Good morning, and welcome to the Crocs Fourth Quarter 2024 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Erinn Murphy, Senior Vice President of Investor Relations and Corporate Strategy. Please go ahead..

Good morning, and thank you for joining us to discuss Crocs, Inc. fourth quarter and full year results. With me today are Andrew Rees, Chief Executive Officer; and Susan Healy, Chief Financial Officer. Following their prepared remarks, we will open the call for your questions, which we ask that you limit to one per caller.

Before we begin, I would like to remind you that some of the information provided on this call is forward-looking, and accordingly, is subject to the safe harbor provisions of the federal securities laws.

These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially. Please refer to our annual report on Form 10-K and other reports filed with the SEC for more information on these risks and uncertainties.

Certain financial metrics that we refer to as adjusted or non-GAAP are non-GAAP measures. A reconciliation of these amounts to their GAAP counterparts is contained in the press release we issued earlier this morning. All revenue growth rates will be cited on a constant currency basis unless otherwise stated.

At this time, I'll turn the call over to Andrew Rees, Crocs, Inc.'s Chief Executive Officer..

Stretch Sox, Stretch Canvas and Funk Mono. We iterate on these icons through color and materialization and partnerships. One example was the launch of our Wendy and Wally Slipper during the holiday season. We introduced it as a DTC exclusive, bolstered by a strong social and digital marketing campaign featuring Sydney Sweeney.

Within two days, we sold out completely. The slipper outperformance was noticed by our wholesale partners and we launched in select accounts. As we mentioned on our Q3 call, we're investing behind the Austin Lift and the Paul franchises based on the success we saw in 2024. In the fourth quarter, Austin Lift and Paul emerged as top franchises online.

In the next few weeks, you will see exciting new marketing around the Austin Lift as we build upon of our early success on this franchise. Finally, we're continuing to prioritize brand health as we stabilize the North American market, while laying the groundwork for future international growth.

In the fourth quarter, we saw improved full price selling with ASP growth of 7%, marking the sixth consecutive quarter of ASP growth. During 2024, we opened 38 premium outlet stores, which is helping to drive brand awareness and connect consumers with the full expression of our brand.

Based on the performance of these stores, we're planning to open an additional 10 stores in 2025. We have confidence in the long-term potential of HEYDUDE. The continued green shoots we're seeing give us positive reinforcement of the opportunities for durable future growth.

I will now turn the call over to Susan to provide more details around our financial performance and our outlook..

delivering growth with industry-leading margins that generate significant cash flow. I will now turn the call back over to Andrew for his final thoughts..

ignite our icons across both brands to drive awareness and global relevance for new and existing consumers; two, drive market share gains across our Tier 1 markets through strategic investment behind DTC, talent and marketing; and three, attract new consumers to our brand through methodically diversifying our product range and usage occasions.

While the geopolitical climate has become more volatile since the onset of the year, we continue to execute our brand strategies, invest in our people, and maintain a nimble mindset. At this time, we'll open the call for questions..

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Jonathan Komp from Baird. Please go ahead..

Hi, good morning. If I could ask about the Crocs Brand in North America, I know you mentioned down mid-single-digits in the first quarter and up slightly for the year.

Could you just talk a little bit more about what you're seeing, maybe the health of the brand and the drivers of that inflection after the first quarter? And then, just one follow-up, Susan, on the SG&A outlook. I know you mentioned second half growth, I think you said low-single-digits.

Could you just talk about the step-down in the growth rate of the G&A spend and how we should think about that going forward? Thank you..

Great. Thanks, Jon. So, let me take the Crocs Brand. Susan can give you some incremental insight into the SG&A growth. So, as we think about the Crocs Brand in North America, I think it's also important to kind of step back.

Crocs Brand has grown for seven consecutive years in North America and the business is triple what it used to be prior to that timeframe. I would say we're pretty -- we're very confident in the products that we have coming to market in North America, as we look at both our clog innovation, as we look both at our sandals.

We had a nice sandal year last year in North America with strong sellouts, and we're optimistic based on the feedback that we've gotten from retailers with our product portfolio for 2025. I think it's important also to think about the consumer environment. And when we think about the consumer environment, there's a healthy dose of uncertainty.

So, we are taking a prudent approach in terms of how we think about the growth of the brand. And I would say, as we think about the sort of multiyear trajectory, we're very confident in our product pipeline, our marketing engine to continue to drive growth in North America..

And Jonathan, regarding your second question on SG&A, so just as a reminder, our SG&A dollars are going into the key areas that we think will fuel future growth, which are DTC investments, including marketplaces and new retail stores, along with talent and marketing.

To your question about the first and second half, as you know, 2024 was an investment year for us and the cadence of those investments more back-half weighted.

So, as we begin to lap those second half investments in 2024, that's why we say mid-single -- low-single-digits increase in SG&A for the second half of 2025, as we complete our two-year investment cycle..

Yeah. Maybe I'll just take this opportunity to sort of talk about kind of the overall arc of SG&A, because I expect there will be a series of questions coming up on this call. I think -- and if you think about the growth in our SG&A and the sort of multi-year trajectory of our business, over the past five years, the Crocs, Inc.

company has gone from one brand to two brands, it's gone from $1 billion in revenue to in excess of $4 billion of revenue. And that very rapid growth, particularly in the early part of that five-year period resulted in extraordinary SG&A leverage and very, very high levels of profitability.

In the last two years, we've been focused on making key investments in what we believe are critical capabilities, infrastructure talent, and also elevating our marketing investment to drive kind of future sustainable growth.

So, this has resulted in SG&A deleverage in '24, further deleverage that we're telling you about in '25, but we're committed to maintaining that 24% operating margin level for the future.

And I think if you kind of step back and look at our peers and look at the industry which we compete, 24% operating margin is an extraordinary level of profitability. And I would also say we've been extremely proactive in taking that high level of profitability, resulting in high levels of cash flow and returning that proactively to shareholders.

So, hopefully, that kind of gives everybody the context and the perspective that we have on the business and how we think that reward shareholders in the long run..

That's really helpful. Thank you..

Thanks, Jon..

The next question comes from Chris Nardone from Bank of America. Please go ahead..

Great. Thanks, guys. Good morning. Just a follow-up on Crocs North America. Can you maybe discuss how wholesale sell-through is trending relative to your expectations, and just the confidence you have in your order books for the year, and if there's an improvement in wholesale embedded in your guidance? Thank you..

Yeah. I mean, I think we -- from a wholesale perspective and North America perspective, I would kind of go back to some of the things that I said to Jon, which was, number one, look, we have, I think, a very strong pipeline of products across three major product categories, both clogs, sandals and Jibbitz.

We ended the 2024 year, I think, with a very successful wholesale season. We have clean inventories in the market. We're confident in our marketing engine that will drive continued consumer takeaway from wholesale. I think we're strategically well-positioned with our wholesale customers. We don't really talk about sell-throughs on an in-quarter basis.

We never have. As we think about our order books and so our wholesale customers' reaction to the product we're bringing to market into '25, we're very happy with the order books that we see at this stage, which run essentially all the way through to -- into third quarter..

And when you think about the first quarter, it's helpful to be mindful of a couple of factors. So, Q1 is our toughest comparison in North America tied to the timing of wholesale as Easter shifts into the second quarter of this year. This is going to drive Crocs Brand North America sales growth down in Q1 and up in Q2.

And then, we also see about a 100-basis-point headwind to DTC growth in Q1 from lapping the leap year..

Okay. And then just a quick follow-up. You bought back a lot of stock last quarter. Just want to gauge your appetite to continue leaning into share repurchases given where the stock is trading.

Are there still more opportunities to pay down debt and potentially move below your current leverage target?.

Yeah. So, let me address that then, Chris, is, we plan -- we're committed to our long-term leverage target of 1 time to 1.5 times; that's unchanged. But as you can see in Q4, we plan to do both. We did about 75% share repurchase and 25% debt repay down. And that mix is obviously influenced by the opportunity we see in our stock.

And we do have a $1.3 billion repurchase authorization. You can see our Board upsized that by $1 billion earlier this month. So, we are committed to do both. We are committed to that leverage target, but you can look at our Q4 balance and take confidence in how we see great opportunities in our stock as an investment..

Thank you..

The next question comes from Adrienne Yih from Barclays. Please go ahead.

Hi, Adrienne, is your line on mute?.

Yes, it is. Sorry about that. Gosh, you would think after all these years. I apologize. I was saying, nice to see the progress at the end of the year.

Andrew, my question for you on kind of if we look out two to three years, how should we be thinking about the opportunities for Crocs in North America? What drives further growth there? And I know in past calls, we've talked about sort of more of that international growth is going to spur the Crocs Brand.

And then, for HEYDUDE, where -- kind of given the success on the DTC in the fourth quarter, but then going back to negative sales growth in the fiscal year, how comfortable are you with the turn and the investments that you are making into that to support the brand growth? Thank you..

Great. Thank you, Adrienne. So, a lot there. So, let me start with international versus North American growth for the Crocs Brand.

So, I think super clear, and it's embedded in your question, that we think the easiest growth for the Crocs Brand is internationally, right? And that is really based on our degree of penetration and market share in some of these major markets.

As we look at our international markets, and I think we put a nice page in our latest investor deck, we can see more developed international markets like the UK or South Korea, and also if you compare it to the US compared to less developed international markets, and in the less developed markets like China, France, Japan, even Germany, we have about a-quarter of the market share that we have in the developed markets.

That is based on the degree of marketing effort, et cetera, that we put in those markets over time. We've got to make choices over time. And we think that there is a long and relatively straightforward runway in those markets. So, that's where the majority of growth will come in the short-term and the easiest growth, we believe.

In North America, we're well-penetrated from a clog perspective. We do have a growing and emerging sandal business, and over time, we do believe we can drive innovation into incremental product categories that will yield growth in North America. But to yield substantive growth in North America, we really have to do penetrate new wearing occasions.

And we've got a nice pipeline of innovation there. But as yet, I would say it's not fully proven. So, I think for us to talk about acceleration in North America, we have to prove that first. And I can assure you, we're doing that work, and hopefully, we'll have some great results to showcase in that arena in the coming future.

So, hopefully, that kind of gives you the balance of Crocs. But -- and having said that, that's still a very healthy brand that yields a coherent growth and high levels of profitability go forward.

From a HEYDUDE perspective, I think you're curious about the future guide and our performance in Q4 relative to Q1 guide, right?.

Yes..

So, the piece that I think it would be helpful to, look, we're really pleased with the performance of the brand in Q4. It was led by product, it was led by marketing, and particularly DTC, and our ability to drive consumer takeaway in our DTC channel.

That being said, we know we want to provide, I think, really very prudent guidance for this year so that we can perform well against it. So, I think, hopefully, we're doing that. I would say, as we kind of look at the trajectory of the brand, we've done this before at Crocs.

We've really turned around that brand, and from a brand that was going nowhere years ago to a brand that's incredibly successful today. We know the playbook. We're seeing a lot of the green shoots, so we're very confident with what we're seeing and where we're going.

And I would say, lastly, from a HEYDUDE perspective, look, we think this is a great brand. We think it's well positioned against the consumer. It hasn't met our short-term expectations, but we remain extremely confident in its long-term potential, its ability to further penetrate the US market and leverage internationally..

Fantastic color. Thank you very much, and best of luck..

Thank you..

The next question comes from Jim Duffy from Stifel. Please go ahead..

Thanks. Good morning. A quick mention of appreciation for the very clear disclosures on tariff assumptions. Thanks for that.

Andrew, starting on the HEYDUDE Brand, can you speak to the state of engagement with wholesale partners? Is the distribution footprint now stable? How do you see changes to shelf space? What's the willingness of wholesale partners to engage with new product offerings where you're seeing success in DTC? Thanks..

Yeah. Great. So, yeah, I would say, we don't anticipate significant changes in our distribution strategy from this point forward. There are incremental customers we'd like to attract. There is shelf space we'd like to increase.

But in terms of who we are engaged, I think we're engaged with a lot of the right people and [indiscernible] add to that in the future. In terms of the degree of enthusiasm and conversation and connectivity with some of those key partners, I would say they are very much engaged with HEYDUDE.

For some of them, HEYDUDE a top five brand, right? So, it's a brand that they are supportive of, they wish to succeed.

But I would also say -- and I would say they are seeing the benefits of the work that we've done associated with product and marketing, particularly some of the ambassadors and celebrities that we're using to draw interest to the brand. They can see the connectivity of the brand with the consumer on TikTok and some of the social sites.

But I would also say there is work to be done, and that work is called out in our guidance. We do not see -- contemplated in our guidance today is not wholesale growth in North America. There is still work to be done relative to cleaning up inventories in the channel.

In fact, we'll be taking some returns in the first quarter of aged inventory and replacing it with new and current inventory. So that's a proactive step that we're taking that is also embedded in our guidance. So, there's still work to be done. But I would say our partners are shoulder to shoulder doing that work with us..

Great. Thanks for that. And, Susan, just a quick one on the outlook. Can you comment on working capital considerations in '25? We're very focused on free cash flow.

Any reason to think free cash flow couldn't again exceed $800 million?.

Yeah. So Jim, we don't -- as you know, we don't specifically guide free cash flow. I mean, we're really pleased with the free cash flow generation ability of both our brands and our ability to convert that into share repurchases and debt paydown for our investors.

When it comes to your models, I know -- I think we gave you all the components you need to derive that. So, we get happy to take any questions offline..

You mentioned the inventory turns kind of exceeded your goal of 4 times in 2025. Do you expect -- or excuse me, '24.

Do you expect reinvestment in inventory in '25?.

We're really pleased where we ended up on both brands and our strategies will be consistent with the growth we've planned for the brand. As Andrew said, we've got some strategies around HEYDUDE. But overall, we're very pleased with how clean we ended up the quarter in both brands..

Okay. Thanks..

The next question comes from Bob Drbul from Guggenheim. Please go ahead..

Hi, excuse me, good morning. Just two questions for me.

The first one just on the commitment to 24% operating margins, when you think about sort of the increase in marketing spend and sort of flexibility around the SG&A line or marketing spend within that, can you just talk about how you're approaching it in that 24% commitment? And then, the second question I have is just on HEYDUDE.

Will Travis Hunter be wearing those shoes at the draft? Is that part of the deal?.

So, let me do the second piece first. I'm not going to make any predictions about what he's going to be wearing at the draft. You may have noticed he was wearing HEYDUDE at his Heisman Trophy ceremony.

And I would say, look, our engagement with Travis Hunter is like our engagement with the other music leaders and actors or actresses that we've engaged with. It's first based on a genuine connection with the brand. He was an individual that loved the brand, wore the brand, and obviously, he's been playing most recently here in Boulder, Colorado.

So, we're very familiar with him. So, when we look for celebrities and ambassadors that we're going to engage with, that authenticity is super important, and he absolutely has that. We hope he goes very high in the draft and goes to a large media market because that would be helpful.

So, going back to your other question, so 24% commitment, we have lots of flexibility within this business. We have been very proactive in terms of making investments. I know that was not always popular. And just I want to highlight where those investments have gone and how that relates to the future.

The first is into DTC, right? So, we've opened more stores. Those stores are extraordinarily profitable, and we will continue to kind of lean into some store openings. Most of the stores we open are premium outlets, which as everybody, I think, understands its extraordinary profitable.

We're also shifting our digital business to be marketplace and some of those marketplaces have a higher run rate of SG&A associated with them, but that is where the consumer is going. I think a great example of that is TikTok Shop. We saw great results for both brands on TikTok Shop in the fourth quarter.

We think that will be a growing channel for us as -- and it's sort of a parallel to what we see in Asia, and particularly China, where consumer spending is shifting from digital marketplaces to social marketplaces. And that does carry some higher SG&A. So, we've kind of thought that through and projected that forward.

We have also increased our marketing spend from what was probably several years ago, you still run about 7%, 7.5% of sales. We're planning it, in 2025, at 10% of sales.

So, we've been proactive in terms of both investing at a higher level in HEYDUDE given where the brand is and the future potential we see in that brand, but also investing at a higher level in Crocs because we have more scale Tier 1 markets around the world that require more marketing support, and we think have actually also more opportunities for growth.

And then, other aspects of that investment is also talent capabilities, et cetera, and you can imagine what that is across. Now, having said that, some of that is also flexible, right, as we can make different decisions over time based on the opportunities that we see in front of us.

So, I think we feel pretty comfortable with the 24% floor at this point. And we just wanted to provide that clarity for you all..

Thank you..

The next question comes from Anna Andreeva from Piper Sandler. Please go ahead..

Great. Thanks so much. Good morning, and congrats on a nice end to the year. We had a question on gross margins. You mentioned up slightly in the first quarter, then down slightly for the year, which makes sense just given the tariffs and the FX, but you saw some positives with product costing and also other efficiencies.

So, can you talk about sustainability of those? And what did you see in terms of promotional [counter] (ph) at both brands during the fourth quarter? And what are you expecting with promo activities as the year unfolds? And then, we had a quick follow-up as well..

Right. So, when we talk about gross margin, in particular, and I think you asked about the shaping across the year, from an enterprise basis, just at a high level, we're expecting gross margins to be down slightly for the year, but that embeds 60 basis points impact of foreign exchange and tariffs.

So, therefore, gross margin would actually be up slightly without that impact. And as we're thinking about the full year, Q1 would be up, and we expect Q2 to be down the most on a year-on-year basis, in part based on the heavier impact of FX and tariffs..

Yeah. From a promo perspective -- sorry, you want to follow-up on that, and then I'll pick up the promos for you..

No. Please go ahead. Thank you..

Okay. So, from a promo perspective, I think there's probably a couple of big things going on here. Number one is, we believe the consumers kind of, and as Susan referenced in her prepared remarks, returning to kind of more normalized shopping patterns. And by that, we mean shopping patterns relative to sort of pre-pandemic.

And in terms of the promo environment in Q4, look, we had great gross margin and gross margin improvement in Q4. So that was very encouraging. I would say the promo environment was dynamic as we think about it around the world. It was a little bit greater in some places and a little bit less in other places. So, pretty dynamic.

It generally came out where we expected. I think the one thing we did see is we did see the consumer migrating incrementally to lower price and more promo products. So, they definitely were feeling a little pressure.

And as we kind of think about 2025, we think we're -- we planned it prudently relative to we think -- what we think the arc of the consumer is..

Okay. That's super helpful. I appreciate it. And just as a follow-up, can you guys provide a little bit more color on what's the expectation for the HEYDUDE recovery in the back half, just given the sharp decline expected for the first quarter? You mentioned the new stores are highly profitable, and you're getting a new consumer through that.

But anything else you can share on the performance of the new stores? And are you planning to open any additional doors in '25? And thanks again..

Okay. Thank you, Anna. So, I don't think there's a lot more that we're going to say around the pace of recovery, the timing of recovery.

I would think what we'd say is, we're on track with where we believe we would be at this time, right? And the ways we can monitor that and see that is growing HEYDUDE community, strong engagement with the core customer, incrementally attracting our, I would say, new customers, specifically in the sort of younger female arena from a demographic perspective.

We see traction on DTC. We plan a positive -- we have embedded in our guidance is positive DTC growth in 2025 based on digital growth, but also based on those stores. We do plan on opening about 10 more new premium outlet stores in 2025 to add to the 38 that we opened in '24. We are not embedding wholesale growth, as we said, within that trajectory.

And I think we've also -- I would highlight, I think we've guided really prudently, which I think you probably would expect us to do. And we're confident in our trajectory today, and we're super confident in the long-term trajectory..

All right. That's super helpful. Thank you so much, guys..

Thank you..

The next question comes from Laura Champine from Loop Capital. Please go ahead..

Thanks for taking my question.

When I think about the 24% long-term operating income guide, what's your pricing philosophy there? And how much would you use pricing to offset cost increases?.

Yeah. That's a really great question, actually, Laura. So, as we think about -- how we think about pricing for both of our brands from a philosophical perspective is we want to price to the market and a market is a country, right? So, we have to think very long and hard about how each individual item is priced in each bucket.

And that is dictated by comparative prices, so competition, what other people will think it's -- charging for a product that would be competing for the wearing occasion we're competing for, but also the strength and the trajectory of our brand, right? So, pricing has driven some really nice -- I would say, actually incredible gross margin improvement on Crocs over the last several years.

And -- but at this point, we don't -- we're not planning significant price increases in the short term, but we don't necessarily know what's going to happen in the longer term. So, we do look at pricing very closely. We think it's a very, very important lever, and we think we're well priced today.

So, we're not planning a lot of price growth in the short-term, but we continue to remain, I would say, very nimble relative to what that might entail..

Got it.

And then, looking at HEYDUDE's ASP, up 7%, I think, in the quarter, what is that on top of year-on-year?.

I don't have that number to hand. But what I can say is the drivers of the ASP increase has principally been reduction in discounting. So, as we look at, particularly our DTC channels, I think we've had six quarters now of sustained ASP increases. And the driver of that has principally been reducing discounting versus absolute price increases..

Got it. Thank you..

The next question comes from Tom Nikic from Needham. Please go ahead..

Hey, good morning, everyone. Thanks for taking my question. I wanted to follow up on HEYDUDE, specifically on the product development side....

Hey, Tom, we're having a real hard time hearing you.

Can you get closer to the mic?.

Hey, sorry about that. I want to follow up on HEYDUDE and specifically on the product development side.

I know that there's a big opportunity to sort of diversify the brand and extend beyond the core Wally and Wendy, like how far along do you feel like you are in that process? I don't know if you want to use the innings metaphor or whatever, but just -- if you give us thoughts on the product development and product expansion journey that you're on, that would be great.

Thanks..

Yes. So, I think what I'd say to start with is, look, the most important element of the product strategy for HEYDUDE is the core at this point, right? The Wally and the Wendy is a very large part of the business. We also think it's the future -- the short-term future driver of growth. And we drive growth off the Wally and Wendy.

We've re-platformed the Wally and the Wendy on to kind of three major platforms, Stretch Sox, Stretch Canvas and Funk Mono, which I think gives the consumer a lot more understanding of where the products that they love are and what other versions are available, so it's much easier to navigate the product architecture.

That is kind of -- that transition is in place kind of as we speak. We add opportunities -- future opportunities for the consumer to engage in those platforms through color, through materialization and through collaborations, and also unique and limited supply product. In terms of extending beyond that, we are in the very early innings.

We do have some great examples. If you look at the Austin Lift, which is a shoe that we will lean into here in the first quarter. It performed extremely well in the -- through '24 and particularly in the fourth quarter. We're leaning into it more in the first quarter with a really exciting program coming out featuring Sydney Sweeney.

So, we're excited about that. So, that is a part of the more. We have a boot business on the Bradley, which actually performed extremely well in the fourth quarter, too. The Paul is a dress shoe for men.

It's really a derivative of the Wally, but it has some slightly different comfort characteristics and some elevated materials in the upper, that's also performing well.

So, I think those are all kind of good examples of extending the Wally and Wendy, but back to your kind of core question, we're in the very early innings, probably the first innings, but the strength of those extensions will be based on the strength of the core. So, that's where we're focused today..

Understood. Thanks very much, and best of luck this year..

This concludes our question....

Okay. I think we're out of time at this point. So, I just wanted to -- I know we didn't get to a few people that we haven't gotten to that question, we apologize for that, and we'll pick them up in after calls. But I did want to thank everybody for their attention and their support of our brands and our company. So, we appreciate it..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..