Wolverine World Wide, Inc.

Greetings and welcome to the Wolverine Worldwide First Quarter Fiscal 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the normal presentation. If you'd like to ask a question, please press star and the number one on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alex Wiseman. Vice President of Finance. You may begin.

Good morning and welcome to our first quarter fiscal 2025 conference call. On the call today are Chris Hufnagel, President and Chief Executive Officer, and Taryn Miller, Chief Financial Officer. Earlier this morning, we issued a press release announcing our financial results for the first quarter of 2025 and guidance for the second quarter of 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 are 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 the second quarter of 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 the 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 Hoffnagel.

Thanks, Alex. Good morning. Thanks to everyone joining us for today's call. Given everything that's transpired since April 2nd, we have a lot of ground to cover this morning, so let's get right into it. First, let me start here. The headline is simply that for the things that we can control, I feel very good about where we are today, and more importantly, confident about where we're going tomorrow. With that said, there's definitely uncertainty in the marketplace. So on this call, I'm going to cover both what we know and what we don't know, along with the actions we've taken to date and our plans to navigate the challenges on the horizon. First, what we know. Wolverine Worldwide delivered sequential improvement in top-line trends throughout 2024 and ultimately inflected to growth in the fourth quarter, a meaningful achievement marking the conclusion of a year of fast and bold actions to reestablish our footing as a company and reinvigorate our brands. The momentum generated last year has continued to build into 2025. In the first quarter, we exceeded our expectations on just about every financial measure. Revenue grew by over 5% on an ongoing basis and nearly 7% on a constant currency basis. We also achieved record Q1 gross margin, in part due to healthier brands and better inventory management, resulting in improved pricing power and a stronger full-price business. the fourth time in the last five quarters that we posted record gross margins. As a result, I'm pleased to report that earnings increased by more than three times compared to last year. These results are another important proof point of our strategic direction and solid execution by our team. A sincere thank you to our team and partners around the world for a great start to the year. Our first quarter results were driven by our two biggest brands. Let me start with Saucony, followed by Merrill. Saucony delivered revenue growth of 30% year-over-year in the first quarter, with broad-based contributions from all regions and channels, led by strong double-digit growth in North America and more than doubling our age-specific business. In addition, the brand improved gross margin by nearly 400 basis points compared to the prior year, continuing to drive a better, healthier full-price business. Saucony translated its brand heat and product innovation into significantly higher average selling prices throughout the quarter in the U.S. coupled with strong market share gains in the important and highly competitive RUN specialty channel. Saucony's core four franchises, the Ride, Guide, Triumph, and Hurricane, along with the Pinnacle Endorphin Collection, continue to fuel the brand's growth in the performance running category. We launched new Ride and Guide models in the first couple of months of this year, and both franchises delivered solid double-digit revenue growth at U.S. retail. In March, Saucony launched the highly anticipated Endorphin Elite II, incorporating next-generation IncrediRun foam and a full-length slotted carbon fiber plate. This super shoe helped drive growth for the Endorphin Elite franchise of over 30% versus last year at U.S. retail. And I'm pleased to share that three of the brand's styles placed in the top 10 most worn shoes by runners at the Boston Marathon last month, more than any other brand and another proof point of Saucony's reinvigorated product innovation pipeline. On the lifestyle side, the brand continues to draw on its deep product archive and partner with leading pacemakers to deliver trend-right styles to the marketplace. Saucony's strategic positioning at the intersection of culture and authentic running heritage has propelled the brand to key franchises like the ProGrid Omni9, Ride Millennium, and others around the world. Building on the roughly 900-door expansion in lifestyle-like specialty this spring, the brand expects to add over 400 more doors in the back half of this year as a result of positive sell-through trends. The brand continues to take a methodical approach to strategically growing distribution with the right partners. We're also investing meaningfully to drive brand awareness and affinity. Last year, for example, Saucony sponsored the London 10K with a holistic set of activations around the event. This sponsorship drove strong results, including record brand search interest in the UK and accelerated e-commerce growth. This year, we plan to repeat the sponsorship of this great event and expand the brand's investment to other runs, including the shortage 10K in London as part of our key city strategy. I'm pleased to report that Saucony opened a flagship store in Harajuku, Tokyo this past quarter, and we anticipate opening a second in London's Covent Garden in just a few weeks, with future plans to open a host of new stores across Asia Pacific with our best-in-class partners. At U.S. Retail, the brand is ramping up activations in retail marketing to drive sell-through. We anticipate 2025 will be the single biggest investment year in Saucony since we acquired the brand nearly 13 years ago. I believe stocking has tremendous potential in both performance and lifestyle and possesses the ability to blur the lines in a compelling way. I continue to maintain the brand is on a path to do something very special, leveraging a unique synergy between superior performance-run product innovation and cultural relevance on a global scale. Moving to Merrill. Merrill grew revenue by 13% compared to Q1 last year, with the largest contributions coming from Asia-Pacific and NEMA. In the U.S., Merrill continued to take market share in its primary category of hike, Now the ninth time we've done so in the last 10 quarters. This quarter we also took share in trail running and lifestyle. The brand improved gross margin by more than 200 basis points versus last year, driven in part by an increase in average selling price at U.S. retail. A strong quarter, now three consecutive quarters of growth, and another proof point for the company's biggest brand. Merrill's recent performance is a direct result of our focus on modernizing the trail as a leader in the category. The brand initiated strategy with faster and lighter product innovation in core outdoor performance categories a little over a year ago. Introducing award-winning collections like the Moab Speed 2 and Hike and the Agility Peak 5 and Trail Running, both of which have become significant franchises and continue to grow rapidly in the first quarter. To push product innovation to an even greater level, Merrill launched the visually disruptive SpeedArc Surge Boa in January, built on the brand's new SpeedArc platform for a uniquely comfortable ride with exceptional energy returns. It sold through almost entirely in a matter of a few months at a nearly $300 price point. In March, Merrill followed up with the launch of the SpeedArk Madness, the next iteration of the SpeedArk family, which is driving healthy sell-through in just a few weeks in the market. Merrill continued to make progress in its lifestyle business as well, driving very strong double-digit growth in both men's and women's at U.S. retail in the first quarter, and even faster growth in influential Tier Zero accounts, albeit on a smaller base. The brand continues to test and earn placement with huge accounts to reach younger consumers, particularly women. I'm pleased with the progress we've made to inflect and now accelerate the growth of our two largest brands through the fast and rigorous execution of our growth playbook. Our product pipelines are stronger. We've implemented disciplined distribution strategies while simultaneously cleaning up the marketplace. We're beginning to build brand heat and momentum through compelling new brand campaigns, key city activations, innovative collaborations, and investments in retail marketing on the sales floor. While we've made great strides in these critical businesses, we have certain areas where we believe we can and should perform better, specifically the Wolverine brand and Sweaty Betty, starting with Wolverine. We continue to work to find consistent footing here. As we shared previously, while the brand's Q4 results were strong, we cautioned that our trends were still inconsistent, and the business was down in the first quarter on its continued choppiness. Our efforts to strengthen soft spots in the West category and in premium are gaining traction with new offerings like the Rancher Pro and Vantage. However, the brand is comping against a period of significant discounting on certain styles last year as we cleaned up our inventory position, a headwind which we anticipate will begin to dissipate as we move to the back half of the year. On a positive note, our year-over-year U.S. market share turn in the quarter improved somewhat, and our DTC business is performing better. Finally and importantly, we've initiated a search for a new leadership for the work group, as Tom Kennedy is planning to retire later this year. And closing with Sweaty Buddy. Over the past year, we've largely been focused on better integrating and improving the profitability of Sweaty Buddy, prerequisites to building a healthier brand and business. While affinity for the brand is strong, with a unique and differentiated position in a desirable category, we believe we must further bolster our premium position, whether the products we build, the stories we tell, or how we manage the business each day. We're focused on driving a less promotional business year at the expense of top line growth in the near term. Encouragingly, first quarter gross margins were up nearly 1,000 basis points year over year, driven by improving our full price mix at Sweaty Betty by approximately the same amount, with continued improvement in the first few weeks of the second quarter. Additionally, we're encouraged by some of the early results we're seeing in acquiring new consumers under our more full price strategy. As new consumer acquisition was ahead of our internal plan in the first quarter, and the lifetime value of the full price consumer on average is 20% higher than consumers we acquired through promotional tactics. We've added new talent to the brand over the past six months as well, most notably a new product chief. And we're chasing new products for the back half of this year, targeting the important holiday selling period. While not satisfied with our top line results, we have confidence in our strategy and we're totally focused on building a stronger brand and business the right way. While the challenges and opportunities are different for Wolverine and Sweaty Buddy, we believe they've been properly identified And we're working at pace to get these businesses moving in a more positive direction. Now, let me pivot to where we are as a company coming out of our turnaround and heading in the rest of the year. On my second call with you as CEO in November 2023, I identified key areas we had to improve upon as an organization to become great global brand builders. And I outlined an ambitious plan to redesign the company to compete and win in the future. Central to this effort was transforming our culture and building new capabilities, squarely focused on our consumer and modern brand buildings. Since then, we've made good progress, and I'm pleased with the improved results we're posting. Given the turnaround in our business, our team's confidence continues to grow in our strategy and ability to execute with distinction. Confident in the progress we've made in transforming the company and informed by our stronger performance of the business, we exited the first quarter with an outlook well on track to deliver our full year 2025 expectations, which called for solid revenue growth led by our biggest brands, meaningful profit improvement year over year, and material investments in our brands and suite of new tools and capabilities. Unfortunately, significant uncertainty entered the equation on April 2nd with the initial tariff proclamations, followed by the subsequent revisions. As we sit here today, it is difficult, if not impossible, to predict the potential twists and turns in trade policy, along with consumer sentiment and spending. Therefore, we were compelled to withdraw our full year guidance for 2025, a decision we did not take lightly. but felt prudent given the dynamic situation. For what we can control, I remain optimistic and bullish on our prospects. Our current order book and DTC trends support the top end of our previous full-year revenue outlook, not to mention improving market share gains across most brands in our portfolio. In addition, I can tell you that overall demand trends for our brands appear to be holding at this point. Sell-through at US retail, for example, has remained strong throughout April, and we're getting similar reports from our international regions. For what we can't control, We believe that we are well positioned to navigate the current challenges thanks to the momentum we've generated, a strong and gritty team, and a variety of strategic and operational advantages, along with many actions already taken or in motion to mitigate the risk. Let me provide a few details about why I'm optimistic. Today, our sourcing footprint is strategically diversified due to a very intentional evolution over the past several years. In 2019, nearly 40% of our products sold in the U.S. were sourced from China. This year, we now expect that to be just high single digits primarily related to our work group brands. Our supply chain is also nimbler today, enabling optimization across a mix of suppliers and factories, in some cases leveraging dual sourcing of franchises to maximize flexibility. Importantly, we've invested in developing our relationship with our key supply chain partners over the last couple of years through annual summits and close strategic partnership and planning. And we've benefited greatly from appointing an industry veteran as our chief global supply chain officer a little over a year ago. On the commercial side, our business is truly global. with our brands being sold in approximately 170 countries and territories around the world through an asset light model powered largely through wholesale and distributor partnerships. As on the sourcing side, we focused considerable effort on continuing to strengthen these relationships over the past 18 months, engaging in top-to-top meetings, hosting our key partners here on campus, and more regularly visiting important markets around the world. I'm pleased to report our business is strong and growing outside the U.S., up mid-teens year over year in the first quarter, with a good outlook for the balance of the year. Finally, our team has developed critical capabilities and confidence over the last two years in facing the challenges of stabilizing and turning around the company. We've developed a penchant for fast and bold action as an organization, and we've implemented new tools and processes to help us better manage the business, in addition to adding talent with new skill sets and strong pedigrees to the company. With the benefit of these advantages and building momentum for our team and brands, we're taking a proactive approach to address the current challenges head on. We have a solid plan to protect profitability while also working to protect the momentum we generated. across a range of model scenarios. Our approach consists of three components, mitigate, navigate, and elevate. To mitigate the impact of tariffs and deliver the products our consumers want at the best possible value, we've initiated a holistic balance set of actions across the entire value chain. We plan to leverage our diversified supply chain and dual sourcing flexibility to the maximum extent possible to limit our exposure to elevated tariffs on goods sourced from China into the U.S. As mentioned, we expect this will amount to be less than 10% of our volume this year, and we're targeting to push this down to near zero in 2026. In addition, we're in discussions with our supply chain partners on the financial impact of the tariffs and redirecting product into our vast international distribution network where we have demand tailwinds without onerous tariffs. While we intend to continue to invest in our brand's momentum, we're simultaneously extending a plan to capture SG&A savings across discretionary areas of the business in the near term until the dust settles. Finally, we've communicated a set of strategic and surgical price adjustments to the marketplace. Taking price increases is not something we do without significant consideration, but we believe our brands and momentum, positioning in the marketplace, and product innovation pipelines will help limit potential demand headwinds. To navigate what is still a very fluid situation going forward, we've formed a dedicated internal team, which is meeting daily, helping serve as insights, align planning, and drive action at pace across the global enterprise. We've taken the playbook from our turnaround stabilization efforts over the past 21 months and applied every learning to this new reality. This new muscle we built will serve us well in the days and weeks and months ahead. Despite the challenges, we are viewing the shifting landscape also as an opportunity to elevate and emerge a better and stronger company. We intend to proceed with our highest priority growth investments to accelerate share gains in certain areas and at the same time scrutinize every expense. As in any difficult situation, there will inevitably be winners and losers. It's our responsibility to be among the former. With that, I'd now like to hand the call over to Taryn Miller to take you through our first quarter results and how we're viewing 2025 in more detail. Taryn?

Thank you, Chris, and welcome, everyone. We had a strong start to the year with growth across revenue, margin, and earnings per share ahead of our expectations. Our first quarter performance demonstrates the strength of our focused portfolio, investments to support our brands and strategic initiatives, and the dedicated execution by our team. First quarter revenue of $412 million was above our outlook of approximately $395 million. The majority of the over delivery was driven by increased demand in the active group and favorable foreign currency contributed $6 million. Constant currency revenue growth for our ongoing business in the quarter was 6.7% versus the prior year and reflects increased demand for our brands and products as we execute our consumer-focused strategy. The year-over-year comparison includes $6 million of revenue in the first quarter of 2024 that did not repeat this year related to the Merrill and Saucony Kids Business Model change. Active group revenue grew 13% compared to the prior year, better than our outlook of mid-single-digit growth. The beat was primarily due to accelerating momentum in Saucony, which was up 30% year-over-year due to strong demand in both performance run and lifestyle. Triumph 22, Ride 18, and Guide 18, as well as the Endorphin franchise, led the way, driving higher replenishment orders from the wholesale channel and elevated consumer demand on Saucony.com. Merrill Revenue. grew 13% in the quarter, with growth in core product franchises including Moab 3, Agility Peak 5, and Moab Speed 2. Sweaty Betty revenue declined 16% this quarter, which was in line with our expectations. We shared in our fourth quarter call that we were taking actions to improve the profitability of Sweaty Betty. As Chris shared, Sweaty Betty made meaningful progress towards this goal in the first quarter, with material gross margin expansion driven by lower levels of promotion coupled with a better mix of full-price sales. Workgroup revenue decreased 17% in the quarter, somewhat below our expectations. Approximately half of the decline was a result of a timing shift between the fourth quarter of 2024 and the first quarter of 2025 that we shared in our February call. The other half of the decline relates to the non-repeat of significant discounting on certain styles from the prior year and challenges in our product offering, which we are actively addressing. We expect work group performance to improve as new products go into market and inventory on key products is replenished. Adjusted gross margin of 47.3% increased 80 basis points compared to last year. Gross margins were above our expectations and reflect a healthier sales mix, lower promotional activity, and the benefit of supply chain initiatives. Adjusted operating margin of 6% increased 100 basis points compared to last year and 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, Adjusted diluted earnings per share improved from 5 cents in the first quarter of 2024 to 18 cents in 2025, above our outlook of 10 cents. Net debt was $604 million, down approximately $80 million versus last year. Turning to our outlook for the balance of the year. In response to the dynamic nature of our operating environment, particularly the evolving tariff situation, and its impact on our business, we've reassessed our outlook. We are concentrating on several key factors, our strategic progress, the effects of higher tariff rates on costs and inventory, our initiatives to mitigate these costs, and anticipated consumer and customer responses. As a result of our assessment, while we are providing guidance for the second quarter today, we are withdrawing the full year 2025 guidance we provided in February. Once we have better visibility regarding the tariff rates and their potential impact on our business and our consumers, we'll be in a better position to return to providing a current fiscal year outlook. We believe this approach provides a clear and strategic view of our progress and performance and allows us to navigate the complexities effectively. Let me walk you through how these factors informed our guidance update for 2025, starting with our strategic progress. Our first quarter results, combined with the development of the order book, strengthened our confidence in our February outlook. The active group, led by our two largest brands, Merrill and Saucony, continued to build momentum, bringing innovative products to market, growing distribution, and expanding market share. Buddy Betty remains focused on margin expansion driven by a continued shift to more full-price business, which provides a stronger foundation for future growth. In the work group, the focus remains on bolstering product innovation and maximizing trends through key franchises, such as the rancher and the trade wedge. Turning to the direct impact of increased tariffs on the cost of goods. We accelerated plans to move production out of China in 2025 for US products. Less than 10% of our products are now expected to be sourced from China, down from the mid-teens just earlier this year. Using our current sourcing and incremental tariff rates of 145% for China and 10% for other sourcing countries, We expect these incremental tariffs to translate to an estimated $30 million profit impact to 2025 before any mitigation. Before the new tariffs were announced, we had already started strategic actions to enhance our profitability. Now we are intensifying those efforts and accelerating existing initiatives while prudently reducing spending in certain planned areas. We're working closely with our customers and partners to implement strategic pricing, reduce product costs, and lower SG&A spending. In parallel, as I shared, we've already reduced our U.S. sourcing from China and plan to lower it further over time. Our objective remains to balance the need to protect margins and cash flow with the imperative to invest in initiatives that fortify our brands to drive long-term sustainable growth. This approach will enable us to navigate a potential decline in consumer spending in the second half of 2025. Given the current trade uncertainty, we are reinforcing our emphasis on our balance sheet health. The investments we've made in integrated business planning are enabling us to make more informed decisions about inventory flow, allowing us to mitigate the impact of increased tariffs on the value and volume of our inventory. We remain committed to our capital allocation priorities, which are investing in the business to fuel profitable growth, reducing debt, and maintaining the dividend. Turning to our outlook for the second quarter. Based on current trends in the business, we are seeing the momentum we've built over the past several quarters continue into the second quarter. We expect the impact of higher tariffs to be more significant in the second half of 2025 than in the second quarter. Expect second quarter revenue to be in the range of $440 to $450 million, a year-over-year increase of approximately 5% at the midpoint, or 4.6% on a constant currency basis. The year-over-year comparison includes $2 million of revenue in the second quarter of 2024 that will not repeat this year related to the Merrill and Saucony Kids business model change. Regarding foreign currency, spot rates have shifted significantly since the beginning of the year, with the U.S. dollar weakening against most currencies. While the current rates are favorable to our original outlook, we are closely monitoring the situation and expect continued volatility, especially as the tariff situation evolves. At the midpoint of the range, we expect active group revenue for the second quarter to grow by high single-digit percentage year over year. Workgroup revenue is expected to decline by a low single-digit percentage, reflecting a sequential improvement compared to the first quarter. We expect improvements in operating margins and earnings, with second quarter adjusted operating margins of approximately 7.2% and adjusted diluted earnings per share of 19 to 24 cents. In summary, Our first quarter performance and outlook for the second quarter highlight the effectiveness of our strategy in enhancing our brands and strengthening our financial position. The realities and challenges in our current market conditions are evident. Our actions are designed to thoughtfully balance earnings and cash flow improvement with essential reinvestment to ensure sustained profitable growth and value for our shareholders. We are in a better position today to address these challenges than we were 12 months ago. Our brands are stronger, our teams are leveraging new capabilities, and our balance sheet has improved significantly. And with that, let me hand the call back to Chris before we open it up for questions.

Thanks, Karen. After a very strong start to the year, we, along with our entire industry, are now facing a dynamic marketplace and uncertain road ahead. Despite this reality, I believe the new Wolverine Worldwide is well positioned to navigate the challenges and emerge a better company. Our advantages and actions include original leading brands and attractive categories that we believe are aligned with long-term macro consumer trends and present sizable opportunities for future growth. A proven playbook that's reinvigorated our biggest brands and is helping to drive momentum across the business. A diversified and nimble supply chain and global distribution network that enables us to optimize and pivot as needed A holistic, balanced tariff action plan designed to protect the business's profitability and our brand's momentum, informed by the lessons learned from our stabilization and turnaround efforts. And finally, and possibly most importantly, a strong and resilient team with an emerging culture obsessed with winning, coupled with enhanced capabilities bolstered by new talent, processes, and tools. Every situation presents opportunity, and our team is determined to be among the winners. We remain focused on building the new Wolverine worldwide. The company premised on building and leading great global brands, with everyone working together to win, and ultimately, to make every day better. With that, thank you to all of you for taking the time to view us this morning, and we're happy to take your questions. Operator?

Thank you. We'll now be conducting a question and answer session. As a reminder, if you'd like to ask a question, please press star and the number one on your telephone keypad. In the interest of time, please limit yourself to one question and one follow-up and re-queue for any additional questions. Thank you. And your first question is from Laurent Vasilescu from BNP Paribas. Please proceed with your question.

Oh, good morning. Thank you very much for taking my question. And I have to say congrats on a really solid first quarter. And thank you very much for giving at least guidance for 2Q. While I recognize you are pulling annual guidance, it sounds like most of your China sourcing is for the work business. Also, it sounded like, Chris, you were mentioning that the order book is holding up. So on those two points made in the prepared remarks, any high-level changes that you're seeing with regards to socketing Merrill business for the full year relative to what you called out in February?

Joseph Baeta, Supt of Schools, Thanks for thanks for getting up early appreciate the question yeah you picked up those those comments correct we've. Joseph Baeta, Supt of Schools, Thankfully, several years ago, we began doing a better job diversifying our source and base and obviously those efforts have have. Joseph Baeta, Supt of Schools, accelerated coming out of the tariff proclamation and will be down like we said, you know well below 10% this year and moving towards zero in 26. As it relates to sort of momentum in the business and sort of order book visibility, I think we're where we were. We feel good about how 25 is shaping up, and certainly in some places we think we've got a little bit more momentum than we had before. We're encouraged by where our brands sit. I think the product pipelines feel very good. We're obviously tracking the business each and every day, both focused on our own DTC business along with order book trends and at-once trends. So I think in general, certainly pre-April 2nd, we felt good about where we sat for the year, the momentum we've seen, and we haven't seen anything materially change since then, but obviously we're paying close attention to it. Even Fed Chairman Powell was out yesterday talking about no big changes in the data other than sentiment and sort of where the world's going. That level of uncertainty with where the consumer is and certainly where the tariff situation will ultimately settle led us to the decision to withdraw the full year at the same time, give you a little bit more visibility on how we saw the second quarter playing out.

Very helpful. And then two housekeeping questions here. I think last quarter there was a shift in work revenues between 1Q and 4Q. Did you see any shift between 2Q into 1Q? Is there one from 2Q into 3Q? And then second part of the housekeeping question, Taryn, I think it was very helpful that you quantified $30 million profit impact from the tariffs. Is that on the gross margin? Is that EBIT? Is that net income? And should we think about it between like equally split between 3Q and 4Q? Thank you.

Yeah, on the work group question, thank you, Laurent. No other shift that I would call out other than the shift that we had called out in our earnings call in February and basically that being half of the decline that we saw in the first quarter this year. No other shift to report. Regarding the second housekeeping item in terms of the $30 million tariff impact without taking any mitigation, That's, it's really gross margin profit. I think of it very similarly when we're giving you that approximate $30 million. And we're not providing right now a Q3, Q4, how it phases in.

Understood. Thank you very much for all the color and best of luck.

Thanks, Rob. Thank you. Our next question comes from the line of Ashley Owens from KeyBank. Please proceed with your question.

Good morning. So maybe just to start, you mentioned taking price increases across the marketplace as part of the broader plan to help mitigate some of this tariff impact. Can you just discuss the magnitude of these increases and then maybe more specifically if these will be applied across all brands and select or if it's more limited and where the focus would be, if so, and then maybe how much these are helping to offset or recapture some of those product cost increases? Thank you.

Thanks, Ashley. Great question. I think our approach to price increases were thoughtful and considered and strategic and surgical. We didn't apply a blanket across every brand, every category. We looked very closely at where our brand sat, where the competition was, where we felt we had opportunity, and we tried to be thoughtful. So it's hard to take a broad stroke across everyone and say this is exactly what we did. done by brand specifically, and at the same time reviewed with us at the level and then communicated this week and will be effective later this quarter. So, again, it was hard to paint with a broad brush. You know, surgically, you know, I'll give you some examples, you know, in Saucony, sort of like mid-single digits for specific products, similar to Merrill and similar to the work group. We don't anticipate this to fully offset the impact of the tariffs, which is why we are looking to other levers to pull to offset that risk. But it is a combination of efforts that will pull across the enterprise to react to the current situation. But again, the price increases were thoughtful, strategic, surgical, and considered, and with the best insights we had to partially offset the tariffs.

Okay, great. And then just two quick follow-ups. So, one, I didn't see an outlook or breakdown of expectations for second quarter by segments. Anything you can say quarter to date there. And then two, for growth margin for second quarter, I know similar situation understandable with the ongoing volatility, but just any guidelines as to how we should be weighing some of the higher full price sales you've been realizing versus initial impacts and how much of that you're planning to absorb or maybe pass through in the second quarter, just any goalposts for how we should be thinking about the gross margin line would be helpful. Thanks.

I'll take the first part and hand the second part to Taryn. As we said, we haven't seen any fall off yet, both from the consumer sentiment or from customers. We haven't seen that yet. Obviously, we're paying very close attention to that. I will say, interestingly enough, we've actually seen an uptick in SOC since the tariff announcements. in that business. But nothing adverse yet. At the same time, we're all paying close attention to where the consumer is. Obviously, lots of talk about uncertainty and where consumer sentiment is. Obviously, sentiment doesn't equal spending, but we'll certainly pay attention to that moving forward.

And then regarding your question in terms of gross margins for the quarter, we did not give gross margins for the quarter. Given the current operating margins or operating environment dynamics, and the range of outcomes, we're giving a somewhat broader range for the quarter, as opposed to, you know, the $440 million to the $450 million in revenue. It's a bit broader than we would normally give. We're also focusing the guidance on key metrics, such as revenue, the operating profit and earnings per share, rather than the specifics on gross margin or SG&A. I believe that these metrics can give you a clear view of progress we're making, the momentum we're seeing in the business, and it also allows us to navigate the complexities and some of the uncertainties in the environment. That's a bit of the reason in terms of the guidance that we did give for the second quarter. Regarding the segment expectations, what we had shared was for active group, we expect that to be high single-digit revenue growth, and for the work group, we would expect a decline of low single digits, which is that improvement sequentially that we're seeing quarter to quarter.

Okay, got it. That's helpful. Thank you.

Thanks, Ashley. Thank you. Our next question comes from the line of Sam Poser from Williams Trading. Please proceed with the question.

Thank you guys for taking my questions. I've got a handful, but starting with, you know, we talked, you're talking a lot about, you talked about order book and things like that. What are you doing from like a demand planning basis when looking into the back half? Are you, are you pulling back on, on, on the supply in, in, in advance of the potential for less consumer demand regardless of what you're seeing now in order so you don't get caught with too much inventory if it does slow down? Taking the order book out of it, I'm really talking about consumer demand, not what some buyers from whatever retailer are placing.

Good question, Sam. Thanks for getting up early with us. One of the things that we've done over the last year or so is stand up a new integrated business planning group. We didn't do a particularly good job as a company navigating everything coming out of COVID, and we knew that we had to improve that capability. We haven't talked a lot about it, but this new team is really doing a very nice job orchestrating efforts across the enterprise, both demand signals coming from the marketplace and then how we plan and produce inventory. Specific to your question on how we're thinking about the back half of the year, it's hard to paint a broad brush across the entire enterprise. There are some places we are certainly more cautious, just given brand momentum, what's happening in that market, how we view the product pipeline, and we will be constrained there to make sure that we manage inventory responsibly. At the same time, where there is momentum, where we have some excitement, or we do think that demand will persist, I think we'll be a little more bullish on those prospects. And certainly, you know, from a footwear standpoint, as the consumer in the marketplace goes through cycles, whatever we want to call them, you know, we believe that certain segments generally hold up a little bit better. And we certainly think athletic and outdoor in some downward cycles generally hold up a fair little bit better than other categories. So to answer your question, Sam, very close attention to the marketplace, where the consumers and customers are. paying attention to the order book, a new capability with our integrated business planning team, and then more surgical, not across the board cuts related inventory if we're nervous about the environment, but more thoughtful about where each brand sits and the momentum they possess.

Let me just ask it a different way real quick. Given the momentum, let's say of Saucony or Merrill at the moment, When you look at the back half, do you anticipate the same kind of momentum or are you going to temper your expectation for that momentum in the way you feed the beast to support it?

Yeah. So, you know, again, we're not going to provide, we're not providing second half guidance. I think what you can infer from what Chris just said is that somewhat, yes, we have pulled back on inventory. versus our original expectations in the back half.

Thank you. And then I continue to get lots of promotional emails from Merrill. And you had a nice margin increase there, and it sounds like it's gaining some momentum. And you also talked, you said that you were talking about your, you know, about your new, you know, how you were, you know, working with distribution with the Merrill brand. Can you talk and give us some details on why we're seeing so much promotional, at least emails directly from Merrill and is that cleaning up old stuff or what's going on? And then was it sell in or sell through that drove the Merrill increase in Q1?

Specifically on the promotional thing, it's a good question, and I appreciate you raising it. We are working hard to become a less promotional business. Certainly, the factors of the last handful of years led the company to a place where we had to clear more for a whole variety of reasons. We are much cleaner today, our brands are in a much better place today, and we're working to become a less promotional business. That does not happen overnight, though. There is a period of time in which we have to make that transition, and you're going to see that. I would anticipate a material increase across our portfolio in dropping that promotional cadence of emails, at the same time improving our gross margins. But there will be a shift that has to take place. Merrill specific in the first quarter, from a DTC standpoint, probably lagged a little bit of our other brands on a full price mix. It was largely due to one style that was a little bit late getting into our distribution centers so we could roll it out. So specifically, you will see it's become less promotional. That's bearing true in the facts. And it's something that we're talking about more broadly as an organization. I'm pleased with the progress we've made, but it's not going to happen in a quarter. But certainly as we get into the back half of this year and begin to lap next year, you should certainly feel it.

And then lastly, can you just, thank you, and can you just give us a breakdown with your international business of units versus dollars or, you know, how to, because you have so much distributor business in your international market. Can you talk about, you know, how it's, it's about 50% of the total revenue, but how much of it is, is it in units versus, you know, in units versus domestic sales and any color you can give us on, on, on, on that and, I don't even know how to ask it. You haven't broken it out in the past with the subs and the distributors, but any color given all the noise here and how big in like wholesale equivalent that would really be if it was all a sub or something like that.

Alex, provide a couple of points to that question.

Sam, in our investor presentation, which is on our website right now, you'll see on page nine we we give you some insights into our regional dispersion of revenue and units. And so in there, you'll see outside of the U.S., you know, you'll see a large chunk of our pairs kind of generated outside the U.S. and international markets. So I won't go through each region for you, but just point you to that. that specific page in the investor presentation and happy to follow up with you after on any specific questions.

All right. Thank you. I didn't look there. Thank you.

Thank you. Our next question comes from the line of Pekka McGoldrick from Stifel. Please proceed with the question.

Thanks for taking our question. I was curious on the Dockony lifestyle rollout to the $900 new retailers, can you talk a bit about the audience you're attracting there and the initial response and then how we should think of the additional 400 stores and the consequence that has to the forward revenue trajectory?

Sure. Thanks, Peter, and welcome to the coverage. Yeah, we're very bullish on the prospects of Saucony Lifestyle. You know, Saucony is a century-old brand. benefits from a great product archive. And we found this in sort of resetting the brand over the past handful of years and developing a new strategy with the new team. There's an amazing opportunity at this intersection of run heritage and lifestyle and being part of the cultural conversation. And I think the team has done a very nice job in very short order tapping into that. The lifestyle side is a meaningful part of the business. We're showing up in new distribution in doors like Footlocker and Journeys and Snipes, we're seeing the branch up there in meaningful ways. And we've tested that product in those doors. And so the expansion that you're seeing is test-based, saying there is demand for the brand in brand heat, and we're going to open that up. So we've opened that aperture. The business continues to perform well, men's, women's, and kids. And we're encouraged by the reception. And it really helps balance and complement that performance run piece, which is where the brand certainly is known for and cuts its teeth. And that's why I think the prospects for the brand are so bright. You know, on the February 24 call, in the middle of the turnaround, I said that I was bullish on the prospects for Saucony because I've been part of the strategy, been part of the new leadership team, and certainly from where the brand was, its history of innovation, being one of the original running brands, and then being able to capitalize on both the and lifestyle, I think, an amazing opportunity. And I remain very bullish on the prospects of that brand and that team. And certainly the lifestyle piece is an important part of our growth story.

Thanks for that. And I think I caught this correctly, that Sweaty Betty had 1,000 BIPs underlying margin improvement. That's pretty material to the overall gross margin progression, the underlying progression, excluding tariffs. How should we think of the comparisons for that as the year rolls forward?

Yeah, I mean, let's talk anything, and hopefully my prepared remarks spoke to it. You know, we are committed to making that and bolstering its premium positioning. And I think we had gotten too promotional, too many sale messages, and we need to do a better job there. So at the expense of short-term top-line revenue, in the spirit of chasing long-term brand health and a premium positioning, we're going to walk that back. And You'll see pressure on the top line, but the 1,000 basis points of gross margin expansion driven by 1,000 basis points of improvement in full price mix is material to that. So we have work to do in Saucony. I'm headed there over the weekend. I'll be in London next week to spend – sorry, Sweaty Betty, not Saucony. I'll be spending time with the Sweaty Betty team next week. But we have work to go do there, but I think we're on the right path. All right.

Thank you. Good luck in the future.

Thanks, Peter.

Thank you. Our next question comes from from Piper Sandlin. Please proceed with the question.

Great. Thanks so much. Good morning. And congrats. Really nice results. Thank you. Thank you. A couple from us. First on Merrill, great to see that double-digit momentum. for the brand. In the U.S., can you guys talk about what are you seeing with the new distribution versus share gains at the existing doors? And are you seeing the high category improve at all, or this has been more about share gains accelerating even further for the brand? And then we have a couple of others.

Sure. Thanks. You know, there's a lot of things to be excited about at Merrill. You know, three consecutive quarters of growth, nice movement in the Moab 3. The Moab 2 continues to gain traction. The Agility Peak 5 in trail run, you know, gaining share in hike, trail, and lifestyle in the same quarter are certainly all encouraging. The drop of the SpeedArc Surge Boa followed by the SpeedArc Mattis, you know, a $300 price point for Merrill is pretty thin air, and we're very pleased with what that has done. It is visually disruptive. It looks different, and importantly, it performs. And then the lifestyle piece, you know, certainly some continued momentum in Jungle Moc, and then the raft collection, you know, which is this barefoot, Sort of transitional shoe that has so many uses, it looks different. We're encouraged by where that is and where the product engine has come. We do have a new product chief in the brand, too, which we're very excited about. So there's a lot of things to be excited about for the Merrell brand. And certainly expansion from the lifestyle piece in the U.S. is important. You know, new doors that we talked about opening up in some lifestyle retailers, which we had not been in for a period of time, is encouraging. Hike, you know, outdoor hike, you know, still obviously some pressure there, but we're pleased that we continue to gain share in that business. It's part of our responsibility as the market leader to help innovate. And we certainly think, you know, the Moab Speed 2, the SpeedArc Surge BOA, you know, those products certainly do help evolve and bring innovation to that category. So pleased with Merrill's progress. It's great to see the double-digit growth. And honestly, I'm excited about the team we have in the field and how we continue to evolve and grow that brand in the future.

Okay, no, that's awesome. Very helpful. And Moab does look great. On Sweaty Betty, appreciating the fact that you guys are managing the brand for profitability right now, but can you just give us the updated thoughts on the commitment to Sweaty Betty as part of the portfolio, and what KPIs are you watching to measure the success there?

Thanks for the question. Yeah, you know, I think certainly our focus right now is improving the profitability, helping to build it and make it a great brand, and then grow that business. We have some new players in place, which is important. Certainly getting Saucony and Merrill growing again, adding Susie Kuhn to the team, having her oversee the work group allows us to really focus our efforts in businesses that aren't quite tracking. So I'm excited to spend more time with the Sweaty Betty team. Like I said, I'm on my way to London to be with that team, plus visit the construction of our new Saucony store in Covent Garden. But we're committed to improving the profitability, making that a great brand, and then growing sweaty buddy.

Chris, is there a timeline that you think about as a kind of a realistic recovery for the brand in the near to medium term?

Well, I think we're, we're copying some promotional activity from last year. And we talked about becoming less promotional, not, not giving specific timelines. I will point to, you know, you know, where the company was a year ago and certainly where our biggest brands are today. We have a playbook for growth. We have an aligned and motivated team. And frankly, we're doing fewer things, and we're doing those fewer things better today than we were 18 months ago. So I think we are committed to the work. We've got the right team. We've identified the issues. And now we have to go solve those.

Okay, no, that's fair enough. And just as a final one, I think you mentioned that stock needs further accelerated here in the second quarter. Can you just confirm that? And thank you so much again, Chris.

Yeah, my comment was, I think, in response to Laurent's question. about sort of what we had seen. Interestingly enough, we sort of tracked sort of pre-liberation day, post-liberation day, and Saucony Act actually has accelerated since April 2nd. So that's just sort of early days. It's a very small data point, but we haven't seen any negative effects so far.

And we did not give any brand-specific guidance for the second quarter, Anna. Yeah.

All right. Well, thanks so much, and best of luck.

Thanks, Anna.

Thank you. Our next question comes from the land of Mauricio Serna from UBS. Please proceed with the question.

Great, great. Good morning, and congratulations on the results. I had a couple of questions. First, housekeeping on the provided outlook. Just making sure, for Q2, are you guys expecting any impact from tariff, and then on the $30 million impact on your gross profit. Does that include already China being high single digits of what's coming into the U.S.?

Regarding your question, thank you, Mauricio, for what we have assumed in terms of the $30 million tariffs before mitigation, I will start there. What it assumes is We didn't give any, we're not giving the specifics of what it means in terms of the sourcing. What we're saying is we expect it to be less than 10%. And that from where we started earlier this year to that less than 10% that we've talked about for 2025, that is included in the $30 million that we identified.

Okay, so being less than 10%. Sorry, go ahead.

Sorry, and your first question?

Does Q2 have any impact on tariffs?

Yeah, thank you. The Q2 tariff impact, we're not identifying any meaningful. We expect it to be more significant in the second half.

Okay, got it, got it. Okay, so sorry, and just make sure I understood this, that like the 30 million does include that, you know, it's going to be less than 10% of China sourcing for U.S., is that correct?

By the end of 2025, yes.

Okay, got it. And then maybe just one thing about the Q1 results, just wondering, you know, pretty strong results across the board. Just was wondering, like, what happened in the DTC channel that you saw, like, 7% decline on the ongoing business?

Yeah, from a DTC standpoint, certainly we've talked a little bit about that. I think that's part of our taking a less promotional stance in our DTC businesses. Saucony was up. Merrill was down a little bit. And then we talked about pressure in Sweaty Betty and work groups. So I think we are trying to take a long approach in DTC, trying to manage that business more responsibly, make that a more full-price business. And by and large, across all of our brands, we saw a nice increase in gross margin. I think it was 550 basis points in total in DTC up in the quarter, which is a nice lift. And certainly the increase in full price mix is an important metric. So it's something we pay attention to. Obviously, we get reads every two hours. We're working to improve that channel. But right now, it's to make that a better experience for our consumers, a more full price business, a less promotional business. and really give our consumers a more frictionless experience as they engage with our brands.

Great. And very last one, thanks again for the time. Any initiatives underway that you're thinking about to maybe resume kind of like the pay down of debt?

The pay down of debt? I think in terms of Where we're at, what we called out was our capital allocation priorities haven't changed. And in terms of paying down debt, investing in our business, and maintaining the dividend. So we haven't, given that we aren't giving any back half guidance, I don't have a debt leverage target for the year, other than to say that our goal is to continue to focus on deleveraging. You know, given the debt that we paid down last year, we're in a much better place than where we were a year ago, Mauricio. And I think from the standpoint of we made great progress on improving the financial performance of the company in terms of what you're seeing in the margins, but also strengthening the balance sheet. So with that lower, healthier inventory and part of what Chris was talking about that we were able to do and our significantly reduced debt, this puts These improvements in our financial position puts us in a much better place.

Understood. Thanks so much, and congratulations again on the results.

Thanks, Mauricio.

Thank you. Our next question comes from the line of Mitch Kometz from Seaport Research Partners. Please proceed with the question.

Yes, thanks for taking my questions. I guess my first question, Chris, on the second quarter, the top line outlook, I mean, it sounds like you guys had a good start to the quarter. You referenced Saucony. Also, you said that you have yet to see any real change in the consumer or your customers. Can you maybe speak to the assumptions that you're using for the balance of the quarter? Are you kind of assuming that April trends hold through May and June, or are you assuming a more cautious stance on the consumer and your customers, and then I have a couple of follow-ups.

Yeah, it's a good question, Mitch. I think it's a little bit of mixed. I think we're sort of looking at the momentum we have, the backlog we have, the sell-through rates, the conversations we're having with our customers and what we're seeing from the consumer standpoint. At the same time, our eyes are wide open to what's happening in the more macro landscape and I'll echo what was said yesterday. I think in the data right now, the data still looks pretty good, but there's obviously a ton of talk about where consumer sentiment is. We all look at those studies. There was a good report that the FDA published a week or so ago about where they see the consumer going. It's mixed. We're trying to both understand where our brands are, where the momentum is, what we're hearing from our customers and sell-through rates and order book, at the same time, you know, very cognizant of what's happening in the broader world and what downstream effect all of these things will have on the consumer. And I would say, you know, the processes and tools we've built over the last two years, whether it's the new integrated business planning function, whether it's our Tuesday read and react sessions, and some new talent we brought to the business that have a more retail consumer mindset, I think we're sort of breaking old habits and old muscle, how we weren't as tied into the pulse of what's happening with the consumer. It doesn't mean that we're going to be perfect, but I certainly think we've got a much better handle on how we run the business day-to-day and certainly more agile and nimble than we may have been historically. And again, you know, we're not afraid to take fast action in the spirit of protecting and building our brands in the best interest of our shareholders.

Yep. And then on the 30 million, you know, it sounds like you've built in, you know, the impact of China, you said less than 10%, and then also 145% tariff. But are you actually currently landing goods from China at 145? Are you holding off on doing that, you know, hoping that maybe that number comes down from 145, which might, I mean, if you are doing that, that might imply maybe some upside to the 30 million?

Without getting too detailed in terms of what we are or not shipping, because it's going to vary a little bit by the brand. And to Chris's point of being very thoughtful, being very surgical about what we are moving, What I would say is, you know, given the fact that we have said that earlier this year, China represented mid-teens, and now we're saying less than 10%, I think that calls out that we have reduced significantly our sourcing from China, and anything that we do plan to bring in is assumed in that $30 million unmitigated.

Okay, and then lastly, you guys have referenced some potential offsets, whether it be price or, you know, SG&A savings. Is there any way to quantify the amount of offsets that you've identified? Are you talking $5 million, $10 million, $15 million? I'm sure you've probably done some of that math. I'm hoping you could share that with us.

Yeah, we're not going to share too much of the math with you. You know, obviously for us, it's a handful of levers that we're going to pull. Certainly, as we're thinking about price that we're paying for these goods, certainly our price in the marketplace, and then a high level of scrutiny on all the dollars that we spend, making sure that we're continuing to try to protect and fuel where we have brand momentum. Other discretionary things that would have been nice to do, those things are going to be on pause until we see where the dust settles. We're obviously anxious to see what happens with the trade war and where that is. At the same time, we're moving quickly to mitigate the risks that we see today and certainly work to exploit the opportunities that we believe we have or that we may have in the future. At the same time, trying to run the company really responsibly in the face of this sort of unprecedented event.

Okay, great. Thanks, guys.

Thanks, Mitch.

Hey, Maurice here, just one more comment Alex pointed out to me when I did say that reducing debt is definitely part of deleveraging as part of our priorities and plans. I think it is important to call out the reason I talked about the strength of our balance sheet compared to where we were a year ago and the confidence of moving through the challenges we see today. It'd be important to point out the foundation of our capital structure is the 550 million, 4% senior notes that we have maturing in 2029. And complementing that, our senior notes are mostly undrawn bank credit facility of 830 million. So just to give you some color in terms of the debt structure that we have and the great progress that we made

last year um certainly deleveraging is important um and and but we feel good about where we're at today thank you there are no further questions ladies and gentlemen that concludes today's meeting thank you all for joining and you may now disconnect