It’s becoming quite prevalent. And then kind of the second iteration design manifestation of the technology is it just keeps getting better. And so I think it’s one of the reasons why we believe this is a technology, really a feature that can be employed broadly across the spectrum of our product portfolio that will endure for a very long time.
Krista Zuber: Thank you. Best of luck.
Operator: Our next question comes from the line of Rick Patel with Raymond James. Please proceed with your question.
Rick Patel: Thank you. Good afternoon and congrats on the strong performance and the super impressive milestone, David. Can you unpack the performance of domestic wholesale being up 7.7% a little bit further? What are you seeing what do you see as being the primary driver of that rebound? Is it higher volume within the same accounts? Are you broadening accounts as you launch new products? And secondly, you alluded to orders coming in a little bit earlier than you expected. Does that mean that we should be modeling a slower growth rate in the second quarter? Just some color on the shape of growth for this year would be great as we think about wholesale growing mid to high single digits for the year?
David Weinberg: I think the biggest factor most immediately was we’ve seen more wholesale customers embrace the technology. It was this time last year, as we really started to proliferate some of our comfort technologies in our own stores. Not everybody in the wholesale world was equipped or poised to be able to take advantage of that. And I think what you’re really seeing is post a pretty decent holiday, they were open to buying in and then also supporting with marketing and price those technologies and they’ve sold through really well. So really what I think we saw more than anything else was not new orders as much as an acceleration of existing orders, customers wanting products sooner to fulfill what it sold out. As we said all of last year, we always saw really good price sustainability, we saw good margins, inventories were lean.
I think we’re starting to finally see the benefit of that as some of the partners out there cleanse themselves of some of the inventory issues they were suffering from last year. And so I think that will continue. As we said at the beginning of the year, we knew the first half of the year would grow. I think you can probably expect at this point a similar level of growth on the second quarter in domestic wholesale. We’ll see it always boils down in the second quarter in particularly to the timing of shipments toward the end as accounts start to stock up for back to school. But right now, I’d say again, we continue to see optimistic signals and that would lead us to expect in the second quarter a pretty similar level of growth.
John Vandemore: I think it’s important to remember that all of this happens primarily based on sell-through performance of the product that they’re seeing now. So, you go back to the original piece is all the good things happen when the consumer likes the product and comes in and shops and moves through it. So it starts from sell-throughs, sell-throughs against available inventory, sell-throughs against what you have purchased already, where you’re open to buy sits and manipulation of and we’re seeing all positive pieces of that around.
Rick Patel: Can you also help us with the puts and takes of gross margins going forward? Aside from the DTC outperformance, what’s the right way to think about freight? Does that remain a benefit in the second quarter? And how do you expect to exit the year on freight just given the volatility we’ve seen in the freight rates?
David Weinberg: Yes. We don’t expect a lot further from this. I think we’d always said that Q1 was the last quarter where you’d see a significant contribution from freight. If anything, right now, as you look forward, although freight rates are stable generally, certainly, there’s some impact observed in kind of European routes because of the Red Sea situation. We don’t think that will be a big impact, but I think it speaks to the fact that rates have kind of returned to normal now. We don’t expect that to be a significant driver either of a positive or a negative influence on gross margin. I think what you’re going to continue to see us benefit from is that channel mix as well as product mix.
Rick Patel: Very helpful. Thanks very much.
David Weinberg: Thanks Rick.
Operator: Thank you. Our next question comes from the line of Adrienne Yih with Barclays. Please proceed with your question.
Adrienne Yih : Great. Thank you very much. And let me add my congratulations, fabulous start to the year. My first question is, similar on the input cost. So freight sort of starts to expire, but I’m wondering if you have visibility on your non-freight input costs and through the year end? And then my second question is on the demand creation spend, how should we think about dollar growth in 2Q relative to 3Q and 4Q? But more importantly, it sounds like it’s a brand awareness and owning the technology. Have you baked in within that midpoint of 10% sales growth, have you baked in more sales growth from the incremental ad spend? Or is this more sort of owning that technology, brand awareness and if there is any upside, it’s on top of that? Thank you so much.
John Vandemore: In terms of input costs, we don’t see anything that’s quite frankly worth commenting on with regards to our projections. So, the honest answer is nothing really worth discussing. There’s always movement here and there with input costs, FX, etcetera. But at this juncture, we don’t see any of that having a material impact on our either product level margins or overall gross margins. I would say on the marketing, it is the quarter in which we lean in. It typically is a couple of 100 basis points higher than average. I think that’s kind of the quantum you can expect. In terms of sales, I would say it certainly factors into our projection, but it’s really a spend that benefits the entirety of the year.
So, it’s not really just about aligning Q2 sales with the marketing. As we said on the call, one of the reasons we flow through the upside that we did to the full-year guide is the marketing is out there, it’s working. We continue to excel in this category of comfort technology in general and our hands free slip-ins in particular. And, so the spend in the quarter will benefit the entirety of the balance of the year. So, there’s not really a one-to-one correlation. That being said, we always try to construct our guidance such that there’s a more likely than not chance we can meet or exceed that. Q2 does depend highly on the timing of shipments out of the back end as accounts take stock of where they need to be for back to school. So, I would say if anything, I’m probably slightly, more optimistic about what we can do in the quarter, but we want to see the little bit more of the quarter materialize before we make any decided calls on that.
David Weinberg: Yes. I should point out from my perspective, it’s the advertising spend is definitely anticipatory. We try to anticipate where we have potential significant growth in those territories that are growing to try to feel them. We usually try to take it from those places that are flattening out or showing some deterioration for whatever reason, but we have no deteriorating marketplaces now that we need to go into. So, when we anticipate around the world for our growth and we have a lot of white space, we’re investing upfront and we do anticipate that it comes back at a later time. It may be third quarter, fourth quarter beyond, but that’s what drives our international business. So, it is a reflection of what we see out there, the demand, the white space and what space we think we can continue to absorb. So, it does reflect our thought process on going forward on what it will do for sales.
Adrienne Yih : It’s great to see a company playing offense these days. So, congrats.
Operator: Thank you. Our next question comes from the line of Tom Nikic with Wedbush Securities. Please proceed with your question.
Tom Nikic: Hey, guys. Thanks for taking my question. And, David, congratulations on hitting 100 earnings calls. Hopefully, we hear you on a on a 100 more. So, hopefully.
David Weinberg: I’ll let my doctor really say that.
Tom Nikic: I wanted to ask about China. So, obviously China has been pretty solid the rest of the quarter and I think you’ve had four straight quarters of double-digit growth. The compares get more difficult in China and some of them macro headlines coming out of China some of them mixed. How should we think about the growth opportunities in China for the rest of the year?
John Vandemore: Well, first, I’d start off by reiterating what you implied, which is the China story for us continues to be one of a pretty strong recovery, all things considered. We’re incredibly pleased with what we saw in China this quarter and reflects a lot of work by our team there to succeed despite some of the challenges that persist. As we look at the balance of the year, we remain cautiously optimistic that we’ll continue to see more of that recovery. Keep in mind, China is a growth market. We think it has a lot of opportunity long-term for the brand, and so, when you look and compare there’s not as much of the story as it would be in a moment, share market because the brand has a lot of runway. Some of the product that’s just getting introduced into China has a long runway.
So, we remain cautiously optimistic. We do acknowledge the fact that it’s a market in recovery and still has some work to do to kind of fully flush out some of the issues. But, I would also remark that despite that over the last year, year and a half, we’ve continued to see really good growth. And, so we remain optimistic, albeit cautiously, about the future.
Tom Nikic: Understood. And, if I could just ask a little bit of modeling minutiae. John, I think you gave the store opening plans earlier. Can you give us how many stores you plan to close this year so we can get to sort of a next store openings for the year?
John Vandemore: Yes. We don’t give that out specifically. I mean, my objective would be to not close any stores because we’d like them all to be continuing to contribute. I would say when we put together that guidance, we do incorporate some expectations. So, the number we give is attempting to get to a net number. Again, keep in mind, when we’re talking about stores, it’s much more important for us to open the right store and not just a store. So, we’ll always want to continue to exercise the discipline about making sure we’re opening the right store for us, and that’s something we’ll continue to do.
Tom Nikic: Understood. All right. Thanks very much and best of luck for the rest of the year.
John Vandemore: Thanks, Tom.
Operator: Thank you. Our next question comes from the line of Jesalyn Wong with Evercore. Please proceed with your question.
Jesalyn Wong: Hi, David. Hi, John. Congrats on a good set of quarter. I’m just wanting to dig a little bit more into Rick’s question earlier. Domestic wholesale orders up 8% this quarter, seems to be a positive surprise there, but yet we’re only guiding to mid-single digit to up high single digits. How conservative are there in terms of our estimates? And the other part, it’s on the operating margins. Last quarter, you called out operating margins for this year to be guidepost of 200 basis points away from long term target. But given such a strong first quarter, how should we be thinking about operating margins for this year?
John Vandemore: Yes. On the wholesale front, again, the timing comes into play pretty significantly in the second quarter. So I think that’s part of why you’ll see that range in our incorporated guidance. Again, I would also acknowledge the first quarter came in stronger than we originally thought, so that was a good surprise. If that trend continues, we’ll definitely be toward the higher end of that range. But, again, we got to be cognizant of the fact that when you get into kind of the end of June, it could be just a timing difference between Q2 and Q3. So we like to put a range on it to keep things realistic given what we’ve seen, but we are seeing really good trends. And again, beyond Q2, we’re seeing good trends for the balance of the year as well.
In terms of the operating margin, again, look, our goal has been to get back into the double digits. We’ve said that’s our goal. I would say certainly this quarter gives us more optimism about our ability to achieve that for the year. It’s still our objective. We still have a lot of levers to pull and actions to take to help drive that. And there really isn’t anything out there that gives us pause for concern, but I don’t want to declare victory until we’re closer to the year, but we’re certainly optimistic about that progression.
Jesalyn Wong: All right. Maybe just a last question on EMEA. EMEA seems to be holding out very well. Any additional color on exit trends there, with the strength that we have seen even throughout the quarter? And how should we think about second quarter and second half into the year?
