Q4 2020 Wolverine World Wide Inc Earnings Call
Greetings and welcome to Wolverine World Wide, Inc. Fourth quarter fiscal 2020 results conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your.
Telephone keypad as a reminder, this conference is being recorded I would now like to turn this conference over to your host Mr. Brett Perry Vice President of strategy and Investor Relations. Please go ahead, you may begin sir.
Good morning, and welcome to our fourth quarter and full year 2020 conference call on the call today are Blake Krueger, our chairman and Chief Executive Officer, Brendan Hoffman, our President and Mike <unk>, Our senior Vice President and Chief Financial Officer.
Earlier this morning, we announced our financial results for the fourth quarter and full year 2020.
The release is available on many new sites and can be viewed on our corporate website at Wolverine worldwide Dotcom.
If you would prefer to have a copy of the news release sent to you directly please call Allison Malkin at 2036828 to two five.
This morning's press release and comments made during today's earnings call include non-GAAP disclosures, which adjusts for example for the impacts of environmental and other related costs net of cost recoveries.
Costs related to the COVID-19, pandemic, including severance credit loss expenses, certain inventory reserves and other related costs and foreign exchange rate changes.
These disclosures were reconciled and attached tables within the body of the release.
I'd also like to remind you that statements describing the company's expectations plans predictions and projections such as those regarding the company's outlook for fiscal year 2021 made during todays conference call are forward looking statements under U S Securities laws.
As a result, we must caution you that there are a number of factors that could cause actual results to differ materially from those described in the forward looking statements.
These important risk factors are identified in the company's SEC filings and in our press releases.
With that being said I'd now like to turn the call over to Blake Krueger.
Thanks, Brett.
Good morning, everyone. Thanks for joining us.
I hope everyone on the call on safe and well.
Earlier. This morning, we reported fourth quarter revenue of approximately $510 million.
Adjusted earnings per share of <unk>, 21% and operating cash flow of $174 million on.
All exceeding our highest expectations entering the quarter.
In Q4, we finished a year of incredible effort that focused on change and agility during which time. We remained open for business drove solid financial results and near record cash flow and also help take care of our communities.
We have set the stage for accelerated future growth.
Typically we invested in a new leadership product design and innovation digital product development tools consumer insights and digital marketing capabilities.
All aimed at bringing to market a continuous flow powerful product marketing stories.
This all sets the stage for our brands led by Saucony, Merrell, Sperry and Wolverine launch innovations related to their biggest product franchises in 2021 supported by compelling digital marketing content.
We reoriented our brands around on DTC first mindset and go to market operating model, while prioritizing our digital platforms globally.
Our E Commerce revenue grew 32% in Q4 50 per cent for the full year 2020, and so far in Q1 2021 has accelerated to over 60% growth.
We added an elevated leadership talent in this area and shifted even more of our marketing investments towards digital.
We also continued to invest behind key global strategic growth initiatives with a focus on ramping up our joint venture in China to realize the sizeable opportunity that exists for saucony and Merrell in this market.
Our heartfelt thanks to our teams who successfully dealt with a constant barrage of unprecedented challenges in 2020, enabling the company to jumpstart 2021.
Our brands are well positioned in trending categories and distribution channels and we have a clear line of sight to increased demand from our DTC business and retail partners.
We will share more about our strategic priorities growth drivers in 2021 experts patients later in the call.
First however, I will provide some additional insight on our Q4 performance.
Then Mike startup will detail, our 2020 results and share our financial outlook for 2021, and Brendan will speak to our major growth initiatives.
In the fourth quarter, the Wolverine, Michigan Group revenue was down 17, 1% on a reported basis and down 17, 3% on a constant currency basis.
The Wolverine Boston group's revenue was down 15, 6% on a reported basis and down 16, 1% on a constant currency basis.
Let me focus on key brand performance starting with Saucony.
Despite several planned product launch shifts out of Q4 sarcomere revenue grew mid single digits in the quarter with.
With growth across all major product categories.
We expect the brand to accelerate to growth of about 50% in Q1 and deliver very strong increases and continued momentum throughout 2021.
In Q4, <unk> Dot com grew over 65% and the brand expanded operating margin in this channel by more than 800 basis points.
Asia Pacific also grew as the brand's new China JV began to gain some traction with 32 stores opened by year end.
Spectacular product is the key ingredient contributing to talk on the success led by the innovative Endorphin collection, which helped drive double digit Q4 growth in the road running category.
The original <unk> lifestyle business, which represents the brand's heritage retro running collection featured in top tier faster on accounts.
<unk> delivered growth in the quarter.
Looking to 2021, Saucony plans to launch new products across many of its biggest franchises, including the <unk> guide Peregrine and ride franchises, along with expansions of the Endorphin series and Thats just in the first half of the year.
The brand will continue to advance award winning integration of its speed ROE design geometry, and power run Midsole cushioning technology.
Balcony will further leverage the Italian product design and marketing hub for its original business building on its clinical positioning and success in Italy with elevated trend right product that will expand into key strategic markets like China, The U S and greater Europe.
We anticipate a fast start to a big year for Saucony.
Moving to Merrell.
Revenue exceeded our expectations down low double digits in Q4, largely due to right sizing the inventory position for some of our international partners, which we discussed last quarter.
The brand delivered high single digit growth in North America, with Merrill Dot com up over 60%, thanks to over 70% growth in new consumers.
Merrell stores were down only mid single digits in Q4 and nicely ahead of expectations. Despite significant traffic declines related to the pandemic.
Merrell remains focused on cultivating a strong mix of iconic product with compelling new franchises across both the performance and lifestyle categories.
In Q4, the industry, leading Moab collection, along with the new and Tara and Nova to were among the top selling style.
Cold weather boots contributed meaningfully to <unk> Q4 performance as well delivering growth of over 40%.
Turning to 2021.
This year marks merrill's, 40th anniversary and the brand will maximize the moment with its future 40 campaign and a slate of powerful global product marketing story.
We expect Merrell day have a strong year and build on its momentum with several significant introductions behind its biggest franchises beginning with the Moab collection. The number one hiking franchise in the market.
The brand plans to launch the Moab speed and Moab flight lighter faster and more athletic styles in Q1.
In the back half Merrell will launch new introductions of the Moab speed thermal and the award winning thermal row, three two innovative winter hikers that feel like sneakers.
Merrell also plans to capitalize on the easy on off trend with compelling new color ways patterns and materials in the jungle Mark.
Capped off with the launch of the new Jumbo Mark explore in Q3.
The fast growing hydro Mark and Hotbox styles are expected to further bolster the brand strength and the slip on category.
Turning now to Sperry.
<unk> revenue was down just over 20% in Q4, a significant sequential improvement versus the prior two quarters.
<unk> helped deliver better than expected revenue in the U S wholesale channel with diversified silhouettes, and new colors for women and on expansion and demand.
Berry's full price business mix has been very strong, especially in boots contributing to nearly 500 basis points of gross margin expansion for the brand in Q4.
The Sperry brand possesses unique elasticity across genders product categories and price points with the ability to sell products ranging from its premium Gold Cup collection to be authentic original boat shoe in saltwater boot all the way to offerings at more accessible price points for a younger consumer.
The all new flow collection.
Launching in late March float is a fun and affordable injected version of the boat shoe and it's expected to be one of <unk> biggest launches in several years.
Product capsule, leveraging fashion entertainment and pop culture icons are planned throughout the year, including collaborations with John legend with back on Minkoff, the net flex hit series outer banks and good humor ice cream.
Before Brendan and I Ishares from an additional insights on our strategic growth priorities and 2021, I'm going to hand, it off to Mike to review, the fourth quarter and full year financial results in more detail Mike.
Thanks Blake.
And thanks to all of you for joining us on.
Let me start by providing additional detail on the Companys fourth quarter performance then.
And then briefly touch on the full year results and finish with more insight on our outlook for 2021.
Fourth quarter revenue of nearly $510 million was down 16% compared to the prior year, but.
It was meaningfully higher than we projected coming into the quarter.
Our owned E Commerce business remains a key growth driver up approximately 32%.
As expected the quarterly revenue result included about $85 million of negative impact from certain discrete issues, including lower sales to our third party international distributors related to high spring carryover inventory.
A planned shift in the timing of several key saucony product launches.
And lean inventory for some of our stronger selling product collections across the portfolio.
North America was our strongest region.
Led by high single digit growth from Saucony and Merrell.
EMEA Latin America, and Asia Pacific were all impacted by the carryover inventory adjustment mentioned above and were down in the 30% to 40% range.
Adjusted gross margin of 41, 4% was up significantly expanding 360 basis points over the prior year.
Better gross margin on our full price business <unk>.
<unk> reduced closeouts and an increased mix of DTC business were partially offset by a negative impact from FX.
Adjusted selling general and administrative expenses of $177 $4 million in the quarter were $8 $8 million more than the prior year due mostly to the higher mix of DTC revenue, which included over $7 million of incremental investments in digital E Commerce marketing.
During the quarter the company recorded a $222 million noncash impairment.
Related to the Sperry trade name.
The global pandemic continues to have a pronounced impact on consumer soft goods, including the casual footwear market and has put pressure on many of <unk> key retail customers.
These were the main considerations and evaluating the potential impairment during the quarter.
Our outlook for Sperry remains bright.
Consumers and our retail partners alike share a strong affinity for the brand.
With its authenticity deep heritage and brand values.
We expect Sperry will return to double digit growth in 2021.
Q4, adjusted operating margin was six 6% down compared to the prior year due to lower revenue, but better than our expectations entering the quarter.
Net interest expense was up $4 $3 million year over year as a result of the proactive liquidity measures taken in Q2 of 2020 in response to the uncertain market conditions at the time.
The adjusted effective tax rate of 14, 6% was up 590 basis points due to a more favorable geographic mix last year.
Adjusted diluted earnings per share of <unk> 21.
22, <unk> on a constant currency basis exceeded our expectations for the quarter.
The reported loss per share of $2 10.
Includes the previously discussed non.
Noncash impairment charge.
Let me shift to the balance sheet.
Year end inventory was down 32% versus last year, and we enter 2021 with a lean inventory position, particularly in certain categories.
However, our global supply chain has made needed adjustments to support significant growth in the first quarter and will continue to improve for the balance of 2021.
Our current backlog position.
Coupled with the strength of our global DTC businesses give us valuable insight and confidence.
To invest in at least $100 million of incremental inventory this year to support growth.
Cash generated from operating activities in Q4 was $173 $6 million significantly more than expected.
We finished the year with $76 million less debt than last year, and total liquidity of $1 $1 billion.
Including $347 million of cash on hand, and approximately $800 million of revenue of revolver capacity.
Our bank defined leverage ratio continued to improve ending at a very healthy one six times.
Now I'll provide a brief summary of our full year 2020 results.
The company reported revenue of $1 $79 billion for 2020 down only 21%.
Despite the global Pandemics impact on more than three quarters of the year.
Adjusted operating margin was seven 5%.
One from 11, 5% in the prior year due to lower revenue.
Full year adjusted earnings per share were <unk> 93.
And our reported loss per share was $1 70.
Reflecting the noncash impairment taken in Q4.
And specific COVID-19 related costs incurred during the year.
In the face of an unprecedented disruption to our business. The company acted quickly and decisively our nimble business model allowed us to adjusted the environment and prioritize cash flow.
And liquidity, while positioning our brands for future growth.
Ultimately, we delivered $309 million of operating cash flow for the year.
Significantly exceeding the prior year and our most bullish expectations.
In addition, our healthy balance sheet enable us to continue to pay dividends to our shareholders throughout 2020.
Without interruption, reaching 132 consecutive quarters of returning capital to shareholders through dividends.
We are now poised for an accelerated recovery in 2021 and in an enviable position with ample resources to invest in growth initiatives.
I'll now turn to our outlook for 2021.
The global pandemic has changed the way we operate.
And we expect it will continue to impact our global business.
For at least the next year.
Despite these macro challenges, we believe that the positive trends in our business that strengthened in the second half of 2020 will improve in 2021.
Our brands continue to build momentum, particularly those on performance athletic outdoor and work categories.
With Saucony and Merrell, leading the way.
Our global DTC E Commerce business, a key strategic growth priority for the company has accelerated to start this year.
And demand from our retail partners is very strong for the foreseeable future.
The company currently expects revenue in the range of $2 $1 9 billion to $2 $25 billion in fiscal 2021.
Growth of 22% to 26% versus the prior year.
Approaching 2019 revenue at the high end of the range.
We expect gross margin to be at least 43% despite increased freight and logistics costs that will continue to be a headwind in 2021.
The company's cost structure.
We will reflect the significant growth in our <unk> E Commerce and includes higher and more normalized incentive compensation costs and an increased pension expense of $5 million.
We expect adjusted operating margin of approximately 11, 5%.
And an effective tax rate of 19% to 21%.
Reported diluted earnings per share are expected to be in the range of $1 75 to $1 90.
And adjusted diluted earnings per share are expected to be in the range of $1 90 to $2 five.
Before handing it over to Brendan.
I would like to briefly thank our team for their extraordinary efforts this past year.
While 2020 is a year that we are glad to get behind us the grit and determination of every team member.
With something for all of us to be proud of.
With that I'll hand, it over to Brendan to share more insight on our strategic growth drivers Brendan.
Thanks, Mike in my six months with the company I have gained a good understanding of the business and a tremendous appreciation for our team as they successfully responded to a unique and challenging year.
I continue to be energized by our portfolio of great brands and a focus my attention on our biggest growth opportunities by prioritizing our global direct to consumer e-commerce and accelerating our largest brands.
The focus on progress we're making every day has me even more confident in the meaningful growth potential we have in front of us.
Consumers are spending more and more time connecting digitally and in many cases directly with their favorite brands.
Our brands are capitalizing on this by engaging more closely with consumers on our digital platforms with Richard brand and product storytelling.
We are benefiting from consumer intelligence as we interpret real time data to test newness and inform our inventory investment across product lines.
We continue to see significant runway ahead in our digital businesses.
We are investing in digital leadership shifting a majority of our marketing investments to digital developing enhanced content and optimizing our digital user experiences to increase conversion, including a focus on mobile through the launch of mobile apps for our brands beginning with Merrill later this spring.
All of this positions us well to achieve our aggressive target of $500 million of digital revenue in 2021.
The growing scale of our own direct to consumer business, coupled with the DTC channel is controlled by our third party International distributor partners accounted for roughly one third of our revenue in 2020 and is anticipated to approach 40% in 2021.
The expansion of this controlled distribution will help us to accelerate the go to market process implement successful agile testing skills improve our demand planning and ultimately develop more trend right products on a continuous basis.
And the current digital landscape, we are fortunate to be brand owners with the direct control of our destiny.
Consumers are choosing authentic brands and footwear categories with real functional or comfort benefits and our brands are well positioned to take advantage of these trends.
Saucony and Merril, our two largest brands are prime examples and we expect they will account for nearly half of our revenue in 2021.
Talk on these momentum is accelerating and we believe the brand is poised to maximize big opportunities in the fast growing running and lifestyle sneaker categories.
Coming as I do from a fashion background I'm, particularly excited about the global expansion opportunity for Saucony originals, and its validation and high end Italian fashion boutiques.
As Blake mentioned, we expect saucony to grow about 50% in Q1 of <unk>.
Fast start to an exciting year.
Merrill's, Inc. Anchored in the outdoors and leads the growing U S hiking market, where it is gaining share and expanding its retail distribution.
On the brand has also established a solid foothold with easy on off silhouettes within the lifestyle category.
Merrell zone ecommerce business is the largest in the portfolio and we anticipate it will contribute the most dollar growth in 2021.
We expect merrell to grow by approximately 20% in Q1 with even stronger growth expected in Q2 and beyond.
The Wolverine brand continues to lead the very healthy U S work boot category and our work boot portfolio captured over 30% market share in 2020.
We expect the Wolverine brand to grow approximately 20% in Q1, driven by new technology launched this past year, along with new product launches and collaborations that will drive growth throughout the year.
Barry has refreshed its brand platform and injected excitement into with many new product offerings, which Blake referenced earlier and we expect will result in a return to growth in Q1 and strong double digit growth in 2021 overall.
Overall, we are pleased with the momentum in the business as we start the year the new product pipeline is stronger than ever and we are focused on leading with digital and DTC E Commerce we.
We have strong order demand and as Mike outlined expect this per translate into meaningful growth in 2021.
Blake will now share some additional insight on our expectations related to the macro environment before concluding our remarks Blake.
Thanks Brendan.
We are optimistic even though our outlook continues to assume a somewhat volatile global environment related to the pandemic. However.
However, as vaccines are rolled out and restrictions are eased. We believe consumers will begin to return to social activities and we will see a meaningful increase in consumer spending.
Which has been fairly strong already in the U S. This year.
We have proven our ability to manage through seismic change and remain nimble investing behind our brands and strategies to drive sales and profitable growth post COVID-19.
Regionally, we are already witnessing some positive signs in the U S where our brand saw wholesale sell through growth mid single digits in the first period of 2021.
We continue to see some delays in bottleneck from the global supply chain, partially caused by the pandemic and partially by pent up consumer demand, but believe this pressure will wane over the course of the year.
For Q1, we currently expect a $20 million shift in revenue to Q.
To directly related to logistic delays, but still expect to deliver mid teens growth in Q1.
Despite some of these macro factors. We are excited about 2021 and are confident in our ability to deliver a strong recovery.
In this environment, our brands are poised to win.
We believe this year will be a time of opportunity for companies like ours, who have invested in talent digital and online skill set new product innovation and closely connecting with their consumers.
Our investments and focus on our working as witnessed by a strong order book and a fast start to 2021.
In closing I'd like to thank our team members and recognize their exceptional work and efforts in laying the foundation for what I believe will prove to be a pivotal year in the company's history.
I met every challenge with focus and determination navigating the global pandemic setting the company up for future growth and supporting our communities along the way.
With that I'll now turn the call back over to the operator.
Operator.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue from participants using speaker equipment and maybe.
Necessary for you to pick up your handset before pressing the star keys.
Please limit yourself to one question and one follow up one moment, while we poll for questions.
Our first question comes from the line of Jim Duffy with Stifel. You May proceed with your question.
Oh, good morning, guys nice work through challenging times.
Paul you and your families are all doing well.
I wanted to ask a question on the changing composition of the business. So 2020 revenue is down only 20% or so from the definitive portfolio shift active brands.
Still the largest softening now the second largest and then of course you have the worst brands.
If we're thinking relative to the 2019 baseline where do you see the 2021 revenue mix for Merrell Saucony in the world where portfolio.
Portfolio as a percentage of the total business.
Yeah, Jim right now, we would anticipate that that percentage for that those group of brands would continue to increase from 2021.
We've got.
On a great plans for some of the other brands in our portfolio, but certainly the momentum right now behind the outdoors running athletic at home coffee.
And some of the other activity based <unk>.
Recreational pursuits for consumers is going to continue so.
As we look ahead, we would expect for 2021.
Frankly double digit increases from all of our brands compared to 2020 should even digit increases for Merrell Saucony, Wolverine and Chaco for example versus 2019.
And I believe the work portfolio performed well during 2020 as well I think I can.
Again as soon as you Blake Brendan you said Merrell and Saucony combined about half the business. If we add the world portfolio and are you up around two thirds.
Robert just a little under that share loss right.
Right in that range.
You have to work the total work portfolio not just the Wolverine brand, that's a pretty good estimate yes.
Yeah, a lot of debt.
I worked in 2020 was.
A bit of a little bit of a pleasant surprise for us the key distribution channels farm and fleet and some of the other work retailers frankly remained open throughout the pandemic and that certainly was a tailwind.
And then one follow on question if I may.
Wanted to ask on the international market expectations.
For Ya.
When you look at the finish the 2020th sounds like there are some shifts and product launches and now maybe some delays and product availability for the first quarter, but just the the broader commentary about strong backlog in your symptom inventory relative to sell through and you said as you sit here today.
Yeah, I mean, I mean fundamentally Jonathan we feel pretty optimistic about 2021.
<unk>, we see light at the end of the pandemic tunnel right now, it's maybe the vaccine rollout isn't going as smooth as all of us would wish but they're certainly light at the end of the tunnel.
We have a very resilient portfolio of brands.
And and and we have probably the best visibility into future demand that I've seen in 25 years, our backlog right now is extremely high that's probably due to a number of different.
Factor. So I think some of the proactive actions we took in 2020 do invest in and talent and digital again doubled down on content and user experiences all paying dividends force.
Right now we think some of the consumer behaviors and trends that we witnessed in 2020, whether it's outdoors, whether it's running we think these are going to stick.
We do believe it was five years compression of behavior changes into maybe at 12 or 18 month period, but we think these trends are going to continue and they are providing us some tailwind from.
Jonathan just add onto your inventory question from an E. Commerce perspective, I mean, that's one of the things I was most impressed about with our queue for E. Com performance was knowing that we.
We didn't have the level of inventory would like and some of the key franchises and knowing that will be in place as we circled on next holiday I think.
Now is tremendously exciting for for me in the organization as we map.
Map out of 500 million dollar E com business for 2021.
And then maybe just a little more specifics on the the supply chain and logistics issues right now.
I'm seeing that some.
Some of those challenges across any number of industries, including including obviously consumer soft good.
We tried to quantify that for you for us we see.
We don't really see any loss sales, but we do see a 20 million dollar shift maybe from the end of Q1 into.
At the beginning of Q too.
We do expect some of those port congestion issues Ocean freight inland.
Transportation issues too.
Steadily improve over the course of the year.
Right and then separately on operating margin I know in 2021 protection on your.
You're assuming getting back close to 2019 levels, that's where it much higher gross margin and it looks like higher GAA dollars from your end versus 2019 bye bye get them out. So can you maybe just highlights the shifts in the business makes that are driving that and then.
If you're using some of the gross margin upside to reinvest in and the brands any any more detailed erica would be helpful.
Yeah, John is absolute.
Correlation between.
The benefit we're getting us off of driving a bigger DDC business, especially with R. E com growth uhm.
Uhm, both in terms of gross margin.
<unk> expansion, but also operating margin leverage there uhm.
Uhm, there's there's a nice accretive benefit to that business and frankly as we've invested in e-commerce growth.
Uhm over the last year and a half we've seen tremendous leverage despite the investment so that's really promising.
And when we look at the guidance for 21 now there are some different headwinds that aren't related to the mix. It's really some of the supply chain and freight related costs that we talked about before just.
Anticipating that that could be in place for awhile. It also includes some incremental investments that we're planning to make in our biggest growth opportunities and as your baseline 2019 is you're referring to most of that investment is going towards our digital capabilities investing.
And advertising and content and and technology platforms. It support e-commerce growth. So I liked the fact that we're delivering on operating margin. Despite lower revenues in 2019, and wood CSP out a pivot out of that into 2022 and continue to expand operating margin given the growth and e-commerce as a driver but.
Hi, net and I think even from a wholesale perspective inventories have been so clean this year that we haven't had the discount maybe like within the past in any business and so for me. It's exciting to see you have such a clean base now to build on without some.
Some of the noise that comes into any business normally through all the promotion promotional activity. Some of the cleanup. We did in the international side of the business in 2020 is going to help there too, but we we still have a recovered admit to to achieve on the royalty side of the business, which is one of the reasons you're not seeing.
As much operating margin expansion in the 21 outlook on until we get that sort of international business back to normal levels.
Alright, Thank you very much.
Yeah.
Our next question comes from the line of market.
Bank capital market <unk>, what's your question.
Good morning, everyone. Thanks for taking a quite a sales.
So Brendan you touched on this a bit but given that Wolverine is becoming much more of a T. T. C company can you talk about how the shifts.
The order calendar I really need to react and the overall mindset on the call today.
Yeah, well I think you just summed it up Matthew I mean, this was something Blake had started before I got here and hopefully I am accelerating is just.
This shift to a direct to consumer first.
Lens and just what that means in terms of having continuous product continuous storytelling. So now what kind of doing two things parallel path right. Now is we're working through the supply chain issues that Blake mentioned that are.
Mac.
And the macro environment also working on a better.
Building, a better mousetrap. So we can have quicker speed to market from idea the shelf and a continuous flow and I think the organization is really Emma.
Embracing that as they see this past year, the power of our ecommerce ability to sell directly through our ecommerce channel on those I referenced in my remarks, when you factor in all of our international partners in the in the Mono brand stores, we have out there. It's almost 40 per cent of our business right. Now is is already done directly to the consumer at the same time.
As as we say this will only benefit wholesale wholesaler wholesale partners will benefit by the assets, we're creating by the constant flow of newness. So we think that this will lift all of our channels, but through the lens of E Commerce.
Got it and and then the next one is for for Blake likely can you talk about the health of the overall footwear industry and from I think on the outside looking in it seems most high quality companies are schwartzman inventory right now, which is driving all price sales on a healthier overall landscape.
And I'm curious your thoughts on how an S industry can keep this discipline and tax longer term.
Yeah I think.
A fundamentally I do think.
Good a lot of the good brands and companies like ourselves are a little bit lean on inventory right now.
And obviously, we have greater insight today as a future than we had last March for example, a lot a lot has changed I.
I would say.
As we look ahead into the future our industry is driven by innovation and design.
And you get rewarded for bringing freshness.
To the marketplace, even our wholesale customers have realized that.
This past year and currently I think it's one of the reasons why our future order backlog is is up so much they need to plan a constant flow of freshness consumer right hitting consumer trends into their stores and certainly we're seeing that in our own E. Common DTC business. So.
Fundamentally it comes back to product product product as I always say, coupled with powerful marketing stories.
And we focused on that in 2020, we doubled down we continue to invest in talent in in those capabilities digital and otherwise and we're starting to reap the benefits of that.
Now, but certainly we think the industry as a whole is in pretty good inventory position right now.
Thanks, everyone. That's it for me.
Matt.
I last question comes on the line of much common.
Colorado Research and you May proceed what's your question.
Yes, thanks for taking my questions.
Mike Let me start with you can you can you speak a little bit more to the shape of 2020 as you see a particularly on the top line I mean, I would guess Q2 would be the biggest increase given the comparison plus the $20 million shift that you already referred to but maybe just maybe.
I also on the rest of the shape of on your I'd also given a Q1.
So it sounds like $20 million shifting on cue on a Q too, but if I recall correctly. They were supposed to be I think like a $25 billion shift from Q4 to chew on I don't know if that happened or not so could you address the shape on a contact should kind of those things.
Yeah, well, let me, let me start with the kind of the <unk>.
Quarterly flow of the business, obviously, we have a lot more visibility to in the next two or three quarters out Uhm and is Blake mentioned in his comments on I mean, we've got a very strong order backlog today that gives us not only visibility of of confidence.
Q4 would be where we might put the most.
Conservatism and the and the outlook, but when you look at the shape of the business and the growth trajectory of each quarter you choose definitely our biggest growth quarter for obvious reasons, but we're going to see we're going to see a large percentage of our total revenue deliver in the first half of the year, there's a really good balance between each one.
And each too.
And any others definitely a shift here that Blake talked about into Q2 that'll help kind of drive that up even a little bit more.
There were some there were some delays are shifts I should say for saucony launches that came out a Q4 into Q1 this year as well as.
Some of the international issues that we've already talked about.
Not quite $25 million in total, but it was meaningful on it is helping to drive a really solid Q1 performance in terms of growth.
And a year over year, which is against Ah a pre COVID-19.
Mostly for us anyway on pre Covid timeframe in Q1 of 29th 2020, So I think the the visibility the health of the business and then the momentum we're seeing just in the brands, but in the E. Commerce business. After really strong start on queue, one kind of give us confidence that this will be a nicely balanced year and net are back weighted year.
Got it and then just from a channel perspective can you say R. E com landed as a percentage of sales for 2020 <unk> is there any way you could sort of frame.
The the operating margin profile of your car versus the balance of the business and then I guess lastly, it sounds like you expect outpaced E com growth in 2021, but I just want to confirm that.
Absolutely. So yeah, I mean, the mix for a Q4 and that's our biggest quarter for e-commerce typically in a normal year econ.
E Commerce was about 22% of revenue in queue for was about a little over 20%.
For the full year in 2019 is a baseline.
You know I was just over 10% so we have significant acceleration there.
When you think we think about 2021, and we talk about $500 million target, we have to achieve and the e-commerce flow E Commerce business this year.
That's more than double 2019 levels.
And that's going to represent outpace growth against certainly industry averages and.
Real meaningful growth over over two.
2020, as well and.
And then when we do achieve that we're going to be closer to 25 per cent, maybe a little above 25% of the overall mix coming from R. E Commerce business. So.
I should say e-commerce and stores. So we're we're headed in the right direction that acceleration is definitely taking hold on the business and we would expect that to continue on even beyond 2021 on the on the margin side, we don't give all the gory details of the margin mix for the E Commerce business.
What I can say kind of repeating what I mentioned to Jonathan is that we have.
Very strong leverage coming out of that business for the last two years in a row now we've invested heavily.
As you look at the SG&A dollar spend from 2019 to 2021, nearly all of the increase there is coming from investments and focus in digital.
Investments.
So I would say that we continue to get leverage or we think that as we continue to grow that channel will get more leverage going forward and it's it's an accretive contributor to the business.
Alright, great. Thanks, guys.
Okay.
Our next question comes from the line of and my team at Piper Jaffray. You May proceed with your question.
Great. Thank you good morning, gentlemen, and it's now pay per Sandler that anyway.
<unk> and for your first on theory, I would like to know if you're kind of seeing any differences in purchasing pattern between new customers versus existing customers any green shoots yet from my new or I should say younger customer and then maybe as we think about 2021 for that branch here a little bit more about the new launch you have in in.
March and then I've got a follow up.
Yeah I mean.
You know we have his flea loved the Sperry brand we think it's.
Going to be one of our biggest brands in the future Sperry, we haven't seen any significant shifts in the consumers base.
Berries per.
Pretty unique in that regard it never it doesn't ever matter, whether I'm talking to a 16 year old who loves the brand or 65 year old who loves the brand spirit has pretty unique appeal across genders and across.
Ages.
I earn his you know last year, we infused.
Very brand with some top talent leader.
Leadership and marketing leadership in product development, and we're just really starting to see the fruits of those of their efforts frankly, when we look.
Forward on the product pipeline side.
Think the float introduction will be a big idea a big introduction, probably one of the biggest for Sperry in several years, but we have new offerings in both true category in the boot category Volcanize category.
Spurrey as a brand where the consumers have given permission to play a crossed a number of different product category.
So we're positive on Sperry right now, we expect sparing to deliver growth.
In Q1, and and versus 2020 double digit growth for the full year and when I mean, I'm excited as Blake mentioned with the product that starting with float and really will then be a constant flow.
From the next four.
Four quarters and beyond but also the storytelling lift are starting to develop to match with that Blake referenced the talent, we brought in and you're really starting to it I'm really starting to see it come to fruition with what they're working on for Q2 and beyond just the constant storytelling, a little bit more than a little bit more of an authentic and scrappy way then maybe we've done in the past.
I think the combination of that storytelling with the product Blake references.
Making us very entered energized about this varies future.
Great. Thank you and then just a follow up on that <unk> that you are seeing I guess is there kind of had timeline that you'd think they could be remedied. We've heard from different companies that could be late spring or kidney all the way into summer and then are you needing to airfreight product <unk> athletes on the day of congestion at the ports and then just translating that treat it gross margin and sorry, if I Miss day.
How <unk>, how will that impact the first quarter or the first half gross margin. Thanks.
Yeah I mean.
We are are trading as you know air freight costs have also gone up we built a lot of that into our plans for 2021, we we have historically been very judicious when it comes to air freight.
When you are afraid to footwear your air Freighting, a lot of air Air.
And.
On the other hand, we have extremely strong demand now and predicted over the next several.
Quarters so.
I wish I had a crystal ball on could tell you exactly when the port congestion is.
Going to relieve itself.
We think it's going to get better over time, we think it's going to be around though for.
A minimum on several months.
We've been.
We've implemented some strategies to address this situation using different point courts, using fast boats and several other.
Avenues available to us, but we think it's going to last for awhile, yet and frankly, it's built into our plans and built into the kind of quarterly cadence that Mike talked about earlier I would also add Erin.
While it's never preferred this is a year, where if we need to we will invest it do what we need to do to get the goods as soon as we can get them because the demand is there and we obviously have the market share opportunity the shelf space opportunity with a couple of our.
Biggest brands right now that we're not going to let that opportunity pass. This by so hard to predict where this will go in terms of the full year, but we're trying to be conservative in that outlook.
We had a couple of unusual events in Q1, we had two different vessels that had significant number of our containers on them that.
Had either been damaged or we lost with containers into the water on 25 years I've been with the company.
At this magnitude that's never happened before and we had two on one quarter. So part of the reason, we're seeing a shift here from Q1 to queue to assist.
That very unusual event, but our team's way on way in front of this right now they're doing a great job on managing it keeping costs in line and we're just dedicated debate moving these these goods as fast as we can to to meet the demand we have.
Thank you.
Our next question comes from the line of.
Dana policy with policy Advisory Group you May proceed with your question.
Thank you good morning at me, one and congratulations on the nice progress.
Thank you day in it.
Do you think about the wholesale business you talked in the past about new players that you're targeting for their brands. What are you seeing then what are the opportunities in wholesale going forward. Given I think you mentioned mid single digits throw stuff on the first quarter as you see it and then on operating cash flow.
For 2021, how are you looking at that and Capex and the return on Capex investments and digital what what do you foresee. Thank you.
Dana on the new I mean wholesale we're bullish on wholesale for some of the reasons I said, we're certainly seeing our product resonate in digital as well with these with our wholesalers. So there is certainly an increased penetration within their E com business.
Where with most of the big digital Titans, So I'm not sure. If maybe you have to clarify what what you're referencing we said new wholesale accounts.
I thought you were going and even with going into new wholesale cancelled. The digital operations also ah their new retailers that that you're interacting with to capture whether it's the younger customer on newer customer that you're saying.
Well I mean, we're certainly looking at all the new business models out there the subscription services in the Lake that we think footwear hasn't.
Dived as deeply into but we want to be on the forefront of that and I think.
Some of our brands like Wolverine or taken advantage of some of the.
Wholesale distribution locations, where we might have presence with some of our other brands, but trying to get shelf space from on the other competition.
That I think we're seeing some opportunities on in 21, and making sure that we few.
Their shift to digital as well I mean, some of our big partners have expressed how they're shifting heavily into digital on how their express.
Transitioning some of their product mix, and we're well poised to take advantage of that in the athletic outdoor and work space.
Yeah, and I think we're also we're also leveraging the.
The portfolio today, and really shifting the distribution and our wholesale channels and I think that's critical and we look at our digital penetration with pure play retailers in our sporting goods and outdoor retail on penetration that's become a much bigger percentage of our total business.
And obviously healthier channels overall, so in this environment, we've been able to kind of prioritize those channels.
And partner with the best retail partners. We can we can but we've always had a real broad base of accounts that day.
Necessarily requires to go out and get new customers, but just to emphasize the ones that are performing the best in this environment.
And then I think your question on Capex is a good one it's what we think about digital and E. Commerce in particular now we've invested over the years. We've I think we were ahead of the curve on on the investment.
Side of the business here, because we set the platforms up we put the tools in place before this acceleration began so when when we look at investment in in the E. Com platform, it's and people, it's and other resources that certainly optimizing our our our demand creation in our performance marketing there is.
There is some capex there to Dana which supports our entire global business through the distribution and supply chain and everything else but.
As it relates specifically to E comments, it's pretty small percentage of the total.
Thank you.
Our next question comes from the line of Laura All day feel too with a game BNP paddles and I. Appreciate you with your question.
Good morning, and thanks for taking my question My I wanted to follow up on Mitchell's question I think it was called on it Saucony will be up about 50 per cent from the first quarter and an extra shifts from four Q into <unk>, how do we think about the growth just in terms of underlying growth and then can you parse on how much the China partnership will contribute to.
Asked by 21 revenues.
I can talk to I can talk to the sock on the show again, 50% growth for Saucony in Q1 was tremendous growth on on a global scale for down.
Also really strong continued performance on the E com channel for Saucony.
They are benefiting from those launches that we talked about that split out a Q4 and moved into Q1, but even even excluding that there'd be very strong double digit growth for the saucony business.
In in the first quarter and.
Frankly, obviously going to accelerate into Q2, as we go up against easier comparisons but.
We think that the pipeline there on the consistent flow of of the the new product, it's coming to market through the course of the full year is going to keep that keep that momentum going.
Yeah, I would say, we anticipate a very strong double digit increase for saucony.
For the for the entire year at this point with respect to China.
We've got a foothold there in China or joint venture is meeting expectations, even with the bump on the road caused by the pandemic.
The dollars there are probably not overly significant at this point from the Saucony brand, but we did and the the year with 32 Saucony stores open so.
Great presentation in China or best product.
Great apparel program in China, but.
Frankly it.
We kind of view, China is opportunity in front of us.
Very clear thank you and then as a follow up.
Sorry, if I missed this on Aaron's question, but like.
Like did you guys kept out color on just where you can give us color on on the first quarter gross margin I think you had about $3.1 million, an air freight costs and <unk>, how do we think about that for one Q and then just a housekeeping question here anything in terms of how we think about the 15 cent adjustments and.
F Y 21, EPS guide, what's driving that that that would be very helpful. Thank you very much yeah on the latter point, that's predominantly almost all day.
Related to the ongoing litigation costs that we have that will will continue to have for the next year or two years on the on the legacy Uhm environmental issue.
And then on the we didn't give guidance on the on the on the margin rates for Q1, I would say currently where the kind of the street sits at about 10% operating margin is in line with what we would expect.
And we are still managing through for eight and other things and there's some variables. There that will will will be able to report on at the end of the quarter, but as.
As we did mentioned there that's going to be an ongoing.
Component for us to manage as we look to the the rest of the year.
To proclaim thank you very much money.
Our next question comes from the line of Alec Blake B Y F. B I you May proceed with your question.
Alright, Thanks for squeezing man just a question on the Merril website, you mentioned, 70% growth in new consumers Uhm any additional details on that was that mostly consumers moving from in store to online or whether there are a large mix of new consumers to the brand and then any details on other brands that might've seen.
Large meaningful growth online and order through acquiring new customers. Thanks.
Oh I don't think it was so much migrating them from our own online stores, because remember what our online stores are really all outlets. So on this.
Was full price business. So I think it was a lot of new customers. It was it was probably customers that maybe have bought merril elsewhere in with stores being closed went right right to our site. So no that was exciting for us and as I mentioned in my remarks, we're going to be launching a mobile app with Merrill later on this spring so we're going to continue the.
The investment and making sure we have.
They can shop us however, they want to shop us and certainly there are other brands that are learning within our portfolio from that as well so.
So yeah, it's in terms of new customers and migrated we're not going to give that information, but it's exciting to see all the kpis and have a trending for Maryland, Saucony and really all of our brands online and I think this is just also related to the flood of new consumers to the outdoors right.
Whether it's camping in the backyard or visiting the National Park or.
Hiking on a trail there there was a tremendous uptick in and consumers looking at the outdoors and I think mero was the recipient of some of that increased interest.
That's great to see thanks, so much first of all of that sort of thank.
Thank you.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to try on this call back over to Mister Bright parents are closing remarks.
On behalf of Wolverine worldwide I'd like to thank you for joining US today as a reminder, our conference call replay is available on our website at Wolverine worldwide Dot com. The replay will be available until March 25th 2021, Thank you and have a good day.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your day.
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