Wolverine World Wide, Inc.

Greetings and welcome to the Wolverine Worldwide Inc. Fourth Quarter 2022 Earnings 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 Science. Please go ahead, sir.

Good morning and welcome to our fourth quarter 2022 conference call. On the call today are Brendan Hoffman, our President and Chief Executive Officer, and Mike Starnit, our Executive Vice President and Chief Financial Officer. Earlier this morning, we issued our press release and announced our financial results for the fourth quarter and full year 2022 and guidance for fiscal 2023. 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 disclosures, which adjust, for example, for the impacts of non-cash impairment of Sperry and Sweaty Betty Intangible Assets, environmental and other related costs, net of cost recoveries, reorganization costs, costs associated with the integration of Sweaty Betty, receivable securitization transaction costs, gain on the sale of the Champion trademark, and foreign exchange rate changes. Prior year non-GAAP disclosures include additional adjustments for debt extinguishment costs, non-cash impairment related to one of the company's joint ventures, and costs associated with the acquisition of the Sweaty Betty brand. On February 8, 2023, we announced the sale of the Keds business to Designer Brands Incorporated, the parent company of footwear retailer DSW. At the same time, we announced the intention to grant an exclusive license to Designer Brands for Hush Puppies Footwear in the United States and Canada. Additionally, as previously announced on December 8, 2022, We have started a formal process to divest our Wolverine Leathers business. As such, our guidance for 2023 reflects future financial expectations and comparable results from 2022 that exclude the full year impact of Keds and Wolverine Leathers and include an adjustment for the second half 2023 transition of our United States and Canada Hush Puppies business to a licensing model. References to our ongoing business reflect these adjustments. These disclosures will reconcile and attach tables within the body of the release. 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 2023, 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. For the fourth quarter, we reported revenue and adjusted earnings per share in line with our expectations. Our gross margin performance in the quarter was impacted by our efforts to more swiftly clear inventory to position the company for improved performance in the year ahead. Our GAAP results, as Mike will comment on, include a large non-cash impairment charge that was greatly impacted by the discount rate applied to certain acquired brands. This month marks my one-year anniversary as CEO. As I look back on my first year, 2022 was certainly a challenging period for us and our industry as the environment shifted quickly midway through. While our company, like many others, underperformed against our initial expectations, the year was also a pivotal time for our company as it shed light on key areas where we must improve. We recognized that our business was too complex, which limited our ability to quickly course correct when faced with sudden changes in consumer spending. So we set a path to simplify our business and improve our supply chain. Agility is essential in any environment, but especially important today. In December, I shared four key priorities that are integral to the 100-day plan we put in place in Q4 as part of our course correction efforts. Let me review these priorities and update you on the early progress we have made. First, the change in our brand group structure announced in November, where brands with similar attributes are now grouped together, enabling them to more easily collaborate and share best practices. Second, improving efficiency while removing costs. We established a profit improvement office that has identified $150 million in annual run rate profit improvements, with at least $65 million expected to be achieved in 2023. In addition to reducing costs, the PIO is also focused on continuous process improvement initiatives, including redesigning our supply chain planning process. We are also benchmarking our global cost structure and operating model against our best-in-class peers in the industry. Third, the strategic review of our portfolio. On February 8th, we announced the successful sale of Keds and licensing of Hush Puppies for North America. We are also moving forward with our plan to divest our Wolverine leather business. We continue to evaluate our portfolio to focus resources on the businesses and brands that will drive the highest return for our shareholders. This includes further investments in Merrill and Saucony's lifestyle businesses and expanding Sweaty Betty's global business. Fourth, improving working capital and reducing leverage. Year-end inventory was down approximately $93 million versus Q3 and lower than our November guidance by $50 million. Q4 operating free cash flow was nearly $300 million and the company's bank-defined leverage ratio of 2.7 compared to 3.4 at the end of Q3. The meaningful progress we made over the last 100 days sets a foundation for further improvements in 2023. We expect to reduce inventory to normal levels in the third quarter of the year and drive significant operating free cash flow. We also have accomplishments to share across our brands. Starting with the active group, consisting of Merrill, Saucony, Sweaty Betty, and Chaco. We are very pleased with the active group performance in the fourth quarter, including 17% growth on a reported basis and 23% in constant currency. For the full year, active group revenue increased 19% on a reported basis and 24% in constant currency, including a 7% percentage point benefit from lapping a partial year of Sweaty Betty in 2021. Merrill finished the year strong. Constant currency revenue increased 31% in the fourth quarter and rose 22% for the year to $194 million and $764 million, respectively. The fourth quarter performance was driven by global brand strength across categories and a relatively easy comparison to the prior year when Vietnam factory closures resulted in a lack of inventory. We successfully repositioned the Moab franchise with one of the best innovation pipelines in years. Our purpose-led brand messaging amplified by Merrill's Inclusivity in the Outdoors study published in 2022 and the company's global impact report continues to introduce Merrill to more customers and increased the cadence of our communication with existing customers. We were also encouraged by the strength in our own direct-to-consumer business, which was up 16% in the quarter and now accounts for over 40% of Merrill's sales in the U.S. Beginning in the first half of 22, we began to strategically shift our marketing investments in Merrill, moving more dollars up the funnel to expand the reach of the brand to both existing and new consumers. This shift was rewarded with many positive results, including increases in brand awareness, attracting new consumers, both younger and, importantly, women, sequential improvement in our year-over-year comparisons at Merrill.com, along with meaningful increases in market share in the second half of the year. We are beginning to transfer these successful marketing and direct-to-consumer strategies to the rest of the brand portfolio. As we look ahead, we are confident that Merrill will continue to leverage its leading positioning in its core hike business, along with increased traction and trail running. We believe that our highest growth opportunity for Merrill is to expand our lifestyle business. Our lifestyle product line, 1TRL, continues to expand the brand's reach with retail partners and customers. Most recently, Merrill's 1TRL partnered with Reese Cooper's RCI Reserve and earlier this month had a New York City pop-up experience featuring the limited edition collaboration. Looking ahead, we expect Merrill's revenue to grow mid-single digits in fiscal 23 with high teens growth in Q1 versus an easier comparison in the prior year. Moving to Saucony, constant currency revenues increased 30% in the fourth quarter and 10% for the year, to $121 million and $505 million, respectively. Like Merrill, Saucony's fourth quarter performance was driven by updated core franchises, including the Endorphin and Triumph. Saucony's e-commerce performance was strong in Q4, up 31%, as the brand integrated a centralized e-commerce commercial team directly into the brand team. Recall, we piloted this initiative with Merrill in early 2022 before rolling it out to the other brands. Saucony continues to drive innovation and received product accolades in 22, including the Endorphin Pro 3, which GQ rated as best road running shoes and its best in fitness awards. And the Ride 15 won best cushion shoe in runner's world. Saucony's China JV once again had a very strong quarter, as sales tripled in 2022. Our multi-channel strategy is working well, including the addition of eight new stores during the quarter. We expect revenue from our China JV to double in 23. Our highest priority for Saucony is to extend its reach beyond the core runner to everyday active and lifestyle consumers. We have several product and marketing initiatives to reach this compelling segment of the market. Also within Saucony, a high priority and opportunity for the corporation is the global expansion of our originals business, which remains robust in Italy, the global hub for international expansion. Looking ahead, we expect Saucony revenue to grow mid-single digits in fiscal 23, with high single-digit growth in Q1. Moving on to Sweaty Betty, constant currency revenue increased 5% in the fourth quarter. On a pro forma basis, if we had acquired Sweaty Betty at the beginning of 2021, full-year constant currency revenue declined 4% to $212 million. The retail environment in the UK remains challenging, but Sweaty Betty navigated the holiday quarter well. Store comps in the UK were positive, driven by new customer acquisition initiatives, as well as head-to-toe merchandising efforts that increased units per transaction. Through effective marketing tactics, the brand acquired 12% more new customers in the UK and 33% more new customers in the U.S. in the fourth quarter, a change in the negative trend we had been seeing. Encouragingly, our U.S. wholesale channel has begun to stabilize with improvements in logistical operations and robust reorder activity, showing the continued demand from our key partners. Brand margins were negatively affected by increased discounting to compete in a highly promotional UK market. However, we are encouraged that the brand ended the quarter with an improved inventory position. In 2022, we opened 18 new standalone stores and concessions in the UK, Northern Ireland, Hong Kong, and Singapore. We opened one pop-up in China. We plan to open 10 new stores in 2023, primarily in the UK and Ireland. The Sweaty Betty team has been collaborating with Wolverine's broader EMEA team to exchange best practices. This includes leveraging Sweaty Betty's direct-to-consumer and apparel expertise and further supporting Sweaty Betty with Wolverine's Centers of Excellence. As we look into 2023, our number one priority is to stabilize Sweaty Betty's home market in the UK and Ireland, while improving profitability through synergies from stronger integration within the rest of the portfolio. Looking ahead, we expect Sweaty Betty to grow low single digits in fiscal 23, with low teen declines in Q1. Workgroup revenue increased 4% and 8% in the fourth quarter and fiscal 2022 respectively in constant currency. This growth reflects strength across its key specialty retail customers, increases across the farm and fleet channel and e-commerce revenue growth with Wolverine and Cat leading the way and maintaining their number one and three positions for trade work footwear in 2022. Looking ahead, we continue to capitalize on the growing trends within the category, including the increase in work participation from the Hispanic population. We believe we are uniquely suited to meet the needs of the growing Hispanic participation rate with a relevant range of products and price points. In addition, The year will see us test Bates to Walmart as part of its private label program. Marketing will also be a focus as we look to engage with existing customers and expand our customer reach. The year will see us introduce a second collaboration with Halo following a successful launch that drove high email capture rate. Lifestyle group revenue declined 20% in the fourth quarter and 5% in fiscal 2022 in constant currency. The Lifestyle Group 2022 results discussed today include Sperry, Keds, and the Hush Puppy brands. Sperry revenues decreased 28% in the fourth quarter and 10% in fiscal 2022 in constant currency. Lower sell-throughs of certain boot styles as well as slowdown in the boat category resulted in wholesale partner cancellations. Sperry continues to experience headwinds in the U.S. marketplace across all channels. In 2022, the root cause of our underperformance was product. Customers loved Sperry for its core franchises, but we did not proactively modernize quickly enough based on trend. Between 2018 and 2022, more focus was placed on categories not as relevant to Sperry's DNA, and core declined from 70% of styles to less than 50%. As we look into 2023, our goal is to stabilize and generate consumer affection for Sperry. Our objective is to make both cool again through increased collaborations with designers that are relevant to our nautical theme and capitalize on the increasing consumer preference for spending on vacations and casual footwear for everyday use. We know Sperry can be top of mind for that vacation mindset with its classic and timeless styling. We expect Sperry revenue to decline high single digits in fiscal 23, the similar decline in the first quarter. Now, I will briefly touch on our international business. International revenue grew 32% in the fourth quarter and 42% for the full year in constant currency. Our brands continue to resonate well in international markets, and we see significant opportunities in both owned and JV-operated markets. The fourth quarter performance was driven by our top three brands, which account for over 50% of international revenues. In the quarter, Merrill and Saucony each saw international revenue growth of nearly 50%. EMEA business has also been a key contributor of the international growth, with Q4 revenue growth of plus 21%. Caterpillar also continued its strong performance with growth of 40% in EMEA. As we transition to 2023, we're focused on igniting growth across our active group, continuing our positive momentum in work, and quickly addressing our underperforming brands, all while increasing the efficiency of our business model. The retail environment remains volatile, and we continue to see some wholesale partners delay orders to allow more time to assess consumer demand trends. However, with our improving inventory position and a more responsive supply chain, we are better positioned to service the business. We expect to deliver 1% to 3% revenue growth for our ongoing businesses in 2023. Profitability is expected to improve sequentially as we right-size inventory and as savings from our profit improvement plan builds. We also expect to benefit as we introduce more newness and innovation across brands and continue our storytelling and full funnel marketing journey. We are now a leaner and more agile organization, better positioned to accelerate our profit growth and invest behind our core brands to enable them to reach their full potential. While we are disappointed that our performance in 2022 fell short of our original expectations, we believe we now have the organizational structure, the team and the strategy in place to deliver improved performance in 2023 and return to 12% operating margins in fiscal year 2024. I will now turn the call over to Mike to discuss more details about our fourth quarter financial results in our 2023 outlook. Mike?