Wolverine World Wide, Inc.

Greetings and welcome to the Wolverine World Wide, Inc. first quarter fiscal 2020 results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Paul Fein. Please go ahead, sir.

Good morning and welcome to our first quarter 2020 conference call. On the call today are Blake Krieger, our chairman and chief executive officer and president, and Mike Stornett, our senior vice president and chief financial officer. Earlier this morning, we announced our financial results for the first quarter 2020. The release is available on many news sites or it can be viewed from our corporate website at wolverineworldwide.com. If you would prefer to have a copy of the news release sent to you directly, please call Francesca Filandro at 646-677-1814. This morning's press release and comments made during today's earnings call included non-GAAP disclosures. These disclosures were reconciled with attached tables within the body of the release. During our call, we are providing adjusted financial results which adjust for the impacts of environmental and other related costs and environmental cost recoveries, business development related costs, reorganization costs, and costs associated with the COVID-19 pandemic and foreign exchange rate changes. I'd also like to remind you that predictions and projections made during today's conference call regarding Wolverine World Wide and its operations are forward-looking statements under U.S. security laws. As a result, We must caution you that as with any prediction or projection, there are a number of factors that could cause actual results to differ materially. These important risk factors are identified in the company's SEC filings and in our press releases. With that being said, I'd like to turn the call over to Blake Krieger.

Thanks, Paul. Good morning, everyone, and thanks for joining us. I would like to open this morning by saying I have never been more proud of our company and our people. I would like to thank our global team and key partners for their exceptional leadership, perseverance, and collaboration as we continue to address the unprecedented events of the COVID-19 pandemic. Our first priority has been the health and safety of our teams and communities around the world. I'll talk in more detail about this later, but wanted to first express my sincere gratitude for these efforts as we weather the near-term challenges and position the company to win as the new normal takes shape. Turning to the business. Earlier this morning, we reported first quarter revenue of approximately $440 million and adjusted earnings per share of 28 cents. These results reflect the downturn in our business during March, which was driven by the pandemic. Leading up to that point, our revenue and earnings were trending in line with our expectations for the quarter. At the very onset of the current crisis, we divided our plans and responses into three timeframes, the next 90 days, the remainder of 2020, and 2021 forward. We quickly developed a playbook that has served us well and consists of six fundamental sets of action. Number one, safety first. Protect our teams and our communities. We've been very lucky here so far. Number two, Maintain and enhance our balance sheet, liquidity, and strong financial position. Mike will have more details on this in a moment, but we've been very active here. Number three, adjust our infrastructure for speed and organize for the future. Number four, accelerate our online strategy. This involves our owned e-commerce businesses as well as the online businesses of our pure play and wholesale customers. Number five, focus on newness in product, stories, and messaging. And number six, position the company to take advantage of the opportunities that will exist in the new normal. This approach has certainly helped us make fast decisions and guided our action plans over the last six weeks. We continue to reassess our playbook each week and will undoubtedly modify and tweak it over time. Our team has been proactive, and we've moved quickly to navigate the ongoing impact of this health crisis on our global business. We have successfully remained open for business, despite the unique restrictions and limitations imposed in many countries. Our supply chain is fully operational, including our distribution centers around the world, and we continue to service consumer demand in those channels that remain open. During the first quarter, our owned e-commerce business grew over 17% and has steadily accelerated, with our global e-commerce business and demand up over 100% in the last two weeks. In 2019, the US online channel, which includes our own e-commerce sites and the online business of our wholesale customers, represented about 40% of our total US distribution. Many of these third-party sites are currently operational and our own sites are performing very well. As a result, we would expect that our combined U.S. online business will grow this year and represent somewhere between 50 and 60 percent of our U.S. revenue in 2020. Soon after the pandemic hit, we implemented a comprehensive set of measures to lever our agile business model and bolstered the company's financial strength. We created a flatter organization design by removing the group hierarchy, not only to help reduce overhead costs, but also, importantly, to further enhance our ability to react quickly in uncertain times. We have adjusted the flow of inventory in line with expected future demand. We have also implemented compensation changes including salary reductions of 25 to 35% for the company's management team through the remainder of 2020. I'm taking a 50% reduction and have also significantly reduced director compensation over the same timeframe. We've also made stock awards to a broad range of management employees. Finally, we were forced to furlough some team members in our retail stores and offices who were idled as a result of the shutdowns and business slowdown. Most of the furloughs are short-term or rotational in nature. We have moved quickly to protect and stabilize our team while still positioning the company effectively for the near-term challenges and future opportunities. In short order, we reduced expenses, heightened our inventory discipline, and significantly increased the company's liquidity. Our business model has proven capable of generating cash and earnings in compromised environments before, and we expect the company to once again deliver healthy operating cash flow in 2020. Mike Stornett will have more details on our sustainable liquidity position in a couple of minutes. While ensuring the company is on sound footing, we also reached out to support our communities. We donated 35,000 protective N95 masks to a local hospital group here in our home state of Michigan, and our Chaco brand converted its repair and custom footwear operations to the production of masks for frontline healthcare professionals. We have also donated thousands of pairs of footwear to healthcare workers and first responders, and continue to support the 210 Footwear Foundation's efforts to help those in need within our industry. Our efforts to support our communities, especially first responders, will continue. We believe we are in a strong position to navigate the pandemic headwinds due to our efficient and flexible business model, our ability to act and adapt quickly to today's challenges, our hard pivot and strategic focus on digital and e-commerce, the strength of our brand portfolio, and finally, the experience of our teams and leadership. There will be plenty of market share and other opportunities as the pandemic subsides, and we expect to emerge from these events an even stronger company poised to take advantage of these opportunities. I will offer some further insights into the strength of our current business model and near-term strategies, but first let me briefly review the performance of our brand groups in Q1, starting with the Wolverine Michigan Group. reported revenue was down 18.1% to the prior year and down 17.6% on a constant currency basis, reflecting the sweeping impact of the pandemic. Following mid-teens growth in Q4, Merrill started Q1 on track with expectations, but finished down low double digits to the prior year. While Wolverine and Cat took significant market share during the quarter in the U.S. work category, Wolverine was down high teens compared to the prior year and Cat finished down double digits. Chaco was also down double digits and the smaller brands in the Michigan group also saw declines related to the pandemic. I'm pleased with the strong momentum Merrill achieved in Q4 and we saw this strength continue into the first two periods of this year. For the quarter in total, Merrill.com grew nearly 25% and sales are up triple digits so far in period four, spurred by new products like the Bravada, a sneaker hiker hybrid in the performance category and the Juno Sandal Collection in the lifestyle segment. Like Merrill, Wolverine, Cat and Chaco all grew their respective e-commerce businesses at a strong double digit pace through the quarter. On Wolverine.com, The new i90 DuraShox product outperformed the brand's expectations and became its top seller. On CatFootwear.com, the new Excavator Superlight, Cat's take on superior toughness in a lightweight product, was the brand's top seller, outpacing strong core work styles. Trending lifestyle products like the Intruder and Code styles also performed very well for Cat. Finally, on Chacos.com, the new Chilo sandal became the brand's biggest launch in several years. Moving to the Wolverine Boston Group. Reported revenue was down 11.1% to the prior year and down 10.6% on a constant currency basis. Coming off mid-teens growth in Q4, Sperry finished Q1 down double digits to the prior year. For Saucony, High double-digit growth to start the quarter helped the brand deliver double-digit Q1 growth, an impressive performance in this global retail environment, and further evidence that the brand has regained its momentum. Sperry grew its DTC business high single digits in the quarter, with e-commerce and stores both up to the prior year. The brand's new plush wave technology has been selling well and delivers exceptional lightweight comfort in the brand's most loved icons. In addition, Sperry's partnership with John Legend kicked off during the quarter and is beginning to create excitement in key categories, including boat. Saucony was our top performing brand in the quarter, fueled by the powerful combination of the innovative new product and a focus on consumer connections through e-commerce. Saucony.com grew strong double digits, driven by the recently launched award-winning Triumph 17 and Guide 13. Both franchises utilize the brand's new Power Run Plus midsole cushioning technology, which delivers enhanced flexibility, fit, durability and energy return while weighing one-third less than comparable models. a healthier distribution strategy and sales mix again resulted in a meaningful triple digit basis point expansion of gross margin for the Saucony brand. I'll now take a few moments to discuss our perspective on the macroeconomic environment and additional details on how the company will leverage its strength to succeed moving forward. We have been actively engaged with our global partners to track and respond to the impact of this pandemic at various phases of outbreak, containment, and recovery. Every market is different, but those countries that were affected early, like China and certain countries in Europe, provide some insight for how things may progress in later developing markets like the U.S. In addition to this global perspective, and I'm also personally sitting on a council of business executives, health leaders and medical experts advising our state governor on the timing and protocols for opening Michigan's economy. At the moment, I expect the U.S. recovery will be gradual with various states and regions reopening on somewhat different timetables and with certain industries and businesses returning to work before others. While we can all learn from each other, I doubt there is a single playbook that will be applicable across industries, types of facilities, countries, or global regions. While the current global retail environment will improve as consumers return to work and stores reopen, we anticipate that there will be a measure of lasting impact. I would not, however, bet against the U.S. consumer as things stabilize. We expect consumer behavior and shopping preferences will shift and that distribution models will need to change in line with this new landscape. Our nimble and efficient operating model mitigates risk and provides key advantages in this dynamic environment. We have a diverse portfolio of brands with over 1,000 years of brand equity, a strong and growing digital and e-commerce competency, and Agile Global Distribution Network that we have built over many decades covering around 170 countries and which is not dependent on a single brand distribution channel or region. A robust and flexible supply chain and a great team with deep industry experience and the proven ability to act quickly and adapt to changing demands on the business. Our focus on the consumer and digital and e-commerce over the last several years is now providing a competitive advantage for the company. Consumers have started to spend even more time online, and our brands were able to pivot quickly to engage them digitally, providing a way to shop online, but also authentically connecting with them to build stronger long-term affinity. We have prioritized full-price selling in our owned e-commerce business with a focus on improved newness and storytelling to capture the consumer's interest during their increased time at home and online. For example, when Chaco announced that it would be converting its repair and custom sandal operations to the production of masks and also introduced new product with sharply focused storytelling These actions drove almost triple-digit increases in Chaco.com. We have similar examples in Merrill, Saucony, and the rest of the portfolio. The consumer is looking for newness and an optimistic brand message and outlook. In addition to our digital competency, we believe the core product categories our brands are known for also position us well with today's consumer. Given the uncertain retail landscape, we believe being brand owners represents a distinct advantage for the company, especially when product offerings are at accessible price points. We are focused on offering consumers a steady flow of fresh, innovative product and have carefully recrafted our brand and product stories to resonate with the consumer in this dramatically changed environment. We are fortunate to have many brands focused on health and wellness, outdoor, running activities, and home comfort. We also offer excellent product in the work, tactical, and professional segments across all first responder categories. Merrill, Saucony, Sperry, and Chaco are all ideally positioned as leading brands in hiking, running, and water activities. And Wolverine, Cat, Merrill, Bates, and Hightest are all leading brands in the work, tactical, and professional categories. These latter categories tend to be more need-based purchases that typically perform better in times when consumer discretionary spending is tight. Our business model is built to deliver earnings and cash flow under incredibly challenging conditions, as we have proven in past times of recession and market disruption. Our diversified portfolio of brands, product categories, and channels of distribution, coupled with our broad geographic reach, all serve to mitigate risk. And our relatively low fixed cost structure and nimble supply chain provide significant efficiency and flexibility to adjust in times like these. The company is on strong footing to face the challenges of the near term and to win as the new normal develops. Before I hand it over to Mike, I want to say again how incredibly proud I am of our team and our people. They have acted with tremendous urgency and a genuine team mindset as we have responded to the pandemic and its impact. As a result of their hard work and dedication, we expect the company to deliver significant positive cash flow once again in 2020 and to emerge even stronger. With that, I'll now turn the call over to Mike Stornett, our Senior Vice President and Chief Financial Officer, who will provide additional commentary on our performance in the first quarter, as well as provide more details on our game plan for the rest of the year. Mike?