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?