Skechers U.S.A., Inc.
Q4 2020 Earnings Call Transcript

Published: 4 Feb 2021

[Operator:]

Thank you for standing by. This is your conference operator. Welcome to Skechers Fourth Quarter 2020 Earnings Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Skechers request that analysts limit themselves to one question and one follow-up question only to allow all analysts to have the opportunity to ask questions. I would now like to turn the conference over to Skechers. Please go ahead.

[Unidentified Company Representative:]

Thank you, everyone, for joining us on Skechers conference call today. I will now read the Safe Harbor statement. Certain statements contained herein, including without limitation, statements addressing the beliefs, plans, objectives, estimates or expectations of the company or future results or events may constitute forward-looking statements that involve risks and uncertainties. Specifically, the COVID-19 pandemic has had and is currently having a significant impact on the company’s business, financial conditions, cash flow and results of operations. Such forward-looking statements with respect to the COVID-19 pandemic include, without limitation, the company’s plans in response to the pandemic. At this time, there is significant uncertainty about the duration and extent of the impact of the COVID-19 pandemic. The dynamic nature of these circumstances means that what is said on this call could change at any time and as a result, actual results could differ materially from those contemplated by such forward-looking statements. Additional forward-looking statements involve known and unknown risks including, but not limited to, global, national and local economic, business and market conditions in general and specifically as they apply to the retail industry and the company. There can be no assurance that the actual future results, performance or achievements expressed or implied by any of our forward-looking statements will occur. Users of forward-looking statements are encouraged to review the company’s filings with the U.S. Securities and Exchange Commission, including the most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all other reports filed with the SEC as required by federal securities laws for a description of all other significant risk factors that may affect the company’s business, financial conditions, cash flows and results of operations. With that, I would like to turn the call over to Skechers’ Chief Operating Officer, David Weinberg and Chief Financial Officer, John Vandemore. David?

[David Weinberg:]

Thank you for joining us today for our fourth quarter and year end 2020 conference call. I hope you, your colleagues, and loved ones are staying safe and healthy. Before we begin, I would like to thank the Skechers global team for their dedication and resilience this past year as we faced such incredible challenges. We couldn't have weathered the storm in such good shape without all your hard work. Many countries faced another surge of the pandemic in the fourth quarter, which negatively impacted businesses around the world, resulting in temporary store closures and reduced traffic. Even with the ongoing health crisis and challenges, Skechers experienced growth in several of our segments and meaningful improvements in key countries.

[John Vandemore:]

Thank you, David. 2020 was an extremely challenging year and the fourth quarter was no exception. Multiple markets continue to experience significant operating restrictions, including store closures and reduced operating hours. Despite this, the Skechers brand performed exceptionally well with encouraging sell-through and strong gross margins. In addition, the Skechers organization continued to effectively navigate the uncertainty of this environment, while making investments for the future. While we expect similar challenges to continue for at least the first half of 2021, we are confident that the strength and resilience of the Skechers brand and the execution of our growth strategy focused on expanding our international footprint and increasing our direct-to-consumer relationships will deliver shareholder value. Now, let's turn to the fourth quarter results. Sales in the quarter totaled $1.32 billion, a decrease of $6 million or half of a 0.05% below the prior year. We believe that this is a notable accomplishment when considering both the current operating environment and last year represented a fourth quarter sales record for the company. On a constant currency basis, sales decreased $33.5 million or 2.5%. Domestic wholesale sales increased 1.2% or 3.5 million, fueled by broad strength across customer types and encouraging consumer sell-through in multiple categories.

[David Weinberg:]

Thank you, John. A year ago, Skechers achieved a new fourth quarter sales record, while the brand and business trends across all segments were exceptionally strong. Now as we continue to face challenges due to the ongoing health crisis, our fourth quarter sales increased only a 0.5% to 1% from the prior year record. This important accomplishment was the result of the continued demand for Skechers product, the diversity of our distribution model, and our efforts to drive value by maximizing revenue and efficiently managing inventory. Skechers brand strength was most notable in our online business with strong triple digit growth, as well as meaningful growth in our domestic wholesale business, and in many of our biggest international markets, including China, Germany and the United Kingdom. We continue to see our products resonating with consumers with comfort, value and style at the forefront of our product design. We are a key footwear brand during these difficult times. We have an exceptionally strong balance sheet and ample liquidity both important to our success in the quarter and to position ourselves for future growth. Our backlogs have improved across many distribution channels, a positive sign for many countries. We believe our business will continue to be impacted by the global pandemic in the first half of 2021. Though we are cautious through the global health crisis, we remain confident in our strategic initiatives, the relevance of our brands and our efforts to develop new product innovations and the many opportunities for growth in both the near and long-term. Now, I would like to turn the call over to the operator for questions.

[Operator:]

Our first question comes from line of Jay Sole from UBS. Please proceed with your question.

[Jay Sole:]

Great, thank you so much. So my question is, just on the timing of the recovery as you know the world reopens as you see it, and you're talking about the first half of the year will still be impacted. Can you give us a sense of sort of why that is, like if maybe the vaccine gets spread out or distributed sooner and things are back in April and May, would that create an opportunity for second quarter or is there sort of a limitation on inventory and lead times that sort of constrained the ability to have a type of first half of the year that would be more similar to a normal year? Hello.

[David Weinberg:]

Sorry, we were on mute. I'll start all over again. Sorry, but we don’t know any more than anybody else about the vaccine or the state of the pandemic. Actually, I should play, we should record that. Anyway, but given that January started off still under significant closure and we've had closures in Europe which are our are all going through at least January and most of February, that the first half would be a good guideline to try before we can come out at full strength. What we did see in the last time we came out of the pandemic was very strong resurgence. So that would lead to the fact that certainly if it opens quicker and retail opens in full quicker around the world, that we would have substantial opportunities to be significantly ahead of where we are. I mean, if you think about it, we weren't down that much in the fourth quarter and we had a significant hit from distributors that would have made for a very strong quarter even if they had broken fairly even. The impacts we have on inventory are no different than anybody else while we think we're doing as good a job of better than most. We still have issues with the port that we anticipate with cleanup shortly. Some issues in England getting some product in because of the new prior rules, but other than that from a production facility and managing the inventory we don't have anything out there, that would preclude us from having a very strong recovery even as early as the second quarter, should open up significantly.

[Jay Sole:]

Got it, okay. And then, and then one more, just on the G&A, I'm interested on we should think about, I missed it and how we should think about G&A a year from now. You know a lot of companies to the pandemic have done, hundreds of millions of cost cuts, and obviously, some of that probably has come back next year as stores reopen and things like that. If you think about G&A next year, how much actually has come back into the P&L in four Q of next year, given some of the adjustments that have probably made this year or would you say that this year, this quarter was more like a normal G&A quarter, and you know there's not a lot of excess that we have to be re-added in next year, when we get to four Q of 2021?

[David Weinberg:]

Yeah, I think, when you think about G&A and you think about the shape of the recovery and even this quarter is a good example. I mean, if you think about our retail business while we've taken aggressive action there to reduce variable costs where we can, we still can't reduce fixed costs like rent and depreciation. So even in this quarter you're seeing a struggle between the businesses that can't leverage as well as they historically would have and others were clearly making up that sales gap. As you look forward into next year, I would just caution that while we see very good line of sight into a top line recovery, we obviously saw great health in many of our businesses. This quarter the operating margin side of that is going to lag a bit. We need retail to get back to a point where it's leverageable, there are it's hard to people to believe, but there are a lot of costs that we took out this year. In fact, this is the first quarter since the lockdown where we saw G&A grow. So there's some costs that need to come back, some compensation incentive compensation that went out entirely, some labor that went out entirely this year. So what I would expect is, it will be a little stickier getting back to norm on the operating margin side, largely because of our inability to leverage, retail G&A and even to a degree the distributor flow through that would normally leverage, our G&A spending. So over the course of the year we expect that to get progressively better, but we do still think that we'll trail in 2021. In 2022 assuming retail gets back to its leverageable point, things will look a lot better. The only additional element I would caution for next year is as we noted we went ahead with several really important investments in our infrastructure. We added a distribution center in the UK. We expanded distribution in a lot of other jurisdictions. We have finally our China distribution center will likely go online this year. So we are going to see a little bit of headwinds from the introduction of those increments early on until they get up to peak efficiency, which is tough to do in the year in which they open. So there will be a little bit of an added drag next year owing to those investments, but once we get beyond that, that early operation, that's when we expect those to also contribute leverage and drive operating margin opportunity.

[Jay Sole:]

Got it. Okay, thank you so much.

[Operator:]

Our next question comes from the line of Laurent Vasilescu with Exane BNP Paribas, Please proceed with your question.

[Laurent Vasilescu:]

Hi, good afternoon, and thank you very much for taking my question, and as well as congrats on the momentum. John and David I got to ask you, Europe was up 23%, yet the region was locked down for most part for a lot of brands. May be could you just parse out what drove that, and how do we think about that momentum going into one Q, and then conversely, your China number was really strong in 4Q. It looks like you'd get about $900 million plus in China revenues for the full year. How do we think about China revenues for 1Q, considering it was cut in half last year in 1Q '20?

[John Vandemore:]

Well, from the European side, if they had a very strong fourth quarter, because they opened up very strong, the first time that stores opened, and I think we picked up significant market share, and that carried all the way through the fourth quarter. As they started to close down in the fourth quarter and even through January, we haven't seen significant declines in our wholesale business, because I think we sold through so well that most of our customers, the larger ones certainly have continued to take product knowing that when we open up, when they open up, we will be a strong contributor to a strong opening, and they didn't want to be behind inventory, they chased it for quite a significant period of time when we came open last time. So that was a positive, and it's positive pretty much across the board there. We've had great showings in almost every country, but they were all, all but a couple small ones were positive for the quarter, even with a close down. So that shows you the strength of the brand there and the fact that people are counting on us when we open and are not willing to take that inventory risk again. Now, the reason there's no guidance is because that still has a limitation depending on how long they're closed. We hope they open on schedule, mid to end February, early March at the latest, which would give a significant chance to continue to supply and sell through quickly going into the spring season.

[David Weinberg:]

Yes, and in terms of China next year and I think this actually applies to the totality of our businesses, we're not really looking at growth relative to 2020. There's a few isolated instances where that makes sense. But we're really looking to get beyond quite frankly, ’19. I don't want to get into specifics by country. But, suffice it to say, we have very optimistic views about where we can take the brand in China that really won't update as we look forward to next year. The pacing of it will be a little bit odd because there was in fact a pretty significant shutdown, beginning in Q1 last year in China. So those numbers in Q1 are going to look a little outsized. But I think what you're seeing is, you know, continued growth of the brand in the market, and that gives us tremendous optimism about where the brand can go, both next year and beyond.

[Laurent Vasilescu:]

That's very helpful. And then maybe, as a follow up question, gross margins, John, they were strong across the board across the three segments. Can you talk about what drove that? Was it driven by e-commerce? How much was e-commerce as a percentage of your overall sales for the year? And then how do we think about the gross margin high level? I know, you're not giving guidance, but we kind of see that momentum continuing to 1Q?

[John Vandemore:]

Yes, so again, when we look into compares versus last year and 1Q is a good example of that, there's a lot of noise. It is probably the best way to describe it. I would say with regard to the fourth quarter, what we saw in the gross margins is exactly what we mentioned in our script. We saw good full price sell through. We saw strong contributions from e-commerce, which is a bit creative at the gross margin line for us. And we had a higher proportion of international wholesale that excluded distributor sales. Distributor sales tend to be very high flow through for us, but they do carry a lower overall gross margin. As we look forward, I believe you'll see things normalize a bit more toward, what I call the kind of a 2020, normalized level or 2019. We will get some benefits from increased contribution from retail, from international because China will be back. We are though seeing a few headwinds in terms of product costing, landed cost and shipping in particular, are out there as life concerns for us. So, we're going to moderate our view, and probably point towards stability against the normalized margin versus any significant increases because we won't be getting as much as a mixed benefit.

[Laurent Vasilescu:]

Okay very helpful. Thank you very much, and best of luck.

[John Vandemore:]

Thank you, Laurent.

[Operator:]

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

[Kimberly Greenberger:]

Great, thanks so much. I wanted to ask about just the way you understanding you're not giving revenue guidance for 2021 today, how should we think about when revenue would look more normal the way it would have back in 2019, is and what are the necessary conditions for that? Is it vaccine rollout and consumers, behaving and shopping normally, how were you thinking about it internally in order to develop your expectations on what the revenue path this year might look like?

[John Vandemore:]

And I'm actually very encouraged by the revenue path, I think last quarter; this quarter shows you that the brand still has tremendous opportunity to grow on top line basis. I mean, obviously, the key headwind at the moment is, as David mentioned earlier, the closes, the close downs, we've seen government mandated restrictions on operating hours in the retail business. That's been the most significant headwind, that impacts us directly in our direct-to-consumer channel, it's obviously had a pretty significant impact on our distributors and their market. So that really is the biggest swing factor. I would say, as you look at our opportunities relative to growing kind of against the '19 baseline, we're actually pretty encouraged about our opportunities per year to definitely get beyond that. But it will be influenced by, continuing lockdowns should they occur, or continuing restrictions on operating hours and foot traffic, which has been, certainly in a lot of instances in particular mall locations been significantly diminished.

[David Weinberg:]

I'd like to add, I think what it shows here, I am also very confident and what we can do that I don't believe it would take significant push; we just need to be able to get to our consumers. If you go through the results as we give them, you would see, because there's only one half of 1% decline, those places that were open have gained market share and have increased to the point that it could take care of significant store closures of our own and a big piece of our business with the distributors. And we don't need them to come back 100% to start getting back to a growth pattern. I personally believe that we would outstrip the growth patterns we saw through 19 and before because of the demand we've seen in those places that are open. And do I personally anticipate that would be followed in all the places that are going to open.

[Kimberly Greenberger:]

Right, yes, the revenue resilience really was very much very well showcased here in the fourth quarter. My follow up question is on e commerce, which is also a highlight for Q4 and I think for full year 2020. Can you just remind us in both the fourth quarter and the full year, where does ecommerce revenue sit as a percentage of your retail revenue at this point?

[John Vandemore:]

So if you look at it relative but the first thing that I mentioned is, we have e-commerce in a couple of different locations when you look at it in total. It's actually a pretty sizable chunk of the of the revenue base. China, obviously is the most significant, although that gets reported in our wholesale because it's a joint venture. In terms of our domestic number, I would tell you, its north of this 10% number that we previously provided. I don't want to get into a ton of specifics about how far north, but it's definitely north of that. And we think that's sticky, and it can continue. If you bring in the totality of our e commerce revenue relative to all sales. Yes, it's probably double that 10% as a percentage of sales right now. Again, I keep in mind that's with some pretty meaningful declines in our distributor business. So that's somewhat diluting that the impact of the overall revenue at this point, because those would not be ecommerce sales.

[Kimberly Greenberger:]

Okay, so just to clarify, John, when you say you mean like, it's more like 20% of the 1.2 billion in the retail direct-to-consumer segment?

[John Vandemore:]

Well, I was giving you reference points to the fourth quarter. So I would say in the retail segment, it's north of 10. In total, it's north of it's around 20%.

[Kimberly Greenberger:]

Okay, great. Thanks so much for that.

[John Vandemore:]

Sure.

[Operator:]

Our next question comes from the line of Gaby Carbone with Deutsche Bank. Please proceed with your question.

[Gabriella Carbone:]

Hi, good afternoon. My question is on the domestic wholesale business. I was just wondering if you could touch on what you're seeing in terms of spring orders, and kind of how you're thinking about that channel moving ahead, you put a pretty nice results here in the back half that?

[John Vandemore:]

Well, I think as I mentioned in the prepared remarks domestic wholesale would fit into the comment that backlogs are have been increasing even year-over-year. And that's before we had the results of the pandemic, we're only comparing the time last year. So our backlogs are rough, we feel the demand is significantly higher even than it was this time last year. So depending on how the pandemic rolls out, we have anticipation of continuing growth in the domestic wholesale side.

[David Weinberg:]

I would even add to that Gaby, we even had a few timing shifts out of this quarter into '21. So the domestic wholesale, which I think is again the second quarter in a row here we put up growth could have been even better if it weren't for some timing deliveries. So again, that's even though there's some customers out there struggling, we're seeing, broad take on the product and sell through. And that's, encouraging in the backlog numbers, it's encouraging in what we saw this quarter and that's definitely a good time.

[Gabriella Carbone:]

Got it. Thanks and just a quick follow up with what and how we should be thinking about, store openings moving ahead, and maybe you can comment on, anything new going on with the rent negotiations?

[John Vandemore:]

Yes, I would say store openings for next year on a net basis are going to be pretty modest, certainly relative to our historical directions, mostly focused on the international markets. David mentioned in his comments, we've already seen and executed some closures, this quarter, and we'll do more before the end of the quarter. The rent negotiations, that's an ongoing affair. Usually the best opportunity to have a good discussion about restructuring rent is during renewal discussions and as those occur, we're taking as much advantage of those as we can. I wouldn't hold out any significant arm for a major change in the near term with extend leases, but because we've seen, you know, a lot of I think any benefit we were going to get out of that earlier in the year. So I don't think that's going to be a significant opportunity. But you will see that, you know, kind of the pace of store openings, definitely stepped down from prior years to the most recent couple of years.

[Gabriella Carbone:]

Great, thank you so much for the color.

[John Vandemore:]

Thank you, Gaby.

[Operator:]

Our next question comes from line of Susan Anderson with B. Riley. Please proceed with your question.

[Susan Anderson:]

Hi, thanks for taking my question and nice job managing the quarter. I guess just a follow up on the gross margin. It sounded like from your earlier comments that there may be some pressure in 2021 as the mixed shift normalizes, is that correct? And did you say to look to 2019 gross margin as a more normalized gross margin?

[John Vandemore:]

Well, on your response, your first question absolutely, we've received some mixed benefits this year that I don't expect to continue as the business builds back. Overall, we are seeing, kind of a handful of different factors, but mix will definitely be a bit of a headwind. A bit of a tailwind will come from some favorable pricing, which we saw this quarter, and we expect to continue. And then, an almost offsetting headwind from there is some of the cost pressures that we've mentioned as in particular transit costs have become a source of pressure near term, relative to 2019, I would probably kind of guide you to something that's flat, perhaps up slightly, but that will be influenced heavily by mix. Again, to the extent we see more closures in retail, and we see a mix down with a bit less direct-to-consumer, that would be that would be a headwind challenge, to the extent retail recovers, that would be bit more of a tailwind.

[Susan Anderson:]

Got it, okay. And then just on the China market, obviously, a very strong report there. I'm curious if you could talk about the growth over Singles Day, how much that was up and how much of a driver that was? And then I think you talked about just kind of the bumpiness in 2021, with obviously first quarter last year being down, but how, I guess how should we think about that strength we saw on fourth quarter kind of after we get past that bumpiness flowing through in 2021. And then just curious on the golf store, you open their, their opportunity open more golf stores elsewhere, or even maybe, you know, potentially stores within stores and like Dick's or something?

[John Vandemore:]

Well, I mean, I think in China, again, it's just, it's a comparability issue. I mean, our general disposition, China continues to be extraordinarily favorable. We have very high hopes for it next year. Obviously the first quarter and into a degree the second quarter are going to benefit from some easier comparisons, but our expectation is that China, puts up similar numbers to what it's been registering in terms of overall growth, you're starting to get the, the pole of the law of large numbers, so maybe not in percentage terms, but in dollar terms. And that really is on the back of growth and e-commerce. I mean, I would characterize China as certainly faring far better than most markets, but there's certain components of the brick-and-mortar side of things that aren't yet fully recovered. And it gets a pretty common comments, you're hurting, your hearing relative to China operations. You know, we think that gets better as the year progresses, and you get a much more normalized China revenue profile, but right now, it's definitely tilted much more towards e commerce. And in the quarter, obviously, we couldn't have put up, nearly 30% growth rate if it weren't for some pretty favorable results, both on 11/11, where you had an extended selling period this year, but also kind of the sister event on 12/12, and then a few other sporadic events in the quarter. So, you know, again, overall, very positive on China, we do think there's some more normalizing to do. And, we're excited to add the capability of having our own distribution to the market, because that we think is, definitely going to help plus stabilize operations and give us more leverageable costs in the long-term.

[Susan Anderson:]

Great. to kind of expand that idea elsewhere.

[John Vandemore:]

OH kkSorry, Susan I didn't hear your full question.

[Susan Anderson:]

On the golf store you open in China is their opportunity to expand that elsewhere throughout the globe, potentially even in the U.S.?

[John Vandemore:]

Well, we are looking to obviously expand the category, but I wouldn't say it's a significant driver. It's about image and what we put through when we're building it, the one in China is very special. We may have a few more but it's not a major growth initiative for us. It's just something that we take as it becomes available to showcase the brand in general.

[Susan Anderson:]

Got it. Okay, that's helpful. Thanks so much, you guys. Good luck in first quarter.

[John Vandemore:]

Thank you.

[Operator:]

Our next question comes to line of Omar Saad with Evercore ISI. Please proceed with your question.

[Omar Saad:]

Good afternoon. Thank you for taking my question. Obviously, the e commerce numbers are really big, the growth there is really fast. I'd love for you to kind of address at a high level, how the profitability is shaping up in that business? Are you starting to get to a point or a scale level where it's becoming more profitable? I know at the gross margin level its accretive. I also noticed that, and the operating kind of expenses line, you mentioned some higher digital marketing costs and fulfillment costs, domestic internationals, I'm trying to understand, are we getting to a point where that might become more profitable? And then I have one follow-up, thanks.

[John Vandemore:]

Yes, actually, e-comm for us has been very profitable. In some respects, I think that's because it had been artificially restrained a bit, until we really got the growth levels that we're starting to see over the last couple of years. So from a profitability standpoint, I mean, it's something you're always watching and certainly as you get scale, you've got to be cognizant of but really, through the P&L right now or, we're very pleased with what we're delivering from an e commerce perspective. And, we continue to expect that to be the case that if something actually, perhaps you hear other brands talk about struggling with their profitability. But that is not something we struggle with today.

[David Weinberg:]

And we've made significant investments in the past, you have to understand growing at this rate, creates some inefficiencies, we put a lot of pieces in place in our distribution and fulfillment of this that we're going to take out around the world, which I think will leverage quite nicely over the next 12 months.

[Omar Saad:]

Great. It's great to hear guys. And then maybe you could offer a little bit more details on the loyalty program and then how it's going to connect to the e-commerce and their digital business and maybe some customer level marketing initiatives around that if you can? Thanks.

[John Vandemore:]

Well, I don't want to spoil too much because, if we want to have fun launching it.

[David Weinberg:]

No I would say it's a pretty soup to nuts revamp of the program, both technically, as well as from a consumer offering perspective. And what it aims to do, obviously, is significantly augment the loyalty program we have to today in terms of capabilities, everything from, marketing to transactional level capabilities. And it was accompanying our re-launch of the website and launch of the mobile applications that happened earlier in the year. So really when you step back, you've got to look at those in aggregate, because together, they're really forming, I think the basis of a new approach to consumer’s one more mobile enabled, more digitally enabled, more informative, easier to use. So I don't want to get into specifics of program because we want to launch that, but we think it's going to be a very effective means to both recruit and retain consumers, augment our abilities to market to them, it'll augment their abilities to transact with us. And those are obviously very encouraging, habits you want to put into place in particular, because like most we see incredibly higher LTV from a loyalty program member who purchases regularly with us than any other consumer. And so, the goal is to get as many people into the program and becoming recurring buyers as we can.

[John Vandemore:]

Thanks, John. Looking forward to see it roll out.

[John Vandemore:]

It will be soon.

[Operator:]

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

[Brian McNamara:]

Good afternoon, thanks for taking my question. I just have two quick ones, one on India being a more traditional market that doesn't really have the natural e-commerce offset that China has with lockdown measures in place. Can you give us an idea of how that market performs for the year and sequentially in Q4 in terms of improvement? And then secondly, COVID restrictions aside, I guess which markets internationally are you most optimistic on outside of China? And then conversely, what's your perhaps underperforming relative to your expectations? Thank you.

[John Vandemore:]

Yes, I mean, on India, I mean, that is obviously the impact of the pandemic hit many markets pretty severely. India is no exception. I don't think it's unusual, but it had a pretty tough go of it, so to speak, in particular, because it was growing so nicely for us. Now, I think we're starting to see some very encouraging signs, in the fourth quarter, performance was higher than actually even we expected. The market really began to reengage. I mean, that's all because they're getting past the pandemic. There is a building e-comm presence, but it's still very early for us. And we remain, very optimistic about that market long term. In terms of the international markets, we're most excited about it, I think if given the opportunity, we probably just rattle off all of them, because we do believe there's that much opportunity. Obviously, Asia has a tremendous amount of opportunity with China, India. There's a lot of other Southeast Asian countries where we're really just getting started. But, you can't neglect the fact that Latin America grew nearly 30% as a composite for us this quarter that Europe grew, north of 20%, that, some very stable, long penetrated markets for us, like Germany did exceedingly well. So, I mean, the reality is, we just don't think there's a near term limitation in any market, on this brand. And our opportunity to continue to grow internationally, in particular, is pretty unrestrained, at least for the next, three to five years, and probably beyond that, as we begin to introduce more and more categories to markets, we find our footing in, getting even, apparel introduced and other offerings. So, I speak for myself, and I'm sure David would agree. Now we're pretty excited about most, if not all, of our international markets.

[Operator:]

Our final question comes from the line of Jim Chartier with Monness, Crespi, Hardt & Company. Please proceed with your question.

[Jim Chartier:]

Hi question on gross margin. Given the mixed shift away from distributor sales, I would have expected more gross margin improvement in the international wholesale business. So I was wondering if there's anything in the corner that was pressuring margins in any of your overseas markets?

[John Vandemore:]

No, nothing, nothing comes to mind. I mean your, I would say, probably the, the only impact you're seeing is you're still having some markets that are experiencing pretty drastic effects from shut down. I mean, I think one thing that I don't want to get lost in this is, we dealt with a lot of lost sales days and some of those markets. So, in some respects, as they come out of that they've got to move, merchandise, but I wouldn't highlight anything being, extraordinary in that we're fairly pleased with the improvement. We saw overall, especially given, the growth underlying that, I mean, if you back out to distributor declined, that we gave you a number on, you can see that the underlying health in the wholesale business is really, really strong. So, to get that plus gets into your question even more gross margin accretion than we delivered, that's a pretty tall order. So we're generally pleased with what we saw. And we're optimistic that that trajectory is going to continue.

[Jim Chartier:]

Okay, great. Thanks and best of luck.

[John Vandemore:]

Thanks, Jim.

[Operator:]

And with that, this concludes our question-and-answer session, as well as today's conference call. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.