Crocs(US:CROX)2025-10-30 18:39Financial Performance - Revenues for Q3 2025 were $996.3 million, a 6.2% decrease compared to Q3 2024, primarily due to lower unit sales volume [113]. - Crocs Brand revenues decreased by 2.5%, while HEYDUDE Brand revenues decreased by 21.6% in Q3 2025 [114]. - Gross margin for Q3 2025 was 58.5%, a decrease of 110 basis points from the previous year, mainly due to unfavorable duties and higher distribution costs [114][119]. - Income from operations decreased to $207.7 million, down 23.0% from $269.8 million in Q3 2024 [114]. - Net income for Q3 2025 was $145.8 million, or $2.70 per diluted share, compared to $199.8 million, or $3.36 per diluted share, in Q3 2024 [114]. - Total consolidated revenues for the nine months ended September 30, 2025, were $3,083.0 million, a decrease of $29.3 million, or 0.9%, compared to the same period in 2024 [129]. - Income from operations for the Crocs Brand segment was $272.7 million in Q3 2025, a decrease of $40.5 million, or 12.9%, compared to Q3 2024 [132]. - HEYDUDE Brand reported a loss from operations of $676.0 million for the nine months ended September 30, 2025, a decrease of $784.7 million, or 721.8%, compared to the same period in 2024 [140]. Expenses and Costs - Selling, general and administrative expenses (SG&A) increased to $375.3 million, representing 37.7% of revenues, up from 34.2% in Q3 2024 [114]. - Selling, general and administrative (SG&A) expenses increased by $11.8 million, or 3.3%, in Q3 2025 compared to Q3 2024, driven by a $17.6 million investment in talent and $9.4 million in higher DTC costs [121]. - SG&A expenses for the HEYDUDE Brand segment increased by $744.9 million, or 423.4%, during the nine months ended September 30, 2025, primarily due to asset impairments [141]. Liquidity and Cash Flow - The company maintained a strong liquidity position with $154.0 million in cash and cash equivalents and $862.4 million in available borrowing capacity as of September 30, 2025 [109]. - As of September 30, 2025, the company had $153.97 million in cash and cash equivalents and $862.4 million in available borrowings [145]. - Cash provided by operating activities decreased by $212.6 million, or 31.7%, for the nine months ended September 30, 2025, compared to the same period in 2024 [164]. - Cash used in financing activities decreased by $139.3 million, primarily due to a decrease in repayments, net of borrowings, of $210.2 million [166]. - Cash used in investing activities decreased by $5.7 million, or 11.3%, due to a decrease in purchases of property, equipment, and software [165]. - The company experienced a net change in cash, cash equivalents, and restricted cash of $(26.2) million for the nine months ended September 30, 2025, a decrease of 171.8% compared to the prior year [164]. Tax and Interest - The effective tax rate for Q3 2025 was 23.0%, an increase of 4.6% compared to 18.4% in Q3 2024, driven by a shift in the mix of domestic and foreign earnings [127]. - Interest expense decreased by $4.5 million, or 17.1%, in Q3 2025 compared to Q3 2024, due to lower outstanding borrowings and interest rates [126]. Operational Strategy - The company is focusing on product innovation and stricter pricing discipline to drive growth in North America for both brands [109]. - The company has begun to mitigate potential tariff impacts by diversifying sourcing and refining cost structures [109]. - Direct-to-consumer sales for the Crocs Brand increased by 2.0% in Q3 2025, while HEYDUDE Brand direct-to-consumer sales decreased by 0.5% [116]. - The company operated 427 retail locations for the Crocs Brand and 75 for the HEYDUDE Brand as of September 30, 2025, compared to 372 and 43 locations, respectively, a year earlier [144]. Debt and Financial Obligations - The company had total borrowings with a face value of $1.4 billion as of September 30, 2025, including fixed-rate Notes and variable-rate borrowings [180]. - The company has a revolving credit facility of $1.0 billion, with an additional $400.0 million available under certain conditions, and as of September 30, 2025, had $847.4 million of available borrowing capacity [149][152]. - The Term Loan B Facility was fully drawn with $500.0 million in outstanding principal, maturing on February 17, 2029 [155]. - The company had $350.0 million aggregate principal amount of 4.250% Senior Notes due March 15, 2029, and $350.0 million aggregate principal amount of 4.125% Senior Notes due August 15, 2031 [159]. - As of September 30, 2025, the company was in compliance with all financial covenants under the Credit Agreement and the Term Loan B Credit Agreement [151][156]. Impairment and Valuation - The company recognized non-cash impairment charges of $430.0 million for the HEYDUDE trademark and $307.0 million for the HEYDUDE Brand reporting unit goodwill due to downward revisions in internal forecasts [171][172]. - As of September 30, 2025, the goodwill balance was $404.7 million, down from $711.5 million as of December 31, 2024, with $403.0 million assigned to the HEYDUDE Brand segment [172]. - Management's assumptions for impairment evaluations included an annual revenue growth rate of approximately 8% and an EBITDA margin of approximately 20% [173]. - Changes in assumptions regarding revenue growth rates and discount rates could lead to additional impairment charges in future periods [174]. Currency and Interest Rate Exposure - A hypothetical 1% increase in interest rates on variable rate borrowings would increase interest expense by $6.5 million over the next twelve months [181]. - An increase of 1% in the value of the U.S. Dollar would have decreased revenues by $4.2 million and income before taxes by $0.5 million for the three months ended September 30, 2025 [183]. - A 10% appreciation in the value of the U.S. Dollar would result in a net decrease in the fair value of the derivative portfolio of $1.3 million [185]. - The company may enter into forward foreign exchange contracts to manage exposure to fluctuations in foreign currency [184]. - As of September 30, 2025, the U.S. Dollar notional value of total derivatives was $83.3 million, with an insignificant fair value for these contracts [184].