Wolverine World Wide's (WWW) CEO Blake Krueger on Q2 2014 Results - Earnings Call Transcript

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 |  About: Wolverine World Wide Inc. (WWW)
by: SA Transcripts

Wolverine World Wide Inc. (NYSE:WWW)

Q2 2014 Earnings Conference Call

July 15, 2014 8:30 AM ET

Executives

Christi Cowdin - Director, Investor Relations and Communications

Blake Krueger - Chairman, President and CEO

Don Grimes - Senior Vice President and CFO

Analysts

Taposh Bari - Goldman Sachs

Mitch Kummetz - Robert Baird

Edward Yruma - KeyBanc

Christian Buss - Credit Suisse

Jim Duffy - Stifel

Danielle McCoy - Brean Capital

Steve Marotta - C. L. King

Erinn Murphy - Piper Jaffray

Scott Krasik - Buckingham Research

Christopher Svezia - Susquehanna Financial

Sam Poser - Sterne Agee

Operator

Good morning. And welcome to the Wolverine World Wide 2014 Second Quarter Earnings Conference Call. All participants will be in listen-only mode until the question-and-answer session of the conference call. This call is being recorded at the request of Wolverine Worldwide. If anyone has any objections you may disconnect at this time.

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

Christi Cowdin

Thank you very much, Keith. Good morning all. And welcome to our second quarter conference call. On the call today are Blake Krueger, our Chairman, CEO and President; and also Don Grimes, our Senior Vice President and CFO.

Earlier this morning, we announced our financial results for the second quarter of 2014. The release is available on many new sites or can be viewed from our corporate website at wolverineworldwide.com. If you would prefer to have a copy of the news release sent to you directly, please call, [Tyler Doar] (ph) at (616) 233-0500.

This morning’s press release included non-GAAP disclosures and these disclosures are reconciled with attached tables within the body of the press release. Comments during today’s earnings call will include some additional non-GAAP disclosure.

There is a posting on our corporate website that will reconcile these non-GAAP disclosures to GAAP. To view the document, please go to our corporate website wolverineworldwide.com, click on Investor Relations in the navigation bar, click on Webcast at the top of the Investor Relations page, and then finally, click on the link to the file named WWW Q2 2014 Conference Call Supplemental Table, it appears below the webcast link.

Before I turn the call over to Blake to comment on our results, I’d like to remind you that the predictions and projections made in today’s conference call regarding Wolverine Worldwide and its operations maybe considered forward-looking statements by securities laws.

And as a result, we must caution you that as with any prediction or projection there are number of factors that could cause results to differ materially. These important risk factors are identified in the company’s SEC filings and also in our press releases.

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

Blake Krueger

Thanks, Christi. Good morning everyone and thanks for joining us. Earlier this morning, we reported our second quarter financial results highlighted by record revenue and record adjusted earnings and excellence performance in what continues to be a volatile retail environment, particularly in the U.S.

The Wolverine World Wide business model, which is predicated on a diverse portfolio of brands and extensive global distribution footwork -- footprint and best-in-class operations continues to deliver consistently strong results.

For the second quarter, we generated solid revenue growth of 4.4% over the prior year. The Lifestyle Group consisting of Sperry Top-Sider, Hush Puppies, Keds, and the Stride Rite Children's Group rebounded from the challenging first quarter and posted mid-single-digit revenue growth compared to last year’s second quarter. Sperry delivered a better than expected revenue performance in the quarter, which was flat with the prior year.

The Performance Group comprised of Merrell, Saucony, Chaco, Cushe, and Patagonia Footwear, continued on its growth trajectory and also generated a Q2 mid-single-digit revenue gain.

The Heritage Group, which consists of Wolverine Cat Footwear, Bates, Sebago, Harley-Davidson Footwear, and HyTest delivered a low-single-digit revenue increase compared to the prior year.

Our solid revenue growth combined with our disciplined approach to managing the business drove exceptional earnings results. Adjusted earnings per share of $0.31 represents growth of 34.8% versus the prior year. Earnings leverage was excellent , especially in the retail climate as promotional and unpredictable as the one we are currently experiencing.

On a regional basis, we experienced very strong double-digit growth in EMEA, Asia-Pacific, and Latin America compared to the prior year, highlighting the global momentum in our business. I am especially pleased to see strong performance again out of EMEA, our second consecutive quarter of double-digit revenue growth.

Last several years have been challenging for Europe, but we continue to make investments in our brands, people, and infrastructure to ensure we were well-positioned to accelerate growth once the macro conditions improved. I’m happy to report those investments are beginning to pay off, and I’m excited about the progress we’re making in our second largest region.

Finally, for North America market, I’ll talk about in more detail in a minute. Our business was up low-single digits in the quarter. Moving away from the specifics on the quarter but staying on the topic of international growth, I want to briefly focus on our efforts to broaden the international scope of our brands, especially our newest brands, an important initiative for us.

Over the last 15 years, we’ve developed an industry-leading distribution network that enables us to engage directly with consumers across the world. We work diligently with our international partners to capitalize on the global opportunities for our new brands since the acquisition of the Performance and Lifestyle Group in October of 2012, and we’ve signed and executed almost 60 new distribution agreements in key growth markets covering over 85 countries since the closing.

Based on our history, we know that it takes several seasons for brand introductions to gain momentum, and we expect these efforts will play an increasingly important role for the company in 2015 and beyond.

Before Don provides more specifics related to our financial performance in the quarter, I’d like to provide you with my perspective on the current retail climate and macroeconomic environment, discuss efforts we are undertaking to optimize our consumer direct platform, and review the key leadership additions that we announced a few weeks ago.

The consumer malaise in the U.S. retail market persisted into the second quarter and is reflected in the government’s recently announced lower growth expectations for the U.S. economy. There are number of factors impacting the tepid consumer mindset in the U.S.

Unusual weather was certainly a factor last fall and the spring, but the U.S. consumer at least mid-market on down continues to be stressed. This consumer mindset is partially attributable to the weak economic recovery in the U.S. but is also the result of a number of other factors, including the continued dysfunction in Washington DC, the challenging rollout and uncertainty regarding the U.S. healthcare reform, and the lack of the dominant apparel fashion trend.

I guess, I would also say that price increases in non-discretionary items, food, fuel, and utilities has also had an impact. These factors have also negatively impacted U.S. brick-and-mortar traffic in general and resulted in a highly promotional retail environment that has taken its toll on many retailers.

As a result, we have a somewhat more cautious outlook for the U.S. market for the balance of the year, and this is reflected in our updated full-year revenue guidance, which Don will speak to shortly. I would also say, however, that our strong performance has trended better across most of our retail fleet so far in Q3.

Outside of the U.S., despite lingering regional macroeconomic and political uncertainties, our portfolio and business model continued to perform well as reflected in our strong double-digit growth outside the U.S. in the second quarter. We believe the diversity of our brand portfolio, target consumers, and distribution channels enables us to deliver consistent results, despite a volatile global market place.

Switching gears, I’d like to take this opportunity to discuss an important initiative we announced this morning that is intended to optimize our consumer direct operations, drive profitable growth, and ultimately increase shareholder value. As you know, consumer shopping behavior is evolving dramatically, especially in the U.S.

Consumers have embraced the ease and convenience of online shopping, a trend that has only accelerated for the last several quarters. Today’s consumers demand a sophisticated omni-channel shopping experience and have the available technology to make informed shopping and purchasing decisions. As a company, it is paramount that we evolve to meet and exceed the needs and demands of this new consumer.

Today, after an extensive review and strategic analysis of our retail operations, we announced the realignment of our consumer direct priorities and resource allocation. To expedite the realignment, we announced the planned closure of up to 140 brick-and-mortar retail locations over the next 18 months, and the related consolidation of store operation functions.

We also took this opportunity to evaluate several other related areas of the business to identify further efficiency opportunities. When fully implemented, we are expecting annual pretax benefits of the realignment plan to be approximately $11 million.

We anticipate reinvesting much of this benefit into e-commerce, mobile, and other omni-channel capabilities and opportunities intended to enable our consumers to engage with our brands anywhere anytime. Don will share the timing and additional financial details of this Strategic Realignment Plan with you in his prepared remarks.

Finally, I want to take a moment to speak to you about the key leadership additions to the company’s senior management team that we recently announced. Bill Brown is retiring after a long and successful 27-year career with the company most recently as head of our International Group. We wish Bill all the best in his well deserved -- in his well-deserved retirement.

With change, comes opportunity and given the strategic importance of our global business, I’m very pleased that Jim Zwiers will replace Bill as President of the International Group. Jim has had numerous and increasingly significant leadership roles during his tenure at Wolverine and is uniquely qualified to lead the International Group as we continue our brand-building efforts around the world.

We are excited to have Jim’s talent, passion and experience dedicated to the many international initiatives and opportunities for our brands. I’m also pleased that Jim Gabel has joined Wolverine to succeed Jim Zwiers as President of the Performance Group. Jim was mostly recently President of Adidas Group, Canada where we led successful growth and development of the Adidas, Reebok, Rockport, Ashworth, Adams Golf and TaylorMade brands.

Jim is a recognized industry leader with a passion and talent for building performance brands. His track record of driving growth across multiple consumer channels makes him the ideal leader for the Performance Group.

We’re also very pleased that Andrew Simister has joined the company as President of the LifeStyle Group. Andy joins us from Pentland brands where he most recently held the position of President of Lacoste Footwear and also served on Pentland’s executive leadership team with responsibilities for setting the strategic direction of the company and its portfolio brands. Andy’s global perspective and the brand building capabilities will be a wonderful addition to this great family of brands.

Jim Gabel is headquartered in our Michigan office and Andy is based in our Boston office. Both bring a proven track record of successfully leading great teams and growing brands around the world.

These leadership changes represent the next step in evolution of Wolverine World Wide as we position the company for future global growth and success. We’re extremely pleased to be able to attract some of the industry’s best and brightest and also develop key talent within our own organization.

As a company, we remain strategically focused on leveraging our diversified portfolio of the global lifestyle brand which cover all ages, genders and most product categories; to drive growth by maintaining a fanatical focus on innovation especially product creation, expanding our already extensive global distribution footprint; focusing on forging stronger connections with our consumer with a continued emphasis on consumer direct initiatives specifically digital efforts that support the omni-channel experience; expanding the lifestyle opportunities for our largest brands and lastly executing against our business model, which mitigates the risks associated with an ever-changing global marketplace.

Thanks for your time this morning. I will now turn the call over to Don Grimes, our Senior VP and CFO, who will provide additional commentary on our performance in the quarter and our updated outlook for the full year. Following his prepared remarks, we will open the call up to questions. Don?

Don Grimes

Thank you, Blake, and thanks all of you for joining us on the call today. As Blake noted, we are pleased with the quarter’s financial results, which include record revenue, record earnings, very strong operating free cash flow, and the lowest level of net debt since we closed the acquisition of the Performance and Lifestyle Group in the fall of 2012. When we announced the PLG acquisition two years ago, we stated that one of the most important priorities for our free cash flow was to pay down our acquisition debt and we stayed through to our word with net debt just a shade below $900 million at quarter end.

I will now provide more details on the quarter’s results, discuss our full year outlook, and share some additional information regarding the strategic realignment plan that we announced this morning, most of which relates to actions we’re taking within our Consumer Direct business. I would like to remind you that all the current and prior year financial results discuss today had been adjusted to exclude integration expenses related to the PLG acquisition, restructuring charges related to the late 2013 closure and sale of our Dominican Republic manufacturing facilities, non-cash restructuring charges related to the company’s international operations, and costs and non-cash charges associated with last year’s very successful debt refinancing.

We reported a record revenue for the second quarter of $613.5 million, representing growth of 4.4% versus the prior year, slightly better than our forecast going into the quarter. Each of our three brand operating groups contributed to the revenue performance by posting solid year-over-year growth. Foreign exchange had minimal impact on revenue growth in the quarter, increasing reported revenue by less than $1 million.

The Lifestyle Group consisting of Sperry Top-Sider, Hush Puppies, Stride Rite Children's Group, and Keds, delivered revenue of $264.1 million in the second quarter, growth of 3.5%. Exceptionally strong double-digit revenue growth from Keds and mid-single digit growth from the Stride Rite Children's Group more than offset a high-single digit revenue decline from Hush Puppies.

Sperry Top-Sider revenue was down less than 1% in the quarter versus the prior year, and revenue grew 34% versus pro forma fiscal 2012 revenue. Sperry’s revenue growth was negatively impacted by approximately 400 basis points by the distribution realignment in the Family channel that we discussed last quarter, so the brand would have grown in the quarter but for this change in distribution strategy.

The momentum in Keds continues to be one of the great growth stories in the industry. The brand’s partnership with Taylor Swift and product collaborations with Kate Spade and others continues to resonate with the brand’s target consumers. During the quarter, Keds sponsored Taylor Swift’s Red Concert through or throughout Asia and we saw positive sell-through in consumer engagements and dozens of important markets in that region. Keds also saw increased penetration with key retailers in the North American wholesale business, especially with core product classification such as the Champion. With compelling new products on horizon for early 2015, we believe the future for the Keds brand is quite bright.

Sperry Top-Sider’s revenue performance in the quarter exceeding their expectations. While the men’s business reported stronger performance, partly on the strength of the higher margin Gold Cup collection, the women’s business declined in the quarter. Women’s category such as sandals, flats, and espadrilles, key categories for the brand’s future global expansion are driving positive sell-throughs across multiple channels. However, the growth in these categories was offset by continued softness in the women’s boat shoe category. The brand plans to introduce fresh women’s boot in casual styles for fall and will launch women’s Gold Cup casual product for the holiday selling season.

The Stride Rite Children's Group rebounded from a challenging first quarter, benefitting from the shift of these two holiday business to Q2 this year from Q1 in the prior year. The business’s brick and mortar performance continue to be hampered by lower mall traffic, which despite a nice improvement in conversion negatively impacted fleet productivity and profitability in the second quarter. I will share more on our efforts to address the shift in consumer buying habits in a few minutes.

Turning to Hush Puppies. The U.S. business continued to grab over tough retail conditions, particularly weaker demand in the department store channel for casual products. As has been the case for many years however, the brand’s highly profitable international licensee business delivered excellent results. Our Performance Group, which consisted Merrell, Saucony, Chaco, Cushe, and Patagonia Footwear, posted revenue of $211.2 million, a solid increase of 5.8% versus the prior year. Saucony and Chaco were the leading performers in the quarter, with both brands posting a strong double digit year-over-year revenue growth.

During the quarter Saucony continued to strength its position in the important run specialty channel with the key win coming from the Guide 7, which is now the number two shoe in the run specialty channel’s stability classification. Additionally the Ride 7 was named Editor’s Choice by Runner's World magazine. Globally the brand continued to expand to EMEA where it now does more than 20% of its business. Excellent performance in third party markets has been driven by demand for both technical running product and the Saucony Original’s collection which are retro sneakers styles from the brand’s archived.

Merrell grew its revenue at a low-single digit rate in the quarter after adjusting for the transfer of the Merrell Kids to the Stride Rite Children’s Group. Strong performance in the EMEA and Asia Pacific was offset by softer results in the U.S. and Canada. In the U.S., specifically the cool, wet spring, a highly promotional retail environment and the prior year launch of the M-Connect collection made for difficult year-over-year comparisons. The brand’s performance outdoor product category performed very well in the quarter, with excellent double-digit growth. Innovative offerings such as the Allout Blaze and core franchises like the Moab performed especially well. Merrell continue to invest in the expansion of its outperform brand platform allowing better connections with its key retailers and consumers all designed to position Merrell as the leader in outside performance footwear and apparel.

Chaco continue to product outstanding results with exceptionally strong double-digit growth in the quarter, driven by unprecedented demand for its classic Z sandals. The brand’s classic sandal profiles continue to gain momentum with younger consumers. Its leather sandals were also gaining in popularity, particularly in women’s offerings, while the MyChaco’s customer sandal program is up more than 50% year-to-date. Chaco was a great example of a brand that was struggling prior to its acquisition by Wolverine but is now flourishing under new leadership and with the benefit of the company’s infrastructure to support it.

One additional comment related to the Performance Group. It was recently decided that our license agreement for Patagonia Footwear, one of the smallest brands in our portfolio, would come to an end. As a result, fall of 2014 will be the last season that the company will shift product and we have notified the retail trade and distributor partners of this change. Although a wonderful brand, Patagonia currently generates a relatively small amount of revenue and profit for Wolverine. We expect no impact on fiscal 2014 financial results and an immaterial impact on 2015 results, and we look forward to focusing our brand building efforts on the many more meaningful growth opportunities in our portfolio.

The Heritage Group, which consists of Wolverine Cat Footwear, Bates, Sebago, Harley-Davidson Footwear, and HyTest, posted revenue of $113.5 million, growth of 2.6% over the prior year. Strong double-digit growth from Cat Footwear, high-single digit growth for the Wolverine and HyTest brands and low-single digit growth for Harley-Davidson were only partially offset by declines in Sebago and Bates, the latter of which felt the impact of reduction in low margin U.S. military contract business.

Cat Footwear had an exceptional quarter as every major geographic region grew at a double-digit rate. Globally the brand is resonating with both men and women, especially with its lifestyle collection and the core Colorado boot and new materials and colors performed quite well. The North American business also saw a nice list of updated work offerings and the addition of resources dedicated to selling a new women’s product through new channels of distribution. The Wolverine brand delivered a solid quarter driven by strong growth in its North American business.

The core work in Heritage collections continue to deliver solid results across multiple channel. Offerings from the brand styles and mile collection in the U.S. grew strongly within top tier account, performance that continue to drive opportunities for the brand globally.

Turning back to consolidated results, gross margin in the quarter was 40.1% compared to gross margin of 41.0% in the prior year second quarter. Challenging retail conditions drove higher than expected promotional activity in our brick-and-mortar fleet contributing 40 basis points to the decline.

The positive impact of wholesale selling price increases was more than offset by the negative impact of higher product cost for a net negative impact of 50 basis points. Adjusted operating expenses in the second quarter were $190.8 million, 2.8% lower than the prior year. Lower pension and incentive comp expenses and tight discipline around discretionary spending helped deliver the excellent result.

Adjusted SG&A was 31.1% of revenue, an outstanding 230 basis point improvement compared to the prior year. Reported operating expenses were $196.7 million, down 3.6% versus the prior year. Interest expense in the quarter was $10.9 million, a $2.2 million lower than the prior year, reflecting the impact at year-over-year principal reductions and a lower interest rate on our term loan debt, which is driven by both our lower average leverage ratio and last years debt refinancing.

The reported effective tax rate for the quarter was 28.2%, higher than in the prior year, due mainly to a higher mix of earnings coming from the United States, and the expiration of the U.S. Federal Research and Development tax credit.

Fully diluted weighted average shares outstanding for the second quarter were almost exactly $100 million. Adjusted net earnings for the quarter grew 36.9% to a record $31.8 million and fully diluted earnings per share grew 34.8% to $0.31 per share demonstrating the earnings power of Wolverine’s global business model. On a reported basis, earnings increased 50% to $0.27 per share, compared to $0.18 per share in the prior year.

Turning to the balance sheet, total inventory at quarter end were down 5.1% to just under $460 million, as we continued our disciplined approach to managing inventory. Free cash flow in the quarter was an outstanding $113.6 million.

As a result, we finish the quarter with cash and cash equivalent of $232.4 million and net debt of $898.9 million, a decrease of net debt of more than a $108 million since the end of the first quarter and a decrease of more than a quarter of billion dollars since the transaction close less than two years ago. We took advantage of our strong cash position by making a voluntary principal payment of $25 million of our term loan earlier this month.

Turning to the full year outlook, while we’re obviously pleased with the company’s solid revenue and excellent earnings performance to the first two quarters of the year, we expect continued challenging retail conditions in the U.S. during the important back-to-school and holiday shopping seasons.

As a result, we now expect full year consolidated revenue to approximate $2.775 billion for growth of just over 3% versus the prior year. Based on this revenue outlook, the expectation of very modest full year gross margin expansion and continued operating expense discipline, we’re pleased to re reaffirm our guidance for adjusted full year earnings in the range of $1.57 to $1.63 per share, representing growth of 10% to 14% versus the prior year’s adjusted earnings per share of $1.43.

Excellent performance we believe in such a tepid retail environment. More specifically to Q3, we expect that both revenue and earning per share will be flat versus the prior year, with excellent 9% revenue growth in 2013, driven by strong back-to-school shipments in the U.S. and double-digit growth in EMEA and benefits on the PLG acquisition help drive a 61% increase in adjusted earnings per share.

We expect to deliver solid revenue growth in Q4, due impart to continue recovery in EMEA where our year-to-date revenue is growing at a double digit rate. A deeper assortment of cold and wet weather boot products for many brands in our portfolio; solid comp store sale gains from our Sperry retail fleet based impart on a launch of a full range of apparel into the stores prior to the holiday shopping season; a healthy wholesale backlog position for most of the other brands in the portfolio and an extra week in this years 17-week fiscal fourth quarter. Also keep in mind that we are comping against the fiscal fourth quarter in the prior year when consolidated revenue was essentially flat.

Our full year earnings guidance excludes carry over acquisition integration expenses and charges related to the strategic realignment plan that we announce today. The portion of the realignment plan that relates to our consumer direct business is the outcome of the comprehensive strategic review and analysis has been going on for several quarters.

The market shift in consumer shopping preferences particularly here in the United States has led us to implement this strategic realignment. We believe that closing retail locations that do not meet our profitability requirements commence really reducing infrastructure cost and redeploying most of those savings to build the best-in-class omni-channel consumer shopping will enhance future shareholder value.

The Realignment Plan announce today contemplates closing up to approximately 140 retail locations primarily Stride Rite stores over the next 18 months. Of these, it’s expected that approximately 60 stores will close in fiscal 2014, with the balance closed in 2015.

Consolidating certain consumer-direct functions, specifically store operations and field support teams, to allow for a more effective and efficient management of the retail fleet; and implementing additional organizational and infrastructure changes designed to realize further synergies.

We’re estimating pretax charges related to the plan in the range of $30 million to $37 million and expect to record these charges between now and the end of fiscal 2015 as each component of the plan is executed. Approximately $13 million to $15 million of this estimate represents non-cash charges, primarily asset write-offs related to closed retail locations, impairment charges related to our remaining retail store fleet and restructuring charges related to our international operations. Of this amount, we recorded $3.4 million in the second fiscal quarter.

When fully implemented, we expect annual pretax benefits of approximately $11 million and as we’ve noted, we intend to reinvest most of these benefits to further build out consumer-direct omni-channel capabilities and accelerate growth in our wholesale operations, investments that we believe will better position our brands for growth and drive meaningful shareholder value.

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

Question-and-Answer Session

Operator

Yes. Thank you. (Operator Instructions) And the first question comes from Taposh Bari of Goldman Sachs.

Taposh Bari - Goldman Sachs

Hey guys, good morning.

Blake Krueger

Good morning.

Taposh Bari - Goldman Sachs

Just a question, first on the guidance for the year, just curious to know why you’re reducing the guidance to the low end given that you actually beat your internal plan for the second quarter and also for Sperry. Is there something that you’re seeing out there or is there some kind of imbalance between sell in versus sell through or some sort of inventory backup in the channel or is it just conservatism on your part?

Blake Krueger

I wouldn’t necessarily attribute it to conservatism on our part, but I think our outlook for the back half of the year is probably most influenced by softness we’re seeing in our Stride Rite retail fleet in particular. The store closings that we’re talking about really are expected to happen kind of at the end of the year, so the revenue guidance isn’t impacted by store closure necessarily, Taposh, but it is really more softness in overall retail channel that we’re seeing that are impacting a lot of the brands in the portfolio that are probably impacting our Stride Ride brand in this retail fleet more than any other brand in the portfolio.

Don Grimes

I would guess with respect to Sperry. Sperry obviously had a very good Q2. Sperry had a big quarter in Q3 last year, so we are expecting a decrease in Sperry in Q3, but a return to growth in Q4. Certainly, no unusual inventory patterns or situations there driving the Sperry business at all.

Don Grimes

Within certain channels Taposh, I think, Sperry with over inventory going into the fiscal year, but we worked through that. I think, inventories at retail are very much in balance for that brand, which as you know is the second biggest brand in our portfolio.

Taposh Bari - Goldman Sachs

Okay. That’s helpful.

Blake Krueger

Yeah. I guess, just looking at Q4 for Sperry, they are going to have an expanded fall collection, fresh boat, but their boot orders are way up new casuals and flaps. The store count is up. Men’s has remained strong in all categories, both non-boat and Gold Cup in particular.

We do expect to bump up in the store performance, given the addition of a full apparel line. Of course, for the holiday -- before the holiday season, and last year they had, frankly, the compare is a little bit each year in Q4 because they had a relatively challenging Q4 last year.

Taposh Bari - Goldman Sachs

Just so I am clear, the reduction in the full year revenue outlook is primarily being driven by what you are seeing at Stride Rite retail?

Blake Krueger

That is correct, and then probably, the second most significant change in the outlet, probably, relates to Hush Puppies in U.S. department store channel, and then other brands are up or down in a very small range, but mainly Stride Rite and Hush Puppies .

Taposh Bari - Goldman Sachs

Okay. And the second question I had was just on, if you could provide some more detail on Sperry, you mentioned the boat shoes silhouette within women's being soft but the other categories, which are your growth categories internationally being stronger? Can you provide some context, how big is -- within the women’s business in Sperry, how big is boat versus non-boat in North America?

Blake Krueger

In North America, for women’s boat would be over 50% of their business and the women’s boat shoe, a business continues to be challenged. Our revenue forecast for the company and for Sperry for the entire year really doesn’t assume any change in that trend.

At the same time, men’s has been trending up. Sperry women’s business is going to offer a broader range of non-boat shoe product. We’ve had a broad pick up from retailers around the United States to that product and feel very good about that, but it’s not going to be enough to offset the decrease in the women’s boat shoe.

Don Grimes

I mean, Taposh, as we have talked about for a couple years, it’s always been our intention to grow the non-boat portion of the Sperry business for both men and women. But our preference would have been to grow the non-boat percentage by growing both boat and non-boat, but growing the non-boat at the faster rate, not necessarily having the boat shoes categories take a step back, which is what we are experiencing this year. But as boots and sandals and espadrilles as new products are introduced and well-received by the retail trading consumers as they have been that the reliance on boat will come down over time.

Taposh Bari - Goldman Sachs

Feels like the non-boat piece of the business could be big enough to extend the correction whatever you want to call it within boat piece on the women side, is that fair?

Blake Krueger

Yeah. I think the brand remains very strong, it’s -- as you know it’s front and center at most retailers and retail locations. It has no brand drag with retailers or more -- even more importantly consumers. So, we see lots of opportunities on the women’s side for Sperry.

Don Grimes

Yeah. I mean, but, I mean, to the point on your question, Taposh, in 2014, the growth of other categories is not offsetting the decline in women’s and women’s boat. And we are reiterating our outlook for the brand for the full year that it will be down in the mid-to-high single digits, but we think the brand has stabilized and as Blake mentioned, we expect the brand to return to growth in Q4.

Taposh Bari - Goldman Sachs

Good to see. One quick one, and I’ll hop on housekeeping. What’s -- can you quantify the extra week, Don, in the fourth quarter?

Don Grimes

From a retail sales standpoint, the retail stores being open an extra week, we calculated about worth of $10 million of revenue, but that week of the year really nothing in terms of profitability, and on the wholesale side, it is less to really quantify , so we really kind of look at it in terms of $10 million revenue lift and no impact on earnings per share.

Taposh Bari - Goldman Sachs

Got it. Thank you. Best of luck guys.

Blake Krueger

Thanks.

Operator

Thank you. The next question comes from Mitch Kummetz with Robert Baird.

Mitch Kummetz - Robert Baird

Hi. Can you guys hear me?

Don Grimes

Yeah.

Blake Krueger

Yeah. Sure Mitch.

Mitch Kummetz - Robert Baird

I actually have a couple questions. Don, just back to your updated revenue guidance for the year, I think coming up on the last call, you mentioned a few things. You said that Performance Group would be your fastest growing group. Just curious if that is still the expectation, kind of what your outlook for Merrell is in the back half?

Don Grimes

We still expect the Performance Group to be the fastest growing of the three operating at least for the fiscal year that’s been true year-to-date and will be true for the full fiscal year.

Mitch Kummetz - Robert Baird

Okay. And then by geographic region, I think, you had also said that Asia-Pac and Latin America fastest growing EMEA sort of up mid singles, North America below singles, are those still your expectations or anything changed there?

Don Grimes

By the time we get to the end of the fiscal year that will be our expectation. I -- for the -- on the year-to-date basis EMEA is the second is the second fasting -- fastest growing geographic region but I expect end of the year that Latin America well, which had some time issues on revenue in Q1 in particular. Latin America will be grown at a double-digit rate to surpass EMEA. But it’s all very positive story that relates to the diversification of our business model.

Mitch Kummetz - Robert Baird

And then as far as...

Don Grimes

I will say, I’m sorry, Mitch, just to clarify, you didn’t ask about Canada. But Canada on a reported basis was actually down in end the quarter revenue. But there was a -- as you probably aware there is pretty significant strengthening of the U.S. dollar versus the Canadian dollar and so on constant currency basis Canada actually grew to mid single-digit rate in the quarter.

Mitch Kummetz - Robert Baird

Okay. Great. And then on -- PLG, I think you previously again said that incremental revenue from PLG International would be I think like less than 1% or less than 1% of the revenue contribution? Is that still the case or how is -- let me ask you differently, how is PLG International trending in terms of incremental revenue from that business?

Blake Krueger

Yeah. I guess, Mitch, maybe one way to look at this, we tried that to quantify in terms of new contracts signed in number of countries. Another way that kind of cut it is to look at what overall revenue was in North America, the USA prior to the -- at the time of the acquisition and what it is today. So we are seeing a pretty marketed diversification for Saucony for example.

Saucony was in the low 80 percentile range for USA business at the time of the acquisition. In Q2 it’s down to about 67% for example and a lot of that has been driven intentionally by the Performance product but a lot of it being also driven by the start of an Originals and interest in the Originals collection especially in Japan, Italy, U.K., some other pretty influential fashion markets.

Keds, at the time of the acquisition was 90% plus USA. Today in Q2 that be about 80% Sperry was 95% plus USA at the time of the acquisition. So, today it’s about 90%, maybe a little bit below that.

So it always takes a little time. We know from our past history with the rollout of Merrell and many of the other brands in our portfolio, it take several seasons to get the engine going, once we get the engine going, it's almost like an annuity, so.

Don Grimes

Not a very U.S. numbers, Mitch, because sound like you may not be in your office. But since the acquisition closed, we’ve signed 58 executives, 58 distribution agreements for the four newly acquired brands of which 33 are brand new territories or countries and 25 would be renewal of existing relationships and it’s kind of take the data that Blake was sharing with you and flip it in little different way.

The International Wholesale revenue for the four brands that we acquired on year-to-date basis so through the first half of the year is up in the mid-teens and if you exclude Stride Rite which is probably of the four brands maybe I might say and look to Blake to nod his head in agreement that maybe has the least international opportunity of the four brands that we acquired that excludes Stride Rite, the international wholesale revenue for the three newly acquired brands that’s up about 20% on a year-to-date basis.

So off of the dates that we’re talking about, we’re not throwing parties here about 20% year-to-date growth but as we consistently talk about, this is a kind of an accelerating type thing. You signed a distribution agreement that takes a few seasons for that really to pick up and so what’s 20% growth year-to-date ought to be stronger growth in the back half of the year and even stronger growth in 2015.

Mitch Kummetz - Robert Baird

Okay. That’s helpful. Really appreciate that color. Thanks.

Blake Krueger

Okay.

Operator

Thank you. And the next question comes from Edward Yruma from KeyBanc.

Edward Yruma - KeyBanc

Hi. Good morning. Thanks for taking my question. I guess, first on, the last call, when you guys beat mainly because of SG&A and I think it indicated that SG&A will be kind of reinvested 2Q, 3Q and 4Q this year, I guess. What’s your perspective on whether that was in fact reinvested in kind of SG&A for the back half?

Don Grimes

I mean, a portion of the, well, I’ll call it deferral spend in Q1 was invested in Q2 but we continue to look for every opportunity to drive efficiencies in our business and those efficiencies manifest themselves and reduce SG&A. As it relates to the back half of the year, we do expect to deliver SG&A leverage for the full fiscal year.

So if you take our revenue guidance of 2.775 and that’s growth of about 3% year-over-year, we expect full year SG&A to grow at a rate lower than that but not necessarily decline at the same rate that as in the first two quarters of the year. So I think full year, we’ll expect very modest growth in SG&A below the rate of revenue growth.

Edward Yruma - KeyBanc

Got it. And as it relates to the U.S. Hush Puppies business, I know you said I wish there were some weak trends in the department store casual footwear market right now. Are there any other things you can do from an execution perspective or product perspective to improve performance on that brand in U.S. wholesale? Thanks.

Blake Krueger

Yeah. I mean, Hush Puppies frankly has doubled down on its product creation and innovation. Some of the core -- and this is true for other brands as well. Some of the traditional core casual product frankly just didn’t perform in the first half of this year and Hush Puppies suffered the impact of that kind of shift in consumer buying habits. Canada was up nicely in the -- trends was up nicely in the quarter and it’s a very profitable international business which is probably 80%, 85% of all pairs continues to perform extremely well.

Edward Yruma - KeyBanc

Okay. Thanks guys.

Blake Krueger

Thanks.

Operator

Thank you. And the next question comes from Christian Buss with Credit Suisse.

Christian Buss - Credit Suisse

Yes. So could you talk a little bit about the expected revenue impact from the Stride Rite closures and how you expect that to flow through to the bottom line if we think about it on a fully completed basis?

Don Grimes

A lot of its sort of fluid. We make it sound so neatly packaged in the earnings release and in the prepared remarks this morning but we’re going to start having conversations with all the lessors this afternoon as a matter of fact. And the timing of the store closures and ultimately that final number of store closure will depend in large effect how those conversations go. I guess, we will have more information to share if we are into Q3 call as we had those conversations as to the specific impact on 2015 revenue.

Obviously the number of stores to be closed at the number of this year will negatively impact 2015 reported revenue but obviously held profitability for the course on those savings that we don’t reinvest in other areas of the business and then the closures that occurred during the course of 2015 or at the end of ‘15 will have an impact on 2016 revenue.

So I guess, this is a very long way of saying, Christian, that given that the conversation that we’re just going to be starting today that we’ve announced the Strategic Realignment Plan, we’ll have more details on the impact on revenue as we move forward. But clearly a very positive impact on profitability both from the avoidance of four wall operating losses on the store that are losing money as well as the efficiencies that we can gain and the supporting infrastructure.

Christian Buss - Credit Suisse

That’s helpful. Could you talk a little bit about your gross margin expectations for the balance of the year? You’ve done a nice job protecting gross margin up until this quarter. How should we think about 3Q and 4Q gross margins?

Don Grimes

Yeah. We still expect full year gross margin expansion. We -- I use the phrase very modest full year gross margin expansion. Q2 was tough due to this kind of promotional activity at retail. I do believe that -- we do believe that the product cost exceeding the benefit from selling prices increases in Q2 with one quarter kind of a timing issue.

Recall that we’ll also get the benefit in the second half of the year of the closure late last year of our Dominican Republic facilities that we referenced as having a full -- an annualized benefit of about $4.5 million. So that benefit will start flowing through cost of sales in the back half of this fiscal year. So those are all things that lead us to believe that when it is all said and done without giving you specific gross margin commentary on Q3 versus Q4 that will deliver that very modestly your gross margin expansion recovering from negative position year-to-date.

Christian Buss - Credit Suisse

Thank you very much and best of luck.

Blake Krueger

Thank you.

Operator

Thank you. And the next question comes from Jim Duffy with Stifel.

Jim Duffy - Stifel

Thanks. Good morning.

Blake Krueger

Good morning Jim.

Jim Duffy - Stifel

Can you guys speak to your current level of visibility for revenue in the third quarter and fourth quarter and then I have a question on the restructuring?

Don Grimes

I think we have a…

Blake Krueger

Pretty good visibility….

Don Grimes

Pretty good visibility.

Blake Krueger

…into wholesale for Q3 and I recognize that we have 465 retail stores where visibility is kind of day by day.

Jim Duffy - Stifel

Sure.

Blake Krueger

But as it relates to the wholesale which is about 85% of the consolidated revenue, we’re depended on what the reorders are going to be. But as you know, Q3 tends to be rely more heavily on future orders and then add one to our or fill in orders Jim. Q4, we referenced specifically healthy backlog position from most of the other brands in our portfolio that we didn’t talk to specifically in my prepared remarks and that is true.

I mean, you know that to anybody that we don’t talk specifically to backlog numbers for the company at a brand level but I will state -- repeat what I said in my prepared remarks that our backlog position looks quite healthy for Q4 and that’s what led us to believe -- lead us to believe that we’re going to deliver the revenue growth in Q4 designed to get to that full year revenue outlook.

Jim Duffy - Stifel

Great. And then related to the restructuring, we’ve been to a couple of year period, we’ve seen a lot of integration and operational realignment. When we get beyond the Stride Rite repositioning, are there other lingering pockets of unprofitable revenue to target in the future or do you foresee it time, Don, where we get to a period where GAAP EPS and the pro forma EPS are more closely aligned?

Don Grimes

We’re smiling when you say that because that’s our goal as well. While that’s our goal, we’re not going to let that goal dissuade us from doing thing that we think are in the best interest of the business. And when you do things that are non-recurring in nature, you’re compel to treat them as such. And so, yes, as we cycle through this store closure there is no significant pocket of the business that is money losing, that we think, okay, once we get to the retail structuring that we’re going to do this in 2016 but no one can predict the future for sure.

Blake Krueger

I think Jim most of the -- after this realignment and with this realignment, we’ve captured most of the low-hanging fruit. There is always further future efficiencies you can generate but most of the low-hanging fruits been taken care of.

Jim Duffy - Stifel

Great. Thank you guys.

Blake Krueger

Thanks.

Operator

Thank you. And the next question comes from Danielle McCoy with Brean Capital.

Danielle McCoy - Brean Capital

Hi guys. Thanks for taking my question.

Blake Krueger

Hi Danielle.

Danielle McCoy - Brean Capital

I was just wondering if you could give us a little insight on maybe some upcoming campaigns or social media things that you guys are planning on doing for Keds as we enter the back-to-school season?

Blake Krueger

Yeah. I mean, I would say Keds, the turnaround strategy for Keds has really been spectacular success. I give Rick Blackshaw and his team full credit for that amazing less than two-year turnaround. I think they’re approaching it in a multi-pronged fashion, not just with collaborations with Hollister and Kate Spade, and obviously Taylor Swift and her Asian Tour, but their connections through the Million Brave Acts campaign, it’s really an online connection at the brand. I wouldn’t call it a campaign as much as a social media event that they’re implementing for this fall has been a resounding success. Also, I think their Brave Life Project has resonated not just with Taylor Swift, but with that whole 14 to 25-year-old female consumer. So I would say they are on the cutting edge. They are doing some great things in the omni-channel area to really drive future growth.

Danielle McCoy - Brean Capital

Hi, great. And then, I was wondering if you guys could just remind us about the impact from Sperry, from more of the limited distribution type model that you guys are going forward with?

Blake Krueger

About $5 million a quarter and that related to one particular customer and its omni-channel. The decision was made last October and really the negative impact to be felt in the first quarter this year and it’s rough numbers $5 million a quarter Danielle, every quarter this fiscal year.

Danielle McCoy - Brean Capital

All right. Great. Thanks so much. Good luck, guys.

Blake Krueger

Thanks.

Operator

Thank you. And the next question comes from Steve Marotta from C. L. King.

Steve Marotta - C. L. King

Good morning, everybody. Don, you commented that discretionary spend was cut a bit in the second quarter. Can you talk about what specific category was cut the most, was it marketing or what specifically, what that? And the other was, I just want to review Q3, you mentioned -- I believe revenue and earnings are expected flat on a year-over-year basis, do you expect SG&A deleverage in the third quarter because of that? Thank you.

Don Grimes

Yeah. I mean, in terms of what we -- the discretionary spend that was held really was in a lot of areas other than advertising and marketing, which was still a very healthy 5.1% of revenue in the quarter, down just about 20 basis points from the prior year, but still very much in the sweet spot of what we strive to. But it was really more in the things that are more -- that are not customer or consumer facing at all, they are more in the backroom area, in traveling and entertainment, third party spend, etcetera. These are things you’re doing to drive efficiencies and run a better business. As it relates to Q3 with flat revenue, I would expect some deleverage in SG&A to get to the full year SG&A outlook that I talked about in response to someone’s earlier question.

Steve Marotta - C. L. King

That’s helpful. Thank you.

Don Grimes

Thanks.

Operator

Thank you. And the next question comes from Erinn Murphy from Piper Jaffray.

Erinn Murphy - Piper Jaffray

Great. Thanks. Good morning. Just given the U.S. environment and how you’re thinking about the second half, does that change at all how you’re thinking about your 2018 target to kind of get to about that $4 billion or $4.1 billion target?

Blake Krueger

I mean Don and I and the team have discussed that quite a bit. We feel frankly very comfortable with our EPS targets that we’ve laid out, our five-year EPS target to basically double the earnings of the company over that period of that. We are in the midst of really studying the impact of the realignment plan and maybe Patagonia Footwear to much lesser extent on our revenue target for that five-year period. Again, some of that quite honestly is in flux right now as we talk to the landlords, but we will be a in a position here in the quarter to provide some additional detail on that.

Erinn Murphy - Piper Jaffray

Okay. That’s helpful. And just following up on the gross margin question from a little bit ago on the second quarter, could you just parse out what you said was either product cost or labor cost, what are you seeing on that line item? I completely understand the promotional environment you plan to dig a little bit more on to the costing side?

Blake Krueger

Yeah, I mean, labor cost continue to up. I mean you tend to see 20% increase in the minimum wage in China kind of year-over-year, that’s been a consistent drag on gross margin, but thankfully labor is a relatively small portion of the total land of cost. Latter continues to be at or near record high, so that’s putting pressure on product cost. And in a quarter itself given the timing of our selling price increases, they ended up just not covering what we calculated is the impact of higher product costs. We have done a very good job as a company. We’re a kind of getting ahead of product cost increases and taking our prices up. That wasn’t aggressively but assertively in order to earn a full margin on our brands and given the timing of some selling price increases in Q2, that didn’t happen in Q2, but we expected to be more of a one quarter blip in a full year trend.

Erinn Murphy - Piper Jaffray

Thank you. And then just last question, just as your culture kind of continues to evolve to focus more on omni-channel, I mean can you speak if there is any other incremental investments you need to be making to enhance the platform across your brands and maybe just detail for us what are some of your key omni-channel kind of initiatives over the next several years? Thanks.

Blake Krueger

Yeah, I mean, we are in a middle of a complete rollout of a new e-commerce platform called Demandware, which was chosen amongst multiple options best-in-class e-commerce platforms. So, we will continue to roll it out to all the brands in the portfolio. Certainly building an infrastructure that’s more conducive to the mobile shopper today is an important part of our future investments going forward and actually improving our supply chain, but that we do a better job of getting products to our consumers and the timeframe that they expect them [at the podium] (ph).

We had been going back in the traditional wholesale company that was setup years ago to deal with more shipping directly to consumer that has changed dramatically in the last handful of years and improving our infrastructure such that we can get one and two pair orders to consumers very quickly and efficiently and process returns. Well those are all things you need to do to be a best-in-class omni-channel company and that’s what we intend to pursue.

Erinn Murphy - Piper Jaffray

Thank you, Blake. Best of luck.

Don Grimes

Maybe just to put it in perspective, just to let you know our mobile traffic in the quarter was up over 44% and now represents about 25% of our overall e-commerce business just to kind of quantify the magnitude and accelerated shift in this area.

Erinn Murphy - Piper Jaffray

That’s helpful context. Thank you, guys.

Operator

Thank you. And the next question comes from Scott Krasik with Buckingham Research.

Scott Krasik - Buckingham Research

Hi, everyone. Thanks.

Blake Krueger

Good morning, Scott.

Scott Krasik - Buckingham Research

Good morning. Last call you made the comment that you thought Merrell would accelerate from here, you have an easy comparison this quarter, but it didn’t work out that way, you have a really tough comparing 3Q. So I am just wondering how you expect Merrell to grow now in the back half?

Don Grimes

Yeah, I mean, when I look at Q2 for Merrell, outstanding performance in their performance category, outdoor performance category up a strong double digit. Also real solid growth in their men’s active lifestyle, they are more casual product, again up double digits, offset by frankly weakness in the women’s active lifestyle and their outdoor athletic categories. We would look for that imbalance to improve as we go forward into Q3 and Q4. We still expect Merrell for the year to be mid-single digits, so a little bit better in overall revenue growth based on our current backlog position and the feedback we’re getting from retailers. But clearly in Q2 we -- with some hindsight here, we had some weakness in on the women’s side, especially in women’s casuals.

Blake Krueger

I’ll say, Scott, the launch of M-Connect last year was officially launched in Q1, but had kind of a lingering launch into Q2. That put real pressure on our Q2 Merrell growth which when you actually adjust for the transfer of Merrell Kids to Stride Rite, Merrell was up low single digits in Q2, but ex the impact -- the launch of M-Connect or the impact last year that Merrell would have been up stronger really driven by the strength of the outdoor performance category.

Scott Krasik - Buckingham Research

Okay. And then two more, on Sperry in women’s, are you thinking that longer-term boat shoes in women’s is going to be negative or do you expect that to recover next year?

Blake Krueger

It’s a difficult question to answer right now.

Scott Krasik - Buckingham Research

Is it longer term or is it next year, so I guess.

Blake Krueger

Yeah. I would say that you know that boats shoes especially the fashion element goes in waves and has traditionally gone in some waves in the U.S. market. So we would expect to see that leveling out on the women side certainly in 2015 for example.

Don Grimes

But I would also say, related to that is that we don’t necessarily think that the boat shoe category is going to determine Sperry’s fate. Sperry has as a significant enough market share in boat shoes for men and women that kind of derive the direction and the growth for the category. So it’s incumbent upon us and the Sperry brand to develop the right product to reignite the boat shoe category to where it was two short quarters ago. So we’re not just been buffeted by the category itself. It’s our job as the dominant leader in that category to drive the category growth.

Scott Krasik - Buckingham Research

Okay. Now that’s fair. And just last, when you bought Stride Rite, I think it was about $330 million in sales. Can you give us some idea how big it was at the end of the last year and now and then once you do the store closure, how big of a business Stride Rite group will be?

Don Grimes

I mean, it’s at the same side business today as it was when we bought it in terms of top line revenue. Again the store count, the impact on revenue for Stride Rite moving negatively impacted by the store closures. I guess in rough numbers, about two-thirds of the identified store closures are in fact Stride Rite and average revenue per store is about a half a million so you can do the map on that in terms of the impact on reported revenue for Stride Rite.

But more importantly I think is that is going to be very positive to the bottom line for the Stride Rite business and the goal this is to get Stride Rite’s profitability not to the company average but to a minimum success level of profitability, which is not today. And so we’re working in concert with the Stride Rite leadership team and the President of Stride Rite is new to the company, less than a year on board. So we’ve been working very closely partnering with them as to what the right decisions are to make to improve the profitability of that business.

So regardless of what it means in terms of top line revenue, we’re getting other stores that are either losing money today or the prospects going forward is a marginally positive four wall profit margin today will likely be a negative profit margin if current trends continue.

Scott Krasik - Buckingham Research

Okay. So then just what brands are the other one-third of the store closures?

Don Grimes

It’s kind of across the board.

Blake Krueger

Yeah. Its probably closures are currently planned 75% of all store closures would be Stride Rite and the other one from just be hopefully across -- and the United States.

Don Grimes

And just a small number of Track 'N Trail stores, not all of them, Scott, but just a small percentage of the existing Track 'N Trail fleet.

Scott Krasik - Buckingham Research

Okay. Thank you. Good luck.

Don Grimes

Bye.

Blake Krueger

Bye.

Operator

Thank you. And the next question comes from Christopher Svezia from Susquehanna Financial.

Christopher Svezia - Susquehanna Financial

Good morning, everyone.

Don Grimes

Hey, Chris.

Blake Krueger

Hi, Chris.

Christopher Svezia - Susquehanna Financial

Both of my questions had been answered but I guess, well, two of them here, one just on Merrell, when you guy think about growth, that mid single-digit forecasts for the year. I was just thinking about U.S. versus international and more particularly if you think about, I guess the third quarter, is I guess, Merrell play for growth or is it more pretty much everything put into that fourth quarter?

Blake Krueger

First of all, it’s domestic versus international. I would say, Merrell continues to -- is pretty early on its international growth cycle. So we continue to see increases in international store count quarter-after-quarter, increases in shopping shops and increase in just level of the business.

The USA market is the largest market for Merrell and as you know, there was a bid of a pause 18 months ago, two years ago in the outdoor category, but that seems to have reignited for the Merrell brand as certainly been one of the reasons why that’s reignited. So we’d like to see -- we expect to see as annuity type and strong growth internationally going forward for Merrell but we would also anticipate growth here in its biggest market of the USA.

Don Grimes

And I would say, Chris, that to answer you that one question at lease I have halfway answered. We would expect stronger growth on Merrell in Q4 than Q3.

Christopher Svezia - Susquehanna Financial

Okay. Okay. Thank you. And then just on Sperry, just to go back to Scott’s question a bit, when you guys think about what you’re doing for spring 2015 and what you’re doing in the boat shoe business whether it’s materials, canvas, et cetera or leather? What are your merchants doing and what’s the reaction from retailer as direction you’re taking that business? So just some thoughts about how we think about that?

Blake Krueger

Yeah. I would think, first of all, the men side, boat and non-boat continues to be very strong for Sperry up in all categories in the quarter and anticipated to be up in all categories most likely for the full year.

On the women side, it’s inherently the job of the brand to keep boat fresh. Now all the retailers I speak with still have a huge Sperry business and a huge Sperry boat show business, maybe not quite as white hot as it was at the peak of the fashion trend but still a very, very large business.

So, whether its bottoms, whether its uppers, whether its material, whether its new silhouettes just in the boat shoe category, the merchandise team, product development team is focused on all that. The responses to the spring ‘15 line have been very good both internationally and domestically.

Don Grimes

But a lot of new candidates and the line for spring ’15. We had our Board meeting last week Chris and one of our Board members commented that he was in Nordstrom store, I think he was in Phoenix the week before and went to both men’s and women’s footwear and saw big front-end center collections of Sperry in both men and women’s footwear departments, and he noted especially that less than half of what was on the floor or boat shoes is a big, big assortment and presentation of the non-boat shoe expressions on the -- maybe on the women side in particular and that’s very positive. That’s indicative of the retailers response to what we’re doing on the product side.

Christopher Svezia - Susquehanna Financial

Okay. That’s all I have. Thank you.

Blake Krueger

Thanks.

Operator

Thank you. The next question comes from Sam Poser with Sterne Agee.

Sam Poser - Sterne Agee

Good morning. Thanks for taking my question.

Blake Krueger

Hi, Sam.

Sam Poser - Sterne Agee

A couple of things. The incentive comp plan, I assume that you’re coming in undo that, you plan on coming undo that for the year, I mean just looking ahead and that’s part of the SG&A savings. Am I thinking about that correctly?

Don Grimes

Hope you’re wrong, but I guess we will see. In Q2, it’s about $1.5 million, lower this year than last year. I mean, when you look at quarterly, when you look at quarterly comparisons, it’s kind of mugged up accrual true-ups and such, but for the full fiscal year, with that kind of numbers in front of me, I would say our incentive comp expense is projected to be that flat with prior year. That’s not a big driver of our SG&A efficiency for the full year.

Blake Krueger

As you know, Sam, we adjust that every quarter up or down depending on the forecast across 16 brands and three operating groups.

Sam Poser - Sterne Agee

Right, exactly. Did you reverse the accrual in the first -- for the first quarter accrual in Q2?

Don Grimes

We true it up. So, I mean, we make to provide estimates I think every quarter when we’re closing our books based on what the forecast is for the corporation as well as individual brands and individual geographies, then we rerun our bonus calculation and true up the accrual on the balance sheet to that number, then there is a resulting P&L impact. So the P&L impact in Q2 was about $11.5 million lower than last year, very small.

Sam Poser - Sterne Agee

Thank you. And then I just want to go back to 2018 target, with everything in place it looks like you’re going to have a low-single digits revenue growth this year, you had it last year. So even if you don’t exclude the Patagonia business, nor the restructuring of the retail, I mean its still be challenged I think to get to the -- it would be challenged to get to that 8.5% CAGR you spoke up. So could you sort of tell us where you heads at on a -- in operating?

Don Grimes

Let me, yeah, I mean, as -- yeah, I mean, as Blake mentioned, there are lot of moving pieces right now and we had a high level, looked at our 2000 -- our long range financial projection for 2018 that we shared last year.

We will look in a more detail fashion over the next 10 full months, we have been kind of busy with their strategically alignment plan and we will share new details in a not too distance future regarding what our revised outlook for revenue is, but what I will say, repeat what Blake said earlier, our confidence level in delivering the $2.90 EPS is as high if not higher today than it was last year because of some of the actions we are taking to improve the profitability of the challenged retail fleet.

So ultimately at the end of the day company values determined by cash flow and EPS is probably a better proxy for cash flow than as revenue and we are going to be driving operating margin up and driving earnings per share and then resulting cash flow.

Sam Poser - Sterne Agee

Thank you. And then lastly, can you give us some idea what the Sperry same-store sales were, how many Sperry stores you have currently, what the Sperry same-store sales were in Q2 and how you are thinking about that in the back half of the year results?

Blake Krueger

Yeah. In Q2, I think for our overall fleet, our comp store sales for all of our stores would have been down, just a little over 1%. Sperry would have been a little worst than that across its specialty and outlet stores, and we are anticipating a rebound here when we add an apparel and have more of a lifestyle presentation here in the fall.

Don Grimes

We are looking at -- we think we will deliver against challenged comps last year, but mid single-digit comp store gains in the fourth quarter this year.

Sam Poser - Sterne Agee

And then you remain in challenged in Q3, think as a transition?

Don Grimes

Yeah. Not as bad as year-to-date but not as strong as what we are expecting for Q4.

Blake Krueger

Yeah. We have already seen it, I mentioned earlier, Sam, we have already seen a pick up across most of the fleet in -- better performance in Q3 to date and that would include the Sperry start.

Sam Poser - Sterne Agee

Okay. Thank you very much.

Blake Krueger

Thanks.

Operator

Thank you. The next question is a follow-up from Taposh Bari with Goldman Sachs.

Taposh Bari - Goldman Sachs

Hey, Don. Just wanted to ask a quick follow-up, kind of piece together your full year guidance from the 3Q comments that you made earlier, seems like, just correct me, if I am wrong with, seems like you are seeing revenue growth for the first three quarter is going to be about 1% positive and then accelerate to about 10% positive in the fourth quarter, which is your largest quarter of the year? Is that sound about right, am I did my math…

Don Grimes

Your math is correct.

Taposh Bari - Goldman Sachs

Okay.

Don Grimes

And I would say, of all the items that I kicked off, in terms of supporting to the Q4 revenue outlook, the wholesale backlog position is one that’s most relevant.

Taposh Bari - Goldman Sachs

Okay. Isn’t Q3 usually the big delivery quarter for backlog though?

Don Grimes

Yeah. I mean, backlog and future orders are significant for every quarter but more significant as a percent of the total for Q1 and Q3, but still obviously, very indicative of what the outlook is for the fourth quarter.

Taposh Bari - Goldman Sachs

Okay.

Don Grimes

I mean, I don’t -- don't think that -- I don’t want you to think that future orders really 20% of Q4 business. They are much more significant than it.

Taposh Bari - Goldman Sachs

Okay. What kind of I don’t know if you can quantify this, but what are your views on reorder activity in the fourth quarter as you stand here?

Blake Krueger

Well, when I looked at retailer inventories today, they are -- it’s actually despite some of the USA microeconomic conditions, they are pretty clean, being pretty clean was largely driven off a highly promotional environment in the first half of this year, but retailers are in a pretty good position with respect to their inventory and I would say, they are overall cautiously optimistic looking ahead to the second half.

Don Grimes

I don’t have at once assumptions by brand in front of me or even for the company as a whole for Q4. But what I will say Taposh is that, we left like a lot of other footwear brands left a lot of business from the table last year by running through our inventory of cold weather boat products kind of earlier in the season. And so we could have delivered more revenue in Q4 last year have we had more inventories that were kind of managing our inventory flow we hope in a better way this year, so we don’t leave that business on the table.

Taposh Bari - Goldman Sachs

And is it fair to say that the inventory position of retail is cleaner for the cold weather goods than it is for things like espadrilles and fashion footwear at this time a year?

Blake Krueger

Yeah. I would say…

Don Grimes

No.

Blake Krueger

… a cleaner or almost non-existence for cold weather goods, last fall and this unusually cold spring cleaned out everybody at least in the USA market, the big USA market for cold weather and boat product.

Don Grimes

I know you are asking about retail inventory, but one comment as it relates to our expectations for wholesale inventory. We do expect our inventory levels year-over-year to kind of grow commensurate with our revenue growth in Q4. So you could only, we have done a great job of managing our inventory levels for the last four or five quarters, but we would expect inventory by the end of the year to be modestly up versus the prior year. But that just, if you delivered the growth that we are talking about that’s -- are the process.

Taposh Bari - Goldman Sachs

Got you. Thanks guys.

Don Grimes

Good-bye.

Blake Krueger

Thanks.

Operator

Thank you. And as there are no questions at the present time, I would like to turn a call back over to management for any closing comments.

Christi Cowdin

Thank you very much. On behalf of Wolverine Worldwide, I would like to thank everyone for joining us today and as a reminder, our conference call replay is available on our website at wolverineworldwide.com and the replay will be available until September 5, 2014. Thanks and good day.

Operator

Thank you. The conference is now concluded. Thank you for participating. You may now disconnect your phone lines. Have a nice day.

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