Greetings and welcome to the Wolverine Worldwide Inc. Fourth Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alex Wiseman, Vice President of Finance. Please go ahead, sir.

Good morning and welcome to our fourth quarter 2022 conference call. On the call today are Brendan Hoffman, our President and Chief Executive Officer; and Mike Stornant, our Executive Vice President and Chief Financial Officer. Earlier this morning, we issued our press release and announced our financial results for the fourth quarter and full year 2022 and guidance for fiscal 2023. The 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 disclosures, which adjusts, for example, for the impacts of non-cash impairment of Sperry and Sweaty Betty intangible assets, environmental and other related costs, net of cost recoveries, reorganization costs, costs associated with the integration of Sweaty Betty, receivable securitization transaction costs, gain on the sale of the Champion trademark, and foreign exchange rate changes. Prior year non-GAAP disclosures include additional adjustments for debt extinguishment costs, non-cash impairment related to one of the company's joint ventures and costs associated with the acquisition of the Sweaty Betty brand. On February 8, 2023, we announced the sale of the Keds business to Designer Brands Incorporated. The parent company of footwear retailer DSW. At the same time, we announced the intention to grant an exclusive license to designer brands for Hush Puppies footwear in the United States and Canada. Additionally, as previously announced on December 8, 2022, we have started a formal process to divest our Wolverine Leathers business. As such, our guidance for 2023 reflects future financial expectations and comparable results from 2022 that exclude the full-year impact of Keds and Wolverine Leathers and included an adjustment for the second half 2023 transition of our United States and Canada Hush Puppies business to a licensing model. References to our ongoing business reflect these adjustments. These disclosures are reconciled on attached tables within the body of the release. I would 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 2023 growth opportunities and trends expected to affect the Company's future performance made during today's conference call are forward-looking statements under U.S. securities laws. As a result, we must caution you that there are a number of factors that could cause actual results to differ materially from those described in forward-looking statements. These important risk factors are identified in the Company's SEC filings and in our press releases. With that being said, I'd now like to turn the call over to Brendan Hoffman.

Thank you, Alex. Good morning everyone, and thank you for joining today's call. For the fourth quarter, we reported revenue and adjusted earnings per share in line with our expectations. Our gross margin performance in the quarter was impacted by our efforts to more swiftly clear inventory to position the Company for improved performance in the year ahead. Our GAAP results as Mike will comment on include a large non-cash impairment charge that was greatly impacted by the discount rate applied to certain acquired brands. This month marks my one-year anniversary as CEO. As I look back on my first year, 2022 was certainly a challenging period for us and our industry as the environment shifted quickly midway through. While our Company like many others underperformed against our initial expectations, the year was also a pivotal time for our Company as it shed light on key areas where we must improve. We recognize that our business is too complex which limited our ability to quickly course correct when faced with sudden changes in consumer spending. So we set a path to simplify our business and improve our supply chain. Agility is essential in any environment, but especially important today. In December, I shared four key priorities that are integral to the 100-day plan we put in place in Q4, as part of our course correction efforts. Let me review these priorities and update you on the early progress we've made. First, the change in our brand group structure was announced in November where brands with similar attributes are now grouped together, enabling them to more easily collaborate and share best practices. Second, improving efficiency while removing costs. We established a Profit Improvement Office that is identified a $150 million in annual run rate profit improvements. At least $65 million is…

Thanks, Brendan. And thank you all for joining the call. The last 100 days have been critical for the company. Our team has executed well against the short-term priorities we set to improve the health of the business, while building a stronger foundation for the future. We beat our inventory and debt leverage goals significantly reduced bottlenecks in our supply chain and secured further cost savings that will benefit 2023 and beyond. The sale of Keds was a major win, and we are especially pleased to have that transaction already completed, as this will allow for a quick transition and minimum disruption to the go-forward business. The fourth quarter revenue was $665 million was slightly above the midpoint of our guidance and represented 8.4% constant currency growth. During the quarter, our top five brands Merrell, Saucony, Sweaty Betty, Wolverine, and Sperry accounted for nearly 80% of our revenue. The performance footwear category drove the highest growth, and the Work category remained consistent. We expect these product categories to be the best performing in 2023. During the quarter, we were pleased to ship or secure future orders for approximately 4.5 million pair or 75% of end-of-life inventory. Much of this will ship in the first half of this year. This critical execution will allow us to accelerate the reduction of inventory to more normal levels, enhance future cash flow and further improve the performance of our warehouse and logistics operations. Despite this progress, we incurred higher transitory handling and inventory liquidation costs that negatively impacted our Q4 gross margin of 33.7% by 700 basis points. Higher promotions in our global D2C business and a higher mix of international distributor sales in the quarter, also suppressed gross margin. Selling, general and administrative expenses were $679 million including $429 million for the non-cash…

Thank you. We will now be conducting our question-and-answer session. [Operator Instructions] Our first question comes from Dana Telsey with Telsey Advisory Group.

Good morning. A lot to unpack there. As you think about 2023, both Brendan and Mike, the cadence of the business and obviously, the compares in the first half of the year versus the second half of the year, what are you seeing from your wholesale account and order trends? How is that looking? How are you planning promotions? And is the gross margin reduction in the first quarter, is more of it due to the businesses that are going away or how you're seeing the promotional levels? And any color there would be helpful. Thank you.

Yes. Thanks, Dana. Good morning. I think with -- like others, with the wholesale business around the world, it's a little bit choppy. It's a little bit inconsistent as retailers get their inventories in line. They're certainly not placing orders in the out months like we've seen over the last couple of years, but those orders, a lot of them didn't materialize anyway. So I think there looking for brands who are going to be able to chase the business with them as they see the trends. And I think given our inventory situation, that's one of the positives we have is the ability to do that. So we're seeing more at-once orders than we have over the last couple of years. But we've taken a cautious outlook to the way wholesale is going to look as we think through the year. I think on the gross margin, I mean, we certainly saw a lot of promotions through holiday and into January, but that's not atypical of this time of year. As we get past Presidents' Day, we start to focus on more regular price. One real-time anecdote was yesterday, we launched the Endorphin Elite on Saucony. Full price and had a gangbusters Day in response to it, and it's only in one color. So I think when we have newness and innovation, customers are still going to respond to that. And I think as we get into the main selling season, we'll see more and more regular price. And certainly, as we get to the back half of the year, far less promotional than what we just came out of. And for us, our gross margin has not only impacted positively as we go throughout the year on and less promotions, but also just as the -- we sell through this inventory. And as Mike said, in the first half of the year, we still have the low-margin inventory that's burdened on the balance sheet. And as we get to this back half of the year, that's behind us, and we start to take advantage of the input costs like freight and containers that come way down that will dramatically benefit gross margin in the back half of the year. Did I miss anything?

No, you got it. And just on the new product introductions and the mid-single-digit growth, for example, for Merrell and Wolverine and Saucony, how are you thinking about pricing the new products compared to maybe what your price this past year for new products, the AURs?

Yes. I mean I don't think you're going to see too much of a change there. I think over the last 1.5 years, we've tried to price more as merchants and really try to understand what the product attributes are and what we think the customer can pay for rather than just do a strict IMU calculation. I mean that's going to be even more valuable for us with the profit improvement office and the costs we're taking out of our input margins and making sure we still price what we think the goods are worth. More of my concern is just what we alluded to was just getting the promotions out of there that have taken whatever price we started at and discounted it. So I think all those brands are in a much better shape and using more analytics to help price the figure out what the initial price should be.

Thank you.

Thanks Dana.

Our next question comes from Jay Sole with UBS.

Hi, good morning. This is [indiscernible] on behalf of Jay Sole. Thanks for taking our questions. I guess I wanted to ask about the gross margin outlook. It just seems like the -- to get to that 42% guidance that you provided, how should we think about the gross margin by half, implying like maybe you could talk about like a 40% in the -- around 40% in the first quarter. Like how should we think about the cadence second quarter? And like what does that imply actually for the second half gross margin? And then specifically on the Sperry brand, how should we think about the brand's turnaround plan, given high single-digit decline guidance for fiscal year '23? Thank you.

Yes. I'll start with the gross margin and let Mike top off and then come back to Sperry. But I think it was -- a lot of what I just said to the previous question was the first half is burdened with all of these high costs from last year that we paid for, but didn't recognize in the P&L when containers were over $20,000, and we were airfreighting everything in and et cetera, et cetera, and the storage costs we're dealing with now. So as we get to the back half of the year, we see a double opportunity. One, as I just mentioned, all of those are gone and have really flipped the other way. But plus we're also going to start to get the benefit of the work, the profit improvement office during the last six months as we really work on input costs on materials and other margin components. So I feel good about the opportunity to not only recapture what we have given away over the last 12 months, but really set ourselves up for the future with new improved margin base. But Mike, do you want to touch on that?

Sure. No, importantly, too, I mentioned it in the script, but -- in the press release, in the last section, we added a supplemental table that helps, I think, explain the flow of these costs as well as the benefits that we're seeing from the supply chain improvements, the cost reductions from the profit improvement office. So I think it really helps to guide you both to the expected improvements from cycling away from the transitory costs in the back half of the year and seeing those profit improvement savings start to benefit in Q3. But the margin rates kind of in the back half of the year would start to be in the -- certainly in that 43% to 44% range, given that timing. And really important to emphasize that a large amount of the cost that we're expensing in 2023, especially in the first part of the year. Nearly $50 million is related to costs that are on the balance sheet and are coming through in 2022 -- I'm sorry, in 2023. So costs that we have great visibility to. We know the timing of those expenses and will be behind us by the middle of the year. So that's one of the major issues that's suppressing gross margin in the first half of the year. I think the second part of your question is on Sperry and the trajectory there. I'll let Brendan start.

Yes. I mean with Sperry, I mean, we've really done a lot of work over the last three or four months to be in perspective on what's wrong with the business, what we've done wrong, what we need to do differently and really focusing on Sperry's recovery. And we realized over the last few years, we've taken some missteps in product we've been chasing product that others had success in, but really weren't relevant to our customer. We need to refocus on boat and making boat cool again. And that includes focusing our co-labs and marketing. Around boat with new updated styles that really resonate to the core. We were late to recognize that the duck boat trend was declining and replacing it with more fashion boots like the Torrent that provide function, as well as updating our marketing to focus on what our core is looking for. We took some big bets with people like John Legend and one, we didn't have enough money to then go ahead and amplify the collaboration, but also it wasn't core to what we were trying to do. So I think we've uncovered a lot about getting back to the core. We let fashion go -- historically, core was 70% of our business focused around boat boot and boat that dropped to 50% over the last couple of years and just -- it did not work out there in the marketplace. So I think the team has done a great job now understanding that better and using 2023 to reset the mix. And one very positive thing if you saw the New York fashion shows, there was a lot around prep, and that's a big pillar for Sperry. In fact, they were showcased in the flu and food show, which is Elizabeth Hilfiger's product line. She really leaned into prep and Nautical and styled everything with Sperry. So there's some real opportunities out there. We need to take advantage of, but I think the biggest thing for us is recovering some of the steps we've made.

Great. And if I may add just a very quick one on capital allocation. You mentioned that the plan is to get to have a healthier balance sheet by the end of the year focused on deleveraging. But how should we think about that in terms of the buybacks? We've seen like hasn't been really -- they haven't really been taking place since, I think, second half of 2022. So how should we think of that in 2023 and beyond 2023? Thank you.

No. Our priority now is to continue to pay down debt for the balance of the coming year here. And as we see opportunities, certainly, we'll consider those other opportunities, but our primary focus will be on deleveraging.

Thank you very much.

Thank you. Our next question comes from Jim Duffy with Stifel.

Thank you, guys. Good morning. Some very helpful details in the release on the quarterly cadence of transitory costs and planned savings. Thank you for that. I'm trying to get a handle on the expected revenue cadence across the year. It sounds like good growth from Merrell and Saucony in the first quarter. I'm curious what's the revenue contribution of the 4.5 million pairs of end-of-life inventory like $100 million plus. How much is that flattering the first quarter and the Merrell and Saucony growth in the first quarter? And then related to that, the active segment guide implies deceleration for the balance of the year. Other promotional and clearance revenues to consider in the second half of '22 base that keeps you conservative on the revenue outlook for the balance of the year?

I'll take the first part. Some of that product, that 4.5 million we referenced some of that was shipped in Q4, a little more than we expected. So it's not quite the impact that you estimated, Jim. The product that we have on order now, which is a great development for us to be able to secure those orders and we have good visibility to when we can move those goods out of the warehouse. Those are spread over Q1 and Q2. So not especially impactful to Q1, actually, a little bit more so in Q2. And for the phasing of revenue, just remember that with Merrell and Saucony having the biggest impact in 2022 from the closure of the Vietnam factories. They were coming into the year with very low inventories and sort of chasing business, and kind of delivered suppressed results in the first quarter last year. So the growth rates for Sperry and Saucony in the first quarter are probably going to outpace the rest of the year just based on that. So I think in terms of phasing in the first half versus the second half of the year, our outlook for constant currency growth at the high end is almost 3% growth and very similar growth in the first quarter. It ebbs and flows a little bit differently by brand because of the supply chain disruption and some of the inventory issues that we saw in '22, it's not a normal year from that standpoint, and the comparisons are a little bit different by brand. But I think overall, similar growth rates in the first half versus the second half of the year. And again, in 2022, our performance in the back half was certainly under our expectations, right? We had come into the back half of the year with a more optimistic view, and then the market changed quite a bit. And so our outlook for the back half of '23 is, I think, very cautious given some of the volatility in retail inconsistencies that we're seeing out there. But very practical given the visibility to the business and the trends that we're seeing, especially in the Performance brands, Merrell Saucony in our Work business, which continues to be consistent. So we're comfortable with that kind of view of for the back half of the year. What was the second part of your question, Jim? I'm sorry, I missed that.

No, I think you covered it. Just directionally around cadence of revenue over the course of the year and how to factor in the pairs of end-of-life inventory and the impact to that. I did also want to ask one on cost savings, and then I'll pass it along. I really appreciate the detail outlined in the release. You've got $30 million of cost savings planned in the fourth quarter. Mike, should we think about that as kind of a quarterly run rate that continues off the fiscal '22 baseline into fiscal '24?

Yes. I think that's a fair -- obviously, the numbers ebb and flow a little bit in terms of some of the onetime benefits that we'll get that kind of get pushed into the fourth quarter based on the flow of inventory. But for the most part, I think that's a safe assumption.

Great. Thanks so much.

Thanks Jim.

Our next question comes from Jonathan Komp with Baird.

Hi, good morning. Thank you. I wanted to just ask, can you give any more color on the D2C and wholesale assumptions that you're embedding for the year? And then maybe just ask directly, if I go back to August, you were back then still projecting 2022 to be above $2 a share in earnings and operating margin above 9%. So could you maybe just address more directly. What's changed today that's giving you more visibility than maybe you had six months ago? And how you're thinking about overall visibility for both 2023 and then the comps on 2024 margin?

Yes. Well, I'll start with that second part first. I think because we've really taking control of the -- through the profit improvement office of taking out costs and improving our margin through the input costs. I feel like the team over the last 4 months has made so much progress on this, that we do have line of sight and more confidence in those being real and attainable. I think the 100-day action plan I talked about in December has really galvanized the organization to really move together and row in the same direction, understanding what needs to get done. And so the progress we've made in such a short period of time gives us tremendous confidence that we'll be able to achieve that. And we need to for the long-term health of the business and to be able to not only provide a more profitable business, but also to free up investments to be able to expand our reach.

On your D2C question, Jon, or channel question, I guess, we would expect D2C to be a positive contributor to growth this year, probably in the low single-digit range. We are on a comp basis. We are adding some store for Sweaty Betty in 2023 in their home markets. So that will also help drive a little bit of growth in the D2C channels. Wholesale is planned low single digits as well. Probably the area of pressure on the channel standpoint is in our distributor business, which was up, as you know, was up tremendously in 2022. We caught up on some timing of sell-in the first part of 2022. And that helped drive some outpaced growth for that channel. Overall, that's going to kind of correct itself. And even though our own businesses in Europe and Canada, are expected to grow nicely, the third-party distributor business will be down a little bit on a year-over-year basis.

Okay. I appreciate that color. And maybe just one follow-up, looking at the lifestyle brands. Could you just comment Sperry and Sweaty Betty. Are you expecting both to deliver positive operating profit this year? And just given the actions you took for Keds and Leathers, what are the criteria you're using for all of the brands looking across the portfolio? Thanks again.

Yes. Well, I mean, just to be clear, Sperry is in the Lifestyle Group. Sweaty Betty is in the Active Group. I mentioned before some of the thoughts around Sperry will be positive in terms of operating profit. It won't be as positive as it has been in the past, and that's part of the recovery we need to do. In terms of Sweaty Betty, a lot of their headwinds are market related in the U.K. So they're working hard to utilize different tools and levers to combat that. As I mentioned in my remarks, they acquired new customers for the first time in Q4 all year. So that was showing that some of the things we're doing are paying off. The nice thing for them is the stores, which is a big part of their business are all four-wall positive. And so they -- as they see opportunities to open up some more stores in the U.K. market, that helps their overall profitability. A lot of their bottom line will depend on currency and how that moves. But we have a three year plan to get them to much more profitable than they are today. Part of that is just utilizing some of the Wolverine opportunities and synergies and some of it is just some of the new tactics they're putting in place.

Last part of your question, Jon, was just on kind of criteria. We still, as we said, right, Sperry is in that turnaround mode and that recovery mode right now. And the focus is to get first to a more stable and healthy business from a contribution -- profit contribution standpoint. And then the future is about the credibility, viability of the growth potential of the brand. So I think the moves we made with Keds and Hush Puppies were certainly the step in the right direction, as we were focusing on those types of improvements in the portfolio, and we're going to continue to use a similar criteria for the future.

Okay. Thanks again.

Our next question comes from Sam Poser with William Trading.

Good morning. Thank you for taking my questions. I have a handful of -- last.

Prioritize the top two, Sam.

All right. So you mentioned that you would return to normal inventory levels in the third quarter. Can you define what you're going to regard as normal? Number one.

Sure. No, I think that by Q3, we would expect inventories to improve by another $150 million in that regard. Obviously, part of that is from the end-of-life product that we're moving through in the first half of the year. A big portion of that is a reduction in just intake of core franchises that we've reduced in the supply chain and the sourcing network this year. So I think good visibility to being able to achieve that, Sam. And get the inventories down to a level where we are supporting direct to consumer as that grows more prominently in the mix of our revenue in our channels and supporting the forward coverage growth of our brands. So -- are we down to an optimal level by the end of Q3? Probably not, but I think normalized level. Certainly, as it relates to end-of-life product, we'll be in a much healthier and more normal position by the end of Q3.

The other thing I just want to say, we talked about last time, one of the big goals of the 100-day action plan was to reduce the grid lock in our warehouses, given all this excess inventory. And team has done an unbelievable job putting in new processes and procedures that have allowed us to despite the inventory levels get close to a normal flow to service our customer. And I think that's going to pay huge dividends when we do get the inventory down to be much more leaner and efficient in the way we're able to service the customer. Go ahead, Sam, with next.

Well, okay, just -- well, I don't know which one to do here. Would you consider -- I mean, I think you alluded to the fact that ICR that -- I think somebody asked you -- if given an appropriate offer, would you sell Sperry? And two, you just -- what forward weeks of supply would be optimum for you from an inventory perspective? Just as a follow-up to the other thing.

Well, we can't -- it's different by brand. We have some brands like our Work business where forward coverage can be very tight because it's a very tight assortment and in other brands, it needs to be a little bit longer. Lead times impact that. We try to be in that 100-day to 120-day range is optimal, but I don't think we'll be to that level until the end of the year. And as far as the other question --

As far as Sperry goes, as I mentioned, I think we've uncovered some stuff that can help us recover what some of what we've lost over the last few years, and that will just make the business healthier for whatever track we decided to take it. Right now, I don't think would be a prudent time to do anything. We're still working through the Keds transition, which we were thrilled with that outcome. And feel like there's some opportunities in Sperry that given the macro conditions we should focus on and then reassess.

Thanks. I'll jump back in.

Thanks Sam.

Thank you. Our next question comes from Mitch Kummetz with Seaport Research.

Thanks for taking my questions. I guess starting on the gross margin, I just want to better understand the 42% because you're starting at 39.9% in the supplemental tables. If you kind of net the two pieces together, it looks like it's a negative $45 million to gross margin. So obviously, there's an offset there. I'm trying to better understand that. Is it really that in Q4 you should see a big year-over-year pickup, maybe some reversal of kind of Q4 '22 transitory expenses. And maybe get back to a gross margin in Q4 that's maybe more similar to Q4 of '21. Is that kind of the way you get to the $42 million?

I think the biggest piece that's not represented in those tables is, frankly, the higher -- whether it's promotion or just sale of closeout end-of-life inventory. And the mix impact that has on the gross margin, Mitch. It's at least 100 basis points alone. And we see that improving sequentially through the year and as we work through the end-of-life product. We know that there will be a more "promotional environment" to contend with out there throughout the year through our -- all of our channels, but we took an especially hard hit in Q3 and Q4 just selling off the excess inventory. So that's not reflected in the table, and that's going to be a major source of margin improvement as we work through, especially in the back half of the year.

Okay. And then, Mike, from a freight standpoint on the gross margin year-over-year, adding in containers and airfreight and all of that, is there any way to quantify the impact there? Is that better in '23 than '22?

It's better for sure. However, we had in the first half of '22, we have a lot of airfreight. So there's some puts and takes there. But I would say, again, continue to see improvements there. We actually are finalizing our contract with our ocean carriers in the next month or so. And so we'll have more information exactly how much better that could be. But we're seeing strong improvement on the ocean freight. And then certainly, as we get through the year here, we hope to see even more improvements as we solidify those contracts. And it's certainly part of the savings that we're counting in our table there as it relates to supply chain costs, but potentially some upside to that number.

Okay. And maybe last thing real quick. I might have missed it in your prepared comments, but did you guys provide a cash flow from operations target for the year? And if so, what is that?

Yes. The target was between $200 million and $250 million of operating free cash flow for '23. And then driving inventories down $225 million or so kind of at the middle of that range.

Okay. Great. Thanks and good luck.

Thank you.

Thank you. Our next question comes from Abbie Zvejnieks with Piper Sandler.

Great. thanks for taking my questions. How are you navigating fueling growth in the Active Group as the state becomes increasingly competitive? And particularly on Sweaty Betty, do you see the same strategic benefits that you did at the time of the acquisition? And how are you planning a bigger expansion there into the U.S?

Well, I think that's one of the growth levers we have with Sweaty Betty when we bought it and certainly feel now, I mean, we -- our main focus right now is stabilized in the U.K. market. That's where we're opening up the stores. I mean that's where their foundation is. A year ago, I would have expected to have opened up a few Sweaty Betty stores in the U.S. But just given the climate, we decided to set focus on the U.K. market, while we focus here in the U.S. on our wholesale business. I think I mentioned last time the nice relationship they have with Nordstrom as well as some other specialty stores, and we moved them into our U.S. warehouse. Previously, they have been servicing it from the U.K. And while we had some hiccups in the fourth quarter, we think that's going to, in 2023, allow them to be much more agile in terms of servicing the U.S. wholesale market, which we also believe will give them exposure to drive more U.S. e-commerce business while we contemplate what a store rollout looks like there. I think in terms of the broader question of the Active Group in terms of the market trends you talked about. As we mentioned, as I mentioned in my remarks, two of our biggest priorities for the company are Merrell expanding in Lifestyle and Sweaty Betty moving Beyond the core. And so I think that -- and by the way, the overall trends in these categories are still very strong when you think about where we were a few years back. So we feel like there's ample room for us to grow -- continue to grow these growth brands and ultimately will come down to product and innovation, as I mentioned earlier Abbie I know you're a Saucony fan. We just had a tremendous launch last night with the Endorphin Elite. So I think that gives us even more confidence, quite frankly, despite the environment still being a little bit too promotional that when you do bring in newness and innovation, which Merrell does, of course, a great deal of as well, the customer is going to respond.

Great. And maybe just a follow-up on that bringing in new products such as Endorphin that drive that consumer demand, like while working through inventory, how do you balance that? Do you think that limits top line growth? Or are you just prioritizing that on like a brand-by-brand perspective? Thanks.

Yes. Well, I think for sure, on a brand-by-brand perspective, making sure that where we see the growth is where we're flowing the goods more aggressively. But as we said even three months ago, a lot of the overage in the shoes and our inventory is in core product. I mean that was -- when we made this 1.5 years ago to try and chase sourcing would be anomaly shutdown, we, for the most part, did it in core products. So that's where we don't have to bring in product. The newness is still able to flow. We have some newness and collaborations across the brands that we didn't get here in time last year. So a couple of the brands are actually chock-full of great collaboration. So we recognize that newness and innovation is what's needed to help drive the core. So I think that hasn't been as challenging as maybe it sounds, given the approach we took.

Got it. Thank you.

Thank you. Our next question comes from Carla Casella with JPMorgan.

Hi, good morning. This is Mike on for Carla. And thanks for taking our questions. I'll be quickly as I can. A quick question. Did you guys say how much of your inventory was currently in transit. I know you disclosed that last quarter, but I'm wondering if there was an update for 4Q.

We didn't add that, but it's come down quite substantially from a quarter ago. I think it's down over $100 million. It's still elevated as we continue to work through some of the logistics, bottlenecks and container storage but has improved tremendously in the last three months. And we'd expect the in transit to normalize sequentially throughout the year.

Great. Thank you. And then did you guys ever give a disclosure on the timing of kind of the Leathers divestiture sale how much of that -- how that bakes into the guidance?

Sure. Yes. Well, we've taken the Leathers business kind of as a held-for-sale operation. We've taken it out of our guidance that we shared today. But it's a very active process. We have a couple of interested strategic parties that are evaluating the opportunity. We did not give a specific time frame because we don't have one yet, but we'd expect some resolution by the middle of the year.

Great. Thank you. That's all from us.

Thank you.

Thank you. Ladies and gentlemen, there are no further questions at this time. I would like to turn the floor back over to Brendan Hoffman for closing comments.

Thank you, everyone, for joining us today and your continued interest in Wolverine. We look forward to providing you another update at our earnings call in early May. Thanks very much.

That does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.