Q1 2024 Wolverine World Wide Inc Earnings Call
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Good day and welcome to the Wolverine World Wide, Inc. First quarter 2024 earnings call.
Operator: Good day and welcome to the Wolverine World Wide Inc. first quarter 2024 earnings call. All participants will be in the listen-only mode, should you need a... Please signal a conference specialist by pressing the star key followed by..., after today's presentation. There will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone.
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Alex Wiseman: To withdraw your question, please press star. Then, I would now like to turn the conference over to Alex Wiseman, Vice President of Finance. Good morning, and welcome to our first quarter fiscal 2024 conference call. On the call today are Chris Hufnagel, President and Chief Executive Officer, and Mike Stornant, Executive Vice President and Chief Financial Officer. Earlier this morning, we issued our earnings press release and announced our financial results for the first quarter of 2024.
I would now like to turn the conference over to Alex Weizmann Vice.
Alex Wiseman: Vice President of Finance. Please go ahead.
Alex Wiseman: The press release is available on many news sites and can be viewed on our corporate website at wolverineworldwide.com. This morning's earnings press release and comments made during today's earnings call include non-GAAP financial measures. These non-GAAP financial measures were reconciled to the most comparable GAAP financial measures and attached tables within the body of the release.
Alex Wiseman: Good morning, and welcome to our first quarter fiscal 2024 conference call.
Alex Wiseman: On the call today are Chris Hufnagel, President and Chief Executive Officer, and Mike <unk>, Executive Vice President and Chief Financial Officer.
Alex Wiseman: Earlier. This morning, we issued our earnings press release and announced our financial results for the first quarter of 2024.
Alex Wiseman: The press release is available on many new sites and can be viewed on our corporate website at Wolverine worldwide Dot com.
Alex Wiseman: References made regarding financial results and outlook for 2024 and comparable results from 2023, in each case for our ongoing business, exclude the impact of Keds, Wolverine Leathers, and Sperry. 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 2024, growth opportunities, and trends expected to affect the company's future performance made during today's conference call are forward-looking statements under U.S. securities law.
Alex Wiseman: This morning's earnings press release and comments made during today's earnings call include non-GAAP financial measures.
Alex Wiseman: These non-GAAP financial measures, we are reconciled to the most comparable GAAP financial measures and attached tables within the body of the release.
Alex Wiseman: References made regarding financial results and outlook for 2024.
Alex Wiseman: And comparable results from 2023 in each case for our ongoing business exclude the impact of Keds, Wolverine Leathers and Sperry.
Alex Wiseman: I'd like to also remind you that statements describing the company's expectations plans predictions and projections such as those regarding the company's outlook for fiscal 2024.
Alex Wiseman: With 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.
Alex Wiseman: 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 Forward Looking. These important risk factors are identified in the company's SEC filings and in our press release. With that being said, I'd now like to turn the call over to Chris Hufnagel.
Alex Wiseman: 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 forward looking statements.
Alex Wiseman: These important risk factors are identified in the Companys SEC filings and in our press releases.
Alex Wiseman: That being said I would now like to turn the call over to Chris Hufnagel.
Christopher E. Hufnagel: Thanks Alex, good morning everyone, and thank you for joining us on today's call. I'm pleased to report we continue to make progress against our aggressive plan to turn around and transform Wolverine World Wide, executing our plan which means its pace to first stabilize the company, set a new foundation for return to growth, and ultimately deliver greater returns for our shareholders. Importantly, we are doing what we said we would do. In the first quarter, we exceeded revenue expectations with a balanced performance across the portfolio, led by beating our plan from Merrill and Saka.
Christopher E. Hufnagel: Thanks, Alex Good morning, everyone and thank you for joining us on today's call.
Christopher E. Hufnagel: I'm pleased to report we continued to make progress against our aggressive plan to turnaround and transform Wolverine worldwide.
Christopher E. Hufnagel: Executing our plan with tremendous pace to first stabilize the company.
Christopher E. Hufnagel: So a new foundation for our return to growth.
Christopher E. Hufnagel: And ultimately deliver greater returns for our shareholders.
Christopher E. Hufnagel: Importantly, we are doing what we said we would do.
Christopher E. Hufnagel: In the first quarter, we exceeded revenue expectations with a balanced performance across the portfolio led by beats too our plan for Merrell and Saucony.
Christopher E. Hufnagel: We exceeded earnings expectations while simultaneously investing more than we initially planned in brand marketing to capitalize on the momentum we're seeing in the business today and to help build brand equity for the future, and we continue to strengthen the company's balance, which we remain intently focused on by further reducing our debt and inventory levels more than we anticipated going into the quarter. A good start to an important year for the company, which while a transformation effort..., has addressed nearly every aspect of our global operation.
Christopher E. Hufnagel: We exceeded earnings expectations, while simultaneously investing more than we'd initially planned in brand marketing to capitalize on the mountain we're seeing in the business today and to help build brand equity for the future.
Christopher E. Hufnagel: And we continue to strengthen the company's balance sheet, which we remain intently focused on further reducing our debt and inventory levels more than we anticipated going into the quarter.
Christopher E. Hufnagel: A good start to an important year for the company.
Christopher E. Hufnagel: While the transformation efforts have addressed nearly every aspect of our global operations.
Christopher E. Hufnagel: We've worked particularly hard to rapidly improve our brand's product pipelines and presentation in the marketplace. We've made good progress to date, and the product launch calendar for 2024 and into 2025 is especially strong. We've also worked to cultivate a healthier marketplace. And at retail, we continue to see inventory levels decline and rogue seller activity abate.
Christopher E. Hufnagel: We've worked particularly hard to rapidly improve our brands product pipelines and presentation and in the marketplace.
Christopher E. Hufnagel: We've made good progress to date and the product launch calendar for 2024 and into 2025, especially strong.
Christopher E. Hufnagel: We've also worked to cultivate a healthier marketplace.
Christopher E. Hufnagel: And our retail, but can you just see inventory levels decline and rogue seller activity abate.
Christopher E. Hufnagel: Because of our efforts, we're beginning to see sequential improvement in our selling trend. This is encouraging and provides a level of confidence that our strategies and tactics are beginning to gain traction. Average weekly replenishment orders from our wholesale partners accelerated materially from the fourth quarter of 2023 to the first quarter of 2024, and our own e-commerce demand has improved each month this year, most recently inflecting growth in March and accelerating further in April.
Christopher E. Hufnagel: Because of our efforts we are beginning to see sequential improvement in our selling trends.
Christopher E. Hufnagel: This is encouraging and provides a level of confidence that our strategies and tactics are beginning to gain traction.
Christopher E. Hufnagel: Average weekly replenishment orders from our wholesale partners accelerate materially from the fourth quarter of 2023 to the first quarter of 2024.
Christopher E. Hufnagel: And our own e-commerce demand has improved each month this year.
Christopher E. Hufnagel: Most recently in selecting the growth in March and accelerating further in April.
Christopher E. Hufnagel: At the same time, we've delivered a much healthier gross margin across the business, achieving an all-time record gross margin in the first quarter as a company. A testament to the good work we've done on supply chain costs, pricing, inventory, and better managing the marketplace. We've said consistently that we believe our turnaround will be led by margin improvement, which we're seeing today, followed by our plan and selection for growth in the second half of the year. While we're motivated and encouraged by our progress and the proof points we're seeing, we acknowledge it's still very early days in our transformation.
Christopher E. Hufnagel: At the same time, we've delivered a much healthier gross margin across the business.
Christopher E. Hufnagel: Achieving an all time record gross margin in the first quarter as a company.
Christopher E. Hufnagel: A testament to the good work, we've done in supply chain costs pricing inventory and better managing the marketplace.
Christopher E. Hufnagel: We've said consistently that we believe our turnaround will be led by margin improvement, which we're seeing today followed by a plan inflection to growth in the second half of the year.
Christopher E. Hufnagel: While we're motivated encouraged by our progress and the proof points. We are seeing we acknowledge it's still very early days in our transformation.
Christopher E. Hufnagel: We still have a lot of work to do to hit our stride and realize the full potential of the company, and there's no doubt challenges beyond our control exist in the marketplace today. However, as we move forward, our vision remains the same: to become builders of great global brands. Brands that make people's lives and the world better.
Christopher E. Hufnagel: We still have a lot of work to do to hit our stride and realize the full potential of the company.
Christopher E. Hufnagel: And there is no doubt challenges beyond our control exist in the marketplace today.
Christopher E. Hufnagel: However, as move forward our vision remains the same.
Christopher E. Hufnagel: To become builders of great Global brands.
Christopher E. Hufnagel: Brands that make People's lives and the world better.
Christopher E. Hufnagel: Our brand building model centers squarely on building awesome products, telling amazing stories, and driving the business every day. To achieve our vision, we continue to invest in the capabilities that are necessary to execute this new model, strengthening our talent, insights, processes, and tools. I'd like to spend a few minutes now providing an update on this important work and share some real-time examples of the positive momentum in the business today. Our proof points, which we believe will ultimately lead to an inflection to growth and the successful turnaround of Wolverine World Wide. Starting with our number one priority, designing awesome, style-led, trend-right products that are not only innovative but also priced right and placed right. As always, it begins with a concern.
Christopher E. Hufnagel: Our brand building model centered squarely on building awesome products, telling amazing stories and driving the business every day.
Christopher E. Hufnagel: To achieve our vision, we continue to invest in the capabilities that are necessary to execute this new model.
Christopher E. Hufnagel: Strengthening our talent insights processes and tools.
Speaker Change: I'd like to spend a few minutes now providing an update on this important work.
Christopher E. Hufnagel: There are some real time examples of the pause momentum in the business today are proof points that we believe will ultimately lead to an inflection to growth and the successful turnaround of Wolverine worldwide.
Christopher E. Hufnagel: Starting with our number one priority designing awesome style that churn right products that are not only innovative but also price right and placed right.
Christopher E. Hufnagel: As always it begins with the consumer.
Christopher E. Hufnagel: Our brands are actively incorporating a stronger dose of market and consumer insights into their product development processes and becoming more externally focused. Leveraging the Collective, our recently established center of excellence, for Elevated Trend Features and Color Forecast, as well as enhanced consumer In addition, we're bolstering our talent and key brand product roles and modernizing our tool set with the rollout of a new best-in-class digital product line management platform, which remains on track to be deployed across our portfolio after being piloted in Maryland. Now on to some examples of proof points on products.
Christopher E. Hufnagel: Our brands are actively incorporating a stronger dose of market and consumer insights and other product development processes and becoming more externally focused.
Christopher E. Hufnagel: Leveraging the collective our recently established center of excellence for elevated trend features and color forecasting as well as enhanced consumer testing.
Christopher E. Hufnagel: In addition, we're bolstering our talent and keep brand product rolls and modernizing our tool set with a rollout of a new best in class digital product line management platform, which remains on track to be deployed across our portfolio after being piloted in Maryland.
Christopher E. Hufnagel: Now onto some examples of proof points on product.
Christopher E. Hufnagel: Saucony has moved quickly to advance and accelerate development in its product pipeline. The brand started to regain traction with the launch of its new Ride and Guide 17 franchises earlier this year, both of which have performed well at retail. These launches were quickly followed by the very successful introduction of new models in the brand's elite performance franchise, the Endorphins. And just last week, the brand launched the new Triumph 22, driving growth of over 80% for the franchise in its first week on stalking.com. At the Boston Marathon a few weeks ago, Saucony was the second most worn brand and gained share year over year.
Christopher E. Hufnagel: Saucony has moved quickly to advance and accelerate development in its product pipeline.
Christopher E. Hufnagel: The brand started to regain traction with the launch of its new riding guide 17 franchises earlier this year, both of which have performed well at retail.
Christopher E. Hufnagel: These launches were quickly followed by the very successful introduction of new models in the brand's elite performance franchise the endorphin.
Christopher E. Hufnagel: And just last week the brand launched the new triumph 22, driving growth of over 80% for the franchise in its first weekend <unk> Dot com.
Christopher E. Hufnagel: At the Boston Marathon, a few weeks ago softening was the second most worn brand and gained share year over year.
Christopher E. Hufnagel: The brand is also gaining momentum on the lifestyle side with its RetroTrek collection, led by the ProGrid Omni, Shadow, and Azura. It's been a good few months for the brand, resulting in upticks in brand heat and demand. This summer, the brand plans to launch the Hurricane 24, and we're already eager for the next editions of all these key franchises in 2025.
Christopher E. Hufnagel: The brand is also gaining momentum on the lifestyle side with its retro truck collections led by the pro grid Omni Shadow and Azura.
Christopher E. Hufnagel: It's been a good few months for the brand, resulting in upticks and brand heat in demand.
Christopher E. Hufnagel: This summer the brand plans to launch the Hurricanes and 24.
Christopher E. Hufnagel: Already eager for the next editions of all these key franchises in 2025.
Christopher E. Hufnagel: The brand is supercharging its innovation pipeline and elevating its design, all while taking a more thoughtful and strategic approach to the many opportunities the brand has in a very attractive and growing category. The other brands in the portfolio are close behind. For Merrill, the Moab Speed 2, which was recently recognized as an ISPO award for the best new product in the hiking category, modernizes the trail by incorporating the beloved fit and comfort of the Moab into a faster, lighter, and more athletic silhouette.
Christopher E. Hufnagel: The brand is supercharging as innovation pipeline and elevating its design.
Christopher E. Hufnagel: All while taking a more thoughtful and strategic approach to any opportunities that Brian has a very attractive and growing category.
Christopher E. Hufnagel: The other brands in the portfolio are close behind.
Christopher E. Hufnagel: For Merrell, the Moab speak to which was recently recognized as an Expo award for the best new product in hiking category.
Christopher E. Hufnagel: Modernizes, the trail by incorporating the beloved fit and comfort of the moab into a faster lighter and more athletic silhouette.
Christopher E. Hufnagel: It is the brand's biggest story this year and is driving strong sell through today at Key Wholesale Accounts and at Merrill.com. This performance is helping generate increased interest in the marketplace and continued market share gains for the category leaders. On the lifestyle front, Merrill's Wrap Collection continues to outpace our expectations, selling out with each delivery of new inventory. We have improved the concept at Merrill.com, and we now plan to thoughtfully expand its distribution to our wholesale accounts both in the U.S. and around the world. We're also fast-tracking new styles for rap next year, especially for her, including mules and a trend-right Mary Jane.
Christopher E. Hufnagel: It is the brand's biggest story this year and is driving strong sell through today at key wholesale accounts and at Merrill Dot Com.
Christopher E. Hufnagel: This performance is helping generate increased interest in the marketplace and continued market share gains for the category leader.
Christopher E. Hufnagel: On the lifestyle front Merrill's wrap collection continues to outpace our expectations selling out with each delivery of new inventory have improving the concept that merrell dot com, we now plan to thoughtfully expand its distribution to our wholesale accounts both in the U S and around the world.
Christopher E. Hufnagel: We're also fast tracking new styles for rapid next year, especially for her.
Christopher E. Hufnagel: <unk> news and a trend right Mary Jane.
Christopher E. Hufnagel: Finally, Wolverine Brands, Trade Wedge, Rancher, and ReForce Franchise are all performing well today, with both the Trade Wedge and Rancher consistently beating our sell-through forecast, and the ReForce off to a solid start at Wolverine.com. Going forward, the brand has plans to expand its product franchises, most notably introducing significant new innovations to the Western category later this year, as that is an important consumer focus To win in today's market, brands need to do more than just build awesome products.
Christopher E. Hufnagel: Finally, Wolverine brand's trade wedge rancher and reinforce franchises are all performing well today with both the trade wedge in Rancho consistently beating our sell through forecast and the re force off to a solid start at Wolverine Dot com.
Christopher E. Hufnagel: Going forward the Brian has plans to expand their product franchises, most notably introducing significant new innovation to the western category. Later this year as that is an important consumer trend.
Christopher E. Hufnagel: They also have to tell amazing stories, and we're focused on telling stories that excite consumers about our brands as well as our products. As with the product process, the consumer now sits at the center of our marketing approach. Our teams are utilizing consumer insights at the very start of creative development to create more compelling storytelling, and consumer testing is now being leveraged throughout the process, including evaluating creative effectiveness prior to a campaign's launch.
Christopher E. Hufnagel: To win in today's market brands need to do more than just build awesome products. They also have to tell amazing stories, and we're focused on telling stories that excite consumers about our brands as well as our products.
Christopher E. Hufnagel: As with the product process. The consumer now sits at the center of our marketing approach. Our teams are utilizing consumer insights at the very start of creative development to create more compelling storytelling and consumer testing is now being leveraged throughout the process, including evaluating creative effectiveness prior to campaigns launch.
Christopher E. Hufnagel: To lead our execution here, we've hired new consumer-focused marketing leaders for both Merrill and Sweaty Betty over the last six months, with plans to place a new marketing leader for Saucony shortly, in addition to leveraging the collective to ensure we share best practices and insights across the portfolio. We're also evolving towards a better full-funnel approach to marketing, investment, and campaign objectives that balance functional product stories with brand-building It is vital that we build brand equity and deepen emotional connections with our customers.
Christopher E. Hufnagel: To lead our execution here, we've hired new consumer focused marketing leaders for both Maryland sweaty about over the last six months with plans to place a new marketing leader for Saucony shortly.
Christopher E. Hufnagel: In addition to leveraging the collective to ensure we share best practices and insights across the portfolio.
Christopher E. Hufnagel: We're also evolving towards the better full funnel approach to marketing investment and campaign objectives that Mount functional parts stories with brand building messages.
Christopher E. Hufnagel: It is vital that we build brand equity and deepen the emotional connections with our consumers.
Christopher E. Hufnagel: We need to compete for both share of closet and share of mind to win in today's competitive market. Here are a few examples of how we're telling amazing stories in the market today. Sweaty Betty aims to empower women, and just last week, the brand launched its second iteration of the Wear the Damn Shorts campaign to encourage its assured community to be confident and comfortable with their bodies.
Christopher E. Hufnagel: We need to compete for both share of closet and share of mind to win in today's competitive marketplace.
Christopher E. Hufnagel: A few examples of how we're telling amazing stories in the market today.
Christopher E. Hufnagel: <unk> aims to empower women and just last week the brand launched its second iteration of the where the dam shorts campaign to encourage it to steward community to be confident and comfortable with their bodies.
Christopher E. Hufnagel: Last year, the t-shirt featuring the campaign's tagline was the brand's most requested t-shirt in its history. This year, the campaign has already driven a 63% increase year-over-year in shorts revenue and a 52% sell-through of the t-shirt since launch. The campaign has delivered over 30 million impressions and over 1.5 million video views. In total, Sweaty Betty has driven nearly a 40% increase in paid impressions globally year to date, and the brand continues to resonate with its core customers.
Christopher E. Hufnagel: Last year the T shirt, featuring the campaign tagline was the brand's most requested T shirts in its history.
Christopher E. Hufnagel: This year the campaign has already driven a 63% increase year over year in shorts revenue and a 52% sell through of the T shirts since launch.
Christopher E. Hufnagel: The campaign has delivered over 30 million impressions over $1 5 million video views.
Christopher E. Hufnagel: In total sweaty Betty has driven nearly a 40% increase in paid impressions globally year to date and the brand continues to resonate with its core consumer.
Christopher E. Hufnagel: Salkind kicked off the spring with a successful marathon campaign, which encouraged consumers to drop their phones and hit the payment button, driving over 1 billion impressions. More recently, the brand engaged its running community at the London Marathon through a host of events and activations, generating well over a million impressions and helping fuel all-time record searches for the brand in the UK. Year-to-date global search interface softening is up over 20% compared to 20
Christopher E. Hufnagel: So I'm going to kick off the spring with a successful marathons campaign, which encourage consumers to drop their phones and hit the payment driving over 1 billion impressions more.
Christopher E. Hufnagel: More recently the brand engage its running community at the London Marathon through a host of events and Activations.
Christopher E. Hufnagel: <unk>, well over 1 million impressions and helping fuel all time record searches for the brand in the UK.
Christopher E. Hufnagel: Year to date global search and sort of softening is up over 20% compared to 2023.
Christopher E. Hufnagel: And this is all ahead of Saucony being named the presenting sponsor for this year's London 10K, and our many activations plan to coincide with this important Spartan. And last, Merrill just launched its biggest campaign of the year, Good Things Await, inviting consumers to experience the simple power of being outside. This campaign meets the consumer where and when they want to be engaged, either on their social channels, on Connected TV, in print, or in-store.
Christopher E. Hufnagel: And this is all had a socking to being named the presenting sponsor for this year's London 10-K, and our many activations planned to coincide with this important partnership.
Christopher E. Hufnagel: And last Merrell just launches biggest campaign of the year, good things await inviting consumers to experiences of a power of being outside.
Christopher E. Hufnagel: This campaign meets the consumer wearing when they want to be engaged either in their social channels on connected TV and print are in store. It's the most comprehensive marketing campaign in the brand's history generating over 7 billion media impressions, so far in helping drive strength and interest in the brand.
Christopher E. Hufnagel: It's the most comprehensive marketing campaign in the brand's history, generating over 7 billion meeting impressions so far and helping drive strength and interest in the brand. As the global leader in HIKE, it's incumbent upon the brand to drive innovation and excitement in the category, and I'm encouraged by the progress we're making in Maryland. Finally, our teams are intent on driving the business each and every day. We have a renewed focus on strengthening our relationships with our global distribution network, both in the U.S. and around the world.
Christopher E. Hufnagel: As the global leader in hike, it's incumbent upon the brand to drive innovation and heat in the category and I am encouraged by the progress we're making in Maryland.
Christopher E. Hufnagel: Finally, our teams are intent on driving the business each and every day.
Christopher E. Hufnagel: We have a renewed focus on strengthening our relationships with our global distribution network, both in the U S and around the world.
Christopher E. Hufnagel: We continue to hold strategic top-stop meetings with our key domestic and retail partners, and in March, 16 of our key international partners visited our campus here in Grand Rapids for a strategic planning summit. This was the first of its kind event in our company's history and the first time we've hosted a group like this on campus since the pandemic. To further support our partners around the world and drive the business, just last week, we announced new licensing agreements for Maryland Stock and Kids Footwear, along with Maryland Apparel and Accessories.
Christopher E. Hufnagel: We continue to hold strategic tops up meetings with our key domestic retail partners and in March 16 of our key International partners visited our campus here in Grand Rapids for strategic planning summit. This.
Christopher E. Hufnagel: This was the first of its kind event in our company's history and the first time, we've hosted a group like this on campus since the pandemic.
Christopher E. Hufnagel: To further support our partners around the World and drive the business just last week, we announced new license agreements for Merrell and Saucony, Keds footwear, along with Merrell apparel and accessories.
Christopher E. Hufnagel: These new agreements will help us deliver better, fuller assortments and more effectively and efficiently realize the full potential of our brands globally. In collaboration with our longtime partner in Japan, Merrill opened its first-of-its-kind flagship store last fall in Harajuku, Tokyo, one of the very best and most influential retail districts in the world.
Christopher E. Hufnagel: These new agreements will help us deliver better Fuller, assortments and more effectively and efficiently realize the full potential of our brands globally.
Christopher E. Hufnagel: In collaboration with our longtime partner in Japan Merrill opened its first of its kind of flagship store last fall in Harajuku in Tokyo, one of the very best and most influential retail districts in the world.
Christopher E. Hufnagel: The store has outperformed its plans since opening, leading to the opening of a new store in nearby Shibuya Scramble Square at the beginning of March, which successfully captured a younger consumer, and driven a more balanced head-to-toe salesman, and it's significantly exceeding its plans and so on. The strategy in Japan is helping reposition, modernize, and energize Maryland, and we're taking these learnings to other brands and Here in the U.S., Saucon is expanding into meaningful new lifestyle distribution over the course of the year as a result of the heat it's generating with TrendRite RetroTech designs from its archives.
Christopher E. Hufnagel: The stores outperformed its plants is opening leading to the opening of a new store in nearby Shibuya scramble square at the beginning of March.
Christopher E. Hufnagel: Which successfully captured a younger consumer driven on where balanced head to toe sales mix and a significantly exceeding its plan since opening.
Christopher E. Hufnagel: The strategy in Japan is helping reposition modernized and energized, Maryland, and we're taking these learnings to other brands and markets in the portfolio.
Christopher E. Hufnagel: Here in the U S stock and is expanding into meaningful new lifestyle distribution over the course of the year as a result of the heat, it's generating with trend right retro tech designs from its archives.
Christopher E. Hufnagel: The brand is also opening its aperture to capture the broader global running lifestyle opportunity well beyond niche elite offers. In February, I said I was bullish on Saucony's future prospects, driven by a much-improved innovation pipeline, and I'm even more excited today about the potential of the brand moving forward. We're also making important progress cleaning up the marketplace, spearheaded by our newly created brand protection team. To date, we've closed or restricted over 30 customers and partners and shuttered approximately 400 retail accounts.
Christopher E. Hufnagel: <unk> is also opening its aperture to capture the broader global running lifestyle opportunity well beyond niche elite offerings.
Christopher E. Hufnagel: In February I said I was bullish on stocking these future prospects driven by much improved innovation pipeline.
Christopher E. Hufnagel: And I'm, even more excited today on the potential of the brand moving forward.
Christopher E. Hufnagel: We're also making important progress cleaning up the marketplace spearheaded by our newly created brand protection team to date, we've closed or restricted over 30 customers and partners and shuttered approximately 400 retail accounts.
Christopher E. Hufnagel: This will continue as we work to be great brand managers, coupled with a stronger focus on sell-through versus sell-in and our brands better managing supply and demand in the marketplace. While awesome products and amazing stories are critical to building great brands, I'm equally focused on aligning and uniting the global teams to drive the business each and every day. Our team's good work is translating into important early proof points and helping to build a new, firmer foundation for the future.
Christopher E. Hufnagel: This will continuously work to be great brand managers, coupled with a stronger focus on sell through versus sell in and our brands better managing supply and demand in the marketplace.
Christopher E. Hufnagel: While awesome products and amazing stories are critical to building great brands I'm equally focused on aligning <unk> nine the global teams to drive the business each and every day.
Christopher E. Hufnagel: Our team's good work is translating into important early proof points and helping to build a new firmer foundation for the future.
Speaker Change: Before I turn the call over to Mike I'd like to comment on our other announcement this morning.
Christopher E. Hufnagel: Before I turn the call over to Mike, I'd like to comment on our other announcement this morning. After a comprehensive search, I'm pleased to announce that Taryn Miller will succeed Mike Stornant as the company's Chief Financial Officer.
Speaker Change: After a comprehensive search I'm pleased to announce a terran Miller will succeed Mike started as the company's Chief Financial Officer.
Christopher E. Hufnagel: Terran brings over 25 years of global financial and operational experience, along with Strategic Thought Leadership, to Wolverine World Wide. I'm excited for her to join the executive team at this important moment in our transformation and look forward to you all meeting and working with Taryn. She's a tremendous addition to our team.
Christopher E. Hufnagel: Dan brings over 25 years of global financial and operational experience, along with strategic thought leadership to Wolverine worldwide IMAX.
Mike: I'm excited for her to join the executive team at this important moment in our transformation and look forward to you all meeting and working with parents.
Mike: He's a tremendous addition to our team.
Christopher E. Hufnagel: I'd also like to take this opportunity to personally thank Jim. He's dedicated nearly three decades of his life to the company, including the last nine years as our CFO. Since I stepped into this seat last August, his deep knowledge of the business, drive, and undeniable grit have been invaluable to me and the company as we work to stabilize and reimagine the company. No one is more passionate about Wolverine success than I am, and no one works harder than myself.
Mike: I'd also like to take this opportunity to personally thank Mike.
Mike: He has dedicated nearly three decades of his life to the company include.
Mike: Including the last nine years as our CFO.
Mike: Since I stepped into the seat last August has deep knowledge of the business drive an undeniable grid have been invaluable to me and the company as we work to stabilize and re imagined the company.
Mike: No one is more passion about Wolverine success and no one works harder than Mike.
Christopher E. Hufnagel: Thank you, Mike, for everything you've done and for your commitment to a smooth and seamless transition moving forward over the next several months. I, along with everyone at Wolverine World Wide, wish you and Amy the very best in your coming retirement. It's well-deserved, and we'll miss you.
Speaker Change: Thank you Mike for everything you've done and for your commitment to a smooth and seamless transition moving forward over the next several months.
Mike: Along with everyone Wolverine Wolverine worldwide, which you want Amy the very best in your coming retirement, it's well deserved and we'll Miss you.
Michael David Stornant: With that, I'm going to hand it over to Mike to review our performance in the first quarter and expectations for the year in more detail. Thank you for those comments, Chris, and good morning to everyone on the call. This morning, I'll start with a review of the first quarter, followed by our expectations for fiscal 2024. We are very encouraged by our first quarter results. We delivered or exceeded our key financial objectives and saw improvement across performance metrics that support the stabilization of the business. First quarter revenue for our ongoing business of $390.8 million was above our outlook of $360 million.
Mike: With that I'm going to hand, it over to Mike to review our performance in the first quarter and expectations for the year in more detail.
Mike: Mike.
Mike: Thank you for those comments Chris.
Mike: And good morning to everyone on the call.
Mike: This morning, I'll start with a review of the first quarter, followed by our expectations for fiscal 2024.
Michael David Stornant: Demand trends and selling execution continue to improve. Our wholesale performance in Europe was especially strong thanks to actions taken by our global supply chain team to mitigate logistics delays related to the Suez Canal. Approximately $8 million of revenue shifted from Q2 into Q1 as a result. As a reminder, Q1 2023 included more than $75 million of revenue that did not repeat in the first quarter of this year, including excessive end-of-life inventory liquidation.
Michael David Stornant: Timing Shift and International Shipment, and business model change. Adjusted gross margin of 46.5% was better than our outlook of approximately 46% and improved 540 basis points versus last year. A Healthier Salesman, lower e-commerce promotions, and the benefit from the supply chain cost initiatives executed last year all contributed to this record gross margin performance. As a reminder, the first quarter gross margin was planned to be the highest of any quarter this year, due mostly to the lower mix of international distributor shipments in the quarter, which carry a lower gross margin.
Mike: We are very encouraged by our first quarter results.
Michael David Stornant: Adjusted SG&A expense of $162 million was in line with our expectations given the higher revenue and includes a $3 million year-over-year increase in investments for demand creation and technology. Adjusted operating margin of 5% exceeded our outlook for the quarter, and adjusted diluted earnings per share for the quarter were 5 cents and better than expected. The health of our balance sheet continues to improve, and we exceeded our expectations for inventory, cash flow, and net debt for the quarter.
Mike: We delivered or exceeded our key financial objectives and saw improvement across performance metrics that support the stabilization of the business.
Michael David Stornant: Inventory for the ongoing business was $354 million, down 40% from last year, as a result of continued progress on right-sizing inventory, nimble supply chain execution, and improved planning. Net debt was $685 million, down approximately $380 million versus last year. Bank Defined Leverage was 3.1 times at the end of the first quarter.
Mike: First quarter revenue for our ongoing business of $398 million was above our outlook of $360 million.
Mike: Demand trends in selling execution continued to improve.
Mike: Our wholesale performance in Europe was especially strong thanks to actions taken by our global supply chain team to mitigate logistics delays related to the Suez Canal.
Mike: Approximately $8 million of revenue shifted from Q2 into Q1 as a result.
Mike: As a reminder, Q1 2023 included more than $75 million of revenue that did not repeat in the first quarter of this year.
Mike: Including access at the end of life inventory liquidation.
Mike: The timing shift in international shipments and business model changes.
Mike: Adjusted gross margin of 46, 5% was better than our outlook of approximately 46% and improved 540 basis points versus last year.
Mike: The health of your sales mix.
Mike: <unk> e-commerce promotions and the benefit from the supply chain cost initiatives executed last year.
Mike: All contributed to this record gross margin performance.
Mike: As a reminder, first quarter gross margin was planned to be the highest of any quarter. This year.
Mike: Due mostly to the lower mix of international distributor shipments in the quarter, which carry a lower gross margin.
Mike: Adjusted SG&A expense of $162 million was in line with our expectations given the higher revenue.
Mike: And includes a $3 million year over year increase in investments for demand creation and technology.
Mike: Adjusted operating margin of 5% exceeded our outlook for the quarter and adjusted diluted earnings per share for the quarter were five and better than expected.
Mike: The health of our balance sheet continues to improve and we exceeded our expectations for inventory cash flow and net debt for the quarter.
Mike: Inventory for the ongoing business was $354 million down 40% from last year.
Mike: As a result of continued progress on right sizing inventory nimble supply chain execution and improved planning.
Mike: Net debt was $685 million down approximately $380 million versus last year.
Mike: Bank defined leverage was three one times at the end of the first quarter.
Michael David Stornant: Let me now provide details and our outlook for 2020. Our guidance reflects the expected performance of our ongoing business and now accounts for the recently announced licensing model for our Merrill and Saucony kids. This change in business model will further simplify our operation and leverage our newly established global licensing business. This change is expected to reduce 2024 revenue by approximately $20 million, and we'll have a neutral impact on earnings in 2024 as we transition the business to our new partner.
Speaker Change: Let me now provide details on our outlook for 2024.
Mike: Our guidance reflects the expected performance of our ongoing business and now adjusts for the recently announced licensing model for our Merrell and Saucony Kids business.
Mike: This change in business model will further simplify our operations and leverage our newly established global licensing team.
Mike: This change is expected to reduce 2020 for our revenue by approximately $20 million and will have a neutral impact on earnings in 2024, as we transition the business to our new partner.
Michael David Stornant: Fiscal 2024 revenue for our ongoing business is now expected in the range of $1.68 billion to $1.73 billion. This compares to 2023 revenue for our ongoing business of $1.99 billion and represents a decline of 14.4% at the midpoint of the range. Discrete items in 2023, totaling $165 million in revenue, will not recur in 2025.
Mike: Fiscal 2020 for revenue for our ongoing business is now expected in the range of $1 $68 billion to $1 $73 billion.
Mike: This compares to 2023 revenue for our ongoing business of $1 99 billion and represents a decline of 14, 4% at the midpoint of the range.
Mike: Discrete items in 2023 totaling $165 million in revenue will not recur in 2024. These include approximately $70 million of extraordinary end of life inventory liquidation heavily weighted to the first half of the year approximately.
Michael David Stornant: These include approximately $70 million of extraordinary end-of-life inventory liquidation, although heavily weighted to the first half of the year. Approximately $55 million in revenue prior to certain business model changes, including the transition of our China joint venture to a distributor model for Maryland Sox and approximately $40 million in a timing shift of international distributor shipments that benefited Q1 in 2023. We expect the transition to a licensing model for Maryland Saucony kids will result in approximately $20 million of 2023 revenue that will not recur in 2024, excluding these discrete items and licensing business model changes The midpoint decline in full-year revenue will be approximately 5.6%.
Mike: Approximately $55 million in revenue prior to certain business model changes, including the transition of our China joint venture to a distributor model for Merrell and Saucony.
Mike: And approximately $40 million and a timing shift of international distributor shipments that benefited Q1 and 2023.
Mike: We expect the transition to a licensing model for Merrell and Saucony Kids will result in approximately $20 million of 2023 revenue that will not recur in 2024.
Mike: Excluding these discrete items and licensing business model changes.
Mike: The mid point decline in full year revenue will be approximately five 6%.
Michael David Stornant: Our revenue outlook for our groups and brands remains unchanged. As a reminder, we expect active group revenue to decline by mid-teens. Merrill is expected to decline in the low double-digit range, with an inflection to growth expected in the second half of the year.
Mike: Our revenue outlook for our groups and brands remains unchanged as a reminder, we expect active group revenue declined mid teens.
Mike: Merrell is expected to decline in the low double digit range with inflection to growth expected in the second half of the year.
Mike: Saucony is expected to decline in the low 20% range with sequential improvement as we move through the back half of the year and.
Michael David Stornant: Saucony is expected to decline in the low 20% range, with sequential improvement as we move through the back half of the year, and Sweaty Betty is expected to be approximately flat. Work group revenue is expected to decline in the high single digits, with Wolverine brand expected to be down mid-single digits. Turning to gross margins, Adjusted gross margin is expected to be approximately 44.5% at the midpoint of the outlook range, up approximately 460 basis points compared to 2023 and a record for the company.
Mike: And sweaty Betty is expected to be approximately flat.
Mike: Our group revenue is expected to decline high single digits.
Mike: With Wolverine brand expected to be down mid single digits.
Mike: Turning to gross margin.
Mike: Adjusted gross margin is expected to be approximately 44, 5% at the midpoint of the outlook range up approximately 460 basis points compared to 2023 and a record for the company.
Michael David Stornant: We continue to expect significant reductions in supply chain and product costs. The Benefit of Healthier Inventory and a better mix of full price sales, partially offset by foreign currency headwinds that impact inventory costs. Adjusted selling and general administrative expenses are now expected to be approximately $640 million at the midpoint of the outlook range, or 37.5% of sales, compared to $716 million in 2023, or 36% of sales. The lower operating cost structure includes $95 million of savings from the 2023 Restructuring and Other Profit Initiative and $10 million from the model change for our kids. This is partially offset by incremental investment for demand creation and modern systems. Normalized Incentive Compensation Expense, and General Inflation.
Mike: We continue to expect significant reductions in supply chain and product costs.
Mike: The benefit of healthier inventory and a better mix of full price sales.
Mike: Partially offset by foreign currency headwinds that impact inventory costs.
Mike: Adjusted selling and general administrative expenses are now expected to be approximately $640 million at the midpoint of the outlook range or 37, 5% of sales.
Mike: Compared to $716 million in 2023 or 36% of sales.
Mike: The lower operating cost structure includes $95 million of savings from the 2023 restructuring and other profit initiatives and.
Mike: And $10 million from the model change for our kids business.
Mike: This was partially offset by incremental investments for demand creation and modern systems.
Mike: Normalized incentive compensation expense and general inflation.
Michael David Stornant: Adjusted operating margin is expected to be approximately 7% at the midpoint of the outlook range, compared to 3.9% in 2023. Interest and other expenses are projected to be approximately $40 million, down from $63 million in 2023 and benefiting from the significant debt reduction achieved to date. The effective tax rate is projected to be approximately $18,000 as a result of these key assumptions.
Mike: Adjusted operating margin is expected to be approximately 7% at the midpoint of the outlook range compared to three 9% in 2023.
Mike: Interest and other expenses are projected to be approximately $40 million down from $63 million in 2023, and benefiting from the significant debt reduction achieved to date.
Mike: The effective tax rate is projected to be approximately 18%.
Mike: As a result of these key assumptions.
Michael David Stornant: Adjusted Loaded Earnings Per Share is expected to be in the range of 65 cents to 85 cents, including a 10 cent negative impact from foreign currency exchange fluctuation. This compares to $0.15 in 2023 for our ongoing business. Working capital and cash flow optimization will remain a priority in 2020. We now expect inventory to decline by at least $75 million during the year as we continue to work through specific areas of excess inventory.
Mike: <unk> diluted earnings per share is expected to be in the range of 65.
Mike: To 85.
Mike: Including a <unk> 10 negative impact from foreign currency exchange fluctuations.
Mike: This compares to 15 in 2023 for our ongoing business.
Mike: Working capital and cash flow optimization remain a priority in 2024.
Mike: Now expect inventory to decline by at least $75 million during the year as we continue to work through specific areas of excess inventory.
Michael David Stornant: On this topic, as the industry faces new and evolving product regulations related to PFAS, we are taking a proactive approach, in partnership with our key retail partners and our own direct channels. We are responsibly working through this image. We expect to be compliant with PFAS restrictions when and where required in the future. Operating free cash flow is expected in the range of $110 million to $130 million.
Mike: On this topic as the industry faces, new and evolving product regulations related to <unk>.
Mike: We are taking a proactive approach.
Mike: Partnership with our key retail partners and our own direct channels.
Mike: We are responsibly working through this inventory.
Mike: We expect to be compliant with <unk> restrictions, when and where required in the future.
Mike: Operating free cash flow is expected in the range of $110 million to $130 million.
Michael David Stornant: We now expect net debt to improve by $175 million to $565 million at year-end, with bank-defined leverage below $3 trillion. Shifting to our outlook for the second quarter, we expect second quarter revenue of approximately $410 million, a decline of approximately 21%.
Mike: We now expect net debt to improve by $175 million to $565 million at year end with bank defined leverage below three times.
Mike: Shifting to our outlook for the second quarter we.
Mike: We expect second quarter revenue of approximately $410 million a decline of approximately 21%.
Michael David Stornant: As announced earlier this year, we are closing our Louisville Distribution Center and currently moving our Saucony inventory to our California Distribution Center. We expect this transition to result in a shift in revenue and profit from Q2 to Q3. Second quarter gross margin is expected to be approximately 43 percent, up 390 basis points from last year. This would result in first half gross margin slightly above 44.5 percent, which is in line with our outlook for the full year. We expect the second quarter adjusted operating margin to be approximately 5 percent and adjusted diluted earnings per share to be approximately 10 percent.
Mike: As announced earlier this year, we are closing our Louisville distribution center and currently moving our Saucony inventory to our California distribution Center.
Mike: We expect this transition to result in a shift in revenue and profit from Q2 into Q3.
Mike: Second quarter gross margin is expected to be approximately 43% up 390 basis points from last year.
Mike: This would result in first half gross margin slightly above 44, 5%, which is in line with our outlook for the full year.
Mike: We expect second quarter, adjusted operating margin to be approximately 5% and adjusted diluted earnings per share to be approximately 10.
Michael David Stornant: The order book for our global wholesale and distributor businesses is developing as expected when we established our full year guidance in February, and the Rate of Replenishment Orders has continued to improve. In addition, our e-commerce businesses are expected to show growth in the second quarter, with growth also expected in Q3. As a result, we continue to expect sequential revenue improvement through the back half of the year, with year-over-year growth in Q4.
Mike: The order book for our global wholesale and distributor businesses has developed as expected when we established our full year guidance in February.
Mike: And the rate of replenishment orders has continued to improve in.
Mike: In addition, our e-commerce businesses are expected to inflect the growth in the second quarter.
Mike: With growth also expected in Q3 and Q4.
Mike: As a result, we continue to expect sequential revenue improvement through the back half of the year with year over year growth. In Q4. We also expect second half gross margin and SG&A expense to be similar to the first half, which will drive positive SG&A and operating margin leverage in the second half of the year.
Michael David Stornant: We also expect second-half gross margin and SG&A expense to be similar to the first half, which will drive positive SG&A and operating margin leverage in the second half of the year. Now, let me summarize the key points I hope you'll take away this morning.
Speaker Change: Let me summarize the key points I hope you'll take away this morning.
Michael David Stornant: 2024 is a year of transition for the company, as we expect significant gross margin expansion will precede an inflection to growth in the back half of the year, and we set our brands up to accelerate in 2025. We recognize that improved and sustainable gross margin is necessary to create capacity for consistent brand investment into the future. We are balancing the need for meaningful earnings and cash flow improvement with critical reinvestments required to modernize our systems, drive demand creation, and build other important capabilities.
Speaker Change: 2024 is a year of transition for the company as we expect significant gross margin expansion will precede an inflection to growth in the back half of the year.
Mike: And we set our brands up to accelerate in 2025.
Mike: We recognize that improved and sustainable gross margin is necessary to create capacity for consistent brand investment into the future.
Mike: We are balancing the need for meaningful earnings and cash flow improvement with critical reinvestments required to modernize our systems drive demand creation and build other important capabilities in.
Michael David Stornant: And finally, after a solid performance in Q1, we now have better visibility into future order demand, more stable operating trends, and strong consumer reaction to our new product introduction. This progress gives us further confidence in our outlook for the rest of the year. Before I turn the call back to Chris, I want to personally welcome Taryn Miller to Wolverine as our new CFO.
Mike: And finally after a solid performance in Q1, we now have better visibility to future order demand more stable operating trends and strong consumer reaction to our new product introductions.
Mike: This progress gives us further confidence in our outlook for the rest of the year.
Michael David Stornant: She brings valuable experience needed to help lead the ongoing transformation of society, and she's a tremendous addition to our leadership. I am fully committed to working with her and Chris during this important transition, and I'm excited to support the company in my new role over the coming months. Now, I'll turn the call back.
Speaker Change: Before I turn the call back to Chris I want to personally welcome Terran Miller to Wolverine as our new CFO.
Terran Miller: She brings the valuable experience needed to help lead the ongoing transformation of this company and she is a tremendous addition to our leadership team.
Christopher E. Hufnagel: I am fully committed to working with her and Chris during this important transition.
Terran Miller: I'm excited to support the company in my new role over the coming months.
Mike: Now I'll turn the call back to Chris.
Christopher E. Hufnagel: Thanks, Mike. In closing, I'm encouraged by the progress we've made in just a few quarters and even more excited that we're seeing early proof points that our strategy and execution are beginning to work. On our last call, I said 2024 would be a pivotal year for the company and that our teams were motivated by both the challenges and opportunities. I believe this is even more true today.
Christopher E. Hufnagel: Thanks, Mike.
Christopher E. Hufnagel: In closing I am encouraged by the progress we've made in just a few quarters and even more excited that we're seeing early proof points that our strategy and execution are beginning to work.
Christopher E. Hufnagel: On our last call I said 2024 would be a pivotal year for the company and that our teams are motivated by both the challenges and opportunities.
Christopher E. Hufnagel: I believe this is even more true today.
Christopher E. Hufnagel: There's no doubt we have more work to do, but I believe we've taken the right steps and we're on the right path to transform Wolverine World Wide, all guided by becoming great brand builders and ultimately delivering greater returns for our shareholders. Thank you for taking time to do this with us this morning. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone.
Christopher E. Hufnagel: There is no doubt we have more work to do but I believe we've taken the right steps and we're on the right path to transform Wolverine worldwide.
Speaker Change: Got it.
Christopher E. Hufnagel: Becoming great brand builders, and ultimately delivering greater returns for our shareholders.
Speaker Change: Thank you for taking time to be with us This morning.
Speaker Change: Yeah.
Christopher E. Hufnagel: Okay.
Speaker Change: Thank you.
Speaker Change: We will now begin the question and answer session.
Christopher E. Hufnagel: To ask a question you May Press Star then one on your Touchtone phone.
Christopher E. Hufnagel: If you are using a speakerphone please pick up your handset before pressing the keys.
Operator: Please pick up your handset before pressing any buttons. If at any time your question has... and you would like to withdraw your question, please press star. We request that you please restrict yourself to one question and one follow-up. If you have any further questions, you may rejoin. At this time, we will pause momentarily to assemble our... [inaudible] The first question comes from the line of Mitch Kummetz with Seaport Research. Please go ahead.
Christopher E. Hufnagel: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: We request that you. Please restrict yourselves to one question and one follow up question.
Christopher E. Hufnagel: If you have any further questions you may rejoin the queue.
Mitchel John Kummetz: At this time, we will pause momentarily to assemble our roster.
Operator: Okay.
Mitchel John Kummetz: The first question comes from the line of Mitch comments with Seaport Research. Please go ahead.
Operator: Yes, thanks for taking my questions, and Mike, I really enjoyed working with you over the years and wish you the best of luck. So, let me start with the quarter. It looks like you guys beat revenues, beat your plan by maybe 30 plus million. It sounded like maybe there were 8 million to pull forward in Europe. Can you say if there was any pull forward outside of Europe, like in the US, and then, you know, what really drove the beat, you know, either by brand or by channel? Any more color there, and then I've got to follow up.
Mitchel John Kummetz: Yes, thanks for taking my questions.
Operator: Mike really enjoyed working with you over the years and wish you the best of luck.
Operator: So let me start just on the quarter. It looks like you guys beat revenues beat your plan by maybe 30 plus million.
Operator: It sounded like maybe there was $8 million of pull forward in Europe can you say if there was any.
Operator: Forward outside of Europe like in the U S and then what really drove the beat.
Operator: You either by brand or by channel any any more color there and then I've got a follow up.
Mitchel John Kummetz: Sure, thanks Mitch for the comments. I'll say over performance really across the board. I think that was an important theme for the first quarter, whether that be at the brand level or the regional level. The call out on the pull forward or the timing shift for the Europe wholesale business really had to do with how we planned or sort of hedged our bet a little bit on the timing of the logistics issues with the Suez Canal.
Operator: Sure.
Mike: Thanks Metro the comments I'll say.
Mitchel John Kummetz: Over performance really across the board I think that was an important theme for the first quarter.
Mitchel John Kummetz: Whether that be at the brand level or the regional level the call out on the on the pull forward or the timing shift for.
Mitchel John Kummetz: For the Europe wholesale business really had to do with how we planned or sort of hedged our bet a little bit on the timing of the logistics issues with the Suez Canal, we overcame that and we called that out is about an $8 million shift.
Mitchel John Kummetz: We overcame that, and we called that out as about an $8 million shift. I'd say there may be $2 or $3 million more across the business, nothing significant to call out, but a little bit more in terms of timing. Not so much pulling forward shipments, but just the way we were able to move goods through the warehouse and some of the demand that picked up later in the quarter, which we were able to kind of satisfy with some early shipments. So nothing dramatic outside of that issue. And then on the guide, you adjust for the $20 million in the licensing change for kids.
Mitchel John Kummetz: Let's say there may be two or $3 million more in across the business nothing nothing significant to call out but.
Mitchel John Kummetz: Little bit more in terms of timing just not so much pulling forward shipments, but just the way we were able to move goods through the warehouse.
Mitchel John Kummetz: And some of the demand that picked up later in the quarter, which we were able to kind of satisfy with some early shipments so nothing dramatic outside of that issue.
Mitchel John Kummetz: And then and then on the guide.
Mitchel John Kummetz: You adjust for the $20 million in the licensing change I'm curious it looks like the sales guide.
Christopher E. Hufnagel: It looks like the sales guide is unchanged. Given some upside in the first quarter and particularly better replenishment trends, I'm curious why you didn't, you know, flow through more of the one key beat or kind of raise your outlook for the year based on those improving revenue trends. Can you address that and also maybe talk about the impact of the SOC and each shift from 2Q to 3Q? Sure. I'll take the first, and then Mike can talk about the timing thing.
Mitchel John Kummetz: Is unchanged.
Christopher E. Hufnagel: Give us some upside in the first quarter, and particularly better replenishment trends.
Christopher E. Hufnagel: I'm curious why you didn't flow through more of the <unk> beat or kind of raise your outlook on the year based on those improving.
Christopher E. Hufnagel: Revenue trends can you address that and also maybe talk about.
Speaker Change: The impact of the or quantify the impact of the.
Speaker Change: Saucony shift from <unk> to <unk>.
Speaker Change: Sure I'll take the first and then Mike can talk about the timing thing.
Christopher E. Hufnagel: I think we certainly were encouraged by some acceleration in the trends as we moved through the quarter and how we were thinking about how the quarter might play out and, certainly, how the year might play out. We've talked about increasing improvements in replenishment at wholesale. We've talked about an acceleration of direct-to-consumer business, which leaves us all sort of encouraged about the work that we're doing is getting traction, and we're working on returning the company to growth.
Speaker Change: I think we certainly we're encouraged by some acceleration in the trends as we moved through the quarter.
Christopher E. Hufnagel: How we were thinking about how the quarter might play out and certainly how the year may play out we've talked about increasing improvements in replenishment wholesale we've talked about.
Christopher E. Hufnagel: An acceleration of our direct to consumer business, which leaves us all sort of encouraged about the work that we're doing is getting traction and we're working on returning turning the company back to growth at the same time, you know our year is predicated on a back half inflection sequential improvement quarter by quarter, which we've talked consistently about.
Christopher E. Hufnagel: At the same time, our year is predicated on a back half inflection, sequential improvement quarter by quarter, which we've talked consistently about, and now we're actually in a place now where we're beginning to chase inventory. We've worked really, really hard, as you know, as part of the turnaround is to really better manage the inventory piece, and we've done a good job at that, and we've worked to maintain a lean just because of where we have been and where we thought we needed to go. Now that we're seeing an inflection in some proof points of growth, we're beginning to chase inventories. We're still taking a conservative approach.
Christopher E. Hufnagel: And now we're actually in the place now were beginning to chase inventory. We've worked really really hard as you know as part of the turnaround is to really better manage better manage the inventory piece and we've done a good job at that.
Christopher E. Hufnagel: Work to maintain lean just because of where we have been and where we thought we needed to go now that we're seeing an inflection in some proof points of growth were beginning to chase Chase inventories, we still taking a conservative approach I think hopefully came through in my prepared remarks that while the quarter was a was a beat to expectations. It was a relatively.
Christopher E. Hufnagel: I think it came through in my prepared remarks that while the quarter was a beat to expectations, it was a relatively low bar, and we still have work to do as a company to get back to where we need to be as an organization, but early proof points are encouraging, and we certainly are happy about the traction that we have. At the same time, we still have a lot of the year left to go.
Christopher E. Hufnagel: Low bar and we still have work to go do as a company to get back to where we need to be as an organization, but early proof points are encouraging and we are certainly are happy about the traction that we have at the same time, we have a lot of year left to go.
Christopher E. Hufnagel: The second part of your question, Mitch, on the distribution center transition, that's just getting underway right now, and so obviously, we're being cautious on how that might impact the quarter. I would say, you know, we didn't quantify it in the remarks, but, you know, we are kind of thinking in the range of $5 to $10 million of potential revenue shifts there, but doing everything we can to mitigate that, and the teams are already, you know, making great progress on the transition, but just important to call it out, because obviously, you know, as we get through that over the coming four or five weeks, that could have some impact on Having said that, really good coordination with our key accounts and planning this transition, and good support from our customers in terms of how we're going to reflow the goods, too. All right, thanks again.
Christopher E. Hufnagel: The second part of your question Mitch on the distribution center transition.
Christopher E. Hufnagel: That's just getting underway right now and so obviously, we're being cautious on how that might impact a quarter.
Christopher E. Hufnagel: I would say just.
Christopher E. Hufnagel: We didn't quantify it in the remarks, but.
Christopher E. Hufnagel: We are kind of thinking in the range of $5 million to $10 million of potential revenue shifts there, but doing everything we can to mitigate that and the teams are already.
Christopher E. Hufnagel: Making great progress on the transition, but just important to call. It out because obviously you know as we get through that over the coming four to five weeks.
Christopher E. Hufnagel: That could have some impact on the flow of goods in and chasing some of the demand that Chris has been talking about having said that.
Christopher E. Hufnagel: Really good coordination with our key accounts and planning this transition.
Christopher E. Hufnagel: And good support from our customers in terms of how we're going to re flow the goods too.
Christopher E. Hufnagel: Alright, Thanks again.
Speaker Change: Thanks Mitch.
Christopher E. Hufnagel: Okay.
Speaker Change: Thank you.
Operator: The next question comes from Laurent Vasilescu of BNP Paribas. Please go ahead.
Speaker Change: The next question comes from Saarland vessel <unk> with BNP Paribas. Please go ahead.
Laurent Andre Vasilescu: Oh, good morning. Thank you very much for taking my question. Chris, you and your team have done a lot of heavy lifting over the last year with divestitures and business model changes like the JV and the license business announced a couple days ago. Curious to know if you're contemplating any more changes over the next, you know, next six months. Or if you've reached, do you think, a steady state point for the business to grow going forward? Thank you a lot.
Laurent Andre Vasilescu: Good morning. Thank you very much for taking my question, Chris you and your team have done a lot of heavy lifting over the last year with divestitures and business model changes like the JV and the license business announced couple of days ago I'm curious to know if youre contemplating any more changes over the next next six months.
Laurent Andre Vasilescu: Or have you reached you think steady state point.
Laurent Andre Vasilescu: For the business to grow going forward.
Christopher E. Hufnagel: I appreciate the question. We certainly have done a lot of heavy lifting over the past nine months or so, really focused on stabilizing the business. And we've tried to take sort of a very thoughtful, sequential, systematic approach to what we thought we needed to do to both turn around and then ultimately transform the business. We have done a tremendous amount of things sort of on the back office side in that effort. Are we done doing all of those things? I think we certainly have done a lot of them. Will we continue to contemplate other things? I think we should.
Speaker Change: Yes. Thank you I appreciate the question.
Christopher E. Hufnagel: We certainly have done a lot of heavy lifting.
Christopher E. Hufnagel: Over the past.
Christopher E. Hufnagel: Nine months or so I'm really focused on stabilizing the business and we've taken we've tried to take sort of a very thoughtful of sequential.
Christopher E. Hufnagel: Systematic approach to what we thought we needed to go to do that both turnaround and then ultimately transform the business. We have done a tremendous amount of things sort of on the back office side.
Christopher E. Hufnagel: That effort are we done doing all of those things I think we certainly have done a lot of them well we continue to contemplate other things I think we will I think we have to become very active and it's a very fast changing dynamic marketplace.
Christopher E. Hufnagel: I think we have to become very active. It is a very fast changing, dynamic marketplace, and I don't think we can afford to get comfortable.
Christopher E. Hufnagel: And I think we have to keep optimizing the business. And I think we have to keep very focused on what our fewest priorities are and really driving growth behind a handful of our brands and, frankly, trying to do fewer things but just do those things better. I will tell you it is refreshing now as we have done a lot of those hard activities, whether selling things or divesting things or restructuring the business.
Christopher E. Hufnagel: And I think we can't afford to get comfortable and I think we have to keep optimizing the business and I think we have to keep very focused on what our fewest priorities are and really driving growth, but behind a handful of our brands and frankly trying to do fewer things, but just do those things better I will tell you. It is refreshing now is we've done a lot of those hard.
Christopher E. Hufnagel: Heart activities, and whether selling things are divesting things a restriction of business <unk>.
Christopher E. Hufnagel: The conversations around here have really pivoted towards growth and where our brands are in the marketplace, how are we chasing inventories, what's working from a demand creation standpoint, and how are we doing that on DTC. So I don't want to say that all of the stabilization work and all of that is done behind us because I frankly think great companies are always working to optimize. At the same time, the conversations here right now are about chasing demand and really becoming awesome brand builders. Very helpful, Chris. And then if I can zero in on Saucony, you know, Saucony, I appreciate the slides, the 2Q guide. Saucony applies to HREVY to be down mid-teens.
Christopher E. Hufnagel: The conversations around here are really have really pivoted towards growth.
Christopher E. Hufnagel: Where our brands out in the marketplace. How are we chasing inventories what's working from a demand creation standpoint, how are we doing on DTC. So I don't want to say that all of the stabilization work and all the all of that is done is behind us because.
Christopher E. Hufnagel: I frankly think great companies are always working to optimize at the same time. The conversations here right now are about chasing demand and really becoming orphan brand builders.
Christopher E. Hufnagel: Very helpful. Chris and then if I can zero in and I'm talking.
Christopher E. Hufnagel: Stocking.
Christopher E. Hufnagel: I appreciate the slides that <unk> guide.
Christopher E. Hufnagel: So it's getting implies huge revenues to be down mid teens, maybe can you unpack that a bit more what are you seeing in terms of the order book.
Laurent Andre Vasilescu: Maybe you could unpack that a bit more? What are you seeing in terms of the order book? How is the one specialty channel doing? Are inventories clean there? Are you seeing growth in some of your retro products? Any color there, Chris, would be very helpful for the audience.
Laurent Andre Vasilescu: Or is the run specialty channel doing our inventories clean there are you seeing growth in some some of your retro product.
Speaker Change: Any color there would be very helpful for the auditor.
Christopher E. Hufnagel: Sure. Thank you, Laurent. Saucony is a fascinating story right now.
Speaker Change: Thank you Laurie.
Christopher E. Hufnagel: So it's a fascinating story right now.
Speaker Change: I remain very encouraged and bullish on the prospects of softening I mentioned that on the on the last call and we certainly are seeing early proof points.
Chris: Of the work that we've done really first and foremost really attacking the product pipeline, bringing innovation back I'm looking at what categories in which we play and thinking about color and materials and then really using the archives as a growth vehicle. So there are certainly are some really strong signs that we're seeing good momentum.
Christopher E. Hufnagel: I remain very encouraged and bullish on the prospect of Saucony. I mentioned that on the last call, and we certainly are seeing early proof points of the work that we've done. Really, first and foremost, really attacking the product pipeline, bringing innovation back, looking at what categories we play in, and thinking about color and materials, and then really using the archives as a growth vehicle. So there certainly are some really strong signs that we're seeing good momentum, really behind the Ride and Guide 17. The Endorphin collection was an immediate shot in the arm when the brand dropped that a month or so ago. And then just last week, we dropped the Triumph 22, which is an awesome new shoe.
Christopher E. Hufnagel: Really behind the right guide 2017.
Christopher E. Hufnagel: Dorff and collection was immediate shot in the arm when the brand dropped that a month or so ago and then just last week, we dropped the <unk> 22, which is which is an awesome new shoe. So there is chatter in the important run specialty channel and we are seeing our styles begin to tick up there was a nice movement in search search interest for those of you that pay attention to Google search interest I think we're up 23.
Christopher E. Hufnagel: So there is chatter in the important run specialty channel, and we are seeing our styles begin to tick up. There is a nice movement in search interest. For those of you that pay attention to Google search interest, I think we're up 23% year-to-date as a brand, which is encouraging. At the same time, we're working to clean up the business that Saucony is. So there are headwinds there around the close-up sales that we're anniversarying. We had a very low-margin profile business in some of the family channel accounts that we have to work on that margin business.
Christopher E. Hufnagel: Percent year to date as a brand which is encouraging at the same time, we're working to clean up the business.
Christopher E. Hufnagel: Talking to he is so there are headwinds there around the closeout sales that we're anniversarying, we had a very low margin profile business.
Christopher E. Hufnagel: Some of the family Channel account set that we have to work on that margin business and.
Christopher E. Hufnagel: And we're working to be less promotional at.com as well. So I think you have to look under the covers at the Saucony business and not just at the top line and understand how we're trying to rationalize that business, take a new strategic approach. We're anniversarying some things that are going away.
Christopher E. Hufnagel: And we're working to be less promotional at dotcom as well so.
Christopher E. Hufnagel: I think the I think you have to look under the covers at the Saucony business and not just at the top line and understand how we are trying to rationalize that business has taken a new strategic approach. We're anniversarying. Some things that are going to go away, but then I would encourage everyone to focus on the new products that we've dropped and the momentum we're driving both behind performance and lifestyle run and then importantly, the <unk>.
Laurent Andre Vasilescu: But then I would encourage everyone to focus on the new products that we've dropped and the momentum we're driving, both behind performance and lifestyle running, and then importantly, the Retro Tech collection, which is just an amazing gift we have in our archives. Very helpful. Thank you very much, Chris, for all the color.
Laurent Andre Vasilescu: Trop Tech collection, which is just an amazing gift we Havent archives.
Speaker Change: Very helpful. Thank you very much because for all the color best of luck. Thanks. Thanks Ron.
Christopher E. Hufnagel: Best of luck. Thanks. Thanks, Laurent.
Operator: Thank you. The next question comes from Sam Poser with Williams Trading. Please go ahead.
Speaker Change: Thank you.
Christopher E. Hufnagel: The next question comes from Sam Poser with Williams trading. Please go ahead.
Operator: Yeah.
Samuel Marc Poser: Thank you very much for taking my questions. I just want to follow up on the lifestyle product or the retro product in Saucony, and then I've got a couple other questions. When you look at sort of the big growth driver over time, is this going to be in more performance running, or do you see it... Um, you know, getting more just more scale across college athletic specialties and so on? Yeah, great question, Sam.
Samuel Marc Poser: Thank you very much for taking my questions.
Samuel Marc Poser: I just I just wanted to follow up on the lifestyle product or the retro product in Saucony, and then I've got a couple of other questions.
Samuel Marc Poser: Yeah.
Samuel Marc Poser: When you look at sort of the big growth driver over time.
Samuel Marc Poser: Is this going to be a more performance running or do you see it.
Samuel Marc Poser:
Samuel Marc Poser: No.
Samuel Marc Poser: Getting a more.
Samuel Marc Poser: Just just more scale across call it athletic specialty.
Christopher E. Hufnagel: And that has been sort of the big work that we've done at Saucony around strategy, and I think Saucony has an amazing opportunity in front of it. I think for a long time, the brand potentially was a little bit, had too much of a myopic focus on the ends of the spectrum. The really elite run, which is a beautiful, innovative product, but the market size just isn't big enough. And then on the lifestyle side, really focused on the collaboration piece, the sneaker head piece, that is very cool, but also doesn't have a lot of scale.
Speaker Change: Yeah, Great question Sam.
Christopher E. Hufnagel: That has been sort of the big work that we've done and softening saucony around around strategy.
Christopher E. Hufnagel: And I think Saucony has an amazing opportunity in front of it I think for a long time that brand was was but potentially a little bit.
Christopher E. Hufnagel: They have too much of a myopic focus on on the <unk>.
Christopher E. Hufnagel: Ends of the spectrum, the really elite run, which are beautiful innovative product, but the market size just isn't big enough and then on the.
Christopher E. Hufnagel: On the lifestyle side really focused on on the collaboration piece. The sneaker head piece that is very cool, but also doesn't have a lot of scale. So as we think about sampling we want to maintain great innovative product, which is why the endorphin for collection was so important and we want to maintain an amazing credibility in sneaker culture, which is why we're so glad that we wanted to.
Christopher E. Hufnagel: So as we think about Saucony, we want to maintain great, innovative products, which is why the endorphin fork collection was so important. And we want to maintain amazing credibility in sneakerhead culture, which is why we're so glad that we won the collaboration of the year last year with J-Tips. At the same time, the big commercial opportunity for Saucony moves a little bit towards the middle, and that's performance running as a lifestyle opportunity.
Christopher E. Hufnagel: Collaboration of the year last year with J tips at the same time, the big commercial opportunity for Saucony and moves a little bit towards towards the middle and that's as performance run as a lifestyle opportunity and I think you have seen that pivot and not specifically in color and materialize Asian and specifically at the work around her at the same time, the broader lifestyle opportunity around around the original.
Christopher E. Hufnagel: And I think you have seen that pivot in us, specifically in color and materialization, and specifically the work around her. At the same time, the broader lifestyle opportunity around the original, specifically retro tech, which is currently in fashion right now. So I think us opening the aperture on Saucony, thinking about the greater market opportunity, maintaining the high ground in innovation and coolness at the ends of the spectrum, while at the same time, having a much stronger focus on the bigger commercial opportunities more towards the middle. Thanks. And then I have just one of the questions in the housekeeping section.
Christopher E. Hufnagel: The retro Tech, which currently is in fashion right now so I think us opening the aperture on saucony thinking about the greater market opportunity maintaining maintaining the high ground in innovation and coolness at the ends of the spectrum at the same time, having a much stronger focus on the bigger commercial opportunities more towards the middle.
Speaker Change: Thanks, and then I have just one other question and then a housekeeping.
Samuel Marc Poser: The reduction of $20 million from the license, you know, from the new licensing businesses, number one, does that mean that since you only took $4 million out of your revenue, something went up? Like something's better than what you thought it was before. And if so, what is it?
Speaker Change: The reduction of $20 million from the life from the new licensing businesses number one.
Samuel Marc Poser: Does that mean that you only took $4 million out of your revenue that something went up.
Samuel Marc Poser: Like something better than what you thought it was before and if so what is it.
Michael David Stornant: Sam, the guidance adjustment that we made to revenue was exactly the $20 million that we referenced, and it's solely related to the change in the business model. So, in early May, we announced the change, so we had revenue under the wholesale model in the first four months of the year, and then a shift in the last eight. Okay, and then, um, and then, uh, and then the other question is, um, on it just an interest expense. What do you foresee the interest expense being for the year within your guide? About $40 million as your debt comes down.
Samuel Marc Poser: Sam this the guidance adjustment that we made your revenue was exactly the $20 million.
Michael David Stornant: That we referenced and it's solely related to the change in the business model. So early early May we announced the change. So we have revenue under the wholesale model in the first four months of the year and then a shift in the in the last eight.
Michael David Stornant: Okay and then.
Michael David Stornant: And then.
Speaker Change: And then the other question is.
Michael David Stornant: The other question is on interest some interest expense.
Michael David Stornant: Do you foresee the interest expense being for the year within within your guidance.
Speaker Change: 40 million as you as your debt comes down.
Michael David Stornant: We had a, we had a net interest, I think, last year was about $63 million, so coming down to about $40 million in our guidance right now, driven by the ongoing progress we've made in reducing the debt. Thank you very much. Thank you. Congratulations. Thank you, Sam. The next question comes from Jonathan Komp with Baird. Yeah, hi, good morning.
Michael David Stornant: We had a we had.
Michael David Stornant: Net net interest I think last year of about $63 million, so coming down to about $40 million in our in our guidance right now drew.
Jonathan Robert Komp: Given by.
Jonathan Robert Komp: The ongoing progress we've made in reducing the debt.
Michael David Stornant: Gotcha.
Jonathan Robert Komp: Okay. Thank you very much thank.
Jonathan Robert Komp: Thanks, and congratulations Mike thank.
Jonathan Robert Komp: Thank you Sam.
Michael David Stornant: Yeah.
Jonathan Robert Komp: Thank you.
Michael David Stornant: The next question comes from Jonathan Komp with Baird. Please go ahead.
Michael David Stornant: Yes.
Jonathan Robert Komp: And Mike, good, good luck with the transition. Congratulations on your role. Change going forward. Thank you, Jon. Yeah, thank you.
Jonathan Robert Komp: Yes, hi, good morning, and Mike Good luck with the transition congratulations.
Jonathan Robert Komp: Their role change going forward.
Jonathan Robert Komp: Thank you Jonathan.
Michael David Stornant: And Mike, if I could follow up, maybe just first with the gross margin drivers in the first quarter. I know you called out some mixed tailwinds. So could you maybe just talk a little bit more about the drivers of the gross margin expansion and how you see that going forward and then really just the second half operating margin inflection that you talked about? If you could review some of the drivers there. Sure, you know, I think that the good news on gross margin performance in Q1, which was slightly ahead of our guidance for the quarter, was that we saw the benefit and the crystallization of a lot of the work that had been done over the last year to improve the supply chain, performance, but also the cost structure.
Speaker Change: Yes. Thank you.
Jonathan Robert Komp: And Mike if I could follow up maybe just first with the gross margin drivers in the first quarter I know you called out some some mix <unk>.
Michael David Stornant: Tailwind so could you maybe just talk a little bit more about the drivers of the gross margin expansion.
Mike: How you see that going forward and then really just the second half.
Michael David Stornant: Operating margin inflection that you talk to if you could review some of the drivers there.
Michael David Stornant: Sure.
Michael David Stornant: Think that the good news on the gross margin performance in Q1, which was slightly ahead of our guidance for the quarter.
Michael David Stornant: Was that we saw the benefit and the crystallization of a lot of the work has been done over the last year to improve the supply chain.
Michael David Stornant: Performance, but also the cost structure.
Michael David Stornant: Whether that be the reduction in the transitory costs that we had to contend with for 2023 and slightly previous to that, and obviously the product cost initiatives that we put into place in the middle of 23. So those all came to fruition as we expected.
Michael David Stornant: And whether that would be the.
Michael David Stornant: The reduction in the transitory costs that we had to contend with for 2023 and slightly previous to that.
Michael David Stornant: And obviously the product cost initiatives that we that we put into place in the middle of 'twenty three so those all came to fruition as we expected.
Michael David Stornant: The.
Michael David Stornant: The benefit from just a healthier inventory, having worked through a lot of that end-of-life inventory in 2023, as painful as it was, set us up for a much cleaner business this year. Starting in Q1, we saw the benefit of that. And then I would say again, as we mentioned on the revenue side, all the elements of our gross margin contribution in order were quite solid. Our full price margins held up to plan.
Michael David Stornant: The benefit from just a healthier inventory having worked through a lot of that end of life inventory in 2023 as painful as it was.
Michael David Stornant: Set us up for a much cleaner business this year and starting in Q1, we saw the we saw the benefit of that and then I would say again as we mentioned on the revenue side.
Michael David Stornant: All of the elements of our gross margin contribution in the quarter were quite solid our full price margins held up to plan.
Michael David Stornant: We were able to drive a good amount of e-commerce improvement on our gross margins as well by being less promotional and driving a healthier business there. So all the things that we kind of laid out in our original guidance back in February, John, really kind of came together in the first quarter, and we expect that trend and those benefits to continue throughout the balance of the year. On the H2 operating margin expansion, obviously driven by a couple of things that are really important to restate. One is just the sequential improvement in some of those profit improvement initiatives that we called out. These are starting to be more prominent, especially on the gross margin side in Q3 and Q4.
Michael David Stornant: We're able to drive a good amount of e-commerce improvement on our gross margins as well by being less promotional and driving a healthier business there. So.
Michael David Stornant: All the things that we kind of laid out in our original guidance back in February Jon really kind of.
Michael David Stornant: <unk> kind of came together in the first quarter and we expect that that trend in those benefits to continue throughout the balance of the year on the H two.
Michael David Stornant: Operating margin expansion.
Michael David Stornant: Obviously driven off of a couple of things that are really important to two to two.
Michael David Stornant: To restate one is just the sequential improvement in some of those profit improvement initiatives that we that we called out those are starting to be more prominent especially on the gross margin side in Q3 and Q4, so some of those savings.
Michael David Stornant: So some of those savings that are benefiting our autumn-winter assortment are going to start to show up in Q3 and Q4. The cost reductions and restructuring benefits will be fully in place by the back half of the year, so you're seeing a stabilization on SG&A expense in the back half, while we obviously expect to see sequential improvement in revenue and growth in the fourth quarter. So being able to continue to drive SG&A efficiency and leverage that to the bottom line as we grow the business.
Michael David Stornant: Are benefiting our autumn winter.
Michael David Stornant: <unk> is going to start to show up in Q3 and Q4.
Michael David Stornant: The cost reductions and restructuring benefits will.
Michael David Stornant: We'll be fully in place by the back half of the year, So youre seeing a stabilization on SG&A expense.
Michael David Stornant: In the back half, while we obviously expect to see sequential improvement in revenue and growth in the fourth quarter, So being able to continue to drive the SG&A efficiency and leverage that to the bottom line as we grow the business.
Michael David Stornant: All in all, you know, really important part of our model as we kind of think about pivoting into 25, but seeing some real proof points in the latter part of 2024 in terms of how we're a leaner, better structured organization now. So I think it's really those drivers and the healthy mix of revenue that we see, sequencing into the third and fourth quarter. Okay, great.
Michael David Stornant: All in all really important part of our model as we kind of think about pivoting into 'twenty five but seeing some real proof points in the latter part of 'twenty 2024 in terms of how we are.
Michael David Stornant: A leaner better structured organization now so I think it's really those drivers in the in the healthy mix of revenue that we see.
Michael David Stornant: Sequencing into the third and fourth quarter.
Christopher E. Hufnagel: And Chris, if I could just follow up on Merrill, the Outlook to improve and inflect growth later in the year. Could you just maybe talk about what you're seeing from the outdoor industry supporting that view and some of the Merrill-specific drivers that you expect to support that inflection? Yeah, sure.
Speaker Change: Okay, Great and Chris if I could just follow up on Merrell the outlook too.
Speaker Change: Improve and inflect to growth later in the year could you just maybe talk about what youre seeing from the outdoor industry supporting that view and some of the Merrell specific drivers that you expect to support that inflection. Thanks again, yes.
Chris: Sure. Thanks, John.
Christopher E. Hufnagel: Yeah, for sure in Merrill. I mean, the outdoor category has been under pressure for quite some time. And I'll go back and say it's up to the category leader to breathe newness, heat, and innovation into that category, and that falls squarely on the shoulders of Merrill. We're not counting on dramatic improvement in the outdoor category, so we're very much focused on the things that we can do. And, encouragingly, in Merrill, we continue to gain market share, which is great. And there was a period of time here for a company where Merrill was losing share quarter after quarter after quarter.
Speaker Change: For sure in Maryland.
Chris: The outdoor category has been under pressure for quite some time and I'll go back and say, it's up to the category leader to three the newness and heat and innovation to that category in that that falls squarely on the shoulders of Merrill.
Christopher E. Hufnagel: We're not counting on a dramatic improvement in the outdoor category.
Christopher E. Hufnagel: So we're very much focused on the things that we can do incur.
Christopher E. Hufnagel: Encouragingly in Merrell, we continue to gain market share, which is great and there was a period of time here for a company where mounts merrell was losing share.
Christopher E. Hufnagel: Quarter after quarter after quarter, we stemmed that during COVID-19 and.
Christopher E. Hufnagel: We stemmed that during COVID, and we continue to do so today. I'm encouraged by our efforts to become lighter and faster, more athletic, and that's Moab Speed 2. So early indications of that launch are very positive, extremely positive, and sort of how that has been embraced really globally, and the sell-throughs that we're seeing, and the replenishment that we're seeing, and the reaction to the fit and the style and the color. At the same time, Moab 3 continues to be good, and as we sort of lap some of the very difficult market conditions with over-inventory and rogue selling, We also, in Merrill, have to extend beyond just the core hikes outdoors.
Christopher E. Hufnagel: And we continue that continue that today.
Christopher E. Hufnagel: I am encouraged by our efforts to become lighter and faster more athletic and that's that's the Moab speed too.
Christopher E. Hufnagel: So early indications of that launch are very positive.
Christopher E. Hufnagel: Extremely positive in sort of that how that has been embraced really globally and the sell throughs that were seeing in them are punished for that we're seeing in the reaction to the fit and the style and the color.
Christopher E. Hufnagel: At the same time, the Moab <unk> III.
Christopher E. Hufnagel: <unk> continues to be good and as we sort of lap some of the very difficult market conditions with over inventoried in the road selling now as those things abate.
Christopher E. Hufnagel: We're encouraged that the Merrell is in a good position to capitalize we also merrell have to extend beyond just core hike outdoor.
Christopher E. Hufnagel: For Merrill to truly become a great global brand, it really needs to extend beyond just that core hike business, which is why we've worked so hard in trail run. We're gaining share in trail run, which is encouraging, and we've got some awesome styles that we didn't talk about in Prepare to Marks, whether it's the Agility Peak 5 or the new Morph Lite. Those are phenomenal products getting great reviews right now online, and we're seeing good sell-through. And we have to extend into lifestyle, specifically for HER2, and that's why we're encouraged by the wrapped collection, which we sort of previewed to all of you back at ICR in January.
Christopher E. Hufnagel: For Merrell to truly become a.
Christopher E. Hufnagel: A great global brand.
Christopher E. Hufnagel: It really needs to extend beyond just that core hype business, which is why we've worked so hard and trail run we're gaining share in trailer, one which is encouraging.
Christopher E. Hufnagel: <unk> got some awesome styles that we didn't talk about in the prepared remarks, whether it's the agility peak five or the new more flight.
Christopher E. Hufnagel: <unk> are phenomenal products getting great reviews, right now online and we're seeing good sell throughs.
Christopher E. Hufnagel: And we have to extend into lifestyle, specifically for her to and.
Christopher E. Hufnagel: And that's why we're encouraged by the rapid collection, which we sort of.
Christopher E. Hufnagel: Sort of preview to all of you back at ICR in January we've continued to see really strong sell throughs and I'm really every time, we deliberate it sells out an extraordinary closely with very little marketing support so our ability to really embrace that franchise and begin to market that franchise and extend beyond just that core silhouette is going to be is going to be important so.
Christopher E. Hufnagel: We've continued to see really strong sell-throughs. Really, every time we deliver it, it sells out extraordinarily quickly with very little marketing support. So our ability to really embrace that franchise, begin to market that franchise, and extend beyond just that core silhouette is going to be important. So the Wrap is a great shoe. It's visually disruptive.
Christopher E. Hufnagel: The wrapped as a great shoe, it's visually disruptive it's got a great fit.
Jonathan Robert Komp: It's got a great fit, and it's amazingly versatile, which is where I think the sweet spot is for Merrill when I think about just beyond core hike. So I'm encouraged by what the team is doing. We've got a new chief marketing officer in place. We sat through product meetings with them and demand creation meetings with them, and I like the plans. The Get Things Away campaign just dropped a lot of impressions, and there was a lot of really positive reaction to that as well.
Christopher E. Hufnagel: And it's amazingly versatile, which is where I think the sweet spot is for Merrell when I think about just beyond core hike. So I'm encouraged by what the team is doing we've got a new chief marketing officer in place, we sat through product meetings with them and demand creation meetings with them and I like the plans. The good things await campaign just dropped a lot of impressions a lot of really positive reaction to that as well so.
Jonathan Robert Komp: So certainly Merrill's not out of the woods, and there is pressure in outdoor, but I do think we're doing the right things to get that brand stabilized and get that brand growing. Great, thanks again. Thanks, John. Thank you. The next question comes from Mauricio Serna with UBS. Hi, yes, good morning, and thanks for taking my questions.
Jonathan Robert Komp: Merrell is not out of the woods and there is pressure in outdoor but I do think we're doing the right things to get that brand stabilized and get that brand growing again.
Mauricio Serna Vega: Great. Thanks again.
Mauricio Serna Vega: Thanks, Tom Thanks, John.
Jonathan Robert Komp: Yeah.
Mauricio Serna Vega: Thank you.
Jonathan Robert Komp: The next question comes from Mauricio Serna with UBS. Please.
Mauricio Serna Vega: Hi, Yes, good morning, and thanks for taking my questions maybe you could.
Mauricio Serna Vega: Maybe you could provide more details about the DTC performance. I see in the release you mentioned that the ongoing DTC revenue was down 6%. How does that compare to the previous quarter? And maybe on inventory, you know, great progress in the last couple of quarters. But it sounds like there's still maybe some work that's still very focused on that, so maybe could you talk about are there like maybe a pocket of inventory that you still need to work through, or what is it that Thanks for the question. I'll let Mike take the last two. I'll just talk about DTC inflection.
Mauricio Serna Vega: To provide more details about the DTC performance I've seen in the release you mentioned the ongoing DTC revenue was down 6%, how does that compare to the previous quarter and maybe on inventory.
Mike: Great progress that we've seen over the last couple of quarters.
Mike: But it sounds like Theres still maybe like some some work.
Mike: They are still very focused on that so maybe could you talk about are there like maybe.
Mauricio Serna Vega:
Mauricio Serna Vega: Pockets of inventory that you still need to work through or what is exactly the state and composition of the inventory. Thank you so much.
Mauricio Serna Vega: Thanks for the question I'll, let Mike take the last two I'll just talk about DTC inflection and you know when we talk about proof points and we talk about what we're trying to go do and certainly we look at the DTC business. You know every hour as we get reads and how we're performing day to day week to week.
Christopher E. Hufnagel: When we talk about proof points and we talk about what we're trying to do, certainly, we look at the DTC business every hour as we get reads and how we're performing day to day, week to week. I would say, first and foremost, we're trying to tell better stories online and trying to present our brands better and be less promotional. We have seen us be less promotional at.com, which is important for the health of our brands and how our brands are perceived, consumers' perceptions of our brands, and the marketplace perceptions of our brands.
Christopher E. Hufnagel: I would say first and foremost we're trying to tell better stories online and trying to present, our brands better and be less promotional and we have seen we have seen us be less promotional at dotcom and witches, which is important for the health of our brands and how our brands are perceived and consumers' perceptions of our brands and marketplace perceptions of our brand. So we've worked to be less.
Christopher E. Hufnagel: So we've worked to be less promotional, which is paying off in the margin piece. And then from an improvement standpoint, we were down mid-teens in the fourth quarter and down, I think, around 6% in the first quarter.
Christopher E. Hufnagel: Less promotional which is paying off in the margin piece and then from an improvement standpoint, we were down mid teens in the fourth quarter and down I think around 6% in the first quarter and we've actually sort of inflected the growth turned to growth in March and then that has continued into April so.
Christopher E. Hufnagel: And we've actually sort of inflected the growth, turned it into growth, in March, and then that has continued into April. So we're encouraged by that. Obviously, newness drives the business and then really compelling engagement with our consumers. And when we drop new products, in Saucony, it's the Endorphin 4, the Triumph 22. Merrill, either it's work around the Moab Speed 2 or the Agility Peak 5, or the Wrap Collection, or even some of the One TRL stuff, continues to have momentum.
Christopher E. Hufnagel: We're encouraged by that obviously newness drives the business and then really compelling engagement with our consumers and when we drop new products and in Saucony endorphin for the <unk> 'twenty two merrell, it's either it's work around them the moab speed to where the agility peak five or the wrap collection or even some of the one TRL stuff.
Christopher E. Hufnagel: <unk> continues to have momentum and then sweaty, Betty which we haven't talked about yet today, you know really good in our continued innovation now that sweaty Betty team and really telling amazing stories with the weird thing, where the dam shorts campaign, which I personally love and it's just so on brand for who sweaty Betty is and the consumers that they talk to so I would.
Christopher E. Hufnagel: And then Sweaty Betty, which we haven't talked about yet today, really good continued innovation from the Sweaty Betty team and really telling amazing stories with the Wear the Damn Shorts campaign, which I personally love. And it's just so on-brand for who Sweaty Betty is and the consumers that they talk to.
Christopher E. Hufnagel: So I would say we're encouraged by the progress we've made in DTC. We're encouraged by how we have sort of stemmed that contraction, and now we're beginning to see growth. I'm also proud of how we did it.
Christopher E. Hufnagel: Say on we're encouraged by the progress we've made in DTC. We're encouraged by how we have sort of stemmed those stem that contraction that now we're beginning to see growth I'm also proud of how we've done it.
Christopher E. Hufnagel: Again, less promotion, telling better stories, but really dropping new and innovative products at a consistent drumbeat, which is what we know works in the marketplace. So again, not declaring victory by any stretch of the imagination, but I do think we are seeing early proof points that our strategy and execution are winning in the inventory. Yeah, go ahead. Sorry.
Christopher E. Hufnagel: Again, less promotional telling better stories, but really dropping new and innovative products and a consistent drumbeat, which is what we know what works in the marketplace. So again, not declaring victory, but victory by any stretch of imagination, but I do think we are seeing early proof points that our strategy and execution are gaining traction.
Speaker Change: On the ground the inventory yeah. Yeah go ahead sorry.
Mauricio Serna Vega: Mauricio, on the inventory question, I would say just continued progress. We ended the quarter ahead of where we had hoped and kind of planned for. A combination of really strong selling on high-quality products and, you know, just a better, kind of more rigorous planning and management process there. And as we said in our guidance, we expect to drive inventories down even further this year, another $75 million year over year.
Speaker Change: On the inventory question I would say.
Mauricio Serna Vega: Continued progress we ended the quarter ahead of where we had hoped and kind of planned for.
Mauricio Serna Vega: A combination of really strong selling on high quality product in hand.
Mauricio Serna Vega: Just a better more rigorous planning and management process there.
Mauricio Serna Vega: As we said in our guidance expect to drive inventories down even further this year.
Mauricio Serna Vega: Another $75 million year over year.
Michael David Stornant: As a result of just being able to focus on some specific core areas and be rational about when we're going to sell them off and the phasing of it, but see line of sight to being able to accomplish that, obviously, and we updated our guidance to actually improve on that number a little bit since February. So we see the quality of the inventory improving across the board. It's not where we need it to be, which is why we're calling out the $75 million of opportunity.
Mauricio Serna Vega: As a result of just being able to focus on some specific.
Michael David Stornant: Core areas and be rational about.
Michael David Stornant: And we're going to sell that off in the phasing of <unk>.
Michael David Stornant: Your line of sight to being able to accomplish that obviously and updated our guidance to actually improve on that number a little bit here since since February so we see the quality of the inventory improving across the board.
Michael David Stornant: It's not where we needed to be which is why we are calling out to $75 million of opportunity, but overall the progress being made so far is ahead of schedule.
Michael David Stornant: But overall, the progress being made so far is ahead of schedule. Okay. And then just a quick follow-up on SG&A. I think I just want to make sure I understood. I think you mentioned SG&A dollars in the second half should be fairly similar to the first half. Is that right? And should that be more weighted to Q3 or Q4?
Speaker Change: Understood and then just a quick follow up on the SG&A I think I just want to make sure I understood I think you mentioned.
Michael David Stornant: G&A dollars second half should be fairly similar to our.
Michael David Stornant: Pascal does that is that right.
Speaker Change: Got it.
Michael David Stornant: Essentially that would be more weighted to Q3 or Q4, if I think about that well, we're not giving quarterly guidance on the back half yet, but just thought it would be helpful to kind of give some perspective on both the margin expectations for the back half of the year.
Mauricio Serna Vega: Well, we're not giving quarterly guidance on the back half yet, but just thought it would be helpful to kind of give some perspective on both the margin expectations for the back half of the year, pretty much in line with what we've experienced so far in Q1, plus the guidance we gave for Q2, and then, you know, similar sort of directional guidance on SG&A for the full half of the year. So, again, we did call out Mauricio as we expected. [inaudible] Thank you.
Mauricio Serna Vega: Pretty much in line with what we've experienced so far.
Mauricio Serna Vega: In Q1, plus the guidance, we gave for Q2 and then.
Mauricio Serna Vega: Similar sort of directional guidance on the SG&A for the full half of the year. So.
Mauricio Serna Vega: Again, we did call out the ratio that we expect sequential.
Mauricio Serna Vega: The sequential improvement in revenue every quarter with growth in the fourth quarter, So that might help your model a little bit.
Speaker Change: Thank you Super helpful.
Speaker Change: Okay. Thanks Mircea.
Speaker Change: Thank you.
Michael David Stornant: Thanks, Mauricio. The next question comes from Dana Telsey with the Telsey Group. Please go ahead. Good morning.
Mauricio Serna Vega: The next question comes from Dana Telsey with Telsey Group. Please go ahead.
Dana Lauren Telsey: Good morning, Chris and Mike. And Mike, best of luck in your next exam. I wanted to touch on, first of all, as you think about pricing and promotion, how are you thinking about the environment today? How has it changed, and what are you expecting going forward? And then lastly, Chris, with the transformation work that's been underway, where are you on the progress organizationally in getting it to where you want it to be, whether like in headquarters or how you're thinking about it with efficiencies? Thank you. Yeah, a good question. All good questions, Dana. Thank you very much. I'll hit the last one first, and then we'll come back to the earlier ones.
Dana Lauren Telsey: Hey, Good morning, Good morning question, Mike and Mike Best of blocking and Youre next.
Speaker Change: Wanted to touch touch on first of all do you think about pricing and promotion how are you thinking about the environment today how are you.
Mike: What changed and what are you expecting going forward on the wholesale order book and channels of distribution, they're seeing anything different from different types of accounts by brand and then lastly, Chris with the transformation work. That's that's been underway where are you on the progress organizationally.
Speaker Change: Getting it to where you want to debate, whether like in headquarters or what what how you're thinking about it with efficiencies. Thank you.
Mike: Yes. Good question. Good all good questions Dan. Thank you very much I'll I'll, let the last one first and then we'll come back to the earlier ones.
Christopher E. Hufnagel: Wolverine has gone through a lot in the last nine months. Obviously, we had a CEO transition last August, and we really focused very quickly to stabilize the business and restructure the business, which we needed to do. We have completed a lot of those efforts, but a lot of those efforts are still – we're still working our way through them. Right now, we're in the middle of moving our distribution center, closing our distribution center in Louisville, and moving that product to our California distribution center. That takes a lot of work.
Speaker Change: The Wolverine has gone through a lot in the last nine months.
Christopher E. Hufnagel: Obviously, we had a CEO transition last August and.
Christopher E. Hufnagel: And we really focused very quickly to stabilize the business and restructured the business, which we needed to go do.
Christopher E. Hufnagel: We have completed a lot of those efforts, but a lot of those efforts are still we're still working our way through I would say right now we're in the middle of moving our distribution Center closing distribution center in Louisville, and moving that product into our California distribution Center, that's that takes a lot of work.
Christopher E. Hufnagel: We're working on moving our Boston Brace teammates, the Saucony team, to Michigan and having that team sort of reside here. And we're still looking for some key talent. We're still looking for marketing leadership in Saucony. We're looking for some key brand talent or product talent in some of our brands as well. So I'm very pleased with the progress that we've made. I think we've taken the right and necessary steps. At the same time, there is work to do, but I think we're approaching it with great pace and urgency and also attacking the most important things first. So that's where we are.
Christopher E. Hufnagel: We're working on moving the ball, our Boston based teammates.
Christopher E. Hufnagel: <unk> to Michigan.
Christopher E. Hufnagel: That team system sort of reside here and we're still looking for some key talent and we're still looking for marketing leadership in Saucony, We're looking for some key brand talent, a product talent and some of our brands as well so.
Christopher E. Hufnagel: I'm very pleased with the progress that we've made.
Christopher E. Hufnagel: We've taken the right and necessary steps at the same time. There is work to go do but I think we're approaching it with great pace and urgency and all.
Christopher E. Hufnagel: Attacking the most important things first.
Christopher E. Hufnagel: That's where we are so completely.
Christopher E. Hufnagel: So we're not completely done with the restructuring. We're not completely done. The dust hasn't all settled yet, but the team has done a phenomenal job sort of reacting to the call to action and then, importantly, posting the results and driving the business each and every day. The marketplace inventories. I think the marketplace inventories continue to get better, which is good, and sort of become a little less promotional, especially for us in our dot-com business, which is encouraging. There are still pockets out there that are a little bit heavy, and it also varies a little bit by channel, too.
Christopher E. Hufnagel: Completely done a restructuring that we're not completely done.
Christopher E. Hufnagel: It hasn't settled yet, but the team has done a phenomenal job sort of reacting to the call to action and then importantly, posting the results and driving the business in each and every day the marketplace. The inventories I think the market inventories continued to get better which is good.
Christopher E. Hufnagel: And so that's sort of become a little less promotional especially for us on our dot com business, which is encouraging there are still pockets out there there are a little bit happy and it also varies a little bit by channel by channel too. So certainly improved, albeit not not perfect yet, which you know is one of the things that we continue to watch and monitor and again wholesalers are partners.
Christopher E. Hufnagel: So certainly improved, albeit not perfect yet, which is one of the things that we continue to watch and monitor. And again, wholesalers, our partners, just are behaving differently. How they think about future orders, how they think about replenishment orders, is just different from the historical norms of the business.
Christopher E. Hufnagel: Are behaving differently.
Christopher E. Hufnagel: They think about future future orders, how they think about replenishment orders is just different from the historical norms for the business and we along with probably a lot of brand similar to us are learning to react and adapt to that and encouragingly, though as we talked about the uptick in replenishment orders.
Christopher E. Hufnagel: And we, along with probably a lot of brands similar to us, are learning to react and adapt to that. Encouragingly, though, is that we talked about the uptick in replenishment orders being a positive sign in the business. We're seeing some of the nefarious rogue selling activity.
Christopher E. Hufnagel: As a positive sign in the business, we're seeing some of the nefarious rogue selling activity that is coming down sort of week by week, which we're encouraged my and then as I already talked about that a little bit of acceleration in our DTC business, but I think we're still very cautious we're still managing the business very tightly on a day to day basis.
Christopher E. Hufnagel: That is coming down sort of week by week, which we're encouraged by. And then, as I already talked about, a little bit of an acceleration in our DTC business. But I think we're still very cautious.
Christopher E. Hufnagel: We're still managing the business very tightly on a day-to-day basis, and then where we do see proof points, we are chasing that business responsibly as quickly as we can. So I think, by and large, we're pleased with the progress we've made. At the same time, we know that we can do better, and everyone should expect us to do better. And that's what everyone here is focused on.
Christopher E. Hufnagel: Then where we do see proof points, we are chasing that business.
Christopher E. Hufnagel: Sponsored Lilly as quickly as we can so I.
Christopher E. Hufnagel: I think by and large we're pleased with the progress we've made and at the same time, we know that we can do better and everyone should expect us to do better and that's what everyone here is focused on.
Christopher E. Hufnagel: Okay.
Michael David Stornant: And then pricing and promotions, what are you seeing there, and any shifts in third quarter and fourth quarter as you return to growth? Well, I can say that the proof points so far this year on pricing and promotions, both in our direct-to-consumer channels and through our wholesale partnerships, have been quite positive. You know, overall, in the accounts or in the channels where we do get the information, we're seeing inventories coming down nearly 25% year over year, not to optimal levels yet, obviously, at retail. But that's an encouraging trend and sign. But at the same time, the average selling price is increasing pretty dramatically for our big brands in those channels, so that's a really important proof point.
Speaker Change: Got it and then pricing and promotions, but what are you seeing there and any shifts in third quarter and fourth quarter as you return to growth.
Michael David Stornant: Well I can say that the proof points. So far this year on pricing and promotions both in our direct to consumer channels and through our wholesale partnerships has been has been quite positive.
Michael David Stornant: Overall in the in the <unk>.
Michael David Stornant: Accounts are in the channels, where we do get the information we're seeing.
Michael David Stornant: Inventories coming down nearly 25% year over year not to optimal levels, yet obviously at retail, but that's an encouraging trend and sign but at the same time average selling prices increasing pretty dramatically for for our big brands.
Michael David Stornant: Those channels. So that's a that's a really important proof point, we talked a little bit about the margin expansion in our ecommerce business and how that's.
Michael David Stornant: We talked a little bit about the margin expansion in our e-commerce business and how that's been a very important focus for the teams. And we're seeing that benefit, I think, a combination of a bit more discipline, but most importantly, just new products that're actually responding with the consumers right now and driving more full-price business. So I think those are the two most important proof points right now, Dana, as we think about, you know, more confidence into the back half of the year. We're not giving guidance on Q3 or Q4 phasing or trends.
Michael David Stornant: Been a very important focus for the teams.
Michael David Stornant: And we're seeing that benefit I think a combination of.
Michael David Stornant: A bit more discipline, but most importantly, just new product, that's actually resonating with the consumers right now and driving more full price business. So.
Michael David Stornant: Those are the two most important proof points right now Dana as we think about more confidence.
Michael David Stornant: Into the back half of the year, we're not giving guidance on Q3 or Q4 phasing or trends, but just know that some of the early positive wins, we're seeing in the E. Comm side of the business are giving us.
Michael David Stornant: But just know that, you know, some of the early positive wins we're seeing in the e-com side of the business are giving us some confidence points for sure. Thank you. Thanks, Dana. We have the next question from the line of Ashley Owens, from KeyBank Capital Markets. Please go ahead.
Ashley Anne Owens: Some conflicts points for sure.
Ashley Anne Owens: Thank you.
Ashley Anne Owens: Thanks Dana.
Michael David Stornant: Yes.
Ashley Anne Owens: Thank you.
Michael David Stornant: We have the next question from the line of Ashley Owens.
Ashley Anne Owens: With Keybanc capital markets. Please go ahead.
Ashley Anne Owens: Hi, Thanks for taking my question just first can you talk about your decision to roll off the Merrell Saucony Keds.
Dana Lauren Telsey: Hi, thanks for taking the question. Just first, can you talk about your decision to roll off the My Own Sock brand, any kids' businesses you're licensing, and then any plans you can share that you have to reallocate some of those resources you were previously using to support those? Yeah, good question.
Dana Lauren Telsey: And then any plans you can shed actually allocate those resources.
Dana Lauren Telsey: And get them to support us.
Speaker Change: Oh, yeah, good questions and thanks, Ashley we appreciate that.
Ashley Anne Owens: Thanks, Ashley. We appreciate that. You know, certainly, important, important decisions that we're making as an organization about how we think about Wolverine World Wide going forward. We created a global licensing group in the latter part of last year and really are thoughtful about that business and what it can mean. We've got a great seasoned leader running that business. She brings just a great approach, sort of daily, to both our brands and our partners and how we can profitably grow that business. So we've created the center of excellence. We've got the right leader running it.
Ashley Anne Owens: It's certainly important important decisions that we're making as an organization to them. So how do we think about Wolverine worldwide go forward, we created a global licensing group.
Ashley Anne Owens: In the latter part of last year, and really are thoughtful about that business and what it can mean, we've got a great season leader.
Ashley Anne Owens: Running that business.
Ashley Anne Owens: She brings just a great approach sort of daily.
Ashley Anne Owens: Both our brands and our partners and how we can profitably grow that business. So we've created a center of excellence, we've got the right leader running it.
Christopher E. Hufnagel: And then we also look back on the global potential of our brands and where we know we can be great and where I think we probably know that we can use some help. I still believe in the power of our global head-to-toe opportunities specifically for Merrill and Sonkening and what those brands can be. And, you know, as it relates to Merrill, we've attempted apparel and accessories historically, and we just haven't been great at it. And I think we found a great partner in that. I literally just met them last week.
Ashley Anne Owens: And then we also look back on the global potential of our brands and where we know we can be great.
Christopher E. Hufnagel: And where I think we probably know that we can use some help.
Christopher E. Hufnagel: Still believe in the power of our global head to toe opportunities, specifically for Merrell and Saucony.
Christopher E. Hufnagel: Those brands can be and as it relates to merrell.
Christopher E. Hufnagel: Attempted apparel and accessories, historically and we just haven't been great at it.
Christopher E. Hufnagel: And I think we found a great partner in that.
Christopher E. Hufnagel: I'll meet with them in a couple of weeks. Just a really phenomenal partner that has a deep fondness for the Merrill brand. They've already built a team around it and are very excited about what they see as the potential for Merrill apparel and accessories to allow us to be a true global head-to-toe business. And I think we can't miss the fact that Merrill is outside of the U.S. We've got 46 stores in the U.S. We have a direct-to-consumer business. We have a wholesale business, but outside of the U.S., we have a lot of direct-to-consumer operations.
Christopher E. Hufnagel: We just met with them last week I'll meet with them in a couple of weeks.
Christopher E. Hufnagel: Just a really phenomenal partner that has a deep fondness for the Merrell brand they've already built the team out around it and are very excited by what they see as the potential for merrell apparel and accessories to allow us to be a true global head until business and I think we can't Miss the fact that merrell outside of the U S and we've got 46 stores in the U S. We've got a direct to consumer business we have.
Christopher E. Hufnagel: <unk> business, but outside of the U S. We have a lot of directing some of our operations and I think those stores being able to.
Christopher E. Hufnagel: And I think those stores, being able to arm those stores with apparel and accessories and socks and packs and bags, along with the amazing footwear that we design, really creates a really phenomenal opportunity for us and really helps us tell a better story with the consumers. So I'm bullish on that. And then on the kids' front, too, you know, we've had a kids' group that was very good.
Christopher E. Hufnagel: Arm those stores with with.
Christopher E. Hufnagel: Apparel, and accessories, and socks, and packs and bags along with the amazing footwear that we design.
Christopher E. Hufnagel: Really creates a really phenomenal opportunity for us and really helps us tell a better story with the consumer so I'm bullish on that and then on the kids front too we've had a kids group our kids group that was very good at the same time I think a licensing model with a longtime partner like like who we chose was really made the best sense.
Christopher E. Hufnagel: At the same time, I think a licensing model with a long-term partner like who we chose really made the best sense for us today as we're thinking about the business. So I think we've picked two great partners for both apparel and accessories for Merrill and then Merrill and Saucony Kids. And we have them underneath a great leader at Wolverine worldwide.
Christopher E. Hufnagel: For us today as we're thinking about the business. So I think we picked two great partners for both apparel and accessories for Merrell, and then Merrell and Saucony Kids and.
Christopher E. Hufnagel: And we have them underneath a great leader at Wolverine worldwide. So I think we're really working to prioritize the business eyes wide open about what we know we can be great at at the same time looking at other opportunities for our brands with best in class partners, who can help us continue to grow.
Christopher E. Hufnagel: So I think we're really working to prioritize the business, eyes wide open about what we know we can be great at, at the same time looking at other opportunities for our brands with best-in-class partners who can help us continue to grow without having to do it ourselves. As we talk about redeploying resources, we've already done that. We've redeployed some resources into other parts of the business as well, and it allows us to really have a sharper focus on what we know that we can be great at and what we know we need to be great at. So an important move and, you know, just another step in our evolution. Okay, great.
Christopher E. Hufnagel: Well without having us to do it ourselves as <unk> talked to redeploy resources, we've already we've already done that and we've redeployed some resources and in the other parts of the business as well.
Christopher E. Hufnagel: And it allows us to really have a sharper focus on what we know that we can be great at and what we know we need to be great at so an important move.
Christopher E. Hufnagel: And just another step in our evolution.
Ashley Anne Owens: Thanks. And then, quickly, one question: any call-outs you can provide around which brands or products are kind of helping with that replenish rate improvement you're seeing? And then, additionally, you know, the product cadence as we get to the back half of the year and just how it compares to some of the innovation we're seeing now, you know, as resources free up, inventory gets cleaner, all the transformation efforts underway as well. Should we be seeing a little bit of acceleration in terms of launches, or is the inflection of 4Q coming from existing products you've released ramping in momentum? Yeah, great question or questions. There's a lot embedded there. I'll try to answer it later.
Speaker Change: Okay, great. Thanks, and then.
Speaker Change: Quickly one any call outs.
Ashley Anne Owens: And which brands of products that kind of helping with that replenishment.
Ashley Anne Owens: And then additionally, the product cadence that you get to the back half of the year.
Ashley Anne Owens: How it compares to some of the innovation, we're seeing now.
Speaker Change: That's great.
Ashley Anne Owens: It's cleaner all the transformation efforts underway as well so are we seeing a little bit of acceleration in terms of launches first inflection of Fox news coming from that.
Ashley Anne Owens: Products easily racking and momentum.
Christopher E. Hufnagel: I think, you know, certainly replenishment across the board is something we have seen an improvement in. Some parts it's better than others. But, you know, in our weekly meetings with the brand leadership teams and sales teams, we certainly have seen a nice uptick in weekly replenishment orders, probably stronger in some brands and, frankly, strong in some brands where now we're going to go chase inventory. And I'm thinking about Saucony specifically right now, some of the momentum that Saucony has.
Ashley Anne Owens: Yeah, great Great question or questions are theres a lot embedded there.
Speaker Change: I'll try to answer it.
Christopher E. Hufnagel: Certainly replenishment across the board, we have seen an improvement in some parts some parts, it's better than others.
Christopher E. Hufnagel: And our weekly meetings with the brand leadership teams and sales teams. We certainly have seen a nice uptick in in weekly punish mortars, probably stronger in some brands and frankly strong in some brands. We're not we're going to go chase inventory and I am thinking about saucony, specifically right now.
Christopher E. Hufnagel: We're chasing product because we have managed the inventory very closely to help really work and reposition and reset that brand. We're also seeing it in a brand like Maryland. We're chasing Moab Speed 2s now, talking about how we can prioritize orders and feed the regions and channels that are driving that growth. And then even some places in the work group, which we haven't talked about today, you know, where product is on trend or new innovation, we're having to chase that too. So it goes without saying, I mean, you all know as well as I do that, you know, consumers crave newness and innovation.
Christopher E. Hufnagel: Some of the momentum that Saucony has.
Christopher E. Hufnagel: We're chasing product because we have manage the inventory.
Christopher E. Hufnagel: Very closely to help really working and reposition and reset that brand. We're also seeing it in brand like Maryland, We're chasing Moab speed twos now and talk about how we can prioritize orders and feed the regions and channels.
Christopher E. Hufnagel: That are driving that growth and then even some places in the work group, which we haven't talked about today, where product is on trend.
Christopher E. Hufnagel: Our new innovation, and we're having to chase that too. So it goes without saying I mean, you all know as well as I do that consumers crave newness and innovation and I think when we can bring that in a meaningful way and tell a good story about it that product checks and that's why I am so convinced about our global brand building model and encouraged by the progress we made around the product pipeline.
Christopher E. Hufnagel: And I think when we can bring that to life in a meaningful way and tell a good story about it, that product checks. And that's why I'm so convinced about our global brand building model and encouraged by the progress we've made around the product pipeline. While we've had some great introductions, there are still more coming this year. I'm excited about the ReForce, which is just dropping into the boot group. Certainly in Saucony, the Hurricane 24, which will drop this summer.
Christopher E. Hufnagel: While we've had some great introductions, there are still more coming this year.
Christopher E. Hufnagel: I am excited about the resource which is just dropping.
Christopher E. Hufnagel: Boot group certainly in Saucony, the Hurricane 24, which will drop this summer. We are encouraged by that that is the disruptive shoe that has people talking continuing to chase the endorphin the triumph.
Christopher E. Hufnagel: We're encouraged by that. That is a disruptive shoe that has people talking, continuing to chase the Endorphin, the Triumph. Those are all very positive. And then there are some really cool new light hikers coming out from Merrill. That'll drop the latter part of this year into next year. They're probably some of the most disruptive shoes that Merrill has built in a very long period of time. Thinking about the evolution of the trail, light and fast, and things that are visually disruptive at the same time.
Christopher E. Hufnagel: Those are all those are very positive and then theres, some really cool new light hikers coming out for Merrell.
Christopher E. Hufnagel: That'll drop up to the latter part of this year into next year.
Christopher E. Hufnagel: There are probably some of the most disruptive shoes that Merrell has built in a very long period of time.
Christopher E. Hufnagel: About the evolution of the trail lightened fast and things that are visually disruptive at the same time same time perform so.
Christopher E. Hufnagel: So I think we've worked hard to accelerate the innovation in our product pipeline. I think the teams have responded. Early proof points of the new innovation working, and even some of the sell-in that we're doing with accounts have been very positive. So I'm encouraged by the progress that we've made and, you know, every new drop we get excited about.
Christopher E. Hufnagel: I think we worked hard to accelerate the innovation of our product pipeline I think the teams have responded early proof points of the new innovation working and even some of the sell in that we're doing with accounts.
Christopher E. Hufnagel: Have been very positive so I am encouraged by the progress that we've made in.
Christopher E. Hufnagel: Every every new drop we get excited about.
Ashley Anne Owens: I really appreciate the color there, and best of luck to you, Mike, in your future endeavors. Thank you, Ashley. Thank you. Ladies and gentlemen, we will now end the question and answer session. The conference is now over. Thank you for attending today's presentation.
Speaker Change: Really appreciate the color and best of luck to you Mike in your future endeavors.
Operator: BF-WATCH TV 2021 [inaudible] BF-WATCH TV 2021, The Ultimate Parody Site! BF-WATCH TV 2021, and more. I'll see you next time. BF-WATCH TV 2021, The Ultimate Parody Site!
Speaker Change: Thank you Ashley Thanks Ashley.
Speaker Change: Thank you.
Operator: Ladies and gentlemen, we will now end the question and answer session.
Operator: The conference has now concluded. Thank you for attending today's presentation you may now.
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