Skechers USA Inc (SKX) 2020 Q4 法說會逐字稿

Thank you for standing by. This is your conference operator. Welcome to Skechers' Fourth Quarter 2020 Earnings Conference Call. (Operator Instructions) The conference is being recorded. (Operator Instructions) I would now like to turn the call over to Skechers. Please go ahead.

Thank you, everyone, for joining us on Skechers conference call today. I will now read the safe harbor statement.

Certain statements contained herein, including, without limitation, statements addressing the beliefs, plans, objectives, estimates or expectations of the company or future results or events may constitute forward-looking statements that involve risks and uncertainties. Specifically, the COVID-19 pandemic has had and is currently having a significant impact on the company's business, financial conditions, cash flow and results of operations. Such forward-looking statements with respect to the COVID-19 pandemic include, without limitation, the company's plans in response to the pandemic.

At this time, there is significant uncertainty about the duration and extent of impact of the COVID-19 pandemic. A dynamic nature of these circumstances means that what is said on this call could change at any time, and as a result, actual results could differ materially from those contemplated by such forward-looking statements.

Additional forward-looking statements involve known and unknown risks, including, but not limited to, global, national and local economic business and market conditions in general and specifically as they apply to the retail industry and the company. There can be no assurance that the actual future results, performance or achievements expressed or implied by any of our forward-looking statements will occur.

Users of forward-looking statements are encouraged to review the company's filings with the U.S. Securities and Exchange Commission, including the most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all other reports filed with the SEC as required by federal securities laws for a description of all other significant risk factors that may affect the company's business, financial conditions, cash flows and results of operations.

With that, I would like to turn the call over to Skechers Chief Operating Officer, David Weinberg; and Chief Financial Officer, John Vandemore. David?

Thank you for joining us today for our fourth quarter and year-end 2020 conference call. I hope you, your colleagues and loved ones are staying safe and healthy.

Before we begin, I would like to thank the Skechers global team for their dedication and resilience this past year as we faced such incredible challenges. We couldn't have weathered the storm in such good shape without all your hard work.

Many countries faced another surge of the pandemic in the fourth quarter, which negatively impacted businesses around the world, resulting in temporary store closures and reduced traffic. Even with the ongoing health crisis and challenges, Skechers experienced growth in several of our segments and meaningful improvements in key countries. Our fourth quarter sales were $1.32 billion, 0.5% decrease from the prior year, which was a fourth quarter record, and notably, a sequential improvement from the third quarter of nearly 2%, illustrating the continuing recovery of our business. Our strong year-over-year sales in the fourth quarter was a result of a 1.2% increase in our domestic wholesale business and a 1.1% increase in our international business, which was led by a nearly 30% sales increase in China as well as growth in Europe and Latin America.

Throughout the quarter and year, we strategically directed the flow of inventory to markets that were open, delivered fresh product to consumers and continue to fulfill demand, resulting in growth in many key distribution channels.

In 2020, consumers search and desire comfort and value. With comfort as the cornerstone of the Skechers design initiatives along with style and value inherent to our product development, we are a natural choice for all, including essential workers and those working from home.

In our domestic wholesale business, our fourth quarter sales growth of 1.2% came primarily from our athletic casual, walking and work footwear as well as high single-digit improvement in our men's business. The domestic business decreased 2.8% due to a 7.6% decline in our direct-to-consumer sales, which was negatively impacted by reduced traffic in our brick-and-mortar stores, a result of the stay-at-home guidelines and an overall decline in foot traffic and tourism. We believe our domestic brick-and-mortar stores will continue to be impacted by the pandemic, at least through the first half of the year, though we expect to see improvement as more people receive vaccinations and government restrictions ease. The decrease in our domestic direct-to-consumer business was partially offset by a 142.7% increase in our domestic e-commerce channel, which continues to perform extremely well. With the focus of improving our direct-to-consumer experience, over the holiday season, customers were able to shop online and pick up in-store at many of Skechers locations across the United States. We are now completing the update to our point-of-sale system to better connect within our e-commerce channel, and we are finalizing enhancements to our loyalty program, both of which we believe will further improve our omnichannel offering.

We continue to view our e-commerce channel as an opportunity for meaningful growth, as sales increased significantly on both our domestic and international sites that we currently operate. And this coming year, we plan to launch new sites across Europe and South America, which will provide both a better brand experience for consumers as well as new sales channel for Skechers in many regions.

Our international direct-to-consumer business decreased 4.4%, which was due to a decline in traffic with stay-at-home guidelines, reduced hours and temporary closures, primarily in Europe, Canada and Latin America. In total, Skechers' direct-to-consumer segment decreased 6.4%. As the pandemic spread again in numerous markets, temporary store closures and reduced hours continued. In the United States, consumer traffic at our stores was approximately 35% lower, and operating hours were reduced by approximately 20%. For our international company-owned stores, we effectively lost 17% of the days available to sell during the quarter. At quarter end, nearly 10% of our company-owned stores were closed due to health guidelines. Today, due to government restrictions, a number of our international locations remain closed or have reduced hours. All Skechers stores in the United States are open, and some domestic regions are trending positive, while others are still impacted by reduced hours and traffic due to local guidelines. To note, while our direct-to-consumer business decreased in the fourth quarter, we did experience sequential quarterly sales improvement of 9.5%.

In the fourth quarter, we opened 19 company-owned Skechers stores, 12 of which were international locations, including a flagship store in Munich. We closed 6 locations in the fourth quarter, and another 18 have closed to date in the first quarter. By the end of the first quarter, another 5 to 7 company-owned stores are expected to close. In addition, of 108 third-party Skechers stores opened in the fourth quarter, bringing our total store count at quarter end to 3,891. The stores that opened were across 22 countries, with China opening the most locations, including our first dedicated golf store at the same Mission Hills Golf Resort in Shenzhen. Our international sales improved 1.1% over the same period last year, and sequentially, 4.5% higher than the third quarter. Our international wholesale business improved 2.5% from the fourth quarter last year. This was the result of increases in our joint venture business of 19.4%, led by an increase of 29.7% in China and an increase in our subsidiaries of 12.7%. The subsidiary growth was across Europe and Latin America, with exceptional improvements in the United Kingdom and Germany as well as in Chile and Spain. As expected, our distributor business was down 57.9% due to ongoing store closures in several markets, including our largest distributor, which covers the Middle East.

To support the open markets during the holiday selling period, our marketing efforts were focused on comfort, with commercials and digital advertising to support key initiatives for men, women and kids. This included a new campaign with former quarterback and lead NFL commentator, Tony Romo for Max Cushioning, who you will see in the Skechers Super Bowl commercial this Sunday. To support our business during 2020 and for the coming years, we took steps to not only enhance our POS systems and e-commerce platforms, including the addition of BOPIS and BOPAC in the United States, but also enhanced our distribution centers and supply chain production capabilities. Along with opening a new logistics center in Colombia, we have added a distribution center in the United Kingdom to serve the region in the post-Brexit environment. The automation of our new 1.5-million square foot China distribution center remains on track for full implementation by midyear, and we continue working on the expansion of our North American distribution center, which will bring our facility to 2.6 million square feet in 2022. We anticipate many markets will remain challenged in the first half of the year due to the pandemic, but believe some countries are showing signs of recovery. During this time, we will continue to manage the flow of our inventory to fulfill demand where we are open, spend prudently in markets still impacted and drive sales where possible.

Now I'd like to turn the call over to John.

Thank you, David.

2020 was an extremely challenging year, and the fourth quarter was no exception. Multiple markets continued to experience significant operating restrictions, including store closures and reduced operating hours. Despite this, the Skechers brand performed exceptionally well, with encouraging sell-through and strong gross margins. In addition, the Skechers organization continued to effectively navigate the uncertainty of this environment while making investments for the future. While we expect similar challenges to continue for at least the first half of 2021, we are confident that the strength and resilience of the Skechers brand and the execution of our growth strategy, focused on expanding our international footprint and increasing our direct-to-consumer relationships, will deliver shareholder value.

Now let's turn to the fourth quarter results. Sales in the quarter totaled $1.32 billion, a decrease of $6 million or 0.5% below the prior year. We believe that this is a notable accomplishment when considering both the current operating environment, and that last year, represented a fourth quarter sales record for the company. On a constant currency basis, sales decreased $33.5 million or 2.5%. Domestic wholesale sales increased 1.2% or $3.5 million, fueled by broad strength across customer types and encouraging consumer sell-through in multiple categories.

International wholesale sales increased 2.5% in the quarter. Our subsidiaries were up 12.7%, led by Latin America and Europe, which grew 29.9% and 22.9%, respectively. Our joint ventures were up 19.4% in the quarter. China sales grew 29.7%, driven by strong e-commerce channel performance, particularly around Singles' Day and December's 12/12 event. These increases were offset by our distributor business, which, as expected, decreased 57.9% or $72.6 million in the quarter, reflecting acute challenges in several distributor managed markets.

Direct-to-consumer sales decreased 6.4%, the result of a 7.6% decrease domestically and a 4.4% decrease internationally, reflecting both challenged consumer traffic trends and the impact of temporary store closures and operating our restrictions. However, these results were partially offset by another strong increase in our domestic e-commerce business of 142.7%. Gross profit was $648.4 million, up $10.7 million compared to the prior year. Gross margin increased over 100 basis points versus the primary -- the prior year, primarily driven by a favorable mix of international and online sales and an increase in domestic wholesale average selling price, where higher full price sell-through of several of our innovative platforms like Arch Fit and Max Cushioning drove average selling prices higher.

Total operating expenses increased by $47.4 million or 8.6% to $595.7 million in the quarter. Selling expenses increased by $9.2 million or 10.4% to $97.9 million, primarily due to an increase in domestic demand creation through digital advertising channels. General and administrative expenses increased by $38.1 million or 8.3% to $497.8 million, which was primarily the result of volume-driven expenses in warehouse and distribution for both our international and domestic e-commerce businesses. Earnings from operations was $57.7 million versus prior year earnings of $94.1 million. Net earnings were $53.3 million or $0.34 per diluted share on 155.4 million diluted shares outstanding. Net income included a onetime discrete tax benefit of $15.9 million. Excluding the effects of this onetime tax benefit, adjusted diluted earnings per share were $0.24. This compared to prior year net income of $59.5 million or $0.39 per diluted share on 154.6 million diluted shares outstanding. Our effective income tax rate for the quarter was a negative 14%.

And now turning to our balance sheet. We ended the quarter with $1.37 billion in cash and cash equivalents, which was an increase of $545.9 million or 66.2% from December 31, 2019. The increase primarily reflects the company's outstanding borrowings of $452.5 million on its senior unsecured credit facility. However, even net of those borrowings and nearly $310 million in capital expenditures, cash and cash equivalents grew by over $90 million.

Trade accounts receivable at quarter end were $619.8 million, a decrease of 4% or $25.5 million from the prior year-end. The decrease in accounts receivable was primarily due to lower distributor sales.

Total inventory was $1.02 billion, a decrease of 5% or $53.1 million from December 31, 2019. The decrease in year-over-year inventory levels is largely attributable to lower domestic and European inventories, partially offset by higher inventories in China to support sales growth. China inventories declined versus the third quarter. Overall, we feel confident about our inventory position and continue to actively manage our supply to meet customer demand, positioning the business constructively for the balance of this year.

Total debt, including both current and long-term portions, was $735 million at December 31, 2020, compared to $121 million at December 31, 2019. The increase primarily reflects the drawdown of our senior unsecured credit facility in the first quarter of 2020. Capital expenditures for the fourth quarter were $96.7 million, of which $48.9 million related to the expansion of our joint venture-owned0 domestic distribution center, $13.9 million related to investments in retail technologies and stores, $11.4 million related to our new distribution center in China, and $7 million related to our new corporate offices in California. Our ongoing capital investments remain focused on our strategic priorities, enhancing our direct-to-consumer capabilities and augmenting our global distribution infrastructure. In 2021, we expect total capital expenditures to be between $275 million and $325 million.

The fourth quarter, like all of 2020, was a challenge. However, we saw many encouraging trends in our performance. Our brand strength, distinctive and compelling value proposition and healthy balance sheet gives us continued confidence that Skechers is poised for a return to growth in 2021 and beyond. However, due to the continued uncertainty in the retail marketplace, we will not be providing guidance this quarter as the environment remains too unpredictable to forecast reliably.

And now I'll turn the call over to David for closing remarks.

Thank you, John. A year ago, Skechers achieved a new fourth quarter sales record, while the brand and business trends across all segments were exceptionally strong. Now as we continue to face challenges due to the ongoing health crisis, our fourth quarter sales decreased only 0.5% from the prior year record. This important accomplishment was the result of the continued demand for Skechers product, the diversity of our distribution model and our efforts to drive value by maximizing revenue and efficiently managing inventory. Skechers' brand strength was most notable in our online business, with strong triple-digit growth as well as meaningful growth in our domestic wholesale business and in many of our biggest international markets, including China, Germany and the United Kingdom.

We continue to see our product resonating with consumers. With comfort value and style at the forefront of our product design, we are a key footwear brand during these difficult times. We have an exceptionally strong balance sheet and ample liquidity, both important to our success in the quarter and to position ourselves for future growth. Our backlogs have improved across many distribution channels, a positive sign for many countries. We believe our business will continue to be impacted by the global pandemic in the first half of 2021. Though we are cautious due to the global health crisis, we remain confident in our strategic initiatives, the relevance of our brand, and our efforts to develop new product innovations and the many opportunities for growth in both the near and the long term.

Now I'd like to turn the call over to the operator for questions.

(Operator Instructions) Our first question comes from the line of Jay Sole with UBS.

Great. So my question is just on the timing of the recovery as the world reopens as you see it, you're talking about the first half of the year will still be impacted. Can you give us a sense of sort of why that is? Like if maybe the vaccine gets spread out or distributed sooner and things are back in April and May, would that create an opportunity for second quarter? Or is there sort of a limitation on inventory and lead times that sort of constrain the ability to have a type of first half of the year that would be more similar to a normal year? Hello?

Sorry, we were on mute. I'll start all over again.

Sorry about that, Jay.

I started with -- we don't know any more than anybody else about the vaccine, the state of the pandemic. Actually, I should play, we should record that. But anyway, but given that January started off still under significant closure, and we've had closures in Europe which are our all going through at least January and most of February, that the first half would be a good guideline to try to -- before we can come out at full strength. What we did see in the last time we came out of the pandemic was very strong resurgence, so that would lead to the fact that certainly, if it opens quicker and retail opens in full quicker around the world, that we would have substantial opportunities to be significantly ahead of where we are. I mean if you think about it, we weren't down that much in the fourth quarter, and we had a significant hit from distributors that would have made for a very strong quarter, even if they had broken fairly even.

The impacts we have on inventory are no different than anybody else. While we think we're doing as good a job or better than most, we still have issues at the port that we anticipate would clean up shortly, some issues in England getting some product in because of the new Brexit rules. But other than that, from a production facility and managing the inventory, we don't have anything out there that would preclude us from having a very strong recovery even as early as the second quarter should things open up significantly.

Got it. Okay. And then 1 more. Just on the G&A, I'm interested in how we should think about G&A a year from now. A lot of companies, through the pandemic, have done hundreds of millions of cost cuts. And obviously, some of that probably has to come back next year as stores reopen and things like that.

As we think about G&A next year, how much SG&A has to come back into the P&L in 4Q of next year, given some of the adjustments that have probably made this year? Or would you say that this year -- this quarter was more like a normal G&A quarter and there's not a lot of excess that will have to be re-added in next year when we get to 4Q of '21?

Yes. I think when you think about G&A, and you think about the shape of the recovery, and even this quarter is a good example. If you think about our retail business while we've taken aggressive action there to reduce variable costs where we can, we still can't reduce fixed cost like rent and depreciation. So even in this quarter, you're seeing a struggle between the businesses that can't leverage as well as they historically would have. And others, we're clearly making up that sales gap.

As you look forward into next year, I would just caution that while we see very good line of sight into a top line recovery, we obviously saw great health in many of our businesses this quarter. The operating margin side of that is going to lag a bit. We need retail to get back to a point where it's leverageable. There are -- I know it's hard for people to believe, but there are a lot of costs that we took out this year. In fact, this is the first quarter since the lockdown where we saw G&A grow. So there's some costs that need to come back, some compensation incentive compensation that went out entirely, some labor that went out entirely this year.

So what I would expect is it will be a little stickier getting back to norm on the operating margin side, largely because of our inability to leverage retail G&A and even to a degree, the distributor flow-through that would normally leverage our G&A spending.

So over the course of the year, we expect that to get progressively better, but we do still think that will trail in 2021. In 2022, assuming retail gets back to its leverageable point, things will look a lot better. The only additional element I'd caution for next year is, as we noted, we went ahead with several really important investments in our infrastructure. We added a distribution center in the U.K. We expanded distribution in a lot of other jurisdictions. We have -- finally, our China distribution center will likely go online this year. So we are going to see a little bit of headwinds from the introduction of those increments early on until they get up to peak efficiency, which is tough to do in the year in which they open. So there will be a little bit of an added drag next year owing to those investments. But once we get beyond that early operation, that's when we expect those to also contribute leverage and drive operating margin opportunity.

Our next question comes from the line of Laurent Vasilescu with Exane PNB Paribas.

Congrats on the momentum. Your -- John, David, I got to ask you, Europe was up 23%, yet the region was locked down for most parts for a lot of brands. Maybe you could just parse out what drove that and how do we think about that momentum going into 1Q? And then conversely, your China number was really strong in 4Q. It looks like you did about $900 million plus in China revenues for the full year. How do we think about China revenues for 1Q considering it was cut in half last year, 1Q '20?

Well, from the European side, they had a very strong fourth quarter because they opened up very strong the first time that stores opened. And I think we picked up significant market share, and that carried all the way through the fourth quarter. As things started to close down in the fourth quarter and even through January, we haven't seen significant declines in our wholesale business because I think we sold through so well that most of our customers, the larger ones certainly, have continued to take product knowing that when we open up, when they open up, we will be a strong contributor to a strong opening, and they didn't want to be behind inventory. They chased it for quite a significant period of time when we came open last time.

So that was a positive, and it's positive pretty much across the board there. And we've had great showings in almost every country, they were all, but a couple of small ones, were positive for the quarter even with the closedown. So that shows you the strength of the brand there and the fact that people are counting on us when we reopens and are not willing to take that inventory risk again.

Now the reason there's no guidance is because that still has a limitation depending on how long they're closed. We hope they open on schedule mid- to end February, early March at the latest, which would give us significant chance to continue to supply and sell-through quickly going into the spring season.

Yes. And Laurent, in terms of China next year, and I think this actually applies to the totality of our business, is we're not really looking at growth relative to 2020. There's a few isolated instances where that makes sense, but we're really looking to get beyond, quite frankly, '19. I don't want to get into specifics by country, but suffice it to say, we have very optimistic views about where we can take the brand in China. That really won't abate as we look forward to next year. The pacing of it will be a little bit odd because there was, in fact, a pretty significant shutdown beginning in Q1 last year in China. So those numbers in Q1 are going to look a little outsized. But I think what you're seeing is continued growth of the brand and the market, and that gives us tremendous optimism about where the brand can go both next year and beyond.

That's very helpful. And then maybe as a follow-up question, gross margins, John, it was strong across the board across the 3 segments. Can you talk about what drove that? Was it driven by e-commerce? How much was e-commerce as a percentage of your overall sales for the year? And then how do we think about the gross margin, high level? I know you're not giving guidance, but do we kind of see that momentum continue into 1Q?

Yes. So again, when we look at the compares versus last year, and 1Q is a good example of that, there's a lot of noise, I think it's probably the best way to describe it. I would say with regard to the fourth quarter, what we saw in the gross margin is exactly what we mentioned in our script. We saw good full price sell-through. We saw strong contributions from e-commerce, which is a bit accretive at the gross margin line for us. And we had a higher proportion of international wholesale that excluded distributor sales. Distributor sales tend to be very high flow-through for us, but they do carry a lower overall gross margin.

As we look forward, I believe you'll see things normalize a bit more toward what I'd call kind of 2020 normalized level or 2019. We will get some benefits from increased contribution from retail from international because China will be back. We are, though, seeing a few headwinds in terms of product costing. Landed cost and shipping, in particular, are out there as light concerns for us. So we're going to moderate our view and probably point towards stability against a normalized margin versus any significant increases because we won't be getting as much of the mix benefit.

Our next question comes from the line of Kimberly Greenberger from Morgan Stanley.

Great. I wanted to ask about just the way you -- understanding you're not giving revenue guidance for 2021 today, how should we think about when revenue would look more normal the way it would have back in 2019? And what are the sort of necessary conditions for that? Is it vaccine rollout and consumers behaving and shopping normally? How are you thinking about it internally in order to develop your expectations on what the revenue path this year might look like?

I mean, I'm actually very encouraged by the revenue path. I think last quarter, this quarter shows you that the brand still has tremendous opportunity to grow on a top line basis. I mean, obviously, the key headwind at the moment is, as David mentioned earlier, the closedowns we've seen, government-mandated restrictions on operating hours in the retail business. That's been the most significant headwind. That impacts us directly in our direct-to-consumer channel. It's obviously had a pretty significant impact on our distributors and their markets, so that really is the biggest swing factor.

I would say, as you look at our opportunities relative to growing kind of against the '19 baseline, we're actually pretty encouraged about our opportunities for the year to definitely get beyond that, but it will be influenced by continuing lockdowns, should they occur, or continuing restrictions on operating hours and foot traffic, which has been, certainly in a lot of instances, in particular, mall location's been significantly diminished.

I'd like to add, I think what it shows here, I am also very confident in what we can do is that I don't believe it would take a significant push. We just need to be able to get to our consumers. If you go through the results as we give them, you would see, because there's only 0.5% decline, those places that were opened have gained market share and have increased to the point that it could take care of significant store closures of our own and a big piece of our business with the distributors, and we don't need them to come back 100% to start getting back to a growth pattern. I personally believe that we would outstrip the growth patterns we saw through '19 and before because of the demand we've seen in those places that are open. And I personally anticipate that, that would be followed in all the places that are going to open.

Great. Yes. The revenue resilience really was very much -- very well showcased here in the fourth quarter. My follow-up question is on e-commerce, which is also a highlight for Q4, and I think for full year 2020. Can you just remind us, in both the fourth quarter and the full year, where does e-commerce revenue sit as a percentage of your retail revenue at this point?

So if you look at it -- well, the first thing I would mention is we have e-commerce in a couple of different locations. When you look at it in total, it's actually a pretty sizable chunk of the revenue base. China, obviously, is the most significant, although that gets reported in our wholesale because it's a joint venture.

In terms of our domestic number, I would tell you it's north of the 10% number that we previously provided. I don't want to get into a ton of specifics about how far north, but it's definitely north of that. And we think that's sticky and it can continue. If you bring in the totality of our e-commerce revenue relative to all sales, it's probably double that 10% as a percentage of sales right now. Again, keep in mind, that, that's with some pretty meaningful declines in our distributor business, so that's somewhat diluting the impact of the overall revenue at this point because those would not be e-commerce sales.

Okay. So just to clarify, John, when you say -- you mean like it's more like 20% of the $1.2 billion in the retail direct-to-consumer segment?

Well, I was giving you reference points to the fourth quarter. So I would say, in the retail segment, it's north of 10%; in total, it's north of -- it's around 20%.

Our next question comes from the line of Gaby Carbone with Deutsche Bank.

My question is on the domestic wholesale business. Just was wondering if you could touch on what you're seeing in terms of spring orders and kind of how you're thinking about that channel moving ahead. You put up pretty nice results here in the back half.

Well, I think as I mentioned in the prepared remarks, domestic wholesale would fit into the comment that backlogs are -- have been increasing even year-over-year, and that's before we had the results of the pandemic. We're only comparing to the time last year. So our backlogs are up. We feel the demand is significantly higher even than it was this time last year. So depending on how the pandemic rolls out, we have anticipation of continuing growth in the domestic wholesale side.

I would add to that, Gaby, we even had a few timing shifts out of this quarter into '21. So the domestic wholesale, which I think is, again, the second quarter in a row here we put up growth, could have been even better if it weren't for some timing of deliveries. So again, that's -- even though there are some customers out there struggling, we're seeing broad take on the product, good sell-through, and that's encouraging in the backlog numbers, it's encouraging in what we saw this quarter, and that's definitely a good sign.

Got it. And just a quick follow-up. I was wondering how we should be thinking about store openings moving ahead. And maybe you can comment on anything new going on with, rent negotiations?

Yes. I would say store openings for next year on a net basis are going to be pretty modest, certainly relative to our historical directions, mostly focused on the international markets. David mentioned in his comments, we've already seen and executed some closures this quarter, and we'll do more before the end of the quarter. The rent negotiations, that's an ongoing affair. Usually, the best opportunity to have a good discussion about restructuring rent is during renewal discussions. And as those occur, we're taking as much advantage of those as we can. I wouldn't hold out any significant out for a major change in the near-term with extent leases, but -- because we've seen a lot of, I think any benefit we were going to get out of that earlier in the year. So I don't think that's going to be a significant opportunity. But you will see that, kind of the pace of store openings, definitely step down from prior years for the most recent couple of years.

Our next question comes from the line of Susan Anderson with B. Riley.

Nice job managing the quarter. I guess just a follow-up on the gross margin, it sounded like from your earlier comments, that there may be some pressure in 2021 as the mix shift normalizes. Is that correct? And did you say to look to 2019 gross margin as a more normalized gross margin?

Well, in response to your first question, absolutely, we've received some mix benefits this year that I don't expect to continue as the business builds back overall. We are seeing kind of a handful of different factors, but mix will definitely be a bit of a headwind. A bit of a tailwind will come from some favorable pricing, which we saw this quarter, and we expect to continue. And then an almost offsetting headwind from there is some of the cost pressures that we've mentioned as, in particular, transit costs have become a source of a pressure near term. Relative to 2019, I would probably kind of guide you to something that's flat to perhaps up slightly, but that will be influenced heavily by mix. Again, to the extent we see more closures in retail and we see a mix down with less direct-to-consumer, that would be a headwind challenge. To the extent retail recovers, that would be a bit of more of a tailwind.

Got it. Okay. And then just on the China market, obviously, a very strong report there. I'm curious if you could talk about the growth over Singles' Day, how much that was up and how much of a driver of that was? And then I think you had talked about just kind of the bumpiness in 2021 with obviously first quarter last year being down. But how -- I guess how should we think about that strength we saw in fourth quarter kind of after we get past that something that's flowing through in 2021? And then just curious on the golf store you opened there. Is there opportunity to open more golf stores elsewhere or even maybe potentially stores within stores, say, in like Dick's or something?

Well, I mean, I think in China, again, it's just -- it's a comparability issue. I mean our general disposition on China continues to be extraordinarily favorable. We have very high hopes for it next year. Obviously, the first quarter, and to a degree, the second quarter, are going to benefit from some easier comparisons. But our expectation is that China puts up similar numbers to what it's been registering in terms of overall growth. You're starting to get the pull of the law of large numbers, so maybe not in percentage terms, but in dollar terms, and that really is on the back of growth in e-commerce.

I mean I would characterize China as certainly faring far better than most markets, but there's certain components of the brick-and-mortar side of things that aren't yet fully recovered. I think it's a pretty common comment you're hearing relative to China operations, we think that gets better as the year progresses and you get a much more normalized China revenue profile. But right now, it's definitely tilted much more towards e-commerce. And in the quarter, obviously, we couldn't have put up nearly 30% growth rate if it weren't for some pretty favorable results, both on 11/11, where you had an extended selling period this year, but also kind of the sister event on 12/12, and then a few other sporadic events in the quarter.

So again, overall, very positive on China. We do think there's some more normalizing to do. And we're excited to add the capability of having our own distribution to the market because that, we think, is definitely going to help stabilize operations and give us more leverageable cost in the long term.

Great. And (technical difficulty) to kind of expand that idea elsewhere?

Sorry, Susan, I didn't hear your full question.

On the golf store you opened in China, is there opportunity to expand that elsewhere throughout the globe, potentially even in the U.S.?

Well, we are looking to obviously expand the category, but I wouldn't say it's a significant driver. It's about image and what we put through when we're building it. The one in China is very special. We may have a few more, but it's not a major growth initiative for us. It's just something that we take as it becomes available to showcase the brand in general.

(Operator Instructions) Our next question comes from the line of Omar Saad with Evercore ISI.

Obviously, the e-commerce numbers are really big. The growth there is really fast. I'd love for you to kind of address at a high level, how the profitability is shaping up in that business? Are you starting to get to a point or a scale level where it's becoming more profitable? I know at the gross margin level, it's accretive. I also noticed in the operating kind of expenses line, you mentioned some higher digital marketing costs and fulfillment costs, domestic, international. So I'm trying to understand, are we getting to a point where that might become more profitable? And then I have 1 follow-up.

Yes. Actually, e-com for us has been very profitable. In some respects, I think that's because they had been artificially restrained a bit until we really got the growth level that we're starting to see over the last couple of years. So from a profitability standpoint, I mean, it's something you're always watching, and certainly, as you get scale, you've got to be cognizant of. But really through the P&L, right now, we're very pleased with what we're delivering from an e-commerce perspective. And we continue to expect that to be the case. It's something -- actually, we're not -- you hear other brands talk about struggling with that profitability, but that is not something we struggle with today.

And we've made significant investments in the past. You have to understand, growing at this rate creates some inefficiencies. We put a lot of pieces in place in our distribution and fulfillment of this that we're going to take out around the world, which I think will leverage quite nicely over the next 12 months.

Great. That's great to hear, guys. And then maybe you could offer a little bit more details on the loyalty program? And then how it's going to connect to the e-commerce and the digital business and maybe some customer level marketing initiatives around that, if you can?

Well, I don't want to spoil too much because we want to have fun launching it. So I would say it's a pretty soup to nuts revamp of the program. But technically, as well as from a consumer offering perspective. And what it aims to do, obviously, is significantly augment the loyalty program we have today in terms of capabilities, everything from marketing to transactional level capabilities. And it was accompanying our relaunch of the website and launch of the mobile applications that happened earlier in the year. So really, when you step back, you've got to look at those in aggregate, because together, they're really forming, I think, the basis of a new approach to consumers, one more mobile-enabled, more digitally-enabled, more informative, easier to use.

So I don't want to get into the specifics of the program because we want to launch that, but we think it's going to be a very effective means to both recruit and retain consumers, augment our abilities to market to them. It will augment their abilities to transact with us, and those are obviously very encouraging habits you want to put into place. In particular, because like most, we see incredibly higher LTV from a loyalty program member who purchases regularly with us than any other consumer, and so the goal is to get as many people into the program and becoming recurring buyers as we can.

Our next question comes from the line of Brian McNamara with Berenberg Capital Markets.

I just have 2 quick ones. One on India, being that it's a more traditional market that doesn't really have the natural e-commerce offset that China has with lockdown measures in place, can you give us an idea of how that market performed for the year and sequentially in Q4 in terms of improvement? And then secondly, COVID restrictions aside, I guess, which markets internationally are you most optimistic on outside of China? And then conversely, what you're perhaps underperforming relative to your expectations?

Yes. I mean, on India, I mean, obviously, the impact of the pandemic hit many markets pretty severely. India is no exception. I don't think it's unusual, but it had a pretty tough go of it, so to speak, in particular, because it was growing so nicely for us.

Now I think we're starting to see some very encouraging signs. In the fourth quarter, performance was higher than actually even we expected. The market really began to reengage. I mean that's all because they're getting past the pandemic. There is a building e-com presence, but it's still very early for us, and we remain very optimistic about that market long term.

In terms of the international markets, we're most excited about it. I think you've given the opportunity, we probably just rattle off all of them because we do believe there's that much opportunity. Obviously, Asia has a tremendous amount of opportunity with China, India. There's a lot of other Southeast Asian countries where we're really just getting started, but you can't neglect the fact that Latin America grew nearly 30% as a composite for us this quarter; that Europe grew north of 20%; that some very stable long penetrated markets for us like Germany did exceedingly well. So I mean the reality is, we just don't think there's a near-term limitation in any market on this brand. And our opportunity to continue to grow internationally, in particular, is pretty unrestrained, at least for the next 3 to 5 years and probably beyond that. As we begin to introduce more and more categories to markets, we find our footing in getting even apparel introduced and other offerings. So I speak for myself, and I'm sure David would agree. We're pretty excited about most, if not all, of our international markets.

Our final question comes from the line of Jim Chartier with Monness, Crespi, Hardt & Co.

I have a question on gross margin. Given the mix shift away from distributor sales, I would've expected more gross margin improvement in the international wholesale business. So I was wondering if there was anything in the quarter that was pressuring margins in any of your overseas markets?

No, nothing comes to mind. I mean I would say probably the only impact you're seeing is you're still having some markets that are experiencing pretty drastic effects from shutdown. I think one thing that I don't want to get lost in this is, we dealt with a lot of lost sales days in some of those markets. So in some respect, as they come out of that, they've got to move merchandise. But I wouldn't highlight anything being extraordinary in that. We're fairly pleased with the improvement we saw overall, especially given the growth underlying that. I mean if you back out the distributor decline that we gave you a number on, you can see that the underlying health in the wholesale business was really, really strong. So to get that plus, I guess, to your question, even more gross margin accretion than we delivered, that's a pretty tall order. So we're generally pleased with what we saw, and we're optimistic that, that trajectory is going to continue.

And with that, this concludes our question-and-answer session as well as today's conference call. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.