Crocs, Inc. (CROX) Earnings Call Transcript & Summary

I'm Jay Sole, UBS' retailing department stores and specialty sell-side analyst, and welcome to the UBS Global Consumer Conference. We are super excited today that Crocs is here to talk about their business and tell us a little bit about what's happening in the company. And representing Crocs today is Anne Mehlman, the Chief Financial Officer -- or sorry, EVP and Chief Financial Officer of the company. What we're going to do is a little Q&A session. It will be about 45 minutes. I'm going to start by asking Anne some questions. And then if you have questions that you want to ask Anne, definitely send them in via the online system. They will come to me and then I can post the questions to Anne. And really then that's how it's going to work out. So without any further ado, and, thank you so much for doing this today. Really appreciate you making the time.

Yes, glad to be here.

Great. So the first question, I wanted to start off, I know you guys are going to do an Investor Day in the fall. You're going to share your long-term kind of growth outlook there. But what do you think the drivers of top line growth will be for the company in a normalized environment, sort of once the pandemic is over?

Yes. It's a great question. So just looking back, and when we think about how we've gotten to where we've gotten. So we started -- company returned to growth in 2018 and then had double-digit growth in both 2019 and 2020, finishing out 2020 at almost 13% growth and similar growth rate to '19. And then this year, we've guided the company to be -- grow revenues between 20% and 25%. And what we think is really driving that this year is we've seen really the strength of the brand in the U.S. over the last couple of years, continuing to drive that to our Americas business driving strong growth as well as that strength is really spreading over to our EMEA region. And we're really seeing also strong growth out of Europe, Middle East and Africa, which is our EMEA region. And so that's how we think the growth will look this year. Also, from a channel perspective, really strong digital growth. We were -- 40% of our revenue came from digital last year. And we expect long-term digital growth, including this year. Looking out a little bit of a longer-term, we do expect all of our regions to grow in 2021, but we expect Asia to pick up post 2021. So accelerating 2022 and beyond, and that's really driven by China and our investment in China and us working really hard to kind of get that same strength that we're having here in EMEA into China, which we think will start in 2022 and beyond.

Got it. Okay. So maybe let's -- if we can, if we can dive into the China piece a little bit because investors have seen the remarkable growth in the United States that you referenced, also really building momentum in Europe. Can you just talk about the brand relevance piece because that's sort of been an unlock for the U.S. business? And can you create that same effect in China, and can you talk about some of the strategies and steps you're taking to make that happen?

Yes, absolutely. When we started kind of the repositioning of the brand, we started with the U.S., our home market, and that was really done on the back of, as you mentioned. We have never had a recognition problem. People knew, they saw our shoe, they knew it was Croc. That wasn't the problem. It's a relevance problem. In China, it's a little bit different, been in China for many years. But the brand really started in China as a male casual loafer brand. It doesn't have the same type of recognition around the clog that we had in the U.S. So that's good and bad because we had some negative connotations in the U.S. we had to overcome. And we don't have that in China. But certainly, repositioning the brand to really be in line with our core DNA of who we are, which is built on our iconic clog, and then our core molded product. And so our 4 pillars, which are clogs, sandals, Jibbitz or personalization and then comfort technology, which is our LiteRide franchise. So the last, I would say, we really started focusing on China, '18 and '19, we brought on a celebrity Yang Mi, who is one of the top celebrities in China as part of our celebrity campaign there. And unfortunately, we launched that at the beginning of 2020, right, kind of when COVID started to really have an impact in China. So she's signed with us for another year, excited to have that. And we think a lot of the things that have worked in the U.S. will also resonate in China, which is strong digital campaigns, connecting with our consumers and really repositioning the brand around those pillars. So that's I would say one of the other nuances with China as we go-to-market with partner stores. And so we have a few of our own stores, but we also have -- and we have obviously a strong digital channel with Tmall. But we have partner stores that own certain geographies. And so getting the right partners in those geographies and getting them to open the right stores to help reposition the brand is really critical to setting us up for success in 2022. And so that's what we're really working on this year.

Understood. So if we think about just kind of zooming back out to more of a 30,000 foot view. If you think about in a normalized environment, the growth rate in domestic versus international, can you give us some sort of broad brush strokes about how you think growth rates in those 2 -- from those 2 segments?

Yes. So for 2021, we think Americas and EMEA will drive strong growth and then Asia will grow but at a lower growth rate. I think beyond 2021, we still think there's growth in Americas, certainly EMEA. So I think from an international standpoint, we do feel like longer term, international will accelerate growth rates past what we're seeing in the Americas as the Americas starts to become more of a mature market for us. But we still think we have plenty of room. So I wouldn't comment on even whether that's 2022, but certainly longer term, we've said Asia is definitely one of our -- it represents our biggest opportunity. It's not just China, right? We have China. We have -- 3 of our main 5 markets are international. So the U.S. is one, and we have Germany. We have Japan, China and Korea. So those are all -- obviously, 3 of the 5 are in Asia. And so that's really key for us. I would say, also followed by India. India has covered strong growth for us. They were hit, I would say, in an outsized way by COVID. And so -- but we do expect them to recover this year and really drive growth going forward. So Asia -- China is the biggest opportunity, but Asia in general, really represents a big opportunity for the brand.

Understood. All right. So maybe let's focus on the U.S. for a second and maybe on that wholesale business. Always a lot of questions around a company's exposure to the various wholesale channels, the stronger ones, the weaker ones and sort of the ones in between. And so 2-part question. One is, where have you seen sort of the best growth by channel? And then going forward, what you -- how do you feel like your exposure is to sort of like the stronger channels? Maybe you can sort of delineate between like sporting goods or department stores or some of those, that would be super helpful.

Sure. So definitely, we've seen the strongest growth out of our, what we call our e-tailers, which sit in our wholesale channel. So that's in the U.S., it's mainly dominated by Amazon and Zappos. Internationally, Zalando is a big player. But I would say, globally, we've seen, in wholesale, growth last year was really driven by that e-tail business. And I would say in the U.S. and in other places where we have a multi-brand business, we're certainly focused on the family channel and the sporting goods channel. Those are our 2 main channels. And then as our consumers involved, we've added a few other wholesale customers where we think our consumer shops. So we added Journeys a few years ago, and then we just added Foot Locker and Finish Line last year. But from a department store standpoint, we don't do a whole lot in department stores. That's -- and where we do, it's mainly online. So we're much more focused on family and sporting goods, which we've seen really good growth out of both of those in the U.S., and our wholesale business grew very strongly last year after we kind of had the initial shock of the COVID shutdowns in Q2 and Q3; Q4, we had strong U.S. wholesale growth. So we expect that to continue.

Got it. And maybe let's talk about the DTC piece a little bit because, obviously, companies have remarkable growth online. But the company's had stores, still has stores, both outlet stores, full price stores. What's the strategy for stores going forward, maybe if we can talk about that piece first?

Yes. So about 50% of our revenue is what we consider DTC, about half of that e-com and half is retail in a more normalized environment. From a retail perspective, we have about 350 retail stores globally, that's down. Back when we restructured the business in '15, '16, we closed a lot of stores. So right now, our footprint looks like outlet stores mostly in the U.S., which are a great format for us, very profitable. So we feel good about those. And we've, obviously, been driving really strong double-digit comps for the last couple of years. And then outside of the U.S., we have -- the main kind of store base we have is in South Korea, which is really shop-in-shops. And those are a variable revenue model. So it's a rent as a percentage of revenue, also small footprint stores and very profitable. And then we have a handful of stores in Western Europe and some stores in Russia, then the rest scattered throughout Asia. So we're pretty happy with our retail fleet. There might always be normal close to business closures. Maybe a few will open, mostly in Asia. But we don't expect retail to be a big part of our revenue growth. It's really going to be outside of comp growth, and the DTC channel will really much more be driven by our e-commerce channel.

Got it. So -- and then maybe can you talk about your e-commerce channel a little bit, just about the type of -- I mean, this year is unusual year, but I mean, like going back, what kind of growth were you experiencing, what kind of growth do you think that channel can deliver going forward?

Yes. We have been -- it's a great question. We've been delivering double-digit e-commerce growth for many years. And we've been focused on that digital channel. I would say for the last at least 3 years and really building that out. And so how we think about our e-commerce business is our own dot-coms plus marketplaces. So global marketplaces where we sell direct to the consumer on somebody else's dot-com. So Tmall in China is a great example of that. But really, our strategy is we want to be where the consumer shops. And obviously, the consumer has pivoted strongly to digital. And we are a product that's very easy to purchase online. We're a low return, we're easy sizing, relatively good price point. So we think the consumer is used to interacting with us online. So really excited about our e-commerce channel. Obviously, we had huge growth last year, but we also expect to grow again this year. And we expect e-commerce to be one of the fastest-growing channels and drivers of our business in 2021 and beyond.

That's interesting. So even considering a huge online year last year, you expect online to grow again in 2021?

We do.

I mean that's -- really, it's powerful. I mean, so it sounds like and what you're saying is that the growth, there's geographic growth; really, there's a lot of online growth, both on the wholesale side and the direct side, not so much about stores and not so much about maybe new distribution or whatnot. I mean there is plenty of that maybe in new countries. But like I think people want to understand sort of like the driver of the growth of clogs, right? So you're into all of these channels, but sort of the idea to comp within those channels. What is the driver of comping in those channels? Is it bringing new customers into the brand? Is it selling people more colors, more styles, more of that? How do you see the growth of clogs and beyond just sort of the geographic opportunity?

Yes, I think it's both. And the interesting thing is that in 2020, we break down our revenue growth of almost 13%. 9% of that is actually ASP or pricing growth. So we did a lot of work, and we talked about that. I'm sure we're going to ask you about margins. So we can talk about that. But I think that's kind of missed. So it's not like we just over penetrated the market with units. So there's still -- we're clearly the market leader. We think clogs is about a $6 billion market. And we're the market leader. We think we've been growing that category as we've grown. There's still a lot of room for growth. We've definitely, with that relevance that we've driven, we've certainly brought new consumers into the brand, and we continue to bring new consumers into the brand as well as sell existing consumers more pairs. So through fresh prints, through fresh styles, our product team does an amazing job of figuring out seasonal colors and seasonal prints that will sell. Personalization. We've said our consumer that buys Jibbitz, which is our way of personalizing our shoes, those charms, is 2x -- has 2x higher lifetime value than one who doesn't. So that drives purchase frequency, that drives consumer engagement. So I think it's both about continuing to bring new consumers into the brand as well as selling more to our existing consumers. I think it's a combination of both. I would say also last year, we did the “Free Pair for Healthcare” initiative, where we brought a lot of either new consumers into the brand or consumers back to the brand. And so work is another area where we can focus on. That's a great -- our clog product is great for that area as well for utility play.

Understood. Maybe if we could talk about just sort of like the buying cycle a little bit. Because I think one thing I hear from investors a lot is, especially if someone who maybe bought their clogs as a guarding shoe maybe many years ago, and they've had it for a long time, and it's still in great shape. So they don't need a new one. They sort of don't understand, like, in the mindset of like a kid, and I have a daughter. She's 10, she went to summer camp 2 years ago, and she needed Crocs, and then she had to have a bunch of Harry Potter Jibbitz and then last year, now she didn't get to go to camp, but like, she needed different colors with Simpsons Jibbitz, and then she had a -- so there was like a whole thing about, like, it wasn't just like, obviously, kids grow up, but I think the idea was even if she hadn't grown out, she wanted new colors, she wanted new styles. Like, there was a fashion element to it. Can you just explain how people sort of buy crocs like they buy regular shoes? You buy them, you either wear them out or you just want new ones or fashion changes?

Yes, absolutely. I think it's the same thing with any kind of fashion or footwear, right? It's that we only needed one pair for utility, and we only replaced our shoes every couple of years and they wore out. That would be a problem for the entire industry. So yes, we definitely see people coming in and restocking. They need to have the seasonal fashion color, the seasonal print. People send us pictures of their clogs; you can see it on social, full of clogs. I mean, I don't -- I will say there is some built in obsolescence, especially in our fuzz-lined products. That's not something you're going to wear season after season. But even on our core clogs; I mean, as I said, our product team does a great job in driving energy. We had a huge sellout in our Strawberry Prince clog last year. That was all the rage. And people post this stuff, and it's about having the right color or it's not so much a utility-like I have a black clog, I wear it for gardening, and I'm going to keep it for 10 years. That's not the core customer we've really targeted. That's a great customer, but not those main of the brand. And then if I could, that's on the clogs side, and we have sandals. And the sandals consumer even purchase more frequently. So that tends to be female consumer. She is going to replenish her clogs every year with new seasonal sandals. And so that's the focus on sandals that we have. It's a huge market. Over a $25 billion market, somewhere between $25 billion and $30 billion for casual sandals where we play. And that's a great market because of the repetition and the amount of purchases. So that's another way we're going to market. Before last year, we had 3 years of double-digit sandal growth. Last year was a tough sandal season because of COVID and the pandemic, but that's a great market for us. We've had a $300 million plus sandal business for many years. So expanding that is also a big part of the growth story here.

And maybe, Anne, can you expand on that? Like, how are you going to revitalize the sandals business in 2021 and sort of going forward? Like, what do you see the potential of that business?

Yes. So one of the things I'm most excited about with our sandals business is the personalization that our product team has brought to our sandals. So we know what works really well in clogs. It's giving that consumer the ability to personalize it, and we've done that for sandals. So we came out with a slide and a 2 strap sandal, a slide being the one strap, looks like an athletic slide, but you can personalize it. So it really speaks to that younger Crocs consumer who's buying our clogs and personalizing it. And really get some into purchasing a sandal. We've also -- we talked about our consumer in 2 ways. So we have our feel-good consumer and our younger explorer consumer. We have a pretty good franchise build-out for our feel-good consumer, or mom consumer with 2 kids, me, basically, you know, who's going to buy sandals for herself, her kids and shoes for her husband. So I think we have -- there's 2 pieces of the growth. One is continuing to make product catering to her. And then the second is bringing our clog consumer, our younger consumer who's buying our classic clog to buying a sandal. So we started also to do some collaborations on our sandal last year, so you'll see more of that to bring that relevance to our sandals as well.

Got it. And I think, Anne, can you sort of clear up, I think there's a little bit of a misconception in the market about why the sandals business was challenged last year. I think there's some -- there's one school of thought about the sales were just missed because the sell-in for sandals having right at the peak of the pandemic when just things just weren't moving. And then the other part is, was there a product issue? Was there sort of like an acceptance issue of the product? Can you just sort of clear out like what happened and sort of what changes this year to really drive that sandals growth again?

Sure. Yes. We ended up -- so sitting here actually about this time last year, when everything was shutting down, we made the decision to cancel a lot of receipts. We didn't want to be stuck with a lot of inventory, we wanted a lean inventory, preserve liquidity and cash flow because we didn't know what it was going to look like. So we ended up canceling most of our sandal receipts from an inventory perspective, because at such a short selling season, we didn't want to be stuck with that. It's obviously higher risk. Our clog, we can sell year around. We know that, that's an evergreen product. So that's one of the reasons that it really exacerbated the sandal decrease, is we just didn't have the inventory. So this year, obviously, we have the inventory. We've invested in this new really personalized sandals. We have a couple of really exciting sandal launches coming up that I'm excited about. So we do think sandals will grow this year and might not take share from clog because the clog is so strong right now. But again, kind of like Asia, I think it's more of a -- it will grow this year and then accelerate in 2022 and beyond.

Got it. Okay. And maybe can we talk about Jibbitz for a second because I think Jibbitz are a curiosity to people because they're kind of fun, they're small, but it's like, it's not a high price purchase. Is Jibbitz's just about personalization and marketing and sort of getting consumers' attention? Or is it a sales driver?

It's not super material from a sales driver, although the business did double. And you can see in our ASP. So it's -- so financially, I would say it's more of a margin driver because $4 a jibbit roughly, and you add that to a $45 shoe, we have 26 holes, gets to be a nice shoe, right? And obviously, they are very profitable. But the thing that we love most about Jibbitz is that it does really increase the consumers engagement with the brand, brings them back, looking for new Jibbitz, they buy new shoes, right? It gives them that ability. It speaks to us, our DNA; and personalization is a global megatrend. We see it in all of our regions. And it really brings a lot of fun and excitement around our brand and a very kind of easy to understand from the customer perspective.

Got it. All right. And then I do want to ask about that fourth pillar. You mentioned at the top of the discussion about that innovation. Can you just tell us a little bit more about that, and every footwear company talks about innovation. Like, what does innovation mean to Crocs?

Yes. So innovation for us is a little bit different because innovation, like, most of our innovation is around color and graphic, obviously, because that's -- that drives a lot of our clog and personalization, right? But also innovation, we call it our 4 pillar is comfort technology. So technology is a huge driver of our overall revenue. But a couple of years ago, we introduced the LiteRide franchise, which is -- has a sandal and a clog and actually a pacer, so a tennis shoe that's molded. And it's a little bit lighter than our traditional classic. It's really soft, has a little more of a streamlined look. So where we think we can play when we see an area for visible comfort technology where we think there's a space in the market, we will innovate on that, right? And whether that be a pacer, that was actually a pretty good business for us, right? Or a different type of clog with different material, we will work through that. One of my favorite things is we took the LiteRide sole, which is really comfy, and we put it in a wedge, a sandal wedge in our Brooklyn franchise. So it's like walking on a pillow. So again, you'll see that in our sandals this year. We actually launched those last year. But I think that's what we mean by comfort technology. So it's not going to be as big of a driver as the other places. But we will continue to innovate there. And LiteRide is one of our top 10 franchises globally at this point. So we do think that it actually can be a key sales driver.

Got it. And then another question that just comes up, and then we're going to move maybe to gross margin in a second, but is that if you look back over the last 15 years of the company, company has tried a lot of different product categories, Mary Janes and all these different things. And company has made a very conscious decision to focus on the best products, the most loved products and to really drive that. It's been absolutely the right strategy. Do you see any need to sort of explore other categories? Or do you feel like that there's just continuing -- all the opportunity that you talked about, really can be driven by the 4 pillars that you mentioned?

I think 4 pillars encompasses kind of everything we make. There may be some accessories, things that we try that like in the spirit of charms. But I think that comfort technology, visible comfort, that's a pretty big category. That could go different ways. And we could experiment with that, as I said, a pacer. I think that the most important thing that we figured out is like, keep your icon hot; that matters, right? And build around what you're known for is clogs and then second is sandals because that's a huge, huge market, and we haven't even scratched the surface there. So let's focus on those first. And then to top up by personalization. And then as we explore, we can build into different comfort technologies and different franchises. So I wouldn't say it's an immediate area for us. We had a good flats business when flats were really on trend; that may come back. If we can do it in a fully molded way that really speaks for our DNA, then I think it's something that we're interested in doing.

Understood. All right. So maybe let's talk about gross margin because really, fiscal '20 was just an exceptional year. The gross margin expanded about 350 basis points. I think it was a 54.6%. And this is obviously despite a pandemic. And what do you think the drivers of gross margin going forward can be for the company?

Yes. So really, when we think about gross margin last year, it is really fundamental. So 3 major things: Pricing. We took price in 2019 on some of our key product categories, our classic in the U.S. and that flowed through in 2020. So that was one. Two is just pulling back on promotions and discounts. We kept our inventory really lean. And we offer a tremendous amount of value for our consumer. We're roughly $45 price point for our key kind of product. And that's a good price point. So we pulled back on discounting and promotions and that really supported. And then third is Jibbitz. That increase in our Jibbitz business, you add a few of those Jibbitz to your clogs and it becomes a margin enhancer. And I think those are all drivers going forward. We're not going to go backwards on price. I think there are areas around the globe where we still have opportunity to take price, especially as we see the brand continue to heat up. Jibbitz is great everywhere, but it's especially strong in the U.S. So as that gains strength overseas and continues to trend in the U.S., and then we will continue to manage our promotional and discount cadence. We're very focused on running lean inventories. We think we should turn around 4x a year, which is pretty good. And we don't need to discount to move our product or -- so I think all of those are continued drivers. I would say, a small headwind we have this year is really around just channel mix with our distributor business in Southeast Asia coming back. It's a little bit lower on the gross margin side, and we sell them at a bigger discount. But there's no SG&A really associated with it. So it allows us to leverage our SG&A, but it does create a small headwind on gross margin.

Got it. And then what about shipping and freight? Obviously, you talked about the tremendous growth online. How is that sort of figuring into your plans, both near-term and long term?

Yes. So I would say, inbound freight, so inbound from Asia to the U.S. and Europe and Asia to Asia is actually a lot higher. So we are seeing freight pressures, inbound pressures. I don't know if those are short term, long term, but certainly, we are seeing those. Right now, that's offset by a weaker U.S. dollar than what we've experienced in the past 18 months. And so for us, when we have a weaker U.S. dollar, and we sell in local currencies around the world, it helps strengthen those margins. So we're seeing those freight pressures offset by currency largely at this point in time. From an outbound freight side, so e-commerce, that's a variable cost associated with e-commerce. So our e-commerce business is really profitable. We sell it at full retail. And that's just a piece of selling yearly e-commerce business, but not huge pressures on the outbound side at this point.

Got it. Understood. Maybe if we talk about mix, this year, obviously, is a little bit of a snapback type of year. But going forward, I mean, would you expect mix in terms of channel mix being direct consumer channel versus wholesale channels to be something that drives gross margin in a positive way?

As e-commerce, it depends on how we grow, but certainly, digital has a very high gross margin. So if you grow your e-commerce business the fastest and you take share from your other, then you're going to mix up gross margin, has a little bit more SG&A associated with it. And on a variable side, but it's all variable. So from an operating margin standpoint, we say that we're pretty agnostic regardless of what margin -- or what channel we sell-through because they're all profitable. But yes, I would say if e-commerce takes share from wholesale in the longer term, then gross margins will -- that will obviously be a tailwind to gross margins.

Understood. I guess, another question that I hear a lot, and I think it's a good one, is just -- you mentioned that a clog is $45, which is a great value. If you think about it, you get a lot of cool for $45, a lot of fun. But the company is a mid-50s gross margin for a product that I want to cost $45 is something that I think people will stretch ahead a little bit. What's the key there? How are you able to drive such a great gross margin even though it's a pretty low-priced product in the grand scheme of things?

Yes. I mean our product, that was one of the reasons to focus on the clog. It's our most profitable product category. Sandals are pretty profitable too because it's molded silhouette. So our molded products, when we chose to focus on that, it's much more profitable than us trying to do a leather boot. There's not as much flavor in a molded product as there are in stitched and sewn products. So yes, it's a very profitable way of making shoes, I guess, I would say.

And are those shoes, can you talk about like the manufacturing footprint, like the partners that you have, like are they all based in China? Are they all over the world? Like, maybe just tell us a little bit about the sourcing model.

Yes. We have partners all over the world. The majority of our product actually comes out of Vietnam. We're less than, I think, around 10% China sourced. So China and Vietnam, we have some manufacturing in Indonesia, and then a little bit of like closer to market manufacturing in Mexico, Brazil and Bosnia. But majority is actually out of Asia and Vietnam.

You talked about turning inventory 4x a year, which is a pretty high number for a footwear company, obviously. Can you just talk about how the product lends itself to possibly being able to turn faster just because if there's -- you have this one thing, and you make it very efficiently, what does it mean to have that one product and to be able to sort of allocate the right place at the right time?

Yes, I think it is actually helpful because we don't have that long of a tail, right? Our SKUs are very focused, and we've done a lot of work around that. And so that allows us to be really efficient. I would say also our distribution model allows us to be efficient, right? So we're more e-comm or less retail. So we don't have to hold as much in our retail stores. Our distributor models, right, they pick up from factory. It's very efficient from most -- some of them pick up from factory are like we ship to them in mass quantities. So I would say our inventory model is very efficient as well.

Is there an element of the fact that the -- you want to turn inventory faster, you want to deliver it sooner. But at the same time, if maybe if there's a slowdown for whatever reason may be macro, whatever, the product still sells because it's a clog, it's one color. People are familiar with it. Like, there's just -- your ability to sort of maintain price and not do those promotions, is sort of a byproduct of, like, it's a product people are very familiar with. It doesn't change that much season to season.

Agreed. I think it's -- I think going back to what we saw during the pandemic is that we were able to -- that's why we cut sandal receipts because our clogs, we know that we can sell it. It doesn't -- there may be some seasonal colors and prints, but those are smaller, the evergreen nature of our products makes it easier from an end-of-life cycle, right? We don't have a ton of that. You can -- so yes, you can maintain and you can hold on to it. We don't love to do that because it's not super capital efficient. But yes, you can now, right? And then you don't need to liquidate it because it's going to return the next season because we have a great deal of carryover.

Does it allow you to take maybe a little bit more inventory in terms of offering more choices and having more in stock -- higher in-stock levels and different sizes just because, like, there's a little bit less fashion risk to it than maybe some other shoes might have?

Yes. I would say theoretically, yes. I think our sales growth has been such that it's been difficult to do that a little bit, and we've been stocked out. So we've worked really hard this year to get to a better in-stock position, particularly on our own e-commerce. And we also don't want to be -- there is some type of scarcity that matters and making sure that we don't just have too much product into the market regardless of the product. So we're very careful on how much we sell-in and how much product we have in the market at one time.

Understood. All right. So maybe if we can talk about expenses for a second because obviously, you made dramatic improvements in operating margin over the last couple of years. I think last year is 18.9%. Can you talk about some of the drivers of SG&A going forward? And do you think that 18.9% is a sort of a sustainable level of operating margin?

Yes. While we haven't guided long-term operating margins, we have said that we do think our operating margins are pretty sustainable because we've said our gross margin is pretty sustainable. And where we should be able to leverage SG&A, we do need to believe that our operating margins are sustainable. I think from us, the investments we're making are really to support the business. So the investments we're making are continued investment in marketing. I think we have really effective marketing. So whether that be collaborations or however social and digital influencers or social and digital marketing, we will continue to invest there. But we have 100% digital marketing, so it is scalable, and we can pull back and invest more as we see the business going. So that's maintained pretty consistently around 6.8% of sales. So that's been easily scaled with our revenue. I think the other big pieces that we're investing in are really on digital capabilities and thinking about continuing to transform our business from the digital side. So that's an investment piece. China, obviously, we talked about, and that could be in forms of capabilities, marketing and just building out that market. So I would say those are the big investment pieces. And then sandals. Continuing to innovate around sandals. So that's very in line with our strategic initiatives. But again, we still feel like as we continue to grow and especially in Asia, where we have some subscale markets as we continue to grow, we can leverage SG&A. You can look and see what we've done in our U.S. or Americas business. And as we've really grown that revenue, we've really been able to leverage our cost base.

Understood. So maybe if we can focus on marketing for a second because I think people are blown away by the success of the marketing campaigns and the collaborations and the price of some of the stuff on StockX and some of these resell websites they've seen for Crocs. It's really been phenomenal. I guess that, to your point, I mean, you mentioned how much marketing is, but it's pretty efficient spend. And I think you increased it like $10 million this year, and then it's not a big number on the grand scheme of things, given how much your revenues are. Is -- when it comes to marketing dollars, is there a view that more is better? Or is it really that just the nature of marketing these days, being social media driven, it's not about the money you spend, it's about how you spend it. I mean, what's your view on that?

I think it's a combination of both. I'm a little biased. I think we have the best marketing department, I really do, which is not normal for a finance person to say or a CFO. But I do think that you can be very efficient because it's digital. So we can measure, especially, while there's e-commerce marketing, right, the performance marketing, which we can measure on return on assets very easily and pull back and add more if we want to. The collaboration is one of the best kinds of marketing because it's almost like self-funded marketing, right? It's not a huge amount of revenue you're driving. You're driving way more buzz than you are revenue. But it's still self paced for itself, right? Because you're selling shoes. So the collaboration markets are efficient. But I don't think spending more is better. I think it matters what you're spending on it being very, very targeted. So we actually do manage our return on assets as well as thinking about are there areas where we might want to lose some things up to either bring in more customers to the brand and how do we think about top versus -- top of the funnel versus bottom of the funnel in all of those, those exciting things. So I don't think more is better, but you certainly don't want to starve your marketing.

Got it. I guess maybe what I was -- now that I'm thinking about your answer, is, call it, if it's $110 million that the company spent last year on marketing, is the company able to sort of say, yes, to all the things that it believes can drive a high return? I mean, obviously, one company can only do so much. It can't do everything. I mean there's so many people at the company. But like, I mean, do you feel like your budget is such where, like, you're going to say, look, there's 8 things we can do. They probably would all work. We're only going to do 4 because that is our budget, and that's just the way we're going to do it.

No. I would say we're a little bit looser than that, while managing on an overall bucket. Like certainly, if we have extra investment dollars to hold out, we will see what marketing comes up with for programs and say, what's not going to drive; yes, we think we should do that. But certainly, I haven't seen an amazing marketing idea come up that we're like, no, we're going to hold to our budget and not going to do it. I think if we think it drives long-term value of the brand, we will definitely look at it. And you've seen us do some of that. We've taken some risk on some of our bigger collaborations, and they've been really successful.

Got it. I guess just one to follow-up on that point about collaborations. Like, when you get a big celebrity, like a Post Malone or somebody like that to do a collaboration with the brand, I mean, obviously, like, it's -- is there typically those licensing, like, the celebrity might get a royalty out of something? Or like, is it just like it's the brand image that you want? It's not so much the sales that drive it? Like, how do you sort of manage that? Like, Nike has a lot of contracts with athletes, you can -- teams and leagues and whatnot. I mean, do you take the same approach with some of the celebrities that you work with?

Yes. It depends. But most of the celebrities are for -- contracted for like certain drops. We try to contract with people where it's authentic to us. So it helps them as well. And that's -- I think that matters from a collaboration perspective, you need that authenticity. So it's usually some type of design fee plus like a royalty for a few. It's kind of how those work out. And you usually contract for 1 or 2 drops, it's -- they're not long-term contracts.

Got it. Maybe if we talk about the -- a little bit about balance sheet for a second. CapEx, the company has not required a lot of CapEx relative to a lot of other companies, not a lot of plans for stores in the plan going forward. What do you see as sort of the CapEx needs of the business in '21 and beyond?

So when we talked about investment earlier, we certainly talked about SG&A. The other place we're investing is in our operations to support our digital transformation. And that in operations, that looks like it's a little more intensive to fulfill e-commerce. So we are investing about -- we guided roughly around $115 million of CapEx into our distribution centers around the world. Those are in EMEA. We're relocating it, automating it and upsizing it. So that -- it's our most digital business. 60% of our business last year in EMEA was digital. So we need to do that to support that business and then continuing to invest in our Ohio campus. So certainly, investing this year. Last year, we invested $40 million, and that was a lot of the same -- similar distribution center investments. Going forward, we have guided long term CapEx. What we said, though, is like on a replenishment basis, it's like $30 million to $60 million depending on how fast the company is growing. That's how to think about CapEx.

Got it. Okay. And then maybe if we can talk about cash uses, and there's a couple of questions from the audience I'll ask. Obviously, the company is generating a tremendous amount of operating cash flow. And obviously, you just mentioning what the CapEx needs are. I think last year was like almost -- over $250 million in operating cash flow. What do you see is sort of like the next uses for free cash after CapEx?

Yes. I mean, obviously, we'll pay down -- we finished last year, like $180 million of debt outstanding on our revolver. We just did an accelerated share repurchase of $125 million that we finished in January, we announced in our last earnings. So those are both areas, so pay down debt. And we tend to at least do -- our anti-dilutive share repurchases are like between $40 million and $50 million. And then so we'll invest in the business. But beyond that, we do think that we have an active share repurchase authorization of around $350 million for our Board, and that's been a relatively good use of capital. So we will continue with that program as well.

Got it. Okay. So a couple of interesting questions from the audience, and if you don't mind.

Sure.

One is just about the customer, obviously, we talked about kids. I talked about my kid, but I think this question is about the core female consumer and the core male consumer, who is the prototypical adult Crocs consumer?

Yes. So we talked about them in 2 ways, right? So one is our feel-good consumer. And she's like -- I think we call her 35 to 50. She's your young -- she's your mom, I would say young mom, very young mom. Young mom, buys for herself, buys for her kids. She may be a little bit more suburban, she's also our sandal consumer. And then our younger consumer is more -- we used to say like around 25 to younger. And now it's more like 15 to 25 because we've seen that teen customer really be engaged. And she tends to be a little bit more urban. She's going to buy for herself. She's going to be a little bit more fashion, but also comfort focused. That's our big driver of our personalization, right, and our Jibbitz purchases. And then we'll say we're starting to see that also with that younger male consumer as well. So we actually have a really democratic consumer base because we sort of sell all over the spectrum, right? We have our work customer, we have our younger customer, we have our mom customers. So we have -- because our mom also -- one of the reasons we saw the younger kids coming back to the brand, one of the reasons we think is that a lot of these kids, it was their first shoe. Easy on, easy off. Certainly, was my kid's first shoe, right? And now so it might be weird for some of us to put a plastic shoe on her foot. They come back to the brand as teenagers, and it's very normal for them.

Got it. All right. So then one more -- maybe we'll do 1 or 2 more questions, and then we'll be out of time here. But some -- I think you mentioned return on assets, something that you look at when you think about different investments, like, is there a financial metric that you manage to, whether it's ROIC, ROA or something or sales growth or EBIT dollars, is there something that's important to the company that you're focused on?

All of those. Yes. I mean, we manage our marketing spend on, like, return on assets and both variable. Yes, we certainly manage return on invested capital and EBITDA. I think EBITDA is certainly important to us because free cash flow is important to us, and that's a huge part of who we are as we are able to spend our free cash flow. So I would say we measure a number of different financial metrics. Then I think we've proven that we've been able to kind of drive all of them successfully in the last 3 years.

Got it. And I guess the -- maybe one more question. I think this will be it. But can you just talk about the -- someone asked about the collaboration pipeline and the marketing pipeline for this year. I'm sure there's some trade secrets in there that you don't want to -- have big launches, big aha moments. But can you share with us a little bit what the company has planned to kind of keep the momentum going, particularly in the U.S., given that it's going to be a big year and got relax and stay at home and work from home type of stuff? What can you tell us about the pipeline for this year?

Yes. So marketing doesn't tell me anything. Even though I'm their biggest fan, they don't talk to you guys. But no, I think -- look, I think we're really excited. Last year, we delayed a lot of our big celebrity collaborations to the back half of the year. We did a lot in the back half because during the beginning, it was COVID and then we did our free healthcare for health care program that had absorbed everything we had. So this year, it will be more spaced out. So we have some exciting ones coming up, stay tuned. I think they'll be equally as exciting as they were last year. We have a full pipeline. We're actually working on like next year, trying to fit in for 2022 at this point. So 2021 is fully baked. I think it is important to do them in the U.S., and we're really excited about that. But you'll also see us do some more overseas because that is also important to lay that groundwork and foundation. So stay tuned. And we just did really neat one, that was our Lucky Charms. Collaboration, it was Jibbitz, it's sold out. But if you missed it, that was pretty well. So that kicked off our year this year.

Was that something that was like a global launch? Or was that -- are you doing things sort of by geography?

Yes. Everything is by geography. There's some we do globally, like our big ones, Justin Bieber, we did globally. But we just did a small one with -- I'm going to mess this name, he's Valdimir, and he's a French DJ, but he's Russian. I don't know. We did a Russian collaboration with Vladimir. They were very cool, and we did that in the beginning, and we did launch that in the U.S. So we do do them regionally. Some -- the big ones we do globally and then we look at regional ones as well.

Why don't we stop there? I think that's a great stopping point. Anne Mehlman, thank you so much for doing this today.

Thank you.

Really appreciate your insights. That was a lot of fun. And then I also want to thank everybody who logged in and listened to the conversation. If you want to discuss in further detail, definitely reach out. And with that, everybody, I hope you have a great rest of the day and see you at the next session.