CROCS, INC. Business Overview
Crocs, Inc. and our consolidated subsidiaries (collectively the "Company," "Crocs," "we," "us," or "our") are engaged in the design, development, worldwide marketing, distribution, and sale of casual lifestyle footwear and accessories for women, men, and children. We strive to be the world leader in innovative casual footwear for women, men, and children, combining comfort and style with a value that consumers want. The vast majority of shoes within our collection contain Croslite™ material, a proprietary, molded footwear technology, delivering extraordinary comfort with each step.
Known or Anticipated Trends
Based on our recent operating results and current perspectives on our operating environment, we anticipate certain trends will continue to impact our operating results: •Global industry-wide logistics challenges have continued to impact us, with some of our factories inVietnam closed for several weeks during the third quarter. While most of our factories inVietnam are operational, they are in various stages of reopening. We expect the situation to remain fluid as COVID-19 break-out rates fluctuate, including any deterioration in circumstances related to COVID-19 variants, and whether vaccination rates increase in the country. We are taking several measures to ensure continued future growth and strong gross margins for the rest of 2021 and in 2022. We are shifting production capacity to other countries, includingChina ,Indonesia , andBosnia , as we are able, to minimize unit shortfall. Fortunately, our products have limited inputs and simple configurations, which gives us a unique competitive advantage to increase factory production quickly. Additionally, by prioritizing top selling products and narrowing product assortment, while still preserving newness, we are able to improve factory throughput. We are also maintaining flexibility by leveraging air freight and reducing our dependency on congestedWest Coast ports inthe United States by addingEast Coast trans-shipment capabilities starting in the fourth quarter of 2021. In addition to maximizing supply, we are strategically allocating units and we will prioritize our key growth initiatives, including digital sales and our major wholesale customers. With the actions taken to-date and our future plans, we feel Crocs is well-positioned to emerge an even stronger, more diversified brand. •Despite these actions, we expect to still be impacted by global logistics challenges for the remainder of 2021 and into 2022. Specifically, we plan to invest approximately$75 million in air freight in 2022 to bolster our inventory positions for the first half of 2022 in all regions. Supported by the health of our brand, wholesale orders for the first half of 2022 have been exceptionally strong. However, we expect to have limitations around demand fulfillment in the first half of the year. Additionally, we expectEurope ,Middle East , andAfrica ("EMEA") revenue growth in the fourth quarter of 2021 will be disproportionately impacted by theVietnam supply disruption, as much of the region's inventory is sourced there. •Global inflation has also begun to impact our business, contributing to incremental freight costs, increased wages, particularly in our distribution centers, and increased raw materials cost. We expect this trend will continue through the fourth quarter of 2021 and during 2022. •Consumer demand for our brand continues to be strong, fueled by increased marketing investment and compelling product, and is leading to strong sales growth, particularly in our clog and sandal silhouettes. •We have committed to several Environmental, Social, and Governance ("ESG") initiatives, including a plan to achieve net zero emissions by 2030 through sustainable ingredients and packaging as well as responsible resource use and exploring innovative product afterlife solutions. We began production on bio-based products, which are expected to go on sale in 2022, using materials sourced from waste and by-product from other industries. We continue to expand efforts to help serve our communities and create a welcoming environment for everyone, rooted in a culture of transparency and accountability. During the third quarter, we launched a new Brand Purpose section on our Crocs.com site and a new ESG section on our investor site to share our progress. •In 2021, we have invested, and plan to continue to invest, in selling, general and administrative expenses ("SG&A"), including marketing, talent, and digital commerce, to fuel long-term growth, while continuing to leverage revenue growth. •During the third quarter of 2021, the Board of Directors (the "Board") approved a$1.0 billion increase to our share repurchase authorization. As ofSeptember 30, 2021 , we had remaining authorization to repurchase approximately$1.6 billion of our common stock. InSeptember 2021 , we entered into an accelerated share repurchase ("ASR") arrangement, effectiveOctober 2021 , to repurchase an additional$500.0 million of shares of our common stock in the 21 -------------------------------------------------------------------------------- Table of Contents fourth quarter of 2021, which, upon completion, is expected to bring our total 2021 fiscal year repurchases to$1.0 billion . •Capital expenditures for supply chain investments to support our growth are expected to be approximately$75 million for the year endedDecember 31, 2021 . •Our year-over-year results discussed below were, and we expect for the remainder of 2021 will be, impacted to some extent by prior year store closures and operating hour reductions as a result of the COVID-19 impact in 2020.
Use of Non-GAAP Financial Measures
In addition to financial measures presented on the basis of accounting principles generally accepted inthe United States of America ("U.S. GAAP"), we present certain information related to our results of operations through "constant currency," which is a non-GAAP financial measure and should be viewed as a supplement to our results of operations and presentation of reportable segments underU.S. GAAP. Constant currency represents current period results that have been retranslated using prior year average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends, excluding the impact of foreign currency exchange rates on reported amounts. Management uses constant currency to assist in comparing business trends from period to period on a consistent basis in communications with the Board, stockholders, analysts, and investors concerning our financial performance. We believe constant currency is useful to investors and other users of our condensed consolidated financial statements as an additional tool to evaluate operating performance and trends. Investors should not consider constant currency in isolation from, or as a substitute for, financial information prepared in accordance withU.S. GAAP.
Third Quarter 2021 Financial and Operational Highlights
Revenues were$625.9 million for the third quarter of 2021, a 73.0% increase compared to the third quarter of 2020. The increase was due to the net effects of: (i) higher unit sales volumes, which increased revenues by$157.8 million , or 43.6%, driven by continued increased consumer demand for our products; (ii) higher average selling prices, driven primarily by reduced promotions and higher pricing, as well as favorable product mix, including increased sales of charms per shoe, which increased revenues by$103.4 million , or 28.6%; and (iii) favorable changes in exchange rates, which increased revenues by$2.9 million , or 0.8%.
The following were significant developments affecting our businesses and capital
structure during the three months ended
•Revenues grew 73.0% compared to the third quarter of 2020, with strong growth in all regional segments. OurAmericas segment revenues grew by 94.8%, or 94.5% on constant currency basis, while our EMEA segment revenues grew by 44.0%, or 42.8% on a constant currency basis, and ourAsia segment revenues grew by 23.5%, or 21.2% on a constant currency basis, compared to the third quarter of 2020. •Despite supply constraints resulting from global logistics challenges, we sold 25.4 million pairs of shoes worldwide, an increase from 16.9 million pairs in the third quarter of 2020. •Gross margin was 63.9%, an increase of 670 basis points from last year's third quarter, as a result of increased pricing and fewer promotions and discounts and favorable product mix, offset in part by higher freight costs associated with global logistics disruptions. •SG&A was$196.7 million compared to$134.7 million in the third quarter of 2020. As a percent of revenues, SG&A decreased to 31.4% of revenues compared to 37.2% of revenues in the third quarter of 2020. •Income from operations more than doubled to$203.1 million from$72.1 million in last year's third quarter. Net income was$153.5 million , or$2.42 per diluted share, compared to$61.9 million , or$0.91 per diluted share, in last year's third quarter. •During the third quarter, we issued$350.0 million of 4.125% senior notes due in 2031. AtSeptember 30, 2021 , we had$499.7 million in available borrowing capacity under our senior revolving credit facility. 22 --------------------------------------------------------------------------------
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Results of Operations
% Change
Three Months Ended September 30 , Nine Months Ended September 30 , Favorable (Unfavorable)
2021 2020 2021 2020 Q3 2021-2020 YTD 2021-2020
(in thousands, except per share, margin, and average selling price data)
Revenues $ 625,919 $ 361,736 $ 1,726,790 $ 974,445 73.0 % 77.2 %
Cost of sales 226,123 154,967 678,594 453,581 (45.9) % (49.6) %
Gross profit 399,796 206,769 1,048,196 520,864 93.4 % 101.2 %
Selling, general and administrative expenses 196,728 134,683 525,120 371,371 (46.1) % (41.4) %
Income from operations 203,068 72,086 523,076 149,493 181.7 % 249.9 %
Foreign currency gains (losses), net 537 (516) (84) (1,434) 204.1 % 94.1 %
Interest income 615 43 713 189 1,330.2 % 277.2 %
Interest expense (6,486) (1,502) (12,830) (5,593) (331.8) % (129.4) %
Other income (expense), net 2 (27) 15 901 107.4 % (98.3) %
Income before income taxes 197,736 70,084 510,890 143,556 182.1 % 255.9 %
Income tax expense (benefit) 44,247 8,195 (59,951) 14,025 (439.9) % 527.5 %
Net income $ 153,489 $ 61,889 $ 570,841 $ 129,531 148.0 % 340.7 %
Net income per common share:
Basic $ 2.47 $ 0.92 $ 8.96 $ 1.92 168.5 % 366.7 %
Diluted $ 2.42 $ 0.91 $ 8.79 $ 1.89 165.9 % 365.1 %
Gross margin (1) 63.9 % 57.2 % 60.7 % 53.5 % 670 bp 720 bp
Operating margin (1) 32.4 % 19.9 % 30.3 % 15.3 % 1,250 bp 1,500 bp
Footwear unit sales 25,410 16,867 80,402 50,234 50.6 % 60.1 %
Average footwear selling price - nominal
basis (2) $ 24.42 $ 21.36 $ 21.30 $ 19.33 14.3 % 10.2 %
(1) Changes for gross margin and operating margin are shown in basis points
("bp").
(2) Average footwear selling price is calculated as footwear and charms revenues
divided by footwear units.
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Revenues By Channel
Constant Currency
% Change % Change (1)
Three Months Ended September 30, Nine Months Ended September 30, Favorable (Unfavorable)
2021 2020 2021 2020 Q3 2021-2020 YTD 2021-2020 Q3 2021-2020 YTD 2021-2020
(in thousands)
Wholesale:
Americas $ 213,321 $ 98,025 $ 526,164 $ 256,258 117.6 % 105.3 % 117.4 % 105.4 %
Asia Pacific 37,207 28,842 158,098 109,705 29.0 % 44.1 % 28.6 % 38.8 %
EMEA 59,058 37,630 222,643 136,507 56.9 % 63.1 % 55.5 % 55.4 %
Unallocated corporate and other 25 14 73 106 78.6 % (31.1) % 71.5 % (31.1) %
Total wholesale 309,611 164,511 906,978 502,576 88.2 % 80.5 % 87.7 % 77.3 %
Direct-to-consumer (2):
Americas 242,587 136,022 611,833 297,097 78.3 % 105.9 % 78.0 % 105.3 %
Asia Pacific 46,438 38,862 134,973 117,031 19.5 % 15.3 % 15.8 % 8.8 %
EMEA 27,283 22,341 73,006 57,741 22.1 % 26.4 % 21.3 % 22.1 %
Total direct-to-consumer 316,308 197,225 819,812 471,869 60.4 % 73.7 % 59.3 % 71.2 %
Total revenues $ 625,919 $ 361,736 $ 1,726,790 $ 974,445 73.0 % 77.2 % 72.2 % 74.3 %
(1) Reflects year over year change as if the current period results were in
constant currency, which is a non-GAAP financial measure. See "Use of Non-GAAP
Financial Measures" for more information.
(2) Direct-to-consumer revenues consist of sales generated through our
company-operated retail stores (previously our "Retail" channel) and
company-operated e-commerce websites and third-party e-commerce marketplaces
(previously our "E-commerce" channel).
The primary drivers of changes in revenue were:
Three Months Ended September 30, 2021 vs. 2020
Volume Price (1) Foreign Exchange Total
$ $ $ $
Change % Change Change % Change Change % Change Change % Change
(in thousands)
Total revenues $ 157,841 43.6 % $ 103,424 28.6 % $ 2,918 0.8 % $ 264,183 73.0 %
(1) The change due to price is based on the change in average selling price on a constant currency basis ("ASP").
Nine Months Ended September 30, 2021 vs. 2020
Volume Price (1) Foreign Exchange Total
$ $ $ $
Change % Change Change % Change Change % Change Change % Change
(in thousands)
Total revenues $ 550,538 56.5 % $ 173,990 17.8 % $ 27,817 2.9 % $ 752,345 77.2 %
(1) The change due to price is based on the change in ASP.
Revenues. In the three months endedSeptember 30, 2021 , revenues increased compared to the same period in 2020, despite global logistics challenges that resulted from port congestion and intermittent COVID-19 related factory shutdowns inVietnam . Volume was higher in all segments, led by ourAmericas segment, due to continued increased consumer demand, which was due in part to negative impacts of the COVID-19 pandemic on prior year wholesale and retail store revenues, including traffic limitations in stores and reduced operating hours. ASPs increased revenues in all segments and channels due to higher pricing, less promotional activity, and favorable product mix. Foreign exchange fluctuations also increased revenues, primarily due to favorable changes in the Chinese Yuan, Korean Won, Euro, and Canadian Dollar. Revenues also increased in the nine months endedSeptember 30, 2021 , primarily as a result of volume increases in all regions, led by theAmericas segment, as a result of continued increased consumer demand, attributable in part to the negative impact of the COVID-19 pandemic on prior year wholesale and retail store revenues, particularly in the first part of the year. Higher ASP, 24 -------------------------------------------------------------------------------- Table of Contents primarily in the direct-to-consumer ("DTC") channel in all segments as a result of increased pricing, fewer promotions, and favorable product mix, also contributed to higher revenues. Foreign exchange favorability to revenue was driven by the Euro, Korean Won, and Chinese Yuan. Cost of sales. In the three months endedSeptember 30, 2021 , compared to the same period in 2020, cost of sales increased due to higher volume of$69.7 million , or 45.0%, primarily in ourAmericas segment, and foreign currency fluctuations, which increased cost of sales by$1.1 million , or 0.7%. These increases were slightly offset by lower average cost per unit on a constant currency basis ("AUC") of$0.4 million , or 0.2%, which was driven by favorable channel mix and efficiencies in ourU.S. distribution network, mitigated by higher freight costs associated with global supply chain disruptions, including container costs, port congestion, andVietnam factory closures. In the nine months endedSeptember 30, 2021 , compared to the same period in 2020, cost of sales increased primarily due to higher volume of$244.6 million , or 53.9%, and foreign currency fluctuations, which further increased cost of sales by$12.5 million , or 2.8%. These increases were partially offset by lower AUC of$32.1 million , or 7.1%, as a result of favorable product mix and increased efficiencies in our distribution and logistics network, moderated by higher freight costs associated with global supply chain disruptions, including the blockage in theSuez Canal , container costs, port congestion, andVietnam Factory closures. Gross profit. Gross margin increased in the three months endedSeptember 30, 2021 to 63.9%, compared to 57.2% in the same period in 2020, driven by increased pricing and fewer promotions and discounts and favorable product mix, offset in part by higher freight costs associated with global logistics disruptions. Gross profit increased$193.0 million , or 93.4%, as a result of the combined impact of lower AUC and higher ASP, of$103.1 million , or 49.9%, higher volume of$88.1 million , or 42.6%, and favorable foreign currency changes of$1.8 million , or 0.9%. Gross margin in the nine months endedSeptember 30, 2021 was 60.7% compared to 53.5% in 2020, due to favorable channel and product mix, increased pricing, and fewer promotions and discounts. Gross profit increased$527.3 million , or 101.2%, as a result of higher volumes of$305.9 million , or 58.7%, the combined impact of lower AUC and higher ASP of$206.1 million , or 39.6%, and positive foreign currency changes of$15.3 million , or 2.9%. Selling, general and administrative expenses. SG&A expenses increased$62.0 million , or 46.1%, in the three months endedSeptember 30, 2021 compared to the same period in 2020. This was due in large part to an increased marketing investment to continue to fuel revenue growth of$26.2 million . Higher services costs including consulting associated with supply chain investments, legal expense, and variable costs associated with higher revenues contributed$12.6 million to the increase and higher facilities costs due to variable rent associated with higher revenues contributed$5.7 million to the increase. Further, higher salaries and wages and recruiting costs as a result of increased headcount and higher variable executive compensation was partially offset by a variable compensation adjustment driven by the timing of business performance in the prior year, for a net increase of$10.4 million . Information technology and other net costs also increased SG&A by$6.1 million . SG&A as a percent of revenue improved to 30.4% in the nine months endedSeptember 30, 2021 from 38.1% in the same period in 2020 as a result of strong sales growth and our continued efforts to leverage operating costs, while SG&A expenses increased$153.7 million , or 41.4%, during the nine months endedSeptember 30, 2021 compared to the same period in 2020. This was driven both by higher compensation and related expense of$63.4 million as a result of increased employee headcount and higher variable and executive compensation, compounded by the prior year temporary and permanent elimination of certain roles in response to COVID-19, and by additional investments in marketing of$54.3 million , both of which support the growth of the business. Services costs, including consulting associated with supply chain investments, legal fees, and variable costs associated with higher sales, were up$24.0 million , facilities expense was up$16.3 million as a result of variable rent associated with higher sales, and information technology, depreciation, and other net costs were up by$12.7 million . These increases were offset in part by lower inventory donations of$8.8 million as a result of prior year COVID-19 donations to frontline healthcare workers and other organizations that did not recur at the same magnitude in the current year and decreases in bad debt expense of$8.2 million , mostly due to the prior year COVID-19 related impact on our distributors that did not recur in the current year, as well as collections on previously reserved bad debt expense. Foreign currency gains (losses), net. Foreign currency gains (losses), net, consist of realized and unrealized foreign currency gains and losses from the remeasurement and settlement of monetary assets and liabilities denominated in non-functional currencies as well as realized and unrealized gains and losses on foreign currency derivative instruments. During the three months endedSeptember 30, 2021 , we recognized realized and unrealized net foreign currency gains of$0.5 million , compared to losses of$0.5 million during the three months endedSeptember 30, 2020 . 25 -------------------------------------------------------------------------------- Table of Contents During the nine months endedSeptember 30, 2021 , we recognized realized and unrealized net foreign currency losses of$0.1 million , compared to losses of$1.4 million during the nine months endedSeptember 30, 2020 . Income tax expense. During the three months endedSeptember 30, 2021 , income tax expense increased$36.1 million compared to the same period in 2020. The effective tax rate for the three months endedSeptember 30, 2021 was 22.4% compared to an effective tax rate of 11.7% for the same period in 2020, a 10.7% increase. This increase in the effective rate was driven by tax expense recorded in profitable jurisdictions, partially offset by the utilization of deferred tax assets which were subject to a valuation allowance, and by operating losses in certain jurisdictions where we had determined that it is not more likely than not to realize the associated tax benefits. Our effective income tax rate, for each period presented, also differs from the federalU.S. statutory rate primarily due to the release of valuation allowances, as well as differences in income tax rates betweenU.S. and foreign jurisdictions. During the nine months endedSeptember 30, 2021 , income tax expense decreased$74.0 million compared to the same period in 2020. The effective tax rate for the nine months endedSeptember 30, 2021 was -11.7% compared to an effective tax rate of 9.8% for the same period in 2020, a 21.5% decrease. This decrease in the effective rate was driven primarily by the release of valuation allowances. Our effective income tax rate, for each period presented, also differs from the federalU.S. statutory rate primarily due to the release of valuation allowances, as well as differences in income tax rates betweenU.S. and foreign jurisdictions.
Reportable Operating Segments
The following table sets forth information related to our reportable operating
segments, including a comparison of revenues and operating income by segment:
Constant Currency
% Change % Change (1)
Three Months Ended September 30 , Nine Months Ended September 30 , Favorable (Unfavorable)
2021 2020 2021 2020 Q3 2021-2020 YTD 2021-2020 Q3 2021-2020 YTD 2021-2020
(in thousands)
Revenues:
Americas $ 455,908 $ 234,047 $ 1,137,997 $ 553,355 94.8 % 105.7 % 94.5 % 105.5 %
Asia Pacific 83,645 67,704 293,071 226,736 23.5 % 29.3 % 21.2 % 23.4 %
EMEA 86,341 59,971 295,649 194,248 44.0 % 52.2 % 42.8 % 45.5 %
Total segment revenues 625,894 361,722 1,726,717 974,339 73.0 % 77.2 % 72.2 % 74.3 %
Unallocated corporate and other
(3) 25 14 73 106 78.6 % (31.1) % 71.5 % (31.1) %
Total consolidated revenues
73.0 % 77.2 % 72.2 % 74.3 %
Income from operations:
Americas (2) $ 232,832 $ 100,827 $ 541,680 $ 192,019 130.9 % 182.1 % 130.8 % 182.0 %
Asia Pacific (2) 16,361 10,688 70,492 29,881 53.1 % 135.9 % 49.9 % 124.2 %
EMEA (2) 27,007 16,063 100,439 55,894 68.1 % 79.7 % 66.7 % 72.0 %
Total segment income from
operations 276,200 127,578 712,611 277,794 116.5 % 156.5 % 116.0 % 153.6 %
Unallocated corporate and other
(2)(3) (73,132) (55,492) (189,535) (128,301) (31.8) % (47.7) % (32.1) % (48.3) %
Total consolidated income from
operations $ 203,068 $ 72,086 $ 523,076 $ 149,493 181.7 % 249.9 % 180.6 % 244.0 %
(1) Reflects year over year change as if the current period results were in
constant currency, which is a non-GAAP financial measure. See "Use of Non-GAAP
Financial Measures" for more information.
(2) In the first quarter of 2021, certain costs previously reported within
'Other Businesses' were shifted to the Americas , Asia Pacific , and EMEA
segments. Additionally, any costs remaining in 'Other Businesses,' including
depreciation and amortization, have been consolidated into 'Unallocated
corporate and other.' In the second quarter of 2021, certain marketing expenses
previously reported within 'Unallocated corporate and other' were shifted to the
Americas , Asia Pacific , and EMEA segments. The previously reported amounts for
income from operations for the three and nine months ended September 30, 2020
have been revised to conform to current period presentation. See the 'Impacts of
segment composition change' and 'Impacts of marketing expense allocations'
tables below for more information.
(3) Unallocated corporate and other includes corporate support and
administrative functions, certain royalty income, costs associated with
share-based
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compensation, research and development, brand marketing, legal, and depreciation
and amortization of corporate and other assets not allocated to operating
segments.
Impacts of segment composition change:
Three Months Ended Nine Months Ended
September 30, 2020 September 30, 2020
(in thousands)
Impacts on income from operations:
Americas $ (6,334) $ (22,392)
Asia Pacific (1,683) (1,866)
EMEA (140) 2,550
Total impact on segment income from operations $
(8,157)
Unallocated corporate and other $ 8,157
$ 21,708
Impacts of marketing expense allocations:
Three Months Ended Nine Months Ended
September 30, 2020 September 30, 2020
(in thousands)
Impacts on income from operations:
Americas $ (2,734) $ (6,404)
Asia Pacific (2,223) (8,589)
EMEA (550) (1,408)
Total impact on segment income from operations $
(5,507)
Unallocated corporate and other $ 5,507
$ 16,401
The primary drivers of changes in revenues by operating segment were:
Three Months Ended September 30, 2021 vs. 2020
Volume Price (1) Foreign Exchange Total
$ $ $ $
Change % Change Change % Change Change % Change Change % Change
(in thousands)
Segment Revenues:
Americas $ 129,979 55.5 % $ 91,236 39.0 % $ 646 0.3 % $ 221,861 94.8 %
Asia Pacific 5,734 8.5 % 8,635 12.7 % 1,572 2.3 % 15,941 23.5 %
EMEA 22,118 36.9 % 3,553 5.9 % 699 1.2 % 26,370 44.0 %
Total segment revenues $ 157,831 43.6 % $ 103,424 28.6 % $ 2,917 0.8 % $ 264,172 73.0 %
(1) The change due to price for revenues is based on ASP, as defined earlier in this section.
Nine Months Ended September 30, 2021 vs. 2020
Volume Price (1) Foreign Exchange Total
$ $ $ $
Change % Change Change % Change Change % Change Change % Change
(in thousands)
Segment Revenues:
Americas $ 441,081 79.7 % $ 142,182 25.7 % $ 1,379 0.3 % $ 584,642 105.7 %
Asia Pacific 25,655 11.3 % 27,268 12.1 % 13,412 5.9 % 66,335 29.3 %
EMEA 83,835 43.2 % 4,540 2.3 % 13,026 6.7 % 101,401 52.2 %
Total segment revenues $ 550,571 56.4 % $ 173,990 17.8 % $ 27,817 2.9 % $ 752,378 77.2 %
(1) The change due to price for revenues is based on ASP, as defined earlier in this section.
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Americas Operating Segment
Revenues. Americas revenues increased in the three months ended September 30,
2021 , compared to the same period in 2020. Higher volume in both channels
contributed to the majority of the increase. This was driven by continued
increased consumer demand, which was due in part to negative impacts of the
COVID-19 pandemic on prior year wholesale and retail store revenues, including
traffic limitations in stores and reduced operating hours. Higher ASP in both
channels, mostly from price increases and less promotions, as well as favorable
product mix, also increased revenues. Favorable foreign currency fluctuations
were driven by the Canadian Dollar.
The increase in Americas revenues in the nine months ended September 30, 2021 ,
compared to the same period in 2020, was primarily due to higher volumes in both
channels, which led to a 79.7% increase, as a result of continued increased
consumer demand, partially due to the prior year impact of COVID-19 on our
brick-and-mortar stores, which further increased the disparity between the two
periods. Higher ASP also contributed to higher sales, mostly from higher pricing
and fewer promotions, particularly in our DTC channel, and favorable product
mix. Favorable foreign currency fluctuations were driven by the Canadian Dollar,
offset in part by unfavorable changes in the Brazilian Real in the first part of
the year.
Income from Operations. Income from operations for our Americas segment was
$232.8 million for the three months ended September 30, 2021 , an increase of
$132.0 million , or 130.9%, compared to the same period in 2020. Gross profit
increased $160.8 million , or 111.0%, as a result of the net impact of higher ASP
and AUC, of $86.5 million , or 59.7%. This increase was due to favorable product
mix, higher prices and less promotions, and efficiencies in our U.S.
distribution network, mitigated by higher inbound freight costs associated with
global supply chain disruptions. Higher volume of $74.1 million , or 51.2% and
insignificant favorable currency changes also contributed to higher gross
profit.
SG&A for our Americas segment increased $28.8 million , or 65.5%, during the
three months ended September 30, 2021 compared to the same period in 2020. We
continued to invest in marketing, which increased by $13.9 million compared to
prior year to support revenue growth in the region. Additionally, compensation
and other employee-related costs were higher by $7.2 million , due to increased
employee headcount in 2021, compounded by the prior year temporary and permanent
elimination of certain roles in response to COVID-19, facilities expense was
higher by $4.2 million primarily as a result of variable rent associated with an
increase in retail sales, and other net costs were higher by $3.5 million ,
mostly as a result of variable costs associated with higher DTC sales.
Income from operations for our Americas segment was $541.7 million for the nine
months ended September 30, 2021 , an increase of $349.7 million , or 182.1%,
compared to the same period in 2020. Gross profit increased $410.6 million , or
129.3%, primarily due to volume increases of $252.2 million , or 79.4%, in both
our wholesale and DTC channels, and higher ASP, supplemented by lower AUC, of
$158.0 million , or 49.7%, as a result of favorable product mix, higher prices
and less promotions, and increased efficiencies in our U.S. distribution
network. Immaterial favorable foreign currency fluctuations also increased
revenues.
SG&A for our Americas segment increased $61.0 million , or 48.6%, during the nine
months ended September 30, 2021 compared to the same period in 2020, due to an
investment in marketing of $32.1 million to support growth, higher compensation
and other employee-related costs of $20.4 million primarily due increased
headcount and the prior year temporary and permanent elimination of certain
roles in response to COVID-19, and higher facilities costs of $11.2 million
associated with variable rent driven by higher retail sales. Additionally,
higher services costs of $5.2 million and other costs of $4.5 million resulted
predominantly from variable costs associated with higher sales. These increases
were offset by lower donations of inventory of $8.3 million as a result of prior
year COVID-19 donations to frontline healthcare workers that did not recur in
the current year and lower bad debt expense of $4.1 million as a result of the
prior year impact of COVID-19 on our distributors and subsequent collections in
the current year.
Asia Pacific Operating Segment
Revenues.Asia Pacific revenues increased in the three months endedSeptember 30, 2021 , compared to the same period in 2020, as a result of higher ASP in both our wholesale and DTC channels, driven by price increases, fewer promotions, and product mix, and higher volumes in our wholesale channel driven by the prior year COVID-19 impact on our distributor markets, which further increased the disparity between the two periods. Favorable foreign currency fluctuations, primarily in the Korean Won and Chinese Yuan, also increased revenues. 28 -------------------------------------------------------------------------------- Table of Contents Revenues in ourAsia Pacific segment increased in the nine months endedSeptember 30, 2021 , compared to the same period in 2020, as a result of volume increases in our wholesale channel driven by the prior year COVID-19 impact on our distributor markets and ASP increases in both channels, as a result of increased pricing and fewer promotions. Favorable foreign currency fluctuations in the Korean Won, Chinese Yuan, and Singapore Dollar also resulted in higher revenues. Income from Operations. Income from operations for theAsia Pacific segment was$16.4 million for the three months endedSeptember 30, 2021 , an increase of$5.7 million , or 53.1%, compared to the same period in 2020. Gross profit increased by$15.2 million , or 41.0%, mostly from ASP growth, combined with AUC savings, of$11.5 million , or 31.1%, driven by increased pricing and less promotional activity, favorable product mix, and greater purchasing power from currency changes. Increases in sales volume of$2.4 million , or 6.3%, and favorable changes in foreign currency of$1.3 million , or 3.6%, led by the Korean Won and Chinese Yuan, also contributed to higher gross profit. SG&A for ourAsia Pacific segment increased$9.6 million , or 36.2%, during the three months endedSeptember 30, 2021 , compared to the same period in 2020, primarily due to an investment in marketing of$6.4 million and increases in facilities expense, compensation expense, and other net costs of$3.2 million . Income from operations for theAsia Pacific segment was$70.5 million for the nine months endedSeptember 30, 2021 , an increase of$40.6 million , or 135.9%, compared to the same period in 2020. Gross profit increased by$55.0 million , or 46.1%, most significantly as a result of higher ASPs and lower AUCs, on a net basis, of$36.7 million , or 30.7%, resulting from price increases and less promotional activity, favorable product mix, and greater purchasing power from currency changes. Favorable currency impacts of$8.7 million , or 7.3%, and higher volumes of$9.6 million , or 8.1%, primarily in our wholesale channel, also increased gross profit. SG&A for ourAsia Pacific segment increased$14.4 million , or 16.1% in the nine months endedSeptember 30, 2021 compared to the same period in 2020, primarily due to an investment in marketing of$11.8 million to support growth, an increase in facilities expense of$4.0 million associated with variable rent driven by higher retail sales, and an increase in compensation expense of$1.9 million . These increases were partially offset by lower bad debt expense of$2.7 million , primarily from net charges taken in the prior year in response to COVID-19, and prior year inventory donations to healthcare workers and other organizations of$1.4 million , neither of which recurred in 2021. There were decreases in other net costs of$0.8 million .
EMEA Operating Segment
Revenues. Revenues increased in our EMEA segment in the three months endedSeptember 30, 2021 , compared to the same period in 2020, driven mostly by increased sales volumes in our wholesale channel, which is both the result of higher demand for our products in the third quarter of 2021 and the prior year impact of the COVID-19 pandemic on our wholesale brick-and-mortar and distributor markets, which further increased the disparity between the two periods. Increased ASPs, driven by favorable product mix and price increases, and favorable foreign currency fluctuations in the Euro also contributed to higher revenues. During the nine months endedSeptember 30, 2021 , EMEA revenues increased compared to the same period in 2020, primarily due to higher wholesale revenue volumes resulting from increased product demand and prior year COVID-19 impacts, which further increased the disparity between the two periods, and higher ASP resulting from price increases and less promotions in our DTC channel. Favorable foreign currency fluctuations in the Euro, partially offset by negative fluctuations in the Russian Ruble, also contributed to higher revenues. Income from Operations. Income from operations for the EMEA segment was$27.0 million for the three months endedSeptember 30, 2021 , an increase of$10.9 million , or 68.1%, compared to the same period in 2020. Gross profit increased$15.7 million , or 52.6%, due mostly to higher volume of$10.3 million , or 34.5%. ASP growth and AUC savings together led to higher gross profit of$5.1 million , or 16.9%. This was driven by favorable purchasing power from currency changes, duties favorability, and favorable product mix, partially offset by higher freight costs from global supply chain challenges. Foreign currency changes, primarily in the Euro, were favorable, impacting gross profit by$0.3 million , or 1.2%. SG&A for our EMEA segment increased$4.8 million , or 34.6%, during three months endedSeptember 30, 2021 , compared to the same period in 2020, primarily from increases in marketing investments to support growth of$3.4 million and other net cost increases, including compensation expense, of$1.4 million . 29 -------------------------------------------------------------------------------- Table of Contents Income from operations for the EMEA segment was$100.4 million for the nine months endedSeptember 30, 2021 , an increase of$44.5 million , or 79.7%, compared to the same period in 2020. Gross profit increased$57.1 million , or 59.7%, due to higher sales volumes of$39.2 million , or 41.0%. Lower AUC and higher ASP resulted in a net impact on gross profit of$11.5 million , or 12.0%, as a result of favorable purchasing power, price increases, and fewer promotions, offset in part by higher freight costs from global supply chain challenges. Positive currency changes, primarily in the Euro, led to increases of$6.4 million , or 6.7%. SG&A for our EMEA segment increased$12.6 million , or 31.6%, during the nine months endedSeptember 30, 2021 , compared to the same period in 2020. Additional investments in marketing to support growth of$9.4 million , higher compensation expense of$2.6 million , and higher facilities and other net costs of$1.9 million were offset in part by$1.3 million lower bad debt expense.
Unallocated Corporate and Other
During the three months endedSeptember 30, 2021 , total net costs within 'Unallocated Corporate and Other' increased$17.6 million , or 31.8%, compared to the same period in 2020, due to higher services costs including consulting associated with supply chain investments and legal expenses of$10.1 million and information technology investments of$4.0 million . Higher salaries expense as a result of increased headcount and higher variable executive compensation was mostly offset by a variable compensation adjustment driven by the timing of business performance in the prior year, for a net increase of$0.6 million . Higher marketing and other net costs contributed$2.9 million to the increase. During the nine months endedSeptember 30, 2021 , total net costs within 'Unallocated Corporate and Other' increased$61.2 million , or 47.7%, compared to the same period in 2020, primarily driven by an increase in compensation expense of$36.5 million due to increased employee headcount and higher variable and executive compensation, higher services costs for consulting associated with supply chain investments and legal expenses of$18.1 million , and higher information technology investments of$8.5 million . These increases were offset in part by lower other net costs of$1.9 million .
Store Locations and Digital Sales Percentage
The tables below illustrate the overall change in the number of our
company-operated retail locations by reportable operating segment for the three
and nine months ended
June 30 ,
2021 Opened Closed 2021
Company-operated retail locations:
Americas 164 - - 164
Asia Pacific 142 12 - 154
EMEA 46 - - 46
Total 352 12 - 364
December 31, September 30,
2020 Opened Closed 2021
Operating segment:
Americas 165 - 1 164
Asia Pacific 137 19 2 154
EMEA 49 - 3 46
Total 351 19 6 364
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Digital sales, which includes sales through our company-owned websites, third
party marketplaces, and e-tailers (which are reported in our wholesale channel),
as a percent of total revenues, by operating segment were:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Digital sales as a percent
of total revenues:
Americas 32.8 % 30.8 % 31.2 % 38.9 %
Asia Pacific 38.1 % 42.3 % 37.1 % 39.0 %
EMEA 56.9 % 59.8 % 50.1 % 53.5 %
Global 36.8 % 37.7 % 35.5 % 41.8 %
The 2020 digital sales percentages were impacted to some extent by the COVID-19
pandemic, which increased digital penetration when brick-and-mortar stores were
closed during such time-frame. Nonetheless, we expect digital sales to continue
to increase going forward.
Financial Condition, Capital Resources, and Liquidity
Liquidity
Our liquidity position as of
September 30, 2021
(in thousands)
Cash and cash equivalents $ 436,601
Available borrowings 499,725
As of September 30, 2021 , we had $436.6 million in cash and cash equivalents and
up to $499.7 million of remaining borrowing availability under our Facility (as
defined below). We believe that cash flows from operations, our cash and cash
equivalents on hand, and available borrowings under our Facility will be
sufficient to meet our ongoing liquidity needs and capital expenditure
requirements for at least the next twelve months. We also intend to be
opportunistic with respect to our capital structure and our capital returns.
Additionally, in March 2021 , we completed the issuance and sale of
$350.0 million aggregate principal amount of 2029 Notes (as defined below), and
in August 2021 , we completed the issuance and sale of $350.0 million aggregate
principal amount of 2031 Notes (as defined below). A portion of the net proceeds
from the 2029 notes were used to repay the then-outstanding balance of $115.0
million under our Facility and the remainder of the net proceeds from the Notes
(as defined below) has and will be used for share repurchases and general
corporate purposes, which may include, among other things, working capital
expenditures and repayment of debt. See "Senior Notes Issuance" below for more
information. Further, in third quarter 2021, the Board approved a
$1,000.0 million increase to our share repurchase authorization. As of
September 30, 2021 , we had remaining authorization to repurchase approximately
$1,550.0 million of our common stock, subject to restrictions under our Notes
and Credit Agreement (as defined below).
Additional future financing may be necessary to fund our operations, and there
can be no assurance that, if needed, we will be able to secure additional debt
or equity financing on terms acceptable to us or at all. Although we believe we
have adequate sources of liquidity over the long term, the success of our
operations, the global economic outlook, and the pace of sustainable growth in
our markets, among other factors, could each impact our business and liquidity.
Repatriation of Cash
As a global business, we have cash balances in various countries and amounts are denominated in various currencies. Fluctuations in foreign currency exchange rates impact our results of operations and cash positions. Future fluctuations in foreign currencies may have a material impact on our cash flows and capital resources. Cash balances held in foreign countries may have additional restrictions and covenants associated with them which could adversely impact our liquidity and our ability to timely access and transfer cash balances between entities.
All of the cash held outside of the
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primarily used for the ongoing operations of the business in the locations in
which the cash is held. The repatriation of the $112.3 million , held in
international locations is not limited by local regulations.
Senior Revolving Credit Facility
InJuly 2019 , the Company and certain of its subsidiaries (the "Borrowers") entered into a Second Amended and Restated Credit Agreement (as amended, the "Credit Agreement"), with the lenders named therein andPNC Bank, National Association , as a lender and administrative agent for the lenders, which provided for a revolving credit facility of$500.0 million , which can be increased by an additional$100.0 million subject to certain conditions (the "Facility"). Borrowings under the Credit Agreement bear interest at a variable rate based on (A) a domestic base rate (defined as the highest of (i) the Federal Funds open rate, plus 0.25%, (ii) the Prime Rate, and (iii) the Daily LIBOR rate, plus 1.00%), plus an applicable margin ranging from 0.25% to 0.875% based on our leverage ratio, or (B) a LIBOR rate, plus an applicable margin ranging from 1.25% to 1.875% based on our leverage ratio. Borrowings under the Credit Agreement are secured by all of the assets of the Borrowers and guaranteed by certain other subsidiaries of the Borrowers. The Credit Agreement requires us to maintain a minimum interest coverage ratio of 4.00 to 1.00, and a maximum leverage ratio of (i) 3.50 to 1.00 from the quarter endedDecember 31, 2020 to the quarter endedDecember 31, 2021 , and (ii) 3.25 to 1.00 from the quarter endedMarch 31, 2022 and thereafter (subject to adjustment in certain circumstances). The Credit Agreement permits, among other things, (i) stock repurchases subject to certain restrictions, including after giving effect to such stock repurchases, the maximum leverage ratio does not exceed certain levels; and (ii) certain acquisitions so long as there is borrowing availability under the Credit Agreement of at least$40.0 million . As ofSeptember 30, 2021 , we were in compliance with all financial covenants under the Credit Agreement. As ofSeptember 30, 2021 , the total commitments available from the lenders under the Facility were$500.0 million . AtSeptember 30, 2021 , we had no outstanding borrowings and$0.3 million in outstanding letters of credit under the Facility, which reduces amounts available for borrowing under the Facility. As ofSeptember 30, 2021 andDecember 31, 2020 , we had$499.7 million and$319.4 million , respectively, of available borrowing capacity under the Facility.
Senior Notes Issuance
OnMarch 12, 2021 , the Company completed the issuance and sale of$350.0 million aggregate principal amount of 4.250% Senior Notes dueMarch 15, 2029 (the "2029 Notes"), pursuant to the indenture related thereto ("the March Indenture"). Additionally, onAugust 10, 2021 , the Company completed the issuance and sale of$350.0 million aggregate principal amount of 4.125% Senior Notes dueAugust 15, 2031 (the "2031 Notes"), pursuant to the indenture related thereto ("the August Indenture" and, together with the March Indenture, the "Indentures"). Interest on each of the 2029 Notes and the 2031 Notes (collectively, the "Notes") is payable semi-annually. The Company will have the option to redeem all or any portion of the 2029 Notes, at once or over time, at any time on or afterMarch 15, 2024 , at a redemption price equal to 100% of the principal amount thereof, plus a premium declining ratably on an annual basis to par and accrued and unpaid interest, if any, to, but excluding, the date of redemption. The Company will also have the option to redeem some or all of the 2029 Notes at any time beforeMarch 15, 2024 at a redemption price of 100% of the principal amount to be redeemed, plus a "make-whole" premium and accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, at any time beforeMarch 15, 2024 , the Company may redeem up to 40% of the aggregate principal amount of the 2029 Notes at a redemption price of 104.250% of the principal amount with the proceeds from certain equity issuances, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. The Company will have the option to redeem all or any portion of the 2031 Notes, at once or over time, at any time on or afterAugust 15, 2026 , at a redemption price equal to 100% of the principal amount thereof, plus a premium declining ratably on an annual basis to par and accrued and unpaid interest, if any, to, but excluding, the date of redemption. The Company will also have the option to redeem some or all of the 2031 Notes at any time beforeAugust 15, 2026 at a redemption price of 100% of the principal amount to be redeemed, plus a "make-whole" premium and accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, at any time beforeAugust 15, 2024 , the Company may redeem up to 40% of the aggregate principal amount of the 2031 Notes at a redemption price of 104.125% of the principal amount with the proceeds from certain equity issuances, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. The Notes rank pari passu in right of payment with all of the Company's existing and future senior debt, including the Credit Agreement, and are senior in right of payment to any of the Company's future debt that is, by its term, expressly subordinated in right of payment to the Notes. The Notes are unconditionally guaranteed by each of the Company's restricted subsidiaries that is a borrower or guarantor under the Credit Agreement and by each of the Company's wholly-owned restricted subsidiaries 32
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Table of Contents that guarantees any debt of the Company or any guarantor under any syndicated credit facility or capital markets debt in an aggregate principal amount in excess of$25.0 million . The Indentures contain covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to incur additional debt or issue certain preferred stock; pay dividends or repurchase or redeem capital stock or make other restricted payments; declare or pay dividends or other payments; incur liens; enter into certain types of transactions with the Company's affiliates; and consolidate or merge with or into other companies. As ofSeptember 30, 2021 , we were in compliance with all financial covenants under the Notes.
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