Speaking at Baird’s 2023 Global Consumer, Technology & Services Conference, Andrew Rees, Crocs’ CEO, said HeyDude is expected to see U.S. wholesale sales decline in the second and third quarters of 2023 as it comped against aggressive initial distribution at several major U.S. retailers in 2022. However, he insisted that the demand for casual remains strong.
Rees’ comments came as shares of Crocs fell about 16 percent on April 17 after the company reported lower-than-expected sales in the first quarter at HeyDude and softer-than-expected 2023 guidance for the brand.
Crocs acquired HeyDude on February 17, 2022.
“There’s definitely been a little confusion about its trajectory this year, which we wanted to make sure we gave everybody the opportunity to clarify,” said Rees at Baird’s conference. Rees noted that Crocs provided guidance for the HeyDude brand for 2023 to grow in the mid-twenties, translating into a mid-teens growth rate for the year on a pro-forma basis, or assumed Crocs owned the business for the full year in 2022. Rees said, “I think some people’s concern was, ‘Why is the growth decelerating?’ because it grew 70-plus percent last year.”
A big part of the deceleration, according to Rees, was Crocs’ decision to rapidly fill in major U.S. wholesale accounts, which has quickly brought the HeyDude brand to 50 percent of the Crocs brand’s strategic accounts.
Rees noted that of HeyDude’s $163 million U.S. wholesale revenues in the 2022 second quarter, $70 million came from new accounts. Of its $182 million U.S. wholesale revenues in the third quarter, $60 million came from new accounts. Overall, $220 million of HeyDude’s $574 million U.S. wholesale revenues came from new accounts.
“When you’re filling a major retailer, take Famous Footwear or someone with 1,000 stores, and you’re putting a significant number of SKUs on the shelf, and you’re putting a size run of each SKU in each store; obviously it adds up to a lot of units, and you don’t sell through that all immediately,” said Rees.
Rees said the negative sales in the U.S. wholesales this year will reflect the hurdles comping against those fill-ins at the new accounts.
Rees acknowledged that HeyDude could have added distribution “gradually over several years and smooth out the growth,” but the company wanted to secure a strong foothold for competitive reasons quickly. The CEO said, “It was a very conscious decision on our part to do that last year because we’re very much aware that there is competition in the marketplace. People are selling a HeyDude knockoff or something very similar, and many of these retailers have private label. There was a similar product on the shelf. We knew our product would perform better, and we wanted to secure that shelf space for the HeyDude brand. So that was a conscious decision we made that I think we probably could have done a better job of being a little clearer about that. But that was a conscious decision we made.”
Rees noted that while HeyDude’s sales in the first quarter were up 15 percent on a pro-forma basis, pro-forma sales were up 108 percent on a two-year stack basis. For 2023, HeyDude’s pro-forma sales are expected to be up 93 percent on a two-year stack basis.
Rees also noted that HeyDude continues to see strong “sell-outs” across most accounts, as reported by NPD and SPS. At the brand’s major U.S. wholesale accounts, the sell-out rate in the first quarter was 143 percent year-over-year.
Rees noted that the figure included both comp and non-comp accounts, or new stores that had previously carried the brand in the year-ago quarter. He added, “The way to think about it is 143 percent more pairs are now in the hands of consumers.”
At DTC (direct-to-consumer), HeyDude’s sell-out rate was 41 percent in the first quarter.
Crocs estimated that at Hey Dude’s non-strategic accounts, pairs sold were likely down about 20 percent in the first quarter as those accounts face heightened competition, with HeyDude increasing its presence at major retailers.
He said that on a net basis, HeyDude’s sales would have been up in the mid-twenties in the first quarter. Rees added, “That to us implies a brand that is growing, is gaining penetration, and is gaining and is acquiring new customers.”
Another factor in the deceleration is that HeyDude has closed some regional and smaller accounts as it’s opened larger accounts to support the sustainable, long-term growth of the brand.
“We have eliminated a number of non-strategic accounts,” said Rees. “This is not just about size, although that is some component of it, but we’re trying to make sure that we’re working with wholesale customers that can support the brand effectively, communicate the brand values, carry an appropriate range of products, and not do things that we don’t like with the brand.”
This includes cleaning up HeyDude’s distribution on the Amazon marketplace.
“We definitely see some HeyDude on the Amazon marketplace that we’re not thrilled with,” said Rees. “We’re in the process of cleaning that up. We’ve implemented MAP pricing and also reduced the amount of competition there is digitally for the brand historically. Essentially, all customers were authorized for digital we’re reducing that to a small number of customers who are authorized to compete on the digital marketplace, so that becomes more rational. And then, I think, critically important as we build out the product range and we enhance the product range, we’re also looking to provide much more strategic segmentation within all our customers.”
Other positive indicators of healthy demand for HeyDude include surveys showing that HeyDude’s NPS (net promoter score) is in the 70s, compared to the 50s for most similar footwear brands under the same metrics. HeyDude also ranked as the number one casual brand in the U.S. for men and women in the latest LEK Brand Heat Index and ranked as the 7th favorite footwear brand for teens in Piper Sandler’s Spring 2023 Taking Stocks with Teens Survey.
Rees said, “We’re very confident in the brand’s trajectory, the reception it’s getting from his consumers, and I would say the bumps you would see in the U.S. wholesale business was intentional…We’re not going to comp the numbers that we had last year, but I don’t think that’s any indication of any brand weakness as an indication of the extraordinary size of the sell-in we executed last year.”
Photo courtesy HeyDude
