Earnings Call: Q3 2021

Oct 21, 2021

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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Corie Lynn. Good morning, everyone, and thank you for joining us today for the Crocs' 3rd quarter 2021 earnings call. And accordingly is subject to the Safe Harbor provisions of the federal securities laws. These statements include, but are not limited to, statements regarding and potential impacts to our business related to the COVID-nineteen 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 ks. Accordingly, actual results could differ materially from those described on this call. Please refer to Crocs' Annual Report on Form 10 ks as 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 cards is contained in the press release we issued earlier this morning. Joining us on the call today are Andrew Reese, Chief Executive Officer and Ann Neumann, 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, Corie, 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-nineteen pandemic and widespread supply chain disruptions demonstrate 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 2 plus years has been and continues to be a key ingredient across the success. Ann will review our financial results in more detail shortly, but here are a few highlights from the Q3 of 2021. We experienced broad based growth with total revenues up 73% versus prior year to $626,000,000 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 $205,000,000 versus $75,000,000 in 2020, with adjusted operating margins expanding to an impressive 33%. Finally, we committed to becoming a net zero company by 2,030 and began production of bio based products that go on sale in 2022. Let's now turn our attention to topic that I know is top of mind for many of you. The recent factory closures in Vietnam due to COVID-nineteen 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 partnership. Regarding the impact to the Crocs business, during the Q3, some of our factories in Vietnam were closed for several weeks, and they began reopening earlier this month. As of today, most of our batteries 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 foundry production quickly due to the limited inputs and simple configuration of our products. Secondly, by prioritizing top selling products a narrowing SKU count, while still preserving newness, we're able to improve factory throughput. Thirdly, we're aggressively leveraging airfreight to bring in units for 2022 springsummer selling season. In the United States, we're 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 supply, we're strategically allocating units. We will prioritize our most important channels, e commerce, e tail and our major wholesale customers. As we all know, the 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 $5,000,000,000 plus over the next 5 years. Now let's turn back to the Q3 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, detail and distributors grew revenues 88% 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. Product 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 a fuzz line product, which is on trend for holiday. Recent club collaborations with Balenciaga, Hidden Valley Ranch and San Kwang's in China amongst others continue to excite fans and elevate the Crocs brand. We continue to raise awareness for sandals, including them in collaborations such as the one with Benefit Cosmetics that featured both a clog and a 2 strap sandal. Sandals grew by 15% in the quarter 31% year to date as we conclude the sandal season in many parts of the world. Sandals represented 13% of footwear sales for the quarter versus 19% last year due to the strength of clog growth. Jibbit sales once again more than doubled for the quarter We continue to create excitement through a fresh assortment, including recent Jibbitz partnerships with social media personality, Brendan Rock and legendary rock brand, Grateful Dead. Consumer demand for our products is high, and we remain confident in our growth trajectory. We're raising the low end of our full year revenue guidance and now expect 2021 revenues to increase by between 62% 65%. We're also raising our 2021 adjusted operating margin guidance from approximately percent to approximately 28% as we benefit from favorable gross margins, SG and A leverage and the underlying strength of our brand. I'm pleased to share that our brand is extraordinarily healthy. And this is a testament to our product and marketing teams around the world who 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 5 consecutive years. Another indicator of brand strength is the Piper Sandler Fall 2021 Taking Stock with Teen survey, where the Crocs brand advanced in the all team preferred footwear rankings to the number 6 spot, up from number 9 last year and number 34 just 5 years ago. However, given the supply constraints we've 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're confident that we will be able to exceed 20% revenue growth for 2022. Before I turn the call over to Anne, I want to thank the entire Crocs organization. We're 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 our 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 3rd quarter results. For a 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 Q3. We delivered broad based revenue growth across all regions, channels and product Gross margin expansion and SG and A leverage led to another quarter of best in class profitability and increased earnings per share. 3rd quarter revenues increased to $625,900,000 up 72.2% on a constant currency basis compared to the Q3 of 2020 and up 100.1% compared to the Q3 of 2019. During the Q3, we sold 25,400,000 pairs of shoes, which represents an increase of 50.6% over last year and 60% versus the Q3 of 2019. The average selling price during Q3 was $24.42 a year over year increase of approximately 14.9 percent, driven by price increases, promotional strategy and product mix. Now let's shift our view to results by region, beginning with the Americas, where Q3 revenues of $455,900,000 increased 94.8% against the prior year. DTC revenue growth in the region was up 78.3% driven by higher traffic, conversion and average transaction value. 3rd quarter digital penetration increased to 32.8% from 30.8% last year and rose significantly from from 26.9 percent in 2019. Wholesale growth was 117.6% versus prior year and almost tripled versus 2019 as we continue to see strong sell through with our best partners. In Asia, Q3 revenues were $83,600,000 representing an increase of 21.2 percent 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 3rd quarter compared to 42.3 percent last year and 32.9 percent in 2019. EMEA revenues of 80 dollars 6,300,000 increased 42.8 percent on a constant currency basis with growing brand heat offsetting global logistics disruptions. GTC revenues increased 22.1 percent with strength driven by higher traffic. Wholesale revenues grew 56.9 percent fueled by strength in all subsegments, retail, 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 this quarter versus 59.8 percent last year and 49.6% in Q3 2019. Adjusted gross margins for the Q3 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 costs associated with global logistics Currency favorably impacted margins by approximately 65 basis points. During the Q3, our adjusted SG and A 5 20 basis points to 31.4 percent of revenue versus 36.6% in last year's Q3. The decrease in adjusted SG and A rate was achieved while investing approximately $60,000,000 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 3rd quarter adjusted operating income more than doubled to 200 $5,100,000 versus $75,400,000 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 and A leverage on strong sales growth. 3rd 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 3rd quarter with $436,600,000 of cash and cash cash equivalents and $686,000,000 in borrowings with an additional $500,000,000 of borrowing capacity on revolver. In August, we once again opportunistically took advantage of historically low interest rates issuing $350,000,000 and 4.125 percent senior unsecured notes due 2,031 with share repurchase as the primary Throughout the quarter, we repurchased approximately 1,100,000 shares of our common stock in the open market for $150,000,000 at an average of $142.17 As previously announced, we will repurchase an additional $500,000,000 of shares by the end of 2021 via an accelerated share repurchase for a total of $1,000,000,000 of share repurchases in 2021. Our shares outstanding as of October 14, at September 30, 2021 was $212,500,000 up from $174,100,000 in the 3rd quarter 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 2 year growth rate of approximately 82% to 86% and a 2 year compound annual growth rate of 35% to 36%. We anticipate strong growth for fiscal 2021 in all regions and channels. However, 4th quarter revenues in EMEA will be disproportionately impacted by the Vietnam supply disruption as much of the region's inventory is sourced there due to favorable duties. Today, our 2021 operating margins have benefited from our high gross margins and ability to leverage SG and 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 percent in 2020. This margin guidance is below our 2021 year to date margin due to higher global logistics costs and continued investment in SG and A in the Q4 to support our future growth. Looking to 2022, as Andrew mentioned, we expect revenue growth in in excess of 20% for the full year. We plan to invest approximately $75,000,000 in airfreight ahead of our We expect operating margins in 2020 and beyond the full year 2021 guidance excluding the incremental air freight. We will resume our normal cadence of providing more detailed fiscal year guidance on In summary, we continue to deliver outstanding revenue growth through supply disruptions, Thank you, Anne. With 3 quarters of the year behind us, we've achieved a strong balance sheet and a strong balance sheet. At this time, I'll turn the call back over to Andrew for his final thoughts. Thank you, Anne. With 3 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 Operator, please open the call for questions. 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're 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 hone in a little bit more on the Q4. 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 product that you're seeing stuck out on the West Coast ports right now? Are you needing to accelerate airfreight specifically for holiday? Thanks. Okay, Eira. Thank you very much. A lot of questions there. So perfect. So Vietnam is a significant portion of our manufacturing base. It's actually about it was Initially planned to be out 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 have 9 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 states of reopening. One thing that we learned from COVID, I think, is really important for people to understand. Our shoes are really simple and so ramping up factories can be very, very quick. Think about Classic clog. It has 3 components, 2 of which are made on-site. 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 is our most immediate target. We have 2 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 In terms of flow of goods for Q4, which I think was the second part of your question, It's difficult, right? So yes, we definitely have products on ships outside of Long Beach. We have our inbound ports, so we'd already push products to Northern ports on the West Coast to East Coast ports, etcetera. So we'd 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 Europe is coming out of Vietnam, so that's a little bit more impacted. We think that's a temporary impact. Our Trajectories of bookings in EMEA have been 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 air freight in Q4. Most of the product that we will sell in Q4 is already here or inbound. So there'll 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 Springsummer 2022 order book. Thank you. Sure. Hi, Erin. So our revenue for 2022, As we said, it's going to be over 20%. So we're 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 the extended free time, 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 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 Q4. Could you maybe just touch on From a product perspective, what's driving that? I noticed the 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 Yes. There's a couple of impacts on ASP. So it's a really 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, took price increases as well as that pricing helps support ASP. And then also the pullback in promotions and discounts that we've seen broadly. Those are the biggest From an inflationary perspective, we do anticipate some inflation flowing through and 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're proactively looking at other measures and things 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 at the airfreight, I think you said mostly ahead of springsummer, so maybe that's mostly in the Q1, but if you could Give any more color to the timing of the air freight charges? And then from an underlying gross margin perspective, should we expect a significant weighting when we Yes. So from the airfreight perspective, I would say that's really front half. I don't I really want to break out by quarter, but I do think it's both Q1 and Q2. So again, we'll 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 has 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 impacts we expect to come on. However, that's incorporated in our overall 28% operating margin guidance excluding that airfreight. So So as I just mentioned, we also have some price increases flowing through and we're 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. 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 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 to the products or what your philosophy is around that? And then secondly, on the new formulation, does that change the wear profile of the product at all? Okay. Thank you, Laura. So let me take those as kind of reverse order. So the new formulation really uses a new ingredient, right? So it's the same ingredient, but the ingredients derived from a different source, a more 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 2 products side by side, would not 2 products side by side. So I think that's one of the absolutely kind of fantastic parts about how we're 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're 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 Thank you for standing by and welcome to Crocs Inc. The next year frankly is minimal. As we look forward into the future, it will have more impact, but we're 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 Brace product And we will not be increasing prices to the consumer based on the increase in the bio based resin Purely, we'll be looking at sort of the overall health of the brand. Does that make sense? Yes. Thank you. Your next question comes from the line of Sam Poser with Williams Good morning. Thank you for taking my questions. I've got a few. I'll just read them off. 1, You talked about the additional $75,000,000 in airfreight for next year. What is sort of the normal can you give us some idea of what the normal airfreight is and Some more information there. Number 2, what percent within Vietnam, How exposed of those 9 factories, how many are in the South and what kind of production comes out of the South? And then, 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 it's you're seeing a lot more full price selling in the outlets Than I anticipated and wondered how that's impacting margins and How you see that going forward? And I probably have 10 more, but I'll just leave it at that. Sure. So I'll start, Sam with the firm answering your first one. So our normal air freight is certainly less than $10,000,000 We don't tend to spend a lot of air freight. We actually spend a little bit more this year than we did last. And that will be between $8,000,000 $10,000,000 That's kind of a normal run rate for this year. Great. So Vietnam, yes, I think Look, the majority of the factories are in the South, Sam, as you'd expect with the concentration of production facilities Down there, we're 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, did see some disruption based COVID cases and labor availability. I think the only other piece of color I would say is as the factories in the South are reopening, We are seeing the labor coming back pretty effectively. So we're 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 essentially a lot more full price than we were last year. So we did see a nice margin uptick in the stores. Activity or one of the key components was 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're heading into Q4, which is a more promotional period. There are some key periods in Q4, Black Friday, Cyber Monday, etcetera, Planning to return to a higher promotional cadence anytime soon. We see demand for the brand far ahead of our ability to supply at this stage. And then one last thing, when will your factories in South Vietnam do you think be at full capacity and relative And where are they today? If you can give us some kind of color there. Yes. That's too hard to Sam, I mean, I think we're certainly going to see we're anticipating that we see some on again off again type of situation. We're not anticipating That they ramp up our baseline projections do not anticipate they ramp up to full production in a number of weeks and then stay there for the rest of 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. Your next question comes from the line of Susan Anderson with B. Riley. I guess I wanted to ask about, the boots for the fall, if there's any early reads on, the boot 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 fall, we're actually primarily focused on or line product. That's where we really can deliver I think very strongly on kind of consumer expectations. That's where the volume of our business is. I would say Lion has been performing extremely well. We're very satisfied with the performance of our boots, but it's really a very minor part of what we do. Great. And then I'm curious about just the gibbets growth in the quarter. I'm not sure if you mentioned that. And then also how much more Base did you gain for gibbets, if at all, at wholesale for the quarter? Yes. What we said I think what we said is the gibbets doubled again in the quarter. I We continue to gain wholesale presentation for gibbetts, 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 gibbetts. I would also say that our online sales of gibbetts have shifted more Kind of singles to packs, which has also allowed us to accelerate growth in terms of digital sales of Jibbitz 2. Great. And then lastly, maybe if you could just talk about what you're expecting in terms of mix of wholesale to DTC. It seems like wholesale is reaccelerating now. I guess DTC is still growing, but do you expect that to shift back a little bit more to wholesale next year? Yeah. I think when we think about next year, as I mentioned, there's still a lot of unknown with just kind of the variability of transit times and all the things that we're laying out. As we talked about in the prepared remarks, we're seeing really strong wholesale bookings as well as we're really confident in the consumer demand for our products. But I don't think we're ready to kind of Give that breakout yet as it's still pretty early. So we're happy to provide more color commentary as we get a little closer to the year next year. Great. Okay. Thanks so much. Good luck with this holiday. Thank you. Your next question comes from the line of Steve Marotta with C. L. King. Good morning, Andrew and Corey. And I have two questions for you. Could you please disassemble what The in transit inventory is in the Q3 of this year versus last year. And the follow-up is, can you talk about price increases in the first half of twenty twenty two on a like for like basis versus pricing in the first half of twenty twenty one. Thank you. Sure. So yes, in the quarter, we grew revenue 73%, inventory grew 22% And almost all of 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've managed it really well trying to keep our inventory really in stock, especially in our strategic channels, Including our own e commerce channel. And then switching over from a price increase first half 'twenty two versus first half 'twenty one. So we did take The biggest kind of flow through that we've talked about is the price increase we took for wholesale that hasn't flowed through to the first half 22 yet that will be flowing through. And then we also have some price increases we took internationally that will flow through in first half of twenty twenty. Okay. I'll take the balance offline. Thank you. Thank you. Your next question comes from the line of Jim Cartier with Montez Crespi. Good morning. Thanks for taking my question. For next year, how should we think about growth by product category and region? Should we still expect clogs in Americas To grow faster than the overall or should we start to see the shift towards sandals and Asia start next year? Yes. Thanks, Jim. As we look at next year, we still expect clog growth to be very strong. So we're still seeing Tremendous growth in bookings in our cloud business. I would say we are anticipating that the Americas will be But it's that's kind of a smaller piece of the business. So if we think about our 5 year plan in terms of growing our family business. We definitely think we're on track for our long term trajectory and confident about the growth of that category. Great. And then just on the Door openings this year in Asia, where have those stores been open? Have you started to open up any new stores in China? Yes, that's a great question. The vast majority of the store openings in Asia have actually been in China. So split between some outlets that we took in Beijing and then some full price stores in some key cities in China. Great. Thank you. Thank you. Your next question comes from the line of Jim Duffy with Stifel. Thanks and good morning. I have a couple of questions. I wanted 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 think 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're seeing in DTC is frankly from what we've also increased and repeated. As we look at and obviously with the acquisition of those new customers, our underlying data file Some of our call out activity and some of the marketing The activity we do allows us to capture consumers very effectively in terms of when they are in a 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 are very anxious to get more product for spring. I'm curious the measures you have in place that will help you guard against the risk of over inventory in the channel. Will those be staged deliveries? You're monitoring inventories in the channel. I recognize the orders are strong, but just talk about I mean, I think we've talked about this a few times. I think we've really stepped up our brand health inventory management activities. We work very closely with all of our major wholesale partners around what they're ordering, how much they're ordering, when they're ordering it. We wanted to sell throughs extremely closely as you'd 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're We're 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 The biggest problem or the biggest thing that any brand has to be aware of is 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're best in class. Yes. And Jim, just one thing to add there. As we touched on in prepared remarks, we do see a really strong wholesale order book for next year. We are not going to be able fulfill all the demand that's in our wholesale order book just given Vietnam production in the first half and the impact. So even though we're air freighting and we are projecting really strong growth for next year. We will still be constrained from a wholesale demand perspective. Helpful. Thanks, Ann. And then I wanted to ask if you could provide a little more color on the components of gross margin improvement. You 65 basis points from currency, how would you split the rest of the contributors to that gross margin improvement? And I'm particularly curious about the benefit to gross margin from Gibb's mix. Any color you can provide there would 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. Are the largest followed by product mix and chip and share. Great. Thank you. I'll leave it at that. 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 because your question has been about pricing and channels and Just say 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 gives you confidence to give an outlook for next year at This point here in October versus normally in February, when you would do it. Obviously, the wholesale order book sounds really robust. But can you maybe just talk about what strategies you're using to continue to drive growth on top of big growth and maybe which consumer groups are really you're targeting to increase the sales and just Can you continue to increase brand relevance? Thank you. Yes. Excellent question. So, if we step I think what we're seeing is very strong brand trajectory, right? We talked about that a little bit in prepared remarks. We monitor Brand relevance, consideration, etcetera. And we've seen double digit increases in that sort of 5 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're looking at that in all of our key countries. We look at it in Europe, we look at it China, Korea, Japan, etcetera. So we 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 and our recent trajectory, it's been heavily driven by the United States. We've seen extraordinary growth Here in the United States really for 3 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've seen Very strong traction this year. We anticipate that continuing with a temporary disruption in Q4 of this year. And then we also see Asia as our biggest long East Asia, which has essentially been closed down during this time period. So its brand trajectory, its growth opportunity around the world is kind of the 2 key factors. And that's what really underpins our $5,000,000,000 in the next 5 years in terms of our overall growth. Then I layer on top of that, bookings, as we look at wholesale bookings as we book into the first half of next We're clearly seeing demand way beyond what we're able to supply, given some of the supply disruptions and just over the overall scaling of our supply Jay, so we think we can solve that over time, but we can't solve that in the short term. So I think that's what gives us the confidence to be able to give you the 20% plus revenue growth into next year. The rate limiting factor for next year, frankly, 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 It creates a 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's time. One, tacking out of the prior question and Thinking back to the Investor Day and hitting $5,000,000,000 of revenue, your current ASP, I mean that would require close to 200,000,000 payers a year. So just Any broader context as we think about that 5 year projection, how you get comfortable with those types of volumes? Yes. I mean, look, it does imply and 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 if you just look at other brands and 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 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're anxious to support us and put and stand up 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 5 year horizon you'll give back some gross margin or how should we think about that? Yes. I think where we specifically talked about too for our Investor Day is that we're comfortable with the 26% adjusted operating margins over the long term. And 26 or plus. And I think So that's best in class. I think as far as the pieces, what we'll try to do is update you guys more on a 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 year And at this time, there are no further questions. I will now turn the call back over to management for any closing remarks. Thank you very much. Thank you. That does conclude today's conference call. Now disconnect.