Q3 2025 Investor Presentation Forward Looking Statement This presentation includes estimates, projections, and statements relating to our business plans, commitments, objectives, and expected operating results that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements rega ...

Core Insights - Crocs, Inc. (CROX) has evolved from a niche footwear brand to a global lifestyle company with strong brand equity and a growing portfolio, including HEYDUDE, yet trades at attractive valuation multiples relative to its intrinsic value [1][10] Valuation Metrics - The intrinsic value to price ratio (IV/P) for CROX is 1.50, indicating that its intrinsic value is estimated to be 1.5 times its current market price, providing a margin of safety and potential upside for investors [2][9] - The market capitalization of Crocs is approximately $4.4 billion, with an enterprise value of about $5.9 billion [9] Financial Performance - Crocs generates substantial free cash flow, approximately $769 million, with a free cash flow yield of around 17.4%, reflecting strong operating efficiency and capital allocation discipline [3][9] - The company reported revenue of approximately $4.14 billion and gross profit of about $2.46 billion, with an operating income of roughly $979 million [9] Profitability - Operating profitability remains robust, supported by high gross margins and strong brand pricing power, with an operating margin of approximately 24% and a net margin of about 5.7% [5][9] Balance Sheet Strength - Crocs carries moderate leverage due to its HEYDUDE acquisition but is actively de-leveraging through strong cash generation, with total liabilities around $2.98 billion and total debt of approximately $1.70 billion [6][9] Capital Returns - The management is prioritizing aggressive share repurchases, amounting to about $578 million, signaling confidence in long-term growth and the undervaluation of shares [7][9] Investment Thesis - Crocs presents a compelling deep value opportunity in the consumer discretionary sector, characterized by strong cash generation, brand durability, and shareholder-friendly capital allocation at a discount [10][13]

Financial Data and Key Metrics Changes - The company reported second quarter revenues of $1,100 million, a 3% increase compared to the prior year [7] - Crocs brand revenues reached $960 million, growing 4% year-over-year, driven by a 16% increase in international sales [7] - Adjusted gross margins improved to 61.7%, up 30 basis points from the previous year, while adjusted operating margin was approximately 27% [7][30] - Adjusted diluted earnings per share were $4.23, reflecting a 5% increase compared to the prior year [7][32] Business Line Data and Key Metrics Changes - Crocs brand saw growth across all key product pillars, including clogs, sandals, and Jibbitz charms [15] - The Hey Dude brand experienced a revenue decline of 4% year-over-year, although this was an improvement from the first quarter [7] - Direct-to-consumer (DTC) sales for Crocs were up 3%, while wholesale sales increased by 6% [28] Market Data and Key Metrics Changes - International revenue for Crocs grew by 16%, with significant contributions from China and India, where revenue growth exceeded 30% [19][20] - North American revenues declined by 6% year-over-year, primarily due to reduced discounting strategies [28] - The company's international business now represents over 50% of Crocs brand revenue [19] Company Strategy and Development Direction - The company is focusing on long-term brand health and profitability by reducing promotional activities and managing inventory conservatively [11][12] - Strategic initiatives include diversifying the product offering and enhancing international growth, which has increased from 38% of Crocs brand sales in 2022 to 52% in the second quarter [14] - The company is also investing in digital-led marketing strategies to maintain brand engagement and drive sales [17][18] Management's Comments on Operating Environment and Future Outlook - Management noted a cautious consumer environment in the U.S., impacting discretionary spending and retail order books [10][11] - The outlook for the second half of the year is challenging, with expectations of revenue declines in North America, but growth anticipated in international markets [36] - Management emphasized the importance of making bold decisions to sustain cash flow and brand health during uncertain times [11] Other Important Information - The company has initiated $50 million in cost savings and is exploring further opportunities to reduce expenses [13][30] - Inventory levels increased by 7% year-over-year, partly due to elevated costs from tariffs [32] - The company repurchased approximately 1.3 million shares during the quarter, totaling $133 million [33] Q&A Session Summary Question: Outlook for Crocs North America and Q3 - Management acknowledged several factors affecting the North American market, including cautious consumer behavior and intentional reductions in discounting to protect brand health [41][43] Question: Impact of Wholesale Pullback - Management confirmed that the guidance reflects current order books and conservative assumptions regarding returns and cancellations, with some loss of shelf space to athletic brands noted [72] Question: Performance Disparity Between Hey Dude DTC and Wholesale - Management attributed the stronger DTC performance to new distribution points and emphasized the need for inventory cleanup in the wholesale channel [95] Question: Marketing Strategy for Hey Dude - Management reported positive trends from recent marketing shifts and plans to continue investing in the brand while focusing on core consumers [104][106]