Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Crocs Inc. third quarter 2019 earnings call.
At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask the questions. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if we require any further assistance. Please press star zero Wouldnt.
Now, let's say hand, the conference over to your Speaker today, Marisa Jacobs Global head of Investor Relations. Thank you. Please go ahead.
Good morning, everyone and thank you for joining us today with the crop third quarter 2019 earnings call earlier. This morning, we announced our latest quarterly result, and copy of the press release can be found on our website at crocs Dot com.
We would like to remind you did some of the information provided on this call is forward looking and accordingly is subject to the safe Harbor provisions of the federal Securities laws.
These statements include but are not limited to statements regarding future revenues gross margin. After you know as a percent of revenues operating margins Capex and our product pipeline crux is not obligated to update these forward looking statements to reflect the impact of future of that.
We caution you that all forward looking statements are subject to risks and uncertainties described in the risk factor section of our annual report on Form 10-K .
Accordingly actual results could differ materially from those described on this call. Please refer to Crocs annual report on Form 10-K , as well as other documents filed with the FCC for more information relating to these risk factors.
Adjusted gross margin, that's GNS <unk> operating margin and earnings per diluted common share. Our non-GAAP measures reconciliation of these amounts to their gas counterparts is found in the press release, we issued earlier this morning.
Joining us on the call today, our Andrew Rees, President and Chief Executive Officer, and and Mehlman Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your question.
This time I'll turn the call over to Andrew.
Thank you for us a good morning, everyone.
I'm really pleased to those third quarter results, we delivered revenues of 313 million, a new third quarter record for crops.
This represents 20% growth or 21 person on a constant currency basis.
Our operating income grew 187% to $39.9 million fell 13% of revenues.
On Rvps rose to 51 cents compared to seven cents in last year's third quarter.
Also E com on retail comps all grew nicely with the Americas, the Liberty exceptional growth driven by another successful back to school season.
Hi, Brian continues to resonate strongly with consumers as a result of our impactful marketing on our iconic product.
Given these stellar results were once again, increasing 2019 guidance.
With revenues now anticipated to grow 11% to 12%.
We expect our 29 June revenues to be the highest annual revenues in the company's history.
Looking ahead to next fiscal year, we expect growth to continue to accelerate with 2020 revenues growing between 12 and 14%.
Focusing first on our brand.
We are exciting new data to show.
Earlier this month Piper Jaffrey released the results of its full 29 team taking stock with Teen survey.
We advanced in the old teen preferred footwear rankings to the number seven spot up from number 30 last year, a number 27 two years ago.
Results are also ran from our own brand survey measuring participants views about the crocs brand.
Our 29 to results were up double digits for each about key metrics, Brian desirability brand relevance and Brian consideration.
We have now average double digit growth across these say metrics over the past three years.
Since our last call, we continue to roll out exciting new marketing content on collaborations.
We've done additional drops with trying to tell market, maybe one time beams along with a first time collaboration with Ruby rose the newest about woman.
We also launched our crux of count on took talk a popular video sharing app.
This included a hashtags thousand dollar Crocs challenge, which had over 1.5 billion views in just the first two weeks.
It's also worth noting a crocs, we don't recognize October it's all about cross October .
Organized celebrations throughout the month and on October 23rd which is crop day, we dropped our latest shoe designed for the occasion. It was list of funds loved it.
There's much more to come we have an amazing slate of brand ambassadors lined up for a fourth year of the outcome as you all campaign.
We're excited to announce it will be joined by award winning actor activist out entrepreneur Huh pre I could show for Jonas.
Zoe does Chanel, Kim syndrome, and superhero so we'll return for 2020 .
In addition to pre anchors role as a brand ambassador we're collaborating together on a series of donations through UNICEF to a chosen around the world.
Next year, we'll unveil. The final addition to our 2020 line up a brand ambassadors to address I'm trying to market.
We'll also roll out another full slate of collaborations that expand the reach about partnerships and fun unsurprising ways I'm confident consumers will love a new offerings.
Returning to the president.
Success is being driven by disciplined execution against our strategic priorities.
Growing revenues by prioritizing clogs sandals visible comfort technology and personalization.
You know full holiday collection, we refreshed our pool clog assortment was seasonally appropriate colors and prints and of course led and great offerings of line clogs, which a perfect for cooler weather.
We also introduced light right for kids and rolled out new chipsets to keep our selection front.
Oh consumers responded with enthusiasm.
During Q3 clog revenues grew approximately 36% made up 63% of a footwear sales up from 55% during last year's third quarter.
We increased clog sales in every region was exceptional growth in North America.
Clubs are obviously more in demand than samples in the back half of the but that didn't prevent us from growing ensemble sales by 9% over last year's third quarter.
Donald revenues generated 19% about footwear revenues its own 11th consecutive quarter Osama revenue growth as we continue to increase global awareness across sandals.
With respect to visible come for technology in Q3, we expanded our light right franchise to incorporate kids sizes and the response was very strong.
If it's jobs are unique offering for personalizing, our footwear continued to grow at an accelerated pace.
We are updating their assortment regularly to provide consumers with fresh offerings.
We've also added a new personalization tools to our website that enables consumers to visualize the chosen giblets Ana clog and quickly moving to the checkout basket.
Over the past few months several wholesale accounts successfully tested chipsets in key locations.
Our year end, there will be available and many more doors. Additional accounts will also introduced giblets into that line up and 2020 .
Let me now turn briefly to <unk> to our sales channels.
Third quarter wholesale revenues grew dramatically up 25%. Following last is 9% growth as a wholesale customers are increasing their buys to meet rising consumer demand.
Our DTC comp, which combines our retail on E. Com results was up 16% on a two year stack was up 34%.
E Commerce grew 28% on top of 23% growth during last year's third quarter.
This represents our 10th consecutive quarter of double digit e-commerce growth.
Increasing brand heat continues to drive more traffic to our own sites plus we're seeing good traction on global marketplaces with revenues growing accordingly.
Retail comps were up 12% a ninth consecutive quarter of positive comps a two year stack was up 27%.
Total retail sales grew 9% even as we continue to absorbed the impact of last year's store closures.
Throughout the year, we've been executing against our growth strategy product acceptance and brand heat a rising hence we are driving sustainable profitable revenue growth and effectively leveraging our cost base.
We are another exciting journey and one is just getting started I'm very optimistic about the path that lies ahead.
The progress we're making is the result of a team effort.
I work with an extraordinary group a talented and dedicated colleagues I don't want to thank them for everything that they do.
At this time I'll turn the call over to add to review, our third quarter results and guidance.
Thank you Andrew and good morning, everyone. Let me begin by providing a short recap our third quarter 2019 performance for a reconciliation of non-GAAP amounts mentioned to their non to their equivalent GAAP amounts. Please refer to our press release.
As you've already heard we had a record setting third quarter exceeding our revenue gross margin and SG any guidance and significantly improving our S.
Third quarter revenue came in at $312.8 million compared to $261.1 million in the third quarter of 2018, and 19.8% increase or 21% on a constant currency basis.
Currency negatively impacted our revenues by approximately $3 million well store closures reduced revenues by approximately $4 million absent, which our sales would've been up 22%. This is our 10th consecutive quarter of organic sales growth in the fifth consecutive quarter of double digit organic sales growth.
We sold just under 16 million pairs of shoes, an increase of 19.3% over last year's third quarter.
Our average selling price for footwear during Q3 increased slightly to $18.99 with the increase attributable to less discounting and higher prices on certain product, which more than offset the impact of changes in our channel mix and the negative impact of currency the Americas had another phenomenal quarter.
Revenues were up 35.2% to $185.2 million with minimal impact from currency growth was robust across every channel.
Following terrific work to increase capacity in order to keep up with rapidly rising demand our classic clog inventories have been restored to appropriate levels. Additionally, the relocation of our Americas distribution center from elevated Dayton is on track and the LNG facility will be closed by year end, we're excited about the great benefit.
We anticipate receiving from our Dayton facility, including higher throughput greater efficiency and an improved customer experience.
We are evaluating investments into more projects next year and beyond that would support our anticipated growth.
In Asia third quarter revenues were $74.3 million down 1.2% from last year's third quarter on a constant currency basis revenues rose slightly ecommerce was up significantly due to growth across our own dot com and our expanding marketplace present lower wholesale revenues mainly.
Reflect the timing of revenues between quarters and ongoing efforts to reposition our business in China.
Retail comps declined primarily due to continuing unrest in Hong Kong and weakness in our Korean shop in shops.
EMEA revenues rose, 12.3% over last year's third quarter to $53.3 million on a constant currency basis revenues grew 16.1%.
Our business is benefiting from steadily growing brand heat and our continued focus on digital commerce.
Our third quarter adjusted gross margin was 53.6% well above our guidance of 51.5%. Our adjusted gross margin rose 30 basis points compared to last year's third quarter, various headwinds, including channel mix higher distribution costs and a 130 basis.
I think drag from reduced purchasing power, we leading to currency were more than offset by a variety of tailwinds, including lower promotions and higher cloud sales in the Americas plus savings associated with exiting our own manufacturing last year.
Adjusted as she may improve by 640 basis points to 39.4% of revenues versus 45.8% in last year's third quarter on a GAAP basis as DNA came in at 39.6% of revenues versus 47.9%. The work done in 2017 and 28.
Team to reduce cost is now enabling us to drive significant leverage from revenue growth, even as we continue to invest more in marketing.
Operating margin rose 750 basis points to 12.8%, while our adjusted operating margin at 14.2% almost doubled.
Q3 tax expense was dramatically lower than last year higher than anticipated U.S. profits enabled us to use tax benefits accumulated during prior years.
Our diluted earnings per share rose to 51 cents compared to seven cents in the third quarter of 2018, reflecting very strong business performance and a tax benefit of approximately three cents associated with the lower tax expense.
Our adjusted diluted earnings per share tripled coming in at 57 cents compared to 19 cents in last year's third quarter.
During Q3, we repurchased approximately 1 million shares of our common stock on the open market for $25 million at an average share price of $23.99.
Year to date, we've repurchased approximately 5.7 million shares of our common stock for approximately $133 million at an average cost of $23.47 per share approximately $520 million remains available under our plan for future share repurchases.
Our balance sheet continues to be very strong we ended the quarter was $87.9 million in cash our outstanding borrowings at the ended the quarter were $185 million down from $215 million at the end of Q2.
Inventory at the end of that third quarter increased 18.8% to approximately $140 million and our turnover ratio was 4.5 turns per year I'm extremely pleased with our performance. During Q3, we executed well on all fronts, leading to significant top and bottom line growth.
As we turn to guidance I want to remind you that our guidance is based on current currency rates.
With respect to the fourth quarter, we expect revenues to be between 245 and $255 million compared to $216 million in last year's fourth quarter, our guidance incorporates approximately $2 million from negative currency impacts as well as another $2 million reduction from revenues.
Associated with our lower store count.
At the midpoint of our guidance this represents growth of approximately 16% or 18% on an organic basis.
Adjusted gross margin will be approximately 50%.
We expect gains from increased pricing higher Cogs sales and leveraging our fixed supply chain costs to more than offset headwind of approximately 100 basis points associated with reduced purchasing power related to currency and changes in channel mix.
Our GAAP gross margin, which includes 100 basis points of nonrecurring charges associated with our new distribution center will be approximately 49%.
At GSK is expected to be approximately 47% of revenues compared to 52.7% in last year's fourth quarter, we're continuing to leverage our cost base, even as we invest more in marketing activities to drive future growth.
Our forecast calls for us to make a profit in Q4 for the first time in eight years. This speaks to the growing relevance of clogs, which are clearly in demand year round as well as to the operational improvements we've put in place to successfully improve our bottom line.
For full year 2019, we have once again updated our guidance and laid out all the specifics in our press release the highlights include.
Revenue growth between 11, and 12%, which would result in record high revenues and adjusted gross margin of approximately 51% SDMA of approximately 40% of revenues.
And adjusted operating margin of approximately 11% meeting our near term target of returning to a double digit operating margin.
It's Andrew noted with respect to 2020, we currently expect revenues to grow between 12 and 14%. This estimate assumes currency will have a negative impact of approximately $10 million in 2020 .
We're anticipating a strong finish to the year with record revenues and a return to a double digit operating margin. This sets us up nicely for another terrific year in 2020 at this time I will turn the call back over to Andrew for his final thoughts.
Thank you.
With three quarters of the year behind Us we've seen great success from adhering to our focus on clogs sandals visible comfort technology on Giblets.
Great product offerings of being amplified by impactful marketing and operational improvements are enabling us to flow a greater percentage or revenues to the bottom line.
We've made tremendous progress over the past few years and have established a clear strategy that we are confident will result in continued revenue growth and increased profitability for years to come.
Operator, please open the call for questions.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
Your first question comes from Mitch Kummetz from pivotal Research Group. Your line is open. Please go ahead.
Yes, thanks for taking my questions and congratulations on a quarter Andrew on the other 2020 guide I'm just curious how much visibility.
Do you have at this point I would imagine you've got in your your spring Order book I don't know if you could speak to that but then how are you thinking about.
Versus other drivers of a revenue growth for the for next year.
Yes. Thank you much on so let me, let me talk and sort of I think more broadly around the drivers of revenue growth for next year, and then I'll come back to kind of visibility. So as we as we look forward into next year I think.
The vast majority of what's underpinning our guidance is our strategy is working right. We can see it working this year, we can see it accelerating through the year into next year and Thats really box by a lot of the things we talked about in our prepared remarks, and I've talked about consistently our product focus on clogs sandals visible come for technology and give us we can see the growth.
With each of those product categories accelerating a marketing is clearly working both from a quiet perspective, our ambassadors.
That we've done we've used this year and we're really excited about next year and this also our social and digital cadence on collaborations from original prospective America's has been incredibly strong. This year, we see a big strong next year, but we also see a very solid growth from both EMEA and Asia next year.
And then from a channel perspective, as you know we focus very heavily on digital we focused heavily on our E. Commerce ecommerce marketplace is new marketplaces, we've gone into detail as that are an important part of reaching our core consumer and so we feel really good about our strategy and we see our strategy accelerating.
In terms of visibility, yes, Elvis we don't comment on order book local give prebook numbers, but we we look at our spring summer.
Product line by size being very well received as Weve as we visited wholesale accounts in this country and around the globe. So we feel really good about the visibility we have an underpins the guidance that we were able to provide.
Okay, Great and then and you mentioned that you know at 11% operating margin you've achieved your your intermediate term target of double digit margin I'm. Just wondering why do you guys are kinda give us a new intermediate term operating margin target. What do you think about what's maybe the operating margin opportunities our long term.
Curve is there anything you kinda.
Address today in terms of where that might go up, especially I think when I look at the U.S. today, you're talking about 40% of sales this year, which is obviously a huge improvement over last year on the year before but on the surface that number still seems like it's a little higher than maybe there are some room for opportunity there how do you think about though.
Yes, Hi, Mitch Thanks for the question so from that long term operating margin perspective, we wanted to give an early revenue previous so.
Look for next year, we will come back now and when we do our Q4 call and give a full piano result, what we've said previously is obviously you know to get to a double digit operating margin. Our gross margin would be in the low fiftys interestingly they would be in a low fortys and we will achieve that this year.
And then next year, we'll give more visibility for that for 2020.
Okay, alright, thanks, good luck.
Thank you.
Your next question comes from Erinn Murphy from Piper Jaffray. Your line is open. Please go ahead.
Thanks, Good morning, and congrats on a really strong quarter I guess, maybe Andrew first for you on the Americas wholesale businesses that incredibly strong in the corner almost 70% can you just walk through kind of what you're seeing is that reorders isn't new accounts are going into and you mentioned with the Jeff its business, you're starting to just pass that within wholesale.
Maybe share what you're at what you're seeing here in the North American market with that business.
Yeah, It will absolutely absolutely thrilled with the performance in in the Americas. So it's really a number of things I would say through the over the last 12 to 18 months, we have added accounts.
Titrated key accounts that we thought were important to our brand into a enriching our coal consumers I think the biggest increase in terms of dollars was sell through was increased placement accelerated sell through on our core accounts that was really the biggest dollar impact combined with.
Some addition of new accounts.
Jim It's I think is important we see it is very very important DTC channels.
So we can see a dramatically changing the emotional connectivity the consumer has to our product it really changes a generic purchase into a completely personal purchase on the got an awful lot more excited about it they tweet about it they Instagram about it so it's a really important factor.
We were able to lie and give us with a number of key.
You know lodge wholesale accounts this quarter I can say it tested very well it will get rolled out in those chains and we'll add new change next year.
Okay. That's helpful. And then maybe just going back to Asia, Obviously that region is still you know collectively negative can you share a little bit more about what you're doing in China to reposition that market for growth and then any insights on what how Japan trended in the quarter just given the VAT increase as the round it into October .
Yeah, if yes, so maybe I'll comment on Asia, generally then pickup China and Japan. So in terms of Asia in General I would say Asia. It was flat for the quarter, but frankly met our expectations. Thus, while we were expecting it and there were a few things going on one was in the wholesale business.
There's certainly some shifts from quarter to quarter, and we're expecting a strong quarter from Asia next year next quarter in the fourth quarter and in the retail business. We were impacted by a couple of things. One is frankly, we out of stocks in in Korea shop in shops, but we've now results that so that was sort of thoughts to sell through than we anticipated.
And then obviously, we have a small number of stores in Hong Kong that would significantly impacted by everything that's going on that.
Commas was very strong in Asia, and we think that we'll continue to be strong.
So it was where we expected it but we do see a stronger quarter from Asia next quarter, and obviously as we talked about earlier.
In terms of 2020, we see as you're producing a solid growth.
China, We talked I think last quarter about the board committed that we put in place and the strategic plans, we put in place to reignite the gross in that country I would say those are old tracking to plan and we feel really good about those.
And as we think about the future of China definitely returning to growth next year, but the major acceleration in China, probably in 2021.
On Japan, I think we had solid performance in Japan and you.
But I don't think does anything really significant to comment on the.
Okay, and then just a question for annotate round out two things and one on just the 2020 kind of algorithm, obviously, you reference and Andrew kind of gave some other drivers for the 2020 revenue acceleration, but just based on that is there any reason why you wouldn't see kind of S. sinead leverage at least similar to the level you saw this year.
Or their reinvestment for not thinking about that we just need to be mindful that we're setting are modeled for next year and then just a housekeeping hand on the tax rate for fourth quarter. Thanks.
Yes, Hi, Dan Good morning for all actually start with that tax rate for the fourth quarter. So we expect our tax rate for the full year to be 12% to come back into the fourth quarter of what that tax rate is so our tax rate for Q3 was 6.4%.
Ill take it to an overall tax rate of 12% and that's how we think about our underlying tax rate for this year.
And then to answer your second question as far as the mechanics for next year again, we wanted to given the early revenue preview.
And we will provide more color on the call in Q4 of the Q4 call.
One thing I would say just around gross margins. The pieces, we have given as you think through that Pn. How is that we will have as we've talked about previously had 100 basis points of improvement all else being being neutral from our Americas DC that went live this quarter and then we'll also and then on the other side of that.
We'll continue to experience at these levels of currency rates will continue to experience currency headwinds that we've had all year.
Got it. Thank you guys unhappy crack Cooper.
Thank you [laughter].
Your next question comes from Steve Marotta from C.L. King <unk> Associates. Your line is open. Please go ahead.
Good morning, Andrew and Marissa I wanted just a follow up on the first question that was asked regarding the order book and I know that you don't give specifics on that but could you tell me a tell us how much of that spring summer Orderbook is currently complete in other words, if it's just a 10% or if it's 90% or when will it.
Complete and you would have that clearer outlook of what wholesale sales.
Grow in the first half of next year.
Yeah, I mean, I, you know I don't really want to get into an in too much debt, but if you just on that on the cadence of our business I would say the spring order book is probably certainly north of 50% complete probably close to 70 in that range.
That's very helpful.
And as far as a the shifts you mentioned that there was some wholesale shifts.
In Asia towards the fourth quarter from the third quarter was there anything else material that would be.
Impacting the fourth quarter sales are there other early deliveries that are expected anything like that.
No nothing of the material, Steve as you know in some of our warm weather.
Regions, So southeast Asia and places like that.
We do deliver a a some of our spring summer 21 product in the fourth quarter.
As you'd expect I would say the proportion in the cadence of that is entirely consistent with prior years.
Our next question comes from Jonathan comes from Baird. Your line is open. Please go ahead.
Yeah, Hi, Thank you Andrew I wanted to ask a bigger picture question on the strength you're seeing for the Brandon.
And clearly a step up again in the second half and into 2020 in a number of different areas. When you look at the reported metrics. So I'm just curious if you look at the strike today from a big picture standpoint, maybe any any new thoughts on kind of what's driving the broader trend.
Anything new or any new elements and you've seen and then maybe just more specifically on some of the efforts that you're you're taking to sustain the duration as as we look forward.
Yeah, I wouldn't say, there's a lot of new elements I think the one I'll talk about a little bit as personalization, but I would say I think it's the combination. So it's the combination of a very strong cloud growth on reigniting that you know that caused silhouette, which is at the heart of our brand resonates with a with a lot.
Out of consumers.
I would say resonates with new a younger consumer that highlighted in the in the team surveys that we that we pointed to but it also is incrementally resonating with our with our.
Tried and tested coal consumer so we're seeing traction across the consumer platform, which allows I think the rate of acceleration missing in clubs on top of that we continue to.
[noise] develop a saddled franchise was again strong growth in that and we're really excited about the sandal proposition that we're bringing into the market for 2020, I think we've got some.
Really great products that are being well received.
Right right as we've talked about so visible comfort technology.
In its second year in 19, I think we also talked about as we've talked about that before but that has essentially doubled over the prior year. So that visible comfort technology is certainly resonating with consumers and then personalization surgibot jobs.
Taking a big step forward.
In the Americas This year and we think the impact on the club business has been very meaningful as you will know that is also quite a profitable business and we see that trend as a global trend, we see that desire for consumers to personalize as a as a key global Mega trend and we.
Optimistic about the expansion of Giblets around the world. So I think its each of the franchise is a really really working that's really accelerate in the brands. So that's a I think that's really important.
Great and then presumably the strike you're seeing in the order book is based on everything you mentioned plus really the backward looking strike.
But any any of that new elements, whether it's kind of the new social channels like tick tock or the new global brand ambassadors that that you're looking forward to as as kind of potentially driving another leg going forward in terms of brand awareness of brand heat.
Yeah, I think look I think our social team.
No social strategy our incredible.
We did highlight in our prepared remarks the.
The tick talk launch.
Just early this month.
On the incredible amount of views we had on the.
The.
Thousand dollar hashtags thousand dollar crocs.
Competition. So that was huge amount of consumer engagement are on bastards next year I think are generally a step up over this year I think we're really really enthusiastic I think pre anca in particular is a.
You know is a global Mega stocks you resonates very strongly in a in the U.S. in Europe and frankly also in Asia. So.
So we think she is really we're excited to be partnering with her and it also excited to be doing some of the work we're doing with her outside of just representing our brand in terms of the the donations that will do with UNICEF and we have one more significant ambassador that we will talk about next year that will really keen on China. So I think.
That's a that's a very important part about program, but but it all works together I would say all of these components are integrated and work together and I wouldn't like to breakout in separate anyone. It's the combination the does have an impact.
Okay, Great and then maybe just last one for 2020 understanding you're not playing out.
Operating margin target, yet, but I just wanted to follow up and ask about the pricing to to product costs that will work, including.
Kind of current view on tariffs and the the price hike you took on classic clogs and that'll continue to flow through that channel. So any any comments kind of broadly on.
Those two pieces and then what you see today.
Yeah sure. So I think to close out the terrorists commentary at this point in time, it's not material for this year and it's really not material for next year, either what we see it that less than 10% of our product our U.S. product will be sourced from China. So we don't foresee at this level that tariffs will have.
An impact on our business.
So that should be able to clear that app I think overall just thinking through.
Our dynamic of next year, you know, we're really excited about revenue growth and we will as we get closer to next year, obviously provide a full piano guidance similar to what we've provided in years past.
Okay understood alright, thank you.
Your next question comes from Sam Poser from Susquehanna. Your line is open. Please go ahead.
Good morning. Thank you for taking my questions I have a couple of just some housekeeping and then in some other stuff can you tell us what a normalized tax rate, how we should think about normalized.
Yes, I am I, right, where we think about normalized tax rate for this year, it's 12%.
I understand but I mean like just longer term you had you had the you had some savings in Q3, which is nonrecurring. So if we think about like 15, 16% annually.
Yes.
We haven't come out with a longer term tax rate I would say that as we produce more profits in the U.S., we've been able to use previously accumulated tax benefits. So I wouldn't consider those to be onetime in nature.
And that's why we're seeing or underlying tax rate. This year came from down from 15% to 12%.
And we'll obviously, we will give a tax rate guide when we guide full year for next year.
Okay and then thank you and then.
Within the within within the guidance you provided on revenue both for the fourth quarter and next year just in the general picture things, how should we think rep by geography or by channel in geography, I mean, how are you.
How are you thinking about where you know where this momentum is going to come from where do you see the biggest growth and so forth.
Yeah, No maybe I.
The way to think about it's Sam is and as we've talked about we think Americas will continue to grow very strongly right. So that's obviously being a big driver this year and we see that continue into next year.
EMEA has also done well this year and we also see that continue into next year as it may be the differences, we see Asia strengthening into next year from a regional perspective from a channel perspective, its I think what we've talked about over a long period of time, which is number one digital right that digital is going to be our fastest growth environment, both on our own sites both on the.
Marketplaces that we've penetrated and also through Etailers, which gets booked in a wholesale number.
Number two brick and mortar and I would say the rest of wholesale we have seen strong growth in brick and mortar in Americas and also in EMEA and distributors continue to be solid contributors to growth. So.
I would say the profile and the variance between the different components is broadly similar into 2020 with the addition of Asia strengthening.
So just to clarify so the moment likely the momentum in wholesale generally should should continue.
Nicely in two <unk>.
At least the first half of next year. Because then you come in with the Big compares out of the U.S. or or the Americas.
And then and then digital just keep ecommerce revenue just.
Increase it you're expecting e-commerce revenue due to accelerate next year over this year is that a fair statement.
As far as a growth I.
That's all right I think its romance extremely yeah. It's grown very strongly this year I think.
I'm not we're not guiding to an acceleration of digital commerce, but it's grown extremely well this year.
Okay got you and then can you talk about some of the collaborations that you've done this year I just noticed a couple other ones came out could you talk about you know if you want to be specific love it but I doubt you will.
Or you're going to scale up some of them or you know as part of your plans because a lot of them and then I think probably a pure Bradley was probably the largest.
Yes.
Yeah. As you indicated you know we don't give specifics with a couple of things I would say Sam so.
We have a number a number at least two very significant collaboration is planned for the remainder of this year.
So we're really excited about those so we've got two additional big collaborations for this year I would say the calendar and the cadence of collaborations is basically full for next year right. So we're working with I. I would say, it's a very broad variety all.
Individuals influence as a brands that we really feel very good about the variety and the the impact that we will have next year.
Some of the the quantity and the size of the collaborations has certainly increased you know one one thing that I could tell you is croft issue that we did on October 27, which I don't know whether you saw it was a a classic but fully loaded with a with debits and also gloat in the docs. So.
We're really thrilled by that great item for Halloween.
That was that sold six times a number of units that are crop day shoe sold last yet.
So the sell out.
It's sold it achieved everything that we hoped it was going to achieve so it so six times the number of units. So as we're really thrilled with its performance.
I think I got it thank you very much and couldn't okay.
Thanks.
Your next question comes from Jim Duffy from Stifel. Your line is open. Please go ahead.
Thanks, Good morning, congratulations to all in the momentum in the business.
Few questions for me just trying to better understand some of the drivers I believe you guys said Cogs, 63% of revenue in the quarter I'm curious, how much variance or isn't that number by region.
Yes, so I think we've definitely seen its strongest congrats.
In Americas region, we've seen quite growth overall, but particularly in the Americas region.
Okay, and then Andrew you'd mentioned.
Some commentary about strength with younger consumers, but also with your your core said do you ever need data on the demographic mix of purchase volume, particularly in the Americas, where the gross spend so strong.
Yeah, we don't we don't break out kind of sales by cohort I feel like but I couldn't say as we look at a bronze studies. So we do a very comprehensive bronze study every year that looks at across a five major markets. It looks at changes in.
In brand relevance consideration desirability with different cohorts, we couldn't see those key metrics, which we think a drivers of our underlying business, but we know a drivers of our underlying business, we could see those metrics accelerate a double digit rates with teams all with younger consumers, but we can also see.
Them accelerate.
Similar rates with a pull all the consumer so you know maybe.
You know a suburban mom so we couldn't see those changes across the board. So I think the new consumer that's come strongly into the brand over the last 12 months is that younger consumer, but it's really important to us that we see a balanced acceleration across the overall consumer set because I think that drives underlying strength in the bright.
And and we think the.
We think the younger consumer is really important because they influence a lot of people right. If you look at the average household they're you know brothers and sisters are influenced by that consumer parents are influenced by that consumer and it's a very important a pivot point for brands to attract the consumer retain them and.
I have them be a really vehicle for acceleration, yes, and Jim also just to add a little bit onto that because we I'm really talking about that but EMEA is actually really pleased with their results, they're up 16% year to date on a constant currency basis. So we talk a lot about the U.S. in the back to school business, but EMEA gets a little bit over at lucky because of the currency piece.
You look at that underlying growth, it's very strong and if it different demographic than we're seeing some of the growth in the U.S.. So it's very balanced growth.
Okay interesting.
My next question I wanted to ask about pricing strategy can you give us an update there is there more room for pricing in North America do you have any expectations for pricing actions and in other regions.
And Oh I guess.
As long as we're on that topic. What are you what's kind of contemplated in that 2020 view that you guys provided as it relates to pricing.
So.
In terms of pricing I think yeah, we've taken some price action on on call classic through the backend to this year in North America I would also said that weve adjusted pricing in many other parts of the world in EMEA and in key Asian countries as well as we've gone through the year as as we look for.
Would you know will decide you know pricing on style by style region by region Bryce basis, and I really have to key.
Guide points, one we want to continue to make sure will give an incredible value to consumers, which we even at these increased price levels, the consumers essentially telling us what given them great value as well as making sure that we capture.
The right value for the brand or for for our shareholders. So we have those two obviously looking at a competition. So we have those to guide posts in mind, and we will continue to adjust on a kind of region by region style by style basis, as we look forward and we as we see opportunities both up and down frankly to make sure that were positioned in the way the.
We want to be positioned and I would say absolutely the adjustments that we've made and the impact we think those adjustments will have a are embedded in the in the indications would give them for growth in 2020.
Great then last one for me is just on that 2020 view lot of companies have a hard time guiding a single quarter ahead. Why did you guys think it important to go out with the 2020 view. This morning here in October .
Yeah, Jim too we've provided a revvy revenue to review the last two years to this will be our third consecutive year.
Providing revenue previous so we're just being consistent with our prior practices and we want to give as much visibility as we haven't we feel comfortable providing.
Understood. Thanks, so much.
Thank you.
Your next question comes from Erinn Murphy from Piper Jaffray. Your line is open. Please go ahead.
Great Hey, guys I'm, just a couple of out for me just going back to that price increases that I'm talking about talking about you've taken that a classic to 40 499 here in the North American market any feedback from consumers that are on that have even noted that it increased and then how did this rollout into wholesale as we go in to bring 2020 are.
Wholesale order book that you're referencing that you have good visibility and are they at the 40 499 or maybe help us think about the mechanics. There and then just my second follow up back on the Jim its business is it really predominantly teams that are buying habits personalization perspective or are there. Examples that you see in your business, where you're seeing a kind of broader demographic.
Adopting adopting that thank you.
All right and lot of questions that.
So in terms of consumer acceptance of the price increase we think thats going well.
We were pleased with how that's gone both on E com install on with wholesalers. So I think we feel feel pretty confident about that in terms of how that rolls into next year. So.
Salad for spring Summer 20 is at the new prices or at the wholesale price consistent with that adjusted.
MSRP and if you look in the marketplace. There are some wholesale customers have already taken price to that new price right.
So they know they have an old or not but some have done that for sure.
And then that's the piece around do but yeah I would say.
The strong acceleration is was that younger consumer yeah that that team customer that is looking to.
You know Jupiter has already been historically has been very kid focused.
Continues but the big acceleration has been more whether they are a teen customer.
I would say that continues to be some traction where they all the customer budgets piece is definitely younger in terms of its demographic.
Got it thank you guys.
Thank you.
Your next question comes from Jim Chartier from Monness Crespi.
[noise] hurt your line is open. Please go ahead.
Good morning, Thanks for taking my question next quarter.
Yours have talked about kind of exporting to Brent you from the U.S. overseas I'm just curious your Asia ecommerce of 55% you know what are you seeing with him back that gives you confidence that you know disruptors are working and then Korea shop in shops or that you mentioned we're out of stock.
It is korea kind of be the furthest along in terms of building Branki within Asia. Thanks.
Yes, So I think we're definitely seeing brand heat.
Spreading around the world and part you know more than saying, we're obviously that's a key part of what we're trying to do right. I think you can see that in Europe , I think and highlighted 16% constant currency growth year to date in Europe . So certainly some of that is brand heat orientated one of the metric.
Yes that we do look at as a real guidepost of brand heat is a natural search to our E. Commerce sites. So not the paid search, but the natural search and the growth in that and we can see natural search growing I'm really across the globe on our own sites.
I would say the very significant acceleration in Asia E. Commerce is probably less a reflection, we certainly suited do see brand heat coming into Asia, but if there was a lot of kind of blocking and tackling operational components that we improved well we have been improving through the year in Asia.
I think came to fruition in a in third quarter. So I think there is underlying growth in Asia, plus we fix some things that were not working very well and they've had a big impact in terms of E. Commerce in terms of places where the brand he would be most visible in Asia, absolutely I think Korea is important but two pounds or.
So important those countries do tend to lead in terms of leveraging maybe Weston all use trends understanding what those trends are and then accepting and accelerating those trends.
Yeah, so another key to add in Asia.
From an ecommerce standpoint.
We had we have now 15 marketplaces globally a lot of those are in Asia, and we've done a lot of extension and we feel really good about that and you can see that in a difference between the comp growth in Asia and the year over year growth in Asia and E. Commerce. So we're really excited about that momentum it's still early days, but it's been really great.
And so it looks like you start to lap some really easy ecommerce comparisons in Asia. The next three quarters on there's a reasonable to expect 50% kind of top ecommerce growth in Asia as the blocking and tackling continues to drive the business.
I think we feel confident and overall ecommerce being our fastest growing channel I don't think we're willing to give color on individual market.
Right, Thanks, and best of luck.
Okay.
Our next question comes from Sam Poser.
VESCO Hannah your line is open. Please go ahead.
Thank you just a quick follow up on the price increase.
How how much of that price increase.
Is that what degree is that price increase both in the first quarter it into next year going to offset.
The FX headwind.
<unk>.
Think about that because that's a.
Large increase.
How much do you foresee that upsetting the.
The FX headwind.
Yeah, let me start with a little bit of dynamics, Tim and are.
On our third quarter. So if you think about our third quarter, we had 130 basis points.
With that.
And then also we had channel mix, so as we shift more to wholesale.
We see a channel mix impact at wholesale is overall accretive on the bottom line, but from a gross margin standpoint, lower and we saw that impact Q3 by 80 basis point, which was obviously I've sat fi underlying strength and overall margin. When you think about that for Q4, you can see FX mitigate a little bit.
We're expecting about 100 basis points about back in Q4, and then we we do have some channel mix again. So we expect those same dynamic to continue to next year and as Andrew mentioned, we took price increases in August and Tom. So we did have some price increases in this quarter and then.
Hey, retail will be in Q4 and is anticipated in our guidance.
But I understand that but but I mean, just like what are we thinking the next year and so on I mean.
Like where do you think about the headwind.
You talked about next year on the margin.
But are you thinking that this price increase could offset I mean, just take those two elements the price increase.
Or retail could off that.
Uh huh.
He just those two thing.
Wash with each other.
You know I think it's too early to say, which is why we're not guiding for next year from a full piano standpoint, obviously, you know pricing in one of the dynamics that will help support margins next year.
I tried and thank you very much and again it seems as Jim Thanks.
Your next question is from Mitch Kummetz from pivotal Research Group. Your line is open. Please go ahead.
Yeah, just couple of quick follow up so Andrew you guys given some decent color on Asia by country I'm wondering if any Europe , you talked about growing brand. She has that been pretty consistent across countries and if not could you maybe drill down a little bit on where are you seeing more strength versus last strength.
My second question is on catalogs recall correctly, you had some company. So some supply constraints on Cogs in the first half of this year's or any way to.
Quantified the impact of data I mean, it was it did it did it.
Picked out your sales about your 10 10 million 20 million more or less I don't know if there's any way you sort of put a number around not just in terms of kind of whats.
Got supply constrain your passion was on this year I would assume is it likely next year.
Yeah.
So I may have us excuse me I may have.
I would say the ER the strengthen up business is relatively consistent across EMEA. So EMEA is obviously you know western European Europe , but also the middle east and a little bit in North Africa.
Middle East North Africa, being distributors eastern European distributor, So I would say direct countries have grown strongly as well izod distributor business. So I think it's you know, it's pretty consistent I wouldn't really call out and any highlights you. Obviously, we do breakout by channel I knew you can see that digital commerce E com.
This has performed well throughout the year, that's been a a really good drive a you know, but but that actually as you know across the a across the whole business. So I wouldn't business I don't think there's really highlights were low lights in in EMEA, It's a it's pretty solid.
Obviously impacted by by the year up pretty significantly the currency compression.
In terms of.
The second piece really you know what was sorry, what was your second question again.
On the clock.
Yes, right and write it down supply can say, yeah, I think we solve those in North America, you can see our inventory was up nicely, which was ER, which was important to us and gives us some about confidence going forward. So we're really solve those supply constraints and that was really strongly around the a classic.
Classic Clog, we haven't really gone back and quantified, but I'm sure. It's helping our order book right. So I'm sure if you're a major wholesale account and you felt like you were not getting all the supply you wanted this yeah, you've ordered more strongly for next year.
Great. Thanks again.
[noise] [noise] there no further questions at this time I turn the call back over the presenters.
Thank you. Thank you appreciate everybody's questions today and the continued interest in the company. So we look forward to talking to you again at the end of Q4.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.