Crocs, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Crocs Inc. Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would like to now hand the conference over to your speaker today, Cori Lynn, VP of Corporate Finance. Please go ahead.

Good morning, everyone, and thank you for joining us today for the Crocs Third Quarter 2020 Earnings Call. Earlier this morning, we announced our latest quarterly results, and a copy of the press release may be found on our website at crocs.com. We 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. These statements include, but are not limited to, statements regarding potential impacts to our business related to the COVID-19 pandemic. Crocs is not obligated to update these forward-looking statements to reflect the impact of future events. We caution you that all forward-looking statements are subject to risks and uncertainties described in the risk factor section of our annual report on Form 10-K. Accordingly, actual results could differ materially from those described on this call. please refer to the CROC's annual report on Form 10-K, as well as any other documents filed with the SEC for more information related to these risk factors. Adjusted gross margin, income from operations, operating margin, and earnings per diluted common share are non-GAAP measures. Reconciliation of these amounts to their GAAP counterparts is contained in the press release we issued earlier this morning. Joining us today on the call are Andrew Reese, Chief Executive Officer, and Ann Melman, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions. At this time, I'll turn the call over to Andrew.

Thank you, Kari, and good morning, everyone. As you saw from our release issued this morning, our business achieved record third quarter top and bottom line results. Our extraordinary performance amidst these dynamic and difficult times demonstrates the strength of our brand and product offering globally and our ability to deliver sustainable, profitable growth. I'm incredibly proud of the results and how the entire Crocs organization has executed against our long-term growth plan and managed the business through the COVID-19 pandemic. And we'll review our financial results in more detail shortly, but here are a few highlights from the third quarter of 2020. We achieved record third quarter revenues of $362 million, up 16% versus prior year. Our Americas business had an exceptional third quarter, with revenue increasing 26% and DTC comp growth of 31%. Our EMEA business delivered strong revenue growth of 13% with double digit revenue growth in both e-commerce and wholesale. Every channel grew revenue with digital commerce sales increasing 36% to represent 38% of global revenue. Adjusted operating profit was 75 million an increase of 70% with margin expansion of 660 basis points. An adjusted diluted earnings per share grew 65% to a third quarter record of 94 cents. Let's first focus on the strength of our brand, which underpins these extraordinary results. The Crocs brand continues to resonate strongly with consumers throughout the world as a result of our powerful marketing and iconic products. We shared on our last earning call that we had an exciting marketing pipeline, and we've seen this come to fruition. In July, we released a Luke Combs collaboration, our first feature in the classic slide. In August, fans in Korea queued overnight at stores for our collaboration with Case Study that sold out in 90 seconds. With Chinatown Market, we launched our colorful Grateful Dead club, which LeBron James wore around the NBA bubble, creating quite a stir. In September, we released Black Lives Matter Jibbitz Charms. Our brand has always stood for equality and inclusivity and encourages everyone to come as you are. We continue to celebrate come as you are with a special edition glow-in-the-dark plug with Puerto Rican star Bad Bunny. For those of you who may be less familiar with Bad Bunny, he performed in this year's NFL Super Bowl halftime show alongside Jennifer Lopez and Shakira. And according to U.S. Billboard, His latest album became the highest-charting all-Spanish-language album ever. The Crocs that Bad Bunny designed were in very high demand, selling out in minutes. More recently, we kicked off our month-long Croctober celebration with the launch of our Croctober Jibbitz calendar, containing 50 unique Jibbitz that count down to Croc Day on October 23rd. This month was full of Croctober surprises. The most noteworthy being our collaboration with Justin Bieber and his clothing brand, Drew House, which generated incredible global media buzz. The singer-songwriter designed yellow gibbets to dawn clocks that sold out quickly around the world. I'm pleased to share that this best-in-class marketing is translating into results. In our own 2020 brand survey, which measures participants' views about the Crocs brand globally, Results were up double digits for each of our key metrics, brand desirability, brand relevance, and brand consideration. We have now averaged double-digit growth across these same metrics for the past four years. Another indicator of brand strength is Piper Sandler's Fall 2020 Taking Stock with Teens survey, where the cross-brand remained in the top 10 footwear brands preferred by teens in the US. In summary, our brand has never been stronger and the brand strength has further increased through the pandemic. I'm confident that the Crocs brand will continue to drive accelerated growth this year and beyond. Now let's turn to the third quarter highlights. From a channel perspective, global e-commerce revenue grew by 36%. This represents our 14th consecutive quarter of double-digit e-commerce revenue growth. Our digital business, which combines e-commerce and e-tail, grew 36%. and represented 38% of our third quarter sales compared to 32% last year. Digital growth rates tempered a bit from Q2 when much of brick and mortar was closed for an extended period. Yet our digital penetration remains high and this remains a top priority. Over the long term, we believe our digital presence on both our sites and those of our partners will allow us to serve our consumers in their preferred channel and will continue to be a competitive advantage relative to other footwear brands. Our wholesale channel, which includes bricks and mortar, e-tail, and distributors grew 12% versus prior year, fueled by strong sell-through in e-tail and our top 20 global brick and mortar accounts. Over the past 18 months, we have been increasingly focused on these top 20 leadership brick and mortar accounts, which are made up of sporting goods, family footwear, and specialty footwear retailers. Ten of these reside in the U.S. We are pleased to have recently added both Foot Locker and Finish Line to expand our presence in specialty athletic. Turning to company-owned retail, third quarter comp sales increased 16% over 13% last year, driven this year by the Americas and South Korea, which together account for approximately two-thirds of our store base. During the quarter, most of our stores were open but operating at reduced hours. Both our own retail and that of our bricks and mortar partners returned to growth in the third quarter and recovered from the impact of the pandemic much faster than we expected. From a product perspective, our results continue to be driven by our four key product pillars, clogs, sandals, gibbets, and visible comfort technology. Sales of clogs were particularly strong this quarter. increasing 31% year-over-year to represent 72% of total footwear revenues versus 62% last year. Early in the pandemic, we canceled sandal receipts. As such, Q3 sandal revenues declined by 4% and represented 19% of footwear sales versus 22% last year. Gibbett sales continue to be strong, doubling for the quarter versus last year. Looking to next year's product pipeline, WE'RE VERY CONFIDENT IN OUR LINEUP. 2021 SELL-IN HAS BEEN STRONG ON A GLOBAL BASIS. WE'RE EXCITED ABOUT OUR INNOVATION IN CLOGS AND OUR ABILITY TO DELIVER A FULL SEASON OF SANDALS WITH CLASSIC SLIDE, BROOKLYN, AND TULU. WE ALSO EXPECT TO CAPTURE STRONG INTERESTS IN OUR CROPS AT WORK LINE BASED ON OUR FREE PAIR FOR HEALTH CARE PROGRAM. WE ARE POISED TO CONTINUE SIGNIFICANT GROWTH IN PERSONALIZATION WITH GIBBET'S CHARMS. FINALLY, Profitability was incredibly strong. Our brand strength and lean inventory led to fewer promotions, which coupled with price increases and product mix boosted our gross margins. We significantly leveraged SG&A to deliver best-in-class operating margins, and we delivered record third-quarter EPS. We're even more confident now than a year ago about the Crocs brand strength and our long-term growth potential. We're incredibly optimistic about 2021 and our growth trajectory. Our four key product pillars and our powerful social and digital marketing are clearly creating exceptional consumer engagement. From a channel and region perspective, our digital first strategy and our long-term focus on Asia will deliver our growth for years to come. Before I turn the call over to Anne, I want to express my gratitude to the entire Crofts organization for the hard work and commitment to delivering best-in-class results. I'm tremendously proud of how they've executed as a team and the results we have delivered for our employees, our customers, and our shareholders. With that, Anne will now review our financial results in more detail.