Crocs, Inc.

Good morning, and welcome to the Crocs Second Quarter 2023 Earnings Call. All participants will be in listen-only mode. 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. Please note this event is being recorded. I would now like to turn the conference over to Cori Lynn. Please go ahead.

Good morning, everyone, and thank you for joining us today for the Crocs Inc. Second Quarter 2023 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 state parlor provisions of the federal securities laws. These statements include, but are not limited to, statements regarding our supply chain challenges, cost inflation, the acquisition of hatred and the benefits thereof, Crocs' strategy, plans, objectives, expectations, financial or otherwise, and intentions, future financial results, and growth potential, anticipated product portfolio, our ability to create and deliver shareholder value, and statements regarding potential impacts to our business related to the COVID-19 pandemic. These statements involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or achievements to be materially different from any future results, performances, or achievements expressed or implied by the forward-looking statements. Crocs is not obligated to update these forward-looking statements to reflect the impact of future events, except as required by applicable law. We caution you that all forward-looking statements are subject to risks and certainties described in the risk factors section of our annual report on Form 10-K and our subsequent filings with the SEC. Accordingly, actual results could differ materially from those described on this call. Please refer to Crocs' annual report on Form 10-K, as well as other documents filed with the SEC for more information relating to these risk factors. Certain financial metrics that we refer to as adjusted or non-GAAP 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 on the call today 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. I'm incredibly pleased with our second quarter results. we delivered record quarterly revenues of over a billion dollars. The Crocs and HeyJuice brands continue to perform extremely strongly, as ever, by 26% direct-to-consumer revenue growth. We gained appreciable market share and once again delivered industry-leading profitability with 30% operating margins. And we'll review our financial results in more detail shortly, but here are a few highlights from the second quarter. Revenues of over a billion dollars grew 12% on a constant currency basis. Cross-brand revenues grew at 15% constant currency, fueled by Asian revenues increasing 39%, and global DTC comparable sales rising 20%. The cross-brand continues to gain market share in North America, with revenues up 13% driven by sandals and new product introductions. HeyDude brand revenues were $239 million, with exceptional DTC growth of 30% and digital growth of 37% constant currency. Adjusted dilutive earnings per share increased 11% to $3.59 per share. Gross leverage ended at 1.8, and net leverage was 1.7 times at quarter end, allowing us to repurchase $50 million of shares in July. Finally, Cross Inc. was named to the Time 100 Most Influential Companies for 2023. In summary, we had an excellent quarter, and our teams globally remain focused on driving brand health, market share gains, and profitable growth in the back half of the year. I would now like to provide updates for each of our brands. The Cross brand has delivered strong revenue growth since 2018, as we built both cloud and brand relevance across the globe. This past quarter, our product and marketing efforts continue to deliver newness and excitement to the current brand friends, while simultaneously reaching new consumers who may not have considered our brand in the past. With respect to product innovation, we're diversifying our clog offering and growing samples. We've seen significant success with a number of height-orientated new clog introductions, including the Crush, Mega Crush, and more recently, the siren. In addition, our recent launch of Dillon, a more elevated and fashion-forward plug, is very encouraging. The echo continues to outperform our initial expectations, and personalization continues to drive global relevance for the classic. Turning to sandals. As we have shared, this category is an important growth initiative for Crofts. allowing us to expand into the adjacent $30 billion global saddle category, where we believe our molded technologies, accessible price points, strong go-to-market will allow us to compete effectively in a relatively fragmented market. We're excited by our incredible sound performance, where revenues grew 34% compared to Q2 last year and 40% growth on a trailing 12-month basis. Growth was robust in all regions, driven by our diversified SAML offerings, new product introductions, and robust marketing calendar. The classic and brokering continue to be our leading SAML franchises. In addition, the more recent Mellow and Crush introductions have been extremely successful and are also top-selling styles. We will continue to drive SAML awareness and customer acquisition with activations such as the new Pollux slide with Salahi Benbrick. Overall, we're pleased with the SAML trajectory and very confident that SAML revenues will grow to in excess of $400 million this year. From a collaboration perspective, we announced plans for a two-year partnership with Soleil Bembry, who will serve as creative director of the Crocs Times Pollux pod to introduce innovative new styles. This quarter, we introduced the Pollux slide, which sold out instantly and provided a halo for our SAML offerings globally. More recently, we partnered with rapper Lil Nas X to showcase our hype collection, such as Siren and Crush. During Paris Fashion Week, we took over the famed Mercy pop-up space. Other marketing highlights from the quarter include our mellow slide with Taco Bell, a clogged collaboration with Parisian running brand Satisfye, and a slide and clogged partnership with Korean food brand Otoji. Finally, this month, our Barbie collection featuring clogs, sandals, and gibbets quickly sold out ahead of the blockbuster movie launch last weekend. Azure is another important long-term growth driver for the Cross brand, as the brand is currently under-penetrated relative to here in the U.S. In Q2, Azure revenues grew by 39% constant currency. Growth was again broad-based with strong brand momentum throughout the region, including China, Australia, South Korea, and Southeast Asia. We're particularly encouraged by another exceptional quarter of growth in China, where Q2 revenues increased over 100% ahead of our expectations and one more sign of the potential within this market. The leadership team and I had the opportunity to visit China in June for the first time in three years, and it was wonderful to see how much the brand had grown. We met with our partners, suppliers, and visited many stores. We have been deploying the same playbook we have used globally, including influences, collaborations, and personalization. We've partnered with local celebrities, including Bai Jingting and Zhou Yutong, to style collaborations and products in their own authentic way. Brock's creations by four emerging Chinese designers from fashion incubator Labelhood were featured at Shanghai Fashion Week. And Jibbitz, our vehicle for self-expression, continues to prize and delight consumers and create great excitement in our stores. Crocs' rising popularity in China has created a passionate following with a hashtag known as Dong Man, or Clark's followers. On Red, a leading Chinese social app, topics related to Crocs have accumulated over 310 million views. During the popular mid-season festival in June, Crocs' sales ranked second on Tmall within casual footwear brands. In Douyong, Chinese TikTok, we ranked first in sales during mid-season festival. In summary, we're incredibly excited by the Crocs brand momentum in China and we're even more confident about the potential for the Crocs brand in the second largest footwear market in the world. Now to HeyDo. We're incredibly pleased with the exceptional DTC growth of 30% and constant currency digital growth of 37%. Our product and marketing innovation is driving new customer acquisition and is growing awareness on the coast. Our e-commerce data demonstrates that Q2 revenues on both the East and West Coast increased 45% compared to last year. New product introductions, which range from new colors to new silhouettes, are driving excitement. Our Americana styles were top sellers ahead of Memorial Day and Fourth of July holidays, amongst men, women, and kids. As a demonstration of our test and learn approach, this year our Americana collection featured over 20 patterns and colors, building on the early success we saw last year. The new Wally and Wendy funk and wash canvas styles have performed strongly in both DTC and wholesale, and our efforts to expand the brand beyond the iconic Wally and Wendy within sneakers are off to a great start. The Carina for Women and the newly introduced Scirocco sold out quickly, and we're in the process of getting them back in stock. On the marketing front, we focused on enhancing brand awareness. We launched our first-ever HeyDo collaboration this quarter with outdoor lifestyle brand Mossy Oak, and we saw great sell-through. We've also started to seed our Back to Campus collection on social channels and look forward to launching our collection featuring colleges from the Southeastern Conference or SEC in September. Finally, with respect to wholesale revenues, as we discussed in June, a large part of last year's revenue related to pipeline fill for some of our new strategic alliance partners. We estimate pipeline fill was $70 million for the second quarter of last year and $220 million for fiscal 22. This pipeline fill was a very conscious decision in our part to secure self-space knowing there will be competition in the marketplace. Aggregate consumer takeaways for the brand across all channels, we estimate to be up approximately 27% during Q2 of 2023, based on over 80% increase in our strategic alliance accounts, shrinkage in our non-strategic wholesale accounts, and 30% DTC growth. Retail traction service data from Jocana, formerly MPD, indicates that HeyDude rose from the number 15 fashion footwear brand in Q2 of last year to number eight in Q2 of this year based on U.S. sales. As we look towards the remainder of the year for HeyDude, we are lowering our outlook for revenues. Wholesale growth is expected to be low. As we outlined in June, there is $220 million of non-comparable sales last year due to the rapid expansion to major U.S. strategic customers, and the discontinuation of relationships with some smaller customers. Since then, while our wholesale partners are very pleased with the performance of HeyDude, and a number have called this out in their recent earnings, many are cautious in terms of future bookings based on their overall market outlook and lack of historical data on HeyDude's performance. Finally, as we previously shared, we anticipate constrained distribution capabilities, particularly related to at-ones in the back half of the year, due to ERP and warehouse transitions. Even with this lowered near-term revenue outlook, the HeyDuke brand is acquiring new customers and is gaining penetration in strategic accounts and on the coast. We remain incredibly optimistic about the long-term potential of the brand on a global basis. Finally, coming to digital for both brands, we saw exceptional 21% constant currency growth driven by new product introductions, that are resonating well with consumers globally. For the Crocs brand, the app is rapidly scaling and gaining consumer traction, reaching penetration over 20% in South Korea. In the U.S., we continue to be excited by our loss of customization, and on our site, now offering an online configurator for organizations to design custom clogs and gibbets. Our global CRM database is also accelerating in key markets with the expansion of programs like SMS and the app. As we mentioned last quarter, to gain better control of our brand and realize higher ASP, we anticipate transitioning some of our Crocs e-tail business that sits in our wholesale segment to a direct digital sale, both on crocs.com as well as marketplaces where we will sell directly to the consumer. This will result in lower wholesale sales and higher DTC sales. For HeyDude, we're investing in digital capabilities, such as enhanced site experience, payment offerings to improve the customer journey. We're also scaling our digital marketing investments to acquire and retain new customers. These efforts, coupled with new product introductions, have led to strong growth rates across all our digital channels, including being a top-performing brand during Amazon's recent Prime Day. Overall, our digital-first approach is working and is driving strong growth globally. In summary, we have tremendous confidence in and clear evidence as to the underlying strength and growth potential of both the Crocs and HeyDude brands. Sell-through from both our brands continues to be robust, and we believe we're benefiting from our democratic price points and gaining share in a difficult market. I will now send the call over to Ann who will review our financial, second quarter financial results in more detail.