Good day, everyone, and welcome to today's Wolverine Worldwide Third Quarter Fiscal 2024 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note that this call is being recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Alex Wiseman, Senior Vice President of Finance.

Good morning and welcome to our third quarter fiscal 2024 conference call. On the call today are Chris Hufnagel, President and Chief Executive Officer; and Taryn Miller, Chief Financial Officer. Earlier this morning, we issued our earnings press release and announced our financial results for the third quarter of 2024. 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 financial measures. These non-GAAP financial measures were reconciled to the most comparable GAAP financial measures in attached tables within the body of the release or on our Investor Relations page' on our website. References made regarding financial results and outlook for 2024 and comparable results from 2023 in each case for our ongoing business exclude the impact of Keds, Wolverine Leathers, and Sperry. 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 2024, growth opportunities and trends expected to affect the company's future performance made during today's conference call are forward-looking statements under U.S. Securities laws. As a result, we must caution you that there are a number of factors that could cause actual results to differ materially from those described in the forward-looking statements. These important risk factors are identified in the company's SEC filings and in our press releases. With that, I'll now turn the call over to Chris Hufnagel.

Thanks, Alex. Good morning, and thanks to everyone for joining us on this morning's call. Starting with the headlines. In the third quarter, we delivered better-than-expected revenue and earnings. Notably, Merrell returned to growth and Saucony and Sweaty Betty were approximately flat when adjusted for business model changes and currency fluctuation, respectively. We drove record gross margin for the third quarter, the second quarterly record we've set this year. Finally, at the bottom-line, we more than doubled our earnings from a year ago. It was a good quarter for the company, further confirming our strategic direction and the great work our teams are doing. Based on these results and our outlook for the fourth quarter, we're raising both our top and bottom line guidance for the year. Taryn Miller, our Chief Financial Officer, will provide more color here in a few minutes. A year ago, we outlined an ambitious plan to turn around Wolverine World Wide and in the process, build a new company for the future. We started by taking fast and bold actions to stabilize the company and strengthen the balance sheet by significantly paying down our debt and reducing inventory, both of which are now well under half of where they stood 24 months ago. At the same time, we moved quickly to transform Wolverine World Wide for the future. rationalizing our brand portfolio, restructuring the global organization and working to improve our profitability. Today, we continue to execute with great pace against this agenda, focus squarely on delivering the progress needed quarter after quarter to build a better business and ultimately deliver better returns for our shareholders. While we have more work to do to fully realize the potential, I believe our company, brands and teams possess, we're getting better in building new muscle each and…

Thank you, Chris and welcome everyone. We are pleased to report that our results for the third quarter exceeded expectations across key financial metrics. The sequential improvement in both top and bottom-line performance demonstrates the success of our strategic initiatives and the dedicated execution by our team in driving the turnaround. Third quarter revenue for our ongoing business of $440 million was $20 million above our outlook of approximately $420 million. Approximately half of the over-delivery was primarily driven by increased demand in the active group with favorable foreign currency also contributing. The remaining amount resulted from a net timing shift between the third and fourth quarters as certain wholesale orders shipped earlier than originally expected. Revenue for our ongoing business declined 7% versus the prior year compared to a decline of 24.5% in the first quarter, a decline of 18.4% in the second quarter. The third quarter of 2023 included approximately $30 million of revenue that did not repeat in the third quarter of this year, including revenue from excess end-of-life inventory liquidation and business model changes. Excluding these discrete items, third quarter revenue this year was approximately flat to 2023. Merrell revenue grew 1.4% in the quarter, with growth in both DTC and wholesale. Saucony declined 10% in the quarter, a meaningfully lower rate of decline than expected due to continued demand momentum, particularly in e-commerce and U.S. wholesale. Sweaty Betty grew 3% in the quarter, in line with expectations. The work group declined 11% in the quarter, which fell short of our original expectations of a high single-digit decline. Compounding supply chain disruptions that started with the challenges in Bangladesh had a bigger impact on the work group than originally estimated. Shipping delays limited our ability to meet the full demand for work boots in the quarter.…

Thanks Taryn. Looking ahead, I believe we possess tremendous competitive advantages. We have a portfolio of authentic global brands positioned in attractive categories that are focused on making people's lives better, healthier, happier, and more productive. Our brands are considered leaders in their categories, and are long respected for making great innovative products. In addition, we've developed an extensive global distribution network over decades with best-in-class partners to reach our consumers in every corner of the world. While these are certainly invaluable advantages, as we've said before, brands have to do more to win in today's dynamic and competitive marketplace. To enable our brands to compete and win, we've been hard at work strengthening key capabilities for the new Wolverine Worldwide. Beginning with the consumer, we create a collective last fall to better identify consumer trends and innovation insights to guide product innovation, design and storytelling. As a part of this initiative, we also established The Den, an in-house creative studio designed to equip our brands with the tools they need to quickly and efficiently develop creative assets to tell amazing stories in today's always-on digital world. We've tested a key city strategy through focused initiatives in Tokyo and London with our biggest brands, Maryland Saucony, and we're encouraged by the early results. To help us run about our business, we're enhancing our integrated business planning approach by redesigning related processes, bolstering our tool get and adding new talent. We anticipate this new competency will be fully online early next year. On the product front, just three weeks ago today, we cut the ribbon to open our first ever innovation hub located in the heart of the West End of Boston to tap into the region's deep product talent and augment the teams here in Michigan. Finally, we've hired new…

Thank you. [Operator Instructions] And we'll take our first question from Laurent Vasilescu with BNP Paribas. Your line is open.

Good morning. Thank you very much for taking my question. And Chris and team congrats on the continued progress here. Chris, I think in your prepared remarks, you talked about the momentum for both key brands, Merrell and Saucony heading into 2025. I would love to drill in a little bit more on that comment. I know you've recently parted with a number of key retail accounts for those two brands. Can you maybe just give us some color for the audience here on what's the reception so far with these key accounts?

Sure. Thanks Laurent. Appreciate the question. Yes, I think certainly, as we've sort of thought about the reset at Wolverine and the work we needed to go do, we took a healthy look at our biggest brands and first starting with products. and what products did we have, what was in the pipeline, what innovation did we need to bring? And where could we improve and where could we streamline and focus on doing fewer things, bigger and better and certainly paying attention to where the consumer was moving and how we could tap into that. And with Merrell and Saucony specifically, we've got new leadership in those brands. We've got new sales leadership in those brands. And we looked at the distribution and is really focused on the U.S. and said, where are our brands showing up, what channels were growing, what partners would we want to be with? And then how could we go in and take advantage of that. And credit to those brands and certainly credit to the partners and thanks to the partners for opening up and being open to thinking about our brands in different ways. So, you certainly will see both Merrell and Saucony showing up in new accounts as we brought great relevant products that's resonating with consumers. And I think a thoughtful distribution expansion and a really heavy eye towards a proper segmentation is going to be critically important. So, the new door count growth both opening new accounts, expanding to new accounts and then showing a broader breadth of the assortment in existing accounts is certainly part of the growth thesis and certainly some of the momentum we've built. And as we think about where the brands can go in 2025.

Okay, wonderful. That's great to hear. And then, Taryn, I think last call, we were talking about during the Q&A about the longer-term opportunity for gross margins to go to 45% to 47%. I know you're not prepared to guide for 2025. But high level, as we think about not just the gross margin, is there an opportunity to get back to 10% operating margins? Or is there an environment that leads us to where, yes, the operating margin of 10% plus is no longer in the realm of possibilities? And then a quick follow-up. I think last call, it was mentioned that China is less than 19% or it was really explicitly called out that Bangladesh was 19% of your sourcing. And then China is less, not to get from you guys. What is your China sourcing into the U.S.?

Thanks. I'll take the first one on the China situation and then turn it over to Taryn to talk about gross margin, operating margin. We worked really hard, really hard over the last handful of years from a sourcing standpoint to diversify our sourcing footprint. We have a new leader in our global supply chain, who I'm really pleased with and our exposure, 2018, 2019 would have been north of 40% from China. And today, we're well down sort of in the mid-teens and mid-teens is much a significant reduction from where we were. I'd also add the vast majority of that production we still do in China, we have the ability to dual source. So, as things develop, as things change, we worked really hard on that sourcing footprint to be more diversified to reduce our exposure in China. And certainly, as things sit today, I'm pleased that we've done that work and pleased that we sit where we are as we think about how things move forward from here.

To answer your question -- sorry, I think there was one more question in terms of margins. In terms of gross and operating margin expansion, we're pleased with the improvements that we're seeing in both gross margins and operating margins in 2024, largely coming through as we had laid out in our initial guide. So -- and that really is a combination of seeing the top line improvement each and every quarter as we go through 2024 and building on that momentum as our cost saving initiatives, both in terms of the supply chain improvements as well as in the spending optimization that we've been doing and really seeing that come through in the year-to-date results as well as implied in the guide that we've given for the fourth quarter. I'm going -- if you look at 2024, the Q4 implied guidance, the operating margins would be in that 9% range. So approaching the 10% that you're speaking to there, Laurent, but I'm going to resist the temptation to talk about 2025 and leave it to encouraged with the momentum that we're seeing and the continued focus on that margin improvement.

Thank you. We'll take our next question from Ashley Owens with KeyBanc Capital Markets. Your line is open.

Hi, good morning and congrats. Just quickly looking at the investor deck, I see work group is now guided to grow low double-digits in this all factors, the shipment delays? Or is there more impact there? Are we capturing all the demand that was missed in the third quarter. Just want to make sure I understand the dynamics there.

It's a good question, and thanks for bringing it up. As it relates to the work group in 4Q, I'd say there's three factors at play which support that revenue growth assumption, a, the delays that we experienced in 3Q from both production and sourcing. Work Group does about 40% of its -- north of 40% of its production in Bangladesh. And Bangladesh has just faced a handful of issues lately from civil and rest to floods to some logistics issues. So, the missing 3Q, we believe, will be gained back in 4Q. At the same time, the work Group's fourth quarter last year was challenged. So we just have an easier comparison, frankly, in the fourth quarter. And then also, as there is demand in the marketplace, we plan to pull ahead a little bit from the first quarter of next year, reacting to consumers who want product earlier. And those -- really, it's those three factors that give us confidence in the work group's guide for 4Q.

Okay, got it. That's super helpful. And then just a bigger picture question. Saucony outperformed expectations pretty candidly. You've seen solid [indiscernible], et cetera, more newness, [indiscernible], et cetera. I know we're currently still in a period of work through and adding on that newness aspect, but would just be curious to hear your thoughts on brand growth from here, what we should be looking for to drive and raise awareness in 2025 and just your overall thoughts as to how big Saucony could get?

Yes. Thanks for calling that out. Obviously, we're not going to guide for Saucony today. But certainly, there are a lot of things we're working in that brand's favor right now. And I take you back to sort of a reset and overhaul of the brand strategy, sort of opening up that aperture to service a broader run as one of the best performing categories in the marketplace. And I think our change in strategy pivot as we think about that consumer, both from the performance run from the lifestyle run has helped that brand sort of resuscitate in very short order. We're seeing good growth and momentum in the performance category, the core four, The Ride, The Guide, The Triumph, The Hurricane, which we're encouraged by. At the same time, there's a lifestyle thing happening, and we're capitalizing in Saucony benefits from a very deep product archive and this retro-tech fashion thing that's happening right now, Saucony has the ability to capitalize. It's important to note, though, that we're not walking away from Elite run. And I think one of Saucony's best innovations is going to be dropped early next year with the Endorphin Elite 2 and the new foam that we're going to introduce. So, I think from a product side, that brand is firing right now on all cylinders. At the same time, we've really taken a hard approach of how we build awareness and affinity in the marketplace. And I'd point to London our key city strategy, investing more -- being the sponsor for the London 10-K. They're working hard on the activation, doing run clubs. We're seeing all-time record search interest for Saucony in the U.K. And this is really before we fully activated. We'll open our first Saucony store next year as well in London, which we're encouraged by. And I certainly think from a brand heat buzz standpoint, Saucony is having a moment. So, your call out about how big Saucony can be. I can tell you that's something we're spending a lot of time here as an organization thinking about too, because we think there's tremendous potential with that brand and with that team really up and down the product line. And certainly, from a global standpoint, that brand has tremendous exposure and great partners. So, we remain encouraged and optimistic about the growth prospects for Saucony.

Thank you. We'll take our next question from Mitch Kummetz with Seaport Research. Your line is open.

Yes, thanks for taking my questions. Chris, just to start, how are you guys planning for potential new tariffs next year? Are you guys thinking about changing your pricing architecture at this point at all for maybe the back half of the year, fall 2025 product or anything? What can you share there?

Yes. Thanks, a very relevant topic. And I think us, along with just about everyone is sort of digesting the news and the new reality and to contemplate what's going to be on the horizon. I will tell you this, Wolverine's a 141-year-old company. We've seen 15 Republican administrations, 10 Democratic administrations. We've been through a civil war, two world wars, a cold war, and a couple of global pandemics. And I think our job really is to build a durable and resilient business model that can weather those changes. As it relates to tariff question, I answered Laurent's question earlier, exposure to China is down dramatically from where we were just a couple of years sort of in that mid-teens range. other important regions are Vietnam, Bangladesh, Indonesia are an important piece as the new realities are there. And as we hear more, we'll obviously contemplate things that we need to go do to make sure we can protect and see to grow the business. I'm incredibly thankful though that a lot of our heavy work on stabilization is behind us. The restructuring work, the consolidation out of our portfolio work and I'd obviously point to the fact that two of the last three quarters, we've delivered all-time record gross margins and the hard work we've done around our costs, cleaning up the inventory and building a more full-priced premium business is important to that. So, we're obviously thinking about what the future holds and implications as it relates to that. But one of my goals is to build a durable and resilient company that can weather changes like this, and the company has a long history of doing that. And I certainly am thankful that a lot of the work that we've done over the past year and a half is behind us. And we can think about growth, at the same time, manage different factors that are -- that may come our way.

And as a follow-up, I just want to dig in a little deeper on the Saucony distribution expansion. Are you guys still kind of cleaning up removing accounts. Can you say kind of maybe what the net account growth is for our net door growth is for spring 2025? And any more color in terms of kind of where you're seeing more door growth? Is it U.S. versus international? Is it lifestyle versus performance anymore, you parse these things out a little bit more, if possible?

Yes, I'm not going to give a net count sort of year-over-year. In the prepared remarks, we did talk about an additional 900 doors in the U.S. around supporting that lifestyle distribution. And I will tell you, it was thoughtful distribution because honestly, it probably could be more than that. We're trying to build a great brand for the long term, make sure we can capitalize on growth opportunities in front of us. At the same time, be thoughtful about where we want to sell. Certainly, I think I talked about new sales leadership and Merrell new sales leadership and Saucony new brand leadership and certainly the addition of Susie Kuhn, President of our Active Group with our two biggest brands reporting to her, and she is an industry veteran and expert probably understands the commercial side of the business, the go-to-market side of the business, the wholesale side of the business extraordinarily well. So, we certainly will both prune doors that we don't think are additive or accretive to what we're trying to accomplish. At the same time, I think our brands have the effort to show up to consumers in more places. And it's both for both Merrell and Saucony. And there are places where it's just hard to find our product. And I think as we think about the growth of these brands and certainly, as we think about the broader sort of active outdoor sport lifestyle component, which there is so much momentum in from a footwear standpoint. And we have to show up, where she shops and beyond just the normal players. So -- and that applies globally. I'm really pleased by the work that Saucony has done in Europe as they thought about distribution. And then certainly, we're very thankful for a very strong partnership in China with Xtep for both Merrell and Saucony and the expansion that we're seeing for those brands there. So, that distribution piece is critically important. I think we have done a good job. We've taken the last years, we sort of reset the business to walk away from doors that we don't think helped us at the same time, be thoughtful about where we want to expand, and I'm certainly a [indiscernible] for what our brands can go to do in the future.

Thank you. We'll take our next question from Jim Duffy with Stifel. Your line is open.

Thank you. And I'll go on to the question. I'll start following on the Saucony business. Lot of noise related to wholesale adjustments creating year-to-year comparisons that are difficult to interpret. Can you maybe talk to us about Saucony's e-commerce growth in the quarter and how that splits between performance and lifestyle?

Yes. Saucony had a good third quarter, up sort of mid-single-digits. I think as we think about that, I think the good thing about Saucony is we're seeing growth in both performance and lifestyle. It's not an either or, it's actually both. And I'd actually say Saucony's dot-com growth was probably a little bit constrained by the fact that we couldn't bring product in fast enough. And even if you shop saucony.com today in certain key styles, we're going to disappoint you because we don't have full color -- full-size runs in all colors. So, I told -- I said in the last call that we made a decision a year ago that we would probably -- we prefer to miss some demand then find ourselves in a big inventory issue again and continue to perpetuate and exacerbate that situation. So, I would say Saucony's growth was a little bit constrained probably because we just didn't have enough goods there to sell because we have been running tight. But in total Saucony.com, up mid-single-digits and again, seeing both growth -- both on the performance side as well as the lifestyle piece.

Thank you, Chris. And then overall, really great execution across the year. The guide has you tracking to inflection to growth in the fourth quarter. Chris, could you just kind of give us an update on where you stand on the turnaround 10 months ago, you were speaking about the turnaround in the chapters are you confident the business is now successfully rebased? And is there any reason business couldn't inflect to that aspirational growth algorithm for 2025? Thanks.

Great question. I appreciate it. Sort of acknowledging that you followed our story and appreciate sort of acknowledging the journey we've been on. And about a year ago, we talked about a turnaround in three chapters, stabilization, transformation, and then ultimately inflection to growth. And we said the margin improvement would lead revenue growth. And all of those things have played out as we had planned, and I'm thankful for that. I think the stabilization work is largely behind us. Stabilization work really was focused on attacking the debt situation, reducing and better managing inventories and then certainly adjust our cost structure from a restructuring standpoint to have a cost structure that better match the size and profit profile of the organization. At the same time, allowed us to invest in things that are critical capabilities going forward whether it's teams or marketing or demand creation or new tools that we need. So, I would say that the stabilization is largely behind us, and I certainly am thankful for that. As it relates to transformation, I think brands and companies they always have to be in some level of transformation. I think the world is moving extraordinarily fast and if we don't continue to evolve and pay attention to where the world is moving, I think you're going to get left behind. So, I think the transformation continues, but key components of our transformation have been really putting the brands at the center, restructuring the organization building new capabilities like the collective integrated business planning, the new PLM tool and then certainly investing in things that get our brands out in front of the consumer through increased demand creation, whether it's marketing investment whether it's a key city strategy in Tokyo or London and soon to be more cities. And then as it relates to the inflection to growth. We had talked about the inflection of growth happening in the fourth quarter as a company. We certainly are pleased by some of the early progress we've made in 2Q and then the additional growth and progress we made in 3Q and then obviously, we have a lot riding on the next 50 or so days as we deliver the full year and then carry the momentum into 2025. We'll obviously provide formal guidance in February for how 2025 looks, but the visibility that we have in these early days to the order book gives us some comfort that we're going to be able to continue the momentum that we've been able to build and then certainly build a flywheel and a healthy growth algorithm for our biggest brands right now led by Saucony.

Thank you so much.

Thanks Jim.

Thank you. We'll take our next question from Sam Poser with Williams Trading. Your line is open.

Thank you very much I've got a follow-up on the tariffs and then another question. On the tariffs, what percent of your units are international sales? And because the tariff sounds like it's going to affect a lot more than China. So what percent of your units are international these days?

Units, international, I would say, north of 50% approaching 60% from a unit standpoint.

So, would that -- would you consider to offset on a volume perspective, converting distributors to subs, which would then theoretically take relief off the U.S.?

That's not something that we're currently contemplating. We like the model that's been built. We're thankful for some of the changes we made over the past handful of months. the changes we made in the China structure to a distributed model from the JV, we've licensed our kids business. We're obviously always evaluating our international model. That model, we're lucky that, that was established really in 1959 and we benefit from the decades of partners that we have. We have adjusted and sort of tweaked the international model over time. But right now, as we sort of think about the impending tariff issue, that's not something that we're currently contemplating.

Thank you. And then secondly, can you talk about the expectations you have for Susie Kuhn coming in? And what she's going to bring to the table for the brands with any the most specificity you could give, please?

Yes, sure. I'm excited about this hire. We did an extend sort of global search for a leader of our Active Group. Merrell, Saucony, and Chaco will report into Susie, Susie reports into me. Susie brings a really unique skill set. She's an industry veteran. She knows both the wholesale and the retail side of the business. She started her career as a merchant and she really understands the go-to-market process and really a commercial driver of the business. At the same time, she has global experience. She's lived in China, she's lived in Europe, and she's worked for leading brands; Foot Locker, Nike, Converse, to name just a few. Early days, I think today is maybe a ninth stay with the business. She's really learning the teams right now and learning sort of where the brands are. She's a product person. She loves product, so she's getting familiar with the product line and then really close to how we're segmented and distributed in the marketplace. So, those are her early priorities. At the same time, learning the partners. She's got tremendous relationships across the industry, levering those relationships and really sort of getting her feet underneath across Wolverine Worldwide. So I'm very optimistic about Susie. I think he's a great addition to the leadership team. I think she'll provide amazing day-to-day leadership for Merrell and Saucony, our two biggest brands to help our brand Presidents. So, I'm bullish on what she brings -- she builds a little bit of a white space in our team, too. We're looking to bring new talent. I would say, if I'm critical of us, we haven't always brought outside expertise and experiences to the business as well as we could have and that was something that I've worked hard on since I took this chair, and I think -- I think Susie checks a lot of boxes for us.

If I can just follow-up, what are your expectations that she's bringing to those brands? I mean, I just like you hired her for a reason. I understand there's a learning curve and her background and all that. But what is -- what are your expectations? What is she going to do, I guess, it's not going to be tomorrow.

Yes. Accelerate growth. I think she has been there and done that for big brands. She understands both the wholesale and the retail side of the business. She really understands commercialization distribution segmentation, which I think are very close to your heart. She has merchandising experience. So, we hired her not just to sort of maintain status quo for us. We hired her to accelerate and encase opportunity. We need to be a growth company again and then needs to be led by Merrell and Saucony. And while I think we've made really good progress there, I think opportunity for us to be better. And I think her industry experience, the people that she knows her relationships, how she is so familiar with the go-to-market process I think we're already better today having her walking the rooms, working with the teams being out in the marketplace. So, in short order, her job is to accelerate growth, Sam.

Thank you. Our next question from Anna Andreeva with Piper Sandler. Your line is open.

Great. Thanks so much. Good morning and congrats on all of the results. Great to hear about momentum and innovation. Chris, at Saucony, you have driven some really great brands meet with the collabs. Anything you can share about how we should think about the pace of those next year? And do you see these collabs mostly for the lifestyle piece or performance as well? And do you see a bigger opportunity for collabs at Merrell into 2025? And I guess, for Taryn, can you just talk about what's driving that slight reduction in the margin outlook for the year? I think you had talked about marketing and IT being the two only areas of investment. So, just any additional color on how we should think about that would be great. Thank you so much.

Thank you. Thanks for the question. Certainly, collaborations are a critical piece as they sort of drive brand awareness and drive brand heat and then us partnering with other like-minded brands or individuals as we think about our brands. That is a tried and true and tested playbook, and I think you've seen Saucony really accelerate that and really do some amazing collaborations this year. Last year, they had the collaboration of the year with J. Tips. They followed up with J. Tips again. There was lines around the block for the demented collaborations, and I think you'll continue to see that playbook. And if anything, a faster pace. That is where the consumer is and I give the Saucony team credit for as many as they've come up with and the buzz they're building around those. And I think it's not just a U.S. phenomenon. It should be a global phenomenon as well. Merrell has had a handful of collaborations as well. The most -- the next one is Jeep, which is going to drop next week, which is the year two of the Jeep collaboration and you'll continue to see those in a brand relevant way. So, I think those are excellent ways for us to sort of build brand awareness and build brand heat and then partner with other cool individuals or cool brands or cool retailers, to get our consumers out there and really work to deepen emotional connections. We've talked about this global brand building model, designing awesome products, telling amazing stories. And that amazing story piece is really -- can be helped to be driven by the collaborations that we've done. So, expect more of that from us.

And regarding your question about margin expectations for the fourth quarter, at the midpoint of the guidance that we gave our fourth quarter gross margin of 43.7% is consistent with the implied guidance that we gave in August for gross margins. And for operating margins of approximately 9%. This reflects -- it is modestly lower than what we had guided the implied guidance in August. This is primarily driven by incremental brand spending that we're putting into market for performance marketing to really help support that Q4 growth. So, it's -- I think we're taking the opportunity to put some discretionary spend in to make sure that we're supporting the growth that we have in there. For -- I would point out that for the fourth quarter operating margin it does reflect further sequential improvement. If you look at Q1, we were at 5%, now it's the fourth quarter at around 9%. It shows both a strong sequential improvement in our margins as well as a year-over-year expanding margins.

All right. Thanks so much.

Thanks for the questions.

Thank you. We'll take our last question from Mauricio Serna with UBS. Your line is open.

Great. Good morning and thanks for taking my questions. I was hoping if you could elaborate a little bit more on the DTC growth trends you see across the brands, specifically the activewear brands maybe you don't give like specific numbers but just ranges to have an idea. And then curious if you could elaborate a little bit more on the share gains that you saw in Merrell because I recall, you've seen an acceleration in the last couple of quarters. So would be interesting in hearing that, considering that. Overall, it seems that it's been a relatively soft outdoor footwear category.

Yes. Mauricio, thanks for the question. For our two biggest brands, Merrell and Saucony in the quarter, it was essentially mid-single-digit growth in DTC. Both brands sort of comping fairly heavy promotional activity from last year. So, at the same time, we saw growth. We're actually pleased with some of the progress we made on the gross margin side as well. As we work to become less promotional at our dot-com business, as we pivot into the final quarter of the year. As it relates to share gains in Merrell, you are right, the outdoor category certainly has been under pressure for the last couple of years and is incumbent upon the category leader, which Merrell is to help reinvigorate and innovate and draw attention to that category and reverse that. We've actually accelerated market share gains in Merrell. I think six of the past seven quarters, we have market share gains. And our biggest jump, I think, was just last quarter, approaching 300 basis points of share gain for Merrell. So, Merrell's mission really is to modernize the trail and to build lightweight athletic more versatile footwear. And we certainly are encouraged by some of the progress we've seen specifically with the MOAB SPEED 2, a lighter, faster, more athletic version of the MOAB, which is the number one hiking boot in the world. The consumers are responding to that. It looks great. It performs phenomenally well. It takes color material great. And I think that really is helping to lead. So, in total, e-commerce in total, it was up mid-single-digits. Our stores were slightly worse than that. I'm pleased with the progress we made in the e-commerce piece. And now obviously, everyone is turning quickly towards -- now, we're post-election, focusing on the critical holiday selling period for our dot-com channels.

All right. Very helpful. Thank you and congratulations on the results.

Thank you.

Thank you. And it appears that we have no further questions at this time. That concludes today's teleconference. Thank you for your participation. You may now disconnect.