Q4 2023 Wolverine World Wide Inc Earnings Call
Participants
Alex Wiseman; IR; Wolverine World Wide, Inc.
Chris Hufnagel; President & CEO; Wolverine World Wide, Inc.
Mike Stornant; EVP & CEO; Wolverine World Wide, Inc.
Jonathan Komp; Analyst; Baird
Jim Duffy; Analyst; Stifel
Abbie Zvejnieks; Analyst; Piper Sandler
Ashley Owens; Analyst; KeyBanc Capital Markets Inc
Sam Poser; Analyst; William’s Trading
Mitch Kummetz; Analyst; Seaport Global Securities LLC
Mauricio Serna; Analyst; UBS
Presentation
Operator
Greetings. Welcome to the Wolverine Worldwide, Inc. Fourth Quarter and Fiscal Year 2023 earnings call.(Operator Instructions) Please note this conference is being recorded. I'll now turn the conference over to your host, Alex Leyden may begin.
Alex Wiseman
Good morning, and welcome to our fourth quarter 2023 conference call. On the call today are Chris Hufnagel, President and Chief Executive Officer, and Mike Stornant, Executive Vice President and Chief Financial Officer.
Earlier this morning, we issued our earnings press release and announced our financial results for the fourth quarter and full year 2023 and guidance for fiscal 2024 press release is available on many news sites and can be viewed on our corporate website at wolverineworldwide.com. This morning's earnings press release and comments made during today's earnings call include non-GAAP financial measures. These non-GAAP financial measures are reconciled to most comparable GAAP financial measures in attached tables within the body of the release, references made regarding financial results for 2023 and comparable results from 2022. In each case for our ongoing business exclude the impact of cats, Wolverine leathers and reflecting adjusted for the transition of our Hush Puppies North America business to a licensing model.
The outlook for 2024 and comparable results from 2023 in each case for our ongoing business now also exclude the impact of Sperry, which was sold in January 2024.
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 2020 for growth opportunities and trends expected to affect the Company's future performance made during today's conference call are forward-looking statements under US security 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.
So that being said, I'd now like to turn the call over to Chris Hufnagel.
Chris Hufnagel
Thanks, Alex. Good morning, everyone, and thank you for joining us on today's call to close 2023, we delivered revenue and earnings in line with our guidance and our inventory and debt finished at levels better than we anticipated. More importantly, we continued to make great progress in driving Wolverine Worldwide's turnaround and transformation with a clear vision, a common sense of purpose and the collective effort of our global team. I'm proud and encouraged to say that Wolverine Worldwide is a much different company now than it was just six months ago. I'm excited to share our progress with you today. As we begin 2024, our portfolio is more focused than has been in over a decade composed of authentic leading brands playing desirable consumer categories, and we're confident this will continue into the future. The organization is more efficient and more capable of building great global brands with new talent in key brand roles and new centers of excellence create help enable our brands to build off and products and tell amazing stories. Our business is poised to be much more profitable with an outlook to meaningfully expand operating margin this year as a result of significant gross margin improvements and our restructuring efforts late last year, we have the financial capacity to reinvest back into the business with 30 million of incremental investment plan this year for key brand growth initiatives and the tools necessary to support long-term sustainable growth. Our product pipeline is stronger, with new introductions already resonating with consumers and more great collections dropping in the coming months. Our balance sheet is much healthier for the Company's lowest debt level in over 2.5 years, approximately 40% less inventory than just a year ago and a clear line of sight to drive further improvement on both metrics.
This year.
And finally, we have a talented, aligned and motivated team driving the business every day. I'm extremely thankful for their exceptional work over the past six months and couldn't be more excited about the work we'll do together moving forward. Our bold turnaround plan, coupled with the team's urgency and effectiveness in executing that plan, has allowed us to outpace our expectations in the first chapter of our transformation. We've largely stabilized the company in just a few short months. Last November, we shared our expectations for key financial metrics with you, and I'm pleased to report we've over-delivered we reduced our year-end inventory by 30 million more than we anticipated. We said we'd further rationalize our portfolio and deliver 65 million of proceeds in Q4 we ultimately generated 91 million in the quarter and then completed the divesture of Sperry in January, generating another 130 million in proceeds. We said we reduced the Company's debt by around $170 million by year end and ultimately reduced our debt by 280 million, and that was before the Spirit transaction as a result, our bank defined debt leverage is better than expected. We've execute extraordinarily well on the key stabilization initiatives we laid out last fall, and we remain committed to continuous optimization efforts and further strengthening of our balance sheet. Today, we're in a much better position to accelerate the continued transformation of the Company.
The second chapter of our turnaround story is focused on transforming wolverineWorldWide into a builder of great global brands. Let me take a moment to walk you through our progress and plans here to be great brand builders. Everything must start with the consumer to shift our mindset and add capabilities within our brands. We've added more consumer focused talent in many of our key brand roles over the last year, and we have several more searches underway today to bolster resources and expertise. We established the collective in November, a center of excellence creative to elevate consumer insights, market intelligence, trend monitoring innovation. I've been pleased by our quick pivot to a more consumer obsessed culture as our brands have already begun to incorporate more insights in consumer testing and in the go to market processes for product and marketing. Ultimately, the Wolverine Worldwide portfolio brands should make all our consumers' lives better, thanks to recent portfolio management efforts, our brands are tightly aligned around enabling our consumers to have healthier and more productive lives. As a result, we have a great opportunity to increase collaboration across our brands and teams to recognize unmet consumer needs. Our innovation, identify trends and better lever the collective talent of the organization. We believe the consolidation of our office footprint will continue that help. We've already relocated Sweaty Betty to our King's Cross office in London and later this year, Merrell and Saucony will be co-located here in our global headquarters. We're also working to better equip the organization with modernized tools and processes to execute faster more accurately. And with distinction, we piloted new best-in-class digital product line management tools with narrow and are rolling these tools out across the portfolio. We're implementing new integrated business planning processes this year to improve forecasting inventory management and margin efficiency.
We've also just launched an initiative with our new digital and technology experienced team to revolutionize our digital tools and improve the direct experiences, our consumers and with our brand. In addition to redesigning the organization and reallocating resources to directly align with our vision, we're also taking bold steps to better manage our brands in the marketplace. In the fourth quarter, we created a new centralized brand protection team help us monitor and address nefarious activity in the marketplace in a short time across our portfolio. We've already identified and set down nearly 20 customers and partners that are participating, gray market activity and approximately 400 accounts that do not align with our go-forward distribution strategies with more to come of brands are also focused on achieving healthier sales mix with a stronger emphasis on full-price business this year. We're already less promotional in the marketplace today and on our own direct-to-consumer channels. A more disciplined approach to brand management is critical to enhancing and protecting the equity of our brands. We must begin to establish more of a pull model and must continue to strengthen relationships with valued wholesale and distributor partners, actually monthly critical as we continue to aggressively advance our transformation, and I'm confident we are positioned to continue delivering on the plan we laid out and we're committed to delivering better results for our shareholders with firmer footing and a clear vision. Our brands are accelerating their efforts to reinvigorate growth focus squarely on designing, often products and telling amazing stories. While we expect our inflection to growth will fall the meaningful margin improvement we've outlined our brands are moving with great pace to drive improved top line performance. Saucony has a proven formula for driving industry leading innovation, branded Dorfman, Elite collection design and team performance lab in partnership with elite runners is among the most innovative shoes on the market today and was recognized by Runner's World Gear of the Year awards as the best racing shoe of 2023 Saucony's consistently one of the most trusted brand by elite runners in the world's most important marathons. And we now have the opportunity to capitalize on this tip of spear success by democratizing the brand's innovations for the larger casual running market and elevating the style to encourage adoption for the significantly larger lifestyle wearing occasions. The brand intend to do so through a focus on its core four franchises, the right guide, Triumph and hurricane. As a first step, Saucony launched a new ride 17 several weeks ago, engineered with the power run plus phone to deliver a more comfortable fit and better ride in the brand's neutral runner. It's been well received and sell-through was up strong double digits in the important run specialty channel brand followed this launch with a new reduction of its maximum comfort franchise. The guide 17, with even more cushioning and support the guide 70 has only been in the market a couple of weeks and SLT was already off to a very strong start talking expect to launch 22 next quarter, followed by the hurricane 24 in Q3 and the brand plans into some of the best lifestyle distribution. The marketplace starting this spring with authentic trend-right MetroTech resigned from his archives like the program, Omni and zero as a result of these important launches in the brand's improved storytelling, which is just getting started. The brand has started to see an inflection in brand heat with consumers moving to Merrell, the outdoor footwear industry leader with a long history of product innovation. Product pipeline is improving here as well. It's MTL Skyfire to Matrix developed within the mall test lab and Elite product innovation incubator with rigorous testing by trail running athletes is a super lightweight plated trail runner that was named Outside Magazine's Best trail running shoe of 2023 and receive recognition in Runner's World and news flow among others. Merrell intend to continue to monetize the trail through faster, more trend-right design that consumers demand as well as the durability and traction material requires brands agility. Peak five is outperforming the leading trail running shoes in the marketplace and consumer an extra year reviews on comfort, quality and fit and is up triple digits to start the year. The product is exceptional and Merrell plans to scale of storytelling to drive greater momentum. The brand's new mode speak to 2023 is for warm winter and a key story this year is also seeing strong early sell-through of Merrell's collaboration with Jeep in the fourth quarter drove 70 million earned impressions and the hero blue colorways sold out to the piece. The brand again grew US market share about hiking trail in Q4, capping a year of market share gains for our largest brand as a Saucony, the broader Life's opportunity is significant for Merrell and when we develop on-brand and on-trend styles like the new reps collection, a disruptive look on our Barefoot platform. Our consumers respond to this new collection almost sold out entirely on merrell.com in a matter of weeks. And today, we're chasing replenishment for this franchise implanter in this new silhouettes later this year and closing was Sweaty Betty, having built its branded business direct channels. The brand has always been consumer obsessed, driving product innovation, response to the feedback you received from consumers, a mindset and approach that can influence our other brands as we endeavor to become a more consumer-focused organization, what about its Power Franchises beloved by consumers for its best-in-class fit, premium materials and on-trend designs through its rapid consumer feedback and response model the brand is building on leading franchise through category extensions and new textures and patterns. The newness is trending well and with recent improvements to our supply chain, the break now replenished fast-moving styles in a matter of weeks. The brand is seeing excellent traction with extensions and new categories as well like outerwear, mid layers and accessories with very strong double-digit growth in Q4, driven by sales with Nimbus down Parker and navigate COVID Cope. I'm pleased and encouraged to say that today, our brands have a heightened understanding of their consumers and a clear vision for their product direction and our business. It always starts with product. We're seeing green shoots across the business and the brand's product pipelines will build momentum throughout the year. It's important to pause here and set the near expectations for the business. Encouragingly, this year, we expect the business to be much more profitable and again, generate strong cash flow as our model has done so effectively in the past, driven by significant gross margin expansion and our aggressive and proactive profit improvement initiatives we've executed over the past few months at the same time, our actions have created the financial wherewithal to reinvest in our brands with an incremental $30 million planned in 2024. Although this investment will moderate our operating margin expansion this year. We believe it is essential to better position our brands for long-term sustainable growth while still taking an important step in our transformation to meaningfully improve profitability for a variety of reasons, we expect the Company's return to growth to lag our profit improvement. As we've candidly shared with you on recent earnings calls, we have identified and own various past missteps, and we're taking swift action to address them, strengthen the product pipeline with design supported by heightened consumer and trend insights, reenergizing our brands with elevated marketing and better manage the marketplace with greater distribution and pricing discipline. However, the business is starting the year from a challenging position, which will weigh on full year revenue results most meaningfully for Saucony, followed by Merrell and Wolverine. While we anticipate a sequential improvement in top line performance as the year progresses, we expect the positive impact of our corrective actions will accelerate and be bolstered further in the second half by reduced road selling cleaner inventories, better aligned with global partners and lapping easier year-over-year comparisons, all contributing to an inflection in growth in the second half of the year and acceleration into 2025.
Finally, before handing the call to Mike, I want to summarize where we are today and where we're headed. Our fast and bold actions to better manage our portfolio, has simplified the business and strengthened the alignment of the organization going forward. We will continue to critically evaluate our organization as part of our commitment to create greater shareholder value. Today, we have a focused portfolio of great authentic brands that have a rich history of developing innovative product products, all designed to help consumers live better lives our improved structure enables our brands to focus on our consumers, product and marketing by providing platforms that efficiently drive operations and back-office activities. We'll remodel also aggregates an extensive global distribution network composed of wholesale distributor relationships for the brands to leverage. And we are further amplifying our models valued by creating competitive advantages for the brands and capabilities we deem strategically important consumer insights, trends, innovation, marketing and licensing. Given the powerful combination of our brands and our platforms, all enabled by a talented, aligned and dedicated team moving with pace. I'm optimistic about what we can achieve collectively as one Wolverine, we're confident we are taking the right steps to unlock value and deliver on Wolverine Worldwide full potential for the benefit of our shareholders with that, I'll turn the call over to Mike Stornant, Executive Vice President and our Chief Financial Officer, who will provide more details on our fourth quarter results and our guidance for the year ahead.
Mike.
Mike Stornant
Thanks, Chris, and good morning to everyone on the call this morning, I will start with a review of fourth quarter results, followed by our expectations for fiscal 2024. Fourth quarter revenue for our ongoing business of 521.2 million was in line with our outlook. Adjusted gross margin of 36.9% was better than our outlook of approximately 36% with better gross margin in our e-commerce channel, helping to drive this results.
Adjusted SG&A expense of $211 million or 40.4% of revenue includes 5 million of incremental performance. Marketing investments tested during key moments of the holiday season, which helped us deliver more full-price sales in the e-commerce channel and acquired nearly 200,000 new consumers. We also implemented a 4 million supplemental incentive program in the quarter for nonexecutive team members tied to important inventory and net debt metrics. This program helped us deliver better than expected results for inventory, cash flow and net debt in the quarter, our team is motivated, aligned and focused and improving the Company's financial performance. Adjusted diluted earnings per share for the quarter was a loss of $0.3 and in line with our outlook.
Shifting to the balance sheet, we made meaningful progress to further improve inventory, net debt and liquidity during the fourth quarter, inventory for Sperry and our China joint venture, which were both sold in January of 2024 is treated as held for sale inventory as of year end. Excluding these businesses, inventory was 374 million, down nearly 40% compared to last year and approximately 30 million better than we expected. We delivered this improvement by leveraging a rigorous inventory management process while operating in a more normal and predictable supply chain environment. While pleased with the meaningful improvements in 2023. We believe we can further optimize inventory levels over the coming quarters. Shorter supply chain, lead times, implementation of our integrated planning processes and hot heightened focus on SKU productivity should allow us to drive inventory levels down by at least 70 million during 2024.
Active portfolio management has also been a key focus helping to unlock value and narrow our focus on businesses with the highest return opportunities. Strong working capital management and the sale of certain non-core assets generated approximately 200 million of cash in the quarter exceeding our expectations. As a result, we ended the quarter with net debt of 740 million in a bank defined leverage ratio of 2.9 times Let me now provide details on our outlook for 2020 for the critical stabilization work executed over the last three quarters puts the Company on solid footing. As a result, our teams can more fully focus on efforts for transforming the company while driving an inflection to growth in the back half of 2024. Our guidance reflects the expected performance of our ongoing business, which now excludes Sperry. Fiscal 2024 revenue is expected in the range of 1.7 billion to 1.75 billion. This compares to 2023, revenue from our ongoing business of 1.99 billion and represents a decline of 13.4% at the midpoint of the range discrete items in 2023 totaling 165 million in revenue will not recur in 2024. These include approximately 70 million of extraordinary end of life inventory liquidations, heavily weighted to the first half of 2023, approximately 55 million in business model changes, including the transition of our China JV to a distributor model for both Merrell and Saucony and approximately $40 million in a timing shift of international distributor shipments that benefited Q1 2023. Excluding these discrete items, the midpoint decline would be approximately 5.5%. For 2024, we expect active group revenue to decline mid 10s. Merrell is expected to decline in the low double digit range with inflection to growth expected in the second half of the year, Saucony is expected to decline to decline in the low 20% range, with sequential improvement each quarter for the body is expected to be flat. We expect the Workgroup revenue to decline high single digits with Wolverine brand expected to be down mid-single digits. Adjusted gross margin is expected to be approximately 44.5% at the midpoint of the outlook range, a record for the Company and up approximately 460 basis points compared to 2023. Key contributors to the gross margin expansion include approximately $50 million of supply chain transitory costs expensed in 2023 that will not recur in 2024 and approximately 45 million from profit improvement initiatives related to product and logistics costs. In addition, we expect that healthier inventory levels and increased brand protection actions will lead to a lower promotional cadence during 2024, especially in the back half of the year. This gross margin benefit is expected to be offset by foreign currency headwinds that impact inventory costs.
Adjusted selling, general and administrative expenses are expected to be approximately 650 million at the midpoint of the outlook range for 37.5% of sales compared to $716 million 2023 or 36% of sales. The lower operating cost structure includes 95 million of savings from the 2023 restructuring and other profit improvement initiatives, partially offset by 30 million of incremental investments for demand creation, modernization of systems and building important organizational capabilities, 25 million of normalized incentive compensation expense and 15 million for normal inflationary increases. Adjusted operating margin is expected to be approximately 7% at the midpoint of the outlook range compared to 3.9% in 2023. Interest and other expenses are projected to be approximately 40 million, down from 63 million in 2023 and benefiting from the significant debt reduction achieved last year. The effective tax rate is projected to be approximately 18%. As a result of these assumptions, adjusted diluted earnings per share as expected to be in the range of $0.65 to $0.85, including a $0.1 negative impact from foreign currency exchange fluctuations. This compares to $0.15 in 2023 for our ongoing business for working capital and cash flow optimization remains a priority in 2024. We expect inventory to decline by at least $70 million during the year as we continue to work through specific areas of excess inventory, operating free cash flow expected in the range of 110 million to $130 million with approximately 40 million of capital expenditures. We expect net debt to improve by nearly $165 million to $575 million at year end.
Shifting to our outlook for the first quarter, we expect first quarter revenue of approximately 360 million, a decline of approximately 30%. Many of the discrete items occurring in 2023 and noted in our annual revenue outlook are especially impactful to the first quarter. This includes 23 million of extraordinary end of life inventory liquidation in Q1 2023, a 40 million shift in international distributor shipments that benefited Q1 2023 and $13 million in business model changes. Excluding these discrete items, the projected first quarter revenue decline would be approximately 18.5%, similar to the fourth quarter of 2023. First quarter gross margin is expected to be approximately 46%, up 480 basis points from last year. Significantly lower supply chain costs lower sale of end-of-life inventory and a better better distribution channel mix are all contributing to the dramatic gross margin improvement. We expect first quarter operating margin to be approximately 3.5% and adjusted diluted earnings per share to be approximately breakeven.
Before turning the call back to Chris, let me summarize the key points. I hope you will take away this morning, we are in the late innings of the stabilization phase of the Company's turnaround and are ahead of schedule in many key areas, including portfolio optimization, gross margin expansion, operating cost improvements, healthier inventory and much lower net debt. Importantly, we expect to deliver at least 140 million of incremental profit improvement in 2024 as promised in November of 2023. 2024 is a year of transition for the Company has significant gross margin expansion proceeds, an inflection to growth in the back half of the year and we set our brands up to accelerate into 2025. We recognize an improved and sustainable gross margin is necessary to create capacity for consistent brand investment into the future we are balancing the need for meaningful earnings and cash flow improvement with critical reinvestments required to modernize our systems, accelerate demand creation and build our important capabilities. And finally, we've instituted a new cadence and rigor in the business to improve accountability and ensure future execution of our strategy. I would like to thank our global team for their tremendous effort over the last year. Thanks to their work, the Company is now ready to pivot to growth. Now I'll turn the call back to Chris.
Chris Hufnagel
Thanks, Mike. To close our prepared remarks in a few short months, we've largely stabilized the company due to our fast, bold and decisive actions on firmer footing. Now our team is focused on transforming Wolverine Worldwide into a consumer obsessed builder of global brands, delivering improved profitability and driving long-term sustainable growth. The right way, 2024 will be a pivotal year, and our teams are energized by our new vision and the many opportunities ahead, they are proving their ability to move quickly and drive change. And importantly, we're passionate about winning. I personally want to thank our global teams for their work over the past few months. You've been simply great and I couldn't be more excited to start writing our next chapter together. We're committed to building great brands through awesome products amazing storytelling and driving the business each and every day, and we're equally committed to delivering greater value for our shareholders.
Thank you for taking the time to be with us this morning.
Question and Answer Session
Operator
(Operator Instructios) Jonathan Komp, Baird.
Jonathan Komp
Yes, hi. Thank you. Good morning. Mike, I wanted to just first ask Mike, you did a good job of highlighting year over year in the first quarter. The factors impacting comparability. Could I ask just a little more detail that underlying 18.5% decline for the first quarter? How are the factors you outlined impact the next several quarters and can you talk about on the rate of change in the year-over-year sort of underlying improvement that you're baking in?
Mike Stornant
Sure. Thanks, John. Those are important discrete items that we that we called out in the remarks on 23 was on a year where we certainly dealt with a number of headwinds that are behind us. Now just I'll just reiterate a few of those things. So the end of life inventory that we do with that, we cited about 70 million of headwinds, mostly in the first half of the year, about 23 million of that in the first quarter really related to the elevated inventories that we entered the year with. And the company did a good job of working through those in a rational way, but that certainly was an excessive amount of inventory to put into the market, had a negative impact during the year on our on channel inventories and promotional cadence But thankfully, we feel like we've worked through most of that and those headwinds will abate in 2024, but a difficult comparison in that respect. And we would expect most of that or we incurred most of that in the first half of the year. So we'd expect the back half of the year to be a much simpler or easier comparison as it relates to end of life from the business model changes that we made in the year. That's $55 million for the full year, about 13 million in the first quarter. Those relate to the Hush Puppy licensing change that we made in 2023 and the shift in distributor to a distributor model for our joint venture that we started at the beginning of 2024. So and those are those are important revenue headwinds, so to speak, but cleaner, better, simpler business models for us that we think are going to also generate more profitability in the future.
And then the last one relates to the third party, a shift in shipments that we noted for Q1 last year. Supply chain delays and some others for some other reasons in terms of how we prioritize new product, we have we shipped a lot more product into our distributor on network in the first quarter of 2023 versus what we would normally would do. So that comparison or that reality kind of creates a tough comp for us in the first quarter come in and again, I think as we go into 24, we're in a more normalized state for all of these components. But the comparison really was important to call out to clarify some of the noise there. So when we think about the impact of these discrete items in the first half of the year, about $125 million of the one 65 will impact the first half of the year. So putting more pressure on growth rates. And in each one, we already talked about the impact for Q1, but John? Yes, I think hopefully that answers your question, but important to clarify what those what those impacts are.
Jonathan Komp
Yes, that's really helpful, Mike. Maybe just just one follow up, Mike or Chris said is, I think about the shape to the year for the revenue guidance. It looks like and you're implying about a $100 million revenue pickup per quarter going forward that looks pretty unusual compared to the historical quarterly cadence. So can you just talk a little bit more about the visibility that you that you may have internally? And I think more importantly, maybe just reassurances that you're not going to be stretching to reach a revenue goal. And given this stage, you're out really invested in the brands to drive longer-term profitable growth.
Mike Stornant
And I think that's super important. I'll start. I'll let I'll let Chris kind of finish off as first quarter is typically a lower a lower revenue quarter for the business. So that's not necessarily unusual. But I we are we're continuing to work through and improve on some of the macro factors and self-imposed factors that have impacted the business in the last half of of 2023 on the first and second quarter, we're still dealing with some of the excess inventory, although it's improved dramatically. We're still working through that and some of the headwinds around brand on brand health and brand protection in the marketplace are going to be more acute in the first half of the year, John, so the actions and improvements and corrections that have been made in the business over the last six months are starting to take hold, but we're seeing those continue to linger a little bit in the first half of the year. And then with the product pipelines really kicking in with new product introductions starting in Q2 and beyond and the health of that and the magnitude of that new product in the marketplace as a reason to kind of believe in the improvement or the increase in revenue by quarter. But those are some of the highlights I think Chris probably can add to that.
Chris Hufnagel
Thanks, John. I think that's a great question. Talking about the shape of the business and how we're thinking about it. And importantly, how we're trying to manage the portfolio going forward. And we had talked a couple of couple of weeks ago about sort of tempered expectations on the first half and we sort of provided some clarity on both the internal and external factors that are sort of suppressing growth in the first half. But I do think that there are a number of reasons to believe in the second half?
I think certainly the corrective actions we've taken internally as it relates to product. I think we're encouraged by the product pipeline and we talked about and what Saucony has delivering the right guide 17, the drivetrain to the hurricane 24. And all of those things are really good product introductions. And I think the Saucony pipeline is much stronger this year than it was last year, meaning Merrell, Merrell is similar, the Moab speed to just dropped off, and we're seeing really good pickup on that, really good reception the Agility peak five. And then some of the lifestyle collections are around wrapped went when Merrell can develop on-trend on-brand product that looks different. Consumers respond to. So same time, we're also need to invest back in our brands. We talked about constraining some of the operating margin expansion this year in the spirit of investing back into our brands and back into our tools. I think we will begin to see the fruits of those investments in the back half of this year.
And then just in the marketplace, I think certainly continuing to have cleaner inventories, which is encouraging. We're seeing inventories come down. We're seeing our ASPs go up and we are attacking rogue selling. I think from a brand protection standpoint, we got LAX, and we didn't do a good enough job protecting our brands, and we're not we're beginning to see the benefit of that. And then just frankly, we're going to lap some easier comparisons in the back half of the year for some of the reasons that Mike called out. So I'm optimistic looking into the back half of the year. I understand the question around the shape of the business. At the same time, I think there are a number of reasons to believe our ability to go go execute against that.
Jonathan Komp
Really helpful color Thanks. Thanks again.
Mike Stornant
Thanks, John.
Operator
Jim Duffy, Stifel.
Jim Duffy
Thank you. Good morning, guys. A lot of evidence of Harvey, as you can see, a lot of evidence of hard work and the support. With that, I'm going to start on a positive the guided gross margin for 44.5% in fiscal 24. That's an all-time high that might be seen as a new normal? Or do you think that's still subdued relative to potential given some of the impediments to margin the first half of the year as you continue to work through inventory.
Mike Stornant
And thank God and thanks for recognizing that, Jim, it has been a lot of work, a lot of focus of the team across across the organization and functions. We think there's upside in the future, given the fact that we are still dealing with some lingering inventory issues, certainly smaller than we had to deal with coming in 23. But and we're going to continue to drive those inventory levels down. We said another 70 million in 2024. So we feel there is upside potential yet in the gross margin, it's a healthier mix of business. We have a bigger direct to consumer, our mix in that profile for the gross margin, including the inclusion of our Sweaty Betty business. And so that's one reason for that for the higher margin. But I just think in every in every area, stronger full-price selling, supply chain costs being addressed and obviously lingering and hangover transitory costs that we had to contend with in 2023. Those are all behind us and so we feel like this is a really good baseline for the future and feel like we can build on that as we move into 2025.
Chris Hufnagel
And then Jim, just let me just let me just add on to their Jimmy, you followed our story for a long period of time and sort of know where we've been as a company and the work we had to do coming out of the fall. I think importantly, we really put our heads down, and I appreciate you recognizing the hard work to really stabilize the organization, attack the inventory, pay down the debt, restructure the business, the biggest restructuring in history of the Company we did last fall. And then we've said that margin improvement will lead inflection to growth because we want to grow the business the right way. And we did the hard work around the margin and we certainly are encouraged by what we have line of sight to, and we can deliver this year. And then we're everyone is pivoting towards the inflection to growth. So that's where the story that we've laid out for the last six months and we're going to keep keep working against that plan.
Jim Duffy
Thanks, guys. Just follow up on the top line and Jonathan dug in on this some but a little bit more just view on the top line, what are the sight lines that you have to inflection for the growth brands in the portfolio? Merrell and Saucony specifically, we have also orders in hand to support the second half inflection assumptions.
Chris Hufnagel
We don't disclose backlog. We have and have not done that. I do think and we are getting continue to see encouraging signs on the new products and obviously a lot of the growth that we have planned for the back half of the year and the inflection to growth and the improvement in the business is really driven by the new product introductions. I mean, it sort of coming out of the pandemic and the supply chain issue we were having in core, I mean, I think we all know that newness and innovation is winning with the consumer. And I do think our product pipelines weren't as innovative as they need to begin in 2023. So that focus and softening on the core for us are early indications. And the right guide, 17 are positive, and we'll launch the trial 22 and the hurricane 24 in quarters two and three sequentially, and then we'll come back in Merrell Moab speed two is already out. We're really encouraged by initial sell throughs and the feedback and then agility, pick five and a handful of other collections. And the more I have three and I will talk about the MOF three, but that continues to check and we're more encouraged by that. So I think from a wholesale landscape perspective, we're staying very close. We all know that wholesalers are continuing to act differently. I think we all sort of know that for some brands with a challenged macro landscape in wholesale. But I think it's part of our turnaround effort too, is just reengaging those wholesale partners in a more meaningful way. The number of top to tops we've done over the past six months has, I think, has been critically important. I've done I've listened a lot to add to what the wholesalers and their partners are looking for Wolverine from what they're getting from other brands on how we can ultimately better. I think it has been very well time spent. So I think in general, I think the back half of the year largely driven on the innovation that we're bringing. And that is also why I'm encouraged about what we have line of sight to in 25.
Jim Duffy
Excellent. Thank you, guys.
Chris Hufnagel
Thanks, Jim.
Operator
Abbie Zvejnieks, Piper Sandler.
Abbie Zvejnieks
And then a follow-up on just on Merrell specifically. I mean, just on the comments on taking share and taking trail. I mean, I guess you you wouldn't think that with the business down low doubles this year and projected load doubles next year, can you just talk about kind of what's happening in that hiking trails space and where you think that that market will evolve and how can Merrill you grow that market, but also served by other new adjacencies to that?
Chris Hufnagel
Yes. Great question. Having I'll hit it straight on, you know, I think the at the highest level, the outdoor category has been pressured and probably one of the worst performing categories in the market for the past 12 months. I think as and we're not going to sit behind that and say it's just a category issue as the category leader, which Merrell is Merrell has to innovate and help to help lead lead that category, which is why I'm encouraged by some of the new product introductions, the Moab speed to which I've already referenced a lighter, faster, more athletic version of the world's number one hiking boot, which is the MyLab, think agility, peak five is the evolution of the trial. The trial is certainly evolving, specifically market share gains. I mean, on the last quarter, Merrill gained 30 basis points and 60 basis points and hiking trail run, respectively. And for the full year of over 100 basis points and 70 basis points respectively in both of those categories. So that is share gains, albeit in a contracting category. I think the future of the outdoor category is lighter and faster and more athletic and more versatile. And I think certainly predicated on not just function but also style. And it gets worse in Merrell, we can work harder is really hitting that style piece and designing great looking shoes that are versatile that not only not only be one of the trail, but also can be worn for everyday wear. So I think the onus is on a category leader to help reinvent. I think the reinvention is lighter and faster. And I think the work we've done on the pipeline is important.
Another reason why the mail test lab is so important to us in this elite trail running incubator for great product design awards. We won in mail for the past handful of years around that run the MTL products. His is critical and important And honestly, some of the best, some of the best products in the market. So tough category leader has to lead gaining share, and we have to be on front of evolving trends.
Abbie Zvejnieks
Got it. That's helpful. And then, Mike, maybe on the you said that the profitability improvements will precede an inflection in growth, but kind of help. How can we think about, you know, if there are more challenges you on your consumer macro environment gets worse in your top line trends are lower than projected. Your ability to still make those profit improvements.
Mike Stornant
And I think that's indicated in the strong first quarter gross margin guide, which is 46%, some higher than that than the then the full year guidance for gross margin. I think that's an area where we feel we've got a really strong base and we have a lot of those some sort of relative headwinds behind us high confidence that we can maintain that or even improve that as we move forward.
So on the on the downside, we feel like we've taken a really prudent approach to this guidance. And to the extent we are, we always have levers to pull in terms of discretionary spend and contingencies in our operating plan to make sure that we protect that flow through and that profitability and also the cash flow performance of the business this year. So we'll continue to manage that as we have in the past, the biggest pressure on the business over the last couple of years has been gross margin and driven by that high inventory level and the fact that we've got the inventory in a much healthier place today, we have much more predictable gross margin performance coming into 2020 for mix and thinking.
Abbie Zvejnieks
Makes sense. Thank you.
Mike Stornant
Thanks, Abbie.
Operator
Ashley Owens, KeyBanc Capital Markets.
Ashley Owens
Great. Thanks so much. So I just wanted to focus on 40 by you really quickly. Can you talk about any specific contract facing there in 1Q driving the high single digit decline. What's factored in in the outlook there for 24? And then just how you're sizing the opportunity for that brand over the coming years, given increasing competition in athletic wear in general?
Chris Hufnagel
Yes, I'll hit it and then Mike can add on. We have new leadership in sweaty, Betty, which we're very encouraged by. I think we've worked hard in the integration for the past year and I think certainly feel much closer to that business. And I've spent a lot of time with Sweaty Betty over the past handful of months. I'm trying to understand that business. I think the decline in the first quarter is really driven by just becoming less promotional business and that business was very promotional last year. And I think that that rings true for a lot of our brands, and I'll come back to sweaty, Betty, but in the latter part of last year, we pulled back on promotions at our own dot-com businesses, and we saw meaningful improvements in gross margin running a healthier business. Our actually the same strategy in the first half of this year to be less promotional as well. That's also why you're seeing some of the uptick, although also contributor to our overall gross margin improvement. But ultimately, running running better brands and enhancing and protecting brand equity. So the drag drag in the first half first quarter for anybody we're really is being less promotional business was encouraged by the way that team performed in the back half of last year over the holiday season, really some really strong product reception that that brand has a very fanatical strong following of female consumers who love their brands. They stay very close to that. The power franchise, you know, best in class fit, premium materials, on-trend designs and then their ability to extend beyond just that core bottoms business, I'm really encouraged by the outerwear business. The Nimbus and the navigate were really good styles force up strong double digits year over year. And then the ability to grow in adjacent categories, middle layers, accessories and socks are all are all very encouraging. So I'm excited by the potential of that brand. It is a very competitive market no doubt that as well noted, we understand that at the same time, I think Sweaty Betty has a very unique positioning, a premium brand, largely direct to consumer predicated on great design, great materials, great research and development and then great fit. And then just cultivating a very loyal fan base. There's a lot of things we can learn across delivering portfolio from sweaty, Betty. And I think the Wolverine Worldwide organizations bring a lot of benefit to Sweaty Betty as well and they plug into our supply chain. We've done some gross margin improvement initiatives within that have really helped and we're speeding up the supply chain. We now have the ability and Sweaty Betty to react to fast moving styles in a matter of weeks to replenish those things and which I love coming from retail apparel backgrounds, just that fast reaction time, I think it's competitive advantage. So there's still work to go do for sure and that brand. Hopefully, that explains a little bit of the first quarter first quarter drag, but certainly optimism moving from there.
Ashley Owens
Great. That's super helpful color. Thank you.
Chris Hufnagel
Thanks, Ashley.
Operator
Sam Poser, William’s Trading.
Sam Poser
Thank you very much for taking my questions. I have a question about what about the Wolverine brand and the work business that's been up. Can you give us some idea of why that became so tough and how you how do you intend to get it turned around. As I think as you know, the customer is very, very loyal. And so if they how hard will it be if they've gone to somebody else on the downtrend and then getting them to swing back over again the thesis.
Chris Hufnagel
But yes, great question, Sam, and I appreciate it, and I appreciate you're talking about our work group and no doubt, our work group is struggling a bit right now. We've talked about that on the Wolverine brand specifically has had has been an industry leader on, but we still we had a tough year there for sure. And we have lost share working really closely with that team to understand where that where those share losses are happening. And we're seeing more at the premium price points than I've been at that 90 to $100,000 price point. There are new introductions coming this year to bolster that more premium positioning, DuraSite and the surge, the Colorado equip, and we feel good about those and our ability to gain back that one, 40 to 60 price point, we think inventories are much better now in the channel. And in some places, I think our sell throughs are outpacing sort of the restocking and our ability to get close to that market and replenish that business. We do think the category is going to grow. But I think Sam's or to your point, that has been sort of a very sort of steady on business for us, very consistent and we've we've struggled there a little bit over the past year, and there's an intense focus to get that work group back that back to its more historical range. I think the team has diagnose the issues, what we did, what was self-inflicted and then our ability to both understand both channel and price point category and then capitalize on those trends. There's a strong Western trend right now, the brand is pushing pushing that Western trend as well. But we certainly think that premium price point is where we have the brand has felt some pressure.
Sam Poser
Thanks, Tom. And then I mean, I'm I'm just trying to wrap my arms around the expectation. It sounds like you're expecting parts of the business to turn positive in the back half of the year. Could you just can you give us a little more of dissecting of that? And then and then and then just sorry, delve into sort of how it gets there?
Mike Stornant
Well, again, in the guide we provided, Sam, this is Mike from Merrill's into expected to inflect to growth in the back half of the years. We saw As Chris mentioned on sweaty, Betty, a contraction in Q1. And so that again, we'll see that sequentially improve and inflect to growth in the back half of the year as well.
Our Saucony business will improve each quarter, but for the full year will be down. So we're not expecting an inflection to growth there. But just sequential improvement as it's important and important to underscore to many of the certainly the business model change that we called out and some of the other changes that phone we mentioned in our previous discussion, heavily impact of Saucony, but that joint venture changes has about a $30 million impact to the Saucony revenue specifically. But overall, for the year, seeing sequential improvement in Saucony but not an inflection to growth in the back half. So for the growth brands, that's sort of the trajectory of the business. And I think Chris touched on some of those reasons to believe as it relates to the product pipeline and some of the easier comparisons, but also just the abatement of some of the headwinds that we've been contending with for the last couple of quarters.
Chris Hufnagel
And I think also just to build that, we've also made some tough decisions as it relates to how we're going to manage our brands. And I think you know how we want our this our ability to reset the business and just manage the portfolio differently.
Another thing working against Saucony's, they had a they had a very low margin sort of value channel product that we're moving away from that wasn't helping build brand equity that was not accretive to do brand's margin in total, and we're making the tough decisions to move past those businesses. So there's a lot there's a lot of different reasons why the business is where it is. But in total, as we think about how to best manage portfolio how to best be great brand stewards. I think we're making a lot of very tough decisions right now and then working to really improve the product pipeline investments back into marketing to ultimately come a really good brand builder. So on that asset and just another reason why I'm trying to explain some of the color behind the numbers at one.
Sam Poser
Thank you. And then one last thing on the gross margin, I understand like so the non-repeating there are pieces with freight and so on and so forth. But but with promotional activity and I understand inventories are much cleaner and so on. And I understand what's going on today, but you're you're anticipating it looks like for gross margin really, too. So to look at yes. Well, I mean, the guidance is gross margin could look a lot better for a total year and specifically in the back half when it did get very promotional, I doubt it will be as promotional as it was a year ago. But but how confident are you even with clean inventory that the new product you put out there is going to be good enough not to get caught up or should you be being even more conservative with sales to sort of guaranteeing that? That doesn't happen and I'll take it.
Chris Hufnagel
And Mike, it. And I think it's certainly to your point, Sam, I think we are viewing the marketplace differently and how we manage the brands. I do think the product we have is really good. And I would say the product managers in 23, I think our innovation fell flat in 23. And I think the consumer responded to newness and we were heavy in core styles. I didn't check which put a lot of pressure on 23 and certainly pressure continued pressure on us in the first quarter of this year. But when I look across the portfolio and the work that we've done around the product pipeline, I am encouraged by what we have, both what we have in the marketplace today. The Ryan guide 17. Saucony's are good example. The trial quickly follow with the Moab speed. Two out of the gate is very good. The new wrap question, which I keep referencing, not really selling out with almost no marketing because it is just visually disruptive and just looks different and it is very on-brand. So I think the product pipeline is much, much stronger than where we have been historically. And I'm excited sort of continue to work through those those those older core styles and get to the newness. That's where the is responding. That's what the retailers are telling us is working what they want. And in fact, we have a new, a new protocol every Tuesday, just a full deep dive into the business. And we had our session yesterday and we're having different conversations. We're talking about chasing new products. We're talking about chasing a perception that we have seen feedback that we're getting and we're actually talking about chasing Crocs in our supply chain today where we haven't had those conversations for a while. I get on a plane next week with the presidents of Merrell and Saucony to go to Vietnam to go to our biggest factories, both to accelerate products that are in development and talk about how we can, how we can can you chase chase other items. So the fact that we're talking about chasing new new good styles and chasing products that we want to accelerate into the pipeline, I think is a very encouraging place for us to be right now.
Mike Stornant
And the only thing I'd add to that, Sam, is a really important part of the margin expansion is the the hard work that the profit improvement team has done over the last year to get product costs and freight rates and things down that, just the transitory costs that go away. But just on the go forward business and this and the new styles that Chris is talking about coming in at a much higher gross margin. So really of secured that and see that in the in the gross margin bridge and we're being we're being cautious on the promotional cadence. To your point, we don't control or have complete visibility to the back half of the year. We expect it to improve because of healthier inventories. But we're still being cautious in this guide as it relates to promotions. So I think overall, we're laying out a very achievable gross margin outlook for the business.
Operator
Mitch Kummetz, Seaport Global Securities.
Mitch Kummetz
Yes, thanks for taking my questions on. I guess a couple of things on the Merrell inflection to growth. I just wanted to better understand that I know you don't give backlog, but does the order book support that growth or is this more on your assumptions around DTC. are at once based on product pipeline and on are retailers? Or are you starting to see kind of a bottoming around the outdoor space in terms of in terms of retail orders? No follow-up.
Chris Hufnagel
Yes. I think I'll hit and I'll let Mike add some color. I think I think part of part of the turnaround. And one of the things that I talked about on the last quarterly call was just our how close we were to the wholesale market, how close we were to the partners. I do think the conversations are different today than they were just a handful of months ago. As we think about the output or outdoor CapEx specifically and frankly how they view Merrell within their assortment. I think we all know that the pressures are well document outdoor category mail continues to be the leader continues to gain share and we keep seeing retail, keeping keeping protecting Merrill. I think the important thing for the Merrell brand is to have all behind that sort of the classic MORAb three silhouette and become lighter and fashion North Atlantic and which is why we're so excited about the how the Moab speed has been received and then our on-trade into trail run and the fact that we're gaining share and trail run is very encouraging. I think we're paying very close attention to our own direct to consumer business, doing what's happening in our 46 Merrill outlet stores, whereas traffic, what are they buying? What are they responding to?
We're working to be less promotional, merrell.com, and we're seeing sort of great, great increases in profit margin to be less promotional and certainly to create less less disruption in the marketplace. And I think Merrill has new introductions coming for the balance of the year and then continued healthy and we've got continued health of the most loyal franchise. We talked about the Jeep launch last year, 70 million impressions on the hero colorways sold out to the piece, and we saw a 12% lift across the rest of the Moet franchise just by bridge by bringing that new heat into that category.
So I think, like I said, I think the pressure in outdoor is it remains. Hopefully that will bottom out and begin to resuscitate. At the same time. We just can't sit back and say that is what it is. The lead leader has to innovate, and I think we're bringing product to market that is that it's very good.
Mitch Kummetz
And then, Chris, on Saucony, you seem particularly encouraged, not just from a product standpoint, but also in terms of the brand heat, I'm just trying to reconcile that with the guidance, but the brand doesn't inflect to growth in the back half of what it if you adjust for those business model changes and if not, is really the issue that you need to get, is that right? The order book is the order book. The hope is that with better product, stronger brand heat, the sell through will dramatically improve, and that will eventually drive better selling?
Chris Hufnagel
Yes, great question, Saucony's near and dear to my heart right now. I think Saucony has probably some of the greatest potential entire portfolio to have to break out some. I think there's a lot of things working against Saucony from a top line standpoint, we talked about some of them, the end-of-life transactions, the low margin business, and we talked about the model changes. I'm encouraged by Saucony because I think the product pipeline is very good. And I think the brand has a very, very long period of time been sort of myopically focused on sort of the both the Elite, the elite runner the lead and the lead channels and lead products. And I think the democratization of innovation and it's where there's a tremendous opportunity. And so I think the new products we've launched are resonating well there with the feedback we're getting and we're providing new styles is very positive and there's frankly just a broader lifestyle opportunity beyond beyond beyond that core runner, we've worked hard and colors and materials to make our shoes more approachable. And we're opening the aperture as we think about distribution as we think about some of our new product launches that they've placed in sort of top 10 list in run specialty. We're Saucony hasn't been for years. And so we're encouraged by those.
And then if you just go back to the elite runner. The when you look at Saucony counts at the prominent marathons, Saucony is one of the top brands you day in and day out. I mean, in those leading marathons and then just the broader lifestyle opportunity as well. I mean, I think that as we think about lifestyle, it's not just that originals or retro tech. It's also just everyday Saucony run, which I think has tremendous opportunity. So I'm very bullish on Saucony. That category has the most momentum there. There are some brands that have done phenomenally well there. We know that we have underperformed at the same time. I think we've attacked the product piece first, and that is encouraging and we will be turning around the marketing. And I think as we think about $30 million of incremental investment, I think a significant portion of that will be directed to Saucony. So I'm bullish on Saucony and bullish on that team and I think the opportunity opportunities there.
Operator
Mauricio Serna, UBS.
Mauricio Serna
Greg, and good morning, and thanks for taking my questions. Just a clarification on the margin guidance for first quarter 24, I think I heard 3.5 operating margin. How much would that imply in terms of like an expansion versus, you know, the ongoing business in 2023? And then if I think about your revenue guide, when you talk about an inflection in the second half. Does that imply like are you not our sales growth already is happening as a total, a total company level by Q3?
And then just lastly on the adjustments that you provided in the presentation. I just want to make sure like, you know, the 35 million in the active group is that mainly because of some because of the X-STOP JV sale that you announced late last year? Thank you.
Mike Stornant
Yes, let me take the last question first. That's correct. So $35 million referenced is on related predominantly for for the step change at the district. We've moved to a distributor model there with that partner effective January first.
And the operating margin I think was your first question, the operating margin relative to the ongoing business going going forward is down in the first quarter versus last year from gross margins up dramatically. And but as we cycle through the year, obviously, we expect the operating margin to go up from that 3.5% rate, which we're seeing in Q1. On the lower revenue base, Q1 will be our lowest revenue quarter of the year to 7% for the full year. So we'll see, obviously, sequential improvement there. But importantly, Mauricio, on the focus for us has been to drive that gross margin expansion and have that be a sustainable improvement for the business that gives us the confidence and capacity to reinvest behind our brands.
46%, obviously for the first quarter is well above the full year guidance of 44.5%. So a really strong outcome for the first quarter, even on that lower lower revenue base, but importantly, much cleaner base of revenue in the first half, which is helping to drive that margin expansion.
Mauricio Serna
Thank you very much.
Chris Hufnagel
Thank you, Mauricio.
Operator
Thank you. We have reached the end of our question-and-answer session and this also concludes today's call. You may disconnect your lines at this time. Thank you for your participation.
