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Text: On the call today are Blake Krueger, our Chairman and Chief Executive Officer; Brendan Hoffman, our President; and Mike Stornant, our Senior Vice President and Chief Financial Officer.
References to underlying performance reflect the exclusion of the recently acquired Sweaty Betty brand.
These disclosures were reconciled in attached tables within the body of the release.
I hope everyone on the call is safe and well.
Consumer demand for our market-leading brands and product offerings continues to surge and exceeded our expectations in Q3.
Our strategic focus on a deeper connection with consumers, digital and DTC capabilities and product and design innovation is paying dividends.
While the supply chain challenges that have been well documented across many industries has limited our ability to fully service this growing demand in the short-term, I have never been so enthusiastic about our future and our outlook for 2022.
Earlier today, we reported over 29% revenue growth versus 2020 and 11% over 2019.
Third quarter revenue was approximately $637 million.
Earnings leverage driven by gross margin increases was very good.
We estimate that factory closures and logistics delays impacted Q3 by at least $60 million.
The Wolverine Michigan Group's revenue was up 13% year-over-year and the Wolverine Boston Group's revenue was up over 33%.
Both groups delivered growth over 2019.
Adjusted earnings per share for the company were $0.62 in line with our expectation despite the shortfall in revenue driven by macro supply chain issues.
We believe the company is well positioned to deliver accelerated future growth with a number of fundamental elements supporting our enthusiasm.
Our brand portfolio strategy and international distribution base continue to reduce risk and provide a meaningful strategic benefit in the current environment as the company is not dependent on any single product category, geographic region, consumer group or distribution channel.
While consumer lifestyle choices have increased demand for performance product, the underlying trends in this category are long-term in nature and are expected to persist.
Consumers are increasingly focused on health and wellness with running, hiking the outdoors and exercise in general, serving as the primary activation to this mindset.
Participation in running in the U.S. has increased every year over the last five years.
And a significant majority of new runners today they plan to continue running in the future.
Participation in all outdoor activities, including hiking, walking and boating has also increased with over 20 million new hikers in the U.S. alone since 2015.
This past spring and summer, National Park shattered attendance records and new boat purchases and water activities in general reached a 13-year high.
Consumers' renewed affinity for the outdoors is expected to continue into the future, especially as consumers begin to travel again.
The work category has also showed strong growth supported by healthy macro industry conditions and work wear fashion tailwinds.
Warehousing jobs have more than doubled since 2005 and construction companies are expected to hire hundreds of thousands of additional workers over the coming months.
Looking ahead, the passage of a major infrastructure plan in the U.S. will further boost momentum in this category.
Across all brands and product categories, we have placed our consumers at the heart of our global strategy, and that has changed how we bring product to market and operate the business.
This strategic focus led to our recent acquisition of Sweaty Betty, a trend right women's active wear brand that adds a very meaningful DTC business to our portfolio with over 80% of revenue generated through DTC channels.
Including Sweaty Betty, DTC e-commerce revenue more than doubled in Q3 relative to 2019 and our DTC stores are up over 35% versus that year.
Our owned online business and the online business of our wholesale customers now account for over 30% of global revenue.
Together with the DTC businesses operated by our distributor partners around the world, nearly 40% of our global revenue and a larger percentage of our payers is now generated through consumer direct channel, enabling enhanced brand shopping experiences, a wealth of consumer insights and data and a more efficient business model.
We continue to capitalize on the fundamental consumer trends that are playing out in the market.
In addition to our strong DTC business, these trends are reflected by continued strength in retail sell-through and a historically high order backlog that now extends into Q3 of 2022.
We remain bullish on our outlook in light of these trends and the composition of our brand portfolio, which over indexes in trending performance and lifestyle categories.
We expect strong long-term consumer demand, especially for Saucony, Merrell, Sweaty Betty, our work brands and Sperry, which will launch a line of products in the active sport category next spring.
For our call today, Brendan Hoffman will provide some additional insight on key brand performance during the quarter.
Mike Stornant will review our Q3 financial performance and updated outlook in more detail.
And I'll conclude with some final remarks.
With this, I'll now hand it over to Brendan.
In the third quarter, we acquired sweaty Betty, a powerhouse brand that operates in the global addressable active wear market of over $200 billion.
The brand delivers on our key strategic priorities by delivering a powerful line of industry-leading products, expanding our direct-to-consumer presence and growing our business internationally.
We plan to leverage these strengths by deploying Sweaty Betty's best practices and apparel expertise across our portfolio.
The business grew over 50% in the third quarter, ahead of our expectations.
Less than three months after welcoming Sweaty Betty to the Wolverine family, we are even more excited about the growth potential, product collaborations and operational synergies in front of us.
Saucony delivered a very strong performance in Q3 with more than 40% growth over 2020 and 60% versus 2019 despite some supply chain challenges.
saucony.com was up more than 50% and nearly tripled 2019.
The brand has seen global success with all regions contributing significant growth.
Outside of the U.S. market, technical running and lifestyle performance in Europe was especially strong, up 30% versus 2020.
Our Saucony Originals lifestyle business continues to perform well, especially internationally.
Our performance in Europe continues to accelerate, while the Asia Pacific region is a big opportunity for us moving forward with the brand delivering over 60% growth in Q3.
Saucony stores and the online business are performing well in China as the brand's joint venture there continues to gain momentum.
Saucony continues to deliver a consistent flow of powerhouse performance product and trend-right lifestyle product.
This has translated to consistent robust growth for the brand over the last several quarters, and we expect this to continue into 2022.
The road running category leads the way, including the recent launches of the new Ride 14, the brand's biggest franchise shoe and Triumph 19.
Saucony's trail running business also grew by more than 40% in the quarter.
Let me shift to Merrell.
The brand continues to experience record demand and great momentum in all global channels.
During Q3, Merrell was impacted by factory closures in Vietnam, which resulted in missed revenue opportunities of at least $25 million.
Despite these challenges, Merrell still delivered mid-single-digit growth in the quarter versus 2020.
Merrell's DTC business grew mid-single-digits in the quarter with merrell.com building on its nearly doubling of the business last year.
Merrell stores also continued to outperform our expectations, a promising indicator of the strength of the brand and the consumers return to shopping in stores.
Merrell holds the number one U.S. market share position in the hike category and is the category leader in many key markets across the globe.
While Merrell continues to successfully optimize its well established and market-leading core product franchises, fresh innovative product offerings are driving brand's heat and new consumer interest.
The Moab Speed and Moab Flight collections are energizing the performance category.
These styles represent the brand vision for fast, lightweight footwear for the trail and light hiking and also build on the heritage and success of the world's number one hiker, The Moab.
This momentum is further fueled by the uptick in organic media placements that bridge both performance and lifestyle.
For example, Annie Leibovitz used the Moab Speed in the September issue of Vogue for a major photo shoot and style with the Louis Vuitton jacket and skirt.
Additionally, Merrell was featured on The Today Show during Q3, showcasing the Moab Speed, which aligns well to the brand's Step Further campaign, encouraging increased commitment to the outdoors.
Both collections have exceeded our expectations, and we are excited about the potential for new performance collections in 2022.
Merrell's Lifestyle business performed better than the brand's overall growth in Q3.
We are seeing positive results from our strategic focus on further elevating Merrell as a lifestyle brand.
Recent brand health research indicates that consumers are incorporating Merrell into their own identity at an increasingly higher degree.
These trends are manifesting in the strong performance we are seeing in lifestyle product, including the Hydro Moc and the newly launched Cloud all-day casual sneaker collection made with eco-friendly materials.
As we mentioned on our Q2 call, Merrell introduced its 1TRL capsule collection on merrell.com, which focuses on younger, fashion-forward consumers demanding authentic outdoor influenced style.
Looking ahead, Merrell possesses a substantial growth opportunity globally, particularly in EMEA, which has seen increasing momentum for several quarters, and in Asia Pacific where the China JV is just beginning to gain momentum.
Outdoor and performance trends are strong around the world, and Merrell is capitalizing on its heritage and brand positioning.
In Q3, our work business accounted for nearly 20% of total revenue and the category continued to deliver strong growth with Wolverine, the leader in the U.S. work boot category, up over 16%, Cat Footwear, up nearly 40% and with strong contributions from our smaller brands.
As Blake indicated, we expect continued strong growth in the work category as we pivot toward 2022.
Based on the performance of Merrell, Saucony, Sweaty Betty, Wolverine and our other work brands, our performance business developed growth of nearly 30% over 2019 during the third quarter.
The Sperry brand continued its steady recovery in Q3 with over 40% growth.
The brand's DTC business was up 25% driven by ongoing e-commerce growth and very good Sperry stores performance.
All product categories delivered strong double-digit increases in the quarter.
The overall boat market showed strong growth, particularly in men's, and Sperry gained significant market share growth in this key category.
From a fashion standpoint, there are clear indications that we are at the forefront of a boat shoe trend with very encouraging demand from key retailers for the first half of 2022.
I hope you all saw 007 James Bond wearing a pair of our iconic boat shoes in No Time To Die.
In the coming months, Sperry plans to build on the energy created by recent collaborations with Rowing Blazers and Netflix Outer Banks and product capsules with John Legend and Rebecca Minkoff.
The brand is also well positioned for the current seasonal women's boot business with strong demand and healthy inventory levels.
Sperry will also leverage the easy on-off trend during Q4 with the new Moc Sider and the Cozy Float collections.
In Spring '22, the brand will launch its new Sperry Sport collection through a path into macro consumer trends with more trend-right performance-based product for the water.
Looking forward, our product lines are robust across the brand portfolio and order demand continues to strengthen.
We have been flexible and responded quickly to navigate the ongoing macro supply chain challenges to service the increased demand we are seeing in nearly every brand.
We believe strong product coupled with more precise merchandising and consumer focus as well as healthier inventory positions will drive growth over the next year.
Our DTC channels remain a top priority and a source of opportunity for the business.
We have pivoted to a more dynamic e-commerce operating model to enable faster implementation of technical enhancements and new commercial capabilities, which will also help us extend improved online functionality to our global online wholesale customers.
In addition to our global DTC e-commerce business, we are seeing meaningful wholesale growth with our online retail customers.
As global economies have reopened, we have seen consumers shift a portion of their spending back to brick and mortar stores.
About 50% of our footwear is now sold online in the important U.S. market.
This bodes well for the current brand operating model that we are executing, including a more continuous product flow and best-in-class digital marketing content to benefit all channels.
We continue to look closely at our store fleet and suspect there may be favorable and profitable opportunities for us to explore as we expand our footprint in key markets starting in 2022.
I'm now going to hand it off to Mike to review the third quarter financial results and our increased 2021 outlook in more detail.
Let me start by reviewing the company's strong third quarter financial performance, and then I'll cover our revised outlook for 2021.
Third quarter revenue of approximately $637 million represents growth of over 29% compared to the prior year and includes $39 million from the recently acquired Sweaty Betty business.
On a pro forma basis, Sweaty Betty grew over 50% versus 2020.
Based on increased consumer demand experienced across the portfolio during the quarter, the company was on track to deliver just under $700 million in third quarter revenue.
But as Blake mentioned, the unprecedented factory closures and other well documented supply chain disruption impeded our ability to service this strong demand.
Despite these headwinds, Saucony and Sperry each delivered over 40% growth.
Merrell was impacted most heavily by the factory closures in Southern Vietnam, yet still delivered mid-single-digit growth.
Our work business also continued to drive meaningful growth at over 20%.
Adjusted gross margin improved 330 basis points versus the prior year to 44.6% due to the higher average selling prices, favorable product mix and the addition of Sweaty Betty for nearly two months of the quarter.
Merrell, Saucony and Sperry all well exceeded gross margin expectations in the quarter, a testament to their strong position in the marketplace and robust pipeline of relevant trend-right product.
Sweaty Betty's premium positioning, distinctive product offering and strong consumer trends are yielding robust gross margins which are accretive to our underlying business in Q3.
Total air freight costs were approximately $10 million in the quarter, of which $7 million was excluded from our adjusted results.
Including the full air freight impact, our adjusted gross margin would have been 43.5% still 220 basis points higher than last year.
We continue to use air freight where appropriate to mitigate exceptional supply chain delays caused specifically by COVID.
Adjusted selling, general and administrative expenses of approximately $208 million were $56 million more than last year, primarily due to increased revenue, the addition of Sweaty Betty and increased marketing investments.
Adjusted operating margin was 12% for Q3, an improvement of 140 basis points over last year and ahead of our expectations.
This very strong leverage on the company's revenue growth resulted from gross margin expansion and a balanced operating expense management.
Adjusted diluted earnings per share were $0.62 compared to $0.35 in the prior year, growth of 77% or 3.5 times our revenue growth in the quarter.
Reported diluted earnings per share were breakeven and include a number of non-recurring or exceptional items comprised of approximately $34 million of cost related to bond retirements executed in the quarter to significantly improve the company's capital structure and future liquidity, including future savings of nearly $10 million in annual interest expense.
Approximately $10 million of cost directly related to the acquisition of Sweaty Betty.
Approximately $17 million of costs related to our legacy environmental matters.
Including ongoing defense costs and an estimate of potential future settlement costs for a portion of the outstanding litigation.
And finally, approximately $7 million of air freight considered to be well above normalized levels based on historical experience.
During the quarter, the company and 3M entered into a non-binding term sheet outlining proposed settlement terms on certain individual lawsuits filed against the company related to our legacy environmental issue.
While the proposed settlement remains subject to finalizing terms and contingencies that allow any of the parties to opt out of the proposed settlement, we believe this is another important step toward potential resolution of these matters.
Let me now shift to the balance sheet.
Total inventory grew approximately 26% versus 2020, including 16 percentage points of growth from Sweaty Betty.
Underlying inventory was up approximately 10% compared to last year and still down compared to 2019.
Our inventory position has improved over the last two quarters, especially for Saucony, Sperry and our work brands, but is still not in line with the higher demand.
Merrell continues to manage through the recovery from closed Vietnam factories which has put more pressure on inventory levels.
Based on current visibility, inventory levels will continue to improve as we benefit from supply chain diversification, the addition of several new factories and incremental capacity for 2022, higher production orders placed in mid-2021 and other actions we have taken to counterbalance macro supply chain headwinds.
Since August 1, we acquired Sweaty Betty for approximately $410 million.
The purchase was financed through a combination of existing cash and borrowing under the company's revolver.
We also executed some important refinancing activities to support future growth and optimize our capital structure, most notably, a bond refinancing and a new credit facility that gives us added liquidity and flexibility to invest in growth.
As a result of these recent actions, we've added a powerhouse growth brand to the portfolio and our balance sheet remains extremely healthy with total liquidity of approximately $800 million.
I will now provide an update on our outlook for the rest of 2021.
First let me focus on the strength of demand signals across the portfolio that support a very optimistic outlook for growth over the next several quarters.
Our order book remains at historically high levels and provides very clear demand visibility for our global wholesale and distributor businesses well into 2022.
Retail sell through continues to be very strong.
Despite shipment delays and supply chain disruption, our order cancellations have been limited as retailers remain committed to our industry-leading brands and product offerings.
The positive momentum of our performance and work footwear brands continues, and now Sperry is beginning to show signs of a healthy recovery.
Sweaty Betty is now the fourth largest brand in our portfolio and is driving outpaced growth.
Trends in our DTC business remains strong with year-to-date underlying e-commerce revenue up nearly double 2019 and year-to-date underlying store revenue up mid-teens.
Finally, demand in our APAC and Latin America regions is recovering nicely as we transition to spring 2022, and we see near-term strength across many international markets.
All of these indicators give us great confidence for the future.
The strength of new product offerings and improved go to market tactics across the portfolio will allow us to continue to fuel growth despite the macro supply chain headwinds that we believe will persist well into 2022.
In the short-term, the impact of factory closures and a volatile logistics environment is having an unplanned negative impact on revenue for the last four months of 2021.
As a result, we are adjusting our fiscal 2021 outlook.
We now expect fiscal 2021 revenue of approximately $2.4 billion, growth of nearly 35% compared to the prior year and approximately 28% growth on an underlying basis.
Despite the shorter term supply chain impact, we still expect to deliver up to 25% growth in the fourth quarter.
There will be ongoing cost pressure related to higher freight and logistics costs throughout the fourth quarter, and we will continue to invest behind our future growth opportunities, including brand enhancing marketing and key talent.
We now expect full year adjusted diluted earnings per share in the range of $2.05 to $2.10 and Q4 adjusted diluted earnings per share of $0.38 to $0.43, representing 100% growth over 2020 at the high end of that range.
Full year reported diluted earnings per share are now expected in the range of $1.16 to $1.21.
We have good line of sight to the start of 2022 and have great enthusiasm for continued brand momentum as we pivot into the New Year.
While certain known supply chain headwinds will continue to be in play, we still expect to deliver mid-teens underlying growth and mid-20s overall growth in the first quarter of 2022.
Our confidence in delivering double-digit underlying growth next year remains very high, and we believe Sweaty Betty adds significantly to the growth profile of the company.
With that, I will hand it back over to Blake for some closing remarks.
Our healthy growth and strong financial performance in Q3 are a testament to the company's strategic focus and accelerated brand investments.
Over the last several years, we've consistently invested behind digital and DTC capabilities, technology, talent and the e-commerce as well as product innovation and design.
In Q3, we made an important acquisition of Sweaty Betty, which will be an important catalyst for growth across our performance brands.
Our product pipeline is robust, consumer demand is surging and brand heat and ongoing trends favor our brand.
We are confident as we plan for double-digit growth in 2022.
The advantageous position we find ourselves in today is a credit to our team's expertise and relentless work, especially over the last couple of years.
Global marketplace continues to be dynamic and fast changing and our people and company are excelling in this environment.

user
wolverine world wide sees fy21 adjusted earnings per share to be in range of $2.05 to $2.10.
sees fy21 adjusted earnings per share to be in range of $2.05 to $2.10 .
sees fy revenue up 35 percent.
sees fy revenue about $2.4 billion.
quarterly adjusted earnings per share $0.62.
sees fy21 diluted earnings per share to be in range of $1.16 to $1.21.
sees fy21 adjusted to be in range of $2.05 to $2.10.

assistant