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01/10 16:37
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reflects concerns with declining revenues and tariff impacts, despite cost-saving measures and international growth. The Q&A highlighted cautious consumer spending and challenges in North America, with management avoiding specifics on cost savings and tariff impacts. Additionally, HEYDUDE's ongoing cleanup and cautious wholesale planning indicate uncertainty. The lack of clear guidance and ongoing tariff-related headwinds contribute to a negative sentiment, suggesting a stock price decline of -2% to -8%.
Third Quarter Revenue Approximately $1 billion, down 7% year-over-year. Reasons include intentional pullback on discounting within digital channels and wholesale cleanup actions.
Crocs Brand Revenue $836 million, down 3% year-over-year. Wholesale down 8%, DTC up 1%. North American revenues down 9% due to reduced discounting, partially offset by strong digital marketplace performance. International revenue up 4%, driven by 23% growth in DTC.
HEYDUDE Brand Revenue $160 million, down 22% year-over-year. DTC down 1%, driven by new retail stores and strong digital marketplace performance. Wholesale down 39% due to inventory cleanup actions.
Enterprise Adjusted Gross Margin 58.5%, down 110 basis points year-over-year. Reasons include a 230 basis point headwind from tariffs. Excluding tariffs, adjusted gross margin would have been up due to lower product costs, higher ASPs, and brand mix.
Crocs Brand Adjusted Gross Margin 61.8%, down 70 basis points year-over-year, driven by tariff headwinds.
HEYDUDE Brand Adjusted Gross Margin 42.3%, down 560 basis points year-over-year, driven by tariff headwinds and fixed cost leverage, partially offset by higher ASPs.
Adjusted SG&A Rate 37.7%, up 350 basis points year-over-year. Adjusted SG&A dollars increased 3%, driven by investments in talent, DTC, and marketing, offset by cost savings initiatives.
Adjusted Operating Margin 20.8%, down 460 basis points year-over-year. Reasons include higher SG&A and tariff impacts.
Adjusted Diluted Earnings Per Share $2.92, down 19% year-over-year.
Inventory Balance $397 million, up 8% year-over-year. Inventory units down low single digits. Reasons include higher tariffs and product mix.
Net Leverage 1 to 1.5x, at the lower end of the targeted range.
Crafted Clog: Introduced at $60, featuring a non-molded comfortable upper with a Jibbitable back strap. Strong consumer response across channels.
Echo RO: Launched within the Echo franchise, achieving immediate success.
Unfurgettable: New cozy franchise launched in partnership with Millie Bobby Brown. Positive response on TikTok, resonating with Gen Z females.
HEYDUDE Stretch Sox: Launched within Wally and Wendy franchise, surpassing legacy socks in performance.
HEYDUDE Stretch Jersey: Planned launch in 2026, described as a 'sweatshirt for your feet.' Strong retailer response.
International Expansion: China delivered mid-20% revenue growth, strong performance in Japan and Western Europe. Launched TikTok Shop in the U.K., Germany, and Brazil.
NFL Partnership: Multiyear agreement featuring classic clogs and Jibbitz. Exceeded expectations with strong sell-through and multiple restocks.
Cost Savings: Identified $100 million in additional gross cost savings for 2026, focusing on organizational simplification and supply chain optimization.
Inventory Management: Accelerated returns and markdown allowances to improve inventory health, particularly for HEYDUDE.
Promotional Pullback: Reduced promotional activity in North America to protect brand health, impacting near-term sales but improving gross profit dollars.
Product Diversification: Focused on innovation in clogs and sandals, with plans to expand crafted franchise and introduce Echo 2.0 clog in 2026.
Promotional Pullback Impact: The decision to reduce promotional activities in North America has negatively impacted near-term sales, particularly in the Classic Clog business.
Wholesale Channel Adjustments: Reducing receipts into the wholesale channel to better match supply to demand has impacted short-term revenue.
HEYDUDE Brand Challenges: HEYDUDE brand revenue declined by 22% year-over-year, with wholesale revenue down 39% due to inventory cleanup actions and markdown allowances.
Tariff Headwinds: Tariffs have negatively impacted gross margins for both Crocs and HEYDUDE brands, with a 230 basis point headwind in Q3.
North America Revenue Decline: North American revenues for the Crocs brand were down 9% year-over-year, driven by reduced discounting and lower inventory receipts.
Economic and Consumer Uncertainty: The company anticipates a cautious consumer environment and a highly competitive holiday season, which could further pressure revenues.
Cost Structure Adjustments: Efforts to simplify the organization and reduce costs may lead to operational disruptions or challenges in maintaining growth momentum.
Revenue Expectations: For Q4, revenues are expected to be down approximately 8% in currency rates as of October 27. Crocs brand revenue is expected to decline approximately 3%, with international business accelerating to a low double-digit growth rate in Q4. North America revenue is projected to decrease by low double digits, reflecting a cautious consumer, competitive holiday season, and lower inventory receipts in the wholesale channel. HEYDUDE revenue is expected to decline in the mid-20s range due to reduced performance marketing spend and wholesale marketplace cleanup.
Adjusted Operating Margin: For Q4, adjusted operating margin is expected to be approximately 15.5%, excluding $10 million related to cost reduction initiatives. Gross margins are projected to decline by approximately 300 basis points, driven almost entirely by tariff headwinds.
Adjusted Diluted Earnings Per Share: Adjusted diluted earnings per share for Q4 is expected to range between $1.82 and $1.92.
Capital Expenditures: Capital expenditures for the year are expected to range between $70 million and $75 million.
Cost Savings Initiatives: The company has identified $100 million of incremental gross cost savings expected to benefit 2026. These savings include simplifying the organizational structure, reducing noncritical spending, and optimizing the supply chain. This is in addition to the $50 million of gross cost savings actioned in 2025.
Repurchase of Shares: Repurchased 2.4 million shares of common stock for $203 million at an average cost of $83 per share during the quarter. Year-to-date, repurchased 4.3 million shares for approximately $400 million. Remaining authorization for buybacks is $927 million.
Debt Paydown: Paid down $63 million of debt during the third quarter, reducing total borrowings to $1.3 billion. Net leverage ended at the lower end of the targeted range of 1 to 1.5x.
The earnings call reflects concerns with declining revenues and tariff impacts, despite cost-saving measures and international growth. The Q&A highlighted cautious consumer spending and challenges in North America, with management avoiding specifics on cost savings and tariff impacts. Additionally, HEYDUDE's ongoing cleanup and cautious wholesale planning indicate uncertainty. The lack of clear guidance and ongoing tariff-related headwinds contribute to a negative sentiment, suggesting a stock price decline of -2% to -8%.
The earnings call shows mixed signals: strong international growth, particularly in China, and cost-saving measures are positive. However, challenges in North America, tariffs, and cautious consumer behavior create headwinds. The withdrawal of full-year guidance due to tariffs and demand uncertainty is concerning. The Q&A section reveals management's strategic responses but lacks clear impact quantification, contributing to uncertainty. Overall, the sentiment is neutral, balancing positive international performance with domestic challenges and tariff impacts.
The earnings call presented mixed signals. Positive aspects include better-than-expected performance of Crocs, strong gross margins, and a significant share repurchase plan. However, the decline in HEYDUDE revenues and lack of specific guidance on Q2 revenue create uncertainty. The management's cautious tone in the Q&A, particularly regarding global trade unpredictability and reluctance to provide detailed guidance, suggests a neutral outlook. The stock price is likely to remain stable in the short term, with no major catalysts for a significant upward or downward movement.
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