity.

Great. Thank you.

Our next question comes from the line of Mitch Kummetz with Pivotal Research. Please state your question.

Yes. Thanks for taking my questions. I guess I got a few fairly quick. First, I was hoping you quantify a couple things for me. First on Saucony, the incremental revenue impact of the European acquisition, how much does that was in Q3 and then also the benefit you receive in Q4. And then can you talk a little bit about the Cat timing? It sounds like there was some delivery timing there that hurt the quarter. So if you can quantify that and is that just – then a benefit to Q4?

Yes. Let me first talk about Saucony. The Saucony Europe, the business that we really integrated at a fast pace did have a beneficial impact. On Q3 for Saucony, I'm trying to remember, I think it was in the $12 million to $14 million range. At the same time, the Saucony’s inventory's extremely tight right now. Lean and their closeout sales were less than half of the prior year. So when you factor both of those together Saucony on its organic business probably was about flat in the quarter. One of the things that we especially like about Saucony’s continuing momentum is the at-once trend, as you know Q1 and Q3 tend to be a little bit more future order driven, but the Saucony at-once trend on their performance product was up mid-to-high teens in the quarter. And then with respect to Cat timing, yes, Cat had some orders that slipped into Q2 and they're going to have some orders that are going to slip into Q4. It's really just a timing issue given the migration out of China and factory capacities. So when we look at the second half for Caterpillar, we expect it's going to have mid-single digit growth to the second half. And as a brand it's going to be up double digits for the year.

It will be up strong double-digits in Q4 Mitch just based on that shift.

Got it. And then just lastly, you talked about your business was good in the quarter and it sounds like at once as well, but I'm curious, I've heard other companies talk about just given how little inventory there was coming into this fall holiday season that some retailers pulled up some orders. I was wondering if you sign any fall order book kind of deliveries shift out of Q4 into Q3?

No. We haven't really seen that out at all. Despite the warm September we didn't – any of our key retailers, we didn't see them panic. We did on the boots situation or fall product in general, it was pretty much steady on and maybe collectively we've all been rewarded a little bit in October here in early November.

Yes, I think that Mitch, I think the reality is we had a really solid commitment on the future order bookings that we had especially in Sperry, and we delivered on that in the third quarter. But as you know, that's all sell in and we saw some – some good early signs that sell through, we're going to – we're going to be good for Q4, but those have just improved over the last couple of weeks.

Okay. That's encouraging. All right, thanks guys.

Thanks.

Our next question comes from the line of Erinn Murphy from Piper Jaffray. Please state your question.

Hi guys. It's Eric Johnson on this morning for Erinn, and thanks for taking the questions.

Sure.

First, yes, I was just wondering, on Saucony you noted your plan in the last three quarters. It sounds like reorders have been good, but can you kind of quantify the order of magnitude and upside between reorders, better selling of new products or distribution gains ahead of plan?

I think I would kind of characterize the Saucony improvement as you mentioned, right. In the first quarter the business was down mid-teens and we've seen progressive improvement in the organic business every quarter. Like mentioned it a little earlier, our inventories in Saucony especially in some of the access price point product is a little bit leaner this year. We were running that on a lean level deliberately. So the upside to really chase any of that businesses is somewhat limited in the fourth quarter. Our closeout demand is down because we don't have closeout inventory right now in Saucony, which is another great sign of their health and improvement in the business. And so the fundamental drivers as we kind of shift into next year for them are going to be this improving trend with their performance category, which has shown some really strong at-once demand in Q3 and continues in Q4. They've got some new products launching that just launched the Triumph a couple of days ago. The new version of the Triumph, which is performing well already and obviously our lifestyle business and Originals business, which is going to be a focus for us as we move into next year. So I like the Saucony business has kind of moved beyond stable or stability and onto a growth trajectory as we kind of pivot to next year. And I think it's in all the right categories and, and based on a much healthier baseline business as well.

Great. That's helpful. Did you guys in the period of supply chain product quality challenges, did you lose any distributors or key accounts there that you have to recapture or are we kind of on the same Plainfield as we were?

I think we're really on the same Plainfield. We just got back from the global brand conferences that we held across our portfolio and I would say international distributors and community as well as our domestic sales force, they're very excited. The most excited I've seen in the last three years about the pipeline of product and ideas that are flowing out of Saucony. So we didn't have really any kind of adverse impact.

Yes, that's good to hear. And one final one for me, I was wondering if you could provide an update on Chaco, I know you're attacking next year with some lower price, entry price product. I'm curious how those are looking into bookings and how you feel about the brand over the next 12 months here?

Yes. I think the issue – the support and enthusiasm of the ChacoNation has not dissipated at all. For Chaco, it's simply a question of diversification beyond the Z sandal. The Z sandal business as you know, has been a little challenged, still a great, highly profitable business, but Chaco is expanding with some slides, lighter weight sandals, close toed footwear, some water product that that we will be introducing in 2020. So our focus in Chaco really has been about expanding the product range and the price point availability to the consumer. So the response so far has been very positive there.

Good order demand for that category as well, Eric.

Okay. Thanks. I’ll now pass the line. Appreciate it. Thank you.

Our next question comes from line of Steve Marotta with C.L. King. Please state your question.

Good morning, Blake and Mike. Mike, as far as Q4 revenue expectations go, has there been any material changes in the expectations for at-once business from a revenue composition standpoint?

Not really. I mean the things that we called out in the prepared remarks would sort of be the additional risk areas for us, not really at-once, I mean, we were fairly conservative in that regard with our previous outlook back in August. But we are seeing some – a little bit more risk as it relates to shipments what happened very late in the quarter, mostly to our international distributors and that's just really timing not demand related. So that probably be the one area of risk to kind of isolate fundamentally, while again slower start to the quarter. I think as we look at – we're seeing less volatility in, at-once orders over the last few weeks and just better overall demand. An encouraging kind of signs on in-terms of sell through from our retailers as well. Obviously that's a big part of the equation here. So I think overall, the items that we talked about earlier are really the areas to focus on as it relates to any risk for the quarter.

Great. And a follow-up question, I know that you do not publicly comment on future order books, but can you talk at all about how spring summer of 2020 the first half is looking where you think your strengths are? You did comment earlier in the call about being a platform for growth and you expect growth. The first half would be going up against, of course easier comparisons and from a margin standpoint, any sort of commentary that you can give again without being specific about first half of next year would be helpful? A – Blake Krueger: Yes. I mean, yes we do not give quarterly backlog guidance or those numbers. I guess maybe just to focus on Q4, which is in front of us in a bit of a precursor for next year. This quarter we currently have it planned to be our highest growth quarter of the year. We think momentum is going to continue throughout Q4, but over the last several years, boots have also become an increasingly important item category for retailers and us in the first quarter. So we've moved – the industry and the consumer certainly has moved beyond discounting all boots and clearing them out by Christmas time because there's substantial demand going on throughout Q1 for that particular category. Certainly last year we were probably caught a little bit short handed in the – on the inventory side on, so there's a number of other – we've certainly seen a pickup in retail traffic, retail performance are mid-single digit comp store performance early on in Q4 and also our e-commerce business, which in the tenth period was up over 25%. So that's all encouraging. Maybe one other thing I can say is, it’s still early and the boat category for Sperry has never been a significant Q4 business. But in the early weeks of this quarter, just see boat be flat. That's very encouraging for Sperry and our business overall. We know of at least one major customer we have that is planning on making both their Number 1 story for the spring season. So that's pretty encouraging.

That's very helpful. Thank you very much the color.

Our next question comes from the line of Jim Duffy with Stifel. Please proceed with your question.

Thanks. Good morning guys. A – Blake Krueger: Good morning, Jim.

A couple of detailed questions for me, and then I like to get in to some high level stuff on international markets. Mike, the $0.03 from pairs in the guide, what‘s different from the last guide? Are you still expecting $3.5 million pairs impacted for 2019?

It's a similar number. I think the change and we kind of foreshadowed a slightly higher impact that when we were talking about it before. Before anything was specifically implemented or anything else, for us it's really the timing of when that product comes in and sells in. So we're not going to have a precise estimate on that as you know, Jim, we're ending the quarter. But we think overall we’re a little conservative in our outlook. The outlook were foreshadowing that we gave back in August. And not much has really changed, particularly other than the fact that we did bring in more inventory that spring merchandise and some of that merchandise won't ship until January. And so that we won't see the tariff cost impacting the P&L until the first quarter.

Okay. And aside from the $0.03 related to tariffs, what's the additional change in the GAAP EPS guide?

The other additional items we added some more coverage for some environmental related costs, litigation and other costs related to that legacy issue that we continue to work through. And we also had a fairly meaningful reorganization of sorts that took place late in the third quarter, middle of the third quarter. We had some severance costs related to that and we typically treat those as adjusted out of our results. So we included about $2.5 million or $3 million of cost in that category, and about $5 million related to some additional legal and other costs for the environmental issue.

Okay. And Mike on the last quarter, you did a really nice job of itemizing some of the things, which you expected were going to be contributors to acceleration in the second half of the year. Talk about $10 million to $15 million from additional outlet stores, $14 million to $15 million from the Italian Saucony distributor. How much of that – how does that split between 3Q and 4Q?

Yes. I think that Blake mentioned that. The Saucony impact – the Italy impact is a little more prominent – quite a bit more prominent in the third quarter, almost all of that and that's just based on the timing. Obviously as we go through this shift from a distributor business to an own subsidiary business, the timing we want to recognize the revenue is just kind of different and it's going to be a little more clunky this year than it will be going forward. But big chunk of the Saucony piece was in Q3 and that'll be a smaller benefit in Q4. As it relates to the stores, it split about 50/50. We still think that in H2 between those two factors, new stores and the acquisition of Italy, it's still in that $25 million to $30 million range, which is what we expected when we gave that guidance before.

Okay, great. Then last one, you mentioned improving trends in October. I guess, I'm curious are there any notable changes in trends in national markets to highlight, specifically I'm curious is there international regions to be concerned about as we look into 2020 and then related to that, maybe placing some comments and what to expect from Xtep in 2020?

Yes. I mean let me take Xtep first. Xtep probably isn't going to have a meaningful impact on 2020. It's going to be a foundational year, but strategically Xtep is going to have a big impact on a supplemental line of product for Saucony, performance footwear for example, developed in China that's been done, that only took four months to complete. Try and align apparel for that brand and similar efforts on the Merrell side. So although it's not going to be big on the number side, Xtep in 2020 it's going to be a very important foundational year. They've turned out to be a very good – a great working partner. We've got a great relationship with them. With respect to Internationally, a bit of – where do you start? It's the new normal, right. So certainly on the European region, the impact of Brexit whether that occurs, if it occurs, when it occurs and the details of that – that'll have some impact probably on overall business. It certainly is going to have a negative impact on the overall GDP and economic conditions, macro economic conditions in Europe but interestingly enough, Europe was one of the strongest region for us in Q3. So although I keep reading reports that the consumer is kind of standing on the sidelines a little bit, certainly for our brands: Merrell, Caterpillar and some of our other brands – it's been a – and certainly Saucony. It was a very good quarter. I would say, Latin America, we continue to see some political shifts to the left. Historically, that's been a little bit challenging when that occurs just to business in general and the consumer. So we don't see that that situation changing overnight. We've got some countries that are doing just fine and then we've got some other countries that like Shelley that are experienced a little unrest and uncertainty really for the first time and in decades, but still a very important region for us, but the shift to the left on the political side is a little bit concerning. And then Asia Pacific, a tremendous – there are some ups and downs. Certainly, China remains a very important market. Many of those markets are important. We all know that the South Korean consumer has been pressured over the last 18 months or so, certain sectors in that economy. So there's plenty of upside in Asia Pacific and we've got some I would call them discreet challenges here and there. As you know, we had a couple of distributors go into bankruptcy in Korea over the past year. So, a lot going on, on the international front, but we've got 12 brands and we're diversified and I think that plays to our strength.

Thanks for that perspective.

Thanks, Jim.

Our next question comes from the line of Chris Svezia with Wedbush. Please state with your question.

Good morning everyone and thanks for taking my question.

Hi, Chris.

Hey. I've got a couple for you. I guess first, just on the tariff, could you maybe explain what the difference is relative to when you gave guidance in August at that point in time we knew about 10% is just – is this because of the additional 5% and the timing that you have is additional $0.03 relative to when we talked back in August. And I guess to back that up a little bit, if I look at the $0.03 and I look at how much – let’s just look at share repurchases on the stock you bought back and sort of [indiscernible] Q4 that more than offsets that $0.03. And I know in Q4 you draw a lot of cash, so maybe the revolver down thereabout interest expense, but…

Sure, yes, just a couple clarifications to Chris. First of all, we didn't include any – and we were pretty clear about this in our outlook last quarter. We didn't include any impact for the new tariffs because they weren't implemented yet when we gave our guidance and we weren't sure what the timing would be what the rate would be or any of those factors. So I think we mentioned in our comments that we might have more than $3 million, $3.5 million of risk at that time. And it was just based on some different estimates than what we have today. We just have more clarity around that as we talked about before. So it wasn't in our outlook at all just to be clear and now that it is that that has a $0.03 impact. The other factors that you're talking about related to the share count really being offset by some other factors, but mostly interest expense as we borrowed under revolver to enter into those buybacks and obviously have – the rest of the quarter here to generate cash and pay that down. But our outlook includes some relatively $0.02 to $0.03 of higher interest expense than we had in our outlook before, mostly related to the buyback strategy. So the lower share count and the higher interest expense are sort of netting each other off and the outlook and the tariffs are just incremental to what we had before.

Thank you. Could you just maybe touch on the shifts you're talking about $0.05. What that implies? Is that something in SG&A or can you have what color about that?

Yes, a couple with SG&A, some of it is in the gross margin area as well. I would say, we had really good and better than expected gross margin performance in the third quarter. We are going to be somewhat prepared to move through the inventory that we have here. Obviously, we're not expecting to have a significantly closeout risk or exposure in the quarter, but we always want to give ourselves room to move the inventory. So we brought our estimates in Q4 down a bit on the gross margin side. And then, typically, we will put marketing money behind our biggest opportunities and our biggest growth areas. And as that shifted out of Q3 into Q4, especially on the e-com side of the business and some of our international markets, we shifted some of that spending from Q3 into the fourth quarter. So, really just a shift in operating cost to a certain degree and a little bit of shift in gross margin assumptions quarter-by-quarter based on those trends.

Okay. And then when you talked to October meeting, what you're seeing in October relative to your plan? Is it fair to say it's in line with that plan? Or is it tracking slightly better than planned, but hey we've got a lot to get through in the quarter? Just trying to understand relative to the plan, the comments you’re making.

Our outlook on revenue stayed fairly stable. So I think that's a good indication of kind of how we feel about the trends so far relative to our previous outlook. And I think in addition to that, again, we did call out some of those factors that are sort of late in the quarter factors that we would sort of be keeping our eye on. And those are the areas of any kind of exposure or downside risk we might have in the quarter. But, yes, I think the trends in the business, the sell-through activity we're starting to see – the best indicator for our business right now is our own DTC platform. And when we see comp sales up the way that they are in our own stores, the performance of Sperry boots, which obviously is an important category for us. In the quarter, our Merrell stores are performing well, our e-com business is trailing ahead of plan a little bit. Those are the best early signs for us, especially this time of year. And so, I think that's another kind of data point for reference.

Okay. Final thing for me was just real quickly. When we think about some of the plan trends that you're seeing here in Q4 whether it’s Saucony, Sperry, Merrell, or Caterpillar, it's hard to extrapolate this into next year at these growth rates. But maybe walk through where you feel like the most comfort level with what brand potentially you can get growth out of as we start to think about next year if you could?

Yes, I would say that we expect the next year growth in our Q3 to continue. That's been a focus of ours. We've got some pretty robust new ideas, product pipeline, so we feel comfortable about that. I think with some of our more annuity brands, we'll be focusing on those as well to bring some back into the growth situation. Those brands have been very good for us. As you know, we've kind of pruned our portfolio a couple of years ago, but whether Chaco or Wolverine or Hush Puppies, those are all very profitable brands for us. Some of them may be a bit more of an annuity in our portfolio, but we've got plans to bring those brands back to consistent growth as well.

Okay. Thank you. All the best.

Thanks, Chris.

Our next question comes from the line of Sam Poser with Susquehanna. Please state with your question.

Hi, guys. This is Will on for Sam. So I just wanted to dig in a little bit to the DTC business. So can you just – I think you said you're e-commerce performance was 20% or so year-to-date. Can you just talk about in the quarter and what the current penetration is of the business?

Yes, I mean, we've had a lot of focus on e-commerce. For example, the last several years, it's been our highest growth channel for the company. We frankly don't see any change there. This year, the profitability of that channel, which is accretive to our bottom line performance, has gone up significantly. Year-to-date we're in above the 20% growth across our 12 brand portfolio there. That's accelerated some here in Q4 and maybe some of that's the weather, some of that's maybe a result of our efforts as well, but it's accelerated a little bit in Q4. Certainly going forward we would hope to be able to grow that business on the end of the future at the 20% level or maybe a little better.

Yes, I think the penetration question you're asking, Will, to is, year-to-date the e-commerce part of our business and our own stores combined is sort of in the 12% to 13% range in terms of global revenue. In Q4, it will be closer to 15% of the mix and sort of trending up closer to 14% for the whole year. So Q4 is a really important quarter for that platform obviously. And as I mentioned earlier, off to a really good start in the quarter so far and continues to achieve plan for the year, which is encouraging as we highlight that as one of our key levers in our growth agenda, but also an area where we've put a lot of investments over the last two years as part of our investment strategy.

Great, thanks. And then just on the work business, so it sounded like Cat was a bit of a drag just from timing issues, but can you just talk about how that business is performing overall? And I know you've seen some momentum with some new Merrell product. But can you just sort of give us some more color on how that business is performing?

Yes, I know some other companies have reported that was an area of softness for them in Q3 and certainly I think whether it's the – whether some other consumer factors may have had a bit of an impact on that category. For us, our work business works in tactical across our five brands that really participate in that area was pretty good and we took pretty significant market share. For example, Wolverine and Cat both increased their market share in the quarter as Merrell was up very strong double digits in Q3. We continue to see that as very important category for the company where we're giving it time and attention across the portfolio and we continue to see that as a growth area.

Great. And just one housekeeping thing here. So you mentioned what – you mentioned 4Q performances for the three brands. Are you still reiterating guidance for Merrell up high singles, Sperry up mid-singles? And I guess when you think Saucony is going to positively inflect on an organic basis?

Yes, I mean, we have reiterated all those estimates for us. We think 2020 is going to be a bit of a breakout year for Saucony.

I agree with that. Organically, there always puts and takes right for a business that's going through some transformation like Saucony is. But if you sort of normalize it for the level of closeouts and sort of lower end product that are holding back that organic growth in the back half of this year, the organic business for Saucony would be positive in Q4 even without the impact of the acquisition that we made. So I'd say it's safe to say we're sort of at that point and to Blake's point sort of encouraged by the opportunity as we see for next year in Saucony in particular.

That's great. Thank you. I'll pass it on. Thanks.

Thanks Will.

Our next question comes from the line of Jonathan Komp with Robert W. Baird. Please state with your question.

Yes, hi. Thank you. I just want to follow up, given the shape of the growth in 2019 being very backend driven and some of the specific drivers behind that. As you think forward to next year, any kind of high level thoughts on how we should be planning the shape of growth next year if it’s significantly first half weighted or if you think there's a strong pipeline that you can cycle some of what you've done and sustain growth at healthy levels into the second half of next year.

Yes, I think, you're going to see some very consistent, more consistent quarterly growth for the business next year. Some good factors that help us in the first half include the acquisition that we've talked about in Europe and even the addition of the stores that we have this year that were added later in the year. So that'd be helpful to the first half. But I think this year we saw that benefit in the back half and it'll be more of a first half positive us in 2020. But the improvement overall in Saucony, which we continue to point to I think is also going to be a nice headwind for us or a tailwind for us in the first half of the year versus the headwind that it represented in 2019. And I think those are factors that sort of allow us to think about next year as a much more balanced year from a quarterly growth standpoint.

Okay. And just to follow up, I mean, the pipeline, as you look forward really into the second half of next year, do you think there is enough to sustain the momentum even then?

We believe so. I mean, when we look at just as one example, the product pipeline for Saucony, we have some great first half introductions plan, but I would say even their product pipeline leans a little bit more to the second half of the year. And we have – we think boots are going to continue to be very important again in the second part of the year. We've got some new programs across the portfolio. So we feel comfortable about the growth in the second part of the year.

Yes, excited about the momentum in Cat that that was very strong this year. We'll have double digit growth in 2019 in that business. And a lot of that's being driven in some core work categories, but a much of it is lifestyle driven globally, which is encouraging and that pipeline is strengthening. And the Merrell pipeline as you know with Chris Hufnagel at the reigns there, being able to transfer some of that that strategy and approach that he applied to Cat. In the Merrell business here I think we were seeing a quick improvement there and a quick acceleration of some big product ideas for Merrell going into next year as well.

Yes, excellent, great to hear. And then maybe just a follow-up on that tariffs and I know even today the headlines are fast and highly unpredictable. But I just wanted to maybe ask logistically, when you think about any of the mitigation efforts that are kind of planned to be put in place, maybe any thoughts on kind of timing of those. And then if you had a scenario where you went down the path of putting into place some of those offsets and then tariffs were phased out. Like logistically, how would you think about the ins and outs of some of those scenarios?

Yes, I would say, we have a little more time to plan for 2020 then we did for Q3 and Q4 of this year. And we know that – we appreciate that the news and the direction can change overnight. But once you start the migration out of China, it’s something we've been on for five years. You really don't reverse course. We know it adds a little bit to lead times. We have not seen an increase in product costs. In fact, they've actually gone down. So when we look at what at this point may be the tariff exposure for next year, we would hope to be able to neutralize that. It won't be easy. We've negotiated hard. We have some lower prices. We have new products that'll take this tariff situation into account in the gross margin category. We are going to take some selective price increases when necessary across our brands. So as the industry and we're going to look for other efficiencies in the supply chain. So, again, we don't know what's in front of us. It can change, but we've been very proactive here to kind of neutralize those costs for 2020.

Jon, I think, clearly our approach is to just go full steam ahead on this. And we're doing a lot of these things for all good reasons that aren't even related to tariff increases, right. So the diversification out of China is something that we just need to do as a global company. And it's really going to help us in the long run. We're factoring into our thinking for next year, some of the other costs related to this transition, right. We're going to have other costs for just continuing to move out of China and there may be some impacts on things like freight and lead times that Blake mentioned. But, fundamentally, we're doing the right thing. We're staying the course. And I don't think we're holding back on any of those mitigation initiatives at this point. We're just kind of lean in 100% and make them happen.

Okay. That's helpful. Thank you.

Thanks, Jon.

Our final question comes from the line of Ross Licero with Telsey Advisory. Please state with your question.

Yes. Hi, good morning. I just had a question on the Merrell strategy going forward. You said Chris Hufnagel would transfer the strategy that he was using a Cat over to Merrell. I just wanted to see what kind of implications that had and how is the Merrell strategy going to change?

Well, I think, Chris has been with us. It's hard to imagine 10 years already. He's had a number of positions at the company: Head of Strategy, Head of Consumer Direct. He was also one of our co-chair transformation officers in our Wolverine way forward. He was one of the people really responsible for developing the new tools, skill sets and processes that will be applied against the brand growth model. So in just a year and a half, we saw unbelievable progress in Cat footwear. And we think he is going to bring that same skill set and discipline to Merrell. You may not see any huge immediate shift in product categories or overall strategies for the brand, which is focused on not just work and tactical, but kind of owning the trail. But he's one of our best and brightest and we're putting them behind our biggest opportunity. And we've already seen the impact of that in Cat footwear. So hats off to Chris and the overall Merrell team. We really couldn't be more excited about that move.

Okay, great. Thanks. And just on the digital growth strategy, you noted that that was focused on customer retention. Can you give a little bit more color on what you're doing on that front? And do you expect that focus to continue? Or are you going to shift towards new customer development at some point?

Well, I wouldn't say that we're not focused on new customers. I think what we're seeing is just in terms of the cost of acquiring new customers, we can take – we're seeing improvement in that area because of the improvements in our retention rates and those have doubled over the last 12 months or so. And it's still a smaller percentage of the overall traffic into the sites. But as we get better at enhancing the consumer experience on our sites, using the tool sets we've invested and to make sure that we're engaging with that consumer on a more regular basis with the right messages. We're just seeing a good organic improvement there, which means that we can spend less on new consumer acquisition. So, that's helped to us drive a better operating profit in a better result for the e-com business. Here is just a little more to work with as we think about the next level of investments we want to make to drive growth there.

Okay, great. And then just one more on guidance, you’ve guided to $0.03, lower just due to tariffs. Where is that being reflected? It looks like you kept the gross margin guidance about the same.

Yes, we always use proximate references to those margin rates, right. We said approximately 41% gross margin, approximately 12% operating margin, which is what we said in our last outlook. But those ranges can shift 10 basis points or 20 basis points or 30 basis points. And that's really where the difference is coming through. I think you still see – even with that $3 million of additional tariff costs, still a very, very close to the 12% estimate that we gave.

Got it, okay. Thanks a lot.

Thank you.

Thank you.

We have reached the end of our question-and-answer session. And I'd like to turn the call back over to management for any closing remarks.

On behalf of Wolverine World Wide, I'd 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 December 7, 2019. Thank you and good day.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.