Crocs(US:CROX)2022-11-03 16:40Financial Data and Key Metrics - Consolidated revenues for Q3 2022 were $985 million, representing 63% growth on a constant currency basis [10] - Crocs brand revenues grew 20% on a constant currency basis, with DTC comparable sales up 18% [10] - HEYDUDE brand revenues were $269 million, representing 87% growth compared to the prior year [10] - Adjusted operating margins were 28%, and adjusted diluted EPS increased 20% to $2.97 per share [10] - Net leverage improved to 2.4x, with $155 million of debt repaid during the quarter [38] Business Line Performance - Crocs brand sold 30.3 million pairs of shoes in Q3, a 19.2% increase over Q3 2021 [28] - Crocs brand average selling price (ASP) was $23.33, flat on a constant currency basis but down 4.5% on a reported basis due to unfavorable FX [28] - HEYDUDE brand is expected to exceed $1 billion in revenues in 2023, a year earlier than previously anticipated [18] - Clogs continued strong double-digit growth, while sandals grew nearly 20% in Q3 [16] - Jibbitz grew double digits year-over-year, driven by consumer engagement [16] Market Performance - North America Crocs brand revenues increased 1.8% to $445 million, with DTC comparable sales up 13% [29] - International markets drove strong growth, with Asia revenues up 82.3% to $138 million and EMEALA revenues up 45.6% to $132 million [30][31] - China saw over 30% revenue growth despite COVID lockdowns [31] - HEYDUDE brand saw increased mindshare in the Northeast and South regions of the US [19] Strategy and Industry Competition - The company is focused on driving market share gains and executing long-term growth strategies for sustainable profitable growth [9] - Marketing activations and product innovations, such as partnerships with Salehe Bembury and Christian Cowan, have elevated brand relevance [12][13] - Digital growth remains a key initiative, with digital penetration increasing to 37.4% and 22% constant currency growth in digital sales [17] - HEYDUDE's rebranding and influencer strategy are expected to drive further growth [20] Management Commentary on Operating Environment - Macro pressures include widespread inflation, elevated interest rates, a strong US dollar, China's zero-COVID strategy, and the war in Ukraine [23] - High levels of promotions in response to elevated inventory levels are pressuring margins, particularly in the US [24] - Despite these challenges, the company raised its 2022 guidance and remains confident in achieving long-term revenue targets [24] Other Important Information - The company signed a lease for a larger facility in Las Vegas to support HEYDUDE's growth, expected to be operational in Q4 2023 [34] - Inventory balance at the end of Q3 was $514 million, up $301 million year-over-year, including $190 million from HEYDUDE [39] - Full-year 2022 revenue guidance for Crocs brand was raised to $2.605 billion to $2.63 billion, with HEYDUDE expected to generate $850 million to $890 million [40][41] Q&A Session Summary Question: Inventory and Gross Margin Outlook - Crocs brand inventory was down slightly from Q2, reflecting revenue growth and higher costs [47] - Gross margins are expected to remain under pressure due to promotional environments, with transitory costs likely to dissipate in 2023 [47] Question: 2023 Outlook and Innovation - The company is bullish on 2023, with a strong pipeline of product and marketing innovation for both Crocs and HEYDUDE brands [49] - Sandals are expected to see strong growth, particularly in markets like India, Southeast Asia, and the Middle East [57] Question: SG&A Flexibility and Wholesale Strategy - SG&A was leveraged by 420 basis points in Q3, driven by shared services and investments in marketing and talent [52] - The company is disciplined in managing wholesale partner inventories to maintain brand health [53] Question: HEYDUDE's International Expansion - HEYDUDE will begin international expansion in 2023, starting with the UK and Germany [68] - The company is optimistic about HEYDUDE's long-term growth potential but is taking a disciplined approach to international markets [68] Question: HEYDUDE's Customer Overlap with Crocs - There is customer overlap between Crocs and HEYDUDE, but consumers purchase the brands for different wearing occasions [73] - HEYDUDE is taking share from discrete brands and lower-end athletic footwear [73] Question: Average Selling Prices (ASP) and Product Mix - ASPs were down in Q3 due to currency impacts and promotions in North America, offset by price increases in international markets [74] - New product introductions, such as the Echo Clog, are expected to balance out ASP pressures in 2023 [75] Question: HEYDUDE's Performance by Gender and Kids - HEYDUDE's men's business has shown the strongest performance, with opportunities to enhance the women's product range [82] - Kids' distribution is expanding, with key retailers adding HEYDUDE to their portfolios [82]