Wolverine World Wide, Inc.

Greetings and welcome to the Wolverine Worldwide Fourth Quarter Fiscal 2021 Results Conference Call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Alex Wiseman, Vice President of Finance and Investor Relations. Thank you, Alex.

You may begin. Good morning, and welcome to our fourth quarter 2021 conference call. On the call today are Brendan Hoffman, our President and Chief Executive Officer, and Mike Starnett, our Executive Vice President and Chief Financial Officer. Earlier this morning, we announced our financial results for the fourth quarter and full year 2021. The press release is available on many news sites and can be viewed on our corporate website at wolverineworldwide.com. If you would prefer to have a copy of the release sent to you directly, please call Gene Fontana at 646-277-1214. This morning's press release and comments made during today's earnings call include non-GAAP disclosures, which adjust, for example, for the impacts of environmental and other related costs, net of cost recoveries, costs related to the COVID-19 pandemic, including air freight costs, severance expenses, and other related costs, and foreign exchange rate changes. References to organic performance reflect the exclusion of the Sweaty Betty brand, which was acquired in August 2021. These disclosures were reconciled in the attached tables within the body of the release or in supplemental tables found on our website under the investor relations tab at the webcast and presentations link. I'd also like to remind you that statements describing the company's expectations, plans, predictions, and projections such as those regarding the company's outlook for fiscal year 2022, 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 laws. As a result, we must caution you that there are a number of factors that could cause actual results to differ materially from those described in the forward-looking statements. These important risk factors are identified in the company's SEC filings and in our press releases. With that being said, I'd now like to turn the call over to Brendan Hoffman.

Thanks, Alex. Thank you for joining us today for a discussion on our fourth quarter and full year results, as well as our go-forward priorities and outlook. I'm very pleased to be speaking with you for the first time as CEO of Wolverine Worldwide. I joined the company as president in the fall of 2020, and I'm more confident than ever in the untapped growth potential of our powerful and diversified portfolio of world-class brands which operate in attractive categories, deliver industry-leading product innovation, and are supported by centers of excellence. To drive our business forward, we have an incredible team in place, which we further strengthened with new talent over the past year. We firmly believe that the consumer and marketplace trends that accelerated during the pandemic will continue to provide tailwinds as evidenced by the strong demand we see across our brands. As we emerge from the pandemic, we believe that consumers will maintain healthy lifestyles that will fuel continued growth in the outdoor and active categories for some time, and we are competitively well-positioned to capitalize on this opportunity. Today, I will begin my discussion with some highlights from the fourth quarter and an update on our progress in advancing our growth strategies. I will conclude by sharing a few aspects of my approach to the Wolverine business that I believe will further improve execution against our goals in the year ahead and set us up for long-term sustainable growth. For the fourth quarter, strong consumer demand across key brands yielded 25% revenue growth. We were very pleased with the performance of our most recently acquired brand, Sweaty Betty, which delivered revenue ahead of our expectations. Excluding the incremental sales from Sweaty Betty, revenue grew nearly 10%, with Saucony and Wolverine being the biggest contributors to organic growth. Inventory constraints created by Vietnam factory closures and ongoing supply chain challenges impacted our top-line growth, with demand for Merrill, Saucony, and other brands left unmet, which Mike will speak to in more detail. For the full year, we delivered revenue of $2.4 billion, representing nearly 35% growth compared to the prior year, including over $115 million of revenue from the Sweaty Betty acquisitions. Excluding Sweaty Betty, revenue grew 28%. We remain excited about Sweaty Betty as it further diversifies our portfolio as one of the few female-founded, female-led activewear brands in the market, creating products just for women. This team continues to execute on its key strategic priorities by delivering a powerful line of industry-leading products while growing internationally and expanding Wolverine's direct-to-consumer presence and capabilities which can be leveraged across the portfolio. Merrill and Saucony each delivered record revenue in the year with growth of 22% and 57% respectively. On a full year pro forma basis, Sweaty Bready grew over 40%. Sperry faced significant category headwinds early on during the pandemic, but delivered marked improvement in 2021, delivering over 24% growth. While navigating macro challenges throughout the year, we made significant progress in delivering on our three primary growth drivers. Beginning with our DTC and digital focus, we continued to deliver growth in our direct-to-consumer business and further advanced our DTC penetration and international mix with the acquisition of Sweaty Betty. Including Sweaty Betty, fourth quarter direct-to-consumer revenue grew 60% compared to 2020 and represented 35% of our total revenue. DTC e-commerce revenue grew 58% versus the prior year and 109% versus 2019. DTC store revenue was up 68% versus the prior year and 45% versus 2019. Excluding Sweaty Betty, fourth quarter direct-to-consumer revenue grew 12%, reflecting e-commerce growth of 13% and store revenue growth of 11%. The DTC mix in our organic business grew to 28% of revenue, up from 19% in Q4 2019. Our focus on driving authentic engagement and meeting consumers where they shop, creating a constant flow of content and storytelling, and employing enhancements to our e-commerce platform globally are paying dividends across our brands. The progress we are making, along with our acquisition of Sweaty Betty, has enabled us to grow active customers by 24% versus the prior year and 50% compared to 2019, drive double-digit increases in conversion rate, and achieve higher retention rates as compared to 2019. We will continue to focus on investments to drive DTC growth through continued e-commerce upgrades and digital strategies. As an example of this, we are making improvements to our recently launched Merrill mobile app in 2022 to further elevate the customer experience and drive customer acquisition and engagement. Future enhancements to the mobile app will be focused on experiential elements related to Merrill's purpose and additional customer-facing functionality. We are very excited by the consumer engagements we are seeing and will use our learnings to further evolve and introduce mobile applications to our other brands. Moving on to product innovations. Product innovation is embedded in our DNA and is the cornerstone of our brand success. Our big four brands have maintained a leadership position in their respective categories through consistent delivery of new product innovation in both proven franchise businesses as well as new product introductions that add excitement to the offerings and provide a halo for the brands. Our four largest brands all launched new products within their key product franchise collections in 2021. We cannot underscore enough the importance of our brand's franchise businesses, including the Merrill Moab Collection, Saucony Endorphin Running Shoes, the Sperry Authentic Originals Collection, which is leading the Bochu resurgence, as well as continued innovation from Sweaty Betty's core collections, such as its Power Leggings. Supported by continued updates and innovation, these franchise businesses not only provide steady revenue streams, but also provide substantial growth opportunities. Our product innovation also provides the brand equity necessary to enter new categories. Our third growth strategy is to accelerate international growth. For the full year, international revenue grew over 50% as compared to 2020. Excluding Sweaty Betty, international revenue grew 34% as compared to 2020, and we were particularly pleased with our performance in EMEA, which delivered revenue in excess of 2019 levels. Asia Pacific and Latin America delivered revenue growth of 30% and 50%, respectively, versus 2020, and are accelerating to pre-pandemic levels, which we expect to occur in the first half of 2022. For the fourth quarter, international sales grew approximately 51%. Excluding Sweaty Betty, international revenue grew 10%, led by the Asia Pacific and Latin America regions. Revenue in the APAC region grew 27% in the fourth quarter. While still in the early innings, we saw over 60% revenue growth in China, predominantly driven by Merrill and Saucony through our joint venture. Turning to EMEA, revenue was roughly flat due to the impact of late product deliveries and factory delays. Nonetheless, we are encouraged by the strong order book demand in EMEA, expect improved results as inventory levels sequentially improve and normalize. Looking ahead to 2022, we remain optimistic about the momentum in our brands for several reasons. First, we have an incredibly strong order book reflecting continued momentum in our largest brands. We continue to refine our wholesale strategy with a focus on both brick and mortar and e-commerce partners that are right for our brands, as well as take advantage of distribution decisions made by other brands. Second, we continue to drive outsized growth in our DTC business and are pleased with the increase in new customers as we advance our initiatives in e-commerce and engagement. Third, we have the tailwinds of favorable industry dynamics in active, outdoor, and work categories that we believe are sustainable. As consumers return to experiential activities, the elasticity in use and portability of our products help us to adapt these changing lifestyle trends. And finally, we have a number of exciting and innovative new product launches across our biggest brands, supported by powerful marketing stories, collaborations, and the resulting earned media. I will now turn the call over to Mike to discuss our fourth quarter financial results and 2022 outlook before I discuss how we'll approach our growth strategies to drive improved execution in 2022 and beyond. Thanks, Brandon.