Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Crocs Inc (CROX, Financial) reported strong first quarter results, exceeding guidance on both top and bottom lines with a 7% revenue growth.
- Adjusted gross margins improved by 180 basis points to 56%, reflecting efficient cost management and favorable product costs.
- The Crocs brand experienced significant growth, particularly in international markets like China and Australia, with triple-digit growth rates.
- New product launches and collaborations, such as the Toy Story Collection and Simone Rocha collaboration, were highly successful and sold out globally.
- The company is expanding its market share, particularly in North America, and continues to see strong direct-to-consumer channel performance.
Negative Points
- Performance around Easter and into April for the HEYDUDE brand fell short of expectations, with softening sellout rates in wholesale.
- The company has adjusted its outlook for the HEYDUDE brand, expecting a revenue contraction of 10% to 8% for the year, indicating challenges in the wholesale segment.
- Despite strong Q1 results, the company remains cautious about the robustness of the consumer market and has taken a more prudent approach to trends for the balance of the year.
- HEYDUDE's direct-to-consumer channel experienced a decline due to a strategic shift towards less promotional activity and higher average selling prices, impacting unit sales.
- Inventory management remains a challenge, with a need to balance sell-in and sell-out to ensure channel health, particularly for the HEYDUDE brand.
Q & A Highlights
Q: Can you discuss the recent softness in HEYDUDE and how D2C is trending within the new guidance?
A: Andrew Rees, CEO of Crocs, noted that HEYDUDE experienced a solid Q1 but saw a softening in wholesale sellout from Easter into April, attributing part of this to reduced promotional activity. Anne Mehlman, CFO, added that for HEYDUDE, wholesale is expected to be down for the year, but DTC should perform better, with Q4 anticipated to show the strongest revenue growth due to new store contributions and easier wholesale comparisons.
Q: What is driving the earlier shipments in the forward order book, and how is inventory being managed?
A: Andrew Rees explained that the pull forward was due to strong sell-through of Crocs products, not indicative of a robust market for the rest of the year. Anne Mehlman mentioned that inventory is down 18% year-over-year, aligning with their target of 4x inventory turns, reflecting efficient inventory management.
Q: Can you elaborate on the factors behind the optimistic view on Crocs brand revenue and changes in margin assumptions?
A: Anne Mehlman highlighted better-than-expected Q1 results, particularly in North America and strong international markets like China and Australia, as key factors for the revenue raise. Improved full-price selling and reduced input cost pressures have supported higher gross margin assumptions.
Q: How does the Q2 guidance for HEYDUDE reflect current trends, and are there any major strategic shifts planned under the new President?
A: Anne Mehlman confirmed that Q2 guidance for HEYDUDE reflects current trends without expecting improvement. Andrew Rees added that no dramatic strategic shifts are planned under the new President, focusing on enhancing the brand's iconic franchises and consumer engagement.
Q: What is the performance of Crocs in China, and what are the expectations for the upcoming seasons?
A: Andrew Rees reported triple-digit growth in China, driven by a successful Super Brand Day on Tmall and plans for increased store openings. He expressed confidence in maintaining strong growth throughout the year, supported by a growing digital presence and expanding wholesale distribution.
Q: Can you discuss the outlook for operating margins and the assumptions for Crocs brand ASPs versus units going forward?
A: Anne Mehlman expressed confidence in maintaining approximately 25% operating margins, supported by high gross margins allowing for continued investment. For the Crocs brand, no further price increases are planned for the year, with international price increases from Q1 expected to lessen in the latter half.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
