卡洛馳 (CROX) 2021 Q2 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Crocs Inc. Second Quarter 2021 Earnings Call. (Operator Instructions) Please be advised today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Corinne Lin. Please go ahead.

Good morning, everyone, and thank you for joining us today for the Crocs Second Quarter 2021 Earnings Call. Earlier this morning, we announced our latest quarterly 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 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. 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 Rees, Chief Executive Officer; and Anne Mehlman, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions.

At this time, I'll turn the call over to Andrew.

Thank you, Corinne, and good morning, everyone. Our Q2 results are exceptional as we continue to see strong demand for the Crocs brand globally. Our confidence in the strength of our brand is also reflected in our raised 2021 guidance. Looking beyond this year, we're announcing that the Crocs brand will have net zero emissions by 2030. We will raise our already low emission footprint per shoe and enable us to provide comfort without carbon to our fans worldwide. I'm excited for our future, and I'm confident we can deliver sustained, highly profitable growth while having a positive impact on our planet and our communities.

Turning to the highlights of the second quarter of 2021. Revenues nearly doubled versus prior year to $641 million and increased 79% from 2019. Revenue growth was strong across all regions, with the Americas up 136%. And on a constant currency basis, EMEA up 53% and Asia up 27%. Sandals, one of our long-term growth pillars, grew by 57% in the second quarter and 38% for the first half. Digital sales grew by 25% versus prior year and an impressive 99% versus 2019 to represent 36% of revenues. DTC grew 79% versus prior year and 86% versus 2019 to represent 52% of revenues.

Adjusted operating income more than doubled to $196 million, and adjusted operating margins expanded to a record of 31%. Adjusted diluted earnings per share increased by $1.22 to $2.23. Underlying these incredible results is the iconic brand we have built.

To continue to fuel brand relevance and consideration globally, we leverage digital and social marketing, influencer campaigns and collaborations. We were the first footwear brand to market an augmented reality experience on TikTok, with our #GetCrocd Challenge, featuring try on sandals and clogs for Jibbitz. Globally, this drove over 8 billion views and over 1 million users of the hashtag. We also generated buzz when Balenciaga Spring 2022 runway featured our second collaboration together, comprised of a knee-high rain boot and a Croc stiletto. Global collaboration highlights include London-based skate wear brand, Palace. In Russia, rave music brand, Little Big. In Japan, highly influential retailer, Beams. And South Korea, world-famous ramen brand, Nongshim.

Finally, in the U.S., we reintroduced our Free Pair for Healthcare initiative during National Nurses Week, where we gave away 50,000 pairs of Crocs at-work shoes to frontline caregivers. We're proud of the brand we have built and especially pleased with the initiatives such as Free Pair for Healthcare that enable the Crocs brand and business to have a positive impact in our communities.

This week, we announced our next step in having a positive impact on our planet. Our commitment to becoming a net zero emissions by 2030. Our inherently simple approach to design, the materials we use and how our shoes are manufactured means that our Classic clogs already has a low carbon footprint of only 3.94 kilograms of carbon per pair. We're taking a step further with our plan to achieve net zero emissions through sustainable ingredients and packaging as well as responsible resource use. We anticipate our consumers will be as excited as we are about our commitment to having a positive impact on our planet.

In addition to reducing our environmental footprint, our comfort journey will increasingly include uplifting our communities and creating a welcoming environment for everyone, rooted in a culture of transparency and accountability. This week, we launched the new brand purpose section of our crocs.com site, and a new ESG section of our investor site to share our progress. I encourage you to review the content that we will discuss in greater detail at our upcoming Investor Day.

Now let's turn to second quarter operating highlights. We're very excited by the growth we are seeing in all key product pillars: clogs, sandals and Jibbitz. Clogs sales were outstanding, increasing 101% year-over-year to represent 74% of total footwear revenues versus 68% last year. We continue to innovate and are encouraged by the initial results of our new platform and seasonal colors and prints. Sandal sales were a standout, increasing 57% for Q2 and 38% for the first half, driven by our Classic Slide and Classic Sandal but both feature personalization. As well as Brooklyn and Tulum franchises.

In addition to this strong growth, we're very pleased that in our global brand study, sandals consideration is now in line with that of clogs. Given the strength of clogs, sandals represented 20% of footwear sales for the quarter versus 23% last year. And as we have shared, while we expect clog growth to outpace sandals this year, we anticipate that over the longer term, sandals will grow faster than clogs.

Jibbitz sales were once again exceptional, more than tripling for the quarter versus last year. The global personalization megatrend continues. And Crocs fans enjoy the experience of shopping for Charms in our retail and wholesale stores. From a channel perspective, global DTC revenues, which include revenues from e-commerce and company-owned retail stores, grew by 79%. Retail had extraordinary performance with traffic and conversion up significantly from a more normalized second quarter of 2019. E-commerce performed well, and this was the 17th consecutive quarter of double-digit e-commerce growth.

Digital sales grew 25% on top of an elevated 2020 compare to represent 36% of our second quarter sales compared to 56% last year and 33% in 2019. Digital remains a top priority, and we continue to invest in our customer experience globally to retain our competitive advantage relative to other footwear brands.

Our wholesale channel, which includes brick-and-mortar, e-tail and distributors, grew revenues by 112% versus prior year and 71% compared to 2019. Our focus on strategically important accounts, comprised of leading e-tailers, sporting goods, family footwear and specialty footwear retailers, led to a strong growth in all subchannels globally. Our top 20 brick-and-mortar accounts and distributors were standouts as they rebounded from the depths of the pandemic.

Finally, profitability was exceptional as we achieved record quarterly adjusted operating margins and record quarterly adjusted EPS. While we remain incredibly optimistic about our business and have substantially raised full year 2021 guidance. As we emerge from the pandemic, global logistics remain challenging and volatile. In addition, we are increasingly seeing COVID spikes in some of our primary manufacturing countries and are concerned about the short-term impact of potential factory closures on supply. We have attempted to incorporate both the additional expense and the potential supply disruption into our guidance to annual review.

Before I turn the call over to Anne, I want to thank the entire Crocs organization. These results are a reflection of the hard work and dedication to the Crocs brand. I'm excited for our future and look forward to achieving our commitment of net zero by 2030, creating a more comfortable world for us all.

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 second quarter results. For a reconciliation of the non-GAAP amounts mentioned to their equivalent GAAP amounts, please refer to our press release.

Our second quarter results were exceptional. We delivered record quarterly revenues on broad-based growth across all regions, channels and product pillars. Profitability was best in class as we expanded gross margins, leveraged SG&A and increased earnings per share. Second quarter revenues came in at $640.8 million compared to $331.5 million in the second quarter of 2020, a 93.3% increase or 88.4% on a constant currency basis. Growth was 78.5% versus the second quarter of 2019. Year-to-date revenues exceeded $1.1 billion, an increase of 68.1% versus the first half of 2019.

We sold 29.1 million pairs of shoes, an increase of 78.8% over last year and 52.7% versus the second quarter of 2019. Our average selling price during Q2 increased 8% to $21.84, with the increase attributable to less promotional activity and higher pricing as well as favorable product mix, including increased sales per charm, per shoe. The Q1 price realignment, we took on certain products in select markets globally have been successfully adopted and as evidenced by our growth has not hindered demand.

Now let's review our results by region. As Andrew mentioned earlier, the Americas had another great quarter, with revenues of $405.7 million, up 136.4%. DTC growth of 128.1% was outstanding, driven by retail. Higher traffic combined with anniversary-ing significant store closures last year, contributed to triple-digit growth in company-owned retail stores and more than doubled versus 2019. Digital penetration was 30.9% in the second quarter compared to 30.7% in 2019. Wholesale growth was 149.3% versus prior year and 140% versus 2019.

In Asia, Q2 revenues were $126.8 million, up 35.5% or 27.1% on a constant currency basis from last year. DTC increased 10.8%, while wholesale grew 76.5%. Digital revenues grew 17.1% versus prior year and 40% versus 2019. Digital penetration also increased from 31% in 2019 to 40.5% this year. South Korea continued to exhibit strength, while several other countries in the region remain impacted by the pandemic.

EMEA revenues increased 63.1% or 52.6% on a constant currency basis to $108.3 million, with growing brand heat offsetting any global logistics disruptions. DTC revenue increased 29.2%, with e-commerce strength driven by higher traffic and a return to growth in retail and stores reopened. Wholesale revenues grew 82.6%, fueled by broad-based strength in e-tail, distributors and brick-and-mortar. Our EMEA business overall continues to benefit from our focus on digital commerce, which represented 52.5% of EMEA revenue this quarter versus 40.3% in Q2 2019.

Second quarter adjusted gross margins were 61.8%, up 660 basis points from last year's 55.2%. The majority of the improvement was driven by price increases, coupled with fewer promotions and discounts, offsetting pressures from elevated freight rates. Currency favorably impacted margins by approximately 90 basis points.

Our adjusted SG&A improved to 31.2% of revenues versus 33% in last year's second quarter. The decrease in adjusted SG&A rate is a result of strong sales growth and operating leverage. We invested approximately $60 million versus the first quarter to support our strategic initiatives, digital, sandals, China and marketing. We will continue to make investments this year to support the long-term trajectory of our business.

Our second quarter adjusted operating income more than doubled to $196.4 million versus $73.8 million last year, with robust operating profit growth in all regions. Adjusted operating margin rose from 22.3% last year to 30.7% this year, benefiting from gross margin expansion and SG&A leverage on strong sales growth. For Q2, our underlying non-GAAP effective tax rate was 24.7%, excluding a onetime benefit of $175.4 million. The income tax benefit and decrease in our GAAP effective tax rate were driven primarily by the realization of deferred tax assets, which were previously subject to a valuation allowance.

Second quarter non-GAAP adjusted diluted earnings per share increased to $2.23 compared to $1.01 a year ago. Our liquidity position and balance sheet remains strong. We finished the quarter with $197.9 million of cash and cash equivalents and $386.4 million in borrowings and have ample liquidity, with $454.7 million of borrowing capacity on our revolver. In Q2, we executed a $300 million ASR, which resulted in the repurchase of 2.9 million shares at an average price of $103.79 per share. We expect to generate significant operating cash flow and to maintain a strong balance sheet. We will continue to prioritize investment in the business to support our future growth. We will also continue to be opportunistic with respect to our capital structure and our capital returns.

Inventory at June 30, 2021, was $209.1 million, up from $146.8 million in the second quarter last year. Inventory was lean throughout Q2, and we ended the quarter with higher in-transit inventory due to the continuation of global logistics challenges.

Turning to the future. I would like to share our current outlook for the third quarter and full year 2021. As Andrew mentioned, global logistics remain volatile. Due to the lack of visibility, we have provided guidance with potential supply chain disruptions and additional expense in mind. For Q3, we expect revenue to grow approximately 60% to 70% and adjusted operating margin to expand to be between 24% and 26%. Strong growth is expected in all regions and all channels as brand momentum continues. Given our extraordinary first half performance and confidence in the momentum of the Crocs brand, we are raising full year 2021 guidance. We now expect 2021 revenue to grow between 60% and 65%. And the midpoint growth in the second half is anticipated to be 49% versus 2020 and 100% versus 2019. In addition, we expect adjusted operating margins to be approximately 25% for the full year 2021.

While we expect to leverage SG&A long term, we plan to invest in the back half of this year to support future growth. We now expect our underlying non-GAAP tax rate to be approximately 23%, which is higher than previous guidance due to greater-than-expected profit in our U.S. business. We look forward to sharing our long-term growth algorithm at our upcoming Investor Day on September 14.

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. Before we open the line for Q&A, I want to acknowledge that Doreen Wright is retiring from our Board of Directors after a decade of service. I want to express my gratitude for all of Doreen's many contributions and wish her all the best in the future.

I also want to thank our talented team around the world, without which these results would not be possible. The Crocs brand remains incredibly strong as evidenced by our second quarter results and our increased guidance for 2021. We're incredibly excited for the future, which now includes achieving net zero emissions by 2030 and having a positive impact on our planet.

Operator, please open the call for questions.

(Operator Instructions) Your first question is from Jonathan Komp with R.W. Baird.

I wanted to start off, when you think about the second half guidance, given the raise to the full year revenue, and I think you highlighted there was an embedded acceleration to 100% growth at the midpoint versus 2019 for the second half, could you just maybe share more detail on what you're seeing maybe across channels and geographies to support your confidence in that 2-year acceleration from here yet?

Thanks, John. I'll give you a bit of color and then pass it over to Anne to give you kind of some more specifics. Yes, look, we remain incredibly confident in the trajectory of the brand. Obviously, we've had a very strong first half, very strong Q2. And as we look across all of our channels, we really see strength in all the channels. Maybe I'll start with retail, where we had really exceptional growth. So our stores have reopened this year. We've seen significant increases in traffic. We've seen significant increases in conversion. And our retail stores both here in the U.S. and also particularly in Korea have performed really well.

Digital is performing well. I think we highlighted the 99% comp over the 2019 numbers, and digital is both our own e-comm and, in addition, e-tail. And then from a wholesale perspective, again, our wholesale channel is performing well. I think we called out, in particular, our brick-and-mortar, our leading 20 brick-and-mortar accounts and our distributors. So distributors, we kept fairly lean on inventory last year through the pandemic. We didn't want them backing up on aged inventory. So as they're emerging, they are replenishing. And, I would say, very bullish about the future of the brand. So I think we're confident on all dimensions.

Yes, I think that's exactly right. And I think just to add a little color by region as well, we saw Europe, EMEA growth is almost 53% constant currency in the quarter. So really good to see some international growth coming on strong. We expect those trends to continue. Asia also returned to growth on a 2-year basis, which is great to see. So we expect all of our regions to contribute to those growth factors in Q3 and Q4. And then obviously, we have some visibility on our order book that supports all of this growth that we're guiding.

Okay. That's encouraging and very helpful. Maybe secondly then, when you think about the supply chain ability to keep up with that growth, could you just share more given your outsized exposure to Vietnam from a sourcing perspective? Can you just share more of the current state of the environment there and the key factories? And then you mentioned having embedded some impact in the second half, so maybe you can give a little more color what's embedded in the expectations.

Yes, yes. So I say, John, that's a great question. It's probably one of our key concerns. So as you look at global supply and logistics, look, it's been extremely challenging for the last 12 months. We've been living with this for the last 12 months, and performed as we have performed in the last 12 months given that. And so what's different today -- and let me break those 2 pieces apart. One is global logistics, which is containers, freight time, et cetera. And just to give you a perspective, I would say kind of transit times from Asia to most of our leading markets are approximately double what they were historically, right? So -- but that's been the case for some time, and we're expecting to live with that.

We've also seen elevated freight costs, some in the first half of the year, and we're expecting to see more in the back half of the year, and we've embedded that expense into our projections. I think what's different now is the COVID spikes that we're seeing in, I'd say, Southeast Asia and particularly Vietnam. And our expectation is that we will see some temporary factory closures in the next quarter as Vietnam battles COVID. They, unfortunately, don't have access to or the ability to administer the amount of vaccine that we have in this country. So really, they're left with lockdowns and being judicious about how people interact. So we do expect temporary factory closures, which will obviously impact supply.

So -- but with that, we've embedded that in our guidance in terms of really trying to make sure that we're confident in the amount of inventory that, a, we have on hand; and b, what we have in transit. And we feel really comfortable with where we are given those uncertainties.

Next question is from Erinn Murphy with Piper Sandler.

Great. Really great quarter. I guess just, Andrew, for you on that last point on Vietnam. Can you just remind us how big Vietnam is as a percent of your overall sourcing? And just how quickly you can move into other regions if some of these rolling lockdowns continue? And then I guess, bigger picture on APAC. Could you share a little bit more about what you saw in China in the quarter? How did you -- how do the consumers respond to 6/18 and any other kind of key initiatives as you kind of refocus that region for growth?

All right. I'll let Anne talk about Vietnam and factory base to start with, then let me pick up China.

Erinn, so as you know, we manufacture a significant portion of our products in Vietnam. We don't release the overall percentage, but it is the most significant manufacturing geography for us. And then as well as supplemented by China, Indonesia and a couple of other places around the world. But Vietnam is our most significant from that prospective.

Yes. And I think the ability to move out of China, yes, we have absolutely some ability. We have some capacity, spare capacity in -- sorry, mobility to move out of Vietnam. We do have some spare capacity at other places, but it's not enough to make a wholesale change.

Then in terms of China trading, look, I think we were really -- let me kind of go back up to Asia first and then come down to China. We were really pleased with our Asia performance during the year, during the quarter. Obviously, we grew nicely even on a constant currency basis. There was some currency that helped the headline number. But on a constant currency basis, we grew nicely at 27%. And that was despite some significant COVID impacts around Asia, when you think about India, when you think about state of emergency in Japan and also the lack of travel in Southeast Asia and the current spikes that you're seeing.

In terms of China, I think we've talked extensively about the repositioning plan that we have in place. I would say we think it was a really good quarter in China. We executed really well against all of the dimensions of that repositioning plan, including elevating and enhancing our marketing, trading on mixed-use and festival. And so we feel really good about the performance in China. And we, I think, are set up well and very confident about accelerated growth in '22.

Great. That's great to hear. And then maybe if you could speak a little bit more about the goal you established last night to get to net zero by 2030. I guess, our question is, what percent reduction are you committing to versus just using offset to net out the rest? So just curious on some of the kind of commitments internally to get there. And I'm assuming -- I mean, this is well ahead of most footwear companies that we benchmark. So just really, I mean, fantastic job to put this out already.

Right. Thank you. We appreciate that. So what I would say, look, we've been working on this for some time. And we've been working on this from a number of dimensions. One is sourcing and working with, I would say, a major chemical company as a partner to identify the potential for sustainable ingredients to go into our products. So deriving our Croslite foam from sustainable ingredients, and we've identified a solution to that, that we feel very comfortable with. And we'll be focused on scaling that solution over the coming years, which is really one of the key factors in terms of lowering our overall footprint.

But we're also looking at it from lots of different angles. From a packaging perspective, I think one thing that we've done for years is really not ship our product in packaging. We don't use shoeboxes. So 85% of our product ships without a shoebox, but we think we can do even better there. But also looking at sustainable energy that we would use in our facilities, including some of our factories, as well as reuse. So as we look at the whole carbon footprint and all of the key components that go into that, obviously, we start from a great place with a very low carbon footprint on our Classic Clog at 3.94 kilograms of carbon We will be posting that on our website here very shortly. And we will also be measuring the footprint of all of our other products over time and releasing that information. So we want to be really transparent about this.

In terms of the future goals, yes, part of it is offset, but we will be making a substantial reduction in our actual carbon footprint in and of itself. We're not ready to disclose that at this stage, but we'll talk much more about that in our September Investor Day. So we do have some significant internal goals around that.

Great. And then just last one, Anne, for you. Just the CapEx guidance for the year moved from $100 million and $130 million to $80 million to $100 million. What was the difference in the change? Was there anything in terms of supply chain investments that you pushed out? Or was it another investment?

Yes. No, we're very committed still to the investments we're making around our supply chain. It's really just timing of costs in this year. So it really has nothing to do with that. It's just really more around timing.

Your next question is from Mitch Kummetz with Pivotal Research Group.

Congrats on the quarter. Andrew, if I heard you correctly, you made a comment that sandals consideration is now comparable to clogs. Help me understand how meaningful that is. And maybe what you can do is, is there any way you could provide context around that in terms of like what that consideration was a year ago or 2 years ago versus clogs, just so we understand what it means to be comparable? And then also I don't think you're saying that next year, you're going to sell as many sandals as clogs, but what could that mean going forward in terms of the growth of the sandal business for consideration to now be at the level that it is?

Great. Thanks, Mitch. I'm glad you picked up on that. Yes. So we think, actually, it's very important, right? So what we mean by that is, when we measure brand consideration with our consumers, we run a, obviously, consumer brand study every quarter to try and assess where our consumers are. One of our key questions is consideration for the -- clogs consideration, the sandals, et cetera. I would say, historically, the sandals consideration number has been a fraction of the clogs consideration number. That's what we're known for. That's what most consumers would consider purchasing a Crocs item. They would first consider a clog. So we think it's very meaningful that the sandals consideration has risen over time. It's risen because of the marketing we've done behind it. It's risen because of the -- some of the new products that we brought into market, particularly those that are personalizable. And so I think it's very meaningful.

In terms of what does it mean in the future of revenues, no, we're not saying that sandal sales will be equivalent to clog sales in the future, but I think it gives us a lot of confidence in that sandal trajectory that we've been talking about. And we started -- we saw again here in Q2, but it gives us a lot of confidence in that growth strategy that we talked about.

Got it. Okay. And then, Anne, just a quick one for you. As I kind of work my model given the quarter and the guide, kind of back into a Q4 operating margin of like 16% to 17%, hopefully, my math is correct. That's down from Q4 last year, obviously, down from kind of the run rate that you're on. I'm just kind of curious, why is that not higher? Is that based on some of the investments that you're making on the SG&A side? Does that reflect some of the supply chain issues that you're kind of anticipating going forward? Can you maybe address that?

Yes. So we didn't guide specifically for Q4, so just reiterating that we said approximately 25% for the year. I think -- the biggest things in the back half are really around -- we're going to continue to invest in SG&A, particularly in marketing. Marketing expense was up this quarter about $26 million. We'll continue -- as we've talked about on our last call, we'll continue to invest in marketing. And our marketing expenditures for the year will be just a little over 7% of revenue. So that will accelerate -- continue to accelerate through the back half, and we will continue to invest for the future to support our future growth.

And then from a margin standpoint, we will have some margin pressure. Although for the back half, margins will be up. Gross margins will be up over last year. We will have some pressure just based on what we talked about was logistics and freight and kind of the overall logistics environment. So those 2 factors are combining to put to our guide of approximately 25% for the year.

Next question is from Sam Poser with Williams Trading.

So I've got a couple. I want to follow up on Mitch's question. Can you hear me?

Yes. Hi, Sam.

I just want to follow up on Mitch's question regarding the fourth quarter. And just by asking, was the incremental marketing spend that you're pushing in, you beat -- how much incremental marketing as a percent, or however you want to talk about it, was there in Q2? And how much of those incremental sales can you attribute to it? And how much incremental marketing is built into the balance of the year? And what kind of sales lift are you attributing to that within the guidance?

Okay. Let me try that. Let me try the first part. So from a marketing perspective, year-to-date, I believe marketing is up about $28 million. $26 million of that was in Q2. So obviously, the majority of that incremental spend year-to-date was in Q2. And we'll see much of the same type of spend in order to get to that approximately 7%. You can do the math. A little over 7% in the back half of the year. About -- some of that is performance marketing, as you mentioned, which is variable, which supports e-comm, which is a little bit more transactional. And the rest of that is brand. So it's hard to equate how much of the increased revenue is actually related to that marketing. But what we do know is that our marketing is incredibly effective, and we look at things like brand surveys, see those trending in the right way, sandal consideration. And we know that in order to support our growth long term, we need to continue to spend into that. So I think it's really less about what the incremental that is contributing to this year and more about what the incremental is going to contribute to our future.

Okay. I'm going to come back to that. I'm not arguing that you shouldn't be spending the money. What I'm saying is how much of the near term -- my question is, I believe that because even the brand marketing and the other is driving -- helped to drive a lot of your strong results this quarter that my question is -- and I would assume, based on the marketing -- your marketing percent of sales, given the results were less than what you anticipated they would have been in Q2. Is that a fair statement based on the guidance you gave and the money you spent?

Was our marketing percentage less than what we planned for Q2? I'm sorry. I don't -- can you just...

Yes. No, you're saying that -- look, if we had a sales acceleration above what we expected, the marketing come in low. No, I think I would say no to that. Because a lot of our marketing is very variable, and we plan in a very short period of time. Even some of our brand marketing, we can lean into events or lean back from events, especially around social media. So we were very -- we calibrate that very closely, so I wouldn't say it was dramatic. It was less in Q2 than we expected.

And look, I think our strategy is really clear, right? We have a great marketing strategy. We have, I think, really effective team. We're doing some incredible work. So we're going to continue to spend to ignite consumer interest in the brand. That's clearly working. And as Anne said, we don't look at what is the incremental in the year. We think about it from a multiyear trajectory.

Yes. And I think, just one piece of that, too, is that if you look at our results -- our 10-Q will be out a little bit later. But if you look at our results by segment, I mean, you can see that we actually took some of the increases that we were having in the U.S. and investing that overseas, particularly in our Asia market. So we can do that within the quarter.

All right. All right. And then how much of your inventory -- the current inventory on your books is in transit right now?

We don't break out the inventory and that first is the what's on hand, but it's significant and it's up significantly year-over-year. Much of the increase of our current inventory is actually sitting in, in transit. And that's been pretty consistent all year as we've just been working through logistics. And then Andrew talked about earlier longer freight cycle times.

And how much of your product for the -- that is made for the -- how much of the product that you need for the full year is already produced? So with that, I'm asking how much of the production needed, I guess, for the next 6, 8 months is made? And how much of that is -- what percent may be impacted by the issues in Vietnam?

Yes. I think, to your point, Sam, the majority of our products for Q3 is, obviously -- Q3 is you have the product in. So there is some for Q4. But obviously, it increases as you go out and increase your time span.

Your next question is from Susan Anderson with B. Riley.

Let me add my congrats on an amazing quarter. I was wondering if you can maybe talk around about your thoughts on promotions. And as we look forward and the impact on gross margin levels. I'm curious if you think there's still room to pull back on promotions. And also, how you're thinking about price increases? Are there more planned for the back half or 2022?

Yes. So I think -- look, we've been very proactive in terms of pulling back on promotions through the year. Is there further room? I would say some, but not significant, right? And I would say those are particularly in maybe some of the Asian markets. We've got a little bit of opportunity to continue to pull back as the brand heat starts to accelerate in those markets. But I don't think that's significant going forward. We've done a lot. If you look at our U.S. website, I mean, it's essentially been nonpromotional all year long, et cetera. So -- and I think -- and as you look at our stores, also essentially nonpromotional.

If you talk about price increases, yes, there are some price increases that we're planning in '22. Those have already been communicated. I would say they are stronger outside of the U.S., particularly in EMEA and, again, in Asia as we look to manage price value in given markets. As we said, we always look at the price of the product relative to competition, relative to the brand heat in that particular market. So there are some price increases that will flow through in '22. But I would say they are also dramatically less significant than the moves that we made this year.

Okay. Great. And then maybe if you could talk about your thoughts on back-to-school. Are there any early reads that you could talk about or how you expect it to play out this year? And then I'm curious for this fall if there's any new products that you're expanding on such as maybe your boot offering similar to what you've done in sandals?

Yes. I think we're very optimistic about back-to-school. I would say early reads are strong, right? As we look at -- obviously, there are some parts of the country that go back a lot earlier than others. As we look at the performance in those markets, we're seeing a trajectory that we really like. So we're very optimistic about back-to-school. Obviously, it was very strong last year coming out of the lockdowns of the pandemic. We feel very confident in our ability to anniversary and grow from that basis.

I would also point out, as you look at our seasonality. The growth in back-to-school and the strength of fourth quarter, a lot of our seasonality that was historically in the business has really smoothed out. And so we can be incredibly profitable each quarter of the year. In terms of new products in the back end of the year, I would say particularly exciting is -- as far as online product, it's been growing, been building now for about 3/4 years. But we don't feel like in any of the prior years, we've really cap the full potential of that. So we think for us both in the clog, but also some new exciting first product that will come out more broadly will be important in the back half.

Your next question is from Jay Sole with UBS.

Great. Andrew, can you talk about the allocation model that the company has implemented over the last quarter or 2? And just talk to us what the benefits have been to the brand and into the operations overall.

Yes. I think -- so let me start off by saying that the benefits are significant and really important. And the allocation model is one part of a sort of multipronged approach to really manage our brand at wholesale. Obviously, price promotion in our DTC channels, we can control explicitly. At wholesale, we really have to look at things like map pricing, which we instituted on, on some of our key lines earlier this year. And also allocation that we provide to our key wholesalers. What we're trying to do there is really -- is manage the amount of inventory that's in the marketplace on our most important key styles and also provide differentiation between the wholesale partners so that they're not competing head to head. So which will allow them to trade more at full price and our brands show up how we want to show up for consumers.

So I don't think it's anything new as you kind of think about the industry. I would say it has been an important shift for Crocs as we've adopted what I might consider kind of best-in-class brand management practices. I would say, I think they've been incredibly well received across the industry. I'm sure there are the occasional wholesale partner that would like more products. In fact, there are probably quite a few that would like more products, but this is an important part of managing the brand.

Understood. Maybe just a follow-up on that. In the context of 136% growth in the Americas this quarter, which obviously is a phenomenal result, can you give us a sense of how you're able to drive that kind of growth and move to an allocation? Like what would sales growth have been had you supplied inventory maybe the way you had a year ago or 2 years ago?

Yes. I don't think we know the answer to that question. Because as you point out, 130% of sales growth is phenomenal, right? So in short, what allowed that to happen is really consumer demand, right? Consumer takeaway has -- is at that level or ahead of that, frankly, right? We're not stopping the channel. We're keeping the channel pretty much where we would like it and in a very healthy place. So it's really consumer demand and consumer takeaway, and that's as a result of product innovation and all of the marketing that we do. So in terms of what it could have been, I don't think that's -- we don't know, and probably not that relevant because I think we're really comfortable with where we are.

Yes, I think it really supports our profitability as well. If you look at our 8% ASP growth in the quarter, it's hard to say how much of that is directly related, but it supports our wholesalers out the doors and, obviously, our ASPs as well.

Got it. And then maybe one more, if I can. I think, Andrew, you mentioned some price increases are coming next year. Given the map pricing, given some of the price increases that have happened, how high can prices go? And how do you think about the brand and the brand positioning relative to price in terms of like where the ultimate opportunity lies?

Yes. I think that's a good question. And just to reiterate, the price increases I referenced are really outside of the United States. So one thing that we're very conscious of is the consumer value that the brand provides. This is a very democratic brand. We serve a lot of consumers, both from highly affluent to much less affluent. And we never want to be in a place where we're turning consumers away because our product is kind of too expensive in their mind and not providing the value that we think it provides. So we're very careful about pricing so we don't push too far.

I think we've got that balance, I think, about right at this point. We're giving the consumers incredible value as well as obviously attracting the value that we think the brand deserves and the marketing and product innovation deserves and obviously providing a great return to shareholders. So yes, that's something we're very conscious of. It's very, very important to the brand and its future trajectory. And the price increase that I talked about for next year are mostly outside the United States.

Our next question is from Steven Marotta with CL King.

Anne, can you talk a little bit about how much channel mix was a factor in the second quarter gross margin delta and how much that will be a factor in what the gross margin guidance is for the year?

Yes. So channel mix from a year-over-year perspective was an incredibly -- it was actually helped a little bit margin because retail was so strong. And so from a gross margin standpoint, retail is very high. From an operating margin, as you know, we're rather agnostic. If you think about from a quarter-over-quarter perspective, Q1 is our -- tends to be our highest wholesale percentage quarter. So it's certainly from a quarter-over-quarter perspective you could see gross margins accelerate Q2 to Q1 because of that channel mix.

And then for the year, I wouldn't say that it's the biggest impact, right? The biggest impact sitting around our margin are really pricing pulled back at discounts and promotions as well as product mix, right, increase in our Jibbitz business as well as clogs are very favorable. And then we have a little bit of currency in there. And then those are somewhat offset by increased freight pressures as we talked about that still supporting overall higher margins for the year.

Your next question is from Laura Champine with Loop Capital.

I know you've answered a lot of questions on pricing so far, but I may have missed it. Did you give the growth mix units versus price in the quarter? A couple other ones on pricing. As you look to raise prices next year in other regions, are they just coming up closer to Americas pricing? Or will there still be a significant differential? And then third, on pricing. How much of a price increase do you need to take to hit your environmental goals with what I presume is a higher cost, more environmentally sound material?

Great. Well, let me answer your first question, and then I'll turn it over to Andrew to talk about price increases. So from an overall perspective, our units were up, our pairs sold were up 78.8% and our ASP was up about 8%. And then as far as the overall pricing and outside of the U.S., from the prices outside of the U.S., they don't necessarily depends on the product, don't necessarily and depending on currency tend to be higher than in the U.S., which is why we have an opportunity in some of our markets to align pricing.

Yes. Yes, I would say, if you look at pricing outside the U.S., look, it's really dependent on, I would say, the market, the competition and the brand heat in that market. So there are international markets where we're actually at a premium to the U.S., and there are others where we're at a slight discount. So I would say, broadly, yes, it's more coming in line with where we are positioned relative to competition relative to consumer demand. So I think that -- in terms of the genesis of your question, that's what we're trying to do, right? So that's a driver.

In terms of the incremental costs associated with some of our ESG efforts, yes, I think we feel like -- we'll talk a little bit more about that in our Investor Day in September. But we've incorporated that into our long-term business planning, and I think it's best we kind of cover that in that context.

Got it. I guess, a follow-on. And obviously, your Asia Pacific growth is accelerating. But I am curious, when I look at your pricing, whether that is slowing your growth down in China. Or do you think that it's still just about finding the right partners in that market?

No. I would say very clearly, we do not believe pricing is slowing our growth down in China. We think we're priced appropriately in China. We -- as we look at the kind of the repositioning plan, it's about the partners. It's about our marketing investment. It's about our e-tail business -- sorry, e-comm business. So no, we don't think it's about pricing. We think it's a lot of different dimensions that, as I mentioned to Erinn's question earlier, we feel really confident about the trajectory of that and how it positions us for next year.

Your next question is from Jim Duffy with Stifel.

Terrific execution, and congratulations to the team. Guys, I want to ask about infrastructure. You've been very thoughtful about investing in infrastructure, but the volumes have just been huge. I'm curious, once the product is in the U.S. or other regions, are there bottleneck points or throughput challenges to delivering on demand? And can you speak to areas of investment to support additional growth into 2022?

Yes, really thoughtful question, Jim. So we don't have any current bottlenecks in our infrastructure. I would say there are many bottlenecks in the global logistics chain, whether it be Long Beach, whether it be rail out of Long Beach, whether it be availability of trucking. The list goes on, right? But -- so as we look at our ability to process goods, whether it's through our warehouse or through our cross-dock facilities, we can process a very high volume of goods. And I certainly have no concerns for '21 into '22.

You might note that we're significantly expanding our U.S. DC. Again, that will be open later next year. And we are also -- we have moved to our new DC in the Netherlands, and that will be kind of up to full operation again by the end of the year. So it's in partial operation across the 2 facilities today, but working really well.

In terms of longer-term investments, absolutely. We will -- we continue to grow the business at these rates or the rates we anticipate to continue to grow the business. We will continue to make investments in our infrastructure in the U.S., in EMEA and some of our key Asian countries as well.

And one just note overall on the cost side. We've actually seen quite a lot of efficiencies from our U.S. distribution network this year. And that is showing up in our margins, and we called that out as supporting our overall gross margin level. So we're really pleased with that.

Great. Yes, those investments have improved, very prescient. Andrew, can you talk about the tone of business with Asian distributors kind of the glide path to recovery in that business, what you're seeing there?

I think that's a big unknown, I would say. And we're not -- that's not happening this year, period, right? So not in our prospects or in our guidance. Those Asian distributors, as you're right to point out, they can be significant. There's large populations in those countries that we serve, and it's highly dependent on tourist travel, and that's just not going to happen. I guess if you were to ask me when, I think it's late next year before people start traveling to those countries. And that's kind of how we're thinking about it.

We have a follow-up question from Erinn Murphy with Piper Sandler.

Great. Just one follow-up for me. On the buyback, I think you fully exhausted your existing authorization this quarter. Any thoughts on upping that in the near future?

I think we have almost $700 million left on our existing buyback authorization.

Okay. Got it. Maybe I'm mistaken.

We also have a follow-up question from Sam Poser with Williams Trading.

I have 3 quick ones. Just about looking forward with the gross margin. You talked about mix from a product perspective, but do you expect the channel and geographic mix to continue to help you? Secondly, if you could give us some color on upcoming collaborations. And third, if you can discuss how is inventory at retail, both in your own stores and your wholesale partner stores is looking right now relative to the demand you're seeing -- currently seeing?

All right, Sam. Let's hit those in reverse order. So retail -- inventory at retail, I think -- look, the way we think about Q2 is I think we were not in the optimal retail inventory position in our own retail or even our wholesale partners, right? So it's better than it was at the end of Q1, but it's certainly not optimal. So I want to say optimum, I'm looking at kind of out of stocks and weeks of supply. So we believe that's an opportunity for the future. What was the second one?

Collabs.

Great. The collabs, we have a very strong pipeline of collabs. We talked to you a little bit more in our prepared remarks about all the different things going on. I know you track this closely. But I would say we have a very full pipeline through the end of the year and increasingly have a very full pipeline for next year.

Yes. And then on gross margin, Sam, we do expect channel mix, as I mentioned a little bit earlier. It will help, but the biggest drivers of gross margins for the year are really related to the pricing actions that we've taken, the continued pullback in promotional strategy. And then a little bit of currency. We expect currency to be about 70 basis points roughly for the year at current currency rates. And all of those combined -- and then as I mentioned as well, we have some efficiencies in our DCs. And then some of those are offset slightly by increased freight rates. So gross margins will be up for the year, but those are the major drivers and Jibbitz.

I think that's all of our questions. So -- and we're out of time. So really appreciate everybody's continued interest in the company, and thank you very much for attending this morning.

This concludes today's conference call. Thank you for participating. You may now disconnect.