Crocs, Inc. reported second-quarter sales and earnings that topped expectations but delivered cautious guidance for the back half, including a warning of flat sales for the Crocs Brand.

Meanwhile, the Hey Dude brand, which the leadership team is repositioning, saw sales decline 17.5 percent to $198 million in the second quarter but is expected to resume growth by the fourth quarter against easy comparisons.

Sales for the Crocs Brand in North America increased 3.0 percent in the second quarter to $489 million, or 3.2 percent on a constant currency basis. Results exceeded management’s expectations.

Andrew Rees, CEO, said the Crocs Brand revenues gained market share in the North American region in the quarter, with the gains driven by “better-advanced demand from our retail partners and solid DTC channel growth.”

Direct-to-consumer (DTC) was up 7 percent in the region while wholesale was down 4 percent. Crocs Brand’s underlying North American brick-and-mortar growth was up mid-single digits.

For the first six months of the year, Crocs Brand sales in North America expanded 6 percent against “a broader market that was essentially flat,” added Rees. However, he said the company expects the Crocs Brand to post “approximately flat” sales in the second half due to signs of consumer caution in the NA marketplace. He said, “We definitely see the U.S. consumer behaving cautiously. We think our brand is well-positioned relative to a cautious consumer environment. We excel at exceptional value.”

For the third quarter, Crocs Brand’s global sales are expected to significantly decelerate to a gain in the range of 3 percent to 5 percent

In the second quarter, global sales for the Crocs Brand climbed 9.7 percent to $914 million, or 11.2 percent on a constant currency basis. The growth topped Crocs’ expectations calling for reported growth between 7 percent to 9 percent.

Crocs Brand Q2 Sales Expand 22 Percent Internationally
The gains for the Crocs Brand in the quarter, driven by an 18.7 percent hike in international revenues to $425 million, or 22.0 percent on a constant currency basis. International sales grew 28 percent within the DTC channel and 18 percent at wholesale.

The international gains were supported by “exceptional growth” in China and Australia. Rees said China grew over 70 percent on top of triple-digit growth last year. A highlight in China was the Crocs Brand ranking as a Top 10 overall fashion brand on Tmall during the Midsummer Festival for the first time. Rees said, “While there is evidence in the market that the Chinese consumer is becoming more cautious, we see our accessible, authentic and personalizable brand position as a clear competitive advantage.”

Crocs Brand’s European direct markets registered double-digit growth, led by the U.K. and Germany. And the company “continues to see ample opportunity for growth in the future.”

By channel, DTC revenues for the Crocs Brand increased 12.5 percent to $479 million, or 13.8 percent on a constant currency basis. Wholesale revenues advanced 6.9 percent to $435 million, or 8.6 percent on a constant currency basis.

By product category, the gains were once again led by the Crocs classic clog. Rees said the clog’s growth was helped by developing “several successful franchises” that address new usage collections. Helping build brand heat for the clog was introducing a limited-edition style celebrating SpongeBob SquarePants’ 25th anniversary and collaborations with Pringles, Minions, Naruto and Treasure, a K-pop band.

The Crocs Brand sandal category “strengthened” in the second quarter versus the first quarter with fashion-oriented sandals, including the new Getaway and Miami models, as well as established franchises, like the Brooklyn, performing well. The Jibbitz business saw growth in the quarter, led by strong double-digit growth in Asia, Jibbitz’s highest penetration by geography.

HeyDude Continues Reset
HeyDude’s 17.5 percent tumble in the second quarter was in line with a forecast calling for a decline in the range of 19 percent to 17 percent. DTC revenues decreased 7.6 percent to $84 million. Wholesale revenues decreased 23.5 percent to $114 million.

On August 29, Terence Reilly, most recently president of the Stanley Brand and formerly Crocs’ chief marketing officer, joined the company as president of HeyDude to speed the turnaround.

“We all loved working with him when he was here initially, and we’re all very impressed by the trajectory he was able to drive at Stanley, where he was, for a period of time, while he was not with us,” said Rees. “So, we’re thrilled to have him back.”

Among the steps Reilly is taking is sharpening HeyDude’s focus on its two core franchises, Wendy and Wally, reestablishing demand in North America, its largest market, and narrowing its marketing focus to emphasize reaching female consumers. Rees said, “We believe the younger female consumer drives youth culture. If we can engage and energize a female, younger female consumer, we know that’s going to spread passion for the brand to a much broader range of consumers and drive the brand overall.”

According to Rees, HeyDude will also see a “substantial” increase in marketing investment to help regain brand heat.

In the second quarter, progress on HeyDude’s turnaround efforts was found in improved pricing, supporting a “solid recovery” in gross margins. Inventories at HeyDude also turned in excess of four turns. Rees said, “Our wholesale business for HeyDude remains challenging, and we expect that to continue through the second half of the year. As we shared in the first quarter earnings call, sell-in and sell-out are down versus last year, and we’re focused on energizing the brand through improved marketing effectiveness and new product introductions.”

The company formed marketing collaborations for HeyDude in the quarter with Corona beer and Lee jeans. The increasing focus on Wendy and Wally is focused on three primary offerings: Stretch Subs, Stretch Canvas and Funk Mono. Rees said,” While leading from the core is our focus, we’ll make calculated bets with key sneaker and boot styles that the brand is also known for.”

Looking to 2025, Rees foresees opportunities for HeyDude to streamline its SKU count further while continuing to optimize channel segmentation and bring innovations to market.

A total of 13 new HeyDude outlet locations opened in the quarter, bringing the brand’s year-to-date openings to 19. Thirty openings are planned for the full year. Rees said, “We are pleased with our new stores and see growing consumer engagement and shopping across genders and ages as consumers can experience the full breadth of the line.”

Crocs Companywide Results
Companywide, consolidated revenues increased 3.6 percent to $1.11 billion or 4.8 percent on a constant currency basis. Results topped guidance calling for revenues to be up 1 percent to 3 percent. DTC revenues grew 8.9 percent, or 10.0 percent, on a constant currency basis. Wholesale revenues contracted 1.3 percent, flat on a constant currency basis.

Consolidated adjusted gross margin for the quarter was 61.4 percent, up 330 basis points from last year.

Crocs Brand adjusted gross margin was 64.1 percent, or 210 basis points higher than the prior year. The primary drivers of the expansion were favorable product costs, lower freight costs, and higher international pricing. HeyDude’s gross margin was 49.1 percent, up 200 basis points due to lower freight costs, channel mix, and higher ASPs (average selling prices), partially offset by investments in infrastructure.

Adjusted SG&A expenses increased 19 percent the prior year and increased 420 basis points as a percent of sales to 32.0 percent, driven by continued investment in talent, marketing, and DTC to support growth plans.

Net earnings grew 7.8 percent to $228.9 million, or $3.77 a share, from $212.4 million, or $3.39, a year ago. On an adjusted basis largely reflecting the exclusion of investments in distribution centers, earnings improved 8.4 percent to $243.6 million, or $4.01, from $224.7 million, or $3.59. EPS came in well above Crocs’ guidance in the range of $3.40 to $3.55.

Outlook
Looking ahead, Crocs reaffirmed its full-year top-line guidance range despite the quarter beat amid an expectation of $11 million of incremental FX headwind and signs of a softening in spending in North America. Revenues are expected to increase in the range of 3 percent to 5 percent compared to 2023.

For the Crocs brand, revenue growth is still expected between 7 percent and 9 percent, led by international. For HeyDude, revenues are still expected to contract between 8 percent to 10 percent.

Adjusted EPS is now expected in the range of $12.45 to $12.90, up from $12.25 to $12.73 previously. Susan Healy, Croc’s newly hired CFO said on her first analyst call with the company, “Our updated full-year range balances the strength we saw on 2Q along with appropriate caution around consumer spending trend and the geopolitical landscape as well as the timing of our SG&A investments.”

For the third quarter, consolidated revenues are projected in the range of down 1.5 percent to up 0.5 percent. Crocs’ growth expectation in the range of 3 percent to 5 percent is expected to be offset by a decline between 14 percent to 16 percent at HeyDude in the quarter.

HeyDude is expected to show modest sequential improvement in the third quarter with the brand while lapping significant discounting for most of Q3 last year and the timing of wholesale orders. Adjusted EPS for the company is expected to be between $2.95 and $3.10, down from $3.33 reported a year ago and below analysts’ consensus target of $3.25.

Healy noted that HeyDude is expected to show revenue growth in the fourth quarter, supported by easing comparisons, the timing of wholesale shipments, the contribution from new retail stores, sell-in to new international distributors, and lapping last year’s pricing reset on digital late in the third quarter.

Shares of Crocs were down Thursday, August 1, by $3.56, or 2.7 percent, to $130.81.

Image courtesy Crocs