Q1 2021 Crocs Inc Earnings Call
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Yes.
Good day.
Thank you.
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Good day.
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Thank you for standing by and welcome to the Crocs incorporated first quarter 2021 earnings call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question getting day session, you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
You require any further assistance. Please press star zero I would now like to hand, the country's fabricators speaker today Ms. Caroline. Thank you. Please go ahead.
Good morning, everyone and thank you for joining us today from the Crocs first quarter 2021 earnings call earlier. This morning, we announced our latest quarterly results on a copy of the press release may be found on our website at crocs Dot com, we would like to remind you that 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.
Statements include but are not limited to statements regarding potential impacts to our business related to the COVID-19 pandemic crocs is not obligated to update these forward looking statements to reflect the impact of future events.
We caution you that all forward looking statements are subject to risks and uncertainties described on the risk factors section of our annual report on form 10-K.
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 SEC for more information relating to these risk factors adjusted gross margin income from operations operating margin and earnings per diluted common share are non-GAAP measures. A reconciliation of these amounts to their cash.
Counterparts is contained in the press release, we issued earlier this morning joining.
Joining us on the call today are Andrew Rees, Chief Executive Officer, and Anne Mehlman, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions. At this time I'll turn the call over to Andrew.
Thank you cards on good morning, everyone. We are thrilled with our Q1 results.
<unk> of the Crocs brand is exceptional experiencing growth across all regions on all channels.
In Q1 on our global prominence from continued to strengthen and we benefited from economy is starting to emerge from the pandemic and.
On government stimulus and select important markets.
I'm proud of our performance and I'm incredibly confident in our ability to deliver sustained highly profitable growth.
Highlights from the first quarter of 2021 include.
For the third consecutive quarter, we achieved record revenues with first quarter revenues were $460 million up 64% versus prior year.
Our Americas business had another tremendous quarter with revenues, increasing 87% on DTC revenues growing 131%.
Our EMEA business has increasing momentum with 49% revenue growth on Asia showed strong double digit growth of 26% in the quarter.
Digital grew 75% to represent 32% of total revenues.
Adjusted operating income was 126 million increasing by approximately 100 billion on adjusted operating margins expanded to 27%.
Adjusted diluted earnings per share grew from 22.
To a quarterly record of $1 49.
On top of these outstanding financial results. The Crocs brand ranked the highest it has ever been and Piper Sandler spring, taking stock with teens survey.
The strength of our brand remains unabated.
We continued to drive brand relevance and consideration through a multifaceted marketing approach that leverages digital and social marketing celebrity and Influencer campaigns on collaborations.
We kicked off 2021 with an award winning collaboration with French EDM Oddest Bloodedly Acousma.
The featured his signature skull mask.
To celebrate from Patrick's day, we posted a rainbow of crops on a part of <unk> across social media.
Released Lucky charms gigabits to quickly sold out.
In March we launched a second global collaboration from Justin Bieber.
And as drew House brand confirm Crocs with Sox R&D better together.
To continue accelerating the crocs brand in China, Justin Davidson fans on a mission to locate arcade games in nine cities.
Given them a chance to win free Crocs drew house, plush toys and sauce.
We are incredibly proud of the crocs brand and business has a positive impact on our communities.
Most recently, we were pleased to partner with the United Nations Foundation.
As it launches 2021 cash tax equal everywhere campaign to promote gender equality around the world.
From a free pass on health care program that allowed us to provide comfort to those on the front lines to partnerships with feeding America and double HCP UNICEF on glad.
Though we're all in this together.
We have accelerated our mission of everyone comfortable in their own shoes by remaining focused on doing the right thing.
In addition to doing the right thing for our communities, we strive to do the right thing for our employees. We recently right entry level wages to an average of $15 per hour for our frontline employees in our U S distribution center on U S retail stores and recognition of the contribution to the success of the Crocs brand.
We will on it last week to be named to Forbes best employers for diversity for 2021.
We were also recently named to fast company's annual list of the world's most innovative companies for 2021, but recognized organizations that not only found a way to be resilient in 2020, but also turn those challenges into impactful initiatives.
Our ability to make a difference also resonates with our consumers, including teams who are socially and environmentally conscious.
I am confident that the strength of the Crocs brand on our mission of everyone comfortable on own shoes will continue to drive accelerated growth this year and beyond.
Now, let's turn to first quarter operating highlights.
From a product perspective, we experienced strong growth in our key product pillars clogs sandals on cubits.
Sales of clogs were exceptional this quarter, increasing 87% year over year, representing 76% of total footwear revenues versus 65% last year.
We continue to experience success with seasonal offerings and trend right crops, such as out of this well at Marvell prints.
At the same time sandal revenues increased 17% to represent 17% of footwear sales versus 24% last year.
We are very encouraged by our initial results of our sandals that feature personalization.
Including a classic slide and the newly introduced classic two steps down.
While we expect core growth to outpace sandals this year over the longer term Thomas will grow faster than clubs.
<unk> sales continued to be outstanding more than doubling for the quarter versus last year as global personalization Mega trend continues.
From a channel perspective global DTC revenues, which include revenues from E Commerce and company owned retail stores grew 93%.
Both e-commerce on retail had extraordinary performance and this was our 16th consecutive quarter of double digit e-commerce growth.
Digital which combines e-commerce that.
That is reported in DTC and E tail that is reported in wholesale grew 75% to represent 32% of our first quarter sales compared to 30% last year.
Digital remains our top priority and our digital presence remains a competitive advantage relative to other footwear brands.
Our wholesale channel, which includes brick and mortar E tail on distributors grew 50% versus prior year.
Fueled by growth in all segments.
E tail and our top 20 brick and mortar accounts experienced exceptional sell through distributors had the highest growth as they replenish inventory in preparation for a strong 2021.
With our continued momentum we remain focused on positioning our brands for long term sustainable growth on.
After careful consideration, we recently decided to prioritize wholesale partners, who are aligned with our brand strategy and desired positioning in the marketplace.
As such we began terminating select north American wholesale relationships.
Our strategy in many major brands have also used to maintain strong marketplace health.
Looking forward, we will remain focused on strategically important accounts comprised of leading E tailers sporting goods and family footwear and specialty footwear retailers.
Our record revenues in the first quarter were achieved despite challenging global logistics that impacted many industries around the world. We're not immune to these challenges with blockage of the Suez Canal on significant bottlenecks in west coast ports, leading to delays.
Global logistics are expected to remain congested and we're being proactive as possible.
On new EMEA DC in the Netherlands has opened and the transition is running smoothly.
The expansion of our U S. D. C is also proceeding as planned these investments will support our competitive advantage in digital and our future growth.
Finally profitability was exceptional as we achieved record quarterly adjusted operating margins on record quarterly adjusted EPS.
We're incredibly optimistic about the balance of 2021 and have substantially raised guidance for the year.
Before I turn the call over to Anne I want to express my gratitude to the entire crocs organization for their dedication to our brand and to our communities.
I am proud of how they've executed as a team and the results that we have delivered for our employees our customers on our shareholders with that Anne will now review on financial results in more detail.
Thank you Andrew and good morning, everyone I'll begin with a short recap of our first quarter results for a reconciliation of the non-GAAP amounts mentioned to their equivalent GAAP amounts. Please refer to our press release, our first quarter results for extraordinary fueled by all regions and channel we delivered record quarterly revenues.
<unk> ability was outstanding as we expanded gross margin leverage SG&A and increased earnings per share first quarter revenues came in at $460 1 million.
Compared to $281 2 million in the first quarter of 2020 at 63, 6% increase or 65% on a constant currency basis.
We sold $25 9 million pairs of shoes, an increase of 51, 5% over last year's first quarter, our average selling price during Q1 increased almost 8% to $17 and 64.
With the increase attributable to increases in DTC revenue as well as fewer promotions and discounts.
As we have shared previously we look at our brand positioning market by market and in Q1 realized pricing on certain products in select markets globally.
Now, let's review our results by region.
As Andrew mentioned earlier, the Americas had another exceptional quarter with revenues at $276 4 million up 87, 1%.
DTC growth of 131, 3% was phenomenal.
<unk> traffic conversion and ATV as well as store closures last year contributed to triple digit growth in both company owned retail stores and ecommerce.
Wholesale growth was 59, 4% as high sell through on more than offset challenging logistics.
In Asia Q1 revenues were $82 6 million up 26, 2% or 21% on a constant currency basis from last year's first quarter DTC increased 26%, while wholesale grew 28, 6% digital revenues grew 61 person.
And penetration increased significantly from 24, 4% to 39%.
Felt balance growth across most of our key country, India revenues were standout increasing triple digits distributor also returned to growth, albeit at a slower rate.
EMEA revenues increased 48, 8% or 41% on a constant currency basis to $101 $1 million with growing brand heat offsetting any global logistics disruptions.
DTC revenue increased 29, 2% with e-commerce strength, driven by higher traffic and Asps.
Partially offset by retail decline due to COVID-19 closures.
Wholesale revenues grew 52, 7% fueled by strength in E tail and distributors.
Our EMEA business overall continues to benefit from our focus on digital Commerce, which represented 41, 8% of EMEA revenue this quarter versus 38, 2% last year.
Our first quarter adjusted gross margins for 55, 2% of 720 basis points from last year's 48%.
Currency favorably impacted margins by approximately 100 basis points, while the majority of the improvement was driven by fewer promotions and discounts channel mix and supply chain efficiencies.
Our adjusted SG&A improved to 27, 9% of revenues versus 38, 7% in last year's first quarter. The decrease in adjusted SG&A rate as a result of strong sales growth and operating leverage we realized significant leverage even as we continued to invest to support our strategic initiatives.
Our first quarter adjusted operating income increased nearly five fold to $125 $7 million versus.
$26 $4 million last year with robust operating profit growth in all regions adjusted operating margin rose from nine 4% to 27, 3% benefiting from growth margin expansion and SG&A leverage on strong sales growth for.
For Q1, we recorded $24 2 million of income tax expense with an effective tax rate of 19, 7% versus 49% last year.
First quarter non-GAAP adjusted diluted earnings per share increased to $1 49 <unk>.
Compared to 22 10, a year ago.
Liquidity position and balance sheet remains strong we completed the quarter with $255 $9 million of cash cash equivalents. In addition to $499 $7 million of borrowing capacity on our revolver in March to Opportunistically take advantage of historically low interest rates.
<unk> $350 million and four on a quarter senior unsecured note due 2029 and used a portion of proceeds to repay the balance on our senior revolving credit facility.
During Q1, and excluding the impact of the final ASR share delivery that we entered into in Q4, we repurchased 600000 shares for $50 million.
At an average price of $76 95 per share this.
This month the board approved an increase to our repurchase authorization such that $1 billion remains available today for future repurchases.
Inventory at March 31, 2021, with $196 5 million up from $195 8 million in the first quarter last year inventory with lean throughout Q1, and we ended the quarter with higher in transit inventory due to global logistics challenges.
Turning to the future I would like to share our current outlook for the second quarter and full year 2021 for.
For Q2, we expect revenue to grow approximately 60% to 70% and adjusted operating margin to improve to between approximately 21% and 23%.
On growth is expected in all regions as brand momentum continued and we anniversary from COVID-19 related closures that were most prevalent in the second quarter of 2020.
Barring a reversal in the pandemic recovery trend, we expect 2021 revenue to grow between $40 and 50% as revenue growth, we expect to be able to leverage SG&A, leading to adjusted operating profit margins of approximately 22% to 24% for 2021.
We now expect our underlying non-GAAP tax rate to be approximately 20%, which is higher than previous guidance due to greater than expected profit in our U S fitness or.
Our GAAP tax rate will also be approximately 20%, which is lower than previous guidance due to the release of additional valuation allowances following greater than expected profit in our international businesses, Inc.
Summary, we delivered outstanding revenues and profitability that exceeded expectations, while strengthening our balance sheet and investing in our future growth at this time I'll turn the call back over to Andrew for any final thoughts.
Thank you Ed.
Consumer demand for the Crocs pad remains exceptional.
As you can see from a growth first quarter results on our increased guidance for 2021.
We have a tremendous momentum in our business and we're excited about the long term future of our brand.
Operator, please open the call for questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again star one on your telephone keypad.
Loss per get some momentum on the Q&A roster.
Your first question comes from the lineup Erinn Murphy from Piper Sandler. Your line is open. Please ask your question.
Great. Thanks, good morning, and really incredible job the whole team. There I guess my first question is on what Youre seeing currently at wholesale between sell in and sell through and I was pretty surprised by Halloween inventory wise and that you saw.
He'll have incredible Q2 guidance. So could you just talk a little bit about kind of the balance between the two right now and then maybe Andrew can you share a bit more about kind of the timing and maybe the strategic pullback that wholesale what type of accounts should we expect that you are kind of pulling back from and how is that kind of contemplated in the full year guidance.
Right a lot of questions there.
Echo.
[laughter] no pleasure plagued us so.
From a wholesale perspective look we are seeing very very strong sell out right. So we continue to see strong sellout on C nuts from quarter on COVID-19 doses from last quarter in terms of sell in that is also strong you can see that kind of revenue growth from a wholesale perspective, 50% growth is very very strong.
On the particularly strong in North America that is affected by.
Shipping delays.
A great deal.
Fix issues around the world trading while apparel, but that was the moment to achieve that growth and we're able to keep on wholesale partners.
Certainly in stock probably not stopped as ingredient likely quite frankly.
From a timing.
Overall emerged balance as yet.
John it's relatively flat from last year, but don't forget that was an elevated position. So if your competitive to end of Q1.
2019, I think that will be about a 50% growth in inventory right. So on.
You look at inventory relative to future guidance, we still believe we're in a good position to beat the guidance that we have.
We've provided.
In terms of the.
The actions.
<unk>.
Done with wholesale partners, that's really in the broader context of our marketplace management. So if you think about early of this year.
<unk> map pricing on <unk>.
Styled gear on the U S and we're really focused on making sure that we have a healthy long term marketplace, particularly for our Coke classic product, which is obviously the backbone of our brands.
So we made the decision.
<unk> pulled back from certain wholesale partners I would say Jeff.
It didn't feel like they were consistent with our future strategy.
And I think that was.
It's really in the context about Florida marketplace management.
Strategy that we're working through it so.
And we think that will put us in a great place for the future.
Great.
The 50% inventory for Q2.
Q2 balance versus <unk>.
Got it thank you and I appreciate that and then just my second kind of.
Question is around pricing increases.
Picked up at the end of March you were taking pricing here in North America and the core classic.
Feels like the messaging with a little bit different Andrew I think earlier around ICR. It seemed like you guys were kind of tapped out at where pricing could be here in North America.
A little surprised to see that so curious what you're seeing kind of post the pricing action and then what percent of your higher guidance today contemplates that pricing increase thank you.
Yes, So let me on address what percentage of that.
A portion of our guidance.
Wanted by the price decrease but before we do that yet in terms of the pricing impact.
This decrease.
This quarter classic.
And I would say derivative anvil product with a lot of products that latter together, so definitely quite a few products.
That was really based on looking at.
Market by market around the world. It was here in the U S that would also have highlighted within other markets around the world as well.
The impact of those price changes will take anywhere between six to nine months to flow through to to our overall financial.
We look at pricing, we're really looking to make sure that we ate number one gives incredible value for consumers.
We're focused on the second thing that we're looking on it appropriately matching supply and demand on we really felt like that on our Q2 two.
To take some pricing action, we think that pricing action has been well received we monitor that closely in our DTC channel sales to monitor it closely with our wholesale partners.
It's been well received.
But we will continue to monitor it as time goes on.
Yes, and then just on the guidance Peter So I think.
Obviously that increase in guidance does reflect the pricing increases that we took but it also just reflect that increasing brand momentum because our branch continues to accelerate I think we've really seen the over performance in Q1, we expect this John QQ and then we have more visibility into the back half and so that really is.
For the increase in guidance.
I think we can gain more confidence now that markets are reopening globally and the health of the U S. Consumer is obviously continuing to improve.
It had been supported by government stimulus.
Thank you.
Mix of those pieces.
In addition to that we also have evidenced that the brand trajectory in EMEA I think was up almost 50% in the quarter is following what we've seen in the U S. So it.
It is a mix of price, but it is also volume.
On a mix at both the best from them.
<unk> per spectrum.
On the revenue per ton.
And I'll, let someone else have been thanks, so much.
Thanks, John Thank you.
Your next question comes from the line of diesel from UBS. Your line is open. Please ask your question.
Great. Thank you so much I wanted to ask about sandals I think I heard you mentioned that sandals grew 17% in the quarter can you talk about.
How you viewed that result were you pleased with that and and what signs would you see that gives you confidence that you see long term growth potential in sandals to help you capture a bigger market share on that $30 billion global category.
Yes.
We still have a lot of time, Jeff were very encouraging. So I think we will go on inclusive.
17% growth. It is obviously behind on clog growth and as we said earlier do you expect sandoz to grow less quickly than clubs this year, but over the long term, we expect samples to be a higher growth categories on underlying blood, but.
On the signs that we saw particularly encourage you know its a number one plus amortization so the.
<unk> posted a bolt on that we released last year on this year continued to do extremely well So classic slide we released last year.
It really strengthening this year the two straps on six nine holdup released this year has had a very strong kind of initial introduction so personalization on it.
It's definitely working really well with US co consumer simple very pleased by that in addition to that I would say the reintroduction.
Option.
Major franchises that we launched last year into the <unk>.
And to this.
The core of the Pandemics of Brooklyn to move a bunch of RF, we reintroduced in this year, a few new colors, but frankly a lot of the same products are also doing really well. So you look at the combination plus amortization. If you look at our on the coal platforms.
We feel really optimistic about sample.
And as we look to the future you mentioned in your question. This is a huge global market by $30 billion.
The addressable market for us from Mcdonald's perspective, so we're very confident of our future.
It's category.
Great. Thank you Andrew that was real helpful. If I could ask you one more.
The brand relevance just to continue to increase can you just talk about what some of the key drivers, whereas some of the key actions that you took in the quarter that continues to drive the incredible momentum behind the brand right now.
Yes, I think it did not show I would say, probably three things, it's product marketing and marketplace management right. So.
Number one I think we continue to deliver to the market.
<unk> innovative products, especially <unk>.
<unk> can be as simple as the right colour on the right projects. So we have some from about.
New colors in classic definitely trend right definitely in sync with where the consumer is performing well graphics performing well so thats.
Innovative product.
<unk> already talked a little bit about sandals I.
I would say Bob today, the integrated marketing program.
Use of celebrities use a collaboration by use of social media amplifying that around the world. Both here in this country, but also frankly in China.
In all parts of the World has been really important and then increasingly on marketplace management efforts here in the United.
On today's added on our key overseas markets, where we.
Big Bear.
Full about warehouse product shows up how it's priced.
What supply would put into the market. So that we maintain a really profitable business for us, but frankly also the very profitable business for our wholesale and distributor partners as well.
Got it thank you so much.
Thank you. Your next question comes from the line of Jonathan <unk> from.
On the Crocs. Your line is open free to ask your question.
Alright. Thanks.
John come from Baird.
Just if I could start one follow up on the pricing question.
I know you mentioned labor and some wage increases there's been maybe.
Maybe some questions about resin input cost is there any sort of inflationary offsets from the price and you've taken.
Any thoughts on updated targets for gross margin for the year.
Yeah. So good question, we are seeing a little bit of inflation.
We talked about I think it is the biggest pressure right now is really on <unk>, both on the inbound and outbound side.
We also anticipate from labor cost pressures so in key manufacturing origin, we haven't seen that yet.
With that coming in also in our GTS as Andrew talked in his prepared remarks, we did actually rates from salaries and wages there. So.
Our input cost on a small percentage of our overall product cost, but we are seeing higher commodity costs due to supply and demand imbalances that is also a little bit about that and.
I will say, we've incorporated all of that is the guidance perspective, and our gross margins, we do expect to be up year over year.
And you can see that kind of coming through as defined Q1 can we do.
Gross margins for the year.
And just one more clarification I don't know if Asia Pacific was mentioned from pricing at all is about.
If that market recovery would that be something you might look at beyond 2021 or any thoughts there.
On the geographic reach of the actions we've taken so far.
Yes. So we have we have taken some pricing actions in Asia already.
And some of our core market.
No.
Some of that was done this year already but I do think in the future there is potential for <unk>.
This is Brian continues to strengthen.
Key AG markets.
Okay excellent and then just one broader question from me I know at some point, we'll be having a broader discussion during an investor day, but when you think of.
This year's performance on the new guidance to get back to low to mid 20% adjusted operated margin how should we think about the broader context for this performance.
Is that is there anything that you would see this year.
Have a higher unobtainable bar going forward or do you think there's good opportunity there.
Maintain and grow margin looking ahead.
Yeah. So obviously, we haven't given long term guidance I think we're incredibly optimistic about what we're seeing in that brand as we've kind of talked about the pieces. We think gross margins are largely sustainable we've got a lot of work around that and then from an SG&A perspective, we've always said.
<unk> been able to leverage the increase in volume.
Their business model created that way, so we think that it won't.
It won't change, but we will obviously look forward to putting out from longer term guidance at half of this year during an investor day.
Understood I look forward to that thank you.
Thanks, John.
Your next question comes from the line of Sam Poser from William Trading. Your line is open. Please ask your question.
Good morning, Thanks for taking my questions on parts of pretty much everything has been answered.
Okay.
Number one.
The closures you mentioned those.
Retailers that you decided to shut down.
Bob.
Long term plan or the way the brand was being presented.
Can you tell us what that expectation is.
<unk>.
And what that is that you want from these partners do they all have to be large retailers now.
Sure.
Ed.
Digital is a brand presentation digital abilities.
So on sales force within those retailers that you decided to close.
Yes, I mean I think so.
John.
They look so there are certain categories of free salary.
Clearly strong.
Peter.
Clarify that AUM growth.
From feedback yet.
On really clarify on period.
So retail sporting goods family footwear.
Specialty James.
But Peter.
Pellets are going to win.
In the long term on those.
That we think makes sense.
Over the long term.
In addition to that we're looking to make sure that we're well placed strategically important for retailers.
Two zero influential accounts or regional accounts from penetration that local markets.
On less retracted.
On differentiation.
Small players that don't have it you can.
Really good service levels, our ethical standards.
And potentially taking advantage of it.
I would say.
Digital distribution that we don't think its.
Accretive to the brand so it's really kind of putting.
Resources, putting on time and energy behind the.
The retailers, which we think is going to be strategically important in future.
Thanks, and then.
I mean, given the port.
The supply chain delays and so on.
And you mentioned some of this some of the.
Cost increase would go to help on your some of those logistics.
Some of this price increase will go to possibly are trading goods to play catch up service on this business, it's better as you await product to come in.
That's on the water right now.
Yeah, Yeah, that's absolutely right I mean, I think we're very.
We're very I would say.
Focused on not using airfreight ever possible, obviously, especially given airfreight costs, even more elevated than what we've seen in the past, but we will selectively airfreight good.
Order to get the main quicker, particularly where we're really mean we.
<unk> been doing that that's incorporated in our guidance you've done on that gross margin, yes, yes part of that price increase will offset some of the airfreight.
Yes.
And then lastly, China, you talked about the expected China to become really turned the corner for next year.
Is there anything happening there.
Change is there any improvements youre seeing there that are better than expected that might.
Make some of that happen this year.
I would say from a China perspective, we're definitely on track look we feel really good about the plan we put in place we're tracking to that plan all of the Kpis by channel.
I'm, making a lot of sense.
Right well it would be so I'd say broadly on track I would say a few things we were really pleased Justin Bieber launch in China that went exceptionally well he resonated.
On the Activations that we did resonated probably had one of the fastest sell out we looked at on a sellout time across the globe.
We're certainly getting some traction in social media in China with some of the things that we're doing on trying to be innovative I would say a positive transitions are going while the new concept stores that we've opened are clearly resonating impressive monetization from closed stores. So I think we're definitely on track I wouldn't say that we're going to seek faster acceleration this year.
Thank you very much.
On the success.
Thanks, Andrew.
Your next question comes from the lineup Susan Anderson from B Riley. Your line is open. Please ask your question.
Hi, good morning, nice job on the quarter and thanks for taking my question Andrew.
I'm curious if you've seen the retail part of things on the wholesale stores start to sequentially improve into April it sounds like things are starting to open up there and then also if you could talk about maybe which markets are still shut down for you in Europe.
Sure, Yes, we don't comment on.
Andrew movement from kind of during the quarter, but I will say.
From a Europe perspective, what is the best things about our EMEA business is actually very high from the digital penetration standpoint, even though most of our stores in Western Europe were shut down in Q1, we still saw really strong trajectory both on our part.
And on our own e-commerce, driving that 50% growth as well as distributor in Europe.
And some of our distributor markets in India and so on.
Obviously, we're seeing things kind of vary from an opening up perspective, there, but again the underlying we don't have that many retail stores in Europe. So the underlying trajectory, that's driving really the digital side of things.
Great. That's helpful. And then if I could just add a follow up on the collaboration front I'm curious.
If there is any I guess.
On the creative details around new customers coming in as you do these collaborations and I guess, just trying both to the brand and driving excitement with existing customers and then also on the sandal front I'm curious if there's any plans to.
Do any collaborations with sandoz to kind of drive excitement around those products.
Yes so.
Let me start with the last piece, because that's EPS, yes, absolutely.
We'll see a number of collaboration.
In 'twenty, one that focus on that so.
Yes, I think thats definitely coming on I think really important and I would also say something about super high profile collaborations will be.
For the rest of the year.
In terms of new customers.
Pause et cetera from the collaborations it's really a combination and I would say each one is unique right. So and then actually designed that way right some of designed to be.
I have an opportunity to attract new customer declining customers on the mechanism of releasing these collaborations does allow you to capture the customer information for those new customers and be able to market them in the future on some of them are designed to be more I would say controversial was a controversial is not the right way.
Kind of interesting and Buzzworthy. So it is really top of the three that we try to put together on.
So it really works from from both perspectives I think one other thing that you would note.
'twenty, one will be more international collaborations we've already released a number internationally.
More internet.
Both in Europe, and Asia this year on that.
Thank you.
You may have noticed on Sunday night that flex level was also wearing one of our fees on the red carpet.
Yeah.
Yes.
Great. That's very helpful. Thanks, so much good luck the rest of year.
Thank you.
Your next question comes from the lineup Mitch comments from Phlebotome Research Group. Your line is open. Please ask your question.
Yes, Thanks for taking my questions and you mentioned that part of the uptick in guidance is just a better outlook for the back half and just want to kind of run some numbers back on the envelope. It looks like for the back half is looking for about 30 percentage sales growth, which is not as strong as the first half but on a on a two year basis. It looks like it's.
70%, plus which is actually stronger than the first half so I'm just.
Could you just.
Tell us what gives you the confidence of that is because the brand is becoming more of a back to school brand because you expect big things from line clogs in the fourth quarter and there is if there is there anything on the visibility side that you can sort of support that just what youre seeing in the fall order book just anything there would be helpful.
Yeah, I mean again I think we're really seeing that brand momentum continuing to accelerate both in the U S and overseas, which is really exciting for us I think our distributor business.
<unk> built down from maturity.
Starting Q increase again, our EMEA distributor business is positive. So we're seeing really good times, obviously, we had huge direct to consumer outperformance in Q1.
Yeah.
<unk> direct to consumer quarter that really gives us confidence and I think we do have more back half visibility as well just inc. How U S. Consumer is responding to stimulus and other things and what the reopening I think it.
All of those things lead us to believe that that trajectory only continues to accelerate so on.
We exited the confidence to raise our guidance and we're really pleased with that.
From a product.
No we're definitely optimistic about lifelock as an employee profit Brett.
And so that does help support our business in fact, and then finally to price increases will actually flow through to revenue as well as margin. So those are also incorporated into the updated guidance.
Okay, and then is there any way to.
Isolate the impact of stimulus on the quarter and when you think about it was something that occurred really I guess, a little bit in January but then more so in March and that's continued into April do you think stimulus stimulus should be equally beneficial on the second quarter as the first quarter or is it weighted more towards one or the other do you think.
I'm not sure about weighted more towards the first through the second quarter, but we definitely saw an impact.
I mean, I think it was pretty clear and from what I've been reading it looks like other tap as well so certainly that consumers seem quite buoyant right now in the U S.
And we definitely got impacted from that.
Okay, and then lastly, Andrew on on Sandoz, you mentioned it sounds like the slide the personalized personalization side of the channels is really what drove the quarter. But then you also mentioned the reintroduction of some some franchises like to alumina Brooklyn also did well I'm curious if you if you could maybe speak to the trajectory of the cell.
Through that Youre seeing there I would guess that January and February probably werent, great months for those kinds of franchises I wouldn't think that maybe the sell in on the order book with that growth there, but now we're getting into the warmer months and things like that.
Built on a denim trending again and thats good for wedges anything that youre seeing there kind of on the trajectory side that would speak to your confidence in those those more fashion franchises as we get further into the standard Susan.
Alright. So this is quite a lot there.
Probably look saddled delivery.
John Donald sales absolutely increases if you go from the Bakken first quarter into the second quarter right. That's just kind of a natural seasonal cycles. So.
Certainly seeing more deliveries.
<unk>.
Accelerate.
I wouldn't say, it's like that was frankly did well out of the gate.
So I don't think and I think one thing that we are seeing some components of the channel business, particularly the supply and potentially the two strep is pretty seasonal that consumer that's wearing it is wearing it with them without soft depending on the season. So we're seeing that be more seasonal in.
In the future we think in the future we think the saddle overall on the business probably is a little less seasonal than it is.
I would say one thing in addition, I would say.
In the quarter I think the new introductions.
And the reintroduction with boats from they were both components in terms of the driver on the business. It wasn't just from based on the personal lines book as well.
Okay, alright, thanks, good luck.
Thank you.
Your next question comes from the line of Plowright campaign from Loop. Your line is open. Please ask your question. Thanks.
Thanks for taking my question, it's really about the operating.
Expense leverage and especially how are you planning your sales and marketing expense this year to support that very strong growth that you expect.
Yeah. It's a great question. So we're obviously pleased to leverage SG&A.
And we talked about that on last call that we would leverage SG&A Q1 was probably a little bit low or from an SG&A standpoint, just because our marketing usually kicks off our marketing campaigns really start off in QQ. So we do expect that to increase as well as we've increased from wages for our frontline employees.
And we have we will continue to invest in our key initiatives that we've laid out for that stand on that China that digital and then relative product and marketing and we will see those costs start to layer in throughout the year because the big focus is obviously investing to support our growth for next year as well.
Got it so is it possible to give sort of a range of <unk>.
Sales and marketing expense increase year on year.
Or did you talk about how it layers in seasonally.
I definitely think it all.
Again increased in Q2.
Last year with a weird year, so I would kind of throw that on Apple go back and look at 2019 and kind of think about how SG&A kind of.
Look from a quarterly spread and I think that will help because we definitely expect it to increase quarter over quarter.
And we do expect to invest in marketing channel, we will continue to see that increase.
You can go back and look at our historical marketing costs have been right around just under 70% of SG&A.
Got it thank you alright revenue sorry, yes.
John.
Your next question comes from the line of saw heat sink on on from Stifel. Your line is open. Please ask your question.
Hi, its Jim Duffy from Stifel. Good morning.
Great execution, no doubt a lot of hard work behind it I wanted to take a step back with this in mind I'm, hoping you guys can talk more about the infrastructure to support the growth you've outlined sightlines to $2 billion business. This year, that's a big jump in just two years from about $740 million can you talk about scaling manufacturing capacity to support.
Have you taken on any new partners.
And I know you have the new distribution centers are there any gaps in the infrastructure that are particular focus.
As you look to support that higher revenue run rate and then I'm curious.
As you exit the year or are you still.
Playing catch up on infrastructure, you feel the infrastructures in place to support further growth.
Yeah.
Good question. Thanks, Jim So we.
We've really been investing in our infrastructure now for about two slash three years right. So it's made substantive investments last year maintenance substitute investing this year those capital Brett.
But really going into what DC. So as a reminder, we opened new DC in Dayton, Ohio, two years ago, we expanded that last year, we will further expand that next year right.
We have opened a new DC.
In the Netherlands that is now open with transitioning our operations from the old one to a new on through the remainder of the year on that and the substantial increase in terms of capacity. So we also transition last year.
A new DC, which is a <unk> in Japan.
We may be making so I would say some pretty significant investments in expanding capacity and also expanding.
<unk> seen effectiveness with the use of automation.
So I think we feel good about that but frankly as we continued to growth rate will continue to need to make those kind of investments.
But we have I think a good plan for that from the from a sourcing and manufacturing.
On the prospective we have some phenomenal parts, we have major partner groups.
In Asia.
Very good.
Resources, they have opened new facilities or expanding existing facility and we will continue to do that in the future and we're in conversations also with a couple of significant.
New partners as well so we feel really confident in deposit base that we have and our ability to work with new partners and potentially new regions for us from manufacturing so.
So like we are in a good place.
As you know, we do try to run our inventory fleet right.
We think managing working capital getting high working capital efficiency and keeping inventories lean such that the marketplace is not flooded with goods is actually a really important component Bryan Bryan management.
And I think I'd just add on SG&A.
I think when you think about how we are supporting the growth. We are definitely add inc. And one of the investment will be adding headcount.
That's our key areas in our key initiatives in order to support this growth and that will obviously is included in our guidance for operating margins this year.
Great very helpful answer.
Building on that any challenges with staffing to support any of this additional capacity or are you finding ready availability of labor.
I would say no not really.
We are hiring quite a few positions because obviously you need to.
That positions too.
And I would say that's across a broad spectrum.
<unk>.
Functions.
But what we are finding our brand.
Brian not only is the demand from the consumer perspective, it's very appear on appealing to a place there. They are excited by the trajectory of the business that excited by a lot of the things that we're doing from a management perspective.
Generally.
We're getting great feedback from our employees, which is a great place to work. So we're attracting a lot of really phenomenal employees and we've been recognized I think Andrew said in his prepared remarks by force for.
Inclusivity.
Employer and then I think we were also recognized as one of the best midsize employers. So that's also helpful from a complaint employment branding perspective.
Outstanding keep up the good work guys.
Thank you. Thank you.
Your next question comes from the line of Sam Poser from William Straightening. Your line is open. Please ask your question.
Just a quick two follow ups number one.
How how much bigger on a percentage basis do you expect the marketing spend to be in Q2, and three I guess versus Q1 and Bruce since 19 as a percentage.
So I would take the way to think about marketing as ticket as a percentage of our revenue. So if you take our revenue guidance.
And used our marketing percentage historically, it's going to be about right, we might expand that a little bit you know things are going well, but that's kind of how I would think about that.
Can you just remind us what that is.
Yes, it's almost 7% so we run around 8%.
Revenue from a marketing standpoint.
Thanks, and then lastly on the gold hue, we saw the other night was that something you guys made or something his.
Stylus did Anne.
Will we see that as part of the line.
Unclear.
It's something that we've made in collaboration with Astellas.
Alright, thanks, very much again continued success.
Thanks, Jeff.
There are no further question at this time you may continue.
Thank you very much I just want to thank everybody for joining our call.
Today on their continued interest in crops. So thank you very much have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
Sure.
Yeah.
Yes.
Okay.
Okay.
John.
Thank you.
Sure.
Growth.
Okay.