Q4 2024 Crocs Inc Earnings Call
Good morning, and welcome to the Crocs fourth quarter 'twenty 'twenty four earnings call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After today's remarks, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please.
Please note. This event is being recorded I would now.
Speaker Change: Like to turn the conference over to Erin Murphy Senior Vice President of Investor Relations and corporate strategy. Please go ahead.
Speaker Change: Good morning, and thank you for joining us to discuss Crocs, Inc. Fourth quarter and full year results with me today are Andrew Rees, Chief Executive Officer, and Susan Healy Chief Financial Officer.
Speaker Change: Following their prepared remarks, we will open the call for your questions, which we ask that you limit to one per caller.
Speaker Change: Before we begin I would like to remind you that some of the information provided on this call is forward looking and accordingly is subject to the safe Harbor provisions of the federal Securities laws.
Speaker Change: Statements involve known and unknown risks uncertainties and other factors, which may cause our actual results performance or achievements to differ materially.
Speaker Change: Please refer to our annual report on Form 10-K, and other reports filed with the SEC for more information on these risks and uncertainties.
Speaker Change: Certain financial metrics that we refer to as adjusted or non-GAAP, our non-GAAP measures.
Speaker Change: Reconciliation of these amounts to their GAAP counterparts is contained in the press release, we issued earlier this morning.
Speaker Change: All revenue growth rates will be sited on a constant currency basis, unless otherwise stated at.
Speaker Change: At this time I'll turn the call over to Andrew Rees.
Andrew Rees: Crocs, Inc, Chief Executive Officer.
Andrew Rees: Thank you Erin and good morning, everyone. Thank you for joining us today.
Andrew Rees: 2024 was another record year for our company fuelled by our employees, our brand strategies and our deepening connections with our consumers.
Andrew Rees: For the full year of 2024.
Andrew Rees: We delivered revenue growth of 4% to prior year.
Andrew Rees: Achieving $4 1 billion in total revenues.
This performance was supported by adjusted gross margins of 58, 8%, a 230 basis point gain over the prior year.
Andrew Rees: Was that adjusted operating margins of 25, 6% on strong deployment of our free cash flow, we delivered adjusted diluted EPS of $13 17, 9%.
Andrew Rees: Above the prior year.
Bryan Krug: Hi, Bryan Krug, Bryan revenues of $3 3 billion grew 10% with international up 19% and North America up 3%.
Bryan Krug: 124 marked the seventh consecutive year of Crocs brand revenue growth in North America.
Bryan Krug: Hey, good revenues of $824 million with direct to consumer channel inflicting back to growth for the fourth quarter.
Bryan Krug: Our strong cash flow generation of 923 million allowed us to pay down $323 million in debt and buyback approximately $4 3 million shares for $551 million.
Bryan Krug: Susan will provide more details on our fourth quarter full year results and guidance for 2025, but first I would like to walk through our individual brand strategies. Our notable highlights for 2024.
Bryan Krug: Our cross brand is governed by four strategic pillars.
Bryan Krug: One drive brand relevance through Icahn iterations.
Bryan Krug: To gain market share outside of clogs, who knew our indications three.
Bryan Krug: Three fuel disrupted and authentic social and digital marketing and full gained share in markets around the world.
Bryan Krug: First we are driving relevance globally as the clubs authority.
Bryan Krug: In 2020 for our classic Clog was named one of the greatest shoes of all time by footwear News a testament to the iconic nature of our hero style.
Bryan Krug: In January our original classic Clog went on display at the museum of modern months in New York City. This is part of a broader exhibit showcasing iconic products.
Bryan Krug: That have made an impact on consumer and culture.
Bryan Krug: Overall for the year Clogs grew 10% led by the classic clog with outsized growth internationally.
Bryan Krug: We continue to live icon iterations and introduced new cloud franchises.
Bryan Krug: We have six major franchises within clogs.
Bryan Krug: Overall clogs made up 75% of our sales mix during the year.
Bryan Krug: Our eco clog is now a top three franchise and continues to I'm sure in a younger male consumer.
Bryan Krug: During the holiday season, our classic clog was a standout with strength in both adults and kids.
Bryan Krug: The classic platform clogs and other high iterations drove robust results in several of our markets across Asia.
We have a strong pipeline planned for 2025 are in motion cloud combines two of our most innovative technologies light right and I'm Freescale technology, delivering incredible value and lightweight comfort for just $60.
Bryan Krug: Based on the success of a DTC test last fall with scaling the emotion club globally and in select wholesale distribution in North America.
Bryan Krug: Importantly, we partnered with NFL player George Curdle, and his wife class spokespersons for this launch as we lean into the pre and post sport comfort.
Bryan Krug: In addition, we have further scaling the echo franchise through a new to market yield. The Echo wave. This is currently selling in our own channels and plan for select athletic specialty retailers. This spring.
Bryan Krug: Second we continue to fortify our product outside of the clock through new wearing occasions.
Bryan Krug: During the holiday quarter Cozy slip it was a standout performer and we could not keep the product in stock as demand surpassed supply.
Bryan Krug: <unk> remain an important focus for our brand to drive strategic diversification and new wearing occasions.
Bryan Krug: During 2024 sellouts were up mid teens to prior year in North American market.
Bryan Krug: This was particularly impressive against the domestic sandal market that we estimate was down.
Bryan Krug: We introduced the getaway are brand, new multi silhouette franchise, which exceeded expectations.
Bryan Krug: Our new style Sandal franchise, Miami also performed well.
Bryan Krug: We brought new materialized ocean to a beloved Brooklyn franchise, including the Brooklyn woven the Brooklyn, heal and of course, a personal lines well Brooklyn for you.
Bryan Krug: Overall sandals grew 3% to prior year and growth was strong in most of our international tier one markets with the exception of India, which continue to face supply challenges.
Bryan Krug: Unbalanced sandals represents 13% of our sales mix.
Bryan Krug: In 2025, we are leaning into getaway, Brooklyn, Miami franchises with fresh new colors and styles. The retailers' response has been exceptionally strong, particularly here in North America.
Bryan Krug: Our personalization engine <unk> grew 6% led by our international markets with strong product wins and elevated unlicensed product.
Bryan Krug: <unk> consumer remains one of our most valuable as we see them continuing to purchase with higher frequency.
Bryan Krug: Our strategic priorities with injuries are centered around driving higher penetration of digital and wholesale channels enhancing speed to market and continually introducing fresh new product.
Bryan Krug: In 2025, we're bringing newness across colors and textures to market and innovating within Backstops.
Bryan Krug: We recently shipped approximately 600, new fixtures into north American wholesale to bring our personalization value proposition to a broader consumer base with.
Bryan Krug: We're committed to remaining a leader in this space.
Bryan Krug: Third we remain laser focused on our digitally led social first marketing playbook.
Bryan Krug: G 24 included some of our biggest consumer moments on record.
Bryan Krug: We launched our Tmall Global brand day established ourselves as a leading footwear brand on tick tock shop, along with Hey Dude.
Bryan Krug: Executed the best ever Cross TOBA and created unique consumer moments during the year through our partnerships.
In the fourth quarter, Louie and Mickey and friends broke particular excitement amongst our youngest fan base.
Bryan Krug: And finally against our fourth pillar.
Bryan Krug: We are focused on gaining market share around the world.
Bryan Krug: In North America, we grew 3% to prior year, our seventh consecutive year of growth International grew 19% on top of 23% last year and.
Bryan Krug: In China, we grew 64% to prior year with the fourth quarter accelerating from the third quarter.
Bryan Krug: This included the double 11 shopping festival, we especially at our expectations.
Bryan Krug: China now represents our second largest market after the U S, making up 6% of revenues.
Bryan Krug: Our 2024 growth in China was balanced reflecting positive comp store sales digital growth and new store growth.
Bryan Krug: We saw robust growth in western Europe led by strong double digit growth in France, and Germany, while solidifying our market share gains in South Korea, Despite a challenging backdrop.
Bryan Krug: We ended the year with approximately 2200, crocs mono brand doors, including approximately 1800 partner doors.
Bryan Krug: And 390 owned and operated stores.
Bryan Krug: In 2025, we plan to continue expanding our footprint internationally and see the greatest new door opportunities across growth markets, including China, India, Southeast Asia, and the Middle East.
Bryan Krug: In addition owned and operated store growth will be focused on premium outlet doors in China, Western Europe, North America and Japan.
Bryan Krug: As we think about our growth opportunities beyond 2025.
Bryan Krug: We believe we can continue to fuel growth in North America through Iterating on our icon and expanding wearing occasions.
Bryan Krug: With that said, we see the majority of the dollar growth coming from international.
Bryan Krug: We're in the early phase of establishing clog relevance and see ample opportunity for market share gains.
Bryan Krug: Our average market share in major countries, including China, India, Japan, Germany, and France represents approximately one quarter of the market share we have achieved in our more established markets. The U S U K and South Korea.
Bryan Krug: All in we have confidence in low double digit growth of our international business on a constant currency basis over the medium term.
Bryan Krug: Turning now to the <unk> brand.
Bryan Krug: We are pleased with the progress we've made in 2024 as we prioritize brand health.
Bryan Krug: Elevated pricing as a result of pulling back on discounting and drove better segmentation with our wholesale partners.
Bryan Krug: We ended the year on a high note with the fourth quarter revenue accelerating sequentially from the third quarter and flat to prior year.
Bryan Krug: This was led by strong improvements in our digital trends as new products was supported by fresh and compelling marketing content.
Bryan Krug: Overall, our direct to consumer channel was up 7% to prior year, marking the first positive inflection in five quarters.
Speaker Change: Zooming out on three strategic pillars for Hey, Dude I'm focused on one creating the hatred, Brian community through connecting with youth female culture, while maintaining a strong connection with the male fan base.
Speaker Change: To build the call a one day and Wally and add more.
Speaker Change: Three stabilized and accelerate North America, while laying the groundwork for future international growth.
Speaker Change: Starting with building Haydu community.
Speaker Change: We are assembling a strong roster of high profile influences, including style icon and actress Sydney Sweeney.
Speaker Change: Ward, winning music artist Jelly ROE and our recently announced partnership with Heisman Trophy winner Travis Hunter.
Speaker Change: And looking at our social channels, we expanded our community bringing out total following two 4 million consumers across leading platforms.
Speaker Change: During the holiday season, we saw exceptional Hey, Dude brand engagement on Tictoc in December the Hadrian brand was ranked the number three footwear brand across all brands on the tick Tock shop.
Speaker Change: While it's still early days, our strategy to capitalize on the younger female consumer to unlock broader brand awareness and relevance is starting to build.
Speaker Change: During the fourth quarter, we saw a 160% growth in new customers in the female 18 to 24 year old demographic.
Speaker Change: Fueled in part by the product successes and the Wendy's slipper and Austin lift.
Speaker Change: Turning to our second pillar build to core and add more we focus on our core <unk> assortment on three major platforms stretch sucks stretched canvas and funk mono.
Speaker Change: We iterate on these icons through color materialization and partnerships.
Speaker Change: One example was the launch of our one day and while a slippage during the holiday season.
Speaker Change: We introduce it as a DTC exclusive bolstered by a strong social and digital marketing campaign, featuring Sydney's Sweeney within two days, we sold out completely.
The slipped the outperformance was noticed by our wholesale partners and we launched in select accounts.
Speaker Change: As we mentioned on our Q3 call, we're investing behind the Austin lift on the pole franchises based on the success. We saw in 2024 in the fourth quarter Austin left ample emerged as tough franchises online.
Speaker Change: And the next few weeks you will see exciting new marketing around the Austin list as we build upon our early success on this franchise.
Speaker Change: Finally, we're continuing to prioritize brand health as we stabilize the North America market, while laying the groundwork for future international growth in the fourth quarter. We saw improved full price selling with ASP growth was 7%, marking the fifth consecutive quarter of ASP growth.
Speaker Change: During 2024, we opened 38 premium outlet stores, which is helping to drive brand awareness and connect consumers with the full expression of our brand.
Speaker Change: Just on the performance of these stores were planning to open an additional 10 stores in 2025.
Speaker Change: We have confidence in the long term potential of hey, Jude the.
Speaker Change: The continued green shoots we're seeing give us positive reinforcement of the opportunities for durable future growth.
Speaker Change: I will now turn the call over to Susan to provide more details around our financial performance and our outlook.
Susan Healy: Thank you Andrew and good morning, everyone.
Susan Healy: We delivered strong 2024 results capped off by a better than expected fourth quarter, which saw an acceleration in revenue growth from the third quarter, despite an incremental $11 million currency headwind versus our plan.
Susan Healy: Starting with the fourth quarter enterprise revenues of $990 million were up 4% to prior year.
Susan Healy: Cross brand revenues of $762 million were up 5% to prior year.
Susan Healy: Both was led by DTC, which was up 6%, while wholesale was up 4%.
Susan Healy: North America was flat to last year slightly ahead of our expectations supported by 2% growth in our direct to consumer channel offset by wholesale declines.
Susan Healy: During the holiday season, we saw strength during black Friday, particularly on digital as well as in the week, leading up to Christmas as the consumer reverted to more normal holiday shopping patterns.
Susan Healy: International revenue was up 14%.
Susan Healy: China led the growth with revenue up 25% in the quarter accelerating from the prior quarter.
Susan Healy: He just brand revenues of $228 million were flat to prior year led by DTC up 7%.
Susan Healy: Upside to our guidance was driven by improved digital trends wholesale was down 8% in the quarter and also better than our plan.
Susan Healy: Enterprise adjusted gross margins of 57, 9% were up 220 basis points to prior year.
Susan Healy: Crocs brand adjusted gross margin of 69% was up 140 basis points to prior year tied to product mix and lower fulfillment costs.
Susan Healy: This brand adjusted gross margin of 47, 7% was up 220 basis points to prior year, driven by fulfillment efficiencies and higher asps.
Susan Healy: Partially offset by product costs. This.
Susan Healy: This performance was significantly better than our expectations.
Susan Healy: Adjusted SG&A dollars for the quarter increased 23% versus prior year adjusted SG&A rate was 37, 7% up 610 basis points compared to prior year, driven by continued investment in DTC talent and marketing to support long term market share gains.
Susan Healy: Adjusted operating margin of 22% was down 390 basis points compared to prior year and above our expectations.
Susan Healy: Adjusted diluted earnings per share decreased 2% to $2.52 and our non-GAAP effective tax rate was 16, 1%, which excludes the current period tax impact of intra entity transactions.
Susan Healy: During the quarter, we repurchased approximately 2 million shares for a total of $225 million and also repaid $75 million of debt.
Susan Healy: Now turning to the full year.
Susan Healy: We delivered enterprise revenue growth of 4% to prior year, achieving $4 $1 billion in total revenues.
Susan Healy: Crack spread revenues were $3 $3 billion growing 10% to prior year with DTC growing 11% and wholesale growing 9%.
Susan Healy: The growth was volume driven with units, increasing 6% versus last year to a total of 127 million pairs of shoes sold well brand asps increased 2% to $25 52.
Susan Healy: Asps were driven by favorable pricing channel mix and product mix.
Susan Healy: North America revenues grew 3% versus the prior year to $1 $8 billion growth was led by DTC up 6%, while wholesale was down 1%.
Susan Healy: Underlying north American brick and mortar growth was up high single digits.
Susan Healy: International revenues grew 19% versus prior year to $1 $4 billion led by 25% DTC growth and 17% wholesale growth.
Susan Healy: China grew 64% on top of last year's Triple digit growth rate, while Western Europe grew 18% led by France and Germany.
Susan Healy: In aggregate our international tier one markets grew 20% during 2024.
Speaker Change: Turning to Hey did revenues were $824 million down 13% from prior year.
Speaker Change: Wholesale revenues were down 20% and DTC revenues were down 4%.
Speaker Change: For the year Asps were up 6% to $30.54. While unit volume was 27 million are down 18% to prior year.
Speaker Change: Enterprise adjusted gross margin for the year was 58, 8% up 230 basis points from last year.
Speaker Change: <unk> adjusted gross margin was 61, 6% or 140 basis points higher than prior year.
Speaker Change: Primary drivers of margin expansion were lower freight and fulfillment costs and favorable product mix.
Speaker Change: Hey, do this brand adjusted gross margin was 48, 1% or 190 basis points higher than prior years.
Speaker Change: Primary drivers of margin expansion were higher ASP phase.
Speaker Change: Favorable channel mix and lower freight costs.
Speaker Change: Adjusted SG&A dollars for the year increased 20% versus prior year.
Speaker Change: Adjusted SG&A rate was 33, 2% up 450 basis points compared to prior year.
Speaker Change: Adjusted operating margin of 25, 6% was down 210 basis points from 27, 7% in the prior year driven by planned investments in SG&A.
Speaker Change: Adjusted diluted earnings per share increased 9% to $13.17.
Speaker Change: Our non-GAAP effective tax rate was 16%.
Speaker Change: Our inventory balance as of December 31 was $356 million, a decline of 7% versus prior year.
Speaker Change: Enterprise inventory turns were above our goal of four times annualized basis.
Speaker Change: Our liquidity position remains strong comprised of $180 million of cash and cash equivalents and $809 million of borrowing capacity on our recently upsized $1 billion revolver.
Speaker Change: We generated $923 million of free cash flow in 2024, enabling us to repurchase stock and pay down debt.
Speaker Change: During the year, we repurchased approximately four 3 million shares for a total of $551 million.
Earlier this month the board of directors approved an upsize share repurchase authorization of an additional $1 billion, bringing our current authorization to approximately $1 $3 billion. We also repaid $323 million of debt during the year, reducing borrowings to approximately $1 3 billion.
Speaker Change: <unk>.
Speaker Change: We ended the year at the low end of our net leverage target range of one to one and a half times.
Speaker Change: Before turning to guidance I would like to address the topic of tariffs.
Speaker Change: Our guidance Embeds, an additional 10% tariff on goods imported from China into the U S. Beginning February 4th.
Speaker Change: As well as the anticipated additional 25% tariffs on goods imported from Mexico, beginning in March and assume CS will stay in place for the remainder of the year.
Speaker Change: We do not have any production in Canada.
Speaker Change: In 2025, we expect the share of enterprise imports into the U S from China to be approximately 15% with cross that 10% and hated it at 27%.
Speaker Change: Our exposure to Mexico is expected to be under 4% and for the Crocs brand only.
Speaker Change: For the enterprise, we estimate an approximate 11 million dollar headwind to gross profit from these additional tariffs are roughly 25 basis points to our margin rate.
Speaker Change: For the full year 2025, we expect enterprise revenue growth to be up approximately two to two 5% on a reported basis, assuming currency rates as of February 10th.
Speaker Change: This includes an anticipated $60 million currency headwind to the prior year.
Speaker Change: On a constant currency basis, we expect enterprise revenue growth to be up approximately 3.5% to 4%.
Speaker Change: So the Crocs brand, we expect revenue growth of approximately four 5% led by international growth.
Speaker Change: In North America, we expect growth for the full year to be slightly up and for international we expect growth to be up approximately 10%.
Speaker Change: For <unk>, we expect revenue to be down approximately 7% to 9% for the year, we expect direct to consumer growth in 2025 to come from improving digital trends and our new retail store contribution.
Speaker Change: Our outlook does not contemplate wholesale growth as we expect the wholesale channel to take longer to turn than our direct to consumer channel.
Speaker Change: We expect enterprise adjusted gross margins for the year to be down slightly impacted in part by foreign currency and tariffs.
Speaker Change: We expect mid teens adjusted SG&A growth in the first half of the year versus prior year and low single digit adjusted SG&A growth in the back half.
Speaker Change: Included in this is an uptick in our enterprise marketing spend from 9% to 10% as a percent of revenue.
Speaker Change: Taken together, we expect our adjusted operating margin to be approximately 24% for the full year.
Speaker Change: This includes an anticipated negative impact from both foreign currency and tariffs of approximately 60 basis points.
Speaker Change: 2025, we are committed to maintaining an adjusted operating margin at or above 24%, assuming a normalized currency and tariff environment.
Speaker Change: We expect adjusted diluted earnings per share in the range of $12.70 just $13 15.
Speaker Change: Consistent with our previous guidance policy. This range reflects future debt repayment, but does not assume any impact from future share repurchases.
Speaker Change: We are committed to our one to one five times net leverage range well, the redeploying excess cash flow towards share buybacks opportunistically.
Speaker Change: We expect our underlying non-GAAP effective tax rate, which approximates cash taxes paid to be 18% and the GAAP effective tax rate to be approximately 21, 5%.
Speaker Change: Our 2025 anticipated tax rate is lower than our previously communicated 20% long term tax rate due to forecasted business next for the year.
Speaker Change: We expect 2025 capital expenditures to be in the range of $80 million to $100 million.
Speaker Change: Turning to guidance for the first quarter.
Speaker Change: We expect enterprise revenues to be down approximately three 5% at currency rates as of February 10th this.
Speaker Change: This includes an anticipated $19 million currency headwind.
Speaker Change: On a constant currency basis, we expect enterprise revenue growth to be down approximately one 5%.
Speaker Change: We expect the crocs brand to be flat to down approximately 1% led by mid single digit International growth, We expect North America to be down mid single digits, including the negative impact of the Easter shift.
Speaker Change: We expect kgs revenue to be down approximately 14% to 16% tied to wholesale declines offset in part by growth in DTC.
Speaker Change: Adjusted gross margins are expected to be up slightly for the enterprise.
Speaker Change: Adjusted operating margin is expected to be approximately 21, 5%.
Speaker Change: This includes an anticipated negative impact from foreign currency and tariffs of 80 basis points.
Speaker Change: Adjusted diluted earnings per share is expected to be in the range of $2 38 to.
Speaker Change: To $2 52.
Speaker Change: In closing, we are making near term decisions that we believe are in the best long term interests of the company and our shareholders and we will continue to focus on what the company does best delivering growth with industry, leading margins that generate significant cash flow.
Speaker Change: I will now turn the call back over to Andrew for his final thoughts.
Andrew Rees: Thank you Susan a company initiatives remain consistent and we will focus on three primary levers to fuel durable long term growth.
Andrew Rees: Knight, our icons across both brands to drive awareness and global relevance for new and existing consumers.
Andrew Rees: To drive market share gains across our tier one markets through strategic investment behind DTC talent and marketing and three attract new consumers to our brand through methodically diversifying our product range and usage occasions.
Andrew Rees: While the geopolitical climate has become more volatile since the onset of the year, we continue to execute our brand strategy invest in our people and maintain a nimble mindset.
Speaker Change: At this time, we'll open the call for questions.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two in the interest of time, please limit yourself to one question.
Speaker Change: At this time, we'll pause momentarily to assemble our roster.
Speaker Change: And our first question comes from Jonathan Komp from Baird. Please go ahead.
Jonathan Komp: Yeah, Hi, good morning, if.
Speaker Change: If I could ask about the crocs brand in North America.
Speaker Change: I know you mentioned down mid single digits in the first quarter and up slightly for the year could you just.
Jonathan Komp: Talk a little bit more about what you're seeing maybe the health of the brand and the drivers of that inflection. After the first quarter and then just one follow up Susan on the SG&A outlook. I know you mentioned second half growth like you said low single digits could you just talk about you've got the step down in the growth rate of the G&A spend.
Speaker Change: How we should think about that going forward. Thank you.
Speaker Change: Great. Thanks, John So let me take the Crocs brand and Susan can give you some incremental.
Speaker Change: Insight into the SG&A growth. So as we think about the cross brand in North America. I think it's also important to kind of step back gross Brian has grown for seven consecutive years in North America and the business is triple what it used to be prior to that timeframe I would say, we're pretty we're very confident in the products that we have coming to market.
Speaker Change: America as we look at both our club innovation as we look both at our sandals, we had a nice sandal year last year in North America with strong sell outs and we're optimistic based on.
Speaker Change: The feedback that we've gotten from retailers with our product portfolio for 2025, I think it's important also to think about the consumer environment and when we think about the consumer environment is a healthy dose of uncertainty.
Speaker Change: So we're taking a prudent approach in terms of how we think about the growth of the brand and I would say as we think about the sort of multiyear trajectory. We're very confident in our product pipeline, our marketing engine to continue to drive growth in North America.
Jonathan Komp: And Jonathan regarding your second question on SG&A. So just as a reminder, our SG&A dollars are going into the key areas that we think will fuel future growth, which our DTC investments, including marketplaces, and new retail stores, along with talent and marketing to your question about the first and second half.
Jonathan Komp: As you know 2024 was an investment year for us and the cadence of those investments more towards back half weighted so as we begin to lap those second half investments in 2024, that's why we say mid single low single digits increase in SG&A for the second.
Jonathan Komp: Half of 2025, as we complete our two year investment cycle.
Speaker Change: Yeah, maybe I'll just take this opportunity to sort of talk about kind of the overall arc of SG&A.
Speaker Change: Cause I suspect there'll be a series of questions coming up on this call I think and if you think about the growth in our SG&A in the sort of multi year trajectory of our business over the past five years. The Crocs, Inc. Company has gone from one brand to brands, it's going from $1 billion in revenue.
Speaker Change: <unk> in excess of $4 billion of revenue and the very rapid growth, particularly in the early part of that five year.
Speaker Change: Period.
Speaker Change: <unk> had an extraordinary SG&A leverage and very very high levels of profitability in the last two years, we've been focused on making key investments in what we believe are critical capabilities infrastructure talent and also elevating our marketing investment to drive kind of future sustainable growth.
Speaker Change: So this is an oh.
Speaker Change: Resulted in SG&A deleverage in 'twenty four further deleverage that we're telling you about in 25.
Speaker Change: But we're committed to maintaining that 24% operating margin level.
Speaker Change: For the future and I think if you kind of step back and look at our peers and look at the industry, which we compete 24% operating margin is an extraordinary level of profitability and I would also say we've been extremely proactive in taking that high level of profitability, resulting in high levels of cash flow and return.
Speaker Change: Turning that proactively to shareholders.
Speaker Change: So hopefully that kind of gives everybody the context on the perspective that we have on the business and how we think that will reward shareholders in the long run.
Speaker Change: That's really helpful. Thank you.
Speaker Change: Thanks, Sean.
Speaker Change: The next question comes from Chris <unk> from Bank of America. Please go ahead.
Speaker Change: Great. Thanks, guys good morning.
Speaker Change: Follow up on crops in North America can you maybe discuss how wholesale sell through is trending relative to your expectations. In this the confidence you have in your order books for the year and if Theres an improvement in wholesale embedded in your guidance. Thank you.
Speaker Change: Yeah, I mean, I think we from.
Speaker Change: From a wholesale perspective in North America perspective, I would kind of go back to some of these things that I said to John which was number one look we have I think a.
Speaker Change: Our strong pipeline of products across our.
Speaker Change: Three major product categories, both clogs sandals inhibits.
Speaker Change: We ended the 2024, yeah, I think with a very.
Speaker Change: Successful wholesale season, we have.
Speaker Change: Clean inventories in the market.
Speaker Change: Our confidence in our marketing engine that will drive.
Speaker Change: Continued consumer takeaway from wholesale.
Speaker Change: I think strategically well positioned with our wholesale customers, we don't really.
Speaker Change: Talk about.
Speaker Change: Sell throughs on a quarter basis would never have as we think about our order books and so our.
Speaker Change: Wholesale customers' reaction to the product were bringing to market and 25 were very happy with the order books that we see at this stage, which run.
Speaker Change: Essentially all the way through to third quarter.
Speaker Change: And when you think about the first quarter and it's helpful to be mindful of a couple of factors. So Q1 is our toughest comparison in North America tied to the timing of wholesale is Easter shifts into the second quarter of this year. This is going to drive Crocs brand North American sales growth down in Q1 and up in Q2.
Speaker Change: And then we also see about 100 basis point headwind to DTC growth in Q1 from lapping the leap year.
Speaker Change: Yeah.
Speaker Change: Okay, and then just a quick follow up you brought up you bought back a lot of stock last quarter. Just wanted to gauge your appetite to continue leaning into share repurchases, given where the stock's trading and are there still more opportunities to pay down debt and potentially move below your current leverage target.
Speaker Change: Yeah. So let me address that then Chris as you know we plan, we're committed to our long term leverage target of one to one and a half times that's unchanged, but as you can see in Q4, we plan to do both we did about 75% share repurchase and 25% debt repay down.
Speaker Change: And you know that that mix is obviously influenced by the opportunity we see in our stock.
Speaker Change: And we do have a $1 $3 billion repurchase authorization you can see our board upsize that by $1 billion earlier. This month. So we are committed to do both we are committed to that leverage target that you can look at our Q4 balance and and and you know take confidence in how we see great opportunities that are.
Speaker Change: Doc as an investment.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: The next question comes from Adrienne <unk> from Barclays. Please go ahead.
Speaker Change: Hi, Adrian is your line on mute.
Speaker Change: Oh, yes, sorry about that [laughter] gosh, you would think after all these years.
Speaker Change: Apologize I.
Speaker Change: I was saying nice to see the progress at the end of the year.
Speaker Change: Andrew My question for you on kind of if we look out you know two to three years, how should we be thinking about the opportunities for crops in North America, what drives further growth there and I know in past calls we've talked about sort of more of that international growth is going to spur the.
Speaker Change: <unk> brand and then for Hey, did where kind of given the success on the D. T C. In the fourth quarter, but then going back to negative sales growth in the fiscal year. How comfortable are you with the turn in the investments that you are making into that to support the brand cross. Thank you.
Speaker Change: Great. Thank you Adrian.
Speaker Change: So a lot there.
Speaker Change: So let me start with international versus North American growth for.
Speaker Change: For the cross brand. So I think I would be super clear and is embedded in your question that we think the easiest growth for the Crocs brand.
Speaker Change: Is internationally right and that is really based on a our.
Speaker Change: Our degree of penetration and market share in some of these major markets as we look at our international markets.
Speaker Change: And I think we put a nice page in our latest investor deck, we can see more developed international markets like the U K or South Korea, and also if you compare it to the U S.
Speaker Change: Compared to less developed international markets and then the less developed markets like China, France, Japan, even Germany, we have about a quarter of the market share that we have in the developed markets.
Speaker Change: That is based on.
Speaker Change: The degree of <unk>.
Speaker Change: Marketing efforts et cetera that we put into those markets over time without and make choices over time, and we think that there is a long and relatively straightforward runway in those markets. So that's where the majority of growth will come in the short term.
Speaker Change: And it's easiest growth we believe.
Speaker Change: In North America will wells penetrated from a cloud perspective, we do have a growing and emerging sandal business and over time, we do believe we can drive innovation into incremental product credit categories that will yield growth in North America, but to yield substantive growth in North America, we really have to do penetrates newer indications.
Speaker Change: <unk> and <unk>.
Speaker Change: We've got a nice pipeline of innovation that but as yet I would say, it's not fully proven so I think for us to talk about.
Speaker Change: The acceleration in North America, we have to prove that first and I can assure you we're doing that work and hopefully we'll have some great results to to showcase in that arena.
Speaker Change: <unk> in the coming to check so.
Speaker Change: So hopefully that kind of gives you the balance of crocs, but having said that that's still a.
Speaker Change: Very healthy brand that yields.
Speaker Change: Coherent growth and high levels of profitability go forward.
Speaker Change: From a haydu perspective, thank you curious about the future guide and our.
Speaker Change: Performance in Q4 relative to Q1 guide right. So yes.
Speaker Change: The piece that I think would be helpful that look we're really pleased with the pool of the brand in Q4. It was led by products led by marketing and particularly DTC.
Speaker Change: And our ability to drive consumer takeaway in our DTC channel.
Speaker Change: That being said.
Speaker Change: We know we want to provide you know I think really.
Speaker Change: Prudent guidance for this year, so that we.
Speaker Change: We can we can perform well against it so I think hopefully we're doing that I would say as we kind of look at the trajectory of the brand.
Speaker Change: We've done this before at Crocs, we really turned around that brand and from.
Speaker Change: From a brand that was going nowhere years ago through a Brian Thats incredibly successful today.
Speaker Change: The playbook, we're seeing a lot of the green shoots that we're very confident with what we're seeing and where we're going so and I would say lastly from a hatred perspective look we think this is a great brand. We think is well positioned against the consumer it hasn't met our short term expectations.
Speaker Change: But we remain extremely confident in its long term potential its ability to further penetrate the U S market and leverage internationally.
Fantastic color. Thank you very much and best of luck.
Speaker Change: Thank you.
Speaker Change: The next question comes from Jim Duffy from Stifel. Please go ahead.
Speaker Change: Thanks, Good morning.
Speaker Change: A quick mention of appreciation for the very clear disclosures on tariff assumptions thanks for that.
Speaker Change: Andrew starting on the Hey, Dude brand can you speak to the state of engagement with our wholesale partners.
Speaker Change: Distribution footprint now stable or how do you see changes to shelf space, what's the willingness of wholesale partners to engage with new product offerings, where you're seeing success in D. C. Thanks, Yeah.
Speaker Change: Great.
Speaker Change: So yeah, I would say we don't anticipate.
Speaker Change: Significant changes in our distribution strategy.
Speaker Change: From this point forward there are incremental customers, we'd like to attract their shelf space, we'd like to increase.
Speaker Change: But in terms of who we are engaged with it we're engaged with a lot of the right people.
Speaker Change: And the potential to add to that in the future in terms of.
Speaker Change: The degree of enthusiasm and conversation and connectivity with some of those key partners I would say they are very much engaged with hey, dude for some of them Hey, Dude is a top five brand right. So it's a brand that they.
Speaker Change: Supportive all if they wished to succeed but I would also say.
Speaker Change: And I would say they are.
Speaker Change: See the.
Speaker Change: The benefits of the work that we've done associated with product and marketing, particularly some of the ambassadors and celebrities that we're using to grow and tested the brand. They can see the connectivity of the brand with the consumer on a tick talk and some of the social sites.
Speaker Change: But I would also say there is work to be done and that work is called out.
Speaker Change: Our guidance, we do not see contemplated in our guidance today is not wholesale growth in North America.
Speaker Change: There is still work to be done in a relative to cleaning up inventories in the channel in fact, we will be taking some returns.
Speaker Change: In the first quarter of aged inventory and replacing it with a new and current inventory. So that's the proactive steps that we're taking that is also embedded in our guidance. So there is still work to be done, but I would say.
Speaker Change: Partners are shoulder to shoulder doing that work with us.
Speaker Change: Great. Thanks for that Susan just a quick one.
Speaker Change: The outlook can you comment on working capital considerations in 'twenty Fives, we're very focused on free cash flow any reason to think free cash flow can again exceed 800 million.
Speaker Change: Yeah. So Jim we don't as you know, we don't specifically guide free cash flow I mean, we're really pleased with the free cash flow generation ability of both our brands and our ability to convert that into share repurchases and debt pay down for our investors when it comes to your mom.
Speaker Change: <unk> I know I think we gave you all the components you need to derive that so you know we can.
Speaker Change: Happy to take any questions offline.
Speaker Change: You mentioned the inventory turns kind of exceeded your goals of four times and Uh huh.
Speaker Change: 2025, do you expect or excuse me 24, do you expect reinvestment in inventory in 'twenty five.
Speaker Change: Yeah, we're really pleased where we ended up on both brands and our strategies will be consistent with the growth we plan for the brands.
Speaker Change: As Andrew said, we've got some strategies around hey, Dude, but overall, we're very pleased with how clean we ended up the quarter in both brands.
Speaker Change: Okay. Thanks.
Speaker Change: The next question comes from Bob <unk> from Guggenheim. Please go ahead.
Speaker Change: Excuse me good morning.
Speaker Change: Just two questions from me the first one just on the commitment to 24% operating margins. When you think about sort of the the increase in marketing spend and sort of flexibility around.
Speaker Change: The SG&A line or marketing spend within that can you just talk about how you're approaching it in that 24% commitment and then the second question I have is just on Hey Dude.
Speaker Change: Well Travis Hunter.
Speaker Change: Wearing those shoes at the draft is that part of the deal.
Speaker Change: [laughter] so.
Speaker Change: Let me do the second piece first I am not going to make any predictions about what is going to be wearing of the draft. You may have noticed he was wearing hey, dude at his Heisman Trophy ceremony.
Speaker Change: And I would say look our engagement of highway truck harvest harvest Hunter is like our engagement with the others.
Speaker Change: Music leaders and actors actresses that we've engaged with its first based on a genuine connection with the brand. He was an individual that loves the brand or the brand.
Speaker Change: Asleep he's a he's been plagued with most recently here.
Speaker Change: In Boulder, Colorado, So, we're very familiar with him so well.
Speaker Change: When we when we look for celebrities and ambassadors that we're going to engage with authenticity is super important and he absolutely has that we hope he goes very high in the draft and goes to a large media market because that would be helpful. So going back to your other question so 24% commitment.
Speaker Change: We have lots of flexibility within this business, we have been very proactive in terms of making investments I know that was not always popular.
Speaker Change: And then just I want to highlight where those investments have gone and how that relates to the future.
Speaker Change: The first is into DTC right. So we've opened more stores.
Speaker Change: Those stores were extraordinarily profitable and we will continue to kind of lean into some store openings. Most of the stores. We opened our premium outlets, which has ever be I think understands its extraordinary profitable. We're also shifting our digital business to be more marketplace and some of those market places have a.
Speaker Change: Higher run rate of SG&A associated with them, but that is where the consumer is going I think a great example of that is tictoc shop, we saw great results for both brands on ticked up shop.
Speaker Change: In the fourth quarter, we think that will be a growing channel for us.
Speaker Change: And it's sort of a parallel to what we see in Asia in particular, China, whereas with channel where consumer spending is shifting from.
Speaker Change: Digital marketplaces to social market places.
Speaker Change: And that does carry some higher SG&A. So we've kind of thought that through and projected that forward. We have also increased our marketing spend from.
Speaker Change: What was probably several years ago used to run about 77, 5% of sales of our planning it in 2025 about 10% of sales. So we will be proactive in terms of both investing at a higher level and hey, Dude, given where the brand is in the future potential we see in that brand, but also investing at a higher level.
Speaker Change: In crops.
Speaker Change: Because we have more scale tier one markets around the world that require more marketing support and we think have actually also more opportunities for growth.
Speaker Change: And then other aspects of that investment is also talent capabilities et cetera, and you can imagine what that is across now having said that some of that is also flexible right.
Speaker Change: We can make different decisions over time based on the opportunities that we see in front of us. So I think we feel pretty comfortable with the 24% a floor at this point.
Speaker Change: And.
Just wanted to provide that clarity for you all.
Speaker Change: Thank you.
Speaker Change: The next question comes from Anna <unk> from Piper Sandler. Please go ahead.
Speaker Change: Great. Thanks, so much good morning.
Speaker Change: And congrats on a nice end to the year.
Speaker Change: We had a question on gross margins you mentioned up slightly in the first quarter, then down slightly for the year, which makes sense just given the tariffs and the FX.
Speaker Change: But you saw some positive without product costing and also other efficiencies. So can you talk about sustainability of those and when did you see in terms of promotional tenor at both brands during the fourth quarter and what are you expecting the promo activity as the year unfolds and then we had a quick follow up as well.
Right. So when we talk about gross margin in particular and I think you asked about the shaping across the year from an enterprise.
Speaker Change: Price basis, just just at a high level, we're expecting gross margins to be down slightly for the year, but that embed 60 basis points impact of foreign exchange and tariffs.
Speaker Change: So therefore, our gross margin would actually be up.
Speaker Change: Slightly without that impact and as we're thinking about the full year and Q1 would be up and we expect Q2 to be down the most on a year on year basis.
Speaker Change: Part based on the heavier impact of FX and tariffs.
Speaker Change: Yes.
Speaker Change: Promo perspective, Oh, sorry, one follow up on that and then I'll pick up the promos for Ya Oh No. Please go ahead. Thank you okay. So from a promo perspective.
Speaker Change: There's probably a couple of big things going on here number one is we believe the consumers kind of.
Speaker Change: Susan referenced in our prepared remarks, we're starting to kind of more normalized shopping patterns by that we mean shopping patents relative to sort of pre pandemic.
Speaker Change: And.
Speaker Change: And in terms of the promo environment Q4 look we had great gross margin and gross margin improvement in Q4, so that was.
Speaker Change: Very encouraging I would say the promo environment is dynamic as we think about it around the world. It was a little bit greater in some places a little bit less in other places so pretty dynamic.
Speaker Change: It generally came out where we expected I think the one thing we did see is we did see the consumer migrating Inc.
Speaker Change: Incrementally to lower price and more promo product. So they definitely were feeling a little pressure.
Speaker Change: And as we've kind of think about 2025, we think or we.
Speaker Change: Finally, a prudent new relative to what we say what we would think the arc of the consumers.
Speaker Change: Okay. That's super helpful. I appreciate it and just as a follow up can you guys provide a little bit more color on what's the expectation for the hatred recovery in the back half just given the sharp decline expected for the first quarter. You mentioned, the new stores are highly profitable and you're getting a new consumer through that.
Speaker Change: But anything else you can share on the performance of the new stores and are you planning to open any additional doors in 'twenty five and thanks again.
Speaker Change: Okay. Thank you Anna.
Speaker Change: So.
Speaker Change: I don't think there's a lot more that we're gonna say around.
Speaker Change: The pace of recovery the timing of recovery I would think what we'd say is we're on track with where we believe we would be at this time right.
Speaker Change: The ways, we can monitor that and see that is growing haydu community.
Speaker Change: Strong engagement with the core customer Inc.
Speaker Change: Incrementally attracting our.
Speaker Change: I would say new customers, specifically in the sort of younger female arena from a demographic perspective, we.
Speaker Change: We see traction on DTC, we plan a positive D C.
Speaker Change: But in our guidance is positive DTC growth.
Speaker Change: In 2025 based on.
Speaker Change: Digital growth, but also based on those stores, we do plan on opening about 10 more new.
Speaker Change: Premium outlet stores in 2025 to add to the 38 that we opened in 'twenty four.
Speaker Change: We are not embedding wholesale growth.
Speaker Change: He said.
Speaker Change: Within that.
Speaker Change: <unk> trajectory.
Speaker Change: I think we've we've also I would highlight.
I think we've guided really prudently.
Speaker Change: I think you probably would expect us to do.
Speaker Change: And.
Speaker Change: We're confident in our <unk>.
Speaker Change: Trajectory today, and we're super confident in the long term trajectory.
Speaker Change: Alright, that's super helpful. Thank you so much guys.
Speaker Change: Thank you.
Speaker Change: The next question comes from Laura Champine from Loop capital. Please go ahead.
Laura Champine: Thanks for taking my question when I think about the 24% long term operating income guide.
Laura Champine: What's your pricing philosophy, there and how much would you use pricing to offset cost.
Laura Champine: Cost increases.
Laura Champine: Yeah.
Laura Champine: It's a really great question actually Laura so.
Laura Champine: As we as we think about her.
Laura Champine: How we think about pricing.
Laura Champine: For both of our brands from a philosophical perspective is we want to price to the market.
Laura Champine: Market as a country right. So we have to think very long and hard about how each individual item is priced in each bucket and that is dictated by <unk>.
Laura Champine: Comparative prices so.
Laura Champine: Competition, what other people would think of charging for a product that would be competing for the wearing occasion, we're competing for.
Laura Champine: But also the strength and the trajectory of our brands right. So our pricing is driven.
Laura Champine: Some really nice.
Laura Champine: I'd say actually incredible gross margin improvement on crocs over the last several years.
Laura Champine: And.
Laura Champine: But at this point.
Laura Champine: We don't we're not planning significant pricing increases in the short term.
Laura Champine: But we don't necessarily know what's going to happen in the longer term. So we do look at pricing very closely we think is a very very important lever.
Laura Champine: And we think we're well priced today. So we're not planning a lot of price growth in the short term, but we continue to remain I would say a very nimble relative to what that might entail.
Laura Champine: Got it.
Laura Champine: Looking at Hayden J S. P up 7% I think in the quarter, what is that on top up year on year.
Laura Champine: I don't have that number to hand.
Laura Champine: But what I can say is the drivers of the ASP increase has principally been reduction in discounting.
Laura Champine: So as we look at particularly our DTC channels I think we've had six quarters now of sustained ASP increases.
Laura Champine: <unk>.
Laura Champine: The driver of that has principally been reducing discounting.
Laura Champine: This is absolute price increases.
Laura Champine: Got it thank you.
The next question comes from Tom Nichols from Needham. Please go ahead.
Tom Nichols: Hey, good morning, everyone. Thanks for taking my question.
Laura Champine: I want to follow up on <unk>.
Tom Nichols: And specifically on the on the product development side.
Tom Nichols: Hey, Tom will having a real hard time hearing you couldn't even get closer to the mic.
Tom Nichols: Okay.
Tom Nichols: Hey.
Tom Nichols: Sorry about that.
Tom Nichols: I wanted to follow up on Hey, Dude, and specifically on the product development side I know that there's a big opportunity to also diversify the brand.
Speaker Change: Extend beyond the core Wally and Wendy like how far along do you feel like you are in that process.
Tom Nichols: And I'm trying to use the earnings metaphor or whatever but just.
Tom Nichols: If you give us our thoughts on the product development and.
Tom Nichols: Expansion journey to Tara that'd be great. Thanks.
Tom Nichols: Yes so.
Tom Nichols: I think.
Tom Nichols: What I'd say to start with is look at the the most important element of the product strategy for <unk> is the core at this point right. The wall in the wind is a very large part of the business. We also think it's the future of the short term future driver of growth.
Tom Nichols: And and we drive growth off the wall and Wendy we've re platform the volume the windy answer kind of three major platform stretch yourself stress combo, some funk mono.
Tom Nichols: Which I think gives the consumer a lot more.
Tom Nichols: Understanding of where the products that they love.
Tom Nichols: All are on what other versions that are available so it's much easier to navigate the product architecture.
Tom Nichols: That is kind of that transition is in place kind of as we speak.
Tom Nichols: AD.
Tom Nichols: Opportunities future opportunities for the consumer to engage in those platforms through call out through materialized nation.
Tom Nichols: And through collaborations and also unique and.
Tom Nichols: The unlimited supply product.
Tom Nichols: In terms of extending beyond that we were in the very early innings, we do have some great. Examples.
Tom Nichols: If you look at the Austin lift, which is a shoe that we will lean into here in the in the first quarter.
Tom Nichols: It performed extremely well.
Tom Nichols: <unk> 24, and particularly in the fourth quarter were leaning into it more in the first quarter.
Speaker Change: It was a really exciting program coming out featuring Sydney Sweeney.
Tom Nichols: So we're excited about that so that is a part.
Tom Nichols: Part of the mall.
Tom Nichols: We have a boot business on the Bradley, which actually performed extremely well in the fourth quarter too.
Tom Nichols: The poll is a.
Tom Nichols: As a dress shoe for men, it's really a derivative of the Wally but it has some slightly different comfort characteristics and some elevated materials in the up but that is also performing well. So I think those are all kind of good examples of extending the volume Wendy but back to your kind of Coke coal question.
Tom Nichols: We're in a very early innings, probably the first innings.
But the the strengths of those extensions will be based on the strength of the core so that's where we're focused today.
Tom Nichols: Understood. Thanks, very much muscle up this year.
Tom Nichols: This concludes our call.
Tom Nichols: Time at this point so.
Speaker Change: I just wanted to I know, we didn't get to there's a few people that we haven't gotten to that questions. We apologize for that.
Tom Nichols: Pick them up in the after calls.
Speaker Change: But I did want to thank everybody for.
Tom Nichols: Their attention on there.
Tom Nichols: Their support of our brands and our company. So we appreciate it.
Tom Nichols: Okay.
Tom Nichols: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Tom Nichols: Okay.
Tom Nichols: [music].
Tom Nichols: Yeah.
Tom Nichols: [music].
Tom Nichols: Yeah.
Tom Nichols: [music].