Q3 2024 Wolverine World Wide Inc Earnings Call
And stocking sweaty Betty were approximately flat when adjusted for business model changes and currency fluctuation respectively.
We drove record gross margin for the third quarter. The second quarterly record we set this year.
Finally at the bottom line more than doubled our earnings from a year ago.
It was a good quarter for the company.
Further confirming our strategic direction and the great work our teams are doing.
Based on these results and our outlook for the fourth quarter, we're raising both our top and bottom line guidance for the year.
Daren Miller, our Chief financial Officer provide more color here in a few minutes.
A year ago, we outlined an ambitious plan to turnaround Wolverine worldwide and.
And in the process build a new company for the future.
We started by taking fast and bold action to stabilize the company and strengthened the balance sheet.
Significantly paying down our debt.
And reducing inventory.
Both of which are now well under half of where they stood 24 months ago.
At the same time, we moved quickly to transform Wolverine worldwide for the future.
Rationalizing our brand portfolio restructuring, the global organization and working to improve our profitability.
Today, we continue to execute with great pace against this agenda.
Focus squarely on delivering the progress needed quarter after quarter to build a better business and ultimately deliver better returns for our shareholders.
While we have more work to do to fully realize the potential I believe our company brands and teams possess.
We're getting better in building new muscle each and every day.
Replacing our consumers and brands at the center of our approach and developing the talent tools capabilities and processes needed to execute our enterprise and brand strategies with distinction moving forward.
As we secure the turnaround and advanced the transformation of our organization, we're thoughtfully navigating the reinvigoration of our brands and our inflection to growth as a company.
We've worked hard to establish a healthier foundation for growth.
Cleaning up the marketplace, expanding margins and working to better position and manage our brand at wholesale and in our own channels of distribution.
As we guided at the start of the year, we've now driven sequential improvement in top line revenue for the past two quarters.
We have a plan to inflect to growth as a company in the final quarter of the year and more importantly carry this momentum into 2025.
While the macro environment remains choppy and the consumer outlook is still a bit murky.
Our teams continued to manage the variables they can control.
Focusing on our global brand building model and prioritizing.
Dining awesome products Theyre innovative trend right place right.
Price right.
Telling amazing stories that not only convey the functional benefits of our brands products, but also resonate with consumers on an emotional level.
And driving the business each and every day.
The third quarter was another positive chapter in our turnaround and transformation story.
Before handing over to detail our financial results in the quarter and updated outlook for the remainder of the year I'd like to provide some additional insight on our brand's performance.
Starting with Merrill.
As a leader in the hiking footwear category. The brand remains intently focused on modernizing the trail through faster lighter and more versatile product.
Over the course of this year, the moab speed to as meaningfully advance this effort and established itself as an important franchise for the brand.
It continues to sell through well at key outdoor counts and Encouragingly is also performing well at certain lifestyle retailers.
Next week, the brand's dissipates launching its second collaboration with Jeep.
This iteration on the Moab speed to platform.
An opportunity to increase the brand's awareness and Kenny to build on the brand products franchise a success.
<unk> Premier Trail runner. The agility peak five is also selling through well in both performance and lifestyle channels.
The brand has plans to continue to leverage collaborations on both of these franchises for the trial moving forward.
Further broadening their reach.
Merrill's modernized product offering has enabled the brand to partner with several of its key accounts to reset assortments.
With a goal of evolving consumers' perceptions of the brand and driving sell through.
As a result of our proactive approach the brand again accelerated share gains and the hike category in the U S last quarter.
Marilyn greater traction on the lifestyle side as well successfully testing new products with several influential retailers.
Outside the U S. The brand was up mid teens in EMA and drove mid single digit growth in Asia Pacific in the quarter.
In part due to the execution of our key city strategy in Tokyo with brand Activations in our ship, we use square scramble and Harajuku stores.
Speaker Change: Looking ahead to 2025 Merrell plans to launch its most innovative franchise to date in January.
The all new speed our collection led by the award winning speed arc surge Boa.
Last week named one of times best New inventions of the year.
Employs advanced materials and <unk>.
<unk>, new speed arc platform, including its float pro plus supercritical phone.
Stabilizing flex plate.
Speaker Change: The result is a remarkably unique and comfortable ride with exceptional energy return that outperforms the industry, an extensive lab testing.
<unk> individually disruptive modern silhouette.
Speaker Change: We expect net debt to be $545 million at year end, an improvement of nearly $195 million versus year end 2023.
Given this outlook for the full year, we expect the fourth quarter revenue to be in the range of $475 million to $490 million.
Speaker Change: This reflects continued improvement in revenue performance and at the midpoint an inflection to growth.
We are executing our plan and seeing momentum in our brands from increased new product introductions.
Speaker Change: <unk> in product design, and cleaner and lower inventory levels at retail.
Speaker Change: This momentum is showing up in our wholesale and international distributor order books as expected and ecommerce initiatives are in place for the holiday season.
Speaker Change: Fourth quarter gross margin is expected to be approximately 44% an increase of 700 basis points from 2023.
Speaker Change: Last year's fourth quarter gross margin was adversely affected by a decline in full price business, resulting from excess inventory in the wholesale channel.
Speaker Change: This issue has significantly improved over the course of 2024.
We expect improvements in operating margin and earnings with fourth quarter, adjusted operating margins of approximately 9% and adjusted diluted earnings per share in the range of 31% to 41 cents.
While it's too early to discuss the 2025 outlook in detail. There are a few key points I'd like to highlight.
Speaker Change: We anticipate cleaner year over year comparisons in 'twenty five as.
Speaker Change: As the discrete headwinds we faced this year will be largely behind us.
While we recognize there's more work to be done we feel good about the momentum of the business.
And this dynamic operating environment, we remain focused on what we can control investing in our brands our team and the technology to build new capabilities drive growth and deliver value to our shareholders.
Speaker Change: And with that let me hand, the call back to Chris before we open it up for questions.
Chris: Thanks Darren.
Chris: Looking ahead I believe we possess tremendous competitive advantages with our portfolio of authentic global brands positioned in attractive categories that are focused on making people's lives better.
Speaker Change: Pierre happier and more productive.
Speaker Change: Our brands are considered leaders in their categories and are long respected for making great innovative products.
Speaker Change: In addition, we've developed an extensive global distribution network over decades with best in class partners to reach our consumers in every corner of the world.
Speaker Change: While these are certainly invaluable advantages as we've said before brands have to do more to win in today's dynamic and competitive marketplace.
Speaker Change: So enable our brands to compete and win.
Speaker Change: <unk> been hard at work strengthening key capabilities for the new Wolverine worldwide.
Speaker Change: Beginning with the consumer we created the collective last fall to better identify consumer trends and innovation insights to guide product innovation design and storytelling.
Speaker Change: As a part of this initiative, we also establish the den.
Speaker Change: And in house creative studio designed to equip our brands with the tools they need to quickly and efficiently develop creative assets tell amazing stories in today's always on digital world.
Speaker Change: We've tested a key city strategy through focused initiatives in Tokyo in London, with our biggest brands Merrell and Saucony and we're encouraged by the early results.
Speaker Change: To help us run a better business, we're enhancing our integrated business planning approach by redesigning related processes, bolstering, our toolkit and adding new talent.
Speaker Change: We anticipate this new competency will be fully online early next year.
Speaker Change: On the product front, just three weeks ago today, we cut the ribbon to open our first ever innovation hub.
Speaker Change: Located in the heart of the Westin Boston to tap into the region's deep product talent and augment the teams here in Michigan.
Speaker Change: Finally, we've hired new critical product and marketing talent for our brands over the past year.
Speaker Change: Just last week, we announced the appointment of Susie Kim <unk> as our president of the active group.
Speaker Change: An industry veteran she is a tremendous addition to the team.
Speaker Change: And I look forward to partnering with her and her leadership of our company's biggest brands.
Speaker Change: We've been busy but we are unequivocally not slowing down.
Speaker Change: All of the work we've done to this point in our turnaround. We believe has prepared the organization to better compete and win the.
Speaker Change: The opportunity to drive for better and the privilege to write the next chapter in our company's 141 year story.
Speaker Change: Before concluding our prepared remarks.
Speaker Change: Like to thank our teams for being all in and dedicating themselves to the work we've done together over the last 455 days.
Speaker Change: You've been simply great.
Speaker Change: And I am incredibly grateful for and motivated by your work passion grit and drive.
Speaker Change: And while we've written a good story together to date the.
Speaker Change: The most important chapter is the next one.
Speaker Change: With that thank you to all of you on the call. This morning for taking the time to be with us and we're happy to answer your questions.
Operator.
Speaker Change: Thank you at this time, if you would like to ask a question. Please press the star and one on your telephone keypad you may remove yourself from the queue at any time by pressing star to please limit yourself to one question and one follow up question.
Speaker Change: Do you have any additional questions. Please re queue. Once again that is star one to ask a question, we'll pause for a moment to allow questions to queue.
Speaker Change: And we will take our first question from Laurent <unk> with BNP Paribas. Your line is open.
Laurent: Good morning. Thank you very much for taking my question and Chris and team. Congrats on the continued progress here, Chris I think in your prepared remarks, you talked about the momentum.
Laurent: For both key brands Merrell and Saucony heading into 2025, I would love to drill in a little bit more on that comment.
Laurent: I know I know you recently.
Speaker Change: We recently partnered with a number of key retail accounts for.
Speaker Change: <unk> for the for those two brands can you maybe just.
Speaker Change: Give us some color for the audience here on what's the reception so far with these new key accounts.
Laurent: Sure. Thanks, Paul and good morning, I appreciate the question.
Laurent: Yeah, I think certainly as we sort of thought about the reset at Wolverine and work we needed to go do we took a healthy look at our biggest brands and first starting with products and what products did we have what was in the pipeline with innovation did we need to bring.
Bill: And where could we improve and where could we streamlined and focused on doing fewer things bigger and better and certainly paying attention to where the consumer was moving in and how we could tap into that and with Merrell and Saucony, specifically, we've got new leadership in those brands, we've got new sales leadership in those brands and we looked at the distribution. This is bill.
Speaker Change: The focus on the U S, instead, where where our brand is showing up what channels were growing what partners would we want to be with and then how could we go in and then take advantage of that.
Laurent: Credit to those brands and certainly credits to the partners and thanks to the partners for opening up and being open to thinking about our brands in different ways. So now Youll certainly we will see both Maryland Saucony is showing up in new accounts.
Laurent: As we brought great relevant product, that's resonating with consumers and I think a thoughtful distribution expansion.
Laurent: Really heavy eye towards prop.
Laurent: Proper segmentation.
Laurent: It is going to be critically important so the new door count growth.
Laurent: Opening new accounts expanding to new accounts, and then showing a broader breadth of the assortment in existing accounts.
Laurent: It's certainly part of the growth the growth thesis and certainly some of the momentum we built in as we think about where the brands can go in 2025.
Speaker Change: Okay wonderful that's great to hear and then.
Speaker Change: Karen I think last call.
Karen: We were talking about during the Q&A about the longer term opportunity for gross margins to go to 45% to 47%.
Speaker Change: I know youre not prepared to guide for 2025, but high level as we think about not just the gross margin.
Speaker Change: Is there an opportunity.
Speaker Change: Get back to 10% operating margins or is there an environment that you know that leaves as to where the operating margins of 10% plus is no longer.
Speaker Change: In the realm of possibilities.
Laurent: And then and then a quick follow up I think last call. It was mentioned that China is less than 19% or if it's really explicitly called out with Bangladesh was 19% of your sourcing.
Laurent: And then China's less love to get from the Audi from you guys.
Speaker Change: What is your China sourcing into the U S. Thank you very much.
Speaker Change: Okay. Thanks, I'll take the first one on the China situation, and then turn it over to Darren to talk about gross margin operating margin.
Speaker Change: We've worked really hard.
Speaker Change: It really hard over the last handful of years from a sourcing standpoint to diversify our sourcing footprint.
Speaker Change: We have a new leader and a global supply chain I'm really pleased with.
Speaker Change: And our exposure to <unk>.
Speaker Change: 18, 2019 would have been north of 40% from China and today, what were well down sort of it's sort of in the mid teens.
Speaker Change: The mid teens as.
Speaker Change: A significant reduction from where we were I would also add the vast majority of that production, we still do in China, and we have the ability to dual source.
Speaker Change: As things develop as things change and we work really hard on that sourcing footprint to be more diversified to reduce our exposure in China and certainly as things sit today I am pleased that we've done that work.
Speaker Change: I'm pleased that we sit where we are as we think about how things move forward from here.
Speaker Change: To answer your questions.
Speaker Change: Sorry, I think there was one more question in terms of margins.
Speaker Change: In terms of gross and operating margin expansion.
Speaker Change: We're pleased with the improvements that we're seeing in both gross margins and operating margins in 2024, largely coming through as we had laid out in our initial guide so and that really is a combination of seeing the topline improvement each and every quarter as we go through 'twenty four and building on that momentum.
Speaker Change: As well as our cost saving initiatives, both in terms of the supply chain improvements as well as in the spending optimization that we've been doing and really seeing that come through in the.
Speaker Change: Year to date results as well as implied in the guide that we've given for the fourth quarter.
Speaker Change: I'm going if you look at.
Speaker Change: 'twenty 'twenty four the Q4 implied guidance the operating margins would be in that 9% range. So approaching the 10% that you're speaking to their Laura but I'm going to resist the temptation to talk about 2025 and leave it to encourage with the momentum that we are.
Speaker Change: Being in the continued focus on that margin improvement.
Speaker Change: Thank you we'll take our next question from Ashley Owens with Keybanc capital markets. Your line is open.
Ashley Owens: Hi, good morning, and congrats just quickly looking at the Investor deck I see work group is now guided to grow low double digits for Q. That's all a factor of the shipment delays or is there more to unpack there.
Ashley Owens: Capturing all the demand that was missed in the third quarter I just want to make sure I understand the dynamics there.
Speaker Change: It's a good question and thanks for bringing it up as it relates to the work group in <unk>.
Speaker Change: There's three three factors at play which support.
Speaker Change: That revenue growth assumption, a the delays that we experienced in <unk> from both production and sourcing.
Speaker Change: Workgroup does about 40% of its.
Speaker Change: North of 40% of its production in Bangladesh and Bangladesh is just faced a handful of issues lately from civil unrest the floods to some logistics issues. So.
Speaker Change: The Mrs and <unk> we.
Speaker Change: We believe will be.
Gained back in <unk>.
Speaker Change: At the same time not the work groups fourth quarter last year was challenged so we just have an easier comparison frankly in the fourth quarter and then also you know as there is demand in the marketplace. We plan, we plan to put pull up who had a little bit from the first quarter of next year reacting to consumers who want product earlier.
Speaker Change: Really it's those three factors that give us confidence in the work groups guide for it for <unk>.
Okay.
Speaker Change: Okay got it that's super helpful. And then just a bigger picture question stock any outperformed expectations pretty handedly, followed with DARPA and Brian.
Speaker Change: More newness scaling into the Aramark wholesale doors et cetera.
Speaker Change: We're currently still a period of work through adding on that newness aspect, but would just be curious to hear your thoughts from Bryan Kraft from here, what we should be looking for.
Speaker Change: Drive and raise awareness in 2025, and just your overall vision, our thoughts as to how big Saucony could get thanks, Yeah yeah.
Speaker Change: Yeah. Thanks, Thanks for calling that out obviously, we're not going to guide for Saucony today.
Speaker Change: But certainly there are a lot of things working working in that brands favor right now and I take you back to sort of a reset and overhauled the brand strategy and sort of opening up that aperture to service a broader consumer run as one of the best performing categories in the marketplace.
Speaker Change: And I think.
Speaker Change: Our change in strategy or pivot as we think about that consumer both from the performance run from the lifestyle run.
Speaker Change: Has helped that brand.
Speaker Change: Sort of resuscitate in very short order, we're seeing good good growth and momentum in the performance categories. The core for the ride the guide the trials the hurricane which we're encouraged by at the same time, there is a lifestyle thing happening and we're capitalizing on saucony benefits from a very deep product archive.
Speaker Change: And this retro tact fashion thing Thats happening right now socket has the ability to capitalize it's important to note, though that we're not walking away from elite run and I think one of <unk> best innovations is going to be drop early next year.
Speaker Change: With the endorphin elite too and the new film that we are going to introduce so I think from a product side that brand is firing right now on all cylinders at the same time, we've really taken a hard approach at how we build awareness and affinity in the marketplace and I point to London, Our key city strategy investing more as being the sponsor for the London 10-K, I'm working hard on the act.
Speaker Change: Nation doing run clubs, we're seeing all time records search interest for for Saucony in the U K and this is really really before we fully activated we will open our first Saucony story next year as well in London, which we're encouraged by.
Speaker Change: And I certainly think from a brand he bus standpoint.
Speaker Change: Talking to is having a moment so your call out about how big sake can be I can tell you that something we're spending a lot of time here as an organization is thinking about just because we think there's tremendous potential.
Speaker Change: With that brand and with that team really up and down that their product line and certainly from a global standpoint that brand has tremendous exposure and great partners. So we remain encouraged and optimistic about the growth prospects for saucony.
Speaker Change: Thank you.
Speaker Change: We will take our next question from Mitch <unk> with Seaport Research. Your line is open.
Speaker Change: Yes, thanks for taking my questions.
Speaker Change: Chris just to start how are you guys planning for potential new tariffs next year are you guys thinking about changing your.
Speaker Change: Pricing architecture at this point at all for maybe the back half of the year fall fall 25 product or anything what can you share there.
Speaker Change: Yeah. Thanks, Thanks, Thanks, a very relevant topic and I think us along with just about everyone is sort of digesting.
Speaker Change: The news and in the new reality.
Speaker Change: And trying to contemplate what is going to be on the horizon.
Speaker Change: I'll tell you. This wolverine's 141 year old company, we've seen 15 Republican administrations 10 Democratic administrations.
Speaker Change: Burnt through a civil war two World Wars, the Cold War on a couple of global Pandemics and I think our job really is to build a durable and resilient business model.
Speaker Change: Whether those changes.
Speaker Change: As it relates to the tariff question I answered <unk> question earlier exposure to China is down dramatically from where we were just a couple of years ago sort of in that mid teens range other important regions, our Vietnam Bang.
Bangladesh.
Speaker Change: Indonesia I.
Are an important piece.
Speaker Change: As you know as the new realities are there and as we hear more will obviously contemplate things that we need to go do to make sure. We can protect disease to grow the business I'm incredibly thankful, though that a lot of our heavy work around stabilization is behind us the restructuring work that.
Speaker Change: The consolidation or a lot of our portfolio work and then I would obviously point to the fact that two of the last three quarters. We've delivered all time record gross margins and the hard work we've done around our costs.
Speaker Change: Cleaning up the inventory and building a more full priced premium business is important in that so we're obviously thinking about what the future holds and implications as it relates to that but.
Speaker Change: One of my goals is to build a durable and resilient company that can weather changes like this and the company has a long history of doing that and I certainly am thankful that a lot of the work that we've done over the past year and a half is behind us and we can think about growth at the same time manage manage different factors that are that may come our way.
Speaker Change: Q1, we were at 5% now it's the fourth quarter at around 9%. It shows both a strong sequential improvement in our margins as well as a year over year expanding margins.
Speaker Change: Alright terrific. Thanks, so much.
Speaker Change: Thanks for the questions.
Speaker Change: Thank you we'll take our last question from Marcio Serna with UBS. Your line is open.
Speaker Change: Great. Good morning, and thanks for taking my question I was hoping if you could elaborate a little bit more on the DTC growth trends you see.
Speaker Change: Across our brands.
Speaker Change: Typically the activewear brands maybe.
Speaker Change: Maybe if you don't give specific numbers Mackenzie ranges to have an idea and then curious if you could elaborate a little bit more on.
Speaker Change: Share gains that you saw and marrow because I recall, you've seen an acceleration.
Speaker Change: In the last couple of quarters, or so would be interesting here in hearing that considering that overland team side.
Speaker Change: A relatively soft outdoor footwear category.
Yeah.
So thanks for the question.
Speaker Change: For our two biggest brands Merrell and saucony in the quarter. It was essentially mid single digit growth.
Speaker Change: In DTC, both brands sort of Comping fairly heavy promotional activity from last year and so at the same time, we saw growth we're actually.
Speaker Change: Pleased with some of the progress we made on the gross margin side as well as we work to become less promotional at our dotcom business as we pivot into the final quarter of the year as it relates to share gains and Merril you are right. The outdoor category certainly has been under pressure for the last couple of years and as a comfort upon the category leader, which mail is too to help reinvigorate <unk>.
Speaker Change: Innovate and and draw attention to that category and reverse that we've actually accelerated market share gains in Merrell I think six of the past seven quarters, we have market share gains and our biggest jump I think was just last quarter approaching 300 basis points of share gain for Merrell. So.
Speaker Change: <unk> mission really is to modernize the trail and to build lightweight athletic more burst style footwear and we certainly are encouraged by some of the progress we've seen specifically with the Moab speed to a lighter faster more athletic version of the of the Moab <unk>, which is the number one hiking boots in the world the.
Speaker Change: The consumers are responding to that it looks great at performed phenomenally well it takes color material great.
Speaker Change: And I think.
Speaker Change: That really is.
Turning to leave.
Speaker Change: So so in total that e-commerce in total was up mid single digits.
Speaker Change: Our stores, our stores were slightly worse than that but we're pleased with the progress we've made in E. Commerce piece and now obviously, everyone is turning quickly towards now where post election, focusing on the critical holiday selling period.
Speaker Change: For our dotcom channels.
Speaker Change: All right very helpful. Thank you and congratulations.
Speaker Change: Thank you.
Speaker Change: Thank you and it appears that we have no further questions at this time.
Speaker Change: That concludes today's teleconference. Thank you for your participation you may now disconnect.
[music].
Hum.
Okay.
[music].
Okay.
[music].
Okay.
[music].
Uh-huh.
Hum.
[music].
Yes.
Okay.
[music].
Hum.
[music].
Hello, Matt.
[music].
Uh-huh.
Hum.
Uh huh.
Okay.
Yes.