Q2 2021 Crocs Inc Earnings Call
Yeah.
Yes.
Peter.
[music].
Good day and thank you for standard by what comes of the Crocs, Inc. Second quarter 2021 earnings call.
This time, all participants techno listen only mode. After the speaker's presentation, there will be a question Andrew.
<unk> to.
So as of June during the session you will need to press the star 1 on your telephone please be.
Today's conference of the court.
You require any further assistance. Please press star zero I would now like to hand, the conference over to the speaker of today Queen Helene. Please go ahead.
Good morning, everyone and thank you for joining us today for the Crocs second quarter of 2021 earnings.
Earlier this morning, we announced our latest quarterly results and a copy of the press release may be found on our website at crocs 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. These 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 in the risk factors section of our annual report on form 10-K, Accordingly actual results could differ materially from those described on this call. Please refer to Crocs annual report on form 10-K, as well as the other documents filed with the SEC for more information relating to these risk factors adjusted.
Adjusted gross margin income from operations of operating margin and earnings per diluted common share are non-GAAP measures. A reconciliation of these amounts of the GAAP counterparts is contained in the press release, we issued earlier this morning.
Joining us on the call today are Andrew Rees, Chief Executive Officer, and abnormal 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 Carrie and good morning, everyone.
Q2 results of our exceptional as we continue to see strong demand for the crocs brand globally.
Our confidence in the strength of our brands is also reflected in our raised 2021 guidance.
Looking beyond this year, we announced the Crocs brand will have net zero emissions by 2030.
We will of raised our already low emission footprint tissue and enable us to provide comfort without carbon 12 funds worldwide.
I'm excited for our future and I'm confident we can deliver sustained highly profitable growth, while having a positive impact on our planet and our communities.
Yeah.
Turning to the highlights from the second quarter of 2021.
Revenues nearly doubled versus prior year to $641 million and increased 79% from 2019.
Revenue growth was strong across all regions with the Americas up 136% and on a constant currency basis, EMEA up 53% and Asia of 27%.
Saddled with 1 of our long term growth pillars grew by 57% in the second quarter and 38% for the first half.
Digital sales grew by 25% versus prior year, and an impressive 99% versus 2019 to represent 36% of revenues.
ATC grew 79% versus prior year, and 86% versus 2019 to represented 52% of revenues.
Adjusted operating income more than doubled to $196 million and adjusted operating margins expanded to a record of 31%.
Adjusted diluted earnings per share increased by $1.22.
The $2.23.
Underlying these incredible results is the iconic brand we have built.
To continue to fuel brand relevance and consideration globally, we leverage digital and social marketing.
Influencer campaigns and collaborations.
We were the first footwear brand to market, an augmented reality experience on tick tock with a hash tag get crop challenge featuring trial sandals analogs of <unk>.
Globally. This drove over 8 billion views and over 1 million uses of the hash tag.
We also generated bus when Balenciaga spring 2022 runway featured our second collaboration together.
Apprised of the knee high rain boots on the crux of the downs the letter.
Global collaboration highlights include London based Gateway of brand Palace in Russia, right music brand little Big in.
In Japan highly influential retail of beams and in South Korea will famous Rama brand non shape.
Finally in the U S. We reintroduced our free path of healthcare initiative during National nurses week, where we gave away 50000 per of crocs at work shoes to frontline caregivers.
We're proud of the brand, we have built and especially pleased with the initiatives such as free pass the house cap that enabled the crocs brand and business to have a positive impact on our communities.
This week, we announced our next step and having a positive impact on our planet our commitment to becoming a net zero emissions by 2030.
Our inherently simple approach to design the materials, we use and how our shares of manufactured means of our classic clog already has a low carbon footprint of only 394 kilograms of carbon per pack.
We're taking it a step further with a plan to achieve net zero emissions through sustainable ingredients and packaging as well as a responsible resource use.
We anticipate our consumers will be as excited as we are about our commitment to having a positive impact on our planet.
In addition to reducing our environmental footprint, our comfort journey will increasingly include uplifting, our communities and creating a welcoming environment for everyone rooted in the culture of transparency and accountability.
This week, we launched the new brand purpose section of our Crocs Dot Com site, and our new ESG section of our Investor site to share our progress.
Or encourage you to review the content that we will discuss in greater detail at our upcoming Investor day.
Now, let's turn to second quarter operating highlights.
We're very excited by the growth we've seen in all key product pillars, clogs sandals and UBS.
Club sales were outstanding increasing a 101% year over year to represent 74 percentage of total footwear revenues versus 68% last year.
We continue to innovate and encouraged by the initial results of our new platform and seasonal colors and prints.
Tableau sales were a standout increasing 57% for Q2 and 38% for the first half driven by a classic slide on classic sandal, the both feature personalization as well as Brooklyn until the <unk> franchises.
In addition to the strong growth, we're very pleased and a global brand study saddle consideration is now in line with that of clocks.
Given the strength of clogs sandals represented 20% of footwear sales for the quarter versus 23% last year.
And as we have share while we expect club growth to outpace samples. This year, we anticipate that over the longer term sandoz will grow faster than clogs.
<unk> sales of once again exceptional more than tripling for the quarter versus last year.
The global personalization Megatrend continues and crocs fans enjoy the experience of shopping for charm in our retail and wholesale stores.
From a channel perspective global DTC revenues, which include revenues from E Commerce and company owned retail stores grew by 79%.
Retail had extraordinary performance with traffic and conversion up significantly from more normalized second quarter of 2019.
E Commerce performed well and this was the 17th consecutive quarter of double digit e-commerce growth.
Digital sales grew 25% on top of an elevated 2020 can pat to represent 36% of our second quarter sales compared to 56% last year and 33% in 2019.
Digital remains of top priority and we continue to invest in our customer experience globally.
To retain our competitive advantage relative to other footwear brands.
Our wholesale channel, which includes brick and mortar E tail and distributors grew revenues by 112% versus prior year and 71% compared to 2019.
I'll focus on strategically important accounts.
Comprised of leading E tailers sporting goods family footwear and specialty footwear retailers.
Led to a strong growth in all sub channels globally.
Our top 20 brick and mortar accounts and distributors were standouts as they rebounded from the depths of the pandemic.
Finally profitability was exceptional as we achieved record quarterly adjusted operating margins and record quarterly adjusted EPS.
While we remain incredibly optimistic about our business and has substantially raised full year 2021 guidance.
As we emerge from the pandemic global logistics remain challenging and volatile.
In addition, we are increasingly seeing COVID-19 spikes in some of our primary manufacturing countries on are concerned about the short term impact of potential factory closures on the supply.
We have attempted to incorporate both the additional expense and the potential supply disruption into our guidance the annual review.
Before I turn the call over to Anne and 1 of them and thank the entire Crocs organization. These results.
It's a reflection of the hard work and dedication to the Crocs brand I'm excited for our future and look forward to achieving our commitment of net zero by 2030, creating a more comfortable world first of all.
With that I will now review of our financial results in more detail.
Thank you Andrew and good morning, everyone I'll begin with the short recap of our second quarter results for a reconciliation of the non-GAAP of now mentioned to their equivalent GAAP amounts. Please refer to our press release.
The second quarter results of our exceptional we delivered record quarterly revenue and broad based growth across all regions channels and profit pillars prop.
Profitability was acting class as we expanded gross margin leveraged SG&A and increased earnings per share.
Second quarter revenues came in at $648 million compared to $331.5 million <unk> in the second quarter of 2020.
The 93, 3% increase of 88, 4% on a constant currency basis.
Growth of 78, 5% versus the second quarter 2019 year to date revenue exceeded $1.1 billion, an increase of 68, 1% versus the first half of 2019.
Sold $29.1 million paired shares an increase of 78, 8% over last year and 52, 7% versus the second quarter of 2019 of our average selling price during Q2 increased 8% to $21.84.
With the increase attributable to less promotional activity and higher pricing as well as favorable product mix, including increased sales of <unk> per share.
The Q1 price realignment, we took out of certain products in select markets globally have been successfully adopted and as evidenced by aircraft have not convert demand.
Now, let's review our results by region as Andrew mentioned earlier, the Americas had another great quarter with revenue of $405.7 million up of 136, 4% DTC growth of 128, 1% with outstanding driven by retail.
Traffic combined with Anniversarying significant store closures last year contributed to triple digit growth in company owned retail stores and more than doubled versus 2019 digital penetration with 39% in the second quarter compared to 37% in 2019.
The wholesale growth with the 149, 3% versus prior year and 140% first of 2019.
In Asia Q2 revenue were $126.8 million of 35, 5% of 27, 1% on a constant currency basis from last year DTC increased 10, 8%, while wholesale grew 76, 5% digital revenue grew 17, 1% versus prior year.
And 40% versus 2019 day.
Digital penetration also increased from 31% in 2018% to 45% this year South Korea continued to exhibit strength, while other countries in the region remain impacted by the pandemic.
EMEA revenue increased 63, 1% or 52, 6% on a constant currency basis to $108.3 million with Gregg brands keep updating any global logistics disruptions DTE.
DTC revenue increased 29, 2% with e-commerce strength, driven by higher traffic and a return to growth in retail <unk>.
Stores reopened wholesale.
Wholesale revenues grew 82, 6% fueled by broad based strength of detail distributor and brick and mortar our EMEA net overall continues to benefit from our focus on digital commerce, which represented 52.5 percentage of EMEA revenue this quarter parts of 43% in Q2.2019.
Second quarter adjusted gross margins were 61, 8% of 660 basis points from last year's 55, 2%. The majority of the improvement was driven by price increases coupled with fewer promotions and discounts offsetting pressures from elevated freight rates currency favorably impacted margins by approximately 90 basis points.
Our adjusted SG&A improved to 31, 2 percentage of revenue versus 33% in last year's second quarter. The decrease in adjusted SG&A rate as a result of strong sales growth and operating leverage we.
We invested approximately $60 million versus the first quarter to support our strategic initiatives digital sandal, China and marketing we will.
To make investments this year to support the long term trajectory of our business.
Our second quarter, adjusted operating income more than doubled to $196.4 million.
Versus $73.8 million last year with robust operating profit growth in all regions adjusted operating margin Rose from 22, 3% last year to 37% fit care benefiting from gross margin expansion and SG&A leverage on strong sales growth for.
For Q2 of our underlying non-GAAP effective tax rate was 24, 7%, excluding a onetime benefit of $175.4 million.
The income tax benefit and decrease in our GAAP effective tax rate were driven primarily by the realization of deferred tax assets, which were previously subject to evaluation allowance.
Second quarter non-GAAP adjusted diluted earnings per share increased to $2.23.
Compared to $1, 1 a year ago.
Our liquidity position and balance sheet remained strong we finished the quarter with $197.9 million of cash and cash equivalents and $386.4 million and borrowings and have ample liquidity with $454.7 million of borrowing capacity on our revolver.
In Q2, we executed a $300 million ASR, which resulted in the repurchase of 2.9 million shares at an average price of $103.79 per share we expect to generate significant operating cash flow and to maintain the strong balance sheet. We will continue to prioritize investments in the business.
To support our future growth. We will also continue to be opportunistic with respect to our capital structure and our capital returns.
Inventory at June 32021, with $209.1 million.
Up from $146.8 million in the second quarter last year inventory with lean throughout Q2, and we ended the quarter of higher in transit inventory due to the continuation of global logistics challenges.
Turning to the future I would like to share of current outlook for the third quarter and full year 2021, as Andrew mentioned global logistics remain volatile due to the lack of visibility we have provided guidance the potential supply chain disruptions and additional expenses in line.
For Q3, we expect revenue to grow approximately 60% to 70% and adjusted operating margin to expand to be between 24% and 26%.
The strong growth is expected in all regions and all channels as brand momentum continues.
Given our extraordinary first half performance and confident in the momentum of the Crocs brand, we are raising full year 2021 guidance.
We now expect 2021 revenue to grow between 60 and 65% at the midpoint growth in the second half of is anticipated to be 49% versus 2020 and of 100% first of 2019 Andrew.
In addition, we expect adjusted operating margins to be approximately 25% for the full year 2021.
We expect net leverage SG&A and long term, we plan to invest in the back half of this year to support future growth.
We now expect our underlying non-GAAP tax rate to be approximately 23%, which is higher than previous guidance due to greater than expected profit in our U S. The net.
Look forward to sharing our long term growth algorithm at our upcoming Investor day on September 14th.
In summary, we delivered outstanding revenue 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 the final thoughts.
Before we open the line for Q&A I want to acknowledge the Dorian right is retiring from our board of directors after a decade of service.
1 of the express my gratitude for all of the <unk>, many contributions and wish you all of the best in the future.
I also want to thank our talented team around the world without which these results would not be possible.
<unk> brand remains incredibly strong as evidenced by our second quarter results and our increased guidance for 2021.
We're incredibly excited for the future, which now includes achieving net zero emissions by 2030, and having a positive impact on our planet of.
Operators. Please open the call for questions.
And the reminder.
Christian you will need the bed.
1 of your telephone to withdraw your.
Question. Thank you Tom.
The standby will be component of future roster.
Your first question from John <unk> with R. W. Baird. Your line is open.
Yes, thank you very much and.
I wanted to start off when do you think about the second half guidance given the range for the full year revenue and I think you've highlighted.
The acceleration to 100% growth at the midpoint versus 2019 for the second half could you just maybe share more detail on what youre seeing.
Maybe across channels and geographies to support your confidence in that in the 2 year acceleration from here yet.
Hey, Thanks, John I'll give you a bit of color and then pass it over to Anne to give you kind of most specifics.
Yes look we remain incredibly confident in the trajectory of the brand. Obviously, we've had a very strong first half very strong Q2, and as we look across all of our channels, we really see strength in all of the channels, maybe I'll start with retail.
We had really exceptional growth so as stores have reopened this year.
Seen significant increases in traffic, we've seen significant increases in conversion and.
Our retail stores.
Both here in the U S and also of a particularly in Korea performed really well digital is performing well I think we highlighted the 99% comp over the 2019 numbers on digital as both our own E Com bus.
In addition, E tail and then from a wholesale perspective.
Again, the wholesale channel is performing well I think we called out in particular of brick and mortar a leading 20 brick and mortar accounts and our distributors.
The distributors, we kept the fairly lean on inventory last year 3 of the pandemic, we didn't want them backing up on aged inventory.
As they're emerging.
Replenishing.
I would say very bullish about the future of the brand. So I think where we're confident on all dimensions.
Yeah, I think thats exactly right and I think just to add a little color by region as well every type of.
Europe EMEA growth of almost 53% constant currency in the quarter. So really good to see some international growth coming on strong and we expect those trends to continue Asia also returned to growth on a 2 year basis, which is great to see so we expect all of our regions to contribute to the growth factor in Q3, and Q4 and then obviously.
Some visibility.
On our order about the support all of the growth that were guiding.
Okay, that's encouraging and very helpful. And then maybe secondly, then when you think about the supply chain ability to keep up with that growth could you just share more given your outsized exposure to Vietnam from a sourcing perspective can you just share more of the current state of.
The environment, there and the key factories, and then you mentioned, having embedded some impact in the second half. So maybe you can give a little more color.
What's the what's embedded in the expectations.
Yes, yes, so I would say John Thats, a great question, it's probably 1 of our key concern. So as you look at global supply and logistics look it's been extremely challenging for the last 12 months, we've been living with debt for the last 12 months and performed as we have performed in the last 12 months given that.
And so what's different today.
Let me break those 2 pieces of the pop 1 is global logistics, which is contained as freight time et cetera, and just the could you give you of perspective, I would say kind of transit times from Asia to most of our leading markets are approximately double what they were historically right. So but that's been the case for some time and we're expecting the live with that we've also seen <unk>.
<unk> freight costs some of the.
The first half of the year and we're expecting to see more in the back half of the year and we've embedded that expense into our projections I think what's different now is the COVID-19 spikes that we're seeing in.
Let's say southeast Asia, and particularly Vietnam, and our expectation is that we will see some temporary factory closures in the next quarter as Vietnam battles Covid. There. Unfortunately don't have access to all of the ability to administer the amount of vaccine that we have in this country.
So really the left with Lockdowns and the <unk>.
People interact and so we do expect temporary factory closures, which will obviously impact.
Impact supply.
So, but with that we've embedded that in our guidance in terms of.
Really trying to make sure that we're confident in the amount of inventories that we have on hand.
What we have in transit and we feel really comfortable with where we are given those uncertainties.
Okay. Thank you very much.
Okay.
Your next question is from Erinn Murphy with Piper Sandler Your line is open.
Great. Thanks, good morning, and really great quarter.
The Andrew for you on that last point on Vietnam can you just remind us how big of Vietnam as the percentage of your overall sourcing and just how quickly you can move into other regions from.
Of the Rolling Lockdowns continue and then I guess bigger picture on APAC could you share a little bit more about what you saw in China in the quarter. How did you how did the consumers' response of 618 and any other key initiatives of you kind of refocus.
That region for Gregg.
Alright.
And talk about.
Vietnam in the factory base established and let me pick up China.
Hi, Eric as you know, we manufacture of significant portion of our.
In Vietnam, we don't release, the overall percentage, but it is the most significant manufacturing geography for us and then as well as supplemented by the China, Indonesia and a couple of other places around the world, but Vietnam is significant.
Yes, and I think the ability to move out of China, Yes, we have absolutely some of ability we have some capacity spare capacity in sorry of the ability to move out of Vietnam. We do have some spare capacity of the places, but it's not enough to.
To make a wholesale change then in terms of.
China trading look I think we were really let me kind of go back up the age of first and then come down in China, We will really pleased with our Asia performance during the during the quarter. Obviously, we grew nicely, even though on a constant currency basis with some currency to help the headline number of on a constant currency basis, we grew nicely at 27%.
And that was despite some significant COVID-19 impacts around Asia. When you think about India. When you think about state of emergency in Japan, and also the lack of travel in southeast Asia and the current spikes the Esa.
In terms of China, I think we've talked extensively about the the.
Of the repositioning plan that we have in place I would say, we think it was a really good quarter in China, we executed really well against all of the dimensions of the repositioning plan, including elevating and enhancing our marketing trading on.
Mixed use and festival and so we feel really good about the performance in China, and I think I've set up well and very confident about accelerated growth in 2002.
Great that's great to hear and then maybe if you could speak a little bit more about the call you established last night to get the net zero by 2030 I asked the question is what percent Rituxan.
Are you committing to versus debt using offset to net out the rat. So just curious on some of the kind of commitment the internally to get there and I'm assuming I mean this is well ahead of most software companies that we've benchmarks I just really fantastic Catholic.
Put the top already.
Great. Thank you I appreciate that so what I would say is look we've been working on this for some time and we've been working on this from a number of dimensions..1 is sourcing and working with I would say of major chemical company of the partner too to identify the potential for sustainable ingredients that go into our products. So.
Deriving a cross like phone from the sustainable.
Sustainable ingredients and we we have identified a solution to that that we feel very comfortable with and we'll be focused on scaling that solution over the coming years, which is really 1 of the key factors in terms of lowering the overall footprint, but we're also looking at it from lots of different angles from of packaging perspective, I think 1 thing that we've done for years is really not ship out.
Cash and packaging, we don't use shoeboxes, the 85% of our product ships without a few bumps, but we think we can do even better there, but also looking at the sustainable energy that we would use in our facilities, including some of the factories as.
As well as the reuse so as we look at the whole.
The carbon footprint in the all of the key components that go into that obviously, we start from a great place with a very low carbon footprint on our classic clog at 394 kilograms of carbon we will be posting that on our website here very shortly and we will also be measuring the footprint of all of our other products over time Andrew.
Leasing that information so we want to be really transparent about this in terms of the future goals, yes part of it is offset but we will be making a substantial reduction in our actual carbon footprint in of itself.
Not ready to disclose that at this stage, but we'll talk much more about that in September.
Investor Day, So we do have some significant internal goals around that.
Great and then just last 1 Anne for you just the Capex guidance for the year moved from 100 and of 130 million to $80 million to $100 million. What was the difference in the change was there anything in terms of supply chain investments that you pushed out or was it another investment. Thanks so much.
Yeah, No. We're very committed sales of the investments, we're making around our supply chain, it's really just timing of costs.
And this year. So it really has nothing to do with that it's true.
Really more around timing.
Okay for continued success. Thanks, so much.
Thanks Scott.
Your next question is from net.
That's all the research group your line is open.
Hi, guys. Thanks for taking my questions of congrats on the quarter.
Andrew if I heard you correctly you made the comment that standard consideration is now comparable to clogs help me understand how meaningful that is and maybe what you could do is there any way you could provide context around the in terms of like.
What's the consideration was a year ago or 2 years ago vs clogs.
Just so we understand what it means to be comparable and then also I don't think youre seeing the not sure you're going to sell of San.
Sandals clogs, but what could that mean going forward in terms of the growth of the sandal business for consideration to now be at the level that it is.
Great. Thanks, Nick I'm glad you picked up on that yes. So we think actually it's very important right. So what we mean by that is when we measure.
The brand consideration with our consumers we run obviously consumer brands study every quarter to try and assess where our consumers 1 of our key questions is as consideration for the club consideration of the sandals et cetera, I would say historically the saddle consideration number has been a fracs.
<unk> of the cloud consideration of but Thats what were known for that's what most consumers.
Would consider purchasing a crocs item they will first consider of cloud. So we think it's very meaningful that the final consideration has risen over time, it's risen because of the marketing we've done behind its written risen because of the from of the new products that we brought into the market, particularly those that are personal lines of the boat and so.
I think it's very meaningful.
In terms of what does it mean in the future of our revenue is no. We're not saying that the sample sales will be equivalent of cloud sales in the future, but I think it gives us a lot of confidence in that trajectory that we've been talking about and we started.
Total again here in Q2, but it gives us a lot of confidence in that growth strategy that we've talked about.
Got it Okay, and then and just a quick 1 for you.
Is that kind of work my model given the quarter of the guide kind of.
Back into Q4 operating margin of 16% to 17% hopefully my math is correct.
From Q4 last year, obviously down from kind of the run rate that you're on I'm just kind of curious.
Why is that non higher or is that based on some of the investments that you are based on the SG&A side does that reflect some of the supply chain issues that you're kind of anticipating.
Going forward can you maybe.
The address the.
Yeah. So we didn't we didn't get specifically for Q4. So just reiterating that we said approximately 20 back of the year I think.
The biggest thing in the back half of really around we're going to continue.
To invest in SG&A, particularly the marketing marketing expense was up this quarter of about $26 million.
And we will continue as we've checked all of our last call. We'll continue to invest in marketing and our marketing expenditures for the year will be just a little over 7% of revenue.
That will accelerate continue to accelerate through the back half of it and we will continue to invest for the future to support our future growth and then from a margin standpoint.
We will have some margin pressure, although for the back half margins will be up of.
Gross margins will be up over last year, we will have some pressure just based on.
What we talked about with logistics and freight.
And kind of the overall logistics environment. So those 2 factors are combining.
The kit put to our guide of approximately 25% of the year.
Okay, alright, thanks, and good luck.
The next question is from Sam Poser with William <unk>.
The is open.
Thanks, everybody.
A couple of I want to follow up on <unk> question could you hear me.
Yeah, Hi, Sam Okay, Okay, Hi.
I just want to follow up of niches question regarding.
Regarding the the fourth quarter.
Just by asking with the incremental marketing spend that you're pushing in the how much incremental marketing as a percent or however, you want to talk about was there in Q2.
Much of those incremental sales could you attribute to it.
And how much incremental marketing is built into the balance of the year and what kind of what kind of sales lift are you attributing to that within the guidance.
Okay, Let me try to let me try to price.
From a marketing perspective year to day, I believe marketing that's about $28 million.
$26 million of that was in Q2. So obviously the majority of that incremental spend year to date within Q2, and we will see much of the same type of spend in order to get to that approximately 10% you can do the math.
Jeff.
A little over 7% in the back half of the year about <unk>.
Some of that in performance marketing as you mentioned, the variable, which support the E com, which is a little bit more transactional and the rest of that is brand. So it's hard to tailor to equate how much of the increase revenue is actually related to that marketing, but what we do know is that our marketing is incredibly effective and we look at things like brand surveys Peter is trending in the right way the adult consideration.
And we know that in order to support our growth long term.
We need to continue to spend into that so I think it's really less about what the incremental debt is contributing to this year and more about what the incremental is going to contribute to our future.
Okay, I'm going to come back to it I am not arguing that you shouldnt be spending the money what I'm, saying is is how much of the near term. My question. This is.
I believe the because even the brand marketing and the other is driving helped to drive a lot of your strong results. This quarter that my question is is Anne.
I would assume based on the marketing your marketing percentage of sales given the results were less than what you anticipated. They would've been in Q2 is that a fair statement based on the guidance of David about the use of that.
With our marketing percentage less than what we planned for Q2 I'm sorry can you deploy.
The other fab youre, saying that look if we had sales acceleration above what we expected debt.
The market income and low no I think I would say note of that because a lot of our marketing is very variable and can be found on the very short term short period of time, even some of our brand marketing, we can lean into eventual lead back from events, especially around social media. So we were very we calibrate that very closely so I wouldn't say it was.
It was dramatic it was less in Q in Q2 than we expected and look.
I think all of our strategies really clear right.
We are of great marketing.
Strategy, we have I think really effective team.
It's an incredible work so we're going to continue to spend to ignite consumer interest in the brand net quarterly working on events that we don't look at what is the incremental in the year, we think about it from a multiyear trajectory yes, Jeff.
The 2 piece of that too is that if you look at our results. Our 10-Q will be out of little bit later, but if you look at our results by segment. I mean, you can see that in the actually kept some of that increases that we were having in the U S of investing that overseas, particularly in our Asia market. So we can do that within the quarter.
Alright, alright.
And then.
How much of your inventory current inventory on your books is in transit right now.
We don't break out the entry in debt FERC is the.
The work on <unk>, but it's significant and it's up significantly year over year much of the increase of our current inventory actually thing and transact and thats been pretty consistent all year as we've just been working through logistics and net Andrew talked about earlier longer per cycle.
Cycle times.
And how much of your product.
For the.
That is made from the how much of the product that you.
You need for the full year is already produced so.
With that im asking how much of the <unk>.
The reduction needed I guess for the next 6 to 8 months.
Is the is made and how much of that is what percent may be impacted by the issues.
Yeah, Matt.
Yeah Tim.
The majority of our product for Q3s, obviously Q3, you have the product debt. So there is some for Q4, but obviously it increases as you go out and increase your kind of thing.
Alright, Thank you very much.
In the system.
Thank you.
Your next question.
Anderson with B the Ryan your line is open.
Hi, Good morning, let me add my congrats on an amazing quarter.
I was wondering if you could maybe talk around about your thoughts on promotion.
We look forward and impacting gross margin levels I'm curious if you think there's still room to pull back on promotions and also how youre thinking about price increases are there more planned for the back half of 2022.
Yes, so I think look moving.
The <unk>.
Very proactive in terms of pulling back on promotions.
Through the year is the further room I would say, some but not significant right.
<unk>, maybe some of the Asian market.
Got a little bit of opportunity to continue to pull back as the brand heat steps to accelerate in those markets.
I don't think Thats significant go forward.
We've done a loss.
If you look at our U S website, I mean, it's essentially the non promotional all year long.
Et cetera. So.
And I think as you look at our stores also essentially non promotional.
If you talk about price increases yes, there are some price increases that we're planning in 22 of those have already been.
Communicated.
I would say they are stronger outside of the U S, particularly in EMEA again in Asia as we as we look to to manage price value and given market. As we said, we always look at the the price of the product relative to competition relative to the Brian heat in that particular market. So there are some price increases.
It will flow through in 'twenty, 2 but I would say they are also dramatically less significant than the day moves that we've made the shift.
Okay, Great and then maybe if you could talk about your thoughts on back to school are there any early reads that you could talk about how you expect it to play out this year and then I'm curious for this fall if theres any new products that you're expanding on such as maybe get the offering similar to what you've done in sandals.
Yes, I think we are.
Very optimistic about back to school I would say.
Early reads are strong right as we look at obviously there is some parts of the country that go back a lot of Elliott and the others as we look at the performance in those markets.
We are seeing a trajectory that we really liked so we're very optimistic about back to school, obviously was very strong last year coming out of it of the Lockdowns of the pandemic, we feel very confident in our ability to anniversary of growth from that basis. I would also point out as you look at the seasonality the growth in.
Back to school and the strength of fourth quarter, a lot of the seasonality that was historically in the business is really smoothed out.
So we can be incredibly profitable each quarter of the year in terms of the new products in the back end of the year I would say, particularly exciting is fossil line product.
It's been growing the building now for about 3 slash 4 years, but.
But we don't feel like in any of the prior year's really tap the full potential of that so we think for us.
In the.
In the cloud, but also some the new exciting <unk> product that will come out more broadly will be will be important in the backup.
Great. Thanks, so much good luck the rest of the year.
Thank you.
Your next question is from day, so with UBS Your line.
Okay.
Great. Thanks, so much Andrew can you talk about the allocation model of the company's implemented over.
Over the last quarter or 2.
Just talk to us what the benefits of Ben.
The brand.
And to the operations overall.
Yes, I think so let me start up of the thing I think the benefits of significant and really important and the allocation model is 1 part of a sort of a multi pronged approach to really manage our brand at wholesale obviously price promotion in our DTC channels, we can control explicitly of wholesale we really.
Half of the both the things like map pricing, which we instituted on on some of our key lines earlier. This year and also allocation that we provide to our key wholesalers.
Trying to do with there is really is manage the amount of inventory that's in the marketplace on our most important key styles and also provide differentiation.
Between the wholesale.
Partners, so that theyre, not competing head to head, the which will allow them to trade more of a full price.
And our brand and show of how we wanted to share for consumers. So.
I don't think its anything new as you kind of think about the industry I would say it has been a important shifts of crops is being adopted what I might consider kind of best in class brand management practices I would say I think they have been incredibly well received.
Across the industry I'm sure there are the occasional wholesale partners that would like like more products. In fact, the Republic quite a few that were like more product, but this is an important part of managing the Brian.
Understood, maybe just a follow up on that in the context of 136% growth in the Americas This quarter, which obviously is a phenomenal result can.
Can you give us a sense of how you were able to drive that kind of growth and move to an allocation of out of like what what.
What would sales net sales growth have been had you supply.
The inventory, maybe the way you had a year ago or 2 years ago.
Yes, I don't think we know the answer to that question.
As you point out 130% sales growth is phenomenal right. So.
And ensure what allowed that to happen, it's really consumer demand consumer takeaway has has is that is out of that level of are ahead of that frankly, right. We're not stocking the channel we're keeping the channel.
Pretty much where we would like it.
In a very healthy place so it's really consumer demand and consumer takeaway and that says the result of product innovation and all of the marketing that we do so in terms of of what it could have been I don't think thats.
We don't know.
I'm, probably not that relevant because I think we're really comfortable of where we are I.
I think it really support the profitability as well if you look at our 8% ASP growth in the quarter, it's hard to say how much of that is directly related to <unk>.
Our wholesaler at the outdoor and obviously, our ESP as well.
Got it and then maybe 1 more if I can I think Andrew mentioned from price increases are coming next year.
Given the map pricing given some of the price increases that have happened.
Hi, John prices go and how do you think about the brand and the brand positioning relative to price in terms of like where the ultimate opportunity lies.
Yes, I think that's it.
The good question and just to reiterate the price increases the referenced are really outside of the United States.
1 thing that we're very conscious of is the consumer values of the brand provide us. This is a very democratic brand. We serve a lot of consumers both from highly affluent to much less affluent and we never want to be in the place where we're turning consumers away because of product is kind of 2 expenses that mine of not providing the value that we can.
Think of it provides so we're very careful about about pricing. So that we don't push too far I think we've got that balance I think about right at this point given the consumers incredible value as well as obviously, attracting the value that we think the brand deserves in the marketing and product innovation business, and obviously, providing a great return to shareholders.
Yes, that's something we're very conscious of is very very important to the to the brand.
And its future trajectory and the the price increase that talks about the next year are mostly outside the United States.
Got it that's super helpful. Thank you so much.
Alright.
Yeah.
Our next question is EBIT Marotta C. L. King your line is open.
Good morning, Andrew and inquiry and then can you talk a little bit about how much channel mix was the factor in the second quarter gross margin Delta and how much debt will be of factor in what is the gross margin guidance for the year.
Yeah, so of channel mix.
From a year over year perspective, where the incredibly it was ex.
<unk> helped a little bit margin because of retail with the strong and so from a gross margin standpoint.
<unk> very high from an operating margin as you know we are rather agnostic as we think about from a quarter over quarter perspective.
Q1 is our tends to be our highest of el percentage quarter. So it's certainly from a quarter of our quarter perspective, you could see gross margins accelerate in Q2 to Q1.
Of that channel mix, and then for the year I wouldn't say that impact.
The impact right the biggest impact.
Thing around our margin are really pricing pullback of discounts and promotions as well as product mix rate increase in our <unk>.
Fitness as well as Clos are very favorable and then we had a little of that currency in there and then those are somewhat offset by increased freight pressures as we talked about but still supporting overall higher margins for the year.
Very helpful. Thank you.
Your next question is from Laura Thompson with loop capital. Your line is open.
Thanks for taking my question I know you've answered a lot of questions on pricing, so far but I may have missed it did you give the.
Growth mix units versus price in the quarter couple of other ones on pricing as you look to raise prices next year in other regions are they just coming up closer to Americas pricing or.
Or will there still be of significant differential and then the third on pricing.
How much of a price increase do you need to take the hit your.
Environmental goals with what I presume is of higher cost more environmentally sound material.
Great well, let me answer your first question and then I'll turn it over to Andrew talked about price increases so far.
From a overall perspective arguments were up our per sold were up 78, 8% and our A&P was up about 8%.
And then as far as.
As far as the overall pricing and outside of the U S from the prices outside of the U S. They don't necessarily.
It really depends of the product not necessarily of depending on currencies tend to be higher than in the U S, which is why we have an opportunity in some of our market share line.
Yes, I would say if you look at pricing outside the U S look it's really dependent on I would say the market the competition and the brand heat in that market.
So the international markets, where we're actually out of premium to the U S.
And there are others, where we're in the slight discount so I would say broadly yes, it's more coming in line with where we are positioned relative to competition the relative to consumer demand.
So I think that debt.
In terms of the Genesis of your question debt. That's what we're trying to do right. So that's the driver in terms of the incremental costs associated with some of our ESG efforts.
Yes, I think we feel like we will talk a little bit more about that in our in our Investor day in September, but we've incorporated that into our long term business planning and I think it's basically kind of cover that in that context.
Got it I guess of follow on.
Obviously your Asia Pacific growth is accelerating.
But I am curious when I look at your pricing whether that is slowing your growth down in China or do you think that it's still just about finding the right partners in that market.
I would say very clearly we do not believe pricing is slowing of growth out of China.
We think we are.
We're priced appropriately in China.
As we look at the kind of.
The repositioning plan, it's about the partners, it's about a marketing investment it's about.
Our E tail business and sorry E com business so no.
We don't think it's about pricing, we think it's a lot of different dimensions.
As I mentioned, the Aaron's question earlier with the really confident about the trajectory of that and how it positions us for next year.
Great quarter guys. Thank you.
Thank you.
Your next question is from Jim Duffy with Stifel. Your line is open.
Thanks, Good morning, terrific execution and congratulations to the team.
I wanted to ask about infrastructure, you have been very thoughtful about investing in infrastructure, but the volumes have just been huge.
I'm curious once the product is in the U S or other regions of the bottleneck points or throughput challenges to delivering on demand and can you speak to areas of investment to support additional growth into 2022.
Yeah, yes, it really thoughtful question Jim so.
We don't have any car of the bottlenecks in our infrastructure I would say there are many bottlenecks in the global logistics chain, whether at the long beach, whether it be rail out of long beach, whether it be availability of trucking. The list goes on but so as we look.
Our ability to process goods, whether it's through a warehouse or through our cross dock facilities.
From process very high volume of goods and have certainly have no concerns for 4 of 21 into 'twenty..2 you might note that we are significantly expanding our U S. D. C. Again that will be opened later next year.
And we're also we have moved to our new DC in the Netherlands, and we'll that will be kind of up to full operation again, but at the end of the year. So it's impossible operation across the 2 facilities today, but working really well in terms of longer term investments absolutely. We will continue to grow the business at these rates of others.
We anticipate the continued to grow the business, we will continue to make investments in our infrastructure in the U S and EMEA.
Some of our key Asian countries, as well and 1 of it over on the cost side, we've exiting quite a lot of efficiencies from our U S distribution network of it yet and that is showing up in our margins that we call that out of his.
Supporting our overall price market level, we're really pleased with that.
Great.
Investments of.
The proof.
Very prescient.
Andrew can you talk about the tone of business, where the Asia distributors.
Kind of the glide path to recovery in that business, what youre seeing there.
I think thats, the big unknown, I would say and we're not and that's not happening this year period right. So not not in our prospects are in our guidance.
Those Asian distributors that you're right to point out the can be significant.
Large populations in the countries that we serve.
Highly dependent on tourist travel and Thats, just not going to happen.
Yes, if you would've asked me when I think it is late next year before people start traveling to those countries.
And that's kind of how we're thinking about it.
Okay, Great I look forward the connecting with you guys at the Investor Day.
Thank you.
We have a follow up question from Erinn Murphy with Piper Sandler Your line is open.
Great. Thanks, just 1 from me on the buyback of thank you fully exhausted your existing authorization this quarter any thoughts on I think that in the near future.
I think we have of almost $700 million left on our existing buyback.
Okay got it maybe I'm mistaken. Thank you so much.
Thank you.
The follow up question from Sam Poser with William trading your line is open.
Hi, I have 3.
Quick ones just about looking forward with the gross margin.
You talked about mix from a product perspective.
Do you expect the channel and geographic mix to continue to help you secondly, if you couldnt give us some color on upcoming collaborations and third if.
If you could discuss.
How is inventory at retail both in your own stores of your partners and your <unk>.
Wholesale partner stores.
Looking right now relative to demand Youre seeing Gregg.
Alright, let's hit those in reverse order so retail inventory at retail I think look at the way. We think about Q2 as I think we were not an optimal retail inventory position and our own retail or even our wholesale partners right. So.
It's better than it was at.
At the end of Q1, but it's certainly not optimal so.
I'd say optimum looking at kind of out of stocks from weeks of supply so when we've.
That's an opportunity for the future.
What was the second 1 the lab.
The color Gregg and Karla, we have a very strong pipeline of callouts, we talked a little bit more in our prepared remarks about all of the different things going on I know you track those closely but I would say we have a very full pipelines from the end of the year.
Increasingly out of the very full pipeline for next year.
And then on gross margins can we do expect Panamax as I mentioned, a little bit earlier, it will help but the biggest drivers of gross margin for the year of really related to the pricing actions that we've taken the continued pullback and promotional strategy and then a little bit of currency, we expect currency to be about 70 basis points rally for the year.
Here at current currency rates.
All of the combined and then as I mentioned is while we have some efficiencies in our Dcs and then some of those are offset slightly by increased freight rate. So hard to the footprint markets will be up for the year, but those of the major drivers and get it.
Thanks very much.
Yes.
I think thats all of our questions. So.
More at a time so really appreciate everybody's continued interest in the company and thank you very much for attending this morning.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect.
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