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Greetings and welcome to the Wolverine World Wide Second Quarter Fiscal 2026 Earnings Call. Operator provided instructions during the conference. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jared Filippone, Head of Investor Relations. You may begin.
Good morning and welcome to our second quarter fiscal 2026 conference call. On the call today are Chris Hufnagel, President and Chief Executive Officer, and Taryn Miller, Chief Financial Officer. Earlier this morning, we issued a press release announcing our financial results for the second quarter of 2026 and guidance for fiscal year 2026. The press release is available on many news sites and can be viewed on our investor relations website at investors.wolverineworldwide.com. This morning's press release and comments made during today's earnings call include non-GAAP financial measures. These non-GAAP financial measures, including references to the ongoing business and constant currency revenue growth rates, were reconciled to the most comparable GAAP financial measures in attached tables within the body of the release or on our investor relations website. 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 2026, growth opportunities, and trends expected to affect the company's future performance made during today's conference call are forward-looking statements under U.S. securities laws.
As a result, we must caution you that there are a number of factors that could cause actual results to differ materially from those described in the forward-looking statements. These important risk factors are identified in the company's SEC filings and in our press releases. All revenue growth rates will be cited on a constant currency basis unless otherwise stated. With that, I will now turn the call over to Chris Hufnagel.
Thanks, Jared. Good morning, everyone. Thanks for joining us on today's call. In the second quarter, our business results continued to track ahead of our expectations, driven by the team's strong execution of our global brand building model. We delivered better-than-anticipated revenue, growing 6% against double-digit growth last year, with adjusted earnings per share growing 14%, reflecting healthy SG&A leverage, while at the same time investing in our strategic priorities and key growth drivers. Merrell and Saucony, representing approximately two-thirds of our business, continued to lead the way with revenue up 10% and 9% in the quarter, respectively. We continue to make progress in building better brands, delivering compelling products, investing more in demand creation and telling better stories, managing the marketplace more effectively, all leading to elevating our brands' positions in their respective markets.
As a result, we're seeing the cumulative, tangible effects of our consistent efforts. Across our portfolio, our brands generated increases in consumer interest and took market share in their key categories. These gains in consumer demand are creating more consistent growth in the business, with the company having now delivered seven consecutive quarters of year-over-year growth. Given the strengthening of our brands, the solid results we drove in the first half, and the continued momentum we're seeing in the business, today we're raising our guidance for the year, which Taryn will walk you through in a few minutes. But before handing the call over to her, I'd like to share more on our brands, including the continued growth of Merrell and Saucony, as well as the progress we're making in applying our playbook to set Sweaty Betty and Wolverine on a path to more consistent growth. I'll start with Merrell.
Merrell remains focused on modernizing the outside with faster, lighter, more versatile product design and elevated brand relevance. The brand's consistent execution of its strategy has resulted in sustained meaningful growth and market share gains. These trends continued in the second quarter. The brand delivered a double-digit increase in revenue with growth in all regions and outsized increases internationally, where its Key City strategy has helped amplify the brand's momentum. Globally, Merrell's 'It Starts Outside' marketing platform, launched earlier this year, is creating brand consistency and lifting purchase intent with our consumers. To extend the platform, the team executed a host of community activations as part of its 'Outside in the City' series, redefining the outdoors in several key global cities, including London, Paris, and New York, with more cities planned in the coming weeks.
Merrell once again had triple-digit basis point market share gains in the U.S. Hike category, now with three of the top 10 styles. The brand's key franchises, the Moab 3 and Moab Speed 2, are exceptionally healthy, each driving significant double-digit growth in the second quarter. The iconic Moab 3 is respected on the trail and remains relevant with collaborations and rematerializations like the sought-after and sold-out Khakis collaboration and the recently dropped Jolly Pack. In Trail Run, Merrell continued to entrench its position with its title sponsorship of the Skyrunner World Series, composed of elite trail running races around the globe in locations such as China, Japan, France, Italy, Spain, Chile, Argentina, and the U.S. Merrell's sponsored athletes currently claim seven spots in the top 15 men's and women's standings, including the top four ranked men in the series. In the marketplace, the brand's premier franchise, the Agility Peak 6, continued to gain traction, up double digits globally versus the previous model's comparable first season.
On the Lifestyle side of the business, the Wrap franchise continued to grow with additional silhouettes, more than doubling year-over-year at U.S. retail. The brand also continues to enhance its lifestyle offering with trend-right styles like the Moab 2 Woven Slide, the low-profile Relay, and hybrid Mary Janes and performance platforms, including the Moab Speed 2 and SpeedArc, all of which are selling well. In June, the brand engaged influential partners at Paris Fashion Week as it continues to elevate its Lifestyle profile globally and looks to accelerate this side of the business in 2027. Merrell is performing well, and the brand remains on track to deliver mid-single-digit growth this year. Shifting to Saucony. We continue to believe that Saucony is uniquely positioned as a disruptive challenger brand at the intersection of two of the fastest growing categories in the market, performance and lifestyle running.
In the second quarter, the brand drove solid growth in both categories around the world, on top of 40% overall growth last year. Saucony's Key City focus, which started in London a few years ago, continued to help fuel strong brand heat, consumer demand, and revenue growth, particularly in Europe. In London, the brand held one of its own Maze Run Club races earlier this year, once again sponsored the London 10K last month, and plans to sponsor the Run Shoreditch Half Marathon this fall. In addition, Saucony has expanded its Key City strategy to Berlin with sponsorship of the Berlin 10K a couple of months ago and a broader activation plan underway, and then to Paris with a Maze race back in February and plans for a host of activations, a new pioneer store, and title sponsorship of the Eiffel Tower 10K. Creating tentpole moments by sponsoring race events that each reach a broad running audience, flanked by a series of community activations, often in partnership with run clubs and key retail partners, has proven to be an effective strategy.
Saucony's brand search interest was up meaningfully year-over-year in the first quarter globally, with even faster growth in the U.K. This past quarter, the search interest growth rate accelerated by almost two times globally and more than tripled in the U.K., and France grew at an even faster pace. Sell-through trends in the EMEA region are also very strong, creating a healthy pull dynamic, which we are actively managing to cultivate sustainable growth, focusing on disciplined distribution and segmentation strategies. Because of these positive results, our Key City playbook is now being adopted by some of our distribution partners around the world. Our latest Saucony store opened in Hong Kong in the second quarter, and there are already plans to activate in Istanbul and Bangkok this year with race sponsorship and Maze events, a store opening, and community activations on tap. In the Performance running category, Saucony gained market share at U.S. run specialty in the quarter and showed well in major marathons this spring, ranking in the top five most worn brands at Boston and London, notably second among women at the Boston Marathon.
With the brand's Endorphin collection, its pinnacle offering for elite runners, Saucony launched a new version of its most innovative shoe, the Endorphin Elite 3, and plans to launch an all-new Endorphin model in 2027 that we believe will further elevate innovation performance for serious runners. In Saucony's Core 4 franchises, which are targeted towards a more casual runner, the brand introduced the new Triumph 24 and Hurricane 26 in the last couple of months, and they are driving franchise growth on saucony.com in early selling with positive feedback from our wholesale partners. Saucony also continues to fuel brand heat in its lifestyle business with compelling styles and thoughtfully selected collaborators who are helping develop the brand's relevance on several different dimensions. In the second quarter, the brand released collaborations with Estudio Niksen, Greyson, two collaborations with Engineered Garments, and Minted New York, the last of which was launched in an event hosted at our Covent Garden Pioneer Store in London, generating exceptional brand energy.
Earlier this month the brand planned to drop a highly anticipated collaboration with Westside Gunn, building on a partnership that continues to strengthen the brand's credibility in streetwear and culture. In June, Saucony launched the Ride 1 as part of its extensive Paris Fashion Week presence, including a host of activations with influential collaborators, retailers, and consumers. The brand also introduced the Kinvara 1 and ProGrid Paramount in top-of-the-pyramid distribution, while the ProGrid Omni 9 continued to drive growth globally. Looking ahead, the brand continues to develop its lifestyle strategy, leveraging its deep and diverse product archive, developing sharpness behind streetwear and fashion, and thoughtfully cultivating greater relevance with women as well as men. Finally, as we think about realizing Saucony's full potential, I believe that should include becoming a true head-to-toe run lifestyle brand.
In close partnership with our Sweaty Betty product design and development team, we're developing a capsule apparel collection designed specifically for her that we plan to drop in our stores and online early next year. I'm excited for this test and for leveraging the collective power of the company and what this opportunity could mean longer term for the Saucony brand. The brand's momentum remains strong and we're raising our outlook for the brand to mid-teens growth for the year. I continue to believe that Saucony is well positioned and that the opportunity for the brand remains significant. I'd now like to provide an update on the progress of Sweaty Betty and Wolverine, brands that we're focused on returning to sustained healthy growth through disciplined execution of clear strategies and implementing our proven brand growth playbook. It's important to note that while we don't expect performance to be perfectly linear, we're encouraged by the recent progress we've made and the real results we've seen in the marketplace.
Both brands are reestablishing their premium positions, driving meaningful increases in consumer interest and purchase intent, and beginning to deliver growth in key segments of their business. Beginning with Sweaty Betty. Sweaty Betty is one of the original female activewear brands and focuses squarely on empowering women through fitness and beyond. Last year, we fully integrated this business into Wolverine World Wide and developed a new strategic growth plan. As part of this effort, and as noted previously, we initiated an intentional and strategic reset of the U.S. market in the third quarter of last year. As a result, the brand was down low single digits overall in the quarter, but encouragingly grew approximately 3% when excluding the impact of the market reset in the U.S. The areas of the business that we prioritized are responding positively and contributed growth in the quarter.
The U.K. direct-to-consumer business grew mid-single digits, with continued increases in key categories like bottoms and outerwear. We're seeing our investment in the brand's new store design lift performance as well, with four refits completed so far this year. The expansion of wholesale and distribution partners in Europe and Asia Pacific also continues to advance, with revenue up strong double digits and discussions for new partnerships progressing well. During the quarter, the brand executed several activations to continue to strengthen its bold, rebellious voice in the marketplace. This 'Born Sweaty, Go Shorty' campaign increased purchase intent and helped drive strong revenue growth in the shorts category. The brand also effectively positioned itself relative to popular activities, including running with its 'Rule the Run' event in April, racket sports with its 'Power by London Padel' event in June, and a Wimbledon event in July, all driving strong consumer engagement for the brand.
The Sweaty Betty brand is healthier today with a strong strategy in place and a determined team driving the business forward. We have more work to do, but I'm encouraged by our progress. Finally, finishing with Wolverine. Wolverine is the number-one work boot brand in the U.S., and again added market share in the second quarter, its third consecutive quarter of gains. The brand grew revenue high single digits in the quarter, and we continue to make good progress driving towards more consistent, sustainable growth. Wolverine is focused on managing a cleaner, more disciplined marketplace and elevating its positioning with consumers. Behind these efforts and a stronger product line, the brand continues to lift average selling prices and drive double-digit growth in key franchises at retail, including the Trade Wedge and Loader II, and in western boots with the Rancher and Wheatland. Recalibration of the marketplace to optimize assortments and inventory at key retailers is still ongoing, resulting in some expected choppiness and near-term volatility at retail.
But inventory is continuing to get cleaner and our new distribution and segmentation strategies, while nascent, are sharper. In the quarter, Wolverine also continued to build brand relevance by engaging consumers with more purpose-led, differentiated marketing. The brand's collaboration with Metallica Scholars introduced a limited edition boot and workwear collection that benefits trades education and its 'American Dream' contest launched a made-in-the-USA Loader II DuraShocks boot and celebrated 50 tradespeople in our 50 states. These initiatives and previous upper-funnel investments, like the brand's partnership with the series 'Landman,' helped further accelerate growth of consumer interest in the quarter. Work remains to get us to where I believe we should be, but Wolverine's new product innovation and designs are performing. The brand's marketing is reaching more consumers and cultivating greater emotional resonance and the marketplace is responding.
Importantly, we've added some new talent to the brand and prioritized its place in the Work Group portfolio. I continue to be enthusiastic about the brand's opportunity looking ahead and what a growing and more profitable Wolverine brand and Work Group can deliver for the company. Now I'd like to hand the call over to Taryn Miller, our Chief Financial Officer, to take you through our results for the quarter and our updated outlook for the year. Taryn?
Thank you, Chris, and welcome everyone. Our second quarter results exceeded expectations and reflect the continued progress we're making across the business. The operating model we've built, combined with continued investment in our brands and capabilities, is strengthening the portfolio, improving profitability, and reinforcing our confidence in the long-term earnings potential of the company. Merrell and Saucony drove the company's revenue growth in the quarter. Growth combined with disciplined cost management contributed to 80 basis points of adjusted operating margin expansion while further improving our balance sheet and financial flexibility. Given our strong first half performance and continued execution across the business, we are raising our full year 2026 outlook. I'll now take you through the highlights from our second quarter. Revenue of $506 million exceeded the high end of our outlook, driven by better-than-expected performance in both the Active Group and Work Group.
Reported revenue growth was 7% compared to the prior year, or 6% on a constant currency basis. The following channel, segment, and brand performance is provided on a constant currency basis. Wholesale revenue increased 8% compared to the prior year, reflecting strong international performance and continued growth in the U.S. DTC revenue was approximately flat versus the prior year. Active Group revenue increased 8% in the second quarter, with performance across the segment exceeding our expectations. Merrell revenue grew 10% in the quarter. Strong wholesale performance was driven by international markets and continued gains in the U.S. Ongoing strength in sell-through across core franchises and key accounts supported the brand's momentum. DTC revenue declined compared to the prior year, reflecting a deliberate shift in marketing investments toward upper-funnel brand building activity. Saucony revenue increased 9% in the quarter, building on 40% growth in the same quarter last year, driven by growth in both wholesale and DTC.
Wholesale growth was led by international markets with continued gains in the U.S. The brand continues to build momentum across both Performance and Lifestyle categories, supported by ongoing marketing investments and new products that are resonating with consumers. Sweaty Betty revenue declined 3% in the quarter, reflecting the planned and ongoing reset of its U.S. business. The brand delivered another quarter of growth in U.K. DTC and international wholesale, reflecting encouraging consumer response to its broader product assortment. Work Group revenue declined 2% compared to the prior year, which was modestly ahead of expectations. Progress across the Work Group portfolio continues to vary by brand, but the actions underway to enhance product offerings and improve marketplace health are beginning to gain traction. While there's still more work to do, we are encouraged by the early results.
Consolidated gross margin was 46.5%, a decrease of 70 basis points from the prior year and 10 basis points above our expectations. Gross margin was pressured by an approximate 310 basis point unmitigated tariff headwind and a modest impact from elevated oil prices on freight costs, although mitigation actions offset most of the tariff impact. Adjusted operating margin was 10%, an increase of 80 basis points compared to the prior year and 50 basis points above our expectations. Tariff-related pressure on gross margin was more than offset by strong revenue growth and disciplined management of operating expenses. As a result, adjusted diluted earnings per share increased 14% year-over-year to $0.40, compared to $0.35 in the prior year and above our outlook of $0.35 to $0.38. Net debt was $443 million, down $125 million versus last year. Turning to our outlook for 2026, we are raising our full year outlook and now expect revenue to be in the range of $1.98 billion to $2.00 billion, representing reported growth of approximately 6.2% at the midpoint.
This compares to our prior outlook of $1.96 billion to $1.985 billion. Our foreign currency assumption is unchanged at an estimated $14 million benefit versus the prior year. As a reminder, the prior year included a 53rd week in the fourth quarter, which contributed approximately 70 basis points to full-year 2025 revenue growth, primarily within our DTC business. On a constant currency basis and excluding the 53rd week in 2025, we now expect revenue to increase approximately 6.1% at the midpoint. The following segment and brand outlook is on a constant currency basis. Active Group revenue is now expected to increase high single digits, up from our prior outlook of mid-single-digit growth. We continue to expect Work Group revenue to be approximately flat compared to 2025. At the brand level, we're raising our outlook for Saucony to mid-teens growth, the high end of our prior low-to-mid-teens range, reflecting the first half performance and continued momentum across categories.
The investments we're making to build consumer demand are strengthening the brand's market position and driving durable growth. Our outlook for the remaining brands is unchanged, with Merrell expected to grow mid-single digits, Sweaty Betty expected to decline low single digits, and Wolverine expected to be approximately flat compared to 2025. Gross margin is now expected to be approximately 46.9% compared to our prior outlook of 46.4%. The improvement primarily reflects stronger marketplace execution, supply chain efficiencies, and modestly lower tariffs. With respect to tariffs, our updated guidance assumes existing tariff rates remain in place for the balance of 2026. This assumption reduces the estimated unmitigated tariff impact by approximately $2 million compared to our prior outlook. While we continue to believe rates may ultimately return to IEPA levels, the timing of any change remains uncertain.
Our guidance excludes any potential refund related to the $36 million of IEPA tariffs previously paid, which we continue to actively pursue. Adjusted operating margin is now expected to be approximately 9.9% compared to our prior outlook of 9.5%, reflecting the higher gross margin and meaningful operating leverage for the year, while also making strategic investments in our brands and key capabilities. Interest and other expense is projected to be approximately $23 million and the effective tax rate is projected to be approximately 18%, both unchanged from our prior outlook. As a result, adjusted diluted earnings per share is now expected to be in the range of $1.55 to $1.65 compared to our prior outlook of $1.43 to $1.58. We are increasing our operating free cash flow outlook to $115 million to $130 million from $105 million to $120 million previously. We continue to expect capital expenditures of approximately $20 million.
Moving to our third quarter outlook. Revenue is expected to be in the range of $495 million to $500 million, representing reported growth of approximately 5.8% at the midpoint compared to the prior year. On a constant currency basis, revenue is expected to increase 6.5% at the midpoint. Active Group revenue is expected to increase high single digits, while the Work Group is expected to be approximately flat to the prior year. Gross margin in the third quarter is expected to be approximately 47.4%, down 10 basis points compared to last year. This includes an approximate 180 basis point unmitigated tariff impact and a modest headwind from higher oil prices on freight costs, with mitigation actions and other business initiatives offsetting the majority of those impacts. Adjusted operating margin is expected to be approximately 10.4%, an increase of 130 basis points compared to last year, with the improvement driven by revenue growth and disciplined cost management, which more than offset the impact of higher tariffs and elevated oil prices on gross margins.
As a result, adjusted diluted earnings per share is expected to be in the range of $0.42 to $0.45 compared to $0.36 last year. To summarize, our second quarter results reflect continued progress across the business, led by the strong performance of Merrell and Saucony. We're improving profitability, strengthening our financial position and seeing encouraging traction across the portfolio. Our balance sheet is meaningfully stronger than it was two years ago and while the external environment remains uncertain, our confidence in the business continues to grow. Our increased outlook for 2026 reflects both the strength of our first half results and the progress we're making across the portfolio. With that, let me turn the call back to Chris before we open up for questions.
Thanks, Taryn. To close, I believe our brands are better positioned in the marketplace today, align well with consumer trends, and they are leaders and innovators in growing and attractive categories. Importantly, they continue to get stronger each quarter around the world, both those that are already performing like Merrell and Saucony and those that are not yet as consistent as we want them to be. Our team is better, our strategies are more sound, our execution is sharper, and our brands and company are healthier. As a result, our business is better than we anticipated entering the year, giving us confidence to raise our guidance for 2026. Another important chapter in our transformation story that has now become a growth story. While our progress is encouraging, we believe a bigger opportunity is still ahead of us for the company, our team, our brands, and our shareholders. Everyone at Wolverine World Wide remains focused to make every day better. With that, thank you for taking the time to be with us this morning, and we're happy to take your questions. Operator?
分析師問答
The operator will now open the line for questions. The first question is from the line of Jonathan Komp with Baird.
Could you share a little more insight into what you're seeing in the running market in general from a standpoint of overall competitiveness and discounting? And when you look to the second half implied guidance for Saucony, what's given you confidence in the acceleration? Is it simply easier comparisons or are there other factors?
Sure, thanks Jon. The run category is a very attractive and growing category and we're thrilled that we have one of the original running brands in Saucony performing the way it has and the trajectory we see. It is fiercely competitive and we have great respect for the competition. At the same time, we think we have a great team and one of the strongest product pipelines we've had. Regarding the acceleration in the back half, you noted good 9% growth in the second quarter on top of 40% growth last year. There is a somewhat easier comparison going into the back half, but visibility remains good. Saucony is a global growth story, not just a U.S. story. We're pleased by the progress around the world, the way our partners are leaning in, and the receptiveness to both Performance run and Lifestyle. We remain bullish on Saucony and the prospects for the brand remain bright.
Thanks, Chris. Then maybe, Taryn, could you frame up how to think about the guidance rates for the year? The profit flow-through looks very strong. How much of that is slightly better tariff assumptions versus underlying improvements in profitability?
Yes, thanks for the question. Regarding our gross margin, operating margin, and higher expectations, there's been no meaningful change to the tariff impact we've previously discussed. We had previously estimated around a $50 million headwind for the year, and that assumption is reduced by roughly $2 million. The bigger driver of the improvement in gross margin and operating margin relative to our prior expectation is structural: stronger revenue, more full-price sales from healthier inventories, and supply chain efficiencies driving structural improvements in the business.
Your next question is from the line of Mitch Kummetz with Seaport Research Partners.
Chris, in your prepared remarks you mentioned accelerating the Merrell lifestyle business in 2027. Can you remind us what percent of Merrell is Lifestyle? And can you talk a little about what opportunities you see for Lifestyle, particularly going into next year?
It's a smaller portion of the performance outdoor business today, but we think of Merrell as a broader outdoor lifestyle opportunity beyond the trail. The team has worked hard and I'm pleased with the progress. You see that in our efforts to bridge performance to lifestyle, legacy styles like the Jungle Moc, and trend-right items like the Relay and the Wraps collection. We're also rematerializing classic outdoor platforms like the Moab Speed into more lifestyle styles, such as slides and everyday wear. We're presenting the brand differently on merrell.com and on social, bringing the outdoors to the city under 'It Starts Outside.' The bigger opportunity beyond outdoor is outdoor lifestyle, and that will be a key unlock. We need to open up appropriate distribution and the sales team has opened new doors, including places that cater to her. I'm very pleased with Merrell's trajectory, market share gains, consecutive quarters of growth, and the outlook we see.
On Saucony, you said in your prepared remarks that you gained share in U.S. run. I believe that's an improvement over last quarter. If it is, could you address that? And as far as the back half outlook for Saucony, you sound confident and have good visibility. On the lifestyle side your door count in the back half is coming down; can you address that in the context of overall Saucony growth projection for the back half?
We did gain run specialty share in Q2, and that was an improvement over Q1, which is encouraging. We anticipate second-half lifestyle doors to be approximately flat to first half, with no change from what we told you in February. Momentum in Saucony is encouraging not just in the U.S. but around the world. Brands that innovate and bring fresh product to market are winning. Saucony has had strong launches this year, including the Azura launch that we anticipate to be the biggest single launch in the brand's history, updated Core 4, a new Endorphin Elite, and more in 2027. We remain bullish on the Saucony product pipeline and the way the team is driving the business.
Your next question is from the line of Laurent Vasilescu with BNP.
This is Lucas Cohen on for Laurent. Thanks for taking our question. Could you elaborate more on the deliberate DTC pullback for Merrell in the quarter? I know you highlighted some DTC strength in prior quarters. I wanted more context. Also, did the mix of Merrell full-price sales continue to improve in the quarter? And is Merrell continuing to gain share in Hike? I think you mentioned last quarter they gained share 12 of the prior 13 quarters in Hike.
Triple-digit basis point gain for Merrell, again the leader in Hike with three of the top 10 styles in the U.S. For Merrell DTC, the overall underlying health of our brands and performance globally continue to be strong, shown in brand health metrics, Google search interest, and market share gains. The DTC story differs by brand. For Merrell specifically, we're consciously moving marketing dollars up the funnel to build awareness globally. That shift pressures Merrell in the short term in DTC, but we believe it is in the long-term best interest of the brand globally. We expect that to even out over time and it ties to our value creation model. We remain optimistic about Merrell and believe the steps we're taking will deliver long-term improvement.
Your next question is from the line of Peter McGoldrick with Stifel.
I wanted to ask on the Saucony brand: as we think about the upgraded outlook, you represented the global uptake of the brand. Can you point to the key regions of incremental international traction for Saucony?
We're really pleased by the progress in EMEA and give a lot of credit to that team. February 2024 was the start of our Key City strategy with Saucony in Europe, specifically London. Over the past three years, that focus has elevated the brand's awareness and affinity in that market. We led with Performance run in product and activations, doubling down on London with sponsorships and run clubs. That investment has paid off and we are beginning to take those learnings to other cities like Paris and Berlin. We introduced lifestyle following the run focus and learned how to roll that out from the U.S. We're applying those learnings to the rest of the world. Standout regions for Saucony are certainly Europe.
On inventory, inventory dollars decreased meaningfully on the books year-over-year compared to the go-forward revenue growth outlook in the back half. Can you help us think about the spread between inventory and the outlook and the quality of inventory on the books and ability to service the revenue that's in the back half outlook?
At the end of the second quarter, inventory was down around 17% from the prior year. Overall, inventory is in a healthy position. The year-over-year decline is a combination of timing factors and the continued benefits from our efforts to improve inventory management and productivity across the portfolio. The timing relates to receipts as well as the disciplined working capital initiatives we've taken. We are confident that the current inventory levels, together with planned receipts in the second half, will fully support the increased revenue outlook for 2026.
Your next question is from the line of Sam Poser with Williams Trading. It appears Sam was not immediately available. Your next question is from the line of Mauricio Serna with UBS.
Regarding Saucony's guidance increase toward the higher end, could you break down where that guidance increase is coming from when you look at Lifestyle versus Performance? High-level, what are you seeing in the U.S. in terms of sell-through for both Performance and Lifestyle, and what are you seeing about full-price selling and promotions in the space?
The raise in Saucony reflects both delivery to date and our outlook for the second half. It is broad-based growth across both Performance and Lifestyle, and we're seeing healthy business globally. It is a fiercely competitive space with many strong challengers, but brands that bring compelling, innovative product, package them with great stories, and execute on the ground tend to win. Improvements in market share gains this quarter versus last quarter are encouraging, saucony.com trends give us encouragement, and feedback from our partners is positive. Saucony's growth is diversified across categories and channels—Performance run, Lifestyle, global markets, DTC, and wholesale—which supports our optimism.
Quick follow-up on Merrell: given the strong performance in the second quarter, why doesn't the revenue guide for that brand increase? How much of the quarterly growth do you attribute to core Hike versus Lifestyle? And Taryn, you mentioned stronger marketplace execution as a driver of gross margin improvement—could you explain that more?
We're encouraged by Merrell's progress. Iconic pieces like the Moab 3 continue to be dominant. The Moab Speed 2 has become an important franchise. Thoughtful segmentation and distribution strategies and strong performance across Europe and Asia Pacific give us encouragement. Both Performance outdoor and Lifestyle pieces contribute, and we are investing in Merrell's marketing around the 'It Starts Outside' platform. Merrell led our recovery post-2020 and has shown a long string of market share gains, including triple-digit gains this quarter. The Hike category had been under pressure in recent years, and we are starting to see it stabilize. Overall, we are optimistic and will continue to execute against the plan.
When I referred to structural or marketplace execution driving margin improvement, I meant healthier inventories and increased brand heat that result in more full-price sales. We are investing in marketing and brand capabilities, which help drive these full-price sales. Product design optimization, supply chain efficiencies, logistics improvements, and sourcing are also contributing. In summary, the improvement reflects brand-driven demand enabling higher full-price sell-through and operational efficiencies across supply chain and product design.
Your next question is from the line of Sam Poser with Williams Trading. Please go ahead.
Can you hear me this time? My follow-up on inventory: was there a timing shift on inventory delivery? I believe some receipts shifted into early July rather than arriving by June 30.
Operator, we don't appear to have Sam joining immediately; we'll address inventory questions as they're posed. Please proceed.
Your next question is from the line of Ashley Owens with KeyBanc Capital Markets.
There's been a lot of talk on Merrell and Saucony. I want to focus on the other brands. For the Work Group, it's encouraging to see the Wolverine brand return to growth in the quarter. Can you discuss the brand-level improvements that started to work in the quarter? With the Work Group guided down for the balance of the year, could you break that down brand by brand? Are you assuming Wolverine will sustain improvements and what's the biggest drag in that area of the portfolio today?
We are encouraged by the progress in the Work Group and specifically Wolverine. The brand is focused on executing our global brand building model: great products, strong stories, and on-ground execution. We are pleased with Q2 results at Wolverine but acknowledge the need for more work and do not expect linear results; there will be choppiness as we address channels, assortments, and ensure the right product in the right doors with proper activation. Wolverine's recent moves—product innovation, focused segmentation, distribution strategy in U.S. wholesale, marketing partnerships like Landman, and activations—are driving early positive metrics such as increased consumer interest and Google search trends. We're encouraged by the team and the opportunity for a healthier Wolverine brand and Work Group overall.
On Sweaty Betty, with the U.K. DTC business now growing multiple quarters and international wholesale strong, which strategy is working best today? Given the reset in the U.S. that started in Q3 last year, at what point does that reset become small enough that the international growth shines through? And on Saucony, with lifestyle door count flat but brand outlook up, does that imply stronger productivity within existing accounts in the back half?
For Sweaty Betty, we implemented a strategy about a year ago and doubled down on the key moves: product evolution, refreshed store design, and a distinct brand voice. The U.K. DTC improvement is positive even in a challenged market for that consumer. Product pipeline diversification—more bottoms, mid layers, and outerwear—plus stronger store experience and international wholesale expansion through our distribution partners are driving progress. The U.S. reset began in Q3 last year and we will shortly lap that, which will provide easier comparisons. For Saucony, door counts are where we anticipated, but channel inventory is clearing and those doors are becoming more productive. We want productive doors, strong sell-through, and a pull model; we're working to optimize the business and that underpins our raised outlook for the back half.
Your next question is from the line of Tom Nikic with Needham & Company.
On Saucony longer term, even with strong performance the brand is still smaller than many peers, implying runway for growth. Where do you think long-term opportunities lie? Shelf space gains, door count increases, category expansion, or other areas?
We agree. Despite strong performance, Saucony is still a small challenger relative to peers, which provides runway. Saucony has attributes: a century-old brand, innovation heritage, credibility with elite runners, and authentic crossover into Performance and Lifestyle. Opportunities include expanding Performance run, Casual run, Lifestyle, street and fashion, apparel and accessories, and further international expansion. We have strong partners in China and progress in markets like Europe and Japan. We can leverage Sweaty Betty's apparel expertise and the broader company's capabilities. We'll test and learn, then scale responsible growth. The total addressable market and competitor sizes mean it's our job to chase that growth.
Your next question is from the line of Dana Telsey with Telsey Advisory Group.
As you think of product, between core versus innovation and newness, what should the mix be for each brand and where do you expect it to go? What does that mean for price and margin? You mentioned apparel and other categories—does that become a bigger role given what you've learned from Sweaty Betty?
Innovation is paramount. Great product driven by consumer insight that solves problems, priced right and placed right, is essential. Expectations differ by category—for example, work versus outdoor versus run versus active apparel—but the principle holds. We shaped the portfolio to focus on brands aligned with consumer trends and distorted resources toward highest value-adds, which is paying off with Saucony and Merrell. We're making brands more premium through innovation, better storytelling, and right channel placement. Apparel and accessories are an opportunity; Sweaty Betty brings expertise and Saucony has potential to play a larger role in apparel. We'll test and scale successful initiatives.
Your next question is from the line of Anna Andreeva with Piper Sandler.
Congrats on progress. On SG&A, Taryn, you managed dollars tightly up only about 2% in the quarter and the Q3 guide assumes something similar. Were there any timing shifts within that? Should we think very low single-digit growth is the right way to think about SG&A going forward? You mentioned higher freight—did you quantify that impact in Q2 and what should we expect for Q3?
Thank you, Anna. There was no notable timing shift in SG&A for Q2. The SG&A improvement was driven by stronger revenue enabling leverage from the revenue beat. For the balance of the year, at the midpoint of our 2026 guidance, implied SG&A as a percentage of revenue is largely consistent with what we said in May and reflects a decrease of around 130 basis points versus last year. We continue to invest in growth-enabling capabilities—marketing, Key City activations, digital initiatives—while remaining disciplined across the rest of the cost structure. These investments, combined with revenue growth, are improving profitability. We did not quantify the oil impact; I would describe it as modest. We would expect it to be slightly more in Q4 than in Q3, given e-commerce and shipment seasonality, but still modest overall.
Chris, on the DTC versus wholesale dynamic across the brands: DTC has been more muted for a few quarters and you've focused on driving more full-price business. Do you expect DTC to bounce back in the guide and where are you with refocusing on full-price across the brands?
DTC is a significant focus and the story differs by brand. We're pleased with Saucony DTC progress and Sweaty Betty's UK DTC growth, though Sweaty Betty is affected by the U.S. reset that we will shortly lap. For Merrell we shifted marketing spend up the funnel, which pressures short-term DTC but is intended to improve long-term demand and full-price mix. We are focused on reducing promotions, increasing full-price sales, and better storytelling in our online channels. There's more work to do, but we are taking the right steps to improve DTC performance ahead of the holiday selling season.
Your next question is from the line of Sam Poser with Williams Trading.
A few quick questions. One, was the international business better than you anticipated this quarter? If so, did the geographic mix help gross margin more, and is that built into the increased gross margin guidance? Second, regarding inventory timing: how much was pushed into July versus June? If we looked at inventories today, what would the year-over-year picture look like? Third, Chris, for Merrell, what percent of sales is Lifestyle now and where do you see that going over the next few years?
On geographic mix, it was as anticipated and not a driver of Q2 margin improvement nor for the balance of the year. Regarding timing, there were two timing components: a receipt timing difference versus last year and a June-to-July delta. Those timing shifts contributed to the year-over-year inventory decline. Importantly, we are confident that current inventory levels and planned receipts will support the higher growth outlook for 2026. Regarding inventory specifics by brand, some of the decline was driven by improvements at Wolverine and the timing pieces were more in Sweaty Betty and Merrell; Saucony was not a driver of the decline.
Quick follow-up on inventory: was some of it shifted into early July rather than June 30?
Yes, some receipts shifted into early July; the timing shift spanned receipts this year versus last year and a June-to-July delta. Again, we are confident in inventory to meet demand based on current levels and planned receipts.
And Chris, you mentioned Lifestyle is less than a quarter of Merrell today. Where do you see that going?
Lifestyle is under 25% of Merrell sales today. We see ample opportunity to grow lifestyle as we protect our trail leadership and bring trend-right, color-right, and price-right products to her shoppers in appropriate channels. Cracking the lifestyle piece meaningfully and placing the right product where she shops is the team's focus. I'm optimistic about both protecting the core Performance business and expanding Lifestyle for runway beyond today.
One last quick follow-up: Did Lifestyle growth outpace Performance in the quarter for Merrell, or was Performance the stronger driver?
Performance showed particular strength in the quarter: the Moab 3 and Moab Speed 2 were dominant, and Performance drove notable market share gains. We do see lifestyle opportunity ahead, but Performance was the stronger driver in this quarter.
We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.