Crocs, Inc. (CROX) Q3 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to Crocs, Inc. Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Cori Lin.

Good morning, everyone, and thank you for joining us today for the Crocs third 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 will turn the call over to Andrew.

Thank you, Corinne and good morning, everyone. As you saw from our release this morning, we achieved exceptional top-line growth and industry-leading profitability during Q3 of 2021. Our extraordinary performance in spite of the ongoing COVID-19 pandemic, and widespread in supply chain disruptions demonstrates the strength of the Crocs brand and product offering globally and reinforces the confidence we have in achieving our short and long-term goals. Our team’s ability to navigate these disruptions for the last two plus years has been and continues to be a key ingredient across the success. Anne will review our financial results in more detail shortly, but here are few highlights from the third quarter of 2021. We experienced broadbased growth with total revenues up 73% versus prior year to $626 million and doubling from 2019. DTC grew 60% versus prior year and 90% versus 2019 to represent 51% of revenues. Digital sales grew 69% achieving double-digit growth in all regions and representing 37% of total revenues. Adjusted operating income more than doubled in the quarter to $205 million versus $75 million in 2020 with adjusted operating margins expanding to an impressive 33%. Finally, we committed to becoming a net zero company by 2030 and began production of bio-based products that go on sale in 2022. Let’s now turn our attention to the topic that I know is top of mind for many of you. The recent factory closures in Vietnam due to COVID-19 and broader global supply chain challenges facing all industries. We first want to recognize our factory partners for their extraordinary efforts in a difficult time and for protecting the health of their employees. We appreciate their ongoing partnerships. Regarding the impact of the Crocs business, during the third quarter, some of our factories in Vietnam were closed for several weeks and they began reopening earlier this month. As of today, most of our factories in Vietnam are operational although they are in various stages of restarting. We expect the situation to remain fluid as the vaccination rates increase in the country. We are pursuing all of the actions you might expect to mitigate the impact of this temporary disruption. First we are shifting production capacity to other countries including China, Indonesia and Bosnia where possible. We also have a unique advantage and that we can ramp factory production quickly due to the limited inputs and simple configuration of our products. Secondly, by prioritizing top selling products and narrowing SKU counts, while still preserving newness we are able to improve factory throughput. Thirdly, we are aggressively leveraging airfreight to bring in units for 2022 spring summer selling season. In the United States, we are planning to reduce our dependency on West Coast ports by adding East Coast trans shipment capabilities to reach our major U.S. customers. In addition to maximizing the supply, we are strategically allocating units. We will prioritize our most important channels, e-commerce, e-tail and our major wholesale customers. As we all know, this situation is very fluid. But I have full confidence in the supply chain team and our factory partners to manage through this temporary disruption. Also I want to emphasize that these disruptions will not distract from our long-term strategy that we believe will propel the Crocs brand to $5 billion plus over the next five years. Now let’s turn back to the third quarter operating highlights. From a channel perspective, global DTC revenues, which include revenues from e-commerce and company-owned retail stores grew by 60%. Wholesale, which includes brick and mortar, e-tail and distributors grew revenues 88% and 111% compared to 2019. Digital sales grew 69% and an impressive 129% versus 2019. All channels benefited from strong traffic, higher pricing and fewer promotions. Execution against our product growth strategy is going well. Clog sales were outstanding, increasing 91% from a strong 2020 to represent 82% of footwear revenues versus 72% last year. We continue to innovate and are excited about our first-line product, which is on trend for holiday. Recent Clog collaborations with Balenciaga, Hidden Valley Ranch and Sankuanz in China amongst others continue to excite fans and elevate the Crocs brand. We continue to raise awareness for sandals including the new collaborations such as the one with Benefit Cosmetics that featured both the Clog and the two-strap sandal. Sandals grew by 15% in the quarter and 31% year-to-date as we concluded the sandal season in many parts of the world. Sandals represented 30% of footwear sales for the quarter versus 19% last year due to the strength of Clog growth. Jibbitz sales once again more than doubled for the quarter versus 2020. We continued to create excitement through a fresh assortment including recent Jibbitz partnerships for social media personality Bretman Rock and legendary rock brand Grateful Dead. Consumer demand for our products is high and we remain confident in our growth trajectory. We are raising the low end of our full year revenue guidance and now expect 2021 revenues to increase by between 62% and 65%. We are also raising our 2021 adjusted operating margin guidance from approximately 25% to approximately 28% as we benefit from favorable gross margins, SG&A leverage and the underlying strength of our brand. I am pleased to share that our brand is extraordinarily healthy. And this is a testament to our product and marketing teams around the world to continue to innovate and raise the bar. In our 2021 Brand Strength Survey, which measures participants’ views about the Crocs brand globally, results were up double-digits for each of our key metrics, brand desirability, brand relevance and brand consideration. We’ve now averaged double-digit growth across these metrics for five consecutive years. Another indicator of brand strength is the Piper Sandler Fall 2021Taking Stock With Teens survey. While the Crocs brand advanced into all teen preferred footwear rankings to the number 6 spot, up from number 9 last year and number 34 just five years ago. Supported by the health of our brand, wholesale bookings for the first half of 2022 have been exceptionally strong. However, given the supply constraints we have just discussed, we have limitations around how much demand we can fulfill for the first half of the year. Despite this temporary supply chain disruption, we are confident that we will be able to exceed 20% revenue growth for 2022. Before I turn the call over Anne, I want to thank the entire Crocs organization. We are incredibly proud of the health of the Crocs brand and business. Our results and the confidence we have in our long-term vision are due to a dedicated and talented colleagues, who bring the Crocs brand to life every day. I want to thank them for everything that they do. 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 third quarter results. For reconciliation of the non-GAAP amounts mentioned to their equivalent GAAP amounts, please refer to our press release. As you’ve already seen, we had an outstanding third quarter. We delivered broad based revenue growth across all regions, channels and product pillars. Gross margin expansion and SG&A leverage led to another quarter of best-in-class profitability and increased earnings per share. Third quarter revenues increased to $625.9 million, up 72.2% on a constant currency basis, compared to the third quarter of 2020 and up 100.1% compared to the third quarter of 2019. During the third quarter, we sold 25.4 million pairs of shoes, which represents a increase of 50.6% over last year and 60% versus the third quarter of 2019. The average selling price during Q3 was $24.42, a year-over-year increase of approximately 14.9% driven by price increases, promotional strategy and product mix. Now, let’s shift our view by results by region beginning with the Americas, where Q3 revenues are $453.9 million, increased 94.8% against the prior year. DTC revenue growth in the region was up 78.3%, driven by higher traffic conversions and average transaction value. Thirdquarter digital penetration increased to 32.8% from 30.8% last year and rose significantly from 26.9% in 2019. Wholesale growth was 117.6% versus prior year and almost triple versus 2019 as we continue to see strong sell through with our best partners. In Asia, Q3 revenues were $83.6 million representing an increase of 21.2% on a constant currency basis from last year. India, posted triple-digit revenue growth versus last year, while China and South Korea both grew revenue double-digits, offset by distributor sales in Southeast Asia and a conservative Japanese consumer. Digital revenues grew 11.3% versus prior year and 30.5% versus 2019. Digital penetration was 38.1% in the third quarter compared to 42.3% last year and 32.9% in 2019. EMEA revenues of $86.3 million increased 42.8% on a constant currency basis with growing brand heat, offsetting global logistics disruptions. DTC revenues increased 22.1% with strength driven by higher traffic. Wholesale revenues grew 56.9% fueled by strength in all sub-segments, e-tail, distributors, and brick and mortar. Digital growth was a standout growing 37% versus prior year and 85.9% compared to 2019. Digital penetration represents 56.9% of EMEA revenue this quarter versus 59.8% last year and 49.6% in Q3 2019. Adjusted gross margins for the third quarter were 64.2% an improvement of 680 basis points from last year’s 57.4%. This improvement was driven primarily by price increases in fewer promotions and discounts, offsetting higher freight cost associated with global logistics disruptions. Currency favorably impacted margins by approximately 65 basis points. During the third quarter, our adjusted SG&A improved 520 basis points to 31.4% of revenue versus 36.6% in last year's third quarter. The decrease in adjusted SG&A rate was achieved while investing approximately $60 million versus prior year, primarily in marketing and talent to support our strategic initiatives, digital, sandals, China and innovation. We will continue to make investments to support the long-term trajectory of our business. Our third quarter adjusted operating income more than doubled to $205.1 million versus $75.4 million last year with robust operating profit growth in all regions. Adjusted operating margin rose from 20.8% last year to 32.8% this year benefiting from gross margin expansion and SG&A leverage on strong sales growth. Third quarter non-GAAP diluted earnings per share increased to $2.47 from $0.94 in the same period last year. Our liquidity position and balance sheet continue to remain strong. We ended the third quarter with $436.6 million of cash and cash equivalents and $686 million in borrowings with an additional $500 million of borrowing capacity on our revolver. In August, we once again opportunistically took advantage of historically low interest rates issuing $350 million and 4.125% senior unsecured notes due 2031 with share repurchase as the primary use of proceeds. Throughout the quarter, we repurchased approximately 1.1 million shares of our common stock in the open market for $150 million at an average price of $142.17. As previously announced, we will repurchase an additional $500 million of shares by the end of 2021 via an accelerated share repurchase for a total of $1 billion of share repurchases in 2021. Our shares outstanding as of October 14, 2021 were $58.8 million including the partial impact of the ASR. Our inventory balance at September 30, 2021 was $212.5 million, up from $174.1 million in the third quarter of last year. Inventory was lean throughout Q3 and we ended the quarter with higher in transit inventory due to the global logistics challenges. Turning to the future, I would like to share our current outlook for the balance of 2021. As Andrew outlined earlier, the global supply chain remains volatile. For 2021, we are raising the low end of our revenue guidance expecting revenues to grow approximately 62% to 65%. This implies a two year growth rate of approximately 82% to 86% and a three year compound annual growth rate of approximately 35% to 36%. We anticipate strong growth for fiscal 2021 in all regions and channels. However, fourth quarter revenues in EMEA will be disproportionately impacted by the Vietnam supply disruption as much of the region’s inventory is sort there due to favorable duties. Today, our 2021 operating margins have benefited from our high gross margins and ability to leverage SG&A. As a result, we are raising our full year 2021 adjusted operating margin guidance by 300 basis points to be approximately 28%, which represents significant expansion from 18.9% in 2020. This margin guidance is below our 2021 year-to-date margin due to higher global logistics cost and continued investment in SG&A in the fourth quarter to support our future growth. Looking to 2022 as Andrew mentioned, we expect revenue growth in excess of 20% for the full year. We plan to invest approximately $75 million in airfreight ahead of our 2022 spring summer selling season. Despite elevated supply chain costs and significant investment to fuel our growth, we expect operating margins in 2022 to be comparable to full year 2021 guidance excluding the incremental airfreight. We will resume our normal cadence of providing more detailed fiscal year guidance on our fourth quarter earnings call. In summary, we continued to deliver outstanding revenue growth and profitability, while managing through supply disruptions, opportunistically 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. With three quarters of the year behind us, we’ve achieved tremendous success fueled by the strength of the Crocs brand and our superior execution. We are navigating the ongoing global supply chain disruption and have utmost confidence in our ability to deliver upon our short and long-term goals. There is no better team to navigate through this temporary disruption and lead Crocs to the next stage of our growth. Operator please open the call for questions.

[Operator Instructions] Your first question comes from the line of Erinn Murphy with Piper Sandler.

Great. Thank you. Good morning. Good to hear about the progress Andrew, in Vietnam and just some of the mitigating factors you are taking on the supply chain. I guess first, could you just remind us, how big is Vietnam for you today? And where do you see your manufacturing mix evolving over the next 12 months? And then, secondly, maybe kind of honing a little bit more on the fourth quarter, how easy is it to get your product to market now? It sounds like Europe is going to be a little bit more challenged. And then, is there products that you are seeing stuck out on the West Coast ports right now? Are you needing to accelerating airfreight specifically for holiday? Thanks.

Okay. Thank you very much. Lot of questions there. So perfect. So, Vietnam, yes, Vietnam is a significantly portion of our manufacturing base. It’s actually about – it was initially planned to be at 70% of our manufacturing base for 2021. It will be a little less than that as we do the diversification we’ve talked about. We’ve nine factories that are spread between southern, mid and northern Vietnam. As we articulated in the prepared remarks, the factories are now largely open and in various stages of reopening. One thing that we learnt from COVID I think is really important to people to understand, our shoes are really simple and so ramping up factories could be very, very quick. If you think about the classic Clog, it has three components, two of which are made onsite. So you don’t have a lot of external logistics to be able to get started. And so we think we are confident in terms of ramping manufacturing. We will continue to diversify our manufacturing base. I think Indonesia was our most immediate target. We have two factories in Indonesia that will be online by the end of the year and they will ramp very quickly next year. We have a major facility planned in India in a year or so. So, we will continue diversification and during the shuffling of the supply we will obviously move some manufacturing back to China in the short-term. So, our team is really good at this. We have great relationships with our factory partners. So we feel really confident where we are. Obviously, the closure of the factories was disruptive, but I would also emphasize it’s a temporary disruption. In terms of flow of goods for Q4, was the second part of your question.

Yes.

It’s difficult, right. So, yes, we definitely have product partnerships outside of Long Beach. We have already diversified our inbound ports. So we’d already pushed products to the northern parts on the west coast to east coast ports et cetera. So we had already done a good amount of that. And we think we have kind of reasonable line of sight to everything that’s going on and I would say we’ve incorporated all of that into our guidance. You highlighted Europe. Europe is definitely more impacted, because you may be aware that Vietnam is duty free into Europe. So a lot of the production for Europe is coming out of Vietnam. So that’s a little bit more impacted. We think that’s a temporary impact. Our trajectories, our bookings in EMEA are being extremely strong, but will be impacted in Q4. And I think the last part of your question was about airfreight. So, we don’t anticipate using significant airfreight in Q4. Most of the products that we will sell in Q4 is already here or inbound. So there will be a little bit but not significant.

That is so helpful. Thank you, Andrew. And if I can just add one for Anne, on your outlook for next year, could you just maybe help us with the shaping of first half versus second half, just kind of marrying the comments of supply chain with the strong wholesale spring summer 2022 order book? Thank you.

Sure. Hi, Erinn. So, our revenue for 2022 as we said, it’s going to be over 20%. So, we are excited to be able to kind of provide that visibility a little bit earlier. I will say that there is a lot of variability right now in transit times per what Andrew just talked about with supply disruption as well as extended freight times. So that makes quarter-to-quarter timing pretty difficult to anticipate this far out. Clearly, the front half is impacted by supply constraints. But I will say our current plan is not significantly back half weighted and then while we think it will be more covered on our full year Q4 call.

Excellent. Congratulations.

Thanks, Erinn.

Thanks, Erinn.

Your next question comes from the line of Jonathan Komp with Baird.

Yes. Hi. Can you hear me? Sorry about that.

Yes. We got you, Jonathan.

Okay. Great. I wanted to ask about the ASP, the pricing component accelerated again in the fourth quarter. Could you maybe just touch on, from a product perspective, what’s driving that? I noticed line Clogs maybe had a higher pricing increase, and a lot of the new product looks at like a premium price point. So, you could maybe comment on the ASP drivers and then as we think into 2022 given the inflationary environment, how should we think about ASP given the unique input exposure you have?

Yes. There is a couple of impacts on ASP. So, it’s a very good question. So, the biggest impact continue to be on ASP and kind of have been all year. We did take price increases as you mentioned to price increases on our line Clog as well as our traffic in the U.S. and other places. So that is an impact. So the mix shift at Clogs that we talked about in prepared remarks, as well as that pricing help supported – help support ASP and then also the pullback in promotions and discounts that we’ve seen broadly. Those are the biggest drivers from an ASP perspective, I would say, on the slightly negative side is a little bit of mix impact which has been offset. Going into next year, from an inflationary perspective, we do anticipate some inflation, certainly we’ve seen that we’ve been pretty proactive about taking price ahead of what we kind of anticipated from an inflationary environment. We do have some price increases that we took this year that will flow through into next year and we are proactively looking at other measures and think that we can do to kind of offset any inflationary pressures.

Okay. That’s really helpful. And maybe, as a follow-up, just at a high level, thinking about gross margin next year. You highlighted the freight – the airfreight, I think you said mostly you are ahead of spring summer. So maybe that’s mostly in the first quarter but if you could give any more color to the timing of the airfreight charges? And then, from an underlying gross margin perspective should we expect a significant waiting when we think about the full year 2022 performance? Thanks.

Yes. So, from a airfreight perspective, I would say that’s really front half. I don’t really want to break down by quarter, but if you think it’s both Q1 and Q2, so, again, we will try to give you more visibility as we get a little closer. And then, from an overall kind of margin profile, we didn’t guide that specifically. As we just mentioned, we are seeing some inflation. This year it’s been primarily around freight and wages and what we see happening is that freight and wages in our distribution centers, that will continue through next year as well as some of the resin impact we expect to come on. However, that’s incorporated in our overall 28% operating margin guidance excluding the airfreight. So, as we just mentioned, we also have some price increases falling through and we are looking at other things. So, we will try to give you again more color for next year on our normal cadence on our Q4 call.

Okay. That’s very helpful. Thanks again.

Thank you, Jonathan.

Your next question comes from the line of Laura Champine with Loop Capital.

Thanks for taking my question. It’s sort of a follow-on on the last one. Anne, can you comment more specifically about the cost increase of using the new more sustainable resin in your product? And talk about whether you would have a concurrent price increase for the products or what your philosophy is around that? And then secondly, on the new formulation, does that changed the wear profile of the product at all?

Okay. Thank you, Laura. So let me take those kind of reversed order. So, the new formulation really uses the new ingredient, right. So, it’s the same ingredient, but the ingredient is derived from a different source, well, sustainable source. So, the wear profile, the look and feel and the comfort of the product is completely unchanged. Right, so the consumer would not notice the two products side-by-side, would not notice difference between these two products side-by-side. So I think that what it absolutely kind of fantastic part about how we are approaching this. In terms of the cost increase, yes, I think we articulated when we made this announcement that the bio-based resin is more costly than the resin that we use today. But we are blending it in. Right, so, there is a blend of the bio-based resin in essentially every product that we make. And so the cost increase for next year will be - the cost impact for next year frankly is minimum. As we look forward into the future, it will have more impact. But we are confident we can offset that through efficiency gains and/or potential price increases in the future. So, but we do not intend to upcharge the consumer for the bio-based products. And we will not be increasing prices to the consumer based on the increase in the bio-based resin purely. We will be looking at sort of the overall health of the brand. That makes sense?

Yes. Thank you.

Thanks, Laura.

Your next question comes from the line of Sam Poser with Williams Trading.

Good morning. Thank you for taking my questions. I’ve got a few. Well I just read them off. One, what - you talked about the additional $75 million in airfreight for next year. What is sort of the normal – could you give us some idea about the normal airfreight is and some more information there? Number two, what percent within Vietnam, how exposed of those nine factories, how many are in the south? And what kind of production comes out of the south? And then, I noticed in your stores, what is the change in the regular full price selling in your outlets this year versus past years? And how much, it appeared to me that you are seeing a lot more full price selling in the outlets that I anticipated. And wondered how that’s impacting margins and how do you see that going forward? Certainly I have a ton more, but I’ll just leave it there.

Sure. So, I’ll start answering your first one. So, our normal airfreight is certainly less than $10 million. We don’t tend to spend a lot of airfreight. We actually spend a little bit more this year than we did last. And that’s – it will be between $8 million to $10 million. So it’s kind of in the normal runrate for this year.

Great. And so, Vietnam, look, the majority of the factories are in the south, some as you expect with the concentration of production facilities down there. We are obviously not going to kind of break out the size of each facility, but I would say the majority have been in the south. The north and the mid factories have continued to operate through this whole period. Although we did see some disruption based on COVID cases and labor availability. I think the only other piece of color I would say is, as the factories in the south the reopening, we are seeing the labor coming back pretty effectively. So we are pretty confident about getting those facilities back online quickly. And then you asked about full price selling in our stores. Absolutely, as you kind of looked at the selling season, especially through the summer, which obviously is a peak period for us particularly in the outlets with all of the tourist traffic. Yes, we were a lot more full priced than we were last year. So, we did see a nice margin uptick in the stores. You could see that’s reflected in our overall margins have been extremely strong and I think I’ve articulated very clearly that that was due to reduced promotional activity or one of the key components which reduced promotional activity and in-store has been an important component of that.

And you anticipate that the outlet stores will continue to run at a more regular price rate, which should be really, really good on your leveraging your rents and everything else compared to your full price stores?

I would say, yes. Look, I think we are heading into Q4, which is a more promotional period. There are some key periods in Q4, Black Friday, Cyber Monday, et cetera when we feel like some promotional activity is required by the consumer and it would be probably it’s full hard not to participate in that to some degree. But I think the depths and breadths will be less for sure and we are not planning to return to a higher promotional cadence anytime soon. We see demand for the brand far ahead of our ability to supply at the stage.

And then one last thing, when will your factories in south Vietnam do you think be at full capacity? And where are they today? If you can give us some kind of color there?

Yes. That’s too hard to say, Sam. I mean, I think, we are certainly going to see – we are anticipating that we see some on again off again type of situation. We are not anticipating that they ramp up. Our baseline projection is do not anticipate they ramp up to full production in a number of weeks and then stay there for the rest of its eternity. We think this is going to be volatile. We’ve incorporated that into our expectations and into our guidance.

Thanks very much. Continued success.

Thank you.

Thanks, Sam.

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

I guess, I want to ask about the boots for the fall if there is any early reads on the boot offering that you have out there, particularly the personalizable ones?

Yes. I would say, boots is a very, very minor part of our strategy and product offering. As we look at the full, we are actually primarily focused on line classic or lined product. That’s where we really can deliver I think very strongly on kind of consumer expectations as with the volume of our businesses. I would say, lines have been performing extremely well. We are very satisfied with the performance of our boots but it’s really a very minor part of what we do.

Great. And then, I am curious about just the Jibbitz growth in the quarter. I am not sure if you mentioned that and then also how much more space did you gained for Jibbitz if that outlet had closures for the quarter.

Yes. I think what we said is the Jibbitz doubled again in the quarter. I think, if you remember back at our Investor Day presentation, we said it was 6% of our overall business. In terms of wholesale presentation, we continue to gain wholesale presentation for Jibbitz, I would say across the globe in this country in Western Europe and also in Asia. So that is an important part of our growth in Jibbitz. I would also say that our online sales of Jibbitz have shifted more from kind of singles to packs, which has also allowed us to accelerate growth in terms of digital sales of Jibbitz too.

Great. And then, lastly, maybe if you could just talk about what you are expecting in terms of mix of wholesale to DTC? It seems like wholesale is like reaccelerating now, I guess, DTC is still growing, but do you expect that to shift back a little bit more to wholesale next year?

Yes. Thank you for the question. I think, when we think about next year, as I mentioned, there is still a lot of unknown with just kind of the variability of transit times and all the things that we are laying out. As we talked about in the prepared remarks, we are seeing really strong wholesale bookings, as well as we are really confident in the consumer demand for a product. But I don’t think we are ready to kind of give that break out. Yes, it’s still pretty early. So we are happy to provide more color commentary to get a little closer to the year next year.

Great. Okay. Thanks so much. Good luck with this holiday.

Thank you.

Thank you.

Your next question comes from the line of Steve Marotta with CL King.

Good morning, Andrew, Anne and Cori. Anne, I have a few questions for you. Could you please disassemble what the in transit inventory is in the third quarter of this year versus last year? And the follow-up is, can you talk about price increases in the first half of 2022 on a like-for-like basis versus pricing in the first half of 2021. Thank you.

Sure. So, yes, in the quarter, we grew roughly at 73%, inventory grew 22% and all the growth was in transit. So, and that’s really just a reflection of the extended transit times that we’ve experienced. I think we managed it really well trying to keep our inventory really in stock especially in our strategic channel including our own e-commerce channel. And then, switching over from a price increase first half 2022 versus first half 2021, so we did take the biggest kind of flow through that we talked about is the price increase we took for wholesale that has a flow through to first half of 2022 yet we’ll be flowing through. And then we also have some price increases we took internationally. That will flow through in the first half of 2022.

Okay. I’ll take the balance offline. Thank you.

Thank you.

Your next question comes from the line of Jim Chartier with Monness Crespi.

Good morning. Thanks for taking my question. For next year, how should we think about growth by product category in the region? Should we still expect Clogs in the Americas to grow faster than the overall? Or should we start to see the shift towards sandals and – next year?

Yes. Thanks, Jim. As we look at next year, we still expect Clog growth to be very strong. So we are still seeing tremendous growth in bookings in our Clog business. I would say, we are anticipating that the Americas will be strong, but we also think the international business will accelerate. And then, we think sandal growth will be – will improve hopefully but it’s – that’s kind of a smaller piece of the business. So, if we think about our five year plan in terms of growing our sandal business, we definitely think we are on track for our long-term trajectory. I am confident about the growth of that category.

Great. And then, just on the store openings this year in Asia, where have those stores been open? Have you started to open up any new stores in China? Thanks.

Yes. That’s a great question. The vast majority of the store openings in Asia have actually been in China. So it’s split between some outlets that we took back in Beijing and then simple price stores within eastern China.

Great. Thank you.

Your next question comes from the line of Jim Duffy with Stifel.

Thanks and good morning. I have a couple questions. I want to start just on customer activity in the D2C data file. Can you shape the composition of sales to existing customers versus customers that are new to the data file? And maybe speak about growth of that data file?

Yes. I mean, we don’t break that out in a lot of detail, Jim. It’s just not how we go to market. But what I can tell you, obviously we do analyze that information. What I can tell you is that, the growth we are seeing in DTC is frankly from both. It’s from new customers and also increased and repeat purchasing from existing customers. As we look at the – and obviously with the acquisition of those new customers our underlying data file is growing extremely well. I would also add that some of our call out of activity and some of the marketing activity we do allows us to capture consumers very effectively in terms of when they are in a queue looking for a call out while they enter an auction as you might have seen, we’ve moved some of our call outs to an auction type of process. That also is very effective in terms of increasing our consumer data file. So, we feel very confident and optimistic about the consumer activity that we see both online and in-store.

Thanks for that. And then, Andrew, I wanted to ask about wholesale orders, clearly retailers very anxious to get more products for spring. I am curious the measures you have in place will help you guard against the risk of over inventory in the channel, well those be stage deliveries, you are mounting inventories in the channel. I recognize the orders are strong, but just talk about your thought process for managing through that as the year unfolds.

Yes. I mean, I think, we talked about this a few times. I think we’ve really stepped up our brand health and inventory management activities. We looked very closely with all of our major wholesale partners around what they are ordering, how much they are ordering, when they are ordering it. We monitor sell-throughs extremely close as you would expect us to do. And some of our key products frankly are really on allocation across those partners. So, we make sure we have the right product in the right place. So, I’d say, we are very much on top of that. And do all of the things that you kind of frankly expect us to do to make sure that I think that the biggest problem or the biggest thing that any brand has to be aware of in making sure that their inventory is fresh, inventory is turning in all the channels and if you just look at our overall inventory efficiency and our turn rates I think they are best-in-class.

Yes. And, James, just one thing to add there as we touched in our prepared remarks we do see a really strong wholesale order book for next year. We are not going to be able to fulfill all the demand that’s in our wholesale order book just given Vietnam production in the first half and the impact. Even though we are airfreighting and we are projecting really strong growth for next year. We will still be constrained from a wholesale demand perspective.

Helpful. Thanks, Anne. And then, I wanted to ask you if you could provide a little more color on the components of gross margin improvement. You got 65 basis points from currency. How would you split the rest of the contributors to that gross margin improvement? And I am particularly curious about the benefit to gross margin from Jibbitz mix. Any color you can provide there will be helpful. Thanks.

Yes. The biggest overall benefit to gross margins are really have to deal with the pullback in promotions, as well as price increases. So, that’s kind of the largest share. I would combine those two in a bucket. Jibbitz mix is also a piece of it, but price increases and promotional strategy are the largest followed by product mix and Jibbitz share.

Great. Thank you. I’ll leave it at that.

Yes. Thanks.

Your next question comes from the line of Jay Sole with UBS.

Great. Thank you so much and thanks for taking my question. Andrew, I just want to maybe take a step back as questions about pricing and channels and just if you think about 20%, exceeding 20% growth next year on top of this year where growth is going to be in the mid-60s at least, how do you think about what’s – what gives you confidence to give an outlook for next year at this point here in October, versus normally in February when you do it, obviously the wholesale order book sounds really robust. But can you maybe just talk about what strategies you are using to continue to drive growth on top of big growth and maybe which consumer groups are really you are targeting to increase for sales and just continue to increase brand relevance? Thank you.

Yes. Yes. Excellent question. So, if we step way back, I think what we are seeing is, very strong brand trajectory, right. We talked about that a little bit in prepared remarks. We monitor brand relevance, consideration et cetera and we’ve seen double-digit increases in that sort of five years in a row, right. So, as we look at our brand relevance and our brand trajectory, and that’s frankly not just in the U.S. we are looking that in all of our key countries. We are looking at in Europe. We’re looking at in China, Korea, Japan, et cetera. So, we will see continued acceleration of brand relevance, which allows us I think a great deal of confidence that we can continue to scale the brand in many parts of the world, right. If you look at our recent success, in our recent trajectory, it’s been heavily driven by the United States. We’ve seen extraordinary growth here in the United States really for three years in a row now despite the pandemic. As we look to the future and as we talked about in our Investor Day, we really see that growth accelerating outside of the United States. So in our EMEA business, we are seeing very strong traction this year. We anticipate that continuing with a temporary disruption in Q4 of this year. And then, we also see Asia is our biggest long-term potential with giant markets available to us in, firstly China, but also Japan and Southeast Asia which is essentially been closed down during this time period. So, it’s brand trajectory. It’s growth opportunity around the world. It’s kind of the two key factors. And that’s what really underpins our $5 billion in the next five years in terms of our overall growth. Then I’d layer on top of that, bookings. As we look at wholesale bookings as we book into the first half of next year, we are clearly seeing demand way beyond what we are able to supply given some of the supply disruptions and just all of the overall scaling about supply chain. So, we think we can solve that over time. But we can’t solve that in a short term. So, I knew that’s what gives us the confidence to be able to give you the kind of 20% plus revenue growth into next year. The rate limiting factor for next year is really supply. And then I think to one of the earlier questions we do remain very vigilant and monitor closely the sell-through of that product. The last thing that we want to do is, is create some negative momentum for the brand by over-inventorying any of our particular channels.

Got it. That’s very helpful. Thank you, Andrew.

Your next question comes from the line of Jonathan Komp with Baird.

Thanks. Two quick follow-ups if there is time. One, tacking out of the prior question and thinking back to the Investor Day and hitting the $5 billion of revenue, your current ASP, I mean that would require close to $200 million pairs a year. So, just any broader context as we think about that five year projection. How you get comfortable with those types of volumes?

Yes. I mean, look, it does imply, I think we talked about that explicitly, I think at Investor Day. We do see some ASP growth over that timeframe, but still the biggest driver of the growth will be pairs. And what I would say is that you just look at other brand, then you look at the availability of production, it requires forethought and planning and it requires anticipation. But there is absolutely available capacity to be able to produce those kind of pairs. And partners that are willing and able to and frankly make good money out of producing those pairs. So they are anxious to support us and put – and stand out new facilities. So we don’t really have any huge concern about that. It’s definitely something that we feel very confident we can deliver against.

Okay. And then, Anne, maybe one follow-up, I know at Investor Day, you talked about roughly a flat gross margin over time looking against the 2021 level. It looks like gross margin obviously is trending higher closer to 60% or a little above for 2021 here. So, is that sort of the new bar you think is sustainable going forward? Or do you think over that five year horizon, you will get back some gross margin or how should we think about that?

Yes. I think where we specifically talked about to you for – our Investor Day is that we are comfortable with the 26% adjusted operating margins over the long term and 26% we are – and I think still that’s best-in-class. I think as far as the pieces, what we’ll try to do is, update you guys more full year on each of the initiatives and how that’s playing in. So, I would say, that 26% operating margin guidance over the long-term still stands. Obviously, next year we guided higher excluding the airfreight of 28%.

Okay. Fair enough. Thanks again.

Thank you.

Thank you.

And at this time, there are no further questions. I would now turn the call back over to management for any closing remarks.

I just want to conclude by thanking everybody for their ongoing interest in our company and thank you very much.

Thank you. That does concludes today’s conference call. We thank you for participating. You may now disconnect.