This is the conference operator. Welcome to the Skechers Fourth Quarter 2021 Earnings Conference Call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn this conference over to Skechers.

Please go ahead. You may begin your presentation..

Thank you everyone for joining us on Skechers conference call today. I will now read the Safe Harbor statement.

Certain statements contained herein, including, without limitation, statements addressing the beliefs, plans, objectives, estimates or expectations of the company or future results or events may constitute forward-looking statements that involve risks and uncertainties.

Specifically, the COVID-19 pandemic has and is currently having a significant impact on the company's business, financial conditions, cash flow, and results of operations. Such forward-looking statements with respect to the COVID-19 pandemic include, without limitation, the company's plans in response to this pandemic.

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

Additional forward-looking statements involve known and unknown risks, including, but not limited to, global, national and economic business and market conditions, including supply chain delays and disruptions in general and specifically as they apply to the retail industry and the company.

There can be no assurance that the actual future results, performance or achievements expressed or implied by any of our forward-looking statements will occur.

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

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

David?.

Thank you for joining us today for our fourth quarter and year end 2021 conference call. I hope you, your colleagues and loved ones are doing well.

As we mark our 30th year in business, we remain focused on the well-being of our teams worldwide and are extremely proud and grateful that the entire organization continues to operate with flexibility, resiliency, efficiency, and above all safely.

Skechers achieved a new fourth quarter sales record of $1.65 billion, the second highest quarterly sales in the company's history and gross margins of 48.6%. This is a remarkable achievement given the challenges we face as the global pandemic continued to impact our business.

For the full year, Skechers achieved record sales of $6.29 billion with strong gross margins of 49.3%. These exceptional results brings us closer to our goal of 10 in 5 or $10 billion by 2026.

While the disruptions and costs remained a challenge in the global supply chain for the fourth quarter, our logistics team worked diligently to navigate around them. We saw improvements in December with more goods moving through our distribution centers than in the previous months.

The improvement continued through January as port congestion eased and more containers reached our distribution center. However, we believe these challenges will remain through the first half of 2022, but we are optimistic they will ebb in the latter half of the year.

We continually monitor the developments within the supply chain to deliver our products as efficiently as possible. The fourth quarter sales gain of 24% was the result of a 10% increase in our domestic sales and a 34% increase in our international sales. International represented 65% of our total sales for the fourth quarter.

All our reportable segments achieved growth for the quarter and full year with international wholesale registering the highest gains for both periods. We attribute this exceptional global growth to the ongoing broad-based demand for the Skechers brand and products.

Consumers continue to embrace the outdoors for exercise, dining and many other activities and sought out Skechers for our comfort, innovation, style and quality all at a reasonable price.

Our international wholesale business grew 30% year-over-year in the fourth quarter, with increases coming from all our channels, reflecting the global strength of our brand. Our distributor business was the largest growth driver with a 124% increase led by the Middle East and followed by Russia, Scandinavia, Indonesia and Turkey.

Subsidiary sales increased 47% with double-digit growth coming from nearly every country. Several even achieved triple-digit growth. The strongest gains came from the United Kingdom and India, 2 of our largest markets.

We believe this impressive sales growth is due to both strong demand for our product and our ability to deliver goods as some of the port pressure eased.

Our joint venture business increased 10% for the quarter on strong sales in China and Mexico as well as the addition of the Philippines, which transition from a distributor model to being directly managed by Skechers.

China's high single-digit growth in the quarter is particularly notable, given temporary store closures in select provinces due to COVID-19 and the supply chain restrictions which resulted in a delay of some 11/11 inventory. E-commerce still achieved double-digit growth for the quarter.

The improvements in our joint venture business was partially offset by declines in several markets in Asia due to COVID-19, inventory challenges and a decline in tourism.

An additional net 128 third-party Skechers stores opened in the fourth quarter across 30 countries including our first in Bhutan, a notable number of franchise locations in China and India, as well as through our distributors in Australia, New Zealand, Turkey, among others.

In total, at quarter end, there were 2,946 third-party Skechers stores around the world. Skechers' direct-to-consumer business achieved quarterly sales gains of 30%, driven by a 52% increase in international and a 17% increase domestically. Worldwide comparable same-store sales increased 21%, including 15% domestically and 36% internationally.

Further, our direct-to-consumer average selling price per unit increased 25%. This was reflective of our less promotional stance, higher-priced products and the continued strong demand for the innovative features in our comfort technology footwear.

The increase of 17% in our domestic direct-to-consumer business was the result of a 24% gain in our brick-and-mortar stores, partially offset by a decrease of 12% in domestic e-commerce, which was challenged by low inventory availability during periods in the quarter.

As compared to the same period in 2019, our domestic e-commerce business increased 115%. The increase in our international direct-to-consumer business was primarily driven by strong retail sales across Europe and Latin America. This was despite the temporary closure of several stores in Austria and the Netherlands due to local health restrictions.

We continue to invest in our direct-to-consumer capabilities in the quarter by upgrading our POS systems in North America and the U.K., and we are currently in the process of completing updates in Japan, with Europe to follow.

The rollout of new e-commerce sites continued in the fourth quarter with the launch of new platforms in the United Kingdom, India, Germany and Austria. More markets are planned for 2022, including several in Europe slated for this quarter.

These investments further our progress as an omnichannel retailer, capable of addressing consumer demand whenever, wherever and however the shopper wants. In the fourth quarter, we opened 16 company-owned Skechers stores, including eight in India, two in Colombia and one each in France, Italy, Peru and Chile. We closed three locations in the quarter.

This brings the global company-owned and third-party Skechers store count to 4,306 at year-end. To date, in the first quarter, we've opened six stores in the United States and one in Italy, and we plan to open an additional 120 to 150 company-owned locations by year-end.

We closed 11 stores in the United States at the end of January, and by the end of the year, expect to close another five to 10 locations, the majority of which are mall-based concept stores. Sales in our domestic wholesale business improved 5% in the fourth quarter.

The growth came primarily from our women's and kids categories, though our men's running and walking categories also performed well. We believe our domestic wholesale growth is particularly positive, given the supply chain challenges that continue to impact consumers in the United States.

We are able to improve our deliveries in December from earlier in the quarter, and are continuing to maintain a current flow of goods through our North American distribution center, with the pace of shipments to our wholesale partners picking up, allowing us to better meet the demand for Skechers in our largest market.

One of our main priorities is to meet consumers' needs with comfortable footwear at a reasonable price, and we're doing just that. We have seen consumers react positively to our product globally, with the consistent and universal demand for Skechers comfort technology.

The expansion of our offering with more comfort fits, fresh collaborations and styles that incorporate recycled materials allow Skechers to appeal to an ever-widening consumer base and for shoppers to meet more of their footwear needs with a brand they trust.

As always, we drove awareness to our various product offerings through multi-channel marketing efforts that united the Skechers' message across all touch points, online and in-store, as well as through television, radio, magazines, outdoor and social media. While 2021 was a record year, we expect the momentum to continue into 2022.

We are strategically investing in both our distribution and corporate infrastructure. In India, we purchased our corporate headquarters in January and finalized the location for a new DC to be opened in 2023.

We relocated our Japan distribution center, more than doubling our space, and we also recently relocated to a slightly larger distribution space in Panama with the intent to build an additional center, allowing us to grow from 270,000 square feet to approximately 800,000 square feet in 2023.

The expansion continues on our LEED certified gold North American distribution center, which will bring our facility in Southern California to 2.6 million square feet later this year. And now I'd like to turn the call over to John for more details on our financial results..

Thank you, David and good afternoon everyone. 2021 proved to be yet another challenging year with more COVID-related operating restrictions, closures, and supply chain disruptions, many of which continued in the fourth quarter.

Despite these challenges, Skechers delivered another exceptional quarter and year, strong product and brand momentum yielded higher average selling prices in our direct-to-consumer business as well as among many of our wholesale partners.

This translated into record sales and a recovery in our operating margins above what we expected at the beginning of the year. We also continued to make investments throughout the year in our core strategies, growing our business internationally and increasing the depth of our relationships with consumers in our direct-to-consumer business.

Before getting into specifics about this quarter's performance, let me spend a moment to provide an update on the supply chain disruptions we spoke about last quarter.

First, we note that many of those disruptions, manufacturing delays, extended transit times, port congestion, and elevated freight rates persisted throughout the quarter, and we worked diligently to mitigate the impact of these obstacles.

Alongside our factories, distribution partners and wholesale accounts, we work to get product onto shelves as quickly as possible. The effect of these challenges was most evident in our inventory balances, which include an incremental $325.1 million in in-transit inventory, a year-over-year increase of over 130%.

This inventory supports orders to our wholesale accounts and our own direct-to-consumer business, which could not be sold in the quarter. As David mentioned, we recently started to see an improvement in the delivery rate of containers and are optimistic this will continue.

We are monitoring events daily, but expect some level of these challenges to persist well into 2022. Nonetheless, we remain confident in the strength of our brand and trajectory of our business and have fully embraced the goal of achieving $10 billion in sales by 2026.

This confidence in the long-term health of the business encouraged our Board to authorize a new three-year share repurchase program of up to $500 million, which we expect to fund through free cash flow.

Now, let me turn to details of our fourth quarter financial results where we will provide comparisons to both the prior year and where appropriate to 2019. Sales in the quarter achieved a new fourth quarter record totaling $1.65 billion, an increase of $323.2 million or 24% from the prior year and a 24% increase over the fourth quarter of 2019.

Direct-to-consumer sales increased 30% year-over-year, supported by growth in domestic and international markets of 17% and 52%, respectively. Both markets delivered meaningful improvements in gross margins and strong year-over-year average selling price growth. As compared with the fourth quarter of 2019, direct-to-consumer sales increased 22%.

The result of an 8% increase domestically and a 45% increase internationally. International wholesale sales increased 30% year-over-year and grew 33% compared to the fourth quarter of 2019. Our distributor business grew 124% year-over-year. but remains slightly below pre-pandemic levels.

This channel continues to make good strides toward recovery, particularly in critical markets like the Middle East and Russia. Subsidiary sales increased 47% year-over-year and as compared to the fourth quarter of 2019 grew 66%.

The improvement was primarily the result of a strong recovery in many markets heavily impacted by the pandemic last year, including the United Kingdom, Spain and India. Our joint ventures grew 10% year-over-year, led by a 9% growth in China. As compared to the fourth quarter of 2019, this reflects a 32% increase.

The growth in China was driven by strong e-commerce demand, somewhat tempered by slower traffic patterns in retail stores as well as temporary pandemic-related store closures. Continuing weakness in several adjacent markets also weighed on joint venture growth in Asia.

Domestic wholesale sales grew 5% year-over-year, and we continue to see very positive underlying trends among our domestic wholesale partners, including strong sell-through rates and higher average selling prices.

Gross margin for the quarter was 48.6%, a decrease of 30 basis points year-over-year due to higher freight expense and the mix impact of higher sales in our distributor business, which is an inherently lower gross margin business with very attractive operating margins. These were partially offset by higher average selling prices.

Total operating expenses increased by $119.4 million or 20% to $715.1 million in the quarter versus the prior year, but improved 160 basis points as a percentage of sales from 45% to 43.4%. Selling expenses in the quarter increased year-over-year by $24.2 million or 25% to $122.1 million, reflecting additional demand creation spending globally.

General and administrative expenses in the quarter increased year-over-year by $95.2 million or 19% to $593 million. However, as a percentage of sales, this represented an improvement of 160 basis points.

The dollar increase was due to a combination of factors, including higher retail store labor, incentive compensation, settlements of multiple legal matters and distribution-related costs. Earnings from operations were $93.1 million versus prior year earnings of $57.7 million, an increase of $35.4 million or 61%.

Operating margin improved 120 basis points to 5.6% as compared with 4.4% in the prior year. Net earnings were $402.4 million or $2.56 per diluted share on 157.3 million diluted shares outstanding.

We recorded an income tax benefit of $346.8 million in the quarter, resulting from an intra-entity transfer of certain intellectual property, which will be amortized in the future. Excluding the effects of this nonrecurring tax benefit and the settlement of multiple legal matters, adjusted diluted earnings per share were $0.43.

This compares to prior year net earnings of $53.3 million or $0.34 per diluted share on 155.4 million diluted shares outstanding. Our effective tax rate for the fourth quarter was a negative 399%, which reflects the benefit of the intellectual property transfer.

The company's effective income tax rate was a negative 43.2% for the full year, which includes a 60.9% impact from the intellectual property transfer in the fourth quarter. Excluding this benefit, our effective tax rate would have been 17.7% for the full year. And now turning to our balance sheet.

Our cash and liquidity position remained extremely healthy. We ended the quarter with $1.04 billion in cash, cash equivalents and investments. This reflects a decrease of $539.6 million or 34% from December 31, 2020.

As a reminder, we fully repaid our revolving credit facility in the second quarter of 2021, of which $452.5 million was outstanding last year. Also, in December, we expanded our senior unsecured credit facility to $750 million, which retains a $250 million accordion feature that provides for total liquidity of up to $1 billion.

Trade accounts receivable at quarter end were $732.8 million, an increase of $113 million from December 31, 2020, predominantly the result of higher wholesale sales. Total inventory was $1.47 billion, an increase of 45% or $454.2 million from December 31, 2020.

However, as previously noted, this balance reflects an increase of $325.1 million in in-transit inventory, attributable mainly to supply chain disruptions. Total debt, including both current and long-term portions, was $341.6 million at December 31, 2021, compared to $735 million at December 31, 2020.

Capital expenditures for the fourth quarter were $74 million, of which $28.7 million related to the expansion of our joint venture-owned domestic distribution center, $16 million related to investments in our new corporate offices, $14.2 million related to investments in our direct-to-consumer technologies and retail stores and $5.9 million related to our distribution centers in China, the United Kingdom and Japan.

Our capital investments remain focused on supporting our strategic priorities, growing our direct-to-consumer business, as well as expanding the presence of our brand internationally. For 2022, we expect total capital expenditures to be between $250 million and $300 million, reflecting continuing investments both in the U.S.

and internationally in our distribution infrastructure, omnichannel retail capabilities and corporate offices. Now I will turn to guidance.

For fiscal 2022, our projections are predicated upon the expectation that the pandemic and its after effects, such as supply chain disruptions, will continue but will begin to ease in severity over the course of the year.

We expect sales to be in the range of $7 billion to $7.2 billion and net earnings per diluted share to be in the range of $2.70 to $2.90. For the first quarter, we expect sales to be in the range of $1.675 billion to $1.725 billion and net earnings per diluted share in the range of $0.70 to $0.75.

We anticipate that gross margins will be down slightly compared to last year as freight costs will offset improved pricing. Our effective tax rate for the year is expected to be between 19% and 20%. And now I'll turn the call over to David for closing remarks..

Thank you, John. Achieving record sales for the fourth quarter of $1.65 billion and for the year at $6.29 billion is a tremendous accomplishment, especially given the supply chain constraints and ongoing COVID-related challenges.

The comfort, innovation, style, and quality of Skechers resonating with consumers around the world and drove an increase in sales of 24% for the fourth quarter and 37% for the full year, with gross margins of 48.6% and 49.3%, respectively.

Towards the close of 2021, we saw improvements in the moving of goods through our North American distribution center and are hopeful that the current COVID variant has reached its peak here as well as in many countries and the world can begin to normalize again.

Our logistics teams are working tirelessly to address the supply chain challenges, monitoring the situation globally with the goal of delivering Skechers comfort footwear to our customers and consumers as quickly as possible. We do expect the supply chain disruptions to continue through at least the first half of this year.

2022 marks our 30th anniversary in business, and we're looking forward to the continued growth and implementing the many strategic plans underway.

We'll be introducing more innovative and comfort technology product, developing multi-platform marketing campaigns with our growing roster of ambassadors, including recently announced television personality, Amanda Kloots and rolling out more Skechers e-commerce sites around the world, including Spain, Portugal and Italy shortly.

We are finalizing plans to enter the metaverse, creating an entirely new opportunity for the Skechers brand and are further driving home the message that Skechers is the comfort technology company.

Innovation, comfort, and creativity will be at the forefront of our product and marketing efforts, supported by efficiency and determination in our operations to deliver product.

Our focus is on ensuring the health and safety of the Skechers team as we look to the future and together, as determined and driven organization, we will make 2022 another record year and continue on the road to $10 billion in sales. Now, I'd like to turn the call over to the operator for questions..

At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Laurent Vasilescu with BNP Paribas Exane. You may proceed with your question..

Thank you very much. Good afternoon and congrats on a strong finish to the year as well as the announced repo. I'd love to ask about last quarter. David, John, you talked about this kind of algo for 2026. Mid to high-teens international wholesale -- mid-teens for DTC and the mid-singles for domestic wholesale.

How do we think about that algo for 2022?.

Thanks Laurent. I would generally say we look at 2022 with consistency relative to those guideposts understanding though that COVID and supply chain issues will continue to have an impact and may shift growth between the segments that we report over the course of the year.

That being said, I think the overall formula for continuing to drive $10 billion in sales by 2026 remains fully intact..

That's great to hear. And then I think the real call out here this quarter, if I may say, is China just up 9% on a 2-year stack, didn't show any slowdown versus 3Q. How do we think about China growth for 2022? I know it's a hard question to ask, but I think it's important.

And then I have a quick follow-up on gross margins if I may?.

Well, we're incredibly pleased with how China performed all things considered. The e-commerce channel continued to do extremely well, but there were impacts from COVID in the country, as David noted in our prepared comments. So it's a similar environment to what we're seeing elsewhere across the globe. COVID has an impact.

It can cause closures and operating restrictions. And that's echoing through the business. That all being said, I think the growth that we showed this quarter shows that the brand continues to perform well. It's well received by consumers. And our team there continues to do a good job of executing.

I don't want to get into a country-specific forecast going forward. But I will say, we continue to be very optimistic about the long-term prospects for the brand in China. We will continue to invest behind that looking forward next year to beginning investments in our second distribution center. So, we remain fully behind China.

We're very optimistic about what it will yield. We do expect some COVID impacts over the course of '22, like every other market across the globe. But overall, we remain incredibly optimistic about what we see there for the brand..

That's great to hear. And then the last question, yes, it's on gross margins. Overall gross margins down 30 bps. The domestic wholesale gross margin is down 520.

I'd love to – John, if you could parse out how much was freight for the quarter in terms of bps? And then how do we think -- maybe just a little bit finer points on how do we think about the first quarter gross margin? Just like the bridge, if it's down, like, say, 100 bps, is it like how much of that would be freight for the first quarter?.

Yes. I mean I would say, in order of significant freight and other transportation-related costs were certainly the single largest contributor to the pressure overall in margin and domestically.

There was a little bit of mix in there in the domestic category, but I would point to freight and continuing COVID-related costs as the most significant driver. When we talk about next year, when you kind of look at it year-over-year, I think you're going to continue to see some pressures early on the gross margin line, kind of setting mix aside.

And then our hope is that, that begins to improve a little bit over the back half of the year. One other thing, I'll just note that there was a mix impact this quarter, as we noted, with our distributor business coming back as strongly as it did. That is an inherently lower gross margin, but very attractive operating margin business.

So there was some mix impact in the overall calculus of gross margin as well..

Great. Thank you very much, John for all the color and best of luck..

Thanks, Laurent..

Our next question comes from the line of Kimberly Greenberger with Morgan Stanley. You may proceed with your question..

Great. Thank you. Just a couple of quick ones. This is Alex on -- Alex Straton on for Kimberly Greenberger. Could you guys just quickly talk about where you're taking price? I think you said that you saw 25% AUR growth, if I heard you correctly..

Yes. That was in direct-to-consumer. And that's partially because of our higher defined product. In other words, all our features that have come in have hit everybody and we have high demand for the higher price. So that's the 25% increase for the -- that's a mix issue. As far as price is concerned, that's something we evaluate as we go forward.

Every time we put a new line together as to what we anticipate and what we see in raw materials. So, for the most part, the next couple of quarters we've spoken for, we've put it in -- we've taken our best guess as to raw materials and what's going to be done.

So, we feel pretty confident that we're on the right track to maintain or possibly even increase some of the domestic margins at wholesale..

Great. And then one quick -- that's super helpful. One quick follow-up. I think there was a $15 million add back to OpEx.

You may have covered this briefly on the call, but could you just remind us what that was exactly?.

Yes, that was some costs associated with the settlement of multiple legal matters that had been outstanding that were resolved in the quarter..

Great. Thanks so much..

Our next question comes from the line of Jay Sole with UBS. You may proceed with your question..

Great. Thank you so much. David, I think I heard you mention the domestic wholesale business in 2021 was a really strong growth in domestic wholesale, a lot of share gain opportunities.

As you look forward in that business and your order book, how does -- how do you think that business shapes up this year, given the -- and comparisons are pretty tough in Q2 and Q3? Thank you..

We're starting the year very, very strongly. As to my comments when we had our prepared remarks about our supply chain cleaning up and getting a lot of product in, it started in December. But it held up very, very well in January, which led us to wholesale shipments that were higher than we originally anticipated when we went into the year.

So that all bodes well for going forward. So, it continues now into early February. We are picking up a lot of product from the ports, and we are turning it and we still have high demand and our backlogs are holding up extremely well given the size and growth we've seen over the last year..

Got it. Okay. And then maybe just a question on SG&A. Company has been really controlling SG&A. It seems like on a two-year basis, the growth rate in SG&A slowed down a little bit.

Do you feel like the current growth rate to your basis that were on sort of continues into next year, or maybe just an easier question is, how do you think about SG&A dollar growth in 2022? And what are the major puts and takes?.

Yes. Jay, we don't generally think about it from a dollar growth perspective because there's so much volume-driven activity in G&A.

And what we've continuously said and I think you've seen us adhere to, is, aside from unusual items, we will aim to keep G&A capped at least the topline growth rate or something similar there, too and obviously, strive to keep it below that.

That being said, we did ingest some new capabilities this year that we're going to be eager to deploy next year. We started up at full operations for our distribution center in China, a new distribution center in the UK. We're going to light up a fantastic addition to our US distribution footprint next year.

So there are some other elements in there that can sometimes mask, I think that discipline that we're beginning to show here. And I think you can expect we'll continue to do that.

But it will ebb and flow on the quarters as some of those events unfold and then when you have unusual items like the one we just mentioned to Alex, that we kind of hold aside as an exceptional item..

Thank you so much..

Our next question comes from the line of Omar Saad with Evercore ISI. You may proceed with your question..

Thanks for taking my question. Another great quarter. A couple of follow-ups. Can you help us understand in China and globally as well, I know you've got the in-transit number.

But what's the kind of level of miss sales that we're talking about here in terms of not being able to get inventory where you needed to? And is there any risk associated with those inventories, or are they coming in quickly enough after the fact to get where they need to go to be sold at full price? And then I have a follow-up..

Yes. I mean it's tough to determine how much of that in-transit would have been transacted. We give the in-transit number. Again, that $325 million is an increment on prior years as an indicator of how much potential was trapped on the water.

It's probably not fair to assume all of that would have been sold, but it's also not zero either because we're still seeing, as David noted, incredibly strong demand evident in the backlog. And when we have the product, our ability to ship it to customers and their ability, quite frankly to sell through a very attractive ASP.

So overall, I would say it was an impact, probably more pronounced domestically and in Europe than in China. In China, the MIT numbers weren't as drastic as the impacts we're seeing elsewhere across the globe because they just haven't had as many issues with the supply chain as other markets..

Just to add some light. As I said just before, we had a very strong January for domestic wholesale. So, to John's point, a significant portion of that was in transit through the quarter would have been taken in December, certainly. And the growth in January is significantly larger than the growth we saw in December.

So if you start to even them out, it becomes quite significant. The same basically holds true in Europe as well. We've come up with a very strong month. They took a little longer.

They're picked up the back half of January and the first part of February or significantly larger than anticipated because of the goods, and those could have shipped in the quarter as well.

So -- when you take a quarter that's as good as this, and you can put in any significant amount, it obviously shows the strength of the brand and the demand for it that exists today..

Yes, absolutely. And then if I could make a quick follow-up. You mentioned stores, the interplay between stores and e-comm stores coming back very strong with e-comm at least in North America turning negative.

Is that dynamic you're seeing globally? And are you able to kind of track your customers across the channel and use the loyalty program to track the customers across the channel to make sure you're capturing them in either channel, or is it a different customer who's coming back to the stores versus the ones in e-comm that have been in e-comm?.

Well, we can definitely track loyalty members across the channel. That's the result of a lot of the investment we've made over the last couple of years and driving towards an omnichannel solution. I don't quite honestly know how much crossover there was in the quarter, but that's absolutely a capability we have.

The way I would think about the domestic pressure on e-commerce this past quarter was -- is largely attributable to inventory availability. As inventory constricted, that was certainly a factor. We saw a little evidence of that internationally as well outside of China.

That being said, I mean, it's important to keep in mind on a two-year stack basis, the results in e-commerce has been fantastic over 100%. So we're continue -- we're going to continue to invest in that business.

We feel really good about what it achieved inventory availability was a challenge, but we expect that business to continue to grow going forward..

That’s helpful color. Thanks guys. good luck..

Thanks Omar..

Our next question comes from the line of John Kernan with Cowen. You may proceed with your question..

This is Krista Zuber on for John. Thank you for taking our questions. Just two questions here. First, on the $10 billion in 2026 sales target. Could you kind of frame how you're thinking about the operating margin within that? I think in the past, you've talked about a double-digit operating margin, 10% to 12%.

Just like to get your thoughts on how you see that playing out within the next five years? And then I have one follow-up..

Yes, I mean I think the best way to think about it is we're focused on continuing to grow the business to its maximum potential. We certainly see $10 billion as a way point on that. It's not intended to be the end of the road for us. It's just a midterm target, I would say.

We've been pretty consistent in saying that we think kind of the natural margin in the business is in that low to mid-teen number. Now, whether or not that occurs precisely when we hit $10 billion or not is to be determined, but no limit on our ability to get there other than we want to continue to invest to grow the brand.

And I would stress $10 billion is not the stopping point for this brand. It's just a way point..

Terrific. Thank you. And then just as it relates to your retail gross margin. You're going to be lapping some terrific outsized gains in 2021. Just wondering if you could frame your expectation on that line item into 2022. Thank you very much..

Yes. I think vis-à-vis retail, we have about a quarter to give here because we really didn't see retail pop back into strong activity into the middle of first quarter. So, there will be some natural accretion in the first couple of quarters.

From there, I do expect that some of we're seeing on logistics and other supply chain-related effects are going to create some downward pressure. We don't think it will be significant.

And it is considered in that overall mix of guide we gave on gross margin, which is that we expect gross margin for the company in total to be flat to slightly down next year. That's all I'd probably say at a segment level on gross margin guidance..

Thank you..

Sure..

Our next question comes from the line of Tom Nikic with Wedbush Securities. You may proceed with your question..

Hey, good afternoon guys. Thanks for taking my question. So, I want to talk about the guidance. It seems like you've got a pretty strong Q1 guide. I think it's implied something like 17% to 21% growth. And then kind of implies a more modest growth rate for the remainder of the year, something more like a low double digit, low teens type of growth rate.

Is there anything in particular that's driving that disparity in the revenue growth rate for Q1 versus the rest of the year?.

Yes, Tom, two things. One is keep in mind last year's Q2 was outstanding by any stretch of the imagination. And so we'll be lapping that this year. And that just means that the growth rate looks a little bit less significant than you see in other quarters, but the dollar value of what we aim to achieve is still pretty notable.

But Q2 last year, remember, was that significant combination of COVID restrictions, lapping, stimulus going out and a lot of other factors that drove a significant amount of outsized demand in the quarter, particularly in our retail business.

The other thing I'd say is, certainly in this operating environment, the further you get from any point, the more opaque the situation gets given supply chain challenges, COVID restrictions. So we're also being, I think, reasonably conservative about how we view the out quarters, given those issues have persisted now for a couple of years.

Obviously, if there are fewer issues that would bode better for us from an operational perspective. If bigger issues reemerge like what we've seen most recently in the Omicron variant, then we would expect more challenges.

And so we're trying to triangulate against those two potentialities and as a result, put together what we think is a decent expectation about the back half of the year, but certainly, we will learn more as time goes on..

Understood. Thanks John.

And on the EPS guide, is there any buyback incorporated in the guidance? And how should we think about the pace of buyback given the new authorization?.

Yes. There is no repurchase baked into our guidance at this point in time. We just received the authorization. We'll put it into effect. And we'll attempt to be aggressive where we feel like the situation warrants and then probably put a more programmatic plan in place and give you updates as we go along..

All right. Thanks John. Thanks David. Best of luck this year..

Thanks Tom..

Our next question comes from the line of Brian McNamara with Berenberg Capital Markets. You may proceed with your question..

Congrats on the strong results. And thank you for taking the question. So another one on guidance, unfortunately. At your guidance midpoint for the full year, it looks like your top line implied at 13%, your EPS implies just 9%.

So I'm curious what's driving that delta? Is there some conservatism embedded in there? And how should we think about operating margin progression this year?.

Yes. I would say there's certainly some concern that we've given voice to already around supply chain costs. I mean that's the biggest near-term pressure we see. So, we have absolutely attempted to consider the array of cost we're seeing come forward in that.

That's everything from intermodal rates, port fees, congestion costs, freight rates, which are staying pertinently high from our perspective. And then also keeping in mind, we'll be in a position where we have to renegotiate freight rates during the year. That's the single biggest factor. We are seeing pressures on labor like other folks.

We believe we're doing a very good job of managing that. And then we will evaluate over the course of the year, whether or not that cost profile means we need to look at price again, as David previously mentioned, or the situation changes and some of those pressures begin to abate delivering more down to the bottom line..

Thank you. And just one more on India. Could you provide some color on how India finished the year relative to 2019? And what your expectations are for that market this year? It seems like the back half of the year really accelerated after Q2 was pretty much a lost quarter with the pandemic last year. Thanks..

It really did accelerate in the back half and they were relatively flat to 2019 saw some growth. We do anticipate they will continue to grow and maybe even pick up the pace depending on their own issues as far as supply chain and COVID..

Sure. Just to clarify, what David said flat to 2019, he meant on the full year. In the fourth quarter, they did pick up speed. But if you think about that comment, that means they were able to make up what they lost in Q2 in the back half of the year and that’s a stunning accomplishment.

David mentioned a few sizable investments we're making in that market because we believe that market has tremendous promise.

We purchased some corporate space for our team there, and we're in the process of identifying and then building out our own distribution center there because we see that market as having fantastic long-term opportunity for the brand..

Great. Thanks a lot. Best of luck..

Thanks Brian..

[Operator Instructions] Our next question comes from the line of Jim Duffy with Stifel. You may proceed with your question..

Hi, this is Peter McGoldrick on for Jim. Thanks for taking our questions. First, I just wanted to ask about the inventory growth. So $325 million in transit, up significantly from the prior year.

How should we think of the increase in inventory as it progresses throughout the year? Should we see a moderation, or is there a moment in time where you expect to be caught up or realigned with your forward sales growth?.

Well, that's a good question. I think if we knew the answer to that, we'd be geniuses..

Yes. We hope we're going to be aligned or will be aligned. That's always our target. I think what you see in that growth is not necessarily looking in hindsight, you got to look forward to the demand for the brand.

So, I think the demand can pick up to a point that hasn't seen before or there could be supply chain issues where there's a big influx of goods in the quarter and then things tend to slow down. So, there's a couple of scenarios out there. We think our inventory does very well.

We feel no risk with it as it's coming in now, that there are home spread around the world and demand for more than we can make in the near-term..

Okay. Thank you. And then finally, with 2021 in the rearview mirror, I wanted to ask about promotion, the benefit to gross margin. How did that benefit for the year, what's embedded in the outlook. It sounds like pricing is a partial offset to the transportation cost.

And is there any indication of a reversion towards historical norms and promotional cadence?.

We haven't seen any kind of reversion to the mean, if you will, on promotions. Although I'd say our hope is obviously that, that mean diminishes. Right now, we're seeing the same environment. We do have some expectation that, that will return to some more normalized level of promotion in the back half of the year in the direct-to-consumer channel.

But right now, what we're seeing is strong resilience of the ASP increases we had put in place last year and a very continuingly strong environment relative to promotions. It's obviously something we'll watch carefully. That's a competitive marketplace dynamic, we keep abreast of regularly. But at the moment, we don't see those fading.

And we do have a little bit of expectation in the back half of the year, some of that will return, but not nearly what you saw in kind of '18 and '19, which is pretty deep..

Okay. Thank you, guys. .

Thank you..

Our last question comes from the line of Susan Anderson with B. Riley. You may proceed with your question..

Hi good evening. Thanks for taking my question.

I was wondering, did you guys mention what your expectations are between the international markets for growth for this year and the US? And then also, did you guys say what units were in the quarter versus ASPs?.

I don't know that we touched on either of those. I'd probably say, there's no strong departure we see from kind of our normalized growth algorithm for Q1 or even the full year of '22. Although again, I would just caution the impacts of COVID tend not to be uniform across the globe. So we certainly have seen changes.

I'd point out, as we think domestic wholesale will probably be a little bit stronger in Q1 than kind of what we normally anticipate. But absent that, I think the growth trajectories for the rest of the businesses will be pretty consistent with our longer-term guide as to how the business gets to that $10 billion mark..

Great. Good luck this year..

Thanks..

Ladies and gentlemen, we have reached the end of today's question-and-answer session. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day..