Q4 2020 Skechers USA Inc Earnings Call
[music].
Thank you for standing by this is your conference operator, welcome to the Skechers fourth quarter 2020 earnings Conference call. As a reminder, all participants are in a listen only mode on the conference is being recorded.
After the presentation, there will be the opportunity to ask questions to join the question queue, namely the press Star then the number one on your telephone keypad Skechers.
Skechers request the analysts limit themselves to one question and one follow up question only to allow all analysts to have the opportunity to ask the question should you need assistance. During the conference call you May signal, an operator of by pressing Star then the number zero I would now like to turn the conference over to Skechers. Please go ahead.
Thank you everyone for joining us on Skechers conference call today, I will now read the safe Harbor statement certain statements contained herein, including without limitation statements addressing the beliefs plans objectives estimates of our expectations of the company or future results or events may constitute forward looking statements that involve.
Risks and uncertainties, specifically the COVID-19 pandemic has had and is currently having a significant impact on the company's business financial condition cash flow and results of operations.
Forward looking statements with respect to the COVID-19 pandemic include without limitation. The Companys plans in response to the pandemic at this time there of significant uncertainty about the duration and extent of impact of the COVID-19 pandemic high dynamic nature of the circumstances means that what is said on this call could change at any time and as a.
<unk> actual results could differ materially from those contemplated by such forward looking statements additional forward looking statements involve known and unknown risks, including but not limited to global national and local economic business and market conditions in general and specifically as they apply to the retail industry and the company there can be no assurance that the actual.
Actual results performance or achievements expressed or implied by any of our forward looking statements will occur users of forward looking statements are encouraged to review the companys filings with the U S Securities and Exchange Commission, including the most recent annual report on form 10-K quarterly reports on form 10-Q current reports on form 8-K and all other.
The reports filed with the SEC as required by Federal Securities Law for a description of all other significant risk factors that may affect the company's business financial conditions cash flows and results of operations with that I would like to turn the call over to Skechers, Chief Operating Officer, David Weinberg, and Chief Financial Officer, John The end.
Tomorrow.
David.
Thank you for joining us today for our fourth quarter and year end 2020 conference call.
I Hope you your colleagues and loved ones are staying safe and healthy.
Before we begin I would like to thank the Skechers global team for their dedication and resilience of this past year as we faced such incredible challenges, we couldnt have weathered the storm in such good shape without all of your hard work.
Many countries based on other search of the pandemic in the fourth quarter, which negatively impacted businesses around the world, resulting in temporary store closures and reduced traffic, even with the ongoing health crisis and challenges skechers experienced growth in several of our segments and meaningful improvements in key countries.
Our fourth quarter sales were 132 billion of half of 1% decrease from the prior year, which was the fourth quarter record and notably of sequential improvement from the third quarter of nearly 2% illustrating the continuing recovery of our business.
Our strong year over year sales in the fourth quarter were the result of a one 2% increase in our domestic wholesale business and a one 1% increase on our international business, which was led by of nearly 30% sales increase in China as well as growth in Europe, and Latin America.
Throughout the quarter and year, we strategically directed the flow of inventory to markets that were opened delivered fresh product to consumers and continue to fulfill demand resulting in growth in many key distribution channels.
In 2020, consumers search and desired comfort and value.
With comfort as the cornerstone of the Skechers design initiatives, along with style and value inherent to our product development. We are a natural choice for all including essential workers and those working from home.
In our domestic wholesale business of fourth quarter sales growth of one 2% came primarily from our athletic casuals walking and work footwear as well as high single digit improvement in our men's business.
For the domestic business decreased two 8% due to a seven 6% decline in our direct to consumer sales, which was negatively impacted by reduced traffic in our brick and mortar stores. A result of the stay at home guidelines and an overall decline in foot traffic and tourism.
We believe our domestic brick and mortar stores will continue to be impacted by the pandemic at least through the first half of the year, though we expect to see improvement as more people receive vaccinations and government restrictions ease.
The decrease in our domestic direct to consumer business was partially offset by a 142, 7% increase in our domestic E Commerce channel, which continues to perform extremely well.
The focus of improving our direct to consumer experience over the holiday season customers, we're able to shop online and pickup in store at many of the skechers locations across the United States.
We are now completing the update to our point of sales system to better connect with in our ecommerce channel and we are finalizing enhancements to our loyalty program.
Both of which we believe will further improve our omni channel offering.
We continue to view, our ecommerce channel as an opportunity for meaningful growth as sales increased significantly on both our domestic and international sites that we currently operate.
And this coming year, we plan to launch new sites across Europe, and South America, which will provide both the better brand experience for consumers as well as new sales channel for Skechers in many regions.
Our international direct to consumer business decreased four 4%, which was due to a decline in traffic with stay at home guidelines for reduced hours and temporary closures, primarily in Europe, Canada and Latin America.
In total Skechers direct to consumer segment decreased six 4% as the pandemic spread again in numerous markets temporary store closures and reduced hours continued in.
In the United States consumer traffic at our stores was approximately 35% lower and operating hours were reduced by approximately 20%.
For our international company owned stores, we effectively lost 17% of the days available to sell during the quarter.
At quarter end, nearly 10% of our company owned stores were closed due to health guidelines today due to government restrictions of number of of our international locations remain closed or have reduced hours.
All skechers stores in the United States of our open and some domestic regions are trending positive while others are still impacted by reduced hours and traffic to local guidelines.
To note, while our direct to consumer business decreased in the fourth quarter, we did experience sequential quarterly sales improvement of nine 5%.
In the fourth quarter, we opened 19 company owned Skechers stores, 12 of which were international locations, including a flagship store on Munich, We closed six locations in the fourth quarter and another 18 have closed to date in the first quarter by the end of the first quarter. Another five to seven company owned stores are expected to close.
In addition.
Of 108 third party Skechers stores opened in the fourth quarter, bringing our total store count at quarter end to 3891. The stores that opened were across 22 countries with China opening the most locations, including our first dedicated golf store at the famed mission Hills golf resort and shows that on.
Our international sales improved one 1% over the same period last year and sequentially for 5% higher than the third quarter.
Our international wholesale business improved two 5% from the fourth quarter last year.
This was the result of increases in our joint venture business of for 19, 4% led by an increase of 29, 7% in China and an increase in our subsidiaries of 12, 7%. The subsidiary growth was across Europe, and Latin America with exceptional improvements in the United Kingdom and Germany.
As well as in Chile in Spain.
As expected our distributor business was down 57, 9% due to ongoing store closures in several markets, including our largest distributor which covers the middle east.
To support the open markets during the holiday selling period, our marketing efforts were focused on comfort with commercials on digital advertising to support key initiatives for men women and kids. This included a new campaign with form of quarterback and lead NFL commentator of Tony Romo for Max Cushioning, who will you will see on the Skechers Super.
<unk> commercial the Sunday.
To support our business during 2020 on for the coming years, we took steps to not only enhance our Pos systems and E Commerce platforms, including the addition of focus and bowl pack in the United States, but also enhanced our distribution centers and supply chain production capabilities of.
Along with opening of New Logistics Center in Colombia, We have added of distribution center in the United Kingdom to serve the region in the post Brexit environment.
The automation of our new one 5 million square foot, China distribution Center remains on track for full implementation by mid year and we continue working on the expansion of our North American distribution center, which will bring our facility to $2 6 million square feet in 2022.
We anticipate many markets will remain challenged in the first half of the year due to the pandemic, but believe some countries are showing signs of recovery.
During this time, we will continue to manage the flow of our inventory to fulfill demand where we are open spend prudently in the market's still impacted and drive sales where possible.
Now I'd like to turn the call over to John.
Thank you David.
2020 was an extremely challenging year in the fourth quarter was no exception multi.
The multiple markets continued to experience significant operating restrictions, including store closures and reduced operating hours.
Despite this the Skechers brand performed exceptionally well with encouraging sell through and strong gross margins.
In addition of the Skechers organization continued to effectively navigate the uncertainty of this environment, while making investments for the future.
While we expect similar challenges to continue for at least the first half of 2021, we are confident that the strength and resilience of the Skechers brand and the execution of our growth strategy focused on expanding our international footprint and increasing our direct to consumer relationships will deliver shareholder value.
Now, let's turn to the fourth quarter results.
Sales in the quarter totaled 132 billion, a decrease of $6 million or half of a percent below the prior year.
We believe that this is a notable accomplishment when considering both the current operating environment and debt last year represented a fourth quarter sales record for the company.
On a constant currency basis sales decreased $33 5 million or two 5%.
Domestic wholesale sales increased one 2% or $3 5 million fueled by broad strength across the customer types and encouraging consumer sell through in multiple categories.
International wholesale sales increased two 5% in the quarter. Our subsidiaries were up 12, 7% led by Latin America, and Europe, which grew 29, 9% and 22, 9% respectively.
Our joint ventures were up 19, 4% in the quarter, China sales grew 29, 7% driven by strong E Commerce channel performance, particularly around Single's day and December 12, 12 event.
These increases were offset by our distributor business, which as expected decreased 57, 9% or $72 6 million in the quarter, reflecting acute challenges in several of distributor managed markets.
Direct to consumer sales decreased six 4%. The result of of seven 6% decrease domestically and a four 4% decrease internationally, reflecting both challenged consumer traffic trends and the impact of temporary store closures and operating hour of restrictions.
These results were partially offset by another strong increase in our domestic E commerce business of 142, 7%.
Gross profit was $648 4 million up $10 7 million compared to the prior year.
Margin increased over 100 basis points versus the primary for the prior year, primarily driven by a favorable mix of international on online sales and an increase in domestic wholesale average selling price were higher full price sell through of several of our innovative platforms like arch fit and match.
The cushioning drove average selling prices higher.
Total operating expenses increased by $47 4 million or eight 6% to $595 7 million in the quarter.
Selling expenses increased by $9 2 million or 10, 4% to $97 $9 million, primarily due to an increase in domestic demand creation through digital advertising channels.
General and administrative expenses increased by $38 1 million or eight 3% to $497 8 million, which was primarily the result of volume driven expenses and warehouse and distribution for both of our international and domestic E Commerce businesses.
Earnings from operations was $57 $7 million versus prior year earnings.
The $94 1 million net earnings were $53 3 million for a 34 per diluted share on $155 4 million diluted shares outstanding.
Net income included a one time discrete tax benefit of $15 9 million Inc.
Excluding the effects of this one time tax benefit adjusted diluted earnings per share were <unk> 24.
These compare to prior year net income of $59 5 million or <unk> 39 per diluted share on the $154 6 million diluted shares outstanding on.
The effective income tax rate for the quarter was a negative 14%.
And now turning to our balance sheet, we ended the quarter with one of $3 7 billion in cash and cash equivalents, which was an increase of $545 9 million or 66, 2% from December 31 2019.
The increase primarily reflects the company's outstanding borrowings of $452 5 million on our senior unsecured credit facility.
However, even net of those borrowings and nearly $310 million in capital expenditures cash and cash equivalents grew by over $90 million.
Trade accounts receivable at quarter end were $619 8 million, a decrease of 4% or $25 5 million from the prior year and the decrease in accounts receivable was primarily due to lower distributor sales.
Total inventory was 1.02 billion, a decrease of 5% or $53 1 million from December 31 2019.
The decrease in year over year inventory levels is largely attributable to lower domestic and European inventories, partially offset by higher inventories in China to support sales growth.
China inventories declined versus the third quarter.
Overall, we feel confident about our inventory position and continued to actively manage our supply to meet customer demand positioning the business constructively for the balance of this year.
Total debt, including both current and long term portions was $735 million at December 31, 2020, compared to 121 million of December 31, 2019. The increase primarily reflects the drawdown of our senior unsecured credit facility in the first quarter of 2020.
Capital expenditures for the fourth quarter of our $96 7 million of which $48 9 million related to the expansion of our joint venture owned domestic distribution center $13 9 million related to investments in retail technologies in stores.
$11 $4 million related to our new distribution center in China, and $7 million related to our new corporate offices in California.
Our ongoing capital investments remain focused on our strategic priorities enhancing our direct to consumer capabilities and augmenting our global distribution infrastructure.
In 2021, we expect total capital expenditures to be between 275 and $325 million.
The fourth quarter like all of 2020 was a challenge however.
However, we saw many encouraging trends in our performance our brand strength distinctive and compelling value proposition and healthy balance sheet gives us continued confidence that skechers is poised for a return to growth in 2021 and beyond.
However, due to the continued uncertainty in the retail marketplace, we will not be providing guidance for this quarter as the environment remains too unpredictable to forecast reliably.
And now I will turn the call over to David for closing remarks.
Thank you John.
Year ago, Skechers achieved a new fourth quarter sales record, while the brand and business trends across all segments were exceptionally strong now as we continue to face challenges due to the ongoing health crisis of fourth quarter sales decreased only a half of 1% from the prior year record.
This important accomplishment was the result of the continued demand for Skechers product for the diversity of our distribution model and our efforts to drive value by maximizing revenue and efficiently managing inventory.
Catches brand strength was most notable in our online business with strong triple digit growth as well as meaningful growth on our domestic wholesale business and in many of our biggest international markets, including China, Germany, and the United Kingdom.
We continue to see on product resonating with consumers.
With comfort value on file at the forefront of of our product design. We are a key footwear brand during these difficult times.
We have an exceptionally strong balance sheet and ample liquidity both important to our success in the quarter and to position ourselves for future growth. Our backlogs have improved across many distribution channels of positive sign for many countries. We believe our business will continue to be impacted by the global pandemic in the first half of 2021.
So we are cautious due to the global health crisis, we remain confident in our strategic initiatives the relevance of our brand and our efforts to develop new product innovations and the many opportunities for growth in both the near and the long term now I'd like to turn the call over for the operator for questions.
At this time, we'll be conducting the question answer session.
We would like to ask the question. Please press star one on your telephone keypad come from.
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Our first question comes from the line of Jay sole from UBS. Please proceed with your question.
Great. Thank you. So much. So my question is just on the timing of the recovery as the World Reopens as you see it youre talking about the first half of the year will still be impacted.
Can you give us a sense of sort of why that is I guess, maybe the vaccine gets spread out distributed sooner and things are back in April and May.
Does that create an opportunity for second quarter or is there sort of a limitation on inventory and lead times that sort of constrain the ability to have the type of first half of the year there'll be there'll be more similar to a normal year.
Okay.
Hello.
Okay.
Sorry, we were on mute I'll sort of all of them again, sorry Robert.
Yeah.
Okay I started with we don't know any more than anybody else about the vaccine at the state of the pandemic.
Actually I should play we can record that anyway.
But given that January started off still under significant closure and we've had closures in Europe, which are are all going through at least January and most of February that the first half would be of good guideline.
To try it before we can come out at full strength, what we did see in the last.
Time, we came out of the pandemic was very strong resurgence so that would lead to the fact that certainly if it opens.
Opens quicker and retail openings and full quicker around the world that we would have substantial opportunities to be significantly ahead of where we are I mean, if you think about it we werent down that much in the fourth quarter and we had a significant hit from distributors that would've made for a very strong quarter, even if they had broken fairly even.
The impacts we have on inventory are no different than anybody else why we think we're doing as good of job of better than most we still have issues at the port that we anticipate with cleanup shortly.
Some of them some issues in England in getting some product and because of the new Brexit rules.
But other than that from a production facility and managing the inventory, we don't have anything out there that would preclude us from having a very strong recovery even as early as the second quarter should things open up significantly.
Got it Okay, and then and then one more.
And just on the G&A.
Im interested in how we should think about G&A on a year from now on a lot of companies to the pandemic have done.
Hundreds of millions of cost cuts and obviously.
Some of that probably has to come back next year as stores reopen on things like that.
As we think about G&A next year, how much question of has to come back into the P&L for Q of next year.
Even some of the jobs instead of probably mid this year or would you say that this year. This quarter was more of like a normal G&A corner and theres not a lot of excess that would have to be re additive next year, when we get the <unk> of 'twenty one.
Yes, I think when you think about G&A and you think about the shape of the recovery and even this quarter is a good example, I mean, if you think about our retail business, while we've taken aggressive action there to reduce variable costs, where we can we still can't reduce fixed costs like rent and depreciation so even in this quarter.
Youre seeing a struggle between the businesses that can't leverage as well as day, historically would have and others, where we're clearly making up that sales GAAP.
As you look forward into next year I would just caution that while we see very good line of sight into of topline recovery. We obviously saw great health in many of our businesses this quarter.
On the operating margin side of that is going to lag a bit we need retail to get back to a point, whereas if the leverage of all of their or I know, it's hard for people to believe but there are a lot of cost that we took out this year. In fact this is the first quarter.
The the Lockdown, where we saw G&A grow so there's some cost of the need to come back from some compensation incentive compensation that went out entirely from the labor that went out entirely this year. So what I would expect it'll be a little stickier getting back to norm on the operating margin side largely because of.
Our inability to leverage retail G&A and even to a degree of the distributor of flow through that would normally leverage our G&A spending so over the course of the year, we expect that to get progressively better, but we do still think that will trail in 2021 in on.
2022, assuming retail get back to its leverages low point.
Things will look a lot better the only additional element I'd caution for next year is as we noted we went ahead with several really important investments in our infrastructure.
We added a distribution center in the U K, we expanded.
Distribution and a lot of other jurisdictions, we have finally, our China distribution center will likely go online. This year. So we are going to see a little bit of headwinds from the introduction of those increments early on until they get up to peak efficiency, which which is tough to do in the year on which they open so there will be a little bit.
And add a drag next year, owing to those investments, but once we get beyond that debt early operation. That's when we expect those to also contribute leverage and drive operating margin opportunity.
Got it okay. Thank you so much.
Our next question comes from the line of the Ron Basso.
With Exane Bnb per bus proceed with your question good.
Good afternoon. Thank you very much for taking my question as well as the congrats on the momentum.
Sure.
John David I got to ask you Europe was up 23% yet per region with locked down for most part for a lot of brands. Maybe if you could just parse out what drove that and how do we think about that momentum going into <unk> and then Conversely, the China number was really strong.
And for <unk>. It looks like you did about 900 million plus in the China revenues for the full year, how do we think about China revenues for <unk>, considering it was cut in half.
Last year of <unk> 20.
Well from the European side.
If they had a very strong fourth quarter, because they opened up very strong the first time.
Doors opened and I think we picked up significant market share on that carried all the way through the fourth quarter.
As things started to close down in the fourth quarter and even in for January we haven't seen significant declines in our wholesale business because I think we sold through so well that most of our customers the larger ones certainly.
<unk> has continued to take product.
Knowing that when we open up when they open up we will be of strong contributor to our strong opening and they didn't want to be behind inventory. They chase that for quite a significant period of time.
When we came opened last time.
So that was a positive and it's positive pretty much across the board. There we've had great showings on almost every country a day will all but a couple of small ones were positive for the quarter, even with the closed down so that shows you the strength of the brand there and the fact that people are counting on us.
Reopens and are not willing to take that inventory risk again now. The reason there is no guidance is because that's still.
As the limitation, depending on how long they are closed.
Hope they opened on schedule mid to end February early March at the latest which would give us significant chance to continue to supply and sell through quickly going into for the spring season.
And Laura on in terms of China next year.
Actually applies to the totality of our businesses, we're not really looking at growth relative to 2020 as of few isolated instances where that that makes sense, but we're really looking to get beyond quite frankly 19.
I don't want to get into specifics by country, but suffice it to say we had very optimistic views about where we can take the brand in China that really won't abate as we look forward to next year the.
The pacing of it will be a little bit odd because there was in fact of pretty significant shutdown of beginning in Q1 last year in China. So those numbers in Q1 are going to look a little outsized.
But I think what Youre seeing is continued growth of the brand in the market and that gives us tremendous optimism about where the brand can go both the next year and beyond.
That's very helpful. And then maybe as a follow up question gross margins John there were strong across the board across the three segments.
Can you talk about what drove that was it driven by E. Commerce, how much was the ecommerce as a percentage of bureau of bulk sales for the year and then how do we think about the gross margin on high level, I know youre, not giving guidance, but when we kind of see that momentum continue into <unk>.
Yes, so again when we look at the compares versus last year and <unk> is a good example of that.
There's a lot of there's a lot of noise I think it's probably the best way to describe it I.
I would say with regard to the fourth quarter of what we what we saw in the gross margins is exactly what we mentioned in our script. We saw good full price sell through we saw strong contributions from E commerce, which is a bit accretive at the gross margin line for for us.
We had a higher proportion of.
International wholesale that excluded distributor sales distributor sales tend to be very high flow through for us, but they do carry a lower overall gross margin as we look forward I believe you will see things normalize a bit more tour.
I call it kind of of 2000.
The 20 normalized level of our 2019, we will get we will get some benefits from increased contribution from retail from international because China will be back we are of those seeing a few headwinds in terms of product costing landed cost of shipping in particular are out there as you know.
Light concerns for us of where we're going to moderate our view and probably point towards stability against the normalized margin versus any significant increases because we won't be getting as much of the mix benefit.
Okay very helpful. Thank you very much and best of luck.
Thank you Laura.
Our next question comes from the line of Kimberly Greenberger with Morgan Stanley. Please ask the question.
Great. Thanks, so much.
I wanted to ask about.
Just the way you view.
Understanding you're not giving.
The revenue guidance for 2021 today.
How should we think about.
When revenue would would look more normal the way it would have back in 2019.
And on what are the.
For a necessary condition for that is it.
The vaccine rollout in consumer behavior and shopping normally.
How are you thinking about it internally in order to develop your expectations on what the revenue path this year might look like.
Okay.
Im actually very encouraged by the revenue cap I think last quarter. This quarter shows you that the brand still has tremendous opportunity to grow on the topline basis.
Obviously, the key headwind at the moment is as David mentioned earlier the closes the Closeouts, we've seen government mandated restrictions on operating hours and the retail business.
It's been the most significant headwind that impacts us directly in our direct to consumer channel. It's obviously had a pretty significant impact on our distributors and their market. So that really is the biggest swing factor I would say as you look at our opportunities relative to growing kind of of.
The 19 baseline.
On a pretty encouraged about our opportunities for the year two to definitely get beyond that but it will be influenced by continuing lockdown should they occur or continuing restrictions on operating hours and foot traffic, which has been.
Certainly on a lot of instances in particular mall locations has been significantly diminished.
And I think what it shows here I am also very confident in what we can do that I don't believe it would take the.
The significant push we just need to be able to get to a consumer of efficacy go through the results as we gain them you would see because there is only one half of 1% decline. Those places that will open have gained market share and have increased to the point that it could take care of significant store closures of our own and a big piece of our business.
With the distributors and we don't need them to come back 100% to start getting back to a growth pattern.
<unk>.
I personally believe debt.
We would outstrip the growth.
Growth patterns, we saw from <unk> 19 in before because of the demand we've seen in those places that are open and do I personally anticipate that that would be followed in all of the places that are going to open.
Right, Yes, the revenue resilience really was.
Very much very well showcased during the fourth quarter.
My follow up question is on E Commerce, which is also a highlight for Q4.
I think for full year 2020 can you just remind us in both the fourth quarter and the full year.
The E commerce revenue debt as the percentage of your retail.
Revenue at this point.
So if you look at it relative well so the first thing I'd mentioned is we have E commerce on a couple of different locations. When you look at it in total.
It's actually a pretty sizable chunk of the revenue base.
Net.
China, obviously of the most significant although that gets reported in our wholesale because it's the joint venture.
In terms of our domestic number I would tell you it's.
It's north of the 10% number that we've previously provided.
I don't want to get into a ton of specifics about how far north but it's definitely.
North of that and we think that's sticky and it can continue if you bring in the totality of our E commerce revenue relative to all sales.
It's probably double that 10% as a percentage of sales right now again keep in mind, that's with some pretty meaningful declines in our distributor business. So that's somewhat the alluding.
The impact of the overall revenue at this point because those would not be E commerce sales.
Okay. So just just to clarify John when you say.
Sure.
You mean like it's more like 20% of the $1 2 billion in the in the retail direct to consumer.
The segment.
While I was giving you referenced points too for the fourth quarter. So I would say in the retail segment is north of 10 in total if north of its around 20%.
Okay, great. Thanks, so much for that.
Sure.
Our next question comes from the line of Gaby Carbone with Deutsche Bank. Please proceed with your question.
Hi, good afternoon.
My question is on the domestic wholesale business. This I was wondering if you could touch on what Youre seeing in terms of spring orders and kind of of how youre thinking about that channel moving of how do you put a pretty nice results here in the back half.
<unk>.
Well I think as I mentioned in the prepared remarks.
Domestic wholesale would fit into the comment the backlogs are have been increasing even year over year on thats before.
We had the result of the pandemic will only comparing on the time last year. So.
Our backlogs are up we feel the demand and significantly higher even than it was this time last year, so depending on how the pandemic rolls out we have anticipation of continuing growth in the domestic wholesale side.
I would kind of add to that Andy we even had a few.
Timing shifts out of this quarter.
Into 'twenty, one so the domestic wholesale which I think is again the second quarter in a row here, we put up growth.
Could have been even better if it weren't for some some timing of deliveries. So again, even though there are some customers out there struggling we're seeing broad take on the product would sell through and that's that's encouraging and the backlog numbers, it's encouraging on what we saw this quarter.
And that's definitely a good time.
Got it thanks, and then just a quick follow up but the way how we should be thinking about store openings moving ahead, and maybe you can comment on anything.
Anything new going on with the no rent negotiations.
Yes, I would say store openings for next year on a net basis are going to be pretty modest certainly relative to our historical.
Directions.
Mostly focused on the international markets David mentioned in his comments, we've already seen on executed some closures.
This quarter, and we will and we'll do more before the end of the quarter.
On the rent negotiation thats, an ongoing affair usually the best.
The opportunity to have a good discussion about restructuring rent is during renewal discussions and as those occur we're taking as much advantage of those as we can I wouldn't hold out any significant help for a major change in the near term with extend leases but.
Because we've seen a lot of I think any benefit we are going to get out of that earlier in the year. So I don't I don't think thats going to be a significant opportunity, but you will see the kind of the pace of store openings.
Definitely stepped down from from prior years for the most of the couple recent couple of years.
Great. Thank you so much for the color.
Thank you Kevin.
Our next question comes from the line of Susan Anderson with B. Riley. Please proceed with your question.
Hi, Thanks for taking my question.
And then from in the quarter.
I guess, just a follow up on the gross margin it sounded like from your earlier comments that there may be some pressure on 2021 of the mix shift normalizes is that correct did you say the look to 2019 gross margin as a more normalized gross margin.
Well on the in response.
Scott to your first question absolutely we are.
Yes, we've received some mix benefits.
This year that I don't expect to continue on as the business builds back overall.
We are seeing kind of a handful of different factors, but mix will definitely be a bit of a headwind.
For a bit of a tailwind will come from some of favorable pricing, which we saw this quarter and we expect to continue and then almost offsetting headwind from there is some of the cost pressures that we've mentioned is in particular transit costs have become.
The source of.
Of pressure near term relative to 2019, I would probably kind of guide you to something that's flat to perhaps up slightly but that will be influenced heavily by mix.
Again to the extent, we see more closures in retail and we see of mixed downward with less direct to consumer that would be that would be of headwind challenge to the extent retail recovers that would be a bit of more of a tailwind.
Got it okay.
And then just on the China market.
For your very strongly point, there I'm curious.
If you could talk about the growth over Singles' day, how much that was that then how much of a driver of that was and then.
You talked about just kind of the Tam peanuts in 2021, with obviously first quarter last year being down but how I.
I guess, how should we think about that strength, we saw on fourth quarter kind of after we get passed up on the net flowing through in 2021, and then just curious on the golf store you open there is our opportunity to open more on all stores elsewhere, or even maybe potentially stores within store, saying like <unk> or something.
Well I mean, I think in China again, it's just it's the comparability issue I mean, our general does.
The there is not China continues to be extraordinarily favorable we have very high hopes for it next year of obviously the first quarter ended up to a degree of the second quarter are going to benefit from some easier comparisons, but our expectation is the China puts up similar numbers to what it's been registering in terms of overall growth.
Youre starting to get the the poll of the law of large numbers, so maybe not in percentage terms, but the dollar terms.
<unk>.
And that really is on the back of growth in E. Commerce, I mean, I would characterize China as certainly ferring far better than most markets, but there are certain components of the brick and mortar side of things that arent yet fully recovered I think it's a pretty common comment youre hurting youre hearing relative to the China operations.
We think that gets better as the year progresses, and you'll get a much more normalized China.
The revenue profile, but right now it's definitely tilted much more towards the ecommerce and in the quarter. Obviously, we couldnt put up nearly 30% growth rate if it weren't for some pretty favorable results. Both both on 11 11, where you had an extended selling period. This year, but also kind of the sister of event on 12 of 12 and then a few.
The other sporadic events in the in the quarter so.
Again overall very positive on China, We do think there's still more normalizing to do.
And we're excited to add the capability of having our own distribution to the market because of that we think is definitely going to help stabilize operations and give us more leverages cost and the and the long term.
Great.
Okay.
The team kind of expand that idea of elsewhere.
Oh, sorry, I didn't hear your full question.
On the cost for you opened in China is the opportunity to expand that elsewhere throughout the globe potentially even in the U S.
Well, we are looking to obviously expand the category, but I wouldn't say, it's a <unk>.
Significant driver, it's about image of what we put through when we're building it.
The one in China is very special.
May have a few more but it's not a major growth initiative for us. It's just something that we take as it becomes available to showcase the brand in general.
Got it okay. That's helpful. Thanks, So much guys. Good luck on the first quarter.
Thank you.
And once again as a reminder, if you would like to ask the question. Please press star one on your telephone keypad. Once again as a reminder, if you would like to ask the question. Please press star one on your telephone keypad.
Our next question comes from the line of Omar Saad.
With Evercore ISI. Please proceed with your question.
Good afternoon. Thank you for taking my question.
Obviously the E commerce numbers are really big the growth there is really fast I'd love for you to kind of address it at a high level, how the profitability of shaping up for that business are you starting to get to a point or of scale level, where it's becoming more profitable I know what the gross margin level of its accretive I also notice on that.
On the operating kind of expenses line, you mentioned of higher digital marketing cost and fulfillment costs your domestic and international as I'm trying to understand are we getting to a point where that might become more profitable.
And then I have one follow up thanks.
Yes actually income for US is has been very profitable in some respects I think thats because it had been artificially restrained a bit.
Until we really got the growth levels that we're starting to see over the last couple of years. So from a profitability standpoint, I mean, its something youre always watching and certainly as you get scale.
<unk> got to be cognizant of but really through the P&L right now or.
We're very pleased with what we're delivering from an E commerce perspective, and we continue to expect that to be the case.
That's something actually we're not.
You hear on the brands talk about struggling with their profitability, but but that is not something we struggle with today.
We've made significant investments in the past you have to understand growing at this rate create some inefficiencies we put a lot of.
Pieces in place and our distribution and.
Fulfillment of this debt within kind of take out around the world, which I think will leverage quite nicely over the next 12 months.
Great.
That's great to hear guys and then maybe if you could offer a little bit more details on the loyalty program and then how it's going to connect to the E commerce on the digital business.
Maybe some customer level of marketing initiatives around that if you can thanks.
Well I don't want to spoil too much because.
We want to have fun launching it I would say, it's a pretty soup-to-nuts revamp of the program, both technically as well as from a consumer offering perspective.
And what the aims to do obviously is significantly augment the loyalty program. We have today in terms of Cape.
The capabilities everything from marketing to transactional level capabilities and it was accompanying our relaunch of the web site and launch of the mobile applications that happened earlier in the year. So so really when you step back you've got to look at those in aggregate because together they are really forming the basis of a new approach to consumers.
One more mobile enabled.
For digitally enabled more informative easier to use so I don't want to get on the specifics of program because of it because we want to launch debt, but we think it's going to be a very effective means to both recruit and retain consumers augment our ability to market to them. It will augment their abilities to transact with us and those are those are obviously very.
Encouraging.
Habits, you want to put into place in particular, because like most we see incredibly higher LTV from our loyalty program member who purchases regularly with us than than any other consumer and so the goal is to get as many people into the program and becoming recurring buyers as we can.
Thanks, John I'm looking forward to see it rollout.
It will be soon.
Our next question comes from the line of Brian Mcnamara.
Ehrenburg Corp of markets. Please go with your question.
Good afternoon. Thanks for taking my question I just have two quick ones one on India being that it's the more traditional market that doesn't really have the natural E commerce offset the China has with lockdown measures in place could you give us an idea of how that market performs for the year on sequentially in Q4 in terms of improvement.
And then secondly, COVID-19 the COVID-19 restrictions of side, I guess, which markets internationally are you most optimistic on outside of China, and then Conversely of whats you are perhaps underperforming relative to your expectations. Thank you.
Yes, I mean on India.
Obviously, the impact of the pandemic hit.
Many markets pretty severely India, no exception I don't think it's unusual but it had a pretty.
The tough go of it so to speak in particular, because it was growing so nicely for US now I think we're starting to see some very encouraging signs in the fourth quarter.
Performance was higher than actually even we expected the market really began to re engage I mean, thats all because theyre getting past the pandemic. There is of building E com presence, but it's still very early for us.
And we remain very optimistic about that market long term.
In terms of the international markets were most excited about it I think if given the opportunity we probably just rattle off all of them because we do believe there is that much opportunity. Obviously Asia has a tremendous amount of opportunity with China, India and Theres a lot of other southeast Asian countries, where we're really just getting started but you can't neglect the fact that.
The <unk>.
Latin America grew nearly 30% as a composite for us this quarter that Europe grew north of 20% debt that some very stable.
Long penetrated markets for us like Germany did exceedingly well so.
I mean, the reality is we just don't think there is the near term limitation in any market on.
On this brand and our opportunity to continue to grow internationally in particular.
It's pretty.
Unrestrained at least for the next two.
For years to five years, and probably beyond that as we begin to introduce more and more of our categories. The markets, we find our footing and getting even.
Apparel introduce and other offerings so.
Speak for myself on a true digital grid.
We're pretty excited about most if not all of our international markets.
Our final question comes from the line of Jim Chartier with Wellness Christie Hart and the company proceed with your question.
Hi question on gross margin.
Yes, given the mix shift away from distributor sales I would have expected.
More gross margin improvement in the international wholesale business. So I was wondering if there was anything in the quarter that was pressuring margins may of your overseas markets.
No nothing nothing comes to mind.
I would say probably the.
The only impact Youre seeing is youre still having some markets that are experiencing pretty drastic effects from the shutdown I mean, I think one thing that I don't want to get loss on this as we dealt with a lot of lost sales days and some of them some of those markets. So in.
In some respect as they come out of that they've got to move merchandise, but I wouldn't highlight anything being extraordinary in that we're fairly pleased with the improvement.
We saw overall, especially given the growth underlying net I mean, if you back out the distributor decline that we gave we gave you a number on.
You can see that the underlying health in the wholesale business was really really strong so to get that plus.
And to your question, even more gross margin accretion than we delivered.
That's a pretty tall order. So we're generally pleased with what we saw.
And we're optimistic that that trajectory is going to continue.
Okay, great, Thanks, and best of luck.
Thanks, Jim.
And with that this concludes our question and answer session as well as today's conference call. You May now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Okay.
Okay.
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Okay.
Okay.