Wolverine World Wide Inc /De/ Q1 FY2022 Earnings Call

Good morning everyone and welcome to the Wolverine World Wide First Quarter Fiscal 2022 Results Conference Call. All participants will be in a listen-only mode. At this time, I’d like to turn the call over to Alex Wiseman, Vice President of Finance and Investor Relations. Please go ahead.

Good morning and welcome to our first quarter 2022 conference call. On the call today are Brendan Hoffman, our President and Chief Executive Officer and Mike Stornant, our Executive Vice President and Chief Financial Officer. Earlier this morning, we announced our financial results for the first quarter 2022. The press release is available on many news sites and can be viewed on our corporate website at wolverineworldwide.com. If you would prefer to have a copy of the release sent to you directly, please call Jean Fontana at 646-277-1214. This morning’s press release and comments made during today’s earnings call include non-GAAP disclosures, which adjusts, for example, for the impacts of environmental and other related costs net of cost recoveries and foreign exchange rate changes. Additionally, prior year non-GAAP disclosure includes adjustments for airfreight charges related to production and shipping delays caused by the COVID-19 pandemic. References to organic performance reflect the exclusion of the Sweaty Betty brand which was acquired in August 2021. These disclosures were reconciled in the attached tables within the body of the release or in supplemental tables found on our website under the Investor Relations tab at the Webcast and Presentations link. I’d also like to remind you that statements describing the company’s expectations, plans, predictions, and projections, such as those regarding the company’s outlook for fiscal year 2022, growth opportunities and trends expected to affect the company’s future performance made during today’s conference call are forward-looking statements under U.S. Securities Laws. As a result, we must caution you that there are a number of factors that could cause actual results to differ materially from those described in the forward-looking statements. These important risk factors are identified in the company’s SEC filings and in our press releases. With that being said, I’d now like to turn the call over to Brendan Hoffman.

Thanks Alex. Good morning, everyone. And thank you for joining today's call. We are pleased to report strong first quarter performance despite ongoing supply chain challenges and a difficult macro and geopolitical backdrop. Our better-than-expected results are a testament to our team's focus and solid execution. Although these continued headwinds present complex challenges to our business in the near term, they're counterbalanced by sustainable changes in consumer trends and wellness, outdoor performance, and work that provide tailwinds for future growth. We remain focused on executing strategies to position our brands to capitalize on the industry backdrop, and to drive market share gains in 2022 and beyond, while enhancing the profitability of our business. Now, we'll provide a quick overview of our first quarter results, focusing on our biggest brands, where we continue to see strong demand as well as our key accomplishments. First quarter revenue increased 20% to $615 million, above the high-end of our guidance. Excluding Sweaty Betty, revenue growth was 10%. Merrell performed in line with our expectations with revenue of $148 million, down 2%. Availability of new product in the quarter was impacted by factory shutdowns in the back half of 2021 as previously noted. Merrell’s demand remains very strong across all geographic regions, and we are seeing an improvement in the inbound flow of goods. As a result, we expect to deliver low teens growth in Q2 with anticipated sequential improvements in Q3 and Q4 as new product launches hit the market. For the full year, Merrell should deliver high teens growth. Merrell continues to elevate engagement with consumers supporting product successes. We launched our 'more or less' campaign during international women's month, which resonated with consumers and fueled a 25% increase in demand for Ventura, a trail running style uniquely tailored for women. Similarly, Merrell’s 'hype by haters' campaign with a viral hashtag BDE, Big Daddy Energy generated nearly 4 million impressions via influencer outreach, driving Hydro Moc to be the top unit seller on merrell.com. We plan to launch a sustainability campaign 'This is Home' along with ReTread, Merrell's first footwear recycling program. The brand will be increasing investment in paid media through the remainder of the year as we rebalance our spending to emphasize brand building and top of funnel marketing. Saucony slightly exceeded our expectations with revenue of approximately $106 million and growth of 4%. While Saucony entered the quarter with a good inventory position and carryover styles, new product launches were delayed as expected due to supply chain challenges. Saucony’s lifestyle business continues to perform very well in Italy, a critical market of fashion relevance, and we see ongoing momentum in the other international markets. The order book for Saucony gives us good visibility to growth over the remainder of the year as new product flow improves. As such, we expect double-digit revenue growth in Q2 for Saucony, with a full-year outlook of high teens growth. During the quarter, we made a strategic media shift to broaden consumer reach. At the beginning of March, we launched a brand awareness campaign 'Call us Runners' in connected TV across all Roku apps with a supporting social campaign on Facebook and Instagram. We saw strong PR placements featuring the Saucony brand campaign 'Call us Runners' across multiple publications. Examples include an International Women's Day article in Ebony, highlighting our diversity efforts with a feature of JL from Black Girls Run. Endorphin Pro-2, Triumph 19, and Guide 14 were featured in Runner's World and Men's Health, which was syndicated to MSN and then Yahoo. We also saw Endorphin Pro-2 feature in Esquire in the U.K. In sports marketing, three athletes ran the Boston Marathon in Endorphin Pro-3, further amplifying our brand presence in sport. Looking ahead, we will focus on core franchises for everyday active with ride, guide, and conveyor campaigns set to run in social media channels starting in May. Sweaty Betty revenues of $54 million were down 2% on a pro forma basis, but up 3% in constant currency. The brand was significantly impacted by geopolitical instability given its high exposure in the U.K. and Europe, where overall high street retail struggles. The broader challenges in new logistic delays had an unplanned impact on ecommerce traffic and new product launches in Q1, while store performance was relatively strong. Sweaty Betty continues to bring category-leading innovative fashion elements to technical activewear. This is reflected in the powerful lineup of new product introductions throughout the balance of the year. The brand has complemented performance product launches with lifestyle product offerings to serve the broader needs of the consumer in the post-pandemic world. Over the course of the year, Sweaty Betty will build on the recent success of its newly launched Super Soft, already the brand's second biggest franchise, as well as its cold weather products such as ski outerwear and thermals. We expect Q2 revenues to be down mid-single digits for Sweaty Betty, with a return to double-digit growth in the second half of the year, resulting in low teens full-year growth. The brand is predominantly DTC, and we are leveraging important learnings from the team that we can apply to our other brands. This cross-sharing is reciprocal. As an example, Sweaty Betty will be launching a new SMS trial in the U.S. market, leveraging the work already done around this in our other brands. This functionality will support diversification and channel mix and offset privacy challenges in our current email base CRM programs. In addition to build on the success of the insiders loyalty program, we are launching a new perk of the month to support trade and returning customer frequency. On the brick-and-mortar front, Sweaty Betty continues to attract new customers with profitable new store openings in the U.K. In the quarter, we opened four new stores. We have begun investigating reentering brick and mortar here in the U.S. as the next stage of their expansion. Sperry had a very strong quarter with revenue of $67 million and growth of 19%. The brand continues to benefit from healthier go-to trends, had strong performance in U.S. wholesale with bright signals from certain international markets. We expect Sperry to grow mid-single digits in Q2, which is partially impacted by a shift of revenue into Q3 due to the timing of inventory receipts. For the full year, Sperry should deliver low teens growth. Wolverine brand delivered 12% growth in the quarter, in line with our expectations. Our portfolio of work brands performed very well with revenue of $130 million and growth of 21%. The company has a strong market share leadership position in the U.S. work boot category with over 30% share, and Wolverine brand leads the way. Wolverine continues to win with industry-leading product and creative collaborations. We expect Wolverine to grow in the high teens in Q2, with full-year growth in the mid-teens. Now an update on the supply chain. In the first quarter, we continued to experience delays with lead time still almost twice as long as pre-COVID levels. Although factory production levels have meaningfully improved, freight movement in the first quarter was affected by China's zero-tolerance restrictions, the Russia-Ukraine war, and ongoing U.S. port congestion and trucking capacity limitations. We expect the supply chain to be a lessening but still meaningful headwind throughout the year, with evolving COVID issues in China presenting a new potential challenge. At the end of the quarter, our inventory was up 36% excluding Sweaty Betty against abnormally low levels last year and consists of healthy levels of core and carryover inventory. We expect inventory flow and newness to improve throughout the year. Moving on to the progress we made in the first quarter against our refined approach and supportive sustainable future growth. On our last call, we spoke about an important shift in our approach to deliver our growth strategies, which fundamentally means a renewed focus on our biggest opportunities. This will mean prioritizing investments in our largest brands and global markets. The fundamentals remain in place, leading with an acceleration of our digital and ecommerce capabilities, elevating product innovation, and optimizing our international market opportunities. The product introductions, collaborations, and marketing campaigns we're delivering in 2022 are just beginning. I'm incredibly proud of what the teams have accomplished and excited for the journey ahead. I see tremendous opportunities to unlock growth and shareholder value through a more comprehensive corporate strategy. Our leadership team is currently focused on this work and we are excited to have Boston Consulting Group on board to support our efforts. I look forward to sharing more about this initiative as we get later in the year. Let me provide a brief insight into some of the key growth areas. Beginning with our DTC and digital focus, we continue to advance our DTC capabilities and drive authentic engagement with consumers. That said, the DTC businesses for most of our brands are through the ecommerce direct channel, which benefited significantly from consumer shopping behavior during COVID but is now seeing some reversal as consumers shift back to stores. As a result of this change, combined with the impact of delayed product launches due to supply chain challenges and shifts in consumer sentiment towards experiential spending, ecommerce sales did not meet our expectations during the quarter, including our newly acquired Sweaty Betty business. First-quarter direct-to-consumer revenue increased 24%. DTC ecommerce revenue increased 16% compared to last year, and DTC store revenue was up 60% versus the prior year. Excluding Sweaty Betty, first-quarter direct-to-consumer revenue decreased 14% reflecting ecommerce decline of 16% and store revenues decline to 8%. During the quarter, we focused on attracting new customers to the brands as we better balanced some of our marketing investments into the top of the funnel, which we believe is important to the long-term growth and durability of our brands. We are testing and learning a number of strategies and also balancing higher performance marketing costs with anticipated returns. We will continue to expand our reach through a better flow of newness and purposeful storytelling throughout the rest of the year. With our commitment to growing DTC, capital investment in ecommerce and store infrastructure is expected to more than double this year, and we feel this will support growth into 2023. We expect our DTC business to grow over 20% for the full year, 5% excluding Sweaty Betty, and approach nearly 30% of total revenue in 2022. This reflects our expectation for an acceleration of DTC growth as we move past tougher comparisons in H1 of 2021, particularly in ecommerce, improved flow of new product offerings, and benefit from our top of funnel brand-building marketing initiatives. Beyond DTC, we continue to support our presence in the wholesale channel through key partnerships. As many of you are aware, DSW is testing a new format called Warehouse Reimagined, featuring shops and shops that showcase national brands. We believe this is an opportunity to amplify the visibility of brands such as our iconic Hush Puppies brand. Moving on to product innovation. Product is at the center of everything we do and a key strength across our brands. While supply chain challenges lead to product delivery delays, this was another quarter of successful product newness enhancements and collaborations across our brands. To name a few, Sweaty Betty, in conjunction with its apparel expansion in the hiking category, teamed up with Merrell to introduce a limited-edition Moab speed reflective of the Sweaty Betty ethos. We are thrilled by the strong response. As we discussed last quarter, we will leverage our brand equity and product development capabilities to expand into new categories that will broaden our customer reach and drive higher spend per customer. At Sperry, we launched Sperry Sport, the brand's most technically advanced performance launch yet as we returned to our performance-based roots. The assortment provides versatility across lifestyle activities to sport. We are excited to be launching this new collection that is just hitting stores this month. The Sperry Sport 'Dive In' product campaign drove new customer growth; 75% of sperry.com buyers are new, and significant interest from media including Travel and Leisure, we were top pick. Our 'Make Waves' brand campaign will continue to pulse and run through October. We also launched the 'Sea Cycle' storytelling during Earth month to begin activating our brand purpose, 'All for water, water for all.' At Wolverine, we have a hugely successful collaboration with Halo, bringing the video game-inspired boot to life. The boot features the Master Chief emblem while offering the same comfort and support inherent in Wolverine boots, with a midsole that contains Ultra Spring Technology for a lightweight energized ride. The product sold out in under one minute with 250,000 visits to the Halo landing page, leading to a 22% growth in its email database in a two-week span. These launches and collaborations clearly showcase the potential of these brands to accelerate innovation and creativity. The next key growth area is the acceleration of our international business. In the first quarter, international revenue grew 35% as compared to last year. Excluding Sweaty Betty, international revenue grew 10% driven by growth in our third-party distributor business, recovery seen in our top markets, as well as strong performance in our China joint venture. Our third-party businesses in Asia, EMA, and Latin America delivered revenue growth, excluding Sweaty Betty of 40%, 60%, and 90%, respectively, versus 2021, and are accelerating to pre-pandemic levels. Our own business in EMA and Canada declined 21% and 28%, respectively, as they were impacted by supply chain constraints similar to our domestic business. We are particularly encouraged by the momentum in LatAm with Cat and Merrell brand growth of 66% and 137%, respectively. Our brands are well positioned to take share in this region as key markets including Chile and Peru recover. Notably in the first quarter, two branded sites for Saucony in Chile and Maryland, Peru were launched. The Merrell store in Peru will open in Q2. As we look out, I also want to touch on the impact of the Russia/Ukraine conflict. Our Russia business is very small, historically less than 1% of revenue. During this quarter, we were able to divert the inventory allocated for our Russian distributors to other regions. That said, the war impacted consumer confidence in Europe, which is impacting business. We are monitoring the situation closely and making any adjustments as necessary. In efforts to support displaced Ukrainians and those affected by the war, we have made meaningful donations, including nearly 100,000 pairs of shoes to those in need. In conclusion, while the global macro environment and supply chain challenges are likely to create headwinds in the short term, we are more confident than ever in the future of our brands. With that, I will turn it over to Mike to discuss our financial results.

Thanks, Brendan, and thank you all for joining the call. As Brendan mentioned, we delivered strong top and bottom-line performance in the first quarter and continue to see healthy demand across most brands. First quarter revenue of $650 million was up 20% compared to the prior year and exceeded our expectations at the high end of our guidance. The revenue performance was driven by an 11% increase from the Michigan group, a 6% increase from the Boston group, and an 11% contribution from Sweaty Betty's revenue of $54 million. Adjusted Q1 gross margin of 42.5% was in line with our internal plan and decreased 180 basis points versus 2021. During the quarter, we experienced higher supply chain and product costs as expected, while certain price increases, which are phased later into the year, had a small offsetting benefit. The benefit from price increases will be more meaningful in the back half of the year with sequential improvement each quarter. Gross margin was also impacted by channel mix. Our international distributor business was especially strong in Q1 and this more than offset the near-term softness seen in our ecommerce channels. The gross margin from our distributor revenue is much lower than our ecommerce gross margin. Adjusted selling, general, and administrative expenses of approximately $211 million for Q1 were up $37 million, or 21%, compared to the prior year. This was due to an increase in variable costs and higher revenue, the addition of Sweaty Betty, and higher labor costs in our distribution centers. More importantly, we continued to invest in our teams and strategic marketing, aimed at consumer acquisition and brand heat during the quarter. Our reported SG&A expenses include $30 million of net costs related to a legacy environmental matter. We expect that this charge will substantially cover the current pending lawsuits. We are pleased to be making such meaningful progress towards resolving this matter. Adjusted operating margin was 8.1% and in line with our expectation and guidance for the quarter. Excluding Sweaty Betty, adjusted operating margin was 9.1%, compared to 10.2% in the prior year. Adjusted diluted earnings per share for the quarter were $0.41, compared to $0.40 in the prior year, a growth of 2.5%. Reported diluted earnings per share of $0.12 includes the impact of net litigation costs already mentioned. Turning to the balance sheet, ending Q1 inventory of $483.3 million grew about 50% and 36%, excluding Sweaty Betty. This increase reflects abnormally low inventory levels last year, due to excessive supply chain challenges. Our available inventory on core and carry-over styles is currently very healthy. Importantly, the flow of new products for key brands is now improving, and we expect this will support the important product launches planned for Q2 and into Q3. I will now turn to our outlook for 2022. The first quarter provided a solid start to the year, and we continue to experience strong global order demand that gives us good visibility to projected revenue for the rest of the year. As mentioned, our inventory levels have improved and while supply chain challenges persist, we are in a more stable position moving into the back half of the year. As a result, we are reiterating the fiscal 2022 guidance on revenue and EPS provided on our last call. We continue to expect to deliver record revenue in the range of $2.775 billion to $2.85 billion in fiscal 2022, growth of 15% to 18%, including double-digit growth for our organic brands. We continue to expect our four largest brands Merrell, Saucony, Sperry, and Sweaty Betty to contribute approximately two-thirds of our revenue in 2022. Despite the ecommerce decline in the first quarter, we expect our direct-to-consumer businesses to approach 30% of global revenue and our international markets to be over 35% of global revenue for the full year. We now expect adjusted gross margin to be approximately 43% and selling, general and administrative expenses to be approximately 32% of revenue. This outlook now reflects a shift in revenue from our DTC channels to our accelerating international distributor business. We still expect an adjusted operating margin of approximately 11%. Our revised outlook now reflects an effective tax rate of approximately 21%, net interest and other expenses of approximately $44 million, and an average share count of approximately 81.4 million shares. This revised share count reflects 2.1 million shares repurchased since the beginning of the year. Adjusted diluted earnings per share are still expected to be in the range of $2.50 to $2.65, and reported diluted earnings per share are still expected to be in the range of $2.30 to $2.45. We expect Q2 revenue of approximately $735 million to $745 million, or growth of approximately 16% to 18%. Gross margin is expected to be approximately 42.5%. Operating margin is expected to be approximately 10.5%. And adjusted earnings per share are expected to be in the range of 63 cents to 66 cents. Looking at the second half of the year, we expect high teens growth. The quarterly phasing is based on the alignment of our strong future order book, the improved new product pipeline mentioned earlier, and the phased benefit of price increases. Before I pass the call back to Brendan for closing comments, I wanted to share information about some very important work underway at the company. Since the beginning of this fiscal year, the leadership team has been working on a number of initiatives specifically focused on accelerating total shareholder return for fiscal 2022 and beyond. The first priority is the execution of this year's financial plan. In line with the outlook just provided. Beyond the financial performance, here are some of the initiatives worth noting. First, as Brendan mentioned earlier, we are working to reset the corporate strategy of the company with the support of Boston Consulting Group. This includes developing new enterprise-level and brand-level strategic goals and initiatives geared towards the optimization of our portfolio and capital structure to maximize value. To complement this work, we are also in the early stages of a comprehensive cost and efficiency review and may partner with some outside experts to help us accelerate these opportunities. Next, to provide greater clarity into the performance of our business, we will continue to provide more detail on the performance of our biggest brands and plan to further enhance our reporting structure in the second quarter. Lastly, as a culmination of the work noted above, we plan to host an Investor Day to share insights into our company's biggest growth and value creation opportunities. We will provide a more specific timeframe for this event in the coming months. In closing, I'd like to thank our global team for their outstanding execution during an incredibly volatile time. Now I'll turn the call back over to Brendan.

Thanks, Mike. Operator, we will now open it up to questions.

Ladies and gentlemen, we will now begin the question-and-answer session. Our first question today comes from Jim Duffy from Stifel. Please go ahead with your question.

I wanted to start by asking about the comprehensive corporate strategy review and key engagement of Boston Consulting Group. Is everything on the table here, including Active brand and portfolio management, or do you foresee this to be more operationally focused? And then, Mike, I'm curious, is that consulting fee within the budget or is this something we should be looking for as incremental in the P&L?

Now those costs are embedded in the outlook here and I can give some comments and then Brendan can kind of top it up. But I would say the work here is really focused on sort of corporate-level strategy and evaluating where the opportunities are for the business as we pivot out of this COVID timeframe and look for opportunities that are relevant to whitespace within our brands and other portfolio options that are certainly on the table as we move forward.

I mentioned last time in my remarks, just focusing the organization on prioritization. I think that they'll help us expand on that, and really where we want to focus our resources.

Fair enough. Helpful look forward to hearing more about that in the future. On to more near-term dynamics of something you could speak to just demand indicators that you're seeing in the outdoor and running categories. These very strong categories. During the pandemic, there's been some supply disruption not only for your brands, but for others in the space. What do channel inventories look like at this point? What type of demand indicators are you seeing within your own direct-to-consumer business, and how do you see this unfolding across the year in these categories?

Well, I mean, we're still bullish on the categories. We still see tremendous strength in our order book. It really comes down to supply chain, the closure in Vietnam. The H2 last year, just that really came back to haunt us, as we expected in the first half of this year, just with the lack of newness. So when you speak to our own direct-to-consumer demands, it fell off as evidenced by our results, because we had no newness. We were just showing the same core product over and over. We also missed out specifically on cold-weather boots, so we were out of stock there. I think that's what you're seeing in our own direct-to-consumer. We expect that to pick up as we get further along in the year. But we're really excited and enthusiastic about what we're seeing in our wholesale partners, whether it be the family channel, like Boot Barn reporting yesterday, or the sporting goods channel, where we continue to see strong demand, both in stores and online. A healthy order book that has the goods flow makes us very optimistic.

I think regarding inventory, there have been some cash bottlenecks in certain retail stores or channels, but overall, in the categories where we excel, the channel has been good and healthy. We have an opportunity to accelerate our wholesale business into Q2 and definitely for Q3. As new products arrive, not just filling in on core, we see this as an added catalyst for further growth going forward. I feel positive about our current inventory position and we continue to see strong demand for bringing in new products from our retailers.

Great. And then, lastly for me, and I'll let someone else jump in. You mentioned some softness in European consumer trends, presumably some softness in Asia Pacific as well. Are you seeing any cancellations related to this from wholesale partners or distributors, or is your order book bulk intact?

I'd say on the distributor side, it's been especially strong and no cancellations really, they continued as we have been to chase supply against the demand that they're seeing in those markets. From a cancellation standpoint, it's been pretty stable, Jim; we've been lucky to see that for several quarters in a row here during this timeframe where the supply chain has been a little more challenging. So far, we've been able to hold in there. The outlook, as we mentioned before, for the future orders is still very strong with a strong commitment from just our domestic retail partners, but our international partners, distributors and wholesalers alike.

And our next question comes from Jonathan Komp from Baird. Please go ahead with your question.

Maybe a follow-up on the corporate strategy review you are initiating. Brendan, I'm curious, as you look across the brand portfolio, do you expect any brand or set of brands in particular to benefit from the review? And then, maybe it's too early for this? But, do you have any thoughts when you look at the brand portfolio today directionally about what sort of organic growth potential as a portfolio is really possible on an ongoing basis?

Yes, as I mentioned, it’s important to ensure that we allocate our resources toward our growth priorities, whether that involves our largest brands or the workboot group led by Tom Kennedy. We are beginning to adopt a more strategic mindset as an organization. This approach should help unlock future growth and ensure that our brand strategies and corporate strategies are aligned. The advantage of our current brands is that they are all profitable. The focus now is on effectively managing resources and time, rather than dealing with any brands that aren't generating profit. I believe we will gain clearer insights as we progress through this process.

Exactly. I mean, Jon, we shared it today, but literally, the process is just kicking off. We're excited about what we'll be able to focus on and share with you in the near future here, but in terms of any outward-looking projections or outlooks, it's a little early to put that on the table quite yet.

And maybe as a follow up on the Sweaty Betty brand, could you just expand a little bit more on some of the shifts you might be making to the marketing tactics? And does any of that change your outlook for the growth potential beyond the next quarter, a few quarters here?

Well, again, I think they've had some product delays, not quite as severe as we have in the shoe side of the business. But the things that they were planning on for Easter were delayed due to difficulties. But they’re very sophisticated when it comes to working directly with the consumer. Julie and her team are actively shifting where they're investing their marketing dollars and how they're going after new customers, combined with engaging existing customers with the different tools they're using. They did some initiatives over the last few weeks that generated a nice push in business, and so they'll continue to work through that. It likely will be a little choppy over the next quarter. You've seen that with other DTC brands, but there’s still enthusiasm for their long-term expectations.

I would add, Jon, that store performance for Sweaty Betty was fairly strong in the quarter; it was comping up against a tough Q1 in 2021, but in line with what we would have expected. The benefit for this brand, even though it's strong DTC, it has the omni-channel opportunities that some of our other brands don't have. So there are a lot of learnings coming out of that as we look at how to refocus on the brick-and-mortar opportunities as the consumer shifts their shopping habits a little bit.

And our next question comes from Dana Telsey from Telsey Advisory Group. Please go ahead with your question.

A couple of things on pack, it seems like the delays in the arrival of goods in the first quarter impacted the newness. How do you see the flow of goods continuing? And how are you thinking about air freight expenses? And then, also the shift to stores from ecommerce with reopening? How are you thinking about that as we go through the quarters, and in the back half of the year with the cadence uptick in new products or new things that we should be looking for to drive demand there? Thank you.

Thanks, Dana. I mean, I'll start and Mike can follow up. I think again, the lack of new deliveries for a mono brand like our brands, basically one category is just too difficult to overcome. We just have nothing to engage the consumer with. The Merrell Moab 3 continues to get delayed; it was supposed to launch last year, and now is firm to launch in June. We're excited about that. In Saucony, their new franchise, the Tempus, was meant to launch in Q1 along with a campaign called 'Call us Runners', that's going to be in Q2. I can go on and on down the list as these goods are on the water and in the air. We have a better line of sight into when they'll be here in Q2, Q3, and Q4, which is also when last year we started to see inventories be challenged. That’s what gives us confidence for the uptick in business in the back half of the year. In terms of stores, you have to remember, as Mike mentioned in his comments, we're really not an omni-channel business in terms of our own DTC. Our stores are all outlets, and I don't think of those in the same way as I would full-price stores in terms of how they interact with our ecommerce business. So even more pressure on us, and the opportunity to get the flow of goods into the last three quarters will give us the opportunity to market to our customer with something new and to engage them.

And I think the key to that, Dana, is visibility to this, which we had in February when we gave her outlook that we knew there were going to be some launch delays. We have much more confidence in the timing based on the status of production and the flow of logistics. So, from that standpoint, even though it's shifting a little bit, we think we have really good visibility there and it's stabilized. We're not leaning excessively on airfreight, certainly not more than we had planned to get the goods here faster. Again, I think all of this is fairly in line with what we had expected coming into the year. As we delivered on Q1, overall, that was positive. Some pressure it has had on us directly on our ecommerce business has been a little more acute than we expected, but obviously, the diversity of our business model helps us mitigate that in other places.

And then just on price increases, are you taking price increases across all brands? What's the magnitude that you're doing?

We've got price increases that are impacting, or sort of in the market starting now more meaningfully and will have an even bigger impact in Q3 and Q4. What we're seeing, unfortunately, linked to the delay in some of the launches, is with some of the new product where we took more meaningful increases, those were delayed a bit. So the benefit of that is also delayed. But overall, very meaningful price increases, in line with competitor brands that we've seen in the market. From Adidas' standpoint, we’re seeing no resistance on the higher pricing that we're passing through, so overall, we feel comfortable with that approach.

Yes. We have even though, as Mike said, a lot of it’s phased in throughout the balance of the year, Merrell, for example, has taken up to their core franchises, Moab by $10, Jungle Moc by $5. Again, we haven't seen any pushback from the consumer. That being said, we’re doing it selectively because we know we have to watch how it impacts demand.

And our next question comes from Laurent Vasilescu from BNP Paribas. Please go ahead with your question.

Mike, I think you hinted that you might provide enhanced disclosures in 2Q just over prepared. Any guardrails on that matter?

Well, I think it's part of all the work that we're doing right now to sort of look at the business and how to organize the business a little bit more efficiently. So no foreshadowing at this point, Laurent, I think just more in line with the focus and the prioritization that Brendan mentioned before, continuing to emphasize and share the performance of our biggest brands, which represent two-thirds of our global revenue, and focusing on a grouping or an organization of the business that's the most helpful to investors and helps us tell our growth story in a more efficient way.

Very helpful. Okay. And then I think you mentioned maybe 30% of your revenues for this year will come from DTC. If I looked at the K, you had 143 stores, right, which includes Sweaty Betty. Just curious to know, how do we think about the store count for the end of the year? And, within that, how do we think about ecommerce performance? I think you gave a stated goal to get to 500 million. How do we think about that for 2022?

Right, so we'll, I think by the end of the year, including our Sweaty Betty stores and the additional stores that we're seeing added across the portfolio, we should be approaching somewhere between 155 or 160 stores across the fleet. Brendan mentioned a lot of our organic or legacy brand stores are outlet stores. From an ecommerce standpoint, we expect to see an inflection in the second half of the year in terms of growth, more stable performance in Q2 on a year-over-year basis. Then, an inflection in the back half of the year aligned with the new product launches that we've talked about. We expect good growth for the full year on ecommerce, but including when we talk about 30%, direct-to-consumer, that includes Sweaty Betty's store and ecommerce business as well. So that acquisition really enhances our overall mix as it relates to direct-to-consumer versus wholesale.

Very helpful. And then last question, gross margins organically, they were down to 280 bps, but Mike, I think you mentioned mix was a real weight on that performance. Could you possibly parse that out? And then, what was the driver for the gross margin guide down 50 or 100 basis points? Was it mix or was it just incremental freight, incremental costs? Any color on that would be helpful? Thank you.

It really is, Laurent. I mean, we're looking at the business today. As we model the first quarter, those margins came in line essentially with what we would have expected for Q1, just based on the tougher compares on B2C. And then, the overall mix, but it was slightly worse than we expected in the plan. The gross margin performance in our core business and our wholesale markets was quite a bit better than expected. That also helped offset some of that mix issue overall. So the change in the guide there on gross margin, and also on the SG&A expense line is really due to the mix shift between those different channels, and really everything else around pricing, overall cost increases that we hadn't contemplated in our plan are pretty well consistent from what we thought a few months ago.

And our next question comes from Jay Sole from UBS. Please go with your question.

My question is on share buybacks. You did some buybacks in the quarter? Can you remind us how much authorization you have left and maybe what your plans are for buybacks for the rest of the year, and then that's included in your updated EPS guidance for the full year?

We have over $400 million authorized on the current plan still remaining. The outlook that we gave reflects just over 2 million shares we bought back so far this year and some buybacks at the end of last year that will benefit this year as well. But we haven't modeled in, Jay, any additional meaningful share buybacks. That doesn't mean we won't do them. But in this outlook right now, we're only factoring in the buybacks that we've completed. At today's valuation, we'll be seriously considering our position on that as we move into the rest of the year.

Okay. And then I'm going to ask one more just on China. It sounds like the JV has been going really well. Everybody's talking about the impact of the lockdowns in China. Can you just remind us how large the China business is from a pairs and from a sales perspective, as it stands today, and how lockdowns might be impacting it so far?

Yes. No, I mean, overall, our business there is still relatively small. We're continuing full steam ahead with the JV. Saucony is doing great. Merrell's a little bit slower there than planned. But amazingly, despite the lockdown, we're still seeing them find a way to do business. We’re certainly anticipating some slowness as COVID spreads to China, but right now, it hasn't had a big impact. That's largely due to the small size of the business. We're certainly keeping an eye on it in terms of manufacturing. While we don't have a lot of manufacturing left in China, we still have materials that come from there. A couple of our brands like kids still have some exposure there, so that's where the emphasis is right.

The focus on channel mix in our joint venture has obviously shifted to be very heavy on the ecommerce side of that business, which has outperformed brands. Tempering our outlook for stores a little bit this year is more of a wait-and-see on the potential impact that COVID might have on lockdowns. But overall, I'm confident in the outlook for that joint venture and the progress we’re seeing in the two largest brands in the portfolio.

And our next question comes from Susan Anderson from B. Riley. Please go ahead with your question.

I was wondering if you could give a little more color on what's going to accelerate Sweaty Betty back to double-digit growth in the back half. And then also, I'm just curious if you saw any growth differences in Europe versus the U.S., I know the U.S. is small, but just curious how the brand is doing in the U.S.

Yes. I think again, with Sweaty Betty, they started to see product slowdown in the back half of last year. As they see a better flow of goods and newness, that's giving us the confidence that they'll start to get back to double digits. In terms of the U.S. versus the U.K., it is very different because in the U.S., they don't have any stores, so it's purely ecommerce. They do have a nice wholesale business with Nordstrom and have expanded into Bloomingdale's, as well as some specialty shops. Julie and her team were here last week, doing a site tour to look at opening back up stores in the U.S. They had about a dozen stores at one point and they shut them down during COVID. This gives us pretty good intel into the top-line number opportunity; they were able to get out of the leases. Between that and where their ecommerce business is happening, we think there's an opportunity later this year or early next year to start to open back up stores and gain some more brand awareness for Sweaty Betty here in the States.

And that growth rate is heavily focused in the back half of the year but also includes the expansion of new stores, both in their home markets in Europe, as well as some new stores here in the U.S. as some of the growth that we'll see comes from that expansion, as well as just the heavy weighting that's traditionally part of the Sweaty Betty business in the fourth quarter.

As I said, we've already seen a small sample but a little bit of an uptick based on some of the marketing changes they were able to make on the fly post-Easter.

And our next question comes from Mitch Kummetz from Pivotal Research. Please go ahead with your question.

You guys have some old info at Seaport Research. So I've got a few questions. Just to follow up on Sweaty Betty. Mike, could you say what kind of dollar sales are embedded in your Q2 and full-year outlook?

Dollar sales for the full year for Sweaty Betty for Q2, I think we're right around 60 million. For the full year, the outlook is like 270, 275.

And the EBIT was negative in Q1, are you expecting an operating loss in Q2, and I assume you're not for the full year, correct?

Not for the full year. But yes, typically we would see those flows through be a little more challenging in the first two or three quarters of the year, just given the volume that we do, especially through the ecommerce business. So, very back-weighted in terms of the timing of profitability, but that's consistent with what the business has delivered the last few years.

And then you've referenced the strength of your order book as one reason to give you confidence in the acceleration of the back half. I assume at this point, you've got a complete fall order book. I know you typically don't give the numbers on that. But I was wondering if maybe you'd make an exception this time. Are you looking at like a 20% or 30% increase in your fall orders year-over-year?

Well, I would say consistent with what we've been saying for the last several quarters, the order book is historically high, we've seen it continue to grow. In some cases, for some brands which have been especially high, maintaining that level, the amount of coverage that we have from the order book versus our revenue outlook is incredibly high and certainly at historic levels. While we won't quote the percentage changes and some of that has to do with the timing of the orders coming in and everything else, fundamentally, I think it's just the consistency we've seen in the order book and the ongoing reliance that we feel we can have based on performance year-to-date. That gives us real confidence in the outlook for the rest of the year, and that's inclusive of our wholesale accounts and our third-party distributor businesses that are accelerating right now as a very strong part of the story.

And our next question comes from Sam Fletcher from Susquehanna. Please go ahead with your question.

I guess a lot of my questions have been answered. Two, one on Sweaty Betty, you talked about openings stores, but with the supply problems, I mean, this is something that's really going to be a next year thing because of the supply catching up issues.

I wouldn't say it will be based on supply chain in the back half of the year. Sam, I think it's more dependent on the sort of real estate opportunities that are out there. I learned from the hard way of getting into the bad real estate deals; I think that Julie and her team have the right support system to make sure with an open playing field, not having stores anywhere right now, that we're very surgical about where we open stores and the leases we enter into. This will be more the driver than supply chain issues by the back half of the year, but we're not going to force a couple of stores to be opened in Q3 or Q4, or Q1 or Q2 of next year, makes more sense. I think it's not going to be meaningful to the overall business. It's more about setting us up for the future.

Thanks. So I have sort of two more questions. One, what is the in-transit inventory look like right now?

At the end of the quarter, it was about 20% of the total inventory, which is higher than normal, Sam, but not incredibly excessive. I think I would say over the last month, that's probably improved a little bit, and it will continue to improve as some of the bottlenecks we're seeing in the ports, and things like that improve, and the flow of goods is a little more consistent.

How does that compare to last year at the end of the first quarter?

I don't know honestly; I think it's probably, again, in a very similar place, if not slightly better. Frankly, it came down a little bit from the end of the year level. I think at the end of last year, in transit was over 20%. At the end of Q1, it came down to high teens or just under 20%.

Great. And then lastly, could you just give us what the DTC or wholesale revenue was by the Michigan group, Boston group, and other including Sweaty Betty? It's going to come out in the Q.

Yes. We will provide that. I don't have it right in front of me.

And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Well, thanks everyone for joining us today, and we look forward to updating you on our next call in August.

And ladies and gentlemen, with that, we will conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.