New Balance CEO Joe Preston joins Yahoo Finance Live to discuss company earnings, going public, the state of athleisure apparel, consumer trends, partnerships, rising inflation, a recession, and the outlook for growth.

Video Transcript

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BRAD SMITH: Sneakerheads unite. New Balance saw its strongest quarter ever to close out 2022 double down on new partnerships despite facing strong macroeconomic headwinds. New Balance CEO Joe Preston joins us now. Joe, great to touch base, speak with you once again here. And coming off of what was a strong end to 2022, you issued a financial update that ultimately saw the company achieve $5.3 billion in global revenue.

So what were some of the core drivers that you were able to point back to there, and is that still persisting right now in terms of a locked-in presence or trend?

JOE PRESTON: Well, good morning, Brad. It's great to be with you. Yeah, we had a record quarter. We had record quarters throughout 2022. And we ended the year at $5.3 billion. And it came across multiple silhouettes. It came across all geographies. Every region was up versus the previous year despite the US dollar really impacting our overall revenue to a tune of about $250 million, so-- and it also came across channels.

From our key account retailers around the world to our direct to consumer, we have over 500 stores that we own around the globe. We also license another 3,000. And our sales were very strong throughout the holiday, and they continue into January and February.

JULIE HYMAN: Hey, Joe. It's Julie here. Apologies, but this-- last year feels like the year that New Balance got hit, right? Like, not just because there was, sort of, a newer dad-shoe trend-- so the classic silhouette was doing well-- you guys rolled out a lot of new styles. And forgive me, but they are less-- like, I don't look at some of these new styles and think New Balance automatically.

So I'm just, sort of, curious what was driving some of your decisions and why you guys decided to, sort of, expand the repertoire.

JOE PRESTON: Well, our product teams are doing a great job reimagining some of our old classics as well as developing new product. And our brand teams have really been developing the brand at a record pace. The number of collaborators that we've been working with, the number of athletes that we've been working with has really allowed us to tell the story of New Balance, and we're reaching consumers, younger consumer, all around the globe.

BRAD SMITH: Joe, with some of the strength that you see from 2022, and perhaps some of that tailwind coming into 2023, I mean, it's long been a conventional thought that New Balance is not a company that's going to go public. Could that be different this time around, this trend around? Is there anything within the macroenvironment that would say to you, you know what, we would benefit from having public equity out there on the table for some investors?

JOE PRESTON: No. New Balance is a private organization. It's a family company. And there's no way that it will be going public in the near future. In 2022, we celebrated the 50th anniversary of Jim Davis purchasing the company back in 1972, when we were doing $100,000 in sales. And for the past 45 years, Jim and Anne Davis have led the company.

And today we have some of the same family values that we've had throughout the years, that are really strong, as we enter into 2023.

JULIE HYMAN: And so talk to me about what 2023 holds for you, Joe, in terms of what you're thinking strategically and in terms of what you're thinking, sort of, innovation and style-wise from New Balance.

JOE PRESTON: Well, we have record levels of support across technology, across brands. As I spoke about earlier, our investments into our brand have never been stronger. We just signed Shohei Ohtani, a generational-- once-in-a-generational athlete, and we're very excited about that.

We also have a number of different investments on the operation front, from new distribution centers-- we have a brand-new one opening up in the US in Q3 of this year. We announced a $65 million expansion of our Skowhegan manufacturing facility here in Maine to help keep up with demand. That's on top of the Methuen factory that we opened in 2022.

So we think that combination of us getting closer to the consumer through our technologies and our brand investments is going to continue to drive growth throughout the year.

BRAD SMITH: And, Joe, when you talk about that technology, how does that impact or change the type of materials that you use in some of the more performance brands and, kind of trying to draw a thread here across the industry, around where those new materials are coming in and where that supply is being locked in right now in order to put inventory out there on the market?

JOE PRESTON: A lot of the innovation, from a footwear standpoint, over the years, has been centered mostly around the midsole, trying to find compounds that are lighter, more responsive, more cushioned, and things like that, and that will continue. And I think that will be aided by the fact of the new innovation center that we opened up within our track, the track in New Balance, which opened up in April of 2022. In the future, I see the technology shifting more to the upper, in making things that are more environmentally safe, in trying to reduce waste, and our product teams are really focused on that.

BRAD SMITH: How does that impact pricing for the consumer?

JOE PRESTON: Well, you know, the reality of it is that it's inflationary pressures. Every item within your SG&A is being pressure tested by inflation-- by inflation. But we do know that pricing power comes from brand strength, so the investments that we're making in our brand is making our brand strong.

So we're going to be selective about where we raise prices going forward, but we're going to have to pass along some of the increases to make sure that we can continue to invest in our brand.

JULIE HYMAN: Joe, we just talked to one of your competitors over at Brooks, who talked about, if there is a recession, that running shoes tend to do pretty well, even in that environment. From where you sit, do you see a recession coming, and how do you think you guys will do?

JOE PRESTON: Well, historically, that's true, where-- you can begin running by buying a $100 running shoe, or even less than that, if you wanted to. So it's a very inexpensive way to begin any sort of fitness regimen, if you will. Right now, we're seeing the consumer hold up, particularly the consumers shopping for our brand, and we'll see how that plays out the rest of the year.

We're going to try to make sure that our inventories are in line. They were a little bit elevated coming into 2023. But our retail takeaway is outpacing our shipments, which we're always excited about, and so we think that, you know, as inventories normalize, that will put us in a position to weather any sort of economic downturn.

BRAD SMITH: Joe, fresh in my mind right now is the NBA All-Star Weekend that we've just come off of, is also watching one of the Netflix documentaries about golf over the weekend-- big sports weekend for me, Joe-- and for New Balance, you've been able to expand more into so many of those different performance categories. If there's one big innovation, one big product or expansion that New Balance is targeting for this year, what would that be, prioritized from your perspective?

JOE PRESTON: Well, we have a technology called Fresh Foam that we originally developed for our running product, and we've been bringing that along into some of our other categories. So that, for us, is a core innovation platform that we believe can help athletes in various sports.

JULIE HYMAN: All right. It's all about the foam. New Balance CEO Joe Preston, thanks so much. Good to catch up with you.