Thank you for standing by and good morning, and my name is Savannah, and I will be your conference call operator. At this time, I would like to welcome you to the Crocs Fourth Quarter 2021 Earnings Call. [Operator Instructions] And after the speakers' remarks, there will be a question-and-answer session.

[Operator Instructions] I will now turn it over to today's speakers. Please go ahead..

Good morning, and welcome to the Crocs, Inc. Fourth Quarter 2021 Earnings Call. Good morning, everyone, and thank you for joining us today for the Crocs Fourth quarter and Full Year 2021 Earnings Call. Earlier this morning, we announced our latest quarterly and annual results, and a copy of the press release may be found on our website at crocs.com.

We would like to remind you that some of the information provided on this call is forward-looking and accordingly, is subject to the safe harbor provisions of the federal securities laws.

These statements include, but are not limited to, statements regarding the anticipated consummation of the acquisition of Jude and the timing and benefits thereof, Crocs' strategy, plans, objectives, expectations, financial or otherwise and intentions; future financial results and growth potential; anticipated product portfolio, our ability to create and deliver shareholder value and statements regarding potential impacts to our business related to the COVID-19 pandemic.

These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.

Crocs is not obligated to update these forward-looking statements to reflect the impact of future events, except as required by applicable law. We caution you that all forward-looking statements are subject to risks and uncertainties described in the Risk Factors section of our annual report on Form 10-K and our subsequent filings with the SEC.

Accordingly, actual results could differ materially from those described on this call. Please refer to the Crocs annual report on Form 10-K as well as other documents filed with the SEC for more information relating to these risk factors.

Adjusted gross profit, adjusted gross margin, adjusted selling, general and administrative expenses, adjusted income from operations and operating margin, adjusted income tax or benefit and effective tax rate, adjusted basic and diluted earnings per common share are non-GAAP measures.

A reconciliation of these amounts for GAAP counterparts is contained in the press release we issued earlier this morning. Joining us on the call today are Andrew Rees, Chief Executive Officer; and Anne Mehlman, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions.

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

clogs, sandals and jibes. Sales of clogs were particularly strong, increasing to 80% of total footwear revenues versus 72% in 2020. Sales of the classic clog franchise increased triple digits,driven by graphics as well as line, height and adventure iterations.

Sandals grew nearly 30%, driven by strong performance in our personalizable classic slide and classic sandal, particularly in the Americas. We also saw strong growth across other core items like our Crocband and Katy Flips, as well as our Brooklyn style franchise Hard by Lightwave technology. EBIT had another outstanding year, up almost 150%.

This important category continue to have broad appeal with global penetration reaching 7% versus 5% last year. Our product strategy continues to resonate with consumers globally, giving us confidence in our $5 billion revenue target for the Crocs brand we outlined at our Investor Day in September. Turning to ESG.

We made progress in our commitment to net 0 emissions for the Crocs brand by 2030. We've taken a major step forward by becoming a 100% vegan brand, and we kicked off our employed sustainability initiative by blending bio-based compounds into our shoes that we manufacture containing Crocs.

We continue to give back to our communities, including donating 150,000 pairs of shoes across multiple organizations. And together with the generosity of our consumers, raising funds for Feeding America to provide 25 million meals to those in need.

I'm proud of the passion of our team and the progress we're making in terms of making a positive impact on our planet and our communities. To cap off an extraordinary 2021, in late December, we announced the HEYDUDE acquisition and adding a second high-growth, highly profitable brand to our portfolio.

We expect to close the transaction in the coming days and are delighted to soon welcome Alessandro and his talented team to Crocs. We'll feel privileged to have Alessandro staying on for 18 months to help ensure a smooth and successful transition.

Our preliminary integration work is progressing well, and we're well advanced in terms of building our new leadership team. with the majority of critical positions already felt. We have a plan to amplify the HEYDUDE brand through innovative marketing and leveraging crop strong wholesale relationships to extend distribution.

We're excited about the potential of HEYDUDE and incredibly confident in our ability to build a $1 billion brand by 2024. Looking forward, the Crocs and HEYDUDE brands enter 2022 with incredible strength and momentum.

However, I'll be remiss if I did not mention the many unknowns in the world today, ranging from challenging supply chain, lingering COVID shutdowns to rising inflation and potential impacts on consumer spending. We're not immune to these many macro headwinds.

However, I'm confident in our brand, our team and our demonstrated ability to navigate uncertain times. With respect to the supply chain and the pandemic, we've been managing disruptions for more than 2 years and have demonstrated incredible agility to satisfy consumers' needs globally.

As we have shared, the factory shutdowns in Vietnam last year, combined with the continued extended trend at times, have lingering impacts on supply and new product introductions for the first half of 2022.

As Anne will outline in our guidance, the greatest impact from these disruptions will come in the current quarter, resulting in over $40 million of orders slipping from Q2 into Q3, with the largest impact being in EMEA. However, we're looking forward to a robust revenue growth in Crocs and HEYDUDE brands for the full year of 2022.

The combined business has incredible potential, and we anticipate the powerful combination will be highly profitable, cash generative and create significant long-term shareholder value.

Before I turn the call over to Anne, I want to express my gratitude to the entire Crocs organization for their hard work and commitment to delivering best-in-class growth and profitability. I also want to reiterate a warm welcome to all the HEYDUDE employees around the world, who will soon be joining the Crocs family.

2021 was an incredible year for the organization, and I'm proud of how we executed as a team and the value that we've created for shareholders. With that, Anne will now review our financial results in more detail..

Thank you, Andrew, and good morning, everyone. I'll begin with a recap of our fourth quarter results. For a reconciliation of the non-GAAP amounts mentioned to their equivalent GAAP amounts, please refer to our press release. Our fourth quarter results were outstanding, with all regions recording double-digit revenue growth, led by the Americas.

Profitability continues to be best-in-class as we expand gross margins and leverage SG&A to increase adjusted operating margins to 28.6% compared to 21.1% in the fourth quarter last year. Fourth quarter revenues came in at $586.86 million compared to $411.5 million last year, a 43.5% increase on a constant currency basis.

On a 2-year stack, revenues grew 123.1%. During the quarter, we sold 22.6 million pairs of shoes, an increase of 19.7% over last year. Our average selling price rose 18.9% to $25.71, attributable to price increases taken during the year, coupled with fewer promotions and discounts.

For the full year 2021, we sold 103 million pairs of shoes, up 49% over 2020. Our average selling price for 2021 rose nearly 12% to $22.27, also driven by price increases and fewer promotions and discounts. As evidenced by our ability to take price and still deliver significant volume increases, the Crocs brand is strong as ever.

Now let's review our results by region. Growth was led by the Americas, which experienced another strong quarter with revenues of $469 million, up 51.2% from 2020. This growth was led by digital of 55.2% from 2020 to 244.5% on a 2-year basis. DTC and wholesale increased 49.3% and 52.6%, respectively, from prior year.

Our broad-based performance in the Americas is the direct result of meeting the consumer where they shop and driving relevance through innovative marketing. EMEA revenues increased 22.5% over Q4 2020 to $60.5 million. EMEA outperformed expectations in the quarter as we were able to secure more inventory than initially planned.

Growth was fairly balanced by channel, with DTC revenues increasing 18.5% and Wholesale revenues increasing 24.6% in the quarter compared with 2020. GTC benefited from strong growth in both e-commerce and retail, while wholesale benefited from exceptional performance in brick-and-mortar.

We are extremely pleased with our EMEA performance, which is benefiting from improved brand relevance and consideration. In Asia, Q4 revenues were $57.1 million, up 10.3% from last year. This growth was driven equally by DTC and wholesale. South Korea and India continue to outperform and both grew nicely during the quarter and the year.

China has faced periodic COVID lockdowns that impacted Q4 results. However, China grew double digits for the year, and we remain confident in our long-term plan. Our fourth quarter adjusted gross margin was 63.7%, up 770 basis points from last year's 56%.

The gross margin improved in all regions and all channels driven by increased prices, fewer promotions and discounts and favorable product mix. Full year 2021 adjusted gross margins of 61.6% rose 700 basis points from last year, also driven by increased prices, reduced promotional activity and product mix.

Our Q4 adjusted SG&A was approximately flat to last year at 35.1% of revenues. This excludes $6.4 million in onetime costs related to the HEYDUDE acquisition. For full year 2021, adjusted SG&A leveraged 400 basis points to 31.6% of revenues from 35.6% of revenue.

The significant decrease in adjusted SG&A is a result of strong sales growth and operating leverage even as we invested in additional brand marketing and talent to support future growth.

Our fourth quarter adjusted operating margin expanded 750 basis points to 28.6% compared to 21.1% for the same period last year, led by gross margin expansion, offset slightly by SG&A.

Adjusted income from operations for the full year increased 164.8% to $695.3 million, and adjusted operating margin rose 1,120 basis points to 30.1% compared to 18.9% last year. Fourth quarter non-GAAP diluted earnings per share more than doubled to $2.15 compared to $1.06 for the same period a year ago.

Full year adjusted diluted earnings per share also more than doubled to $8.32. We've included 2021 with a strong liquidity position comprised of $213.2 million of cash and cash equivalents and $414.7 million of borrowing capacity on our revolver.

In addition, we had $785 million of long-term borrowings and ended the year under 1x leverage on a net basis. Given our strong cash flow generation for the full year 2021, we returned $1 billion to shareholders, repurchasing approximately 7.8 million shares at an average price of $128.52 per share.

Inventory at December 31, 2021, increased 21.9% to $213.5 million from $175.1 million in Q4 2020 with the majority of the increase driven by in-transit inventory due to extended transit times. We anticipate extended transit times to sustain throughout the year and to drive increases in inventory in certain periods.

We felt good about our [indiscernible] positions during the holiday season, which supported strong sell-through in our ability to take market share. As Andrew mentioned, in addition to expanded transit times, we expect other logistics challenges to persist throughout 2022.

Now turning to the future, I would like to share our current outlook for Q1 and then full year 2022. For Q1, we expect consolidated revenues including the HEYDUDE brand to be approximately $605 million to $630 million.

Excluding HEYDUDE, we expect Crocs brand revenues of $520 million to $535 million, which implies organic growth of approximately 13% to 16%. The consolidated revenue guidance assumes the HEYDUDE acquisition closes in the coming days.

We expect non-GAAP operating margin to be approximately 22%, which includes approximately $30 million of incremental air freight costs within gross margin. For full year 2022, we continue to expect revenue growth for the Crocs brand, excluding HEYDUDE, to exceed 20%, generating revenues of over $2.75 billion for the year.

In addition to the Crocs brand revenues, we still anticipate full year 2022 revenues for HEYDUDE to be approximately $700 million to $750 million on a pro forma basis and $620 million to $670 million on a reported basis.

On a combined basis, we expect 2022 revenues of more than $3.45 billion on a pro forma basis and approximately $3.4 billion on a reported basis. We expect adjusted operating profit margins for the combined business of approximately 26%.

This includes the incremental air freight, but excludes estimated due acquisition and integration costs that I will outline shortly. For the full year 2022, we expect our underlying non-GAAP tax rate, which approximates cash tax to be paid to be approximately 22%. Our GAAP tax rate will be approximately 25%.

To provide greater clarity around our earnings potential and mid to acquisition, we are providing full year earnings per share guidance. We anticipate non-GAAP earnings per share to be approximately $9.70 to $10.25 in 2022.

To support growth for both brands, we expect to invest approximately $170 million to $200 million in capital expenditures, primarily to continue to expand and automate our distribution capabilities. As Andrew mentioned, we are very excited about the addition of the HEYDUDE brand and expect to close in the coming days.

To fund the acquisition, we will issue 2.85 million shares to one of the sellers, and we have secured a $2 billion term loan fee, which we will provide additional details for upon close.

We also expect to borrow $50 million under our existing senior revolving credit facility, as well as exercise the accordion provision on the revolving credit agreement to increase the borrowing capacity by $100 million.

We estimate approximately $60 million onetime charges in SG&A in 2022 mostly related to the HEYDUDE acquisition and a $75 million noncash impact in gross margin, mostly related to the write-up of HEYDUDE inventory to fair market value.

We expect approximately $30 million of SG&A onetime costs to be incurred in the first quarter and that leverage will peak during Q1. As previously shared, we are committed to deleveraging and expect a combined brand to generate significant cash flow, allowing us to quickly achieve 2x gross leverage by the end of 2023.

With this focus on deleveraging, we have suspended our share repurchase program until gross leverage is under 2x. Regarding future disclosures, the Crocs brand will continue to be broken out into the Americas, Asia and EMEA regions, and we will report the HEYDUDE brand as a separate segment.

For both brands, we will report wholesale and DTC revenues as well as digital penetration. Beginning in Q1 2022, we will move Latin America from the Americas to the EMEA region for the Crocs brand to better align and manage our distributor businesses. In summary, throughout 2021, we delivered strong revenue growth, profitability and cash flow.

With the underlying strength of the Crocs core business and the addition of HEYDUDE, we are confident we have positioned ourselves for sustained profitable growth and strong cash flow generation. At this time, I'll turn the call back over to Andrew for his final thoughts..

Thank you, Anne. Crocs brand had a tremendous year in 2021. We're confident in the trajectory of the Crocs brand and excited by the pending acquisition of HEYDUDE.

By leveraging the proven Crocs playbook to enhance HEYDUDE's growth trajectory, we see a tangible pathway to a highly profitable combined company and tremendous value creation for shareholders. Operator, let's open the call for questions..

[Operator Instructions]. Thank you, Andrew. I think the first question is coming from the line of Erinn Murphy from Piper Sandler..

You hear me okay?.

We can. I apologize for our technical difficulties. Thank you, Erinn..

No worries. Okay. So I've got a couple maybe starting on the supply chain. Could you talk a little bit more about the impact that you're seeing now into the first and it sounds like into the second quarter.

Is that factories that are still ramping on production? Is it the container shortages that we're seeing globally? And then how has the response been to retailers? Are they actually having to cancel orders? And then I guess relatedly, Anne, can you just go through the shift again Q1 to Q2, Q2 to Q3? I just want to make sure we have that all buttoned up..

Yes. Let me kind of give you the qualitative, Erinn, and then Anne can pick up some of the details. So factories are back up and running. They have been for some time. And actually, we're relatively pleased with their ramp-up post Chinese New Year. They've come back up to speed quickly.

The delays that we're seeing from Q1 into Q2 are really transportation-related, and I would say it's a combination of delays in loading, delays in transit and delays unloading. So that was a longer delay than we expected. So I would say that most -- it's impacting us most in EMEA.

And as we look at our overall business, I think we're confident in the amount of supply that we have and the ability to grow our supply base to meet our overall annual guidance. And it's really the transportation delays that continue to move around..

Yes. And then as far as revenue impact, as we said in prepared remarks, approximately $40 million of revenue associated with our EMEA business, that's wholesale or distributor revenue that would have -- we would have fulfilled in Q1 that's impacted by these supply delays.

We haven't totally given the shift amongst the quarters for the rest of the year because there's still a lot of uncertainty just related with transit time. So we reaffirm that we're going to grow over 20% for the full year..

Yes. I just realized the one other piece that you asked in there, Erinn, was expectations around cancellations. I would say, I think the majority of retail partners have been incredibly understanding. I think they're seeing this from lots of people right now, and we would not anticipate cancellations at this time..

Okay. And then the second part or my second question is around HEYDUDE. If I just look at the guidance, just for the stub period for that 1 month that you'll likely be recognizing revenue, it looks like it's $90 million.

Can you just help us think through the seasonality because if we just flatline that on a monthly basis, it implies HEYDUDE revenue is closer to $900 million for the year, not the $700 million to $750 million on a pro forma. So just maybe help us think through the stub period and how we should extrapolate that for the full year seasonality..

Sure. So I think you have to keep the $90 million divided by 1.5 months because we're assuming that it will close in the coming days. So if you do that math, then you get to about $720 million at the midpoint of guidance, if you just annualize it for the remaining 10 months.

So I think you just got to make sure that you're accounting for those extra weeks in February..

Okay. Okay. Fair enough. And then maybe just if I can add one more on price increases given the inflationary backdrop. We've been seeing some price increases that you took in Europe last month. And I'm just curious kind of what's contemplated in the guidance this year on a global basis for price increases..

Yes. So I appreciate the question. Our early action in 2021 of taking price obviously allowed us to more than offset the impact of inflation for 2021. I think that puts us in a really good position for 2022. As you mentioned, we did take price increases in EMEA, and we actually took some in Asia as well.

So both of those will flow through in 2022 and are contemplated in guidance. as well as the U.S. wholesale prices increases that we took that flow through in the back half of last year, that will still flow through the first half of this year. ..

The second question comes from the line of Jonathan Komp at Baird. ..

Operator, if you could please unmute the line that's now first in queue..

Jonathan, we're not -- just in case you're already talking, we're not hearing you..

Susanna, if you could unmute the first line, we believe that's Jonathan Komp even though it's listed separately in the system. Okay. I'm sorry. We'll go to the line of Laura Champine from Loop Capital..

So my question is about the implied acceleration in organic growth for Crocs brand from mid-teens in Q1 to end the year over 20%.

Is the thought process behind that, that the slower growth in Q1 is just due to the supply chain issue that you called out? Or is there more going on there?.

Laura, it's Yes, absolutely. I think the growth in Q1, as we called out at ICR in January, is related to the impact of the Vietnam shutdowns last year on the first half. So it's all related to timing. We're not seeing any changes in underlying consumer demand for the brand..

Got it. Quick follow-on. How is pricing holding up relative to your initial expectations coming into this year? And if there's anything you can do to quantify that kind of pricing that you expect to take year-on-year, that would be super helpful..

Yes. I think we feel great about the price impacts -- the price increases that we took last year as well as those that we've taken this year. And as Anne mentioned to a prior question in both Europe and Asia, we're having absolutely expected impact in terms of those price increases are certainly holding up.

And we feel very confident about our future pricing trajectory. We are seeing competitors take price and anticipating more of that through the year. I think we were a little bit early in some of the actions that we took last year. We'll monitor that closely.

It's very important to us that we continue to provide incredible value to consumers, but also at the same time, capture the value that's required in terms of the value of the Crocs brand..

We're going to try Jonathan Komp again, please, from Baird..

Okay.

Can you hear me now?.

Yes..

Perfect. I wanted to ask first just on Crocs when you think about the growth outlook maybe relative to the long-term growth drivers, digital sandals outside of North America growth.

How should we think about those playing out in '22 and maybe even color here Q1 versus the balance of the year, how do you see those impacting the Crocs brand?.

Yes. I think as we kind of think about the playbook that we've outlined, digital, international, sandals, et cetera, I think it continues to work extremely well. We're getting very strong sell-through and continued growth on the clog, which is really fueling a lot of the international growth and the digital growth.

Sandals had a good year last year, and we are expecting sandals to be disproportionately impacted in terms of supply during the first half of this year. But that's really a supply-related issue.

When I look at our innovation, our product development and the consumer reception to our sandals, particularly the personalizable sandals we talked about, both the classic slide and the Classic II scrap. We're getting very strong reception for consumers.

So I'd say the only element that I would call out would be sandals, and that's really supply related to the stage. We feel great about the kind of strategic playbook and its ability to drive the growth that we've anticipated..

Yes. And I think just one other kind of comment around the international geographic impact and what it's going to do this year. So as we have out in our prepared remarks, we're really excited about the growth we're seeing out of EMEA. Really strong growth trajectory there.

Unfortunately, they're disproportionately impacted in related to supply, and that will impact growth rates there for Q1, but we still expect to have strong international growth this year out of EMEA as well. It will just unfortunately be more outside of Q1..

Okay. That's very helpful. And then maybe switching to operating margin. You outperformed in Q4 in '21, reaching 30%. Could you maybe just share more detail on the thought in the guidance down to 26% adjusted operating margin. I know a portion of that is the air freight.

But the balance of that, if you could maybe just touch on what you're embedding both for the underlying Crocs brand? And then how quickly you'll be able to ramp and what you're assuming for HEYDUDE within that..

Yes. This is a great question. So we're really pleased with, obviously, our best-in-class operating margins of almost 30% on an adjusted basis last year, which were supported by, as we talked about, price increases that we took, leveraging SG&A and really good growth. So I think for this year, there's still a lot of unknowns.

What we're comfortable with is the 26% and then the air freight of the $75 million over 200 basis points of impact on those margins. We're also said that the combined HEYDUDE and Crocs would be 26% operating margin. We obviously haven't closed the transaction yet for HEYDUDE.

But as we do and as we move through that, and we'll provide some more clarity on our first quarter call..

The next question will come from Sam Poser from Williams Trading..

I've got a -- I've just got a few. One, what is the share count that you're assuming for next year? And then I'll get another thing..

The share count that we're assuming for next year, for 2022?.

This year..

I think you would be safe to say that right around the diluted share count of approximately 62.4 million shares..

That will be a little lower in the first quarter,I assume..

Yes, because the -- we haven't issued the HEYDUDE shares yet. So we will issue those shares in connection with the acquisition when it closes..

Okay. And then can you walk through -- you said that in the press release, it said that it'd be about $75 million of airfreight in the first half. Q1 is going to have $30 million. That means that Q2 is more impacted than Q1. I mean, that's a easy math, but you didn't talk about Q2 in that regard..

It's more impacted from a cost standpoint. I would just say some of that is just continuing to pull things that had delays from Q1 that flow. So yes. And as we talked about, we see extended transit times throughout the year, but the first half is obviously most impacted..

Okay. And then lastly, when you started to look under the 1/3 of HEYDUDE, we haven't gotten it yet.

But I was just wondering what are -- can you give us some details on what you're seeing from sort of the structure, the infrastructure, what you're going to need to do versus what you first expected when you -- a couple of months or 1.5 months ago when you announced the deal or 2 months ago when you announced the deal?.

Yes. Let me take that, Sam. So what I'd say is that the more we know, the more excited we are, right? So in terms of -- we're looking at the brand, its trajectory, its connectivity with consumers and its relationships with its key partners and wholesale customers. I think the brand is in a great place.

And there is clearly far more demand and then the ability to meet that demand in the short term. So feel really great about the brand. In terms of the infrastructure, I would say we've moved incredibly quickly. We have put our team in place. As we've said on the call, we just pay closing the next in the coming days.

I would say our team is in place, both people that we've recruited from that type company, but also some strategic reallocations from the Crocs brand. We always knew that there was a substantial amount of infrastructure to put in place. We knew that as we due diligence, that is absolutely true.

But we always say we have the resources and are very well positioned to put that infrastructure in place quickly..

And just one last thing.

And if we think about this, the gross -- the actual gross reported gross margin -- your expected gross margin to be down significantly in the first half of the year and the gross margin in the second quarter is likely to be worse or more than it is?.

I would just say there's -- yes, Sam, good question. I would not necessarily assume that. I would just look at -- I mean, there are some seasonal things that impact our gross margins as far as how much wholesale revenue makes up Q1 versus Q2. So when we're not guiding Q2 gross margins, I wouldn't say that our Q2 margins are going to be below Q1..

The next question comes from the line of Jay Sole from UBS..

Great. Just about the plan to pay down debt. Is there flexibility in that? I mean, if you decide that you think the stock price represents better value than paying down debt.

Could you change your mind and reinstate the authorization and buy back some stock?.

Yes. So just to clarify, we still have our authorization. So that's still outstanding. We have some covenants associated with our debt that we need to be 2x leverage to be able to buy back. But we think we can pay down debt very quickly. The combined entity generates a lot of cash, and we're very committed to paying down that debt.

And we've had a very successful buyback program and very aggressively bought back stock last year, and we do think our stock represents a tremendous value at this stock price. So we will continue to work to pay down debt so we can look at repurchasing.

Okay.

And then maybe can you talk about Jibbitz a little bit? I mean can you talk about the Jibbitz growth in the past year and the fourth quarter? And do you expect Jibbitz to grow faster than the overall company average in '22?.

Yes. So Jibbitz grew for the full year, 150% or over 150% to 7% of overall sales last year, which obviously is outstanding. And I know you're all aware, that's obviously incredibly high-margin category. But probably more important than the margin and even the sales dollars is the consumer engagement that it creates.

You see that we use Jibbitz both in our retail stores to create consumer engagement, but also on almost all of our collaborations. So as we look at this year, yes, it will certainly grow faster than the overall growth rate that we put out there for the Crocs brands. It will continue to be a high-growth category..

Got it.

And how should we think about the SKU count for Jibbitz? I mean, is it -- are you expanding it? Like what do you need to do to sort of continue to expand and amplify that business?.

Yes. The Jibbitz SKU count, I would say, has expanded dramatically. But it comes and goes, right? There are a set of core Jibbitz that continue to exist, numbers, letters, emojis and things that the consumer is looking for on an ongoing basis. Many of the SKUs are seasonal or short term in nature. They're available for a short period of time.

They sell through and then they're gone. So that's how we'll kind of continue to manage the Jibbitz business. . You probably also noticed that we're shifting a lot of our kind of offerings to pack offerings. It makes it far more efficient to sell and ship through e-commerce and it also helps our wholesale partners.

So we'll continue to do a single digits, but we'll also do a lot more packs..

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

Nice job on the quarter.

I'm just curious maybe if you could talk about investments that you guys expect to make this year and how you're thinking about SG&A margin in 2022?.

Yes. Susan, I think what we are going to invest around is really along our cost perspective on our key initiatives we've laid out that are driving growth, which is really around digital China marketing, and then we will ignite all of that with continued innovation around products.

And then I will also say we will invest in talent to support all of those initiatives. So that's on the SG&A side from the cost perspective. From the HEYDUDE perspective, the SG&A there is really to put into the infrastructure to allow sustainable growth in the years to come. They've had an incredible growth trajectory.

And as we've talked about, they've supported that with very, very low SG&A. So we have some investments we're looking at, and as Andrew talked about in his prepared remarks, very excited that we've already been able to hire some team members of that leadership team. So those are really the key investments.

And then just one other point on the HEYDUDE side is a lot of benefit that will sit in marketing this year as they haven't invested a ton in brand marketing and are almost noting into this point. So we will invest there.

And we haven't completely given all the rates, but as we closely do and go into Q1 [indiscernible] [Technical Difficulty] seeing strong demand there as you roll those out.

And then I'm just curious, are these meaningful to sales yet at all? Or is it really still just about the marketing?.

Yes. I would say the reaction to the collabs that you just announced, plus others that are coming. I would say the calendar is really full for the coming quarters. Carol G did extremely well. Kluis, which was done in partnership with Zappos, has done extremely well.

So they both, I would say, outperformed our expectations and 100% sold through in terms of sales success. I would say the quantities around some of these collabs are getting a little bit bigger, but it's really a balancing act between the brand heat, the buzz that we create and revenue. So it's -- I think we feel really good about what we are..

The next question comes from the line of Jim Duffy at Stifel..

Absolutely normal 2021. And I wanted to start with a question on the 1Q and fiscal '22 Crocs revenue guidance.

Can you speak to assumptions for growth in pairs and ASPs embedded in that guidance?.

Yes. We haven't provided that at this point in time. Obviously, we have some price increases that we just talked about, and we still expect unit growth. But we haven't given the split at this point in time, Jim..

Okay. I'm taking ASP, an 18 percentage point contribution to growth in the fourth quarter.

In the first quarter, are you expecting a similar amount? Or is that -- what is it -- just trying to figure out are you actually expecting tariffs growth? And then maybe related to this, does the ASP include attach of Jibbitz? Or is it a pure footwear ASP read?.

Yes. So the way that we calculate ASP, as we take our total revenue and we divide it by our footwear payers. So we think as driven in addition to our shoes, so we include that in our AFP so that Jibbitz will -- if growth of Jibbitz will impact that ASP growth is the right way to think about it.

And then I would just say, contextually for Q4, we had a couple of things happening in Q4 that supported our ASP growth. The first piece was obviously the price increases we took in the U.S. that on our core project in the tertiary products around that. And the second piece is really the pro pull out of promotions and discounts.

We've continued to see that. We had it in the U.S., but also Asia and EMEA in Q4. And that tends to be a generally more promotional period with the holiday. And again, we saw a very large pullback of promotion and discounts in Q4 that's unique to Q4, where Q1 tends to be a little bit more of a wholesale quarter.

So that wouldn't have as big of an impact in Q1 as it was in Q4..

Got it. Okay. I know you don't typically guide by channel or region, but can you maybe provide some view as to the composition of growth do you see versus wholesale expected for the year? And I'm curious for '22 and the Crocs brand.

Do you foresee stronger contribution to growth in international markets? Or will growth really continue to be led by North America?.

I think we see strong growth in all of our markets this year. Again, we were especially excited about EMEAs kind of order booking where that was coming up. I also would say we've seen some really good growth out of a lot of our markets in Asia. So we expect growth in all of our markets and also all of our selling channels..

Yes. And if you look at the 2021, Jim, you can see really balanced growth across all the channels. So I think the brand is resonating with consumers around the world and the consumers are then able to access the brand through multiple channels.

So we feel like the distribution strategy is working well, and we expect to see balanced growth across talents..

Great. Then last one for me. You mentioned investment in automation at DCs in the prepared remarks, that sounds interesting.

Can you maybe elaborate on that some speak about expected Crocs benefits and when those light manifests in the P&L?.

Yes. We've been investing in automation. I think we talked about this for several quarters. In fact, it's probably a couple of years now. We've invested in automation in multiple DCs. I think the piece in the prepared remarks is particularly around an upgrade of our automation in our Ohio DC also in new automation for our European DC.

So it primarily helps your digital business. It's picked a person capability that gives you the greatest benefit on your digital business. Obviously, as you know, digital is a priority for us. So leveraging technology to do that more efficiently and effectively is obviously a sensible thing to do. So we're pleased about that.

And we'll certainly be building the cost-saving benefits into our future guidance..

Yes, you see, Jim, that's also allowed us to support the big growth that we've been producing over the last couple of years in digital because it allows us to get more throughput, which is obviously a huge benefit as well..

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

You mentioned in one of the slides you're seeing increased signs of accelerating demand in Asia and brent. Just curious what signs are those? You mentioned Korea, India kind of standouts there.

Why are those geographies taking off? And then what's kind of the expectation for China this year?.

Yes. I think we can measure and see the growth acceleration in some of our, I would say, European and Asian markets through a couple of different dimensions. One is the brand tracking that we do. So we measure brand consideration, brand relevance, et cetera.

We see that increasing rapidly in select markets, and we've been able to correlate that to growth in the business historically. So we can see that in the markets that you mentioned, and we can also see that in some key European markets. I would also say, in addition to that, we have very strong order books in those markets.

So we have strong order books from wholesale and e-tail customers. So we feel really good about that for the rest of the year. And I will sort of say that's very much the case in EMEA as well.

From a China perspective, the China plan and the turnaround that we talked about extensively over the last 2 years, I think, is on track and where we expect it to be.

But we do see COVID lockouts, right? So as they get COVID cases in China, I'm sure you're all aware of this, they have a tendency to lock down the city, close all stores and quarantine the population at home. So when that happens, obviously, in that city, it kind of business goes to 0 for a short period of time has been a reopens.

So we've seen that through Q4. And frankly, in our expectations assume that will continue through this year. So it's just an interruption to the business that we have to manage. Having said that, we grew China double digits last year and we expect to do the same again this year..

Great. And then in terms of the U.S., we've seen tremendous growth in the classic clog for 3 years. Where do you see additional opportunity for that product in the U.S..

So I would say we've seen tremendous growth in the classic clog globally, not just the U.S., right? It's been definitely strong in the U.S., but we've seen that growth globally.

And we continue to see the classic franchise grow, and we've added sandals, but we've also added different versions of the cloud, particularly maybe outdoor orientated, I call attention to. So we continue to see the classic cloud growing with color, with graphics, with height, with new iterations and also, obviously, with collaboration.

So I think there's a lot of growth runway in the classic clog..

The next question comes from Steve Marotta from CL King..

Anne, if you said this explicitly, please forgive me, I missed it.

But implicit in your comments, it seems that the price actions that have already been taken, are they expected to fully offset all of the cost increases with the exception of the incremental air freight? So if you -- again, as you look out to 2022 and you see from a raw material standpoint and labor standpoint and other costs with the exception, again, of the incremental air freight, do you see that the price actions that have already been taken offsetting those costs?.

Yes. We certainly saw that last year, and we more than offset inflation last year. While it's hard to predict sort of the inflationary environment at this point, we do believe that we largely be able to offset inflationary costs through the price actions that we've taken from a Crocs perspective to what we know at this point..

And would you make those comments inclusive for HEYDUDE as well?.

We haven't closed on HEYDUDE yet from a transaction perspective. So I think we will obviously take a look at HEYDUDE pricing and as well as kind of underlying inflationary pressures there after we close, and we will come back and talk about that with a little more granularity on our Q1 call..

The next question comes from the line of Mitch Kummetz from Seaport..

I've got a few. Just first one is housekeeping. So when I look at the HEYDUDE projection for this year for like Qs 2 through 4, it looks like it's up $535 million to $575 million, and that would kind of roughly work out to be $180 million, $190 million a quarter.

Is that how you see the business playing out? Or is it going to be more lumpy than that because of supply chain or maybe because the business builds over the course of the year? How should we be modeling that HEYDUDE contribution beyond Q1?.

Right. So what we've said is -- so I'm just trying to follow your numbers because I believe you get on a reported basis this year is going to be 620 to 670. So that's on a reported on a pro forma basis, we said between 700 and 750.

Again, I think with HEYDUDE, right?.

I took the 620 to 670, and I carved out the Q1, which left me 535 to 575 for the balance of the year. And I'm trying to understand how that balance flows on a quarterly basis, if it's pretty straight line or....

Yes. I think, Mitch, at this point in time, we haven't commented on that yet again because we haven't closed the transaction yet, which we will. So as soon as we close the transaction, we'll try to give a little bit more color on how that plays out.

I would say just taking a step back, though, at a macro level, when we think about seasonality for due, I would say, it's a little early to tell just because their growth is so strong and continues to grow. It's hard to undersea long-term underlying seasonality into the business..

Okay. And then as far as ASPs go, for several quarters now, you've benefited not only from pricing but also fewer promotions it looks like for '22, pricing is going to continue to be a benefit for you. I'm curious how you're thinking about promotions.

Are you assuming a more conservative posture there? Or do you think kind of promotions are sort of net neutral when you sort of look at it on a year-over-year basis?.

Yes. I would say it's our intent to try and maintain a very low promotional cadence like we have established over the last months. Obviously, you do have to look at the competitive environment when we take that into consideration. I think that's our plan.

There will still be promotions around some key consumer events, but they'll be very modest in nature. We think that's the right way to proceed. I think that's probably what most brands are thinking. So that's our assumption..

Okay. And then lastly on HEYDUDE, and I recognize that you haven't closed the transaction yet. But can you say kind of what percent of the business are the Wendy and Wale silhouettes.

Is that the majority of the business? And I'm also curious as to kind of when you look back over like particularly the holiday season, what was really working for the brand in addition to maybe those 2 kind of key silhouettes?.

Yes. The Wendy and the Wally are very important silhouettes to the brand. They are a big part of the business, and that is one of the things that attracted us to the brand. We believe brands that have iconic silhouettes that resonate extremely strongly with the consumer, like Crocs, are very valuable brands. They have pricing power.

They have tremendous traction with the consumer. So '21 is super important. I would say in addition to Wendy and Wally, the HEYDUDE brand has done some nice work with expanding into derivatives, expanding into fleece line, expanding into boots, and those performed very well during the holiday season.

So it gives us a lot of evidence and ammunition for our product strategy in the future. And I would say we're working very productively on that right now..

And the final question will come from the line of Sam Poser..

I just want a quick follow-up to my earlier question. Historically, your gross margin in -- over the last few years, your gross margin in Q2 has been 650, 700 basis points higher than Q1. Is there anything that would change that this year sort of for the core Crocs business.

From what I understand, HEYDUDE runs a higher gross margin, so that should actually be added to ..

Yes. We haven't published HEYDUDE gross margins yet. But for Q2, I would say just for the core Crocs brand, we've a little bit of a shift from revenue, right, from like an EMEA perspective is the wholesale order book shifts around. The reason why your Q2 margins are so much higher because Q1 is such a heavy wholesale quarter.

So that is sort of a channel mix issue. So -- but I still expect structurally that those, as we talked about before, that those structurally, Q2 will still be higher than Q1, and that dynamic still exists this year as well..

And the shift.

You said initially, the shift from EMEA is from Q1 to Q2 or from Q1 to Q2 and then Q2 to Q3 of that wholesale business?.

The only information we provided is from Q1 to Q2..

Okay. And can you give us some indication of what -- well, we have it from last year. All right..

This now concludes our Q&A session..

Thank you..

Thank you for joining today..