Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Crocs Inc (CROX, Financial) reported second quarter revenue of over $1.1 billion, the highest in the company's history, exceeding guidance.
- Adjusted gross margin expanded by 330 basis points to 61.4%, and adjusted earnings per share grew by 12% to $4.01.
- Record free cash flow enabled the company to pay down $200 million in debt and repurchase $175 million of common stock.
- International revenue grew 22% year-over-year, with exceptional growth in China (over 70%) and Australia.
- The sandal category strengthened, with new styles like the Getaway and Miami performing well, contributing to overall growth.
Negative Points
- HEYDUDE brand revenues were down 17.5% year-over-year, with wholesale revenues down 24% and DTC channel down 8%.
- The North American market showed cautious consumer behavior, leading to a flat revenue outlook for the second half of the year.
- Increased SG&A expenses by 19% year-over-year, driven by investments in talent, marketing, and DTC, impacting operating margins.
- HEYDUDE's wholesale business remains challenging, with expectations of continued difficulties in the second half of the year.
- The company anticipates a more promotional market environment, which could impact margins and overall profitability.
Q & A Highlights
Q: Could you talk about your assumptions and what you're seeing in terms of the Core North America Crocs sell-throughs and how you're expecting that to trend?
A: Andrew Rees (CEO): We had an exceptional first half for the Crocs brand, growing about 6% against a market that is approximately flat. For the back half, we are more cautious due to the US consumer behaving cautiously. We are planning the back half in North America from a Crocs revenue perspective to be approximately flat.
Q: Can you give us examples of what has worked thus far in the year-to-date period regarding SG&A, talent, and brand accretive marketing?
A: Andrew Rees (CEO): These are long-term investments. We are enhancing our international teams for Crocs, investing in our marketing functions for both Crocs and HEYDUDE, and making meaningful investments in distribution infrastructure. We are also upping our marketing investment against HEYDUDE to engage the consumer effectively.
Q: Can you speak to what you saw across July and key considerations in your outlook for the back-to-school season?
A: Andrew Rees (CEO): The consumer is behaving cautiously, which we anticipated. We think it's prudent to plan the rest of our year that way. We haven't changed our full-year perspective and expected this cautious behavior.
Q: Can you discuss where you're seeing momentum in your Crocs brand international business and what countries are driving the biggest impact to your back half growth expectations?
A: Andrew Rees (CEO): Key markets driving growth include China, which grew 70% in Q2, Australia, and parts of Western Europe like the UK and Germany. We are also excited about our potential in India. For HEYDUDE, we are planting flags in the UK, Germany, and Australia and have initiated new distribution agreements.
Q: What does Terence bring to the table for the HEYDUDE brand, and how can he help rejuvenate and reinvigorate the brand?
A: Andrew Rees (CEO): Terence is focusing on sharpening the brand's focus on their icons, the Wendy and Wally, and shifting marketing energy to the female consumer. We are also increasing our marketing investment to support Terence and drive the brand's future growth.
Q: Can you discuss promotional activities you saw in the quarter and what you're anticipating in the back half of the year for both brands?
A: Andrew Rees (CEO): The market is more promotional than last year, returning to pre-pandemic levels. We participate in key promotional periods to get our fair share of consumer spending. We are not anticipating an increasing trajectory of promotions in the back half.
Q: Can you elaborate on the China business for the Crocs brand and your progress in that market?
A: Andrew Rees (CEO): We have driven brand relevance in China through digital and social marketing, leading to strong growth across channels. We expect sustained growth over multiple years, primarily driven by wholesale sales as our partners open more stores.
Q: How should we be thinking about modeling gross margins for the balance of the year?
A: Susan Healy (CFO): We expect gross margins to be up for the year and the second half but not at the same rate as the first half due to harder comparisons. For Crocs, we expect margins to be up slightly year-over-year, and for HEYDUDE, we expect Q3 margins to fully recover compared to two years ago.
Q: How is the Spring '25 order book coming together, and do you expect HEYDUDE North America spring orders to be up or down?
A: Andrew Rees (CEO): Retailers are buying cautiously given the current business trajectory. We are happy with the Crocs order book domestically and globally. For HEYDUDE, we are excited about the Spring '25 line and the positive feedback on our product strategy.
Q: Can you elaborate on your philosophy for SG&A investments and the expected outcomes?
A: Andrew Rees (CEO): We are starting from a base of high profitability and making investments in SG&A to support long-term growth. These investments are intended to assure long-term growth, and there will be periods of both investment and leverage in SG&A.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
