Ladies and gentlemen, greetings, and welcome to the Wolverine World Wide, Inc.’s Second Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. I will now turn the conference over to Mr. Alex Wiseman, Vice President of Finance. Please go ahead, sir.

Good morning, and welcome to our second 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 second 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 adjust for the impacts of environmental and other related costs net of cost recoveries and foreign exchange rate changes. Prior year non-GAAP disclosures include adjustments for costs related to the COVID-19 pandemic including airfreight costs, severance expenses, and other related costs. References to organic performance exclude 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.

Thank you, Alex. Good morning everyone, and thank you for joining today’s call. We delivered operating margin ahead of our expectations and EPS at the high end of our guidance, despite softer than expected revenue. Sales were impacted by unplanned headwinds related to elevated wholesale channel inventory, foreign exchange rate pressures, and some lingering supply chain delays. As a result, we are revising our guidance to reflect higher promotional activity and challenges related to moving inventory through our wholesale channels. While we are reducing our margin outlook for the second half, we are taking actions to reduce costs, increase efficiencies in marketing spend, and take strategic price increases, all of which will contribute to improved longer-term profit. Overall, we are encouraged by a strong second quarter performance in our international business, with 14% growth in Merrell in response to product and marketing initiatives across several brands. We will continue to build on the meaningful progress we’ve made on the corporate strategy work we started earlier in the year and remain excited about the future growth potential of our business. Looking at our second quarter results, revenue increased 13% to $714 million, including Sweaty Betty, and was up 5% on an organic basis. We saw notable strength in international, which was up 45% driven by strong demand in our organic business. We saw sales pressure in the U.S. where revenues declined 2%. Unfavorable foreign exchange rates impacted reported revenue growth by $19 million or three percentage points. Now, I’d like to provide more context around two factors that impacted revenue. First, starting in June, we began to experience order postponements at certain U.S. retailers who faced excess inventory in distribution centers and stores. We are working closely with partners to move through product and, in some cases, turning to drop shipping and direct-to-store shipments to help alleviate this current pressure. As such, some of these sales will shift to later in the year, which Mike will speak to as he reviews our financial results and outlook. Second, as with others, we experienced softness in the eCommerce channel. eCommerce revenue was down 7% on an organic basis compared to the second quarter last year and up 20% including Sweaty Betty. We believe this is largely attributable to a change in shopping behavior from what occurred during the pandemic, with consumers now partially reverting back to in-store shopping and shifting towards experiential spending. We also recognize the impact inflation is having on certain consumer segments. Given our limited number of stores, which, excluding Sweaty Betty, are almost exclusively outlets, we are not able to take full advantage of the spending shift between stores and eCommerce in our own DTC channel. Our eCommerce remains a critical part of our growth story. Since 2019, the organic business has almost doubled and, including Sweaty Betty, eCommerce, as a percentage of global sales, is now approximately 20%. Now, before we move on to brand highlights, I also want to provide a quick update on the supply chain. We are seeing a normalization in production levels at our core factories. Transit times, which have been elevated and volatile, are starting to improve, and there’s greater visibility in the supply chain. Through our efforts earlier in the year, we were able to receive a majority of the fall inventory in time for the fall selling season. Moving to brand highlights, starting with Merrell. Merrell delivered on our expectations coming into the quarter with revenue growth of 14% versus 2021. Choppiness in the flow of goods in the U.S. retail during the quarter was partially mitigated by stronger than expected revenues from international markets. As anticipated, lack of product newness was a headwind for Merrell in the quarter as supply chain delays pushed new product launches into Q3. Despite this challenge, the team has continued to generate excitement around the brand with marketing activations and sustainability initiatives launched during the quarter, which included 'This Is Home,' a new multi-year sustainability initiative designed to inspire consumers to protect the nature that shapes their everyday lives. To kick off the inaugural year, Merrell launched a multinational product take-back and resale program called Merrell ReTread, which will keep 300,000 pairs of footwear out of landfills. Moab Step Further, Nature’s Calling, and More Less marketing activations were also catalysts for continued strength and sell-through on core products such as the Moab, Embark, and Alpine. Turning to Q3. In July, we launched Moab 3, an update to the number one light hiker in the market with improvements in comfort and traction. We’re very pleased with the early reads. Even as we promote Moab 2, Moab 3 is selling above expectations. Given the injection of new product, improving brand heat, and continued growth in emerging performance styles like Moab Speed, along with stock inventory levels and easy comparisons versus last year’s supply chain disruptions, we expect Merrell to deliver over 30% revenue growth in the third quarter and full-year revenue growth in the high teens. Moving to Saucony. Saucony grew 7% to approximately $135 million but fell slightly short of our expectations primarily due to lower closeout sales related to excess inventory in the channel. We continue to see a strong response to newness. In June, we launched Tempus, which marries the energy of a race shoe and an everyday trainer, and we were encouraged by early sell-through. International grew 32%, reflecting strong reception of the brand as we continue to expand our presence. During Paris Fashion Week, Saucony took over a gallery in the Marais to showcase the House of Speed and House of Originals, bringing together performance and lifestyle segments of the brand. House of Speed celebrated the launch of the Endorphin Pro 3 and Endorphin Speed 3, the latest evolution of the brand’s award-winning endorphin collection, which launched in July. House of Originals focused on the rich heritage of speed and innovation and lifestyle elements of Saucony. During July, I visited the Saucony regional headquarters in Italy and walked away very excited for the newness coming in the second half. I was energized by the merchandise presentations at retail, and I’m excited to see this influence incorporated in the U.S. Looking ahead, Saucony remains focused on driving market share globally across road and trail running categories, as well as expanding our lifestyle Originals business. In Q3, we expect Saucony to deliver low single-digit revenue growth and mid-teens growth for the full year. Moving on to Sperry. Sperry saw a negative shift in sales with revenue of $70 million declining 13% versus last year. Significant order postponements from retailers combined with isolated cancellations due to late-arriving product were the primary drivers of the revenue miss. We continue to work towards diversification in the wholesale channel while working closely with our department store partners. Despite these challenges, our focus on innovation remains a priority. A good example is the Sperry Sport, which exceeded our expectations. This line of highly innovative footwear uses lightweight, breathable materials, offering multipurpose solutions, including fishing, paddleboarding, boating, and sailing. When we introduce truly differentiated products that reflect the functional core of the brand, we see a very positive reaction from customers. Importantly, this category also extends Sperry’s customer reach, driving robust new consumer growth on sperry.com. Additional product catalysts for fall include expansion of the successful Torrent boot collection to the launch of the innovative duck float boot. We now expect Sperry revenue to grow mid-single digits in Q3 and deliver mid-single-digit growth for the full year. Now turning to Sweaty Betty. Revenue of $47 million was down 23% versus the prior year pro forma and down 11% in constant currency. Q2 revenue was up 96% versus 2019 on a pro forma basis. Continued macro headwinds in Europe and in the UK specifically, where discretionary spending, especially for apparel, is under pressure, weighed heavily on Sweaty Betty’s performance. On the supply chain side, product delays continue to disrupt the flow of inventory, although we expect this to improve in the second half. While we are seeing some headwinds in this business currently, we are confident in the brand’s long-term potential, given the $45 billion total addressable market, our global potential, and the opportunity to expand into other categories. The team is currently focused on penetrating the U.S. market, where we’re in the early stages of growth. In the U.S., a recent study showed strong affinity for the brand among attractive consumer segments. We plan to relaunch stores in 2023. The brand also experienced continued strong momentum in China, exceeding expectations in the first half despite COVID lockdowns. We continue to explore the opportunity in China, where we see strong demand for active and performance apparel. Turning to product, our swim line, which included a broader range of performance and lifestyle products, all fully sustainable, delivered sales growth of 40% compared to the second quarter last year. Sweaty Betty also launched its first power bra using the same exclusive fabric that is used in the power legging franchise, which sold out in just three weeks. In the third quarter, Sweaty Betty will be building on the success of the new Super Soft leggings franchise launched in the first quarter. We will also launch a broader range of options in outerwear with a new climate three-in-one jacket, which is highly versatile, fully waterproof, and made from recyclable materials. The Sweaty Betty team is also partnering with our other brands and sharing its retail expertise to help the brands design and build modular, flexible pop-up retail environments primarily in the UK. This concept provides an ideal opportunity for us to test and learn different retail variations in terms of locations and the combination of brands over set periods. We plan to use this experience to help inform our future DTC strategy. On a pro forma basis, we now expect Sweaty Betty's third-quarter revenue to be down mid-teens. For the full year, we now expect revenue to be down mid-single digits but up mid-single digits on a constant currency basis. Wolverine is the foundation of our work boot brands and continues to deliver consistent growth. In the second quarter, Wolverine revenue is in line with our expectations at $58 million reflecting growth of 16%. The flow of new product is stabilizing for Wolverine with the Hellcat Ultraspring Heavy Duty, which launched in Q2, and the women’s Torrent rain boots set to launch in Q3. Wolverine also has a strong lineup of collaborations planned for the back half, including Ram Trucks and Lucky Brand. We expect Wolverine to deliver growth in the high single digits for Q3 and mid-teens for the year. Now, I’d like to speak to our recent strategic assessment. As you recall, we started this work several months ago to identify and prioritize the biggest growth opportunities within the portfolio and create an achievable roadmap to deliver consistent best-in-class shareholder returns. In May, we brought in BCG to accelerate the process. We are encouraged by what we learned so far, and we plan to unveil our strategic plan at our Investor Event. First on brands, we are conducting a thorough assessment of the role of each brand in the portfolio to determine where to prioritize our investments, including a market and peer analysis to help us identify the largest total addressable market opportunities for key brands in the portfolio that will inform the brand-specific strategy work that is now underway. When we finalize the portfolio work, this will also inform our organizational and external reporting structures to create more clarity and drive optimal results. The process also includes a reevaluation of which decision rights lie within the center of excellence versus at the brands and business units. Our first area is eCommerce and we are already piloting this within the Merrell team. Finally, we have been focused on aligning our cost structure to the evolving business model and portfolio that we are building for the future. Our company looks much different today than it did in 2019. Our direct-to-consumer and digital businesses have accelerated quickly. We have acquired the apparel business and our global footprint continues to expand. As I said earlier, while we focus on global growth through all of the relevant channels, we are also putting a significant emphasis on profitability and cash flow. The work to streamline the business and organize more efficiently will help us right-size our cost structure and better manage working capital. This is especially important today as we face more macro uncertainty in the near future. 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. Despite an unexpected slowdown in June shipments and a strengthening U.S. dollar, we were pleased to deliver record revenue in the second quarter. The solid earnings were supported by a healthy gross margin. The well-documented buildup of inventory in various retail channels resulted in order postponements and some cancellations for our U.S. wholesale business late in the quarter. International markets performed well in Q2 and helped to mitigate the U.S. market challenges. The second quarter revenue performance included a 10% increase for the Michigan Group, a 2% decrease for the Boston Group, and a 7% contribution from Sweaty Betty’s revenue of $47 million. Our third-party distributor business was especially strong and grew 36%, which exceeded our expectations. Adjusted Q2 gross margin of 43% was slightly better than our internal expectations, mostly due to a lower mix of closeout sales. Adjusted gross margin declined 150 basis points versus last year due to a higher mix of international distributor shipments and higher supply chain costs, partially offset by selling price increases, higher royalties, and the contribution from Sweaty Betty. Adjusted selling, general and administrative expenses of approximately $229 million were up $27 million or 13% compared to last year. This was due to an increase in variable cost on higher revenue, the addition of Sweaty Betty, and higher labor costs in our distribution centers. Excluding Sweaty Betty, SG&A, as a percent of revenue improved 180 basis points. Adjusted operating margin was 11% and exceeded our expectations and guidance for the quarter. Excluding Sweaty Betty, adjusted operating margin was 12.2%. Reported operating margin of 23.5% included a $90 million gain on the sale of the Champion footwear trade name, which was executed on June 28. Proceeds from the sale were used to pay down debt. Adjusted diluted earnings per share for the quarter were $0.66 compared to $0.67 in the prior year. Reported diluted earnings per share of $1.53 included the benefit of the Champion trade name sale. Turning to the balance sheet. Ending Q2 inventory of approximately $640 million grew 93%, while factory capacity and delivery performance have improved, logistics lead times and volatility are still impacting our business. Excluding Sweaty Betty, organic inventory increased approximately $265 million or 80% compared to last year when inventory levels were abnormally low. One-third of this increase, or $95 million, relates specifically to much higher in-transit inventory. Organic inventory versus 2019 is up 47%. Our brands have prioritized inventory investment on core and carryover styles, leaving us with a healthy position moving forward. Approximately 85% of current inventory is expected to be sold through primary wholesale and digital channels later this year or during the 2023 selling seasons. We plan to liquidate the remaining excess inventory pragmatically over the next several months. I will now turn to our full-year outlook for fiscal 2022. We remain very positive about the growth potential of our brands and are pleased with a strong start in the first half of the year. As we revisit our guidance for H2, we are taking a prudent view of the business due to the evolving macro headwinds that have recently emerged. The following factors have impacted our outlook. While our global order book is up nicely compared to last year, we are now assuming a higher level of cancellations and postponements for the rest of the year, especially in our U.S. wholesale business, which is more exposed to elevated retail inventory. We now expect that global inflationary trends may further impact consumer spending, and we anticipate a higher level of promotional activity in most markets, especially given higher inventory levels. We expect the consumer shift back to brick-and-mortar stores to continue suppressing full-year eCommerce growth. Finally, a stronger U.S. dollar is expected to negatively impact reported revenue growth and profit in the second half. Despite these emerging challenges, we still expect to deliver record organic revenue for the full year with sequential growth acceleration in the second half as some of our brands anniversary easier comparisons versus last year. We now expect the following fiscal 2022 results based on our revised outlook: Full-year revenue in the range of $2.74 billion to $2.79 billion, representing approximately 14% to 16% reported growth; 17% to 19% constant currency growth; and 10% to 12% organic growth excluding Sweaty Betty. Organic growth versus 2019 is expected to be 11% to 13%. Foreign currency is expected to have a $72 million negative impact on full-year reported revenue, which is approximately $42 million higher than originally planned. Our largest brands—Merrell, Saucony, Sperry, Wolverine, and Sweaty Betty—are expected to contribute approximately 75% of our global revenue in 2022. We expect our direct-to-consumer business to approach 25% of global revenue and our international markets to be over 35% of global revenue for the full year. Full-year adjusted diluted earnings per share in the range of $2.10 to $2.20, including an unfavorable FX impact of $0.11 versus last year. Full-year adjusted gross margin of approximately 42.5%, down from our prior guidance of 43% and reflecting higher promotional costs and a higher mix of revenue coming from our lower-margin international distributor business. Full-year adjusted operating margin of approximately 9.5% reflecting the gross margin decline just discussed. Finally, a full-year effective tax rate of 21.5%, net interest and other expenses of approximately $45 million, and an average share count of $80 million. Our third-quarter revenue is projected in the range of $710 million to $725 million or growth of approximately 12% to 14%. Gross margin is expected to be approximately 41.5% and adjusted earnings per share are expected to be in the range of $0.56 to $0.59, including operating margin of approximately 9.5%. Before I pass the call back to Brendan for closing comments, I wanted to elaborate further on some of the strategy we are undertaking. This effort has proven to be very timely for the company as it has helped to more clearly define our priorities while simultaneously putting more focus on operational efficiency. As a result, we are currently assessing how best to address underperforming business units while launching an important operational efficiency initiative this month. We expect the current environment will remain challenging for months to come. And we are fortunate to have initiated this work to help protect profit and cash flow during a time of uncertainty. We expect the current phase of the corporate strategy work will be completed this quarter. This will allow us to provide more clarity on our organizational reporting structure during our next earnings call. We are still planning to host an investor event in the near future, and we’ll provide specific timing later this year. In closing, I’d like to thank our global team for their outstanding execution during an incredibly volatile time. And I’ll now turn the call back over to Brendan.

Thank you, Mike. And with that operator, we’ll open it up to questions.

Thank you, sir. Our first question is from the line of Abbie Zvejnieks from Piper Sandler. Please go ahead.

Hi, good morning. Thanks for taking my question. Can you just comment on any differences between apparel and footwear trends in the athletic space? And then on the impact of Sweaty Betty on the P&L obviously there’s a tailwind to gross margin that a headwind SG&A. So is there any timeline where we should think about seeing some of that unfavorable SG&A impact decline as a business grows? Thank you.

Yes. Thanks, Abbie. I’ll take the first part. And then Mike will take the second part. I mean, I think more broadly, we’re seeing a slowdown in apparel. We’re seeing it in our Sweaty Betty brand—that’s really the only place we have big exposure in apparel—but just as consumer sentiment is changing momentarily, clearly that’s impacting apparel in the casual and leisure space versus the more dress-up space. I think on the footwear side, we continue to see strong consumer sentiment for the categories we’re in, particularly in outdoor and work. So, we feel pretty well positioned there. Mike?

Sure. On the SG&A question, Abbie, 85% of the Sweaty Betty business is a direct-to-consumer model and so higher, just by its nature carries a higher SG&A burden. Obviously, we’re seeing an investment phase for the brand right now, as we continue to invest in future growth and new markets for Sweaty Betty. But as far as the operating margin performance in the future, especially as we start to think about crystallizing some of the synergies we have for the business next year, we’d expect Sweaty Betty to contribute at a higher level from both a profit and cash flow standpoint as early as next year.

Great. Thank you.

Thank you. Our next question is from the line of Jim Duffy from Stifel. Please go ahead.

Thank you. Good morning. Thanks for taking my question. When we start by recognizing the team for the progress on sustainability initiatives, good work there, guys. I wanted to ask Mike the outlook for the second half of the year. Isn’t a terribly large reduction relative to what was implied in the prior guidance? Can you just explain your confidence in the ability to deliver against that, expectations for channel inventory flows, and how channel partners may be able to manage through that without order cancellation?

Yes, it’s important to clarify Jim, the shift that we’re seeing in the business from a channel and mix standpoint. So, you’d be correct. I think our outlook on the wholesale side of the business, and in the U.S. market in particular, also including our stores and our eComm businesses, we’re going to continue to see some challenges there as well. So, we’ve brought down our outlook internally on that side of the business to reflect some of the uncertainty that you’re talking about and the current trends, especially the trends that sort of accelerated in June. Our order book is still very, very healthy relative to those channels, but we’ve taken a more aggressive position on the potential cancellation or postponement rates that we could expect in the back half of the year. We haven’t seen that level of cancellations yet, but I would say we’re just being cautious in that way. And predicting that in our outlook, offsetting that though, is just a really strong performance and outlook for our international distributor business, which we’re now seeing some upside to our original plan. The flow of goods is much better. These are distributor partners that have brick-and-mortar stores and their foot traffic has been solid. So, I think the reason you’re not seeing as much of a, maybe downside on the revenue is really related to that shift. But certainly appreciate the concerns and the realities of the U.S. and European wholesale markets right now. As far as channel inventory, real quick, again working through that, I think trying to be very pragmatic with our approach here, retailers for our core brands, especially our bigger brands in outdoor and work are performing okay in terms of wholesale sell-throughs or retail sell-throughs. And again, some of that is impacting our consideration of what the selling will be in the back half of the year. But I think a practical approach to sort of how we see the goods flowing and the inventory sort of working through over the next three to four quarters.

Okay. Two more quick ones if I may. First your messaging on U.S. trends versus international trends is particularly what we’re hearing from others in the marketplace. I’m curious, just why it is you feel international businesses are holding up better. And if you know, if perhaps that proves fragile as the economy plays forward, particularly in Western Europe with some of the challenges from the Ukraine conflict? And then, Mike, can you give us a view on cash flow for the year?

Hey, Jim, just to clarify, because it’s a little hard to hear—sounds like you’re on a boat—did you say our international forecasting is different or similar to?

Similar.

Similar? Yes. So, I just got back from about three weeks with our European team, seeing quite a bit of the region and it was really energizing to see outside of London, I would say just how powerful the consumer was shopping brick-and-mortar. And one of the things you, I know you know, but to remember is a lot of our international business is done through 3P where they have their own direct-to-consumer business, they have their own brick-and-mortar stores. So, I think what we’re seeing is both them needing to get back into inventory positions to fill their stores. And then seeing the consumer traffic that we don’t get the benefit of in our DTC business here in the U.S. because we don’t have stores, but with our partners overseas, we do. So, as Mike said, we have pretty good visibility into that and both passes the eye test from what I saw last month and from what our forecasts are in working with our partners.

Yes. Now, in the cash flow question, Jim, we’re expecting to see inventories will be up year-over-year as we had predicted and slightly higher than our original plan here. By the end of the year, I’d say in the $250 million range. But with some other actions that we’ve been able to take, I think cash flow—operating cash flow for the full year is expected to be around $100 million plus or minus. So, I think managing the balance sheet well in this environment, still a lot of liquidity in the business, and expect to be able to drive our debt leverage down a little bit between now and the end of the year based on some of that activity. So yes, that’s kind of the expectation for cash flow and trends there.

Thank you, guys.

Thank you. Our next question is from the line of Laurent Vasilescu from BNP Paribas. Please go ahead.

Good morning. Thanks very much for taking my question. Brendan, if I could, I think you’ve mentioned there’s elevated inventories with your U.S. wholesale customers. Can you maybe unpack that a little bit more in terms of, which channel you’re seeing this in? Is it really the mass channel, family channel, sporting goods channel, or is it just really an accumulation of all channels?

Yes, morning. Well, I think we saw it in their last quarter results. I mean, everybody, it seemed like plus 40 was the new flat in terms of inventory levels. And I would say that was broad-based in the mass retailers and the sporting goods channels and the department stores. So that’s the empirical data we have. And then the anecdotal data we have is just what we’re seeing throughout the quarter of people just not having space to process the merchandise. So one of the things our teams got very nimble on and agile on, I was very proud of them, was figuring out ways to work around the warehouse themselves. And more than a few of our partners said, if you can bypass our warehouse and ship directly to our stores, we can take fresh goods, which we need and want. And so while we’re not set up to do that on the fly, we found workarounds and we’re able to get some goods to their stores that way, as well as leaning more on dropships. So, a lot of those retailers are poor over the next few weeks, Laurent. So my expectation is their inventory levels will continue to be elevated. And we’re going to kind of have to work through this together. I think you also heard some of the big box retailers talk about, it’s not just having too much inventory, it’s having the wrong inventory and just particularly in the home goods area where that clogs up the warehouse. So, I think it’s a lot of different things that we’ve been very proactive on. We’ve had for the last 18 months now, a standing all hands Thursday meeting where we talk about the different supply chain issues. And so I think that’s given us a leg up on finding ways to work with our partners to get some—get the merchandise moving.

That’s very helpful. Thank you, Brendan. And then Mike, just a multi-part question here, I’m sorry. But first on the third-quarter gross margin, I think it’s down 300 basis point implied or guided for how much of that is driven by promotions? Two, in your presentation, Sweaty Betty was down 21%. Maybe can you give us that number for in a constant currency basis? Three, I think the last call you said we might see additional disclosures for the 2Q press release. I don’t know if that’s, maybe we should look for the 10-Q for that, for additional data points on that.

Great. Yes, let me discuss the Q3 gross margin view here. I would say it turned, parsing it out in terms of some of the headwinds; certainly a stronger promotional cadence. We’re seeing it in our direct-to-consumer business, which frankly, we’re seeing some nice growth in July on our own eCommerce sites relative to the previous quarters, up low teens so far in the quarter, but a lot of that’s being driven by some promotional activity and just trying to be more aggressive to drive traffic there. So, I would say a good portion of the gross margin headwind in Q3 is that, but a more healthy reason, frankly, is again the strong demand that we’re seeing in our international distributor business, which is going to be up significantly in the quarter. It carries a lower margin, but I think the growth there and the demand there is a really strong signal. Last year, as you know, at this point in time, we had kind of an inability to service that business, given some of the supply chain challenges that we had, and those have improved. So we’re in a position to be able to kind of really drive a strong growth there on the distributor business, but that comes at a lower margin. So those are really the two factors for Q3. As far as the disclosures are concerned, I would say that we are still working through, and we mentioned this in our remarks, still working through the corporate strategy work we expect to have that phase of the work done this quarter. And we would expect to address some additional disclosures and potentially some segment changes. And our third-quarter report we are adding some additional disclosure Laurel into the investor relations deck that’s posted on our site that you’ll see this morning with some added disclosures around our bigger brands, so that should be incremental and helpful, but that’s the status there. Last question was on Sweaty Betty's constant currency growth for Q2 was down about 11% on a constant currency basis.

Very helpful. Thank you very much.

Thank you.

Thank you. Our next question comes from the line of Jay Sole from UBS. Please go ahead.

Great. Thank you so much. Question is, we’re here in obvious.

Jay, we’re going to interrupt you, sorry Jay we can’t hear you on this side, pretty broken up. You might want to try to call back in, Jay, and get a better connection and we’ll move to the next call and then we’ll come back to you.

Okay.

Thank you. Our next question comes from the line of Jonathan Komp from Baird. Please go ahead.

Yes. Hi, thank you. Appreciate all the color on the inventory. If I could maybe just follow up on the actions that you’re planning to clear some of the excess, could you just be a little more specific in terms of what you’re planning and then how are you thinking about risk that higher levels in the channel carry over into 2023 and there’s more of a lasting impact on your sales and margin?

Yes. Hey, Jon, so just quickly from my end, being fairly new to the shoe industry, one of the things I noticed right away was the difference between shoes and apparel was just how much better shoes age and how much longer, how much more carryover franchises there are just inherent in our business. So, I think that’s a big piece as we look at the composition of our inventory and the elevated levels, is recognizing that the majority of this, the great majority of this will have a home and it’s just a matter of time. And so we don’t want to panic and flood the market with discounted goods that we know over time we can sell at a higher price. I mean, that being said, we do have concerns about the inventory levels and the physical needs of the business. So we’re kind of trying to balance that, but I think it gives me great comfort knowing that there’s not the same sort of obsolescence concerns that I’ve had in past businesses. And I’ll pass it on to Mike that.

Yes, just I think just for context too, Jon, when we look at the mix today, the quality of the inventory. I would say if 15% of our inventory at any point in time is considered to be either at its end of life or in a closeout position. That’s pretty typical. In fact, it’s relatively low, it’s probably more normally closer to 20%. So, in that respect I think the quality and health of the inventory holds up well. All the things that Brendan said about the ability to kind of carry over these core franchises and our bigger brands is really important. And with the lead times that we have right now, frankly coming out of factories and the ability to kind of plan the business even for next year on those core franchises and that core carryover product, I think we’re quite comfortable that there’s not going to need to be any kind of dramatic liquidation around the core. And so we’re going to focus on that 15% to 20% or so of inventory that we typically need to work through. And that’s some of that cost of doing so is reflected in the year’s guidance. We’ll be able to give you more insight into next year if there’s any hangover of that later in the year, but at this point we feel really good about the forward coverage. Our forward coverage right now is probably about 40-45 days higher than it normally is, which isn’t necessarily surprising given the supply chain lead times that we’re dealing with in this environment. So, we’re very comfortable with the outlook here and the ability for our brands to work through the inventory.

Okay. That’s really helpful. And then Mike, one follow-up question, on the margin back to 9.5% operating margin would be back to levels that you last saw prior to the way forward initiatives a number of years ago. So I’m just curious, could you help out a little bit in terms of what you view as temporary this year, and then any perspective as you look forward to some of the efforts that are being contemplated and any thoughts on sort of the longer-term aspiration? Thanks.

Sure. Yes. That, I think it’s important. You’re calling out some really, sort of transitory or at least acute issues that we’re seeing in the short term here related mostly to the supply chain. And I think when you look at our overhead spend, given the mix of the business and our new emphasis on direct-to-consumer, I think you’ll notice that the overhead and SG&A expenses have been managed really well. Some of the pressures that we’re seeing right now have to do with these incremental costs, whether it’s holding goods at the port or extra freight costs, or just some of the handling costs that we’re dealing with in our distribution centers right now as we have excess inventory on hand. So, we don’t expect those to be long-term or sustained. And to your point about what our kind of interim goals would be, obviously, we achieved 12% operating margin pre-pandemic. I think that for sure is going to be in our kind of future outlook here in the short term, and with the work that we’re doing alongside the corporate strategy work, we’re going to be very focused on expansion of our gross margin and operating margin as we continue to invest in our growth initiatives. And we’ll be able to provide a little more color on that here in the next call, but I think the outlook as it relates to visibility to that for next year is quite strong. And the 9.5% unfortunately reflects some of the short-term challenges that we’re seeing in the business.

Understood, best of luck. Thanks.

Thanks.

Thank you. Our next question comes from the line of Dana Telsey from Telsey Advisory Group. Please go ahead.

Good morning, everyone. Brendan, if you think about the current environment and the changes on the channel side, what do you see on the consumer side? Noticing anything? Is there anything you could see by brand, by income level or the pace of spend by the consumer and their reaction to innovation and newness versus the evergreen product? And then just on SG&A with the adjustment in guidance or any—how is marketing spending planned? Thank you.

Yes, thanks, Dana. I think obviously a lot of this is happening real-time in terms of the way we all, as consumers are changing given the macro environments out there, and the move to experiential. I would say that the thing I would gravitate towards right now is just how newness is working. And we’ve seen a pretty nice change in our own eCommerce business from where it was trending in the first half of the year to the last six weeks, being positive and really double-digits driven by our bigger brands. Now, some of that’s promotional activity for sure, but a lot of it’s just newness, and the customers it’s been so long since we’ve been able to deliver newness and have marketing messages that speak to newness that it’s nice to see how the customer’s reacting to that. And I think that as we’re able to get that newness out to our retail partners, we’ll start to see some of that as well. I think, in terms of how the consumers shifting her behavior, I think that’s going to continue to be a moving target, whether it has to do with gas prices coming up and down, and just some of the changes towards experiential spending. But again, I continue to say we are really well placed with our brands to even as people start to travel again, are traveling again taking their Merrell’s or their Saucony’s with them to continue their newfound love of the outdoor running. So let Mike comment on SG&A.

Yes, I think we continue to invest nicely in marketing and at an elevated level this year. We’ve committed to that. And we’re still seeing our marketing as a percent of revenue at, or around 8% across the business. And that’s up, as you know, Dana, that’s up nicely from previous years. The way that we are adjusting for that from month-to-month has a lot to do with the effectiveness of the performance marketing and the cost of performance marketing. And we’re certainly moving up the funnel as much as we can to try to get more spend around brand awareness and brand-related marketing activities, which have shown some success in terms of the brand tracking that we’re doing internally. But obviously that’s going to start to kick in more heavily in the back half of the year now that we have some of the new product that Brendan talked about. So, I think on course there to continue to support our brands and invest behind the brand initiatives that we expect to have success with.

Just one last thing on pricing overall, how are you pricing new product? Had you taken pricing increases given the environment and how it’s changed? How you’re thinking about pricing?

Yes, I mean, we certainly did at the back half of last year as, or the middle of last year, start to take price increases strategically, not across the board, really looking with our merchandising eye on what we thought the product should retail for. Unfortunately, in the first half of the year, we didn’t get much credit for that because the product was so late on where we had taken the price changes. So that’s embedded in the back half of the year. We’ll start to see some of that as this newness comes in, and we’re continuing to look at it as we go into 2023. And again, looking at it from a merchant point of view on what do we think this the customer will pay for this? What is the—what is the competition pricing at now? It’s gotten a little bit fuzzy just with the promotional environment that’s out there macro. So on one hand, we’re taking price changes; on the other hand, on some product, there’s a lot of discounting out there. So, I guess on it’s good. We were able to make those price changes. It provides a little bit more cushion on some of these promotions that are just going to be, I think, rampant throughout the back half of the year. And you and I have talked a lot about this, seeing the business get back to regular price during the pandemic but also anticipating that that wasn’t going to last very long. And it’s just kind of just happened a lot quicker than we all hoped.

Thanks, Dana.

Thank you. Our next question comes from the line of Alec Legg from B. Riley. Please go ahead.

Hi, it’s Alec Legg on for Susan. Thanks for taking our question. Just digging into SG&A. I think your updated guidance implies SG&A costs to be a point higher than initially expected, I guess. Can you provide any puts and takes with the increased spending in that line? Thanks.

Sure. Yes, most of the increase there in the back half of the years is related to some of these incremental distribution costs and holding and handling costs that are referred to before. As we work through the elevated inventories, those costs become a little bit more acute. But we continue to lean in and support our marketing initiatives, as I mentioned before. So that remains a priority, but we did have some incremental costs that weren’t originally planned around some of those distribution costs.

Thank you.

Do we have a next question operator?

Thank you. Our next question comes from the line of Steve Marotta from CL King & Associates. Please go ahead.

Good morning, Brendan, Mike, and Alex. Mike, can you talk a little bit about your ability to cancel orders overseas? And also if you could put a little bit of a finer point on you mentioned, I believe in the prepared comments, some carryover inventory into fiscal 2023. Is that expected to be sold at more aggressive promotions than in the back half of this year? Or is it considered carryover inventory, which would be simply more normalized margins in the first half of 2023? Thanks.

Sure. Yes. And on the cancellations. I mean, obviously we watch the trends in the business every week. Brendan talked about our weekly meetings with the entire leadership team on this important topic of just managing the supply chain and inventory flow, etc. So, we’ve been in the process of making those adjustments and I think in a very good position where we feel we are not in need of non-core inventory. We’ve canceled, and we’ll continue to be able to either cancel or postpone inventory flow as needed as we work through the rest of this year and into the early part of next year. As far as the carryovers are concerned, again, about 85% of our current inventory would be considered in the core carryover category right now. And by definition for me, that means that’s going to be sold at or near normal selling prices. We will I’m sure have moments where we’re off map and doing some things to move some excess inventory, but for the most part, we’d expect those to be sold at normal prices. And because we’re already—we’ve packed and held a lot of spring merchandise from last year, for instance, Steve, that will sell in spring of 2023. So just putting ourselves in a good position on core takes a lot of pressure off of the incremental costs we’ve had to incur this year around expediting the freight and doing some of those other things. The inventory position we have right now allows us to prevent that next year. And that will continue to just watch the marketplace. I can’t predict that, but I think overall we have an opportunity to see some benefit from having the strong inventory carrying it into next year.

And just to top that off, I alluded to this before, just the difference between apparel and footwear. I think the best example is in our Merrell, the Moab, we’re talking about the Moab 3, which we’re launching now. Moab’s been around for 20 years and this is only our third iteration of it. So, it just speaks to the long life that these franchise shoes have. And generally they’re in core colors that that last as well. So, I think that gives us real comfort that the majority of this inventory will have a life beyond this year.

Thank you. Next question is from the line of Jay Sole from UBS. Please go ahead.

Great. Thank you so much. So my question is just about visibility into the order book for the rest of the year. Obviously, some June shipments sounds like they moved around a little bit, but here in August, what percent of the order book for Q3 and Q4 would you consider at risk and how much sort of is pretty much nothing’s guaranteed, but very likely to be delivered as expected?

Yes, I mean, I don’t think we’re going give exact numbers. I’ll just give you some anecdotal stuff though, Jay, Mike can top it off. I think one thing that happened in June is, retailers generally end their quarter at the end of July. So, I think there was—they’re under tremendous pressure to drive their inventory levels down for reasons we talked about before. So, I think, as we’ve flipped into August, we’ve seen a little bit of movement. So hopefully that’s positive. The only other thing I’ll tell you is, we have an order book that exceeds our forecast that we’ve given out there and we’ve given them, and we have—we’ve taken an aggressive stance on what we think the cancellation will be to get to the forecast and the guidance we’ve given. It’s not something we see today, but given the current environment, we thought it was prudent to take a much bigger discount than we ever would have in the past, recognizing that the world’s a little bit unstable right now.

And having said that, I mean, the other thing that I think from my vantage point that’s important is the brands are working daily with our key customers to work through this; it’s real time stuff. And so I think the quality of our order book remains quite high, but we’re still being very conservative.

And I’ve been very impressed with our leadership team and our sales team, just the relationships they have out there, here in the U.S., and now that I was traveling, spent the month in Europe, seeing it in Europe as well. I mean, just the amount of travel they do, the amount of onsite visits they do that I feel really good that that’s a competitive advantage for us in terms of the relationships we have with our wholesale partners.

Thank you. Next—last question comes from the line of Sam Poser from William’s Trading. Please go ahead.

Good morning. Thank you for taking my questions. I have three. Number one Mike, can you just give us what the wholesale growth or sales were for by merchandise group, outdoor Boston, and other?

Breaking down the groups by…

No, no, just wholesale, wholesale, and direct-to-consumer.

Yes, I’ll just tell you our U.S. wholesale business, our total—our global wholesale business was up in the quarter about 9%. And our DTC business…

Could you give anything…

Yes, we can give that to you later, Sam, but we’ll provide some detail on a follow up, but we don’t typically provide all that information in the call.

All right. So just two more questions. Number one, the retailers are they taking like the late deliveries, the stuff that was running late because of supply chain stuff, you said those were getting pushed or canceled. Is that still going on? Are they if you’re late with product, are they being more, are the big guys being more or less receptive of taking orders?

There’s—yes, for sure. I mean, they’re—they need to get out of inventory. And so they’re being stricter about looking for ways to do that. If it’s product they want, if it’s newness, they’re being much more receptive. If it’s not, they’re looking for ways to alleviate their bottleneck they have in the warehouse. So, I mean, I would say that’s a fair comment.

Thanks. Then lastly, you talked about how comfortable you are with the core carryover, and you just talked about the Moab, and its new colors. But how – but then you also said newness is selling great. So, how much of these core, or what sort of, what portion of these core platforms, these core, like the Moab or Sperry boat shoe and so on? Are there really new updates there that are going to generated versus core carryover that’s the same? Just based on the way you talked about newness is selling, but if you have core, will that necessarily do as well as you anticipate it will.

Yes. I mean, the Moab and Olive and Brown are always going to be the foundation of what we sell, but you need the new colors to provide some interest, and generate excitement. I mean, you know that as well as I do. And then we do have some new franchise launches throughout our different brands that are just that many that were supposed to come in earlier this year, even last year, they’re just coming in now. So their life is just starting. So there’s no concern about any obsolescence there. And then obviously we have cascaded follow up deliveries appropriately so that we can better manage flow going forward. Now, that factories are up and running. I mean, let’s not forget this time last year, Vietnam shut down. I mean, as difficult as some of the headwinds are right now, at least we have product coming and now we just have to manage it and flow it. So, I think we’re in much better shape now with the amount of inventory we have and the ability to balance the franchises with the newness.

And I would just add one thing, Sam. I mean, when we talk about core inventory, we’re also talking about the new versions and the updates, as well as new products that are coming into the core assortment. So it’s not all the older versions that we’re talking about, especially right now. And in the last couple of months, we’ve been able to bring in a lot of the new product for Saucony, Merrell, Sperry, our new work brand offerings are starting to hit market now. So there’s enthusiasm about that. We’re a little bit tempered given the environment, but we talk about 85% of our position today being in core includes a lot of new stuff.

Thanks, Sam.

Thank you, ladies and gentlemen, we have reached the end of the question-and-answer session. And now I would like to turn the conference over to Mr. Brendan Hoffman, CEO for closing comments.

Thank you everyone. We appreciate your participation today, and we look forward to updating you in November on our next quarterly call, and to provide more information on our Analyst event. Thanks very much.

Thank you. The conference of Wolverine World Wide, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.