Crocs (CROX) Q1 2021 Earnings Call Transcript

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Crocs (CROX -1.91%)
Q1 2021 Earnings Call
Apr 27, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by, and welcome to the Crocs, Inc. first-quarter 2021 earnings call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, Ms.

Corinne Lin. Please go ahead.

Corinne Lin -- Vice, President Corporate Finance

Good morning, everyone, and thank you for joining us today for the Crocs' first-quarter 2021 earnings call. Earlier this morning, we announced our latest quarterly results, and a copy of the press release may be found on our website at crocs.com. We would like to remind you that some of the information provided on this call is forward-looking and, accordingly, is subject to the safe harbor provisions of the federal securities laws. These statements include, but are not limited to, statements regarding potential impacts to our business related to the COVID-19 pandemic.

Crocs is not obligated to update these forward-looking statements to reflect the impact of future events. We caution you that all forward-looking statements are subject to risks and uncertainties described in the risk factors section of our annual report on Form 10-K. Accordingly, actual results could differ materially from those described on this call. Please refer to Crocs annual report on Form 10-K, as well as other documents filed with the SEC for more information relating to these risk factors.

Adjusted gross margin, income from operations, operating margin and earnings per diluted common share are non-GAAP measures. A reconciliation of these amounts to their GAAP counterparts is contained in the press release we issued earlier this morning. Joining us on the call today are Andrew Rees, chief executive officer, and Anne Mehlman, executive vice president and chief financial officer. Following the prepared remarks, we will open the call for your questions.

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

Andrew Rees -- Chief Executive Officer

Thank you, Corinne, and good morning, everyone. We are thrilled with our Q1 results. The strength of the Crocs brand is exceptional, experiencing growth across all regions and all channels. In Q1, our global brand momentum continued to strengthen, and we benefited from economy starting to emerge from the pandemic and government stimulus in select important markets.

I'm proud of our performance, and I'm incredibly confident in our ability to deliver sustained highly profitable growth. Highlights from the first quarter of 2021 include for the third consecutive quarter, we achieved record revenues, with first-quarter revenues of 460 million up 64% versus prior year. Our Americas business had another tremendous quarter, with revenues increasing 87% and DTC revenues growing 131%. Our EMEA business has increasing momentum with 49% revenue growth, and Asia showed strong double-digit growth of 26% in the quarter.

Digital grew 75% to represent 32% of total revenues. Adjusted operating income was 126 million, increasing by approximately 100 million, and adjusted operating margins expanded to 27%. Adjusted diluted earnings per share grew from $0.22 to a quarterly record of $1.49. On top of these outstanding financial results, the Crocs brand ranked the highest it has ever been in Piper Sandler Spring Taking Stock with Teens survey.

The strength of our brand remains unabated. We continue to drive brand relevance and consideration through a multifaceted marketing approach that leverages digital and social marketing, celebrity and influencer campaigns and collaborations. We kicked off 2021 with an award-winning collaboration with French EDM artist, Vladimir Cauchemar, that featured his signature, skull mask. To celebrate St.

Patrick's Day, we posted a rainbow of Crocs and a pot of Jibbitz across social media and released Lucky Charms Jibbitz that quickly sold out. In March, we launched a second global collaboration with Justin Bieber and his Drew House brand that confirmed Crocs with socks are indeed better together. And to continue accelerating across brand in China, Justin Bieber sent fans on a mission to locate arcade games in nine cities, giving them a chance to win free Crocs, Drew House plush toys and socks. We are incredibly proud that across brand and business has a positive impact on our communities.

Most recently, we were pleased to partner with the United Nations Foundation as it launched its 2021 #equaleverywhere campaign to promote gender equality around the world. From A Free Pair for Healthcare program that allowed us to provide comfort to those on the front lines to partnerships with Feeding America, the NAACP, UNICEF and glad that let the world know, we're all in this together. We have accelerated our mission of everyone comfortable in their own shoes by remaining focused on doing the right thing. In addition to doing the right thing for our communities, we strive to do the right thing for our employees.

We recently raised entry-level wages to an average of $15 per hour for our frontline employees in our US distribution center and US retail stores in recognition of their contribution to the success of the Crocs brand. We were honored last week to be named to Forbes' Best Employers for Diversity for 2021. We were also recently named to Fast Company's annual list of the world's most innovative companies for 2021 that recognize organizations that not only found a way to be resilient in 2020, but also turn those challenges into impactful initiatives. Our ability to make a difference also resonates with our consumers, including teens who are socially and environmentally conscious.

I'm confident that the strength of the Crocs brand and our mission of everyone comfortable on their own shoes will continue to drive accelerated growth this year and beyond. Now, let's turn to first-quarter operating highlights. From a product perspective, we experienced strong growth in our key product pillars: clogs, sandals and Jibbitz. Sales of clogs were exceptional this quarter, increasing 87% year over year, representing 76% of total footwear revenues versus 65% last year.

We continue to experience success with seasonal offerings and trend-right drops, such as out-of-this-world and marble prints. At the same time, sandal revenues increased 17% to represent 17% of footwear sales versus 24% last year. We are very encouraged by our initial results of our sandals that feature personalization, including our classic slide and the newly introduced classic two-strap sandal. While we expect clog growth to outpace sandals this year, over the longer term, sandals will grow faster than clogs.

Jibbitz sales continues to be outstanding, more than doubling for the quarter versus last year, as global personalization mega-trend continues. From a channel perspective, global DTC revenues, which include revenues from e-commerce and company-owned retail stores, grew 93%. Both e-commerce and retail had extraordinary performance, and this was our 16th consecutive quarter of double-digit e-commerce growth. Digital, which combines e-commerce that is reported in DTC and e-tail that is reported in wholesale, grew 75% to represent 32% of our first-quarter sales compared to 30% last year.

Digital remains our top priority, and our digital presence remains a competitive advantage relative to other footwear brands. Our wholesale channel, which includes brick-and-mortar, e-tail and distributors, grew 50% versus prior year, fueled by growth in all segments. E-tail and our top 20 brick-and-mortar accounts experienced exceptional sell through. Distributors had the highest growth, as they replenish inventories in preparation for a strong 2021.

With our continued momentum, we remain focused on positioning our brand for long-term sustainable growth. After careful consideration, we recently decided to prioritize wholesale partners who are aligned with our brand's strategy and desired positioning in the marketplace. As such, we began terminating select North American wholesale relationships, a strategy many major brands have also used to maintain strong marketplace health. Looking forward, we'll remain focused on our strategically important accounts comprised of leading e-tailers, sporting goods and family footwear and specialty footwear retailers.

Our record revenues in the first quarter were achieved, despite challenging global logistics that impacted many industries around the world. We're not immune to these challenges, with blockage of the Suez Canal and significant bottlenecks in West Coast ports leading to delays. Global logistics are expected to remain congested, and we're being proactive as possible. Our new EMEA DC in the Netherlands has opened, and the transition is running smoothly.

The expansion of our US DC is also proceeding as planned. These investments will support our competitive advantage in digital and our future growth. Finally, profitability was exceptional, as we achieved record quarterly adjusted operating margins and record quarterly adjusted EPS. We're incredibly optimistic about the balance of 2021 and have substantially raised guidance for the year.

Before I turn the call over to Anne, I want to express my gratitude to the entire Crocs organization for their dedication to our brand and to our communities. I'm proud of how they have executed as a team and the results that we have delivered for our employees, our customers and our shareholders. With that, Anne will now review our financial results in more detail.

Anne Mehlman -- Executive Vice President and Chief Financial Officer

Thank you, Andrew, and good morning, everyone. I'll begin with a short recap of our first-quarter results. For a reconciliation of the non-GAAP amounts mentioned to their equivalent GAAP amounts, please refer to our press release. Our first-quarter results were extraordinary.

Fueled by all regions and channels, we delivered record quarterly revenues. Profitability was outstanding, as we expanded gross margins, leveraged SG&A and increased earnings per share. First-quarter revenues came in at $460.1 million compared to $281.2 million in the first quarter of 2020, a 63.6% increase, or 60.5% on a constant currency basis. We sold 25.9 million pairs of shoes, an increase of 51.5% over last year's fourth -- first quarter.

Our average selling price during Q1 increased almost 8% to $17.64, with the increase attributable to increases in DTC revenue, as well as fewer promotions and discounts. As we have shared previously, we look at our brand positioning market by market and, in Q1, realigned pricing on certain products in select markets globally. Now, let's review our results by region. As Andrew mentioned earlier, the Americas had another exceptional quarter, with revenues at $276.4 million, up 87.1%.

DTC growth of 131.3% was phenomenal. Strong traffic conversion and ATV, as well as store closures last year contributed to triple-digit growth in both company-owned retail stores and e-commerce. Wholesale growth was 59.4% as high sell-through more than offset challenging logistics. In Asia, Q1 revenues were $82.6 million, up 26.2%, or 20.1% on a constant-currency basis from last year's first quarter.

DTC increased 20.6%, while wholesale grew 28.6%. Digital revenues grew 60.1%, and penetration increased significantly from 24.4% to 30.9%. We saw balanced growth across most of our key countries. India revenues were standout, increasing triple digits.

Distributors also returned to growth, albeit at a slower rate. EMEA revenues increased 48.8% or 41% on a constant currency basis to $101.1 million, with growing brand heat offsetting any global logistics disruptions. DTC revenues increased 29.2%, with e-commerce strengths driven by higher traffic and ASPs, partially offset by retail declines due to COVID-19 closures. Wholesale revenues grew 52.7%, fueled by strength in e-tail and distributors.

Our EMEA business overall continues to benefit from our focus on digital commerce, which represented 41.8% of EMEA revenue this quarter versus 38.2% last year. Our first-quarter adjusted gross margins were 55.2%, up 720 basis points from last year's 48%. Currency favorably impacted margins by approximately 100 basis points, while the majority of the improvement was driven by fewer promotions and discounts, channel mix and supply chain efficiencies. Our adjusted SG&A improved to 27.9% of revenues versus 38.7% in last year's first quarter.

The decrease in adjusted SG&A rate is a result of strong sales growth and operating leverage. We realized significant leverage, even as we continue to invest to support our strategic initiatives. Our first-quarter adjusted operating income increased nearly fivefold to $125.7 million versus $26.4 million last year, with robust operating profit growth in all regions. Adjusted operating margin rose from 9.4% to 27.3%, benefiting from gross margin expansion and SG&A leverage on strong sales growth.

For Q1, we recorded $24.2 million of income tax expense, with an effective tax rate of 19.7% versus 40.9% last year. First-quarter non-GAAP adjusted diluted earnings per share increased to $1.49 compared to $0.22 a year ago. Our liquidity position and balance sheet remain strong. We completed the quarter with $255.9 million of cash and cash and equivalents.

In addition to $499.7 million of borrowing capacity on our revolver in March to opportunistically take advantage of historically low interest rates, we issued $350 million in 4.25% senior unsecured notes due 2029 and used a portion of proceeds to repay the balance on our senior revolving credit facility. During Q1 and excluding the impact of the final ASR share delivery that we entered into in Q4, we repurchased 600,000 shares for $50 million at an average price of $76.95 per share. This month, the board approved an increase to our repurchase authorization, such that $1 billion remains available today for future repurchases. Inventory at March 31, 2021 was $196.5 million, up from $195.8 million in the first quarter last year.

Inventory was lean throughout Q1, and we ended the quarter with higher in-transit inventory due to global logistics challenges. Turning to the future. I would like to share our current outlook for the second quarter and full-year 2021. For Q2, we expect revenue to grow approximately 60% to 70% and adjusted operating margin to improve to between approximately 21% and 23%.

Strong growth is expected in all regions as brand momentum continues, and we anniversary some COVID-related closures that were most prevalent in the second quarter of 2020. Barring a reversal in the pandemic recovery trend, we expect 2021 revenue to grow between 40% and 50%. As revenue grows, we expect to be able to leverage SG&A, leading to adjusted operating profit margins of approximately 22% to 24% for 2021. We now expect our underlying non-GAAP tax rate to be approximately 20%, which is higher than previous guidance due to greater than expected profit in our US business.

Our GAAP tax rate will also be approximately 20%, which is lower than previous guidance, due to the release of additional valuation allowances following greater than expected profit in our international businesses. In summary, we delivered outstanding revenues and profitability that exceeded expectations, while strengthening our balance sheet and investing in our future growth. At this time, I'll turn the call back over to Andrew for his final thoughts.

Andrew Rees -- Chief Executive Officer

Thank you, Anne. Consumer demand for the Crocs band remains exceptional. As you can see from our first-quarter results and our increased guidance for 2021, we have a tremendous momentum in our business, and we're excited about the long-term future of our brand. Operator, please open the call for questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Erinn Murphy from Piper Sandler. Your line is open. Please ask a question.

Erinn Murphy -- Piper Sandler -- Analyst

Great. Thanks. Good morning. And really incredible job to the whole team there.

I guess my first question is on what you're seeing currently at wholesale between sell-in and sell-through, and I was pretty surprised by how lean inventory was, but you still have incredible Q2 guidance. So could you just talk a little bit about kind of the balance between the two right now? And then maybe, Andrew, can you share a bit more about kind of the timing and maybe of the strategic pullback at wholesale? What type of account should we expect that you're kind of pulling back from? And how is that kind of contemplated in the full-year guidance?

Andrew Rees -- Chief Executive Officer

Great. A lot of questions there, Erinn.

Erinn Murphy -- Piper Sandler -- Analyst

Sorry.

Andrew Rees -- Chief Executive Officer

No. A pleasure, a pleasure. So from a wholesale perspective, look, we are seeing very, very strong sell-out, right? So we continue to see strong sellout, we've seen that strong all quarter. Frankly, results are strong last quarter.

In terms of sell-in, that is also strong. As you can see in our kind of revenue growth from a wholesale perspective, 50% growth is very, very strong, and particularly strong in North America. That is affected by shipping delays. There are a great deal of logistics issues around the world, as I'm sure you're well aware of, but net-net, we're still able to achieve that growth, and we're able to keep our wholesale partners, certainly in stock, probably not in stock to the degree they would like to be, quite frankly.

From a timing of an overall inventory balances, yeah, so inventory balance is relatively flat from last year, but don't forget that was an elevated position. So if you compare it to end of Q1 2019, I think that will be about 50% growth in inventory, right? So as you look at inventory relative to future guidance, we still believe we're in a good position to meet the guidance that we have provided. In terms of the actions and the work that we've done with wholesale partners, that's really in the broader context of our marketplace management. So if you think about earlier this year, we instituted MAP pricing on select styles here in the US, and we're really focused on making sure that we have a healthy, long-term marketplace, particularly for our core classic products, which is obviously the backbone of our brand.

And so, we made the decision to pull back from certain wholesale partners. I would say these are generally partners who didn't feel like they were consistent with our future strategy. And I think that was -- it's really in the context of our broader marketplace management strategy that we're working through. And with think that will put us in a great place for the future.

Anne Mehlman -- Executive Vice President and Chief Financial Officer

And just to clarify, the 50% inventory for -- is Q2 balance versus Q2 '19.

Erinn Murphy -- Piper Sandler -- Analyst

Got it. No, I appreciate that. And then, just my second kind of question is around pricing increases. We picked up at the end of March, you were taking pricing here in North America in the core classic.

It feels like the messaging was a little bit different, Andrew. I think earlier around ICR, it seemed like you guys were kind of tapped out at where pricing could be here in North America, so I guess we're a little surprised to see that. So curious what you're seeing kind of post the pricing actions. And then, what percent of your higher guidance today contemplates this pricing increase?

Andrew Rees -- Chief Executive Officer

Yeah. So let me let Anne address what percent of -- the proportion of our guidance that is impacted by the pricing increase. But before we do that, yes, in terms of the pricing impact, yes, it takes some pricing increases this quarter, classic, and I would say derivative and related products. We have a lot of products that ladder together, so we moved actually quite a few products.

That was really based on what the impact the -- market by market around the world. It was here in the US that we've also highlighted within other markets around the world as well. The impact of those price changes will take anywhere between six to nine months to flow through to our overall financials. As we look at pricing, we're really looking to make sure that we, a, No.

1, given incredible value to our consumers. That's the first thing that we're focused on. The second thing that we're looking on is appropriately matching supply and demand, and we really felt like we had an opportunity to take some pricing action. We think that pricing action has been well received.

We monitor that closely in our DTC channel. We also monitor closely with our wholesale partners. So we feel like it's been well received. But we will continue to monitor as time goes on.

Anne Mehlman -- Executive Vice President and Chief Financial Officer

Yeah. And then, just on the guidance piece. So I think, obviously, the increase in guidance does reflect the pricing increases that we took, but it also just reflects the increasing brand momentum because our brand continues to accelerate. I think we've really seen the over-performance in Q1.

We expect a strong Q2. And then, we have more visibility into the back half. And so, that really is the reason for the increase in guidance. I think that's just -- we've gained more confidence now that markets are reopening globally, and the health of the US consumer is obviously continuing to improve, which seems to have been supported by government stimulus.

So I think it's a mix of those pieces. In addition to that, we also have evidence that the brand trajectory in EMEA I think was up almost 50% in the quarter, just following what we've seen in the US So It is a mix of price, but it is also volume. So it's a mix of both of those from a guidance increase perspective on the revenue side.

Erinn Murphy -- Piper Sandler -- Analyst

Thank you, both. And I'll let someone else hop in. Thanks so much.

Andrew Rees -- Chief Executive Officer

Thanks, Anne.

Operator

Your next question comes from the line of Jay Sole from UBS. Your line is open. please ask your question.

Jay Sole -- UBS-- Analyst

Great. Thank you so much. I want to ask about sandals. I think I heard you mention that sandals grew 17% in the quarter.

Can you talk about if -- how you view that result? Were you pleased with that? And what signs did you see that give you confidence that you see long-term growth potential in sandals to help you capture bigger market share in that $30 billion global category?

Andrew Rees -- Chief Executive Officer

Yeah. We saw a lot of signs, Jay, that were very encouraging. So I think we were very pleased with the 17% growth. It is obviously behind our clog growth.

And as we said earlier in the year, we do expect sandals to grow less quickly than clog this year. But over the long term, we expect sandals to be a higher-growth category than our underlying clog business. The signs that we saw that were particularly encouraging, I would say, No. 1, personalization, so the Jibbit-able or the personalizable sandals that we released last year and this year continue to do extremely well.

So classic slide we released last year, that is really strengthening this year. The two-strap classic sandal that we released this year has had a very strong kind of initial introduction. So personalization of sandals is definitely working really well with our -- for our consumer, and so we're very pleased by that. In addition to that, I would say the reintroduction of some major franchises that we launched last year into the sort of the core of the pandemic, so Brooklyn, Tulum and Monterey.

We've reintroduced them this year a few new colors, but frankly, a lot of the same products are also doing really well. So if you look at the combination of personalization, you look at our other core platforms, we feel really optimistic about sandal. So -- and as we look to the future, you mentioned it in your question, this is a huge global market, right, $30 billion global addressable market for us from a sandal perspective, so we're very confident of our future in this category.

Jay Sole -- UBS-- Analyst

Great, Andrew, that was real helpful. If I could ask you one more. The brand relevance just to -- continue to increase. Can you just talk about what some of the key drivers were? I've kind of assumed the key actions that you took in the quarter continues to drive the incredible momentum behind the brand right now.

Andrew Rees -- Chief Executive Officer

Yeah. I think it's -- in a nutshell, I would say it's probably three things. It's product, marketing and marketplace management, right? So No. 1, I think we continue to deliver to the market fresh and innovative product, right? And fresh and innovative for us can be as simple as the right color and the right graphic.

So we have some of our new colors in classic definitely trend right, definitely in sync with whether the consumer is performing well. Graphic is performing well, so that's an innovative product and as we already talked a little bit about sandals. I would say marketing, the integrated marketing program, our use of celebrities, our use of collaborations, our use of social media amplifying that around the world, both here in this country but, also, frankly, in China and all parts of the world has been really important, and then increasingly, our marketplace management efforts here in the United States and in our key overseas markets, where we're being very thoughtful about where our product shows up, how it's priced, what supply we put into the market so that we maintain a really profitable business for us, but frankly, also a very profitable business for our wholesale and distributor partners as well.

Jay Sole -- UBS-- Analyst

Got it. Thank you so much.

Operator

Your next question comes from the line of Jonathan Knox from [Inaudible]. Your line is open. Please ask your question

Jon Komp -- Baird -- Analyst

Thanks, guys. It's Jon Komp from Baird. Just if I could start one follow-up on the pricing question. I know you mentioned labor and some wage increases.

There's been maybe some questions about resin input costs too. So is there any sort of inflationary offset for the pricing you've taken? And any thoughts on updated targets for gross margin for the year?

Anne Mehlman -- Executive Vice President and Chief Financial Officer

Yeah. So good question. We are seeing a little bit of inflation, as we talked about. I think the biggest pressure right now is really on crate, both on the inbound and outbound side.

We also anticipate some labor cost pressures. So in key manufacturing origins, we haven't seen that yet, but we do anticipate that coming. And also, in our DCs, as Andrew talked in his prepared remarks, we did actually raise some salaries and wages there. So our input costs are a small percentage of our overall product cost, but we are seeing higher commodity cost due to supply and demand imbalances.

That is also a little bit of an offset. And I will say, we've incorporated all of that into the guidance perspective. And our gross margins, we do expect to be up year over year, and you can see that kind of coming through as you saw in Q1. So we do expect to have good gross margins for the year.

Jon Komp -- Baird -- Analyst

And just one more clarification. I don't know if Asia Pacific was mentioned for pricing at all. Is that -- if that market recovers, would that be something you might look at beyond 2021? Or any thoughts there on the geographic reach of the actions you've taken so far?

Andrew Rees -- Chief Executive Officer

Yeah. So we have taken some pricing trends in Asia already, Jon, in some of our core markets. So some of that was done this year already. But I do think in the future, there is potential for price as the brand continues to strengthen in key Asian markets.

Jon Komp -- Baird -- Analyst

OK. Excellent. And then, just one broader question for me. I know, at some point, we'll be having a broader discussion during an Investor Day, but when you think of this year's performance and the new guidance to get back to low to mid-20% adjusted operating margin, how should we think about the broader context of this performance? And is that -- is there anything that you see this year setting sort of a high or unattainable bar going forward? Or do you think there's good opportunity to maintain and grow margin looking ahead?

Anne Mehlman -- Executive Vice President and Chief Financial Officer

Yeah. So obviously, we haven't given long-term guidance. I think we're incredibly optimistic about what we're seeing in the brand. As we've kind of talked about the pieces, we think gross margins are largely sustainable.

We've done a lot of work around that. And then, from an SG&A perspective, we've always said we'll -- we've less been able to leverage the increase in volume because our business model is created that way. So we think those pieces won't change, but we will obviously look forward to putting out some longer-term guidance at the back half of this year during an investor day.

Jon Komp -- Baird -- Analyst

I understand. Look forward to that. Thank you.

Anne Mehlman -- Executive Vice President and Chief Financial Officer

Thanks, Jon.

Operator

Your next question comes from the line of Sam Poser from Williams Trading. Your line is open. Please ask your question.

Sam Poser -- Williams Trading -- Analyst

Good morning. Thanks for taking my questions. Pretty much everything has been answered, but I'll try to -- No. 1, the closures, you've mentioned that those retailers that you've decided to shut down did not fit your long-term plans or the way the brand was being presented.

Can you tell us what that expectation is and what that is that you want from these partners? Do they all have to be large retailers now? Or is it digital? Is it brand presentation, digital abilities and so on and so forth within those retailers that you decided to close?

Andrew Rees -- Chief Executive Officer

Yeah. I mean, I think -- so I think the way I'd probably answer that, Sam, is I'd say, look, there are certain categories of resellers that we have real stronger ties. And it's -- we've been really clear about that over -- to hear some feedbacks yet. So I'm really clear by that period of time.

So retail, sporting goods, family footwear and large specialty chains, we've fundamentally believe that our retailers are going to win in the long term, and those are formats that we think make sense to consumer over the long term. In addition to that, we're looking to make sure that we're well placed in strategically important smaller retailers, whether they're tier zero influential accounts or regional accounts that have strong penetration in their local markets. We are less interested in undifferentiated small players that don't have particularly good service levels or in-store standards and technically are taking advantage of some, I would say, digital distribution that we don't think is accretive to the brand. So it's really kind of putting resources, putting our time and energy behind the -- just the retailers which we think are going to be strategically important in the future.

Sam Poser -- Williams Trading -- Analyst

And then, how -- given the port -- the supply chain delays and so on, is any -- and you mentioned some of the cost increase would go to help your -- some of those logistics. Does some of this price increase will go to possibly air trading goods to play catch-up, so you can service some of these businesses better as you await product to come in that's on the water right now?

Anne Mehlman -- Executive Vice President and Chief Financial Officer

Yeah. Yeah, that's absolutely right. I mean, I think we're very, I would say, focused on not using airfreight whenever possible, obviously, especially given airfreight costs are even more elevated than what we've seen in the past. But we will selectively airfreight goods in order to get them in quicker, particularly where we're really lean.

So we have been doing that. That's incorporated in our guidance. We still expect gross margin -- yes. So yeah, part of the price increases will offset some of the airfreights that we will need to use.

Sam Poser -- Williams Trading -- Analyst

And then lastly, China, you talked about you expected China to become -- really turn the corner for next year. Is there anything happening there? Any changes there? Any improvements you're seeing there that are better than expected that might make some of that happen this year?

Andrew Rees -- Chief Executive Officer

I would say from a China perspective, Sam, we're definitely on track. Look, we feel really good about the plan we put in place. We're tracking into that plan, all the KPIs, by channel are making a lot of sense. And we're right where we possibly would be.

So I'd say it's broadly on track. I would say a few things, we were really pleased with the Justin Bieber launch in China that went exceptionally well. He resonated, and the activations that we did resonated, probably had one of the fastest sellouts and we looked at our sell-out time across the globe. We're certainly getting some traction in social media in China with some of the things that we're doing and trying to be innovative.

I would say our partner transitions are going well. The new concept stores that we've opened are clearly resonating, and personalization is at the forefront of those stores. So I think we're definitely on track, bt I wouldn't say that we're going to see price through acceleration this year.

Sam Poser -- Williams Trading -- Analyst

Thank you very much. And continued success.

Andrew Rees -- Chief Executive Officer

Thanks, Sam.

Operator

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

Susan Anderson -- B. Riley FBR Inc.-- Analyst

Hi. Good morning. Nice job on the quarter. Thanks for taking my question.

I'm curious in Europe if you've seen the retail part of things or the wholesale stores start to sequentially improve into April as it sounds like things are starting to open up there. And then, also if you could talk about maybe which markets are still shut down for you in Europe.

Anne Mehlman -- Executive Vice President and Chief Financial Officer

Sure. Yeah. We don't comment on inter-month movements and kind of it during the quarter. But I will say from a Europe perspective, one of the best things about our EMEA business is it's actually very high from a digital penetration standpoint.

So even though most of our stores in Western Europe were shut down in Q1, we still saw a really strong trajectory, both on our retail platform and on our own e-commerce, so driving that 50% growth, as well as distributors in Europe that we've seen pretty marked improvement in some of our distributor markets in India. And so, obviously, we're seeing things kind of vary from an opening up perspective there. But again, the underlying -- we don't have that many retail stores in Europe, so the underlying trajectory that's driving EMEA is really the digital side of things.

Susan Anderson -- B. Riley FBR Inc.-- Analyst

Great. That's helpful. And then, if I could just add a follow-up on the collaboration front. I'm curious if there's any, I guess, quantitative details around new customers coming in as you do these collaborations and, I guess, just drawing buzz to the brand and driving excitement with existing customers.

And then, also on the sandal front, I'm curious if there's any plans to do any collaborations with the sandal to kind of drive excitement around those products.

Andrew Rees -- Chief Executive Officer

Yeah. Let me start with the last piece because that's easy. Yeah, absolutely. We will see a number of collaborations in '21 that are focused on sandal.

So yeah, I think that's definitely coming and I think really important. And I would also say some of our super high profile collaborators will be on the sandal for the rest of the year. In terms of new customers and buzz, etc., from the collaborations, it's really a combination, and I would say each one is unique, right? And they're actually design that way, right? Some are designed to be -- have an opportunity to attract new customers, acquire new customers, and the mechanism of releasing these collaborations does allow you to capture the customer iteration for those new customers and be able to market them in the future. And some of them are designed to be more, I would say, controversial -- or controversial is not the right word, but more kind of interesting and buzz worthy.

So it's really a tapestry that we try to put together, and so it really works from both perspectives. I think one other thing that you would note in '21, we'll do more international collaborations. We've already released a number internationally, and we'll do far more internationally, both in Europe and in Asia this year. And I think you may have noticed on Sunday night that Questlove was also wearing one of our shoes on the red carpet at the Oscars.

Susan Anderson -- B. Riley FBR Inc.-- Analyst

Great. That's very helpful. Thanks so much. Good luck there the rest of the year.

Anne Mehlman -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Mitch Kummetz from Pivotal Research Group. Your line is open. Please ask your question.

Mitch Kummetz -- Pivotal Research Group-- Analyst

Yeah. Thanks for taking my question. Anne, you mentioned that part of the uptick in guidance is just a better outlook for the back half, and just I want to kind of run some numbers back of the envelope. It looks like for the back half, you're looking for about 30%-ish sales growth, which is not as strong as the first half, but on a two-year basis, it looks like it's 70% plus, which is actually stronger than the first half.

So I'm just hoping you could just tell us what gives you the confidence in that. Is it because the brand is becoming more of a back-to-school brand, because expect big things for lined clogs in the fourth quarter? And there's -- if is there anything on the visibility side that you can sort of support that, just what you're seeing in the fall order book? Just anything there would be helpful.

Anne Mehlman -- Executive Vice President and Chief Financial Officer

Yeah. I mean, again, I think, Mitch, we're really seeing that growing momentum continuing to accelerate, both in the US and overseas, which is really exciting for us. I think our distributor business in the Asia, while still down for material basis, is starting to increase again. Our EMEA distributor business is positive.

So we're seeing all those really good signs. Obviously, we had huge direct-to-consumer outperformance in Q1, which is our smallest direct-to-consumer quarter, so that really gives us confidence. And I think we do have more back half visibility, as well as just seeing how the US consumer is responding to stimulus and other things and with the reopening. I think it -- all of those things lead us to believe that that trajectory only continues to accelerate.

So we bet that this the confidence to raise our guidance. We're really pleased with that.

Andrew Rees -- Chief Executive Officer

Yeah. From a product perspective, next week, no, we're definitely optimistic about life cycle because it's an important part of the brand. And so, that does help support our business in the back half.

Anne Mehlman -- Executive Vice President and Chief Financial Officer

And then finally, the pricing increases will actually flow through the revenue, as well as margins. So those were also incorporated into the updated guide.

Mitch Kummetz -- Pivotal Research Group-- Analyst

OK. And then, is there any way to isolate the impact of stimulus on the quarter? And when you think about -- it was something that occurred really, I guess, a little bit in January, but then more so in March, and that's continued into April. Do you think stimulus should be equally beneficial in the second quarter as the first quarter? Or is it weighted more toward one or the other, do you think?

Anne Mehlman -- Executive Vice President and Chief Financial Officer

I'm not sure about we did more toward the first or the second quarter, but we definitely saw an impact. I mean, I think it was pretty clear. And from what I've been reading, it looks like others have as well. So certainly, the consumers seem quite buoyant right now in the US, and we definitely saw an impact from stimulus.

Mitch Kummetz -- Pivotal Research Group-- Analyst

OK. And then, lastly, Andrew, on sandals, you mentioned, it sounds like the slide, the personalization side of sandals is really what drove the quarter. But then you also mentioned the reintroduction of some franchises like Tulum and Brooklyn also did well. I'm curious if you can maybe speak to the trajectory of the sell-through that you're seeing there.

I would guess that January and February probably weren't great months for those kinds of franchises. I wouldn't think that maybe the sell-in on the order book was that great there. But now we're getting into the warmer months, and things like bell bottom denims trending again, that's good for wedges. Anything that you're seeing there kind of on the trajectory side that would speak to your confidence in those more fashion franchises as we get further into the sandal season?

Andrew Rees -- Chief Executive Officer

All right. So there's quite a lot there. So what I'd say probably is, look, sandal delivery and the quantum of sandal sales absolutely increases if you go from the back end of the first quarter into the second quarter, right? That's just kind of the natural seasonal cycle. So we're certainly seeing more deliveries, and we're certainly seeing the business accelerate.

I would say the personalized slide was, frankly, did well out of the gate. So I don't think -- and I think one thing that we are seeing in some components of the sandal business, particularly slide and potentially the two-strap, it's pretty seasonless. That consumer that's wearing it is wearing it with and without socks, depending on the season. So we're seeing that be more seasonal in the future.

And we think in the future, we think the sandal overall side of business probably is a little less seasonal than it is. I would say -- and one thing in addition I'd say is in the quarter, I think the new introductions, like personalized and the reintroduction with both strap, they were both components in terms of the driver of the business. It wasn't just strong based on the personalized sandals. Both did well.

Mitch Kummetz -- Pivotal Research Group-- Analyst

OK. All right. Thanks. Good luck.

Operator

Your next question comes from the line of Laura Champine from Loop. Your line is open. please ask your question.

Laura Champine -- Loop Capital Markets-- Analyst

Thanks for taking my question. it's really about operating expense leverage. And especially, how are you planning your sales and marketing expense this year to support that very strong growth that you expect?

Anne Mehlman -- Executive Vice President and Chief Financial Officer

Yeah. It's a great question. So we're obviously pleased to leverage SG&A, and we talked about that on the last call that we would leverage SG&A. Q1 was probably a little bit lower from an SG&A standpoint just because our marketing usually kicks off -- our marketing campaigns really start off in Q2, so we do expect that to increase, as well as we've increased some wages for our frontline employees.

And we have -- we'll continue to invest in our key initiatives, right, that we've laid out, so that's sandals, that's China, that's digital and then relative products and marketing. And we will see those costs start to layer in throughout the year because the big focus is obviously investing to support our growth for next year as well.

Laura Champine -- Loop Capital Markets-- Analyst

Got it. So if -- is it possible to give sort of a range of sales and marketing expense increase year-on-year or to talk about how it layers in seasonally?

Anne Mehlman -- Executive Vice President and Chief Financial Officer

I definitely think it all, again, increase in Q2. So if you kind of -- last year was a weird year, so I'll kind of throw that one out and go back and look at 2019 and kind of think about how SG&A kind of walks from a quarterly spread. And I think that will help because we definitely expect it to increase quarter over quarter, and we do expect to invest in marketing. So we will continue to see that increase.

And we can go back and look at our historical marketing costs, has been right around just under 7% of SG&A.

Laura Champine -- Loop Capital Markets-- Analyst

Got it. Thank you.

Anne Mehlman -- Executive Vice President and Chief Financial Officer

Or revenue, sorry, yes.

Operator

Your next question comes from the line of Soheet Singh Anand from Stifel. Your line is open. Please ask your question.

Jim Duffy -- Stifel Financial Corp. -- Analyst

Hi. It's Jim Duffy from Stifel. Good morning. Great execution.

No doubt, a lot of hard work behind this. I want to take a step back with this in mind. I'm hoping you guys can talk more about the infrastructure to support the growth. You've outlined sightlines to a $2 billion business this year.

That's a big jump in just two years from about 740 million. Can you talk about scaling manufacturing capacity to support this? Have you taken on any new partners? And I know you have the new distribution centers. Are there any gaps in the infrastructure that are of particular focus as you look to support that higher revenue run rate? And then I'm curious, as you exit the year, are you still playing catch-up on infrastructure? Or do you feel the infrastructure is in place to support further growth?

Andrew Rees -- Chief Executive Officer

Yeah. Good question. Thanks, Jim. So we've really been investing in our infrastructure now for about two, three years, right? So we've made substantive investments last year, we're making substantive investments this year.

Those capital investments for us are really going into our DC. So as a reminder, we opened a new DC in Dayton, Ohio two years ago. We expanded that last year. We will further expand that next year, right? We have opened a new DC in the Netherlands.

That is now open. We're transitioning our operations from a old one to a new one through the remainder of the year, and that is a substantial increase in terms of capacity. So we also transitioned last year to a new DC in -- which is a 3PL in Japan, etc. So for us, we're making, I would say, some pretty significant investments, expanding capacity and also expanding efficiency and effectiveness with the use of automation.

So I think we feel good about that. But frankly, as we continue to grow in these rates, we'll continue to need to make those kinds of investments. But we have, I think, a good plan for that. From the -- from a sourcing and manufacturing perspective, we have some phenomenal partners.

We have major partner groups in Asia that have very significant resources. They have opened new facilities. They've expanded existing facilities. And we'll continue to do that in the future, and we're in conversations also with a couple of significant new partners as well.

So we feel really confident in the partner base that we have and our ability to work with new partners in potentially new regions for manufacturing. So we feel like we're in a good place. As you know, we do try to run our inventory fleet, right? We think managing working capital, getting high working capital efficiency and keeping inventories lean such that the marketplace is not flooded with goods is actually a really important component of brand management.

Anne Mehlman -- Executive Vice President and Chief Financial Officer

And if I could just add on the SG&A side, Jim. I think when you think about how we're supporting the growth, we're definitely adding -- in one of the investments, we'll be adding headcount across our key areas and our key initiatives in order to support this growth, and that will obviously is included in our guidance for our operating margins this year.

Jim Duffy -- Stifel Financial Corp. -- Analyst

Great. Very helpful answer. Building on that, any challenges with staffing to support any of this additional capacity? Or are you finding ready availability of labor?

Andrew Rees -- Chief Executive Officer

I would say no, not really. Look, we are hiring quite a few positions because, obviously, you need to add positions to -- and I would say that's across a broad spectrum of functions. But what we are finding is our brand not only is in demand from the consumer perspective. It's very appealing to our employees there.

They're excited by the trajectory of the business. They're excited by a lot of the things that we're doing from a brand management perspective. And I think, generally, they're getting great feedback from our employees since it's a great place to work. So we're attracting a lot of really phenomenal employees.

Anne Mehlman -- Executive Vice President and Chief Financial Officer

Yeah. And we've been recognized, I think Andrew said in his prepared remarks, by Forbes for inclusivity as an employer. And then, I think we're also recognized as one of the best midsized employers. So that's also helpful from an employment branding perspective.

Jim Duffy -- Stifel Financial Corp. -- Analyst

Outstanding. Keep up the good work, guys.

Andrew Rees -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Sam Poser from Williams Trading. Your line is open. Please ask your question.

Sam Poser -- Williams Trading -- Analyst

Just a quick two follow-ups. No. 1, how much bigger on a percent basis do you expect the marketing spend to be in Q2 and 3, I guess, versus Q1 and versus '19 as a percentage?

Anne Mehlman -- Executive Vice President and Chief Financial Officer

So I would take -- the way to think about marketing is take it as a percentage of our revenue. So if you take our revenue guidance and use our marketing percentage historically, it's going to be about right. We might expand that a little bit. Things are going well, but that's kind of how I would think about that, Sam.

Sam Poser -- Williams Trading -- Analyst

Can you just remind us what that is?

Anne Mehlman -- Executive Vice President and Chief Financial Officer

Yeah. It's almost 7%. So if we run around 6.8% of revenue from a marketing standpoint.

Sam Poser -- Williams Trading -- Analyst

And then lastly, the Gold Shoe we saw the other night, was that something you guys made or something the stylists did? And will we see that as part of the line?

Andrew Rees -- Chief Executive Officer

Unclear whether it would be part of a line. It's something that we made in collaboration with the stylists.

Sam Poser -- Williams Trading -- Analyst

Great. Thank you very much. Again, continued success.

Andrew Rees -- Chief Executive Officer

Thanks, Sam.

Operator

There are no further questions at this time. You may continue.

Andrew Rees -- Chief Executive Officer

Thank you very much. I just want to thank everybody for joining us all today and their continued interest in Crocs. So thank you very much. Have a great day.

Operator

[Operator signoff]

Duration: 52 minutes

Call participants:

Corinne Lin -- Vice, President Corporate Finance

Andrew Rees -- Chief Executive Officer

Anne Mehlman -- Executive Vice President and Chief Financial Officer

Erinn Murphy -- Piper Sandler -- Analyst

Jay Sole -- UBS-- Analyst

Jon Komp -- Baird -- Analyst

Sam Poser -- Williams Trading -- Analyst

Susan Anderson -- B. Riley FBR Inc.-- Analyst

Mitch Kummetz -- Pivotal Research Group-- Analyst

Laura Champine -- Loop Capital Markets-- Analyst

Jim Duffy -- Stifel Financial Corp. -- Analyst

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