Greetings. Welcome to the Skechers Second Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] Please note this conference is being recorded. I would now turn the conference over to Skechers. Please go ahead.

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 law 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?

Thank you for joining us today for our second quarter conference call. I hope you, your colleagues and loved ones are healthy as the COVID pandemic continues to be a global challenge. We appreciate the resiliency of the Skechers organization over the past 18 months, and hope that those facing the ongoing COVID-related challenges are staying safe. Skechers’ second quarter financial results exceeded expectations as we achieved record quarterly sales of $1.66 billion, a 127% increase over 2020, and a 32% increase over 2019. This marks the first time our quarterly sales have exceeded $1.6 billion and together with our first quarter yields a new six months record of over $3 billion. We also achieve the record gross margin of 51.2%, record quarterly diluted earnings per share of $0.88, and exceptionally strong operating margins of 12.1%. Our record revenues were the result of increases of 147% in our domestic business, and 114% in our international business, and both businesses increased over 30% compared to 2019. International sales comprised 56% of our total sales in the quarter. This growth a result of increases across all reportable segments is reflective of higher average selling prices on significantly more units sold, less promotional activity during the period, and consumers embracing our comfort technology in our seasonal, athletic and casual footwear lines, in addition to our apparel offering. It is important to note that these exceptional second quarter results came despite the ongoing global pandemic, COVID continued to clearly impact some countries in the second quarter, most notably India, but also remains a challenge for many other markets with lockdown restrictions, temporary closures and reduced store operating hours. The pandemic and other factors also continue to challenge our global supply chain. We appreciate the dedication and focus of the Skechers teams around the world. Without them we wouldn’t have achieved the results we had. Our International Wholesale business grew 95% from the second quarter last year and 37% from 2019. The quarterly sales growth was primarily driven by China with an increase of 51% over the same period in 2020, and a 68% increase from 2019, as well as Europe, which had an increase of 150% over 2020, and 85% over 2019. Our joint venture businesses increased 56% for the quarter compared to 2020 and 46% as compared to 2019. In addition to China, Mexico and Israel also improved over both periods. Subsidiary sales increased 163% from 2020 and 48% from 2019. Despite temporary closures and reduced operating hours in many regions, including India, Canada, Japan, and parts of Europe and South America. The UK, Germany, Canada, France, Spain, and Italy all achieved notable growth over both 2020 and 2019 comparable periods. Our distributor business improved 122% over last year, though it was down 7% from 2019. Several markets achieve growth not only compared to 2020, but also 2019. These include Australia, Russia, Taiwan, Algeria, South Africa, Scandinavia and Ukraine, among others. Our largest distributor, the UAE, which handles much of our business across the Middle East and parts of Africa and Eastern Europe, so significant improvements over 2020 and we believe it is continuing to improve. Skechers direct-to-consumer business increased 138% over 2020 and 26% over 2019 despite temporary store closures primarily in India, Canada, Japan and Chile, and reduced hours in many of our international company-owned stores due to local health guidelines. Worldwide comp store sales were up 109% compared to 2020, including 96% domestically and 165% internationally. As compared to 2019, worldwide comp stores sales increased 13% including an increase of 22% domestically and a 9% decrease internationally reflecting the ongoing store closures. Our direct-to-consumer average selling price per unit rose 17% compared to 2020, indicative of our less promotional stance and the success of our comfort technology products. Given the unpredictability of the Coronavirus and its continued impact on many markets, we remain cautious about a return to normal traffic and sales in many international stores. But believe that we will see improvements where we are fully open and restrictions will ease. Our domestic direct-to-consumer sales increased 101% compared to the second quarter of 2020 and nearly 30% compared to 2019. Driving this growth was a 232% increase in our retail store sales or 11% over 2019. The domestic retail store improvement was partially offset by a decrease in our domestic e-commerce channel of 25%, which face difficult comparisons to the prior year. However, it is important to note that domestic e-commerce sales were up 337% over 2019. Our international direct-to-consumer business increased 259% over the second quarter of 2020, and 20% over 2019. The growth as compared to 2019 was the result of a larger international company-owned retail store base and increases in our e-commerce business. A number of markets achieved growth over both 2020 and 2019 including the UK, Spain, Germany, Mexico and others. Our e-commerce channel remains a meaningful growth opportunity and continues to grow this business. We recently launched a new loyalty program in the United States, which we will be capitalizing on in the coming weeks. We’re also looking forward to the planned expansion of our worldwide e-commerce presence this year and into 2022. In the second quarter we opened 13 company-owned Skechers stores including key locations in Antwerp, Barcelona, Berlin and Lima. We closed eight locations in the second quarter as leases expired. We have opened three stores to date in the third quarter and have another three plants for the end of the month with another 20 to 25 expected to open by year’s end. An additional net 63 third party Skechers stores opened in the second quarter across 26 countries, including our first in the Dominican Republic. In total, at quarter end there were 4,057 Skechers stores around the world. Another 145 to 155 third party stores are expected to open by year end. Sales in our Domestic Wholesale business improved significantly, 206% in the second quarter compared to the same period in 2020, and 31% compared to the same period in 2019. Nearly every product category achieve growth in the quarter with the highest gains coming from sport, kids, casual and our seasonal fan sandal footwear. Additionally, the average selling price prepare increased, reflecting the appeal of our new comfort product and technologies. Innovations and developing footwear technology has been a significant part of our DNA for much of our history. Going back to our made to last occupational footwear, to the lightweight cushioning and performance material for our first generation Skechers GO RUN and Skechers GO WALK lines, to features that deliver comfort in every pair. Our core product philosophy of comfort, style, innovation and quality at the right price is resonating with consumers, especially during these difficult times as we believe people are embracing a more relaxed lifestyle and want to incorporate comfort into their work and weekend wear. Throughout the quarter, we were strategic in our approach to marketing, communicating the comfort and innovations of Skechers, vast collection of products for men, women and kids. In the second quarter, our multi platform approach included television, outdoor, print and online in many global markets. This created awareness helped drive sales and resulted in our record revenues. To further support our business in the coming year, we are enhancing our infrastructure with new distribution centers in Peru, the UK and Japan, and are looking for a location in India. We have completed our new one and a half million square foot China distribution center, which as of this month is fully operational. We are continuing to work on the expansion of our LEED Gold-certified North American distribution center, which will bring our facility in Southern California to 2.6 million square feet in 2022. Given our global growth, we are confident that Skechers innovative collection of comfort footwear and apparel resonated with consumers. As they began returning to work dining out, shopping and traveling, where markets were open and restrictions eased, sales exceeded our expectations. And in the markets that were largely close to the local health guidelines, we still performed well, given the circumstances. We believe our exceptional results in the second quarter or size of the power of the brand globally. And now, I’d like to turn the call over to John for more detail.

Thank you, David. And good afternoon everyone, Skechers second quarter results were remarkable and even exceeded our internal targets for the period. They clearly illustrate the strength of our comfort technology, product portfolio, resonant brand, and the focused execution of our global growth strategy. And we deliver these results despite lingering obstacles posed by the pandemic, including supply chain challenges, continued store closures and operating restrictions, primarily in some international markets. Now, let’s turn to our second quarter results where we will provide comparisons to both prior year and 2019. Since the prior year is heavily influenced by the impact of the pandemic and numerous lockdowns, I will largely focus my commentary on the comparisons to 2019, because we believe it is a more meaningful period against which to assess our performance. Sales in the quarter achieved a new record totaling $1.66 billion, an increase of $928.3 million or 127% from the prior year, and a 32% increase over the second quarter of 2019 with both our domestic and international businesses growing over 30%. On a constant currency basis, sales increased $857 million or 118% from the prior year. International Wholesale sales increased 95% year-over-year and grew 37% compared to the second quarter of 2019. Our joint ventures grew 56% year-over-year, led by China, which grew 51% on the strength of robust e-commerce demand, partially offset by weakness in several adjacent markets, which are still being impacted by the pandemic. As compared to the second quarter of 2019, China grew by 68%. Subsidiary sales increased and impressive 163% year-over-year, and as compared to the second quarter of 2019 grew 48%. The improvement versus 2019 was primarily the result of volume increases, particularly in Europe. Our distributor business grew 122% year-over-year, but declined by 7% as compared with the second quarter of 2019. We are pleased by the year-over-year growth in this business, which as expected continues to recover more slowly from the pandemic. However, we remain optimistic that this business retains its attractive, long-term growth characteristics. Direct-to-consumer sales increased 138% year-over-year supported by growth in both domestic and in international markets, albeit at a lower rate due to store closures in the period. As compared with the second quarter of 2019, direct-to-consumer sales increased 26% the result of a 30% increase domestically and a nearly 20% increase internationally. Domestic wholesale sales grew by 206% year-over-year, and as compared to the second quarter of 2019, increased 31%. As indicated on last quarter’s earnings call, we continue to see very positive underlying trends with the majority of our domestic wholesale partners, including healthy sell-through rates and strong average selling prices. Gross profit was $849.5 million up 130% or $480.9 million compared to the prior year. Gross margin for the quarter was 51.2% an increase of over 70 basis points versus the prior year and 270 basis points as compared to 2019. In both instances, gross margins improved as a result of higher average selling prices across all segments. Compared to 2020, the increase in gross margin was partially offset by channel mix, including a lower proportion of e-commerce sales, and a higher proportion of domestic wholesale sales. Total operating expenses increased by $220.3 million or 51% to $652.4 million in the quarter versus the prior year period. Selling expenses in the quarter increased year-over-year by $72.2 million or 120% to $132.4 million. However, as a percentage of sales, this represented a year-over-year decrease of 30 basis points and as compared to 2019, a 100 basis point reduction. The dollar increase year-over-year was primarily due to higher demand creation spending as markets reopened globally. General and administrative expenses in the quarter increased year-over-year by $148 million, or 40% to $519.9 million, but decreased as a percentage of sales by almost 20 percentage points. The dollar increase year-over-year was primarily reflective of increased labor and incentive costs, as well as volume driven expenses in warehouse and distribution for all our businesses globally. Earnings from operations were $201.2 million versus a prior year loss of $61 million an increase of $262.2 million compared to the second quarter of 2019 earnings from operations increased 81%. Operating margin was 12.1% as compared with 8.8% in the second quarter of 2019 an increase of 330 basis points. Net earnings were $137.4 million or $0.88 per diluted share on $156.7 million diluted shares outstanding. This compares to prior year net loss of $68.1 million or $0.44 per diluted share on $154.1 million diluted shares outstanding. As compared to the second quarter of 2019 net earnings improved 83% from $75.2 million or $0.49 per diluted share. Our effective income tax rate for the quarter was 20.4% versus an income tax benefit of $4.3 million in the prior year and an 18.4% effective tax rate in the second quarter of 2019. And now turning to our balance sheet; our cash and liquidity position remains extremely healthy. During the second quarter, we fully repaid our revolving credit facility, of which $452.5 million was outstanding and still ended the quarter with $1.32 billion in cash, cash equivalents and investments. This reflects a decrease of $234.5 million or 15.1% from June 30, 2020. Trade accounts receivable at quarter end were $778.2 million and increase of $300.2 million from June 30, 2020, predominantly a result of higher wholesale sales. Total inventory was $1.06 billion, an increase of 2.9% or $29.5 million from June 30, 2020. The increase is primarily attributable to higher inventories to support growth in Asia. Total debt including both current and long-term portions was $312 million at June 30, 2021, compared to $763.3 million at June 30, 2020, reflecting the repayment of our revolving credit facility during the quarter. Capital expenditures for the second quarter were $62 million, of which $23.1 million related to the expansion of our joint venture-owned domestic distribution center in the United States. $14.7 million related to investments in our direct-to-consumer technologies in retail stores. $8 million related to our new, now fully operational distribution center in China, and $7.8 million related to investments in our new corporate offices in Southern California. Our capital investments remain focused on supporting our strategic growth priorities, growing our direct-to-consumer business, as well as expanding the presence of our brand internationally. For the remainder of 2021, we expect total capital expenditures to be between $150 million and $200 million. Now, I will turn to guidance, given our outstanding performance this quarter, as well as cautious optimism that the recently resurgent virus impacts will be limited. We expect third quarter and full year results above our previous guidance range in both sales and earnings per share. We expect third quarter 2021 sales to be in the range of $1.6 billion and $1.65 billion and net earnings per diluted share to be in the range of $0.70 and $0.75. For fiscal 2021, we now expect sales to be in the range of $6.15 billion and $6.25 billion and net earnings per diluted share to be in the range of $2.55 and $2.65. We anticipate that gross margins over the back half of the year will be up as compared to the back half of 2019. And that our effective tax rate for the year will be approximately 20% as compared to a rate of 5.5% in 2020 and 17.2% in 2019. And now, I’ll turn the call over to David for closing remarks.

Thank you, John. Our second quarter performance exceeded expectations with three new records, quarterly revenues of more than $1.6 billion, gross margins of 51.2% and diluted earnings per share of $0.88. Our innovative comfort product resonated with consumers around the world conversions in foot traffic improved in many of our retail stores, opened during the period and our e-commerce business continued to perform well. Although, we remain in a fluid situation with various government responses to COVID globally, given our performance in the first half of the year, the strength of our brand and our product. We believe our momentum will continue in the back half of the year and into next year. We remain focused on driving sales by managing our inventory flow, developing and delivering fresh new innovative product and communicating our message to consumers. That Skechers is the comfort technology company. Now, I’d like to turn the call over to the operator for questions.

Thank you. [Operator Instructions] Our first question comes from Jay Sole with UBS. Please proceed with your question.

Great, thank you so much. I want to ask about the Domestic Wholesale business, just because up 31% versus 2019 obviously, an exceptional result. Can you just give us maybe elaborate a little bit more on what you saw by channel; whether it’s family channel, off price clubs, the online [indiscernible], maybe just give us a sense of, maybe what you saw in some of the different parts of that business? And then secondly, if you can talk about if the growth was really market share gains? Is it sort of restocking based on really good sell-through last year and right inventory levels or are you seeing, really strong comps, in those stores across the channel that would be helpful. Thank you.

I think it’s all of the above, we’re actually performing better in all the channels that we’re in. Family channel, the clubs, we have a product that resonates that’s higher priced. So, we were able to move people to a higher price point, keep the lower price points. They weren’t on sale and so often, we had a lot of replenishment and we’ve done relatively well although it’s very difficult in replenishing them to a higher degree than they probably had planned when we went into the quarter. So, if you take the higher price points, the availability of product, our performance against competitive brands that are out there and then not being on sale and getting more margin for it they’ve replaced all the time. So, we’ve got it on all cylinders. So product resonates. We have higher price points, we’ve kept our traditional price points, and we’ve delivered relatively on time.

Thank you. Our next question comes from Kimberly Greenberger with Morgan Stanley. Please proceed with your question.

Hi, this is Alex Straton on for Kimberly Greenberger. I have a quick question on ASP invoices you’re seeing, I think you said that the direct-to-consumer ASP is grew 17% year-over-year in the prepared remarks. Could you just talk about your pricing strategy? Or how you think through strategic price increases? Is it on a market-by-market basis? Or could you see even more increases throughout the year? Just more on the strategy there would be helpful? Thank you.

Yes, I think Alex, our approach is to deliver great product, and then, receive fair value for that. And I think what you’re seeing is that our product, as David mentioned, is performing exceedingly well. It’s infused with comfort technology, and that’s resonating with consumers. And as a result, we believe that we’ve seen, that we’re able to charge more for that product, in addition to part of that ASP is clearly a more favorable, promotional environment across the board. We certainly benefited from that, as did our wholesale partners. And we see that in our sell-through and ASP, we see that and their sell-through and ASPs. And I think you’ll continue to see us, where appropriate, take advantage of the value our technology is delivering at the consumer level. On top of that, obviously, we watch input costs, and that’s something we adjust for occasionally. But I’d say the predominant driver right now is getting value for the tremendous product we’re delivering in the marketplace.

Yes, I think it’s important to note that it wasn’t like and across the board, just price increase that we’re taking more price, what we’ve done is increased the performance and the features in our footwear, to make it a higher price and seen as a higher price product in the marketplace not only raising prices of existing. I mean, we now are received as a technical company with great comfort and it’s worth more in the marketplace.

Great, thanks so much.

Thank you. Our next question comes from Gabby Carbone with Deutsche Bank. Please proceed with your question.

Hi, congratulations on a great quarter. So kind of like a follow-up on Jays question on domestic wholesale, really nice results there. Just as wondering if you could dig into your thoughts around, the opportunity to take shelf space, as some of your competitors, pull out of certain retailers, maybe what you think that channel could grow, on a more normalized basis from here?

Yes, I mean, I think, to add on to David’s comment earlier, in response to Jay, I mean, we’re seeing really good sell-through of the product, it’s driving higher prices for our wholesale partners, there absolutely is an opportunity to gain shelf space as, shelf space becomes available, but I would say independent of that our product is tremendously effective for our partners. And again, we see this in our own data as well. I’d like to tell you that I think forever, we can grow domestic wholesale, at a 200% or 30% clip, but I think, probably an opportunity short-term to grow above trend. And then as we’ve said, before, we’ve – we believe long-term, there’s no reason why domestic wholesale can’t, for us, at least grow above market, because we believe we’re exceedingly well positioned with key retailers and in categories and with technologies that consumers value. But certainly growing, above the market in the domestic wholesale marketplace long-term is absolutely achievable as well.

Got it and just a quick follow-up, on your gross margin performance was really impressive in the retail segment; believe up about 800 basis points from 2019, what are the biggest drivers there and like what kind of performance, could it be expect in the back half? Like what should kind of hold here and, maybe some kind of pressures we should think about?

Well, the drivers as we mentioned, I think it was pricing. That was the most significant driver. And our intention is to have that pricing modality continue in the back half of the year. Now, as I said, also a contributing factor was the promotional environment. We’re certainly eager to see this environment remain steady. And I think most indications are that’s what you’ll see. But certainly, it’s also a competitive landscape. So, we need to be cognizant of what others are going to do. I don’t want to get into, segments specific margin guidance other than to say, the guide we gave relative to the back half of the year is certainly heavily influenced by what we’ve seen in the direct-to-consumer channel. That’s been a very big wind at our backs, and we expect that to continue.

Okay, great. Thank you so much.

Thanks, Gabby.

Thank you. Our next question comes from Jim Duffy with Stifel. Please proceed with your question.

Thanks. Hi, John. Hi, David. Hope you guys are doing well?

Hi, Jim.

Yes, indeed. I wanted to get an update on China business trends. Can you just talk about what you’re seeing in retail stores there, relative productivity vis-à-vis 2019 or what you saw during the 618 holiday period, and maybe just comment on throughput through the new distribution center, how that’s working for you and things to watch for with respect to that?

Well, I think the first thing to start off with is China performed exceedingly well, yet again, is kind of the norm, we’ve come to expect that of China, but it’s anything but normal. It was propelled in large part by the e-commerce channel, which has been a characteristic of that market for a few years now. We did see better trends than we had been seeing certainly over the last part of 2020. In the physical stores, I wouldn’t say it’s fully recovered, but I think it’s getting better, which is a good sign. That all being said, I mean, e-commerce is going to continue to be the propellant behind growth in that marketplace. Overall, again, very healthy for us, we didn’t see any negative ramifications from some of the other challenges brands saw, in the period, we think we did an exceptionally good job at continuing to grow the brand in the marketplace, and then adding the capabilities at the distribution center, which is our first company owned distribution footprint in the market has gone, really well, given the challenges we face, getting it up and running with COVID and the travel restrictions in market. And we’re very pleased with it. The point is that at the moment, but there’s also plenty of opportunity to continue to improve. And we’re eager to see that. Obviously, we remain incredibly optimistic about China’s long-term trends for our brand.

Great, John, you reference some of the backlash for other brands, has there been any detectable change in the promotional environment that you’ve seen in the China marketplace?

Not for our brand, I mean, around some of the holiday selling periods 6/18 and 11/11 [ph], you do see a little bit more intense promotionality? I wouldn’t say it was extraordinary or noteworthy above and beyond what we’d normally come to expect in those periods. And most importantly, for our brand, we felt very good about the environment both through 618 and around the balance of the quarter.

Thank you very much, guys.

Thanks, Jim.

Thank you. Our next question comes from Omar Saad with Evercore ISI. Please proceed with your question.

Thanks for taking my question. Great quarter. I wanted to ask about the e-com versus stores dynamic. I mean, clearly, stores are coming racing back even relative to 2019 levels. I think domestically, you said stores were up 2022. But e-com was down in the 20s. So you’re kind of seeing that traffic really decline on the e-commerce side as stores come back. Is that something? I mean, it’s clear support for the importance of stores in the equation, but is that something you’ve seen in other markets in China as well? When the store is reopened and the traffic comes back to the e-com suffers? And when do you think e-com can, will start to grow again? Thanks.

Yes, I think this quarter is an anomaly Omar to be completely blunt. I mean, last year, at this time, e-commerce was the only business in town. It’s all we had. And I think you’d look you need to look no further than the growth rate on kind of a two-year stack basis to 337%. I mean, that’s not too bad of a number. Our expectation is that, this quarter is a bit of an anomaly in the grand landscape of continuing to see e-commerce grow as a business. It was just a very difficult comparison, given the in particular the domestic dynamics on the international side, even before we’ve completed the rollout with the new platform globally, and several other technology solutions that will be going into place over the next year or two, we saw very decent growth in international e-commerce where we operated directly. And then obviously, we talked about China being propelled by e-commerce. So, I would just take it in context, a 300% to your stack growth rate is nothing to be disappointed. And we continue to be very optimistic about the long-term opportunity for e-commerce to add to our solution at the consumer level.

Got it. That’s really helpful context, John. And then a quick follow-up on the comfort trend, you guys are talking about a lot, talking about comfort technology, what gives you confidence that it’s sticky. And that we don’t necessarily go back to dress, shoes or other maybe less comfortable shoes, when life returns, people go back to work, and any sneak peeks that key comfort products and technologies in the pipeline too please? Thanks.

Well, we always have a significant amount in the pipeline. And we certainly try not to go and let everybody know in advance of bringing them in the first time, especially with what’s going on around the world. But this is growing around the world. And it seems it, there are no surveys. But I think it’s common thought process, that comfort is here to stay more people are working from home, people are more comfortable when they go to work. They love the technology that we present, and they can wear it in multiple styles. It’s not that we’re only selling a technology in an item. We sell our technology through all the items that fit everybody’s lifestyle. So, we hit it on both fronts. And we think that’s absolutely going to continue on we’ll continue to develop for it.

I would just add Omar, I think it’s also when you think about comfort, I would also bring into your perspective health. I mean, being comfortable as part of being healthy. And you certainly can’t argue against the general trend of focusing on health and well being. It’s not, there’s nothing good about standing on a pair of shoes that aren’t Skechers and being uncomfortable or having your feet hurt. Comfort to us is also tantamount with a health benefit to the consumer. And I would definitely echo David’s comment; I have a pair of dress, shoes from Skechers and our mark needs in line. And they’re the most comfortable dress, shoes I own. So it’s not limited just to our core casual and athletic, we infuse that technology across the product portfolio.

Thank you.

Thank you. Our next question comes from Laurent Vasilescu with Exane BNP Paribas. Please proceed with your question.

Good afternoon. Hi, David. Hi, John.

Hi, Laurent.

I’ve got a question for you John with regards to the guidance, your second quarter top-line growth was up 32% to your stack that focused the third quarter guide implied 22% growth and then the fourth quarter low double-digits on the two-year stack. Is it due to conservatism or other factors that we should consider I think universe to shift from U.S. wholesale [ph] 2Q from 1Q any other factors we should consider with regards to the overall top-line?

Well, I think you hit on the two I mean, one is there certainly is a tremendous amount of uncertainty in the marketplace remaining. I mean, even as we sit here today, I don’t think we would have forecast, as much of an impact from the pandemic continuing, at this point in time, what I think is remarkable about the quarter we just delivered, is we delivered in spite of several those challenges. So, there’s still some unknowns we’re baking into, the probability weighted outcome we look at relative to the balance of the year. There are also a few unique costs coming into play in the near term as we get China and that distribution center up and running. As we bring online distribution footprint in the UK, we’ve been talking about more fully. And as we bring back, more, more labor into the picture as stores improve. I’d also know, we’re taking steps like many retailers to ensure that we’re attracting and retaining the best and brightest. So we’re making some adjustments to our part time labor rates and labor rates in our retail business where, today as we look at it, we’re paying about on average over 40% of prevailing minimum wage in each of the markets in which we sell today. And that has an impact, which one we absolutely can absorb. And we think it’s beneficial for the long-term. I would also just note, as you look at the stores, it wasn’t as if all the stores were working at full capacity, we saw tremendous strength in our Big-box neighborhood stores. The outlet stores did much better than before, but I wouldn’t characterize as fully recovered. And then we have some of our concept stores, particularly those in high tourism locations and mall based properties that are still suffering from restrictions or limited traffic flow that aren’t yet fully back to, peak efficiency. And when those come back, that we believe delivers another leg of assistance from a leverage perspective. So all that being said, it’s a variety of factors. We’ve baked into the back half guidance, but we’ll also want to look at that again next quarter and see if there’s further clarity we can lend.

That’s very helpful, John. And then second question on a supply chain obviously, a lot of dynamics at play this year, West Coast, but obviously in the headlines, Vietnam, that’s called for shutdowns look like shutdowns, reminded by thinking in your 10-K says the majority of your manufacturing – manufacturers in China and Vietnam. Can just remind us, how big is your Vietnam sourcing is at 40% of overall revenues? And if there’s a two week shutdown, could you manage that? Or when does it become problematic? Is it like a four to six week shutdown? Any color on that would be very helpful.

That’s one piece of – many pieces you’re talking about. And I think we should just point out here that the numbers you throw out was Vietnam as a whole. And the issue today for the closure seems to be South Vietnam, which is a smaller piece of our overall Vietnam business to begin with. And two weeks, we could certainly handle, I don’t know at what point it becomes catastrophic, it has to become part of the overall of what happening everyplace sales, and the supply chain in general. Right now, we seem to be doing as well as anyone, we’re bringing in and we’re meeting our shipping, but it certainly could be faster. So, South Vietnam is not as important to us as Vietnam is the whole, and it will depend on the overall supply chain, and availability of containers and shipments and getting it delivered at the port.

Very helpful. If I could squeeze one more in Europe, subsidiary wholesale was up 85% on to your stack. John, David, could you guys give us any context of just how big this businesses? And where do you think it goes into 2H21?

Look, it’s one of our bigger regions. And I say it’s – it’s a meaningful contributor. And I think what’s noteworthy about the growth is it. It was really in every market, almost every single market in Europe for us on a two-year stack basis grew by double-digit sum by triple-digit. So, I probably don’t want to put a specific size on it, other than to say, it’s obviously one of our significant contributors in the subsidiary line.

Okay, thank you very much, and best of luck.

Thank you.

Thank you. Our next question comes from Brian McNamara with Berenberg Capital Markets. Please proceed with your question.

Hey congratulations on the strong results and guidance. So, your full-year guidance supplies a flow through of your better Q2 a better Q3 than expected and then some. So, I’m curious, what has been the biggest surprise over the last 90 days? Is it simply a function of conservatism given it was your first full-year guide in a while? Or has the strength surprise you relative to your prior expectations?

I think we were positively surprised by the durability of some of the trends we saw in late Q1 in the direct-to-consumer channel in particular. We’re optimistic that some of the markets that have been closed over the last quarter comeback online and we work some of that into the situation. And then the pricing held and the promotions held. And I think that is something we were again, cautiously optimistic would be durable throughout the balance of the year and now we’re increasingly comfortable that that’s more likely than not. Again still keeping some little bit of dry powder in case we experience unexpected consequences from COVID or now floods in Europe and other events that we’ve had to navigate through. But overall, I say increasing confidence that the actions we’ve taken, the results we’ve seen are a bit more durable than we had believed coming into the quarter.

Any update on India and kind of an obviously, that’s been a big area of COVID concern. Any update there?

So far, they are starting to open up. We have more stores open, traffic still hasn’t returned. I think they still have a ways to go. But they continue to make progress every month, especially in somewhat less densely populated if you can call anything in India that areas around. So, we’re making progress. They are open. We are doing business there past to close down stage for the time being, and continue to make progress.

Great, thanks very much.

Thanks, Brian.

Thank you. Our next question comes from Susan Anderson with B. Riley FBR. Please proceed with your question.

Hi, good evening, nice job on the quarter. I’m curious, just your comfort levels around your inventory. Did you feel like you had enough inventory in the quarter? Or do you feel like there’s still kind of some stocking to do particularly within the wholesale channel to satisfy the demand there?

I think truth be known is, we certainly could have sold more had we gotten it here. It’s a very, was a very difficult transition from slowing down through the pandemic and then having this explosive consumer purchasing program that’s going on. So, I think we managed it very well. Like I said, we were somewhat surprised how well it held up, and how well their promotional cadence held up. So, we were able to bring in more stores than we did in 2019, even with the supply chain issues, and fill that pipeline, we certainly could have done some more. But demand hasn’t waned. So, we will pick that up in Q3. So there’s still a lot of work to be done, and a lot of things to happen. But we’re still trying to get in as much inventory as we can. And I can pick up the pace, that’s one of the conservative items is we’re not sure how fast the supply chain picks up and if we get significantly further along than we are today. I’m sure if we could get it here faster, we could sell it faster and move it out. I think what it’s taught us is that we can be very reactive to inventory needs, and we can’t bring it in and when we do it continues to sell a whole price. So those were the two big positive surprises for the quarter. And I think they continue to this quarter.

Okay, great. That sounds good. And then just to follow-up on the marketing for the second half, should we expect increased marketing for the second half again, similar to what we saw in this quarter?

I think you should expect it to be relatively steady, kind of on a percentage of sales basis to what we’ve traditionally done, maybe a little bit more, depending on whether or not we have the intuitive, David mentioned to be able to satisfy the demand. What we’ve seen this year, so far as the marketing we’ve put in place has been extremely effective in driving top-line. So, asking kind of timing differences that come at the end of the year normally, I think you can expect it to be a relatively consistent rate for what we – what we traditionally observed. But with some dexterity at our disposal, should we feel the opportunity to drive sales.

Okay, great. And can I just add one more. I’m curious just on the work shoe business. And if that’s come back significantly, as some of particularly the leisure and hospitality workers get back to work have you seen a big pickup in that type of business?

Yes, I don’t think that business ever went away. I said something like that came back very quickly. It’s a very core business for us. It’s done well and has continued to grow. So, we continue with it and we will expect it will continue.

Yes. It’s been an extremely strong division for us throughout for real time, but even during the pandemic.

Yes. Okay, great. Thanks so much. Good luck the rest of year.

Thank you.

Thank you. Our next question comes from John Kernan with Cowen. Please proceed with your question.

Hey, good afternoon and congrats on the great results, guys.

Thanks, John.

Why don’t we go to gross margin? You talked about it being up in the back half. I think there’s a scenario you’ll be north of 49% for the year. Where do you think gross margin can go over time it feels like you’re getting price. Retail as a mix shift is seems like you can be a benefit over time. Just curious, how we should think about the gross margin line as it relates to your long-term margin, operating margin overall?

Yes, I mean, less than a portion of that is going to be heavily influenced by mix. So, you got to keep mix in the picture. That being said, our long-term algorithm for gross margin performance has been pretty consistent, which is we’ll continue to mix up toward direct-to-consumer and international businesses and given normalized growth rates on the domestic side of things that will continue to accrete margins, and call it 25 bps to 50 bps range annually. Again, I think you got to be cognizant, though, that we outgrow kind of a normal rate and domestic wholesale, it may not have the accretive margin impact, we want to create more gross profit dollars, which is absolutely something we’ll take. We’re encouraged by what we’ve seen in pricing. We got to maintain vigilance on the marketplace. And we are cognizant there still are input cost pressures out there that the whole industry is dealing with in shipping, few raw material side of things, some tariffs, that exclusions that have expired. So part of it is also adjusting to that environment, but again, the long-term profile for growth is continued to benefit our mix towards international, and direct-to-consumer. And that’s certainly something we think has significant legs for the business.

Got it. I guess, one more just on – there were some earlier questions on the guidance for the back half of the year versus 2019. Does indicate a deceleration and did indicate that there’s still a lot of uncertainty, I’m just curious for North America, particularly the U.S., like, how you’re viewing the opportunity for back to school and holiday does look like fourth quarter implied revenue guidance seems another deceleration off in 2019. So any comments on how you see back to school and holiday shaping up to be great.

I think, we’re cautiously optimistic on back to school. I mean, I think you have to keep in mind whether or not a back to school happens is dependent upon how schools and school districts behave. We – I think their plan for a reasonable recurrence of back to school, similar to what we saw pre-pandemic, but probably not a full throttle return at this juncture. We’re also dealing with the challenges we’ve mentioned, the supply chain, so making sure we have the product at the right time is going to be a criticality, we’ve got to be mindful of in light of this environment. But I’d also point out that as you look relative to 2020 you are starting to see early recovery in the pandemic world in those quarters. So, those are also very healthy quarters for us overall. That all being said, again we remain extremely optimistic about the balance of the year and into 2022, we’re planning for some maneuverability, should things change, because we’re certainly in the habit of seeing some pretty dynamic forces in the marketplace. But we also think the guidance we’ve rolled through reflects that confidence, and is a fairly healthy improvement on what we previously discussed. And that’s good. And also, just keep in mind, when you’re looking at EPS, you’ve got to keep in mind the tax rate differentials, if you look back the last couple of years, 20% we’re in some instances, 500 basis points higher on a tax rate. And so if you adjust for that, I think you look at the guide, relative to Q3 in particular that adds another 10 percentage points of growth into that number. So, please do keep that in mind.

Excellent. Thank you.

Thanks, John.

Thank you. Our final question comes from Sam Poser from Williams Trading. Please proceed with your question.

Thank you guys for taking my questions. I’ve got three. Could you – are you seeing given that your inventory while you could sell more, it looks like it’s in pretty good shape relative to others? Did you shift – are there orders shifting forward, because you have availability of trucks? And do you anticipate that continues to go on in slow and continue to go on. And while you could have more inventory, if there is a problem with Vietnam and other places? When do you think that might would have – when would you see an effect of that? Is that something that would be a spring effect or late Q4, just given the way you move product through?

I don’t think there’s any shift in there. I mean, what we’re seeing is fantastic sell-through and very strong ASPs at the wholesale partner level. There’s no evidence in our analysis that this is a shift and I gave it that we could have sold more if we had more, because the demand is strong for the product.

Yes, when you employ shift, you think things are moving and people are stocking more and it slows down.

No, no, I mean, they have open – they have dollars available for your product, you had orders before they everything just moving. And also to smooth it out because – ground transportation problems here in the U.S. specifically.

Yes, but I don’t know that it’s, our stock to sales positions and across the board, as far as our wholesale business is concerned, and even our own retail business is still way down. So there’s plenty of place to go, that doesn’t preclude a shift that just means we haven’t filled the whole demand yet. I think that was philosophy [ph].

And then, two other questions. You said, can you identify sort of the increase in your marketing spend, and sort of what kind of return on investment you saw with that. And then lastly, you mentioned about having diligence you just said a diligence in the marketplace, can you give me –give us some more color as to what you mean by that?

On the marketing spend, I mean, I would just – I’m not going to give you anything at a detailed level, other than to say, I think the sales trajectory, both in the quarter, and what we’ve implied for the balance of the year clearly reflects the power that marketing many markets have, which are just restarting marketing coming out of the kind of post pandemic lockdown period as the primary lockdown period. So, you’re seeing good trajectory there. And I think that’s – that is certainly driven by the efficiency in our marketing. And I’d also point out, if you look back in Q1, we are a little bit lighter on marketing. So, some of that is a little bit of a catch up. I’m not entirely sure what your second question relates to Sam. So maybe you can clarify a bit, that’d be helpful.

Well, it was really about, I think it was in the context of what you – that the marketplace was very clean of an inventory and holding these high ASPs, and there’s not a lot of promotions that I think one of you mentioned that you would have diligence on the marketplace to make, I guess, to make sure it doesn’t go back to more promotional. And I just wondered what that meant, and how you would go about doing that?

I think we control that, I think people see, well, it sells and I think most retailers understand now that there’s no requirement for that promotional cadence it sounds well, they get the higher ASPs, and a higher margin. So, I think everybody’s just doing just common sense type of business going forward. We’re not – we haven’t have begun to anybody’s head and tell them they can’t promote. This is not worth it now.

But we do monitor – we monitor ASPs, we monitor sell-through rates and inventory levels, and all of our key wholesale partner. So, we’re watching it carefully. We watched that to help them plan inventory levels. And we watch it for us to see how the product is performing. And then we have also the benefit of our retail business where we can see on an overall market environment, how ASPs and sell through rates are performing and that we watch very carefully.

And one last thing, do you have any – can you give us any color on any today an update on July’s direct-to-consumer, same-store sales quarter-to-date?

I would generally say the trends have been consistent with what we’ve seen when you kind of adjust for holidays and timings of days and weekends and things like that. But the general pattern of what we’ve seen remains healthy and consistent.

All right. Thank you very much on continued success.

Thanks, Sam.

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