Q3 2025 Crocs Inc Earnings Call

Speaker #1: Good morning . Good morning and welcome to the Crocs, Inc. . Third quarter 2025 Earnings Conference Call . All participants will be in listen only mode .

Speaker #1: Should you need assistance , please signal a conference specialist by pressing the star key , followed by zero . After today's presentation , there will be an opportunity to ask questions .

Speaker #1: To ask a question , you may press star , then one on a touch tone phone . To withdraw your question , please press star .

Speaker #1: Then two . Please note this event is being recorded . I would now like to turn the conference over to Erin Murphy , Vice President of Investor Relations and Strategy .

Speaker #1: Please go ahead .

Speaker #2: Good morning , and thank you for joining us to discuss Crocs, Inc. third quarter results . With me today are Andrew Reese , chief Executive Officer , and Patrick Reagan , executive vice president and chief financial officer .

Speaker #2: Following their prepared remarks , we will open the call for your questions , which we ask that you limit to one per caller .

Speaker #2: 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 #2: These statements involve known and unknown risks , uncertainties and other factors which may cause our actual results . Performance or achievements to differ materially .

Speaker #2: Please refer to our most recent annual Report on Form 10-K , quarterly Report on Form 10-q and other reports filed with the SEC .

Speaker #2: 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 GAAP counterparts is contained in the press release we issued earlier this morning .

Speaker #2: All revenue growth rates will be cited on a constant currency basis unless otherwise stated . At this time , I'll turn the call over to Andrew Reese , Crocs, Inc. Chief Executive Officer .

Speaker #3: Thank you , Aaron , and good morning , everyone . Thank you for joining us today . Before we discuss the quarter , I would like to start by welcoming our chief Financial Officer .

Speaker #3: Patrick Regan , to his first Crocs, Inc. earnings call . Our third quarter performance was driven by managing both our brands in a disciplined fashion , streamlining our cost structure and controlling our inventory in the marketplace .

Speaker #3: We deliver very strong profitability and cash flow , which enabled us to repurchase 2.4 million of our outstanding shares and pay down $63 million of debt .

Speaker #3: These are fundamental levers of a value creation model . While our results came in ahead of our expectations , I acknowledge that this performance is not up to the standards that we expect for ourselves .

Speaker #3: We are working to regain momentum in the marketplace and our teams have already begun executing against our strategies . With this in mind , I would like to begin the call today by elaborating on the progress we have made on our strategic pillars for both Crocs, Inc. and hardwood and the speed at which we are driving further simplicity and cost reductions across our enterprise .

Speaker #3: Patrick will then provide a more detailed overview of our financial results and outlook , starting with the Crocs brand . As we communicated last quarter , we elected to take two strategic actions to protect the long term brand health .

Speaker #3: First , we pulled back on the breadth and depth of promotional activity across our digital channels in North America . This promotional pullback has had the greatest impact on our classic business .

Speaker #3: As we work harder to protect our icon . Second , we continue to reduce receipts into the wholesale channel to better match supply to demand , and ultimately drive a demand led model .

Speaker #3: While these actions are impacting near-term sales , we expect them to enable a foundation for future growth . Further , we have seen a net positive benefit to our gross profit dollars in North America as a result of our pullback on promotions .

Speaker #3: Our return to growth in North America will be based on greater product innovation , diversification within clogs , growth within sandals and new categories .

Speaker #3: We are carefully managing our classic clog franchise with the desired outcome of creating clearer segmentation while leaning into innovation within new clog and sandal introductions.

Speaker #3: While improving the trajectory of North America is a top priority . We are making good progress against our five strategic pillars for the Crocs brand .

Speaker #3: First , we will continue to drive brand relevance through clog iterations and innovation . During the quarter , we introduced a crafted clog starting at $60 .

Speaker #3: This new franchise incorporates a non molded , comfortable upper with a double back strap . As we put personalization to the forefront of our design , we featured Lola Tung , the actress of hit show The Summer I Turned pretty to bring this to market .

Speaker #3: Following our initial sellout on TikTok shop , we have seen strong consumer response in all channels . We are also focused on scaling existing cloud franchises , including croc brand and echo .

Speaker #3: Within the echo franchise . We launched the Echo Pro during the quarter and saw immediate success . Looking to 2026 , we will expand our crafted franchise with new Materializations , launch a new and improved croc brand , which is already an established fan favorite in our portfolio and introduce echo 2.0 clog .

Speaker #3: We expect product diversification within our clog pillar to enable greater channel segmentation and drive long term growth in our clog franchise . Second , we're focused on diversifying outside of clogs through new category expansion .

Speaker #3: Our sandals pillar outperformed the broader portfolio and took market share in this quarter with strong full price performance across our style franchise , including Brooklyn , Getaway and Miami .

Speaker #3: Retailers have continued to chase these key styles beyond the back to school season . As we look into 2026 , these franchises paired with the reintroduction of an updated Personalisable two strap , underscores our opportunity to gain further market share in this category .

Speaker #3: We are also excited about the response we have received regarding our new Cozi franchise, The Unforgettable, which we launched in partnership with actress Millie Bobby Brown.

Speaker #3: This style has already seen a very positive response on TikTok , resonating particularly well with the Gen Z female consumer . The unforgettable , along with broad newness in our cozy assortment , has catalyzed our line business so far this sandal season .

Speaker #3: Third , we will fuel consumer engagement with disruptive digital and social marketing during the quarter , we launched a multi-year agreement with the NFL , which featured our classic and classic line clogs , as well as Jibbitz .

Speaker #3: This release exceeded our expectations with particularly strong sell through across the board , leading to multiple restocks . Other highlights in the quarter included a disruptive launch with Krispy Kreme and our newest release on Roblox .

Speaker #3: In the quarter , we launched a pan-Asian monsoon campaign . Your Crocs , your Splash this campaign positions a classic clog as the footwear of choice for the rainy season , and stars two prominent actors from South Korea and India .

Speaker #3: The campaign video generated approximately 575 million views across Instagram and YouTube . These partnerships are prime examples of how our brand excites , inspires and connects with a wide range of consumers across the globe .

Speaker #3: Fourth , we'll continue to create compelling consumer experiences across distribution year to date , we've accelerated our first mover advantage in social commerce .

Speaker #3: We remain the number one footwear brand on TikTok . Shop in the US , and the growing adoption of this platform is gaining momentum with younger consumers .

Speaker #3: This month , we created further disruption in the market by live streaming . Both of our brands on TikTok shop and our . Com throughout the month of October .

Speaker #3: Through this initiative , we have seen an uptick in our followers and influx of new consumers . In fact , Crocs was the first fashion brand to livestream 24 over seven for an entire month across TikTok and com .

Speaker #3: We're continuing to expand this partnership and have launched TikTok shop in the UK , Germany and Brazil . Fifth , we see significant opportunity to capture greater share across our international markets , many of which are still in their infancy of growth .

Speaker #3: In the third quarter , we saw broad based strength across our tier one international markets . China delivered revenue growth across all channels and was up mid 20% to prior year , outperforming the overall market handily during the quarter .

Speaker #3: We launched a unique Popmart time Skull Panda collaboration , which included a livestream on PopMatters page and was a smash hit in China .

Speaker #3: In addition to China , we saw strong growth in Japan and across all of our key markets in Western Europe . In summary , our priorities are clear driving product innovation in clogs and sandals , staying agile and consumer focused while sharpening segmentation and accelerating international growth with penetration opportunities remain .

Speaker #3: Turning now to Haydu . We delivered third quarter results that came in ahead of expectations . We are encouraged by the progress we're making in stabilizing the brand in North America to return to profitable growth .

Speaker #3: Let me share more about the actions we have taken and what gives me confidence in our ability to reestablish brand growth . we're focused on building a community .

Speaker #3: Our recently refreshed consumer insights works underscores that . We have a passionate group of brand fans , ones that identify as laid back and no fuss , but clearly seek to comfortable and lightweight First , products .

Speaker #3: We have to offer . We launched our Jadu Country campaign in June , which plays to our brand's affinities , including music , travel and pre and post sport , and is centered around this laid back , no fuss consumer .

Speaker #3: Relatedly , we are encouraged to see the brand's return to the top ten preferred footwear brands among males in the Piper Sandler taking stock with Teens survey this fall .

Speaker #3: Second , our product direction is clear . We're building the core and thoughtfully adding more within our wallet . And Wendy franchise . We launched the stretch socks and its performance has already surpassed legacy socks on a like for like basis .

Speaker #3: In 2026 , we will launch stretch Jersey , a sweatshirt for your feet and retailer response to this product has been very strong as it appeals to both her and him outside of a core .

Speaker #3: We are seeing continued traction of our poll franchise , which plays into address casual sneaker space , and we're solidly building on our slipper success .

Speaker #3: Again , this holiday . Earlier this month , we launched our third collaboration with JellyRoll , featuring the fan favorite Bradley Boot . In two colorways .

Speaker #3: The initial launch on TikTok shop drove the largest single day for Hey Dude on the platform to date . We see this collab as serving to Halo , our broader boot offering as we move into holiday .

Speaker #3: Third , we're focused on continuing to clean up , channel inventory in the North America marketplace during the third quarter , we accelerated returns and markdown allowances to our retailers to improve inventory health while elevating our brand presentation at wholesale .

Speaker #3: The nature of these cleanup actions has had an impact on revenue . In the third quarter . Through vendor returns , and we're planning for continued markdown support in the fourth quarter .

Speaker #3: These actions have been effective in cleaning up the channel and establishing a foundation for future growth on an enterprise basis . We're working to quickly rightsize our cost base .

Speaker #3: As we shared on the last call , we've already taken action on $50 million of gross cost savings this year , and have since identified another $100 million of gross cost savings across the business .

Speaker #3: To simplify the organization . While Patrick will go into more detail shortly , we expect these cost savings to generate greater flexibility across the PNL , enabling future investment to drive growth for our brands .

Speaker #3: At this time , I will turn the call over to Patrick to provide more detail around our third quarter financial performance and our fourth quarter outlook .

Speaker #4: Thank you , Andrew , and good morning , everyone . Before I review the quarter , I'd like to say how grateful and excited I am to have the opportunity to serve as Chief Financial Officer of Crocs, Inc. .

Speaker #4: This is a company I've long admired professionally and as a consumer , one whose profitable growth has been built on an enduring cultural icon for Crocs .

Speaker #4: And hey dude , I see strong potential both domestically and globally , and I look forward to working with our talented teams across the world to further drive the company's strategic and financial goals .

Speaker #4: Now let's get into our results . Our third quarter revenue of approximately $1 billion were down 7% to prior year . Crocs brand revenue of $836 million was down 3% to prior year , with wholesale down 8% and DTC up 1% .

Speaker #4: North American revenues were down 9% to last year . As we continued to intentionally pull back on discounting within our digital channels during the quarter .

Speaker #4: This was partially offset by strong digital marketplace performance . These actions , in part , resulted in DTC down 8% , while wholesale was down 11% .

Speaker #4: International revenue was up 4% to prior year , driven by direct to consumer , which was up 23% . DTC performance continues to reflect broad based strength across both digital and retail .

Speaker #4: International wholesale was down 7% based on timing shifts . We communicated last quarter within our tier one international markets . We saw broad based strength led by China and Japan , while Western Europe also drove strong results across the U.K.

Speaker #4: , Germany and France . Now turning to hey dude brand revenue of $160 million was down 22% to prior year , but ahead of our expectations .

Speaker #4: DTC was better than planned, down 1% from the prior year. This was driven by the addition of new retail stores and strong digital marketplace performance.

Speaker #4: Most notably on TikTok . Shop , offset by the planned reduction in performance marketing spend . As we work to enhance profitability , albeit with negative revenue impacts .

Speaker #4: Wholesale was down 39% , reflecting the previously communicated wholesale cleanup actions we took in the quarter . As a result of these actions , we started to see an improvement in wholesale sell outs , which are now in line with our inventory levels .

Speaker #4: This is an important data point as we position . Hey dude , for a return to growth . Moving back to Crocs, Inc. enterprise adjusted gross margin of 58.5% was down 110 basis points to prior year , including a 230 basis point headwind from tariffs .

Speaker #4: The tariff impact in the quarter was 60 basis points higher than we previously anticipated , based on higher receipts in country mix , excluding tariffs , our adjusted gross margin would have been up , reflecting lower negotiated product costs , higher ASPs for both brands and brand mix .

Speaker #4: Crocs brand adjusted gross margin of 61.8% was down 70 basis points to prior year , driven by tariff headwinds . Hey dude , brand adjusted gross margin of 42.3% was down 560 basis points to prior year , driven by tariff headwinds and fixed cost leverage , which was partially offset by higher ASPs .

Speaker #4: Importantly , the third quarter represents the ninth consecutive quarter of ASP increases for . Hey dude , adjusted SGA rate was 37.7% , up 350 basis points compared to prior year adjusted SG&A dollars increased 3% to prior year , a notable improvement from the 15% increase in the first half of the year .

Speaker #4: This was driven by investments in talent , DTC and marketing , significantly offset by cost savings under the $50 million initiative that we announced earlier this year .

Speaker #4: Taken together , adjusted operating margin of 20.8% came in ahead of our guidance of 18 to 19% . But was down 460 basis points compared to prior year adjusted diluted earnings per share of $2.92 was down 19% to last year , and our non-GAAP effective tax rate was 16.9% .

Speaker #4: Moving on to inventory at the end of Q3 , our inventory balance was 397 million , up 8% to prior year , including the impact of higher tariffs and product mix .

Speaker #4: Importantly, inventory units were down low single digits compared to the prior year. Our enterprise inventory turns were above our goal of four times on an annualized basis.

Speaker #4: As we proactively managed our inventory receipts, our liquidity position remains strong, comprised of $154 million in cash and cash equivalents and nearly $850 million in borrowing capacity on our revolver.

Speaker #4: Our strong profitability and free cash flow enables us to return value to shareholders through buybacks and debt Paydown during the quarter . We repurchased 2.4 million shares of our common stock for a total of $203 million at an average cost of approximately $83 per share .

Speaker #4: This represented approximately 4% of our float year to date . We have repurchased 4.3 million shares of our common stock , for a total of approximately $400 million .

Speaker #4: We ended the quarter with $927 million remaining on our buyback authorization total borrowings at quarter end of $1.3 billion , included the Paydown of $63 million of debt during the third quarter .

Speaker #4: Our net leverage ended the quarter at the lower end of our targeted range of 1 to 1.5 times . Now , turning to our fourth quarter outlook for Q4 .

Speaker #4: We expect revenues to be down approximately 8% and currency rates as of October 27th . Within this , we expect the Crocs brand to be down approximately 3% with acceleration in our international business from a mid single digit in Q3 to a low double digit rate in Q4 .

Speaker #4: North America revenue is expected to be down low double digits to prior year , reflecting a wider range of outcomes , including our view of a choiceful consumer , a highly competitive holiday season , and lower inventory receipts in the wholesale channel for hey dude , we expect revenue to be down in the mid 20s range , including the impact of reducing performance , marketing spend in the DTC channel and the investments we are making in wholesale marketplace cleanup .

Speaker #4: We expect adjusted operating margin to be approximately 15.5% . This excludes approximately $10 million related to cost reduction initiatives . We referenced earlier .

Speaker #4: Our adjusted operating margin embeds , gross margins down approximately 300 basis points , driven almost entirely by tariff headwinds . In addition , our adjusted SG&A dollars are expected to be below that of prior year as we continue to see the positive impact of our cost savings .

Speaker #4: Adjusted diluted earnings per share is expected to be in the range of $1.82 to $1.92 for the year . Our capital expenditures are expected to be in the range of $70 million to $75 million , while it is too early to provide 2026 guidance , I do want to provide more context on how we are thinking about further cost savings .

Speaker #4: As Andrew mentioned , we are already benefiting from the previously actioned $50 million of gross cost savings in 2025 . In addition , we have identified $100 million of incremental gross cost savings that we expect to benefit 2026 .

Speaker #4: These savings include simplifying our organizational structure , deliberately reducing spend in non-critical areas , and further optimizing our supply chain . It is too premature to share how much of these savings we will choose to flow to the bottom line .

Speaker #4: However , we are committed to managing our adjusted SG&A base to ensure we drive operating leverage in 2026 while creating greater flexibility across the PNL .

Speaker #4: To conclude , we have already taken several strategic and tactical actions to improve the momentum of our brands . We have also taken steps to provide flexibility in our cost structure , and we are intently focused on driving consistent , profitable growth in the future .

Speaker #4: At this time , we will now turn the call back over to the operator to begin the question and answer portion of our call .

Speaker #1: We will now begin the question and answer session . To ask a question , you may press star . Then one on your touchtone phone .

Speaker #1: If you are using a speakerphone , please pick up your handset before pressing the keys . If at any time your question has been addressed and you would like to withdraw your question , please press star then two .

Speaker #1: And we do request that there be one question per person at this time. We will pause momentarily to assemble our roster. The first question comes from Jonathan Comp with Baird.

Speaker #1: Please go ahead .

Speaker #5: Yeah . Hi . Good morning . Thank you . I want to ask first about the incremental cost savings initiatives . You know , it looks like you're obviously preserving margin here , but are there structural deficiencies in the organization .

Speaker #5: You're also trying to address ? You know , when you look at the structure of the organization and as you think about 2026 and the comment around driving operating leverage , could you could you achieve leverage in a scenario where revenue still is down in the first half and maybe not significantly growing for the year ?

Speaker #3: Hey , thank you , Jonathan . I'll I'll address it to start with . And Patrick will pick up anything that I missed .

Speaker #3: So what I would say in terms of the cost savings , there are several buckets . We're looking at , I think number one is we've got a significant benefit from some efficiencies we've been able to drive in supply chain .

Speaker #3: We've invested quite a bit in our supply chain over the last several years , and we're now reaping some of the rewards of those efficiencies .

Speaker #3: And and we've also integrated both our hey and our supply chains more fully . So that's given us some really nice benefits . Number two , we have looked at some structural key components .

Speaker #3: We are in quite thoughtful about this , where we've been able to reorganize kind of how we go to market and how we run some key parts of our business .

Speaker #3: We think that is going to give us more speed and more efficacy , as well as generating a lower cost . And then we've also just been , I would say , rigorous around looking at where we're spending on vendors , outside services , etc.

Speaker #3: and consolidating that . And I think there's probably a small component in there is trying to use AI and some of the technological technological advances that we're seeing across the globe to make us more efficient .

Speaker #3: And effective in terms of the last part of your question , we will reinvest some of those savings in key areas around product innovation , around some things that we think will will drive the top line .

Speaker #3: And we do believe that on an annual basis , we can absolutely provide we can achieve operating leverage in 2026 if revenues are down a little bit in a quarter , that may be harder .

Speaker #3: But for the year, we're quite confident we can get operating leverage.

Speaker #4: Yeah , John , just just a couple of things to add . You know , from a perspective for my perspective , one , you know , what I would say is that , you know , our language in the prepared remarks really intentional .

Speaker #4: So what we're trying to do is drive , you flexibility as we turn into 2026 . And I think , you know , what's been great to see in terms of the response to the organization is that we've really been able to turn very quickly , efficiently into , into identifying some of the areas that we're going to provide that flexibility in .

Speaker #4: And , you know , just to reiterate what Andrew said towards the end is , you know , we're we're clear that we need to protect product innovation and brand brand marketing , right ?

Speaker #4: It does us no good to just cost , you know , cut costs through the PNL at the expense of what is the core of our business .

Speaker #4: So what we'll do is we go through this is , you know , continuing to look at all areas of the organization , but product and innovation and communication to our consumers through brand is areas that we're going to we're going to ring fence .

Speaker #5: That's really helpful . If I could sneak in one more , can I just ask Andrew , is portfolio management to consideration in your capital allocation strategy ?

Speaker #5: And I ask in the context of coming up on the four year anniversary of owning hardwood and still seeing significant challenges here . Thanks again .

Speaker #3: Yeah . Thank you John . No , I would say at this point , look , we believe hardwood is a strong brand .

Speaker #3: It's a strong scale brand within particularly within the US , casual footwear space . We absolutely acknowledge the challenges that we have had in running and operating this brand over the last several years .

Speaker #3: But I think I feel like we're doing the right work . We've made the right we are confident in its future trajectory . We're definitely be focused on returning it to profitability , cleaning up the marketplace , making the right strategic decisions relative to , you know , promotion , discount and also the amount we're investing in digital marketing .

Speaker #3: We have retooled and management team . And I'm very confident in the strength of our management team . And its ability to to drive the future .

Speaker #3: And so I think , you know , we're not contemplating any portfolio changes at this time . And I would say we're confident in returning to the right level of profitability .

Speaker #3: And also growth in the future .

Speaker #5: Okay . Thanks again .

Speaker #1: The next question is from Chris Nardone with from Bank of America . Please go ahead .

Speaker #6: Great , guys . Thank you . Good morning . So just on Crocs North America , can you help identify some of the actions you're taking to help drive some improved results in this portion of the business ?

Speaker #6: And in particular, it would be really great if you can elaborate on both your pipeline of new products and also how you think about the ramifications of potentially losing some of your core customers given your pullback on promotions.

Speaker #3: Yes . Thank you . Chris . So look , I would say returning the North American crocs , North decisions , and American business to growth is a is a top priority for our overall company .

Speaker #3: You know as a reminder , some of the lack of growth or the decline in sales are on some strategic decisions we've made .

Speaker #3: One is reducing digital discounting . I think we elaborated on this in prepared remarks , but also reducing wholesale selling . So and in that we're we're making sure that we're appropriately positioned to grow in the future .

Speaker #3: And not eroding our brand . And particularly not eroding our core iconic franchise . We do think , and that is embedded in in our guidance .

Speaker #3: We do think the North American consumer is bifurcated . There is a portion of our North American consumers that are highly affluent . They're buying Crocs , they're buying other high end brands , and they are in , you know , great financial state .

Speaker #3: But there is a large portion of consumers who are nervous . They are in less good financial shape and are being super cautious about their spending .

Speaker #3: And certainly spending closer to need . Given all of that and that the impact of that , I think we believe we're seeing in a business , I think others have talked about that , and that is embedded in our future expectations .

Speaker #3: But what are we doing , which I think is the core of your question . Number one , focusing on clog innovation and brand relevance .

Speaker #3: We're introduced . We have introduced and our introducing a number of key product categories or key product franchises crafted echo and reintroducing croc brand to diversify our cloud platform and allow greater segmentation across our wholesale partners .

Speaker #3: And we're quite excited about the impact that this will have . We're also continuing our diversification into new silhouettes and new categories . We had a strong sandal season in 2020 , and we're we have a very strong pipeline of product going into 26 and a comfort about continued sandal growth , continued growth in personalization .

Speaker #3: And we're in the heart of slipper season right now. As you can see, we have a tremendous lineup of slippers and related products actually on both of our brands.

Speaker #3: And then continuing our I would say disruptive social and digital engagement . We're leading TikTok for Crocs , the leading brand on TikTok for Crocs , but also a close second for hey Dude .

Speaker #3: And you probably have seen during October , we launched a live streaming initiative where we live stream both of our brands 24 over seven with a month and gained an achieved all of our objectives .

Speaker #3: From that perspective and learned a tremendous brand on amount about how the consumer is migrating from traditional shopping to social , social shopping .

Speaker #3: So I think we have a well-rounded and robust strategy to return Crocs to growth in North America, and I am very confident in our ability to do that in short order.

Thank you very much. Um, Andrew I wanted to ask about sort of, some of the choices that that, that you might be seeing in the fourth quarter. Um, we've heard from other discretionary, you know, companies generally that this there's been a little bit of a weakness in the 25-35 year old cohort. Um back to school, generally has been very strong and then a little bit of a exit kind of weakness coming out of the course if you can talk to that and then Patrick, welcome aboard. Um quick question on the the end of quarter inventory, the spread looks like it's about 10% between dollars and units. So that was seems like it's reflective of maybe the April tariffs. How should we think about, um, end of quarter inventory entering the new year. Um, does that then Express kind of the August uh, you know, tariffs and how should we think about early spring? Um,

You know, the pastor on the gross margin. Thank you very much.

Okay, there's a lot there, Adrian. So, let me take, let's take it in, in the order, you asked it, I'll do the consumer and then Patrick can can give you some, uh, um, color on inventory. Um, I think that look, I, I think you'll hear you can hear from us essentially what you've been hearing from a lot of other people, um, that, uh, the consumer is clearly being more cautious about spending and particularly, I wouldn't categorize it by age group so much. I probably identify it more by, uh, socioeconomic, uh, strata. Um, uh, we definitely see it in our, um, Mid to lower channels. Um, there is less traffic, uh, to stores, right? So they're, they're, they're not even going to the store, right? They don't have the, uh, same level of, uh, disposable income or flexible income. Um, so they're uh, they're being more choice about what they're buying. They're making fewer trips to the store and they're also shopping closer to need, right? So

So, uh, you know, we expect, uh, we're anticipating to see that, um, in the fourth quarter, where, um, typically even a constrained consumer does release the perk strings a little bit as they celebrate. Uh, the holidays, uh, whichever holidays, they do celebrate, um, but they will shop a little closer to me. So those are the things that we're seeing. So, I think it's the, it's the lower end consumer, it's been more Choice. Well, there'll be more cautious about what

What they spend on a shopping closer to me? That's, that's how I would categorize it and think about it.

Yeah, and Adrian. Thank you. Thank you for asking the question about inventory. Um, you know, first of all, you know, I start off by saying that you know how we manage inventory here matching, uh demand Supply uh is really a strength of of the organization and you know, and frankly it's a it's a competitive advantage in terms of, you know, the speed in which we can, you know, evaluate and react, uh, to Consumer demand, you know in both good times and bad. Um, you know, you're right, uh, as you call out the the spread that's, you know, that's directionally correct. And, and you know what, you can think about is that optically, you know, with inventory up roughly about 8%. As we close the, uh, Q3 uh, that was almost entirely on a dollar basis driven by the impact of tariffs, uh, which you really see is in terms of our diligence of managing inventory, is on the unit side where we're actually uh, downloading single digits. So we feel really good about where we are from an inventory position. As we end to Q3 we'll continue to you know exercise that muscle uh honestly

As we are in Q4, um, we're, you know, aggressively managing inventory. Like I said, it is a core competency of what we do. Um, so we feel like, uh, as we turn into Q4, we'll continue to manage inventory from a unit standpoint, uh, similar to what we what we saw in Q3 and then in 2026, uh, to to early to comment, really on on 26. But I think you can

Take our history as an indicator in terms of you know how tightly. Uh, we will, you know, continue to manage inventory and uh uh, at the same time, making sure that we're serving our consumers across the globe.

Right. Thank you very much. Best of luck.

Thank you.

The next question is from Peter, McGoldrick, with stiffel. Please go ahead.

You and welcome Patrick. I'm interested in the market share in the under $100. Assortment I was curious. If you could talk more about the current positioning of both of your Brands and then any competitive dynamics that uh um

May be playing out as the consumer feels prices going directionally higher across the marketplace.

Yeah, I mean I think I can talk about that directionally. We don't, we can't. You know, it's it's we can't give you precise numbers around kind of market share. I I think um, the strength of both of our Brands is that they are extremely Democratic in nature, right? They serve as a very broad range of consumers. Um, both Brands attract consumers,

for whom this is a very, um,

A, a, a great value. Um, at our brands are a great value. They also attract consumers that are, you know, that, see these Brands as aspirational. So we service a very broad, uh, consumer base. Uh, the I would say, the, the vast majority of our products are under $100, right? So obviously, you're well aware that the classic clog essentially MSRP, $50, and the majority of our Hadoop product is between, you know, 60 and 70. So, um, from a price point perspective, we give, uh, the consumer, uh, excellent value. Um, I think what you're kind of alluding to a little bit. We have seen competitive brands that sell at higher price points being pretty quick to elevate price points.

Further and capture greater, uh, greater price or or Elevate pricing, uh, pretty quickly to, uh, to to compensate for, uh, for for harf impact that they're seeing. Um, we see less of that. Um, I would say a lot less of that at the price points, um, uh, that we compete at. Um, so I think the, uh, the less than hundred dollar, uh, Arena remains relatively competitive, um,

and um,

and I think the other thing that you might be alluding to is, in terms of competition, um,

At these price points. We do see the athletic brands, particularly, uh, the big ones leaning back into these price points and increasing distribution at the, um, let's see. The sort of the sort of good to better tears of the of the market.

That's really helpful. Thank you.

The next question is from Rick Patel with Raymond James, please go ahead.

Good morning and congrats on the new role Patrick. Um, we have questions on the North America wholesale Channel. First any color on the spring wholesale order book and how that shaping up and second? Can you point to any product or innovation wins that would give you particular confidence in being able to reinvigorate the wholesale Channel. As you look out to 2026,

Are you looking for both brands? Work, are you primarily focused on Crocs?

Primarily on the Crocs brand.

Yes. Um, so, uh, you know, we don't provide, you know, details on, uh, on order book as as, you know, um, but a little color, um, we, we, we can, um, we can help you with. Um, as we look at the North American Crocs, uh, wholesale, um, or order book, there's 2 things going on. 1 is number 1 are retailers, are planning cautiously, right? Uh, they're not expecting, uh, they're not seeing traffic growth and they're not expecting significant growth, uh, in the short term, and I actually don't believe they're going to plan significant growth, uh, into the early part of 2026. So, they're planning cautiously as we talked about last time and as it just, uh, articulated a little bit to Peter's question. Uh, we do see athletic gaining some share, um, in the good to better, uh, portions of the market. So, there's some open to buy, um, go into Athletics, so there's pressure. We're also managing that carefully. So we would expect, um,

Uh I would say continued declines in a wholesale selling for Crocs in North America that is embedded in our guidance that we provided in Q4. Um so that's kind of the the the framework. And then the last part of your question was, what are we doing? And what product Innovation that we think is going to counteract that? I would say number 1 uh we have a really strong line.

uh, from a clogged perspective, um, in 2026, we just introduced crafted, uh, which is a, um, a clogged with a materialized upper it's a soft materialized upper, uh, the current iteration that you can see in the marketplace have, um,

Because it makes the clog, um, uh, the classic clog, which has a molded, um, foot bed, um, more approachable and more accessible to a broad, broad group of people, uh, right now, Unforgettable, which is our fuzz our highly exaggerated fuzz product, and the other, uh, blind products that we have in the marketplace. We Believe are performing well, uh, our performing well and we're excited about that. Uh, next year we're going to be introducing or reintroducing to the market, Croc Brand. This is a fan favorite. I think if you look on Amazon there's something like uh,

200,000 for, and 5-star reviews for the crock band. So we've been, uh, We've downplayed, um, crocband for some time deliberately to focus on classic. We're reintroducing, rock bands, we think that has a multi-year trajectory. Um, and then lastly, uh, we're bringing new Echo 2.0 to the market later next year, and I think the other piece that's, where is is important. And I mentioned in, uh, already is building on sandals, sandals were a really strong driver of growth in 25 and we have additional product and enhancements to key franchises as we think about sandals later into 26.

Yeah, and hey Rick just 1. Um, you know, 1 1, final comment for me, is we close this 1 out is, you know, we talked uh, you know, quite a bit about the wholesale channel, uh, Andrew, uh, alluded to that went into some great detail. You know, I would say that we were seeing, uh, D Toc accelerate, um, as we go from Q3 to Q4. So, you know, we take that as, uh, you know, is, is a great sign, uh, in terms of how our, you know, products and our Innovation pipeline, our resonating with our consumers. So I don't want to drive past what's happening in in, uh, the DC channels.

And to clarify, you're seeing North America B to C accelerate.

That's right. Yes.

That's correct. Thank you very much.

The next question is from, Jay. Soul with UBS. Please go ahead.

Great. Thank you so much. Um and you want to ask about some of the actions you took on Crocs brand in Q3 uh specifically with pulling back on promotions. Could you do that across the entire quarter or was there a moment during the quarter where, you know, you you went back to Promotions whether it's you know Peak back to school season just compete. Um, and then maybe Patrick just on the Q3 gross. Margin was there a tariff impact on the gross margin in Q3? If so what what was it? And then I think to the uh, 300 base points, you talked about for Q4, is there any mitigation? That's a part of that or you basically how, how much of the gross tariff costs? Are you absorbing? Thank you so much.

Yeah. Um, I'll be quick and then uh uh, and then Patrick can get into your tariff questions. So from a North American digital, um, promotional pullback that was across the entire quarter, right? You know and and we it didn't go to zero, um, obviously. Um, but we did, uh, both, uh, have many more days that were non-promotional and also the depth of the promotions that we run were typically um, substantially less than we had run previously. So it was a cross entire quarter.

Yeah, and then, uh, um, to answer the question on on tariffs. So, you know, first of all, I, I think, you know, it's, it's been really impressive to see all the actions that are taking place across, uh, Crocs, um, uh, as it relates to mitigating tariffs. And so, the organization has been on the front foot in terms of, you know, identifying where we're able to mitigate, uh, where we can the impact of tariffs, you know, specific to, uh, Q3. Um, you know, roughly we had about 230 230 basis, points of of, uh, tariff, uh, headwinds in in the quarter. Uh, you know, obviously, uh, we had several, you know, mitigating actions. Whether it relates to, uh, negotiating with our vend vendors with uh, our input costs, um, you know, Etc in in our supply chain. So we were able to mitigate a good portion of that and, you know, as we go into Q3, uh, or I'm sorry, as we go into Q4. Uh, you know, the headwinds that you see there are almost entirely

Um, due to tariffs and, um, you know, the mitigating actions will still be present but, you know, in in a, you know, a slightly muted way, especially as you know, we look at Q4 and the nature of uh, you know, kind of promotion promotional nature of of the quarter and we alluded to that, you know, bit in the Pro in the um, uh, prepared remarks is, you know, we're talking about anticipating a highly competitive, uh, uh, selling season in Q4.

Got it. Okay, thank you so much.

The next question is from Brooke roach with Goldman Sachs. Please go ahead.

Aur results. You've recently materialized, what are your plans for pricing as you move into next year? And then as a follow-up, Patrick can you provide a little bit of color on how you see that tariff headwind directly shaping into the first half of next year, versus the 300 bits of gross margin pressure that you're forecasting for the fourth quarter. Thank you.

Yeah, thanks Brooke. Um, so pricing. So as a as from a conceptual perspective, we don't price the cost we price the market, right? So I think we've talked about this a lot over the years, right? What we think about from a price perspective, we look at both, uh, the strength of our brand, the trajectory of the brand and, uh, and the competitive Dynamics for, for products in the marketplaces, in which we compete and we do this around the world based on the local market. Um, so what we have seen, uh, most recently. So, in the back half of 25, we have actually taken select price increases on Key Products um uh in some markets around the world. Uh and we do have a number of those incrementally planned in the early part of 2026. At this point though, we are not planning to, um, initiate price increases for example, on our core classic Club here in North America. Uh, we think that um, is well priced and that portion of the market um, is still uh, is is more price sensitive.

And more competitive. Um, so uh, I think we've got a great pricing framework. We're very, uh, precise and dynamic around this, and, uh, um, but that's kind of where we sit at this point.

Yeah, in in Brooke, just uh, building on Andrews, um, comments. So that, you know, the nature of pricing here at Crocs very, you know, dynamic and, and quite a bit of muscle built in that, uh, in in that space. So we feel really good about, you know, how we're, you know, kind of pricing from a, a value standpoint to, to our consumers. So price to Value standpoint, um, is, is we turn into 2026, you know, obviously, we're not providing any sort of guidance. Um, you know, at this point in time that'll that'll come in in the next call. But, you know, directionally what I can say is, you know, the the, you know, large impact in in tariffs for, you know, for us and, you know, really any other consumer brand or Footwear brand that that's, you know, operating in the countries that we operate in is most felt in the second half of of this year. And so you know what you can directionally you know, think about is that, you know, we'll continue to feel some of that pressure as we uh, as we get into the first half of of 2026.

Great great. Thanks so much.

Thanks, bro, the next call.

The next question is from Aubrey tianello with pnb parabas. Please go ahead.

Morning, thanks for taking the questions.

Wanted to ask on stores and if you can give us an update on the store growth strategy for both Brands uh but especially Crocs where there's been a pickup in store openings.

Uh, over the course of this year, how should we be thinking about store growth going forward? Thanks, yeah, that's great question. I'll be glad you asked that. So, starting with Crocs, uh, the has been a bit of a pickup in store openings, a lot of that is driven out of our, our European store base. Right? So uh, We've, uh, very successfully opened a, a, uh, a number of stores in Europe. There's a almost all Outlet Stores, um, in the UK, uh, and France principally. And I would have to say, they are performing incredibly, so we're super happy about that. Um, also, um, some store openings in, uh, in Asia and a small number here in North America. Um, so um, uh, you know, as you probably know, uh, store base is incredibly profitable, the very high sales of the square foot high margins, and, and a very good, a strong flow through. The other thing, I would also highlight. For those of you in New York is, we did open our Soho store earlier this year. Um, it's performing

Uh very very well indeed super happy with it. And it's also um you know I would say the Pinnacle presentation of the brand and you may have seen on social media uh that we were live streaming from that store during October Terrence Riley. Our chief brand officer did an amazing job, uh, live streaming uh, from the store and also, uh, featuring some celebrities including, uh, Jack Jackson Dart. So, um, it's been a great, um, great investment for us from a hey, dude perspective. Um, we have also continued to open stores here in North America. Again, Outlet Stores. Um, uh, which is the 1 thing that we have done this year is is shifted, uh, where we've opened the store subtly. And they're a little bit more in what we call hooded country, the hooded Heartland, and again, those stores continue to meet our expectations.

And something we haven't talked about as much on on, uh, the Q&A portion of the call is, you know, generating the free cash flow. Um that is just inherent uh, into the, you know, in what is the strength of our financial model and so uh our stores are are an important part of that and they throw off and they generate a lot of cash. Um, which allows us then to both invest back into the business and, um, return, uh, return Capital back to back to our shareholders

Very helpful. Thank you.

The next question is from Anna. Andrea with Piper Sandler. Please go ahead.

Great. Thank you so much. Uh, good morning and welcome to Patrick.

We had a question on a 100 million of savings, um, just any caller on how we should think about the Cadence of those and we go through 26, uh, is the expectation that these are scaling as we go through the year or more equally divided. And what's the amount of savings? Uh, we should expect for the fourth quarter and then just as a follow-up, uh, Patrick you mentioned North America, DTC accelerated. According to date across, uh, which is pretty impressive, considering a few more promos and I know for October is a big deal for the business. Um, anything you did differently this year, is this driven more by Tik Tok, uh, just any color you could provide on that and uh what's implied in the guide for North America. DTC at Crocs, for for you. Thanks so much.

Yeah, so Anna, Let me, let me hit the cost savings first and then we'll get into the second part of the, uh, the question. So, so first of all, the hundred million dollar number. That's that's a gross number, right? And so, you know what, I'm what we mean by gross is we have identified 100 million dollars of savings across the entirety of our cost base. Um, whether that's in cost of goods, uh, sgna Etc. And you know, we are uh we've done that, you know, number 1, to make sure that we're operating as efficiently as we can, of course. Um, but then secondly to provide us with the flexibility to make choices. Is we get in, uh, to 2026. And, um, those choices, you know, could be flowing. Uh, those savings to the bottom line. Those choices could be, uh, investing in areas that we see uh, in terms of outsized uh, growth that we're that we're able to, uh, Chase into. And so, I'm not going to get into a Cadence of, you know, kind of quarterly at this point. It's too early in that, we'll, we'll provide a little bit more detail, uh, on that, uh, on that when we get into, uh,

Uh, 2026, uh, uh, during the Q4 call. Um, and I think that second part of of the question Andrew is going to hit on. Yeah. So just a point of clarification. We did not say that DTC accelerated during Q3, right? So, uh, we actually don't comment on trajectory within the quarter. But what we did say is we believe that DTC in North America will be stronger in Q4 than it was in Q3.

Okay, thank you for that clarification.

Okay, thank you.

this concludes our question and answer session, I would like to turn the conference back over to Andrew Reese, chief executive officer for any closing remarks,

Um, I just want to say thank you, everybody, for joining us today and for your continued interest in Crocks, Inc. We look forward to continuing to speak to you in the future. Thank you.

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