Q4 2021 On Holding AG Earnings Call
Ladies and gentlemen, thank you for standing by welcome and thank you for joining the on holding AG Q4, and full year 2021 results.
Throughout todays call all participants will be in a listen only mode. The presentation will be followed by a question and answer session.
I'd like to ask a question you May press Star followed by one on your Touchtone telephone to register for questions. Please press. The star can you followed by zero for operator assistance.
I'd like to turn the conference over to Florian My head of Investor Relations. Please go ahead.
Good afternoon, good morning, and thank you for joining us on 2020 , one full year conference call and webcast with me today on the call our executive co Chairman and co founder David all of them CFO and co CEO Martin Hoffman co CEO Mark Bauer for the first part David Martin.
Through the prepared statements. Afterwards, we are looking forward to opening the call for a Q&A session.
Before we begin I would like to remind everyone that the remarks during today's call may contain forward looking statements regarding future events and financial performance within the meaning of the federal Securities laws.
These forward looking statements reflect our current expectations and beliefs, only and such statements are subject to certain risks and uncertainties that could cause actual results to differ materially.
Please refer to our 20-F filed with the Securities and Exchange Commission earlier. This morning for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.
We further note that this call will also contain certain non <unk> financial measures such as adjusted EBITDA and adjusted EBITDA margin.
While the company believes these non <unk> financial measures will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with IRS. Please refer to today's release for a reconciliation of non <unk> financial measures to the most comparable measures prepared.
In accordance with the IRS.
With that I will turn the call over first to David followed by Martin for the prepared remarks.
Hello, and welcome to all of you joining us today around the world from Switzerland.
We are excited to share with you on the first full year results as a public company. After our successful IPO just six months ago.
Well. Thank you very much for following our journey and for tuning in today, you will hear about recent progress and important priorities before we dive more deeply into financials and conclude with an outlook on 2022, and then open up to your questions.
Global consumer demand continues to drive on type of growth you are.
Very pleased to announce that 2021 has been the strongest year in <unk> history and beat our expectations at the beginning of last year on all accounts.
We experienced strong global consumer demand across all the regions channels and product categories. The exceptional momentum related to net sales to 725 million Swiss francs, representing a 70% year over year growth.
At the same time, we see a significant jump in on gross profit margin to the top end of our industry and continued increase in adjusted EBITDA.
We are grateful to have successfully navigated down certain days of the global pandemic and supply chain restrictions in the last two years.
I feel it shows the strength to ask young brand of our operating model and most importantly of our global team.
The supply side, all strong consumer demand is met with better than expected product availability.
Surprised this members of our team work and supply planning their agility and the strong relationships with our suppliers may be possible to mitigate the temporary stop of production in Vietnam.
Short term out of time.
Of course Covid is not over award in Europe is not just a human tragedy, but could have ramifications in global trade.
And inflation is a challenge to consider.
We remain on the lookout vigilant to take on risks as they arise.
Cabela's has served us well in the first dozen years of an incredible journey.
Still.
We continue to be very optimistic all is experiencing a running boom every they're markets like the U S. The U K and China are taking off like never before.
We see strong growth across all regions.
Your own brand truly is on fire.
Takes the U S. There are also over 92% growth in run specialty and also over 85% in our own equal.
Take do you pay their own grew over 75% in 2021 or take China, they're all jumped from ranked 120 to 35 in the chemo sports ranking and she's a fivefold increase in branch followers.
The momentum of performance brand on is further fueled by athletes as you know <unk> has been founded by athletes for athletes.
We are all inspired by all athletes will turn their dreams into reality they truly are on a winning streak across the globe.
Yeah, I'll Atlantic's club or shortened OFC is elite athlete team based in trained in Boulder, Colorado.
We are honored to announce that the two time 5000 meter world champion Helen of Berry is joining the army Atlantic's club.
How long is one of the most impressive and versatile female athletes.
She built moved with her family to the U S to join you on Atlantic's club in Boulder to trained with our coach dates and Ritzenhein N. P. O S E T.
Many of the OSC athletes have competed in last year's Olympics and continue to stand the audiences lie.
Like Australia, an Olympian already whore, who want the fastest mile at the Millrose games in New York City with a striking time of three minutes and 50 seconds.
We could not be happier about the success of our athletes anti all Atlantic slumped.
This is my behalf decided to establish always see in Europe and Oceania that's valid this year.
Over in Europe , our athletes from the Swiss Alps has just come home from the most successful Winter Olympics for Switzerland ever.
And the Norwegian Olympics team has won the most medals of all nations in this year's Baiter Olympics.
All of that's been developing shoes and apparel for both teams in the last years and Easter official sponsor.
Seeing all that it's been across the globe fueled the momentum of <unk> as a unique performance Brett.
We further amplified through broad storytelling feature length film and short social stories.
I'm sure you are targeted this valued by our data engine.
We are making fast progress towards our long term brand issue to ignite the human spirit through movement.
One is carried by rapidly increasing movement of millions run explore travel near and far less their spirit and stream on.
This means that only reaching a far broader community.
<unk> brand and products resonate with a bigger market in three ways.
First we are launching exciting product for all type of for others.
<unk> brand, we are building on our technology for World Champions and make it tightly relevant for all the runners.
Just two examples of a record launch of all six new shoe models.
Let me just give you two examples out of six all new shoe models.
And you're running the old new cloud lobster model will launch this spring and celebrated by our retailers, who searched a big group of everyday runners.
As a runner so demand maximum cushioning.
For outdoor retailers, we launched the all new cloud Vista. It is the perfect companion for gravel roads and tracks versatile and mainstream.
At the same time, we see our Impella range growing nearly twice as fast as our shoes.
Obviously innovation drives is rewarded by our industry.
Footwear news has named on the 2021 brand of the year back in November and esports. The biggest European sportswear has given the 2022 Esport awards to our new hero check it in apparel and two the all new cloud monitoring foot there.
My second point is that we see around culture crossing over into popular culture.
Young community in Tokyo, Shanghai, Lumping that New York has embraced on as a brand that inspires them at the intersection of performance and design.
The flies off the shelves at tastemaker retail and to select J D and foot locker doors that'd be choose to play.
On performance shoes in the apparel piece is pop up in the streets that would be onto running routes.
And we believe that on taps into a secular shift where performance is taking over fashion and replaces classical archetypes with performance silhouettes.
Driven by these sheets nerdy one of the fastest growing global fashion brands at the rising star in the L. P. M. H Uni birds has all stuff to collaborate with them on performing cigarettes.
Two years in the making the unique capsule of own shoes and apparel pieces has launched just last week.
Available in all little bit flagships intellect fashion retail and on our website.
Days after launch the collection is almost sold out.
Literally runs a global campaign, and especially caters to an intense bradlaugh in Asia with more than 40 flagship locations.
This all means that all of the states firmly rooted in one culture and at the same time is embraced by a much wider market and demographic.
And an important third point is the belief that all communities have a fundamental of light to movement.
This inspired the launch of our right to run social impact program in early 2021 .
Through partnerships with community organizers and nonprofits around the world they promote axis and inclusion in running.
Sometimes it is S basic as having Esa through Turan.
Together with our partners. We are empowering communities that are at risk to be left out of the global running community.
Such as people with disabilities and people of color or those who are experiencing house listeners.
We are committed to Eaton Ikea human Spirit's real movement in all parts of society.
Now, let me speak to our Omnichannel strategy that is so vital to our success.
They are not only creating products that our customers love, but also reach them there they shop.
Omnichannel strategy is firing on all cylinders.
It delivers scale.
Insight Astellas resilience for all in the following ways.
Our own E Comm channel on our website has reached a high share of 36% of our business in 2021.
This means that we increased direct connections to our community now serve customers in 48 countries through D to C and learn from them.
For example, customers who buy apparel at the first piece show a higher lifetime value as they already appreciate all of the as a sports brand not obscure shoe brands.
And predicting the relevant offering to the right customers at the right time in their journey has allowed us to retain big new customer cohorts.
In fact in the last two years, we have retained our newest customers with a similar stickiness as customers who have come to us and all of us still a smaller brand.
This means that one stays very relevant rather reach a far wider audience.
And it also shows that drawing habits that were formed in the pandemic persist.
The benefits of this very data driven approach, obviously extends to demand planning and operational effectiveness and of course also keeps us higher margins.
At the same time, we continued to build strong relationships with our wholesale partners.
Believes that retail partners with strong brands and a unique offering will continue to add value to their customers in physical locations as well as on digital channels.
They inform and inspire beyond the transaction.
We are fortunate that strong wholesale brands has partnered with us for years and continue to introduce and position our brand to their unique audience.
To mention a few activation highlights with our key wholesale partners with.
With Rei for example be exclusively pre launched the clouds ultra as the top trail running shoe to their community of 20 million outdoor enthusiasts.
A huge win for building <unk> credibility in the outdoor space.
Our fast success at Nordstrom paved the way for roughly 20 additional shop in shops in important Nordstrom doors this year.
And the focus on the best foot locker doors introduces <unk> to even younger audience.
At the same time, you have open shop in shops in some of the most premium locations on this planet.
At almost Shane Paris, and at Harrods in London.
These initiatives allow us to grow fast on a global scale in more than 8700 doors and hundreds of city centers.
At more than 1000 locations only present with a branded shop in shop experience.
In 2021 of you have observed consumers flooding back to the city centers and stores after lockdowns eager for interaction and experience.
As a result, we have seen wholesale revenues bouncing back strongly keeping our omnichannel makes the D to C very resilient.
This has strengthened our belief that attractive physical shopping experiences continues to be an important part of consumer culture and part of the very fabric of our cities.
The importance of physical experiences is as valid the backdrop for our expansion of our very own retail network in global hub cities.
All Flagships Act as the most complete experience community Center and media channel for our brands.
All New York City is experiencing waiting lines in front of the door at many community around start from the space.
New York and our eight on flagships in China are able to attract the highest share of first time customers to own across all our channels.
Conversion in store is higher than any other sales channel with a significant share of apparel in some stores up to 25% of sales.
All of our stores have reached profitability within nine short months of opening.
We will continue to expand to the most important cities on this planet.
At the heel of the Tokyo Olympics last year on Tokyo is set to open in the next weeks, followed by London and Zurich in summer.
It is important for you to know that we are not seeing a cannibalization of our wholesale and DTC channel.
Both channels showed sustained strong growth at the same time and are highly complementary.
Let me come to the ultimate success factor off on.
Our team.
We are fortunate that only has been able to attract exceptional talent only 1% of all people who apply it on are accepted.
In 2021 only has grown to 1100 members, who dream on and build the future.
600 people have joined the team on in the last two years and have mostly worked remotely.
Young team comes from over 65, nationalities, and very different backgrounds and mindsets.
Do you see diversity as a catalyst for innovation and creativity.
This month, we are seeing an important moment for them that the team is moving back together into new social office and lab spaces.
Our European Technology hub in Berlin was just opened in a big former post office and brings together 200 tech and customer service people.
Our new North America home and Portland, they'll see 300 people moved in together in April and 700 people will move into the new old labs in Zurich in summer.
The team continues to have the opportunity for hybrid work, but also come together in social spaces again.
Nobody is coming back to the office just for a desk.
We will continue to build a unique unculture along our five spirits and join menu runs along the way together.
This will bring collaboration community activities and workplace innovation to the next level at all.
When we speak of wrong culture, our team I have to mention the most important member of our community. Our planet nature is the most important environment for sports in exploration, but also the most endangered long.
So in the next earnings call, we'll talk about our important green tech initiatives cyclone and clean cloud.
So stay tuned.
And with this I'm handing over to Martin on CFO and co CEO to take your own financial deep dive.
Thank you David.
2021 has been an extremely exciting and decides if you call them.
And we are very proud of what we have achieved.
Not only from a financial perspective, but across so many different dimensions.
A year, it's like a marathon race the circumstances of the fourth quarter made it lost but its even more challenging.
But thanks to our whole team, we were able to exceed our expectations for Q4 in.
And to successfully finished the year with many new ratcliffe numbers.
And equally important we are coming out of Q4 with more confidence and evidence for continued strong growth in 2022.
Our financial results in the fourth quarter, a further validation of the strong global demand for their own freight.
Our commitment to manage the company with a long term growth and profitability driven mindset.
Net sales for the quarter grew $191 1 million Swiss francs exceeding our previous guidance.
This marks a strong 54% increase compared to the fourth quarter last year.
Yet as expected the growth is slightly slower than in previous quarters due to the following three transitory impacts.
First the factory closures in Vietnam between September and November have led to supply shortage, especially in Europe , where we had less inventory buffer going into the fourth quarter.
Second.
Until 2020, we launched our new spring Summer footwear collection in November and consequently at higher wholesale volumes in Q4.
As of 2022, the spring summer season starts in January which is expected to result in a permanent volume shift in our wholesale channel from Q4 to Q1.
And third.
While North America had lifted most COVID-19 related shopping restriction we.
We have experienced repeated lockdowns in Europe , especially Germany, Austria and Switzerland.
Well as in some other markets like Australia and various cities in China.
Despite these headwinds we had.
<unk> net sales of $724 6 million Swiss strengths for the full year of 2021.
74% increase compared to 2020, and 65% CAGR over the past three years.
So we have experienced an acceleration in our sales growth compared to 2020.
Including 2021, we have grown more than 65% and nine out of the 11 years since our foundation.
Since the inception of unintended turn ourselves have grown with a CAGR of 84%.
While the supply constraint impact, both our DTC and wholesale channels the system change and contingent locked down a more visible in wholesale.
Consequently in Q4, we have seen a very strong growth of 76, 7% in D C.
$84 7 million Swiss francs, compared to 39, 3% growth in wholesale to $106 4 million.
On a full year basis, our gross rates of 71, 9% for D. C and 69, 5% for wholesale are validating the strength of our multichannel distribution and affect the D to C continues to outgrow wholesale despite the reopening of many retail stores.
Our D to C share on a full year basis grew from 37, 7% to 38, 1%.
The continued engagement of existing customers and increasing brand awareness as well as a sustained shift in consumer behavior. Since the pandemic continued to significantly drive our D to C channel.
During 2021, the number of sessions recorded in our e-commerce platform, including China increased from $66 million to $102 million.
We had a very successful holiday season, there's a stronger focus on our brand story.
What's the message for every run there we were able to push product sales on pay channels, but also create more reach from our storytelling perspective on organic trends.
China accounted for 3% of our total ecommerce sales during the full year 2021 was just 1% in 2020.
Our double 11 campaign with a focus on one blockbuster resulted in a 429% growth in terms of salt.
Items in 2021 versus 2020.
We further expanded our owned retail footprint in China by opening two new stores in Q4, one and since then at one in Chengdu.
Begin to build our presence in core cities outside Shanghai and Beijing.
Overall, our store count in China and increased two eight.
Store in Chengdu Tycho the mall is our largest retail store to date in China.
David already mentioned some key highlights for our strong partnerships with retail partners in the wholesale channel.
Overall, our growth in wholesale driven by an increase of 900 doors from over 7800 to over 8700, while also achieving significantly higher net sales per door.
Shifting our focus to net sales by geography.
North America Asia are growing strongly and especially to United States and Canada experienced a new level of consumer demand following the IPO.
North America grew 102.1% and Asia Pacific is 35% in the fourth quarter of 2021.
In Europe sales have been more impacted by the supply shortage and by the renewed Lockdowns in November and December .
Net sales for the fourth quarter ended up slightly below Q4 2021.
To be clear, we see all impact as transitory and expect continued growth rates in Europe as of Q1.
For the full year of 2021, all regions posted significant growth with Europe growing 38.8%. Despite the prolonged lockdown in Q1 and Q4.
North America, 96, 8% Asia Pacific, 858% and rest of World 78, 8%.
Of course this sustained growth is fueled by our constant innovation in a number of exciting products that were launched during the course of 2021 across all product categories. We are very proud to see a further acceleration of the consumer demand for our expanding apparel lines, resulting in 216% growth in Q.
For 2020.
Ultimately for the full year schuss crude at 68, 1%.
Almost at twice the rate at 138 per cent and accessories at 57, 2%.
The share of sales from the parent increased from $3 72, 5%.
Gross profit in the fourth quarter was $111 8 million compared to $64 3 million Swiss francs in Q4 2020.
Our gross profit margin increased year over year from 51, 7% in Q4 2020 to 58, 5% in Q4 2021.
As expected, while we had the chiefs around 60% gross profit margin in Q3 and Q2 Q.
Q4 was negatively impacted by additional air freight to compensate to supply shortages from factory closures, but partially offset by the higher D to C share.
Overall, we use less airfreight tenant's anticipated, mainly due to the longer factory closures and very volatile airfreight rates.
On a full year basis, our gross profit margin improved by more than 500 basis points from 54, 3% to 59, 4%.
This increase mainly reflects lower customer costs related to the free trade agreement between getting them into Europe .
As well as lower sourcing costs, but also our ability to drive cost efficiencies across the supply chain.
Moving on to SG&A, and leaving out share based compensation for the moment SG&A expenses as a percentage of net sales of 59, 2% for Q4, 'twenty one compared to 45, 9% for the same period last year.
This increase largely relates to the increased marketing and general administration expense.
We did not manage our expenses in Q4 in isolation, but with a clear focus on our long term growth and our full year profitability.
As mentioned the IPO ignited a lot of energy and awareness into the Fray, especially in North America and Asia.
We took the decision to fuel this momentum and to make use of the post COVID-19 marketing opportunities into physical and virtual vote.
Our strong net sales growth lower than expected expenses in air freight and other COVID-19 related cost savings allowed us to invest into brand building campaigns, while still realizing a significant increase in our adjusted EBITDA margin on a full year basis.
It allowed us to create big Brent precedence.
Q4 trade and sport events, especially global marital matrix and trade events like the running event in Austin.
<unk> received very positive feedback from the run specialty retail community.
And it allowed us to invest into digital customer acquisition to power growth through the holiday season and into 2022.
The increase in general and administration expenses was mostly driven by initiatives to enhance our financial liabilities as a public company and expenses for our new offices as well as by higher travel expenses to allow our team members to connect globally in the aftermath of the pandemic.
SG&A expenses before share based compensation for the full year 2021.
51, 5% of net sales compared to 45, 5% for 2020.
But CNA. This increase is mainly driven by the higher expenses just mentioned for Q4.
In addition to the Q4 impact full year 2021 marketing expenses for the launch of our efficient expression of our brand mission to ignite the human spirit through movement and assets and promotions created under the Dream on Tech line.
Sustained print awareness and sales growth allowed us to further invest in upper funnel of acquisition activities and to lay a foundation for future growth.
Moving on to share based compensation.
As disclosed in the IPO and announced in our previous call. The grounded seven 5 million stock based awards in Q4.
The majority of the grant benefits the leaders and key employees at all beyond the executive team.
On top of that all of our employees that have received the founders' grant at the IPO the turn to the full team into shareholders. That's in it.
She asked them for their hard work in the last 12 years.
The majority of the above mentioned stock based awards vested at the IPO and Consequently, we recorded $176 2 million share based compensation expenses in Q4, and $198 5 million for the full year.
Adjusted EBITDA, which excludes share based compensation and one off transactions related to the IPO.
It was $11 2 million for the three months period ended December 31st when do you want.
Very similar to the $11 $2 million with strength in the prior year period.
As expected our adjusted EBITDA margin went from 9% in Q4 of 2020, 259% in Q4 'twenty one.
Important for us and in line with our commitment to continued increase of our profitability adjusted EBITDA for the full year of 2021 increased by 93, 8% from $49 8 million Swiss francs to $96 4 million.
A percent of net sales adjusted EBITDA increased from 11, 7% to 13, 3%.
The highest adjusted EBITDA margin in the history of the company.
We ended the year well financed the 650 million cash on hand, which allows us to pursue our ambitious growth plans.
Proceeds from the IPO and subsequent equity transactions were $619 million.
Throughout 2021, we continued to invest in our it infrastructure.
Especially in our new ERP, CRM and data analytics landscape in retail stores, and then office infrastructure.
Our capital expenditures in 2021 was $36 2 million equivalent to 5% of net sales.
In 2020 volume, we achieved positive operating cash flow of $16 9 million compared to minus $14 7 million in 2020.
Naturally our strong growth results in a significant increase of networking capital.
Driven by increasing receivables from higher sales volumes with wholesale partners and by investments in inventory to fuel our future growth.
Excluding the growth in working capital of $74 4 million Swiss francs, we achieved a positive operating cash flow of $91 4 million.
Which further validates the strength of our profitable business model.
Now, let's look ahead into 2022.
As mentioned in our last call our guidance philosophy is to provide prudent yet aspirational guidance for the full year not on a quarterly basis.
David already shared Hollywood continue building, the brand and drive significant growth across all channels regions and product categories.
We plan to significantly expand our offering and running outdoor and lifestyle, which we called performance all day.
Highly innovative and even more sustainable shoes apparel items and accessories.
We have completed our selling season for spring summer and fall Winter 2022.
We are seeing very strong reorders from existing and new wholesale partners.
Both for half year, one and talk to you too.
This includes a very controlled expansion of our partnership with Footlocker and JD sports following successful pilots during the Q3 2021.
It will also include our first pilot with Dicks sporting goods as of summer visit very talkative assortment of our running product.
At the same time, we have build a significantly elevated customer base and PTC and continue to retain existing and to new customers.
But we expect to reach more fans around the world and allowed them to move in all products.
In addition, we will bring a new level of brand experience to more flagship stores around the world.
For the first time, we will open flagship stores in Europe , and Asia outside of China.
And we will continue increasing our presence in North America, and approximately double our store count in China.
As mentioned earlier all of this gives us additional confidence for our outlook of 2022.
This confidence as far as the elevated by the positive development of the sourcing situation in Vietnam and throughout the supply chain.
Since December our production capacity is 100% back to the levels that we're committed to pre lockdown.
We are extremely grateful for the support we have received from our factory partners throughout the last months.
For example, most partners continued to Burger King joined the Tet holiday in early temporary to recover from some of the capacity loss.
Overall, we are fast tracking the capacity ramp up planned this year, leveraging our close relationship with the factory.
This includes the expansion into Indonesia, where we just started production in our new facility with the goal to produce 10% of our footwear outside of Vietnam by the end of 2022.
But of course, managing the supply chain reminds remains a core priority as we are experiencing volatile shipping cost port congestion at the U S West coast and labor shortages due to only chronic infections and some of all of their houses.
As explained in our last update the transitory supply shortages will define our pace of growth in the first two quarters.
It's not expected to be a significant limiting factor in the second half.
But then our pace of growth will be defined much more by our strategy to build a global premium performance brand.
Thanks to very strong partnerships with our factories and supply chain partners.
That work by our own supply chain teams in Vietnam and in theory, we expect compared to our Q3 update to be in a stronger supply position to fuel the demand in the first half of the year.
For example, the three weeks ago, we launched a new cloud five globally within the planned timeframe.
It actually marks our biggest product launch ever.
Also the new cloud monster, our Max customers running shoe will be available to our customers.
So deforest.
Based on this elevated supply position, we expect to be able to drive more net sales growth in half year one.
At the same time, the current adjacent in Vietnam, and our strong preorders for fall winter provide even more confidence to have the right products to return to a hyper growth in the second half.
Consequently, and also considering the global economy and geopolitics, we increased our outlook for the full year 2022, and expect to achieve at least 919 million Swiss francs and that sales.
Our internal ambition is still higher than that and we will continue to balance growth versus profitability to mitigate the disruption across the international supply chain.
We continue using airfreight to balance inventory levels against the strong team.
While we were able to achieve all our strong Q4 with a lower than expected shelf afraid, we still expect a headwind to our cross margin of approximately 700 to 800 basis points in half year, one 2022 compared to half year one 2021.
This is comparable to the relative impact we announced in our previous outlook.
Outside the transitory impact from higher Airfreight expenses, we expect to maintain our high gross profit margin as a premium brand.
To offset the impact from some high expenses along the supply chain, we have increased our retail prices in North America by 10 U S. Dollar on roughly 40% of our sales for you.
The high end that itself will allow additional growth focused investments into the Brent and the team.
While increasing our adjusted EBITDA targets for the full year to 130 million Swiss francs, and also increasing our goal of an adjusted EBITDA margin to 13, 1%.
If you are able to achieve higher net sales, we expect to drive additional profitability.
We will continue to closely monitor the situation in Russia and Ukraine.
Our business exposure in both markets is very limited we have one distributor in Russia accounting for less than half a million Swiss francs in net sales in 2021.
We decided to stop any new product supply into Russia.
We clearly did not all acts of violence and didn't limitation.
We do not have any business in Ukraine.
Nor any one increase in your Ukraine or Russia.
But as an international company with a diverse team our connections to Russia, Ukraine and the neighboring countries are extensive.
Clothing, many Russian and Ukrainian team members.
These individuals our team colleagues and friends collectively coming together as one community.
Looking back 2021 was an extremely exciting year for the brand.
Huge milestones like the IPO the launch of our new ERP system, our official expression of our Brent mission to ignite the human spirit from movement exciting.
Exciting new products like the cloud ultra the cloud Stratos.
Or apparel items that combined performance and design.
With our big steps in sustainability.
And then your athletes our presence at the Olympics in Tokyo, Our first podium at the Berlin Marathon, our growing presence in China.
And for so many new members and our team.
All of US together are fully committed to shape, our future and to make 2022, even more exciting.
We are extremely grateful to have such an amazing high performing sports team that allows us to dream of.
And to further build on a global premium sports Brent that lift at the intersection of performance design and impact.
Cause that David Mark Florian and I would like to open up the session to your questions.
Thank you for your support and for your trust throughout 2021.
Operator, we are ready to begin the Q&A session.
Ladies and gentlemen at this time who's getting the question and answer session.
Who wishes to ask a question press star followed by one on your Touchtone telephone.
We wish to remove yourself from the question queue. You May press star followed by two.
If you're using speaker equipment today, please lift the handset before making your selections anyone who has a question press star followed by one at this time.
For the first question please.
First question is from the line of Jay sole from UBS. Please go ahead.
Great. Thank you so much this.
Quarter.
Question is about the expansion of the product offering in 2022, you know you mentioned that you introduce some outdoor footwear. There were two great success can you just tell us a little bit more maybe elaborate on how the expanded product offering is going to allow the company to address different parts of the market with different types of shoes to continue to expand our brand and expand the audience.
But for the brand thank you.
Okay. Thanks, a lot for the question. This is David So hey, we're incredibly excited about how we're expanding the product range and probably first of all it's important to know that you also kind of retaining the customers is very much based on lasting their franchises and silhouettes. So of course seeing the cloud now and then.
Fifth iteration launch and.
It's a huge community is important for us, especially because now the cloud has 44% of recycled content. But then you also see a record number of all new shoe models and this year and as I mentioned.
One of the very important direction is that we want to reach all type of Rogers and the court long stretch our highly Cushing product is super important and B just being out there.
They're running event in Austin, and just seeing kind of the intensity of interest by the specialty running community and.
Wider channels as Rei athletes and so on has been tremendous but then you're also going to launch the clouds wrong runs the clouds go at very interesting price points. So it's really important how we extend our in running them, but then on the other side you also feel that there they're very much resonates.
With a consumer that is interested in drawing but also drawn culture and so their performance is almost kind of taking a bigger share.
And and that's probably be kind of shown in this in this lyric capsule. The Libya interest introduced into it all starts to to really kind of come to the two two that range with outperformance gear, just kind of showing that.
Performance and functional varies very much crossing over into a into mainstream fashion.
Hear you at the moment could you please UN mute your telephone.
Can you hear me now.
I can still hear you.
Okay very good so hey, two to sum up I mean, we're very much kind of expanding when it comes to running tool types of progress, but we have continued to cross over into what we call all day issues and with those of our performance apparel pieces.
Got it if I can ask one more sorry, we were experiencing a technical difficulty at the moment.
Sure.
So we operate or we don't they experienced.
Hello.
If I can ask one more question hopefully you can hear me you know you mentioned door increases last year in the wholesale doors honestly you know great success. There and then you mentioned a new pilot with Dick's sporting goods that sounds exciting expansion with foot locker JD sports can you just give us a sense of how much door increases do you expect in 2022, and a little bit maybe more color on.
You know some of the partnerships with some of the retailers that are that you mentioned Dick's sporting goods and foot locker JD. Thank you so much.
Thanks for the question I'm, sorry, I didn't I hope I got that this is mark speaking I hope I understood. The full question regarding.
Foot locker and J D and in doing so well.
Well you know what what we are very much trying to do at foot locker and JD is is that reach and expand into an even younger consumer base and kind of this is driving the partnership so little J D will be heavily focused on the U K that is driving a large part of this expansion and on the U S and then with foot locker and Dick's.
<unk> 22 is mainly U S based.
Very strongly kind of defining the key locations and together with them in every belief has the strongest consumer but then also.
Working on a on a very distinct product hearings and so and so when you experience on across different channels that you always find the right product for their respective consumer.
With Dick's the story is a little bit different so our goal and our dreams to be number one on runners feed them fixed plays a very important role in there. So we will start pilots with on branded spaces. We then some key takes endorse as of this summer.
We'll also start to selected pilots been public lands and logistics outdoor formats to reach the outdoor consumer.
Got it okay. Thank you so much.
The next question if my line of Jim Duffy from Stifel. Please go ahead.
Oh, thank you.
One.
Martin I think this has come in your direction, but Oh I wanted to ask a few questions on the supply chain backdrop and influence on product. So can you speak to the levels in transit inventory positions and then I'm curious as the incremental use of airfreight is expected to be fully through the P&L in the first half of the year.
Yeah.
Yeah. Thanks, Tim.
I think most most important is we have now.
Confidence and clarity on on the factory and the volume that they are purchasing and so we can we can our plan basically also the use of airfreight much much more clearly than in the past.
As mentioned, we expect 700 to 800 basis points.
Had been from.
From from use of air freight in the first half of the year compared to gross profit margin that we had in the first half of 2021 .
We will we will we will carefully balance basically crows and use of air freight.
But what we see is that we will be able to fulfill and higher share of the demand that we are having in the first half of the year, which is which is also reflected in the increased guidance.
Okay.
And then I'm curious the level of in transit in your current inventory positions and then how you're thinking about the progression of inventory across fiscal 'twenty, two and then perhaps related to that.
I'm curious is there a way to characterize the wholesale channel inventory levels, where they sit right now versus the desired levels.
Okay.
Yeah, So in transit.
India unveiled we are balancing our if the volume comes out of the factory at the moment what goes on Ocean freight and what goes on airfreight we.
We see some congestion, especially at the West coast Port of L. A.
We don't see a similar congestion at the also poured soda product is slowing there, but already before the Lockdowns. We have we have a trusted basically how much how much cautioning we take into account when we when we plan our production volume for longer shipping times. So we have increased and our internal calculations.
By two weeks already.
Even even before the impact.
And then maybe mark can kind of elaborate a bit a bit how we look at the inventory positions at wholesale.
Yeah and on the wholesale side.
You know from the beginning on I have decided to partner with premium retailers in premium wholesale partners and many of them have an extremely strong standing in the industry and so what has happened many of the brands have essentially prioritize to them at the same partners. So we see many of our partners is relatively healthy.
And when it comes to our inventory, we feel and the availability that we can provide them.
It is very very strong and that is also reflected in some of the sell through data that we're seeing from Denver thereon continues to experience very very strong growth.
Thank you.
Okay.
Yeah.
The next question is from the line of Cristina Fernandez from Telsey Advisory Group. Please go ahead.
Okay. Good.
Good afternoon and congratulations.
Congratulations on the better than expected quarter.
I wanted to ask about.
The the marketing plans you can't you decided to invest more in 2020 , one which makes sense given the demand for the product. If you look at 'twenty 'twenty. Two do you expect to be above your long term target of 12% to 12.5% how are you thinking about that.
Yeah.
I think.
Important to.
Our long term target for her to trust that the EBITDA margin is to be in the high teens and.
This is this is clearly a what what really would be what we're working towards and you also see that we increased our EBITDA target. Despite the fact that we are facing the headwinds from the.
The higher the higher airfreight.
So we.
We purposely increased investments in Q4 in marketing because we have seen the strong sales crows, but you're also at a lower share of air freight compared to what we what we were planning and so we've made she was off the opportunities that Detroit there. We will we will continue.
Two two are used similar opportunities if they arise and to invest especially in the upper funnel.
Oh marketing to target.
Regions, where <unk> has a strong.
We got a friend precedence then and then average we both invest into two product groups like apparel.
But.
All of our main goal is to is to increase profitability overtime into the high teens.
Thank you and then my second question is as it relates to the flow of the year.
Sales are now you know there since the last call I think on the last call you had talked about 40, 45% growth in the back half, which implied about 20 to 25 in the first half should we assume that the better product flow, you're seeing but just you know with the first half of the year in the second half.
Stays in that range or how are you thinking about the split up through the year. Thanks.
Okay.
Yes. So does this business how are we how we're thinking about this we we have the visibility for <unk> for the first half of the unbelieving Beacon.
So it's really more demand at.
At the same time.
The return to a hybrid gross numbers that you just mentioned in the in the second half of the year, we feel that there is much more confidence behind the numbers because we are now seeing the strong preorders from our retail partners.
The new partners existing partners new products existing products.
So we have we have a much higher level of confidence in that number and we also have confidence that the product supply should be there based on the current availability of the factory production capacity.
Yeah.
Okay.
It was tremendous are you finished with your questions.
Oh, yeah. Thank you.
Next question is from the line of Jon Komp from Baird. Please go ahead.
Yeah, Hi, thank you.
Wanted to follow up on some of our product innovation plans that you have and could you share a little bit more.
On your plans for 'twenty two on the apparel side. If you have any insights on the launches there and any any new categories that you plan to enter in your expectations.
Thanks, a lot for your time for your question Jonathan.
You know I mean, and apparel has been growing twice as fast as his shoes and be continue to launch out to launch new products and products that we're launching are always at this intersection between our performance and design and then also sustainability and that makes it.
Our apparel piece is incredibly versatile so we're seeing that adoption of our apparel. Our apparel. He sees is becoming a more white and and as I mentioned kind of for example in some of our own stores in China, It's already 25% of sales. So we still we feel that it really.
Kind of how it resonates with our consumers so you're going to see more launches in fact have just seen in the last in the last two weeks important apparel launches for us. They are they're also kind of off and make sure that to be and that that'd be double down on their on their on their own to move off our apparel piece.
For a full movement of course, which is part of our brand issue.
So you were for example, Galicia womens bra line in the future as well. So it's really kind of just keeping more of that to our range, but pretty much in the area. So that'd be a that'd be all already play which is of course in the core running what extent extending also to be outdoors and extending to our two movement. So.
Are you seeing that empowers you to out go out experience nature and move what's very encouraging is that we see for example customers who come to us for apparel show a higher lifetime value and so our ambition is very clear that the ornish, becoming a global premium sports brand.
On a pure running shoe brand and that's a very also kind of strikes its product.
Yeah, Great. That's very helpful. And then maybe a broader question about the plan for 'twenty 'twenty. Two revenue is there any more color you can share in terms of some of the channel expectations. I know wholesale you have some shift in the <unk>.
Timing of the spring sell in this year, but you know there's also some some different comparisons that you'll be cycling throughout the year. So any any more directional color on wholesale versus direct to consumer and any sort of shaping expectations around those.
That's what I'm happy to take that.
Most important causes that they really see strong growth rates across all the different channels.
And if youre looking at D to C. We really see that that although the share of new customers are repeat customers stays very strong. So we are really building that business based on the on the on the elevated.
Consumer base that we are that we were building during the pandemic and then at the same time Mark already shared some of the expense plants that were having and in wholesale and some of those expansions to be clearly address a different consumer crude where we also expect that they are continuous shopping on our D to C channel.
At the same time, we are we are expanding our own retail network. So we will open up new doors as we have announced in and in Tokyo in London, but also in the U S and Switzerland.
Doubling our collagen and in China, which was for the growth.
Grow the D to C channel.
For us it's important that that both channels are mutually beneficial and we want to grow both channels and not physical off of a clear D to C share.
Yeah.
Yeah, great. Thank you very much.
Next question is from the line of Kimberly Greenberger from Morgan Stanley . Please go ahead.
Great. Thank you so much I was very intrigued by your comments on the the quality and rate of sell in for spring Summer 'twenty two in fall winter 'twenty two I don't know if there's any additional color that you could share on.
Perhaps the year over year rate of growth either in spring Summer fall Winter and then I wanted to ask about the seven to 800 basis points in gross margin headwind are.
Here in the first half of 2022, I would imagine that some piece of this you expect will be transitory such as maybe the elevated use of airfreight.
But is there a portion of it as well that could be sticky.
Maybe higher distribution center expenses.
Or at least a portion of them might be a little more permanent than any any any color you could share would be helpful. Thanks.
Thank you Kimberly.
Let's start with the with the preorder and but were seeing for the second half so.
I mean, we're not sharing the exact number of off the graph, but it's higher than we expected and so which is which is a very very fortunate and it's across all geographies and across all product groups, which is super important to us. So we're seeing them exactly the quality and the order that we want and so for example.
Already mentioned, we want to be number one undrawn or seat. So how were growing in the running it's a very important measure for us so it's overseeing that happening.
At the same time, we're also always looking at what the same store growth and what's new store growth and and we're also seeing that in stores, where we already have.
And quite a significant presence we're still growing.
Very strongly and and then you know beyond footwear, it's important for us to be continued to build upon as a global sports company and we've talked to were very strongly looking at the apparel Sharon's accessories sure and so we see it but it's still on a very small basis out of our our accessories business, but we are expecting.
Very strong growth.
In 2022 and on apparel, a lot of the orders driven by now being able to be in many of the right channel. So we spoke about the shop in shops, with Nordstrom, which give us and elevate the presence and end to be experience. There. We do have shop in shop executions. We also have a higher apparel sure and that is reflected in <unk>.
The preorder so we're really positive across the board and marching well Martin will quickly talk about the margin impact.
Kimberly so on the.
On an hour and our distribution costs.
We're still seeing a very volatile environment. So around our last call mentioned that we see airfreight price of their own.
Up from 20 to $40 per short at the moment to be become.
Go more towards 16 again, so it's very volatile.
Therefore, it's it's it's hard to protect our week continuously we always have a certain amount of air freight sure I'll be very very low airfreight volumes.
In most parts of 2021 a two to a very good product availability that we have so probably we will have a little bit in <unk>.
Sure also post the post half year, one of the probably the most long standing impact will be on the higher labor cost and in our warehouses, where we don't expect that.
The effect is reversing.
And this is why we have increased the prices in the U S. As mentioned on about 40% of our volume to offset those price them to be able to maintain our.
Gross profit March meant to clearly worked towards the direction of the long term target of 60% on gross profit.
Great color. Thank you so much and it sounds like you expect the price increases that you're taking to be able to fully offset some of the cost inflation, leaving you on track for that high teens long term adjusted EBITDA margin am I hearing you correctly on that.
Yes at the same time, we do not expect price increases in Europe in 2022, but we are clearly looking at the markets and.
The competitive landscape, there and we have the pricing power as a premium print a two to selectively increased in price. It's also for 2023.
Okay.
Great. Thanks, so much and good luck here for the year.
Next question is from the line of.
Michael Binetti from Credit Suisse. Please go ahead.
Hey, guys. Good morning, Thanks for taking our question here congrats on the nice quarter.
As we dig into it on the gross margin a little bit as we look back at some of the modeling from the S. One around the IPO.
Obviously D C b and a higher gross margin and growing faster as a positive influence and by geography should have been a negative influence with the lower margin <unk> business growing fastest I think in total channel and geography, this slight negative too.
Gross margin year over year in the fourth quarter. So might got there is that underlying profitability and the challenge is turning out to be higher than what you anticipated as you scale or maybe you can tell me it's.
You're selling at much higher levels of full price selling which you would have the cycle and so I just want to be aware of that but maybe should we you know.
I guess some help on how you look at how Jim.
Margins actualized versus what you saw at the IPO.
Since the United 60, new flooring to build off of it at this point.
That's a good question thanks for that.
We are still beside state the airfreight Spendings, we were still in a in a very favorable environment on gross profit of as a strong a foot price price sale. It's a very high D to C share also in the in the in the in the in the fourth quarter, especially compared to two the second and third quarter.
At the same time, we had used less airfreight in Q4 than than we were anticipating so going forward.
We continue to to two half in higher gross profit margin in our D to C business. So it was.
The strong impact from that.
Helping to offset what you thought you were mentioning the partially lower gross profit margins in the U S business at the same time, China. So it's a very strong business for ourselves from a gross profit perspective.
So we feel long term to 60% is clearly the targets that we are working towards them at the same time, we need to factor in.
And then use of airfreight to or to a certain level.
Very strong is also that our product prices are fixed for 2022. So this is always committed for the full season and then so we do not expect to see any impacts from from a higher pulp prices there.
Then only be visible as of 2023.
So I think we are still in a in a in a very similar environment than in our last call center and to a range of spectrum sharing there.
Okay.
And then I guess if we.
We're back here at 90 $990 million in revenue for the year went back to the way you saw the business before the.
Vietnam issues started so that's that's great to see I think you were thinking originally.
But on that level of revenues EBITDA margin to be about $14, one you're guiding us at $13. One obviously some of that's explainable by the gross margin you talked to in the first half is the best way those since we're back to those revenues as we think about 'twenty. Three I think you were originally looking at something like $1 3 billion in Red.
And margins moving towards the 15 15, and a half range on EBITDA is that as we lift our eyes, a little bit past 'twenty two is that still the right direction to think about the model.
Yeah.
I think we don't want to talk about 2023.
To 990 is still includes headwinds from from supply shortages.
So I think this is the key differentiator at all the tools to the to the number that you had that you mentioned earlier, we maintain our long term outlook to be able to achieve.
High teens on our adjusted EBITDA margin and as you said.
We do not expect a.
Long term use of such an hie FHA that which was projected for the for the first half of the year, which should result in higher profitability than than over time.
We have proven our ability to two crore profitable too to be conscious on our investment versus holding back end and and growing in a profitable way. So this is this is clearly the focus that we will continue to happen in the future.
Thanks, a lot guys congrats again.
Next question.
It is from the line of Sam Poser from Williams trading. Please go ahead.
Thank you for taking my questions I've got a I've got a few here number one in in the gross margin the seven to 800 points decrease in the gross margin in the first half.
Assume that that would be slightly more weighted to Q1 and Q2 is that a fair.
That's us.
Okay.
That's a fair assessment.
Probably more more.
60 40.
The two quarters.
And then for the full year, let me just ask all my questions for the full year.
Can you just give us some idea of what you're thinking in the gross margin is going to be and.
Number two.
Overall, I mean, given the product.
Some of the product shortages, and so and I assume that's the demand for your product is outpacing supply.
And given that and.
And given that you would probably not able to satisfy some of the sort of that core running businesses in core running consumers and sort of more a heritage business you've developed why go after that younger more fashion customer.
When you produce that production for.
You know that are serving sort of that more running.
More performance customer.
Yeah. Thank you. Thank you for the question. So on the undergraduate profit outlook 2022, so we're not giving gross profit guy.
Guidance for 2022, and I'm Super happy to talk about that.
And tower at balancing our supply and demand. So I think on an as a premium brand and we've historically experienced stronger demand than supply and basically having a certain amount of product scarcity helps us remaining premium. It also helps our marching situations. So well continue to add to execute in that strategy.
And then we're looking at prioritization for US it's important to reach the right consumer through the right channel, so, but definitely did prioritize them for the running products the channels that reach a running consumer.
So did we prioritize them or for four more in all day consumer to channels that reached an all day consumer.
Larry keep product supply them kind of as high as possible and all in all products with our own D to C environment and I think this is this is what your what are you seeing playing out.
We have some flexibility on balancing different products. So when you look at our most important product suite dual or triple source them almost all of them.
So we can balance between factories, but we don't have 100% flexibility to just move overall capacity around but I mean, I think going forward. This is probably a little bit on the on how we can think about.
Consumers have access to to which product groups.
Thanks, and then just one last thing your apparel has a ton of performance features in it.
And then I mean do you foresee apparel go again to.
Like.
You know, let's say athletic specialty going forward.
Or is that more of an outstanding performance world.
Yeah, So I mean that silvertip basically again, they're trying they're trying to be a global.
<unk> brand and we will bring apparel into into the stores, where we feel apparel has a good showing and reach the right consumer. So if you look at the pilot for example, which takes them apparel will be part of that apparel will also be in for example, our Nordstrom doors, but then run specialty is a channel that is a little bit less.
Apparel heavy and therefore will also have less apparel exposure our own D to C channel in our own retail stores are extremely important for the apparel expansion. So we'll continue to drive that and then I think you can also expect us to be in some channels that are that are originally.
Originated more in the apparel space and meant that half way less footwear exposure and we will also expand our apparel assortment into some of these premium doors.
Yes.
Thanks, very much good luck.
There are no further questions at this time, ladies and gentlemen, the conference has now concluded and you may disconnect. Your telephone. Thank you for joining and have a pleasant day goodbye.
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