Greetings, and welcome to the Wolverine World Wide, Inc. first quarter fiscal 2021 results call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Brett Parent, Vice President of Investor Relations and Corporate Strategy. Thank you. You may begin.
Good morning, and welcome to our first quarter 2021 conference call. 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. Earlier this morning, we announced our financial results for the first quarter of 2021. The 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 news release sent to you directly, please call Allison Malkin at 203-682-8255.
This morning's press release and comments made during today's earnings call include non-GAAP disclosures, which adjust, for example, for the impacts of environmental and other related costs, net of cost recoveries, costs related to the COVID-19 pandemic, including air freight costs, credit loss expenses, severance expenses, and other related costs, and foreign exchange rate changes. These disclosures were reconciled in attached tables within the body of the release. 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 2021, 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 Blake Krueger.
Thanks, Brett. Good morning, everyone, and thanks for joining us. I hope everyone on the call is safe and well. Earlier this morning, we reported first quarter revenue of approximately $511 million and adjusted earnings per share of $0.40, a strong start to the year. E-commerce led the way, growing 84% during the quarter as our global digital strategy continued to deliver results. Our two largest brands exceeded expectations, with Merrell up nearly 25% year-over-year and Saucony up nearly 60% in the quarter. Both brands easily beat their 2019 Q1 revenue levels, with Saucony up over 75% versus 2019. The company's international business was up 40%, with every region growing over 35%. Our DTC channels are outpacing the market, and our wholesale order book is very healthy.
As we look to the rest of the year, demand for our brands is very strong, and we've raised our full-year guidance on the strength of this demand and robust outlook. For today's call, I'll start by providing some additional insight on our Q1 performance, and then Mike Stornant will detail our financial results and update you on our financial outlook for the year. Finally, Brendan Hoffman will share the latest on our strategic growth priorities before I conclude. In the first quarter, the Wolverine Michigan Group revenue was up 20.1% on a reported basis and up 18.2% on a constant currency basis. The Wolverine Boston Group revenue was up 10.3% on a reported basis and up 8.2% on a constant currency basis. Let me now focus on key brand performance, starting with Saucony.
Saucony grew revenue nearly 60% and expanded operating margin nearly 800 basis points in Q1, a great start to what we anticipate will be a spectacular year for the brand. All regions delivered strong growth, led by North America and EMEA. Saucony.com revenue increased by over 150%, driven by compelling digital storytelling and impactful product launches. Product design and innovation remain at the core of Saucony's growth momentum, delivering both superior technical product and trend-right lifestyle collections to the global marketplace. The brand's road running category nearly doubled in Q1, with the launch of new models for several of its biggest product franchises. The new Guide 14 and Kinvara 12 drove significant growth, with the Guide more than doubling year over year. New colors and collection packs also drove excellent growth and freshness for the innovative Endorphin series.
Saucony also grew its trail running business with the launch of the Peregrine 11, which received the coveted Runner's World Editor's Choice Award. New product launches are fueling momentum in the brand's technical product category with existing runners and with the many new enthusiasts to the sport. Saucony Originals, the brand's heritage lifestyle sneaker business, also grew double digits in Q1. The brand continues to leverage its Italian product design and marketing hub to build on its pinnacle positioning and success in Europe with elevated trend right product. The new Jazz Court, a sneaker made with 100% natural materials and zero plastic, launched at the end of Q1, driving substantial buzz in social media and immediately becoming the brand's top-selling product on saucony.com. Looking ahead, Saucony will continue its steady introduction of new product launches.
Both the new Ride 14 and Freedom 4 launched within the last few weeks and are off to a fast start. Over the next several months, the brand will also roll out the next generation of all three models of the Endorphin collection, the Pro, the Speed, and the Shift, which has quickly become one of its largest franchises. The brand will also introduce the new Triumph 19, a follow-up to the award-winning predecessor. The momentum in the Saucony business continues to accelerate across both its performance and lifestyle offering. Moving to Merrell. Revenue grew nearly 25% in the quarter. All regions delivered increases, led by especially strong performance in EMEA. North America grew double digits, including DTC, with Merrell.com up approximately 135% and Merrell stores comping up 30%.
Merrell kicked off its Future Forty campaign at the start of the quarter, celebrating the brand's 40th anniversary and amplifying its inclusive commitment to sharing the power of the outdoors with everyone. The brand announced a significant partnership with Big Brothers Big Sisters of America, aiming to provide greater accessibility to the outdoors for nearly 200,000 youth. Merrell continues to focus on cultivating its well-established product franchises, as well as delivering innovation across new product introduction. In Q1, performance footwear grew by nearly 30% as the brand continued to advance its vision of faster and lighter footwear for the trail. Building on the unmatched success of the world's No. 1 hiker, the Moab, Merrell launched the all-new Moab Speed and Moab Flight collections, quickly exceeding sell-through expectations, including selling out on merrell.com, and helping to drive very strong double-digit growth for the Moab franchise overall.
The Antora 2 and Nova 2 trail runners also continued to perform exceptionally well in the quarter. Merrell has a steady stream of new performance offerings scheduled for the remainder of the year. Merrell's lifestyle business grew approximately 20% in the quarter, driven by the growth of the classic Jungle Moc and newer Hydro Moc, which more than tripled year-over-year. The brand plans to continue to leverage the easy on/off trend throughout 2021, with new products in the Hydro Moc, Hut Moc, and Jungle Moc franchises. Merrell is well positioned with both its outdoor performance and lifestyle businesses, and we expect the brand's growth will continue to accelerate going forward.
Our work business, which represented almost 20% of our revenue in Q1, also delivered significant growth, led by Wolverine, up nearly 30%, and Cat Footwear, up over 30%, with strong contributions from a couple of our smaller brands. We are the market share leader in the U.S. work boot category, which is currently trending with consumers and has been an important, consistent performer for the company over time. We expect growth in this category to accelerate in Q2. Turning now to Sperry. Revenue was down approximately 10% in Q1, a continued sequential improvement compared to prior quarters, despite more than $10 million of expected revenue, which slid into Q2. During the quarter, Sperry.com was up 40%, and Sperry stores grew more than 20%. The brand's full price business remains very healthy, with gross margin expanding nearly 500 basis points in Q1.
Looking ahead, Sperry is back on the growth path for the remainder of the year. Sperry possesses unique elasticity across genders, product categories, and price points. Its new Float collection, a fun and affordable injected version of the boat shoe for younger consumers, launched at the end of the quarter and quickly became Sperry.com's best-selling product introduction in several years. The brand expects to build on the success of the Float throughout the year with seasonal drops, including the Cozy Float collection this fall. Sperry also plans to capitalize on the easy on/off trend with the launch of the new Moc-Sider collection later this summer, and to drive energy through several product capsules, leveraging fashion, entertainment, and pop culture icons, including collaborations with John Legend, Rebecca Minkoff, and the Netflix hit series Outer Banks, Good Humor popsicle ice cream, and Rowing Blazers.
Before Brendan and I share some additional insight regarding our strategic growth priorities, I'm going to hand it off to Mike to review the first quarter financial results in more detail. Mike?
... Thanks, Blake, and thanks to all of you for joining us. Let me start by providing additional detail on the company's first quarter performance, and then some insight on our improved outlook for 2021. First quarter revenue of approximately $511 million represents growth of 16% compared to last year. As Blake pointed out, most elements of our global growth agenda delivered excellent year-over-year growth on the strength of expanding digital platforms and innovative product offerings. This strong growth performance was achieved despite a meaningful shift of customer shipments into the second quarter. Adjusted gross margin improved 290 basis points versus the prior year to 44.3%, due to our continued e-commerce expansion and favorable wholesale product mix.
Adjusted selling, general, and administrative expenses of $174.4 million in the quarter were about $23 million more than last year, primarily due to the higher mix of DTC revenue, $8 million of additional investment in digital e-commerce marketing, and more normalized incentive compensation costs. Q1 adjusted operating margin was 10.2%, an improvement of 330 basis points over last year as a result of healthy operating leverage. Net interest expense was up $1.9 million, and the effective tax rate was 16%. Adjusted diluted earnings per share were $0.40, compared to $0.28 in the prior year.
Reported diluted earnings per share were $0.45 versus $0.16 last year, and reflect a partial settlement of certain insurance claims related to our ongoing legacy litigation, offset by legal defense costs and specific COVID-related costs. Let me now shift to the balance sheet. At the end of the quarter, inventory was down approximately 21% year-over-year. Our global sourcing team continues to adjust to the supply chain headwinds impacting our industry. Our inventory position has improved nicely in the second quarter, allowing us to fill nearly all of the orders that slipped from Q1 into Q2. In Q1, we generated $26.3 million of cash flow from operating activities.
The company finished the quarter with $506 million less debt compared to the prior year, and total liquidity of approximately $1.2 billion, including $365 million of cash on hand and nearly $800 million of revolver capacity. Our bank-defined leverage ratio continued to improve, ending the quarter at a low 1.5 times. I will now provide details on our improved outlook for 2021. As we have shared, the trends in our business remain very encouraging, with revenue assumptions, improving since we offered our annual guidance in February. Our wholesale order book remains strong. Our D2C business is performing well. International regions have returned to strong growth, and our inventory position continues to improve.
All of this provides us with a heightened level of confidence as we manage the business and invest in future growth. As a result, the company now expects fiscal 2021 revenue in the range of $2.24 billion-$2.3 billion, growth of 25%-28% compared to the prior year. At the high end of the range, this is a raise of $50 million from our original outlook and nicely exceeds 2019 revenue. We now expect reported diluted earnings per share in the range of $1.70-$1.85, and adjusted diluted earnings per share in the range of $1.95-$2.10.
In the face of unpredictable near-term supply chain delays, the company will continue to invest in air freight to ensure our ability to service the very strong demand we are seeing in the business. These COVID-19 related airfreight costs above normal levels are included in our updated guidance and will be adjusted from our reported results for the remainder of the year. The company is in an enviable position to invest in meaningful growth for 2021 and to continue to drive momentum in our brands. Before handing it over to Brendan, I would like to briefly thank our team, which continues to adapt to the fast-changing environment around us, while delivering excellent results for our shareholders. With that, I'm going to hand it over to Brendan to share additional insight on our strategic growth drivers. Brendan?
Thanks, Mike. As we emerge from the pandemic, the power and relevance of our brands is evident as we execute our global growth agenda across the portfolio... With roughly two-thirds of our business in running, outdoor, and work, our brands are well positioned in the lifestyle and performance-oriented product categories favored by consumers and macro trends. In addition to the unique positioning of our brand portfolio, our global growth agenda is driving strong momentum through three key pillars. First, the brand's new product and marketing stories are resonating well with consumers, including Sperry's Float, Merrell's Moab Speed and Moab Flight, and Saucony's Guide 14, new Endorphin collections, and several other new launches. Our brands are focused on developing big, innovative, and impactful product collections based on consumer insights, trend intel, and testing. Recent investments in our advanced concepts and innovation center of excellence are proving invaluable.
Second, our ongoing investments in digital capabilities continues to fuel e-commerce growth, which is exceeding our expectations at this early stage in the year as we track towards our bold revenue goal of $500 million through our brands.com in 2021. In Q1, we leveraged increased digital marketing investments to drive more traffic, richer digital content and storytelling to engage consumers, better merchandising to optimize conversion, and additional testing and learning to improve site user experiences. These assets and investments are also helping drive the online business of our global distribution partners and wholesale customers. In the coming months, we anticipate integrating and launching several new innovations and technologies, including a Merrell mobile app. We are excited about the substantial runway that remains for our digital business.
Finally, our international business has recovered quickly from last year's shutdown, with every region delivering very strong Q1 growth. As Blake mentioned, our Saucony Italy business and its product design and marketing hub are helping drive upper-tier distribution for our fastest-growing brand. Overall, EMEA continues to outperform, and the investments in our Merrell and Saucony JV, targeting a significant opportunity for our two biggest brands, are beginning to pay dividends. Our brands are well aligned with today's marketplace and consumer trends, and our global growth agenda is fueling our biggest and most profitable growth opportunities. I could not be more excited about 2021 and the future beyond. With that, I will turn it back over to Blake to conclude our remarks. Blake?
Thanks, Brendan. Our strong start to the year is reflective of our intense focus on the consumer and our continued investments in talent, product design and innovation, digital, and consumer research and in- and insights. The company drove meaningful growth in Q1, despite the impact from short-term industry logistic headwinds, and we are increasingly optimistic about the year ahead. Vaccination rollouts appear to be tracking well, consumer confidence continues to improve, and our demand outlook remains very strong. Our DTC business is performing well, and our wholesale order book continues to provide good visibility to accelerated growth for the year ahead. We are clear on our strategic priorities and enthused about the opportunities in front of us. The company's strong position is a testament to our team's tremendous vigilance, focus, and hard work over the last 15 months.
Throughout this period, we focused on managing our brands for the post-COVID world and continued to invest. I'd like to close by thanking our team members for all of their efforts, enabling us to start fast in 2021, which I believe will prove to be a breakthrough year for the company. With that, I'll now turn the call back over to the operator. Operator?
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your question. Our first question has come from the line of Jonathan Komp with Baird. Please proceed with your question.
Yeah, thank you. Good morning. First question I had, I wanna ask, when you look at the roughly $50 million increase in the full year revenue outlook, can you just give a little more color to the source of the upside, thinking, you know, across the brands? And then, as you look forward, both in the second quarter, giving better inventory availability, but also in the back half, given the ability to chase demand, how are you thinking about the flow in terms of revenue growth as you look forward here?
Jonathan, yeah, I would say that the upside for the year is pretty broad-based. It's across all of our outdoor brands, our work brands, Saucony in the running category. We expect Sperry to return to growth for the rest of the year. Obviously, our e-commerce business is performing extremely well, but the online businesses of our wholesale customers are also performing extremely well. And then, we continue to see momentum across international regions.
... It's a bit mixed, right? There's still some countries that are locked down a little bit, but the vaccines are working, and economies are starting to open up. And I think our Q1 performance was just reflective of our broad-based upside for the entire year. So it's not a single brand, it's not a single channel, it's not a single geographic region. It's really pretty broad-based. And then your second part of the question?
Yeah, the revenue flow by quarter, I mean, we saw a meaningful shift in revenue from Q1 to Q2, just in terms of some of these supply chain challenges that we saw. But we would expect each quarter here to see a sequential kind of improvement in terms of year-over-year growth, for sure, but also even as we kinda consider performance against 2019 as a baseline, too. So, it's as much as it's broad-based across the portfolio, as Blake mentioned, I think we'll see a similar sort of benefit in terms of each quarter, you know, seeing some upside each of the quarters ahead of us.
Okay. Just to clarify, so revenue versus 2019 should improve year-over-year, or compared to 2019, should improve going forward, including second quarter, it sounds like?
Right.
Okay, great.
We were down about 2.5%. We were about 2.5% down in Q1, so start to see that improve each quarter.
Okay. And would you expect Q2 to be up versus 2019 or just less negative?
Well, we're not giving that specific kind of direction on the quarter, other than, you know, kind of to say that we see it improving a bit versus how we performed in Q1.
Okay, great. And then, Mike, one follow-up question on the outlook. I know you didn't raise the outlook for net earnings on a GAAP basis. Is that entirely because of the air freight? And maybe comment on the incremental marketing, if that's a part of it. And as a related question, just any commentary on the profitability on the e-commerce business, given the strength you're seeing on the top line? Thank you.
Sure. Yeah, I'll start with the last question. Our profitability on the e-com has been really strong. We've been able to see some nice leverage. We talked about 84% growth in the first quarter, but even beyond that, really strong leverage on the earnings side, year-over-year, and even against our plan. So that continues to be robust.
On the, just to jump in there, you know, I think one of the things we're seeing with Matt Blonder, as our new head of digital, just bringing new techniques, and very quickly able to find ways to leverage our spend dollars. And so, as we're getting the top-line revenue, we're seeing good flow-through, and that's exciting for the balance of the year.
I think your other question, John, was about, you know, the adjusted results and the adjusting out of air freight. I wanna be clear on that. I mean, first of all, we don't have any other types of costs considered in there. We have the legacy litigation costs that are gonna continue to be in the adjustment, like they have been for the last couple of years. But as it relates to COVID, really what we're seeing is, you know, the supply chain interruption has really put us in a position to be a very very aggressive, to chase the demand we have and put into our outlook, at least, some incremental air freight that we feel might be necessary to secure that demand.
We still have a significant amount of air freight included in our adjusted guidance, so this is not adjusting out all of the air freight, but just that we feel is extraordinary or, you know, more directly related to the COVID situation. It's about, you know, $15 million-$20 million in that adjustment. And we'll monitor that. We obviously didn't spend that much in the first quarter, and we're hoping that we won't need all of that, but at the end of the day, wanted to provide for that in this outlook.
Okay, that's very clear. Thank you.
Thank you. Our next question has come from the line of Steven Marotta with CL King. Please proceed with your questions.
Good morning, Blake, Brendan, and Mike. Mike, just amplifying on one of your last answers. Of course, it was mentioned in the commentary, the $10 million is Sperry slipped from Q1 into Q2. What's the consolidated amount of slippage from Q1 to Q2?
This is Blake, Steve. I think the headwinds were a little stronger than we anticipated three months ago, when we last chatted. At that time, you recall, we thought there might be about $10 million, $20 million, that's about $20 million in total of slippage into Q2 from Q1. That turned out to be about $40 million for the quarter. It wasn't every brand, but it was kind of concentrated in some of our bigger brands. Certainly had an impact, material impact on Sperry. As we look ahead, we see right now about the same amount of slippage from Q2 into Q3. We see the supply chain and some of the logistics issues getting better as we march through the year.
We still see about the same level of slippage from Q2 to Q3 as we experienced in Q1 to Q2, and that was about $40 million of top line.
... That's really helpful. Have you seen any regional variation domestically based on either vaccination rates or reopening activities? Anything that gives you a bit of a looking glass into what could be occurring in the balance of the country in six months from now, say?
Actually, we try and follow that pretty closely, but to be honest with you, we saw broad-based demand across regions, almost irrespective of where they were on addressing COVID, or vaccines, or weather. So whether it's any of our outdoor categories, certainly athletic, more athletic running categories or our work category, we saw pretty strong demand. Our future order book is also reflective of kind of that broad-based demand, both internationally and across the geographies here in the United States as well.
That's very helpful. Thanks. I'll take the balance of my questions offline. Thank you again.
Okay. Thanks, Steve.
Thank you. Our next question comes from the line of Jim Duffy with Stifel. Please proceed with your questions.
Thanks. Good morning. Hope you guys are all doing well.
Yeah, good morning, Jim.
Hi, Jim.
I wanted to start on the digital. So the e-commerce growth rate for the quarter implies acceleration in digital in March, relative to the quarter to date trends, 60% you discussed late February. Has that digital strength continued thus far in the second quarter, and has it been broad-based across brands?
Yeah. This is Brendan. I mean, it certainly continued, and it is broad-based, which is really exciting to see. Obviously, as we anniversary the pandemic from last year, we knew the comps would change, but right in line with our expectations, and as I mentioned a few minutes ago, really pleased with some of the new techniques and tools we have with Matt Blonder coming on. The consulting project we mentioned last time, I think is already starting to pay dividends with some quick wins, so very pleased with the momentum in our brands.com. And Blake mentioned also very pleased with what we're seeing from our wholesale.com as well.
Great. And then, with respect to the international business, can you guys provide an update on the outlook for the international distributor markets? What's the state of distributor inventories at this point? You know, what's the timeframe for when you're expecting the distributor business to turn back on?
Yeah, I would say that, it really varies quite a bit country by country. Right now, we're seeing broad-based lift across international markets and regions, including Latin America. EMEA, for us, as you know, Jim, has been especially strong here over the last couple of years, and that strength has continued. Asia Pacific, again, it varies kind of widely by country, but we're seeing increased demand, and it's across the same macro trends that we're experienced here in the United States, the outdoors, more athletic, at home, comfy footwear, work footwear. So, we have individual countries that are still under some pretty severe lockdowns. They've taken a very stringent approach to COVID, probably to their credit, but the international business, we expect to be very good this year, and frankly, approach or exceed 2019 levels.
Great. Thank you.
And I think the other part of your question, Jim, was about inventories, too. I think that in line with that improving performance, we're seeing the inventories get more, you know, back in line, and we have a couple of markets where it's a little more problematic, but overall, just positive outlook there. Obviously, the international business is part of our improved revenue outlook for the year.
Thanks, guys.
Thank you. Our next question comes from the line of Erinn Murphy with Piper Sandler. Please proceed with your question.
Great. Thanks. Good morning. Just a couple of questions. First, on the first quarter, how much do you think stimulus benefited your results, and is that continuing in the quarter to date period, from a, you know, demand perspective? And then, how are North American retailers ordering for the second half?
Yeah, I would say on the stimulus side, I think it, it certainly had an impact on consumer soft goods in general, probably on footwear as, as well. You know, as a company, we're certainly benefiting from our, you know, two thirds, about two thirds of our portfolio of brands being in some of the, the hottest categories for the consumer. So, we see that strength, frankly, and we saw that kind of demand strength with or without the stimulus checks, but when you're pouring trillions of dollars into an economy, obviously, that level of stimulus is gonna raise all boats.
And then, and then when we look at future demand as well, we see that strong from, not just our own DTC side, but we see strong demand from, from across our, our wholesale customers for both their online business and traditional brick-and-mortar business. Probably, the strongest demand I've ever seen in my career. Probably, significant increases, not just over 2020, but over 2019. So, from our standpoint, that gives us pretty good future insight into what to expect, and, it's very encouraging. And I think the other thing to add on to that, Erinn, is, some major brands pulling back from, from wholesalers has provided us a window to take advantage of, additional shelf space.
Got it. No, that's very helpful. And then just a couple for, for Mike, if I may. Just going back to your comments on the revenue slippage from Q—obviously, Q1 to Q2, Q2 to Q3. So if we take that together with the guide raise this morning, should I be interpreting that we won't really see 2019 levels until in the revenue, until Q4, you start to see some of that in Q3? And then, I guess, just a clarification on airfreight. What was it last year? Just so that we have some comparability, since I believe it was included in the results last year. Thanks.
Sure, yeah. On the airfreight question, last year, I think it was between $7 million and $8 million. And then we kind of look back over the last few years, what's a normal year for us? And there are always reasons you have to use airfreight as a solution. So that's a normal level. We've got $10 million included in the adjusted results here, so even higher than a normal level. And then, you know, that the outlook for what might be considered extraordinary or COVID-related would be in that, you know, kind of additional $15 million-$20 million range. So, that, that's really the reason we're treating it this way, Erin, is because we think it's certainly a more normalized way to look at the cost structure.
The question about revenue by quarter, this is not a back half or even, you know, certainly not a Q4-weighted outlook for the business. Blake mentioned similar slippage, or at least, in our way of planning the business right now, a similar amount of slippage from Q2 into Q3. Even with that, we expect Q2 to be closer to 2019 levels than Q1 was.
Great. Thank you, both.
Mm-hmm.
Thank you. Our next question has come from the line of Mitchel Kummetz with Pivotal Research. Please proceed with your question.
Yes, thanks for taking my questions. I've got a few. So, Mike, just doing some math on the first quarter. So it sounds like the slippage was $40 million, the plan was $20 million. So is it fair to say that, you know, if I kind of adjust for that, you know, the revenues would have been, like, $531 million versus $511 million? Is that the right way to think about kind of the moving parts there?
Right. There were some nice at-once performance in some of our brands. Our e-com business outperformed our expectations, as we mentioned, certainly as we progressed through the quarter. So yeah, I think that's the right way to look at it, Mitch.
Okay. And then on, on the gross margin, which was up nearly 300 basis points year-over-year, could you just quantify some of the bigger puts and takes there? You know, what was the benefit? I assume you had a benefit from channel mix. How much was that? And then any comments about sort of off-price closeouts this year versus last?
Yeah. Very clean inventories help, right? We're coming into the year and even the second quarter with extremely low closeout positions in our brands. The promotional cadence was very low. I mean, our full price business was solid in the quarter and continues to be the case as demand is kind of outpacing our ability to, you know, necessarily chase the business in the first four months of the year. So that's really helped drive our margins up. And then, obviously, the mix in e-commerce and our store growth has helped, too. So it's really all of those factors.
The mix is probably the biggest component of that, but you know, I think overall, as you know, our e-commerce business, up 84%, is also driving nice leverage on the bottom line, as well as an incremental operating margin performance, too.
Yep. And then lastly, just any comments on on sandals? I mean, specifically, I'm curious, you know, how the Chaco business did. I'd be surprised if the order book was great going into the quarter, just given that sandals were a challenged category last year. But I guess what we're hearing is that sandals have been doing better, and I'm kind of curious how Chaco is selling through. So anything there would be helpful. Thanks.
Yeah, we would agree with those general consumer views. Sandals seem to be doing well, and water shoes across any number of our outdoor brands. Chaco has strong demand at the moment. Probably, frankly, we wish Chaco had some more inventory. If I could have a wish, Chaco would have some more inventory at the present time, but we've taken corrective action there, and our inflows should be improving substantially. So again, we see demand, but not just across sandals or more open footwear, but demand across basically almost any category in outdoor, athletic or run.
Okay. Thanks. Good luck.
Thanks.
Thank you. Our next question has come from the line of Jay Sole with UBS. Please proceed with your questions.
Great. Thank you so much. I just want to follow up on some of the gross margin commentary. You know, you mentioned gross margin is up about over 200 basis points versus 2019. It's benefiting from, you know, mix to e-commerce and product. As you think about the rest of the year and your guidance for the full year, do you expect that kind of gross margin improvement versus 2019 to continue, or do you see some of these mix and product shifts and price realization benefits that you have as more of one time that sort of normalizes over the rest of the year and then, you know, as we get into 4Q?
Yeah. Our full-year outlook's really strong, and I think those,
... those tailwinds and benefits are going to continue throughout the year. There's obviously plenty of information out there about higher input costs and inflationary pressures that are going to start to impact our industry. Higher freight costs have already started to impact our results. And I, you know, and I should mention that included in our Q1 results and our full year outlook, we've incorporated much higher ocean freight rates, the air freight that we talked about, and some other supply chain-related costs that are, you know, working against us. But we're overcoming that just with a cleaner business and higher going margins. So we expect that to continue.
As we start to think about next year, you know, we'll provide more insight into how some of those input costs might start to impact the business. But for now, given the fact that we've locked in our pricing and our production for all of this year, we're confident in the margin performance that we're looking at.
Got it. And then, Mike, if I can follow up on that. You know, the SG&A for Q1 was up about $15 million versus 2019. You know, and you mentioned that the e-commerce business is accretive. So can you just sort of help us understand what's driving the dollar growth over 2019, and will that trend continue over the rest of the year, or is that something that's implied in the guidance? Thank you.
It is, and it is mostly related to that shift mix that, or that mix shift that we're talking about with our D2C businesses. Both e-com and stores, right? We operate with a much higher overhead or SG&A component, but they are accretive to the business overall. And so what you're seeing is, at the same time as gross margins expand, you know, you're seeing an increase in SG&A expense as a % of revenue. We've also got normalized incentive compensation costs in these numbers. 2019 was relatively low in that regard, too, so there's some impact from that. But most of it's a shift in the business, and we continue to be really efficient.
And with some of the changes we made last year, lowering our travel costs, reducing our costs around global brand conferences and things like that, those are still, you know, in play for 2021. COVID's still having an impact on our ability to travel and do those things. So there's some good benefits coming through from that as well.
Got it. Okay, thank you so much.
Thank you. Our next question has come from the line of Samuel Poser with Susquehanna. Please proceed with your question.
Well, it's not Susquehanna anymore. It's Williams Trading.
Yeah.
Good morning, everybody.
Good morning.
Well, I got a handful of questions. Number one, can you give us the specifics on Sperry and Merrell versus 2019, that you gave that for Saucony and then? And can you give us the specifics for Merrell and Sperry for 2019?
Yeah, I would... Yeah, I can give you a little more color on that. Merrell would've been up, virtually about double digits against 2019. Sperry would've still been down, double digits against 2019, higher than its decrease in Q1. We see that, we see the trend going forward, quarters two, three, and four for Sperry, improving significantly, and frankly, we see momentum also increasing for Merrell.
Right. And do you foresee the second quarter for the Boston Group, I mean, primarily Sperry here, do you, do you foresee that you can get to, in the Boston Group, get to 2019 levels, or is that still gonna be below?
I don't have that forecast. We usually don't, Sam, give that level of detail, but I don't have that forecast in front of me right now. Certainly, it'll be an improvement over what you saw in Q1.
You know, Sam, Saucony did extremely well in the first quarter, and Saucony's outlook for the rest of the year remains really strong. So that'll help boost the Boston Group. And Sperry, we already said, will return to growth for the rest of the year. So yeah, we expect an improvement there, certainly.
Gotcha
... as it relates, the shift from Q1 to Q2.
Thank you. And then, I've got a few more. Did Q1 beat... I mean, Mitch sort of answered the question, but did Q1 beat your internal plan? How much-
Yeah, I-
Did that-
Yeah, I think that was a fair question for Mitch and stuff. Yeah, clearly, we had more slippage into Q2 than we anticipated, maybe around an incremental $20 million. And so, heck, we feel really great about our Q1 performance and our outlook. Obviously, we're very bullish right now. But, Q1, we certainly beat our internal expectations, as of versus three months ago.
Given how much slipped, if you had-
Right
... if you had knew that $20 million more would slip, you would've thought you wouldn't have done as well.
Right.
Because, you know-
You know, as just one example, Sperry would've had a revenue increase in Q1, but for the slippage. It just happened to be one of those brands that experienced some of the logistics headwinds, unfortunately, a little bit more so than some of our other brands, as one example.
And then last-
Q1 was a strong start to the year.
Thank you. And then lastly, Mike, what is the tax rate and interest expense you're anticipating for the full year?
Well, the tax rate's still right around 20%, which is what's consistent with our original guidance. Then net interest and other expenses is about $45 million.
Okay, great. Thanks very much. Continued success.
Yeah.
Thanks, Sam.
Thanks, Sam.
Thank you. Our next questions come from the line of Susan Anderson with B. Riley. Please proceed with your questions.
Hi, good morning. Nice job on the quarter and managing through the pandemic. I was wondering if maybe you could give a little bit more color on what you're expecting for product costs as we look in the back half in 2022. I guess, are you expecting commodity costs to be up in the back half, or is that more of a 2022 timeframe? And are there any plans to raise prices or anything to offset that?
Yeah, let me just give you some background. I think we've come, at least from my experience, through an unbelievable eight or so seasons of price stability or deflation even, in the input costs for footwear. Certainly, rubber, cotton, leather, some other components, we see the price increases happening in those areas. We do expect some product cost increases and logistic supply chain cost increases starting to flow through in the back half of the year. We plan for that. When we look ahead, we expect product input costs, maybe for the spring, summer 2022 season to be up low single digits. It might be a little bit more than that, more than that in fall, winter of 2022.
Certainly for this year, we factored all of those in, to our thinking when it comes to pricing. When it comes to pricing, we've been here many times before. The industry's been here many times before. I would say, obviously, we're gonna negotiate with the factories on any increases. We're gonna look for other savings or, to offset some of the increases. We're gonna—everyone is gonna see in the supply chain. We also reengineer product. That's a constant ongoing lever that we're always working on. And then if we have to, we're gonna take some selective price increases. We frankly think the consumer right now is expecting it.
There wasn't a lot of pushback to the industry price increases that were pushed through when we had directly tied to tariffs of the last 18 months or so, two years. So we think the consumer is poised to expect some product price increases. But, you know, as we approach this, it's very selective for us. It's different within each brand. Our brands do it on a selective basis, new product versus carryover products. So we have a pretty strategic approach to... But I would anticipate, with almost everything else, some price increases coming here, especially starting probably with the spring summer 2022 season and for the remainder of next year.
Okay, great. That's very helpful. Thanks for all the detail. And then also, on the DTC business, just curious how you're thinking about the rest of the year as we start to go up against much tougher compares. Are you expecting, that penetration to come down at all, or are you expecting it to stay similar to last year? And, you know, if we do see kind of a move more back into the stores, and I guess I would mean wholesale, how, how should we think about that mix shift impact on the margins?
Well, I mean, I think as, as we've been saying, we're, we're quite thrilled with the way our DTC business is, is cadencing throughout the year. I mean, really interesting to see, as you kind of just described, the store business, how it's bounced back, in terms of our own stores with Saucony and Sperry, mostly outlets. Traffic's still down, but conversion way up. You know, this is the toughest comp period for e-commerce, obviously, because the stores were closed last year. But as I mentioned earlier, we're, we're really pleased with the way we're, comping against our forecast and, and see the, you know, the growth continuing into the back half of the year and the penetration rising as we hit our $500 million overall goal.
We also continue to have a robust business with the digital titans, especially Amazon and Zappos, and we see that continuing to increase. So, feeling very bullish on the digital channel and our DTC in general.
Susan, just to add to that-
Okay, great.
We expect our DTC business to be over 25% of total revenue this year, which would be up slightly from last year.
Great. Okay, that's very helpful. Thanks so much. Good luck the rest of the year.
Thank you.
Thank you.
Thank you. Our next questions come from the line of Laurent Vasilescu with Exane BNP Paribas. Please proceed with your questions.
Oh, good morning. Thanks for taking my question. And thank you, Mike, for all the color on this $40 million slippage into 2Q and then into 3Q. You know, I think the market understands that there was slippage into 2Q, but I don't think they - it's necessarily expected that there's slippage into 3Q. Is this company specific or industry wide? And can you provide a little bit more color on where the bottleneck is, considering, I think, you've talked about improved inventory levels. Is it in Asia, the West Coast? Any other factors we should consider?
Well, I can't speak for the rest of the industry, but I have a lot of friends scattered around the industry. I would say, the logistics delays, maybe for some companies, capacity constraints, certainly caused some slippage into quarters. It's not going to improve back to complete normal overnight. So for us, personally, we see that continuing some between Q2 and Q3, but improving throughout the rest of the year. And it was tied to just incredible demand. I mean, it could be port congestion, it could be congestion and a lockup at the Chicago rail yards. It could be the lack of trucking internally, domestically. So there were any number of COVID-related logistics challenges that not just our industry, but consumer soft goods and other industries faced in Q1.
They're gonna face some of that same, some of those same challenges in Q2 and Q3, but it's gonna improve, or at least our outlook is for it to improve considerably as the year progresses.
Okay, that's helpful. And then, switching to Sperry, tying back to one of Sam's questions. Last quarter, you know, I think it was called out that Sperry would return to double-digit growth. But this time, as I'm listening to the call, I don't. I didn't hear the word double digits, so I just wanted to just double-check on, are we expecting double-digit growth for this year? And should it be in the range of 10%-20%, 20%-30%, or even higher? Any guardrails would be really helpful.
Yeah, we try not to get that specific, but certainly, we're expecting Sperry to have double-digit growth for the year.
Okay.
A strong Q2, for sure.
Fantastic. Okay. And then, with regards to Merrell, last quarter, you know, you did give specific guidance for the first quarter. I think you said it was 20% growth, which I think, to your point, you know, is on a two-year stack, it's about 10% growth. Any specifics you can give on Merrell growth for 2Q, on a two-year stack?
Not really, again, at that kind of specifics. I would just say that, you know, Merrell's one of our brands right now that's kind of firing on all cylinders, right? Their performance business is on fire, their lifestyle business is on fire, trail running business is trending extremely strong. Their easy on, easy off product offerings are responding. The consumer is responding well to the product and that macro consumer trend. Certainly, you know, just as one example, their Google search is up a very strong double digits. So, you know, Merrell right now has a lot of tailwind.
We're seeing it across all the platforms, our own e-commerce, our wholesalers, and globally. So to Blake's point, it's universal.
I think, Laurent, you're asking the right questions about Q2, and a lot of questions about Q2 have come up. You know, we gave some cautious kind of view about some slippage into Q3, but frankly, the demand we have right now for the categories, especially the categories that are performing best and really across the business, is tremendous for Q2. You know, we still have to be careful about some of these supply chains issues that are unpredictable, good or bad, and frankly, in Q1, they were a little worse than we expected. So we're being a little cautious about that, which is why you're not hearing us give too much detail about Q2. But I will say the demand in the business for Merrell, Saucony, our work business, and really across the brands, is incredibly strong.
I think Blake mentioned, maybe the strongest we've seen in quite some time.
That's great to hear. Thank you very much for all your help.
Thank you. That is all the time we have for today's call. I would like to turn the call back over to management for any closing remarks.
On behalf of Wolverine Worldwide, I'd like to thank you for joining us today. As a reminder, our conference call replay is available on our website at wolverineworldwide.com. The replay will be available until June 12, 2021. Thank you, and have a good day.
Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.