Wolverine World Wide Inc /De/ Q1 FY2026 Earnings Call

Greetings, and welcome to the Wolverine Worldwide First Quarter Fiscal 2026 Earnings Call. Operator provided instructions. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jared Filippone, Head of Investor Relations. You may begin.

Good morning, and welcome to our first quarter fiscal 2026 conference call. On the call today are Chris Hufnagel, President and Chief Executive Officer; and Taryn Miller, Chief Financial Officer. Earlier this morning, we issued a press release announcing our financial results for the first quarter of 2026 and guidance for fiscal year 2026. The press release is available on many news sites and can be viewed on our corporate website at wolverineworldwide.com. This morning's press release and comments made during today's earnings call include non-GAAP financial measures. These non-GAAP financial measures, including references to the ongoing business and constant currency revenue growth rates, were reconciled to the most comparable GAAP financial measures in attached tables within the body of the release or on our Investor Relations page on our website, wolverineworldwide.com. I'd also like to remind you that statements describing the company's expectations, plans, predictions and projections, such as those regarding the company's outlook for fiscal year 2026, 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. All revenue growth rates will be cited on a constant currency basis unless otherwise stated. With that, I will now turn the call over to Chris Hufnagel.

Thanks, Jared. Good morning, everyone, and thank you for joining us on today's call. The first quarter was a good start to the year, exceeding our expectations across all key financial metrics. We delivered solid growth with revenue up 11% on a reported basis and up 7% on a constant currency basis. The growth was driven by our two biggest brands. Merrell grew revenue high single digits, while Saucony was up mid-teens. Encouragingly, all brands in the portfolio either met or exceeded our outlook for the quarter. At the bottom line, we continue to run a much more profitable business as well, with quarterly adjusted diluted earnings increasing over 30% to $0.25 per share, all while making important investments in people, product innovation, marketing and modern tools. In addition to delivering a solid financial performance for the quarter, we also continue to strengthen our capabilities as a company. With the progress we made over the last year plus, we've been able to attract great new talent to Wolverine Worldwide. This new talent, combined with the team that successfully executed our turnaround, further elevates our global brand-building capabilities. I believe our team is as strong today as it's ever been. We also advanced several key strategic initiatives, including the expansion of our key city strategy, along with continuing the modernization of our tools and systems, most notably our e-commerce platform. I'm also pleased with the progress we're making on embedding AI into how we drive the business, working to become faster, more agile and more efficient. Moving forward, with a stronger team in place and a proven brand-building playbook, I believe our company is well positioned to compete and win in the global marketplace. Additionally, I believe our reshaped portfolio aligns well relative to consumer trends today and into the future. Performance run and run lifestyle continues to be among the fastest-growing categories in footwear. Hike has returned to growth. Work continues to turn in consistent increases year-over-year and women's active wear is growing as well. And finally, our strategies, coupled with disciplined execution continues to prove effective, building our brands around the world and enabling investment for future sustained growth, all the while improving the profitability of our business and strengthening our balance sheet. I'd now like to spend a few minutes providing an update on our key brands, beginning with Merrell. Merrell, a leader in the global outdoor market, continues to focus on modernizing the outside, developing more athletic, style-led and versatile footwear while elevating the brand around the world. In the first quarter, the brand grew revenue 9% while comping a 14% increase in the same quarter of 2025, with solid growth across most regions and categories. The Agility Peak 6, Merrell's premier trail run franchise was the brand's biggest new launch in the quarter, and it helped drive increases in the category overall for the brand. Merrell continued to build on its lead in U.S. hike by again taking significant market share. The Moab Speed 2 and the iconic Moab 3 both continue to deliver strong growth in the marketplace, partially driven by fresh colorways and materializations along with enhanced storytelling. Lifestyle iterations on these franchises have enabled the brand to extend its relevance beyond performance. Merrell introduced the trend-right woven slide version of the Moab 2 this spring, which has been well received in top distribution around the world and was a top seller on merrell.com. A few weeks ago, Merrell launched a collaboration on the Moab 3 with the influential South Korean lifestyle brand, Khakis, selling out in Japan and South Korea in minutes, enhancing the brand's relevance in two influential trend markets. In core lifestyle, the Wrapt collection again drove strong growth as it continues to scale with additional styles and silhouettes. We've worked to elevate trend and design the Merrell Lifestyle product line, and we're seeing the improvement in market. This season, the brand reintroduced the low-profile Relay from its archives, launched modern slip-ons like the Jungle Trek Moc and Mule and added hybrid Mary Janes on performance platforms like the Moab Speed 2 and the disruptive SpeedARC. Alongside the brand's bolstered product pipeline, Merrell's marketing has also started to hit its stride, fueled by planned record investment in the brand this year. In the first quarter, Merrell launched its new brand platform, It Starts Outside, unifying its storytelling under one umbrella and advancing the brand's powerful purpose to share the simple power of the outside with everyone. The launch of It Starts Outside helped generate strong increases year-over-year in brand search interest. Merrell also kicked off its title sponsorship of the Skyrunner series here in the U.S. and internationally, composed of over twenty of the most elite trail running races around the globe. Merrell-sponsored athletes currently include the number one ranked man and number two ranked woman in the World Series, along with five of the top ten men overall, a great start to the season. As Merrell celebrates its 40th anniversary this year, the brand's momentum is strong. Shifting to Saucony. We believe Saucony is uniquely positioned as a disruptive challenger brand at the intersection of two of the fastest-growing categories in the market, performance and lifestyle running. In the first quarter, the brand grew revenue 15% with growth across all regions, channels and categories with both performance and lifestyle contributing healthy increases. On the performance side, the Endorphin collection represents the brand's pinnacle offering of innovation for elite runners. In February, Saucony launched the all-new Endorphin Azura, which we expect will be the brand's all-time biggest franchise launch to date. The Azura is a lightweight super trainer with innovative geometry and energy return foam to help runners go fast every day. Aided by a fully integrated global activation and eager anticipation from the marketplace, the Azura immediately became a top seller for the brand on saucony.com and at wholesale. In March, the brand introduced the new high-performance Endorphin Pro 5 for race days with a dual layer foam midsole for advanced energy return and a slotted carbon plate for an explosive snap off the pavement. Both shoes are performing well and helped drive strong growth for the Endorphin collection overall at U.S. retail. Endorphin innovation continues to earn the respect of serious runners. The Saucony Endorphin franchise had strong showings at both the recent Boston and London Marathons with the Pro and Elite among the top shoes worn and notably in Boston, Saucony was the number two brand overall for women. The brand plans to continue to build on this momentum with the launch of the Endorphin Elite 3, Saucony's tip of spear product in June with perhaps the fastest Endorphin innovation ever set for launch in 2027. For the broader running market, Saucony continues to elevate its core four franchises, introducing the new Ride 19 back in January and the Guide 19 in March. Quickly following the Triumph 24 and Hurricane 26 are planned to launch in June and July, respectively, and both will be built on our new proprietary IncredleX foam, a high-end composition that delivers a luxurious ride with enhanced energy return, cushioning and durability. Pivoting to lifestyle, an important growth category for the brand, but representing less than one quarter of the brand's business today. In the category, Saucony continues to stoke heat around the world. The brand introduced fresh colors on core lifestyle franchises like the ProGrid Omni 9 and dropped collaborations with Sneaker Politics and 316 in the first quarter, followed by collaborations with influential partners, including Greyson, Engineered Garments and Studio Nicholson in subsequent weeks. This weekend, Saucony plans to launch its latest collaboration with Minted New York in an event at our Covent Garden store in London and buzz is building for several weeks already. We've been very intentional in selecting collaborators who align with the brand and develop its relevance on several different strategic dimensions, and the results have been powerful. The brand has also driven strong energy and sell-through on saucony.com with capsule collections like Hi-Octane and Kissaten. Finally, newly reintroduced styles from the brand's archives like the ProGrid Paramount and Kinvara 1 are just starting to hit top-tier retailers and elevated department store shelves. The brand is driving momentum through marketing as well. Saucony plans to bolster its key city strategy, which has been vital in driving outside brand heat and growth in Europe by extending most notably into Paris this year, with a host of activations on tap, a new pioneer store planned to open in the city and title sponsorship of the Eiffel Tower 10K. Events to reach the broader running audience remain a key component of the brand strategy. Saucony sponsored the Philadelphia Love Run at the end of the first quarter and is planned to sponsor the London 10K, Shoreditch Half Marathon and Berlin 10K later this year. In addition to organizing owned events like the Maze, a series of exclusive run club races held around the world, Saucony is also focused on its ground game to drive sell-through with enhanced investments at wholesale, specifically in co-op marketing and field support. The team continues to generate momentum. Consumer interest in the brand is reaching record levels around the world, and I remain confident we have a very special opportunity in Saucony. Moving on to Sweaty Betty. Sweaty Betty, one of the original female activewear brands, is squarely focused on empowering women through fitness and beyond. In the first quarter, the brand drove growth across all of its key strategic priorities, offset by a contraction of its U.S. business due to our intentional reset of this market that began in the third quarter of last year. The brand was down 4% overall. Excluding the impact of the U.S. reset, however, Sweaty Betty delivered low single-digit growth in the quarter. Sweaty Betty is now effectively executing its new multipronged strategy established a little less than a year ago. First, the brand is focused on driving its U.K. direct-to-consumer business. And in Q1, this business delivered growth for the second consecutive quarter. Second, the brand is strategically expanding distribution with priority retailers and partners across Europe and into Asia Pacific, and this segment grew over 60% in the quarter. Finally, the strengthening of the brand's positioning underpins all of these market and channel growth initiatives and Sweaty Betty continued to drive increased brand heat and interest last quarter. The brand remains focused on introducing more product newness as well with an emphasis on key franchise and strategic growth categories like outerwear and new silhouettes and bottoms, both of which grew significantly in Q1. The brand also continues to embrace bolder and more distinctly Sweaty Betty storytelling to break through and further elevate and differentiate the brand, starting with the launch of its Born Sweaty campaign earlier this year. While the brand is facing the aforementioned near-term headwind related to its reset of the U.S. business to a more premium full price position, the team is making good progress and is already driving increases behind the key pillars of its new strategy, establishing a foundation for future sustained profitable growth. I'm encouraged by the progress we made over the past year and excited for where this team is headed. And closing with the Wolverine brand. Wolverine gained share for the second consecutive quarter in the U.S. work boot market and delivered sequential revenue improvement in line with expectations, finishing down 3% compared to the prior year. The brand has bolstered its product pipeline with new innovation like the Infinity system, the brand's Pinnacle Performance Comfort Technology, enabling elevated pricing and a stronger premium positioning and is more effectively tapped into trend with expanded Western and wedged boot assortments, fueling greater relevance with today's consumer. Key franchises behind these initiatives like the Alpha Infinity, Loader, Rancher and Wheatland are all driving growth in the marketplace. Wolverine has also stepped up its marketing through a combination of upper funnel initiatives to generate greater reach and awareness, including its partnership with Paramount+'s hit series, Landman and lower funnel tactics to fuel increased consideration and conversion. In the first quarter, the brand executed an integrated activation plan, leveraging its Landman partnership with prime product displays in key retailer stores, supported by activation events that tell the full story. It also executed a series of activations focused on Houston and in particular, the Houston Rodeo. These efforts continue to raise the brand's profile in the marketplace and help drive the business. Just a few weeks ago, the brand partnered with Metallica to launch a limited edition boot to support students interested in the skilled trades, deepening Wolverine's positioning in connection with its consumers as part of Project Bootstrap. Encouragingly, we've seen a steady uptick in the brand search interest over the last few months with April delivering the largest year-over-year increase in over five years. And finally, Wolverine is making good progress in recalibrating the marketplace as well, prioritizing a more premium positioning, optimizing assortment and inventory at key retailers and better aligning distribution to the brand's go-forward strategy. Although there is still work to do, the brand's disciplined approach is gaining traction. We're already seeing proof points that the strategy is working. And coupled with our recent leadership appointments, I'm increasingly excited about the future for the company's namesake brand. Now I'd like to turn the call over to Taryn Miller to take you through our results for the first quarter and our outlook for the remainder of the year. Taryn?

Thank you, Chris, and welcome, everyone. We delivered a strong start to 2026, exceeding expectations on both revenue and profitability and building on the momentum from 2025. These results reflect improved discipline in how we're operating the business and executing across the portfolio. We're also making progress in establishing a more consistent brand-building framework, which allows our shared capabilities to scale more effectively in support of our brands. As these efforts continue to take hold, operating leverage is starting to come through. Revenue growth in the quarter was driven by our two largest brands, Merrell and Saucony. Adjusted operating margin expanded by 140 basis points, and we continued to invest in our brands and operational capabilities while further strengthening the balance sheet. Our outlook for 2026 is supported by our first quarter performance and continued progress in executing our strategy while remaining appropriately grounded given the dynamic operating environment. I'll now take you through the highlights from our first quarter. Revenue of $458 million was above the high end of our outlook with better-than-expected performance in both the Active and Work Group. Reported revenue growth was 11% compared to the prior year or 7% on a constant currency basis with foreign currency providing a $15 million benefit. The following channel, segment and brand performance is provided on a constant currency basis. Wholesale revenue increased 10% compared to the prior year, with growth across both international markets and the U.S. DTC revenue was approximately flat with continued improvement in the mix of full price sales across the portfolio. Active Group revenue grew 9% in the first quarter, ahead of our expectations and continuing momentum from 2025. This outperformance reflects strength in new product innovation, continued investment in marketing and brand building and improved marketplace management. Merrell revenue grew 9% in the quarter with growth in both wholesale and DTC. Wholesale performance was led by international with solid contribution from the U.S. as sell-through at retail remains strong, supporting better-than-expected at-once orders. DTC grew for the second consecutive quarter, driven by the U.S. with the mix of full price sales continuing to improve. Saucony revenue grew 15%, with first quarter revenue reaching a record level for the brand. Growth was broad-based across channels and regions with contributions from both performance and lifestyle. Wholesale performance was led by international markets, particularly EMEA, which was supported by strong sell-through. DTC growth was led by EMEA and the U.S. as the brand's marketing investment and new products drove consumer engagement across categories. Sweaty Betty revenue declined 4% in the quarter, reflecting the planned reset of the U.S. business to a more premium DTC model. This was partially offset by growth from key initiatives, including expanded international wholesale distribution and continued growth in U.K. DTC. Work Group revenue was approximately flat, ahead of our guidance for a mid-single-digit decline, driven primarily by better-than-expected global wholesale performance. We are making progress against our strategy to improve work group performance as reflected in improving retail sell-through, supported by new product launches and more effective marketing execution, contributing to healthier inventory positions across the channel. We remain focused on executing against these priorities to drive greater consistency in results and position the business to deliver sustainable growth. Consolidated gross margin was 47.6%, consistent with the prior year. Our tariff mitigation actions and improved mix of full price sales offset a 270 basis point unmitigated tariff headwind compared to the prior year. As a reminder, prior year promotional levels were elevated in the first quarter before normalizing through the balance of 2025. Adjusted operating margin was 7.7%, an increase of 140 basis points compared to the prior year and 110 basis points above our expectations. The improvement reflects expense leverage from revenue growth and disciplined cost management even as we continue to invest in our brands. As a result, adjusted diluted earnings per share increased 32% year-over-year to $0.25 compared to $0.19 in the prior year and above our outlook of $0.20 to $0.22. Net debt was $519 million, down $85 million versus last year. Turning to our outlook. While the operating backdrop remains dynamic, our underlying business performance continues to support our outlook for 2026. As a result, we are reiterating full year revenue guidance and raising our expectations for gross margin, adjusted operating margin and adjusted earnings per share. We continue to expect total revenue to be in the range of $1.96 billion to $1.985 billion, representing a reported growth of approximately 5.2% at the midpoint. This includes an estimated $14 million foreign currency benefit compared to the prior year. As a reminder, the absence of the 53rd week represents an approximate 70 basis point headwind to revenue growth, largely concentrated in our DTC business. On a constant currency basis, excluding the 53rd week in 2025, we expect revenue to increase approximately 5.2% at the midpoint. The following segment and brand outlook is on a constant currency basis. We continue to expect Active Group revenue to grow mid-single digits and Work Group revenue to be approximately flat compared to 2025. Our brand level expectations are also unchanged from February, with Merrell expected to grow mid-single digits, Saucony expected to deliver low to mid-teens growth, Sweaty Betty expected to decline low single digits and Wolverine expected to be approximately flat compared to 2025. Before turning to gross margin, I'll walk through a few key assumptions embedded in the guidance. The Middle East represents approximately 1% of total revenue and any disruption to date is incorporated into our outlook. The recent increase in oil prices is translating into higher freight costs, which are reflected in our revised gross margin outlook. We expect any impact to product input costs in 2026 to be limited. With respect to tariffs, our guidance reflects the current incremental 10% rate through July with the assumption that rates return to IEPA levels thereafter. On that basis, we now estimate the 2026 unmitigated tariff impact to be approximately $50 million compared to our prior estimate of approximately $60 million. Our guidance does not include any benefit from IEPA's tariff refunds. We paid approximately $36 million in IEPA tariffs and are actively engaged in the refund process. With that context, gross margin is now expected to be approximately 46.4% compared to our prior outlook of 46%. The improvement primarily reflects lower tariff costs, partially offset by higher freight surcharges from elevated oil prices. We now estimate the unmitigated tariff impact in 2026 to be approximately 250 basis points. Adjusted operating margin is now expected to be approximately 9.5% compared to our prior outlook of 9.1%, reflecting higher gross margin flowing through to operating profit. We continue to expect year-over-year operating leverage, supported by revenue growth, cost discipline across the organization and ongoing efficiency improvements. And we continue to strategically invest in our brands, primarily in marketing and key capabilities. Interest and other expenses are projected to be approximately $23 million, and the effective tax rate is projected to be approximately 18%, both unchanged from our prior outlook. As a result, adjusted diluted earnings per share is now expected to be in the range of $1.43 to $1.58 compared to our prior outlook of $1.35 to $1.50. We continue to expect operating free cash flow to be in the range of $105 million to $120 million. Capital expenditures are still expected to be approximately $20 million. Moving to our second quarter outlook. Revenue is expected to be in the range of $495 million to $500 million, representing reported growth of approximately 4.9% at the midpoint compared to the prior year. On a constant currency basis, revenue is expected to grow 4.5% at the midpoint. Active Group revenue is expected to grow high single digits, while the Work Group is expected to decline low single digits versus the prior year. As a reminder, 2025 included approximately $10 million of wholesale orders that shifted from the third quarter into the second quarter as retailers accelerated purchases ahead of planned price increases. This $10 million shift is comprised of $4 million in Merrell, $4 million in Saucony and $2 million in the Work Group. Gross margin in the second quarter is expected to be approximately 46.4%, down 80 basis points compared to the last year. This includes an approximate 310 basis point unmitigated tariff impact and a slight headwind from higher oil prices on freight, partially offset by our ongoing tariff mitigation efforts. Adjusted operating margin is expected to be approximately 9.5%, an increase of 30 basis points compared to last year as continued expense leverage is expected to more than offset the impact of higher tariffs and elevated oil prices on gross margin. As a result, adjusted diluted earnings per share is expected to be in the range of $0.35 to $0.38 compared to $0.35 last year. To summarize, we're encouraged by our first quarter performance, which reinforces our belief that the business is operating from a stronger foundation. Brand momentum is becoming more evident and the benefits of the work we've done are translating into improved financial performance. While external conditions continue to evolve, we are maintaining agility and financial flexibility and believe we are well positioned to deliver sustained profitable growth. With that, let me turn the call back to Chris before we open for questions.

Thanks, Taryn. As we look ahead, I believe the company is well positioned. Our brands are authentic, category leaders with deep product design and innovation credibility. We've elevated our talent and tools, building the necessary capabilities to run leading brands and a great company. Our product pipelines are strong and getting better, and our storytelling is proving more effective while we make more meaningful investments in demand creation. Importantly, we're developing more disciplined marketplace management and are becoming better brand builders around the world. We've demonstrated the ability to successfully navigate a variety of challenges over the past three years, working collectively as One Wolverine to both win together and deliver results. And finally, I believe we're well prepared to navigate any headwinds we may face in the future. But while we're encouraged by the progress, we're still not satisfied, and we believe there's much more opportunity ahead for the company, our team, our brands and our shareholders, and we're driving to make every day better. With that, thank you for taking the time to be with us this morning, and we're happy to take your questions. Operator?

Operator provided instructions. Our first question comes from the line of Tom Nikic with Needham & Company.

I wanted to ask about Saucony. So kind of digging beneath the surface of the revenue growth, can you talk a little bit more about what you're seeing from a brand heat perspective? Curious if you're seeing any interesting developments on social media, on the sneaker blogs, getting noteworthy feedback from wholesale customers regarding what their customers are telling them, et cetera.

Sure. Thanks, Tom. We appreciate the question, and good morning, everyone. We're really pleased with the brand heat that Saucony is generating in the marketplace. I'll point to the Minted collaboration launch we're going to have right now. It has been blowing up my social feed for the last couple of weeks, and we'll drop it in our new Pioneer store in Covent Garden here shortly. And I think the heat that the brand is generating is coming from both the performance side and the lifestyle side, which gives us a lot of encouragement. And I'd point back to things that we've done intentionally, a key city strategy, investing in these key influencer markets that we think have an outsized influence on their region and really started with London, and we're seeing record Google search interest for the brand right now, and that is obviously correlating to continued sustained growth. So we remain bullish on the prospects for Saucony. I think it's a very special opportunity. Pleased with how the team is executing and pleased with the results that we have and certainly pleased with the outlook we have for the balance of the year.

Sounds good. And if I could follow up just quickly on Saucony. So for modeling purposes, you're lapping a really, really big number in Q2. You're lapping a plus 40% from a year ago. How should we think about the ability to grow on top of that really stellar growth from a year ago?

Thanks, Tom, for the question. Yes, the brand, as you called out, had a very strong Q2 last year with over 40% growth in the second quarter. So the second quarter will represent the toughest comp of the year for Saucony. That's partly because the growth last year was aided by the $4 million of order timing shift that we talked about in the prepared remarks as well as the sell-in from the U.S. lifestyle distribution expansion last year. So as a result, we would expect the second quarter to be one of the lower quarters of growth for the year for Saucony. But as we said, we're very excited about what we're seeing for the brand in the U.S. and international, and we expect Saucony to grow the full year low to mid-teens and off to a great start in the first quarter and balance of the year is, as Chris said, well supported by what we're seeing across the categories, channels and regions and sell-through.

Operator provided instructions. Our next question comes from the line of Dana Telsey with the Telsey Group.

I hope you can hear me. Nice to see the progress. As you think about the gross margin and the uptick you just announced, what do you see as the puts and takes? How does energy get included into the expense structure? And given the progress in wholesale, more orders versus price, is it consistent by brand? What are you seeing in that wholesale channel?

I'll start, Dana, with the gross margin question. I think it's important to remember the progress that we've made on gross margin. In 2025, we expanded gross margins by 300 basis points on top of a strong improvement in 2024. In Q1 of this year, we delivered 47.6, which was flat year-over-year, despite absorbing a 270 basis point unmitigated tariff headwind. That is a meaningful proof point that the mitigation efforts and the structural improvements we've made are working. When you think of balance of the year in terms of how we are looking at gross margin, first, we may see some quarter-to-quarter variations, and that's really structurally in terms of our business; when you think of the seasonality and brand mix or channel mix, we may see some fluctuation quarter-to-quarter. But second, while our year-over-year unmitigated tariff impact is expected to be lower in the second half than the first half, we're also starting to lap mitigation actions in the second half. You'll recall in the second half of 2025 that our tariff mitigation actions outpaced the tariff increases. And then the third piece would be on freight. The higher oil prices, we expect to see higher freight in the second half of the year from the surcharges than in the first half. But back to the bigger point, structurally, we're seeing strong improvements in terms of gross margins. We would expect those to continue as we're getting more full price sales and realizing cost savings initiatives, and that is giving us the opportunity as we've been investing the last two years in marketing and capabilities. We've been able to continue those investments while holding the rest of our cost base in line as we're growing revenue, which is creating that leverage, and we would expect that to continue through the balance of the year.

On the wholesale part?

Yes. Wholesale revenue increased 10% compared to the prior year, with growth across both international markets and the U.S. The current order book and the visibility we have to it supports our outlook. Everyone is watching the consumer closely, but the way our brands are performing, the recent market share data that we're getting, gives us confidence. That speaks to the work the team has done around product innovation, demand creation, and strengthening wholesale relationships in a disciplined way: managing the marketplace, who gets what product, how we're distributing it and how we're managing inventories. As we sit here today, the visibility that we have leaves us pleased with the progress and the way the balance of the year is setting up.

Operator provided instructions. Our next question comes from the line of Anna Andreeva with Piper Sandler.

We had a question on Merrell. Chris, really great to see that momentum in the brand. And you mentioned international was especially strong. Can you remind us how big is international for Merrell now? And just how do you think about the potential there over time? And then secondly, on DTC overall for the company, you've talked about pulling back on discounting for a few quarters now, and I think you're starting to lap that now. Can you just provide more color on that? Where are you with that initiative? And are you expecting an uptick in DTC within the guide?

Sure. Thanks, Anna. Merrell's international exposure is similar to the broader portfolio and nothing materially different there. I'm really pleased with the progress we are seeing in Merrell globally. We are seeing special strength in EMEA. We really led by the performance product, and Asia Pacific has been a nice green shoot over the past few years, building new relationships with strong partnerships in Japan and Korea, as well as our partnership in China, and longstanding partnerships in Latin America. Merrell is a little bit different by region: very strong performance aspect in Europe, a cool lifestyle outdoor aspect in Asia Pacific and more of a casual outside perspective in Latin America. Merrell's growth continues to be broad-based across most regions and channels. Back at home, the market share gains that we've experienced over the past couple of years have been some of the best market share gains we've seen in Merrell in my time at the company. Both new product introductions, like the Moab Speed 2 and the iconic Moab 3, continue to lead. We're working hard to expand trail run as well. About the promotional cadence, that has been an important piece for us: how do we become less promotional and run more premium full-price brands. That is a hard pivot to make, and we're working through it. We'll begin to fully lap some of those comparisons. I'm pleased with how the overall portfolio is being led while we're working to become less promotional. Our diversified portfolio, not dependent upon any one brand, region or channel, allows us to navigate pivots like that in strategy and tactics while managing a complicated global situation.

Operator provided instructions. Our next question comes from the line of Mauricio Serna with UBS.

First question on Saucony. Could you tell us how much did Performance and Lifestyle contribute to the Q1 growth? And then I think you mentioned a few minutes ago that you expect Q2 to be kind of the toughest quarter just given the compares. Maybe could you then tell us how you're thinking about the second half? Should we expect an acceleration as you get those compares out of the way? And what will be the drivers for that acceleration, if that's the case?

Regarding the Q1 performance for Saucony, while I won't give specifics on Performance and Lifestyle, both drove growth. We saw nice contributions from both Performance and Lifestyle for the growth as well as across channels and regions. So really broad-based growth for Saucony in the first quarter. As we called out, the second quarter is the toughest comp of the year for the reasons I explained. If you think of the full year, we guided Saucony on a constant currency basis to be in the low to mid-teens. With a 15% start to the year, we're off to a strong start and we like what we're seeing in the back half given the initiatives taking root for the brand.

Sure. A hike in the U.S. in fourth quarter 2025 was flat. It was positive 6% in first quarter 2026. We've been seeing hike get sequentially better. Hike being up 6% is encouraging for the category and Merrell gaining share 12 of the last 13 quarters and being the industry leader bodes well for Merrell's prospects as we work our way through 2026 and beyond.

Operator provided instructions. Our next question comes from the line of Peter McGoldrick with Stifel.

Taryn, I'm interested in...

Peter, sorry, you're cutting up. We can't hear the details of the question.

Maybe operator, we go to the next call and get Peter on a landline.

Moving to the next question, we have Laurent Vasilescu with BNP Paribas.

This is William Dossett on for Laurent. Congrats on a nice quarter, too. So for our first question, we wanted to ask just about guidance for 2026. You mentioned that you were staying grounded in a dynamic operating environment. So how much is just conservatism given the Q1 beat with respect to top line guidance versus anything you may be seeing lately with all the disruptions in the Middle East and impacts to the consumer potentially? And then our second question was on gross margin. I appreciate that color that input costs won't impact 2026. We've heard from other brands that 2027 spring may be the time when the impact from higher input costs flows through. And so I wanted to just understand a potential increase in COGS in early 2027.

Regarding the guidance, we're encouraged by the start of the year with first quarter revenue and profitability both coming in ahead of our expectations, and the second quarter is in line with our initial internal expectations as well. The reason we said it's prudent to maintain the full year outlook is given the current operating environment we've discussed. That includes some pressure from Middle East distributor cancellations as well as inflationary considerations for the consumer that we're monitoring. On profitability, we raised the outlook to reflect the benefit of the lower expected tariff rates that were partially offset by some of those higher oil costs.

I want to add a couple of things. We continue to see progress across the portfolio, which reinforces our confidence in the outlook. Our brand-building model is working, product innovation and marketing investments planned for the balance of the year position us well to deliver the numbers. We've seen strong performance from Merrell and Saucony. Their new product is resonating. Our key city strategy is checking, and both brands will have their largest investments in marketing on record. Across the broader portfolio where we have underperformed, we're seeing trends improve. Wolverine gained share for the second consecutive quarter, and Sweaty Betty is executing well on its new strategy. Sell-through trends remain encouraging, particularly where we're investing in innovation, and the order book supports our full year outlook. At the same time, we're staying disciplined and eyes wide open given the current environment, but focused on executing our plans.

On oil prices, we're monitoring the situation closely and the known impacts are factored into our outlook. The higher oil prices are translating into increased freight expense, both inbound transportation and our e-commerce shipping, which is reflected in the guidance. At this stage, we expect the impact on product cost to be limited in 2026. As for 2027, it's too early to speak to that in detail, but if elevated oil prices persist, we would expect some pressure on product input cost to emerge over time. That said, we're in a stronger position to manage through cost inflation given the structural gross margin improvements we've been driving across the business.

Operator provided instructions. Our next question comes from the line of Jonathan Komp with Baird.

I want to follow up with a broader question on Saucony, just given some of the successes with recent launches, the momentum that you're seeing. Could you share a little bit of a broader vision, how you see Saucony beyond 2026? And really anything you're willing to share on the ultimate potential here?

Thanks, John. We remain really bullish on Saucony's prospects, both because of the category in which it plays and the unique and special brand that it is in our portfolio. We've pushed hard to reset brand strategy to capitalize on a very big opportunity. Saucony operates at the intersection of performance, run culture and lifestyle. It's a 100-plus-year-old brand. That team has delivered great innovative product and built brand heat across performance and lifestyle. We're in the early innings of what could be a very compelling story. I'm pleased with what we're seeing today and with what we have on the horizon for 2027 and beyond. Some of the best innovation I've seen out of Saucony is in the pipeline for 2027. Credit to the team and our partners around the world helping grow the brand. When Saucony brings innovation and develops brand heat, there's a lot of potential. It's a fiercely competitive space, but I like our chances to continue to grow this business.

Great. And just a follow-up, Taryn, on the outlook. Could you maybe just highlight some of the puts and takes as you think about the low end or the high end of the outlook for 2026? And maybe if you could, as you think especially to the back half, are there areas of conservatism you're still embedding given some of the uncertainty? Any more detail there would be helpful.

In terms of the guidance, we're encouraged with the start in exceeding on revenue and profitability. The second quarter is in line with our expectations, so we're well-positioned starting the year. We remained appropriately grounded looking at the back half because of potential consumer headwinds. That said, Chris called out where we think we're well-positioned across the brands and the momentum we're building with innovation and marketing launching across the board, and how we're driving the business and the supply chain to be flexible to demand in the back half. On margin, as we go through the year, we expect the unmitigated tariff impact to be lower year-over-year in the back half, but we'll also start lapping mitigation actions and see some higher freight costs in the back half. Those are the main points. We're pleased to maintain the top-line guidance and raise the bottom-line guidance given lower tariffs net of higher freight.

Operator provided instructions. Our next question comes from the line of Peter McGoldrick with Stifel.

Yes, take two. Can you hear me now?

Yes. Sorry about that, Peter. We couldn't make out your first call.

Okay. Fair enough. I was asking about gross margin potential conservatism in the second half, but the building blocks shared on the last question get us there. Let's ask about the wholesale sell-through health and then the order book outlook. Can you help us think about the sell-through rates at retail, how that's trending versus a year ago in Merrell and Saucony? And how much of the outlook embedded from wholesale is driven by door expansion versus same-door productivity improvement?

Generally, specifically in the U.S., we're pleased with the current sell-through rates in Merrell and Saucony. In some cases, sell-through for Saucony Lifestyle is actually higher than last year, which is encouraging as we think about that category. The current order book, the visibility we have to it, the current sell-through rates from the marketplace, combined with market share gains, leave us feeling good about how we're viewing the rest of the year. Conditions change and we keep a close eye on the consumer, but with a strong finish to Q1 and the visibility into Q2 and beyond, we feel good about where we sit.

Very good. And then on DTC performance, DTC was flat, including some pressure from a Sweaty Betty reset. Given the investments you're making in the e-commerce platform and the key city strategy, when can we expect to see these initiatives start driving more meaningful DTC acceleration, particularly in Merrell and Saucony?

DTC is an important component of our business and how our brands engage consumers. We're focused on showing up where consumers want to engage, whether wholesale, online or in stores. Two things on DTC: one, we're working to become less promotional and more premium with consistent brand expression, increasing full price penetration and a better site experience. Two, we've pivoted marketing investment up the funnel. Historically we invested too far down the funnel focusing on conversion. We've shifted spending up the funnel, and you're seeing that in Merrell and Saucony with record levels of search interest. That is the right way to manage long-term brand health. Moving up the funnel and becoming less promotional can put short-term pressure on DTC, and we're working through that. We have a diversified portfolio, which lets us navigate such changes. We've also hired strong new talent in DTC to help us become great retailers online and in stores. If we become a great DTC business, we'll be better brand managers and a better company.

Operator provided instructions. Our next question comes from the line of Sam Poser with Williams Trading.

I was just wondering, can you give us sort of the bridge on the DTC between the way you spoke about Merrell and Saucony and then the balance of the way the DTC business ended up as well as the domestic growth versus international. Can you provide the bridges on all of that?

When you're talking about U.S. and international, at a total level international grew around 13% in the quarter, and the U.S. grew around 2% in the quarter. Our largest brands all grew in the U.S., so Merrell saw growth in the U.S., Saucony grew in the U.S., and Work Group grew. Sweaty Betty declined in the U.S. given the reset. When you think of Merrell, the hike share gains we're seeing in the U.S. and the category returning to growth are supported by new products like the Agility Peak 6 that are resonating. Sell-through is strong and inventory in the channel is clean. Across the brands, the marketplace management and getting clean inventory for new product to sell at more full price is working in the U.S.

Okay. One last thing. On the narrower, how much have you narrowed your overall assortments over the last few years? How much of that is helping the margin structure of the business?

We've worked hard on product line architecture, telling fewer stories better and focusing on SKU productivity. Saucony is an example, focusing on the core four and the Endorphin franchise. Some brands have taken a strong haircut on assortment. Product lines build up over time so you have to keep pruning. We've added merchandising talent to be more merchant-led to enforce SKU targets and productivity every season. That rigor contributes to both turnaround and margin improvement.

Operator provided instructions. Our next question comes from the line of Mitchel Kummetz with Seaport Research Partners.

I have two on Saucony. When you reported the fourth quarter, you mentioned that U.S. lifestyle was planned down for the year. I'm wondering if there's any change to that outlook. On today's call, you referenced better sell-through in U.S. lifestyle, and I'm wondering if your outlook for Saucony U.S. lifestyle has changed in the last three months. And then on the international side of Saucony, on the last call you talked about the expectation that lifestyle would grow faster than performance. Where are you seeing the international lifestyle growth? How much of that is new doors versus growth in like-for-like doors?

Fundamentally our perspective on U.S. lifestyle hasn't changed dramatically. We are encouraged by current sell-through rates and continued market share gains as we manage that business in the U.S. We're also pleased with lifestyle expansion in Europe, where we've had longer investment in key cities like London. The corrective actions we've taken in the U.S. give us confidence as we manage the business into the back half of 2026 and into 2027. Overall, the lifestyle expansion is encouraging and we're pleased with the progress and outlook.

Operator provided instructions. That concludes our Q&A session and today's conference call. We would like to thank you for your participation. You may now disconnect your lines. Have a pleasant day.