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Edited Transcript of WWW earnings conference call or presentation 22-Feb-17 1:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Wolverine World Wide Inc Earnings Call

Rockford Feb 22, 2017 (Thomson StreetEvents) -- Edited Transcript of Wolverine World Wide Inc earnings conference call or presentation Wednesday, February 22, 2017 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Chris Hufnagel

Wolverine World Wide Inc. - SVP of Strategy

* Blake Krueger

Wolverine World Wide Inc. - Chairman, CEO & President

* Mike Stornant

Wolverine World Wide Inc. - SVP & CFO

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Conference Call Participants

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* Jim Duffy

Stifel Nicolaus - Analyst

* Steve Marotta

CL King & Associates - Analyst

* Chris Svezia

Wedbush Securities - Analyst

* Jay Sole

Morgan Stanley - Analyst

* Erinn Murphy

Piper Jaffray & Co. - Analyst

* Andrew Burns

D.A. Davidson & Co. - Analyst

* Jonathan Komp

Robert W. Baird & Company, Inc. - Analyst

* Laurent Vasilescu

Macquarie Research - Analyst

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Presentation

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Operator [1]

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Good morning and welcome to Wolverine World Wide's fourth quarter and full-year 2016 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 World Wide.

If anyone has any objections, you may disconnect at this time. I would now like to introduce Mr. Chris Hufnagel, Senior Vice President of Strategy for Wolverine World Wide. Mr. Hufnagel, you may proceed.

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Chris Hufnagel, Wolverine World Wide Inc. - SVP of Strategy [2]

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Thank you Andrew. Good morning. Welcome to our fourth-quarter and full-year 2016 conference call.

On the call today are Blake Krueger our Chairman and 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 and full-year 2016. 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 directly to you, please call Tyler Duer 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 earning call will include some additional non-GAAP disclosures.

There is a document posted on our corporate website entitled WWW Q4 2016 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.

You for joining the call to Blake to comment on our results I want to provide some additional context and information. When speaking to revenue Blake and Mike will primarily refer to underlying revenue which adjusts for the impact of foreign exchange and excludes revenue from the store closures and exited Cushe business. We believe underlying growth best reflects how our global businesses are performing in the market place.

In addition we will be providing adjusted financial results to exclude restructuring and impairment costs as well as debt extinguishment costs, non-recurring organizational transformation costs, and constant currency results. You can find tables reconciling these disclosures in our earnings release and on our corporate website.

I'd also 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'd like to turn the call over to Blake Krueger. Blake?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [3]

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Thanks Chris. Morning everyone and thanks for joining us. Earlier this morning, we reported our fourth quarter and full-year results for 2016.

Fourth quarter revenue of just under $730 million and adjusted earnings-per-share of $0.33 were both in line with the high-end of our expectations. And enabled us to deliver full-year results consistent with our original outlook at the beginning of the year. A noteworthy achievement in what continues to be a choppy and uncertain macro environment.

Our diversified business model and strong focus on the fundamentals of the business served us well throughout the year. And while we are pleased to have delivered solid financial results, in some areas better than expected, we're most excited about our outlook for the future and the progress we've made on our key strategic initiatives. In 2016, we more than doubled our investment in consumer insight, intensified the organizations focus on product innovation, and further optimized our product development process in supply chain for increased speed and efficiency.

We invested in our biggest brands and began to streamline our portfolio to focus on global opportunities with the highest potential for profitable growth. Including our fast-growing highly profitable e-commerce business. We've also moved aggressively to right-size our brick-and-mortar store business.

Overall, I am pleased with the excellent progress we've made to strengthen our foundation for future growth and position the Company for expanded profitability. Our transformation is well underway. Now, as we enter the new year, our brand portfolio is strong and our operating platform is even more efficient.

Our investments in key strategic initiatives like consumer insight, international expansion and e-commerce growth are paying significant dividends some of which we are just beginning to realize. Operationally, the team has made incredible progress on the inventory front, ending the year with inventories down over 25%.

Our balance sheet is rock solid and we continue to generate very strong cash flow. We have a clear strategic direction for the business. We have embarked on an ambitious transformation initiative.

The Wolverine Way Forward. Finally and most importantly, today I'm convinced we have the deepest, most talented team we've ever had. For today's call I will touch on fourth quarter Brand Group results and then focus the balance of my time on our strategic transformation initiative, the Wolverine Way Forward.

Mike Stornant will provide more detail on Q4 and full-year results as well as our 2017 outlook and our initiatives focused on achieving 12% adjusted operating margin by the end of 2018. Taking a look at our fourth quarter results, starting with the Wolverine Outdoor & Lifestyle group. Underlying revenue was down 1.7% compared to the prior year.

With Chaco driving very strong double-digit growth, Cat up double digits, Hush Puppies flat and Merrell down 7%. Merrell's performance improved significantly in Q4 versus the third quarter. Largely due to its key product initiatives and new collection introductions.

The Brands performance outdoor category, fueled by a number of new products introduced this year, gained share in the US marketplace and grew globally. The Arctic Grip collection like the Moab FST captured the attention of consumers with a true performance innovation story and sold through extremely well. The Brands active lifestyle category remain challenging.

And is a critical focus for the brands going forward. Our investments in e-commerce continue to drive robust growth. With Merrell.com growing over 30% in the final quarter on pace with its full year growth rate.

Looking ahead we are confident in Merrell's direction. Consumers love the brand and the injection of updated product design and innovation to key franchises was critical in 2016. This also provides a proven roadmap moving forward.

Building on these efforts, the brand just introduced the Moab 2 an update to the world's leading light hiker and the Siren Sport Q2, a light hiker designed specifically for women. The brand also anticipates launching it's new technical and work program this spring.

Responding to persistent consumer demand. We believe consumer lifestyle trends are evolving in the direction that favors Merrell.

I'm also pleased to report that Todd Spaletto has officially joined Wolverine this past Monday and will serve as President of the Outdoor & Lifestyle group. He brings more than two decades of industry experience with him, most recently serving as the President of the North Face for the last six years. He is a tremendous addition our team.

Moving to the Wolverine Boston Group. Fourth quarter underlying revenue grew 6.2% versus the prior year. With Keds posting very strong double-digit growth, and both Sperry and Saucony up mid-single digits.

Sperry drove solid growth in the quarter fueled by the exceptional performance of its boot program and claimed the top selling style in the category for the second straight year. The brand continues to resonate with consumers across a wide variety of product categories.

Sperry's other key strategic initiatives also showed very good results in the quarter with both Sperry.com and the brand international business up more than 20%. Sperry continues to make good progress on its strategic direction overall. Building be more relevant brand and a diversified product offering in a more global distribution base.

To capitalize on Sperry as many global lifestyle opportunities, we recently appointed new leadership for the Brands. Tom Kennedy a seasoned executive with apparel accessories retail and athletic experience who has been with the Company for more than a year.

Saucony also delivered solid growth to close out the year. Its international business grew high teens and now represents almost half of total Saucony revenue. As is always the case with Saucony, innovation and exciting new products were the primary growth drivers.

The Brand launched the Guide 10 early in the quarter and the new Freedom ISO possibly it's best shoe ever in December. Initial sell-in and sell-through has been very strong and momentum is expected to ramp up into the spring. Saucony's product engine which we believe is among the best in the industry only continues to get stronger.

Closing with the Wolverine Heritage Group. Underlying revenue was down 6.1% year-over-year in the quarter. With the Wolverine brand down low single digits and Bates down mid single digits as a result of delays in Department of Defense contract awards.

Last quarter we shared that the Wolverine brand was in the process of realigning it distribution strategy by focusing on more premium channels. This strategic move resulted in slightly lower revenue in Q4, but gross margin improved close to 500 basis points and operating margin was up at a very strong double-digit pace.

In addition, market share grew in the premium distribution channel, and Wolverine.com grew well over 20%. Looking ahead, the Wolverine brand has a robust product pipeline and is poised to launch the largest introduction of new product in over 20 years.

I will now transition and provide an update on our strategic transformation initiative. The Wolverine Way Forward is the holistic enterprise-wide business initiative designed to transform the Company to compete and win in the fast-changing global consumer retail environment. As everyone knows, our industry like many others in the consumer space, has experienced a significant shift in the consumer behavior and this change continues.

We've been on our own path of response to this new normal for several years, and recently completed a thorough strategic review of our business and the external environment. Last year we engaged a leading global consulting firm to provide an objective perspective and to simply help us move faster. As a result, we have launched our transformation initiative, the Wolverine Way Forward.

We have established a talented team led by Jim Zwiers to drive this critical work for this organization over the next 18 to 24 months. The Wolverine Way Forward has four critical work streams.

First, innovation and growth. Driving sustained organic growth across the portfolio is the number one priority for the Company. We are committed to building great brands by creating spectacular products and telling compelling stories.

Moving forward, we will increase our investments in product innovation, consumer insights, demand creation and the digital social space. We will also focus on key international growth markets as we evolve our global footprint.

Second, operational excellence. Today's ultra competitive global marketplace requires a highly agile organization.

We already benefit from one of the best operating platforms in the industry, but today's environment demands continuous improvement. We've made important progress here in 2016 and will continue on this path to make the organization more efficient, less complicated, and faster. Third, portfolio management.

We remain engaged in the process to streamline the Company's Brand portfolio and focus our time energy and attention on our biggest opportunities. At the same time we believe our business model sets up well to acquire and integrate new brands and create shareholder value. We remain vigilant for opportunities that will enhance future shareholder value and we have both the financial wherewithal and the organizational readiness for a meaningful acquisition.

Fourth, people and team. In any business, the team with the best players wins, and we are committed to being the best place in the industry to work. We are recruiting new talent to the organization, and perhaps more importantly, have accelerated efforts and programs to develop the great talent we are to have on the field.

We recognize that a modern skill set is needed to anticipate the market dynamics that lie ahead. We have an ambitious agenda for the Wolverine Way Forward. Financially our near-term goal is to deliver 12% adjusted operating margin by the end of 2018.

And we have aligned our annual incentive compensation plan against our midterm operating margin target for this year. Throughout Wolverine's history the Company is constantly evolving to meet and exceed the needs of the marketplace. We have a rich history of transformation and success.

The Wolverine Way Forward is the next chapter in the Wolverine story and I couldn't be more excited about the road ahead. I look forward to sharing updates with you on future calls.

And finally, before turning the call over to Mike, I want to provide a little context on the year ahead. While I'm excited about where the Company stands today, and the opportunities ahead of us, a tepid consumer and choppy retail environment persist. The US holiday season was mixed at best, and despite some momentum in the new year, 2017 has had an overall lackluster start for consumer soft goods.

Despite the macro challenges we feel much better about our position for the upcoming year than we did a year ago at this time. We again have chosen to focus on controlling the controllable. This approach served us very well this past year especially in Q4 and we believe it will continue to serve us well in 2017.

We have many competitive advantages. A great brand portfolio, expansive global reach, an excellent operating platform, a strong balance sheet, and a talented and motivated team. 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 2016 results as well as share our outlook for 2017. Mike?

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Mike Stornant, Wolverine World Wide Inc. - SVP & CFO [4]

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Thanks Blake. Thanks to all of you for joining us on the call today. A year ago at this time, we were facing considerable uncertainty.

Including retailer bankruptcies, elevated inventories in the marketplace, strong currency headwinds, and softness in global demand. Marked by slumping commodity prices. Forecasting the business in this environment was challenging.

As evidenced by many companies in our space who have revised their expectations in recent months. We developed a prudent outlook and were able to maintain it throughout the year. As Blake shared, we delivered revenue and adjusted earnings-per-share as anticipated for the quarter and the year.

We also significantly exceeded our expectations for inventory reduction which was down over 25%. And operating cash flow generation which was up more than 37% year-over-year. Even more importantly, we solidified our strategic platform and made tremendous progress in positioning the Company for future earnings growth.

I'm excited to share more on this work and our path for 2017 and beyond. But first I will provide a brief review of the Company's 2016 results. Beginning with our results for the fourth quarter, the Company delivered revenue of $729.6 million in line with our expectations.

Underlying revenue was up 0.1% while reported revenue declined 2.9% versus the prior year. Sperry's growth outpaced our expectations entering the quarter. Propelled by strong performance and lifestyle boots which fueled mid-single digit growth to the Brand and [mid 20%s] growth in its own e-commerce business.

As anticipated, Saucony and Keds both return to growth in Q4 after a sluggish third quarter. Collectively Boston Group continue to make progress in growing it's international business. Posting high teens growth in Q4.

Across the entire portfolio, our international business grew high single digits. Offsetting the softer US markets low single digit decline. Q4 adjusted diluted earnings-per-share of $0.33 were also in line with our expectations.

Gross margin improved year-over-year and finished better than anticipated even as we manage inventories down significantly and more than planned. Adjusted diluted earnings per share on a constant currency basis were $0.36. Compared to $0.33 in the prior year.

As mentioned, we made strong progress on our strategic transformation in 2016. In Q4, we accelerated a number of key initiatives including a more aggressive store closing plan. We incurred $53 million in discrete cost in Q4 of which $27 million were non-cash.

These costs include approximately $18 million for store restructuring, related to the closure of 51 stores in Q4. $7 million for the Stride Rite trade name impairment. Mostly related to the store closures.

In addition, we incurred approximately $7 million -- $17 million of cost related to our debt restructuring. And $10 million for cost related to our new Wolverine Way Forward strategic transformation. These discrete costs were incurred to address underperforming areas of the business in order to improve the future health and profitability of the Company.

Included in these nonrecurring cost, Q4 reported earnings per share were a loss of $0.02. Moving to full-year results, reported revenue of $2.495 billion was in line with our expectations. Underlying revenue declined 4.9% while reported revenue was down 7.3%.

Full-year adjusted diluted earnings per share of $1.36 were also in line with our expectations. On a constant currency basis adjusted diluted earnings per share were $1.52. Compared to $1.45 in the prior year.

On a reported basis, earnings-per-share was $0.89. For the year, adjusted gross margin on a constant currency basis was 39.7%, an increase of 50 basis points versus the prior year. As a result of effective management of product cost, partially offset by store closure liquidations.

Currency negatively impacted gross margin by 70 basis points. Reported gross margin was 38.5%. Adjusted operating margin on a constant currency basis was 9.3%.

An improvement of 40 basis points compared to the prior year. Total adjusted SG&A expense was down approximately $60.2 million, including benefits from store closures, lower variable costs related to the wholesale business, lower pension expense, and lower marketing expense. As the Company anniversaried some significant one-time marketing investments.

FY16 reported operating margin was 6.4% compared to 7.5% in the prior-year. Net interest expense for the year was approximately $30.8 million, $3.4 million lower than the prior year. Largely due to a lower interest rate resulting from our debt refinancing.

The full-year adjusted effective tax rate was 26.3%, compared to 27% in the prior year. Due primarily to more favorable discrete items in the current year. Our reported effective tax rate was 20.8%.

Transitioning to the balance sheet, inventory was down 25.3% at year end, meaningfully better than we expected entering the quarter and in a healthy position as we transitioned into 2017. In addition, accounts receivable were down $35.6 million with DSOs improving by more than five days. Operating activities generated a very strong $296.3 million in cash in 2016, up over 37% compared to the prior year.

Our debt refinancing finalized in Q4 created a more flexible capital structure, with more favorable terms for use of cash and projected cumulative interest savings of $30 million through 2020. Coupled with our new four-year $300 million share repurchase program, we're positioned to return more value to shareholders moving forward. In 2016, we repurchased over 2.8 million shares for approximately $62 million.

Our priorities for cash remain the same. Drive organic growth primarily through investments in product innovation, consumer engagement and insights, e-commerce and omni-channel initiatives, and demand creation. Return value to shareholders through share repurchases and consistent dividends, pay down our debt and pursue potential value enhancing acquisitions.

Now I would like to provide additional insight and detail on our operational excellence initiatives. During 2016, we dedicated significant effort to operational excellence and initiated new work focused on speed, efficiency, and profit improvement. Specifically, we established an internal goal of expanding the Company's adjusted operating margin to 12% by the end of 2018.

We are committed to accomplishing this by focusing on four key areas. One, a healthier and faster supply chain. Two, an omni-channel transformation that focuses on e-commerce growth and addresses underperforming stores.

Three, a more efficient global structure that prioritizes value-added activities. Four, a continuous assessment of our portfolio, including new additions through acquisition. We believe that our supply chain is an important competitive advantage for the Company.

And our global operation group continues to drive cost and lead time improvements as we adjust to changes in the global marketplace and consumer expectations. During 2016, we reduced our factory base by more than one-third, while diversifying the geographic footprint of our sourcing network. This has allowed us to leverage our scale and resulted in stronger partnerships with our key vendors, and lower product and other supply chain costs.

During 2017, we will open the Company's first distribution center on the West Coast. Which is expected to further reduce time to market and logistic cost. In 2017, we have initiated further work to meaningfully reduced materials suppliers, optimize our SKU productivity, shorten our concept to market process and drive further speed and efficiency.

We expect our leaner and more efficient supply to contribute 160 to 180 basis points of operating margin improvement in 2017. As mentioned, in Q4, we accelerated our store closure plan. And we have made further progress so far in the new year.

We remain committed to right-sizing our store fleet. Taking every action necessary to rapidly shed unprofitable stores. I am very pleased with our progress over the last few months.

And as of today we have line of sight to approximately 110 store closures near the end of Q1. And expect to incur operating losses of about $7 million as we accelerate liquidation of inventory and execute closures during the quarter. We're still in negotiations on remaining unprofitable stores and hope to reach agreements in the next several weeks.

This plan is expected to ultimately deliver approximately $20 million of annualized operating profit expansion once completed. In 2017, we expect about half of this benefit which will improve operating margin by 40 to 60 basis points. We began efforts to streamline the organization at the end of 2015.

Including restructuring our direct to consumer, apparel and accessories, EMEA and Canadian operations. This work continue with additional initiatives intended to drive greater efficiency and agility. We expect approximately 30 to 40 basis points of adjusted operating expansion in 2017 from these actions.

In total our operational excellence initiatives are expected to drive 230 to 280 basis points of adjusted operating margin expansion. This benefit is expected to be offset by approximately 30 basis points with negative currency impact, and another 60 basis points attributable to higher pension, normal inflationary increases, and other factors. The net impact is approximately 140 to 190 basis points of adjusted operating margin expansion.

Resulting in adjusting operating margin of 9.9% to 10.4% in 2017. We have not assumed any divestitures in our 2017 outlook. We continue to evaluate strategic alternatives for those brands in our portfolio that do not meet our long term goals in profitability requirements.

This process will continue through the first half of 2017. I will now transition to our 2017 revenue and earnings outlook. Entering 2017 we remain cautious in our deals of the global macroeconomic and retail environment.

Specifically we anticipate global demand to remain tepid, as evidenced by relatively low commodity prices. The US dollar remains strong negatively impacting product costs in most international markets. The retail environment to remain challenged, especially in the US.

With certain channels facing continued pressure with the potential for additional bankruptcies. We expect FY17 reported revenue in the range of $2.27 billion to $2.37 billion. This represents the reported revenue decline in the range of approximately 9% to 5%.

Currency and store closures are expected to impact revenue by approximately $160 million to $180 million. Resulting in 2017 underlying revenue to be in the range of down 2% to up 2%. Gross margin is expected to benefit from supply chain efficiencies related to our operational excellence initiatives previously discussed, partially offset by business mix changes, mostly from fewer stores and 40 basis points of negative currency impact.

As a result adjusted growth margin is expected to expand slightly. We expect 2017 net interest and other expenses of approximately $29 million to $33 million. An adjusted effective tax rate in the high 20%s, and approximately 95 million to 96 million diluted weighted average shares outstanding.

As a result full year FY17 adjusted diluted earnings per share are expected in the range of $1.45 to $1.55, which includes the negative impact from foreign exchange of approximately $0.08 per share. On a constant currency basis, adjusted earnings per share expected to be in the range of $1.53 to $1.63, growth of 13% to 20%.

As discussed we expect our strategic transformation initiatives will continue throughout 2017. These efforts include approximately $44 million at discreet costs with nearly $34 million related to store closure costs, and associated operating losses. Given these adjustments reported earnings per share are expected in the range of $1.19 to $1.29.

We are forecasting full year depreciation in amortization of approximately $37 million to $39 million. Adjusted EBITDA in the rage of $290 million to $305 million. Capital expenditures are expected in the range of $50 million to $55 million.

Primarily for investments in omni-channel initiatives, information technology, and the new West Coast Distribution Center, and other facility enhancements. Before closing I want to mention a change in our quarterly calendar.

In order to gain administrative efficiencies and better align with our customer and the industry we are converting our quarterly calendar in 2017. Our fiscal year end will not change, but our new calendar of 13 week quarters will result in Q1 to Q3 finishing one, two, and three weeks later than 2016. We have done a lot of work during the past 12 months crystallizing our operational excellence initiatives in launching an updated strategic platform with the Wolverine Way Forward.

Our diversified brand portfolio remains strong and our biggest brands continue to make excellent progress towards returning to growth, including accelerated growth in our e-commerce businesses. Our operating platforms are stronger than ever on the heels of the accomplishments achieved this past year, and our global network of partners remains one of the key strategic advantage for the Company.

Although headwinds persist we are enthused about out position and we believe we are poised to accelerate innovation, deliver earnings growth, generate healthy cash flow, and return value to our shareholders. Thanks for your time this morning, we will now turn the call back to the operator. Operator?

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Questions and Answers

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Operator [1]

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We will now begin the question and answer session.

(Operator Instructions)

At this time we will pause momentarily to assemble our roster. The first question comes from JIm Duffy of Stifel. Please go ahead.

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Jim Duffy, Stifel Nicolaus - Analyst [2]

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Thank you. Good morning, guys.

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [3]

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Morning, Jim.

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Jim Duffy, Stifel Nicolaus - Analyst [4]

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Nice finish to the year.

I'd like to start with a high level line of questioning. Can you, at a high level, provide an update on distribution strategies? Speak to how you're containing risk related to troubled retailers? Maybe put some context around channel inventories and how this all shapes up to start the year looking out to 2017?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [5]

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Let me take a bite at that apple.

On the inventory issue, when we look back a year ago at this time, our inventories were high. Most of our competitors' inventories were high brand owners and inventory was high at retail. There was clearly a glut that our retailers and brands had to work through for the year. That has pretty much been taken care of; we don't expect everybody to have a 25% decrease in inventory like us, but the channels, in our opinion, are much cleaner this year. That's one of the reasons why we feel better about where we sit today than a year ago.

We expect there's going to be additional store closures this year. The US remains an over-stored environment country and there's going to be more store closures. Sometimes it's hard to predict exactly when and where, but we have been very proactive over the last several years as evidenced by last year's Q4 and full-year performance to address some of those possibilities. There'll probably be some more this coming year. One of the mechanisms we're using to control our exposure there is to reduce our -- provide additional discounts a little bit up front, but reduce the payment term substantially. So any exposure that we might have in a bankruptcy-type situation would be contained and discernable at any given point in time. So we're doing that with a couple of retailers and we are really pleased how that program is working out, because it's leading to additional at-once business and future orders, but it's doing so in a manner where we can control the eventual outcome.

What else Jim?

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Jim Duffy, Stifel Nicolaus - Analyst [6]

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I think that covered it, Blake.

Mike, a couple for you, if I may. Can you speak to the outlook for the international business implied in the assumptions for 2017? Lastly, just to working capital levels, do you look at these inventory and receivable levels as unusual? Or do you see them as sustainable in the context of new strategies, a new distribution center, tightening the product life cycle, and so forth?

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Mike Stornant, Wolverine World Wide Inc. - SVP & CFO [7]

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I'll cover the last question first. I think we certainly feel good about the performance on working capital this year; we have put a lot of focus on that as a Company and it proves the power of focus when we have these kind of results. I think these levels of both inventory and receivables are appropriate for the business. We are going to continue to fight to become more lean. We talked about SKU productivity; I think that's probably the next level of opportunity we have to drive our inventory turns even more than we did in 2016. We may have a bit more opportunity there, but fundamentally, I think the DSOs we have in our receivables and the days forward inventory we are in good position today. I see the balance sheet in really strong position, like net debt position, as well as really strong cash on the balance sheet.

I think as it relates to the outlook for the year, no question the US marketplace continues to be the most challenging. We do see some expansion in our e-commerce business continuing. When you talk about distribution strategy, obviously we are putting more emphasis and more investment behind what's been a very successful e-commerce platform for the Company over the last couple of years, so that will continue, and that's mostly in the US market. Our international business is expected to grow in all regions in 2017 -- not necessarily robust growth in every region, but certainly helpful to offset some of the challenges in the US market.

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Jim Duffy, Stifel Nicolaus - Analyst [8]

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Thanks for that guys, good luck.

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Mike Stornant, Wolverine World Wide Inc. - SVP & CFO [9]

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Thanks, Jim.

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Operator [10]

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The next question comes from Steve Marotta of CLK and Associates. Please go ahead.

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Steve Marotta, CL King & Associates - Analyst [11]

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Good morning, everybody.

Let's talk about your direct-to-consumer channels, the percent of total consolidated sales at this point in time, say, at year end?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [12]

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Obviously, with our store closures that will be changing substantially, but going forward we would expect for 2017 to be in the low double digits range after we have worked through our store closures. That's probably the best way to look at it on a go-forward basis. We obviously closed 100 stores in 2014 and 2015 and another 100 stores in 2016. We are going to probably close another 110 or thereabouts in the first quarter of this year, and then we are left with about another 100 to 105 stores to deal with. Going forward, excluding all the store closures, it will be in the low double digits right now. Probably too low from a strategic standpoint, an area certainly that we are focused on.

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Steve Marotta, CL King & Associates - Analyst [13]

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Can you offer some guidance on Merrell and Sperry's expectation for sales growth in the first half of the year and for FY17?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [14]

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We don't really do that. When we look ahead to 2017, certainly we would be looking at growth for Merrell, for Wolverine, for Saucony, Sperry a little bit tougher to ascertain, frankly, at this time, given the boat shoe market; we're seeing some very early signs of a preppy boat shoe resurgence. I'm not planning on that, but we are seeing that on the runways around the world, so we would expect for the whole year Sperry to be more on flat to maybe down low single digits, but the other brands to grow in 2017.

With respect to our overall timing this year, I would say right now we expect 2017 to be a bit back-end loaded but not as much as 2016.

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Steve Marotta, CL King & Associates - Analyst [15]

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Lastly, your inventory expectation for year-end 2017? The delta is fine, up or down low single digits, is that about right? Or how are you thinking about that?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [16]

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Yes, I would think about it that way. Obviously, we are going to continue to get some benefit from closing these stores and we've got some key brands that are going to be growing. We would expect those things to net out. I'd say flat to very low single digits.

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Steve Marotta, CL King & Associates - Analyst [17]

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One more question, and just to reiterate what you mentioned at the end of the prepared comments, is that your quarters now will be equally 13 weeks, each one of them throughout the year. So I would assume then the fourth quarter on a comparative basis would obviously be the most difficult comparison.

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [18]

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I think the way to think about that, if you're thinking about it for 2017, just the cadence for revenue by quarter. If you were to adjust out about $75 million out of Q4 in your current expectations, or your current models, and spread that evenly to the other three quarters of the year, that would effectively re-phase revenue by quarter. Margins are going to be fairly consistent. From that standpoint, that should give pretty good direction on how to maybe adjust that in your model.

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Steve Marotta, CL King & Associates - Analyst [19]

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I assume maybe SG&A costs as well?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [20]

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Similar, yes; similar phasing in terms of number of weeks. I would straight-line that.

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Steve Marotta, CL King & Associates - Analyst [21]

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Excellent, thank you. That's helpful.

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Operator [22]

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The next question comes from Chris Svezia of Wedbush. Please go ahead.

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Chris Svezia, Wedbush Securities - Analyst [23]

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Thank you for taking my questions.

Just wanted to circle back to Merrell for a second. You talked about a lot of product innovation. Just walk through, maybe, your confidence to be able to generate revenue growth for this brand after what it seems like is going to be down maybe high single digits, currency neutral in 2016? Walk through your thought process about why you feel that confident that, that brand will likely grow this year?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [24]

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When I look ahead, Chris, first of all you have to look at the product pipeline. The team's spent a lot of effort over the last several years on creating a more robust, continuous, and bigger storied a product pipeline. It's as robust, frankly, as I've ever seen it in 20 years. So when I look at the new introductions coming down the rows of Moab, expanded Artic Grip program, the Siren collection, we know that is going to drive some growth even in the US market, which remains a bit challenging. DTC was up for Merrell in the quarter, and I think they finished the year with well over a 30% e-commerce growth rate, so we expect that to continue. Their partnership with Tough Mudder has worked out pretty darn well when you look at participants and what it's meant to the brand in terms of Instagram, Facebook, and the whole digital social issue, that's been a significant uptick there.

I think some of the other macro trends that are also favoring Merrell: outdoor, healthy, focus on experience, and active lifestyle. Even in the outdoor sector, people wanting to do more thing together, more in a community-based engagement -- all of those things kind of tap into Merrell. You look at the Natures Gym, the athletic offerings, very robust coming forward. Tactical and work is new, the Moab 2, the Siren Sport 2. Then you look into the second half with the Artic Grip Chameleon 7; so there are a number of product initiatives here that are going to drive growth next year. I would say that Active Lifestyle remains an opportunity for the brand. Today the performance side of the business, with some spectacular products, it's probably about two-thirds of overall revenue. We've got a keen focus to take the Active Lifestyle side back to 50% and that's an opportunity for 2017 as well.

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Chris Svezia, Wedbush Securities - Analyst [25]

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Thank you. Then, for the Keds business, I'm curious: you said it grew in the fourth quarter. I guess I'm a little surprised. What are your thoughts about that brand as we move forward?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [26]

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Very strong team in Keds. Q4 was a bang up quarter for Keds. It was up double digits in all regions across the world, a lot of that driven by the Sport and Classic categories. As we look ahead we see a lot of opportunity in those categories: retrosport, sneaker, boots, in addition to its core in fashion offerings. We do think this is a year when Keds is going to pull back a little bit from some of its more value-priced distribution in the US. So we think that's healthy for the brand. The brand is going to have a significant improvement in profit contribution, but we think the right thing for the brand is to pull back from some distribution here in the US down at the lower end. We are excited about the 2017 and the future for Keds.

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Mike Stornant, Wolverine World Wide Inc. - SVP & CFO [27]

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I think one other thing to add, Chris, is the international momentum for the Keds brand is very strong. That, coupled with a more focused US distribution strategy, bodes well for the business going forward.

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Chris Svezia, Wedbush Securities - Analyst [28]

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Okay, thank you.

Then, on the gross margin, for the operating margin opportunity. You talked about 140 to 190 this year, which still leaves a pretty big nut as you go into 2018. Could you just give us your confidence in your ability to get that additional 150 basis points-plus as you go into 2018? Maybe a little bit more fine tuning, what that specific driver will be, whether it's supply chain, whether it's costing, et cetera? Maybe just walk through that, because we have less visibility to what that opportunity is as we have seen here today.

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [29]

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I would say, from a broader standpoint, the management team is currently putting its money where its mouth is on this subject. We've modified our annual bonus plan so that there is a significant hit to any bonus payments for less than 100 basis points operating margin improvement. No change probably up to 150, a slight positive from 150 to 200 basis points, and a material multiplier add-on above 200 basis points. From a broad standpoint, communication to the other Company for the entire team at the Company, we made those structural changes and that is one piece of evidence on our confidence.

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Mike Stornant, Wolverine World Wide Inc. - SVP & CFO [30]

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I think the other piece, too, Chris, we mentioned the fact that we are still in middle to late innings on our store closure plan, so we won't get the full benefit in 2017 from that; there will be some carry over into 2018. We are spending a lot of energy right now, as part of Wolverine Way Forward, looking at further operational efficiencies. That was a very small part of the 2017 expansion. We've identified some of that through the work we've done over the last 18 months; we believe there is more opportunity there. Than as we pivot the business to more profitable brands and businesses, like our e-commerce growth, continue to international growth, we know that we are going to get expansion and growth just from a more positive mix.

We continue to look at our portfolio and we're making business model changes on a regular basis, and so we've got good confidence in the internal goal that we set for the Company. We'll certainly be able to, as we get more deeply into the year, we'll be able to give more clarity on product costs and other measures that we will have more certainty about later in the year. We don't expect a supply chain improvement in 2018 to be quite as drastic as 2017, but we certainly feel there's more opportunity in that area as well. Several key opportunities, all in the same categories that we have been talking about consistently, but maybe mixed a little bit differently as we transition into 2018.

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Chris Svezia, Wedbush Securities - Analyst [31]

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Okay; thank you and all the best. Appreciate it.

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [32]

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Thanks Chris.

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Operator [33]

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(Operator Instructions)

The next question comes from Jay Sole of Morgan Stanley. Please go ahead.

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Jay Sole, Morgan Stanley - Analyst [34]

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Great, thank you.

Blake my question is about potential deal-making. You mentioned opportunities may be out of brand or diversify the portfolio somehow. Given the uncertain environment from a trade policy and a tax policy standpoint, how do you incorporate that into your thinking about what you may consider doing? Does it delay what you might do until there is certainty on those issues? Or does it not affect it? How do you think about that?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [35]

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Yes, it really doesn't delay our strategic thinking here. On any acquisition we have done in the past, we've tended to take a longer-term view of the opportunity and the brand. When we acquired our Boston-based brands, less than 10% of the overall revenue was international. We knew, based on our business, that, that was an opportunity to plug and play those brands into our international network. We don't see the current environment really slowing our analysis down.

I will say we'll be as disciplined as we've always been in this area, but there may be some opportunities. I would say we're not just looking at brands and businesses based here in the USA; we're looking at businesses that might be based in Europe or in other countries but have the potential to be a global brand. With the strong US dollar right now, some businesses are on sale. And whether that's the business that is headquartered in the euro, or the British pound, or some other currencies, there's opportunity that way. Our criteria has not changed, our disciplined approach has not changed, and the current environment, we've been very proactive, whether it's tax or trade here, we factor that into our thinking. Longer-term, a great global brand is a great global brand.

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Jay Sole, Morgan Stanley - Analyst [36]

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Got it, thank you.

Then, Mike, if I can ask you about the seasonality of the earnings growth as we go through 2017? You touched on a little bit, it sounded like the first half of the year -- the year sounded a little bit like 2016, but not to the same degree. Is that more of a 1Q phenomenon? Or will we see it in 1Q and 2Q? And then a shift in 3Q and 4Q? If you could give us more color on that? And maybe something to drive this; I know you mentioned before [in 1Q and 2Q] that would be really helpful.

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Mike Stornant, Wolverine World Wide Inc. - SVP & CFO [37]

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Yes, from an earnings growth standpoint we won't be as heavily weighted in the second half as we would have been in 2016. From a revenue standpoint it's the same. Blake mentioned that. I think we've got some improvement, certainly, in the middle and third and fourth quarters of the year because of the initiatives, especially in the Merrell business. Some of our key initiatives that are about to launch in the middle of Q2 or maybe Q3, so there is some nice growth planned in the middle of the year, less weighted to Q4. But the seasonality is a little bit improved on the revenue side and actually a little bit even better improved on the earnings side, balancing between H1 and H2.

I think one thing to think about for Q1 is, the fact that we will continue to operate those 110 stores we talked about in the first quarter, so the operating profit expansion that we would have planned for the year won't be quite as great; we'll still get some nice leverage and nice operating profit growth in Q1. The margin expansion won't be as great in Q1 as the remaining years, when those stores will be closed and behind us.

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Jay Sole, Morgan Stanley - Analyst [38]

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Understood; and then just a last one for me.

Blake has mentioned that the retail environment in the US particularly is still lackluster. Would it be possible to clarify that somewhat? And would you compare it to Q4, have you seen any improvement? It seems like 4Q is particularly weak with bad weather and a lot those things, that shift to online. Have you seen any change? Or is it really the same environment right now?

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Mike Stornant, Wolverine World Wide Inc. - SVP & CFO [39]

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As I look early on the year, it's pretty much the same environment. Highly promotional, the consumer looking for some freshness and newness, not a significant change in fashion trends. When you look at all of 2016, it wasn't a spectacular year for footwear, but Q4 was especially weak for footwear, even athletic footwear when you look at the public market share data. We're seeing a little of that carry over into the early parts of this year. On the other hand, I would say inventories across the industry and across retailers are much better than they were last year at this time. That's a little bit of a pickup the other way. Overall, in my opinion, it's interesting right now. I take a look at the US market. As you know, our international market last year basically held [serve]. Maybe a bit surprising given some of the headlines, but basically held serve and we think it's going to do that again this year.

The US consumer soft goods market is probably a bit weaker than the overall macroeconomic conditions might indicate. And yet, in Europe, the consumer soft goods market is probably a little bit better than what you would guess from the macroeconomic conditions. Again it just highlights the need for the Company and the Company's team to be agile, be able to move quickly, reduce concept to market time for its product introduction.

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Jay Sole, Morgan Stanley - Analyst [40]

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Got it, thanks so much.

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Operator [41]

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The next question comes from Erinn Murphy of Piper Jaffray. Please go ahead.

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Erinn Murphy, Piper Jaffray & Co. - Analyst [42]

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Great, thanks, good morning. Just a couple of questions for me.

First, on the gross margin guidance: I think you ended last year down 40 basis points and you're now speaking to (inaudible) expansion in 2017. What are the biggest drivers year over year for that gross margin acceleration? How should we think about first half versus second half?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [43]

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So the big drivers are 160 to 180 basis points for the full year on the operational excellence initiative, supply-chain related, that we went through in detail in the prepared remarks. The offset to that, Erinn, is really the mix shift, because of the number of stores that we have closed in 2016 in the latter part of the year. The stores that we will close in 2017, obviously those have higher gross margin, not very good operating margin, but higher gross margin. So there will be a shift offsetting that supply-chain benefits, mostly related to store closures. And then about 40 basis points of that. Those are the big puts and takes on gross margin.

But the supply chain efficiencies flow through the operating margin, and obviously the store closures with the lower SG&A expense will flow through as well. So in Q1, we expect flattish gross margins, maybe even down a bit. We are going to be operating those stores in Q1. By the end of Q1, they will be behind us. But the operating margin expansion in the first quarter might be up 70 to 90 basis points. But for the remainder of the year much higher, obviously, to get us to that full run rate that we talked about. So that's the best way to be thinking about gross margin and maybe the phasing of the operating margin expansion for the year.

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Erinn Murphy, Piper Jaffray & Co. - Analyst [44]

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Okay that's helpful.

And what provisions did you assume in the gross margin for the promotional environment? Any markdown dollar reserve you need to take? How should we think about that side of the equation?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [45]

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I think one of the great benefits that we have with our cleaner and better inventory position is, we are not nearly as exposed on that as we could have been. Looking at all our sell-throughs in Q4 and early Q1, for almost all of our brands, they were very good. We didn't have to participate in the markdown and promotional cadence that might have plagued some other brands out there. Obviously, a testament to the way we have been managing our distribution and managing inventory levels at retail throughout the full-year. So we continue to be cautious about the value of excess inventory and our ability to move that in an over-inventoried marketplace as it relates to the closeout channel. I think we are properly reserved in that respect. Otherwise, we don't feel like we have a need to be too conservative with respect to our inventory, just given the level and health of the overall inventory position.

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Erinn Murphy, Piper Jaffray & Co. - Analyst [46]

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Maybe a clarification: I think Blake, you said that you have changed the incentive comp for the management team, for the individual merchant team, to basis point of margin versus margin dollar growth? What kind of benchmarking work did you do when you looked at from an overall compensation committee perspective. It seems little bit odd, relative to how we think about other companies, and I'm just curious on that. Maybe I missed something, too.

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [47]

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Just maybe some clarification: we haven't changed for our annual incentive plan the underlying measurements, which is primarily tied to revenue pre-tax, and a smaller NBL component. We have used our-- as a bit of a stake in the ground, a rather aggressive goal in the operating margin area as a bit of a multiplier. So think of it as a multiplier. So our goals are -- and this will be all disclosed in our proxy statement that will be filed here in the next month or so. Think of it as just a little bit of a multiplier, where we are focused on no changing otherwise-calculated bonuses for the team if we have operating margin improvement in basically the 100 to 150 basis-point improvement range. But a kicker above that. And certainly a kicker below that.

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Erinn Murphy, Piper Jaffray & Co. - Analyst [48]

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Okay. We will look for that.

And just going back to a question on the 2018 implied operating margin expansion. You talked about the ongoing benefit through supply chain as well as the store closures should help in 2018. What is your underlying assumption for sales, though? Are you assuming that sales can go back to stabilization in 2018? Which is part [of that] operating margin implied expansion accelerate to get to that 12%? What is the underlying assumption there?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [49]

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Obviously we haven't developed our 2018 operating plan yet. But right now, in our minds we would be planning on underlying organic growth in 2018 across the portfolio.

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Erinn Murphy, Piper Jaffray & Co. - Analyst [50]

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Okay. And last question, Blake, for you on e-commerce. You guys have talked about that multiple times in this call. [It's half the story channel.] You're putting more recent sources behind it. Just remind us, how big is your direct dot-com business that you guys operate under your individual brand standards today? And how are you guys approaching Amazon as a partner? And what are your key strategies stated in growth with them?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [51]

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Right now we would still be in the overall cross portfolio in the single-digit range on our own directly controlled e-commerce business. Obviously we have a number of partners, whether it is retail partners or Zappos, Amazon, a number of other partners that sell our products online. Amazon today -- and frankly we have a near-term goal to get that to double digits, to 10%. And that is our stake in the ground there.

But with respect to Amazon and some of the other players, our consumers are shopping at Amazon. And so for the most part our brands are placed at Amazon as more of a traditional wholesale customer. And then they go there and they look for our brands and our products. A little bit more problematic at some of the third-party sites that have sprung up in recent years, where you have people with fake retail [facias] selling some of your core product, $5, $10 under to drive people to their site. That takes a diligence and a brand protection attitude that I talked about in last quarters call. And that just becomes a given in today's world. In today's world, driven by technology, with an incredible shift in power to the consumer, immediate knowledge at everybody's fingertips. The only person that is really going to protect the brand is the brand.

And so we have obviously added resources and are being very diligent in that area as well. Today, in the United States, for example, probably 1 out of 4 pairs of footwear are sold online. A greater percentage than we would have anticipated 5 or 10 years ago.

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Erinn Murphy, Piper Jaffray & Co. - Analyst [52]

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I do have one quick question: on Tom Kennedy's appointment to President of Sperry. Is Rick Blackshaw no longer there?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [53]

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That is correct.

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Erinn Murphy, Piper Jaffray & Co. - Analyst [54]

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Thank you.

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Operator [55]

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The next question comes from Andrew Burns of D.A. Davidson. Please go ahead.

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Andrew Burns, D.A. Davidson & Co. - Analyst [56]

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Good morning; thanks for squeezing me in.

Blake, in the prepared remarks, you mentioned that you believe consumer lifestyle trends are evolving in a direction that favors Merrell. Could you elaborate on that statement? And more broadly, comment on how current footwear trends pair up with your brand portfolio? What you are seeing that is an emerging trend that is favorable to your brands?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [57]

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From a macro standpoint, we clearly remain in the midst of a broad boot trend. It's been here for several years, it can be more on the fashion side, it can be more on the work side, and really anywhere in the middle of the continuum. So we see a continuation of the boot trend continuing at the consumer level. Athletic, athleisure, sport casual -- however you want to define it, is clearly a continuing trend affecting the entire footwear industry. When you look at Merrell, and outdoor brand, one of the best businesses in the outdoor market, and you look at their push into the Natures Gym category, with a number of new collections this year, which is more athletic-inspired, outside training, outside running -- just outside enjoyment. I think Merrell will be able to take some market share and participate in that segment of the market and that trend very well.

In terms of overall broader trends, outdoor is still trending up. Clearly today's consumer is focused more than it ever has, he or she ever has been in the past, on healthy experiences, an active lifestyle. Really, a pretty significant shift over the last several years to doing things as a group: with your family, with your friends, part of a community, as opposed to an individual athlete conquering the outdoors or setting a personal best record in whatever the activity is. And we see all of that playing into where Merrell is or Merrell is heading.

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Andrew Burns, D.A. Davidson & Co. - Analyst [58]

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Thanks for the color.

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Operator [59]

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The next question comes from Jonathan Komp of Robert W. Baird. Please go ahead.

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Jonathan Komp, Robert W. Baird & Company, Inc. - Analyst [60]

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Thank you, Mike.

My question relates to the walk-through you gave for this year, for 2017, the gross versus the net operating margin improvement. I just wanted to ask, the 60 basis points of offset, I think it's lumped in higher pension expense, normal inflation, and maybe a few other factors. I wanted to maybe clarify, I don't think I heard any offset from increased marketing investment or product investment. I just wanted to reconcile that with the bigger picture priorities of driving consumer engagement and investing in demand creation and those types of actions.

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Mike Stornant, Wolverine World Wide Inc. - SVP & CFO [61]

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Obviously, in that other bucket of 60 basis points, there are a few puts and takes in there. We have not pulled back at all in terms of demand creation investment in our key brands. We mentioned it in the comments in 2016; we anniversaried some bigger investments that didn't recur. But I think as we look forward and focus on what the growth engines are for the Company, and where we are investing for demand creation, and consumer engagement, certainly our big brands, and more importantly probably right now, our investment behind whether it is capital or demand creation in our e-commerce business is really fundamental. So when we talk about net inflationary cost, that is certainly in there.

I would also say that we made some nice improvements in certain other areas, that we netted against some of the marketing spend. Even though in the aggregate 60 basis points doesn't look like a lot, I would say most of that is related to continuing to support demand creation for our biggest opportunities.

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Jonathan Komp, Robert W. Baird & Company, Inc. - Analyst [62]

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Got it. And maybe more of a forward-looking question, partly related to 2018, but maybe beyond that: sounds like 2017 is the last period where flat underlying revenue growth can drive such meaningful margin expansion, and understanding there is some carryover benefits to come after 2017. But could you maybe just talk, it sounds like you are pretty excited about the Merrell product engine in the current form, but when you look across the portfolio, where would you expect the top-line growth to really show through first? And most meaningfully across the brands?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [63]

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As I take a look at our brands, certainly Merrell; we haven't talked a lot today about Chaco. Chaco remains on fire. It will probably cross the $100 million level this year. And we have seen no evidence of any kind of a slowdown for that particular brand. We probably see some contraction looking ahead in our Department of Defense business. That is a low-margin low-profit business for us, but that will probably offset some of the other gains in Merrell, and the Wolverine brand, in the Saucony brand. Then Sperry, we continue to expand our product category offerings in Sperry, and we are just -- boat was down again in Q4 of last year; Sperry actually took a significant chunk of market share increase in that category. We are really laser- focused on expanding Sperry to other categories. Certainly the saltwater boot experience has shown that the consumer and retailers are pulling for Sperry.

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Jonathan Komp, Robert W. Baird & Company, Inc. - Analyst [64]

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All right. Thank you, guys.

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Operator [65]

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We have time for one more question. The last question comes from Laurent Vasilescu of Macquarie. Please go ahead.

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Laurent Vasilescu, Macquarie Research - Analyst [66]

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Good morning.

I wanted to follow-up on the full-year revenue guide of $160 million to $180 million in decline due to current [in] store closures. Can you put that in dollar terms? How much of this guide is currency related? And how much is due to the store closures?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [67]

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About $30 million or so is currency. And then we have a range on the stores. It is broken down like that.

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Laurent Vasilescu, Macquarie Research - Analyst [68]

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Okay, very helpful.

And then I wanted to follow-up on Erinn's question on the gross margin: how many basis points of pressure should we assume for the mix impacts in store closures? Should we say about 30 bps?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [69]

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The negative impact on gross margin?

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Laurent Vasilescu, Macquarie Research - Analyst [70]

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Correct. From the store closures.

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [71]

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From the store closures, it's actually about 100 basis points. We're getting lots of leverage on the supply chain and product cost side, but there is a big mix shift because of the smaller store fleet.

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Laurent Vasilescu, Macquarie Research - Analyst [72]

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Okay it's 100 bps of mix and then I think you said 40 bps of FX, if I remember correctly. Okay.

And then, can you quantify in dollar terms how much SG&A you are saving in 2017 from the 100 store closures in 2016 and 110 for this quarter? And how much of that are you planning to flow through to the bottom line or reinvest in the business?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [73]

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We really don't get into that level of detail on our SG&A as a component of a certain segment of our business. I will say, though, as we've been clear about, the stores that we are addressing have about a $20 million operating profit drain or have historically. The annual impact is about $20 million negative to our operating profit. Once we are through this restructuring and closure plan, we expect to see that growth benefit in the business. Obviously we have a number of initiatives that are going to create capacity and opportunity for reinvestment into growth initiatives and the business, and we will certainly give more clarity on that as we finish out our operational excellence work and turn the corner as we begin to talk more about some of those new initiatives later in the year.

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Laurent Vasilescu, Macquarie Research - Analyst [74]

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Okay; very helpful.

And then, last question: on the inventory, it's down 25%. How much of that was due to the store closures?

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Blake Krueger, Wolverine World Wide Inc. - Chairman, CEO & President [75]

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When we look across the business, we have a low 20% decline in our wholesale businesses as well. When you look at a total of 25%, it really cut across both stores and our wholesale businesses, and so we got a similar benefit, a mix between dollars, I don't have right in front of me, but we really saw improvement across every brand and segment of the business.

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Laurent Vasilescu, Macquarie Research - Analyst [76]

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Okay, thank you very much and best of luck.

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Operator [77]

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

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Chris Hufnagel, Wolverine World Wide Inc. - SVP of Strategy [78]

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On behalf of Wolverine World Wide, I would like to thank you for joining us today. As a reminder, a conference call replay is available on our website at wolverineworldwide.com. The replay will be available until March 22, 2017. Thank you and good day.

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Operator [79]

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Thank you. The conference has now concluded. You may now disconnect your line.