Q3 2021 Crocs Inc Earnings Call
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Thank you.
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Ladies and gentlemen, thank you for standing by and welcome to Crocs, Inc. Third quarter 2021.
This conference 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. During this session you will need to press star one on your telephone.
Please be advised that today's conference is being.
Our nickel worded.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Cory Lin.
Good morning, everyone and thank you for joining us today for the Crocs third quarter 2021 earnings call earlier.
<unk> morning, we announced our latest quarterly results and a copy of the press release may be found on our website at crocs Dot com.
We'd 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.
Earlier this pandemic crisis.
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.
900, 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 GAAP are contained in the press release, we issued earlier this morning, 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.
Thank you Carl and good morning, everyone as you saw.
From our release this morning, we achieved exceptional top line growth and industry, leading profitability during Q3.
Three of 2021.
Our extraordinary performance in spite of the ongoing COVID-19, pandemic and widespread supply chain disruptions demonstrates the strengths of the crocs brand and product offering globally.
It reinforces the confidence we have in achieving our short and long term goals.
Our team's ability to navigate these disrupt.
<unk> for the last two plus years has been and continues to be a key ingredient across a success.
And we'll review our financial results in more detail shortly but here are a few highlights from the third quarter of 2021.
We experienced broad based growth with total revenues up 73% versus prior year to 626.
And doubling from 2019.
DTC grew 60% versus prior year, and 90% versus 2019 to represent 51% of revenues.
Digital sales grew 69% achieving double digit growth in all regions and representing 37% of total revenues.
Adjusted operating income more than doubled in the quarter to $205 million versus $75 million in 2020, with adjusted operating margins expanding to an impressive 33%.
Finally, we are committed to becoming a net zero company by 2030 and began production of bio based products that go on sale.
In 2022.
Let's now turn our attention to the topic that I know is top of mind for many of you there.
The recent factory closures in Vietnam, due to COVID-19, and broader global supply chain challenges facing all industries.
We first want to recognize our factory partners for their extraordinary efforts in a difficult time and for protecting the health of their.
Our employees, we appreciate their ongoing partnership.
Regarding the impact of the crops business during the third quarter some of our factories in Vietnam, We're closed for several weeks.
Began reopening earlier this month.
As of today, most of our factories in Vietnam are operational although they are in various.
As of restarting.
We expect the situation to remain fluid as the vaccination rates increase in the country.
We are pursuing all of the actions you might expect to mitigate the impact of this temporary disruption.
First we assess shifting production capacity to other countries, including China, Indonesia.
And Bosnia where possible.
We also have a unique advantage in that we can ramp factory production quickly due to the limited inputs and simple configuration of our products.
Currently by prioritizing top selling products and narrowing our SKU counts, while still preserving newness were able to improve factory throughput.
Thirdly, we are aggressively leveraging airfreight to bring in units for 2022 spring summer selling season in.
In the United States, we're planning to reduce our dependency on west coast ports by adding east coast trends shipment capabilities to reach a major U S customers.
In addition to maximizing supply with strategically allocating use.
We will prioritize our most important channels.
E Commerce E tail and a major wholesale customers.
As we all know the situation is very fluid.
But I have full confidence in the supply chain team and our factory partners to manage through this temporary disruption.
Also I want to emphasize that these.
Units will not distract from our long term strategy that we believe will propel the cross brand to $5 billion plus over the next five years now lets turn back to the third quarter operating highlights from accounting perspective Global DTC revenues, which include revenues from E Commerce and company owned retail stores grew by 60%.
<unk> wholesale which includes brick and mortar detail and distributors grew revenues, 88% and 111% compared to 2019 Digi.
Digital sales grew 69% and an impressive 199% versus 2019.
All channels benefited from strong traffic.
Higher pricing and fewer promotions.
Execution against our product growth strategy is going well <unk>.
<unk> sales were outstanding increasing 91% from a strong 2020 to represent 82% of footwear revenues versus 72% last year.
We continue to innovate and are excited about our frontline product.
Which is on trend for holiday.
Recent clog collaborations with Balenciaga hidden Valley Ranch in San Kwanza in China, amongst others continue to excite fans and elevate the crocs brand.
We continue to raise awareness for sandals, including them in collaborations such as the one with benefit cosmetics.
With featured both the club and the two strep sample samples grew by 15% in the quarter and 31% year to date as we conclude the sandal season in many parts of the world.
Sandals represented 13% of footwear sales for the quarter versus 19% last year due to the strength of clog growth.
<unk> sales once again more than doubled for the quarter versus 2020.
We continue to create excitement through a fresh assortment, including recent gip is partnerships with social media posts, Nowadays Brendan rock and legendary rock brand grateful that.
Consumer demand for our products is high and we remain confident in our growth trajectory.
We're raising the low end of our full year revenue guidance and now expect 2021 revenues to increase.
Between 62% and 65%.
We're also raising our 2021 adjusted operating margin guidance from approximately 25% to approximately 28%.
As we benefit.
<unk> from favorable gross margins SG&A leverage and the underlying strength of our brand.
Im pleased to share that our brand is extraordinarily healthy.
This is a testament to our product marketing teams around the world, who continue to innovate and raise the bar.
In our 2021 brand strength survey, which measures participants.
Since views about the crocs brand globally.
<unk> were up double digits for each of our key metrics brand desirability brand relevance and brand consideration.
We have now averaged double digit growth across these metrics for five consecutive years.
Another indicator of brand strength is the Piper Sandler.
For 2021, taking stock routine survey.
Where the cross brand advanced in all teen preferred footwear rankings to the number six spot up from number nine last year, a number $34 five years ago.
Supported by the health of our brand wholesale bookings for the first half of 2022 have been exceptionally.
<unk> strong.
However, given the supply constraints, we've just discussed we have limitations around how much demand we can fulfill for the first half of the year. Despite this temporary supply chain disruption, we're confident that we will be able to exceed 20% revenue growth for 2022.
I turn the call over to al.
Thanks to entire Crocs organization.
We're incredibly proud of the health of the Crocs brand and business.
Our results and the confidence we have in our long term vision are due to our dedicated and talented colleagues who bring the cross brand to life every day I want to thank them for everything that they do.
With that I will now review our financial results in more detail.
Thank you Andrew and good morning, everyone I'll begin with a short recap of our third quarter results for a reconciliation of the non-GAAP announced mentioned to their equivalent GAAP amounts. Please refer to our press release.
As you've already seen we had an outstanding third quarter, we delivered broad based revenue growth across all regions channels and product pillars gross margin expansion.
Spansion and SG&A leverage led to another quarter of best in class profitability and increased earnings per share third quarter revenue increased to $625 9 million.
At 72, 2% on a constant currency basis compared to the third quarter of 2020 and up 101% compared to the third quarter of 2019.
During the third quarter, we sold $25 4 million pairs of shoes, which represents an increase of 56% over last year and 60% versus the third quarter of 2018.
Average selling price during Q3 was $24 42.
A year over year increase of approximately 14, 9%.
Despite price increases promotional strategy and product mix.
Now, let's shift our view to results by region, beginning with the Americas, where Q3 revenues of $455 9 million increased 94, 8% against the prior year DTC revenue growth in the region was up 78 three.
3% driven by higher traffic conversion and average transaction value.
Third quarter digital penetration increased to 32, 8% from 38% last year and rose significantly from 26, 9% in 2019.
Wholesale growth was 117, 6%.
Versus prior year, and almost tripled versus 2019, as we continue to see strong sell through with our best partners.
In Asia, Q3 revenues were $83 6 million representing.
Representing an increase of 21, 2% on a constant currency basis from last year.
India posted triple digit revenue growth versus last year.
While China and South Korea, both grew revenue double digits offset by distributor sales in southeast Asia, and a conservative Japanese consumer.
Digital revenues grew 11, 3% versus prior year, and 35% versus 2019 digital penetration was 38, 1% in the third quarter compared to 42 three.
3% last year and 32, 9% in 2019.
EMEA revenues of $86 $3 million increased 42, 8% on a constant currency basis with growing brand heat offsetting global logistics disruptions.
<unk> revenues increased 22, 1% with strength driven by higher.
Wholesale revenues grew 56, 9% fueled by strength in all sub segments detailed distributors and brick and mortar.
Digital growth was a standout growing 37% versus prior year and 85, 9% compared to 2018 digital penetration represents 56, 9% of EMEA revenue. This.
Traffic versus 59, 8% last year and 49, 6% in Q3 2019.
Adjusted gross margins for the third quarter was 64, 2% an improvement of 680 basis points from last year's 57, 4%.
This improvement was driven primarily by price increases and fewer promotions and.
Mt.
Higher freight costs associated with global logistics disruptions Curran.
Currency favorably impacted margins by approximately 65 basis points.
During the third quarter, our adjusted SG&A improved 520 basis points to 31, 4% of revenue versus 36, 6%.
In last year's third quarter. The decrease in adjusted SG&A rate was achieved while investing approximately $60 million versus prior year, primarily in marketing and talent to support our strategic initiatives digital sandal, China and innovation.
We will continue to make investments to support the long term trajectory of our business.
Our third quarter adjusted operating income more than doubled to $205 1 million versus $75 $4 million last year with robust operating profit growth in all regions.
<unk> operating margin rose from 28% last year to 32, 8% this year benefiting from gross margin expansion.
And SG&A leverage on strong sales growth.
Third quarter non-GAAP diluted earnings per share increased to $2 47.
From 94 in the same period last year.
Our liquidity position and balance sheet continue to remain strong we ended the third quarter with $436.
$8 of cash.
Cash equivalents and $686 million in borrowings with an additional $500 million of borrowing capacity on our revolver in August we once again Opportunistically took advantage of historically low interest rates issuing $350 million and $4, 125% senior unsecured notes.
6.002 million 31 with share repurchase as the primary use of proceeds.
Throughout the quarter, we repurchased approximately $1 1 million shares of our common stock in the open market for $150 million at an average price of $142 17.
As previously announced we will repurchase an additional 500.
Both of shares by the end of 2021 via an accelerated share repurchase for a total of $1 billion of share repurchases in 2021.
Our shares outstanding as of October 14th 2021 for $50 8 million, including the partial impact of the ASR.
Our inventory balance at.
32021, with $212 5 million up from $174 1 million in the third quarter last year.
Inventory with lean throughout Q3, and we ended the quarter was higher in transit inventory due to the global logistics challenges.
Turning to the future I would like to share our current outlook for the balance of.
At September one.
Andrew outlined earlier, the global supply chain remains volatile for 2021, we are raising the low end of our revenue guidance expecting revenues to grow approximately 62% to 65%.
This implies a two year growth rate of approximately 82% to 86% and a two year.
Compound annual growth rate of approximately 35% to 36%.
We anticipate strong growth for fiscal 2021 in all regions and channels.
However, fourth quarter revenues in EMEA will be disproportionately impacted by the Vietnam supply disruption as much of the region's inventory absorbed there due to favorable duties.
Today, our <unk>.
121 operating margins have benefited from our high gross margins and ability to leverage SG&A. As a result, we are raising our full year 2021, adjusted operating margin guidance by 300 basis points to be approximately 28%, which represents significant expansion from 18, 9% in 2020. This margin guidance is below our 20.
In one year to date margin due to higher global logistics costs and continued investment in SG&A in the fourth quarter to support our future growth.
Looking to 2022 as Andrew mentioned, we expect revenue growth in excess of 20% for the full year, we plan to invest approximately $75 million in airfreight ahead of our 2022.
Spring summer selling season.
Despite elevated supply chain cost and significant investment to fuel our growth. We expect operating margins in 2022 to be comparable to full year 2021 guidance, excluding the incremental airfreight.
We will resume our normal cadence of providing more detailed fiscal year guidance on our fourth quarter earnings call.
<unk> thousand 20 in summary, we continued to deliver outstanding revenue growth and profitability, while managing through supply disruptions opportunistically strengthening our balance sheet and investing in our future growth at this time I'll turn the call back over to Andrew for his final thoughts.
Thank you Ed.
With three quarters of the year behind US we have achieved tremendous.
<unk> success fueled by the strength of the cross brand and our superior execution.
We are navigating the ongoing global supply chain disruption.
Most confidence in our ability to deliver upon our short and long term goals.
There is no better team to navigate through this temporary disruption elite crops to the next.
Stage of our growth.
Operator, please open the call for questions.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Your first question.
Comes from the line of Erinn Murphy with Piper Sandler.
Great. Thank you good morning.
Good to hear about the progress Andrew in Vietnam, and just some of the mitigating factors you're taking on the supply chain I guess first could you just remind us how big is Vietnam for you today, and where do you see or manufacturing mix evolving over.
Over the next 12 months and then secondly, maybe kind of hone in a little bit more on the fourth quarter. How easy is it to get your product to market now it sounds like Europe is going to be a little bit more challenged and then is there a product that youre seeing stuck out on the west Coast ports right. Now are you needing to accelerate airfreight specifically for holiday. Thanks.
Okay. All right. Thank you very much lot of questions. That's a perfect. So Vietnam Vietnam is a significant portion of our manufacturing base is actually about it was initially planned to be about 70% of our manufacturing base for 'twenty, one it will be a little less than that as we as we do the diversification. We've talked about we have nine factories that are spread between southern.
Amid a northern Vietnam as we articulated in the prepared remarks, the factories are now largely open.
In various states of reopening one thing that we learned from Covid I think is really important for people to understand.
Our shoes are really simple and so ramping up factories can be very very quick.
Classic clog.
Three components two of which are made on sites. Because you don't have a lot of external logistics to be able to get started and so we think we are confident in terms of ramping manufacturing. We will continue to diversify our manufacturing base. So I think Indonesia is up most immediate target we have two factories in Indonesia that will be online.
Think about by the end of the year and they will ramp very quickly next year. We are a major facility planned in India in a year or so so we will continue diversification during the shuffling of supply we will obviously move some manufacturing back to China in the short term.
So the team is really good.
Online, we have great relationships with our factory partners. So we feel really confident where we are.
Obviously, the closure of the factories was disruptive, but I would also emphasize that as a temporary disruption.
In terms of flow of goods for Q4, which I think it was the second part of your question.
It's difficult right so.
Yes, we definitely have.
Second shifts outside of long Beach, we have already diversified our inbound ports, so we'd already push products.
Two two.
Northern ports on the West coast to East Coast ports et cetera. So we've already done a good amount of that and.
And we think we have kind of a reasonable lines.
To everything that's going on and I would say, we've incorporated all of that into our guidance.
You highlighted Europe Europe is definitely more impacted because you may be aware of that.
Vietnam is duty free into Europe. So a lot of the production for Europe was coming out of Vietnam. So thats, a little bit more impacted we think thats a temporary impact.
Our trajectories of bookings in EMEA were being extremely strong but will be impacted in Q4 and I think the last part of your question was about effort.
So we don't anticipate using significant air freight in Q4, most of the products that we will sell in Q4 is already.
Here or inbound so there'll be a little bit but not significant.
That is so helpful. Thank you Andrew and if I can just add one for Ann on your outlook for next year could you just maybe help us with the shaping of first half versus second half.
Just kind of marrying the comments that supply chain with the strong wholesale spring summer 'twenty two order book.
Yeah.
Sure Hi, Erinn.
Our revenue for 2022, as we said it's going to be over 20%. So we're excited to be able to kind of provide that visibility a little bit earlier I will say that there is a lot of variability right now in transit times per what Andrew just talked about with supply disruption as well as the extreme.
Okay, great time, so that means quarter to quarter timing pretty difficult to anticipate this far out clearly the front half is impacted by supply constraints, but I will say our current plan is not significantly back half weighted and we'll obviously give you more color on our full year Q4 call excellent congratulations.
Thanks, Okay.
Yeah.
Your next question comes from the line of Jonathan Komp with Baird.
Okay.
Okay.
Yes, Hi can you hear me sorry about that.
Yes, Jonathan.
Okay.
I wanted to ask you about the P. The pricing component mix.
Accelerated again in the fourth quarter could you maybe just touch on.
From a product perspective, what's driving that I noticed the line clogs, maybe at a higher price can increase in a lot of the new product looks at like a premium price point. So you could maybe comment on that.
Great drivers and then as we think into 'twenty two given the inflationary environment, how should we think about asps given.
Given the unique input exposure you have.
Yeah, there's a couple of impacts on ASP. So.
Very good question. So the biggest impacts continue to be on ESPN kind of have been all year.
ASP price increases you mentioned took price increases on airline clock as well.
Classic in the U S and other places so that is an impact so the mix shift to clocks that we talked about in prepared remarks, as well is that pricing helped support it helps support A&P and then also the pullback in promotions and discounts.
We did 15 broadly those are the biggest drivers from an A&P perspective, I would say on the slightly negative side, it's a little bit of a mix impact.
He has been offset.
Into next year from an inflationary perspective, we do anticipate some inflation flowing through and we've seen that we've been pretty proactive about taking price.
That.
We kind of anticipated from an inflationary environment. We do have some price increases that we took this year that will flow through into next year and we're proactively looking at other measures and things that we can do to kind of offset any inflationary pressures.
Okay. That's really helpful. And then maybe as a follow up just at a high level.
Thinking about gross margin next year, you highlighted the freight.
I think you said, mostly.
Go ahead of spring summer, so maybe thats, mostly in the first quarter, but if you could give any more color to the timing of the airfreight charges and then.
From an underlying gross margin perspective should we expect a significantly.
Can waiting when we think about the full year 22 performance. Thanks.
Yeah. So from the airframe perspective, I would say, that's really front half I don't really want to break out by quarter, but I do think it's both Q on Q. So again, we'll try to give you more visibility as to get a little closer.
And then from an overall kind of margin profile.
We didn't guide that specifically.
As I just mentioned we are seeing some inflation this.
This year, it's been primarily around freight and wages and what we see happening is that freight and wages in our distribution centers that will continue through next year as well as some of the resin impact we expect to come on however.
Or that's incorporated in our overall, 28% operating margin guidance, excluding that airfreight. So as I. Just mentioned, we also have some price increases flowing through and we're looking at other things. So we will try to give you again more color for next year on our normal cadence on our Q4 call.
Okay. That's very helpful. Thanks again.
Jonathan.
Your next question comes from the line of Laura Champine with loop capital.
Thanks for taking my question, it's sort of a follow on on the last one.
Can you comment more specifically about the cost increase of using the new.
More sustainable resin in your product.
And talk about whether you would.
Concurrent price increase to the product or what your philosophy is around that and then secondly on the new formulation does that change the where profile of the product at all.
Okay. Thank you Laura So let me take those in kind of reversed order. So the new formulation really uses a new ingredient right. So it's the same ingredient, but the ingredients derived from a different source and more sustainable source. So the.
Web profile, the look and feel and comfort.
Product is completely unchanged right to the consumer.
Notice the two products side by side with not as a difference between the two products side by side. So I think thats what are the absolutely fantastic parts about how we're approaching this.
In terms of the cost increase I think we.
<unk> when we made this announcement that the.
Of the bio based resin is more costly than the.
And then the resin that we use today.
But with blending it in right. So there is there is a blend of the of the bio based resin in essentially every product that we make.
And so the cost increase for next year will be the cost impact for next year frankly is minimal.
Minimal as we look forward into the future.
I'll have more impact, but we're confident we can offset that through efficiency gains and or potential price increases in the future. So, but we do not intend to upcharge the consumer for the <unk> product and we will not be increasing prices.
As to the consumer based on the increase in the bio based resin purely we'll be looking at sort of the overall health of the brand.
That makes sense.
Yes. Thank you.
Your next question comes.
<unk> line of Sam Poser with Williams trading.
Good morning, Thank you for taking my questions I've got a few.
Just read them off one.
You talked about the additional $75 million in airfreight for next year, what is sort of the normal could you give us some idea of what the normal airfreight.
From the sum.
Yes.
Yes.
With some more information there number two what what percent within Vietnam.
How exposed are those nine factories, how about here in the south and what kind of production comes out of this.
And then noticed.
Is in your stores.
What is the change in the regular full price selling and your outlets.
This year versus past years on how much.
It appeared to me that you are seeing a lot more full price selling in the outlets.
What I anticipated.
And wonder.
Wonder how thats impacting margins in.
How do you see that going forward and I, probably have 10, more but I'll just leave it at that.
Sure. So I'll start Sam with FERC answering your first time, so our normal airfreight.
It's certainly less than $10 million, we don't tend to spend a lot of lot of airfreight, we actually spend a little bit.
Notice this year than we did last.
And that.
Will be between $890, that's kind of a normal run rate for this year.
Greg.
Yes.
The majority of the factories are in the in the South Sam as you would expect with the concentration of production facilities down.
Down there.
We're obviously not going to breakout the size of each facility, but I would say the majority of it in the south.
The north and the mid factories have continued to operate through this whole period.
Did see some disruption based on.
Covid cases and labor availability.
I think the only other piece of it.
Color I would say is.
As the factories in the south of the reopening.
We are seeing the labor coming back pretty effectively so we're pretty confident about getting those facilities back online quickly.
And then you asked about full price selling in our stores absolutely.
I have looked at the.
Yeah.
The selling season, especially through the summer, which obviously is a peak period for us, particularly in the outlets with all of the tourist traffic.
We were essentially a lot more full price than we were last year. So we did see a nice margin uptick in the stores you can see that reflected in our overall margins.
I've been extremely strong I think I'm, particularly is very clearly that that was due to reduced promotional activity or one of the key components was reduced promotional activity and in store has been an important component of that.
And you anticipate that the.
Outlet stores will continue to.
Run at a more regular price rate, which should be really really good on your leveraging your rents and everything else compared to your full price stores.
I would say yes.
Look I think we're heading into Q4, which is a more promotional period. There are some key periods in Q4, Black Friday, cyber Monday et cetera.
When we feel like some promotional activity is required by the consumer and it would be probably foolhardy not to participate in that to some degree, but I think depth and breadth will be less.
Sure.
We're not planning to return to a higher promotional cadence.
We see demand for the brand far ahead of our ability to supply at this stage.
And then one last thing when will your factories in South Vietnam do you think be at full capacity.
Relative and where are they today, if you could give us kind of color there.
Yes.
It does.
Since then it's too hard to say, Sam I mean like think.
We're certainly going to see we're anticipating that we'd see some on again off again type of situation, we're not anticipating that they ramp up baseline projections do not anticipate they would ramp up to full production.
A number of weeks and then stay there for the rest of.
Does that kind of thing we think this is going to be volatile, we've incorporated that into our into our expectations and into our guidance.
Thanks, very much completely kicks off.
Thank you.
Your next question comes from the line.
Susan Anderson with B Riley.
I guess I wanted to ask about.
For the fall if there is any early reads on that.
Offering that you have out there, particularly the personalized little ones.
Yes, I would say boots is a very very minor part of our.
Of our strategy and product offering.
As we look at the fall, we're actually primarily focused online classic ore mined product that's where.
We really can deliver I think very strongly on kind of consumer expectations, Thats, where the volume of our businesses I would say line has been performing extremely well with very static.
But with the performance of our boots, but it's really a very minor part of what we do.
Great.
And then I was curious about just the growth in the quarter not sure. If you mentioned that and then also how much more space did you gain for <unk> at that all at wholesale for the quarter.
Yes, I think what we.
We said as the javits doubled again in the quarter I think if you remember back at our Investor Day presentation. We said it was 6% of our overall business.
In terms of wholesale presentation, we continued to gain wholesale presentation for <unk> I would say across the globe in this country and in Western Europe and also in Asia.
<unk> that is an important part.
Growth in <unk> I would also say that.
Our online sales attributes have shifted more from kind of singles to packs, which has also allowed us to accelerate growth in terms of digital sales, which are its too.
Great and then lastly, maybe if you could just talk about what.
<unk> is expecting in terms of mix as wholesale to DTC and it seems like hotels like re accelerating now I guess.
DTC scale growing but do you expect that to shift back a little bit more to wholesale next year.
Yes. Thank you for the question I think when we think about next year that as I mentioned, there's still a lot of unknown.
What you are kind of the variability of transit times and hope the things that we're laying out as we talked about prepared remarks, looking really strong wholesale bookings as well as we're very content and the consumer demand for our products.
I don't think we're ready to kind of.
I'll give that breakout yes, it's still pretty early that we're happy to provide more color commentary if you get a little closer today to.
Sure.
Great. Okay. Thanks, so much good luck this holiday.
Thank you.
Your next question comes from the line of Steve Marotta with C. L. King.
Good morning, Andrew and Corie and her two questions for you could you. Please disassemble the in transit.
Sure. He is in the third quarter of this year versus last year and the follow up is can you talk about price increases in the first half of 2022 on a like for like basis versus pricing in the first half of 'twenty one. Thank you.
Sure.
In the quarter. We grew revenue 73 represent inventory grew 22% and almost all of it.
Growth within transit.
And Thats really just a reflection of the extended transit times that we've experienced I think we've managed it really well trying to keep our inventory.
Really in stock, especially in our strategic channel.
Including our own E Commerce channel.
And then switching over from a price increase first half 'twenty two versus first half 'twenty. One. So we did take the biggest kind of flow through that we've talked about is the price increase we took.
For wholesale that hasn't flowed through to the first half of 'twenty, two yet and won't be flowing through and then we also have some pricing.
Price increases we took internationally that will flow through and first half of 'twenty two.
Okay I'll take the balance offline. Thank you.
Thank you.
Your next question comes from the line of.
Jim Cartier with Montes correctly.
Good morning, Thanks for taking my question.
For next year, how should we think about growth by product.
Category region should we still expect the clogs in Americas.
To grow faster than the overall, where should we start to see that.
The shift towards the end the Olson I know, you're just starting next year.
Thanks, Jim.
As we look at next year, we still expect clog.
Our growth to be very strong so we're still seeing.
Tremendous growth in bookings in our cloud business I would say.
Anticipating that the Americas will be strong, but we also think the international business.
Alright.
And then we think some growth will be will improve hopefully, but it's.
It does.
It's kind of a smaller piece of the business. So.
If we think about our five year plan in terms of.
Growing our pharma business, we definitely think we are on track for our long term trajectory.
I am confident about the growth of that category.
And then just on the store openings this year in Asia.
Where have those stores been open and have you started to open up any new stores in China.
Yeah. That's a great question. The vast majority of this four openings in Asia have actually been in China.
We will expect between outlet that we took back in Beijing, and then simple price.
Stores in key cities in China.
Great. Thank you.
Yes.
Your next question comes from the line of Jim Duffy with Stifel.
Thanks.
Good morning.
Couple of questions.
I wanted to start just on customer activity in the D to C data file can you shape the composition of sales to existing customers versus customers that are new to the data file and maybe speak about growth of that data file.
Yes, I mean, we don't.
Good move that out.
In a lot of detail Jim It's just not how we go to market, but what I can tell you. Obviously, we do analyze that information what I can tell you is that the growth we're seeing in DTC frankly from both is from new customers and also increased and repeat purchasing from existing customer.
Operator.
As we look at the <unk>.
Obviously with the acquisition of those new customers are underlying data file is is growing extremely well I would also add that some of our coal out of activity and some of the marketing activity. We do allows us to capture consumers.
Customers very effectively in terms of when they are in our queue or looking for a callable. They enter an auction as you might've seen we've moved some of our co ops to auction type of process that also has been very effective in terms of increasing our consumer data file so.
We feel very confident in.
And optimistic about the consumer activity that we see both online and in store.
Thanks for that and then.
Andrew I wanted to ask about wholesale orders clearly retailers very anxious to get more product for spring.
I'm curious.
Measures.
Place they will help you guard against the risk of over inventory in the channel will those be stage deliveries.
Monitoring inventories in the channel.
I recognize the orders are strong, but just talk about your thought process for managing through that as the year unfolds.
Yeah, I mean, I think we've talked about.
About this a few times I think.
Really stepped up our.
Brand health and inventory management activities, we worked very closely with all of our major wholesale partners around what they are ordering how much they're ordering when they're ordering it we monitor sell throughs extremely closely as you would expect us to do.
And some of our key products frankly, a really an allocation across those partners. So we make sure we have the right product in the right place.
So I'd say we are.
We're very much on top of that and do all of the things that you kind of frankly expect us to do.
To make sure that I think that the biggest problem.
We assume that any Brian has to be aware of is making sure that their inventory is fresh inventory is turning and all of the channels and if you just look at our overall inventory efficiency and I'll turn rates I think there.
Best in class and Jim just one thing to add there.
Our prepared remarks, we do see a really strong wholesale order book for next year.
Or are they going to be able to fulfill all the demand.
In our wholesale order, but just given the production in the first half of the impact of even though we're air freighting.
Protecting really strong growth for next year, we will still be constrained from a wholesale perspective.
Helpful. Thanks, and then I wanted to ask.
I ask if you could provide a little more color on the components of gross margin improvement you got 65 basis points from currency, how would you split the rest of the contributors to that gross margin improvement and I'm, particularly curious about the business.
Gross margin from cabinets mix any color you can provide there would be helpful.
Yes, the biggest overall benefit to gross margins are really have to deal with the pullback in promotions as well as price increases.
So that's kind of the largest.
Sure I would combine those two into buckets given mix is also a piece of it but price increases and promotional.
<unk> are the largest followed by product mix and a chair.
Great. Thank you I'll leave it at that.
Thanks.
Your next question comes from the line of Jay sole with UBS.
Great. Thank you so much and thank you for taking my question.
Hey, good morning, maybe take a step back your question has been about pricing and channels.
If you think about.
20% exceeding 20% growth next year on top of this year, where growth is going to be in the mid sixties at least.
How do you how do you think about what's what gives you confidence to give an outlook for next year.
At this point here in October versus normally in February would you do it obviously the wholesale order book sounds really robust, but can you maybe just talk about what strategies, you're using continued to drive growth on top of the growth maybe with consumer groups are really you are targeting to it.
Kris the sales and interesting.
Continue to increase brand relevance.
Yeah, Yeah excellent question. So if we step back I think what we're seeing is.
Very strong brand trajectory right, we talked about that a little bit of prepared remarks, we monitor brand relevance consideration et cetera, and we've seen double digit increases and that sort of five years in a row right. So as we look.
Thank you brand relevance and our brand trajectory.
And that's frankly, not just in the U S. We're looking at that in all of our key countries looking at in Europe, looking at China, Korea, Japan et cetera. So we see continued acceleration of brand relevance.
Which allows us I think a great deal of confidence.
That we can.
Look at continue to scale the brand.
In many parts of the World. If you look at our recent success in our recent trajectory it's been heavily driven by the United States. We've seen extraordinary growth here in United States really for three three years in a row now.
<unk>.
Fight the pandemic.
As we look to the future and as we talked.
In our.
In our Investor day, we really see that growth accelerating outside of the United States. So in our EMEA business. We've seen very strong traction. This year, we anticipate that continuing with a temporary disruption in Q4 of this year and then we also see Asia is our biggest long term potential with giant.
So thats available to us.
Firstly in China, but also Japan, and Southeast Asia, which has essentially been closed down during this time period. So it's Brad trajectory its growth opportunity around the world.
Is kind of the the two key factors and that's what really underpins our 5 billion.
And in the next five years in terms of our overall growth.
On top of that.
Bookings as we look at wholesale bookings as we book into the first half of next year, we're clearly seeing demand way beyond what we're able to supply given some of the supply disruptions and just over the overall scaling of.
Our supply chain.
So we.
We think we can solve that over time, but we consult that in the short term. So I think that's what gives us the confidence to be able to give you the kind of 20% plus revenue growth into into next year the rate limiting factor for next year frankly is really supply.
And then I think.
So one of the earlier questions. We do remain very vigilant and monitor closely the sell through of that product. The last thing that we wanted to do is it creates a negative momentum for the brand by over inventory in any of our particular channels.
Got it that's very helpful. Thank you Andrew.
Yes.
Your next question comes from the line of Jonathan Komp with Baird.
Thanks, two quick follow ups, if theres time one.
Tacking onto the prior question thinking thinking back to the Investor day, and hitting the $5 billion of revenue.
Our current ASP I mean that would require.
Close to 200 million pairs a year. So just any broader context as we think about that five year projection, how you get comfortable with those types of volumes.
Yes, I mean look it does imply and we talked about that explicitly I think at Investor day, we do see some ASP growth over that timeframe.
Acquired but still the biggest driver of the growth will be passed.
What I would say is if you just look at other brands. When you look at the availability of production it requires.
Forethought and planning and it requires anticipation.
There is absolutely available.
Jim.
To be able to produce those kind of pads.
And partners that are willing and able to and frankly make good money out of producing those pads. So they're.
Anxious to support us.
And put in standup new facilities. So we don't really have any huge concern about that.
<unk>.
Definitely something that we feel.
Date confident we can deliver against.
Okay, and then and maybe one follow up I know at Investor Day, you talked about roughly a flat gross margin over the over time looking against the 2021 level.
Looks like gross margin, obviously is trending higher closer to 60% or a little above for.
'twenty one here. So is that does that sort of the new bar you think is sustainable going forward or do you think you over that five year horizon, you give back some gross margin or how should we think about that.
Yes, I think.
We specifically talked about Q4.
That we're comfortable with the 26% operating margins over the long.
Very clear.
And two.
Excellent and I think so.
Best in class I think as far as the Keith is what we'll try to do it.
Thank you guys more on a full year on each of the initiatives and how that's playing in.
I would say that 26% operating margin guidance over the long term and obviously.
Long term guidance.
Excluding airfreight a 28%.
Okay fair enough. Thanks again.
Thank you.
And at this time there are no further questions I will now turn the call back over to management for any closing remarks.
Okay.
Next just want to conclude by thanking everybody for their ongoing interest in our company.
Thank you very much.
Thank you that does conclude today's conference call. We thank you for participating you may now disconnect.