Crocs, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Crocs Brand Insights: Investments in product and marketing driving growth. Classic Clog, personalization, and new franchises like Echo and in-motion performing well. Partnerships with Bath & Body Works, Batman, Squishmallow, McDonald’s, and BARK for Pet Crocs. Circularity goals advanced with Keep It Going Classic Clog.
• HEYDUDE Strategy: Focus on three imperatives - driving female youth culture, building core icons Wally and Wendy, and stabilizing North America. Progress made in brand health, inventory turns, premium outlet stores, and partnerships (Sydney Sweeney, Jelly Roll). Early green shoots seen but longer turnaround expected.

Segment Performance

• Crocs Brand: Revenues were $858 million, growing 8% year-over-year. Channel growth was balanced with DTC and wholesale each growing 8%. Units sold increased 11% to 32.1 million pairs, while ASP decreased 3% to $26.48. North America revenues were $491 million, up 2% year-over-year, led by DTC (up 4%) with wholesale down 2%. International revenues were $367 million, up 17% year-over-year, led by DTC growth of 18% and wholesale growth of 15%.
• HEYDUDE: Revenues were $204 million, down 17% year-over-year. Wholesale revenues were down 23% and DTC revenues were down 9%. ASP was $30.94, up 4% year-over-year, while volumes were 7 million pairs, 21% below last year.

Guidance

• 2024: Enterprise revenue growth adjusted to ~3% (previously 3%-5%). Crocs Brand revenue growth narrowed to ~8% (previously 7%-9%). HEYDUDE revenue range lowered to ~-14.5% (previously -8% to -10%). Adjusted diluted EPS raised to $12.90 (high end of prior range $12.82-$12.90). Capital expenditures lowered to $90M-$100M.
• Q4 2024: Consolidated revenues flat to slightly up. Crocs Brand +2%, international growth impacted by China and India. North America slightly negative Q4, flat for second half. HEYDUDE revenue down 4%-6%. Adjusted gross margin up for enterprise, adjusted SG&A high teens, adjusted operating margin ~19.5%, adjusted diluted EPS $2.20-$2.28.
• 2025: Crocs revenue growth led by international, impacted by Easter timing. HEYDUDE focused on stabilization, with first quarter sequentially down from Q4 wholesale. Continue investing in talent, marketing, etc., putting pressure on EBIT margin.

Risks

• Macro and Consumer: Consumer shopping patterns shifting, potential headwinds in Q4. Regulatory pressure in India impacting HEYDUDE supply.
• HEYDUDE Execution: Past overshipment leading to inventory issues, need for longer turnaround due to marketing pivot and infrastructure building.

Question and Answer

Q: Could you just give a little more detail on Crocs North America? And what role will North America play in the total Crocs outlook for 2025?

A: Susan Healy noted North America is expected to be flat for the second half. Andrew Rees said North America is a well-managed, stable, highly profitable, cash-generative business funding international growth and HEYDUDE investments.

Q: Can you talk about the change in the investment marketing strategy for HEYDUDE in the quarter, and what KPIs you are seeing?

A: Andrew Rees said they pulled back on performance marketing for HEYDUDE, pivoting to brand marketing with partnerships like Sydney Sweeney, seeing positive content and early traction in new platforms like TikTok Shop.

Q: How should we think about Crocs’ international growth potential in 2025, given the slowdown in China?

A: Andrew Rees said Crocs will continue to grow in China with mono-brand stores, confident in India with production ramping up, and sees growth in Western Europe, Australia, South Korea, with Japan a work in progress but potential.