Q2 2022 Crocs Inc Earnings Call

Accordingly, actual results could differ materially from those described on this call. Please refer to the CROC's annual report on Form 10-K , as well as other documents filed with the FCC for more information relating to these risk factors.

So, or in financial metrics that we refer to as adjusted, or non-GAP, or non- GAAP measures , or reconciliation of these amounts to their gap counterparts is contained in the press release we issued earlier this morning. Joining us on the call today are Andrew Wies, Chief Executive Officer, and Ann Melmond, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions. At this time, I'll turn the call over to Andrew.

Welcome to the Crocs incorporated second quarter 2022 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Corey Lynn Vice President of corporate Finance. Please go ahead.

Thank you, Carl. Good morning, everyone.

I'm pleased with our very strong second quarter results and the strength of our brands as we continue to navigate a dynamic consumer environment. Both of our brands are incredibly well positioned relative to the core consumer needs of comfort and value. Relative to the core consumer needs of comfort and value.

Good morning, everyone and thank you for joining us today for the Crocs second quarter 2022 earnings call earlier. This morning, we announced our latest quarter quarterly results and a copy of the press release may be found on our website at crocs Dot com, we'd like to remind you that some of the information provided on this call is forward looking and accordingly are subject to the safe Harbor provisions of the fed.

We're very confident that we will continue to gain significant market share, resulting in industry-leading growth, profitability and cash flow.

I want to also thank all of our teams across the world for all of their hard work as they respond to the many opportunities in front of us.

Looking at the second quarter of 2022.

All Securities laws. These statements include but are not limited to statements regarding the acquisition of Hey, Dude and the benefits there are rock strategy plans objectives expectations financial and otherwise and intension future financial results, congrats potential anticipated product portfolio, our ability to create and deliver shareholder value and statements regarding potential <unk>.

and we'll review our financial results in more detail shortly. But here are a few highlights. And we'll review our financial results in more detail shortly. Thank you. Thank you.

Consolidate revenues of $965 million, growing 56% on a constant currency basis.

The Croc brand had another great quarter, growing 19% constant currency, negatively impacted by Russia and the China COVID lockdown, which upset approximately 3% of points of growth.

<unk> core business related to the COVID-19 pandemic. These statements involve known and unknown risks uncertainties and other factors, which may cause our actual results performance or achievements to be materially different from any future results performances or achievements expressed or implied by the forward looking statements.

Hey dude, exceeded expectations generating revenues of 232 million impressive growth almost doubling compared to last year. and impressive growth almost doubling compared to last year.

Crocs is not obligated to update these forward looking statements to reflect the impact of future events, except as required by applicable law.

In July , we launched a new brand campaign for HeyDude that we think is compelling and introduces an updated brand identity.

We caution you that all forward looking statements are subject to risks and uncertainties described in the risk factors section of our annual report on Form 10-K, and our subsequent filings with the SEC Accordingly actual results could differ materially from those described on this call.

Adjusted operating margin on a consolidated basis remains best in class at 30%, despite currency, inflation and supply headwinds.

Adjusted diluted earnings per share increased $1.01 to $3.24.

Please refer to the Crocs annual report on Form 10-K, as well as other documents filed with the SEC for more information relating to these risk factors certain financial metrics that we referred to as adjusted or non-GAAP. Our non-GAAP measures. A reconciliation of these amounts to their GAAP counterparts is contained in the press release, we issued earlier this morning.

Finally, we're very proud that Crocs recently earned the number three spot on four-to-list of America's best employers for women.

We are particularly pleased with our Q2 results in the context of the overall market.

While market data is not as complete and timely as we would like, based on a variety of sources, we believe that the footwear market in the US shrank in the first half of 2022.

Joining us on the call today are Andrew Rees, Chief Executive Officer, and Anne Mehlman, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions. At this time I'll turn the call over to Andrew.

and may have done a little better globally, but we believe it was the best flat.

Thank you Carl and good morning, everyone.

In the context of a flat to down market, during the first half, constant currency revenues for the Crocs brand grew by 20% and consolidated revenues grew by 52% driven by the acquisition of Hey Do. As you can see both Crocs Inc and the Crocs brand are gaining significant market share.

I'm pleased with our very strong second quarter results on the strengths of our brands as we continue to navigate a dynamic consumer environment.

We're very confident that we will continue to gain significant market share, resulting in industry, leading growth profitability and cash flow.

There are many macroeconomic and external headwinds, including currency, inflation, rising interest rates, weakening consumer sentiment in the US and Europe , the war in Ukraine and China's Covid strategy, making this future very difficult to predict.

I want to also thank all of our teams across the world for all of the hard work as they respond to the many opportunities in front of us.

Looking at the second quarter of 2022.

That said, we believe great brands need to continue to invest in innovation and engage their consumers. And great companies must plan prudently and become more agile. And become more agile.

I will review our financial results in more detail shortly but here are a few highlights.

Consolidated revenues of 965 million growing 56% on a constant currency basis.

In the light of the current environment, we are very focused on managing the business prudently in order to maintain high levels of profitability and strong cash flow.

Our cross brand had another great quarter growing 19% constant currency negatively impacted by Russia on the China, Covid, Lockdown, which offset approximately three percentage points of growth.

During our call today, we will outline how Crocs Inc. will continue to gain market share.

both as a result of the growth momentum of Hey Dude and the growing consumer demand globally for the Crocs brand.

Hey, dude exceeded expectations generating revenues of $232 million.

Unimpressive growth almost doubling compared to last year.

Adude is one of the hottest brands in the US footwear market today because of the consumer love of the brand and its products.

In July we launched a new brand campaign. So he did that we think is compelling and introduces an updated brand identity.

We are investing rapidly in the capabilities that will allow us to sustain the growth potential of the brand.

Adjusted operating margin on a consolidated basis remains best in class at 30%, despite currency inflation and supply headwinds.

While we're not yet ready to outline the longer term potential, we believe it is significant, and we will easily achieve a short-term goal of a billion dollars in sales.

Adjusted diluted earnings per share increased $1.01 to $3.24.

Our strategy utilizes the proven playbook of investing in great product and digital and social marketing combined with a disciplined go-to-market and distribution strategy.

Finally, we're very proud the crux recently earned the number three spot on Forbes list of Americas best employers for women.

This will result in robust US growth from expanding wholesale distribution as well as strong digital growth.

We are particularly pleased with our Q2 results in the context of the overall market.

We're currently planning international growth beginning in 2023.

While market data is not as complete and timely as we would like based on a variety of sources, we believe that the footwear market in the U S. Shrank in the first half of 'twenty to 'twenty two.

and while small initially, were confident in the growth potential given initial tests and the versatility of the Wally and Wendy silhouettes.

They have done a little better globally, but we believe it was the best flat.

The integration of HeyDude is going well, including staffing many critical positions, as well as completing up brand work to help solidify the brand DNA and the consumer passion for the brand.

In the context of a flat to down market. During the first half constant currency revenues for the Crocs brand grew by 20% and consolidated revenues grew by 52% driven by the acquisition of Hey Dude.

We've recently unveiled an updated brand identity and positioning and will invest significantly in digital marketing through the back half of the year.

Can see both Crocs, Inc. On the cross Brian are gaining significant market share.

The growth of the Haydoo brand will continue to be very profitable, thanks to the simplicity of the product, the ability to drive supply chain efficiencies, and the SG&A leverage we gain from shared services across both brands.

There are many macroeconomic and external headwinds, including currency inflation rising interest rates weakening consumer sentiment in the U S and Europe The war in Ukraine, and trying to quote in China's COVID-19 strategy, making the future very difficult to predict.

Turning to the cropped wrap.

We will continue to gain market share because of our comfort positioning, molded DNA, strong marketing and product innovation pipeline.

That said, we believe great brands need to continue to invest in innovation and engage their consumers and great companies must plan prudently and become more agile.

We have developed deep connections with our consumers and they love our brand as evidenced by our own brand metrics and which continue to be very strong as well as leading industry studies.

In the light of the current environment, we're very focused on managing the business prudently in order to maintain high levels of profitability and strong cash flow.

When we combine the brand awareness and relevance with a very democratic price point, we believe that the brand is very well positioned to thrive when the consumer is looking for comfort and value.

During our call today, we will outline how crocs, Inc will continue to gain market share.

As a result of the growth momentum is hey, dude and the growing consumer demand globally for the Crocs brand.

In addition, crocs have significant penetration opportunities in key international markets, hence of focus on Asia.

Hey, Dude, it's one of the hottest brands in the U S market today, because of the consumer loves the brand and its products.

Our proven playbook is driving growth in South Korea, India, and Southeast Asia, and we are very encouraged by the green shoots we're seeing in China.

We're investing rapidly and the capabilities that will allow us to sustain the growth potential of the brand.

Well, we're not yet ready to outline the longer term potential we believe it is significant.

We will continue to create brand pull with a powerful social and digital marketing and a pipeline of new products.

And we will easily achieve our short term goal of $1 billion in sales.

We had numerous successful collaborations and licenses, ranging from a second drop of Salaheem Bambri to Cinnamon Toast Crunch Serial, to MCM in China, and Lazy-Ove in Europe .

Our strategy utilizes the proven playbook of investing in great product and digital and social marketing combined with a disciplined go to market and distribution strategy.

One of our latest marketing innovations was our first ever virtual store experience in the Metaverse, combining commerce and gamification with a Saweetie collaboration.

This will result in robust U S growth from expanding wholesale distribution as well as strong digital growth.

We're currently planning international growth beginning in 2023.

From a product perspective, we expanded our sandal portfolio with a long-awaited crushed sandal debut in the US and top Asian markets.

And while small initially we're confident in the growth potential given initial test and the versatility of the wallet and Wendy silhouettes.

The crush was recently featured in Bog in an article entitled, These ugly chic sandals have gotten me the most compliments this summer.

The integration of Hey, Dude, it's going well, including stopping many critical positions as well as completing our brand work to help solidify the brand DNA and the consumer passion for the brand.

Innovation such as the CRUSH Sandal and dedicated marketing campaign is such a summer of CRUSH that features five new sandal introductions. I just two of the examples of how we're driving growth in the 30 billion dollar sandal market.

We recently unveiled an updated brand identity and positioning and we will invest significantly in digital marketing through the back half of the year.

The growth of the Haydu brand will continue to be very profitable. Thanks to the simplicity of the product the ability to drive supply chain efficiencies and the SG&A leverage we gained from shared services across both brands.

We were disappointed with our year-to-date saddle revenue decline of 13% constant currency, as we overed it with a line to maximize throughput at factories. And we had delays in UNICE, and which was also compounded by poor saddle season in the US. Brander homeowners. you

Turning to the Crocs brand we.

We will continue to gain market share because of our comfort positioning molded DNA strong marketing and product innovation pipeline.

Year to date, we do however see strong double digit growth in our ICON SAML franchise and we expect SAMLs to improve in the back half with more newness and additional marketing.

We have developed deep connections with our consumers and they love our brand as evidenced by our own Brian metrics, and which continued to be very strong as well as leading industry studies.

As a digital first company, we also continue to engage our consumers in their preferred channel. In Q2, Crux brand digital sales grew by 21% constant currency with balanced growth from new and repeat customers.

When we combine the brand awareness and relevance with a very Democratic price point, we believe that the brand is very well positioned to thrive when the consumer is looking for comfort and value.

All of these factors give us confidence in our ability for the cross-brands to continue to gain market share.

In addition, crocs has significant penetration opportunities in key international markets, Hence our focus on Asia.

In terms of managing the company prudently, we must remain agile to be responsive in a shifting consumer landscape. Let me outline some of those key steps.

Our proven playbook is driving growth in South Korea, India, and Southeast Asia, and we're very encouraged by the Green shoots we're seeing in China.

With uncertainty around the future macroeconomic environment and consumer behaviour, we're planning for lower growth in the cross brand in the short term.

We will continue to create brand pull with a powerful social and digital marketing and our pipeline of new products.

Our assumption is that consumer confidence in the US and key European markets will continue to soften as the year progresses, as higher interest rates and high food and energy inflation slow consumption. We have a slow consumption. We have a slow consumption. We have a slow consumption.

We had numerous successful collaborations and licenses.

Ranging from a second drop off so he bembry to cinnamon toast crunch cereal to M cm in China and <unk> in Europe .

For 2022, we expect Crocs brand revenues to grow approximately 14-17% constant currency, or 10-13% including the negative impact of currency of approximately 400 basis points. This will allow us to prudently plan and manage our inventory and investments.

One of our latest marketing innovations was our first ever virtual store experience and the met of us.

Binding commerce, and gamification Where's the sweet tea collaborations.

From a product perspective, we expanded our expanded our saddle portfolio with a long awaited crush sandal debut in the U S and top Asian markets.

Following strong, hated performance in H1, we now expect 2022 revenues of between $850 and $890 million, which is nearly a billion dollars on a pro-former basis.

The crush was recently featured in Vogue in an article entitled These Ugly Chic sandals have gotten me the most complements the song.

Yeah.

We will continue to leverage SG&A and keep inventories lean. This will enable us to maintain strong marketing investment and constant consumer engagement and will position us to continue our track record of delivering industry leading profitability and cash flow generation.

Innovations such as the crush sandal and dedicated marketing campaigns, such as summer of crops that featured five new sandal introductions I just two of the examples of how we're driving growth in the $30 billion sandal market.

Yeah.

We were disappointed with our year to date sandal revenue decline of 13% constant currency as we open the line to maximize throughput at the factories and we had delays in newness and which was also compounded by a pool of sandal season in the U S.

In summary, while we understand the consumer environment is very uncertain right now, Crocs owns two incredible brands that are perfectly positioned for this time and we're managing the company to take significant market share.

We will now review our second quarter financial results in more detail.

Year to date, we do help us see strong double digit growth in our icon sandal franchise, and we expect sandoz to improve in the back half with more newness and additional marketing.

Thank you, Andrew, and good morning, everyone. I'll begin with a short recap of our second quarter results. All revenue growth rates will be cited on a constant currency basis unless otherwise stated. For a reconciliation of the non-GAAP amounts mentioned to their equivalent GAAP amounts, please refer to our press release.

As a digital first company. We also continue to engage with consumers in their preferred channel in Q2 Crocs brand digital sales grew by 21% constant currency was balanced growth from new and repeat customers.

As you've already heard, both brands performed well during the second quarter. In Miss Minnie headwinds, we delivered strong revenue growth of 19.4% within the crocs brand, taking our first half revenue growth to 20.3%.nes.

All of these factors give us confidence in our ability for the cross brand to continue to gain market share.

In terms of managing the company prudently, we must remain agile to be responsive and a shifting consumer landscape, let me outline some of those key steps.

Hey, dude revenues continue to exceed our expectations and almost doubled from last year gross margins remained strong particularly for the Crocs brand despite freight and FX headwinds while consolidated sgna leverage led to another quarter of Industry leading adjusted operating margins of thirty point one percent and strong adjusted EPS growth

With uncertainty around the future macroeconomic environment and consumer behavior, we're planning for lower growth in the cross brand in the short term.

Our assumption is a consumer confidence in the U S and key European markets will continue to soften as the year progresses, as higher interest rates and high food and energy inflation slow consumption.

Second quarter consolidated revenues were $965 million, representing 55.6% growth over last year. The cross brand had a record breaking quarter with revenues at an all time high of $732 million, up 19.4% on top of 88.4% growth last year. The cross brand growth rate was negatively impacted by currency of 510 basis points in the quarter. He drew revenues of $232 million, also a record.

For 2022, we expect crocs brand revenues to grow approximately 14% to 17% constant currency or 10% to 13%, including the negative impact of currency of approximately 400 basis points. This will allow us to prudently plan and manage our inventory and investments.

Following strong Hey, Dude performance in H, one we now expect 2022 revenues of between 850 and $890 million, which is nearly a $1 billion on a pro forma basis.

were up 96%. During the second quarter, the croc for insult 32.4 million pairs of shoes, an increase of 11.4% over Q2 2021. An increase of 11.4% over Q2 2021.

We will continue to leverage SG&A and keep inventories late this will enable us to maintain strong marketing investment and constant consumer engagement and will position us to continue our track record of delivering industry, leading profitability and cash flow generation.

The croc brand average selling price during Q2 was $22.39. A year-over-year increase of 2.5% driven primarily by higher pricing and product mix, offset and part by channel mix and currency.

In summary, while we understand the consumer environment is very uncertain right now crocs owns two incredible brands that are perfectly positioned for this time and we're managing the company to take significant market share.

Let's review a few cross-brand highlights by region.

In North America, second quarter revenues increased 7.8% to $423 million on top of over 132.3% growth last year. This growth was driven by digital channels, including our own e-commerce, where we saw strong growth in traffic, evidencing strong consumer demand for the crops brand in North America. For the first task, North America revenues grew 12.5% amidst an approximately 3% decline in the US wholesale footwear market, according to NPD.

I will now review, our second quarter financial results in more detail.

Thank you Andrew and good morning, everyone.

I'll begin with a short recap of our second quarter results all revenue growth rates will be decided on a constant currency basis, unless otherwise stated for a reconciliation of the non-GAAP amounts mentioned to their equivalent GAAP amounts. Please refer to our press release.

The cross-branded Asia generated second quarter revenues of $149 million or 27.6% growth.

As you've already heard both brands performed well during the second quarter amidst many headwinds we delivered strong revenue growth of 19.4% within the Crocs brand, taking our first half revenue growth to 23%, Hey, Dude revenues continued to exceed our expectations and almost doubled from last year gross margins.

Strengthen the region was led by India and Southeast Asia distributors with revenues more than doubling versus last year. In Southeast Asia, distributor partners benefited from COVID reopening and the partial return of tourism to the region.

<unk> strong, particularly for the Crocs brand, despite freight and FX headwinds, while consolidated SG&A leverage led to another quarter of industry, leading adjusted operating margins at 31% and strong adjusted EPS growth.

This momentum was partially offset by softness in China due to COVID lockdown. L.

H1 results for Asia have been consistently strong for two years in a row, posting 25.5% growth this year on top of 24.3% growth last year.

Croft brand revenues for Amelia grew 48.4% to $160 million. Growth was particularly strong in the UK, Germany and with our distributor partners. Similar to Asia, distributors are seeing strong demand and self-real.

Second quarter consolidated revenues were $965 million, representing 55, 6% growth over last year. The cross brand had a record breaking quarter with revenues at an all time high of $732 million up 19, 4% on top of 88, 4% growth last year.

Looking at the first half, Amelia grew 38% on top of 60% of the first half of last year.

The crocs brand growth rate was negatively impacted by currency of 510 basis points in the quarter. He did revenues of $232 million also a record were up 96% during the second quarter. The Crocs brand sold $32 4 million pairs of shoes, an increase of 11, 4% over Q2 2000.

Turning to HeyDew, revenues exceeded expectations, contributing $232 million and growing 96% from pro forma 2021 revenues.

We are excited to see the success of the brand during our first full quarter of ownership and expect the new branding and implementation of the crocs playbook to fuel future growth. We are excited to see the success of the crocs playbook in the future growth. We are excited to see the success of the crocs playbook in the future growth.

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As a reminder, we will continue providing growth margin visibility by brand for the remainder of 2022. Beginning in 2023, the growth margin will be reported on a consolidated basis only. The growth margin will be reported on a consolidated basis only.

Ross brand average selling price during Q2 was $22.39 a year over year increase of two 5% driven primarily by higher pricing and product mix offset in part by channel mix and currency.

Consolidated adjusted gross margins for the second quarter were down 660 basis points from last year to 55.2% due to increased air fray and logistics costs. The addition of hey dude channel mix and currency. The addition of hey dude channel mix and currency.

Let's review a few cross brand highlights by region, North America second quarter revenues increased seven 8% to $423 million on top of over 132, 3% growth last year. This growth was driven by digital channels, including our own E Commerce, where we saw strong growth in traffic.

Adjusted Gross Margin excludes a $34 million inventory write-up in connection with the Hey Dude acquisition.

Evident things strong consumer demand for the Crocs brand in North America for the first half North America revenues grew 12, 5% amidst an approximately 3% decline in the U S wholesale footwear market according to NPD.

At a brand level, a gesture gross margin for the cross brand was 57.9%, down 390 basis points driven primarily by freight headwind of 445 basis points, including a 340 basis point impact of incremental air freight, and 105 basis points currency, somewhat offset by increased prices and product mix.

The Crocs brand in Asia generated second quarter revenue of $149 million or 27, 6% growth.

Hey dude, adjusted gross margin was 47.1%.

Strength in the region was led by India, and Southeast Asia distributors with revenues more than doubling versus last year in southeast Asia distributor partners benefited from Covid reopening and a partial return of tourism to the region.

Hey Dude experienced higher inbound freight rates versus prior year and we have moved quickly to leverage Crocs inbound freight contracts which we expect to result in gross margin improvement in the back half of the year.

Momentum was partially offset by softness in China due to Covid lockdowns. Each one results for Asia have been consistently strong for two years in a row posting 25, 5% growth. This year on top of 24, 3% growth last year.

During the second quarter of 2022, we were able to leverage consolidated adjusted SG&A 610 basis points, improving to 25.1% of revenues versus 31.2% last year.

Cross brand revenues for Amelia grew 48, 4% to $160 million growth was particularly strong in the U K, Germany and with our distributor partners.

Non-recurring SGNA expenses for second quarter were $8 million, including $6 million of HADUDE integration cost.

The 610 basis points of leverage was achieved while investing in additional $42 million versus prior year, primarily in marketing and talent. The 610 basis points of leverage was achieved while investing in additional $42 million

In order to Asia distributors are seeing strong demand and sell through.

At the first half Amelia grew 38% on top of 60% for the first half of last year.

To support the long-term growth of both brands, we plan to continue leveraging SNA while maintaining investment in the right areas to stay connected to our consumers. Our flexible SNA base, coupled with our ability to leverage shared services of supply chain, IT, finance, HR, and legal, across the brands, allows us to remain agile.

Turning to Haiti.

Revenues exceeded expectations contributing $232 million and growing 96% from pro forma 2021 revenues. We are excited to see the success of the brand during our first full quarter of ownership and expect the new branding and implementation of the crocs playbook to fuel future growth.

Our second quarter consolidated adjusted operating income of $291 million increased $94 million or 47.9% from last year, including $76 million attributable to Hey Dude.

As a reminder, we will continue providing gross margin visibility by brand for the remainder of 2022, beginning in 2023 gross margin will be reported on a consolidated basis only.

Adjusted operating margin declined slightly to 30.1% from 30.7% last year as gross margin headwinds were nearly offset by SG&A leverage. Adjusted operating margins would have been favorable to prior year excluding currency.

Consolidated adjusted gross margins for the second quarter were down 660 basis points from last year to 55, 2% due to increased air freight and logistics costs and the addition of Hey, Dude channel mix and currency.

Our second quarter non-GAP diluted earnings per share increased 45.3% to $3.24. The earnings increased 45.3% to $3.24.

Adjusted gross margin excludes a $34 million inventory writeup in connection with the Hey, Dude acquisition.

At a brand level adjusted gross margin for the cross brand was 57, 9% down 390 basis points, driven primarily by freight headwinds of 445 basis points, including a 340 basis point impact of incremental air freight and 105 basis points currency somewhat offset by increased prices and <unk>.

Our liquidity position remains strong as we ended the second quarter with $187 million of cash and cash equivalence and $470 million of borrowing capacity on a revolving credit facility. Given strong cash flow generation in the second quarter, we repaid $110 million of debt during the quarter, reducing borrowing to $2.77 million and net leverage to 2.6 times at the end of Q2. Our inventory balance.

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Hey, Dude adjusted gross margin was 47, 1%.

Hey, Dude experienced higher inbound freight rates versus prior year, and we have moved quickly to leverage cross inbound freight contracts, which we expect to result in gross margin improvement in the back half of the year.

at June 30th, 2022 with $502 million, including $167 million for Hey Dude.

Similar to the industry, our in transit levels remain elevated as a result of longer transit times.

During the second quarter of 2022, we were able to leverage consolidated adjusted SG&A 610 basis points, improving to 25, 1% of revenues versus 31, 2% last year.

Well, inventories were up $125 million in the Crock brand. Bear in mind that last year at this time, inventories were exceptionally lean. We also see elevated inventories in the US due to the slowing of our US growth rate relative to what we anticipated.

Nonrecurring SG&A expenses for second quarter were $8 million, including $6 million of Hey, Jude integration cost the.

Having traditionally targeted over a four times inventory turn, we're slightly below that today. However, excluding entranment inventory turns exceeded six times for both brands. The inventory turns exceeded six times for both brands.

The 610 basis points of leverage was achieved while investing an additional $42 million versus prior year, primarily in marketing and talent.

Turning to the future, I would like to share our current outlook for 2022 and the third quarter. All numbers will be on a reported basis unless otherwise stated. Since our prior guidance, we have seen a strengthening U.S. dollar, ongoing shutdowns in China, and we are also anticipating a continued weakening in consumer confidence.

To support the long term growth with both brands, we plan to continue leveraging SG&A, while maintaining investment in the right areas to stay connected to our consumers our flexible SG&A base, coupled with our ability to leverage shared services or supply chain finance HR and legal across the brands allows us to remain agile.

As such, we are planning our own DTC more cautiously and are helping manage our inventory and our wholesale partners more tightly. We are planning to make sure that we can make sure that we can that we can make sure that we can

Our second quarter consolidated adjusted operating income of $291 million increased $94 million or 47, 9% from last year, including $76 million attributable to Hey, Dude.

Given those dynamics for 2022, we are lowering the Croft's brand revenue guidance to be approximately $2.6 billion, representing year-over-year growth of between 14 and 17% on a constant currency basis, and 10 and 13% on a reported basis. So, this issues has become a key phase in the Sustainable budget. This has been nearly a decade further." 30% paying attention to money while marker push, therefore, being part of the parameter level based system. Theirjer has parameters supported by two different core services and seven with two key categories, that would also be fully anique can for kids, and 9th participants featured in the governmental project. And rest nossas continuous efforts for towered scale investment in solo projects. Thanks to a garden, field of and 13% on a reported basis.

Adjusted operating margin declined slightly to 31% from 37% last year gross margin headwinds were nearly offset by SG&A leverage.

Adjusted operating margins would have been favorable to prior year excluding currency.

We expect to grow in all regions with the strongest growth to occur in Amelia and Asia as the regions continue to experience high consumer demand and COVID reopening.

Our second quarter non-GAAP diluted earnings per share increased 45, 3% to $3.24.

With respect to Haydew, we continue to gain visibility and confidence in our supply chain. Thus, we are raising our expectations for the full year and now expect Haydew revenues to be between $850 and $890 million on a reported basis, implying $940 to $980 million on a pro forma basis. This translates to consolidated revenues growing 47 to 52% to approximately $3.4 to $3.5 billion.

Our liquidity position remains strong as we ended the second quarter with $187 million of cash and cash equivalents and $470 million of borrowing capacity on our revolving credit facility given strong cash flow generation in the second quarter, we repaid $110 million of debt during the quarter reducing borrowing.

<unk> to $2 $77 billion in net leverage to two six times at the end of Q2 our.

We continue to expect that we will have best in class adjusted operating margins of approximately 26 to 27% for the full year, implying adjusted operating income of approximately $880 to $945 million. of approximately $880 to $945 million.

Our inventory balance at June 30th 2022, with $502 million, including $167 million for Hey, Dude.

More to the industry or in transit levels remain elevated as a result of longer transit times.

The net effect of the revenue revisions is that expected adjusted diluted earnings per share will be between approximately $9.50 to $10.30.

Well inventories were up $125 million in the Crocs brand bear in mind that last year. At this time inventories were exceptionally lean we also see elevated inventories in the U S. Due to the slowing of our U S growth rate relative to what we anticipated.

For the third quarter of 2022, we expect consolidated revenues to be between $915 and $955 million, representing 46 to 53% growth from prior year.,

Having traditionally targeted over a four times inventory turn we're slightly below that today. However, excluding in transit inventory turns exceeded six times for both brands.

We expect cross-brand revenues to grow approximately 15 to 18% on a constant currency basis, or 9 to 12%, including the negative impact of currency at 600 basis points.

Turning to the future I would like to share our current outlook for 2022, and the third quarter all numbers will be on a reported basis unless otherwise stated.

We expect he do revenues to be approximately $235 to $255 million.

Our prior guidance, we have seen a strengthening U S dollar ongoing shutdowns in China, and we are also anticipating a continued weakening in consumer confidence.

We expect adjusted operating margin to be between approximately 25 and 26%.

As we manage through the shifting operating environment, our commitment to quickly pay down our debt remains unchanged, and we expect to be below two times growth leverage in the next 12 months, enabling us to repurchase shares should we choose to do so.

As such we are planning our own DTC more cautiously and are helping manage our inventory and our wholesale partners more tightly.

Given those dynamics for 2022, we are lowering the crocs brand revenue guidance to be approximately $2 $6 billion, representing year over year growth of between 14, and 17% on a constant currency basis, and 10 and 13% on a reported basis.

In summary, as we navigate the many headwinds, we plan to actively take market share, drive highly profitable growth, and reduce leverage. At this time, I'll turn the call back over to Andrew for his final thoughts.

We expect to grow in all regions, but the strongest growth to occur in Amelia in Asia as the region continued to experience high consumer demand and Covid reopening.

Thank you, I.

Through the remainder of 2022, the strength of our brands continues to position us perfectly to take significant market share during these uncertain times.

With respect to he Dude, we continued to gain visibility and confidence in our supply chain. Thus, we are raising our expectations for the full year and now expect Haiti revenues to be between 850 and $890 million on a reported basis, implying $940 million to $980 million on a pro forma basis.

Our thoughtful management will drive strong profitability and cash flow and create tremendous shareholder value over the long term. Operator, please open the call for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to symbol a roster.

This translates to consolidated revenues growing 47% to 52% to approximately $3 four to $3 $5 billion.

We continue to expect that we will have best in class adjusted operating margins of approximately 26% to 27% for the full year, implying adjusted operating income of approximately $880 million to $945 million.

Our first question comes from Tom Nickick from Wedbush Securities. Please go ahead.

Hey, good morning, thanks for taking my question. I just want to drill down a little bit on the slow down that you're expecting. So Crocs brand, I mean, sounds like a pretty significant step down in Q4. I'm kind of backing into something more like mid single digit growth, mid single digit high single digit and complex effects. I just want to make sure I kind of understand what's happening here.

The net effect of the revenue revision is that expected adjusted diluted earnings per share will be between approximately $9 52.

So $10.30.

For the third quarter of 2022, we expect consolidated revenues to be between 915950 $5 million.

Representing 46% to 53% growth from prior year.

We expect cross brand revenues to grow approximately 15% to 18% on a constant currency basis, or 9% to 12%, including the negative impact of currency of 600 basis points.

Is it a combination of DTC and wholesale where you're assuming more conservative assumptions? Is it something that you've heard from the wholesale partners? I just kind of want to make sure I understand what exactly is happening in the North American market.

We expect he dude revenues to be approximately $235 million to $255 million.

We expect adjusted operating margin to be between approximately 25 and 26% as.

Let me give the high level, Tom, and then I'll hand it over to Anne to give some more specifics. I think the backdrop, as we talked about a little bit in our prepared remarks, is we're just anticipating that the consumer continues to soften through the remainder of the year. As we look at the consumer over the past several months, we've definitely seen very concrete signs that there's some softening. I think we're very optimistic about back to school and feel good about that. We anticipate as the...

As we manage through the shifting operating environment, our commitment to quickly pay down our debt remains unchanged and we expect to be below two times gross leverage in the next 12 months, enabling us to repurchase shares should we choose to do so in summary, as we navigate the many headwinds we plan to actively take market share drive highly profitable growth.

And reduce leverage at this time I'll turn the call back over to Andrew for his final thoughts.

Thank you Ed.

Through the remainder of 2020 to the strengths of our brands continues to position us perfectly to take significant market share during these uncertain times.

Full management will drive strong profitability and cash flow and create tremendous shareholder value over the long time operator, please open the call for questions.

Thank you we will now begin the question and answer session.

Ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

high levels of profitability and strong cash flow, and then can give you a little bit more color on that as well. Yeah, I think that's exactly right. When we were thinking about the full year, we've obviously absorbed several headwinds, so about $100 million of currency pressure, which is about 440 base points. The shutdowns in China and Russia for the full year account for about 180 bases points, so we tried to incorporate all of that into our full year from a crock perspective, as well as to freedom.

Okay.

Our first question comes from Tom Nick from Wedbush Securities. Please go ahead.

Hey, good morning, guys.

My question.

I just wanted to.

Drill down a little bit on the up.

The slowdown that you're expecting for the Crocs brand.

It sounds like a pretty.

Significant.

Stepped down in Q4 kind of backing into something more like that.

They did growth.

So what they did at cognizant FX.

I just want to make sure I kind of understand what's happening here.

Is it a combination of of DTC and wholesale what where you're assuming more conservative assumptions, it's something to that.

and hey dude for a relatively short period of time now, but they continue to perform extremely well above our expectations. And as we look forward, we, you know, as we talked about, we're gaining a little bit more confidence and security supply that so we think there's more upside-down. And security supply that so we think there's more upside-down.

Yeah, you bet.

Yeah, you've heard from wholesale partners I, just kind of want to make sure I understand.

What exactly is happening in the North American market.

Yeah, let.

If I could just quick follow up, you made a couple of references to managing cost structure. And despite a more conservative top line, you kind of maintained the margin rate outlook for the year. Can you just kind of talk a little bit about how you're able to kind of maintain the margin rate for the year despite some of these kind of mounting outline that one?

Let me kind of give the sort of high level, Tom and then I'll hand, it over to Atkins more specifics I think the you know the backdrop as we talked about a little bit in our prepared remarks is we're just anticipating that the consumer continues to soften through the remainder of the year right.

As we look at the consumer over the past several months, we've definitely seen very concrete signs that there's some softening you know I think we're very optimistic about back to school and and feel good about that but we anticipate as the you know as the drag of of high interest interest rates high inflation and uncertainty continues.

Yeah, I think, you know, we have a pretty flexible cost structure and we've adjusted investments to be in line with where we think the top line is growing. And we're obviously still growing our business, strong double digits. So, you know, it's easy to kind of pull back a little bit and still invest in marketing, which we're still planning on doing at the same rate as we were previously, which is the Crocs brand approximately 8% for the year. So that allows us to kind of, you know, take advantage of that. So, you know, gross margins underlying for the Crocs brand remains strong.

To impact the consumer that they will soften as the year goes on so we're trying to be more prudent and build that into our expectations by building that into our expectations. We can manage our inventory we can manage our costs appropriately. So that we kind of oriented towards you know our number one priority of meaning maintaining very high levels of profitability in <unk>.

Cash flow and I can give you a kind of a little bit more color on that as well yeah. I think thanks, Andrew I think that's exactly right. We said when we were thinking about the full year. We've obviously absorbed several headwinds so about $100 million of currency pressure, which was about 440 basis points.

The shutdowns in China, and Russia for the full year accounts for about 180 basis points. So we tried to incorporate all of that into our full year from a crop perspective as well as just readjusting why do we think the consumer could go for Q4, we wanted to make sure that we plan to prudently. So that we could also plan our inventory.

a point of strategy, we believe that we maintain, we create the most future shareholder value by maintain profitability. So we're not anxious to sacrifice profitability to drive less profitable growth.

Cost structure around that yeah, maybe I'll come back on the flip side, you know, we see very strong growth internationally and we don't see some of those same pressures and some of our international markets.

Understood. Thanks very much and best of luck at the round or the

And so we're excited about continued growth internationally and then obviously you know we've only owned hey, Dude for a relatively short period of time now but continues to perform extremely well above our expectations and as we look forward. We you know as we talked about were gaining a little bit more confidence and security of supply of that so we think there.

The next question comes from Jonathan Komp from Baird. Please go ahead.

Yeah, I think maybe just to follow up as we think about the Crocs progression throughout the year, could you maybe share a little more specifically on how you're planning, especially North America for the fourth quarter? And then, you know, as you think of the Crocs brand holding on to the gains from the last couple of years, especially in the Americas, is your confidence in that outlook changed at all? I know you're still projecting a $5 billion long-term target, so just wanna hear how you're thinking about...

As more upside there too.

If I could just a quick follow up you know you've made a couple of rough.

References to managing our cost structure.

I had a more conservative top line you kind of maintain the.

But the margin rate outlook for the year.

Can you just kind of talk a little bit about how you were able to.

Kind of maintain the margin rate.

For the year. Despite some of these kind of healthy top line.

Yeah, I think you know we have a pretty flexible cost structure and we've adjusted investments to be in line with where we think the topline is growing and we're obviously still growing our business strong double digits. So it's easy to kind of pull back a little bit and still invest in marketing, which were still planning on doing them at the same rate as we were previously which is.

we're continuing to gain share. And I think the guidance that we're providing, we anticipate will also be strong share gain for the Crocs brand. So I think we know we've definitely holding on to the gains that we have been successful in acquiring for the last couple of years. As we look at the Crocs brand, I would say all of the brand metrics remain extremely strong. So our own internal brand studies give us, you know.

The cross brand approximately 8% for the year.

So that allows us to kind of.

Take advantage of that also you know gross margins underlying for the Crocs brand remains strong as well we have airfreight tapering off in the back half of the year. We do have some cost pressures coming in from a gross margin perspective, but we do lose the air freight headwind in the back half of the year as we spent $75 million of that airfreight.

We have great confidence that the brand continues to strengthen over what it has been. You can see that in organic search. We also hear that from our wholesale partners as we discuss the brand and we discuss future strategies and how we're going to continue to gain share of shelf in our major wholesale partners, both here in the US and in key international markets. If we look at DTC in the first half, particularly in the Americas, I know people are focused on the Americas, that grew 10% on a constant currency basis. So again, significantly better than the market.

Program that concluding in Q3, and we don't have them I think we only have about $15 million left.

Point of stroke.

A strategy.

We believe that we maintain we create the most future shareholder value by maintaining profitability.

So where we're not anxious to sacrifice profitability to drive less profitable growth.

Understood.

Very much best of luck.

and growing over last year, which was an absolute record for the Crocs brand. I would say we continue to see very strong demand for the core clock that's driving a big part of our revenue growth, and that's particularly here in the US and also internationally. So I think everything that we're seeing really supports long-term thesis, and even given what is a softer consumer environment today, and we're anticipating over the next.

The next question comes from Jonathan Komp from Baird. Please go ahead.

Yeah, Hi, Thank you maybe just a follow up as we think about the crocs progression throughout the year could you could you maybe share a little more specifically.

And how you're planning, especially north.

With America for the fourth quarter.

And then you know as you think of the Crocs brand holding onto the gains from the last couple of years, especially in the Americas.

Is your confidence in that outlook changed at all I know, you're still projecting a $5 billion long term target. So just wanted to hear how you're thinking about you know any differently about the crocs brand.

Yeah, Great question, John So look the cross brand is absolutely holding onto the gains that <unk>.

Achieved over the last couple of years, where you know in the first half of the year. The Crocs brand grew about 20%.

Yeah, we didn't guide fourth quarter specifically.

A globally it grew in the U S marketplace and the market was flat to down right. So so we're gaining share we'll continue with it continuing to gain share.

Okay, thank you. And then maybe Andrew, one follow up on Hey Dude. You obviously the message has changed pretty dramatically even though you've only had it for one full quarter here with respect to the longer term outlook. So I wanna maybe just ask more specifically what you're seeing early on for that brand to give you much more confidence in the potential. And some of the early relationships you've engaged from wholesale partners, what are they seeing and what type of feedback.

And I think the guidance that we're providing we anticipate will also be strong share gains for the crocs brand.

So I think we've definitely holding onto the gains that we have.

Being successful in acquiring for the last couple of years as we look at the cross brand I would say all of the brand metrics remain extremely strong so our own internal brand studies.

Give us great.

Great confidence that the brand continues to strengthen over what it has been you can see that in organic search and we also hear that from our wholesale partners as we discuss the Brian will discuss you know future strategies and how we're going to continue to gain share of shelf and a major wholesale partners. Both here in the U S and in key international markets DTC, If we look at DTC and the <unk>.

First half, particularly in the Americas I know people are focused on the Americas that grew 10% on a constant currency basis, so again significantly better than the market and growing over the last year, which was an absolute record for the cross brand.

brand communication is extraordinary. And we think that's due to...

What is a relatively unique product? It's lightweight, it's comfortable, it's easy on and off, it comes in hundreds of not thousands of different materials and flavors, so they can buy multiple pairs. So there's a tremendous brand and consumer connectivity. That has not been created by brilliant marketing in the past, it's just a product and them finding and loving the product. And so as we look at our plan, I think we were cautious.

I would say we continue to see very strong demand for the KOL clause, that's driving a big part of our revenue growth and.

And that's particularly here in the U S and also internationally. So I think you know everything that we're seeing.

Really supports our long term thesis uneven given you know I think what is a softer consumer environment today, and we're anticipating over the over the near term you know, we still have great confidence in our ability to hit the 5 billion dollar crocs brand growth target that we put out there by 2026.

initially because we were taking over a founder-led, very entrepreneurial company. It wasn't really clear to us the degree to which we could get supply in the near-term. I would say that has achieved a lot better than we thought. So we've been able to shore up their supply, manage their supply, and really satisfy a lot of short-term demand. So that was kind of our cautiousness in the short-term. As we look to the longer term, and specifically receptivity from sort of major wholesome...

So.

And if I could just add for the full year. We did guide that all of the regions with growth. So all of our cross region will grow for the full year.

Okay, and just to clarify and that's a four year not specifically to the fourth quarter.

Well, Yeah, we didn't guide fourth quarter specifically.

Thank you and then maybe Andrew one follow up on Hey, Hey, Dude, you, obviously that the message has changed.

Pretty dramatically, even though you've only had it for one full quarter here.

With respect to the longer term outlook. So I wanted to maybe just ask more specifically you know what you're seeing early on for that brand to give you much more confidence in the potential and.

portfolio. So we're seeing very, very strong performance from that which obviously then gives us confidence.

Some of the early relationships you've engaged from wholesale partners what are they saying you know what what type of feedback are you getting.

to plan share a shelf in those partners and to plan our growth for the future. We're not yet ready to talk about what we think that looks like. It's very early days. But I think you can be confident that we'll follow. The playbook that we followed up across will build a strong and thoughtful domestic business here in the US. And we think we're pretty confident that brand has a lot of legs internationally as well. So we're pretty excited.

Yeah. So I think maybe kind of I'll try and start at the top right. So as we did our consumer research and due diligence and as we as we speak more and more to the consumer over the last several months once we own the brand we see like a tremendous Brian love from the consumers and consumers absolutely love the brand.

They are passionate about it they talked to everybody about it the viral components of the brand communication is extraordinary.

Great, thanks again. The next question comes from Abby Zvenix from Piper Sandler. Please go ahead.

And we think that's due to.

What is a relatively unique product its lightweight as comfortable as easy on and off. It comes in you know you know hundreds if not thousands of different materials and flavors. So they can they can buy multiple pass so theres a tremendous.

Thank you for taking the question. Just on inventory, can you talk about the composition of the inventory and then how we should kind of think about the promotional cadence in the back half and how, you know, if that will have an impact on the gross margin at all? And then are there any differences in product availability between Crocs and HEDU? Thank you.

Ron and consumer connectivity.

That has not been created by brilliant marketing in the past, it's just a product and then finding a loving the product and so as we look at our plans I think we were cautious initially because we were taking over a founder led very entrepreneurial company wasn't really clear to us the degree to which we could get some.

So, let's talk about the first part, and then I'll let you talk about product availability. So, inventories were up in the cross brand, but bear in mind that last year at this time, our inventories were exceptionally lean, especially in the Americas, where we see most of the increases today. So, if you exclude the Hayduda inventory, Croft inventory was up about $125 million, about 60%, about 30% of the increases due to intransist, and then we have about another 30% due to inflation.

Apply in the near term I would say that has achieved a that's gone along better than we thought and so we've been able to shore up their supply and manage the supply and really satisfy a lot of short term demand. So that was kind of a cautiousness in the short term as we look to the longer term and specifically receptivity from sort of major wholesale partner.

sitting in inventory resulting from that's from you know the higher free costs FOB and duties that are all sitting in that inventory. So while it is a little bit heavy we do think that we'll get back to four turns and we're working really hard to do that including in transit. If you exclude in transit now we're still turning above six times and then the remainder of the inventory of increase is really related to Hey Dude and that that turns very quickly and that's very efficient as that's you know mostly

Were seeing I would say exuberant enthusiasm from our wholesale partners that have taken on the brand we've shipped a substantive amount of product to a number of key partners. So that they could be in business for back to school and I think the comments that we're hearing things along the line it's the standout for us.

Back to school, its really performing above almost any other brown, we have enough portfolio. So we're seeing very very strong performance from that which obviously then gives us confidence.

a lot of it is pick up and then related to our income business for Hadood. Yeah. So Abby also embedded in your question, what I think was sort of future promotional environment and availability differences between Hadood and Crocs. So let me kind of hit on those. So look, I think we've already seen the retail environment, particularly here in the US, become more promotional, certainly more fortunate it was last year. I still don't think it's back to sort of pre-pandemic levels.

Two plan share of shelf in those partners and to plan our outgrowth for the future you know, we're not yet ready to talk about what we think that looks like it's very early days.

But I think you know you can be confident that we will follow the playbook that we followed up crops will build a strong and thoughtful domestic business here in the U S. And we think we're pretty confident the brand has a lot of legs internationally as well so we're.

And as we said on our last call, we think it's important as a democratic brand and both our brands are democratic. They reach a very broad base of consumers. We need to participate in those events and you saw that up for the July , et cetera. And as we look through the back half of the year, we'll continue that strategy of participating in those key events. In terms of inventory availability, I think we have pretty strong availability on the crocs side associated with that core product. And as you look across.

We're pretty excited.

Great. Thanks again.

The next question comes from Abby <unk> from Piper Sandler. Please go ahead.

Thank you for taking the question just on inventory can you just talk about the composition of the inventory and then how we should kind of think about the promotional cadence in the back half and how you know if that will have an impact on gross margin at all and then are there any differences in product availability between the cracks and he did thank you.

wholesale, e-commerce, e-tail, and our own stores, which we're very much in stock and trading strongly on our core product. We're still lacking a little newness, particularly I would say within sandals. So we have a strong pipeline of newness through the back half of this year, as we catch up from the factory closures back end of last year. And I would say as we look to 23, we have a record cadence of newness for the Crocs Brown in particular.

First I'll talk about the first part and then I'll, let Andrew talk about product availability. So inventories were up in the crocs brand, but bear in mind that last year at this time, our inventories were exceptionally lean, especially in the Americas, where we see most of the increases today. So if you exclude the hey, Dude inventory crop inventory was up about $125 million.

So, we think that's particularly important on the side. The key issue for inventory availability is flow through. Right? So we're getting strong shipments from a factories in Asia. And we're investing in our distribution capabilities to provide stronger flow through to our customers here in the US and abroad.

About 60% about 30% of the increase is due to in transit and then we have about another 30% due to inflation sitting in inventory, resulting from that from the higher freight costs that Bob Behan duties that are all sitting in that inventory.

So while it is a little bit heavy we do think that we'll get back to four turns and we're working really hard to do that including in transit. If you exclude in transit now were still turning about six times and then the remainder of the inventory increase is really related to hey, dude and that that turns very quickly and that's very efficient.

You uncles.

Thank you. The next question comes from Sam Poser from William Trading. Please go ahead. Sam Poser.

Thanks for taking my questions. I got a whole pile. I'll start with gross margin. Can you give some color on the gross margin for Hey Dude in the quarter and can you tell us what the gross margin expectation is for the balance of the year or for the full year gross margin expectation? Are we looking at down 600 basis points or somewhere in that?

Thanks for taking my questions. I got a whole pile. I'll start with gross margin. Can you give some color on the gross margin for Hey Dude in the quarter and can you tell us what the gross margin expectation is for the balance of the year or for the full year gross margin expectation? Are we looking at it down 600 basis points or somewhere in that world?

And that's mostly wholesale a lot of it is pickup and then related to our <unk> com business for heated yeah. So he also embedded in your question was I think was sort of future promotional environment and availability differences between hey, Dude and crops. So let me kind of hit on those so look.

Look I think the we've already seen that the retail environment, particularly here in the U S become more promotional certainly more closer than it was last year I still don't think it's back to sort of pre pandemic levels and as we said on our last call. We think it's important as a democratic brand in both of our brands had democratic they reach a very broad base of consumers.

Yeah, so let me start with the adjusted gross margins were for the quarter were impacted by the addition of Hey Dude, which accounted for about 260 base points of decline for the quarter. So from that they were impacted kind of, Hey Dude was impacted by two pieces, impacted by heavy wholesale demand and Q2 shifting the channel mix from DTC to wholesale as well as very high freight rates. So the inventory we were bringing in with the old shipping contracts for Hey Dude, which was at very high spot rates.

But we need to participate in those events and you saw that our fourth of July et cetera, and as we look through the back half of the year. We will continue that strategy of participating in those in those key events in terms of inventory availability.

I think we have pretty strong availability on the on a crux side associated with our core products and as you look across wholesale E. Com E tail in our own stores, which we're very much in stock and trading strongly on our core product, we're still lacking a little newness, particularly I would say within sandals.

So we have a strong pipeline of newness through the back half of this year as we catch up from the factory closures back end of last year and I would say as we look to 'twenty three we have oh.

effects were the biggest pressures on the croc side. And if you exclude those pieces, we were up. And again, that includes the air freight associated with the air freight investment we made related to Vietnam. As you remember, that was $75 million. I think we said $15 to $18 left to spend in Q3. So that implies that back half margins will be higher than first half margins.

Record cadence of newness for the Crocs brand in particular.

That's particularly important on the hey, Dude side.

The key issue for inventory availability is flow through right. So we're getting strong shipments from our factories in Asia, and we're investing in our distribution capabilities to provide stronger flow through to our customers here in the U S and abroad.

from a growth margin standpoint. And that would all be incorporated into our 26 to 27% operating margin guide for the full year soon.

Yeah.

So can you give us a gross margin present for the full year?

Great. Thank you Super helpful.

Hey, Jim.

I think we're just not gonna guide that piece because we're already giving operating margin percent and EPS guidance.

The next question comes from Sam Poser from Williams trading. Please go ahead.

Hi, good morning, Thanks for taking my questions I've got a whole pile, so I'll start with gross margin.

Okay, all right, so secondly,

Andrew, you hinted at the fact that the, that about newness. And the question is, did you have a newness issue in clogs as well, like the delay of the crushed clog and those platform clogs when the bay went away? Did you need more newness there? And, you know, how quickly is that being corrected? And, you know, how quickly is that being corrected?

What is the what can you give some color on the gross margin for Hey, Dude in the quarter and can you tell us sort of what the gross margin expectation is for the balance of the year or for the full year gross margin expectation are we looking at down 600 basis points or somewhere in that.

That world.

Yeah. So let me start with the adjusted gross margins were for the quarter were impacted by the addition of Hey, Dude, which accounted for about 260 basis points of decline for the quarter.

if that's a issue. Yeah, yeah, so that's some good questions. So yes, UNIS has definitely been a problem during the first half of this year, right? Having said we did achieve 20% growth in crops during the first half of this year, but the cadence of our brand is such that we need to bring more news to the table. I would say it was most poignant in sandals and that was particularly around the fashion sandals, right? So we leaned heavily on our icon sandals, the classic slimes.

So from that they were impacted kind of what he did was impacted by two pieces impacted by heavy wholesale demand in Q2 shifting the channel mix.

DTC to wholesale as well as very high freight rates. So the inventory we are bringing in with the old shipping contracts for Haydu, It which was at very high spot rates, we've now shifted them to our cross freight rates and that will significantly improve in the back half and into next year as we start landing inventory at our freight rates.

That that's kind of the Haydu piece, we do believe those run anomaly and that they'll strengthening in the back half and then the remainder went from a crop standpoint.

The underlying margin if you exclude freight was actually up so that freight in FX for the biggest pressures on the crop side and if you exclude those pieces and we were up and again that includes the airfreight associated with the airframe investment we made related to Vietnam. As you remember that was $75 million I think we said.

huge amounts of supply, you can see that this crash flamboy is already sold out on E-Com, and we are currently introducing into the major age market is doing extremely well. So that formula of height is working very well. And as we look at the clogged muonus, we have new clogs in the back half of this year, and we have a number of significant new clogged programs early next.

15 to 18 left to spend in Q3 to.

So that implies that back half margins will be higher than first half margins from a gross margin standpoint, and that would all be in company.

Incorporate it into our 26% to 27% operating margin guide for the full year Sam.

Okay, and then does that mean, so in your guidance, and this is for both of you, and I have one other one, is the guidance given sort of the macro impact and the improvement of newness coming, is this a discretion is the better part of valid guidance given the macro or, I mean, how much of this is the macro versus? Drama?

So can you give us a gross margin percent for the full year.

I think we're just not going to guide that piece, because we're already getting operating margin percent and EPS guidance.

Okay, alright, so so secondly.

Andrew you hinted at the fact that the that that about newness and the question is is it.

supply, you know, timing of product and so on and so forth.

Did you have or do you have a newness issue in clogs as well.

Look, we just think, Sam, I think we're very clear in our prepared remarks. We just, I would say primarily it's the macro, right? We believe the consumer environment, particularly in the US, will soften sequentially as we go through the year. And I think there's lots of evidence and lots of, you know, accomplished economists talking about that. And so we think it's prudent to plan for that.

The way of the crush clogs and those platform clogs when the Bay went away.

You know did you need more newness, there and you know how quickly is that being corrected.

Yeah, Yeah. So it sounds good questions. So yes, you units has definitely been a problem during the first half of this year right.

Being said, we did achieve 20% growth in crops. During the first half of this year. Both the cadence of our brand is as such that we need to bring more news to table I would say it was most poignant in sandals.

If we plan in that way, we can maintain our profitability and our cash flow, which is our primary requirements. We are very confident in the cross brand where the cross brand sits, the fact that we will continue to gain share in that environment. We are very confident in that environment.

That was particularly around the fashion sandals right. So we lean heavily on our icon sandals. The classic slide the classic Slim, which were frankly easier to produce and and those have done really well, they're up strong double digits over prior trading, but we missed this.

And then lastly, thank you. And then lastly, you said that you felt good about, you felt positive about back to school. Can you tell us or give us some indication as to what you're seeing for back to school so far to give you that confidence and any color would be awesome? Thanks, and that was Allrich.

<unk> channels, but yes, we also lack some newness in the in the club Arena I would say the crush which you highlighted in your question introduced I would say tentatively here in the U S.

Yeah, I'm not going to provide specific metrics, but I think what I would say is as we look across all of our channels, as we look across e-comm, e-tail, our own stores and our wholesale customers, we feel like the consumer is out shopping for back to school and we've also seen that in prior sessions, right? So the consumer generally prioritizes their children strongly during a constrained environment and back to school we feel like is off to a good start.

Last couple of months, we don't have huge amounts of supply you can see that this crush Campbell is already sold out on E. Com and we are currently introducing into the major Asian markets is doing extremely well so that formula of hiked is working very well and as we look at the clog newness, we have new clogs.

In the back half of this year and we have a number of significant new club programs early next.

Well, thanks very much and good luck.

Okay, and then does that mean well so in your guidance and this is for both of you and I have one other one this is the guidance given sort of the macro impact.

Thanks very much and good luck.

The next question comes from Jay Soleil from UBS. Please go ahead.

Great. Thank you so much. Andrew, I'm just wondering if you can elaborate a little bit further on your comments about, hey, dude, you know, given the brand is trending toward a billion dollars, you know, faster than probably the market expected. And that's sort of like the high bar that, you know, you originally said you made the deal. Have you thought about bigger picture what this brand could achieve in terms of growth, revenue growth? And at the same time, if you talk about the North American business a little bit, obviously there's a lot of new doors. It seems like the brand has entered, whether it's like, you know, the famous footwear, Family Channel type of doors. But how much more new door opportunity is there?

The improvement of newness coming is this a discretion is the better part of Ballard guidance given.

Given the macro or I mean, how much of this is the macro versus.

Supply you know timing of product and so on and so forth.

Look we just think Sam I think we were very clear in our prepared remarks, we just we.

I would say primarily it's the macro right, where we believe the consumer.

<unk> environment, particularly in the U S will soften sequentially as we go through the and I think there's lots of evidence on lots of you know accomplished economist talking about that and so we think it's prudent to plan for that if we plan and that way, we can maintain our profitability and our cash flow, which is a primary.

The requirements are.

We are very confident in the crocs brand, where the crocs brand sits the fact that we will continue to gain share in that environment.

what we have available and that is by no means what we consider to be a full assortment or by no means penetrating all of their doors. So I would say the door expansion opportunity is very substantive for Haydood. Not only the door expansion but the assortment in those doors and the ability to turn quickly. So I think there's lots of runway there. We're taking orders for Spring 23 and hopefully

And then lastly, thank you and then lastly, you said that you felt good about you felt positive about back to school can you tell us or give us some indication as to what you're seeing for back to school. So far to give you that confidence and any color would be would be awesome.

Yeah, I mean, I'm not I'm not going to provide specific metrics, but I think what I would say is as we look across all of our channels as we look across our E. Com E tail, our own stores on our wholesale customers, we feel like the the.

The consumer is is is out shopping for back to school and and we've also seen that in prior recessions right. So the consumer generally prioritizes that children are strongly during a constrained environment and back to school, we feel like is off to a good start.

Well, thanks, very much and good luck.

Okay.

The next question comes from Chase away from UBS. Please go ahead.

We've achieved or very close to achieving kind of the billion dollars number put out there and really the reason put out there We just wanted people to understand. This is a scale business. This is not a small business And we just wanted people to understand that quickly because clearly when we bought the business we heard from the Alice and investment community They didn't understand what the brand was and we wanted to understand that this is this is a scale brand so Clearly we're just getting started. So I think this scale is much bigger than where it is today but

Great. Thank you so much Andrew I'm, just wondering if you can elaborate a little bit further on your comments about hey Dude.

Given the brand is trending toward a $1 billion.

Faster than probably the market expected and that's sort of like the high the high bar that you. Originally started made the deal have you thought about bigger picture what this brand could achieve in terms of grew.

Growth our revenue growth and at the same time, if you talk about the North American business, a little bit obviously, theres a lot of new doors. It seems like the brand has entered whether it's like another famous footwear family channel type of doors, but how much more new door opportunity is there for hey, Dude at this point in North America, you know relative to the number of doors that you're in right now.

Yes, So let me take the second bit first strike. So what I would say is we have tentatively shift.

New doors right. So yes, you can see how you're doing in place you haven't seen it before whether it be a as you said famous footwear Rec room shoes Academy et cetera, some Dick's sporting goods et cetera.

and then what was the impact here in 22 and Q2 and DTC and sort of how do you see the business trending in a normalized growth rate like what's the outlook for DTC growth for Crocs brands in North America?

We have shipped them, what we have available and that is by no means what we've considered to be a full assortment or are by no means penetrating all of their doors. So I would say the door expansion opportunity is very substantive for Oh, Hey, dude not only the door expansion.

Yeah, I think, let me start on this one, Jay. I think, you know, we actually thought a lot of the stimulus were heavily weighted to Q1. Indicute one, beginning of Q2, I would say from a stimulus perspective. I think we started to move through that pretty quickly, and I'm really happy with our 10% over 10% direct to consumer performance in Q2. In North America, I will also say we had really good retention rates, our retention rate was up on our US column. So, also speaks to the strengths of North America.

The assortment in those doors and the ability to turn to turn quickly. So I think there's lots of runway there.

We're taking orders for spring 'twenty, three and hopefully.

We will be able to create much more compelling assortments for our major wholesale customers early in 'twenty, three it's really a little bit hand to mouth today.

But I would say as I said earlier.

Where were present the results are very good there are pleasing to us and I think the wholesale customers are already placed.

In terms of the longer term I. It's just early days Jack right. As you said, we've achieved or very close to achieving kind of the $1 billion number put out there and really the reason to put up that we just wanted people to understand that this is a scale business.

by 10%, so you know, record performance in 21, driven by stimulus, we grew on that in 22, right? So we didn't try and grow. The second thing I'd say, one of the bigger impacts that we're seeing is actually return of seasonality. And by this I mean, I think in 21, the constraints, the available constraints are so high, consumers bought, weren't available.

Not a small business and we just wanted people to understand that quickly because clearly when we bought the business we heard from the analysts and investment community. They didn't understand what the brand was and we want them to understand that this is this is a scale brand.

So clearly we are just getting started so I think the scale is much bigger than where it is today, but I think it'll be kind of well into the next year before I talk about this model we've.

And I think we're seeing in 22 and anticipating the future, we're going back to more kind of seasonal components. So they'll buy the key promotion key events where there'd be promotional events or holidays or travel or vacation. So we're seeing some shifts in the patents of the business. And we're also planning for those to continue to refer to pre-pandemic patents.

We've got a lot of planning to do there are a lot of work to do before we're ready to talk about that.

Okay got it and then maybe if I can ask one more just on the crocs brand in retrospect now given that you're lapping a quarter, you'll have two quarters in Q2 with lots of fiscal stimulus that probably drove a lot of growth.

I mean, your DTC business you know how do you how did you see the effect of that.

Got it. Okay. Super helpful. Thank you so much. The next question comes from Jim Chartier from Monis, Crispy & Hart. Please go ahead.

On the business in 'twenty, one and then what was the impact here in 'twenty two in Q2 in D C and sort of how do you see the business trending at a normalized growth rate like what's the what's the outlook for DTC growth for Crocs brand in North America.

Good morning. Andrew, you kind of reiterated your expectation for your 2026 outlook for Crocs. A big part of that is the sandals.

Yeah, I think let me start on this one Jay I think you know we actually saw a lot of the stimulus are more heavily weighted to Q1 into Q1, beginning of Q2 I would say from a stimulus perspective, I think we started to move through that pretty quickly and I'm really happy with our 10% over 10% direct to consumer performance.

Business, you know, I wonder if you could talk about what, you know, kind of rate forces your confidence in that large sandal opportunity, you know, what do you say in the performance today and then you mentioned a lot of innovation for next year. You know, what's the wholesale reception to that innovation for next year and you know, our wholesale is invested beyond the family category for you for next year. Thanks. Yeah. Thank you Jim. So a couple of things. I just want you to just start the question to help my answer to the question. Yeah soMP,

In Q2.

In North America I would also say, we had really good retention rate or retention rate with our U S. Com. So also speaks to the strength of North America and also that that wasn't just stimulus spending coming in from customers. Because it came back so that I would say all leads to the fact that we have a really strong sustainable direct to.

Tumor business in North America.

And I don't think that's just stimulus driven as I said I think when we lap most of that in Q1 yeah.

Yeah, the only thing I'd add two things Josh when we Comped up we talked about Comping up in the first half for our North American DTC DTC business by 10%. So so record performance in 'twenty, one driven by stimulus we grew on that in 'twenty two right. So it didn't shrink or grow the circa.

around reversing that trend of the decline that we saw in the first half. As we look forward, longer term is kind of more strategically. We also feel like we're seeing what we anticipated in this category, which is when times get tough, other brands are retrenching, right? So we do see other brands pulling back on this standard program pretty substantially, and some shifts in what the consumer is looking for within Sandals. And I think this is part of the thesis that we look at. And I think this is part of the thesis that we look at. And I think this is part of the thesis that we look at.

The thing I'd say one of the bigger impacts that we're seeing is actually return of seasonality and by this I mean I think in 'twenty one the constraints the availability constraints was so high consumers bought when available and I think we are seeing in 'twenty two anticipating.

Future well going back to more kind of seasonal component so they'll buy it acute key promotional key events, whether it be promotional events like holidays or travel or on vacation. So we're seeing some shifts in the patents of the business and we're also planning for those to continue to revert to pre pandemic patents.

Got it okay Super helpful. Thank you so much.

The next question comes from Jim Chartier from Monus, Crispy and Hardt. Please go ahead.

Good morning.

[noise] kind of reiterated your expectation for 2026 I'll look for for Crocs is a big part of that is the sandals.

So we still feel very strongly about our opportunities within the Sondal Arena.

about our opportunities within the Sandal Arena. Great, thank you.

Business I'm wondering if you could talk about what you're kind of reinforces your confidence about large sandal opportunity. What are you seeing into performance today and then.

The next question comes from Laura Champagne, from Loop Capital, please go ahead.

Thanks for taking my question. It's on the Crocs brand. I mean, I understand that you're taking guidance down for back half growth just on a weird macro. How does that impact your promotional and marketing strategy in the back half given that you also have, I think, some product introductions you're excited about as well.

You mentioned a lot of innovation for next year whats the wholesale reception to that innovation for next year.

Or or wholesale or some best to be honest Democratic work for you for next year. Thanks.

Yep.

Thank you Jim So a couple of things one is I would just to start the question. So my answer sorry to your question look we were disappointed in solid performance during the first half and yeah. We've definitely studied it we feel like we understand what happened and and really lack of newness and lack of supply in some of our Keyes our style.

Yeah, that is super important. So we're taking our guidance down to reflect the macroeconomic environment and our desire to position ourselves strongly. We are protecting all of our marketing activity. So you will see Crocs brand marketing activity accelerate in the back half. We have a record makeup in terms of collaboration schedule. We're protecting all of our dollar.

Sandals really hurt us as we look at the back half of the year, we do see newness accelerating we do see that accelerating into 'twenty three we got very strong plans and so that gives us confidence around.

<unk> seen that trend of the decline that we saw in the first half as we look forward.

Longer term and it's kind of more strategic play. We also feel like we're seeing what we anticipated in this category, which is when times get tough other brands are retrenching right. So we do see all the brands pulling back on the cyber programs pretty substantially and some shifts in what the consumer is looking for.

Within within Sandals, and I think this was part of the thesis that we laid out it's a big category. It's an unimportant category to some of the major players and when times are tough they going to deemphasize it and we feel like we're saying that so we feel like there's a newness opportunity, there's a competitive opportunity and I think the other thing is it.

No good morning. Andrew, thanks for mentioning the Cox and Mathemat that direct consumer growth 10% constant currency. Was that a second quarter number? That was after the first half of the year. I was at the first half of the year. I was at the first half of the year.

Good pack go!

I'm curious on the digital performance. Can you give us the North America Direct consumer number for the second quarter? The digital channel has been challenging for many in North America. And if you could comment on the Cox brand digital performance in the second quarter as well, that would be helpful.

A strong sandal season in the U S. This year spring was a little slow in coming and so we kind of saw some some overall softness in the category. So we still feel very strongly about our opportunities with this that was in the sandal arena.

Yeah, I think we're not going to be disclosing those specific numbers, but I can tell you that it grew and we're very happy with the performance.

Great. Thank you.

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

Yeah, our overall digital growth from the second quarter for the Crocs brand was up 21% in constant currency. And for Q2 for the Crocs brand, we are up seven and a half percent from a DTC comp perspective. So, and that obviously, the biggest piece of that is the U.S., so you have to grow. Yeah, okay. And then I'm curious within the digital channel, what you're seeing between new and existing customers, have you seen any fall off and recruitment of...

Thanks for taking my question, it's on the Crocs brand I mean, I understand that you're you're taking guidance down for back half growth just on a weaker macro how does that impact your promotional and marketing strategy in the back half given that you also have I think some products into.

Reductions you're excited about as well.

Yeah that is super important. So you know, we're taking our guidance down to reflect I think the macroeconomic environment and our desire to position ourselves strongly we are protecting all of our marketing activity.

So you will see a crocs brand market activity.

Celebrate in the back half we have a record makeup in terms of collaborations schedule, we're protecting all of our a dollars and cents that we plan to spend on marketing both in our in the U S market, but also importantly in our major international markets, including China. So we will we'll.

growing because it's both of those things. Okay. Next question. The board does a very nice job of winding incentives with strategic objectives. We won't get a view on this until the proxy, but can you give us an idea of some of the key metrics for management compensation in 2022, where the board has you focused.

You need to spend to support the introduction of all of those new products and to engage our consumers very proactively.

Got it thank you.

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

Hi, good morning.

Yeah, I would say, look, you'll see it later, Jim, but our program for incenses and management compensation is very consistent with it being in the past. So it's focused on profitability, it's focused on growth, it's focused very strongly on cash flow, which I think is super important. And it does call out kind of specific growth strategies, whether they be digital, whether they be Samo, whether they be Asia. So, but it's very consistent with what it is in the past. And, um,

Andrew Thanks for mentioning the Cox North America.

We will go to 10% constant currency was that a second quarter number or is that for the first half of the year.

First half yes.

Yes.

Hum.

I'm curious on the digital performance can you give us the.

North America direct to consumer number for the second quarter.

The digital channel has been challenging for many in North America, and if you can call upon the Cox Graham digital performance in the second quarter as well that'd be helpful.

We think it works extremely well against the whole team here at Crocs focused on the most important aspects to drive shareholder value.

Yeah, I think what we're not going to be disclosing those specific finance those specific numbers, but I can tell you. It grew and were very happy with the performance.

Okay, and then last one for me, I just want to ask on Haydude Rick Spinn in his chair for a couple of quarters. Now, can you give us just an update on the vision for positioning of Haydude, both from a branding standpoint and from a merchandising standpoint?

Yeah, our overall digital around for the second quarter for the Crocs brand was up 21% in constant currency.

For Q2 for the Crocs brand were up seven 5% from a DTC comp perspective, so and that obviously you know the biggest kind of piece of that.

Yeah, so you've starting to see a little bit of that, right? So in July , we launched a new brand identity, which is starting to get out there. We think that's been, well, we actually can see that's been extremely well received by the core consumer. And I think it's more consistent with what we wanna take to brand. We're also doing some brand advertising for the first time in the brand's history. And that's actually early days, but also performing extremely well, very happy with that.

The U S. So you have to have.

You have the crop.

Okay, and then I'm curious within the digital channel and what you're seeing between new and existing customers have you seen any falloff in recruitment of new customers or any falloff in contribution from existing customers.

This question is yes, we geared toward North America, if you're willing to share.

Yeah, so from a north Americas standpoint, we saw actually retention up plus 30% and we also saw acquisition up so double digit so I wouldn't say that we've seen a fall off in either and as Andrew talked about in prepared remarks, we actually see really nice growth R. E. Congress is growing because of both of those things.

Okay.

Next question the board does a very nice job of aligning incentives with our strategic objectives.

We won't get a view on this until the proxy, but can you give us an idea of some of the key metrics for management compensation in 2022, where the board has your focus.

And I think it will be very, very strong.

Thank you.

The next question is from Mitch Kumets from Seaport. Please go ahead.

Yeah, I would say look you'll see it later, Jim but our program for <unk>.

Yeah, thanks for taking my questions. I guess you just have a few hopefully you can do this quickly. I know a year ago with HAD, there were a lot of retailers that were light on products. So do you have any sense as to how much of the year growth you're seeing there is kind of filling that pipeline? Is there catching up with where they want to be? And do you have any metrics on kind of wholesale self-through to support kind of what's happening at retail with those partners? And then again, I got a couple others.

Incentives in management compensation is very consistent what it's been in the past. So it's focused on profitability. Its focus on growth. It's focused very strongly on cash flow, which we think is super important.

And it does call out kind of specific growth strategies, whether they'd be.

Yeah, digital whether they'd be cycles, whether it be Asia. So.

But it's very consistent with what it has in the past and.

Yes, I think the best way of getting at the core of your question is wholesale sell through. We get that from, you know, obviously our major partners, we don't get it from all of the smaller partners, but I think the retailers that do stock Hey Dude would say sell through is exceptional.

We think it works extremely well it gets the whole the whole team here at Crocs focused on the most important aspects to drive shareholder value.

Okay, and then last one for me I just wanted to ask him he'd be rick's been in his chair.

Okay, and then Andrew, you referenced Spring 23 a couple times, I think in some remarks. Do you have any sense as to what the Spring order book is looking like for the Crocs brand in the US? I'm wondering if it's...

For a couple of quarters now can you give us just an update on the vision for positioning Okay Dude.

Both from a branding standpoint and from a merchandising standpoint.

Yes. So are you starting to see a little bit of that right. So in July we launched a new brand identity, which is starting to get out there.

If it's going to be up or down. Then lastly on margins. You talked about the hay-dew pressure on gross margins, but I'm guessing that likely helped from an SG&A leverage standpoint. Is there any way you can break out the operating margins by each ground? That's it. Okay I'll quickly stressfulLOL

We think that's been well when are we actually can see that it's been extremely well received by the consumer and I think it's more consistent with what we wanted to take the brand.

Thanks, Mitch. So, I'll let Anne talk about operating margins for each brand, but from an order book perspective, look, it's early days on that yet, but we also don't disclose order book ahead of time. We stopped doing that quite a long time ago. But we are selling in spring, summer 23, both here in the US and globally, and we're pretty excited about a lot of the newness that we have to offer our customers.

We're also doing some brand advertising for the first time in the AR in the brand's history and that's actually it's early days, but also performing extremely well very happy with that and Ah I think Rick and his team are which we're building out rapidly have started to develop a product architecture that will probably be.

Be a back half of 'twenty three before you start to see some significant evolution and product architecture and we will.

Yeah, and then from an operating margin standpoint on each brand, remember these are unadjusted for Hey Dudes, so that includes a 35, this is going to include a $35 million inventory write-up in Q2 related to the acquisition. So, Hey Dudes operating margins were 17.9%, that's GAAP. Prox was 37.7%, and then are consolidated obviously, and that's GAAP margin. This is going to include 1.5% inventory cost among all Stick Dudes, and then they go back to their regular

Continue to develop our consumer messaging and brand advertising that will start to play out earlier and 23 so.

We're really happy with how that's going and I think it will be very very strong.

Thank you.

The next question's from Mitch <unk> from Seaport. Please go ahead.

Yeah. Thanks for taking my questions I guess, we just have a few hopefully you can do as quickly.

Okay, thank you. Another Q&A question and answer question. This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

I know a year ago with Hey, do there are a lot of retailers that were wide on products. So do you have any sense as to how much of the year over year growth Youre seeing there is kind of filling that pipeline as they're catching up with where they want to be and do you have any you know.

Metrics on kind of wholesale sell through to support kind of what's happening at retail with those partners and then I've got a couple of others.

Hi.

Really appreciate everybody joining us today and thank you for your continued interest in crops.

Yes, I think as opposed to the best way of getting at the core of your question is is wholesale sell through we get that from you know obviously, our major partners, we don't get it from all of the smaller partners, but I think the retailers that do stock Hey, Dude would say sell through is exceptional.

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

Okay and then.

Andrew you referenced spring 'twenty three a couple of times I think in some remarks do you have any sense as to kind of what the order spring order book is looking like for the Crocs brand in the U S. I'm wondering if that's if it's if it's going to be up or down and then lastly on margins and you talked about kind of who did pressure on growth.

<unk> margins, but I'm guessing that likely helps from an SG&A leverage standpoint or is there any way you can kind of break out the operating margins by each ground and that's it. Thanks.

Thanks, Mike So I'll, let him talk about operating margins for each brand, but from an order book perspective look.

It's early days on that yet, but we also don't disclose order book ahead of time, we stopped doing that quite a long time ago. So, but you know where we are selling selling in spring summer twenty-three both here in the U S and globally.

And we're pretty excited about a lot of the newness that we have to work for our customers.

Yeah.

Yeah, and then from an operating margin standpoint on each brand.

Remember these are unadjusted for Hey, Dude. So that includes the 835. This is going to include a $35 million.

Inventory write off in Q2 related to the acquisition.

<unk> operating margins were 17, 9%, that's GAAP practice with 37% and then our consolidated obviously and that's a GAAP margin.

Okay. Thank you.

Yeah.

This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.

Really appreciate everybody joining us today and thank you for your continued interest in crops.

Yeah.

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

Okay.

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