Wolverine World Wide, Inc.

welcome to the Wolverine Worldwide fourth quarter fiscal 2024 earnings 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, 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 Weisman, Vice President of Finance. You may begin.

Good morning and welcome to our fourth quarter fiscal 2024 conference call. On the call today are Chris Huffnagle, President and Chief Executive Officer, and Taryn Miller, Chief Financial Officer. This morning, we issued a press release announcing our financial results for the fourth quarter in full year 2024 in guidance for fiscal year 2025. Press release is available on many news sites and can be viewed on our corporate website at wolverineworldwide.com. This morning's press release and comments made during today's earnings call include non-GAAP financial measures. These non-GAAP financial measures, including references to the ongoing business, were reconciled to the most comparable GAAP financial measures and attached tables within the body of the release or on our investor relations page on our website, wolverineworldwide.com. 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 2025, 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, I'll now turn the call over to Chris Hoffmagle.

Thanks, Alex. Good morning, and thanks to everyone joining us on this morning's call. In the final quarter of 2024, our company inflected a top-line growth with Merrill, Stockney, when adjusted for business model changes, Wolverine, and three of our four global regions all posting revenue increases compared to the prior year. Course margin expanded by more than 600 basis points compared to last year, achieving a new fourth quarter record. The end result was earnings that exceeded our expectations. It was a good quarter by almost any measure, a fitting conclusion to what was a pivotal year for Wolverine worldwide. Last year on this call, we shared an update on our ambitious plan to turn around the company and provided our corresponding financial expectations for fiscal 2024. Today, I'm pleased to report that our team delivered. We successfully completed the stabilization of the company and strengthened our balance sheet, finishing with our lowest debt level since the second quarter of 2021 and the cleanest inventory position we've had since the pandemic. We also meaningfully improved the business's profitability, achieving record full year gross margin and delivering earnings per share nearly six times greater than last year. And finally, as we guided last February, the company inflected a growth to finish the year. In addition to solidifying our foundation and delivering improved financial results for our shareholders, we made good progress in transforming Wolverine worldwide for the future. We reshaped and simplified our portfolio brands to better align with long-term macro consumer trends and we developed stronger capabilities to underpin our new brand building model, focused on building awesome products, telling amazing stories and driving the business. We started with the consumer and established the collective to bolster consumer and trend insights. We complimented our already strong product design and development capabilities by adding new talent with a merchandising mindset and by implementing advanced tools for greater effectiveness and efficiency. We opened our first ever innovation hub in downtown Boston to tap into the concentration of exceptional talent in the region. We recruited new marketing leadership across our brands and we equipped them with an in-house creative studio for fast, nimble asset creation to engage today's always on consumers. We've been hard at work implementing new integrated planning processes to improve our forecasting and help ensure we've got the right product at the right place and at the right time. To drive the business and become better brand builders, we cleaned up the marketplace through a variety of brand protection measures coupled with more disciplined distribution management, develop more strategic relationships with our partners domestically, internationally and established a compelling platform to activate our brands with impact through our key city initiative, beginning in Tokyo and London. Finally, over the last year, we've significantly strengthened our team by adding great new talent to the organization. In the last few months alone, we've onboarded Susie Kuhn as president of our active group and two industry veterans to lead our product and marketing functions for Merrill. To date, we've made good progress, but I'm the first to admit we have more work to do. There's no doubt Wolverine Worldwide is much stronger today than it was just 12 months ago, but the most important chapter is certainly the next one. While it's still early in our inflection chapter and I'm sure the path won't be perfectly straight, our company is growing again and our biggest brands are positioned to meaningfully grow this year. For handing the call over to Taryn Miller, our chief financial officer, to provide more detail on our results in fiscal 2025 outlook, I'd like to share some additional insight on our brand's fourth quarter performance and how we plan to build the momentum we've generated. Beginning with Saucony. Saucony exceeded our expectations and grew 7% in the fourth quarter, adjusted for business model changes. In the quarter, the brand grew low teens in the US and over 20% in EMA and it did so at much healthier price points and margins, expanding gross margin globally by more than 1,400 basis points. Saucony's running business gained market share for the second consecutive quarter in the highly competitive and important US run specialty channel. Cheerios runners have long respected the brand for its innovation thanks to pinnacle, award-winning product like the endorphin collection and now Saucony successfully making progress on the broader run lifestyle opportunity in part with what we call its core four franchises, the ride, guide, triumph and hurricane. Across these key franchises, the team has improved performance with enhanced technology and cushioning, an elevated style with more versatile wearable design and the consumer is responding. In the fourth quarter sell through in the US of the core four franchise, the retail was up very strong double digits year over year. To fuel the pace, the brand opened 2025 with the introduction of the new ride and guide models, which are encouragingly also off to a strong start. In a few weeks, Saucony will push its innovation to the next level with the launch of its highly anticipated new super shoe, the endorphin elite two, built on next generation in credit run foam and a full length slotted carbon fiber plate for unmatched energy return. On the lifestyle side, Saucony continues to leverage its deep, authentic product archive to deliver trend right styles to the marketplace, led by the pro grid Omni, ride millennium, pro grid triumph and others. And it continues to fuel brand heat with a powerhouse lineup of collaborations on these various platforms. Last quarter, the brand dropped collections with the likes of J tips, minted New York, style cow Paris, homework and Grayson. The team has done a remarkable job in a very short period of time, enjoying the social and cultural discourse and is now thoughtfully translating this new found energy into meaningful growth. Saucony continues to advance the company's key city effort as well. This year, the brand plans to repeat its sponsorship of the London 10K, expand its sponsorship efforts to include the Saucony short shortage and Eiffel Tower 10Ks and open its first pioneer store in London's Covent Garden in just a few months. I'm also excited by the progress the brand is making in Asia Pacific, elevating our partnerships in the region's key markets and further expanding its branded store footprint. A year ago, I said I was bullish on the brand's prospects and today I believe Saucony is on the cusp of doing something very special. Leveraging its deep, authentic running roots, its tremendous performance product credibility and the macro trends benefiting the category to leapfrog into a unique position at the intersection of running and culture, blurring the lines between performance and lifestyle. Moving on to Merrill. In the fourth quarter, Merrill posted its second consecutive quarter of growth, up 1% compared to the prior year. The health of the business continued to improve as well, resulting in gross margin expansion of nearly 400 basis points year over year. In the US hiking category, the brand once again grew and took significant market share during the quarter. Its eighth time it has done so in the last nine quarters while simultaneously gaining share in trail running. As a leader in hiking, Merrill remains focused on modernizing the trail through faster, lighter and more versatile products like the Moab Speed 2 and Agility Peak 5. In Q4, both franchises continue to establish themselves as important collections for the brand, adding revenue and fueling performance with key accounts. This more athletic product has also enabled the brand to partner with several of its key retailers over the last year to reshape their assortments on the floor and begin evolving consumer perception of the brand in the marketplace. Further advancing its push to modernize the trail, Merrill launched the all new highly disruptive SpeedArk Surge Boa franchise last month. One of Time's best new inventions of 2024 and an ISPO award winner. It employs advanced materials and the brand's new SpeedArk platform, including its Float Pro Plus Super Critical Foam and a stabilizing flex plate for a uniquely comfortable ride with exceptional energy return. So far, it's exceeded our expectations in selling through quickly at nearly a $300 price point. Later, the score of the brand will follow up this introduction with a second style in the collection, the SpeedArk Madness. Merrill continues to make steady progress on the lifestyle side of the business as well. Pests with key counts this year have demonstrated demand with a younger consumer and driven an expansion of doors and revenue with US Specialty Independence through strong double digits in Q4. Shipments of key performance franchises, including the Moab Speed 2, Agility Peak 5, and Moab 3 nearly quadrupled with lifestyle counts last quarter. Merrill's actively driving innovation in the category and its strategy to modernize the trail is gaining real traction around the world. Switching over to Sweaty Betty. Sweaty Betty's top line was softer than our expectations for the quarter, but in alignment with our strategy, the brand continued to significantly improve its profitability with nearly nine of our basis points of gross margin improvement versus last year. Store revenue was flat year over year, and e-commerce was down high single digits. The brand grew its mid-layer business in leggings along with strong sell-through and auto-wear, most notably the Nimbus collection. Sweaty Betty entered the new year with a healthier foundation and a strong team in place. The brand launched its new Don't Sweat It campaign a few weeks ago, which we plan to follow shortly with the next iteration of the venerable Wear the Dam Shorts campaign. And closing with the Wolverine brand. The print for Wolverine brand's revenue performance in the quarter is encouraging. However, our trends remain inconsistent based on order patterns, supply chain timing, and overall footing in the marketplace. Going forward, the brand is focused on bolstering its product innovation and pushing into more premium price points as a result, starting with several new launches in 2025, including the new Vantage and Rancher Pro collections, which are built on the brand's new HyperRest technology for superior cushioning and energy return. In addition to improved product offerings, we're also focused on broadening the brand's reach. Wolverine plans to launch a new partnership in just a few weeks with country music superstar, Jordan Davis, including a custom footwork collection and apparel capsule later this year, along with a Wolverine by Jordan Davis trade tour that will celebrate the trades and donate to high school programs during his concerts this fall. As we turn the page to 2025, the company's on its firm's financial footing in years, and we believe our brands are well positioned. Our teams are focused on continuing to dial in our product, sharpen our marketing, and drive the business forward. With the heavy lift of the stabilization behind us, everyone is excited for the next chapter for the company, a new chapter focused on growth. With that, I'd now like to hand the call over to Taryn to walk you through our fourth quarter results in detail and outlook for 2025. Taryn?

Thank you, Chris, and welcome everyone. As we reflect on 2024, I am pleased to share that we successfully delivered the first phase of our strategic turnaround, feeding our initial expectations across all key financial metrics. Our efforts to optimize the portfolio, revitalize our brands, and enhance our operations have improved our performance. In addition, our strategic actions have strengthened the balance sheet, resulting in improved cash flow and a meaningful reduction in debt. As we move forward, we remain committed to building on these achievements to ensure sustainable growth and long-term value creation for our shareholders. Fiscal 2024 revenue for our ongoing business of $1.75 billion represents a decline of .1% versus prior year, primarily driven by discrete items in 2023 related to -of-life inventory liquidation, business model changes, and a timing shift of international distributor shipments that did not recur in 2024. Performance strengthened throughout 2024 with an inflection to growth in the fourth quarter, demonstrating the success of our strategic initiatives and the dedicated execution of our team. Full year 2024 adjusted gross margin of .6% increased 470 basis points versus last year. This improvement is a result of actions taken over the past year to transform the company and reduce costs. These measures encompass supply chain and product cost savings, healthier inventory levels, improved mix of full price sales, and actions to protect our brands. Adjusted operating margin of .5% increased 360 basis points compared to 2023. Lower adjusted selling, general, and administrative expenses included restructuring savings partially offset by incremental investment in the business, normalized incentive compensation, and inflation. We made strategic investments in our brand building model, including modernizing product line management tools, sponsoring the London 10K with Saucony to elevate brand awareness, strengthening our first innovation hub in Boston, and building additional talent and capabilities. Full year adjusted diluted earnings per share was 91 cents compared to 15 cents in 2023. Shifting to the fourth quarter performance. Fourth quarter revenue of $495 million was above the high end of our outlook, with better than expected performance in both active and work group, more than offsetting foreign currency headwinds. Revenue for our ongoing business grew 3% versus the prior year. Strong growth in wholesale and international distributor channels was partially offset by a decline in our direct to consumer business. In the fourth quarter, DTC margins improved significantly as we focused on more full price sales. Merrill revenue grew 1% in the quarter, with growth in core product franchises, including Moab 3, Jungle Mock, and Moab Speed. Saucony declined 5% due to the kids and China joint venture business model changes. Excluding these discrete items, Saucony revenue grew 7%, which is better than original expectations due to strong demand in performance run and lifestyle expansion. Wettie Betty declined 6% this quarter, selecting strategic actions taken to improve profitability as well as a more challenging UK trading environment. The work group revenue increased 21% in the quarter. Most of the growth was driven by strong demand for core franchises such as Trade Wedge, Rancher, and Floor Hand, as well as the recovery of third quarter supply chain disruption shortfall. The remaining amount resulted from a timing shift between the fourth quarter of 2024 and the first quarter of 2025, as certain wholesale orders shipped earlier than originally expected. Fourth quarter adjusted gross margin of 44%, a year over year increase of 620 basis points, was in line with our expectations and reflects a healthier sales mix and the benefit of supply chain cost saving initiatives. Adjusted operating margin of .2% exceeded our outlook for the quarter driven by operating cost leverage on the stronger revenue performance. As a result of the improvement in revenue and operating margin, fourth quarter adjusted diluted earnings per share was 42 cents above the high end of our guidance. We made solid progress in optimizing cash flow and strengthening our balance sheet. Inventory at the end of the fourth quarter was $241 million, down approximately 36% from last year as we realized the benefits of improved planning and execution. Although there is still more work to be done to fully optimize inventory, we consider the current overall level close to our near term target, ensuring that we have adequate coverage for the business's future growth. We delivered $160 million of operating free cash flow in 2024, a result of improved profitability and lower working capital. These were key enablers to lowering net debt to $496 million, a 33% or $246 million reduction versus 2023, and better than expected due to higher profit and working capital timing. As we look to the future, our 2025 outlook builds on the momentum gained in 2024, reflecting a return to growth and improved profitability. This outlook highlights the strength of our focused portfolio and investments to support our brands and strategic initiatives. It also takes into account foreign currency headwinds and the impact of a 53rd week. A breakdown of these factors can be found in the investor presentation of our webinar. The outlook does not include potential impacts from recent tariff changes. This is a dynamic situation that we continue to monitor closely. As it relates to the February 4 tariffs on US imports from China, we believe the impact to 2025 is manageable given our current exposure and the actions we plan to take to mitigate higher costs. For the full year 2025, revenue is expected to be in the range of $1.795 billion to $1.825 billion, an increase of .5% to 4.3%. This includes an estimated $40 million currency headwind to the prior year. On a constant currency basis and excluding the 53rd week, we expect revenue to grow approximately 4.2 to 5.9%. We expect active group revenue to grow high single digit on a constant currency basis. New product launches, lifestyle expansion, and focused -to-market initiatives, including key city activations, are expected to drive growth in the active group. The following brand outlook is on a constant currency basis. Saucony is expected to drive outsized growth up mid-teens, reflecting category momentum, new launches in both performance and lifestyle products, and expanded distribution. Merrill is expected to grow mid single digits, building on second half 2024 gains. We expect key products, including the Speedart collection, Moab Speed 2, and Agility Pete 5 will continue to drive the overall category. Weddy Betty is expected to deliver low single digit top line growth in 2025, as we take actions to further refine our retail footprint and product offering to focus on more profitable sales. We expect the work group revenue to grow low single digits on a constant currency basis. Growth in the work group reflects gains from the new products and strengthen core franchises, such as Wolverines, Trade Wedge, and Rancher. Adjusted gross margin is expected to be approximately .5% at the midpoint of the outlook range, an increase of 90 basis points from last year, as we continue to benefit from more full price sales and product cost savings. Adjusted operating margin is expected to be approximately .3% at the midpoint of the outlook range, up from .5% in 2024. Product costs and SG&A savings are expected to offset inflation and fuel investments for future growth. These investments are crucial for driving innovation, enhancing our competitive edge, and expanding our market presence. With the reduction in net debt over the past year, interest and other expenses are projected to be between 25 and 30 million dollars, down from 39 million in 2024. With more than 80% of our debt now at a fixed rate, we are less affected by near-term interest rate fluctuations. The effective tax rate is projected to be approximately 18%. As a result of these key assumptions, adjusted diluted earnings per share is expected to be in the range of $1.05 to $1.20, including an 8-cent foreign currency headwind. This represents adjusted diluted earnings per share growth of 25% to 41% on a constant currency basis. Operating free cash flow is expected in the range of 70 million to 80 million dollars, with approximately 40 million of capital expenditures. This range reflects higher earnings over prior year and incremental investments to fuel brain growth, capabilities, and technology modernization. In addition, as working capital normalizes, we anticipate this to be a modest headwind in 2025. Turning to our outlook for the first quarter. As we transition from the stabilization phase to driving sustained profitable growth, we expect performance to accelerate throughout 2025, as it did in 2024. We expect first quarter revenue of approximately $395 million, an increase of .2% versus 2024. This reflects the impact of foreign currency headwinds and the kids business model change in May of 2024. On a constant currency basis and excluding the business model change, the projected first quarter revenue growth is approximately 5.1%. First quarter gross margin is expected to be around 46.6%, approximately flat to last year's gross margin, which included a discrete benefit related to a business model change. We expect first quarter adjusted operating margin to be approximately 4.6%, roughly flat to prior year on a constant currency basis. Adjusted diluted earnings per share is expected to be approximately 10 cents. The first quarter is expected to be the lowest revenue quarter of the year, which is consistent with historical trends. As revenue ramps up over the balance of the year, we expect operating leverage to be a key driver in the sequential step up in operating margin as demonstrated in 2024. In summary, in 2024, we completed the stabilization phase of our turnaround and the transformation is well underway. We anticipate that 2025 will build on this foundation with plans to begin to drive sustainable, profitable growth. We are thoughtfully balancing the need for earnings and cashflow improvement with essential reinvestment to accelerate demand creation, build critical capabilities, and modernize the economy. We are also thinking about how we can modernize our technology. Although we acknowledge that more work lies ahead, we are encouraged by the positive momentum of our business. In this dynamic operating environment, we remain focused on what we can control, investing in our brands, our team, and technology to build new capabilities, drive growth, and deliver value to our shareholders. And with that, let me hand the call back to Chris before we open up for questions.

Thanks, Taryn. We're focused on making people's lives better, healthier, happier, and more productive. Our brands are originals and leaders in attractive markets that we believe are aligned with where consumers are today and importantly, where we believe they will be tomorrow. We believe the potential of our brands is significant. We're now seeing our efforts begin to deliver better results, giving us confidence in our direction in brand building investment strategies. In 2025, we're taking a thoughtful approach. Prioritizing those initiatives focused on our biggest growth opportunities that we believe will be the most impactful. Most noteworthy is Saucony. Given tailwinds and consumer trends combined with brand momentum, we plan to accelerate Saucony's lifestyle expansion and traction performance with investments in trade marketing, event activations, brand media collaborations, and key city executions, including the brand's first new brick and mortar concepts in London and Tokyo. As a company, we plan to continue to strengthen our product and merchandise capabilities with improved tools and new talent, further elevating innovation and trend right design. In addition, we plan to update the systems needed to drive the business, notably our e-commerce platform to enhance consumers' digital experiences with our brands. With the close of the stabilization chapter, we're planning a more balanced approach to managing the business moving forward, further expanding profitability while at the same time, investing and building our brands and platforms to drive long-term sustainable growth, all with a focus on maximizing returns in value to our shareholders. I'd like to close my prepared remarks by expressing my sincere gratitude to our team. Thanks to their hard work, Wolverine Worldwide is a much different company today. With a stronger financial footing, more agile organization with improved brand building capabilities, and a new emerging culture of working and winning together as one Wolverine. I know I speak for our global team when I say we're proud of the work we've done and the early proof points validating our direction, but we aren't satisfied. We're intently focused on making everyday better moving forward. With that, thank you for taking the time to be with us this morning and we're happy to take your questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. We ask that in the interest of time, you limit yourself to one question and one followup before rejoining the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. First question comes from Anna Andreeva with Piper Sandler, please go ahead.

Great, thanks so much. Good morning and congrats, really nice end to the year. Two quick ones from us. Great to hear on Saucony growing double digits in 25 and you talked about at least 900 new doors for the brand this year. Are any of these slated for the first quarter or is that something that's gonna build throughout the year? And then just a similar question on Merrill. Not sure if you've shared how many new doors we should expect for the brand this year, but curious how has been reception to the brand and some of the more female leveraged specialty retail accounts that you guys open, thanks so much.

Thanks Anna, good morning, appreciate the comments. Saucony doors, yeah, I mean, I think we're very pleased with the progress we've made in Saucony in a very short period of time. And as the heat for that brand has grown and the product pipeline has gotten stronger, both in the performance piece and the lifestyle piece, we're responsibly growing door counts. We mentioned last time expecting a 900 incremental doors this year, a lot of those are online. We did tests with retailers in the middle part of last year and have expanded beyond that. So more will open up, but we certainly do expect a benefit from that door expansion. And now we're obviously intently focused on driving sell through in that business, but very encouraged by the progress in Saucony and the demand that we're seeing at the same time, we're in this for the long haul and we're gonna work to responsibly grow that business over time. Same story for Merrill, we've worked hard to really work to reposition that business and our team has done a great job I think sort of resetting the US wholesale landscape, both engaging with sort of long-term very successful partners and how Merrill shows up each and every day on the sales floor. At the same time, opening up new distribution and taking the broader outdoor lifestyle opportunity and not just so focused on the trail. So opening up new doors is there as well, not quite at the pace at which Saucony has opened, but pleased with the early returns and especially for her. Merrill is under-penetrated for the female consumer. We've worked hard to really work and evolve that product line. We've got a new Chief Product Officer. She brings a great track record of working for some great brands, but we're very focused on her and the broader opportunities. So I'm glad you brought those two brands up, very encouraged by the progress you made in 24 and excited for what those brands are gonna do in 25.

That's awesome. Thank you so much, Chris. Can I just follow up to Taryn? A really strong gross margins. Can you guys talk about what inning are you in in terms of the product savings? And I think you're now roughly at the low end of that 45 to 47% long-term goal on gross margins. Do you think reaching above that range is a possibility for the business over time? And thanks again.

Yeah, thanks for the question. On gross margin, where we're at, I think we are pleased with the progress we've made the last two years in terms of expanding our gross margin. And sorry, not past two years. When you look at 2024, the results as well as for 2025, the guide that we're giving with incremental expansion in gross margin. So pleased with the performance, the results that we're getting both in terms of the cost savings as well as in the less promotional, healthier inventory, more full price from our businesses. I think in 2025, what we're looking at there and beyond, when you say it's reached the 47% aspirational goal, we need to continue to work with the work we've done. We continue to see more opportunity, both in terms of the sourcing part of the business in terms of our product costs. So we're continuing to look for opportunities and get those in our results as well as in terms of our SG&A savings. And we have both of those planned in 2025. That's part of how we're fueling the investments for the growth in 2025.

All right, thank you so much.

Thanks, Anna.

Next question, Lawrence Vasilescu with BMP PowerBus Asset Management. Please go ahead.

Hey, good morning. Thanks very much for taking my question. Chris, I wanted to follow up on the slides from this morning. It's very intriguing to see the slide number five in terms of your long-term aspirations as the business in flex, where you're calling for mid to high single digit top line growth, 45 to 47% gross margin, but the operating margin of 15%, 15%. First, if you could maybe parse out what kind of timeframe you're looking at, is it over the next three years? And then to get to that operating margin, is there a part of the business that's underperforming from an operating margin perspective that you want to potentially divest, or is it really around leveraging the SG&A cost base that you currently have? Thank you.

Yeah, I'll let Taryn begin, and then I'll add to that.

Thanks for the question. It's too early to provide a date on the mid-teen profit margin aspiration that we set for our objectives. We are encouraged, as I shared, about the progress in 24 up 360 basis points, and in 25, the guide would have another 80, so 440 basis points in two years. And that includes, Laurent, for 2025, that includes close to a 900 basis point headwind from currency. So, that's why we say we're pleased with the performance that we're seeing in the two years and the plans for 25. That path to mid-teens really is to continue to make thoughtful brand-building investments to grow the top line and optimize the cost that I spoke to just a few minutes ago.

I think as we think about 2025 specifically, we've obviously done a lot of work to stabilize the organization. We've highlighted that, and we're largely finishing talking about turnaround, and now we can focus on the next chapter, which is growth. I think historically, we just haven't invested enough in our brands and our platforms. And this year, we're doing a step up in those investments, leading with investments behind Saucony, because we think that is the brand with certainly the most momentum. We certainly are seeing tailwinds within that category, and I think Saucony has some of the greatest potential in the portfolio. At the same time, we've got tools and platforms that we need to invest in as well as an organization. So we're stepping up those investments this year. We think it is the right thing to do to drive long-term sustainable growth for the organization, and we think it's in the best interest of our brands and certainly at the end of the day for our shareholders.

Very clear. Thank you very much, both for that. And then some housekeeping question on modeling. I think you mentioned there was a shift from 1Q into 4Q for revenues and works. Maybe can you quantify that number? Are there any shifts further that we should consider for 1Q2Q? And on the gross margin, how does the gross margin evolve to get to roughly up 100 basis points? And lastly, what's the interest expense line for this year in terms of guidance? Thank you.

Great, yeah. So for, I think there's three questions in there, let me make sure I get them all. For work group, that is the one that we would highlight in terms of the shift that we saw. As Chris shared in his opening remarks, while the fourth quarter revenue trends were encouraging for the work group, I would say the results remain inconsistent based on three factors. One is the order patterns, the second is the supply chain timing, and the third is the overall performance of our brands in the market. The first quarter revenue in the materials we provided, you'll see we expect work group to decline low double digits, constant currency. About half of this decline as a result, so approximately around $7 million, about half of that decline is a result of a timing shift between the fourth and the first quarter. So I think in the, and I think while this is a slow start to the year, we do expect the performance to improve meaningfully starting the second quarter as our new products go into market and we replenish inventory on our key products across the brands. So that's on work group. In terms of gross margin, it really is what I've shared previously. It really is the continued benefit that we started in 2024 from the cost savings initiatives, as well as on the better, more full price product that we're seeing in market as the innovation is going in and we have the cleaner inventories to get that full price through and the marketing is performing. So those are really the continued benefit and gross margin. As it relates to interest expense, your question specifically on that remind me?

Just the line item, how much should we assume for this year? Oh,

okay. Yeah, so we expect net interest and other expenses to be around 25 to $30 million in 2025. This is down from 39 million in 2024 and really a result of the reductions that we've driven in net debt.

Very clear, thank you very much for all the color. Best of luck.

Thanks, Laurent.

Yeah, and I do wanna clarify a point I said earlier on FX. I was talking to, when I talked about the headwind in terms of the FX, I was quoting in terms of EPS impact. It's really a 300 basis point impact on operating margin to clarify.

Next question, Sam Poser with Williams Trading. Please go ahead.

Good morning, thanks for taking my question. I have a handful here. One, you mentioned that you identified specialty independent retailers as a positive growth vehicle for Merrill. If you could tell me some example of the type of retailer you're speaking of. And then I wondered what the value of week 53 was and were you up for the quarter without week 53 and the split between men's and women's of the percentage for socket and where do you see that going?

Thanks for the question, Sam. I'll start with the 53rd week. The 53rd week will be in 2025, so it was not in 24. We'll see it in 25. The 53rd week, we expect it to provide approximately 50 basis points of growth. So it's the last week of the year is not a big trading period for us given the holiday shipments and the timing of it. So it's 50 basis points in terms of the full year growth for 2025 and the profit I would say is minimal given that it is a small revenue week and as we have our full cost SG&A going through it.

And the first part, Sam, appreciate the question. We are certainly encouraged by the progress we have seen in Merrill, both in the performance piece and the lifestyle piece and you know, as well as anyone, there have been really significant headwinds in the outdoor space and Merrill gaining share at the fastest rates since we've been tracking which we're encouraged by. Especially doors, obviously there's a lot of sort of one-off specialty outdoor accounts that we've worked hard with our team to sort of reengage. At the same time, we're opening up new lifestyle expansion. You're gonna begin to see and are seeing Merrill show up in a mall from a lifestyle perspective where we haven't been for years. So really a reset of that US wholesale landscape that I think the team has done a very good job and both resetting the business and then really engaging with them and really moving beyond the core products that Merrill has been known for for years and dropping new products, whether it's the Moab Speed 2 or the Agility Peak 5, we're encouraged by. So nice steady on progress, two consecutive quarters of growth for Merrill and encouraging news in the wholesale channel for Merrill, both here in the US as

well as EMA. Thanks

and then lastly, on Sweaty Betty, how many stores are there currently and do you have plans to add stores in the US?

Yeah, there's approximately 100 stores today and we've got 10 new stores planned for this year. We have two stores currently open in the US, one in Georgetown and one in Chicago, really testing those markets. Early returns are a positive reception to those doors. We are seeing some sort of key metrics, whether it's conversion or ASP. We're really checking with where the UK stores are but that's the store fleet. Noex specific plans to open more doors in the US this year. The 10 new stores are all UK based.

Thanks very much, good luck. Thanks Sam.

Next question, Mitch Comets with Seaport Global Security. Please go ahead.

Yes, thanks for taking my questions. I guess the first one's a bit of a housekeeping. On the Q1 sales guidance, can you give us your expectations by your three main brands in the active groups, Merrill, Saucony and Sweaty Betty? I don't think that was in the presentation. I think you just gave an overall active number but maybe I missed it.

No, you didn't miss it. In terms of, we're shifting the details on our external revenue guidance to align closer to our reporting segments, Mitch. This means we will continue to provide quarterly guidance by segments, meaning active and work but we're not providing them at the brand level. I think we believe that it was important to provide that brand level of detail for the full year guidance for 25 as we progress our transformation but not on a quarterly basis.

And then a couple other things, Chris, you talked about investment, particularly in Saucony. I'm curious maybe from a marketing standpoint, what was your marketing rate in 2024 and where's that going in 25?

Yeah, it'll be up in 25 versus 24. I think we finished 24 at right around 8%. It'll be up again this year. And then even 23, it was well below 8% as a company. So that is part of the investment strategy to invest behind our brands. We're leading with Saucony again because we think that brand has the momentum, the category tailwinds. And I think a lot of good ideas. Investments for Saucony include new concept store in Covent Garden, which will open up in May. Activation around sponsorships. The London 10K will be back for a second year this year. We'll be sponsoring the Saucony shortage 10K for the first time this year, along with the Eiffel 10K in Paris this year as well. And bring those to life through run clubs and activations and all the things associated with that. I can't wait for those events. We're also sort of doubling down our investments here in the US and how our brands show up day in and day out in run specialty in sporting goods, investing in boots on the ground to help us win the war on the floor against in a very competitive set. And then other investments in marketing as well. And then the company is gonna invest in our e-commerce platform, which needs to be updated both to provide consumers a better branded experience, more frictionless experiences and allow us to be more nimble on the backend. So we're excited about the investment strategy. It is needed. I'm glad that we have been able to get through all the work over the past 18 months to give us the financial wherewithal to begin to invest meaningfully back in our brands. And I'm excited what that's gonna mean for our team, for our company, for our brands and ultimately for our shareholders.

And then as a quick follow up to that, can you say how much that rate is going up? Is it like 50 basis points for the year? And then my final question just, I'm curious, a lot of the cold weather that we've seen early in 2025, are you seeing that having any impact on the business, maybe a bit of a tailwind on Wolverine boots or possibly even a headwind on the Saucony running business?

Yeah, no headwinds on the Saucony running business to report. I would say winter seasonal styles and boots, I would say there is a benefit. We are seeing some good at once orders as we turn to the new year. And we obviously have a close eye on the order book. And obviously every day we get our own e-commerce results. So I think the cold weather, which looks like it's here to stay for a little bit, has certainly not hurt the organization. And we're not giving specific guidance on marketing, but it'll be up this year versus last year.

Great, thanks, good luck. Thanks Mitch.

Next question, Jim Duffy with Steele, please go ahead.

Oh, thank you. Couple of questions for me. Chris, could you just speak about the state of the run specialty channel, the health of that category after a couple of years of really strong growth? Are you seeing any moderation there? And then speak to Saucony's relative share within that category. Are you indeed continuing to gain share?

Yeah, thanks, great question. The US run special channel is a really special and important channel in the US and certainly important to the performance running brands. You're right, running has been on a tear. And I'm pleased to report that Saucony is quickly catching up and beginning to gain share again after losing share for a number of years. And that really is driven by product innovation. And I think a focus by the brand on both sort of our elite collections, the endorphin, at the same time, a really strong focus on our core four, Ride Guide, Triumph and Hurricane. And we're seeing really positive sell throughs and like I mentioned, a good increase relative to market share. It is a very competitive channel, as you know. We're not seeing any sort of significant weakening that that trend continues. Obviously the data lags a little bit but still appears to be healthy. And I think our focus this year in some of the investments we're gonna make on Saucony are gonna benefit that brand in those doors as we invest in the team's ground game. So the channel continues to appear to be healthy. Obviously category has been one of the best performing categories. And we're pleased that Saucony has been able to really reset the business in 24. And then the momentum we're seeing really led by product innovation. And now we have to get the demand creation out there which is why we're stepping up the marketing investment across the brand.

Okay, thanks for that. Taryn, I wanted to ask on the inventories, you guys have done a great job managing the inventories. They're super tight. Do you see this as a sustainable rate of inventory levels or are there places where you're missing sales because the inventories are so tight and you need to make some investments back into that line item?

Thanks for the question, Jim. Yeah, as I had called in my prepared marks, we've made meaningful reductions in inventory in the last two years. In the cash guide that we provided, that assumes a modest investment in inventory for 2025 as they've normalized. I would say overall inventories I would characterize as healthy and close to our target levels. We continue to chase opportunities more so I'd say in Saucony but there are overall it's healthy but we are making a modest investment, a very thoughtful and disciplined investment in 2025 to be able to support the growth.

Thank you. Thanks, Jim.

Next question, Marisi Osima with UBS. Please go ahead.

Hi, good morning. Thanks for taking my question. Sorry if I missed this but maybe could you elaborate a little bit more on what caused the decline in your DTC sales in Q4? Also maybe, I think you talked about maybe too early to provide an update on cost savings but how are you thinking about that in fiscal year 25 and how do you reconcile that with maybe, it seems like the guidance implies some modest delaveraging in expenses. Could you just elaborate a little bit more on that? Thanks so much.

Yeah, I'll take the DTC question and I'll hand it over to Taryn on the cost piece. I think in Q4 we really tried to be less promotional. Obviously we were promotional in 23 as we're working through the inventory piece. We were working through some inventory issues early in the year and we really tried across the portfolio brands to be less promotional which put pressure on the top line. Certainly put pressure on the top line. There's no doubt. I think in total our full price penetration this year was 500 basis points higher in the quarter than it was last year which is an important metric that we were tracking. At the same time I think we can do better in our direct to consumer channel. I think we have to do better in our direct to consumer channel. We had some brands that overperformed our expectations and we had some brands that didn't quite meet what we had expected to see. I would say specifically as it relates to the fourth quarter our performance around the Black Friday Cyber Week was less than we expected. Encouragingly the business did accelerate in the closing weeks of the year. Which we were positive about. But there certainly is more work to go do there. I do think in a couple of brands we actually did have some inventory challenges. Saucony specifically. I think Saucony could have had a stronger fourth quarter but the demand was so great for the product. So I think as the company moves forward DTC is an important focus. Again it's not necessarily all in on DTC. I do think the consumer wants to shop across wholesale and owned. And I think we have to responsibly manage our brands in our own channels and then thoughtfully manage distribution in our partner channels. So it's an important piece. It's where consumers come and learn about our products. Where they engage with our brands. It's where we can tell our own stories. And I think we have the opportunity to do better there. At the same time I think the planned investments in our e-commerce platform will give consumers a better experience. They'll be faster, they'll be easier to navigate, they'll be less friction. And we're excited about updating those tools to give the consumers a better branded experience.

And as it relates to the operating margin, the point I think you had mentioned D leverage. We're actually getting leverage. Our operating margin is expanding. Both gross and operating margins are expanding 80 to 90 basis points at the midpoint of our guide relative to 2024. And this really is a result of the better top line performance coming through. The cost savings that we are continuing to see in gross margins. Both from actions that we took in 2024 as well as incremental initiatives that we are taking in 2025. In the operating margin, SG&A line, it is basically as we are investing in the business and we are taking thoughtful investments in the business to build the brand building model around the talent capabilities around our modernizing our tools as well as our marketing spin that Chris spoke to earlier. We're fueling those investments by further savings that we have line of sight to for 2025 as well as offsetting the inflations and normalized incentive compensation. So margins are expanding. We're benefiting from the carryover savings, better, healthier inventory, and we're using that to invest in the business.

Great, and maybe if I may follow up just on sales for the first quarter, just wanna make sure I didn't miss this on the presentation that you guys provided. You gave like an outlook for first quarter by brand. Is there anything that you can tell us by brand from that perspective?

Yeah, as I shared, we are not providing brand guidance on the quarterly basis. We're moving to our segment reporting, which is active in work group. We're continuing to provide brand guidance on an annual basis so that you can see how we're growing the business and the trajectory it over time, but not on the quarterly basis.

Thank you very much.

Thank you. Next question, Jonathan Komp with Baird. Please go ahead.

Yeah, hi, good morning. Maybe just a bigger picture question as you step back and look at 2025 guiding to mid-single bit at revenue growth, comps and currency. Just, I'm curious, what are the main factors holding you back from achieving the long-term aspiration more mid to high single-bit growth? Is it macro factors you're baking in? Is it maybe uncertainty on some of the new initiatives and the payoff, just any broader perspective there?

Yeah, I mean, I appreciate the question, Jon. Obviously, you're looking at total company growth and across the portfolio brands, it's really hard to get every brand working equally well at the exactly same time. I'm very encouraged by the progress we've made in Saucony and very encouraged by our outlook for what Saucony can deliver this year. The same can be said for Merrill in what continues to be a tough category. So our two biggest brands, I think we've done tremendous work in a very short period of time to get those brands growing in a meaningful way and importantly, at very good profit levels. Worked hard on the gross margin, worked to reset the business, thoughtfully expand distribution, probably could be growing faster at the same time we're trying to be responsible to drive sort of long-term sustainable growth. At the same time, we've been very open. Our work group, we need to get better in our work group. And that really starts with compelling product and then driving that business each and every day. And then as it relates to Sweaty Betty, sort of thoughtfully continuing to finalize the integration of Sweaty Betty into the portfolio and then really working hard on the profitability of the business, which we're pleased by the results. So certainly at the headline, at the corporate standpoint, you can draw that conclusion. At the same time, our biggest brands, I think are gonna well outpace their categories this year. And I think the line of sight we have to where they were and to where they are in their order book, gives us a lot of faith that we're gonna be able to deliver those numbers. And that's why we're gonna continue to work to accelerate those fuel, those investments, which we've talked about. And then in places where we're not performing at pace, we're gonna work really hard this year to get those teams to perform better.

And John, I would just to build on what Chris said, when you look at the revenue guide that we provided, it's a range when you do constant currency and exclude the benefit of 53rd week. We are putting a guidance of 4.2 to 5.9%. Which is really at the midpoint of those aspirational targets. What Chris laid out is how do we move to the high, to the mid to the high, as

we look to continue to grow the businesses.

Okay, thanks again. Thanks John.

Next question, Dana Telsey with Telsey Advisory Group. Please go ahead.

Good morning everyone. And nice to see the achievement of the targets in 24. As you think about 25 and the newness where Chris, you've always talked about, you have to have exciting product to earn your place on the shelf. How you're thinking about newness in product, particularly for Maryland Saucony, and how you're thinking about the AU, full price AUR this year compared to last year. And just lastly, I know mid teens percent comes from China. Any change in that going forward and any other big areas where you get the biggest percentage of your sourcing of manufacturing from? Thank you.

Yeah, good question Dana, thanks. I'll hit the sourcing question first. We'll continue to reduce China. It is mid teens today. We'll reduce it further this year. And we're obviously paying attention to the tariff situation and that seems to be volatile and changing daily. But right now with the announced tariffs in China, the February 4th announcement, we think we can navigate that within the current guide. And you're right, in our business, it all begins product. And a product is the most important thing. And I think coming out of the pandemic, our innovation lacked. And we had a lot of inventory that was not the right inventory. And we weren't bringing compelling products and newness was going to win. And we suffered through that. And we took 24 to really reset that business and thoughtfully look to grow again. And I'm glad that we've closed that chapter and moving on. As it relates to newness, I think our product pipeline in Maryland, Saucony is as good as it's been. The focus on the core four, we just dropped the new ride guide 18. Triumph continues to check. Hurricane is a new entrance. I think we're gonna launch one of the best super shoes in the business here in the endorphin elite two in a couple of weeks. And I think that shoe is gonna be a game changer. I think on the lifestyle piece, I think Saucony has done a great job tapping into a century old archive and making those styles relevant and they resonate with consumers along with partnering some of the best collaborators in the business that are drawing really record brand heat for the brand. And then how we take that brand heat and translate to sort of meaningful growth, which we're seeing in the door expansion. So I am very encouraged by the product pipeline in Saucony. And I'm lucky because I have eyes into what 26 looks like too. And I think that team continues to innovate and I'm really pleased by the progress that we've made. Same can be said for Merrill. I think Merrill for a long time had sort of long in the tooth legacy styles that were critically important in very big businesses, but we weren't innovating fast enough. And I think we're really beginning to see some of those new products really begin to take root. The Moab Speed 2 continues to check and sell through at rates that please both our partners and us. It takes color material extraordinarily well, great collaborations and really resonating with her and really bridges that outdoor trail to outdoor lifestyle in a very compelling way. Agility Peak 5, the same can be said. Really a great trail shoe that people are wearing to trail run, they're going to hike, and they're wearing it as an everyday sneaker. And then I'd point to the Speedark Surge Boa, which we just dropped $290 price point, a disruptive shoe that looks fundamentally different one time, best new invention last year with an Ispo Award winner and is well outpacing our own expectations at our .com business at that $200 price point. And we're going to follow it shortly thereafter with the Speedark Matta. So I think our product teams are moving with pace. I think 24 was a very good year bringing new introductions. And I think the development in 24 to 25 has been great. Same time we've also brought some new talent. We have a new product, Chief Product Officer in Merrill. She has been on the ground for a couple of months now. I just had a meeting with her on Friday, sort of reviewing the next season's line. And I'm really encouraged by the way she's thinking about the business and the opportunities that we have. So I'm very encouraged by the product pipeline. And I'm really pleased that we had the opportunity to really reset the business in 24 and what it's going to mean for the company in 25 and beyond.

And regarding your question on the average selling prices, we expect to see continued decline year over year in the amount of promotional spend as well with cleaner inventories and a concentrated effort

to

taper back our

promotional levels over time.

Thank

you. Next question, Ashley Owens with KeyBank Capital Markets. Please go ahead.

Great, thanks so much. So quickly, I wanted to touch on the operating margin guidance for one queue. I think it's a little bit lower than last year. Can you just provide a little more color on kind of the SG&A lines? And if this is all stemming from increased marketing or what's driving the deleverage within that for one queue and then just how margins scale through the year to get to that .3% items that you gave.

Yeah, great. So for operating my origin, I'll start actually with the gross margin. So the Q1 guidance has a strong gross margin of 46.6%. And this reflects the actions that we have taken and continue to take to reduce supply chain costs and to improve the level and health of our inventory. As it relates to operating margin, this is more a reflection of operating leverage. The first quarter revenue is and has historically been the lowest quarter of the year for revenue. And at this level, operating leverage is also lower than what we would expect to see when you look through Q2 and Q3 through four. So it's really more a reflection of operating, while the gross margin is strong, it is on operating margin level, it is more a leverage situation, which we anticipate as revenue will grow sequentially throughout the year. We will continue sequentially as well to see operating margin improvements as we did in 2024 as well. I think you were saying, I do think the Forex impact, which on the total year on the earnings per share line is around $8 million headwind to us on a full year. And that's probably about even, I won't get into specifics, but it's not a disproportionate, I would say in any particular half of the year. So that full year profit headwind from

currency is about an even spread.

Okay, great. And then I just had one last one. So maybe a little bit of a State of the Union on sweaty buddy. You know, it was softer than expectations. So one, just additional color potentially as to what categories may have underperformed relative to your expectations. And then additionally, you know, what you're doing from an innovation perspective this year in overall talks on the broader athletic workspace and how you can effectively introduce new products in a competitive market. Thank you.

Yeah, you know, at the print level, obviously, a softer quarter for sweaty buddy than we anticipated, but I think in total for the year, really pleased by the progress we've made there and really pleased with where that team is, how we've worked to integrate that business and then the outlook moving forward. So we've worked really hard on improving the profitability of that business and really having that brand be part of the portfolio. So, you know, I think from a product standpoint, you know, continue to attack a very attractive category in a very premium way with a very strong message around female empowerment. The new campaign, the Don't Sweat a Campaign just debuted a week or so ago and that is resonating with consumers and we're gonna follow it up with the Wear the Dam Shorts campaign. So encouraged by that team, there's also a new Chief Product Officer in place in sweaty buddy as of the fourth quarter of last year. But, you know, as that group team continues to move, again, encouraged by the progress, I think the product pipeline is good. We've worked really hard to improve the profitability of this year and then we'll obviously look to grow that business moving forward.

I appreciate the color. Thanks.

Thanks.

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