Q2 2021 Wolverine World Wide Inc Earnings Call
[music].
Greetings and welcome to the Wolverine worldwide, Inc. Second quarter fiscal 2021 results call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Dentation if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder of this conference is being recorded I would now like to turn the conference over to your host Mr. Brett Perry Vice President of strategy and Investor Relations. Please go ahead Sir.
Good morning, and welcome to our second quarter 2021 conference call.
On the call today are Blake Krueger, our chairman and Chief Executive Officer, Brendan Hoffman, our President and Mike The warning, our senior Vice President and Chief Financial Officer.
Earlier this morning, we announced our financial results for the second.
For 2021.
The release is available on many news sites and can be viewed on our corporate website at Wolverine worldwide Dot com.
If you would prefer to have a copy of the news release sent to you directly please call Allison Malkin at 2036828 to 2.5.
Quarter earnings 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 airfreight costs credit loss expenses.
This month 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.
Several of the company's outlook for fiscal year, 2021, and 2022 growth opportunities and trends expected to affect the company's future performance 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.
Regarding cause actual result 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 would now like to turn the call over to Blake Krueger.
Thanks, Brad good morning, everyone and thanks for joining.
That couldn't hope everyone on the call of safe and well.
Our long term strategic focus on our consumers digital and DTC capabilities and product and design the innovation, especially in performance categories is fueling robust demand for our market leading brands.
Earlier this morning.
We reported strong financial results for the second quarter the.
<unk> exceeded 2020, and our expectations and also easily beat 2019.
Revenue was approximately $632 million a record high per Q2, representing growth of 81.
Percent versus 2020, and the double digit increase compared to 2019.
The Wolverine, Michigan group revenue was up 63% year over year and the Wolverine Boston group's revenue was up 111%.
Both groups were up double digits compared to 2019.
Adjusted earnings per share for the company was 67.
Our order backlog remains at historically high levels and momentum in the business continues to accelerate despite the macro COVID-19 related supply chain headwinds facing our industry and many others.
Certainly our.
Per active approach to combat. These headwinds has been very effective and is also reflected in our strong Q2 results.
Given the company's excellent performance and the trends in the business. We have again raised our outlook for fiscal 2021, and now expect revenue in a range that its 1.
<unk> million dollars higher than we anticipated in our original February guidance delivering meaningful growth over 2019 at both the high and low ends of the range.
Our brand portfolio strategy and international distribution base is also fueling accelerated momentum.
As the company is not dependent on any single geographic region consumer group or distribution channel.
We have positioned our consumers at the heart of our strategy and that has changed the nature of our company with approximately 2 thirds of our brand revenue now positioned and performance product category.
Mt.
Like hiking running and the work.
Categories that are tightly aligned with today's consumer trends.
At the same time the company has developed a strong DTC focused global distribution model year.
Year to date, our DTC E Commerce business has more than doubled in revenue.
<unk> relative to 2019, and our DTC stores are up nearly 20% versus 2019.
Together with the DTC channel to operated by our distributor partners around the World about 1 third of our global revenue is now generated through direct consumer dialogue and.
The interactions.
Enabling enhanced brand shopping experiences of wealth of direct consumer insights and data in a more efficient business model.
We see this accelerated momentum continuing for the foreseeable future, while consumer lifestyle changes related to the Covid pandemic.
Significantly bolstered demand for performance product categories. The.
The underlying trends are long term in nature existing prior to the impact of the pandemic and our expected by industry and consumer trend experts to persist.
Consumers have become increasingly focused on health and <unk>.
Wellness over the last several year and running hiking in the outdoors have served as primary activations of this mindset.
Participation in running in the U S has increased every year over the last 5 years up by a mid single digit CAGR over this time and the significant majority.
Of new runners say they plan to continue running in the future.
Participation in the outdoors and hiking in particular has also increased every year during the same timeframe up by a high single digit CAGR, even before last year of 16% Spike.
Adding nearly 21 million new.
In the U S alone.
This spring and summer National Parks are shattering attendance records.
More people are continuing to get outside and this renewed interest in the outdoors is expected to continue into the future, especially as consumers begin to travel again.
For need based work category is also showed strong growth over the last several years supported by healthy macro industry conditions and work where fashion tailwinds.
According to the Bureau of Labor statistics, warehousing jobs have more than doubled since 2005 and construction companies are expected to hire hundreds of thousands of additional workers this year.
Looking ahead, the passage of the major infrastructure plan in the U S would further boost momentum business category.
Our brands are capitalizing on these fundamental trends and we expect continued strong consumer demand over the long term, especially for stock in the marrow Wolverine and our work brand and Sperry as well, which will launch products in the act of sport category next spring.
These trends in our visibility into the future demand gives us confidence to increase our outlook for this year and plan for double digit growth in 2022 of.
Our our call today, Brendan Hoffman will provide some additional insight on the drivers of a robust Q2 revenue growth Mike startup will review, our queue to financial performance and improved outlook in more detail and I'll conclude with some final remarks with this I will now hand, it over to brand. Thanks Blake.
In the second quarter hour of 2 largest brand both growth significant growth and achieved all time record quarterly revenue.
[noise] merril revenue growth, 88% year over year, or nearly 30% compared to 2019 with DTC of nearly 40%.
Merrill Dot Com group mid single digits against last year's better than doubling of the business translating the growth of more than 150% versus 2019.
Merrill stores were up significantly compared to last year's Q2 revenue due to lockdowns and up the teens versus 2019 <unk>.
Led by the robust growth of almost 180% in the U S..4 of 5 regions contributed very strong double digit growth year over year for the brand.
Merrill continues to focus on cultivating it's well established product franchises, while delivering innovation through key new products.
The brands performance category of more than doubled in queue too driven in large part by the launch of the all new Moab speed in Moab flight, which build on the success of the World number 1 hiker, the Moab and the brand vision of faster Legere footwear for the trail.
Both collections quickly exceeded sell through expectations sold out on Merril Dot com and became top sellers for the brand during the quarter.
The <unk> in Nova to trail runners also continued to perform very well more than tripling year over year.
Merrill's lifestyle business also grew very strong double digits during Q too.
The iconic jungle, Mark nearly doubled year over year, and the newer hydro Matt Mark more than triple.
Merrill also introduced it's 1 TRL capsule collection on Merril dot com, which reinterpreted existing styles with fresh trend driven color ways and fashion forward storytelling with great success.
This collection is focused on the younger fashion forward consumers demanding authentic outdoor influenced style.
Merrill is generating significant brand heat and consumer interest and the brand slate of product and marketing stories from the back half of the year of poised of fuel continued strong growth over both last year and 2019.
Looking ahead, murrow possesses a substantial growth opportunity globally, particularly in the EMEA, where revenue nearly doubled in queue too and in Asia Pacific.
Outdoors trending around the world and both performance of fashion and Merril is capitalizing on its heritage and brand positioning.
Moving to saw kidney Q2 revenue grew of 129% over 2020 or 65% versus 2019 and impressive performance.
<unk> Dot com was up over 20% despite comping against the nearly tripling of the business last year, resulting in more than 250% growth versus 2019.
All regions contributed triple digit growth year over year.
Stock in these incredible momentum continues to be fueled by product design and innovation.
The road running category of more than doubled in queue to propelled by the launch of the new ride 14, Endorphin pro to an endorphin speed 2.3 of the brand top 4 franchises all of which grew triple digits from the quarter.
The innovative endorphin collection continues to generate heat in the marketplace and deliver substantial growth for the brand.
Talk knees trail running business more than tripled in the quarter and soften the originals. The brand's heritage lifestyle Sneaker business was up very strong the double digits.
Kicking off Q3 earlier this month Saucony launched the triumph 19 of follow up towards the award winning predecessor.
The brand also introduced the endorphin shift too, which has received rave reviews within the industry and extended the endorphin franchise into trail running with the all new Endorphin trail, bringing saucony as revolutionary speed roll geometry from maximum speed and power run technology for light weight cushioning to the trail.
So how can the continues to deliver of consistent flow of powerhouse performance product and trend right lifestyle product and we're now seeing this translate and the continued robust growth for the brand.
Moving forward Asia Pacific is a big opportunity for Saucony with the region, almost tripling and Q2.
Saucony stores and core technical product of performing well in China as the brands joint venture there begins to ramp up.
EMEA more than doubled in queue too and presents of meaningful growth opportunity in both performance and the lifestyle fuelled by the Saucony originals, Italian product design and marketing hub.
<unk> runway for growth remains significant.
In queue to our work business accounted for nearly 20% of total revenue and continued to deliver strong growth with Wolverine the leader in the U S work boot category up over 70% cash footwear up nearly 50% and was strong contributions from our smaller brands.
As Blake indicated we expect consistent strong growth in the work category.
With the continued growth of Merrill Saucony, Wolverine and our other work brands are performance business almost doubled versus 2020, an increase of nearly 40% over 2019.
The Sperry brand rebounded year over year in Q2 with triple digit growth the brand CTC business was up nearly 50% in the corner driven by the excellent performance of Sperry stores.
The brand full price business continues to perform well with gross margin expanding well over 400 basis points in the quarter.
Spurrier, new flow collection of funding of 4 affordable injected version of the boat shoe vaulted into the brand top selling styles expanding price tiers for the brand and reaching of younger consumer.
The boat category of shown positive growth, particularly in men's and Sperry gained market share in this key category.
From a fashion standpoint, there are clear indications that we are at the forefront of of boat shoe trend.
Sneakers was the brand is largest category and biggest growth driver in queue to up more than 2.5 times over the last year driven by new collections like sold tied an existing franchises refreshed with trend right materials and colors.
Moving forward very anticipated accelerated growth and its performance active in athleisure business.
And spring 22 of the brand will launch its new Sperry sport collection, which responds to macro consumer trends with more trend rate performance based product.
In the coming months Sperry plans to build on our energy created by recent collaborations with rowing Blazers, Netflix as other banks and good humor and pop popsicle ice cream and proud of capsules with John legend, and Rebecca Minkoff.
The brand also intends to leverage the easy on off trend with the launch of the new Mark cider in the cozy float collections extending the success of the float franchise into the fall winter season.
We expect continued strong year over year growth from Sperry in the back half of the year.
Finally during the second quarter are consolidated DTC business grew in the high teens compared to 2020 up nearly 70% versus 2019.
Stores grew up of almost 20% compared to 2019 up significantly versus last year's locked down the hampered business.
E Commerce grew almost 100 per cent over 2019 and was essentially flat to last year's record quarter.
Looking at the back half of the year of the product lines of very strong across the brand portfolio, which will also drive growth from the digital channel.
We believe the strong product coupled with improved merchandising practices and healthier inventory positions will drive growth in the second half as well as next year.
We will continue to invest in digital nai to improve site experience and drive conversion gains.
In the next couple of months, we will launch our first mobile app with Merrill as well.
We have pivoted to of more dynamic E Commerce development model to enable faster implementation of enhancements of new capabilities, which will also help us expand improve functionalities tour of international sites more quickly.
E Commerce has more than doubled 2019 revenue year to date.
Although consumers have started to shift some of their purchasing back the stores as markets reopen our DTC e-commerce business and the online business of our wholesale customers still represented almost half of our revenue in the U S.
I'm now going to hand, it off the mic to review the second quarter of financial results and our increased 2021 outlook in more detail Mike.
Thanks, Brandon and thanks to all of you for joining us.
Let me start by reviewing the companies second quarter of financial performance.
And some of the key drivers of our over delivery.
And then I will cover are improved outlook for 2021.
Second quarter revenue of approximately $632 million represents growth of 81% compared to the prior year.
While merril saucony in Sperry, where the strongest performers.
Nearly all brands in the portfolio of delivered substantial growth.
All regions grew nicely in the quarter with the U S and EMEA meaningfully beating expectations.
Adjusted gross margin of 44, 5% improved 230 basis points versus the prior year.
Due to a favorable product mix and higher average selling prices.
Meryl and <unk>, both easily exceeded gross margin expectations in the quarter.
Another indication of their strength in the marketplace.
Adjusted selling general and administrative expenses of $201.8 million or $72 million more than last year and $35 million more than 2019.
Primarily due to increased revenue volume.
Increased marketing investment and.
And more normalised incentive compensation costs.
Most major expenses levered better than expected as of percent of revenue, including our increase in marketing investment.
Adjusted operating margin was 12.6% per Q too.
An improvement of 750 basis points over last year, and 150 basis points versus 2019.
Very strong leverage on the company's revenue growth, resulting from gross margin expansion and healthy operating expense management.
Adjusted diluted earnings per share or 67.
Compared to <unk> in the prior year.
Reported diluted earnings per share or 53.
Versus the loss per share of <unk> last year and.
And reflect the specific COVID-19 related costs.
In certain litigation defense costs in both periods.
Let me know shifted the balance sheet.
At the end of the quarter inventory was down approximately 14% compared to last year.
A nice improvement compared to the 21% decline at the end of Q1.
Our inventory physician continues to strengthen as we make some progress against the supply chain headwinds impacting the broader industry.
In queue to regenerate of $25.4 million of cash flow from operating activities.
The company finished the quarter with $306 million less debt compared to the prior year in total liquidity of approximately $1.1 billion.
Including $346 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 1.2 times.
The company's balance sheet is extremely healthy.
I will now provide an update on our outlook for 2021.
The company outperformed in queue too and the trends in our business are very strong.
Our order book remains at historically high levels and continues to provide good visibility to our global wholesale and distributor businesses into 2022.
Our direct to consumer businesses are performing well, including steady improvement from our store fleet.
This momentum coupled with the consistent strength of global consumer trends that of line well with our brand portfolio.
Gives us confidence to raise our outlook for fiscal 2021.
The company now expect the fiscal 2021 revenue in the range of 2.34 billion to $2.4 billion.
Growth of 31% to 34% compared.
Compared to the prior year.
This represents an increase of $150 million from our original outlook in February.
And results in growth of 5.6% versus 2019 at the high end of the range.
We now expect adjusted diluted earnings per share in the range of $2 and $22.30.
Reported diluted earnings per share are now expected in the range of $1.85 to $1.95.
And include net litigation defense costs, an incremental air freight costs.
Cause by the Covid specific disruption in the supply chain.
The global economic environment continues to improve but pandemic related volatility remains.
We have factored into our outlook the current headwinds that we have visibility to today.
Including the logistics costs and supply chain delays.
And this dynamic marketplace. Our team has done a remarkable job to improve our ability to service the accelerated demand we continue to see for our brands.
Our balance sheet is very strong and the company is poised to lean forward as we deliver higher growth in 2021 with very strong prospects for 2022 and beyond.
With that I will hand, it back over to Blake for some closing remarks Blake.
<unk>.
Thanks, Mike.
R accelerated growth and strong financial performance of Q2 are a testament to the company's strategic focus and increasing brand investments.
Over the last several years, we've invested behind digital marketing technology talent and the e-commerce as well as product innovation and design.
These investments are paying off.
Our brands of numerous growth opportunities in front of them the company's balance sheet of strong and we are confident as we plan for double digit growth in 2022.
The advantageous position, we find ourselves in today as of credit to our team's expertise and relentless work.
The global marketplace continues to be dynamic and fast changing and our people and company are acts selling in this environment.
I would like to close by thanking our team members around the world for the tremendous efforts and making this the pivotal year for the company.
With that I will now turn the call back over to the operator of.
Operator.
Thank you at this time will be conducting a question and answer session.
If you'd like to ask the question. Please press star 1 on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You may price start to if you would like to remove your question from the queue.
Sort of participants using speaker of equipment and may be necessary to pick up your handset before pressing the star keys, 1 moment, please while we poll for questions.
The first question comes from the line of Steve Murata with C. L. King and Associates. Please proceed with your question.
Good morning, everybody. Thank you for taking the question I appreciate it Mike can you talk a little bit about the current supply chain disruption the length of time the.
The call to you in getting product here and how that affects your outlook for the second half sales and earnings cadence and again from a.
The quarterly basis. Thanks.
Sure Yeah, I mean, the industry's definitely downloadable of this this challenge across the board.
Here at the company I think we've done a great job of managing and being proactive where we can be.
To offset some of those risks.
As you are seeing in the outlook, which has improved here in the back half of the year, we have well known disruption in some of the Vietnamese factories that oriented, but even with some of that downside exposure.
Which is reflected in our outlook as we mentioned we feel confident that we can continue to deliver growth in the back half of the year.
And I think as we look at the position we have with our inventory today continues to improve by the end of the year, we would expect our inventory of physicians to be up nicely over of over last year and over 2019 levels and so I think the again the aggressive position of were taken in terms of buying inventory and some of the <unk>.
<unk>, we've deployed have helped us kind of navigate what's been of really choppy supply chain situation.
That's helpful. Thank you brand and you mentioned that you have indication of that we're currently on the bubble of of new boat shoe trend can you talk a little bit about in detail of what those indications are and how quickly you think that could catch fire. Thanks.
Yeah, we just I mean, it's really exciting for us to see that with Sperry I mean, we're really just staying in at our own website, where hearing it from.
Or retail partners that that they are seeing the uptick seeing it really strong in men's right now and all of the data points, we get in the information we get from our semigroup show it as well so really feeling confident that we're at the precipice year of of of that trial in which obviously.
Only enhances everything we're doing with spirit.
Steve I provided also save I think this was the second quarter of a role we saw.
That category increase in the market here.
Here in the us where we get information.
I'll jump back in queue. Thank you.
Your next question comes from the line of the gym Duffy with Stifel. Please proceed with your question.
Thank you the morning, everyone of the guys are doing well.
Yeah.
My God I wanted to focus for a moment on the SG&A just as it relates to potential for leverage with any revenue upside in the back half of the year.
Versus 2019 year second quarter SG&A close accelerated you mentioned some incentive compensation and then conduct of marketing expense.
4 of modeling versus 2019.
Should we expect leverage in the back half of this year.
And the the incentive compensation of chewed up too.
Appropriate levels or is there more of that to come in the back half of the year.
Yeah, there's more of that to come Jim in the back half I mean, we we.
We allocate an expense that over the full year.
And expect now based on the performance of the business, which is obviously exceeding our expectations on the top line and the bottom line.
That our incentive comp.
Results will be very positive and more normalized.
We're also investing pretty heavily in R. e-commerce business in our digit in our direct to consumer businesses across the across the the channels. So we're.
You are seeing a shift from 2019.
222021, and the way that we are.
Investing in the business, but also just the nature of the direct to consumer business model right, which is at a much higher level of more than doubled it in the first half of the year. We're still on track to do that for the full year. So the shift in SG&A expense has a lot to do with our focus on direct to consumer in.
That business model requires a higher level of variable SG&A.
Understood. Thanks.
Moving up the PL as it relates to the gross margin outlook of some core of inflationary pressures.
I joined the call late maybe you mentioned Wilson prepared remarks, but did you speak at all to pricing power just given will demand strength that you see and of course the the industry.
Yeah, I mean right now.
Frankly, we believe the consumers of been paying higher prices throughout most of this year.
There has been significant loss promotions across the industry.
That has really seemed to have no impact on demand at least the demand as we see it for <unk>.
Our family of brand. So we think there's pricing power yet available. We think there will of the price increases in the industry input costs going up obviously of logistics costs going up we'll start to see some of those price increases.
Yet this year you are seeing it in some industries like toys and some other consumer categories and then you'll see some more selective price increases of judicious price increases in 2022.
[noise] Bye tale of view of 4.
Product cost inflation from your <unk>.
<unk> partners as we look out the 2010 of 2 we do I think the you know.
On the on the product side on the input cost side, I think we've been able to manage that pretty well, especially for the for the spring season gym in that first half of the year. So good visibility to that obviously the challenges and some of the cost pressures are coming more from the the logistics side.
And distributions side of the supply chain, where we've seen pretty tremendous increases in.
And freight rates, both inbound and outbound. So we are I think that's a cost pressure that we factored in as we start to.
Plan, our spring business and think about 2022, but on the input.
Side of the product cost side, it's been managed very well.
Thank you very much guidance.
Thank you Jim.
The next question comes from the line of the Jonathan comp with Bird. Please proceed with your question.
Yeah, Hi, Thank you first might kind of just clarify I know.
The the guidance for earnings now adjusted for 35 cents of items can you just maybe highlight what's included in that currently.
We have the litigation costs.
That we that we continue.
Renew to have related to the legacy issue.
That we've spoken about in the past and that continues to be included in our.
R R non-GAAP adjustment and we've included.
Mostly air freight and some other COVID-19 specific costs that that.
That we've adjusted out consistent with the last several quarters.
Okay and the the air afraid of it. So I think you said $15 million to $20 million last call in do you think that continues the.
Beyond this year at all or just current current thoughts on the level of ethanol continue it's hard to predict that right now John I mean, obviously, we're seeing of demand for that this year.
And have provided a little bit more coverage for that just given the uncertainty of the supply chain, but.
As far as how that how that plays out next year, it's hard to predict I will say that I think are brands across the portfolio have taken a much harder position on inventory of much stronger position I should say more aggressive.
2 position.
Position us better for the spring demand and fall demand for next year supply chain teams are getting Ah well ahead of that I think that will be.
Indicated in our strong yearend inventory of physician so that will help take some pressure off of some of the the air freight demand that we're seeing this year.
Okay. That's helpful color. Thank you and then I want to ask.
A broader question on the revenue outlook for this year of high Q2 was up double digits against 2019, it looks like the.
The second half year, assuming more of low to mid single digit growth versus 2019. So can you just maybe frame met up Q2 did you have some benefits from from shipments that we're going to happen in Q1 or any other factors as we think about the second half that's driving your outlook fair and maybe as a follow up.
Any more detail on how you are thinking about 22, given the comment about double digit growth. Thank you.
Yeah I'll take the first part of your questions I think of right now we're in the normalized position.
Pretty much what we predicted in Q1 occurred we had a poor over from Q1 in the queue to in about the same same amount.
From Q2 into Q3, so Q2 really represents.
Very strong performance on a normalized.
Basis, it's at this time, given some of the logistics issues, it's a little hard to predict exactly the split between Q3 and Q4, but we expect.
Strong growth.
In the back half of the year when.
When we looked ahead.
We've been receiving orders.
Ah much earlier from our wholesale partners in the international distributors for 2022 product. So as of company were sitting today with.
A lot more insight and visibility into next year's.
Business levels demand by.
By geographic regions and at the wholesale level and so.
This is something that is a bit of unusual.
I think all retailers appreciate the fact that they they need to place their orders of little bit earlier, if they're going to be assured of of of product for the coming year. Given some of this year's disruptions. So that's really enabled us do with some confidence look at double digit growth next year and I think just that's also.
Helping the last question on supply chain in the air freight for next year getting these orders and earlier, allowing us to work with the retailers on new expedited ways to get goods to them, whether it be what we call the fastball, whether it be door to dock, where we're shipping it right to them. So I think as we look of 2022 will be much better prepared both from our saga of their side.
To mitigate the costs, we had to incur of this year.
Alright, Thank you very much.
Thanks, John.
Your next question comes from the line of the Erin Murphy Piper Sandler. Please proceed with your question.
Great Thanksgiving morning, and I guess my question is still on the global logistics outlet could you share white European Anomic Southern share. It currently and then are you needing to shift production per cent of bad temper all.
Factory closures or are you interest riding out the debt chop standing and then I have a couple of follow up.
Yeah, I mean, there's been some closures as we all know in southern Vietnam around primarily around Ho Chi Minh City.
For and Vietnam is certainly a significant.
Source for the industry as a whole of and and for us as well at the moment less than half of our Vietnam factories.
We're close factories are starting to reopen after the kind of too weak government.
Shutdown, we don't know exactly what the future will hold but.
We've factored of all of our current outlook.
All of the current facts into our guidance for the rest of the year.
We end the existence.
I guess the shutdowns in Vietnam are are largely 2 weeks in nature.
So there wouldn't be with that kind of shorter timeframe of describe disrupt Turner closure, there wouldn't be any significant shift in production to other countries or factory and we of people on the ground the arrows wells throughout Asia, So something we're managing day.
Every day right now.
And just to clarify the footwear.
Any of that from our between 25, and 40% cash Vietnam at that and the ZIP code for you guys as well.
Yeah I'm on the high end of probably at the high end, we'd be around 40%.
If you look back on a historical basis. The good news there Aaron as we but we do of source of lot of our products right. So we're already in other in other factory locations in other factory or in other countries.
For source of supply. So if this worsens then we'll have fuel source capabilities to manage through it.
Got it and then maybe a brand in for you you've been Prioritising e-commerce across the portfolio can you share a little bit over the next kind of 12 to 18 months other areas of investment you're focused on a note of that that narrow app, it's coming up and any other kind of free.
Brand that you are really focused on kind of of the paper charging that their e-commerce capabilities.
Well I think from a brand standpoint.
It's it's all of them will benefit by the investments were making of Replatforming technology data collection data mining.
Certainly saucony right now is top of mind for us with their growth and some of the catch up there they are doing a fantastic job.
<unk> e-commerce growth and really prioritizing saucony dot com and.
Both performance and the original so so there for sure Sperry a lot of their rebound is coming by being able to tell their story directly through <unk> Dot com and then have that cascades through.
Through the other partners. So I would and then in the work group group we're seeing.
Huge growth there as well so that's becoming a very viable channel. So I would really Sarah and it's it's pretty wide base, which is exciting and.
We'll continue to make investments to fuel that both customer facing and kind of behind the scenes with some of the technology.
Got it and then just last question for me is around M&A I'm curious how you both of our prioritizing M&A of new look forward.
Are you looking at a lot of deals just curious given the way that balance sheet is right now and how you're prioritizing night versus the organic growth opportunity at the head.
Well Yeah of course, we're we're putting in available cash all that's necessary in the the organic growth and paying down debt.
Returning capital to our shareholders, but we continue to be very active in the M&A as we have been historically, we have a pretty well established set of criteria we use.
We are looking at not just the.
Attention.
Footwear brands, but also of businesses that might bring some new strategic competence sees like apparel vertical integrated brands digital brand. So.
We frankly remained pretty active and kicking the tires in and taking a look at properties. We have a long track record of success in bringing brands end of the company and growing them.
Thank you.
An experienced.
Your next question comes from the line of Sam Poser with William Trading. Please proceed with your question.
Thanks for taking my questions. Good morning of your body I was just wondering in the back half of the year the.
You're flowed through versus 19 in the queue to on the pretty dramatically of your revenue was up 11% in your EPS was up by 28%, but the.
Back half of the year isn't your guidance from the flow through doesn't seem to be.
And the mayor as good as it is in queue to can you give us some color of why that is and.
What might change that because you mentioned that you were getting very good response to your digital marketing.
And so on so of course.
Yeah, No I think the expectations for kind of the effectiveness of those investments still remains really strong Sam.
A lot of the flow through in the back half has to do with.
With some of the supply chain costs that we've been talking about and and those are meaningful in there and they are very much back have waited too. So that's that's important.
And where there are some areas of conservatism built into that because of the uncertainty, but overall really when I think about the drivers here in the first half of the year performance versus the back half, it's really the back half waiting of the incremental supply chain costs.
And how many of those and the new.
The air freight equivalent related air freight and stuff I mean, how are you going to delineate what is.
You know.
On regular operations verses, 1 time of nature compare the.
We've done that based on the outlook that we provided in the separation of those topics, but I mean, we of ocean freight logistics other logistics cost distribution costs, several other costs related to supply chain debt.
Having a heavier weight on the back half of the year unrelated to are free.
Thanks, and then just I was wondering if you could just give us I know it comes out in the queue, but if you could give us the channel information.
From the Michigan group in the Boston Group.
The.
Prior to the queue coming out.
Yeah, I don't have that in front of of Sam right now I would tell you that.
We all of our channels, including the wholesale grower versus 2019.
I don't have the split out between Michigan Group in Boston Group right in front of me, we can probably get you that information but for.
For the solid performance across.
The board by channel and by geographic region, as well and the profit flow through was very strong on both sides and both groups because we saw growth from from all of the brands and we saw really nice leverage.
Really across the board to there.
So there's really no distinction between the 2 groups when it comes to the.
Of profit performance or flow through.
And then lastly on the gross margin I mean, so you're the air freight coming out of the margin. So how should we how should we think about the growth of the back half of the full year, given given what you're telling us.
Is that.
Could it be like Hey, guys was less than what it was from the first quarter were first 2 first half of the year I mean, how should we think about that yet again, just just to reiterate like we said many times, where only excluding well what are what we're considering extraordinary air freight costs, we've got $10 million of air for a class and the results that were were.
Bearing too and I would say for the full year, our gross margins will be down a little bit from the first half performance, which they typically are based on just the the the gross margin performance in the fourth quarter et cetera, but it's the.
Margins for the full year, we're expecting to be in that 43 to $43, 5% range and operating margins approaching 12% for the full year and I think just it's not not we're not changing the level of promotion promotions I mean, we're showing things of full price is Blake said that continuing into the back half of the year.
Because of some of the input costs of it margin the input way heavier and more normal normal normalized mix in the back half, which has changed the margin profile of little bit but.
Yeah.
But just to confirm you're not expecting are.
Are you expecting things to Normalise at all.
Or towards promotional activity or.
How are you judging sort of of promotional seasonal promotional activity in the back half versus the song from have you are selling we felt were solely we're selling things of full price it'll be an interest in Christmas without all of the deep discounts that though it's going to be a great. The pallet cleanser for for the the street. So we're excited at the.
AUR as we're seeing both both on our own channels them through our retail partners.
Okay, well. Thank you guys very much in the Goldman.
The next question comes from the line of Mitch comments with the pivotal research. Please proceed with your question.
Yeah. Thanks, I guess I've got a few first of all I just wanted to follow up on John cost of question early cause she was asking about shifts per.
Previously you are pretty specific about the slippage Q1 of Q2 Q3, I think it was 40 million for each.
That still kind of of what you saw in the corner of what's expected for the third quarter.
Yeah, when I say it was basically a nap wash basically what we.
The information we gave you in queue 1 came to fruition. So we had a little bit of of poor over from Q1 Q2 in the similar pour over of from cue to the queue.
3.
Our overperformance in Q2 was fundamentally driven by accelerating demand and also a lot of the proactive steps we took in the supply chain area earlier earlier in the year. So.
Got it that real estate of our farming. Okay. And then so you raise your sales guidance by 100 million I know lots of 150 from earlier in the year, but from where it was last quarter of this core of that's gone up of $100 million, how much of that of 100 million was upside of the quarter versus the better outlook for the back half and then with the.
The outside of the quarter could you of you specifically.
Say, what what what's the price you positively compared to what you were anticipating eternally.
I'd say the on the guidance Mitch it's about it's about 50% of what we over delivered in the quarter of 50% in.
In the back half of the year of better outlook better better.
Cough higher confidence in delivering on the supply chain all of the things that Blake mentioned about demand, though those those that continues to be the strongest metric and order book has strengthened since the the.
The last call we had.
So our outlook on demand is very strong where we have caution in the outlook has to do with the the supply chain as you would expect but even with that we have enough confidence to raise the outlook like like we did so.
Okay and then lastly go ahead, sorry, no no. That's that's all I have to say.
Okay and then.
Barry I know you gave kind of of the 2 year of numbers on on Marilyn Saucony I I'm not sure. If you gave it on the spirit of heard of kind of of 40 per cent, but I don't know if that was worth of print reference to work boots or sorry, what was the 2 year growth on Sperry and I'm curious how that compared to the first quarter.
Mmm.
Yes, I mean.
Q2, very would of been down mid teens compared to 2019.
I'd have to look up the Q1 and get back to you mail of it that was a nice improvement to Q1 mentioned, then and I think we're going to continue to see that.
Gradually improved the in the back half of the year as well.
Okay. That's helpful. Thank you very much good luck.
The next question comes from the line of J Soul with UBS. Please proceed with your question.
Super Thanks, so much.
You just want to follow up on the comment you made I think a couple of times of the prepared remarks about double digit growth for 2022.
Can you just maybe elaborate that all of a little bit more is that the number of versus 2019 is that the number versus the new updated guidance for 2021 that you just gave.
And sort of 1 of them to give you. The main drivers on how are we talking about double did you make 10 percentage of Martha 15%, 20% of <unk>, maybe can you frame that up a threshold of but more of that would be helpful. Thank you.
Well I I, probably won't go beyond double digit the this morning, but.
We have of unprecedented visibility into our order book for next year right now.
At certainly out of greater level than we've ever had historically.
And demand remains very strong across the portfolio.
Pretty much what we what we experienced in Q2 so with.
A high level of confidence we're looking ahead.
The double digit growth versus 2020, not 2019 of the eye of 2021 excuse me, but.
Not not the prior year so.
It it looks it looks very strong right now and it's across Merril Saucony Sperry across our work brand.
Jot of and just.
We'll go ahead.
Nope prescribed of it's just going to add something on Sperry just the relates also the last question with first 20, 2019, and our own channels were up against 2019 and experience. So I think thats of bore leading indicator because that's where we were able to tell the message and.
Talk directly the consumer I think the wholesale business will lag as we're seeing that.
Bounce back in and I think.
That's another positive sign is Blake talks about 2022 is the emergence of spirit.
Yeah, and then maybe if we can talk about salaries of a little bit because obviously, there's a lot of fiscal stimulus of March and April.
But did you see the shell through for the brands collectively improve throughout the quarter and sort of what's your read on back to school and what does that mean for so your kids business your cash business and obviously the portfolio overall.
Yeah, I would say right now in general.
I wouldn't bet against the consumer.
Moving rates of Triple.
Stimulus money.
Continues the consumer has been locked up for 18 months.
They want to travel they want to.
They want to.
Frankly by some stuff and.
And the experience some stuff that the haven't over the last 18 months so right now.
We see continuing strong demand.
We see of strong.
Back to school.
Hard to bit predict what the COVID-19 situation is going to be like on back to school, but right now it looks like in the United States almost all K 12 children will be returning to in classroom experience and so we can continue to the strong consumer demand, yes, just on the kids.
R E Commerce of this month and our kids group is double last year. So that's a real strong side of the back of schools happening.
Got it great. Thank you so much.
Sure.
Yeah.
The next question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.
Good morning, everyone of nice to see the progress on on the results of do you think about the order of block. The that you talked of that it sounds like it's an acceleration globally any way to expand on that what you're seeing overseas, what you're seeing in the U S and how you're thinking about the upcoming holiday season. Thank you.
Yes, I would say as we look at Q2 first of all.
Our growth was really evenly split between.
The USA in the international markets as you know Dana about half of our pairs are marketed in in the international market. So we are seeing strong demand across virtually every country and in our mashaal market at the same time, including the U S. So we think it is going to be a good back to school of <unk>.
Isn't we think it's going to be a good holiday season.
Season for consumer soft goods and our brands in particular so we're.
We're we're we're energized right now the backlog would reflect that to Dana. So when you look at the the.
The nice distribution of demand across the business for for our distributor businesses in the third party markets are are owned businesses in Europe and Canada.
So the backlog metrics or trends that we're seeing are are very strong across the the regions.
Got it and then inventory levels, how do you think inventory levels, and where do you see them being at the end of the third in the end of the fourth quarters.
Again, we're we're very excited about the fact that we are starting to turn that corner right. Now we were down about 14% at the end of the queue to which frankly was was a little a little bit lower than expected, but our revenue obviously outperformed right. So we were able to really turn.
At the end of the quarter of turnaround a lot of goods and get him out the door. So that was very positive in our ability to service the business and Q2 was much stronger than Q1.
We would expect inventories to be up year over year at the end of Q3.
And then by the end of the year up strong double digits.
Based on our current outlook supply chain can always impact those.
Projections, but at this point based on what we have an order of what's on the on the water and and what we're already securing in the warehouses. We feel good debt inventory positions are going to continue to strengthen throughout the balance of the year.
Thank you.
You're welcome.
Your next question comes from the line of Susan Anderson with be Riley FBR. Please proceed with your question.
Hi, good morning, nice shop on the corner and I'm here.
Barry that the follow up on all of that comment. Thanks for all the details there and and just curious like the last time. He saw of strong debt try and maybe if we could talk about when that last time wise and then.
And the performance Nissan Berry and then also it sounds like it's performing better at retail and wholesale a net wholesalers yet.
The indicate they want I guess more orders of our the brand.
Yeah I'll take the second part first amendment Blake comment on the of the trends historical trends I mean, my comment was our own channels are always going to be the leading indicators because we control of those we control of the inventory with the draw the messaging.
We're seeing tremendous enthusiasm it started I think I mentioned on the last call started for holiday with the we added some new players in the Sperry team and the new product launches have gotten the tremendous reaction. So we're starting to see those online and R retail stores and we will see that.
Lift the wholesale performance as we enter the back half of the year and certainly in the 2022.
Like comment yes, if you look back of the U S has always had a.
Boat 2 category.
Resurgence from time to time, we're probably in the very early innings of that right now.
Historically, that's lasted for several years when it start so.
We're trying to.
Be there in the market with fresh bulk food product like the float.
<unk> and several other offerings from John legend on down and.
The early signs are are good.
Had growth in the U S. In the category of the last couple of quarters. So that's also very encouraging.
Great. Thanks, and then also can you maybe talk a little bit about just the product offering preparing for the follow do you have anything new coming out or maybe talk about the day off.
We have a lot of new product I mean, Blake just mentioned.
Float we have the co lab with John legend that launches in September we're doing some really cool events and concerts around that.
John and I did something of footwear news last month that was very well received then we have Sperry sport launching for holiday in spring of 22 as long as well as updates to the existing franchises. So I think the the product line has never been stronger I've gotten great responses from some of my industry friends about what they're seeing in some of the previews.
I have given them so as I mentioned, the the wholesale accounts of really excited about what they are seeing for the back half of 21, and 22 and I think it's a credit to the team and the product development the pipeline.
Alright that sounds good and then just 1 more question on the order of the overall the ordering for fall. It sounds like you felt very good about that I guess I'm curious it.
Sounds like they matter of the accelerated from the first half, particularly the wholesalers or seeing himself stuck without paddick, maybe if you could talk about just the magnitude of it I guess of the orders of your card and then are there any early reads of our spring 2002 orders.
Yeah, I would say in general we don't give out specifics backlog of information, but as we said demand built throughout Q2 has continued to build really throughout the first half of this year. Our order backlog continues to build 4 of 2022, which.
Gives us confidence to.
Focus and plan today for a double digit.
Increased next year so.
It's extremely strong indications as reflected in our order backlog and I almost don't want to use the word accelerated because I think it's the new normal we've reached new levels of demand for a lot of our brand. So some of it's an acceleration, but a lot of it's just the new baseline that we're building off of.
Right that sounds good. Thanks, so much good luck in the back half thank.
Thank you. Thank you Susan.
Your final question comes from the line of Lauren vaginal S screw with again BNP Paribas. Please proceed with your question.
Good morning, Thanks for squeezing and Mike I wanted to ask about the full year guidance and the.
Hi, and implies about 125 million incremental revenue over F y 19.
And remind me of I think E. Commerce is kind of reach their own E. Commerce can reach 509, the effectively I'd say about $250 million.
Just trying to understand the puts and takes care of how are you thinking about the wholesale business.
4 F Y 21 versus F Y 19, nanny nuances wood.
Would be would be appreciated by brand.
Again, I think for us the the focus on our digital business has been pretty prominent net shift has been.
Consistent over the last several months so that growth anytime that you referenced is really important to the overall performance of our of our brand of cross.
Really the whole portfolio. So that continues to be the case, we're seeing our wholesale trends continue to improve.
And they were very strong in queue too.
Up.
Low single digits over 2019 levels and our own markets. So.
And again, the the performance the strongest categories for US are the ones that we've mentioned here several times around outdoor performance running and work.
Those are going to continue to carry of the day here for the balance of this year and be the strongest.
Drivers of the overall growth versus 2019, but the lifestyle brands are closing the gap. So we're seeing.
Crescive improvement in those brands.
From the first half of the year end of the second half of the year and have.
Hire more positive outlooks for that category in 2022.
That's very helpful. Thank you for that and then following up on Aaron's question with regards to Vietnam. I think you do break out the range percentage of range and your your latest ESG report, but obviously that's at the company level, maybe can you give us some some color on the bike, which brand have a greater exposure to Vietnam and I would I would assume it's making the.
Some of the performance, but maybe you can give a little more color on that that would be very helpful.
It's across the brands, Laura and again, we have.
A good amount of work work the business in Vietnam, along with those performance brands that you mentioned, so I would say that it doesn't necessarily.
Impact any particular brand.
But.
Constantly monitor that and I would say, obviously for our larger businesses.
They are more exposed from the volume standpoint, just because of the bigger but not not necessarily because the.
We have more concentration of those constructions in Vietnam than other places.
Again, I want to emphasize we do have a nice diversification of sourcing supply outside of Vietnam right now and.
And we've moved some of our production back into China, even in this year just to provide that duels thirsting capability and risk.
A risk mitigation.
And it's serving us pretty well right now, but we're keeping a very close eye on what's happening in Vietnam, and we will continue to monitor that to the extent of impacts our outlook.
Very helpful and the last question great to hear about the double digit growth.
For FY 2002, just just to make sure the or is that just falling organic that's not anticipating any of them in a way is that the.
Correct that is correct.
That's correct.
Okay. Thank you bye, Okay best of luck.
Thanks, Laura.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to management for 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 web site at Wolverine worldwide Dot Com. The replay will be available until August 29th 2021, Thank you and have a good day.
This concludes today's conference you may disconnect your lines at this time. Thank you all for your participation.
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