Q1 2022 On Holding AG Earnings Call
Okay.
[music].
Ladies and gentlemen, thank you for standing by welcome and thank you for joining beyond holding AG Q1 2022 results.
Today's call all participants will be in a listen only mode presentation will be followed by a question and answer session. If you'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 key followed by zero for operator assistance.
I would now like to turn the conference over to Florian Mod head of IR. Please go ahead.
Good afternoon, good morning, and thank you for joining onto 'twenty 'twenty to Q1 earnings conference call and webcast with me today on the call are executive co chairman and co founder cost per capacity.
Co op co CEO marching Hoffman and co CEO Mark Miller.
For the first part cost per margin relief 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 our 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 such statements are subject to certain risks and uncertainties that could cause.
<unk> actual results to differ materially.
Please refer to our 20-F filed with the Securities and Exchange Commission on March 18th 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.
Please 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 final.
All 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 IRS with that I will turn the call over one two kasper followed by market for the prepared remarks.
A warm welcome from my side as well and thank you for joining our call today.
We are happy to report that on at an excellent start to the year and that would be were able to further build on the momentum from last year.
With Swiss francs 236 million of net sales.
It grows off 68% versus Q1 2021.
We have exceeded even our own high expectations.
Dissipated Q1 was still constrained by the supply shortages.
It's been affecting our industry.
But our teams along the supply chain has done a phenomenal job navigating the challenges, helping us to reach yet another record quarter.
Let's have a look at some of the key takeaways from this quarter.
Okay.
Oh, it's winning market share at an accelerated pace.
It's a combination of very strong consumer demand for you on bread and better than anticipated supply led to significant market share gains.
Key markets.
On aims to be the number one brand under on the street and the accelerated pace of market share gains means that we are making good progress towards this goal.
All of these new products are resonating with customers in spring 'twenty, two honest launched a number of key new running styles that are already seeing significant traction with consumers, both online and with our retail partners.
We introduced the cloud Monster, which is odds most cushman model to date.
Sales on our E Commerce platform during launch we are the second largest in history.
Only behind the launch of the Roger Center Court.
In April the first consumers were able to buy the long anticipated cloud Rutger, which at 140 U S. Dollars offers mid level cushioning and support and reaches a very wide audience of runners.
The theater, a check it underlines our ambition to expand our apparel business.
As the name suggests it weighs close to nothing it is to our knowledge the lightest running check it on the market today.
With these and other products such as the cloud go coming later this year, we expect to continue winning market share in all key markets.
This quarter also saw on the biggest launch in history with the cloud five all flagship product in the performance all day category. This launch not only led to extremely strong ecommerce revenues. Thanks to many repeat customers, but because the cloud side is made up more than 40% recycled content.
Overall, which is an industry best.
The environment also benefits.
This confirms our belief that more sustainable products need to and can be applied at scale.
<unk> continued strong growth across all continents and in both wholesale and DTC.
One aspect that sets us apart is that we have strong hydro multichannel businesses in the major markets of each continent.
To illustrate this I'd like to call out some examples.
U S business grew 87% versus Q1, 'twenty, one U K, and Germany grew 54% and 49% respectively.
While China, and Japan were up 178% and 148%.
In all of these markets, we are far from maturity nor saturation.
Many consumers are just learning about on well that you have purchased their first piece.
And those that have already purchased in 2021 are coming back to buy more both in our own channels and with our trusted retail partners.
All of this doubling down on performance technology.
From the beginning honest being focused on delivering innovation that will drive performance, Florida world's best athletes.
That spirit, let us introduce you to own Lightning program something that we have not spoken about publicly before.
The Lightning program consists of around 20 engineers sports scientists materials specialists and coaches, who focus on one mission only how to make the fastest product as possible and to work extremely closely with some of the most talented runners to unleash their full potential in.
In the past months, we have seen some very encouraging results coming from the Lightning program.
It needs to be at the end of March.
10-K World champion and honest, let this club member how long it'll be retold the lines for her first ever half marathon rates on.
On her feet was a prototype racing shoe that she had only received the day before.
Once you cross the finish line. She had won the race in the 10th fastest half marathon time on record this.
By the conditions being far from optimal.
Just two weeks later the same prototypes helped to this ibrohim when the series marathon with a new course corrected and also Switzerland.
To put things into perspective.
Ebrahim will turn 40 this summer.
This goes to show that the all labs are continuing to innovate at the highest level.
And there's more to come.
We're excited to announce that angel introduce a new cushioning technology in spring 2023 called cloud Tech phase.
This evolution of arms existing technology, plus generated completely by computers using advanced unique element analysis simulation, a computerized message for predicting how a product reacts to real world versus.
Which has pioneered in formula one racing and Plano. So for example.
We have been showing this technology to answer retail partners over the last weeks as part of spring 'twenty do you sell it.
And the feedback is very encouraging.
Yeah.
We are reaffirming our premium positioning through premium prices.
In showcasing the spring 'twenty 'twenty Z collection on has also announced to our retail partners that we will adjust prices across all product ranges and geographies to reaffirm on premium position.
This step is built on the selective price increases that we have made in the U S. R 22 to one.
Which have not slowed down our strong growth in the states during this period.
Honest always regard to pricing as a brand positioning tool.
And we are using this opportunity to defend arms premium positioning as other brands are all increasing prices.
This puts us all in a strong position to not only absorb some of the expected higher costs in the face of globally rising inflation.
So also reflect inflation in our own 2023 salary rounds.
As an important retention driver within our teams.
All is strengthening our board of directors.
As a public company, we aim to constantly strengths in our team and level of professionalism.
We are therefore proud that Dennis Durkin, formerly with Activision Blizzard and Microsoft.
Stands for election for our board of directors at the upcoming annual General meeting.
He's collected Dennis will take the chair of the audit committee and with him as well as with Alex Paris on will have a fully independent and highly experienced ordered college.
He's collected the nomination and compensation committee will be further elevated with 80 beds.
We are currently also looking into opportunities to further strengthen and diversify our board overtime.
So in closing Q1 was an incredible start to the year for them.
For last mile race. It is always important to get out of the starting blocks struggling and with good momentum and our teams really did that and more in Q1.
We have to add a new products brought an incredible team members and capabilities and achieved new sales records.
I'm really proud of the team's work Buffy nobody can run even faster.
So we remain fully focused on pursuing excellence and driving innovation in all parts of our business.
I'll now pass the baton over to Martin to cover our financial highlights and our increased outlook for the year.
Thank you customer.
As you mentioned net sales for the first quarter.
$235 7 million Swiss francs.
Strong net growth of 67, 9% well above our plan.
But they represent so much more than just financial success for the continued strong demand that we see for the on Prem globally.
And then for an exceptional effort by our.
All the team.
Operations to sales to happiness delivery.
To master the impacts from the challenging supply chain and factory closures last year.
They stand for our ability to airfreight, the right product into the right warehouse.
And to efficiently manage the order book.
And the numbers stand for their flexibility and understanding.
We have experienced from our retail partners.
<unk> direct to consumer customers.
Altogether makes us extremely grateful and proud.
Even with these great numbers, our supply shortage had still limited our ability to fulfill demand.
For some products the gap between demand and supply you can buy it and during the quarter as a result of the strong feedback from our fans.
At the same time.
To provide more of our new products to our customers than anticipated.
Q1, 'twenty two has been the strongest quarter in the history of all.
In March we generated our highest ever monthly net sales and.
And for the first time, we shipped more than 1 million pairs of shoes in a single month.
Both of our channels wholesale and DTC crew at the same strong growth rate of 68%.
As discussed in our Q4 earnings call, we have permanently shifted the launch of our spring summer footwear collection from Q4 into Q1.
Which drives part of the whole set of growth and the catch up effect versus what had been a slightly lower growth in Q4 'twenty one.
Combined in Q4 and Q1, our wholesale channel.
<unk> by 54, 5% wasn't so same timeframe of the previous year.
Our D to C sharing Q1 remained high at 35, 4%.
Despite we have seen continued lockdowns in Q1 'twenty one.
Especially in Germany, Austria and Switzerland.
In North America, and China due to see continued to outgrow wholesale.
We have additionally expanded our own retail store footprint and we are extremely proud about our first Tokyo flagship store.
The 320 square meter store is located on the high Street kept street and.
And reflect our most advanced store concept.
We have seen a very high level of interest in this door since the Grand opening on April eight.
Sales on the first open Saturday reached a level of a very good weekend day in our New York City store.
Despite the usual logistical challenges on the opening dates and the new store.
In addition on Tokyo in April reached in the Power's share of around 20%.
Just like what we have seen in our China stores.
It was significantly above our overall corporate apparel sure.
And bodes well for the opportunity we have in the power and the rest of the book with a broader assortment and merchandising.
Looking at our net sales split by geography, we have also seen strong growth across all regions.
After a softer Q4 Europe returned to growth and net debt grew by 31, 3% to $74 9 million Swiss francs.
North America continued to outgrow the group and we saw another exceptionally strong quarter with net sales, increasing 86, 5% to $138 4 million.
Asia Pacific net sales grew to $16 4 million more than doubling year over year, that's a growth rate of 125, 9%.
Both China and Japan grew very strongly.
The latest Covid lockdowns costs repeated store closures in Q1 in China, and we expect more hadn't been there in Q2, which we'll discuss later as part of our full year outlook.
Finally.
$219, 2% growth in rest of World gives us a lot of confidence in the additional runway in countries outside of Europe , North America and APAC.
We are proud to announce that starting with fall winter of 'twenty two.
We will expand our presence in Latin America to most countries, including China, Chile, Argentina, Colombia, Peru, Uruguay and Bolivia.
While we continue to sell our products directly and fulfill all of our markets in the region will be served by new distributor.
As Kasper already mentioned Q1 has seen a flavor of new key products, including the new cloud cloud once the club's runner in cloud.
In addition, we continue to see strong sales growth with most of our running blockbusters like the cloud flow cloud flyer or the cloud stretches but also with our performance all day franchises like the cloud and mobile.
Overall net sales from shoes grew 16, 9% to $222 5 million Swiss francs.
Net sales for our power grew 44, 9% to $11 4 million.
Compared to Q1, 'twenty, one we had fewer new product launches.
And focus most of the Brent messages on our new footwear products.
They're not sales continues to grow strongly in key accounts across all regions.
More new products coming in Q2, we expect continued strong growth rates in apparel.
A touch better to our loyal customer base.
We're also planning a second drop of our Super Limited collection in partnership with Labor later in the year. Following the large success, we saw with the initial Trump.
Based on more than 120000 socks and more than 20000 kits that we sold in Q1 accessories more than doubled year over year with a growth rate of 111, 8%.
Gross profit in the first quarter 2022 was $122 1 million compared to $88 million.
Previous year period.
As expected.
As a result of the strategic decision to use air freight to ensure key product availability and to meet the continued strong demand. Despite the factory closures in Vietnam last year.
Gross profit margin decreased year over year from 57, 6% to 51, 8% in Q1 'twenty two.
Without the additional F red exposed to show and in spite of other inflationary pressures that we manage we wouldn't have reached across profit margin close to our long term guidance of 60%.
We continue to invest in all parts of the business, while still delivering profitability despite significant air freight costs.
Excluding share based compensation SG&A expenses as a percentage of net sales were 49, 1% in Q1, 'twenty two compared to 47, 2% in the previous year period.
185 people had their first day at all in Q1, 'twenty, two and we continued investing into brand building and sports marketing.
A highlight was ons presence.
Fisher sports and footwear partner and the legendary Henry days, the worlds largest and longest running track meeting.
Travel post Covid increased as our team is back on the roads to catch up on building personal relationships with our customers and partners.
With China, and Brazil, we have taken the last two markets lives in our new ERP system and now every business process globally runs on the same strong platform.
In the future this will allow us to further innovate and disrupt the way, we're doing business to build more multichannel capabilities and to connect stronger with our customers by using our intelligent data backbone.
Moving on to share based compensation.
The expenses for Q1, 'twenty two fell to 3 million from $25 5 million in the prior year period.
This reduction was a result of the effect the divest maturity of our previously granted share based awards vested in Q4 of last year.
While the majority of the 'twenty to 'twenty two share based awards are only expected to be granted in Q4 this year.
Despite investments in air freight as well as the higher but controlling SG&A expense.
Maintained a positive adjusted EBITDA.
$10 7 million for the first three months.
Slightly down from $19 9 million into prior year period.
The adjusted EBITDA margin decreased from 14, 2% to six 7%.
But net of the trends and airfreight cost, we would have seen a margin slightly above last years number.
Moving to our balance sheet.
Our capital expenditure for the quarter was $16 3 million and six 9% of net sales, which.
Which continues to be driven by investments in our it infrastructure retail stores as well as our office infrastructure, especially or in your offices and Portland in Zurich.
We ended the quarter with 604 million net cash.
Slight reduction from $653 1 million at the end of 2021.
The main driver of this being of course, the continued increase in networking capital by $57 5 million to support our high growth space.
Now, let's look ahead.
We're still super energized from the global meeting that we had last week, where we showed our new product for spring summer 2023 to outflow team, especially.
Especially in Europe . This was the first moment since November 2019, when everyone back together physically.
The amount of passion and the whole team was contagious and will it be what our retail lift will experience in the upcoming selling season.
As Kasper mentioned 2022 is far from being over.
We are incredibly excited of what is ahead of us.
This includes groundbreaking innovations on sustainability. This is the first shipments of the cloud Neil to go out to subscribers of our cyclone program in the coming weeks.
It includes many athletes that we compete in auto gear on the big stage throughout the upcoming summer months.
And this includes even more exciting product such as the cloud goal.
New apparel items. That's in addition to the expansion of our running range on our quest to be the number one brand on runoffs feed and bodies.
While our teams around the world are returning to the offices our colleagues in China, especially in our APAC office in Shanghai are suffering from the COVID-19 situation in that country.
Although our local business is strongly impacted.
But due to the relatively small net sales share of China, we do not expect a significant impact on our top and bottom line.
Despite a small impact we wanted to provide some additional details or warehouse has been closed since March 31st and we are not able to ship products to our wholesale partners and our own retail stores and E comm customers.
However, as of two days ago local authorities to have white list at our warehouse operations and we expect to resume operation soon.
While our four stores in Shanghai, and one store in Beijing are closed all outdoor locations have mostly been open but negatively impacted from missing inventory refills.
We also expect delay openings of some of our plants you on retail locations caused by the inability of our team to Trevor.
Important to our business is that until today, we have not experienced any impact on production at all our factories, especially for our power outside of the affected region.
The strong Q1 results are a good start.
To more than achieve about cross aspirations for 2022.
The success of new product launches to feedback we are receiving from the retail channel the strength of our supply chain as well.
Last but certainly not least the passion of our team.
Put us in a strong position today.
Despite the global economy macro uncertainties and the situation in China, we are confident in our ability to execute and are once again, increasing our outlook for 2022.
We now expect net sales to reach at least 1.04 billion Swiss franc.
Reflecting a 44% full year growth.
This is an increase of $50 million versus our prior outlook.
To be in a position to reach this ground breaking hurdle of 1 billion in sales makes us extremely proud, but also hungry to serve even more customers.
Our internal ambition remains higher than that and as announced in our previous calls.
We'll continue using airfreight in Q2 to further balance inventory levels as we try to meet the strong demand we are seeing.
We still expect the gross margin impact from these investments in airfreight in half year, one 2022 to be in the range of 700 to 800 basis points.
Meaning we anticipate a more modest margin impact in Q2 compared to Q1.
The higher net sales will allow additional gross focused investment into the brand.
And the team while increasing our adjusted EBITDA targets for the full year to 137 million Swiss francs, and also increasing our goal of an adjusted EBITDA margin to 13, 2%.
If you were able to achieve higher net sales, we expect to drive additional absolute profitability.
So both our top and bottom line are benefiting from the stronger momentum we are seeing across the board.
As mentioned in the beginning our team has done a phenomenal work during these challenging times and has delivered.
It's above our own expectations.
We would like to say thank you.
For all the hard work and it totally version that goes into the pursuit of our China trade.
It is such an inspiration to work with this team and I can't wait to welcome all in our new on that.
We will call it our new offices in Zurich and tune this year.
So in summary.
Q1 was a great start to the year and we are excited about the remaining left in our rates.
US in 'twenty two.
We remain laser focused on innovation and disruption on world class execution and building an incredible team.
Or as we say.
Dream on.
Cause that Casper, Mark flooring, I would like to open up the session to your questions.
Thank you again for your ongoing support in 2023.
Operator, alright.
To begin the Q&A session.
Ladies and gentlemen at this time, we will begin the question and answer session anyone who wishes to ask a question you May press star followed by one on their touch tone telephone.
Wish to remove yourself from the question queue, you May press star followed by two.
Using speaker equipment today, please lift the handset before making your selections.
And who has a question press star followed by one at this time when moment for the first question. Please.
First question is from the line of Jonathan Komp from Baird. Please go ahead.
Yeah, Hi, Thank you I want to start by following up on the point you made about accelerating market share and I'm curious what you think are the main drivers when you look at the business and some of the improvements in brand awareness the product innovation.
Internal execution or any other factors that you think are the biggest drivers of that have the market share trends youre seeing.
Yes.
Thank you Jonathan for your question.
I think it's a you know this.
Space very well, so I think that's it.
Combination of factors first of all we're just gaining traction in the major geographies. So in 2021 most say that U S customers probably of consumers probably heard a bond for the very first time in their lives through the IPO or through a friend that has to pair home. So.
They're either getting a second pair they're talking to their friends. So this is a very grassroots driven uptake of the brand.
At the same time, there are now more options available for them on.
That compete with some of the best selling styles from other brands and so this combination of having a relevant product and then having a brand that your emphasis is it's extremely powerful.
So this market share gain comes mostly fall from penetrating our existing channels more and gaining market share there.
Great and when you look forward at the initiatives that you have in the pipeline what gets you most excited about the ability to keep keep driving the performance you're seeing.
I think you know I think what I remember looking ahead.
First of all we have new products, we just launched a month to run around based on which which we said before and they're resonating Super Super Bowl. So more consumers will discover dose product. So we're very excited about that on top of that we're launching the cloud called them. This summer we're relaunching the club flyer behalf additions on.
The rupture of estimate up the additions.
On the Nova lots coming Dara. So so very strong lineup from a product perspective, and a field. The topic of sustainability is just so important to us and it is important to our consumers and we see that it resonates. So we spoke about the cloud Neil but we also spoke about how all of our products and our you know our are increasing.
I can material chair and that resonates with consumers and then.
We we have been adding channels and so silver expanding doors for expanding doors in many geographies.
And we spoke about how the performance Ron core and people are able to elevate that fit our licensing initiatives and end consumers are discovering that more and more so we really feel we have so many aspects coming together from product and brand and distribution perspective, and that's what really excites us for the next six to 12 months.
Yeah.
Yeah, Great and then just one last one for Martin if I could follow up on the gross margin performance. It looks like you you offset a fair amount of the freight pressure that you saw in the first quarter or maybe 200 basis points or more I'm curious what drove some of the positive offsets to the freight and then when you think about the path back.
To that long term target of 60% gross margin how should we think about the timing to get there, especially given some of the comments Kasper I made about pricing and using that as a strategic clever. Thank you.
Yeah, very happy I think we spend exactly what we were planning to spend on air freight.
But we were much more efficient and does this really thanks to the team that has done this.
Great job in converting the product that we flew directly in two steps.
And really bringing the right products into the right warehouse at the right time and this has led to a higher net sales number than what we had expected and therefore, you see that that Indiana. This this relative impact from from the afraid its lower.
And then what we had to or based on a lower revenue number.
So four for the second half second quarter, we will still fly, but it will be a less absolute amount and therefore, it that the impact a little bit lower and then we expect that as of the third quarter, we will be able to come down to a normal fed chair designate that.
We have also seen in the past so I think it's very important that really this the impact that they have seen on gross margin is coming from air freight and and if it takes us all it's b, we would have to be at about 60% and so in line with our with our long term goal and then the price increases that are Kasper mentioned.
And they will put us into position and then also to react in 2023.
On potential increases that we that we may see on the on the supply chain on the on sourcing, but also an hour an hour of Costa and also be able to correct on the on the salary side, which of course is super important.
So this is the situation on the on the gross margin.
Great. Thank you again.
Next question is from the line of Cristina Fernandez from Telsey. Please go ahead.
Hi, Good morning, I wanted to follow up on the upside in the first quarter to stay out in your comments about being able to deliver more products. So is it fair to say that perhaps on the wholesale side or maybe on both channels. There was a little bit of a pull forward to the first quarter from the second quarter relative to your.
Our expectation.
David is a very little timing effects in here.
But the majority of the upside really comes from from the ability to work with our retail partners.
In order to ship the product that we had in the warehouse and then also to really plan very efficiently what products I mean I'll be flying them. We've also seen especially on the cloud, but we launched a new cloud five that we were able to continue selling a lot of the cloud three.
And he kept at that full price also on our on our website, which at that two to two <unk> to the cloud five sales and therefore be in.
In total we're able to convert more of the demand and in actual sales.
And then a follow up.
Amy.
<unk> and consumer sentiment or anything you can point out you know by region.
You know little Kid.
Sort of demand in Europe versus the U S. You know based on the macro conditions to what you had seen on the last call.
No. We don't really have the tariff. That's also when we're looking into the preorders for for spring Summer 'twenty three debut riding.
We're writing right now I think we're also playing into a category that is that is very resilient and now it's about it's enough movement.
And that definitely helps us and again you know we are in the end they're not in the incremental came out of plus minus a few percentage has to go really feel that we can continue to gain a lot of market share.
And we feel that brands that have strongest demand are in the best position them over the next two to three years and that's what we're observing and and I think here I also want to point out that for example in a market like Japan, where we had a little bit slower growth rates over the last two years.
And we're seeing that with the store opening that'd be had with additional investments in the brand and you know now posting 148% growth I think shows that this consumer sentiment is global and it's not bound to one specific market.
Thank you.
Next question is from the line of Michael Binetti from Credit Suisse. Please go ahead.
Hey, guys congrats on a really nice quarter.
And I, even focus on first quarter for a long time since Vietnam issue. So nice to see it a couple a couple from us.
Yes.
On the gross margin I think you said you'd be at 60% right now excluding the freight headwinds and that was the long term goal is.
I mean is that does that imply the underlying margins in the businesses are now at parity with where you saw them. It seems long longer term there should still be some channel mix advantages et cetera, or do you think theres an opportunity to kind of re look at that long term target as you guys work through the freight situation right now.
I've I've I P O. The 60% is still the right number to look at.
I think we all need to learn how our inflation will play into this as mentioned I think we we take this very proactively by by adjusting the prices. So we'll be in that position too to digest, the higher cost vis vis all of the negative margin impact.
It's super important.
Then I think we need to monitor.
The freight costs, both shipping and Ocean and air freight and then see where this goes if there's a slowdown in the economy the rates maybe competitor otherwise they may stay where they are so well there are many uncertainties. So the 60% is something that we have proven that this is a realistic.
In a in a non.
Challenged environment.
But I wouldn't go higher at the moment.
Okay, and then if I could follow that I guess on the on the Opex or SG&A plan for the year and maybe how that's changed since the last update I think he used.
Gross margin beat by about eight or about 800 basis points of Arab Airfreight, and you said without the airfreight EBITA margin would've been.
So up about the same 800, so it seems like you know I think in the prepared remarks, you said, you're reinvesting some of the revenue upside and once you but commented that the rest of the year, maybe you would flow through or the upside to at a higher rate to EBITDA. If I got that right can you speak to what you reinvested in <unk> and why not continue to plow back any upside through the year.
Even with strong long term growth opportunities that we're seeing quarter to quarter here.
Yeah, I think what you see in the numbers if that would be a.
Very cautiously managed our cost side.
Order too.
Digest, a part of the additional air freight and in order to achieve a positive EBITDA, which was super important for us but at the same time continue investing into into the business. So it didn't slow down on hiring we were talking about travel and investing in the I T completing.
Our ERP project also strengthening our distribution network.
If you if you look at the marketing line vis vis was 12%. This is certainly very wood.
See additional investment in it.
We overachieve and can be able to to achieve higher net sales.
And then very currently guide them. So this would be the line, where we booked clearly invest more into into brand building and in an upper funnel of customer acquisition and strategic fields of the business.
Why are as I said, especially on.
On hiring the right talent to.
Maintained across and to secure the crows into future has not slowed down in the panelized by by the effort.
Okay fair enough very thoughtful thanks, guys.
Next question is from the line of Jim Duffy from Stifel. Please go ahead.
Oh, thank you.
Great quarter demand strength, there you have it in the numbers.
So inventory is still a super tight however, can you speak more about plans to scale capacity.
Are there any notable bottlenecks to grow through the remainder of 2022 are you seeing any impact of material or component supply, resulting from the China Lockdowns and then also could you speak about plans to scale capacity into 2023 to both ensure supply but also manage risk.
Thank you.
So let's start with basically the material situations.
Well, we started over the last year or is this basically the dual sourcing all of the major materials and base with localized at so we basically have one material supplier that is in China.
So we're not expecting and that's not a huge a huge one so we're not seeing a negative impact from that and we're quite confident in that on the capacity side you know over the last years, you've invested a lot in building capacity and with our with our key partners I was just in Vietnam, where we opened a new factory.
That has the capability to produce 13 million pets, a year and it's Gonna go lives next spring. So we're very confident that the capacity situation.
The capacity situation for apparel and footwear for the next years to come as you know we're working with some of the biggest partners like Dean shoes, or Harley and and you know I think the results that you're seeing now in Q1 also we say, it's a testament to how much they believe in on and how they are prioritizing on because they feel that we can build.
But I think in the long term.
And then you know to track to Martin's point on.
On the on the freight.
So it will be definitely seeing it that a lot of capacity has been built and is being built.
Because demand was very very strong and and now you know with.
If you kind of sum that recession potentially looming in the U S. We'll see how how would that impact so the whole industry.
I'm not worried with on a they feel there's only so very very strong brand in that game and we feel that the Connecticut and a lot of market share and very confident that there is enough capacity available.
Thank you.
Next question is from the line of Jay sole from UBS. Please go ahead.
Great. Thank you so much I wanted to ask you about you know the 87% growth in North America, obviously tremendous growth can you maybe just talk to.
Where you're seeing that growth come from is it new retail partners is it you know more doors with your existing partners more shelf space with your existing retail partners and then maybe talk a little bit about how you're seeing the D. T C business develop in North America that'd be helpful. Thank you so much.
Yes. Thank you Jay so the good news is coming from everywhere. So let me give you a few examples.
So to see him go.
Very very strong grew over proportional in the U S. It was it was a very strong quarter and I think what it is especially important for us it was.
Successful quarter at very high efficiency. So we didn't need to spend a lot of money to get that volume, which which speaks to the brand strength.
So we basically had our higher raw spend than we had last year I'm on the DTC side and then when you look at retail so yes, we're increasing market share in existing channels. So let me give you an example from fleet feet.
The 8% market share by the end of last year and now we're standing at 13%. So did this existing door growth, but we also added doors that we spoke about at foot locker, we spoke about JD and and you know and in basically we're at 94 J D doors now and we are at 68 foot locker doors. So that's additional doorstep, we're adding.
And and the product is resonating with consumers to sell its release is very very strong so we really.
Across the board across all channels and very very positive momentum.
Got it thank you so much.
Next question is from the line of Kimberly Greenberger from Morgan Stanley . Please go ahead.
Great.
This is Alex straighten on for Kimberly Greenberger. Thank so much for taking the question I just want to touch on the inventory quickly. How do you guys feel about the current levels and the composition now do you anticipate normalization style, sometimes in the back half and then just finally, how are you prioritizing distribution against kind of some of the constraints do you still have.
Half.
Yeah. So a couple of a couple of things on the inventory side I think we feel very confident with its a big question of do you have the right product at the right place right, which was a key ingredient for a four hour of Q1. So we were able to actually foresee the product that is really really resonating with the consumer and we feel very confident.
About that so we feel like we have the right.
<unk> product at the right place and we feel confident especially in Europe now as well that we will have more product available for Q2.
We have good availability in the U S for Q2, so as Martin already pointed out.
Some additional airfreight needed them, but on a on a very different level than in Q1.
And what's what's the what's a little bit and.
An unknown or butter everyone's still faces. Some difficulties is really you know theres lots of port congestion still happening there's a lot of inventory on C. That is that is not in the bedroom houses. So it's it's a bit hard to exactly.
Maneuver kind of dead inventory to the minute and which makes it hard to deliver the product except the on time to the retailer and that's also where sometimes you know you'll see you'll see some shifts between months and potentially between quarters as as containers are going into that.
And then came back to a question of how do we prioritize whom we whom we are sheep.
Of course, I mean, very strong D to C business there they're excellent at forecasting because they see of course, what is selling through.
And so maybe he tried to make that available and then it's really by the quality.
Off the account and by that I mean.
Consumers to this or you want the right product to show up in the right channel.
And so that's a that's been a big focus I'm also.
We're seeing less of it but there was definitely a time when our retailers tried too hard a little bit of inventory and we've been very strict about that really aligning what they can sell with whatsapp, we shipped them.
Yeah.
Great that's super helpful. Thank you.
Yeah.
The next question is from the line of Grace Smalley from J P. Morgan. Please go ahead.
Hi, Thank you I think he investments eylea that the category is relatively more resilient in an inflationary environment are there any sort of specifics about arnold's consumer demographics and pipeline that you think might make on relatively more resilient to some of the other other brands in the category or how do you think about that thank you.
Yeah.
It's a very very good question.
In the 12 years since.
We've seen a crisis or two and in different markets.
Generally speaking at the sporting goods category, and especially and running that is not dependent.
On on a lot of this equipment in.
The upstream sense on is usually gaining and in those cases since you've probably seen from them from our earlier classes.
Especially we have to also even on as a premium brand within the category.
Wherever it may be 10%, 15% over our competitors. So we're not a luxury product so we.
We feel that even if consumers can't consumer spending or disposable income would go down we would still be in that position because people were probably due for a car purchase or vacation over deferring some buying something.
And running product.
So we're not overly concerned but as Mark said earlier, we also see this as an opportunity because when people have to make more considerate of choices, which brands do they want to buy.
Typically our history has shown that the once that are there.
<unk>.
Most desirable who move in most.
And Chris maybe maybe I think at one point, we were speaking a lot about the cloud run on the cloud growth.
So two products that we are now bringing into the market or have just launched that.
At the low end of our price points are 140 U S. Dollar. So they also if they are more price sensitive customer a choice to buy in on product.
And basically experienced technology off the print so probably the right product at the right time at the right time there.
Yeah. That's it thank you very much.
Next question is from the line of John Stanzel from beer and Bird capital markets. Please go ahead.
Hello, Thanks for taking my question I was hoping to get a bit of an update on wholesale door expansion in 'twenty two versus the last call. You know how are you seeing that that track and then you mentioned J D and foot locker expanding them and then a little bit broader than that.
Think kind of longer term, how do you see wholesale door expansion changing by by geography.
Thank you for the question.
You know, where we're trying to have a very consistent strategy over a long period of time, So dance, where it's going to be very similar to two or three months ago.
And again I think we are we are.
Opening doors, a in consumer segments that we feel that we can gain additional share and so this is the foot locker and change the discussion.
I can give you some numbers very approximately field, we want to be by the end of the ear selling footlocker, we're talking about roughly 130 doors globally and J D talk about roughly 150 doors globally I spoke about the 68 to 94 that'd be our right now and so it just gives you a bit of a feeling for it.
As such there we're opening with Dick's December and the first test doors.
So so so this is kind of you know, especially to champion footlocker going into new consumers that can stand.
Within our more to Ron's segment that we have been in the past it's definitely.
Much wholesale geographically and game, so lots of countries like France, like UK like Italy, and we spoke about them at that time.
They're on it it's still at the very very.
Kind of you know that has it.
We are just getting started basically and then I think something I want to we want to highlight here is what we're seeing is that if we're able to bring apparel to life in a in the best possible way, which means we need to shop in shop, and we need to work with partners that understand how to sell apparel, it's doing really really well.
And really really well it means for us it has roughly a 20% to 25% to 70% sometimes sure.
In that store as part of the range and that's definitely a focus for us. So when we look at door expansion is how it can be at doors that are really really good at selling apparel and just want to highlight there and we opened.
Two beautiful shop in shops, one we've cut over in Germany, and one with sport Chek and basically out of the gate, we achieved 20% share. So that's gonna be a big focus and to just get a higher share in India existing stores with more advanced products through as you know.
And then and even better execution.
Very helpful. Thank you.
The next question is from the line of Tom Nicotine from Wedbush Securities. Please go ahead.
Oh, Hey, Thanks for taking my question I, just wanted to ask about the I guess the shape of the revenue growth for the rest of the year you know I think.
You were just up 68% and our full year guide would suggest.
Just you'd be up yeah, I think high thirty's the rest of the year.
Is there anything like constraining revenues in Q2 or like how do we kind of think about you know Q2 growth versus the second half of the year. Thanks.
Yeah.
Very happy to take this.
So if you if you look at Q1 to 68%, especially in wholesale and then as I mentioned on the call. If you combined.
To your point, you want to guess or 54% because this just eliminating the impact that we have seen from shifting our start of the spring summer season from from November basically to January so 68% in wholesale it's not that the.
Like for like Jumbo space than in Q2.
On top of what Mark mentioned is we expect that we are still seeing supply constraints on some products much better positioned than in the first quarter, but but it's still there we have the situation in China.
We were mentioning.
And then.
We want to follow our philosophy of providing a prudent outlook and and we said hey, our aspiration is higher than that at.
At the same time I also want to take into consideration to the macroeconomic environment and the uncertainties, there and also to protect our profitability and and and all of this together has put into the full year guidance that we have given.
Understood. Thank you very much.
There are no further questions at this time, ladies and gentlemen, the conference has now concluded and you may disconnect. Your telephones. Thank you for joining and have a pleasant day goodbye.
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