Crocs, Inc.

Thank you for standing by and welcome to the Crocs Incorporated first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Ms. Corinne Lin. Thank you. Please go ahead.

Good morning, everyone, and thank you for joining us today for the Crocs first quarter 2021 earnings call. Earlier this morning, we announced our latest quarterly results and a copy of the press release movie found on our website at crocs.com. We would like to remind you that some of the information provided on this call is forward-looking and accordingly is subject to the safe harbor provisions of the federal securities laws. These statements include but are not limited to statements regarding potential impacts to our business related to the COVID-19 pandemic. Crocs is not obligated to update these forward-looking statements to reflect the impact of future events. We caution you that all forward-looking statements are subject to risks and uncertainties described in the risk factors section of our annual report on Form 10-K. Accordingly, actual results could differ materially from those described on this call. Please refer to Crocs' annual report on Form 10-K as well as other documents filed with the SEC for more information relating to these risk factors. Adjusted gross margin, income from operations, operating margin, and earnings per diluted common share are non-GAAP measures. Reconciliation of these amounts to their GAAP counterparts is contained in the press release we issued earlier this morning. Joining us on the call today are Andrew Reese, Chief Executive Officer, and Ann Millman, Executive Vice President and Chief Financial Officer. Following the prepared remarks, we will open the call for your questions. At this time, I'll turn the call over to Andrew.

Thank you, Kari, and good morning, everyone. We are thrilled with our Q1 results. The strength of the Crocs brand is exceptional, experiencing growth across all regions and all channels. In Q1, our global brand momentum continued to strengthen and we benefited from economies starting to emerge from the pandemic and government stimulus in select important markets. I'm proud of our performance and I'm incredibly confident in our ability to deliver sustained, highly profitable growth. Highlights from the first quarter of 2021 include for the third consecutive quarter, we achieved record revenues with first quarter revenues of $460 million, up 64% versus prior year. Our Americas business had another tremendous quarter with revenues increasing 87% and DTC revenues growing 131%. Our EMEA business has increasing momentum with 49% revenue growth, and Asia showed strong double-digit growth of 26% in the quarter. Digital grew 75% to represent 32% of total revenues. Adjusted operating income was $126 million, increasing by approximately $100 million, and adjusted operating margins expanded to 27%. Adjusted diluted earnings per share grew from $0.22 to a quarterly record of $1.49. On top of these outstanding financial results, the Crocs brand ranked the highest it has ever been in Piper Sandler's spring Taking Stock with Teens survey. The strength of our brand remains unabated. We continue to drive brand relevance and consideration through our multifaceted marketing approach that leverages digital and social marketing, celebrity and influencer campaigns, and collaborations. We kicked off 2021 with an award-winning collaboration with French EDM artist Vladimir Kuchma that featured his signature skull mask. To celebrate St. Patrick's Day, we posted a rainbow of Crocs and a pot of gibbets across social media and released Lucky Charms gibbets that quickly sold out. In March, we launched a second global collaboration with Justin Bieber, and his Drew House brand that confirmed Crocs with socks are indeed better together. And to continue accelerating the Crocs brand in China, Justin Bieber sent fans on a mission to locate arcade games in nine cities, giving them a chance to win free Crocs, Drew House plush toys, and socks. We are incredibly proud that the Crocs brand and business has a positive impact on our communities. Most recently, we were pleased to partner with the United Nations Foundation as it launched its 2021 hashtag equal everywhere campaign to promote gender equality around the world. From a free pair for healthcare program that allowed us to provide comfort to those on the front lines, to partnerships with Feeding America, the NAACP, UNICEF, and GLAAD, that let the world know we're all in this together. We have accelerated our mission of everyone comfortable in their own shoes by remaining focused on doing the right thing. In addition for doing the right thing for our communities, we strive to do the right thing for our employees. We recently raised entry-level wages to an average of $15 per hour for our frontline employees in our U.S. distribution center and U.S. retail stores in recognition of their contribution to the success of the Crocs brand. We were honored last week to be named to Forbes Best Employers for Diversity for 2021. We were also recently named to Fast Company's annual list of the world's most innovative companies for 2021 that recognized organizations that not only found a way to be resilient in 2020, but also turned those challenges into impactful initiatives. Our ability to make a difference also resonates with our consumers, including teens, who are socially and environmentally conscious. I'm confident that the strength of the Crocs brand and our mission of everyone comfortable in their own shoes will continue to drive accelerated growth this year and beyond. Now let's turn to first quarter operating highlights. From a product perspective, we experienced strong growth in our key product pillars, clogs, sandals, and gibbets. Sales of the clogs were exceptional this quarter, increasing 87% year-over-year, representing 76% of total footwear revenues versus 65% last year. We continue to experience success with seasonal offerings and trend-right drops, such as Out of This World and Marble Prince. At the same time, sandal revenues increased 17% to represent 17% of footwear sales versus 24% last year. We are very encouraged by our initial results of our sandals that feature personalization, including our classic fly and the newly introduced classic two-strap sandal. While we expect clog growth to outpace sandals this year, over the longer term, sandals will grow faster than clogs. Jibbitz sales continue to be outstanding, more than doubling for the quarter versus last year, as global personalization megacurrent continues. From a channel perspective, global DTC revenues, which include revenues from e-commerce and company-owned retail stores, grew 93%. Both e-commerce and retail had extraordinary performance and this was our 16th consecutive quarter of double-digit e-commerce growth. Digital, which combines e-commerce that is reported in DTC and e-tail that is reported in wholesale grew 75% to represent 32% of our first quarter sales compared to 30% last year. Digital remains our top priority and our digital presence remains a competitive advantage relative to other footwear brands. Our wholesale channel, which includes brick and mortar, e-tail and distributors grew 50% versus prior year, fueled by growth in all segments. eTail and our top 20 brick and mortar accounts experienced exceptional sell-through. Distributors had the highest growth as they replenished inventories in preparation for a strong 2021. With our continued momentum, we remain focused on positioning a brand for long-term sustainable growth. After careful consideration, we recently decided to prioritize wholesale partners who are aligned with our brand strategy and desired positioning in the marketplace. As such, we began terminating select North American wholesale relationships, a strategy many major brands have also used to maintain strong marketplace health. Looking forward, we'll remain focused on our strategically important accounts, comprised of leading e-tellers, sporting goods, and family footwear and specialty footwear retailers. Our record revenues in the first quarter were achieved despite challenging global logistics that impacted many industries around the world. We're not immune to these challenges, with blockage of the Suez Canal and significant bottlenecks in West Coast ports leading to delays. Global logistics are expected to remain congested and we're being proactive as possible. Our new EMEA DC in the Netherlands has opened and the transition is running smoothly. The expansion of our USDC is also proceeding as planned. These investments will support our competitive advantage in digital and our future growth. Finally, profitability was exceptional as we achieved record quarterly adjusted operating margins and record quarterly adjusted EPS. We're incredibly optimistic about the balance of 2021 and have substantially raised guidance for the year. Before I turn the call over to Anne, I want to express my gratitude to the entire Crocs organization for their dedication to our brand and to our communities. I'm proud of how they've executed as a team and the results that we have delivered for our employees, our customers, and our shareholders. With that, Anne will now review our financial results in more detail.

Thank you, Andrew, and good morning, everyone. I'll begin with a short recap of our first quarter results. For reconciliation of the non-GAAP amounts mentioned to their equivalent GAAP amounts, please refer to our press release. Our first quarter results were extraordinary. Fueled by all regions and channels, we delivered record quarterly revenues. Profitability was outstanding as we expanded gross margins, leveraged SG&A, and increased earnings per share. First quarter revenues came in at $460.1 million compared to $281.2 million in the first quarter of 2020, a 63.6% increase, or 60.5% on a constant currency basis. We sold 25.9 million pairs of shoes, an increase of 51.5% over last year's first quarter. Our average selling price during Q1 increased almost 8% to $17.64, with the increase attributable to increases in DTC revenue as well as fewer promotions and discounts. As we have shared previously, we look at our brand positioning market by market, and in Q1, realigned pricing on certain products in select markets globally. Now, let's review our results by region. As Andrew mentioned earlier, the Americas had another exceptional quarter, with revenues at $276.4 million, up 87.1%. GTC growth of 131.3% was phenomenal. Strong traffic, conversion, and ATV, as well as store closures last year, contributed to triple-digit growth in both company-owned retail stores and e-commerce. Wholesale growth was 59.4% as high sell-through more than offset challenging logistics. In Asia, Q1 revenues were $82.6 million, up 26.2% or 20.1% on a constant currency basis from last year's first quarter. GTC increased 20.6%, while wholesale grew 28.6%. Digital revenues grew 60.1%, and penetration increased significantly from 24.4% to 30.9%. We saw balanced growth across most of our key countries. India revenues were a standout, increasing triple digits. Distributors also returned to growth, albeit at a slower rate. EMEA revenues increased 48.8% or 41% on a constant currency basis to $101.1 million with growing brand heat offsetting any global logistics disruptions. DTC revenues increased 29.2% with e-commerce strengths driven by higher traffic and ASPs partially offset by retail declines due to COVID-19 closures. Wholesale revenues grew 52.7%, fueled by strength in retail and distributors. Our EMEA business overall continues to benefit from our focus on digital commerce, which represented 41.8% of EMEA revenue this quarter versus 38.2% last year. Our first quarter adjusted gross margins were 55.2%, up 720 basis points from last year's 48%. Currency favorably impacted margins by approximately 100 basis points, while the majority of the improvement was driven by fewer promotions and discounts, channel mix, and supply chain efficiencies. Our adjusted SG&A improved to 27.9% of revenues versus 38.7% in last year's first quarter. The decrease in adjusted SG&A rate is a result of strong sales growth and operating leverage. We realize significant leverage even as we continue to invest to support our strategic initiatives. Our first quarter adjusted operating income increased nearly fivefold to $125.7 million versus $26.4 million last year, with robust operating profit growth in all regions. Adjusted operating margin rose from 9.4% to 27.3%, benefiting from gross margin expansion and SG&A leverage on strong sales growth. For Q1, we recorded $24.2 million of income tax expense with an effective tax rate of 19.7% versus 40.9% last year. First quarter, non-GAAP adjusted diluted earnings per share increased to $1.49 compared to 22 cents a year ago. Our liquidity position and balance sheet remain strong. We completed the quarter with $255.9 million of cash and cash in equivalents, in addition to $499.7 million of borrowing capacity on our revolver. In March, to opportunistically take advantage of historically low interest rates, we issued $350 million in four-and-a-quarter senior unsecured notes due 2029-2030. and used a portion of proceeds to repay the balance on our senior revolving credit facility. During Q1, and excluding the impact of the final ASR share delivery that we entered into in Q4, we repurchased 600,000 shares for $50 million at an average price of $76.95 per share. This month, the Board approved an increase to our repurchase authorization such that $1 billion remains available today for future repurchases. Inventory at March 31st, 2021 was $196.5 million, up from $195.8 million in the first quarter last year. Inventory was lean throughout Q1, and we ended the quarter with higher in-transit inventory due to global logistics challenges. Turning to the future, I would like to share our current outlook for the second quarter and full year 2021. For Q2, we expect revenue to grow approximately 60% to 70%, and adjusted operating margin to improve to between approximately 21% and 23%. Strong growth is expected in all regions as brand momentum continues, and we anniversary some COVID-related closures that were most prevalent in the second quarter of 2020. Barring a reversal in the pandemic recovery trend, we expect 2021 revenue to grow between 40% and 50%, As revenue grows, we expect to be able to leverage SG&A, leading to adjusted operating profit margins of approximately 22% to 24% for 2021. We now expect our underlying non-GAAP tax rate to be approximately 20%, which is higher than previous guidance due to greater than expected profit in our U.S. business. Our gap tax rate will also be approximately 20%, which is lower than previous guidance due to the release of additional valuation allowances following greater-than-expected profit in our international businesses. In summary, we delivered outstanding revenues and profitability that exceeded expectations while strengthening our balance sheet and investing in our future growth. At this time, I'll turn the call back over to Andrew for his final thoughts.

Thank you, Anne. Consumer demand for the Crocs band remains exceptional, as you can see from our first quarter results and our increased guidance for 2021. We have a tremendous momentum in our business, and we're excited about the long-term future of our brand. Operator, please open the call for questions.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Again, it's star one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Erin Murphy from Piper Center. Your line is open. Please ask your question.

Great. Thanks. Good morning, and really incredible job to the whole team there. I guess my first question is on what you're seeing currently at wholesale between sell-in and sell-through, and I was pretty surprised by how lean inventory was. but you still have incredible Q2 guidance. So could you just talk a little bit about kind of the balance between the two right now? And then maybe, Andrew, can you share a bit more about kind of the timing and maybe the strategic pullbacks at wholesale? What type of account should we expect that you're kind of pulling back from, and how is that kind of contemplated in the full-year guidance?

Great. A lot of questions there. No, pleasure, pleasure. So from a wholesale perspective, look, we are seeing a very, very strong sellout, right? So we continue to see strong sellout. We've seen that strong all quarter. Frankly, it was also strong last quarter. In terms of sell-in, that is also strong. You can see in our kind of revenue growth from a wholesale perspective, 50% growth is very, very strong, particularly strong in North America. That is affected by shipping delays. There are a great deal of logistics issues around the world, as I'm sure you're well aware of. But net-net, we're still able to achieve that growth, and we're able to keep our wholesale partners certainly in stock, probably not in stock to the degree they would like to be, quite frankly. So from a timing of an overall inventory balance, yes, the inventory balance is relatively flat from last year, but don't forget that was an elevated position. So if you compared it to end of Q1 2019, I think that would be about a 50% growth in inventory, right? So as you look at inventory relative to future guidance, we still believe we're in a good position to meet the guidance that we've provided. In terms of the actions and the work that we've done with wholesale partners, that's really in the broader context of our marketplace management. So if you think about earlier this year, we instituted map pricing on select styles here in the U.S., and we're really focused on making sure that we have a healthy long-term marketplace, particularly for our core classic product, which is obviously the backbone of our brand. And so we made the decision to pull back from certain wholesale partners. I would say these are generally partners who didn't feel like they were consistent with our future strategy. And I think that was, you know, it's really in the context of our broader marketplace management strategy that we're working through. And we think that will put us in a great place for the future.

Great.

Thank you.

And just to clarify, the 50% inventory for Q2, Q2 balance versus Q2 19.

Got it. Thank you. No, I appreciate that. And then just my second kind of question is around pricing increases. You know, we picked up at the end of March, you were taking pricing here in North America in the core classic. It feels like the messaging was a little bit different, Andrew. I think earlier around ICR, it seemed like you guys were kind of tapped out at where pricing could be here in North America. So I guess we're a little surprised to see that. So curious what you're seeing kind of post the pricing actions. And then what percent of your higher guidance today contemplates this pricing increase? Thank you.

Yeah, so let me let Anne address what percent of our, you know, the proportion of our guidance is impacted by the pricing increase. But before we do that, yes, in terms of the pricing, yes, we did take some pricing increases this quarter, classic, and I would say derivative and related products. You know, we have a lot of products that ladder together, so we moved actually quite a few products together. That was really based on looking at the market by market around the world. It was here in the U.S. I would also highlight it was in other markets around the world as well. The impact of those price changes will take anywhere between six to nine months to flow through to our overall financials. As we look at pricing, we're really looking to make sure that we, A, number one, give an incredible value to our consumers. That's the first thing that we're focused on. The second thing that we're looking on is appropriately matching supply and demand. We really felt like we had an opportunity to take some pricing action. We think that pricing action has been well received. We've monitored that closely in our DTC channels. We also monitor it closely with our wholesale partners. So we feel like it's been well received, but we will continue to monitor it as time goes on.

Yeah, and then just on the guidance piece, so I think, you know, obviously the increasing guidance does reflect the pricing increases that we took, but it also just reflects the increasing brand momentum because our brand just continues to accelerate. I think we've really seen, you know, the overperformance in Q1. We expect a strong Q2, and then we have more visibility into the back half. And so that really is the reason for the increase in guidance. I think that's just, you know, we've gained more confidence now that markets are reopening globally. And the health of the U.S. consumer is obviously continuing to improve, which seems to have been supported by government stimulus. So I think it's a mix of those pieces. In addition to that, we also have evidence that the brand trajectory in EMEA, I think, was up almost 50% in the quarter, is following what we've seen in the U.S. So it is a mix of price, but it is also volume. So it's a mix of both of those from a guidance increase perspective. on the resume type.

Thank you both. And I'll let someone else hop in. Thanks so much.

Thanks, Sarah.

Thank you.

Your next question comes from the line of Jay Sol from UBS. Your line is open. Please ask your question.

Great. Thank you so much. I want to ask about sandals. I think I heard you mention that sandals grew 17% in the quarter. Can you talk about how you viewed that result? Were you pleased with that? And what signs did you see that give you confidence that you see long-term growth potential in sandals to help you capture bigger market share in that $30 billion global category?

yeah um we saw a lot of signs jay that were very encouraging so i think we will we were very pleased with the uh 17 growth it is obviously behind our club growth and as we said uh earlier in the year we do expect samples to grow less quickly than clogged this year but over the long term we expect samples to be a higher growth category than our underlying club business The signs that we saw that were particularly encouraging, I would say, number one, personalization. So the give-it-able or the personalizable sandals that we released last year and this year continue to do extremely well. So classic slime we released last year, that is really strengthening this year. The two-strap classic sandals that we released this year has had a very strong kind of initial introduction. So personalization on Saturn is definitely working really well with our core consumer, and so we're very pleased by that. In addition to that, I would say the reintroduction of some major franchises that we launched last year into the sort of the core of the pandemic, so Brooklyn, Tulum, and Monterey. And we reintroduced them this year, a few new colors, but frankly, a lot of the same products are also doing really well. So you look at the combination of personalization, you look at our other core platforms, we feel really optimistic about Sable. So, and as we look to the future, you mentioned it in your question, this is a huge global market, right? $30 billion global addressable market for us.

from a sound perspective um so we're very confident about our future in this uh category great thank you andrew that was real helpful if i could ask you one more you know the brand relevance just to continue to increase um can you talk about what some of the key drivers were some of the key actions that you took in the quarter that continues to drive you know the incredible momentum behind the brand right now

yeah i think it's you know in a nutshell i would say probably three things it's product marketing and marketplace management right so um number one i think we continue to deliver to the market you know fresh and innovative products right and fresh and innovative for us can be as simple as the right color and the right graphics so we have some you know some about new colors in classic uh definitely trend right definitely in sync with where the consumer is performing well uh graphics performing well um so that's uh it's an innovative product and as we already talked a little bit about um sandals um i would say marketing you know the integrated marketing program uh our use of celebrities uh our use of collaborations our use of social media amplifying that around the world, both here in this country, but also, frankly, in China and all parts of the world has been really important. And then increasingly, our marketplace management efforts here in the United States and in our key overseas markets, where we're being very thoughtful about where our product shows up, how it's priced, what supply we put into the market so that we maintain, you know, a really profitable business for us, but frankly, also a very profitable business for our wholesale and distributor partners as well.

Got it. Thank you so much.

Thank you.

Your next question comes from the line of Jonathan Knops from the Crocs. Your line is open. Please ask your question.

Oh, thanks. It's John Tom from Baird. Just if I could start one follow-up on the pricing question. I know you mentioned labor and some wage increases. There's been maybe some questions about resin input costs, too. So is there any sort of inflationary offset for the pricing you've taken and any thoughts on updated targets for gross margin for the year?

Yeah, so good question. We are seeing a little bit of inflation as we talked about. I think the biggest pressure right now is really on freight, both on the inbound and outbound side. We also anticipate some labor cost pressures. So in key manufacturing origins, we haven't seen that yet, but we do anticipate that coming. And also in our GCs, as Andrew talked in his prepared remarks, we did actually raise some salaries and wages there. So Our input costs are a small percentage of our overall product costs, but we are seeing higher commodity costs due to supply and demand imbalances. That is also a little bit of an offset. And I will say we've incorporated all of that into the guidance perspective. And our gross margins, we do expect to be up year over year. And you can see that kind of coming through as you saw in Q1. So we do expect to have good gross margins for the year.

And just one more clarification. I don't know if Asia Pacific was mentioned for pricing at all. If that market recovers, would that be something you might look at beyond 2021? Or any thoughts there on the geographic reach of the actions you've taken so far?

Yeah. So, yeah, we have taken some pricing actions in Asia already, John, and some of our core markets. So, yeah, Some of that was done this year already, but I do think in the future there is potential for prices the brand continues to strengthen in key Asian markets.

Okay, excellent. And then just one broader question for me. I know at some point we'll be having a broader discussion during an investor day, but when you think of this year's performance and the new guidance to get back to low to mid-20% adjusted operating margin. How should we think about the broader context of this performance? And is there anything that you see this year setting sort of a high or unattainable bar going forward? Or do you think there's good opportunity to maintain and grow margin looking ahead?

Yeah, so obviously we haven't given long-term guidance. I think, you know, we're incredibly optimistic about what we're seeing in the forehand. As we've kind of talked about the pieces, you know, we think gross margins are largely sustainable. We've done a lot of work around that. And then from an SG&A perspective, we've always said, you know, we've been able to leverage the increase in volume because our business model is created that way. So we think those pieces, you know, won't change, but we will obviously – look forward to putting out some longer-term guidance in the back half of this year during an investor day.

Understood. Look forward to that. Thank you.

Thanks, John. Your next question comes from the line of Sam Poser from Williams Trading. Your line is open. Please ask your question.

Good morning. Thanks for taking my questions. Parts of pretty much everything has been answered, but I'll try to... Number one, The closures, you mentioned that those retailers that you decided to shut down did not fit your long-term plans or the way the brand was being presented. Can you tell us what that expectation is And what that is that you want from these partners? Do they all have to be large retailers now? Or is it brand presentation, digital abilities, and so on and so forth within those retailers that you decided to close?

Yeah, I mean, I think the way I probably answer that, Sam, is I say, look, there are certain categories of resellers that we have that are really strong. I think we've been really clear about that over some feedback there. So I really clarified that over a period of time. So, retail, sporting goods, family courtwear, and live specialty chains, you know, we fundamentally believe that live retailers are going to win in the long term, and those are formats that we think make sense to the consumer over the long term. In addition to that, we're looking to make sure that we're well-placed in strategically important small retailers, whether they're tier zero influential accounts or regional accounts that have strong penetration in their local markets. We are less interested in undifferentiated small players that don't have particularly good service levels or influence standards. and potentially taking advantage of some, I would say, digital distribution that we don't think is accretive to the brand. So it's really kind of putting resources, putting our time and energy behind the retailers, which we think are going to be strategically important in the future.

Thanks. And then, given the supply chain delays and so on, is any – and you mentioned some of the – cost increase would go to help um your some of those logistics does some of the some of this price increase will go to possibly air trading goods to play catch up so you can service some of these businesses better as you await product to come in that's on the water right now yeah yes that's absolutely right i mean i think you know we're very um we're very i would say um

focused on not using air freight whenever possible, obviously, especially given air freight costs are even more elevated than what we've seen in the past. But we will collectively air freight goods in order to get them in quicker, particularly where we're really lean. So we have been doing that. That's incorporated in our guidance. We still expect gross margins. So, yes, part of the freight increases will offset some of the air freight that we will need to use.

And then lastly, China. You talked about you expected China to become, you know, really turn the corner for next year. Is there anything happening there, any changes there, any improvements you're seeing there that are better than expected that might make some of that happen this year?

I would say from a China perspective, Sam, we're definitely on track. Look, we feel really good about the plan we put in place. We're tracking to that plan. All of the KPIs by channel are making a lot of sense and right where it would be. So I'd say broadly on track. I would say a few things. We were really pleased with Justin Bieber's launch in China. That went exceptionally well. He resonated, and the activations that we did resonated. Probably had one of the fastest sellouts since we looked at our sellout time across the globe. We're certainly getting some traction in social media in China with some of the things that we're doing and trying to be innovative. I would say our partner transitions are going well. The new concept stores that we've opened are clearly resonating, and personalization is a forefront of those stores. So I think we're definitely on track. I wouldn't say that we're going to see faster acceleration this year.

Thank you very much and continued success.

Your next question comes from the line of Susan Anderson from B Riley. Your line is open. Please ask your question.

Hi, good morning. Nice job on the quarter. Thanks for taking my question. I'm curious in Europe if you've seen the retail part of things or the wholesale stores start to sequentially improve into April as it sounds like things are starting to open up there. And then also if you could talk about maybe which markets are still shut down for you in Europe.

Sure, yeah. We don't comment on inter-month movements during the quarter. But I will say, from a Europe perspective, one of the best things about our EMEA business is it's actually very high from a digital penetration standpoint. So even though most of our stores in Western Europe were shut down in Q1, we still saw a really strong trajectory both on our retail platform and on our own e-commerce, so driving that 50% growth, as well as distributors. In Europe, we've seen pretty marked improvement in some of our distributor markets in EMEA. And so, you know, obviously we're seeing things kind of vary from an opening up perspective there. But, again, the underlying, you know, we don't have that many retail stores in Europe. So the underlying trajectory that's driving EMEA is really the digital side of things.

Great. That's helpful. And then if I could just add a follow-up on the collaboration front, I'm curious – if there's any, I guess, you know, quantitative details around new customers coming in as you do these collaborations and, I guess, you know, just drawing buzz to the brand and driving excitement with existing customers. And then also on the sandal front, I'm curious if there's any plans to do any collaborations with the sandals to kind of drive excitement around those products.

Yes. Let me start with the last piece because that's the easiest. Yes, absolutely. We will see a number of collaborations in 21 that are focused on the Sandal. So yeah, I think that's definitely coming and I think really important. And I would also say some of our super high profile collaborators will be on the Sandal for the rest of the year. In terms of new customers and buzz, et cetera, from the collaborations, it's really a combination, and I would say each one is unique. And they're actually designed that way. Some are designed to have an opportunity to attract new customers, acquire new customers, and the mechanism of releasing these collaborations does allow you to capture the customer inspiration for those new customers and be able to market to them in the future. And some of them are designed to be more, I would say, controversial. Well, not controversial is not the right word, but more kind of interesting and buzzworthy. So it's really a tapestry that we try to put together. And so it really works from both perspectives. I think one other thing that you would note in 21, we'll do more international collaborations. We've already released... a number internationally and we'll do far more internationally both in Europe and in Asia this year. And I think you may have noticed on Sunday night that Questlove was also wearing one of our shoes on the red carpet at the Oscars.

Yeah. Great. That's very helpful. Thanks so much. Good luck the rest of the year.

Thank you. Your next question comes from the line of Mitch Comets from Fibetal Research Group Your line is open. Please ask your question.

Yeah, thanks for taking my questions. And you mentioned that part of the uptick in guidance is just a better outlook for the back half. And just want to kind of run some numbers back of the envelope. It looks like for the back half, you're looking for about, you know, 30%-ish sales growth, which is not as strong as the first half. But on a two-year basis, it looks like it's, you know, 70% plus, which is actually good. stronger than the first half. So I'm hoping you could just, you know, tell us what gives you the confidence of that is because the brand is becoming more of a back-to-school brand because, you know, expect big things for line clogs in the fourth quarter. And is there anything on the visibility side that you can sort of, you know, support that, just, you know, what you're seeing in the fall order book, just anything that would be helpful?

Yeah, I mean, again, I think we're really seeing that momentum continuing to accelerate both in the US and overseas, which is really exciting for us. I think, you know, our distributor business, And EJOL still down from a tier basis is, you know, starting to increase again. Our EMEA distributor business is positive. So we're seeing all those really good signs. Obviously, we had huge direct-to-consumer outperformance in Q1, which is, you know, our smallest direct-to-consumer quarter. So that really gives us confidence. And I think, you know, we do have more back half visibility as well as just seeing how the U.S. consumer is responding, you know, to stimulus and other things and what's the reopening. I think, you know, all of those things lead us to believe that that trajectory only continues to accelerate. So, you know, we've backed up the confidence to raise our guidance. We're really pleased with that.

Yeah, from a product perspective, next week. No, we're definitely optimistic about Line Plus. I think it's an important part of the brand. And so that does help support our business in the background.

And then finally, the pricing increases will actually flow through the revenue as well as margin. So those are also incorporated into the updated guide.

Okay. And then is there any way to isolate the impact of stimulus on the quarter? And when you think about, you know, it was something that, you know, occurred early. I guess a little bit in January, but then more so in March, and that's continued into April. Do you think stimulus should be equally beneficial in the second quarter as the first quarter, or is it weighted more towards one or the other, do you think?

I'm not sure about weighted more towards the first or the second quarter, but we definitely saw an impact. I mean, I think it was pretty clear, and from what I've been reading, it looks like others have as well. So certainly the consumers seem quite buoyant right now in the U.S. And we definitely saw an impact.

Okay. And then lastly, Andrew, on Sandals, you mentioned it sounds like, you know, the slide, the personalization side of Sandals is really what drove the quarter. But then you also mentioned the reintroduction of some franchises like Tulum and Brooklyn also did well. I'm curious if you could maybe speak to the trajectory of the sell-through that you're seeing there. I would guess that, you know, January and February probably weren't great months for those kinds of franchises i wouldn't think that maybe the sell-in on the order book was that great there but now we're getting into the warmer months and things like you know bell-bottom denim's trending again that's good for wedges you know anything that you're seeing there kind of on the trajectory side that would speak to your confidence in those those more fashion franchises as we get further into the sandal season

All right, so there's quite a lot there. What I'd say probably, look, saddle deliveries and the quantum saddle sales absolutely increases if you go from the back end of the first quarter into the second quarter, right? That's just kind of the natural seasonal cycle. So we're certainly seeing more deliveries and we're certainly seeing the business accelerate. I would say the personalized sandals, frankly, did well out of the gate. So I don't think that, and I think one thing that we are seeing in some components of the sandal business, particularly the slide and potentially the two strap, it's pretty seasonless. You know, that consumer that's wearing it is wearing it, you know, with and without soft, depending on the season. So we're seeing that be more seasonless in the future. And we think in the future, we think the overall sandal business probably is a little less seasonal than it is. I would say, and one thing in addition I'd say is, in the quarter, I think the new introductions around personalized and the reintroductions were both strong. They were both components in terms of the driver of the business. It wasn't just strong based on the personalized standards. Both did well. Okay. All right. Thanks. Good luck.

Thank you. Your next question comes from the line of Laura Champagne from Loop. Your line is open. Please ask your question.

Thanks for taking my question. It's really about operating expense leverage and especially how are you planning your sales and marketing expense this year to support that very strong growth that you expect?

Yeah, it's a great question. So we're obviously pleased to leverage SG&A, you know, and we talked about that on the last call that we would leverage SG&A. Q1 was probably, you know, a little bit lower from an SG&A standpoint just because our marketing usually kicks off, our marketing campaigns really start off in Q2. So we do expect that to increase as well as, you know, we've increased some wages for our frontline employees. And we have, you know, we'll continue to invest in our key initiatives, right, that we've laid out. So that's, you know, sandals, that's China, that's digital, and then, you know, relevant products and marketing. And we will see those costs start to layer in throughout the year because the big focus is obviously investing to support our growth for next year as well.

Got it. So is it possible to give sort of a range of sales and marketing expense increase year on year? or to talk about how it layers in seasonally?

I definitely think, you know, it'll, again, increase in Q2. So if you kind of – last year was a weird year, so I would kind of throw that one out and go back and look at 2019 and kind of think about how XG&A kind of, you know, looks from a quarterly spread. And I think that'll help because we definitely expect it to increase quarter over quarter. And we do expect to invest in marketing. So we will, you know, continue to see that increase. And, you know, we can go back and look at our historical marketing costs. have been right around just under 7% of SG&I. Got it.

Thank you.

Or revenue, sorry.

Yeah. Your next question comes from the line of Sohit Singh Anand from Stifel. Your line is open. Please ask your question.

Oh, hi. It's Jim Duffy from Stifel. Good morning. Great execution, no doubt a lot of hard work behind this. I want to take a step back with this in mind. I'm hoping you guys can talk more about the infrastructure to support the growth. You've outlined sightlines to a $2 billion business this year. That's a big jump in just two years from about $740 million. Can you talk about scaling manufacturing capacity to support this? Have you taken on any new partners? And I know you have the new distribution centers. Are there any gaps in the infrastructure that are a particular focus as you look to support that higher revenue run rate? And then I'm curious, as you exit the year, are you still playing catch-up on infrastructure? Do you feel the infrastructure is in place to support further growth?

Yeah, good question. Thanks, Jim. So we've really been investing in our infrastructure now for about two slash three years, right? You saw us make substantive investments last year. We're making substantive investments this year. Those capital investments for us are really going into our DC. So as a reminder, we opened new DC in Dayton, Ohio two years ago. We expanded that last year. We'll further expand that next year, right? We have opened a new DC in the Netherlands that is now open. We're transitioning our operations from an old one to a new one through the remainder of the year, and that is a substantial increase in terms of capacity. So we also transitioned last year to a new DC in which is a 3PL in Japan, et cetera. So we may be making, I would say, some pretty significant investments, expanding capacity and also expanding efficiency and effectiveness with the use of automation. So I think we feel good about that. But frankly, as we continue to grow, these rates will continue to need to make those kinds of investments. But we have, I think, a good plan for that. From a sourcing and manufacturing perspective, we have some phenomenal partners. We have major partner groups, in Asia that have very significant resources. They have opened new facilities that expand the existing facilities and will continue to do that in the future. And we're in conversations also with a couple of significant new partners as well. So we feel really confident in the partner base that we have and our ability to work with new partners in potentially new regions for manufacturing. We feel like we're in a good place. As you know, we do try to run our inventories lean, right? You know, we think managing working capital, getting high working capital efficiency, and keeping inventories lean such that the marketplace is not flooded with goods is actually a really important component of brand management.

And if I could just add on the SG&A side, Jim, I think when you think about how we're supporting the growth, we're definitely adding in one of the investments. You know, we'll be adding headcounts.

across our key areas and our key initiatives in order to support this growth and that will obviously you know is included in our guidance for our operating margins this year great very helpful answer um building on that any challenges with staffing to support any of this additional capacity or are you finding ready availability of labor

I would say no, not really. We are hiring quite a few positions because obviously you need to add positions to, and I would say that's across a broad spectrum of functions. But what we are finding is, you know, our brand not only is in demand from a consumer perspective, it's very appealing to employees. They're excited by the trajectory of the business. They're excited by a lot of the things that we're doing from a brand management perspective. And I think generally... you know, to getting great feedback from our employees, which is a great place to work. So we're attracting a lot of really phenomenal employees.

Yeah, and we've been recognized. I think Andrew said in his prepared remarks by Forbes for inclusivity as an employer, and then I think we're also recognized as one of the best midsize employers. So that's also helpful from an employment branding perspective.

Outstanding. Keep up the good work, guys.

Thank you. Thank you. Your next question comes from the line of Sam Poser from Williams Trading. Your line is open. Please ask your question.

Just a quick two follow-ups. Number one, how much bigger on a percent basis do you expect the marketing spend to be in Q2 and 3, I guess, versus Q1 and versus 19 as a percentage?

So I would take the way to think about marketing is take it as a percentage of our revenue. So if you take our revenue guidance and, you know, and use our marketing percentage historically, it's going to be about right. We might expand that a little bit if, you know, things are going well. But that's kind of how I would think about that, Sam.

Can you just remind us what that is?

Yeah, it's almost 7%. So we run, you know, around 6.8% of revenue from a marketing standpoint.

Thanks. And then lastly, the gold shoe we saw the other night, was that something you guys made or something his stylist did, and will we see that as part of the line?

Unclear whether we'll see it as part of the line. It's something that we made in collaboration with his stylist.

Okay. Thanks very much. Again, continued success. Thanks, Seth.

There are no further questions at this time. You may continue.

Thank you very much. I just want to thank everybody for joining our poll today and their continued interest in crops. So thank you very much. Have a great day.

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