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Wolverine World Wide Inc (NYSE:WWW)
Q1 2021 Earnings Call
May 12, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Wolverine Worldwide Inc., First Quarter Fiscal 2021 Results Call. [Operator Instructions]. A question-and-answer session will follow the formal presentation. [Operator Instructions]. It is now my pleasure to introduce Brett Parent, Vice President of Investor Relations and Corporate Strategy. Thank you. You may begin.

Brett Parent -- Vice President, Strategy and Investor Relations

Good morning, and welcome to our first quarter 2021 conference call. On the call today are Blake Krueger, our Chairman and Chief Executive Officer; Brendan Hoffman, our President; and Mike Stornant, our Senior Vice President and Chief Financial Officer.

Earlier this morning, we announced our financial results for the first quarter of 2021. The release is available on many news sites and can be viewed on our corporate website at wolverineworldwide.com. If you would prefer to have a copy of the news release sent to you directly, please call Allison Malkin at (203) 682-8225. This morning's press release and comments made during today's earnings call include non-GAAP disclosures, which adjust for example, for the impacts of environmental and other related costs, net of cost recoveries, costs related to the COVID-19 pandemic, including air freight cost, credit loss expenses, severance expenses and other related costs and foreign exchange rate changes. These disclosures were reconciled in attached tables within the body of the release.

I'd also like to remind you that statements describing the Company's expectations, plans, predictions and projections, such as those regarding the Company's outlook for fiscal year 2021 made during today's conference call are forward-looking statements under U.S. Securities Laws. As a result, we must caution you that there are a number of factors that could cause actual results to differ materially from those described in the forward-looking statements. These important risk factors are identified in the Company's SEC filings and in our press releases.

With that being said, I'd now like to turn the call over to Blake Krueger.

Blake W. Krueger -- Chairman of the Board and Chief Executive Officer

Thanks, Brett. Good morning everyone and thanks for joining us. I hope everyone on the call is safe and well. Earlier this morning, we reported first quarter revenue of approximately $511 million and adjusted earnings per share of $0.40, a strong start to the year.

E-commerce led the way, growing 84% during the quarter as our global digital strategy continued to deliver results. Our two largest brands exceeded expectations with Merrell up nearly 25% year-over-year, and Saucony up nearly 60% in the quarter. Both brands easily beat their 2019 Q1 revenue levels with Saucony up over 75% versus 2019.

The Company's international business was up 40% with every region growing over 35%. Our DTC channels are outpacing the market and our wholesale order book is very healthy. As we look to the rest of the year, demand for our brands is very strong and we've raised our full year guidance on the strength of this demand and robust outlook.

For today's call, I'll start by providing some additional insight on our Q1 performance and then Mike Stornant will detail our financial results, and update you on our financial outlook for the year. Finally, Brendan Hoffman will share the latest on our strategic growth priorities, before I conclude.

In the first quarter, the Wolverine Michigan group revenue was up 20.1% on a reported basis and up 18.2% on a constant currency basis. The Wolverine Boston group revenue was up 10.3% on a reported basis and up 8.2% on a constant currency basis. Let me now focus on key brand performance starting with Saucony. Saucony grew revenue nearly 60% and expanded operating margin nearly 800 basis points in Q1, a great start to what we anticipate will be a spectacular year for the brand. All regions delivered strong growth, led by North America and EMEA [Phonetic]. Saucony.com revenue increased by over 150% driven by compelling digital storytelling and impactful product launches.

Product design and innovation remain at the core of Saucony's growth momentum, delivering both superior technical product in trend-right lifestyle collections to the global marketplace. The brand's road running category nearly doubled in Q1 with the launch of new models for several of its biggest product franchises. The new Guide 14 and Kinvara 12 drove significant growth with the Guide more than doubling year-over-year.

New colors and collection packs also drove excellent growth and freshness for the innovative Endorphin series. Saucony also grew its trail running business with the launch of the Peregrine 11, which received the coveted Runner's World Editors' Choice Award. New product launches that are fueling momentum in the brand's technical product category with existing runners and with the many new enthusiasts to the sport.

Saucony Originals, the brand's heritage lifestyle sneaker business also grew double-digits in Q1. The brand continues to leverage its Italian product design and marketing hubs to build on its pinnacle positioning and success in Europe with elevated trend right product. The new Jazz Court, a sneaker made with 100% natural materials and zero plastic launched at the end of Q1, driving substantial buzz in social media and immediately becoming the brand's top-selling product on Saucony.com.

Looking ahead, Saucony will continue its steady introduction of new product launches. Both the new Ride 14 and Freedom 4 launched within the last few weeks and are off to a fast start. Over the next several months, the brand will also roll out the next generation of all three models of the Endorphin collection, the Pro, the Speed and the Shift which has quickly become one of its largest franchises. The brand will also introduce the new Triumph 19, a follow up to the award winning predecessor. The momentum in the Saucony business continues to accelerate across both its performance and lifestyle offering.

Moving to Merrell. Revenue grew nearly 25% in the quarter. All regions delivered increases led by especially strong performance in EMEA. North America grew double-digits, including DTC with Merrell.com up approximately 135% and Merrell stores comping up 30%. Merrell kicked off its Future 40 campaign at the start of the quarter, celebrating the brand's 40th anniversary and amplifying its inclusive commitment to sharing the power of the outdoors with everyone.

The brand announced a significant partnership with Big Brothers Big Sisters of America aiming to provide greater accessibility to the outdoors for nearly 200,000 youth. Merrell continues to focus on cultivating its well-established product franchises, as well as delivering innovation across new product introductions. In Q1, performance footwear grew by nearly 30% as the brand continued to advance its vision of faster and lighter footwear for the trail.

Building on the unmatched success of the world's number one hiker, the Moab, Merrell launched the all-new Moab speed and Moab flight collections, quickly exceeding sell through expectations, including selling out on Merrell.com and helping to drive very strong double-digit growth for the Moab franchise overall.

The Antora 2 and Nova 2 trail runners also continued to perform exceptionally well in the quarter. Merrell has a steady stream of new performance offerings scheduled for the remainder of the year. Merrell's lifestyle business grew approximately 20% in the quarter driven by the growth of the classic Jungle Moc and newer hydro Moc which more than tripled year-over-year. The brand plans to continue to leverage the easy on-off trend throughout 2021 with new products in the Hydro Moc, Hut Moc and Jungle Moc franchises.

Merrell is well positioned with both its outdoor performance and lifestyle businesses, and we expect the brand's growth will continue to accelerate going forward. Our work business, which represented almost 20% of our revenue in Q1 also delivered significant growth led by Wolverine, up nearly 30% and Cat footwear up over 30% with strong contributions from a couple of our smaller brands. We are the market share leader in the U.S. work boot category which is currently trending with consumers and it's been an important consistent performer for the Company over time. We expect growth in this category to accelerate in Q2.

Turning now to Sperry. Revenue was down approximately 10% in Q1, a continued sequential improvement compared to prior quarters. Despite more than $10 million of expected revenue which slid into Q2. During the quarter, Sperry.com was up 40% and Sperry stores grew more than 20%. The brand's full price business remains very healthy with gross margin expanding nearly 500 basis points in Q1.

Looking ahead, Sperry is back on the growth path for the remainder of the year. Sperry possesses unique elasticity across genders, product categories and price points. Its new float collection, a fun and affordable injected version of the boat shoe for younger consumers launched at the end of the quarter and quickly became Sperry.com's best selling product introduction in several years.

The brand expects to build on the success of the float throughout the year with seasonal drops, including the cozy float collection this fall. Sperry also plans to capitalize on the easy on-off trend with the launch of the new Moc Sider collection later this summer and to drive energy through several product capsules, leveraging fashion, entertainment and pop culture icon, including collaborations with John Legend, Rebecca Minkoff, and the Netflix hit series, Outer Banks, Good Humor Popsicles Ice-cream and Rowing Blazers.

Before Brendan and I share some additional insight regarding our strategic growth priorities, I'm going to hand it off to Mike to review the first quarter financial results in more detail. Mike?

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Thanks Blake, and thanks to all of you for joining us. Let me start by providing additional detail on the Company's first quarter performance, and then some insight on our improved outlook for 2021.

First quarter revenue of approximately $511 million represents growth of 16% compared to last year. As Blake pointed out, most elements of our global growth agenda delivered excellent year-over-year growth on the strength of expanding digital platforms and innovative product offerings. This strong growth performance was achieved despite a meaningful shift of customer shipments into the second quarter.

Adjusted gross margin improved 290 basis points versus the prior year to 44.3%, due to our continued e-commerce expansion and favorable wholesale product mix. Adjusted selling, general and administrative expenses of $174.4 million in the quarter were about $23 million more than last year, primarily due to the higher mix of DTC revenue, $8 million of additional investment in digital e-commerce marketing and more normalized incentive compensation costs. Q1 adjusted operating margin was 10.2%, an improvement of 330 basis points over last year, as a result of healthy operating leverage.

Net interest expense was up $1.9 million and the effective tax rate was 16%. Adjusted diluted earnings per share were $0.40 compared to $0.28 in the prior year. Reported diluted earnings per share were $0.45 versus $0.16 last year, and reflect a partial settlement of certain insurance claims related to our ongoing legacy litigation, offset by a legal defense costs and specific COVID related costs.

Let me now shift to the balance sheet. At the end of the quarter, inventory was down approximately 21% year-over-year. Our global sourcing team continues to adjust to the supply chain headwinds, impacting our industry. Our inventory position has improved nicely in the second quarter allowing us to fill nearly all of the orders that slipped from Q1 into Q2.

In Q1, we generated $26.3 million of cash flow from operating activities. The Company finished the quarter with $506 million less debt compared to the prior year and total liquidity of approximately $1.2 billion, including $365 million of cash on hand and nearly $800 million of revolver capacity. Our bank defined leverage ratio continued to improve, ending the quarter at a low 1.5 times. I will now provide details on our improved outlook for 2021. As we have shared, the trends in our business remained very encouraging, with revenue assumptions improving since we offered our annual guidance in February.

Our wholesale order book remains strong. Our D2C business is performing well. International regions have returned to strong growth and our inventory position continues to improve. All of this provides us with a heightened level of confidence as we manage the business and invest in future growth. As a result the Company now expects fiscal 2021 revenue in the range of $2.24 billion to $2.30 billion. Growth of 25% to 28% compared to the prior year.

At the high end of the range, this is a raise of $50 million from our original outlook and nicely exceeds 2019 revenue. We now expect reported diluted earnings per share in the range of $1.70 to $1.85 and adjusted diluted earnings per share in the range of $1.95 to $2.10. In the face of unpredictable near term supply chain delays, the Company will continue to invest in air freight to ensure our ability to service the very strong demand we are seeing in the business.

These COVID-19 related air freight costs above normal levels are included in our updated guidance and will be adjusted from our reported results for the remainder of the year. The Company is in an enviable position to invest in meaningful growth for 2021 and to continue to drive momentum in our brands.

Before handing it over to Brendan, I would like to briefly thank our team which continues to adapt to the fast changing environment around us, while delivering excellent results for our shareholders. With that, I'm going to hand it over to Brendan to share additional insight on our strategic growth drivers. Brendan?

Brendan Hoffman -- President

Thanks, Mike. As we emerge from the pandemic, the power and relevance of our brands is evident as we execute our global growth agenda across the portfolio. With roughly two-thirds of our business in running, outdoor and work, our brands are well positioned in the lifestyle and performance-oriented product categories favored by consumers and macro trends.

In addition to the unique positioning of our brand portfolio, our global growth agenda is driving strong momentum through three key pillars. First, the brand's new product and marketing stories are resonating well with consumers including Sperry's Float, Merrell's Moab Speed and Moab Flight and Saucony's Guide 14, new Endorphin collections and several other new launches.

Our brands are focused on developing big, innovative and impactful product collections based on consumer insights, trend intel [Phonetic] and testing. And recent investments in our advanced concepts and innovation Center of Excellence are proving invaluable. Second, our ongoing investments in digital capabilities continues to fuel e-commerce growth, which is exceeding our expectations at this early stage in the year as we track toward our bold revenue goal of $500 million through our brands.com in 2021.

In Q1, we leveraged increased digital marketing investments to drive more traffic, richer digital content and storytelling to engage consumers, better merchandising to optimize conversion and additional testing and learning to improve site user experiences. These assets and investments are also helping drive the online business of our global distribution partners and wholesale customers. In the coming months, we anticipate integrating and launching several new innovations and technologies including a Merrell mobile app. We are excited about the substantial runway that remains for our digital business.

Finally, our international business has recovered quickly from last year's shutdown with every region delivering very strong Q1 growth. As Blake mentioned, our Saucony Italy business and its product design and marketing hub are helping drive upper tier distribution for our fastest growing brands.

Overall, EMEA continues to outperform and the investments in our Merrell and Saucony JV targeting a significant opportunity for our two biggest brands are beginning to pay dividends. Our brands are well aligned with today's marketplace and consumer trends and our global growth agenda is fueling our biggest and most profitable growth opportunities. I could not be more excited about 2021 and the future beyond.

With that, I will turn it back over to Blake to conclude our remarks. Blake?

Blake W. Krueger -- Chairman of the Board and Chief Executive Officer

Thanks, Brendan. Our strong start to the year is reflective of our intense focus on the consumer and our continued investments in talent, product design and innovation, digital and consumer research and insights. The Company drove meaningful growth in Q1, despite the impact from short-term industry logistic headwinds and we are increasingly optimistic about the year ahead.

Vaccination rollouts appeared to be tracking well, consumer confidence continues to improve and our demand outlook remains very strong. Our DTC business is performing well and our wholesale order book continues to provide good visibility to accelerated growth for the year ahead. We are clear on our strategic priorities and enthused about the opportunities in front of us. The Company's strong position is a testament to our team's tremendous vigilance, focus and hard work over the last 15 months. Throughout this period, we focused on managing our brands for the post COVID world and continued to invest.

I'd like to close by thanking our team members for all of their efforts, enabling us to start fast in 2021, which I believe will prove to be a breakthrough year for the Company. With that, I'll now turn the call back over to the operator. Operator?

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Jonathan Komp with Baird. Please proceed with your questions.

Jonathan Komp -- Robert W. Baird -- Analyst

Yeah. Thank you. Good morning. First question I had, I want to ask, when you look at the -- you have roughly $50 million increase in the full year revenue outlook. Can you just give a little more color, the source of the upside thinking across the brands? And then as you look forward, both in the second quarter, given better inventory availability, but also in the back half given the ability to chase demand, how are you thinking about the flow in terms of revenue growth as you look forward here?

Blake W. Krueger -- Chairman of the Board and Chief Executive Officer

Jonathan, yeah, I would say that the upside for the year is pretty broad based. It's across all of our outdoor brands, our work brands, Saucony and the running category. We expect Sperry to return to growth for the rest of the year, obviously our e-commerce business is performing extremely well, but the online businesses of our wholesale customers are also performing extremely well.

And then, we continue to see momentum across international regions. It's a bit mixed, right, there is still some countries that are locked down a little bit, but the vaccines are working and economies are starting to open up and I think our Q1 performance was just reflective of our broad based upside for the entire year.

So it's not a single brand, it's not a single channel, it's not a single geographic region. It's really pretty broad based. And then your second part of your question?

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

The revenue flow by quarter, I mean, we saw a meaningful shift in revenue from Q1 to Q2 just in terms of some of these supply chain challenges that we saw, but we would expect each quarter here to see a sequential kind of improvement in terms of year-over-year growth for sure, but also even as we kind of consider performance against 2019 as a baseline too.

So it's -- as much as it's broad based across the portfolio as Blake mentioned, I think we'll see a similar sort of benefit in terms of each quarter, getting an up -- seeing some upside each of the quarters ahead of us.

Jonathan Komp -- Robert W. Baird -- Analyst

Okay. Just to clarify, so revenue versus 2019 should improve year-over-year compared to 2019 should improve going forward including second quarter. It sounds like...[Speech Overlap]

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Right. And we were down about 2.5% -- we were about 2.5% down in Q1. So we'll start to see that [Technical Issues] quarter.

Jonathan Komp -- Robert W. Baird -- Analyst

Okay. And would you expect Q2 to be up versus 2019 or just less than first quarter?

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

We're not giving that specific kind of direction on the quarter other than kind of to say that we see it improving a bit versus how we performed in Q1.

Jonathan Komp -- Robert W. Baird -- Analyst

Okay, great. And then Mike, one follow up question on the outlook. I know you didn't raise the outlook for net earnings on a GAAP basis. Is that entirely because of the air freight? And maybe comment on the incremental marketing if that's a part of it. And as a related question, just any commentary on the profitability on the e-commerce business, given the strength you're seeing on the topline. Thank you.

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Sure. Yeah, I mean, I'll start with the last question. Our profitability on e-com has been really strong. We've been able to see some nice leverage. We talked about 84% growth in the first quarter, but even beyond that really strong leverage on the earnings side year-over-year and even against our plan. So that continues to be robust.

On the -- just to jump in there, I think one of the things we're seeing with Matt Blonder as our new Head of Digital just bringing new techniques and very quickly able to find ways to leverage our spend dollars. And so, as we're getting the top side revenue, we're seeing good flow through and that's exciting for the balance of the year.

Brendan Hoffman -- President

I think your other question Jon was about the adjusted results and the adjusting out of air freight. I want to be clear on that. I mean, first of all, we don't have any other types of costs considered in there. We have the legacy litigation costs that are going to continue to be in the adjustment like -- can have, they have been for the last couple of years. But as it relates to COVID, really what we're seeing is the supply chain interruption has really put us in a position to be a very, very aggressive to chase the demand we have and put into our outlook at least some incremental air freight that we feel might be necessary to secure that demand.

We still have a significant amount of air freight included in our adjusted guidance. So this is not adjusting out all of the air freight, but just that we feel as extraordinary or more directly related to the COVID situation. It's about $15 million to $20 million in that adjustment, and we'll monitor that. We obviously didn't spend that much in the first quarter. And we're hoping that we won't need all of that, but at the end of the day, wanted to provide for that in this outlook.

Jonathan Komp -- Robert W. Baird -- Analyst

Okay, that's very clear. Thank you.

Operator

Thank you. Our next question is coming from the line of Steve Marotta with CL King. Please proceed with your questions.

Steven Marotta -- C.L. King & Associates -- Analyst

Good morning, Blake, Brendan and Mike. Mike, just amplifying on one of your last answers, of course, it was mentioned in the commentary, the $10 million of Sperry slipped from Q1 into Q2. What's the consolidated amount of slippage from Q1 to Q2?

Blake W. Krueger -- Chairman of the Board and Chief Executive Officer

Hi, this is Blake, Steve. I think it -- the headwinds were a little stronger than we anticipated three months ago when we last chatted. We at that time you'll recall, we thought there might be about $10 million, $20 million of about $20 million in total of slippage into Q2 from Q1. That turned out to be about $40 million for the quarter. It wasn't every brand, but it was kind of concentrated in some of our bigger brands, certainly had an impact, material impact on Sperry.

As we look ahead, we see right now about the same amount of slippage from Q2 into Q3. We see the supply chain and some of the logistics issues getting better as we march through the year, but we still see about the same level of slippage from Q2 to Q3 as we experienced in Q1 to Q2 and that was about $40 million of topline.

Steven Marotta -- C.L. King & Associates -- Analyst

That's really helpful. Have you seen any regional variation domestically based on either vaccination rates or reopening activities, anything that gives you a bit of a looking glass into what could be occurring in the balance of the country, six months from now to say?

Blake W. Krueger -- Chairman of the Board and Chief Executive Officer

Actually, we try and follow that pretty closely, but to be honest with you, we saw broad-based demand across regions, almost irrespective of where they were on addressing COVID or vaccines, or weather. So whether it's any of our outdoor categories certainly athletic, more athletic running categories or work category, we saw a pretty strong demand. Our future order book is also reflective of kind of that broad-based demand, both internationally and across geographies here in the United States as well.

Steven Marotta -- C.L. King & Associates -- Analyst

That's very helpful. Thanks. I'll take the balance of my questions offline. Thank you again.

Blake W. Krueger -- Chairman of the Board and Chief Executive Officer

Okay, thanks Steve.

Operator

Thank you. Our next question is coming from the line of Jim Duffy with Stifel. Please proceed with your questions.

Jim Duffy -- Stifel Nicolaus -- Analyst

Thanks, good morning. Hope you guys are all doing well.

Blake W. Krueger -- Chairman of the Board and Chief Executive Officer

Yeah. Good morning Jim.

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Hi, Jim.

Jim Duffy -- Stifel Nicolaus -- Analyst

I wanted to start on the digital. So the e-commerce growth rate for the quarter implies acceleration in digital in March relative to the quarter-to-date trends, 60% you discussed late February. Has that digital strength continued thus far in the second quarter? And has it been broad based across brands?

Brendan Hoffman -- President

Yeah. This is Brendan. I mean, it's certainly continued and it is broad based, which is really exciting to see. Obviously as we anniversary the pandemic from last year, we knew the comps would change, but right in line with our expectations, and as I mentioned a few minutes ago, really pleased with some of the new techniques and tools we have with Matt Blonder coming on, the consulting project we mentioned last time I think is already starting to pay dividends with some quick wins.

So very pleased with the momentum in our brands.com, and Blake mentioned it also. Also very pleased with what we're seeing from our wholesale.com as well.

Jim Duffy -- Stifel Nicolaus -- Analyst

Great. And then with respect to the international business, can you guys provide an update on the outlook for the international distributor markets, what's the state of distributor inventories at this point? What's the timeframe for when you're expecting the distributor business to turn back on?

Blake W. Krueger -- Chairman of the Board and Chief Executive Officer

Yeah, I would say that it really varies quite a bit country by country. And, right now, we're seeing broad based lift across international markets and regions including Latin America. EMEA for us as you know, Jim has been especially strong here over the last couple of years, and that strength has continued.

Asia-Pacific, again it varies kind of widely by country, but we're seeing increased demand, and it's across the same macro trends that were experienced here in the United States, the outdoors, more athletic, at-home comfy footwear, work footwear. So we have individual countries that are still under some pretty severe lockdowns. They've taken a very stringent approach to COVID probably to their credit, but the international business we expect to be very good this year, and frankly approach or exceed 2019 levels.

Jim Duffy -- Stifel Nicolaus -- Analyst

Great. Thank you.

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

And I think the other part of your question, Jim was about inventories too. I think that's in line with that improving performance we're seeing the inventories get more back in line, and we have a couple of markets where it's a little more problematic. But overall, just positive outlook there and obviously the international business, as part of our improved revenue outlook for the year.

Jim Duffy -- Stifel Nicolaus -- Analyst

Thanks guys.

Operator

Thank you. Our next question is coming from the line of Erinn Murphy with Piper Sandler. Please proceed with your question.

Erinn Murphy -- Piper Sandler -- Analyst

Great. Thanks, good morning. Just a couple of questions, first on the first quarter, how much do you think stimulus benefited your results, and is that continuing in the quarter-to-date period from a demand perspective? And then how are North American retailers ordering for the second half?

Blake W. Krueger -- Chairman of the Board and Chief Executive Officer

Yeah. I would say on the stimulus side, I think it certainly had an impact on consumer soft goods in general, probably on footwear as well. As a Company, we're certainly benefiting from our two-thirds, about two-thirds of our portfolio of brands being in some of the hottest categories for the consumers. So we see that strength, frankly, and we saw that kind of demand strength with or without the stimulus checks. But when you're pouring trillions of dollars into an economy, obviously that level of stimulus is going to raise all boats. And then -- and then when we look at future demand as well, we see that strong from not just our own DTC side, but we see strong demand from across our wholesale customers for both their online business and traditional brick and mortar business, probably the strongest demand I've ever seen in my career, probably a significant increase is not just over 2020, but over 2019. So from our standpoint, that gives us pretty good future insight into what to expect, and it's very encouraging.

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

And I think the other thing to add on to that Erinn is, some major brands pulling back from wholesalers has provided us a window to take advantage of additional shelf space.

Erinn Murphy -- Piper Sandler -- Analyst

Got it. No, that's very helpful. And then just a couple for Mike, if I may, just going back to your comments on the revenue slippage from obviously Q1 to Q2, Q2 to Q3. So if we take that together with the guide raise this morning, should I be interpreting that we won't really see 2019 levels until -- in the revenue until Q4? You start to see some of that in Q3. And then I guess just a clarification on air freight, what was it last year, just so that we have some comparability since I believe it with included in the results last year. Thanks.

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Sure. Yeah, on the air freight question, last year I think it was about 7 -- between $7 million and $8 million. And then we kind of looked back over the last few years, what's a normal year for us, and there are always reasons you have to use air freight as a solution. So that's a normal level. We've got $10 million included in the adjusted result here. So even higher than a normal level.

And then the outlook for what might be considered extraordinary or COVID related would be in that kind of additional $15 million to $20 million range. So that's really the reason we are treating it this way, Erinn is because we think it's certainly a more normalized way to look at the cost structure.

The question about revenue by quarter, this is not a back half or even certainly not a Q4 weighted outlook for the business. Blake mentioned similar slippage or at least in our way of planning the business right now, a similar amount of slippage from Q2 into Q3, even with that, we expect Q2 to be closer to 2019 levels than Q1 was.

Erinn Murphy -- Piper Sandler -- Analyst

Great. Thank you both.

Operator

Thank you. Our next question is coming from the line of Mitch Kummetz with Pivotal Research. Please proceed with your question.

Mitch Kummetz -- Pivotal Research Group -- Analyst

Yes, thanks for taking my questions. I've got a few. So, Mike just doing some math on the first quarter, so it sounds like the slippage was $40 million, the plan was $20 million. So, is it fair to say that if I kind of adjust for that, the revenues would have been like $531 million versus $511 million, is that the right way to think about kind of the moving parts there?

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Right. There were some nice -- some nice at-once performance in some of our brands. Our e-com business outperformed our expectations as we mentioned and certainly as we progressed through the quarter. So, yeah, I think that's the right way to look at it Mitch.

Mitch Kummetz -- Pivotal Research Group -- Analyst

Okay. And then on the gross margin, which was up nearly 300 bps year-over-year, could you just quantify some of the bigger puts and takes there? What was the benefit, I assume you had a benefit from channel mix. How much was that? And then any comments about sort of off-price close-outs this year versus last?

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Yeah. Very clean inventories help, right. We're coming in to the year and even the second quarter with extremely low close out positions in our brands. The promotional cadence was very low. I mean, our full price business was solid in the quarter and continues to be the case as demand is kind of outpacing our ability to necessarily chase the business in the first four months of the year. So that's really helped drive our margins up. And then, obviously the mix in e-commerce and our store growth has helped too. So it's really all of those factors.

The mix is probably the biggest component of that, but I think overall, as you know, our e-commerce business, up 84% is also driving nice leverage on the bottom line as well as an incremental operating margin performance too.

Mitch Kummetz -- Pivotal Research Group -- Analyst

And then lastly, just any comments on sandals? I mean, specifically, I'm curious how the Chaco business did. I'd be surprised if the order book was great going into the quarter, just given that sandals were a challenged category last year, but I guess what we're hearing is that sandals have been doing better and I'm kind of curious how Chaco is selling through. So anything there would be helpful. Thanks.

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Yeah. We would agree with those -- the general consumer views. Sandals seem to be doing well and water shoes across any number of our outdoor brands, Chaco has strong demand at the moment, probably frankly we wish Chaco had some more inventory. If I could, if I could have a wish, Chaco would have some more inventory at the present time. But we've taken action -- corrective action there and our inflows should be improving substantially. So again, we see demand, but not just across sandals or more open footwear, but demand across basically almost any category in outdoor, athletic or run.

Mitch Kummetz -- Pivotal Research Group -- Analyst

Okay, thanks. Good luck.

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Thanks.

Operator

Thank you. Our next question is coming from the line of Jay Sole with UBS. Please proceed with your questions.

Jay Sole -- UBS Securities LLC -- Analyst

Great. Thank you so much. I just want to follow up on some of the gross margin commentary. You mentioned gross margins of about over 200 bps versus 2019, it's benefiting from mixed e-commerce and product. If you think about the rest of the year and your guidance for the full year, do you expect that kind of gross margin improvement versus 2019 to continue? Or do you see some of these mix in product shifts and price realization benefit that you have is more one-time that sort of normalizes over the rest of the year and then as we enter 4Q?

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Yeah. Our full year outlook is really strong, and I think those tailwinds and benefits are going to continue throughout the year. There's obviously plenty of information out there about higher input costs and inflationary pressures that are going to start to impact our industry -- higher freight cost have already started to impact our results and I should mention that included in our Q1 results and our full year outlook, we've incorporated much higher ocean freight rates, the air freight that we talked about and some other supply chain related costs that are working against us.

But we're overcoming that just with a cleaner business and higher growing [Phonetic] margins. So we expect that to continue as we start to think about next year. We'll provide more insight into how some of those input costs might start to impact the business. But for now, given the fact that we've locked in our pricing and our production for all of this year, we're confident [Technical Issues] margin performance that we're looking at.

Jay Sole -- UBS Securities LLC -- Analyst

Got it. And Mike, if I can follow-up on that. The SG&A for Q1 was up about $15 million versus 2019. And you mentioned that the e-commerce business is accretive. So can you just sort of help us understand what's driving the dollar growth over 2019? And will that trend continue over the rest of the year, is that something that's implied in the guidance? Thank you.

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

It is, and it is mostly related to that shift mix that -- that mix shift that we're talking about with our D2C business both e-com and stores, right, we'll operate with a much higher overhead or SG&A component. But they are accretive to the business overall. And so, what you're seeing is, at the same time as gross margins expand, you're seeing an increase in SG&A expense as a percent of revenue.

We've also got normalized incentive compensation costs in these numbers. 2019 was relatively low in that regard too. So there's some impact from that. But most of it is the shift in the business, and we continue to be really efficient and with some of the changes we made last year, lowering our travel costs, reducing our costs around global brand conferences and things like that. Those are still in play for 2021.

COVID is still having an impact on our ability to travel and do those things. So there is some good benefits coming through from that as well.

Jay Sole -- UBS Securities LLC -- Analyst

Got it. Okay, thank you so much.

Operator

Thank you. Our next question is coming from the line of Sam Poser with Susquehanna. Please proceed with your questions.

Sam Poser -- Williams Trading -- Analyst

Well, it's not Susquehanna anymore. It's Williams Trading. But -- Good morning, everybody.

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Good morning.

Sam Poser -- Williams Trading -- Analyst

I've got a couple of -- I have a handful of questions. Number one, can you give us the specifics on Sperry and Merrell versus 2019, that you gave it for Saucony and [Indecipherable] and can you give us the specifics first for Merrell and Sperry for [Speech Overlap]

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Yeah, I would -- yeah, I can give you a little more color on that, Merrell would have been up virtually about double-digits against 2019. Sperry would have still been down double-digits against 2019, higher than its -- than its decrease in Q1. We see that -- we see the trend going forward quarters, two, three and four for Sperry improving significantly, and frankly we see momentum also increasing for Merrell.

Sam Poser -- Williams Trading -- Analyst

Right. And do you foresee the second quarter for the Boston Group, I mean, primarily Sperry here? Do you foresee that you can get to in the Boston Group, get to 2019 levels, or is that still going to be below?

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

I don't have that forecast. We seriously don't give -- Sam, give that level of detail, but I don't have that forecast in front of me right now. Certainly, it will be an improvement over what you saw in Q1. And you know Sam, Saucony did extremely well in the first quarter, and Saucony's outlook for the rest of the year remains really strong. So that will help boost the Boston Group and Sperry we already said will return to growth for the rest of the year. So we expect an improvement there.

Certainly, as it relates to the shift from Q1 to Q2.

Sam Poser -- Williams Trading -- Analyst

Thank you. And then, I've got a few more. Did Q1 beat -- I mean, Mitch sort of asked the question, but did Q1 beat your internal plan? How much, did that... [Speech Overlap]

Blake W. Krueger -- Chairman of the Board and Chief Executive Officer

Yeah. I think that was a fair question from Mitch and stuff. Yeah, clearly we had more slippage into Q2 than we anticipated maybe around an incremental $20 million. And so we feel really great about our Q1 performance and our outlook, obviously. We're very bullish right now. But Q1, we certainly beat our internal expectations as of versus three months ago.

Sam Poser -- Williams Trading -- Analyst

Given how much slipped? If you had -- knew that $20 million would slip, you would have thought you wouldn't have done it as well. Is that a fair assumption?

Blake W. Krueger -- Chairman of the Board and Chief Executive Officer

Right. And as just one example Sperry would have had a revenue increase in Q1, but for the slippage. It just happened to be one of those brands that experienced some of the logistic headwinds, unfortunately little bit more so than some of our other brands, as one example.

So with a -- Q1 was a strong start to the year.

Sam Poser -- Williams Trading -- Analyst

Thank you. And then lastly, Mike, what is the tax rates and interest expense you're anticipating for the full year?

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Well the tax rate is still right around 20%, which is consistent with our original guidance. And then net interest and other expenses is about $45 million.

Sam Poser -- Williams Trading -- Analyst

Okay, great. Thanks very much. Continue the success.

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Thanks, Sam.

Operator

Thank you. Our next question is coming from the line of Susan Anderson with B Riley. Please proceed with your questions.

Susan Anderson -- B. Riley FBR, Inc. -- Analyst

Hi, good morning. Nice work [Phonetic] in the quarter, and managing through the pandemic. I was wondering if maybe you give a little bit more color on what you're expecting for product costs as we look into the back half in 2022, I guess you're expecting commodity costs to be up in the back half or is that more of a 2022 timeframe? And is -- are there any plans to raise prices or anything to offset that?

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Yeah, let me just give you some background. I think we've come at least from my experience through an unbelievable eight or so seasons of price stability or deflation even in the input cost for footwear. Certainly, rubber, cotton, leather, some other components, we see the price increases happening in those areas.

We do expect some product cost increases and logistic supply chain cost increases starting to flow through in the back half of the year. We plan for that. When we -- when we look ahead, we expect product input costs may be for the spring, summer 2022 season to be up low-single digits. It might be a little bit more than that, more than that in fall-winter of 2022, certainly for this year we factored all of those in to our thinking when it comes to pricing.

When it comes to pricing, we've been here many times before, the industry has been here many times before. I would say, obviously we're going to negotiate with the factories on any increases. We're going to look for other savings to offset some of the increases. We're going to -- everyone is going to see in the supply chain. We also reengineer product, that's a constant ongoing lever that we're always working on.

And then if we have to -- we're going to take some selective price increases. We frankly think the consumer right now is expecting it. There wasn't a lot of push back to the industry, price increases that were pushed through when we had directly tied to tariffs of the last 18 months or so, two years. So we think the consumer is poised to expect some product price increases. But you know, as we approach this, it's very selective for us, it's different within each brand. Our brands do on the selective basis, new product versus carryover products. So we have a pretty strategic approach to -- but I would anticipate with almost everything else some price increases coming here especially starting probably with the spring-summer 2022 season, and for the remainder of next year.

Susan Anderson -- B. Riley FBR, Inc. -- Analyst

Okay, great, that's very helpful. Thanks for all the detail. And then also on the DTC business, just curious how you're thinking about the rest of the year as we start to go up against much tougher compares, are you expecting that penetration to come down at all? Are you expecting it to stay similar to last year? And if we do see kind of a move more back into the stores, and I guess I would mean wholesale, how should we think about that mix shift impact on the margins?

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Well, I mean I think as we've been saying, we're quite thrilled with the way our DTC businesses is cadencing throughout the year. I mean really interesting to see as you kind of just described the store business, how it's bounced back in terms of our own stores with Saucony and Sperry, mostly outlets. Traffic still down, but conversion way up. This is the toughest comp period for e-commerce obviously because the stores were closed last year. But as I mentioned earlier, we're really pleased with the way we're comping against our forecast, and see the growth continuing into the back half of the year and the penetration rising as we hit our $500 million overall goal. We also continue to have a robust business with the digital titans especially Amazon and Zappos and we see that continuing to increase. So feeling very bullish on the digital channel and our DTC in general.

Blake W. Krueger -- Chairman of the Board and Chief Executive Officer

And Susan just to add to that, I mean, we expect our DTC business to be over 25% of total revenue this year which would be up slightly from last year.

Susan Anderson -- B. Riley FBR, Inc. -- Analyst

Great. Okay, that's very helpful. Thanks so much. Good luck for the rest of the year.

Blake W. Krueger -- Chairman of the Board and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from the line of Laurent Vasilescu with Exane BNP. Please proceed with your question.

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

Good morning. Thanks for taking my question. And thank you Mike for all the color on the $40 million slippage into 2Q and then into 3Q. I think the market, while I understand that there was slippage into 2Q, but I don't think it's necessarily expected that there is slippage into 3Q. Is this Company-specific or industrywide? And can you provide a little bit more color on where the bottleneck is, considering I think you talked about improved inventory levels. Is it in Asia, the West Coast, any other factors we should consider?

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Well, I can't speak for the rest of the industry, but -- I have a lot of friends scattered around the industry. I would say, the logistics delays, maybe for some companies, capacity constraints certainly caused some slippage into quarters. It's not going to improve back to complete normal overnight. So for us, personally, we see that continuing some between Q2 and Q3. But improving throughout the rest of the year.

And it was tied to just incredible demand. I mean, it could be port congestion, it could be congestion and a lock-up at the Chicago rail yards. It could be the lack of trucking internally, domestically, so there were any number of COVID related logistics challenges that not just our industry, but consumer soft goods and other industries faced in Q1. They are going to face some of that same -- some of those same challenges in Q2 and Q3. But it's going to improve or at least our outlook is for to improve considerably as the year progresses.

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

Okay, that's helpful. And then switching to Sperry, tying back to one of Sam's questions. Last quarter, I think it was called out that Sperry would return to double-digit growth. But this time as I'm listening to the call, I don't -- I didn't hear the word double-digits. So I just wanted to just double check on, are we expecting double-digit growth for this year? And should it be in the range of 10% to 20%, 20% to 30% or even higher? Any guard rails would be really helpful.

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Yeah. We try not to get that specific, but certainly we're expecting Sperry to have double-digit growth for the year.

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

Okay.

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

And a strong Q2, for sure.

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

Fantastic. Okay. And then, with regards to Merrell, last quarter, you did give specific guidance for the first quarter. I think you said it was 20% growth, which I think to your point is on the two-year stack, it's about 10% growth. Any specifics you can give on Merrell growth for 2Q on a two-year stack?

Blake W. Krueger -- Chairman of the Board and Chief Executive Officer

I'm not really again at that kind of specifics. I would just say that Merrell is one of our brands right now that's kind of firing on all cylinders, right. Their performance -- that business is on fire, their lifestyle business is on fire, Trail running business is trending extremely strong. Their easy on, easy off, product offerings are responding -- the consumer is responding well to the product in that macro consumer trend. Certainly, just as one example, their Google search is up a very strong double-digit. So Merrell right now has a lot of tailwind.

Brendan Hoffman -- President

And we're seeing it across all the platforms, our own e-commerce, our wholesalers and globally. So to Blake's point it's universal.

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

I think Laurent, you're asking the right questions about Q2 and a lot of questions about Q2 has come up. We gave some cautious kind of view about some slippage into Q3, but frankly, the demand we have right now for the categories, especially categories that are performing best and really across the business is tremendous for Q2.

We still have to be careful about some of these supply chains issues that are unpredictable good or bad, and frankly, in Q1, they were a little worse than we expected. So we're being a little cautious about that, which is why you're not hearing us give too much detail about Q2. But I will say the demand in the business for Merrell, Saucony, our work business and really across the brands is incredibly strong. I think Blake mentioned maybe the strongest we've seen in quite some time.

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

That's great to hear. Thank you very much for all your help.

Operator

Thank you. That is all the time we have for today's call. I would like to turn the call back over to management for any closing remarks.

Brett Parent -- Vice President, Strategy and Investor Relations

On behalf of Wolverine Worldwide, I'd like to thank you for joining us today. As a reminder, our conference call replay is available on our website at wolverineworldwide.com. The replay will be available until June 12th, 2021. Thank you, and have a good day.

Operator

[Operator Closing Remarks].

Duration: 59 minutes

Call participants:

Brett Parent -- Vice President, Strategy and Investor Relations

Blake W. Krueger -- Chairman of the Board and Chief Executive Officer

Michael D. Stornant -- Senior Vice President, Chief Financial Officer, and Treasurer

Brendan Hoffman -- President

Jonathan Komp -- Robert W. Baird -- Analyst

Steven Marotta -- C.L. King & Associates -- Analyst

Jim Duffy -- Stifel Nicolaus -- Analyst

Erinn Murphy -- Piper Sandler -- Analyst

Mitch Kummetz -- Pivotal Research Group -- Analyst

Jay Sole -- UBS Securities LLC -- Analyst

Sam Poser -- Williams Trading -- Analyst

Susan Anderson -- B. Riley FBR, Inc. -- Analyst

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

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