Q2 2025 Crocs Inc Earnings Call

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 1 on your touchtone phone to withdraw your question. Please press star then 2, please note that this event is being recorded. I would now like to turn the conference over to Aaron Murphy, Senior vice president of investor relations and corporate strategy. Please go ahead.

Good morning, and thank you for joining us to discuss Crocs Inc. Second quarter results with me today, are Andrew Reese, chief executive officer and Susan, Healey Chief Financial Officer. Following their prepared remarks, we will open the call for your questions which we ask you to limit to 1 per caller.

Before we begin, I would like to remind you that some of the information provided on this call is forward-looking and accordingly. It's subject to the safe harbor, provisions of the federal Securities laws. These statements involve known and unknown risks, uncertainties, and other factors. Which may cause our actual results performance or achievements to differ materially.

Please refer to our most recent annual report on Form 10-K, quarterly reports on Forms 10-Q, and other reports filed with the SEC. For more information on these risks and uncertainties,

Certain Financial metrics that we refer to as adjusted or non-gaap are non-gaap measures. A Reconciliation of these amounts to their Gap. Counterparts is contained in the press release. We issued earlier this morning.

all revenue growth rates will be sited on a constant currency basis, unless otherwise stated

At this time I'll turn the call over to Andrew Reese. Cross Inc. Chief executive officer.

Thank you Aaron. Good morning everyone. Thank you for joining us today.

Our teams delivered, a solid second quarter, fueled by Topline growth and our highest ever quarterly gross profit, which drove strong free cash flow in the midst of what continues to be a volatile Marketplace.

I will start by highlighting the key metrics of the quarter, and then discuss the Strategic rationale behind the decisions we have made to drive profitability, and support long-term brand health.

And finally, we'll touch on deeper insights on our individual brands.

At an Enterprise level second quarter, revenues of 1.1 billion, through 3% to Prior year.

Cross brand revenues of 960 million through 4% to Prior year led by 16% International growth.

Hey, dude, revenues of 190 million down 4% to Prior and improvement from the first quarter.

Enterprise adjusted gross margins of 61.7% gained 30 basis points to our prior year.

Adjusted operating margin of approximately 27% supported adjusted diluted earnings per share of $4.23, again a 5% to Prior year.

A strong margin profile, fueled free cash flow of 269 million, enabling us to repurchase 1.3 million shares and repay. 105 million of debt.

Our net leverage ended the quarter at the lower end of our target range of 1 to 1 and a half times.

To remind everyone over the last decade, we have deployed 2.4 billion dollars to buy back approximately 30% of our total shares outstanding.

This along with continued de-lever of, our balance sheet has been a consistent driver of eps growth and shareholder returns.

Turning now to the current operating environment.

We see the US consumer behaving cautiously around discretionary spending.

They are faced with current and implied future price increases which we think has the potential to be a further drag on an already Choice consumer.

Against this background, our Retail Partners are acting more carefully and reducing their open to buy dollars in future seasons.

As we have consistently said, we are not trying to manage our business quarter to quarter. We had a solid first half of the year, with Our Brands, fueling strong, gross profit, and cash flow.

The current environment in the second half is concerning.

And we see that clearly reflected in retail order books.

We strongly believe this is a time to make bold decisions.

For the future to sustain and Advance our durable cash flow model.

As a result, we have chosen to amplify certain measures in the second half of the year to protect brand health and profitability.

for the Crocs brand in addition to adjusting our forward receipts, we pull back on promotional activity across the direct channels, starting in May,

See, this is an opportunity to drive margin dollars over time.

Support continued, cash flow generation, and tighten brand control.

For the Hadoop brand, we've accelerated our actions in the channel to support a clean and refreshed Marketplace.

This has resulted in us choosing to take back additional aged inventory and ensure more of our partners are reset with our current product lines.

This will create further headwinds to sales, volume over the next several quarters.

From an expense perspective. We've already actioned 50 million dollars of cost savings. And are identifying further cost savings opportunities.

As it relates to inventory, we've opted to plan our business conservatively for actively pulling back on receipts across both brands for the second half primarily in the US.

Without losing sight of the bigger picture, I want to remind everyone that over the last 3 years, we have made significant progress in diversifying our business.

Which will serve as a strong Foundation to enable long-term sustainable growth.

1, we've moved from 1 brand to a 2 brand Enterprise.

Fortifying our leadership within the Casual Footwear segment.

2. We've Diversified our clogged offering and have 6 major franchises that make up the majority of our clogs business.

In addition we've developed strong sandals and personalization pillars.

That offer unique wearing occasions and enable self-expression.

3.

We've accelerated our International growth business, which has grown from 38% of crops brand sales in 2022 to 52% in the second quarter.

Collectively this diversification should fuel durable long-term growth for years to come.

Now, turning to performance by brand.

For the cross brand.

All of our key product pillars, clogs sandals and jibbitz charms. Grew in the second quarter.

Blog iterations and emerging franchises drove growth. Within the club category including Echo Bay and emotion.

these results exemplify that when we deliver new innovation with clear storytelling through our marketing channels, the consumer responds with strong engagement,

In Asia, Club personalization and height continues to resonate well.

Outside of clogs sandals. Continue to yield strong results, providing new versatile, wear, and occasions for our consumer.

During the quarter, we saw notable strengths across our style franchises, which include the Brooklyn getaway and Miami.

As we moved into the summer season, the Miami went viral on Tik Tok and we were chasing demand.

Our consumer is responding well to neutrals and new materialization including glitter and patent finishes

as we look forward, the success of these 3, franchises is translating into shelf, Space games, and we're adding new collections such as a Soho sandal, next spring,

Within personalization, our jibbitz charms growth continues to be driven by distribution expansion. In our International markets, improved in store presentation and success around elevated charms.

We remain laser focused on our digital, LED social first marketing Playbook, as this is a key ingredient in sustaining brand Heat.

In addition to bringing back franchise favorites, like cars Pokemon and Minecraft Partnerships. We're also standouts in the quarter

We furthered our connection to sport growing our nil athlete roster. With first round NFL draft, picks Jackson, Dart and Ashton Genty who notably wore our saski. Crystal studded Crocs clogs on the red carpet.

We continue to lean into social commerce, as consumers, more frequently. Start and end their shopping Journeys on social platforms.

During the quarter Crocs Remain the number 1 Fort Worth brand on Tik Tok shop in the US. And we recently launched on this platform in the UK where results have been strung out of the gate.

Our plan is to continue to expand social commerce and live streaming platforms globally, and we expect this to drive new growth opportunities.

Turning to performance by region.

Our growth in the quarter was led by our international business which registered Revenue growth of 16%,

Led by the direct to Consumer Channel.

Our international business represented more than half of our crops brand Revenue, mix this quarter,

In China, we reported another quarter of strong Revenue growth in excess of 30%.

During the quarter cross brand outperforms during mid-season Festival, placing crops among the leading women's Footwear brands on both T-Mobile and doyon.

Including brand ambassador and actress, Bao an actor TJC.

India, saw double-digit Revenue growth in the quarter with outsized consumer demand across our classic, clog, and sandal franchises.

We welcomed rashmika mandanna as our first brand ambassador in India. And inaugural Instagram post garnered over 400 million views.

Japan, grew nicely during the quarter and Western Europe continued to perform strongly led by France and Germany.

A North American Business was down 6% to Prior year as we pull back on discounting on a DTC channels. Most notably on clubs

We continue to see sandals as a growth vehicle, increasing double digits in the quarter. As we further diversify our business,

Last week, we held the grand opening of our newest retail Concept in SoHo New York.

This store houses, our largest personalization experience to date with expanded and upgraded jbits charms opportunities.

In addition to our Mainline product consumers, can find New York exclusive products as well as a dedicated assortment of elevated. Exp product line, with Dynamic digital storytelling

Turning to the Hadoop brand. We've been focused on 3 core pillars of our strategy, 1 IGN, the agent community,

2 driving the core and adding more and free prioritizing brand Health as we stabilize the North American Market.

First, we've continued to ignite the Adu community.

Over the past 12 months, we've been focused on speaking to a new female consumer while not losing sight of our core consumer.

The cumulative impact of our marketing efforts over this period. Have resulted in an increase in 80 awareness 235% in North America.

In addition, to an uptick in Awareness, we've also seen improvements in consideration and purchase intent.

With these advancements Aid is now poised to further engage our core consumer.

In June, we launched our latest campaign Hado country.

This campaign is rooted in authenticity and plays into several of our brand affinities including music, pre and post Sport and travel.

We're excited about the future of this campaign and is Broad appeal to our existing core consumer as well as new hated fans. Both him and her

Second, we're building the core and adding more.

During the quarter, we iterated on our icons, the Wall-E and the Wendy Bella materialization and Partnerships.

In June, we leveraged our icon to release the hey dude times Pat's Blue Ribbon collection which sold out on our own.com.

We also partnered with Margaritaville to release a collaboration featuring our H2O collection, which speaks to the core Hadi consumer.

Lastly, we launched a Paul Pro, an elevated iteration of our bestselling, poor silhouette at an 80 price point.

Against our third strategic pillar, we continue to prioritize brand Health as we stabilize the North American Market while laying the groundwork for future International growth.

We were pleased by continued growth of our direct to Consumer Channel up 7% in the quarter. This was supported by a new store, openings and strong performance on Tik Tok.

While we are pleased with the Strategic progress, we've made against our 3 pillars.

We have identified further opportunities to more rapidly. Reset our North American Business.

We are focused our efforts against 2 primary actions 1. We pull back on bottom of the funnel Performance Marketing investment to enable a more profitable digital business.

And 2, we've initiated incremental returns and marked our allowances, to our retailers, to improve the health of our imagery in the marketplace.

This will simultaneously Elevate our brand presentation at wholesale.

While these measures will have a meaningful impact to the second half performance. Across both channels, we feel that they will stabilize the business more quickly.

In closing, we believe the Hadoop ramp potential and its Community are much greater than the size of the business today, and we're confident that the critical steps we are. Taking will fuel the potential in the future.

I will now turn the call over to Susan to provide more detail around our second quarter financial performance and third quarter Outlook.

Thank you, Andrew, and good morning, everyone.

Our second quarter Enterprise revenues of 1.1 billion dollars were up, 3%, prior year.

Frogs brand revenue of 960 million was up 4% to Prior year.

Growth was led by wholesale, up 6%, while DTC was up 3%.

North America revenues were down 6% to last year as we pulled back on discounting during the quarter.

Part, drove DTC down 8%. While wholesale was down, 4%.

International Revenue was up 16% aided in part by timing shifts out of Q3 and into Q2 in Select Market.

China and India led the growth while Japan and Western Europe. Also contributed strongly to these results.

Aged brand revenue of 190 million was down, 4% prior year and improvement from the prior quarter.

BTC was up 7% driven by the contribution of new retail stores and our strong performance on Tik Tok shop.

Wholesale was down 13% in the quarter.

Enterprise adjusted gross margins of 61.7% were up 30 basis points to Prior year.

Crocs brand, adjusted gross margin of 64.1%, was approximately flat to Prior year.

Heated brand, adjusted gross margin of 50.2% was up 110 basis points to Prior year, primarily due to distribution and Logistics efficiencies.

Adjusted sgna dollars for the quarter, increased 12% versus prior year.

Adjusted sgna rate was 34.7% up, 270 basis, points compared to Prior year, driven by incremental investment in Talent. CTC and marketing.

This excludes the non-cash impairment charge of 737 million on Hud's, intangible assets.

This impairment comes as a result of a longer than expected timeline to stabilize the Hadoop brand and return it to growth due in part to a weaker us consumer and the disproportionate impact of tariffs on Hadoop products

Adjusted. Operating margin of 26.9% was down 240 basis points compared to Prior year.

Adjusted diluted earnings per share of $4.23 was up 5% to last year.

Our non-gaap effective tax rate was 17.7%, which reflects the tax impact of intra entity transactions. And excludes the impact of the Hadi impairments.

our inventory balance as of June 30th was 405 million up 7% to Prior year, in part due to the elevated cost of inventory from tariffs,

Enterprise inventory, turns remained above our goal of 4 times on an annualized basis.

Our liquidity position remains strong comprised of 201, million of cash and cash equivalents and 784 million of borrowing capacity on our revolver.

During the quarter, we repurchased approximately 1.3 million shares of our common stock for a total of 133 million at an average cost of approximately $102 per share.

in the first half of the year, we repurchased 1.9 million shares or 3% of our outstanding shares,

We had 1.1 billion dollars remaining on our buyback authorization as of the end of Q2.

We ended the quarter with total borrowings of $1.4 billion and net leverage at the lower end of our target range of 1 to 1.5 times.

Before I discuss our Outlook, I want to briefly touch on tariffs.

Last week, the US extended the pause period on a series of incremental tariffs on countries in which we Source our products.

While we can't predict future tariff changes. We are planning our business at the current rates.

the impact, from these incremental rates equates to approximately $40 million in the second half of 2025, and approximately 90 million dollars on an annual basis, based on our current sourcing mix,

Now, moving to our Outlook.

It continues to be difficult to fully project. The financial implications of changing global trade policies, as well as to predict how consumer sentiment and purchasing patterns will evolve.

Therefore, we are not reinstating fully your guidance at this time. However, we would like to provide some visibility for the third quarter.

For 23, we expect Consolidated revenues to be in the range of down. 90% to 11% at currency rates as of August 4th.

This Revenue range is based on the visibility. We have to order from our wholesale partners.

The pullback of Performance Marketing for hey, dude.

The incremental cleanup actions, we have elected to take for hey dude, as well as the potential range of outcomes against a weakening us consumer backdrop.

Within this range, we expect the crops brand to be down. Mid single digits, led by declines in North America offset in part by growth and International.

this includes our expectation that the second half wholesale environment will be challenging for both Brands, based on the visibility, we have in our current order books,

Adjusted operating margin is expected to be in a range of 18 to 19% including an anticipated. Approximate 170 basis, point impact from tariffs and do leverage of expenses, tied to our reduced Revenue Outlook,

We plan to continue to buy back stock and pay down debt. While remaining within our Target net leverage, range of 1 to 1 and a half times.

Based on the current environment, we are rapidly, actioning additional cost-saving measures across the Enterprise in Q3.

I will now turn the call back over to Andrew for his final thoughts.

Thank you, Susan.

While the current environment has created uncertainty for the industry, and for our consumers,

I'm confident that the increasingly Diversified sources of growth. We are developing and the Strategic actions. We are taking will position Our Brands for consistent and profitable long-term growth.

At this time, we'll open the call for questions.

And we will now begin the question and answer session.

If you would like to ask a question, you may press star then 1 on your touchtone phone.

If you're using a speaker-phone, please pick up your handset before pressing the keys.

To withdraw your question, please press star, then 2. And at this time we will pause momentarily for the first question.

And our first question today will come from Jonathan comp with B. Please go ahead.

Yeah. Hi, good morning. Um, I want to start just by asking about Crocs North America and the outlook for Q3 I'm hoping you might be able to better isolate, you know, the some of the unique factors impacting Q3 versus what might be lasting. And then, as you look forward, especially into 2026. I know you've you've made some changes at the organization at the um Chief brand officer level Chief strategy um position. So just as you look forward beyond the next couple of quarters, could you give us some more sense of the pipeline and the strategy in terms of

You know, reinvigorating the the the excitement for the brand.

Right. Thank you, John.

I think as you look to the back of the year for the Crocs brand in North America, there's a number of things affecting the business. Some choices that we have made, we should we think will be productive in the long term and, uh, and it's also some Market related factors. Um, our our, uh, consumer is an incredibly broad-based consumer. If you look at our demographics and who we sell to, from the Crocs brand, it's essentially the general population. So as you look at the general population, there is a portion of that consumer base, which we, which we, I think, is ample evidence that they are super cautious. Um, they're, uh, they're not purchasing, they're not even going to the stores, and we see traffic down. So we're certainly affected by that. And we see that flowing through into our back half in terms of really a wholesale business, and a little bit of our Outlet business where we see that lower end consumer. Um, so we see, you know, our order books down and we see a trajectory for our wholesale business, that is unintended and

And uh, and not necessarily out of our control, but that is what it is. I think the second piece is our decision to, um, pull back on discounting on the, Crocs brand in North America, in particular. And that is the fact that that is an intentional decision to make that's a revenue headwind, but a gross margin and ultimately an ebit. Um, potential. Um, we think that's important. Um,

To do that because as we looked at the trajectory and the discounting over time, we saw it uh increasing and we think that is detrimental to the long-term health of the brand. Um,

And grow our, um, our personalization business, uh, both in Jibbitz and expanding that beyond Jibbit into a broader personalization offering. Um, I would also add, um, that in Q2.

2. Uh, we saw a strong International growth for the Crocs brand, um, and uh, obviously growth overall. Um, and I think we've talked about repeatedly that we see International as a continued, uh, important uh, growth driver for the brand. And I think the other thing you reference was, um, some Personnel changes to, uh, strengthen our management team. I think we feel really good about those, uh, Terren is getting settled as the chief brand officer over both Brands, I think, uh, and driving, the level of energy and creativity, uh, which we're excited to see come to Market. Um, and we've strengthened our sort of growth and transformation with the addition of a strategy and growth officer. So, uh, we feel great about the team. Um, I think it's going to be a, uh, difficult period to navigate in the next half year, for the cross Brown in North America. But we think we're doing the right things for the long term, potential of the brand.

Okay, great. I appreciate all that color. Just to follow up. So, if I could do you think in in some of your core family channels, are you losing share in the order book at all, as a larger competitors. Come back with emphasis on the channel and then just any more detail on protecting the profitability. Um, I don't know if you were surprised by the magnitude of the revenues slow down.

Down just given the the size of the de-lever that you're implying for Q3 looks, looks hard to see. You know, where you're where you're seeing progress on protecting profitability. Just based on the Q3 Outlook alone. Thank you. Got it. Yep. That makes sense. Um, so yes, I think if you look at the, um, I think what you're referencing, we do see an athletic Trend in the marketplace, I think everybody's, well, aware of that talked about that. There is a, I think a clear athletic Trend the consumers, migrating back to us athletic. We know, uh, that is a cyclical, uh, Trend. And as we look at some key athletic events coming up, um, we do think that will persist for a while you've got the World Cup next year, you know, the early Olympics in in, in a couple of years. Um, and I think the athletic brands are building Innovation into that which they typically do. Um, so uh, that's a little bit of a headwind. I think we can fight that headwind, um, in the long term. And we also know that our brand is well, positioned against pre and post sport. Um, so I think athletic headwind

Um is is providing some pressure on open Dubai, it combined with the uh with the consumer uncertainty of that very broad consumer base. Um in terms of protecting profitability yes I think there's a couple of things if you look at Q3 um 170 basis points of the uh do you leverage it? Our tariffs. Um and obviously that will continue into um um 26 and Beyond. Um I think um and in a prepared remarks Susan gave you some good colors.

And what that looks like. Um and in terms of uh I think you know I'm I'm anticipating that Q3 is a bit of a low spot in our in our uh ebit potential. We've taken out fifty million dollars of uh cost savings already. Some of those are spread between gross margin and uh and sgna and we will look and we are you know currently engaged in a extensive process to drive incremental cost savings or incremental sgna reductions um throughout the remainder of the year.

Okay, thanks again.

Thank you.

Our next question will come from Chris nodon with Bank of America. Please go ahead.

Thanks guys. Good morning. So first, um, are you seeing anything in your Crocs international business that is implying a material step change for your back cap Outlook relative to the mid teens growth in the most recent quarter. And then on your Global Crocs Direct business is the Slowdown that you're embedding in your 3Q guidance. Is that matching what you're seeing? Or are you baking in a scenario where sales continue to sequentially, get worse throughout the rest of the quarter?

Okay, let me ask you, answer the international piece. I'm going to come back to you on the DTC piece. I didn't quite understand what you're asking there. So from an international perspective, um, there are always a kind of few puts and takes between quarters particularly around your distributor business and you're probably well aware I distribute a business.

In, um, in Western Europe. Um, and, uh, and actually a return to growth in in, uh, in Japan which we're also excited about. So, I think our international business, uh, remains, uh, really important to us. It is a good be a driver of growth. I would also highlight in Q2, it was the majority of our Crocs business, right? We, we passed the 50% Mark in terms of, uh, um, of of the international business being bigger than our domestic business. Um, I think puts and dates between quarters will be kind of around that longer term trajectory

the second piece I'm not 100% clear what you were asking their

Yeah, so I'm just trying to get a sense of I know you're not guiding 3Q by Channel by region per se but, you know, we're a little over a month into the quarter.

It sounds like that. Looks getting a little bit worse. Are you baking in things sequentially, getting worse? As we move through the quarter, or are you kind of calling the 3Q guidance based on the trend you're seeing as of today? You know, the first couple weeks of the quarter?

Yeah, we we, um, we're not baking in it getting sequentially worse as it goes through the quarter. Um,

From now, we do think the back half is worse than the first half, right? Based on the, the things I talked about earlier. So the um, but do I do we see it sequentially declining from sort of our July trajectory as we go through the year. We we we're not anticipating that. I think there is an element of um

Cautiousness. Um, and uh, we we recognize the consumer is pretty unpredictable particularly here in the North America. Um, we do see sort of Fairly significant, fluctuations week to week. Um, so I think we've got some cautiousness embedded in it, but we have them embedded, a downward trajectory month over month from now.

Got that's very clear and then just to take 1 more in just I I'm margins I just wanted to get a sense of how you're thinking about taking price for both plans for both Brands and what's included in your margin guidance, in terms of mitigation strategies around tariffs, it sounds like you're pulling back on promos and DTC which is leading to lower volumes. So I'm just wondering if that's making you rethink, whether you think you can take price, um, across both brands.

Yeah. I mean this is a so I think we can over the medium term uh mitigate the impact of tasks. Um that will come from um cost Savings in our supply chain both. Uh

uh negotiations with factories, which I don't think is a huge amount but but is the sum there, um, but also just efficiency Drive within our supply chain, it will come from some price and it will come also from some, uh,

Reduction in sgna through again, looking much harder and driving to, uh, to efficiency in terms of your specific question around price. We have, uh, selective actions planned. Um, some in the back end of this year, um, for, hey, dude, um, we are getting some net price as you pointed out through reduction in discounting and we have, uh, we will be announcing some price increases on Crocs um both uh in select Styles and also some in some of our International markets, where we think we have opportunities. So we're going to, uh, I think be very strategic about where we get price. We don't think this is a market that we can be, um, taking all of our prices up, you know, by a certain amount to Simply mitigate the tariffs. I don't think that's, that's realistic, um, given where Our Brands sell and the Very broad base of our consumer base.

Very clear. Good luck.

Thank you.

In our next question will come from Adrian. You with Barkley's, please go ahead.

Great. Good morning. Um and thank you very much for taking my question. Andrew, I guess my question um, is you know, giving the the down 9 to 11% how much is that, um, is due to kind of the the wholesale pullback, is that a reaction to the front order book or is that more of a ProActive Management, given kind of everything that, you know about what's happening and potentially

With the consumer kind of demand environment, how do you think about philosophically balancing that with the risk of losing shelf space in the marketplace?

Right.

Um,

Cautious. Uh, about how we're uh, anticipating the market flowing out over the next uh um 6 months, and how the consumer is going to react. Um, in terms of shelf space, um, I think, you know, in response to, uh, John's question, I think in some channels of wholesale distribution. Um, we are losing shelf, space relative to um, other brands relative to the athletic brands. Um, and I think we are working to make sure that we drive, uh, incremental shelf space, uh, with sandals. We certainly picked up shelf, space in the summer with sandals. We think we will pick up more shelf space, um, in sandals, uh, next year. Um, um, but I, you know, a significant Port of part of our clogs business is done through our DTC channels, right? It's done through our, um, our, uh, retail stores and our digital channels. And obviously, I think we're maintaining, um, market share through those channels.

Okay great and then my just clarifying question. You said that um within that guidance of down 9 to 11 at Crocs. If I'm if I heard correctly it would be down mid single digits.

Um correct so hey dude will then kind of go kind of the trajectory of, hey, dude, we'll we'll work. Some pretty significantly is that are you seeing more of this wholesale kind of pullback and more of the actions, the reset actions at the wholesale brand.

yeah, I think the principal driver of that, um,

Leg down for hey dude is the actions that we are to uh decided to take, right? Um, the first is the, uh, reset of some inventory in the wholesale and that's pretty significant, um, and that will be done, uh, essentially, uh, in Q3. Um, so that's a meaningful amount. Um, and the second is the reduction of marketing. So, Performance Marketing on our digital channels, uh, where we've seen that creeped up over a number of quarters, and we've got to a point where the marginal profitability, um, was really not there. So we took an opportunity to we took a tough decision to reset that. So it's principally due to those 2 things. I wouldn't say the wholesale trajectory, um, in an audible trajectory is, is, is dramatically worse than crops? It's a little bit below. Um, but those are the 2 biggest things.

Okay, thank you. And then, um, to clarifying questions for Susan. Um, when you say, the current tariff environment, you mean the August 1st, right? They put all all that whole Litany of, um, kind of a new numbers for all the different separate countries. Is that kind of the new 90 million annual growth on mitigated and then secondarily, um, the inventory up 7%, how much of that is now due to the cost of tariffs? Thank you very much.

Yeah, so on the first part of your question, if that is an up-to-date number, I think, you know, as of hot off the presses. So um, yeah. You know, that includes everything that we heard as of August, plus I think there was a, um, there's a 50% tariff on India that we have Incorporated in that number, you know, India is a meaningful but not the largest country, um, from which we, uh, Source exports to the US. Um, and then your second part of your request was about inventory. Yeah. Um, you know, up 7%, we, you know, we don't break that out but a meaningful portion of that is the, the cost of the tariffs and we capitalize that in our inventory and recognize that, you know, as we sell the product.

Okay, thank you very much and best of luck. Thanks for all the information.

And our next question will come from Anna Andrea with Piper Sandler. Please go ahead.

Uh, great. Uh, thanks so much. Good morning, guys. Um, just to follow up on the pullback and promotional activity of Crocs in North America. Uh, did you quantify that impact in the second quarter or how we should think about that for 3 q? And we're still see Crocs around promotions around date events. Uh, whether it was Memorial day or July 4th weekend. Uh, so just trying to understand how we should think about the magnitude of that, uh, fullback manifesting, and then, secondly, to Andrew. Um, on this shelf, space losses to athletic, uh, just trying to understand athletic space has been strong for sometime. Now. Uh, why do you think your losses are accelerating now?

Got it. So, um,

Uh slightly. Um, so it was a pretty meaningful impact. Um, and yes, I think to your question, will we still run? You know, um, I would say competitive, uh, discounts and promotional events around key, um, key events. Absolutely we will. Um, but we are being careful about the depth and the breadth of those, uh, events and also making sure that we do not running significant events between those time periods. So it is a very meaningful uh change in terms of uh dollars. Um that we are foregoing in North America for future health of the brand.

Um, and the second Point, um, I I I don't I'm not sure I agree with you right in terms of the athletic Trend. Um, I think uh there are some high-end athletic brands that have been performing very strongly in North America for some time. Um but they are selling um at you know, high prices in our principally selling to an elevated consumer. Um, I think the broader athletic Trend um, that hits the broad consumer base that we service um has uh, has accelerated. And that is I think principally due to um you know, some of the big players, you know, re-embracing a broader distribution strategy.

Okay. Okay. No, that's fair enough, and just as a quick follow-up to Susan. Uh, did you guys quantify the timing shift in? Uh, International. Uh, you said the benefits, uh, to q and heard 3 Q, I believe,

Yeah, we we didn't, uh, actually quantify the shift. Um, it's it's it's a part of the difference in the growth rate between International and international between Q2 and Q3, but we still would have been it still would have been positive.

As Andrew said, we have these shifts based on our distributor business from quarter to quarter on a regular basis, both this year. And last year,

All right. Understood, thank you so much, and best of luck.

And our next question will come from J. Soul with UBS, please go ahead.

Great. Thank you so much and you can just elaborate a little bit on what you're seeing in China. I think you talked about China was up over 30% versus last year. Um, talk about what's driving, the strength and maybe the Outlook that you have for China in the third quarter and Beyond, thank you.

Yep.

Um, so I think, you know what's driving uh, our business in China is, is I think strong consumer engagement, right? So, um, the overall China business and and you look at it across, um, many different brands is not strong from a consumer perspective consumer. Purchasing is certainly not. Um, it is not strong in the Chinese market. We're bucking that Trend um because we're driving um I think brand heat for the Crocs brand in China.

Uh, that brand heat has been driven by, you know, a, a set of socially, um, social first, digital marketing tactics. Um, using, you know, key Chinese celebrities. And we have a very large digital business in China, uh, which is performed particularly well during mid-season Festival. Um, and we're very familiar with how to operate during these Festival time periods and maximize the business. Um, we have also extended, um, significantly, our mono brand stores through our distribution, through our, uh, distribution Partners, in China, uh, with significant store openings flow for last year and this year, um, and I think our personalization aspect to our brand, um, the use of cubits and the ability to personalize issues. Um, have also been particularly effective in engaging, that consumer. And I think that's also effective in engaging, sort of the broader, Asian consumer. We see our personalization business, strong in, in Southeast, Asia, in Korea and in Japan as well.

Got it. Thank you so much.

And our next question will come from Rick Patel with Raymond James, please go ahead.

Thank you. Good morning. Um, can you unpack the disparity in performance between, hey dude, in director consumer versus wholesale? Uh, you know, direct consumers perform well, now, for 3/4 in in a row. So, I guess, what would you attribute this after performance to at wholesale? And as we think about the wholesale channel in particular, how long do you envision? It'll take uh the right size inventory, so that

Sell in and sell through or better alignment.

Yeah.

In, in terms of extending the Hadoop brand to new consumers, right? So the Hadoop brand, uh, while the awareness has improved, it has improved to 35% that is a relatively low number compared to the 60% plus awareness. Aided awareness for the Crocs brand so we've made progress on awareness, um, but it's still low and so there's new points of distribution from an outlet. So, a perspective embedded within that, um, DTC growth. There is also Tik Tok shop. Um, so, um, you are aware that we both of our Brands. We've been at the Forefront of selling on Tik Tok shop. Crocs is the number 1 foot web brand on Tik Tok shop and I think hey, dude is the number 3. Um, so that is number 2. Sorry I've been told um, because I know it's 203, um, and um, you know, that is an outside performance relative to the size of the hood brand, um, in the US Marketplace. So it's I would say, it's new points of distribution is the Big Driver there.

Thanks very much.

Thank you.

And our next question will come from Aubrey tno with BNP pretty bus. Please go ahead.

Hey, good morning. Thanks for taking the questions.

I wanted to ask on hey dude, I think it's been a few quarters now. Since you changed the approach to marketing going, more top of funnel,

How are you feeling about the benefits you're seeing from that? And then, how are you thinking about investment in the brand going forward? And then any update on new leadership created. Thanks. Yeah.

Um, so, uh, I'll do your last question first. Uh, first. So, uh, the, the current leadership for, hey, dude is myself. Um, so I'm, I'm really, you know, enjoying being able to, you know, dig into the brand and work with the team, uh, while we have not yet appointed a brand present for hey, dude, I would say, uh, that we have a point of some key team members. Uh, and I'm really excited about the strength of our leadership team. Um, for the Haiti brand, I think they are doing a really great job. Um, and, and really grappling with, um, you know, some difficult situations, but doing it in a extremely proactive and productive way for the future. Um, in terms of Shifting the marketing, um, uh, we have seen, I think a, you know, a positive signs from from that we have been. Could we continue to invest, um, in marketing? Uh, we have been experimenting with some different messages and different approaches. Uh, we have seen an increase, um, of 80 brand awareness, as I mentioned. Uh,

In the prior question, um, to a 35%, which we think is, you know, a very productive Trend. Um, I would say, uh, our latest campaign around, hey, dude country has been really well received, um, by the, um, by the industry as we talked to our wholesale partners. And I think we are seeing, you know, some clear evidence. It's resonating with consumers. Um, we have also spent a good amount of time as we've talked about in the past. Um, speaking to her and bringing a a a uh younger more female younger, female consumer to the brand I think that has been productive.

Um, I would say that as we look forward, we are shifting more of our dollars and focus back to our core consumer. Um and is showing that we really resonate and capture and get the most productive uh purchasing from our core consumer. So um I think we're doing all of the right things. Uh we plan to continue to invest in the Hadoop brand and we see a trajectory uh, that we think will we will be pleased with, and ultimately shareholders will be pleased with over time.

Thanks and if I could just sneak in a follow-up on uh Capital allocation in the first half. You're ahead of where you were last year in terms of sharing purchases, does that continue into the back half or is that different? Now with the, the new Revenue trajectory

Yeah, so um let me try to address that um, consistent with our past practice. We really don't commit ahead of time to our Capital. Allocation, how are we going to allocate our free cash flow? Um, but as you can see, from what we did in the first half of the year, you know, we really believe our stock is an excellent value and consistent with our 1 to 1 and a half times target range, we're going to continue to allocate free cash flow to buy back stock and pay down debt as we see the opportunities.

In our next question will come from Brooke roach with Goldman Sachs. Please go ahead.

Thank you.

Sure, Brooks. So um, when we talk about the fifty million dollars of cost savings but these are things that we've already identified and taken action on for the year. Um, we realized 15 million dollars of that in Q2, and that was really balanced across sgna and gross margin. And you can think about the remaining 35 million is being kind of evenly spread across Q3 and Q4. Um, with a similar waiting on sgna and gross margin as we look to the further opportunities that Andrew mentioned. You know, we're particularly focused on sgna and steps that we can take to further simplify the business. And we spoke a little bit about the marketing. Spend for hey, dude, and being able to pull back on Performance Marketing where we don't feel, there's an adequate return, we're looking at our entire expense base with that lens to make sure that where we're investing the dollars are the ones where we're seeing most

Uh, return for the long term.

Great. Thanks so much. I'll pass it on.

And our next question will come from Ashley Owens. With keybanc capital markets. Please go ahead.

Hi, good morning, maybe just to start on. Hey, dude, the further pressure on the wholesale channel, is the assumption that this will come with incremental, margin headwinds on the brand, through the balance of the year. Then additionally, I know you mentioned pulling back on some of the inventory, receipts domestically for the back half. So can you help us understand how this shapes, the product Cadence you've been strong and newness in collaboration for several years now. But should we expect the pullback in some of these efforts in SKU count, until conditions normalize, or how are you thinking about balancing tighter, buys with the need to maintain freshness? Thank you. Yeah, yeah.

Good. Thank you. Actually, those things have slowly connected. So yes, for my hey, dude perspective, there will be incremental pressure on margins in the back half based on the actions, we're taking right? So the, um, the clean up the continued clean up of of wholesale inventory. Um, uh, is costly, right? Um, uh, and that is a significant investment that we're making. Um, in terms of, uh, inventory receipts, we're planning our receipts cautiously, um, uh, in terms of where, uh, We've, uh,

We're purchasing uh and or and or bringing in units, that we think satisfies what we participate will be the future demand. Uh, we're not planning. Uh, I think, you know, 1 of the comments, we've heard from wholesale, Partners is look, we're going to plan our inventories down and if things perform, we will chase. We're not planning significant receipts for Chase because that would be imagery risk that we think is not merited at this point.

um, in terms of, um,

SKU count and new product introductions, uh, we think the, um, the wholesale, uh, returns and cleanup that we'll do, uh, will significantly refresh and reset the flaws to current, uh, new inventory and where we've done that, we've seen some nice improvements, so it's about making sure that we do have newness. And we do have new inventory and new Styles, uh, within, uh,

At the, at the point of sale for our consumers and I would say, we're seeing some really nice trajectory, uh, in how you do it against stretch socks, which is being, uh, completely refreshed. So, we started that refresh, uh, the beginning of this year as we look at wholesale and, um, and DTC, um, inventory that's, that's been a significant effort and we're very pleased with the performance. I've stretched stocks going forward. Uh, the Paul franchise has been a franchise that's performed. Well, we recently added the Paul Pro, which is a, uh, an elevated version of the Paul with additional cushioning and a better foot bed. Um, that's performing. Well, I hate to O perform well for the summer, which is our drain shoe, uh, for fishing or for those who are in and around the water. And I would say also our work business for hey, do particularly, the comto is also performing well, so the newness is performing and the reason we're prepared to make what is a a significant investment to

To refresh. Is we want more newness in front of more people?

And our next question will come from Sam Poser with Williams Trading. Please go ahead.

Thank you for taking my question. So Andrew

in the prepared remarks, you talked about

I just want to clarify, you talked about the weakness, you know, the uncertainty and the potential weakness of your broad-based consumer, which I assume you're speaking both to Crocs and to, hey, dude,

Uh, yes. Yeah, I think um,

Sell up a very Democratic price point on both Brands, right? So, um, and that Democratic price point means that we appeal to a particularly broad consumer base. There are other brands that are absolutely performing much better in this Marketplace, um, because they are focused on a exclusively on a high-end consumer. The low-end consumer is a consumer that we believe is most sensitive to price. Increases is most nervous. And in some cases is not leaving the house.

Let me ask you this though. Um, you did also talk about how well you've been doing with sandals is, is this and and you sort of implying it and what you're working on with, hey dude, is this a issue? Basically, of you for the sake of argument, don't have the right product for the broad base of consumer. It is an Innovative enough, they just aren't going to it. And and, and, and, you know, to, you know, you talked about athletic getting better. So there may be more Innovation there, uh, and that may take some from you it. So, how much of this is sort of macro consumer versus

We need to make better stuff for our customers.

For our purposes.

Yeah, I think uh, it

We believe we are, um, making you know, very good stuff for our consumers, right? So, um, as we look at where our brand opposition, uh, particularly on Haiti, I just talked about it, the, the re refreshing the product line and refreshing the product that we're putting. In front of consumers is, is, is proving to be very positive, right? Um, so I think the incremental improvements that we're making, um, are strong in terms of the hatred. Sorry, in terms of the Crux business. Um we also see you know strong trajectory on new product introductions. Right. A lot of the the growth we saw in sandals in the very successful sandal season and the increase in market share in sales was based on new styles that we think are meeting consumers needs. And we're very confident that sandal business will grow nicely, um, into next year as we're going to think about next season. Um, so I think the macro is a very important factor, um, for our business, we're definitely seeing that or Our Brands,

Um, and then I think, you know, we're making some tough decisions in the back half of this year, which I know given your kind of long-term um uh understanding. Uh I think you, you know, recognize our our impactful to the business. Um, but also costly

And then, I guess, I guess the question is what last thing? What percent

Of your business of your Crocs business was sandals this year. What was the penetration versus last year?

Yeah, we typically break that out of the end of the year, I would say it grew and penetration. I can tell you that, I think, you know, kind of once a year we try and give you, uh, visibility to that. Um, but it was, uh, we said it was 13% last year in terms of penetration. Um, it was up double digits, um, in the first half of the year, so, it'll be grow. It'll grow

And ladies and gentlemen, this will conclude our question and answer session. I'd like to turn the conference back over to Andrew Reese for any closing remarks.

Um, thank you everybody for joining us today, um, and uh, your continued interest and support of our company. Thank you.

The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect your lines at this time.