Greetings, and welcome to Wolverine Worldwide, Inc. Fourth Quarter Fiscal 2020 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Brett Parent, Vice President of Strategy and Investor Relations. Please go ahead. You may begin, sir.

Good morning, and welcome to our fourth quarter and full Year 2020 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 fourth quarter and full year 2020. 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 adjusts, for example, for the impact of environmental and other related costs, net of cost recoveries, costs related to the COVID-19 pandemic, including severance, credit loss expenses, certain inventory reserves and other related costs and foreign exchange rate changes. These disclosures were reconciled and attached tables within the body of the release. I'd also like to remind you that statements describing the Company's expectations, plans, predictions and projections, such as those regarding the Company's outlook for fiscal year 2021 made during today's conference call are forward-looking statements under U.S. securities laws. As a result, we must caution you that there are a number of factors that could cause actual results to differ materially from those described in the forward-looking statements. These important risk factors are identified in the Company's SEC filings and in our press releases. With that being said, I'd now like to turn the call over to Blake Krueger.

Thanks, Brett. Good morning, everyone, and thanks for joining us. I hope everyone on the call is safe and well. Earlier this morning, we reported fourth quarter revenue of approximately $510 million, adjusted earnings per share of $0.21 and operating cash flow of $174 million, all exceeding our highest expectations entering the quarter. In Q4, we finished the year of an incredible effort that focused on change and agility. During which time, we remained open for business, drove solid financial results and near record cash flow and also helped take care of our communities. We've set the stage for accelerated future growth. Specifically, we invested in new leadership, product design and innovation, digital product development tools, consumer insights and digital marketing capabilities, all aimed at bringing to market a continuous flow of powerful product marketing stories. This all sets the stage for our brands, led by Saucony, Merrell, Sperry and Wolverine to launch innovations related to their biggest product franchises in 2021, supported by compelling digital marketing content. We reoriented our brands around our DTC-first mindset and go-to-market operating model, while prioritizing our digital platforms globally. Our e-commerce revenue grew 32% in Q4, up 50% for the full year 2020. And so far, in Q1 2021 has accelerated to over 60% growth. We added an elevated leadership talent in this area and shifted even more of our marketing investments towards digital. We also continue to invest behind key global strategic growth initiatives, with a focus on ramping up our joint venture in China to realize the sizable opportunity that exists for Saucony and Merrell in this market. A heartfelt thanks to our team who successfully dealt with a constant barrage of unprecedented challenges in 2020, enabling the Company to jump-start 2021. Our brands are well positioned in trending categories and…

Thanks, Blake, and thanks to all of you for joining us. Let me start by providing additional detail on the Company's fourth quarter performance, then briefly touch on the full year results and finish with more insight on our outlook for 2021. Fourth quarter revenue of nearly $510 million was down 16% compared to the prior year, but was meaningfully higher than we projected coming into the quarter. Our owned e-commerce business remained a key growth driver, up approximately 32%. As expected, the quarterly revenue result included about $85 million of negative impact from certain discrete issues, including lower sales to our third-party international distributors related to high spring carryover inventory, a planned shift in the timing of several key Saucony product launches and lean inventory for some of our stronger selling product collections across the portfolio. North America was our strongest region, led by high single-digit growth from Saucony and Merrell. EMEA, Latin America and Asia Pacific were all impacted by the carryover inventory adjustment mentioned above and were down in the 30% to 40% range. Adjusted gross margin of 41.4% was up significantly, expanding 360 basis points over the prior year. Better gross margin on our full price business, reduced closeouts and an increased mix of DTC business, were partially offset by a negative impact from FX. Adjusted selling, general and administrative expenses of $177.4 million in the quarter were $8.8 million more than the prior year due mostly to the higher mix of DTC revenue which included over $7 million of incremental investment in digital e-commerce marketing. During the quarter, the Company recorded a $222 million noncash impairment related to the Sperry trade name. The global pandemic continues to have a pronounced impact on consumer soft goods, including the casual footwear market and has put pressure on…

Thanks, Mike. In my six months with the Company, I have gained a good understanding of the business and a tremendous appreciation for our team as they successfully responded to a unique and challenging year. I continue to be energized by our portfolio of great brands and have focused my attention on our biggest growth opportunities by prioritizing our global direct-to-consumer e-commerce and accelerating our largest brands. The focus and progress we are making every day has me even more confident in the meaningful growth potential we have in front of us. Consumers are spending more and more time connecting digitally and in many cases, directly with their favorite brands. Our brands are capitalizing on this by engaging more closely with consumers on our digital platforms with richer brand and product storytelling. We are benefiting from consumer intelligence as we interpret real-time data to test newness and inform our inventory investment across product lines. We continue to see significant runway ahead in our digital businesses. We are investing in digital leadership, shifting the majority of our marketing investments to digital, developing enhanced content and optimizing our digital user experiences to increase conversion, including a focus on mobile through the launch of mobile apps for our brands, beginning with Merrell later this spring. All of this positions us well to achieve our aggressive target of $500 million of digital revenue in 2021. The growing scale of our own direct-to-consumer business, coupled with the DTC channels controlled by our third-party international distributor partners, accounted for roughly 1/3 of our revenue in 2020 and is anticipated to approach 40% in 2021. The expansion of this controlled distribution will help us to accelerate the go-to-market process, implement successful agile testing skills, improve our demand planning and ultimately develop more trend-right product on a continuous…

Thanks, Brendan. We are optimistic even though our outlook continues to assume a somewhat volatile global environment related to the pandemic. However, as vaccines are rolled out and restrictions are eased, we believe consumers will begin to return to social activities, and we will see a meaningful increase in consumer spending, which has been fairly strong already in the U.S. this year. We have proven our ability to manage through seismic change and remain nimble, investing behind our brands and strategies to drive sales and profitable growth post-COVID. Regionally, we are already witnessing some positive signs in the U.S. where our brands saw a wholesale sell-through grow mid-single digits in the first period of 2021. We continue to see some delays in bottlenecks in the global supply chain, partially caused by the pandemic and partially by pent-up consumer demand, but believe this pressure will wane over the course of the year. For Q1, we currently expect a $20 million shift in revenue to Q2 directly related to logistic delays, but still expect to deliver mid-teens growth in Q1. Despite some of these macro factors, we are excited about 2021 and are confident in our ability to deliver a strong recovery. In this environment, our brands are poised to win. We believe this year will be a time of opportunity for companies like ours who have invested in talent, digital and online skill sets, new product innovation and closely connecting with their consumers. Our investments and focus are working, as witnessed by a strong order book and a fast start to 2021. In closing, I'd like to thank our team members and recognize their exceptional work and efforts in laying the foundation for what I believe will prove to be a pivotal year in the Company's history. They met every challenge with focus and determination, navigating the global pandemic, setting the Company up for future growth and supporting our communities along the way. With that, I'll now turn the call back over to the operator. Operator?

At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Jim Duffy with Stifel. You may proceed with your question.

Hello. Good morning, guys. Nice work...

Good morning.

Healthy comps. Hope your and your families are doing well. Hey, I wanted to ask a question on the changing composition of the business. So 2020 revenue is down only 20% or so, but a definitive portfolio shift to active brands, Merrell still the largest, Saucony now the second-largest, and then of course you have the work brands. Guys, if we're thinking relative to the 2019 baseline where do you see the 2021 revenue mix for Merrell, Saucony and the work portfolio as a percent of the total business?

Yeah, I would, Jim. Right now, we would anticipate that, that percentage for that -- those group of brands would continue to increase for 2021. We've got great plans for some of the other brands in our portfolio, but certainly the momentum right now behind the outdoors, running, athletic, at home, comfy and some of the other activity-based recreational pursuits for consumers is going to continue still. As we look ahead, we would expect -- for 2021, frankly double-digit increases from all of our brands, compared to 2020 of even digit increases for Merrell, Saucony, Wolverine, and Chaco, for example, versus 2019.

And I believe the work portfolio performed well during 2020 as well. I think I feel as you, Blake, or Brendan you said Merrell and Saucony combined about half the business. If we add the work portfolio in, are you up around two-thirds?

Just a little under that. Yeah, less. Right now.

Okay.

But If you had to work -- the total work portfolio and not just the Wolverine brand, that's a pretty good estimate.

Yeah. A lot of that work in 2020 was a bit of a -- a little bit of a pleasant surprise for us. The key distribution channels farm and fleet and some of the other work retailers frankly remained open throughout the pandemic and that certainly was a tailwind.

And then one follow-on question if I may. I just wanted to ask on the international market expectations. In the guidance, have you embedded a second-half rebound for the international business some recapture of some of the pressure that you saw in this fourth quarter?

There is a good recovery in the international business plan this year are not quite to 2019 levels yet. We still have some of those tail or some of those headwinds in Latin America, in particular, where markets are closed down and in some of our Asia-Pac markets as well. But we're going to see very nice growth in Q1 for the international business approaching almost 30%. So, and I think a good balanced performance throughout each quarter, Jim, which is good to see. So I would say a good recovery for the year, not necessarily back-half weighted.

Our next question comes from the line of Jonathan Komp with Baird.

Yes. I want to ask a little bit more detail about the state of the channel that you see. Obviously, when you look at, you finished 2020, it sounds like there are some shifts in product launches and now maybe some delays in product availability for the first quarter. But just a broader commentary about strong backlog and your sense of inventory relative to sell-through, as you sit here today?

Yes. I mean, fundamentally, Jonathan, we feel pretty optimistic about 2021. We see light at the end of the pandemic tunnel right now. It's, maybe the vaccine rollout isn't going as smooth as all of us would wish, but there's certainly light at the end of the tunnel. We have a very resilient portfolio of brands. And we have probably the best visibility into future demand that I've seen in 25 years. Our backlog right now is extremely high. That's probably due to a number of different factors. So I think some of the proactive actions we took in 2020 to invest in talent and digital again and double down on content and user experience is all paying dividends for us right now. We think some of the consumer behaviors and trends that we witnessed in 2020, whether it's outdoors, whether it's running, we think these are going to stick. We do believe it was five years compression of behavior changes into maybe a 12 or 18-month period, but we think these trends are going to continue, and they're providing us some tailwind.

And Jonathan, just to add on to your inventory question. From an e-commerce perspective, I mean, that's one of the things I was most impressed about with our Q4 e-comm performance was knowing that we didn't have the level of inventory we would like in some of the key franchises and knowing that will be in place as we circle the next holiday, I think, is tremendously exciting for me in the organization as we map out a $500 million e-com business for 2021.

And then maybe just a little more specifics on the supply chain and logistics issues right now. I'm seeing that some of those challenges across any number of industries, including, obviously, consumer soft goods, we tried to quantify that for you. For us, we see, we don't really see any lost sales, but we do see a $20 million shift maybe from the end of Q1 into the beginning of Q2. We do expect some of those port congestion issues, ocean freight, inland transportation issues to steadily improve over the course of the year.

Great. And then separately, on operating margin, I know in the 2021 production, you're assuming getting back close to 2019 levels, that's with much higher gross margin. And it looks like higher G&A dollar spend even versus 2019 by a good amount. So can you maybe just highlight the shifts in the business mix that are driving that? And then if you're using some of the gross margin upside to reinvest in the brands, any more detail there, that would be helpful?

Yes, Jon, it's absolute correlation between the benefit we're getting off of driving a bigger DTC business, especially with our e-comm growth. Both in terms of gross margin expansion, but also operating margin leverage there, there's a nice accretive benefit to that business. And frankly, as we've invested in e-commerce growth, over the last 1.5 years, we've seen tremendous leverage despite the investments. So that's really promising. And when we look at the guidance for '21, there are some different headwinds that aren't related to the mix. It's really some of the supply chain and freight-related costs that we talked about before, just anticipating that, that could be in place for a while. It also includes some incremental investments that we're planning to make in our biggest growth opportunities. And as you baseline 2019, as you're referring to, most of that investment is going towards our digital capabilities, investing in advertising and content and technology platforms that support our e-commerce growth. So I like the fact that we're delivering on operating margin despite lower revenues in 2019 and would see us be able to pivot out of that into 2022 and continue to expand operating margin given the growth in e-commerce as a driver behind that.

Well, I think even from a wholesale perspective, the inventories have been so clean this year that we haven't had to discount maybe like you would in the past in any business. And so for me, it's exciting to see, have such a clean base now to build on without some of the noise that comes into any business normally through all the promotional activity.

Some of the cleanup we did in the international side of the business in 2020 is going to help there, too. But we still have a recovery to achieve on the royalty side of the business, which is one of the reasons you're not seeing as much operating margin expansion in the '21 outlook until we get that sort of international business back to normal levels.

Our next question comes from the line of Matthew Degulis with KeyBanc Capital Markets.

So Brendan, you touched on this a bit, but given that Wolverine is becoming much more of a DTC company, can you talk about how the shifts in the order calendar ability to react in the overall mindset of the Company?

Well, I think you just summed it up, Matthew. I mean, this was something Blake had started before I got here, and hopefully, I'm accelerating is just this shift to a direct-to-consumer first lens and just what that means in terms of having continuous product, continuous storytelling. So we're kind of doing two things, parallel path right now as we're working through the supply chain issues that Blake mentioned that are in the macro environment, also working on a better, building a better mousetrap. So we can have quicker speed to market from idea to shelf and a continuous flow. And I think the organization is really embracing that as they see this past year, the power of our e-commerce, ability to sell directly to our e-commerce channel. And as I referenced in my remarks, when you factor in all of our international partners and the model brand stores we have out there, it's almost 40% of our business right now is already done directly to the consumer. At the same time, as we say, this will only benefit wholesale. Wholesale, our wholesale partners will benefit by the assets we're creating by the constant flow of newness. So we think that this will lift all of our channels, but through the lens of e-commerce.

Got it. And then next one is for Blake likely. Can you talk about the health of the overall footwear industry? From my seat on the outside looking in, it seems most high-quality companies are short-term inventory right now, which is driving full price sales and a healthier overall landscape. But I'm curious your thoughts on how and if the industry can keep this discipline intact longer term?

Yes. I think fundamentally, I do think the good, a lot of the good brands and companies like ourselves are a little bit lean on inventory right now. And obviously, we have greater insight today in the future than we had last March, for example. A lot has changed. I would say, as we look ahead into the future, our industry is driven by innovation and design. And you get rewarded for bringing freshness to the marketplace. Even our wholesale customers have realized that past year and currently. I think it's one of the reasons why our future order backlog is up so much. They need to plan a constant flow of freshness, consumer right -- hitting consumer trends into their stores. And certainly, we're seeing that in our own e-comm and DTC business. So fundamentally, it comes back to product, product, product, as I always say, coupled with powerful marketing stories. And we focused on that in 2020. We doubled down. We continue to invest in talent, in those capabilities, digital and otherwise. And we're starting to reap the benefits of that now. But certainly, we think the industry as a whole is a pretty good inventory position right now.

Our next question comes from the line of Mitch Kummetz with Pivotal Research.

Mike, let me start with you. Can you speak a little bit more to the shape of 2020 as you see it, particularly on the top line? I mean, I would guess, Q2 would be the biggest increase given the comparison plus the $20 million shift that you already referred to, but maybe you just maybe, anything else on the rest of the shape of the year? And also even in Q1, so it sounds like $20 million shifting out of Q1 to Q2. But if I recall correctly, there was supposed to be, I think, like a $25 million shift from Q4 to Q1. I don't know if that happened or not, but maybe could you just address the shape in the context of kind of those things?

Yes. Let me start with the kind of the quarterly flow of the business. Obviously, we have a lot more visibility to the next two or three quarters out. And as Blake mentioned in his comments, I mean, we've got a very strong order backlog today that gives us not only visibility, but confident. Q4 would be where we might put the most conservatism in the outlook. But when you look at the shape of the business and the growth trajectory of each quarter, Q2 is definitely our biggest growth quarter for obvious reasons. But we're going to see a large percentage of our total revenue deliver in the first half of the year. There's a really good balance between H1 and H2. And yes, there's definitely a shift here that Blake talked about into Q2 that will help kind of drive that up even a little bit more. There were some delays or shifts, I should say, for Saucony launches that came out of Q4 into Q1 this year as well as some of the international issues that we've already talked about. Not quite $25 million in total, but it was meaningful, and it's helping to drive a really solid Q1 performance in terms of growth kind of year-over-year, which is against a pre-COVID, mostly for us anyway, a pre-COVID time frame in Q1 of 2020. So I think the visibility, the health of the business and then the momentum we're seeing, not just in the brands, but in the e-commerce business off to a really strong start in Q1, kind of give us confidence that this will be a nicely balanced year and not a back-weighted year.

Got it. And then just from a channel perspective, can you say where e-comm landed as a percent of sales for 2020? And then is there any way you could sort of frame the operating margin profile of e-com versus the balance of the business? And then I guess, lastly, it sounds like you expect outpaced e-com growth in 2021, but I just want to confirm that?

Absolutely. So yes. I mean the mix for Q4, and that's our biggest quarter for e-commerce typically in a normal year. E-commerce was about 22% of revenue in Q4, it was about a little over 20% and for the full year. In 2019 as a baseline, that was just over 10%. So we have a significant acceleration there. When you think -- we think about 2021 and we talk about $500 million target we have to achieve in the e-commerce -- global e-commerce business this year, that's more than double 2019 levels. And that's going to represent -- yes, outpace growth against certainly industry averages and real meaningful growth over 2020 as well. And that when we do achieve that, we're going to be closer to 25%, maybe a little above 25% of the overall mix coming from our e-commerce business. So I should say e-commerce in stores. So we're headed in the right direction. That acceleration is definitely taking hold in the business, and we would expect that to continue even beyond 2021. On the margin side, we don't give all the gory details of the margin mix for the e-commerce business. What I can say, kind of repeating what I mentioned to Jonathan, is that we have very strong leverage coming out of that business for the last two years in a row now. We've invested heavily. As you look at the SG&A dollar spend from 2019 to 2021, nearly all of the increase there is coming from investments and focus in digital investments. So I would say that we continue to get leverage. We think that as we continue to grow that channel, we'll get more leverage going forward, and it's an accretive contributor to the business.

Our next question comes from the line of Erinn Murphy with Piper Jaffray Piper Sandler.

And it's now Piper Sandler, but anyway. So a couple of questions for you. First on Sperry, I would love to know if you're kind of seeing any differences in purchasing patterns between new customers versus existing customers? Any green shoots you got from a new -- or I should say, a younger customer? And then maybe as we think about 2021 for that brand, share a little bit more about the new launch you have in March? And then I've got a follow-up.

Yes. I mean, as you know, we obviously love the Sperry brand. We think it's going to be one of our biggest brands in the future. Sperry, we haven't seen any significant shifts in the consumers base. Sperry is pretty unique in that regarded never -- it doesn't ever matter whether I'm talking to a 16-year-old who loves the brand or a 65-year-old who loves the brand. Sperry has pretty unique appeal across genders and across ages. Erinn, as you know, last year we infused the Sperry brand with some top talent leadership in marketing, leadership in product development and we're just really starting to see the fruits of those of their efforts, frankly. When we look forward on the product pipeline side we -- I think the float introduction will be a big idea, a big introduction, probably one of the biggest for Sperry in several years, but we have new offerings in boat shoe category and the boot category, vulcanized category. Sperry is a brand where the consumers have given permission to play across a number of different product category. So we're positive on Sperry right now. We expect Sperry to deliver growth in Q1, and versus 2020 double-digit growth for the full year.

Yeah. I mean I'm excited, as Blake mentioned with the product that's starting with Float and really will then be a constant flow for the next four quarters and beyond, but also the storytelling that they're starting to develop to match with that. Blake referenced the talent we brought in. And you really starting -- and I'm really starting to see it come to fruition with what they're working on for Q2 and beyond. Just the constant storytelling a little bit more -- in a little bit more of an authentic and scrappy way than maybe we've done in the past. So I think the combination of that storytelling with the product Blake referenced is making us very energized about Sperry's future.

Great. Thank you. And then just a follow-up on the port delays that you're seeing. I guess, is there kind of a timeline that you think they could be remedied? We've heard from different companies that could be late spring, it could be all the way into summer. And then are you needing to airfreight product to avoid some of the congestion at the ports and then just translating that through to gross margin? And sorry if I missed it, how will that impact of the first quarter or the first half gross margin? Thanks.

Yeah, I mean we are air freighting as you know, air freight cost have also gone up, we've built a lot of that into our plan for 2021. We have historically been very judicious when it comes to airfreight. When you airfreight footwear you're airfreighting a lot of air, and on the other hand, we have extremely strong demand now and predicted over the next several quarters. So I wish I had a crystal ball and could tell you exactly when the port congestion is going to relieve itself. We think it's going to get better over time. We think it's going to be around all for a minimum of several months. We've been -- we've implemented some strategies to address this situation using different ports by using fast boats and several other avenues available to us, but we think that's going to last for a while yet. And frankly, it's built into our plans and built into the kind of quarterly cadence that Mike talked about earlier.

I would also add Erinn. While it's never preferred, this is a year where if we need to we'll invest that do what we need to do to get the good as soon as we can get them. Because the demand is there and we obviously have the market share opportunity, the shelf space opportunity with a couple of our biggest brands right now that we're not going to let that opportunity pass us by. So hard to predict where this will go in terms of the full year, but we're trying to be conservative in that outlook. We had a couple of unusual events in Q1. We had two different vessels that had significant number of our containers on them that had either been damaged or we lost containers into the water in 25 years I've been with the Company. At this magnitude, that's never happened before, and we had two in one quarter. So part of the reason we're seeing a shift here from Q1 to Q2 is just that very unusual event. But our team is way in front of this right now. They're doing a great job of managing it, keeping costs in line. And we're just dedicated to moving these goods as fast as we can to meet the demand we have.

Our next question comes from the line of Dana Telsey with Telsey Advisory Group.

Congratulations on the nice progress.

Thank you, Dana.

As you think about the wholesale business, you talked in the past about new players that you're targeting for the brands. What are you seeing there? And what are the opportunities in wholesale going forward, given I think you mentioned mid-single digits growth so far in the first quarter as you see it? And then on operating cash flow for 2021, how are you looking at that in CapEx and the return on CapEx investments in digital? What do you foresee?

Dana, on the new, I mean, wholesale, we're bullish on wholesale for some of the reasons I said. We're certainly seeing our product resonate in digital as well with these, with our wholesalers. So there's certainly an increased penetration within their e-com business, where with most of the big digital titans. So I'm not sure if, maybe you have to clarify what you're referencing, we said new wholesale accounts.

I thought you were going in even with going into new wholesale accounts with the digital operations also. Are there new retailers that you're interacting with to capture, whether it's a younger customer or newer customer that you're seeing?

Well, I mean, we're certainly looking at all the new business models out there, the subscription services and the like that we think footwear hasn't dived as deeply into, but we want to be on the forefront of that. And I think some of our brands like Wolverine are taking advantage some of the wholesale distribution locations where we might have presence with some of our other brands, but trying to get shelf space from the other competition that I think we're seeing some opportunities on in '21 and making sure that we fuel their shift to digital as well. I mean some of our big partners have expressed how they're shifting heavily into digital and how they're expressed transitioning some of their product mix, and we're well poised to take advantage of that in the athletic, outdoor and workspace.

And I think we're also leveraging the portfolio today and really shifting the distribution in our wholesale channels. And I think that's critical. We look at our digital penetration with pure-play retailers and our sporting goods and outdoor retail penetration. That's become a much bigger percentage of our total business and obviously, healthier channels overall. So in this environment, we've been able to kind of prioritize those channels and partner with the best retail partners we can. But we've always had a real broad base of accounts that don't necessarily require us to go out and get new customers, but just to emphasize the ones that are performing the best in this environment. And then I think your question on CapEx is a good one. It's, when we think about digital and e-commerce, in particular, we've invested over the years. We, I think we were ahead of the curve on the investment side of the business here because we set the platforms up. We put the tools in place before this acceleration began. So when we look at investment in the e-com platform, it's in people. It's in other resources. It's certainly optimizing our demand creation and our performance marketing. There is some CapEx there too, Dana, which supports our entire global business through the distribution and supply chain and everything else. But as it relates specifically to e-com, it's a pretty small percentage of the total.

Our next question comes from the line of Laurent Vasilescu with Exane BMP Paribas.

Mike, I wanted to follow-up on Mitch's question. I think it was called out that Saucony would be up about 50% for the first quarter. An extra shift from 4Q into 1Q, how do we think about the growth just in terms of underlying growth? And then can you parse out how much the China partnership will contribute to FY '21 revenues?

I can talk to the Saucony share. Again, 50% growth for Saucony in Q1 was tremendous growth on a global scale for them, also really strong continued performance on the e-com channel for Saucony. Yes, they're benefiting from those launches that we talked about that split out of Q4 and moved into Q1. But even excluding that, there would be very strong double-digit growth for the Saucony business in the first quarter. And that's, frankly, obviously going to accelerate into Q2 as we go up against easier comparisons. But we think that the pipeline there and the consistent flow of the new product that's coming to market through the course of the full year is going to keep that momentum going.

Yes. I would say we anticipate a very strong double-digit increase for Saucony for the entire year at this point. With respect to China, we've got a foothold there in China. Our joint venture is meeting expectations even with the bump in the road caused by the pandemic. The dollars there are probably not overly significant at this point for the Saucony brand, but we did end the year with 32 Saucony stores opened. So a great presentation in China, our best product, a great apparel program in China. But frankly, it's, we kind of view China's opportunity in front of us.

Very clear. And then as a follow-up, sorry, if I missed this on Erinn's question. But Mike, did you guide, give color on just where, if you can give us color on the first quarter gross margins? I think you had about $3.1 million of air freight costs in 4Q. How do we think about that for 1Q? And then just a housekeeping question here. Anything in terms of how we think about the $0.15 adjustment in the FY '21 EPS guide? What's driving that? That would be very helpful.

Yes. On the latter point, that's predominantly almost all related to the ongoing litigation costs that we have, that we'll continue to have for the next year or two years on the legacy environmental issue. And then on the, we didn't give guidance on the margin rates for Q1. I would say, currently, where the kind of the street sits at about 10%, operating margin is in line with what we would expect. And we are still managing through freight and other things, and there's some variables there that we'll be able to report on at the end of the quarter. But as we did mention, that's going to be an ongoing component for us to manage as we look to the rest of the year.

Our next question comes from the line of Alec Legg with B. Riley FBR.

Just a question on the Merrell website. You mentioned 70% growth in new consumers. Any additional details on that? Was that mostly consumers moving from in-store to online? Or were there a large mix of new consumers to the brand? And then any details on other brands that might have seen large meaningful growth online and either through acquiring new customers?

I don't think it was so much migrating them from our own online stores because remember, our online stores are really all outlets. And this was full price business. So I think it was a lot of new customers. It was probably customers that maybe have bought Merrell elsewhere and with stores being closed, went right to our site. So now that was exciting for us. And as I mentioned in my remarks, we're going to be launching a mobile app with Merrell later on this spring. So we're going to continue the investment and making sure we have they can shop us however they want to shop us. And certainly, there are other brands that are learning within our portfolio from that as well. So we -- so yes, it's -- in terms of new customers and migrating, we're not going to give that information, but it's exciting to see all the KPIs and how they're trending for Merrell and Saucony and really all of our brands online.

Yes. And I think this is just also related to the flood of new consumers to the outdoors, right? Whether it's camping in the backyard or visiting the National Park or hiking on a trail. There was a tremendous uptick in consumers looking at the outdoors. And I think Merrell was the recipient of some of that increased interest.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Brett Parent for closing remarks.

On behalf of Wolverine worldwide, I'd like to thank you for joining us today. As a reminder, our conference call replay is available on our website at wolverineworldwide.com. The replay will be available until March 25, 2021. Thank you, and have a good day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and enjoy the rest of your day.