Q1 2021 Wolverine World Wide Inc Earnings Call
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Ladies and gentlemen, thank you for standing by our conference will begin and just a couple of minutes. Once again. Thank you for standing by our conference will begin and just a couple of minutes.
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Greetings and welcome to the Wolverine worldwide, Inc. First quarter fiscal 2021 results call.
And as time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
And even once you require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Now my pleasure and introduce Brett Perry, Vice President of Investor Relations and corporate strategy.
You may begin.
Good morning, and welcome to our first quarter 2021 conference call on the call today are Blake Krueger, our chairman and Chief Executive Officer, Brendan Hoffman, our President and Mike Stoehr, and at our senior Vice President and Chief Financial Officer.
Earlier this morning, we announced our financial results for the first quarter 2021. The release is available on many new sites and can be viewed on our corporate website at Wolverine worldwide Dot com if.
If you would prefer to have a copy of the news release sent to you directly please call Alison milk and at 2036828 to two five.
This morning's press release and comments made during today's earnings call include non-GAAP disclosures, which adjust for example for the impacts of environmental and other related costs net of cost recovery.
Costs related to the COVID-19, pandemic, including airfreight costs.
Las expenses severance expenses 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.
These important risk factors are identified and the company's SEC filings and in our press releases with that being said I would now like to turn the call over to Blake Krueger.
Thanks, Brett.
Good morning, everyone and thanks for joining us I hope everyone on the call, it's safe and well.
Earlier this morning, we reported first quarter revenue.
Currently $511 million and adjusted earnings per share of <unk> 40 cents, a strong start to the year.
E Commerce led the way growing 84% during the quarter as our global digital strategy continued to deliver results.
Our two largest brands exceeded expectations with Merrill up nearly 25% year over year.
And so walk me up nearly 60% and the quarter.
Both brands easily beat our 2019 Q1 revenue levels with saucony up over 75% versus 2019.
The company's international business was up 40% with every region growing over 35%.
Our DTC channels are outpacing the market and our wholesale order book is very healthy and.
As we look to the rest of the year demand for our brands is very strong and we've raised our full year guidance on the strength of this demand and robust outlook.
For today's call I'll start by providing some additional insight on our Q1 performance and then Mike store and it will detail our financial results and update you on our financial outlook for the year.
Finally, Brendan Hoffman and we'll share the latest on our strategic growth priorities before I conclude.
And the first quarter, the Wolverine, Michigan group revenue was up 21% on a reported basis and up 18, 2% on a constant currency basis.
The Wolverine Boston Group revenue was up 10, 3% on a reported basis and up eight 2% on a constant currency basis.
Let me now focus on key brand performance starting with Saucony.
So how can he grew revenue nearly 60% and expanded operating margin nearly 800 basis points and Q1.
Great start to what we anticipate will be a spectacular year for the brand.
All regions delivered strong growth led by North America and the EMA.
Spark and the Dot com revenue increased by over 150% driven by compelling digital storytelling and impactful product launches.
Product design and innovation remain at the core stock and these growth momentum delivering both superior technical product and trend right lifestyle collections to the global marketplace.
The brand's road running category nearly doubled in Q1 with the launch of new models for several of its biggest product franchises.
The New guide 14, and convert 12 drove significant growth with the guide more than doubling year over year.
New colors and collection packs also drove excellent growth and freshness for the innovative endorphins and theories.
Saucony also grew its trail running business with the launch of the Peregrine 11, which received the coveted Runner's World Editor's Choice Award.
New product launches that are fueling momentum and the brands technical product category with existing runners and with the many new enthusiasm and the sport.
Talking to your original and the brand's heritage lifestyle Sneaker business also grew double digits and Q1.
The brand continues to leverage its Italian product design and marketing hub to build on its clinical positioning and success in Europe with elevated trend right product.
The new jazz Court sneaker made with 100% natural materials and Gerald plastic launched at the end of Q1, driving substantial buzz in social media and immediately be coming and the brands top selling product and soccer new Dot com.
Looking ahead, Saucony will continue and steady introduction of new product launches.
The new ride 14, and freedom for launched within the last few weeks and are off to a fast start.
Over the next several months the brand will also rollout. The next generation of all three models of the Endorphin collection, the pro the speed and the shift which has quickly become one of its largest franchises.
The brand will also introduce the new try and 19, a follow up to the award winning predecessor.
The momentum and the Saucony business continues to accelerate across both its performance and lifestyle offering.
Moving to Merrell.
Revenue grew nearly 25% and the quarter all regions delivered increases led by especially strong performance and Inc.
North America grew double digits, including DTC with Merrill Dotcom up approximately 135% and Merrell stores Comping up 30%.
Merrell kicked off its future 40 campaign at the start of the quarter celebrating the brand's 40th anniversary and amplifying its inclusive commitment to sharing the power of the outdoors with everyone.
The brand announced a significant partnership with Big Brothers Big Sisters of America, aiming to provide greater accessibility to the outdoors for nearly 200000 youth.
Merrell continues to focus on cultivating its well established product franchises as well as delivering innovation across new product introduction.
And Q1 performance footwear grew by nearly 30% as the brand continued to advance its vision of faster and lighter footwear for the trail.
Building on the unmatched success of the World number one hiker the Moab Merrell launched the all new Moab speed and Moab flight collections quickly exceeding sell through expectations, including selling out on Merrell Dot com and.
And helping to drive very strong double digit growth for the Moab franchise overall.
The <unk>, two and Nova to trail runners also continued to perform exceptionally well and the quarter.
Merrell has a steady stream of new performance offerings scheduled for the remainder of the year.
Merrell lifestyle business grew approximately 20% in the quarter driven by the growth of the classic jungle, Marc and newer hydro mark which more than tripled year over year.
The brand plans to continue to leverage the easy on off trend throughout 2021, with new products and the hydro Mark Mark and junk Mark franchises.
Merrell is well positioned with both its outdoor performance and lifestyle businesses and we expect the brand's growth will continue to accelerate going forward.
Our work business, which represented almost 20% of our revenue in Q1 also delivered significant growth.
Led by Wolverine up nearly 30% and cat footwear up over 30% with strong contributions from a couple of our smaller brands.
We are the market share leader and the U S work boot category, which is currently trending with consumers and has been an important consistent performer for the company over time.
We expect growth in this category to accelerate in Q2.
Turning now to Sperry.
Revenue was down approximately 10% and Q1, a continued sequential improvement compared to prior quarters, despite more than $10 million of expected revenue, which slipped into Q2.
During the quarter, Barry Dot Com was up 40% and Sperry stores grew more than 20%.
The brand's full price business remains very healthy with gross margin expanding nearly 500 basis points and Q1 <unk>.
Looking ahead Sperry is back on the growth path for the remainder of the year.
Sperry possesses unique elasticity across genders product categories and price points.
It's new float collection, a fun and affordable injected version of the boat shoe for younger consumers launched at the end of the quarter and quickly became Sperry got comps best selling product introduction and several years.
The brand expects to build on the success of the flow throughout the year with seasonal drops, including the cozy float collection. This fall.
Barry also plans to capitalize on the easy on and off trend with the launch of the new Mark side. Our collection later this summer and to drive energy through several product capsules, leveraging fashion and entertainment and pop culture icons, including collaborations with John Legend, Rebecca Minkoff and the net flat.
Hit series outer banks, good humor, popsicles ice cream and rowing Blazers.
Before Brendan and I share some additional insight regarding our strategic growth priorities I'm going to hand, it off to Mike to review the first quarter financial results in more detail Mike.
Thanks, Blake and thanks to all of you for joining us.
Let me start by providing additional detail on the Companys first quarter performance.
And then some insight on our improved outlook for 2021.
First quarter revenue of approximately $511 million represents growth of 16% compared to last year.
As Blake pointed out most elements of our global growth agenda.
<unk> excellent year over year growth on the strength of expanding digital platforms and innovative product offerings.
This strong growth performance was achieved despite a meaningful shift of customer shipments into the second quarter.
Adjusted gross margin improved 290 basis points versus the prior year.
To 44, 3%.
Due to our continued e-commerce expansion and favorable wholesale product mix.
Adjusted selling general and administrative expenses of $174 $4 million and the quarter.
We're about $23 million more than last year price.
Primarily due to the higher mix of DTC revenue.
$8 million of additional investment and digital E Commerce marketing.
And more normalized incentive compensation costs.
Q1, adjusted operating margin was 10, 2%.
And improvement of 330 basis points over last year.
As a result of healthy operating leverage.
Net interest expense was up $1 $9 million and the effective tax rate was 16%.
Adjusted diluted earnings per share were <unk> 40.
Compared to 28 and the prior year.
Reported diluted earnings per share were <unk> 45.
Versus <unk> 16 last year.
And reflect a partial settlement of certain insurance claims related to our ongoing light legacy litigation.
Offset by a legal defense costs and specific COVID-19 related costs.
Let me now shift to the balance sheet.
At the end of the quarter inventory was down approximately 21% year over year.
Our global sourcing team continues to adjust to the supply chain headwinds impacting our industry.
Our inventory position has improved nicely in the second quarter.
Allowing us to fill nearly all of the orders that slipped from Q1 into Q2.
And Q1, we generated $26 $3 million of cash flow from operating activities.
The company finished the quarter with $506 million less.
That compared to the prior year and total liquidity of approximately $1 2 billion.
Including $365 million of cash on hand.
And nearly $800 million of revolver capacity.
Our bank defined leverage ratio continued to improve.
Ending the quarter at a low one five times.
I will now provide details and our improved outlook for 2021.
As we have share the trends and our business remained very encouraging with revenue assumptions improving.
Since we offered our annual guidance in February.
Our wholesale order book remains strong.
Our D to C business is performing well.
International regions have returned to strong growth and.
And our inventory position continues to improve.
All of this provides us with a heightened level of confidence as we manage the business and invest and future growth.
As a result.
The company now expects fiscal 2021 revenue and the range of $2 billion to $4 billion to $2 3 billion.
Growth of 25% to 28% compared to the prior year.
At the high end of the range.
And this is a raise of $50 million from our original outlook and nicely exceeds 2019 revenue.
We now expect reported diluted earnings per share and the range of $1 70 to $1 85.
And adjusted diluted earnings per share in the range of $1 95 to.
And to $2 10.
And the face of unpredictable near term supply chain delays.
The company will continue to invest and airfreight.
To ensure our ability to service the very strong demand, we are seeing and the business.
These COVID-19 related airfreight costs above normal levels are included in our updated guidance and will be adjusted from our reported results for the remainder of the year.
The company is in an enviable position to invest and meaningful growth for 2021 and to continue to drive momentum and our brands.
Before handing it over to Brendan.
I would like to briefly thank our team, which continues to adapt to the fast changing environment around us.
While delivering excellent results for our shareholders.
With that I'm going to hand, it over to Brendan to share additional insight and our strategic growth drivers.
And it.
Thanks, Mike as we emerge from the pandemic the power and relevance of our brands is evident as we execute our global growth agenda across the portfolio.
And with roughly two thirds of our business and running outdoor and work our brands are well positioned and our lifestyle and performance oriented product categories favored by consumers and macro trends.
In addition to the unique positioning of our brand portfolio, our global growth agenda is driving strong momentum through three key pillars.
First the brands, new product and marketing stories are resonating well with consumers, including Sperry slope, Merrill's Moab speed and Moab flight and Saucony and guide 14, new endorphin collections and several other new launches.
Our brands are focused on developing big innovative and impactful product collections based on consumer insights trend Intel and testing.
And recent investments and our advanced concepts and innovation center of excellence are proving invaluable.
Second our ongoing investments and digital capabilities continues to fuel e-commerce growth, which is exceeding our expectations at this early stage and the year as we track towards our bold revenue goal of $500 million.
Through our brands Dot Com and 2021.
And Q1, we leverage increased digital marketing investments to drive more traffic.
Richard digital content and storytelling to engage consumers.
Better merchandising to optimize conversion and additional testing and learning to improve site user experiences.
These assets and investments are also helping drive the online business of our global distribution partners and wholesale customers.
And the coming months, we anticipate integrating and launching several new innovations and technologies, including <unk> mobile App.
We are excited about the substantial runway remains for our digital business.
Finally, our international business has recovered quickly from last year's shutdown with every region delivering very strong Q1 growth.
As Blake mentioned, our Saucony, Italy business and its product design and marketing hub are helping drive upper tier distribution for our fastest growing brand.
Overall, EMEA continues to outperform and the investments and our Merrell and Saucony JV targeting a significant opportunity for our two biggest brands are beginning to pay dividends.
Our brands are well aligned with today's marketplace and consumer trends and our global growth agenda is fueling our biggest and most profitable growth opportunities.
I could not be more excited about 2021 and the future beyond.
With that I will turn it back over to Blake to conclude our remarks.
Blake.
Thanks Brendan.
Our strong start to the year is reflective of our intense focus on the consumer and our continued investments and talent product design and innovation digital and consumer research and and insights.
The company drove meaningful growth in Q1, despite the impact from short term industry and logistic headwinds and we are increasingly optimistic about the year ahead.
Vaccination rollouts appear to be tracking well consumer confidence continues to improve and our demand outlook remains very strong.
Our DTC business is performing well and our wholesale order book continues to provide good visibility to accelerated growth for the year ahead.
We are clear on our strategic priorities and enthused about the opportunities in front of us.
The company's strong position is a testament to our team's tremendous vigilant focus and hard work over the last 15 months.
Throughout this period, we focused on managing our brands for the post COVID-19 World and continued to invest.
I'd like to close by thanking our team members for all of their efforts, enabling us to start fast and 2021, which I believe will prove to be a breakthrough year for the company.
With that I'll now turn our call back over to the operator operator.
Thank you we will now be conducting a question and answer session.
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One moment, please while we poll for your questions.
Our first questions come from the line of Jonathan Komp with Baird. Please proceed with your question.
Yes, Thank you and good morning.
First question I had I wanted to ask when you look at the roughly $50 million increase and net full year revenue outlook can you just give a little more color the source and the upside thinking and crops. The brands and then as you look forward and both in the second quarter given that our inventory availability.
Also in the back half given the ability to chase and how youre thinking about that.
In terms of revenue growth as you look forward here.
Jonathan Yes, I would say that the upside for the year is pretty broad based.
Across all of our outdoor brands, our work brands Saucony and the running category we expect.
<unk> returned to growth for the rest of the year, obviously our e-commerce.
Business is performing extremely well, but the online businesses of our wholesale customers are also performing extremely well and then we continue to see momentum across international regions. It is a bit mixed right. There's still some countries that are locked down a little bit, but the vaccines are working and.
And economies are starting to open up and.
I think our Q1 performance was just.
Reflective of our broad based upside for the entire year. So it's not a single brand. It's not a single channel it's not a single geographic region, and it's really pretty broad based.
And then your second part and actually.
The revenue flow by quarter I mean, we saw.
A meaningful shift and revenue from Q1 to Q2, just in terms of some of these supply chain.
<unk> that we saw that we would expect each quarter here to see a sequential kind of improvement.
In terms of year over year growth for sure, but also even as we kind of consider performance against 2019 as a baseline to so.
It's.
And as much as it is broad based across the portfolio as Blake mentioned I think we will see a similar.
Sort of benefit in terms of each quarter.
Getting and up.
And seeing some upside each each of the quarters ahead of us.
Okay, and just to clarify so revenue versus 2019 share.
It should improve year over year compared to 2019 should improve going forward, including second quarter accounts.
Okay.
And we were down two 5% we were about two 5% down in Q1, So you start to see that in each quarter.
Okay and would you expect Q2 to be up versus 2019 or just.
And again, we're not we're not.
Given that that specific kind of direction on the quarter.
Other than to say that we see it improving a bit versus how we performed in Q1.
Okay, Great and then and then Mike one follow up question on the outlook I know.
And you didn't raise the.
The outlook for net earnings on a GAAP basis.
That entirely because of the airfreight.
And maybe comment on the incremental marketing and if that's a part of it and and the related question just any any commentary on the profitability on the E Commerce business given the strength you're seeing on that on the top line.
Yes.
Sure I'll start with the last question and our profitability on the E. Comm has been really strong and been able to see some nice leverage we talked about 84% growth and the first quarter, but even beyond that really strong leverage on the earnings side year over year and even against our plans. So that continues to be robust.
On the just to jump in there I think one of the things, we're seeing with Matt Blonder as our new head of digital just bringing new techniques and.
Were very quickly able to find ways to leverage our spend dollars and so as we're getting the top side revenue, we're seeing good flow through and that's exciting for the balance of the year.
I think your other question John was about.
The adjusted results and the adjusting out of airfreight and want to be clear on that I mean first of all we don't have any other types of costs are considered and there. We have the legacy litigation costs that are going to continue to be and the adjustment and it can.
They have been for the last couple of years, but as it relates to COVID-19 really what we're seeing is the supply chain interruptions.
<unk> has really put us and are positioned to be a very very aggressive to chase the demand, we have and and put into our outlook at least.
Some incremental airfreight that we feel might be necessary to secure that demand. We still have a significant amount of airfreight included in our adjusted guidance. So this is not adjusting out all of the airfreight, but just that we feel is extraordinary.
More directly related to the COVID-19 situation, it's about.
15% to $20 million and net and that adjustment.
And it will we'll monitor that we obviously didn't spend that much and in the first quarter and.
And we're hoping that we won't need all of that but at the end of the day I wanted to provide for that and this outlook.
Okay, that's very clear thank you.
Thank you our and <unk>.
Questions come from the line and Steve Marotta with C. L. King. Please proceed with your questions.
Good morning, Blake, Brendan and Mike Mike just amplifying on one of your last answers of course, it was mentioned and.
And the commentary that $10 million of Sperry slipped from Q1 into Q2, what's the consolidated amount of slippage from Q1 to Q2.
Hi.
This is like Steve I think.
The headwinds were a little stronger than we anticipated three months ago. When we last chatted. We at that time, you will recall, we thought there might be about $10 million $20 million of about $20 million and total of slippage.
Into Q2 from Q1 that turned out to be about $40 million.
For the quarter it wasn't every brand.
But it was kind of concentrated and some of our bigger brands certainly had an impact material impact on on Sperry.
As we look ahead, we see right now about the same amount of slippage from Q2 into Q3.
We see the supply chain and at some of the logistics issues getting better as.
As we March through the year.
We still see about the same level of slippage from Q2 to Q3 as we experienced in Q1 to Q2 and that was about $40 million of top line.
That's really helpful have you seen any regional variation domestically based on either a vaccination rates or reopening activities anything that gives you a bit of a looking glass and Joe what could be occurring and the balance of the country and six months from now say.
Actually we try and follow that pretty closely but to be honest with you. We saw broad based demand across regions almost irrespective of where they were on addressing COVID-19 or vaccines or weather.
And so whether it's any of our outdoor categories certainly athletic more athletic running categories. Our work category, we straw, we saw pretty strong demand or future world.
Order book is also reflective of kind of that broad based demand.
Both internationally and across <unk>.
<unk> here and the United States as well.
That's very helpful. Thanks, I'll take the balance of my questions offline. Thank you again.
Okay. Thanks, Steve.
Thank you. Our next question comes from the line of Jim Duffy with Stifel. Please proceed with your questions.
Thanks. Good morning Hope you guys are all doing well.
And Marty Hi, Jim.
I wanted to start on the digital E.
e-commerce growth rate for the quarter implies acceleration and digital in March relative to the quarter to date trends, 60%. You've discussed late February has that digital strength continued thus far and the second quarter and hasn't been broad based across brands.
Yes. This is Brendan and I mean, it certainly continued and is broad based which is really exciting to see obviously as we anniversary the pandemic from last year, we knew the comps would change but.
In line with our expectations and as I mentioned, a few minutes ago really pleased with some of the new.
Techniques and tools, we have with Matt Blonder coming on the consulting project. We mentioned last time I think is already starting to pay dividends with some quick wins, so very pleased with the momentum and our brands Dot Com and Blake mentioned also also very pleased with what we're seeing from our wholesale dot com as well.
Great and.
And then.
With respect to the international business can you guys provide and update on the outlook for the international distributor markets, what's the state of distributor inventories at this point.
And the timeframe for when you are expecting a distributor business to turn back on.
Yeah, I would say that.
It really varies quite a bit country by country.
And <unk>.
Right now, we're seeing broad based lift across international markets, and and regions, including Latin America EMA for US as you know Jim has been especially strong here over the last couple of years and that strength has.
<unk> has continued.
Asia Pacific again, it varies widely by country, but we're seeing increased demand and it's across the same macro trends that were experienced here in the United States. The outdoors more athletic at home Comfy footwear.
I'll work footwear.
No.
We have individual countries that are still under some pretty severe lockdowns they've taken a very stringent approach to COVID-19 probably to their credit but.
The international business, we expect to be very good this year, and frankly approach or exceed 2019 levels.
Great. Thank you think together and part of your question Jim was about inventories too I think that in line with that improving performance, we're seeing inventories get more.
Back in line and we have a couple of markets.
A little more problematic, but overall just.
Positive outlook, there and obviously the international business as part of our our improved revenue outlook for the year.
Thanks, guys.
Thank you. Our next question will come from the line of Erinn Murphy with Piper Sandler. Please proceed with your question.
Great. Thanks. Good morning, just a couple of questions first on the first quarter. How much do you think stimulus benefited your results and is that continuing in the quarter to date period.
From a demand perspective, and then Howard North American retailers ordering for the second half.
Yes, I would say on the stimulus side I think it certainly had an impact on consumer soft goods and general probably on footwear as.
As well.
As a company, we're certainly benefiting from our <unk>.
And two thirds about two thirds of our portfolio of brands being and some of the hottest categories for the consumer so.
We see that strength, frankly, and we saw that kind of demand strength with or without the stimulus checks, but when you're pouring trillions of dollars and do and economy, obviously that level of stimulus is going to raise all boats.
And then.
And then went up when we look at future demand as well, we see that strong from not just our own DTC side, but we see strong demand from.
From across our wholesale customers for both their online business and traditional brick and mortar business probably.
The strongest demand I've ever seen in my career probably.
Significant increase is not just over 2020, but over 2019 so.
From our standpoint that gives us pretty good future insight into what to expect and it.
It is very encouraging and I think the other thing to add on to that Aaron has some major brands pulling back from from wholesalers has provided us a window to take advantage of <unk>.
Additional shelf space.
Got it and that's very helpful. And then just a couple for Mike If I may just going back to your comments on the revenue slippage from Q O.
Q1 to Q2 Q to Q3 that we take that together with the guide raise this morning or should I be interpreting that we won't really see 2019 levels and kill and and the revenue until Q4, you start to see some of that and Q3 and then I guess just a clarification on airfreight.
And last year, just so that we have some comparability and I believe it with included and the results last year.
Sure Yeah on the airfreight questions last year, I think it was about seven between 7% and $8 million.
And then we kind of look back over the last few years, what's a normal year for us and.
And as always reasons, you have to use air freight as a solution. So that is a normal level. We've got $10 million included in the adjusted results here, so even higher than a normal level and then that the outlook for what might be considered extraordinary COVID-19 related would be the net.
Kind of additional $15 million $20 million range. So.
And Thats really the reason we're treating it this way Aaron is because we think it's certainly a more normalized way to look at the cost structure.
The.
Question about revenue by quarter. This is not a back half or even.
Certainly not a Q4 weighted outlook for the business and Blake mentioned slipped similar slippage or at least.
And our and our way of planning the business right now a similar amount of slippage from Q2 into Q3, even with that we expect Q2 to be.
Closer to 2019 levels in Q1 was.
Great. Thank you Beth.
Okay.
Thank you and our next questions come from the line of Mitch summits with pivotal research. Please proceed with your question.
Yes, thanks for taking my questions I've got a few.
So Mike and just doing some math on the first quarter. So it sounds like the slippage was $40 million. The plan was 20.
So is it fair to say that if I kind of adjust for that the revenue just a little bit like $5 31 versus 511 is that.
The right way to think about kind of the moving parts there.
Alright, there was some nice some nice at once and performance and some of our brands our E comm business.
Outperformed our expectations as we mentioned.
Certainly as we progress through the quarter. So I think that's the right way to look at it mentioned, Okay and then on the gross margin, which was up nearly 300 bps year over year could you just quantify some of the bigger puts and takes there what was the benefit I assume you had a benefit from channel mix, how much was that and then any comments about sort of off price.
And closeouts the share versus loss.
Very clean inventories help right, we're coming in to the year and and even the second quarter with extremely low closeout positions and our and our brands.
And the promotional cadence was very low I mean, our full price business was solid in the quarter and.
Continues to be the case as demand is kind of outpacing our ability to net.
Necessarily chase the business and the first four months of the year. So that's really helped drive our margins up and then obviously the mix in e-commerce and our store growth.
Has helped too so it's really all of those factors.
The mix is probably the biggest component of that but and.
I think overall as you know our E Commerce business up 84% is also driving nice leverage on the bottom line as well as up and incremental operating margin performance.
And then lastly, just any comments on.
Sandals, and specifically I'm curious, how the Chaco business did.
Prized if the order book was correct going into the quarter, just given that sandals were challenged category last year, but I guess, what we're hearing is that sales have been doing doing better and I'm kind of curious how charco selling through so anything there would be helpful. Thanks.
Yes, we would agree with the general consumer.
Sandals.
Seem to be doing well and our water shoes across and the number of our outdoor brands Chaco.
Chaco has strong demand at the moment, probably frankly, and we wish charco had smaller inventory if I could if I could have a wish charcoal would add some more inventory at the present time, but we've taken action corrective action, there and our inflows should be improving substantially so again, we see demand.
But not just across sandals are more open footwear, but demand across basically almost any category and outdoor athletic or run.
Okay, Thanks, and good luck.
Thanks.
Thank you. Our next question comes from the line of Jay sole with UBS. Please proceed with your questions.
Great. Thank you so much I just want to follow up on some of the gross margin commentary you mentioned gross margin over 200 bps versus 2019, it's benefiting from mixed ecommerce and product.
Thinking about the rest of the year and your guidance for the full year do you expect that kind of gross margin improvement versus 2019 to continue or do you see some of these mix and product shifts and price realization benefits that you have as more one time that sort of normalizes over the rest of the year and then.
<unk>, yes, our full year outlook is really strong and I think those those those tailwind and benefits are going to continue through throughout the year. There's obviously.
Plenty of information out there about.
Higher input costs, and inflationary pressures and are going to start to impact our industry higher freight cost have already started to impact our results and and I should mention that included in our Q1 results and our full year outlook, we've incorporated much higher ocean freight rates.
And the airfreight that we talked about and some other supply chain related costs that are.
Working against Us, but we are overcoming that with a cleaner business and higher <unk> and margins. So we expect that to continue as we start to think about next year, we will provide more insight into how some of those input costs might start to impact the business.
For now given the fact that we've locked in our pricing and our production for all of this year, we're confident in margin.
And with that we're looking at.
Got it and then Mike if I can follow up on that.
SG&A for Q1 was up about $15 million for 2019.
You mentioned that the e-commerce business is accretive. So can you just sort of help us understand what's driving the dollar growth over 2019 and will that trend continue over the rest of the year or is that something thats implied in the guidance.
It is and it is mostly related to that shift mix that.
And that mix shift that we're talking about with our DTC businesses, both E com and stores.
Operate with a much higher overhead or SG&A component.
But they are accretive to the business overall and so what youre seeing is at the same time as gross margins expand.
We're seeing an increase in SG&A expense as a percent of revenue. We've also got normalized incentive compensation costs and these numbers 2019 was relatively low in that regard too. So there's some been some impact from that but most of it's the shift and the business and we continue to be really efficient and with some of the changes we made last year lowering our travel cost.
US reducing our costs around global brand conferences and things like that those are still in play for 2021.
COVID-19 still haven't and impact on our ability to.
Travel and do those things so theres, some good benefits coming through from that as well.
Got it okay. Thank you so much.
Thank you. Our next question comes from the line of Sam Poser with Susquehanna. Please proceed with your question.
Well I just wanted to ask what anymore Williams trading.
Good morning, everybody.
Good morning, and got a couple of line.
Handful of questions number one can you give us the specifics on Sperry and Merrell versus 19.
And you gave that for Saucony, and <unk> and can you give us some specifics.
And Merrell and Sperry.
Yes, I can give you a little more color on that merrell would've been up.
Virtually about double digits against 2019.
19, Sperry would have still been down double digits against 2019 higher than its.
The net.
Sure.
Decrease in Q1.
We see that we see the trend going forward quarters, two three and four for Sperry improving significantly and frankly, we see momentum also increasing for merrell.
And do you foresee the second quarter for the Boston Group, and then primarily Sperry here.
Foresee.
And that you can get to.
And the Boston group get to 2019 levels or is that still going to be below.
Okay.
I don't have that forecast, we usually don't give sam give that level of detail, but I don't have that forecast and front of me right now certainly it'll be an improvement over what you saw in Q1 and <unk>.
And you know, Sam Saucony, and extremely well and the first quarter and sock and his outlook for the rest of the year.
Remains really strong so that will help boost the Boston group and it's Barry We already said, we will return to growth for the rest of the year. So yes, we expect an improvement there certainly as it relates to shift from Q1 to Q2.
Thank you and then and then.
And a few more.
Did Q1 beat.
Mixture and ask the question, but the Q1 beat your internal plan.
How much did.
And did that yes.
I think that was a fair question for Mitch and stuff.
<unk>.
We had more slippage into Q2 than we anticipated maybe around <unk> and.
Incremental $20 million and so.
We feel really great about our Q1 performance and our outlook, obviously, we're very bullish right now but.
Q1, we certainly beat our internal.
Expectations.
Versus three months ago.
Given how much slip if you if you had reviewed moving.
And what would slip.
And you would have thought you wouldn't have done as well.
Right.
Just one example, Sperry would've had a revenue increase and Q1, but for the slippage just happened to be one of those brands that experienced experienced some of the logistic headwinds. Unfortunately.
A little bit more so than some of our other brands as one example.
So with that and then one more.
And I start to the year.
Thank you and then lastly, Mike.
And what is the tax rate and interest expense youre anticipating for the full year.
While the tax rate is still right around 20%, which is consistent with our original guidance.
And then net net interest and other expenses is about $45 million.
Okay, great. Thanks, very much continued success.
Yeah. Thanks, Thanks, Sam.
Okay.
Thank you. Our next question comes from the line of Susan Anderson with B Riley. Please proceed with your questions.
Hi, good morning, Nathan and the quarter and managing through the pandemic.
And I was wondering if maybe you can give us a little bit more color on what youre expecting for product cost as we look and the back half and 2022, I guess, you're expecting commodity cost to the app and the back half or is that more of a 2022 timeframe and are there any plans to raise prices or anything to offset that.
Yes, let me.
Just give you some background and I think we've come at least from my experience through and an unbelievable eight eight or so seasons of price stability or deflation even.
In the input costs for footwear, certainly rubber caught and leather some other components, we see that.
The price increases happening.
And those areas, we do expect some product cost increases and the logistic supply chain cost increases starting to flow through and the back half of the year, we planned for that when we.
When we look ahead.
We expect.
Product input costs may be for the spring summer 2020 do season to be up low single digits.
It might be a little bit more than that more than that and fall winter of 2022.
Certainly for this year, we've factored all of those in.
Our thinking when it comes to pricing when it comes to pricing we've been here many times before the industry has been here many times before I would say, obviously, we're going to negotiate with the factories on any increases we're going to look for other savings are to offset some of the increases we're going to everyone at <unk>.
C and the supply chain.
We also reengineer product product, that's a constant ongoing.
Lever that we're always working on and then if we have to we're going to take some selective.
Price increases, we frankly think the consumer right now is expecting net.
There wasn't a lot of pushback to the industry.
Price increases that were pushed through when we had.
Directly tied to tariffs of the last 18 months or so.
Two years.
So we think the consumer is poised.
And to expect some.
Product price increases but.
As we approach this it's very selective for us it's different within each brand.
Our brands do and the selective basis.
New product versus carryover products. So we have a pretty strategic approach too.
But I would anticipate with almost everything else some.
Price increases coming here, especially starting probably with the spring.
Summer 2022 season and for the remainder of next year.
Okay, Great. That's very helpful. Thanks for all the detail and then also on the DTC business just curious how youre thinking about the rest of the year and we start to go up against much tougher compares or are you expecting.
And that penetration to come down and then are you expecting it to stay similar to last year and if we do see kind of and move more back into the stores and I guess that would mean wholesale how should we think about that mix shift impact and the margins.
Well I mean, I think as we've been saying, we're quite thrilled with the way our DTC businesses.
As Kate and thing throughout the year, I mean really interesting to see as you kind of just described the store business. How it's bounced back in terms of our own stores with Saucony and Sperry, mostly outlets traffic is still down but conversion way up.
This is the toughest comp period for E. Commerce, obviously, because the stores were closed last year, but as I mentioned earlier, we're really pleased with the way we are.
And comping against our forecast and see the.
The growth continuing into the back half of the year and the penetration rising as we hit our 500 million dollar.
Overall goal. We also continue to have a robust business with the digital tightened, especially Amazon Zappos, and we see that continuing to increase so feeling very bullish on.
The digital channel and our DTC and general.
And Susan just to add to that.
We expect our DTC business to be over 25%.
Of total revenue this year, which would be up slightly from last year.
Great. Okay. That's very helpful. Thanks, so much good luck the rest of year.
Thank you. Thank you.
Thank you. Our next question is coming from the line of La rents that Alaska with Exane BNP. Please proceed with your questions.
Thanks for taking my question and thank you Mike for all the color on this $40 million slippage into <unk> and then re queue.
And I think the market and while understanding that there was a slippage.
<unk>, but I don't think they necessarily expected that there's slippage into <unk> is this company specific or industry wide and can you provide a little bit more color on where the bottleneck is considering I think you talked about improved inventory levels is it in Asia, the west coast any other factors we should consider.
Well.
And I can't speak for the rest of the industry, but I have a lot of friends scattered around the industry I would say.
The logistics delays maybe for some companies.
Passivity constraints certainly caused some slippage into quarters, it's not going to improve back to complete normal overnight and so for US personally we see that continuing some between Q2 and Q3, but improving throughout the rest of the year.
And it was tied to just.
Incredible demand I mean, it could be port congestion it could be congestion and a lockup at the Chicago rail yards. It could be the lack of trucking internally domestically. So there were any number of.
COVID-19 related logistics challenges that not just our industry, but consumer soft goods and other industries faced in Q1, and theyre going to face some of that same some of those same challenges and Q2 and Q3, but it's going to improve or at least our outlook.
He has worked to improve considerably as the year progresses.
Okay. That's helpful and then switched.
Switching to sparing time back when at Sam's questions.
And last quarter and I think it was called out that Sperry with returned to double digit growth, but at this time and it's been listening to the call I don't I didn't hear the word double digits I just wanted to just double check on <unk>.
And are we expecting double digit growth for this year and should it be and the range of 10% to 20%, 20% 30, or even higher any guardrails would be really helpful.
Yeah, we try not to get that specific but certainly we're expecting and sperry to have double digit growth for the year.
Okay, and okay, and a strong Q2 for sure.
Fantastic, Okay and then.
With regards to Merrell.
Last quarter, you did give specific guidance for the first quarter and thank you said it was 20% growth, which I think to your point is on the two year stack is about 10% growth.
Any specifics you can give on on merrell growth for QQ.
On a two year stack.
Not really.
And at that kind of.
Specifics I would just say that Merrell is one of our brands right now thats kind of firing on all cylinders right their performance that.
Business is on fire our lifestyle business is on fire trail running business is trending extremely strong.
And they're easy on easy off.
Our product offerings are responding at the consumers responding well to the product and that macro consumer trend.
Certainly.
As one example, there Google searches up a very strong double digits.
Merrell right now has a lot of tailwind and we're seeing and across all the platforms our own e-commerce, our wholesalers and globally so to Blake's point it's.
And it's universal.
I think Laura.
You are asking the right questions about Q2, and and a lot of questions about Q2 have come up and we gave some cautious view about some slippage into Q3, but frankly the demand we have right now for the categories, especially the categories that are performing best and really across the business is tremendous for Q2.
And we still have to be careful about some of these supply chain issues that are unpredictable and good or bad and frankly in Q1, they were a little worse than we expected. So we're being a little cautious about that which is why youre not here and I get too much detailed how Q2, but I will say the demand and the business for Merrell and Saucony our work.
And really across the brands.
Is incredibly strong I think Blake mentioned, maybe the strongest we've seen in quite some time.
That's great to hear thank you very much for stronger growth.
Thank you that is all the time, we have for today's call I would like to turn the call back over to management for any closing remarks.
On behalf of Wolverine worldwide and 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 and <unk>.
Replay will be available until June 12, 2021.
And have a good day.
Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time.
Great day.
Okay.