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spk01: Good morning, and my name is Savannah, and I will be your conference call operator. At this time, I would like to welcome you to the Crocs fourth quarter 2021 audience call. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question and answer session. And if you would like to ask a question during this time, please press the one. I will now turn it over to the speakers. Please go ahead.
spk02: Good morning, and welcome to the Crocs, Inc. Fourth Quarter 2021 Earnings Call.
spk04: Good morning, everyone, and thank you for joining us today for the Crocs Fourth Quarter and Full Year 2021 Earnings Call. Earlier this morning, we announced our latest quarterly and annual results, and a copy of the press release may be 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 the anticipated consummation of the acquisition of Hey Dude and the timing and benefits thereof, Cox's strategy, plans, objectives, expectations, financial or otherwise, and intentions, future financial results and growth potential, anticipated product portfolio, our ability to create and deliver shareholder value, and statements regarding potential impacts to our business related to the COVID-19 pandemic. These statements involve known and unknown risks, uncertainties, and other factors, which may cause our actual results, performance, or achievements to be materially different from any future results, performances, or achievements expressed or implied by the forward-looking statements. Crocs is not obligated to update these forward-looking statements to reflect the impact of future events, except as required by applicable law. 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 and our subsequent filings with the SEC. Accordingly, actual results could differ materially from those described on this call. Please refer to the 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 profit, adjusted gross margin, adjusted selling general and administrative expenses, adjusted income from operations and operating margin, adjusted income tax or benefit, and effective tax rate. Adjusted basic and diluted earnings per common share are non-GAAP measures. A 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 Melnick, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we'll open the call for your questions. At this time, I'll turn the call over to Andrew.
spk07: Thank you, Kari. And let me start by apologizing for the technical difficulties we're having today. Let me proceed with my prepared remarks. As you saw in our press release issued this morning, I'm incredibly proud of the $2.3 billion in sales and industry-leading adjusted operating margins of 30% we generated in 2021. These results underscore the underlying strength of the Crocs brand and even more remarkable considering the challenging environment we continue to navigate. Looking forward to 2022, we expect robust revenue growth for the Crocs and Hey Dude brands and another highly profitable year. Anne will review our Q4 financial results in more detail shortly, but here are a few highlights from the full year of 2021. The Crocs brand grew 67%, experiencing broad-based growth across all major markets, channels, and product categories. Digital revenues grew 48% over 2020 and 122% over 2019, Our best-in-class adjusted operating margins expanded to 30% from 19% in 2020. Adjusted diluted earnings per share more than doubled to $8.32. We returned $1 billion to shareholders through share repurchases, and we capped this extraordinary year by announcing the acquisition of a second high-growth, highly profitable brand, HeyDude. These exceptional results demonstrate the strength of the Crocs brand and its resonance with consumers globally. It was a great year for the classic clog and classic line clog, taking the number one and number two spots for U.S. holiday sales, according to MPD, and also being named shoe of the year by Footwear News. We continue to fuel brand heat throughout the year with a pipeline of innovative collaborations, including a high-heeled croc madame with leading fashion house Balenciaga and a nature-inspired clog with Salehi Bembry. We entered the metaverse with our first NFT, partnering with Parisian label Egon Lab. In addition to global collaboration launches with Justin Bieber, Pleasures, Palace, and more, we saw great momentum with regional collaborations such as Influencers, Never Family in China, iconic footwear retailer Atmos Pink in Japan, and DJ Vladimir Kuchma in Europe. We also expanded our partnerships in the Gibbets franchise, including bringing the mythical world of Dungeons & Dragons and the vibrant characters of Lisa Frank to life. In summary, the Crocs brand remains strong and I'm confident in our ability to deliver strong growth in 2022 and beyond. From a channel perspective, digital remains our top priority as it enables us to meet the consumers where they are. During 2021, our digital business, which combines e-commerce and e-tail grew 48% on top of 50% growth in 2020. Digital penetration increased on a two-year basis to 37% from 31% in 2019. This year, we invested in our digital capabilities, including the Crocs mobile app, global social platforms such as Douyun, and digital talent across the globe. We're confident these investments and our continued focus will drive digital growth globally over the long term. We achieved strong growth in both our direct-to-consumer and wholesale channels, with DTC revenues up 64%, and wholesale revenues up 69% globally. Global DTC sales were driven by higher traffic and strong average transaction value. Wholesale growth was balanced with high double-digit growth in all subchannels, including brick and mortar, retail, and distributors. From a product perspective, we sold over 100 million pairs of footwear globally in 2021, and our results continue to be driven by our key product pillars, clogs, sandals, and gibbets. Sales of clogs were particularly strong, increasing to 80% of total forward revenues versus 72% in 2020. Sales of the classic clog franchise increased triple digits, driven by graphics, as well as line, height, and adventure iterations. Sandals grew nearly 30%, driven by strong performance in our personalizable classic slide and classic sandal, particularly in America's. We also saw strong growth across other core items, like our Crocband and Katie Flips, as well as our Brooklyn-style franchise powered by LightRite technology. Gibbets had another outstanding year, up almost 150%. This important category continued to have broad appeal, with global penetration reaching 7% versus 5% last year. Our product strategy continues to resonate with consumers globally, giving us confidence in our $5 billion revenue target for the Crocs brand we outlined at our investor day in September. Turning to ESG, we've made progress in our commitment to net zero emissions for the Crocs brand by 2030. We've taken a major step forward by becoming a 100% vegan brand, and we kicked off our important sustainability initiative by blending biobased compound into our shoes that we manufacture containing Crosslite. We continue to give back to our communities, including donating 150,000 pairs of shoes across multiple organizations, and together with the generosity of our consumers, raising funds for Feeding America to provide 25 million meals to those in need. I'm proud of the passion of our team and the progress we're making in terms of making a positive impact on our planet and our communities. To cap off an extraordinary 2021, in late December, we announced the Haythood acquisition, adding a second high-growth, highly profitable brand to our portfolio. We expect to close the transaction in the coming days and are delighted to soon welcome Alessandro and his talented team to Crux. We'll feel privileged to have Alessandro staying on for 18 months to help ensure a smooth and successful transition. Our preliminary integration work is progressing well, and we're well advanced in terms of building our HeyDude leadership team, with the majority of critical positions already filled. We have a plan to amplify the HeyDude brand through innovative marketing and leveraging Kroc's strong wholesale relationships to extend distribution. We're excited about the potential of HeyDude and incredibly confident in our ability to build a billion-dollar brand by 2024. Looking forward, the Crocs and Hey Dude brands enter 2022 with incredible strength and momentum. However, I'll be remiss if I did not mention the many unknowns in the world today, ranging from challenging supply chain, lingering COVID shutdowns, to rising inflation and potential impact on consumer spending. We're not immune to these many macro headwinds. However, I'm confident in our brand, our team, and our demonstrated ability to navigate uncertain times. With respect to the supply chain and the pandemic, we've been managing disruptions for more than two years and have demonstrated incredible agility to satisfy consumers' needs globally. As we have shared, the factory shutdowns in Vietnam last year, combined with the continued extended transit times, have lingering impacts on supply and new product introductions for the first half of 2022. As Anne will outline in our guidance, the greatest impact from these disruptions will come in the current quarter. resulting in over $40 million of orders slipping from Q2 into Q3, with the largest impact being in EMEA. However, we're looking forward to a robust revenue growth in Crocs and HeyDude brands for the full year of 2022. The combined business has incredible potential, and we anticipate the powerful combination will be highly profitable, cash-generative, and create significant long-term shareholder value. Before I turn the call over to Anne, I want to express my gratitude to the entire Crocs organization for the hard work and commitment to delivering best in class growth and profitability. I also want to reiterate a warm welcome to all the hey dude employers around the world who will soon be joining the Crocs family. 2021 was an incredible year for the organization and I'm proud of how we executed as a team and the value that we've created for shareholders. With that, Anne will now review our financial results in more detail.
spk04: Thank you, Andrew, and good morning, everyone. I'll begin with a recap of our fourth quarter results. For a reconciliation of the non-GAAP amounts mentioned to their equivalent GAAP amounts, please refer to our press release. Our fourth quarter results were outstanding, with all regions recording double-digit revenue growth led by the Americas. Profitability continued to be best in class as we expanded gross margins and leveraged SG&A to increase adjusted operating margins to 28.6% compared to 21.1% in the fourth quarter last year. Fourth quarter revenues came in at $586.86 million compared to $411.5 million last year, a 43.5% increase on a constant currency basis. On a two-year stack, revenues grew 123.1%. During the quarter, we sold 22.6 million pairs of shoes, an increase of 19.7% over last year. Our average selling price rose 18.9% to $25.71, attributable to price increases taken during the year, coupled with fewer promotions and discounts. For the full year 2021, we sold 103 million pairs of shoes, up 49% over 2020. Our average selling price for 2021 rose nearly 12% to $22.27, also driven by price increases and fewer promotions and discounts. As evidenced by our ability to take price and still deliver significant volume increases, the Cross brand is strong as ever. Now, let's review our results by region. Growth was led by the Americas, which experienced another strong quarter with revenues of $469 million of 51.2% from 2020. This growth was led by digital of 55.2% from 2020 and 244.5% on a two-year basis. GTC and wholesale increased 49.3% and 52.6% respectively from prior year. Our broad-based performance in the Americas is the direct result of meeting the consumer where they shop and driving relevance through innovative marketing. Amir revenues increased 22.5% over Q4 2020 to $60.5 million. EMEA outperformed expectations in the quarter as we were able to secure more inventory than initially planned. Growth was fairly balanced by channel, with DTC revenues increasing 18.5% and wholesale revenues increasing 24.6% in the quarter compared to 2020. DTC benefited from strong growth in both e-commerce and retail, while wholesale benefited from exceptional performance in brick and mortar. We are extremely pleased with our EMEA performance, which is benefiting from improved brand relevance and consideration. In Asia, Q4 revenues were $57.1 million, up 10.3% from last year. This growth was driven equally by DTC and wholesale. South Korea and India continue to outperform and both grew nicely during the quarter and the year. China has faced periodic COVID lockdowns that impacted Q4 results. However, China grew double digits for the year and we remain confident in our long-term plan. Our fourth quarter adjusted gross margin was 63.7%, up 770 basis points from last year's 56%. Gross margin improved in all regions and all channels, driven by increased prices, fewer promotions and discounts, and favorable product mix. Full year 2021 adjusted gross margins of 61.6% rose 700 basis points from last year, also driven by increased prices, reduced promotional activity, and product mix. Our Q4 adjusted SG&A was approximately flat to last year at 35.1% of revenues. This excludes $6.4 million in one-time costs related to the Hey Dude acquisition. For full year 2021, adjusted SG&A leveraged 400 basis points to 31.6% of revenues from 35.6% of revenues. The significant decrease in adjusted SG&A is a result of strong sales growth and operating leverage, even as we invested in additional brand marketing and talent to support future growth. Our fourth quarter adjusted operating margin expanded 750 basis points to 28.6% compared to 21.1% for the same period last year, led by gross margin expansion offset slightly by SG&A. Adjusted income from operations for the full year increased 164.8% to $695.3 million, and adjusted operating margin rose 1,120 basis points to 30.1% compared to 18.9% last year. Fourth quarter non-GAAP diluted earnings per share more than doubled to $2.15 compared to $1.06 for the same period a year ago. Full year adjusted diluted earnings per share also more than doubled to $8.32. We concluded 2021 with a strong liquidity position comprised of $213.2 million of cash and cash equivalents and $414.7 million of borrowing capacity on a revolver. In addition, we had $785 million of long-term borrowing and ended the year under one-time leverage on a net basis. Given our strong cash flow generation for the full year 2021, we returned $1 billion to shareholders, repurchasing approximately 7.8 million shares at an average price of $128.52 per share. Inventory at December 31, 2021, increased 21.9% to $213.5 million from $175.1 million in Q4 2020, with the majority of the increase driven by in-transit inventory due to extended transit times. We anticipate extended transit times to sustain throughout the year and to drive increases in inventory in certain periods. We felt good about our on-hand positions during the holiday season, which supported strong sell-through and our ability to take market share. As Andrew mentioned, in addition to expanded transit times, we expect other logistics challenges to persist throughout 2022. Now, turning to the future, I would like to share our current outlook for Q1 and then full year 2022. For Q1, we expect consolidated revenues, including the Hey Dude brand, to be approximately $605 million to $630 million. Excluding Hey Dude, we expect cross-brand revenues of $520 to $535 million, which implies organic growth of approximately 13% to 16%. The consolidated revenue guidance assumes the Hey Dude acquisition closes in the coming days. We expect non-gas operating margin to be approximately 22%, which includes approximately $30 million of incremental air freight costs with in-growth margin. For full year 2022, we continue to expect revenue growth for the cross-brand, excluding Hey Dude, to exceed 20%, generating revenues of over $2.75 billion for the year. In addition to the cross-brand revenues, we still anticipate full-year 2022 revenues for HeyDude to be approximately $700 to $750 million on a pro forma basis and $620 to $670 million on a reported basis. On a combined basis, we expect 2022 revenues of more than $3.45 billion on a pro forma basis and approximately $3.4 billion on a reported basis. We expect adjusted operating profit margins for the combined business of approximately 26%. This includes the incremental air freight, but excludes estimated hey-do to acquisition and integration costs that I will outline shortly. For the full year 2022, we expect our underlying non-GAAP tax rate, which approximates cash tax to be paid, to be approximately 22%. Our GAAP tax rate will be approximately 25%. To provide greater clarity around our earnings potential amidst the acquisition, we are providing full year earnings per share guidance. We anticipate non-GAAP earnings per share to be approximately $9.70 to $10.25 in 2022. To support growth for both brands, we expect to invest approximately $170 to $200 million in capital expenditures, primarily to continue to expand and automate our distribution capabilities. As Andrew mentioned, we are very excited about the addition of the Hey Dude brand and expect to close in the coming days. To fund the acquisition, we will issue 2.85 million shares to one of the sellers, and we have secured a $2 billion term loan fee, which we will provide additional details for upon close. We also expect to borrow $50 million under our existing senior revolving credit facility, as well as exercise the accordion provision on the revolving credit agreement to increase the borrowing capacity by $100 million. We estimate approximately $60 million of one-time charges in SG&A in 2022, mostly related to the HeyDude acquisition, and a $75 million non-cash impact and gross margin, mostly related to the write-up of HeyDude inventory to fair market value. We expect approximately $30 million of SG&A one-time costs to be incurred in the first quarter, and that leverage will peak during Q1. As previously shared, we are committed to deleveraging and expect the combined brands to generate significant cash flow, allowing us to quickly achieve two times or less leverage by the end of 2023. With this focus on deleveraging, we have suspended our share repurchase program until gross leverage is under two times. Regarding future disclosures, the cross-brands will continue to be broken out into the Americas, Asia, and EMEA regions. and we will report the Hey Dude brand as a separate segment. For both brands, we will report wholesale and DTC revenues, as well as digital penetration. Beginning in Q1 2022, we will move Latin America from the Americas to the EMEA region for the Cross brand to better align and manage our distributor businesses. In summary, throughout 2021, we delivered strong revenue growth, profitability, and cash flow. With the underlying strength of the Crocs core business and the addition of Hey Dude, we are confident we have positioned ourselves for sustained profitable growth and strong cash flow generation. At this time, I'll turn the call back over to Andrew for his final thoughts.
spk07: Thank you, Anne. Crocs Brand had a tremendous year in 2021. We're confident in the trajectory of the Crocs Brand and excited by the pending acquisition of Hey Dude. By leveraging the proven cross playbook to enhance Hayden's growth trajectory, we see a tangible pathway to a highly profitable combined company and tremendous value creation for shareholders. Operator, let's open the call for questions.
spk02: Thank you, Andrew. I think the first question is coming from the line of Aaron Murphy from Piper Sandler. Hear me okay? Okay.
spk07: We can apologize for our technical difficulties. Thank you.
spk03: No worries. Okay. So I've got a couple, maybe starting on the supply chain. Could you talk a little bit more about, you know, the impact that you're seeing now into the first, and it sounds like into the second quarter, is that factories that are still ramping on production? Is it the container shortages that we're seeing globally? And then how has the response been to retailers? Are they actually having to cancel orders? And then I guess relatedly, Anne, can you just go through the shifts again, Q1 to Q2, Q2 to Q3? Just want to make sure we have that all buttoned up.
spk07: Yeah, let me kind of give you the qualitative, Aaron, and then Anne can pick up some of the details. So factories are back up and running. They have been for some time, and actually we're relatively pleased with their ramp-up post-Chinese New Year. They've come back up to speed quickly. The delays that we're seeing from Q1 into Q2 are really transportation-related delays. And I would say it's a combination of delays in loading, delays in transit, and delays in unloading. So that was a longer delay than we expected. So I would say that most It's impacting us most in EMEA. And as we look at our overall business, I think we're confident in the amount of supply that we have and the ability to grow our supply base to meet our overall annual guidance. And it's really the transportation delays that continue to move around.
spk04: Yeah, and then as far as revenue impact, as we said in prepared remarks, there's approximately $40 million of revenue associated with our EMEA business that's wholesale or distributor revenue that we would have fulfilled in Q1 that's impacted by these supply delays. We haven't totally given the shift amongst the quarters for the rest of the year because there's still a lot of uncertainty just related with transit time. But we, you know, reaffirmed that we're going to grow over 20% for the full year.
spk07: Yeah, and I just realized that one other piece that you asked in there, Aaron, was expectations around cancellations. I would say I think the majority of retail partners are being incredibly understanding. I think they're seeing this from lots of people right now, and we would not anticipate cancellations at this time.
spk03: Okay, thank you for that. And then the second part, or my second question is around, hey, dude, if I just look at the guidance, just for the sub period, so that one month that you'll likely be recognizing revenue, it looks like it's 90 million. Can you just help us think through the seasonality? Because if we just flatline that on a monthly basis,
spk04: it implies hey dude revenue is closer to 900 million for the year not the 700 to 750 on a pro forma so just maybe help us think through that the sub period and how we should extrapolate that for the full year seasonality thank you sure so i think you have to take the 90 million divided by one and a half months because we're assuming that it'll close in the coming days so if you do that math um then you get to about 720 million at the midpoint of guidance if you just annualize it for the for the remaining 10 months. So I think I think you just got to make sure that you're accounting for those those extra weeks in February.
spk03: Okay, okay, fair enough. And then maybe just that I can add one more on price increases given the inflationary backdrop. We've been seeing some price increases that you took in Europe last month. And I'm just curious kind of what's contemplated in the guidance this year on a global basis for price increases. Thanks so much.
spk04: Yeah, so I appreciate the question. Our early action in 2021 of taking price obviously allowed us to more than offset the impacts of inflation for 2021. I think that puts us in a really good position for 2022. As you mentioned, we did take price increases in EMEA, and we actually took some in Asia as well. So both of those will flow through in 2022 and are contemplated in guidance, as well as the U.S. wholesale prices increases that we took that flowed through in the back half of last year that will still flow through the first half of this year.
spk03: Great. I'll let someone else hop in. Thank you all.
spk02: Thanks, Erin. Thanks, Erin. The second question comes from the line of Jonathan Kompf at Baird. Operator, if you could please unmute the line that's now first in queue.
spk07: Jonathan, we're not, just in case you're already talking, we're not hearing you.
spk02: Susannah, if you could unmute the first line, we believe that's Jonathan Comp, even though it's listed separately in the system. Okay. I'm sorry. We'll go to the line of Laura Champagne from Loop Capital.
spk05: Laura Champagne Good morning. Thank you. So, my question is about the implied acceleration in organic growth for Crocs brand from mid-teens and Q1 to end the year. over 20%. Is the thought process behind that that the slower growth in Q1 is just due to the supply chain issue that you called out? Or is there more going on there?
spk04: Hi, Laura. Dan, yes, absolutely. I think the growth in Q1, as we called out at ICR in January, is related to the impact of the Vietnam shutdown last year on the first half. So it's all related to timing. We're not seeing any changes in underlying consumer demand for the brand.
spk05: Got it. Quick follow-on. How is pricing changing? holding up relative to your initial expectations coming into this year. And if there's anything you can do to quantify the kind of pricing that you expect to take year on year, that would be super helpful.
spk07: Yeah, I think we feel great about the price increases that we took last year, as well as those that we've taken this year, and as Anne mentioned to a prior question, in both Europe and Asia. We're having absolutely expected impact in terms of those price increases. They're certainly holding up, and... You know, we feel very confident about our future pricing trajectory. We are seeing competitors take price and anticipating more of that through the year. I think we were a little bit early in some of the actions that we took last year. We will monitor that closely. It's very important to us that we continue to provide incredible value to consumers, but also at the same time capture the value that's required in terms of the value of the Crocs brand.
spk05: Thank you.
spk02: Thanks. We're going to try Jonathan Komp again, please, from Baird.
spk11: Okay. Thank you. Can you hear me now?
spk05: Yep.
spk11: Oh, perfect. Thank you. I wanted to ask first just on Crocs, when you think about the growth outlook, maybe relative to the long-term growth drivers, you know, digital, sandals, outside of North America growth, How should we think about those playing out in 22 and maybe even color Q1 here versus the balance of the year? How do you see those impacting the Crocs brand?
spk07: Yeah, I think as we kind of think about the playbook that we've outlined, digital, international, sandals, et cetera, I think it continues to work extremely well. We're getting very strong sell-through and continued growth on the clog, which is really fueling a lot of the international growth and the digital growth. Sandals had a good year last year. We are expecting sandals to be disproportionately impacted in terms of supply during the first half of this year, but that's really a supply-related issue. When I look at our innovation, our product development, and the consumer reception to our sandals, particularly the customizable sandals we talked about, both the classic slide and the classic two-strap, we're getting very strong reception from consumers. So I'd say the only element that I would call out would be Sounders, and that's really supply-related at this stage. We feel great about the kind of strategic playbook and its ability to drive the growth that we've anticipated.
spk04: Yeah, and I think just one other kind of comment around the international geographic impact. And what that's going to do this year. So as we talked about in our prepared remarks, we're really excited about the growth we're seeing out of EMEA. Really strong growth trajectory there. Unfortunately, they're disproportionately impacted in Q1 related to supply, and that will impact growth rates there for Q1. But we still expect to have strong international growth this year out of EMEA as well. It'll just, unfortunately, be more outside of Q1.
spk11: Okay, that's very helpful. And then maybe switching to operating margin, you outperformed in Q4 in 21, you know, reaching 30%. Could you maybe just share more detail on the thought, you know, in the guidance down to 26% adjusted operating margin? I know, you know, a portion of that is the air freight, but the balance of that, if you could maybe just touch on what you're embedding, both for the underlying Crocs brand and then how quickly you'll be able to ramp and what you're assuming for a dude within that. Thank you.
spk04: Yeah, this is a great question. So we're really pleased with, obviously, our best-in-class operating margins of, you know, 30% on an adjusted basis last year, you know, which were supported by, as we talked about, price increases that we took, leveraging SG&A, and really good growth. So I think for this year, there's still a lot of unknowns. What we're comfortable with is, you know, the 26%, and then the air freight of the $75 million, you know, is over 200 basis points. of impact on those margins we're also you know um said that the combined hey dude and crocs would be 26 operating margin we obviously haven't closed the transaction yet for hey dude but as we do and as we you know move through that then we'll provide some more clarity on our first quarter call okay understood thanks again thank you the next question will come from sam poser from williams trading
spk09: Good morning. Thank you for taking my question. I've just got a few. One, what is the share count that you're assuming for next year? And then I'll get into other things.
spk04: The share count that we're assuming for next year, for 2022? Mm-hmm. The share count. I think you would be safe to say that right around a diluted share count of approximately 62.4 million shares.
spk09: Thanks. A little lower in the first quarter, I assume.
spk04: Yes, because we haven't issued the Hey Dude shares yet. So we will issue those shares in connection with the acquisition when it closes.
spk09: um thanks and then um can you walk through you said that in the press release it said that to be about 75 million dollars of air freight in the first half q1 is going to have 30 million that means that q2 is more impacted than q1 i mean that's just easy math but i you didn't talk about q2 in that regard it's more impacted from a cost standpoint i would just say you know some of that is just
spk04: you know, continuing to pull things in. We had delays from Q1 that flow. So, yeah. And as we talked about, we see extended transit times throughout the year, but, you know, the first half is obviously most impacted.
spk09: Okay. And then lastly, when you started to look under the hood of of, hey, dude, we haven't gotten it yet, but I was just wondering, can you give us some details on what you're seeing from sort of the structure, the infrastructure, what you're going to need to do versus what you first expected a month and a half ago when you announced the deal or two months ago when you announced the deal?
spk07: Yeah. Let me take that, Sam. So what I'd say is the more we know, the more excited we are, right? So in terms of we're looking at the brand, its trajectory, its connectivity with consumers and its relationships with its key partners and wholesale customers, I think the brand's in a great place, and there is clearly – far more demand and any ability to meet that demand in the short term so we feel really great about the brand in terms of the infrastructure i would say we've moved incredibly quickly we've put our team in place um as we've said on the call we anticipate closing the next In the coming days, I would say our team is in place, both people that we've recruited from outside the company, but also some strategic reallocations from the Crofts brand. We always knew that there was a substantial amount of infrastructure to put in place. We knew that as we did diligence. That is absolutely true. But I would say we have the resources and are very well positioned to put that infrastructure in place quickly.
spk09: And thank you. Just one last thing. And if we think about this, the actual reported gross margin, you're expecting the gross margin to be down significantly in the first half of the year, and the gross margin in the second quarter is likely to be worse than it is in Q1.
spk04: I would just say there's... Yeah, Sam, a good question. I would not necessarily assume that. I would just look at, I mean, there are some seasonal things that impact our gross margins as far as how much wholesale revenue makes up Q1 versus Q2. So while we're not guiding Q2 gross margins, I wouldn't say that our Q2 margins are going to be below Q1. All right.
spk09: Thanks very much. Continued success.
spk02: Thank you, Sam. Great. The next question comes from the line of Jay Sol from UBS.
spk10: Great. Thank you so much for taking the question. Just about the plan to pay down debt, is there flexibility in that? I mean, if you decide that you think the stock price represents better value than paying down debt, could you change your mind and reinstate the authorization and buy back some stock?
spk04: Yeah, so just to clarify, we still have our authorization. So that's still outstanding. We have some covenants associated with our debt, you know, that we need to be two times leverage to be able to buy back. But we think, you know, we can pay down debt very quickly. The combined entity generates a lot of cash, and we're very committed to paying down that debt. And, you know, we've had a very successful buyback program and, you know, very aggressively bought back stock. last year. And we do think, you know, our stock represents a tremendous value at this, you know, stock price. So, we will continue to work to pay down debt so we can look at repurchasing.
spk10: Okay. And then maybe, can you talk about Jivits a little bit? I mean, can you talk about the Jivits growth, you know, in the past year in the fourth quarter? And do you expect Jivits to grow faster than the overall company average in 2022?
spk07: Yeah, so Jibbitz grew for the full year 150% or over 150% to 7% of overall sales last year, which obviously is outstanding. And I know you're all aware that's obviously incredibly high margin category. But probably more important than the margin and even the sales dollars is the consumer engagement that it creates. You see that we use Jibbitz both in our retail stores to create consumer engagement, but also on almost all of our collaborations. So as we look at this year, yeah, it will certainly grow faster than the overall growth rate that we've put out there for the cross-brand. It will continue to be a high-growth category.
spk10: Got it. How do you actually think about the skew count for gibbets? I mean, is it, you know, are you expanding it? Like what, what do you need to do to sort of continue to expand and amplify that business?
spk07: Yeah, the gibbets skew count, I would say, has expanded dramatically, but it comes and goes, right? There are a set of core gibbets that continue to exist, numbers, letters, you know, emojis and things that the consumer is looking for on an ongoing basis. Many of the skews are seasonal or short-term in nature. They're available for a short period of time, they sell through, and then they're gone. So that's how we'll kind of continue to manage the gibbets business. You probably also noticed that... We're shifting a lot of our kind of offerings to pack offerings. It makes it far more efficient to sell and ship through e-commerce, and it also helps our wholesale partners. So we'll continue to do single gibbets, but we'll also do a lot more packs.
spk10: Got it. Okay. Thank you so much.
spk02: Okay. The next question comes from the line of Susan Anderson from B. Riley. Okay.
spk12: Hi. Good morning. Nice job on the quarter. I'm just curious maybe if you could talk about investments that you guys expect to make this year and how you're thinking about SG&A margin in 2022. Yeah. Hi, Susan.
spk04: I think what we're going to invest around is really along our – from a cross-perspective, along our key initiatives we've laid out that are driving growth, which is really around digital – China, marketing, and then we will ignite all of that with continued innovation around products. And then I will also say we will invest in talent to support all of those initiatives. So that's on the SG&A side from the cross perspective. From the HeyDude perspective, the SG&A there is really to put into the infrastructure to allow sustainable growth In the years to come, they've had an incredible growth trajectory. And as we've talked about, they've supported that with very, very low SG&A. So we have some investments we're looking at. And as Andrew talked about in his prepared remarks, very excited that we've already been able to hire some key members of that leadership team. So those are really the key investments. And then just one other point on the Hey Dude side is a lot of that investment will fit in marketing this year, as they haven't invested a ton in brand marketing or almost nothing to this point. So we will invest there. And we haven't completely given all the rates, but as we close Hey Dude and go into Q1, we'll talk about where we see SG&A from a rate perspective at that point in time.
spk12: Great. And then maybe if you could talk about the recent collabs that you've done, such as, I guess, the most recent Clueless and then Carol G. Are you still seeing strong demand there as you roll those out? And then I'm just curious, are these meaningful to sales yet at all, or is it really still just about the marketing?
spk07: Yeah, I would say the reaction to the collabs that you just announced, plus others that are coming, I would say the calendar is really full for the coming quarters. Yeah, Carol G did extremely well. Clueless, which was done in partnership with Zappos, has done extremely well. So they both, I would say, outperformed our expectations and 100% sold through in terms of sales success. I would say the quantities around some of these collabs are getting a little bit bigger, but it's really a balancing act between the brand heat, the buzz that we create, and revenue. So I think we feel really good about where we are.
spk12: Great. That sounds good. Thanks so much. Good luck this year. Thank you.
spk02: The next question comes from the line of Jim Duffy at Staceful.
spk09: Thank you. Good morning. The absolutely phenomenal 2021. Ken, I wanted to start with a question on the 1Q and fiscal 22 COPS revenue guidance. Can you speak to assumptions for growth in pairs and ASPs embedded in that guidance?
spk04: Yeah, we haven't provided that at this point in time. Obviously, we have some price increases that we just talked about, and we still expect unit growth. But we haven't given the split at this point in time, Jim.
spk09: Okay. I'm taking, you know, ASP at 18 percentage point contribution to growth in the fourth quarter. In the first quarter, are you expecting a similar amount or is that, you know, what is it? I'm just trying to figure out are you actually expecting pairs growth? And then maybe related to this, does the ASP include a touch of gibbets or is it a pure footwear ASP read?
spk04: Yeah, so the way that we calculate ASP is we take our total revenue and we divide it by our footwear pairs. So we think of gibbets as an addition to our shoes, so we include that in our ASP. So that growth of gibbets will impact ASP. that ASP growth is the right way to think about it. And then I would just say contextually from Q4, we had a couple of things happening in Q4 that supported our ASP growth. The first piece was obviously the price increases we took in the US on our core plastic and then the tertiary products around that. And the second piece is really the pullback of promotions and discounts. We've continued to see that. We had it in the U.S., but also Asia and EMEA in Q4, and that tends to be a generally more promotional period with the holiday. And, again, we saw a very large pullback of promotion and discounts in Q4 that's unique to Q4, where Q1 tends to be a little bit more of a wholesale quarter. So that wouldn't have as big of an impact in Q1 as it would in Q4.
spk09: Got it. Okay. I know you don't typically guide by channel or region, but can you maybe provide some view as to the composition of growth DTC versus wholesale expected for the year? And I'm curious for 22 and the Cox brand, do you foresee stronger contribution to growth from international markets or will growth really continue to be led by North America?
spk04: I think we see strong growth in all of our markets this year. Again, we were especially excited about EMEA's order booking where that was coming up. I also would say we've seen some really good growth out of a lot of our markets in Asia. So we expect growth in all of our markets and also all of our selling channels.
spk07: Yeah, and if you look at the 2021, Jim, you can see really balanced growth across all the channels. So I think the brand is resonating with consumers around the world, and the consumers are then able to access the brand through multiple channels. So we feel like the distribution strategy is working well, and we expect to see balanced growth across channels.
spk09: Great. And last one for me. You mentioned investment in automation in the DCs and the prepared remarks. That sounds interesting. Can you maybe elaborate on that some? Speak about expected cost benefits and when those light manifest in the P&L?
spk07: Yeah, we've been investing in automation. I think we talked about this for several quarters. In fact, probably a couple of years now. We've invested in automation in multiple DCs. I think the piece in the prepared remarks is particularly around an upgrade of our automation in our Ohio DC and also new automation for our DCs. um for our uh european dc um so uh this primarily helps your digital business it's uh it's picked a person uh capability that gives you the greatest benefit on your digital business obviously as you know digital is a priority for us so uh leveraging uh technology to do that more efficiently and effectively is obviously a sensible thing to do so we're pleased about that and uh you know we'll certainly be um you know building the uh the costs and benefits into our future guidance.
spk04: Yeah, and I would just say, Jim, that's also allowed us to support the big growth that we've been producing over the last couple of years in digital because it allows us to get more throughput, which is obviously a huge benefit as well.
spk09: Great. Thank you so much.
spk02: Thank you. The next question comes from the line of Jim Chartier from Monash Crespi.
spk09: Good morning. Thanks for taking my question. You mentioned in one of the slides you're seeing increased signs of accelerating demand in Asia. And, Brent, are you just curious, you know, what signs are those? You mentioned Korea and India as kind of standouts there. You know, why are those geographies taking off? And then, you know, what's kind of the expectation for China this year? Thanks.
spk07: Yeah, I think we can measure and see the growth acceleration in some of our, I would say, European and Asian markets through a couple of different dimensions. One is the brand tracking that we do. So we measure brand consideration, brand relevance, et cetera. We see that increasing rapidly in select markets. and we've been able to correlate that to growth in the business historically. So we can see that in the markets that you mentioned, and we can also see that in some key European markets. I would also say, in addition to that, we have very strong order books in those markets. So we have strong order books from wholesale and retail customers, so we feel really good about that for the rest of the year, and I also would say that's very much the case in EMEA as well. From a China perspective, The China plan and the turnaround that we talked about extensively over the last two years, I think, is on track and where we expect it to be. But we do see COVID lockdowns, right? So as they get COVID cases in China, I'm sure you're all aware of this, they have a tendency to lock down the city, close all stores and quarantine the population at home. So when that happens, obviously, in that city, your kind of business goes to zero for a short period of time. Then it reopens. So we've seen that through Q4. And frankly, in our expectations, we assume that will continue through this year. So it's just, you know, an interruption to the business that we have to manage. Having said that, we grew China's double digits last year, and we expect to do the same again this year.
spk09: Right. And then, you know, in terms of U.S., you know, we've seen tremendous growth in the classic product for three years. You know, where do you see additional opportunity, you know, for that product in the U.S.? ?
spk07: So I would say we've seen tremendous growth in the classic club globally, not just the U.S., right? It's been definitely strong in the U.S., but we've seen that growth globally. And we continue to see the classic franchise growing. We've added sandals, but we've also added different versions of the club, particularly maybe outdoor orientated, I call attention to. So we continue to see the classic club growing with color, with graphics, with height. with new iterations and also, obviously, with collaborations. So, I think there's a lot of growth runway in the classic CLOG.
spk06: Great. Thank you.
spk02: Okay. The next question comes from Steve Marotta from CL King.
spk06: Good morning, Andrew and Corey. Thank you for taking my question. And if you said this explicitly, please forgive me. I missed it, but implicit in your comments, It seems that the price actions that have already been taken, are they expected to fully offset all of the costing increases with the exception of the incremental air freight? So, again, if you look out to 2022 and you see from a raw material standpoint and labor standpoint and other costs with the exception, again, of the incremental air freight, do you see that the price actions that have already been taken are offsetting those costs? Thanks.
spk04: Yes, we certainly, you know, saw that last year. And, you know, we more than offset inflation last year. And while it's hard to predict sort of the inflationary environment at this point, we do believe that, you know, we should largely be able to offset inflationary costs through the price actions that we've taken from a cross perspective to what we know at this point.
spk06: And would you make those comments inclusive for HeyDude as well?
spk04: You know, we haven't closed on HeyDude yet from a transaction perspective. So, you know, I think we will obviously take a look at HeyDude pricing and as well as kind of underlying inflationary pressures there after we close. And we will come back, you know, and talk about that with a little more granularity on our Q1 call.
spk06: Helpful. Thank you very much.
spk04: Thank you.
spk02: The next question comes from the line of Mitch Comets from Seaport.
spk08: Yes, thanks for taking my questions. I've got a few. This first one's housekeeping. So when I look at the Hey Dude projection for this year for, like, Qs 2 through 4, It looks like it's about $535 to $575 million, and that would kind of roughly work out to be $180, $190 million a quarter. Is that how you see the business playing out, or is it going to be more lumpy than that because of supply chain or maybe because the business builds over the course of the year? How should we be modeling that hey-do contribution beyond Q1?
spk04: Right. So what we've said is, so I'm just trying to follow your numbers, because I believe our HADU guidance on a reported basis this year is going to be 620 to 670. So that's on a reported, on a performative basis, we said between 700 and 750. Again, I think, you know, with HADU, they're, right? Is that what that is?
spk08: Yeah, I took the 620 to 670 and I carved out the Q1, which left me 535 to 575 for the balance of the year. And I'm trying to understand how that balance flows on a quarterly basis. If it's pretty straight line or...
spk04: Yeah, I think, Rich, at this point in time, we haven't commented on that yet, again, because we haven't closed the transaction yet, which we will. So as soon as we close the transaction, we'll try to give a little bit more color on how that plays out. I would say just taking a step back, though, on a macro level, when we think about seasonality for Hey Dude, I would say, you know, it's a little early to tell just because their growth is so strong and continues to grow. It's hard to understand what, you know, long-term underlying seasonality is to the business.
spk08: Okay. Okay. And then as far as ASPs go, for several quarters now, you've benefited not only from pricing but also fewer promotions. It looks like for 22, pricing is going to continue to be a benefit for you. I'm curious how you're thinking about promotions. Are you assuming a more conservative posture there, or do you think kind of promotions are sort of net neutral when you sort of look at it on a year-over-year basis?
spk07: Yeah, I would say it's our intent to try and maintain a very low promotional cadence like we have established over the last 12 months. Obviously, you do have to look at the competitive environment when we take that into consideration. I think that's our plan. There will still be promotions around some key consumer events, but they'll be very modest in nature. We think that's the right way to proceed. I think that's probably what most brands are thinking, so that's our assumption.
spk08: Okay. And then lastly on Hey Dude, and I recognize that you haven't closed the transaction yet, but can you say, you know, kind of what percent of the business are the Wendy and Wally silhouettes? Is that the majority of the business? And I'm also curious as to kind of when you look back over like particularly the holiday season, you know, what was really working for the brand in addition to maybe those two kind of key silhouettes?
spk07: Yeah, the Wendy and the Wally are very important silhouettes to the brand. They are a big part of the business, and that is one of the things that attracted us to the brand. We believe brands that have iconic silhouettes that resonate extremely strongly with the consumer, like Crocs, are very valuable brands. They have pricing power. They have tremendous traction with the consumer. So Wendy and Wally are super important. I would say in addition to Wendy and Wally... The Hey Dude brand has done some nice work with expanding into derivatives, expanding into fleece line, expanding into boots, and those performed very well during the holiday season. So it gives us a lot of evidence and ammunition for our product strategy in the future, and I would say we're working very proactively on that right now.
spk08: Got it. Okay. Thanks, and good luck.
spk02: Thank you. And the final question will come from the line of Sam Poser.
spk09: I just want a quick follow-up to my earlier question. Historically, your gross margin in the last few years, your gross margin in Q2 has been, you know, 6,500, 700 basis points higher than Q1. Is there anything that would change that this year sort of to the core of crop systems? From what I understand, Hey Dude runs higher gross margins, so that should actually be added.
spk04: Yeah, we haven't published Hey Dude gross margins yet. But for Q2, I would say just for the core crops brand, you know, the little bit of shift from revenue, right, from like an EMEA perspective is the wholesale order book shift around. The reason why your Q2 margins are so much higher is because Q1 is such a heavy wholesale quarter. So this is sort of a channel mix issue. But I still expect structurally that those, as we talked about before, that structurally Q2 will still be higher than Q1, and that dynamic still exists this year as well.
spk09: And the shift, you said initially, the shift in the MEA is from Q1 to Q2 or from Q1 to Q2 and then Q2 to Q3 of that wholesale business?
spk07: The only information we provided is from Q1 to Q2.
spk09: Okay. And can you give us some indication of, well, we have it from last year. So, all right. Thank you. Thank you. Appreciate it.
spk02: This now concludes our Q&A session. Thank you. Thank you for joining us.
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