Wolverine World Wide, Inc.

Gentlemen, greetings and welcome to the Wolverine Worldwide Inc. Second Quarter 2022 Earnings 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 will now turn the conference over to Mr. Alex Wiseman, Vice President of Finance. Please go ahead, sir.

Good morning and welcome to our second quarter 2022 conference call. On the call today are Brendan Hoffman, our President and Chief Executive Officer, and Mike Stornett, our Executive Vice President and Chief Financial Officer. Earlier this morning, we announced our financial results for the second quarter 2022. 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, and foreign exchange rate changes. Prior year non-GAAP disclosures include adjustments for costs related to the COVID-19 pandemic, including air freight costs, severance expenses, and other related costs. References to organic performance reflect the exclusion of the Sweaty Betty brand, which was acquired in August 2021. These disclosures were reconciled in 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 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.

Thank you, Alex. Good morning, everyone, and thank you for joining today's call. We delivered operating margin ahead of our expectations and EPS at the high end of our guidance, despite softer than expected revenue. Sales were impacted by unplanned headwinds related to elevated wholesale channel inventory, foreign exchange rate pressures, and some lingering supply chain delays. As a result of these headwinds, which are likely to persist through the back half of the year, we are revising our guidance to reflect higher promotional activity and challenges related to moving inventory through our wholesale channels. While we are reducing our margin outlook for the second half, we are taking actions to reduce costs increase efficiencies in marketing spend, and take strategic price increases, all of which will contribute to improved longer-term profit. Overall, we are encouraged by a strong second quarter performance in our international business, 14% growth in Merrill, and a favorable response to product and marketing initiatives across several brands. We will continue to build on the meaningful progress we've made on the corporate strategy work we started earlier in the year, and remain excited about the future growth potential of our business. Looking at our second quarter results, revenue increased 13% to $714 million, including Sweaty Betty, and was up 5% on an organic basis. We saw notable strength in international, which was up 45%, driven by strong demand in our organic business. We saw sales pressure in the U.S., where revenues declined 2%. Unfavorable foreign exchange rates impacted reported revenue growth by $19 million, or three percentage points. Now I'd like to provide more context around two factors that impacted revenue. First, starting in June, we began to experience order postponements as certain U.S. retailers were faced with excess inventory in distribution centers and stores. We are working closely with partners to move through product, and in some cases, turning to drop shipping and direct-to-store shipments to help alleviate this current pressure. As such, some of these sales will shift to later in the year, which Mike will speak to as he reviews our financial results and outlook. Second, as with others, we experienced softness in the e-commerce channel. E-commerce revenue was down 7% on an organic basis as compared to the second quarter last year, and up 20%, including sweaty betting. We believe this is largely attributable to a change in shopping behavior from what occurred during the pandemic, with consumers now partially reverting back to in-store shopping and shifting towards experiential spending. We also recognize the impact inflation is having on certain consumer segments. Given our limited number of stores, which excluding Sweaty Betty are almost exclusively outlets, we are not able to take full advantage of the spending shift between stores and e-commerce in our own DTC channel. Our e-commerce remains a critical part of our growth story. Since 2019, the organic business has almost doubled, and including Sweaty Betty, e-commerce as a percentage of global sales is now approximately 20%. Now, before we move on to brand highlights, I also want to provide a quick update on the supply chain. We are seeing a normalization in production levels at our core factories. Transit times, which have been elevated and volatile, are starting to improve, and there is greater visibility in the supply chain. Through our efforts earlier in the year, we were able to receive a majority of the fall inventory in time for the fall selling season. Moving to brand highlights, starting with Merrill. Merrill delivered on our expectations coming into the quarter with revenue growth of 14% versus 2021. Shoppiness in the flow of goods into U.S. retail during the quarter was partially mitigated by stronger-than-expected revenues from international markets. As anticipated, lack of product newness was a headwind for Merrill in the quarter as supply chain delays pushed new product launches into Q3. Despite this challenge, the team has continued to generate excitement around the brand with marketing activations and sustainability initiatives launched during the quarter, which included This Is Home, a new multi-year sustainability initiative designed to inspire consumers to protect the nature that shapes their everyday lives. To kick off the inaugural year, Merrill launched a multinational product take-back and resale program called Merrill Retread, which will keep 300,000 pairs of footwear out of landfills. Moab stepped further, nature's calling, and more or less marketing activations were also catalysts for continued strength and sell-through on core products such as the Moab, Embark, and Alpine. Turning to Q3, in July, we launched Moab 3, an update to the number one light hiker in the market with improvements in comfort and traction. We're very pleased with the early reads. Even as we promote Moab 2, Moab 3 is selling above expectations. Given the injection of new product, improving brand heat, continued growth in emerging performance styles like Moab Speed, in-stock inventory levels, and easy comps versus last year's supply chain disruptions, We expect Merrill to deliver over 30% revenue growth in the third quarter and full-year revenue growth in the high teens. Moving to Saucony, Saucony grew 7% to approximately $135 million, but fell slightly short of our expectations, primarily due to lower closeout sales related to excess inventory in the channel. We continue to see strong response to newness. In June, we launched Tempest, which marries the energy of a race shoe and an everyday trainer, and we were encouraged by early sell-through. International grew 32%, reflecting strong reception of the brand as we continue to expand our presence. During Paris Fashion Week, Saucony took over a gallery in the Marais to showcase the House of Speed and House of Originals, bringing together performance and lifestyle segments of the brand. House of Speed celebrated the launch of the Endorphin Pro 3 and Endorphin Speed 3, the latest evolution of the brand's award-winning endorphin collection, which launched in July. House of Originals focused on the rich heritage of speed and innovation and lifestyle elements of Saucony. During July, I visited the Saucony Originals headquarters in Italy and walked away very excited for the newness coming in the second half. I was energized by the merchandise presentations at retail, and I'm excited to see this influence incorporated in the U.S., Looking ahead, Saucony remains focused on driving market share globally across road and trail running categories, as well as expanding our lifestyle originals business. In Q3, we expect Saucony to deliver low single-digit revenue growth and mid-teens growth for the full year. Moving on to Sperry, Sperry saw a negative shift in sales with revenue of $70 million declining 13% versus last year. Significant order postponements from retailers combined with isolated cancellations due to late-arriving product were the primary drivers on the revenue miss. We continue to work towards diversification in the wholesale channel while working closely with our department store partners. Despite these challenges, our focus on innovation remains a priority. A good example is the Sperry Sport, which exceeded our expectations. This line of highly innovative footwear uses lightweight, breathable materials, offering multi-purpose solutions, including fishing, paddle boarding, boating, and sailing. When we introduce truly differentiated products that reflect the functional core of the brand, we see very positive reaction from customers. Importantly, this category also extends Sperry's customer reach, driving robust new consumer growth on Sperry.com. Additional product catalysts for fall include expansion of the successful Torrent Boot Collection and the launch of the innovative Duck Float Boot. We now expect Sperry revenue to grow mid-single digits in Q3 and deliver mid-single digit growth for the full year. Now turning to Sweaty Betty, revenue of $47 million was down 23% versus the prior year pro forma and down 11% in constant currency. Q2 revenue was up 96% versus 2019 on a pro forma basis. Continued macro headwinds in Europe, and in the UK specifically, where discretionary spending, especially for apparel, is under pressure, weighed heavily on Sweaty Betty's performance. On the supply chain side, product delays continue to disrupt flow of inventory, although we expect this to improve in the second half. While we are seeing some headwinds in this business currently, we are confident in the brand's long-term potential given the $45 billion TAM, our global potential, and the opportunity to expand into other categories. The team is currently focused on penetrating the U.S. market, where we're in early stages of growth. In the U.S., a recent study showed strong affinity for the brand among attractive consumer segments. We plan to relaunch stores in 2023. The brand also experienced continued strong momentum in China, exceeding expectations in the first half despite COVID lockdowns. We continue to explore the opportunity in China where we see strong demand for active and performance apparel. Turning to product, our swim line, which included a broader range of performance and lifestyle products, all fully sustainable, delivered sales growth of 40% compared to the second quarter last year. Sweaty Betty also launched its first power bra using the same exclusive fabric that is used in the power legging franchise, which sold out in just three weeks. In the third quarter, Sweaty Betty will be building on the success of the new super soft leggings franchise launched in the first quarter. We will also launch a broader range of options in outerwear with a new climate three-in-one jacket, which is highly versatile, fully waterproof, breathable jacket made from recyclable materials. Sweaty Betty team is also partnering with our other brands and sharing its retail expertise to help the brands design and build modular, flexible, pop-up retail environments primarily in the UK. This concept provides an ideal opportunity for us to test and learn different retail variations in terms of locations and combination of brands over set periods. We plan to use this experience to help inform our future DTC strategy. On a pro forma basis, we now expect Sweaty Betty third quarter revenue to be down mid-teens. For the full year, we now expect revenue to be down mid-single digits, but up mid-single digits on a constant currency basis. Wolverine is the foundation of our work boot brands and continues to deliver consistent growth. In the second quarter, Wolverine revenue was in line with our expectations at $58 million, reflecting growth of 16%. The flow of new product is stabilizing for Wolverine, with the Hellcat Ultra Spring Heavy Duty, which launched in Q2, and the Women's Torrent Rain Boot set to launch in Q3. Wolverine also has a strong lineup of collaborations planned for the back half, including Ram Trucks and Lucky Brands. We expect Wolverine to deliver growth in the high single digits for Q3 and mid-teens for the year. Now I'd like to speak to our recent strategic assessment. As you recall, we started this work several months ago to identify and prioritize the biggest growth opportunities within the portfolio and create an achievable roadmap to deliver consistent, best-in-class shareholder returns. In May, we brought in BCG to accelerate the process. We are encouraged by what we learned so far, and we plan to unveil our strategic plan at our investor event. First on brands, we are conducting a thorough assessment of the role of each brand in the portfolio to determine where to prioritize our investments, including a market and peer analysis to help us identify the largest TAM opportunities for key brands in the portfolio that will inform the brand-specific strategy work that is now underway. When we finalize the portfolio work, this will also inform our organizational and external reporting structures to create more clarity and drive optimal results. The process also includes a reevaluation of which decision rights lie within the center of excellence versus at the brands and business units. Our first area is e-commerce, and we are already piloting this within the MERIL team. Finally, we have been focused on aligning our cost structure to the evolving business model and portfolio that we are building for the future. Our company looks much different today than it did in 2019. Our DTC and digital businesses have accelerated quickly. We have acquired an apparel business, and our global footprint continues to expand. As I said earlier, while we focus on global growth through all of the relevant channels, we are also putting a significant emphasis on profitability and cash flows. The work to streamline the business and organize more efficiently will help us right-size our cost structure and better manage working capital. This is especially important today as we face more macro uncertainty in the near future. In conclusion, while the global macro environment and supply chain challenges are likely to create headwinds in the short term, we are more confident than ever in the future of our brands. With that, I will turn it over to Mike to discuss our financial results.