Crocs, Inc.

Good morning and welcome to the CROC's fourth quarter 2023 earnings conference 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. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Erin Murphy, Senior Vice President of Investor Relations and Corporate Strategy. Please go ahead.

Good morning, and thank you for joining us to discuss Cross Inc. fourth quarter and full year results. With me today are Andrew Reese, Chief Executive Officer, and Ann Melman, Executive Vice President, incoming Cross brand president, and current Chief Financial Officer. Following their prepared remarks, we will open the call for your questions, which we ask you to limit to one per caller. Before we begin, I 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 law. These statements include, but are not limited to, statements regarding our strategy, plans, objectives, expectations, and intentions, including our financial outlook. These statements involve known and unknown risks, uncertainties, and other factors, which may cause our actual results, performance, or achievements to differ materially. Please refer to our annual report on Form 10-K and other reports filed with the SEC for more information on these risks and uncertainties. Certain financial metrics that we refer to as adjusted or non-GAAP are non-GAAP measures. A reconciliation of these amounts to their GAAP counterparts is contained in the press release we issued earlier this morning. All revenue growth rates will be cited on a constant currency basis unless otherwise stated. At this time, I'll turn the call over to Andrew Reese, Crocs, Inc. Chief Executive Officer.

Thank you, Erin, and good morning, everyone. Thank you for joining us today. 2023 was a record year for the Crocs enterprise, and we're starting off 2024 from a position of strength. Our teams are focused on continuing to drive market share gains and sustainable, profitable growth. We ended the year strong, delivering better than expected fourth quarter. Let me start by sharing a few highlights from the full year of 2023. Total revenues grew 12% year-on-year to almost $4 billion, driven by 19% direct-to-consumer growth at the enterprise level. Crocs brand revenues surpassed the $3 billion mark increasing 14 percent versus last year. Pay-due brand revenues were approximately $950 million and delivered over $200 million in operating income. We expanded our gross margins and once again delivered industry-leading margins with adjusted operating margins of almost 28 percent, exceeding our guidance. We grew our adjusted diluted earnings per share by 10 percent versus last year to $12.03. Our strong cash flow generation allowed us to repay $666 million of debt, and we resumed our share repurchase program during the year. Finally, we're pleased to see that Crocs, Inc. achieved the number 20 spot on Fortune's 2023 top 100 fastest growing companies. Before I provide strategic updates by brand, I want to speak to the recently announced executive transitions. Michelle Poole, Crocs brand president, will be retiring from the company. following a distinguished 32-year career in the footwear industry, the last decade of which she had a tremendous impact on Crocs. Michelle will remain in her role through early May and transition to a special advisor through early 2025. In keeping with our succession planning, I'm pleased to promote our current CFO, Anne Melman, to Crocs brand president. Many of you had the opportunity to work closely with Anne I know she brings a strategic and consumer-focused commercial lens to her leadership. I have strong confidence in her commercial acumen, deep knowledge of the Crocs business, and global mindset. Anne will remain CFO until her replacement is named and active search for her successor is already underway. Moving on to our performance against our key strategic pillars, starting with the Crocs brand. We continue to invest in our Crocs brand through our socially-led, digitally-first marketing playbook and product innovation, naming a few of our accomplishments this year. Our marketing wins range from creating hype to mainstream moments, including the Mischief Yellow Boot, Asper, a K-pop brand that featured our Stomp Line plug, and we ended the year unveiling our Maida plug, the perfect friend to Lightning McQueen. Complex, a leading culture publication, said it best. Crocs cannot stop going viral in 2023. We celebrated our most successful Croctober yet, fueled by this fan-inspired Crocs cowboy boot that sold out in 24 hours. We were awarded Collection of the Year by Footwear News for the Salehi Bembry x Crocs Polex Clogbook Partnership. Moving on to product, innovation and ongoing diversification remain important areas of focus. While we've had great success creating consumer moments through partnerships and collaborations, our core franchises are our fundamental growth engines. And all three of our product pillars, clogs, sandals, and personalization, grew double digits in 2023. Clogs grew 12% supported by solid growth in both our core classic as well as new clog franchises fueled by height and product innovations. Sandals surpassed the $400 million mark, growing 29% versus last year, and now makes up 13% of our croc sales mix. We gain market share across our four saddle segments that we prioritized, everyday, style, sports street, and adventure. Beyond the revenue milestone, the Sandals category brings diversification, not only to our overall product mix, but to our customer mix. In 2023, 61% of consumers that purchased sandals on owned e-com channels were new to the brand. These consumers shopped more frequently, carried a higher average order value, and purchased multiple silhouettes. Our sandal consumers skew more female versus our other buyers. Our gibbets business grew 17% to over a quarter billion dollars, making up approximately 9% of our total mix. We continue to view personalization as a mega consumer trend and see opportunity to further grow our gibbets penetration in 2024, notably through improved wholesale execution, deeper international penetration, and increased speed to market. We're elevating our franchise management capabilities and have built several sustainable multi-product platforms, including the Echo, Brooklyn, and Crush, to name a few. Each of these franchises caters to unique customer groups and diversified wearing occasions. The Echo franchise, which has developed a breadth of products across clogs, sandals, boots, and now sneakers, is bringing in a largely male explorer consumer. In fact, 71% of consumers who shopped our Echo franchise on our own e-com channel in 2023 were new consumers. We're becoming faster and more agile, and we see opportunities to further capitalize on these attributes in 2024. In the fourth quarter, we tested slippers in four colorways, and we're able to get these to market 60% faster than our normal product cycle. This test sold out in two and a half weeks, and we're building this into our fall line for 2024. We're expanding our speed-to-market capabilities across other areas of our product portfolio, including emerging new franchise, such as a getaway assortment. As we think about distribution, I'm pleased by the broad-based growth of the Crocs brand for the year. For 2023, North America grew 8%, and international grew 23%. In fact, fourth quarter represented our 12th consecutive quarter of strong double-digit growth outside of North America. Globally, South Korea and the U.K. grew double digits, and Australia and China each grew triple digits. While we reported a record revenue in China, it still only represents 4% of revenues, underscoring the untapped potential we have in the region. We continue to see our organic fan base in China grow as evidenced by our hashtag known as Dongmen or clogs followers. We now have 70 million Dongmen hashtags on red, highlighting the consumer engagement and excitement for the brand. Three weeks ago, I had the opportunity to visit several of our tier one countries in Asia alongside a broader leadership team. It is evident that the brand's trajectory is taking hold across the region. The Asian consumer is embracing personalization at a rate higher than other parts of the world. Another anecdote that gives me confidence broadly in our international growth agenda is that South Korea, a most established market in the region, carries the highest market share of any discrete market globally and is one of the best representations of our core strategies across clogs, sandals, and personalization. The strong market position highlights the potential upside of opportunity across our other international markets. The Crocs brand has entered 2024 with momentum. From a product perspective, we expect to deliver more height for her, street for him, and drive personalization at scale. We expect sandals to continue to gain as a percentage of sales, driven by newness as we relaunch the classic sandal 2.0, and scale our recently introduced getaway sandal franchise. From a sustainability perspective, I'm incredibly pleased to announce that we achieved our 2023 goal to reach 20% fire-based cross-light material across our portfolio, a significant milestone on our journey to 50% fire-based cross-light by 2030. We also saw promising results in our pilot shoe recycling program that we launched in late October, and we now plan to expand this initiative to all stores. We will share more on these and many other initiatives in our mid-year comfort report. Turning to HeyDude, we generated almost $950 million of revenue and over $200 million in operating income in 2023. This year had its share of learnings, but I'm very confident that the HeyDude brand benefits from the lightweight, comfortable, easy on enough, and value remain top of mind with consumers. While our brand awareness significantly improved year over year, reaching 32% in the second half, It is still low by any global brand standard, but our brand love and affinity are high. As we talked about in our third quarter call, we made a number of strategic pivots in September, which impacted our sell-in within the wholesale channel, curtailed small and non-strategic accounts, and focused our efforts around improving full-price sell-through on digital. We're pleased with the initial impact of our decisions, as evidenced by improved gross margins and healthy channel inventories. and expect sell-in and sell-through to normalize as we move throughout the second half of 2024, and prioritize returning to a full market position. In the fourth quarter, and on a four-year basis, we gained market share among our key strategic accounts, underscoring our confidence in the brand's underlying demand with consumers. In 2023, the Hey Dude brand gained approximately 200 basis points of U.S. market share versus 2022, in the casual fashion category, according to Sakana's retail tracking service. During the first quarter, the Hey Dude brand had some big moments, with Dude Perfect as the face of our Happy Holla Dudes holiday programming. Leveraging our consumer insights, we know that 50% of our buyers give Hey Dudes as gifts, and we saw evidence of this during the fourth quarter. Looking forward, we plan to create consumer moments through scaling our collaborations and partnerships, We recently collaborated with actor Chase Stokes from the popular Outer Banks Netflix show to launch The Wally Mid. Later in Q1, we'll be expanding our collegiate program to more schools during March Madness to deepen consumer engagement. From a product perspective, during the fourth quarter, our icons, The Wally and Wendy, were top sellers. Our Bradley Boot rounded up our top three selling styles overall with exceptional sell-through as consumers responded to its compelling price point, light weight, and attractive styling, despite a soft overall industry boot season. Once again, our seasonal ugly sweater Christmas styles were standouts. As we move into 2024, we'll focus on continuing to invest in core and expect the Wally and Wendy franchises to remain the lion's share of our offerings, driven by newness in color, graphic, and height. We will capitalize on our successful sneaker franchises, including the Carina and the Sirocco, and build on our fashion boot offering in the fall. We're taking a focused approach to how we allocate inventory by account and expect to see more evidence of account and channel segmentation as we move throughout the year. From a distribution perspective, we're in the early days of implementing our outlet retail strategy for the Hey Dude brand. leveraging Crocs' successful retail playbook. On the Hey Dude side, we opened five outlet locations in the second half and have been pleased with the results thus far. We plan to open up 30 outlet stores in 2024, spread throughout the year. For context, retail is roughly one-third of our North American business for the Crocs brand and is highly profitable. Turning to wholesale, while our spring order books are down versus last year, as we discussed on a November call, We expect sell-in and sell-through to normalize as we move throughout the back half of the year. As it relates to international, we remain in test mode in a few direct markets in Europe, as well as in several distributor markets, leveraging the success of the Crocs brand playbook. This will lay the groundwork to expand into new international markets in the next two to three years. We're coming into the year from a position of strength. While there are question marks around the global macro backdrop and the broader consumer health, I'm confident in our brands, our people, and our purpose, and I'm looking forward to another year of outside share gains, industry-leading profitability, and top-tier cash flow generation. Anne will now review our financial results in more detail.