Q4 2021 Skechers USA Inc Earnings Call

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Thank you for standing by this is the conference operator, welcome to the Skechers fourth quarter 2021 earnings conference call.

Speaker 1: Thank you for standing by. This is the conference operator. Welcome to the Sketchers fourth quarter 2021 earnings conference call. As a reminder all participants are in a listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions.

As a reminder, all participants are in a listen only mode and the conference is being recorded after the presentation, there will be an opportunity to ask questions.

Speaker 1: To join the question queue, you may press star then one on your telephone keypad.

To join the question queue you May process Star then one on your telephone keypad.

Speaker 1: Skechers request that analysts limit themselves to one question and one follow-up question only to allow all analysts to have the opportunity to ask a question. Should you need assistance during the conference call, you may signal an operator by pressing star and then zero. I would now like to turn this conference over to Skechers. Please go ahead. You may begin your presentation.

Scott just request that analysts limit themselves to one question and one follow up question only to allow all analysts to have the opportunity to ask a question should you need assistance. During the conference call you may signal, an operator by pressing star and then zero I would now like to turn this conference over to Skechers. Please go ahead you may begin your presentation.

Speaker 2: Thank you everyone for joining us on Skechers Conference Call today. I will now read the Safe Harbor statement.

Thank you everyone for joining us on Skechers conference call today, I will now read the safe Harbor statement.

Speaker 2: Certain statements contained herein, including without limitations, statements addressing the beliefs, plans, objectives, estimates, or expectations of the company or future results or events may constitute forward-looking statements that involve risks and uncertainties.

The statements contained herein, including without limitation statements addressing the beliefs plans objectives estimates or expectations of the company or future results or events may constitute forward looking statements that involve risks and uncertainties.

Speaker 2: Specifically, the COVID-19 pandemic has and is currently having a significant impact on the company's business, financial conditions, cash flow and results of operations.

Specifically the COVID-19 pandemic has and is currently having a significant impact on the company's business.

Financial conditions cash flow and results of operations such forward looking statements with respect to the COVID-19 pandemic include without limitation the company's plans in response to the pandemic.

Speaker 2: such forward-looking statements with respect to the COVID-19 pandemic include, without limitation, the company's plans in response to this pandemic.

Speaker 2: At this time, there is significant uncertainty about the duration and extent of impact of the COVID-19 pandemic.

At this time, there is significant uncertainty about the duration and extent of impacts of the COVID-19 pandemic.

Speaker 2: The dynamic nature of these circumstances means that what is said on this call could change at any time. And as a result, actual results could differ materially from those contemplated by such forward-looking statements.

Dynamic nature of these circumstances means that what is said on this call could change at any time and as a result actual results could differ materially from those contemplated by such forward looking statements.

Speaker 2: Additional forward-looking statements involve known and unknown risks including but not limited to global, national, and economic business and market conditions, including supply chain delays and disruptions in general and specifically as they apply to the retail industry in the company.

Additional forward looking statements involve known and unknown risks, including but not limited to global national and economic business and market conditions, including supply chain delays and disruptions in general and specifically as they apply to the retail industry and the company.

Speaker 2: There can be no assurance that the actual future results, performance, or achievements expressed or implied by any of our forward-looking statements will occur.

There can be no assurance that the actual future results performance or achievements expressed or implied by any of our forward looking statements will occur users.

Speaker 2: Users of forward-looking statements are encouraged to review the company's filings with the U.S. Securities and Exchange Commission, including the most recent annual report on Form 10-K , quarterly reports on Form 10-Q , current reports on Form 8-K, and all other reports filed with SEC as required by Federal Securities Law for a description of all other significant facts that may affect the company's business, financial conditions, cash flow, and results of operations.

Users of forward looking statements are encouraged to review the company's filings with the U S Securities and Exchange Commission, including the most recent annual report on Form 10-K quarterly reports on Form 10-Q current reports on form 8-K, and all other reports filed with the SEC as required by Federal Securities Law for a description of all other.

That may affect the Companys business.

Conditions cash flow and results of operations with that I would like to turn the call over to Skechers, Chief Operating Officer, David Weinberg, and Chief Financial Officer, John Vandemark David.

Speaker 2: With that, I'd like to turn the call over to Skechers Chief Operating Officer David Weinberg and Chief Financial Officer John Van De Mor. David.

Speaker 3: Thank you for joining us today for our fourth quarter and year-end 2021 conference call. I hope you, your colleagues, and local partners have a great day.

Thank you for joining us today for our fourth quarter at year end 2021 conference call I.

I Hope you your colleagues and local ones are doing well.

Speaker 3: As we mark our 30th year in business, we remain focused on the well-being of our teams worldwide and are extremely proud and grateful that the entire organization continues to operate with flexibility, resiliency, efficiency, and above all safety.

As we Mark our 30 <unk> year in business, we remained focused on the wellbeing of our teams worldwide.

We are extremely proud and grateful that the entire organization continues to operate with flexibility resiliency efficiency and above all safely.

Speaker 3: Sketcher has achieved a new fourth quarter sales record of $1.65 billion, the second highest quarterly sales in a company's history, and gross margins of 48.6%.

<unk> has achieved a new fourth quarter sales record of $1 65 billion. The second highest quarterly sales in the company's history and gross margins of 48, 6%.

Speaker 3: This is a remarkable achievement given the challenges we face as a global pandemic continues to impact our business.

This is a remarkable achievement given the challenges we face this global pandemic continues to impact our business.

Speaker 3: For the full year, Skechers achieved record sales of $6.29 billion with strong gross margins of 49.3%

For the full year Skechers achieved record sales of $6, two 9 billion with strong gross margins of 49, 3%.

Speaker 3: These exceptional results bring us closer to our goal of 10 in 5, or 10 billion by 2026.

These exceptional results brings us closer to our goal of 10 in five or 10 billion by 2026.

Speaker 3: While the disruptions and costs remained a challenge in the global supply chain for the fourth quarter, our logistics team worked diligently to navigate around them. We saw improvements in December with more goods moving through our distribution centers than in the previous month.

While the disruptions and costs remained a challenge in the global supply chain for the fourth quarter. Our logistics team worked diligently to navigate around them. We saw improvements in December with more goods moving through our distribution centers than in the previous months.

Speaker 3: The improvement continued through January as port congestion eased and more containers reached our distribution.

The improvement continued through January as port congestion east and more containers restart distribution center. However.

Speaker 3: However, we believe these challenges will remain through the first half of 2022, but we are optimistic they will ebb in the latter half of the year.

However, we believe these challenges will remain through the first half of 2022.

But we are optimistic they will in the latter half of the year.

Speaker 3: We continually monitor the developments within the supply chain to deliver our products as efficiently as possible.

We continually monitor the developments within the supply chain to deliver our products.

<unk> as possible.

The fourth quarter sales gain of 24% was the result of a 10% increase in our domestic sales and a 34% increase on our international sales.

Speaker 3: The fourth quarter sales gain of 24% was the result of a 10% increase in our domestic sales and a 34% increase in our international sales.

Speaker 3: International represented 65% of our total sales for the fourth quarter.

International represented 65% of our total sales for the fourth quarter.

Speaker 3: All our affordable segments achieved growth for the quarter and full year, with International Wholesale registering the highest gains for both periods.

All of our reportable segments achieved growth for the quarter and full year with international wholesale registering the highest gains for both periods. We attribute this exceptional global growth to the ongoing broad based demand for the Skechers brand and products consumers continue to embrace the outdoors for exercise.

Speaker 3: We attribute this exceptional global growth to the ongoing broad-based demand for the sketches, brand, and product.

Speaker 3: Consumers continue to embrace the outdoors for exercise, dining, and many other activities, and sort out sketches for our comfort, innovation, style, and quality, all at a reasonable price. Our international wholesale business grew 30% year over year in the fourth quarter, with increases coming from all our channels, reflecting the global strength of our brand.

Dining and many other activities and sort out skechers for our comfort innovation style and quality.

All at a reasonable price our international wholesale business grew 30% year over year in the fourth quarter with increases coming from all our channels, reflecting the global strength of our brands.

Speaker 3: A distributor of business was the largest growth driver with a 124% increase led by the Middle East and followed by Russia, Scandinavia, Indonesia and Turkey.

Our distributor business was the largest growth driver with a 124% increase led by the middle East and followed by Russia, Scandinavia, Indonesia and Turkey.

Speaker 3: Recidiary sales increased 47% with double-digit growth coming from nearly every country.

Subsidiary sales increased 47% with double digit growth coming from nearly every country.

Several even achieved triple digit growth.

Speaker 3: Strongest gains came from the United Kingdom and India. Two of our largest markets.

<unk> gains came from the United Kingdom, and India, two of our largest markets.

Speaker 3: We believe this impressive sales growth is due to both strong demand for our product and our ability to deliver goods as some of the poor pressure.

We believe this impressive sales growth is due to both strong demand for our product and our ability to deliver goods and some of the port pressure ease.

Our joint venture business increased 10% for the quarter on strong sales in China, and Mexico as well as the addition of the Philippines, which transitioned from a distributor model to being directly managed by Skechers China's high single digit growth in the quarter is particularly notable given temporary store closures and select.

Speaker 3: Our joint venture business increased 10% for the quarter on strong sales in China and Mexico, as well as the addition of the Philippines, which transitioned from a distributor model to being directly managed by Sketch.

Speaker 3: China's high single-digit growth in the quarter is particularly notable given temporary store closures in select provinces due to COVID-19 and the supply chain restrictions which resulted in a delay of some 11.11 inventory.

Provinces due to COVID-19, and the supply chain restrictions, which resulted in a delay of some 11 11 inventory.

Speaker 3: e-commerce still achieve double digit growth for the quarter. The improvements in our joint venture business were partially offset by declines in several markets in Asia due to COVID-19, inventory challenges, and a decline in tourists.

E Commerce still achieved double digit growth for the quarter the improvements in our joint venture business were partially offset by declines in several markets in Asia due to COVID-19 inventory challenges and a decline in tourism.

Speaker 3: An additional net 128 third party sketcher stores opened in the fourth quarter across 30 countries, including our first in Bhutan, a notable number of franchise locations in China and India, as well as through our distributors in Australia, New Zealand, Turkey, among others.

An additional net 128 third party Skechers stores opened in the fourth quarter across 30 countries, including our first in Bhutan, a notable number of franchise locations in China, and India as well as through our distributors in Australia, New Zealand, Turkey among others.

Speaker 3: In total, at quarter to end, there were 2,946 third-party sketches stores around the world.

In total at quarter end, there were 2946 third party skechers stores around the world.

Speaker 3: Sketch is directed at consumer business achieved quarterly sales gains of 30%. Driven by a 52% increase in international and a 17% increase in domestic...

Sketches directly consumer business achieved quarterly sales gains of 30% driven by a 52% increase in international and a 17% increase domestically.

Speaker 3: worldwide comparable same store sales increased 21%, including 15% domestically and 36% internationally.

Worldwide comparable same store sales increased 21%, including 15% domestically and 36% internationally.

Speaker 3: Further, our direct-to-consumer average selling price per unit increased 25%.

Further our direct to consumer average selling price per unit increased 25%.

Speaker 3: This was reflective of our less promotional stance, higher price products and the continued strong demand for the innovative features in our comfort technology.

This was reflective of our less promotional stance higher priced products and the continued strong demand for the innovative features and our comfort technology footwear.

Speaker 3: The increase of 17% in a domestic direct to consumer business with the result of a 24% gain in our brick and mortar stores, partially offset by a decrease of 12% in domestic e-commerce, which was challenged by low inventory availability during periods in the quarter. As compared to the same period in 2019, our domestic e-commerce business increased 115%.

The increase of 17% of our domestic direct to consumer business was the result of a 24% gain in our brick and mortar stores, partially offset by a decrease of 12% and domestic ecommerce, which was challenged by low inventory availability during periods in the quarter as.

As compared to the same period in 2019, our domestic ecommerce business increased 115%.

Speaker 3: The increase in our international direct to consumer business was primarily driven by strong retail sales across Europe and Latin America. This was despite the temporary closure of several stores in Austria and the Netherlands due to local health.

The increase in our international direct to consumer business was primarily driven by strong retail sales across Europe and Latin America. This was despite the temporary closure of several stores in Austria, and the Netherlands due to local health restrictions.

Speaker 3: We continue to invest in our direct to consumer capabilities in the quarter by upgrading our POS systems in North America and the UK. And we are currently in the process of completing updates in Japan with Europe to follow.

We continue to invest in our direct to consumer capabilities in the quarter by upgrading our Pos systems in North America, and the U K and we are currently in the process of completing updates in Japan with Europe to follow there.

Speaker 3: The rollout of New e-commerce sites continued in the fourth quarter with a launch of new platforms in the United Kingdom, India, Germany and Austria. More markets are planned for 2022, including several in Europe slated for this quarter.

We're all out of new ecommerce sites continued in the fourth quarter with the launch of new platforms in the United Kingdom, India, Germany and Austria.

More markets are planned for 2022, including several in Europe slated for this quarter. These.

Speaker 3: These investments further all progress as an Omni Channel retailer capable of addressing consumer demand whenever, wherever and however the shopper wants.

These investments further raw progress as an omnichannel retailer capable of addressing consumer demand whenever wherever and however, the shopper wants.

Speaker 3: In the fourth quarter, we opened 16 company-owned sketcher stores, including in India, two in Colombia, and one in each in France, Italy, Peru, and Chile. We closed three locations in the...

In the fourth quarter, we opened 16 company owned Skechers stores, including eight in India, two in Colombia, and one each in France, Italy, Peru, and Chile, we closed three locations in the quarter. This brings our global company owned and third party Skechers store count to 4306 at year.

Speaker 3: This brings the global company-owned and third-party Sketcher store count to 4,306 at year-end.

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Speaker 3: To date in the first quarter, we've opened six stores in the United States and one in Italy. And we plan to open an additional 120 to 150 company-owned locations by year end.

To date in the first quarter, we've opened six stores in the United States and one in Italy, and we plan to open an additional 120 to 150 company owned locations by year end.

Speaker 3: We closed 11 stores in the United States at the end of January , and by the end of the year, expect to close another five to 10 locations, the majority of which are mall-based.

We closed 11 stores in the United States at the end of January and by the end of the year expect to close another five to 10 locations. The majority of which are mall based concept stores.

Speaker 3: Sales in our domestic wholesale business improved 5% in the fourth quarter. The growth came primarily from our women's and kids categories, though our men's running and walking categories also performed.

Sales in our domestic wholesale business improved 5% in the fourth quarter. The growth came primarily from our womens and kids categories. So our men's running and walking categories also performed well.

Speaker 3: We believe our domestic wholesale growth is particularly positive given the supply chain challenges that continue to impact consumers in the United States.

We believe our domestic wholesale growth is particularly positive given the supply chain challenges that continue to impact consumers in the United States.

Speaker 3: We are able to improve on deliveries in December from earlier in the quarter and are continuing to maintain a current flow of goods through our North American Distribution Center with the pace of shipments to our wholesale partners picking up, allowing us to better meet the demand for sketches in our largest mark.

We are able to improve our deliveries in December from earlier in the quarter and are continuing to maintain our current flow of goods through our North American distribution center with the pace of shipments to our wholesale partners picking up allowing us to better meet the demand for skechers in our largest market.

Speaker 3: One of our main priorities is to meet consumers' needs with comfortable footwear at a reasonable price, and we're doing just that. We are seeing consumers react positively to our product globally with the consistent and universal demand for sketchers comfort technology.

All of our main priorities is to meet consumers' needs with comfortable footwear at a reasonable price and we're doing just that we are seeing consumers react positively to our product globally with a consistent and universal demand for Skechers comfort technology.

Speaker 3: The expansion of our offering with more comfort fits, fresh collaborations, and styles that incorporate recycled materials allow sketches to appeal to an ever-widen consumer base and for shoppers to meet more of their footwear needs with a brand-based truck.

Expansion of our offering with more comfort fits fresh collaborations and styles that incorporate recycled materials allow skechers to appeal to an ever widening consumer base and for shoppers to meet more of their footwear needs with a brand they trust.

Speaker 3: As always, we drove awareness to our various product offerings through multi-channel marketing efforts that united the sketchers' message across all touch

As always we drove awareness to our various product offerings through multichannel marketing efforts that United the Skechers message across all touch points online and in store as well as through television radio magazines outdoor and social media.

Speaker 3: online and in store, as well as through television, radio, magazines, outdoor and social media.

Speaker 3: While 2021 was a record year, we expect a momentum to continue into 2022.

While 2021 was a record year, we expect our momentum to continue into 2022.

Speaker 3: We are strategically investing in both our distribution and corporate infrastructure. In India, we purchased our corporate headquarters in January and finalized the location for a new GC to be opened in 2023.

We are strategically investing in both our distribution and corporate infrastructure.

In India, we purchased our corporate headquarters in January and finalize the location for our new DC to be opened in 2023.

Speaker 3: We relocated our Japan distribution center, more than doubling our space.

We relocated our Japan distribution center more than doubling our space.

Speaker 3: And we also recently relocated to a slightly larger distribution space in Panama with the intent to build an additional center, allowing us to grow from 270,000 square feet to approximately 800,000 square feet in 2023.

And we also recently relocated to a slightly larger distribution space in Panama with the intent to build an additional center, allowing us to grow from 270000 square feet to approximately 800000 square feet in 2023.

Speaker 3: The expansion continues on our lead certified gold North American distribution center, which will bring our facility in Southern California to 2.6 million square feet later this year. And now I'd like to turn the call over to John for more details on our financial results.

The expansion continues on our LEED certified gold North American distribution center, which will bring our facility in southern California to $2 6 million square feet later this year.

And now I'd like to turn the call over to John for more details on our financial results.

Speaker 4: Thank you, David, and good afternoon, everyone. 2021 proved to be yet another challenging year, with more COVID-related operating restrictions, closures, and supply chain disruptions, many of which continued in the fourth quarter.

Thank you David and good afternoon, everyone 2021 proved to be yet another challenging year with more COVID-19 related operating restrictions closures and supply chain disruptions many of which continued in the fourth quarter. Despite these challenges skechers delivered another exceptional quarter and year.

Speaker 4: by these challenges, Schetzer's delivered another exceptional quarter in year.

Speaker 4: Strong product and brand momentum yielded higher average selling prices in our direct consumer business as well as among many of our whole field partners.

Strong product and brand momentum yielded higher average selling prices in our direct to consumer business as well as among many of our wholesale partners.

Speaker 4: This translated into record sales and a recovery in our operating margins above what we expected at the beginning of the year.

This translated into record sales and a recovery in our operating margins above what we expected at the beginning of the year.

Speaker 4: We also continue to make investments throughout the year in our core strategies, growing our business internationally, and increasing the depth of our relationships with consumers in our direct to consumers.

We also continued to make investments throughout the year and our core strategies growing our business internationally and increasing the depth of our relationships with consumers and our direct to consumer business.

Speaker 4: before getting into specifics about this core's performance. Let me spend a moment to provide an update on the supply chain disruptions we spoke about last.

Before getting into specifics about this quarter's performance, let me spend a moment to provide an update on the supply chain disruptions, we spoke about last quarter.

Speaker 4: First, we note that many of those disruptions, manufacturing delays, extended transit times, pork congestion and elevated freight rates, persisted throughout the quarter, and we worked diligently to mitigate the impact of these options.

We note that many of those disruptions manufacturing delays extended transit times port congestion and elevated freight rates persisted throughout the quarter and we worked diligently to mitigate the impact of these obstacles.

Speaker 4: Alongside our factories, distribution partners, and wholesale accounts, we work to get product onto shelves as quickly as possible.

Alongside our factories distribution partners and wholesale accounts, we work to get product onto shelves as quickly as possible.

Speaker 4: The effect of these challenges was most evident in our inventory belt.

The effect of these challenges was most evident in our inventory balances, which include an incremental $325 1 million in in transit inventory and year over year increase of over 130%.

Speaker 4: which include an incremental $325.1 million in in-transit inventory.

Speaker 4: A year over your increase of over 130%.

Speaker 4: This inventory supports orders to our wholesale accounts and our own direct-to-consumer business, which could not be sold in the quarter. As David mentioned, we recently started to see an improvement in the delivery section of a system.

This inventory supports orders to our wholesale accounts and our own direct to consumer business, which could not be sold in the quarter.

As David mentioned, we recently started to see an improvement in the delivery rate of containers and are optimistic this will continue.

We are monitoring events daily, but expect some level of these challenges to persist well into 2022.

Speaker 4: but expect some level of these challenges to persist well into 2000.

Nonetheless, we remain confident in the strength of our brand and trajectory of our business and have fully embraced the goal of achieving $10 billion in sales by 2026.

Speaker 4: Nonetheless, we remain confident in the strength of our brand and trajectory of our business.

Speaker 4: and have fully embraced the goal of achieving $10 billion in sales by 2026.

Speaker 4: confidence in the long-term health of the business encouraged our board to authorize a new three-year share repurchase program of up to $500 million which we expect to fund through free cash-

This confidence in the long term health of the business encouraged our board to authorize a new three year share repurchase program of up to $500 million.

Which we expect to fund through free cash flow.

Speaker 4: Now let me turn to details of our fourth quarter financial results, where we will provide comparisons to both the prior year and, where appropriate, to 2013.

Now, let me turn to details of our fourth quarter financial results, where we will provide comparisons to both the prior year and were appropriate to 2019.

Sales in the quarter achieved a new fourth quarter record totaling $1 65 billion, an increase of $323 2 million or 24% from the prior year and a 24% increase over the fourth quarter of 2019.

Speaker 4: Sales in the quarter achieved a new fourth-quarter record totaling $1.65 billion, an increase of $323.2 million, or 24% from the prior year, and a 24% increase over the fourth quarter of 2019. Direct-to-consumer sales.

Direct to consumer sales increased 30% year over year supported by growth in domestic and international markets of 17% and 52% respectively.

Speaker 4: supported by growth in domestic and international markets of 17% and 52% respectively. Both markets delivered meaningful improvements in gross margins and strong year-over-year average selling price growth. As compared with the fourth quarter of

Both markets delivered meaningful improvements in gross margins and strong year over year average selling price growth.

As compared with the fourth quarter of 2019 direct to consumer sales increased 22%.

Speaker 4: result of an 8% increase domestically and a 45% increase in international.

As a result of an 8% increase domestically and a 45% increase internationally.

International wholesale sales increased 30% year over year and grew 33% compared to the fourth quarter of 2019.

Speaker 4: International wholesale sales increased 30% year-over-year and grew 33% compared to the fourth quarter of 2010.

Speaker 4: Our distributor business grew 124% year-over-year, but remained slightly below pre-pandemic levels.

Our distributor business grew 124% year over year, but remained slightly below pre pandemic levels.

Speaker 4: This channel continues to make good strides toward recovery, particularly in critical markets like the Middle East and Russia.

This channel continues to make good strides towards recovery, particularly in critical markets like the middle East and Russia.

Subsidiary sales increased 47% year over year and as compared to the fourth quarter of 2019 grew 66%. The improvement was primarily the result of a strong recovery in many markets heavily impacted by the pandemic last year, including the United Kingdom, Spain and India.

Speaker 4: Residuary sales increased 47% year-over-year, and as compared to the fourth quarter of 2019, grew 66%.

Speaker 4: The improvement was primarily the result of a strong recovery in many markets heavily impacted by the pandemic last year, including the United Kingdom, Spain.

Speaker 4: Our joint ventures grew 10% year-over-year, led by a 9% growth in China. As compared to the fourth quarter of 2019, this reflects a 32% growth.

Our joint ventures grew 10% year over year led by a 9% growth in China as compared to the fourth quarter of 2019. This reflects a 32% increase.

Speaker 4: The growth in China was driven by strong e-commerce demands, somewhat tempered by slower traffic patterns in retail stores, as well as temporary pandemic-related store closures.

The growth in China was driven by strong e-commerce demand somewhat tempered by slower traffic patterns and retail stores as well as temporary pandemic related store closures continue.

Speaker 4: Continuing weakness in several adjacent markets also weighed on joint venture growth in Asia.

Continuing weakness in several adjacent markets also weighed on joint venture growth in Asia.

Domestic wholesale sales grew 5% year over year, and we continue to see very positive underlying trends among our domestic wholesale partners, including strong sell through rates and higher average selling prices.

Speaker 4: And we continue to see very positive underlying trends among our domestic wholesale partners, including strong sell-through rates and higher average selling prices.

Speaker 4: Gross margin for the quarter was 48.6%. A decrease of 30 basis points year over year due to higher freight expense and the mixed impact of higher sales in our distributor business, which is an inherently lower gross margin business with very attractive...

Gross margin for the quarter was 48, 6% a decrease of 30 basis points year over year due to higher freight expense and the mix impact of higher sales and our distributor business, which has an inherently lower gross margin business with very attractive operating margins. These were partially offset by <unk>.

Average selling prices.

Total operating expenses increased by $119 4 million or 20% to $715 $1 million in the quarter versus the prior year, but improved 160 basis points as a percentage of sales from 45% to 43, 4%.

Speaker 4: Total operating expenses increased by $119.4 million, or 20%.

Speaker 4: $715.1 million in the quarter versus the prior year, but improved 160 bases.

Speaker 4: as a percentage of sales from 45% to 43.4.

Selling expenses in the quarter increased year over year by $24 2 million or 25% to $122 1 million, reflecting additional demand creation spending globally.

Speaker 4: Selling expenses in the quarter increased year over year by 24.2 million or 25% to 122.1 million.

Speaker 4: General and administrative expenses in the quarter increased year over year by 95.2 million, or 19%, to 590.

General and administrative expenses in the quarter increased year over year by $95 2 million or 19% to $593 million.

Speaker 4: However, as a percentage of sales, this represented an improvement of 160.

However, as a percentage of sales this represented an improvement of 160 basis points.

Speaker 4: The dollar increase was due to a combination of factors, including higher retail store labor, incentive compensation.

The dollar increase was due to a combination of factors, including higher retail store labor incentive compensation settlements of multiple legal matters and distribution related costs.

Speaker 4: settlements of multiple legal matters and distribution related costs.

Speaker 4: Earnings from operations were 93.1 million versus prior year earnings of 57.7

Earnings from operations were $93 1 million versus prior year earnings of $57 7 million, an increase of $35 4 million or 61%.

Speaker 4: an increase of 35.4 million, or 61%.

Speaker 4: Operating margin improved 120 basis points to 5.6% as compared with 4.4%.

Operating margin improved 120 basis points to five 6% as compared with four 4%.

In the prior year.

Speaker 4: Net earnings were $402.4 million or $2.56 per diluted share on 157.3 million diluted shares.

Net earnings were $402 4 million or $2 56 per diluted share on $157 3 million diluted shares outstanding.

Speaker 4: We recorded an income tax benefit of 346.8 million in dollars.

We recorded an income tax benefit of $346 8 million in the quarter, resulting from an intra entity transfer of certain intellectual property, which will be amortized in the future.

Speaker 4: resulting from an intratentity transfer of certain intellectual property, which will be amortized.

Speaker 4: Excluding the effects of this non-recurring tax benefit and the settlement of multiple legal matters, adjusted diluted earnings per share were 43 cents.

Excluding the effects of this nonrecurring tax benefit and the settlement of multiple legal matters adjusted diluted earnings per share were <unk> 43.

This compares to prior year net earnings of $53 3 million or <unk> 34 per diluted share on $155 4 million diluted shares outstanding.

Speaker 4: to prior year net earnings of $53.3 million or $0.34 per diluted share on 155.4 million diluted shares out there.

Speaker 4: Our effective tax rate for the fourth quarter was a negative 399%, which reflects the benefit of the intellectual property transfer. The company's effective income tax rate was a n-

Our effective tax rate for the fourth quarter was a negative 399%, which reflects the benefit of the intellectual property transfer.

The companys effective income tax rate.

With a negative 43, 2% for the full year, which includes a 69% impact from the intellectual property transfer in the fourth quarter.

Speaker 4: which includes a 60.9% impact from the intellectual property transfer.

Speaker 4: Excluding this benefit, our effective tax rate would have been 17.7% for the full year.

Excluding this benefit our effective tax rate would have been 17, 7% for the full year.

And now turning to our balance sheet.

Our cash and liquidity position remained extremely healthy we ended the quarter with $1.04 billion in cash cash equivalents and investments.

Speaker 4: Our cash and liquidity position remained extremely helpful.

Speaker 4: We ended the quarter with 1.04 billion cash, cash equivalents and invests.

Speaker 4: This reflects a decrease of 539.6 million, or 34% from December 30th.

This reflects a decrease of $539 6 million or 34% from December 31 2020.

Speaker 4: As a reminder, we fully repaid our revolving credit facility in the second quarter of 2021, of which 452.5 million was outstanding last.

As a reminder, we fully repaid our revolving credit facility in the second quarter of 2021 of which $452 5 million outstanding last year.

Speaker 4: Also, in December , we expanded our senior unsecured credit facility to 7005.

Also in December we expanded our senior unsecured credit facility to $750 million.

Speaker 4: a 250 million dollar accordion feature that provides for total liquidity of up to 1 billion.

<unk> retains a $250 million accordion feature that provides for total liquidity of up to $1 billion.

Trade accounts receivable at quarter end were $732 8 million, an increase of $113 million from December 31, 2020, predominantly the result of higher wholesale sales.

Speaker 4: Create accounts receivable at quarter end, where 732.8.

Speaker 4: increase of 113 million from December 31st, 2020, predominantly the result of higher wholesale sales. Total inventory was

Total inventory was 147 billion, an increase of 45% or $454 2 million from December 31, 2020. However.

Speaker 4: increase of 45% or 454.2 million from December 31st, 2000.

Speaker 4: However, as previously noted, this balance reflects an increase of 325.1 million in transit inventory. A tributeable means...

However, as previously noted this balance reflects an increase of $325 1 million in in transit inventory attributable mainly to supply chain disruptions.

Speaker 4: Total debt, including both current and long-term portions, was 341.6 million at December 31, 2021, compared to 735 million at December 31, 2000.

Total debt, including both current and long term portions was $341 6 million at December 31, 2021, compared to $735 million at December 31, 2020.

Speaker 4: Capital expenditures for the fourth quarter were 74 million, of which 28.7 million related to the expansion of our Joint Venture Own Domestic Distribution Center, 16 million related to investments.

Capital expenditures for the fourth quarter were $74 million of which $28 7 million related to the expansion of our joint venture one domestic distribution center.

$16 million related to investments in our new corporate offices.

Speaker 4: 14.2 million related to investments in our direct consumer technologies and retail stores and 5.9 million related to our distribution centers in China, the United Kingdom

$14 2 million related to investments in our direct to consumer technologies, and retail stores and $5 9 million related to our distribution centers in China, the United Kingdom and Japan.

Speaker 4: Our capital investments remain focused on supporting our strategic priorities, growing our direct-to-consumer business, as well as expanding the presence of our...

Our capital investments remain focused on supporting our strategic priorities growing our direct to consumer business as well as expanding the presence of our brand internationally.

Speaker 4: 2022 we expect total capital expenditures to be between 250 million and 300

2022, we expect total capital expenditures to be between $250 million and $300 million.

Speaker 4: reflecting continuing investments both in the US and internationally in our distribution infrastructure, omni-channel retail capabilities, and corporate offices.

Reflecting continuing investments both in the U S and internationally in our distribution infrastructure omnichannel retail capabilities and corporate offices.

Now I will turn to guidance.

Speaker 4: For fiscal 2022, our projections are predicated upon the expectation that the pandemic and its after effects, such as supply chain disruption.

For fiscal 2022, our projections are predicated upon the expectation that the pandemic and its after effects such as supply chain disruptions will continue but we will begin to ease and severity over the course of the year.

Speaker 4: will continue, but will begin to ease in severity over the course of the course of the course

We expect sales to be in the range of $7 to $7 2 billion and net earnings per diluted share to be in the range of $2 70 to $2 90.

Speaker 4: pect halale to be in the range of seven billion to seven point.

Speaker 4: and net earnings per diluted share to be in the range of $2.70 to $2.90.

Speaker 4: For the first quarter, we expect sale to be in the range of 1.675 billion to 1.725.

For the first quarter, we expect sales to be in the range of $1 $6 75 billion to $1 75 billion.

Speaker 4: net earnings per duoluted share in the range of 70 cents to 75.

And net earnings per diluted share in the range of <unk> 70.

To 75.

Speaker 4: We anticipate that gross margins will be down slightly compared to last year, as freight costs will offset improved price.

We anticipate that gross margins will be down slightly compared to last year as freight costs will offset improved pricing.

Speaker 4: Our effective tax rate for the year is expected to be between 19 and 20%.

Our effective tax rate for the year is expected to be between 19 and 20%.

And now I'll turn the call over to David for closing remarks.

Thank you John achieving record sales for the fourth quarter of $1 65 billion and for the year at 629 billion is a tremendous accomplishment, especially given the supply chain constraints and ongoing COVID-19 related challenges.

Speaker 3: Thank you, John . Achieving record sales for the fourth quarter of 1.65 billion, and for the year at 6.29 billion, is a tremendous accomplishment, especially given the supply chain constraints and ongoing COVID-related challenges.

Speaker 3: The comfort, innovation, style and quality of sketches resonated with consumers around the world and drove an increase in sales of 24% for the fourth quarter and 37% for the full year, with gross margins of 48.6% and 49.3% respectively.

Comfort innovation style and quality of sketches resonated with consumers around the world and drove an increase in sales of 24% for the fourth quarter and 37% for the full year with gross margins of 48, 6% and 49, 3% respectively.

Towards the close of 2021, we saw improvements in the moving of goods through our North American distribution center and are hopeful that the current Covid Varian has reached its peak here as well as in many countries and the world can begin to normalize again.

Speaker 3: Towards the close of 2021, we saw improvements in the moving of goods for our North American distribution center and are hopeful that the current COVID variant has reached its peak here, as well as in many countries, and the world can begin to normalize again.

Speaker 3: Our logistics teams are working tirelessly to address the supply chain challenges, monitoring the situation globally with the goal of delivering sketches, comfort, footwear to our customers and consumers as quickly as possible.

Our logistics teams are working tirelessly to address the supply chain challenges monitoring the situation globally with the goal of delivering skechers comfort footwear to our customers and consumers as quickly as possible.

Speaker 3: we do expect the supply chain disruptions to continue through at least the first half of this year.

We do expect the supply chain disruptions to continue through at least the first half of this year.

2022 marks our 30 <unk> anniversary in business and we're looking forward to the continued growth and implementing the many strategic plans underway.

Speaker 3: 2022 marks our 30th anniversary in business, and we're looking forward to the continued growth and implementing the many strategic plans underway.

Speaker 3: will be introducing more innovative and comfort technology product, developing multi-platform marketing campaigns with a growing roster of ambassadors, including recently announced television personality, Amanda Clutz, and rolling out more sketchers' e-commerce sites around the world, including Spain, Portugal, and Italy, short...

We will be introducing more innovative and comfort technology product developing multi platform marketing campaigns with our growing roster of ambassadors, including recently announced television personality, Amanda crudes and rolling out more Skechers e-commerce sites around the world, including Spain, Portugal, and Italy shortly.

We are finalizing plans to enter the meta versus creating an entirely new opportunity for the Skechers brand and are further driving home the message that Skechers is the comfort technology company.

Speaker 3: We are finalizing plans to enter the metaverse, creating an entirely new opportunity for the Skechers brand, and are further driving home the message that Skechers is the Comfort Technology Company.

Speaker 3: innovation, comfort, and creativity will be at the forefront of our product and marketing efforts.

Innovation comfort and creativity will be at the forefront of our product and marketing efforts supported by efficiency and determination in our operations to deliver product.

Speaker 3: by efficiency and determination in our operations to deliver product.

Speaker 3: Our focus is on ensuring the health and safety of the sketchers team as we look to the future and together as determined and driven organization. We will make 2022 another record year and continue on the road to 10 billion in sales. Now I'd like to turn the call over to the operator for questions.

Our focus is on ensuring the health and safety of the Skechers team as we look to the future and together as determined and driven organization. We will make 2022, another record year and continue on the road to $10 billion in sales now I'd like to turn the call over to the operator for questions.

At this time, we'll be conducting a question and answer session.

Speaker 1: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation film will indicate your line is in the question queue. You may press star 2 if you would like to ask a question.

I would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary for you to pick up your handset before pressing the star Keith Please limit yourself to one question and one follow up one.

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Speaker 1: Please let me air stuff to one question in one follow up. One moment, only pull for questions.

While we poll for questions.

Speaker 1: The first question comes to line of Laurent Fassiliscu with BMP Parabus Xan you may proceed with.

My first question comes from the line of Lauren <unk>.

<unk> with BNP Paribas Exane you May proceed with your question. Thank you very much good afternoon, and congrats on a strong finish to the year as well as the announced repo.

Speaker 5: Thank you very much. Good afternoon and congrats on a strong finish to the year as well as the the announced repo. I let to ask about last quarter, David John , you talked about this kind of algo for 2026, mid to high teens in our national wholesale, mid teens for DTC, and then mid singles for domestic wholesale. How do we think about that algo for 2022?

I'd love to ask about last quarter.

David John you talked about this kind of I'll go for 2026.

Mid to high teens international wholesale mid teens for DTC and then mid singles for domestic wholesale how do we think about that I'll go for 2022.

Speaker 4: Well, thanks, Laurent. I would generally say we look at 2022 with consistency relative to those guideposts. Understanding, though, that COVID and supply chain issues will continue to have an impact and may, you know, shift growth between the segments that we report over the course of the year. That being said, I think the overall formula for continuing to drive

Thanks, Laura.

I would generally say, we look at 2022 with consistency relative to those guidepost understanding, though that COVID-19 and supply chain issues will continue to have an impact in may.

A shift growth between the segments that we report.

Over the course of the year that being said I think the overall formula for continuing to drive.

Speaker 4: $10 billion in sales by 2026 remains fully intact.

$10 billion in sales by 2026 remains fully intact.

Speaker 5: That's great to hear. And then I think the real call out here this quarter, if I may say, is China just up 9% on the two-year stack? Didn't show any slowdown versus 3Q. How do we think about China growth for 2022? I know it's a hard question to ask, but I think it's important. And then I have a quick follow-up on gross margins, if I may.

That's great to hear and then I think the real callout here this quarter, if I may say.

China.

Just up 9% on a two year stack and show any slowdown versus <unk>, how do we think about China growth for 2022, I know, it's hard question to ask but I think it's important.

And then I have a quick follow up on gross margins.

Good morning.

Speaker 4: Well, we're incredibly pleased with how China performed all things considered. The E-commerce channel continued to do extremely well, but there were impacts from COVID in the country as David noted in our prepared comments. So it's a similar environment to what we're seeing elsewhere across the globe. COVID has an impact. It can cause closures and operating restrictions. And that's...

We're incredibly pleased with how China performed all things considered the E. Commerce channel continued to do extremely well, but there were impacts from COVID-19 in the country as David noted in our prepared comments so ill.

It's a similar environment to what we're seeing elsewhere across the globe <unk> has an impact it can.

It can cause closures and operating restrictions and thats.

Speaker 4: That's echoing through the business. That all being said, I think the growth that we showed, this quarter showed.

Echoing through the business that all being said I think the growth that we showed this quarter shows that.

Speaker 4: that the brand continues to perform well, as well received by consumers and our team there continues to do a good job.

And that the brand continues to perform well well received by consumers and our team. There continues to do a good job of executing I don't want to get into country specific forecast going forward, but I will say, we continue to be very optimistic about the long term prospects for the brand in China, We will continue to invest.

Speaker 4: of executing. I don't want to get into country specific forecasts going forward, but I will say, you know, we continue to be very optimistic about the long-term prospects for the brand in China. We will continue to invest behind that, looking forward next year to beginning investments in our second distribution center. So, you know, we remain fully behind China. We're very optimistic about what it will yield. We do expect some, you know, COVID impacts over the course of 2022 like every other market.

Behind that looking forward next year to beginning investments in our second distribution center. So we remain fully behind China, We're very optimistic about what it will yield we do expect some.

Covid impacts over the course of 'twenty two like every other market across the globe, but overall, we remain incredibly optimistic about what we see there for the brand.

Speaker 4: across the globe, but overall we remain incredibly optimistic about what we see there for the brand.

Speaker 5: That's great to hear. And then the last question, yeah, it's on gross margins. Overall gross margins down 30 bps, but domestic wholesale gross margins down 520. I'd love to, John , if you could parse out how much was freight for the quarter in terms of bps, and then how do we think, maybe just a little bit finer points on how do we think about the first quarter gross margin, just like the bridge, you know, if it's down like say 100 bps, is it like how much of that would be freight for the first quarter?

That's great to hear and then the last question on gross margins overall gross margins down 30 bps, but domestic gross domestic wholesale gross margins down 520.

Loved it John .

John if you could parse out how much was freight.

For the quarter in terms of beds and then how do we think maybe just a little bit finer points on how do we think about the first quarter gross margin just like the bridge, it's down let's say 100 beds.

How much of that would be freight for the first quarter.

Speaker 4: Yeah, I mean, I would say in order of significant freight and other transportation related costs, we're certainly the single largest contributor to the pressure.

Yes, I mean, I would say in order of significance freight and other transportation related costs, where certainly the single largest contributor to the pressure.

Speaker 4: overall in margin and domestically. There was a little bit of mix in there in the domestic category, but I would point to freight and continuing COVID-related costs as the most significant.

Overall in margin and domestically there was a little bit of mix in there in the domestic category, but I would I would point to freight and continuing COVID-19 related costs as the most significant driver.

Speaker 4: You know, when we talk about next year, when we kind of look at it year over year, I think you're gonna continue to see some pressures early.

When we talk about next year, you kind of look at it year over year, I think youre going to continue to see some pressures early on the gross margin line kind of setting mix aside.

Speaker 4: on the gross margin line, kind of setting mix aside.

Speaker 4: And then our hope is that that begins to improve a little bit over the back half of the year. One other thing I'll just note, there was a mixed impact this quarter as we noted with our distributor business.

And then our hope is that that begins to improve a little bit over the back half of the year.

And one other thing I'll just I'll just note there was a mix impact this quarter as we noted with our distributor business coming back as strongly as it did that is an inherently lower gross margin, but very attractive operating margin business. So there was some mix impact in the overall calculus of gross margin as well.

Speaker 6: coming back as strongly as it did, that is an inherently low or gross margin, but very attractive operating margin business. So there was some mixed impact in the overall calculus of gross margin as well. Great. Thank you very much, Sean, for all the...

Great. Thank you very much John for all the color and best of luck.

Thanks, Ron.

Speaker 1: Our next question comes to the line of Kimberly Greenberger with Morgan Stanley . You may proceed.

Our next question comes from the line of Kimberly Greenberger with Morgan Stanley You May proceed with your question.

Speaker 7: Great, thank you. Just a couple of quick ones. This is Alex on Alex straight

Great. Thank you just a couple of quick ones. This is Alex on al straightened on for Kimberly Greenberger.

Speaker 7: Could you guys just quickly talk about where you're taking price? I think you said that you saw 25% AUR growth if I heard you correct.

Could you guys are just quickly talk about where youre taking price I think you said that you saw 25% AUR growth if I heard you correctly.

Yes that was in direct to consumer and that.

Speaker 3: Yeah, that was indirect to consumer. And that partially because of our higher...

Partially because of our higher.

Defined product in other words all are features that have come in have hit everybody and we have high demand for the higher priced so thats the 25% increase for the that's a mix issue.

Speaker 3: defined product. In other words, all our features that come in have hit everybody. And we have high demand for the higher price, so that's the 25% increase for the, that's a mixed issue.

Speaker 3: As far as price is concerned, that's something we evaluate as we go forward. Every time we put a new line together as to what we anticipate and what we see in raw materials. So for the most part, the next couple quarters are spoken for. We've put it in. We've taken our best guess as to raw materials and what's going to be done. So we feel pretty confident that we're on the right track to maintain or possibly even increase some of the domestic margins at wholesale.

As far as prices concern thats something we evaluate as we go forward every time, we put a new line together as to what we anticipate and what we see in raw materials. So for the most part the next couple of quarters is spoken for we put it in we.

We've taken our best guess as to.

Raw materials, and what's going to be done so we feel pretty confident that we're on the right track to.

Maintain or possibly even increase some of the.

Domestic margins at wholesale.

Great and then one quick that's Super helpful. One quick follow up I think there was a $15 million add back to Opex. You may have covered this briefly on the call, but could you just remind us what what that was exactly.

Speaker 7: Great. And then one quick, that's super helpful, one quick follow-up. I think there was a $15 million add back to OpEx. You may have covered this briefly on the call, but could you just remind us what that was exactly?

Speaker 4: Yeah, that was some costs associated with the settlement of multiple legal matters that had been outstanding that were resolved in the quarter.

Yes that was some costs associated with the settlement.

Multiple legal matters that had been outstanding.

That will result in the quarter.

Great. Thanks, so much.

Speaker 1: Our next question comes from the line of J-SOUL with UBS you may proceed with.

Our next question comes from the line of Jay sole with UBS. You May proceed with your question.

Speaker 8: Great, thank you so much. David, I think I heard you mentioned domestic wholesale business. And, you know, 21 was a really strong growth in domestic wholesale, a lot of sharing opportunities. As you look forward in that business and your order book, how does, how do you think that business shapes up this year? Given that, in comparison, pretty tough in Q2 and Q3.

Great. Thank you so much.

David I think I heard you mentioned the domestic wholesale business.

'twenty one was really.

It really strong growth in domestic wholesale on a share gain opportunities as you look forward in that business in your order book, how does how do you think that business shapes up.

Year, given the compares are pretty tough in Q2 and Q3. Thank you.

Speaker 3: We're starting the year of very, very strongly. As you know, to my comments when we had a prepared remarks about our supply chain cleaning up, and again, a lot of product in, it started in December , but it held a very, very well in January , which led us to wholesale shipments that were higher than we originally anticipated when we went into the year. So that all boasts well.

We're starting the year off very very strongly as you know.

So my comments when we had our prepared remarks about our supply chain cleaning up and you get a lot of product in.

It started in December but it held up very very well in January which led us to wholesale shipments that were higher than we originally anticipated when we went into the year, so that all bodes well.

So going forward. So it continues now into early February we are picking up a lot of product from the ports and we are turning it and we still have high demand and our backlogs are holding up extremely well given the size and growth we've seen over the last year.

Speaker 3: for going forward. So it continues now into early February . We are picking up a lot of products from the ports and we are turning it. And we still have high demand and our backlogs are holding up extremely well given the size and growth we've seen over the last year.

Speaker 8: Okay, and then maybe just a question, SGNA, you know, you know, it comes as a really controlling SGNA. It seems to kind of to your basis the growth rate and the SGNA has slowed down a little bit. You feel like the current growth rate to your basis that we're on sort of continues into next year or maybe just to ease your question. How do you think about SGNA dollar growth in 2022? And what are the major puts and takes? So they two?

Got it Okay, and then maybe just a question on SG&A.

Company has been.

Really controlling SG&A.

Seems like on a two year basis, the growth rate in SG&A slowed down a little bit.

Do you feel like the current growth rate two year basis that we are on that sort of continues into next year or maybe just the easier question is how do you think about SG&A dollar growth in 2022, and what are the major puts and takes.

Yes.

Speaker 6: We don't generally think about it from a dollar growth perspective because there's so much volume driven activity in G&A. And what we've continuously said, and I think you've seen us adhere to.

Jay We don't we don't generally think about it from a dollar growth perspective, because there is so much volume driven activity in G&A.

What we have continuously said and I think you've seen us adhere to is aside from unusual items, we will aim to keep G&A capped at at least the topline growth rate or something similar there too and obviously strive to keep it below that.

Speaker 6: is, you know, aside from unusual items, we will aim to keep DNA, you know, capped at at least

Speaker 6: the top line growth rate or something similar there too. And obviously strive to keep it below that. That being said, we did ingest some new capabilities this year that we're going to be eager to deploy next year.

That being said, we did adjust some some new capabilities. This year that we're going to be eager to deploy next year. We started up at full operations for our distribution center in China, a new distribution center in the UK, we're going to light up a fantastic addition to our U S distribution footprint.

Speaker 6: We started up full operations for our distribution center in China, a new distribution center in the UK. We're going to light up a fantastic addition to our US distribution footprint, you know, next year. So there are some other elements in there that can sometimes mask, I think, that discipline that we've beginning to show here. And I think you can expect we'll continue to do that, but, you know, it'll have been flowing the quarters as some of those events unfold.

Next year. So there are some other elements in there that can sometimes mask I think that that discipline that we are beginning to show here and I think you can expect we'll continue to do that but it will ebb and flow in the quarters as some of those events unfold and then when you have unusual items like the one we just mentioned to Alex that.

Speaker 6: you know when you have unusual items like the one we just mentioned to Alex you know that that we kind of hold aside as an exceptional item.

That would kind of hold aside as an exceptional item.

Got it okay. Thank you so much.

Speaker 1: Our next question comes in line of Omar Saad with the record ISI you may pursue.

Our next question comes from the line of Omar Saad with Evercore ISI. You May proceed with your question.

Speaker 6: Thanks for taking my question. Another great quarter, a couple follow-ups. Can you help us understand in China? And globally as well, I know you've got the in transit number. But what's the level of missails that we're talking about here in terms of not being able to get inventory where you needed to? And is there any risk associated with those inventories or are they coming in quickly enough after the fact to get where they need to go to be sold at full price and have a follow-up?

Thanks for taking my question and another great quarter couple a couple of follow ups.

Can you help us understand in China.

And globally as well I know you've got the in transit number but.

Whats the kind of level of missed sales that we're talking about here in terms of not being able to get inventory, where you needed to and is there any risks associated with those inventories where they are coming in.

Quickly enough after the fact to get where they need to go to be sold.

At full price and I have a follow up.

Yes, I mean, it's tough to determine how much of that in transit would have been transacted, we give the in transit number again 325 as an increment on prior years.

Speaker 6: as an indicator of how much potential was trapped on the water. It's probably not fair to assume all of it would have been sold, but it's also not zero either, because we're still seeing as David noted, incredibly strong demand evident in the backlog. And when we have the product.

As an indicator of how much.

Potential was trapped on the water, it's probably not fair to assume all of it would have been sold but it's also not zero either because we are still seeing as David noted incredibly strong demand evident in the backlog and when we have the product our ability to ship it to customers and their ability quite frankly to sell through at very attractive asps. So.

Speaker 6: know our ability to ship it to customers and their ability quite frankly to sell through it very attractive ASP so

Overall I would say it was it was an impact probably more pronounced domestically and in Europe , and in China, and China, The MIP numbers werent as drastic as the impacts we're seeing.

Speaker 6: Overall, I would say it was an impact probably more pronounced domestically and in Europe than in China. In China, the MIT numbers weren't as drastic as the impacts we're seeing elsewhere across the globe because they just haven't had as many issues with the supply chain as other markets.

<unk> across the globe because they just haven't had as many issues with the supply chain as other markets.

Speaker 3: You know, just to add some light, as I said just before, we had a very strong January for domestic wholesale. So to John's point, a significant portion of that was in transit through the quarter, would have been taken.

Add some light.

As I said just before we had a very strong January for domestic wholesale so to John's point, a significant portion of that was in transit through the quarter would have been taken.

Speaker 3: in December certainly and the growth in January significantly larger than the growth we saw in December so if you start to even amount it becomes quite significant. The same basic holds true in Europe as well. We've come up with a very strong month. They took a little longer. They're picked up the back half of January and the first part of February is significantly larger than anticipated because of the goods and those could have shifted the quarter as well.

In December certainly and the growth in January significantly larger than the growth. We saw in December . So if you start to even amount it becomes quite significant.

The same basically holds true in Europe as well, we've come up with a very strong month. They took a little longer there picked up the back half of January and the first part of February a significantly larger than anticipated because of the goods and those could have shipped in the quarter as well so.

Speaker 3: When you take a quarter that's as good as this and you can put in any significant amount, it obviously shows the strength of the brand and the demand for it that exists today.

When you take a quarter thats as good as this and you can put in any significant amount is obviously shows the strength of the brand in.

The demand for it that exists today.

Okay.

Speaker 8: Yeah, absolutely. And then if I could make a quick follow up, you mentioned stores, the interplay between stores and e-com stores, coming back very strong would e-com, least in North America, turning negative. Is that dynamic you're seeing globally? And are you able to track your customers across the channel and use the loyalty program to track the customers across the channel and make sure you're capturing them in either channel, or is it a different customer who's coming back to the stores versus the ones in e-com, that have been in e-com.

Yeah, absolutely and then if I could my quick follow up you mentioned stores the interplay between stores and E comm stores coming back very strong but become at least in North America, turning negative is that.

Dynamic youre seeing globally and are you able to kind of track.

Customers across the channels and used a loyalty program to attract the customers across the channel to make sure you're capturing them in either channel or is it a different customer who is coming back to the stores versus the ones that <unk> that's been an income.

Speaker 6: Well, we can definitely track loyalty members across the channel. That's the result of a lot of the investment we've made.

Well, we can definitely track loyalty members across the channel as the result of a lot of the investment we've made over the last couple of years and driving towards an omni channel solution I don't quite honestly know how much crossover there was in the quarter, but absolutely a capability we have the way I would think about the domestic pressure on e-commerce .

Speaker 6: over the last couple of years and driving towards an Omni-channel solution. I don't quite honestly know how much crossover there was in the quarter, but that's absolutely a capability we have.

Speaker 6: The way I would think about the domestic pressure on e-commerce this past quarter was largely attributable to inventory availability. As inventory constricted, that was certainly a factor. We saw a little evidence of that internationally as well outside of China.

This past quarter was largely attributable to inventory availability as inventory constricted that was certainly a factor we saw a little evidence of that internationally as well outside of outside of China.

Speaker 6: That being said, I mean, it's important to keep in mind on a two-year stack basis.

That being said I mean, it's important to keep in mind on a two year stack basis. The result in E. Commerce have been has been fantastic over 100%. So were continue we're going to continue to invest in that business, we feel really good about what it achieved.

Speaker 6: The resulting in commerce has been fantastic over 100%. So we're going to continue investing that business. We feel really good about what it achieved. Inventory availability was a challenge, but we expect that business to continue to grow going forward.

Inventory availability was a challenge, but we expect that business to continue to grow going forward.

That's helpful color. Thanks, guys. Good luck.

Thanks, everyone.

Speaker 1: Our next question comes to the line of John Kernen with how and you may proceed with it.

Our next question comes from the line of John Kernan with Cowen You May proceed with your question.

This is krista zuber on for John Thank you for taking our questions.

Speaker 9: This is Chris DeZuber on for John . Thank you for taking our questions. Just two questions here. First on the 10 billion in 2026 sales target. Could you kind of frame how you're thinking about the operating margin within that? I think in the past you talked about a double digit operating margin 10 to 12%. Just like to get your thoughts on how you see that playing out within the next five years. And then I have one follow-up.

Two questions here first on the 10 billion in 2026 sales targets could you kind of frame how youre thinking about the operating margin within that I think in the past you've talked about double digit operating margin, 10% to 12% just like to get your thoughts on how you see that playing out within the next five years and then I have one for you.

Good luck.

Speaker 6: Yeah, I mean, I think the best way to think about it is, you know, we're focused on continuing to grow the business to its maximum potential, you know, we certainly see 10 billion as a waypoint.

Yes.

The best way to think about it is we're focused on continuing to grow the business to its maximum potential we certainly see $10 billion as a waypoint on that.

Speaker 6: on that. It's not intended to be the end of the road for us. It's just a midterm target, I would say. We've been pretty consistent in saying that we think kind of the natural margin in the business is in that low to mid-teen number. Now, whether or not that occurs precisely when we hit $10 billion or not is to be determined, but...

It's not and it's not intended to be the end of the road for US. It's just a midterm target I would say.

We've been pretty consistent in saying that we think kind of a natural margin in the business is in that low to mid teen number now.

Now whether or not that occurs precisely when we hit $10 billion or not is to be determined but.

Speaker 6: no limit on our ability to get there.

No no limit on our ability to get there.

Speaker 6: other than we want to continue to invest to grow the brand and I would stress, 10 billion is not the stopping point for this brand. It's just a way point.

Other than we want to continue to invest to grow the brand and I would I would stress you know $10 billion is not the stopping point for this brand is just it's just a waypoint.

Speaker 9: Terrific, thank you. And then just as it relates to your retail gross margin, you're going to be lapping some, you know, terrific outsize gains in 2021. Just wondering if you could frame your expectation on that line item into 2022. Thank you very much.

Terrific. Thank you and then just as it relates to your retail gross margin youre going to be lapping some terrific outsized gains in 2021, just wondering if you could frame your expectation on that line item into 2022. Thank you very much.

Yes, I think vis vis retail we have about a quarter to give here because we really didn't see retail pop back into strong activity into the middle of the first quarter. So there will be some natural accretion in the first couple of quarters.

Speaker 6: Yeah, I think vis-a-vis retail, we have about a quarter to give here because we really didn't see retail pop back into strong activity to the middle of first quarter. So there will be some natural creation in the first couple of quarters.

Speaker 6: From there, I do expect that some of the pressures we're seeing on logistics and other supply chain related effects are going to create some downward pressure. We don't think it'll be significant. And it is considered in that overall mix of guide we gave on gross margin, which is that we expect gross margin for the company in total to be flat to slightly down next year. That's all I probably say at a segment level on gross margin guide.

From there I do expect that some of the pressures, we're seeing on logistics and other supply chain related.

The effects are going to create some downward pressure, we don't think it will be significant and it is considered in that overall mix of guide we gave on gross margin, which is that we expect gross margin for the company in total to be to be flat to slightly down next year.

That's all I would probably say at a segment level and gross margin guidance.

Thank you.

Sure.

Speaker 1: Our next question comes from the line of Tom Nikich with Wedbush Securities. You may proceed with your question.

Our next question comes from the line of Tom Nichols with Wedbush Securities. You May proceed with your question.

Okay.

Speaker 8: Hey, good afternoon, guys. Thanks for taking my question.

Hey, good afternoon, guys. Thanks for taking my question.

Speaker 8: Um, so I want to talk about the, uh, the guidance. Um, you know, it seems like you've got a pretty strong, uh, Q1 guide. I think it's implied something like, you know, 17 to 21% growth and then kind of implies a more modest growth rate for the remainder of the year. Something more like a low double digit low teams type of. Growth rate. Um, is there anything in particular that's driving that?

So let's talk about the guidance.

It seems like you've got a pretty strong Q1 guide I think it's implied something like 17% to 21% growth and then kind of implies a more modest growth rate for the remainder of the year something more like a low double digit low teens type of growth.

Right.

Is there anything in particular, that's driving that.

Speaker 8: feel disparity in the the revenue growth rate for Q1 versus rest of the year.

Disparity in the.

Revenue growth rate for Q1 versus the rest of the year.

Speaker 6: Yeah Tom, two things, you know, one is keep in mind last year's Q2 was outstanding by, you know, by any stretch of the imagination.

Yes, two things one is keep in mind last year's Q2 was outstanding by any stretch of the imagination.

Speaker 6: And so we'll be lapping that this year, and that just means that the growth rate, you know, looks a little bit less significant than what you see in other quarters, but the dollar value of what we aim to achieve is still pretty notable. But Q2 last year, remember, was that, you know, significant combination of COVID restrictions, lapping.

And so we'll be lapping that this year and that just means that the growth rate.

Looks a little bit less.

Significant mtc in other quarters, but the dollar value of what we aim to achieve is still pretty notable.

But Q2 last year I remember it was that significant combination of COVID-19 restrictions lapping stimulus going out and a lot of other factors that drove a significant amount of outsized demand in the quarter, particularly.

Speaker 6: stimulus going out and a lot of other factors that drove a significant amount of outsized demand in the court, particularly in our retail business. The other thing I'd say is certainly in this operating environment.

In our retail business. The other thing I'd say is certainly in this operating environment.

Speaker 6: The further you get from any point, the more opaque the situation gets given supply chain challenges, COVID restrictions. So we're also being, I think, reasonably conservative about how we view the outquarters given those issues have persisted now for a couple of years.

The further you get from any point the more opaque the situation gets given supply chain challenges COVID-19 restrictions. So we're also being I think reasonably can.

<unk> about how we view the out quarters, given those issues have persisted now for a couple of years.

Speaker 6: Obviously, if there are fewer issues that would vote better for us from an operational perspective, if bigger issues reemerge like what we've seen most recently in the OME cron variant.

Obviously, if there are fewer issues that would bode better for us from an operational perspective.

Bigger issues reemerge like like what we've seen most recently in the Omicron variant then we would expect more challenges and so we're trying to triangulate against those two potentialities and as a result put together what we think is a decent expectation about the back half of the year, but.

Speaker 6: then we would expect more challenges. And so we're trying to triangulate against those two.

Speaker 4: potentialities and as a result put together what we think is a decent expectation about the back half of the year, but you know certainly we will learn more as time goes by.

Certainly we will learn more as time goes on.

Speaker 8: I just said thanks Sean. And on the EPS guide, is there any buyback incorporated in the guidance? And how should we think about the, you know, the pace of buyback in the new author's relate?

Understood. Thanks, Sean.

On the EPS guide is there any buyback incorporated.

The guidance, how should we think about the.

The pace of the buyback given the new authorization.

Yes, there is no repurchase baked into our guidance at this point in time.

Speaker 6: Yeah, there is no repurchase baked into our guidance at this point in time. We just received the authorization. We'll put it into effect. And we'll attempt to be aggressive where we feel like the situation warrants and then probably put a more pro-groupmatic plan in place and give you updates as we go along. All right.

We just received the authorization, we will put it into effect.

And what.

We'll attempt to be aggressive where we feel like the situation warrants and then probably put it more programmatic plan in place.

You updates as we go along.

Alright, Thanks, John Thanks, David well before this year.

Thanks, Tom.

Our next question comes from the line of Brian Mcnamara with Bamberg Capital markets. You May proceed with your question.

Speaker 1: Our next question comes from the line of Brian McNamara with Bairnberg Capital Markets. You may proceed with your question.

Hey, congrats on the strong results and thank you for taking the question. So another one on guidance. Unfortunately at your guidance midpoint for the full year. It looks like your top line's implied a 13% your EPS implies just nine.

Speaker 5: They can congrats on the strong result and thank you for taking the question. So another one on guidance unfortunately. At your guidance mid points for the full year looks like your top lines imply that 13% and your EPS implies just nine. So I'm curious what's driving that Delta, is there some conservatism embedded in there and how should we think about operating margin progression this year?

So I'm curious, what's driving that Delta is there some conservatism embedded in there and how should we think about <unk>.

Operating margin progression this year.

Speaker 4: Yeah, I would say there's certainly some concern that we've given voice to already around supply chain costs. I mean, that's the biggest near-term pressure we see.

Yes, I would say is there is certainly.

Some concern that we have given voice to already around.

Supply chain costs I mean, that's the biggest near term pressure we see.

Speaker 6: So we have absolutely attempted to consider the array of costs we're seeing come forward in that. That's everything from intermodal rates, port fees, congestion costs, freight rates, which are staying impertinently high from our perspective. And then also, keeping in mind, we'll be in a position where we have to renegotiate freight rates during the year.

So we have absolutely attempted to consider the array of costs, we're seeing come forward in that that's everything from intermodal rates port fees congestion costs freight rates, which are which are staying.

Italy high from our perspective, and then also keeping in mind, we will be in a position, where we have to renegotiate freight rates during the year.

Speaker 6: That's the single biggest factor. You know, we are seeing pressures on labor like other folks. We believe we're doing a very good job of managing that. And then, you know, we will evaluate over the course of the year whether or not that cost profile means we need to, you know, look at price again as David previously mentioned or, you know, if the situation changes and some of those pressures begin to abate, you know, delivering more down to the bottom line.

That's the single biggest factor we are seeing pressures on labor like other folks. We believe we're doing a very good job of managing that.

And then we will evaluate over the course of the year, whether or not that cost profile means we need to look at price again as David previously mentioned or if the situation changes in some of those pressures begin to abate delivering more down to the bottom line.

Speaker 3: Thank you. And just one more on India. Can you can you press and call her on how India finished the year relative to 2019? And what your expectations are for that market this year? It seemed like the back half of the year really accelerated after Q2 is pretty much a lost quarter with the pandemic last year. Thanks, right. It really did accelerate in the back half and they were relatively flat.

Thank you and just one more on India can you could you provide some color on our India finished the year relative to 2019 and what your expectations are for that market. This year. It seemed like the back half of the year really accelerated after Q2 is pretty much a last quarter with the pandemic last year.

It really did accelerate in the back half and they were relatively flat.

Speaker 3: to 2019. So some growth we do anticipate they will continue to grow and maybe even pick up the pace depending on their own issues as far as supply chain and COVID.

2019.

So some growth we do anticipate they will continue to grow and maybe even pick up the pace depending on their own issues as far as supply chain and co.

Colby.

Speaker 6: server just to clarify what david says flat to nineteen he met on the full year on in the night in the fourth quarter they did they did pick up speed but if you think about that comment that means they were able to make up what they lost

And just to clarify David says flat to 19 E mail on the full year.

And the fourth quarter. They did they did pick up speed, but if you think about that comment that means they were able to make up what they lost in Q2 in the back half of the year.

Speaker 6: in Q2 in the back half of the year, and that's a stunning accomplishment. David also made mention of two sizable investments we're making in that market because we believe that market has tremendous promise. We

Stunning accomplishment David also made mention of two sizable investments, we're making in that market because we believe that market has tremendous promise, we we purchased <unk>.

Speaker 6: We purchased some corporate space for our team there, and we're in the process of identifying and then building out our own distribution center there. Because we see that market as having fantastic long-term opportunity for the brand. And we're in the process of identifying and building out our own distribution center there.

Corporate space for our team there and we're in the process of identifying and building out our own distribution center, there because we see that market as having fantastic long term opportunity for the brand.

Great. Thanks, a lot best of luck.

Thanks, Brian .

Speaker 1: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. One moment while I pull for questions.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, one moment, while we poll for questions.

Speaker 1: Our next question comes from a line of Jim Duffy with Steve Fully. You may proceed with your question.

Our next question comes from the line of Jim Duffy with Stifel. You May proceed with your question.

Speaker 10: Hi, this is Peter McElgick on for Jim. Thanks for taking our questions. First, I just wanted to ask about the inventory growth. So, 325 million in transit, up significantly from the prior year. How should we think of the increase in inventory as it progresses throughout the year? Should we see a moderation or there a tough moment in time where you expect to be caught up or re-aligned with your forward sales growth?

Hi, This is Peter Mcgoldrick on for Jim Thanks for taking our questions.

First I just wanted to ask about the inventory growth, so $325 million and transit up significantly from the prior year, how should we think of the <unk>.

The increase in.

Inventory as it progresses throughout the year should we see a moderation or is there a moment in time, where you expect to be caught up or realigned with your forward sales growth.

Speaker 3: well that's a good question i think if we do the answer to that that would be we'd be geniuses yeah we hope we're going to be aligned or will be a line that's always our target

Well that's a good question I think if we knew the answer to that.

We'd be geniuses, yes, we hope we're going to be aligned or it will be a line that's always our target.

Speaker 3: I think what you see in that growth is not necessarily, look, in hindsight, you got to look forward to the demand for the brand. So I think the demand can pick up to a point that hasn't seen before. Or there could be supply chain issues where there's a big influx of goods in the quarter and then things tend to slow down. So there's a couple scenarios out there. We think our inventory...

I think what you see in that growth is not necessarily looking hindsight you got to look forward to the demand for the brand. So I think the demand can pick up to a point that hasn't seen before or there could be supply chain issues, whether it's a big influx of goods in the quarter and then things tend to slow down so.

Just a couple of scenarios out there we think our inventory.

Speaker 3: Does very well, we feel no risk with it as it's coming in now, that they're homes through it around the world and demand for more than we can make in the near term.

Does very well, we feel no risk with it as it's coming in now that there are homes around the world and demand for more than we can make in the near term.

Okay. Thank you and then.

Speaker 10: Okay, thank you. And then finally, with 2021 in the rearview mirror, I wanted to ask about promotion, the benefit to gross margin. How did that benefit for the year? What's embedded in the outlook? It sounds like pricing is a partial offset to the transportation costs. And is there any indication of a reversion towards historical norms in promotional cadence?

Finally.

With 2021 in the rearview mirror I wanted to ask about promotion the benefit to gross margin how did that benefit for.

For the year, what's embedded in the outlook. It sounds like pricing is a partial offset to the transportation costs and is there any indication of reversion towards historical norms and promotion promotional cadence.

Speaker 6: We haven't seen any kind of a version to the mean, if you will, on promotions. Although I'd say our hope is obviously that that mean, you know, diminishes.

We haven't seen any kind of reversion to the mean, if you will on promotions, although I would say our hope is obviously that that mean diminishes.

Speaker 6: Right now we're seeing the same environment. We do have some expectation that that will return to some more normalized level of promotion in the back half of the year in the direct consumer channel. But right now what we're seeing is strong resilience of the ASP increases we had put in place last year and a very, you know, continuingly strong environment relative to promotions.

Right now we're seeing the same environment, we do have some expectation that that will.

To return to some more normalized level of promotion in the back half of the year and the direct to consumer channel, but right now what we're seeing is strong resilience of the ASP increases we have put in place last year and a very continuing to be strong.

Environment relative to promotions, it's obviously, something we'll watch carefully thats a competitive.

Speaker 6: It's obviously something we'll watch carefully. That's a competitive, you know, market place dynamic. We keep abreast of regularly, but at the moment, we don't see those fading. And, you know, we do have a little bit of, you know, expectation of the back after the year. Some of that will return, but not nearly what you saw in, you know, kind of 18 and 19, which is pretty deep.

Marketplace dynamic, we keep abreast of regularly but at the moment, we don't see those fading.

And we do have a little bit of.

Expectation in the back half of the year some of that will return, but but not nearly what you saw.

Kind of 18 to 19, which which is pretty deep.

Okay. Thank you guys.

Thank you.

Our last question comes from the line of Susan Anderson with B. Riley you May proceed with your question.

Speaker 2: Hi, good evening. Thanks for taking my question. I was wondering, did you guys mention what your expectations are between the international markets for growth for this year and the US? And then also, did you guys say what units were in the quarter versus AFP?

Hi, good evening, Thanks for taking my question.

I was wondering did you guys mention what your expectations are between international the international markets for growth for this year and the U S. And then also did you guys say what units were in the quarter versus ASP.

Speaker 6: I don't know that we test on either of those, you know, I probably say there's no strong departure we see from kind of our normalized growth algorithm.

I don't know that we touched on either of those I would probably say there is no strong departure, we see from kind of our normalized growth algorithm.

Speaker 6: for Q1 or even the full year of 22. Although again, I would just caution the impacts of COVID tend not to be.

For Q1, or even a full year of 'twenty two although again I would just caution the impacts of COVID-19 tend not to be uniform across the globe. So we certainly have seen changes.

Speaker 6: Uniform across the globe. So we certainly have seen changes. I'd point out, we think domestic wholesale will probably be a little bit stronger in Q1 than come what we normally anticipate, but absent that, I think the growth trajectories for the rest of the businesses will be pretty consistent with our longer term guide as to how the business gets to that $10 billion mark.

Sure.

I would point out is we think domestic wholesale would probably be a little bit stronger in Q1, and kind of what we normally anticipate but absent that I think the growth trajectories for the rest of the businesses will be.

Pretty consistent with our longer term guide as to how the business gets to that that 10 billion.

Dollar Mark.

Great. Thanks, so much good luck this year.

Great. Thanks.

Speaker 1: Ladies and gentlemen, we have reached the end of today's question and session. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and are the rest of your

Ladies and gentlemen, we have reached the end of today's question and answer session. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and for the rest of your day.

Okay.

Speaker 11: Oh. I'm I'm that. I'm. I don't think. I.

Yes.

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