Crocs, Inc.

Good day, and welcome to the Crocs Third Quarter 2024 Earnings Conference Call. All participants will be in a 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 a touch-tone phone. 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 Crocs, Inc. third quarter results. With me today are Andrew Reese, Chief Executive Officer, and Susan Healy, Chief Financial Officer. Following their prepared remarks, we will open the call for your questions, which we ask that you limit to one per caller. Before I 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 laws. 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 quarterly report on Form 10-Q 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, Cross Inc. Chief Executive Officer.

Thank you, Erin, and good morning, everyone. Thank you for joining us today. We've reported third quarter results that exceeded our guidance in terms of sales and profitability on an enterprise basis. Consolidated enterprise revenues of $1.1 billion grew 2% to prior year, led by 5% growth in DTC. By brand, Crocs brand grew 8%, with international up 17%, and North America up 2%. Paydude revenues contracted 17%, slightly below our expectations. Adjusted diluted EPS of $3.60 a share increased 11%. Today I will be covering the following topics. I will first share deeper insights into our third quarter results, along with what we're seeing from a broader consumer perspective. I will then elaborate on HeyDude's strategic priorities and what gives me confidence around the brand's longer-term growth prospects, touching on some of the early wins we're seeing in the business today. Finally, Susan will review our financial performance, our updated 2024 outlook, and our preliminary thoughts on 2025. Now turning to third quarter insights, starting with the Crocs brand. The investments we are making in product and marketing enable us to win with consumers around the world. All three of our product pillars, clogs, sandals, and personalization, grew during the third quarter, led by our icon, the classic clog. In August, Fortway News named our classic clog one of the greatest shoes of all time. Embracing the personalization platform that our clog provides, we launched our Live Life Fully Loaded campaign during the back-to-school season. This campaign created high consumer engagement in our stores and online, both for our classic clog as well as our gibbets business, as consumers were able to fuel their love for self-expression. We're continuing to iterate on our clog by introducing new silhouettes and building durable franchises. The Echo franchise, which has developed a breadth of products across clogs, sandals, boots, and sneakers, continues to bring in new, largely male, Explorer consumer to our brand. As we look into spring, we're excited to bring the Echo Wave, a molded mule, and the Echo Search to market. Both new innovations are priced under $100. Another example of how we've iterated on the clog is our InMotion franchise. We have seen successful results in our tests of this franchise on our DTC channels ahead of a scaled rollout in 2025. This new innovation features our proprietary LightRide foam footbed along with our free-fill technology. By applying the learnings from our quick-to-market DTC Cozy Slipper launch last year, we're able to scale the offering this fall across expanded colorways and with our wholesale partners. at an incredible value of $49.99. Sellout has been strong out of the gate, and we're chasing replenishment. In addition to our mainline product, we brought many exciting partnerships to life during the quarter. These included a Bath & Body Works collection featuring a classic clog and a cozy sandal pre-gibbeted with four mystery scent gibbet charms. We also introduced Batman and Squishmallow, and of course, our Crocs x McDonald's Happy Meal. As a natural extension of our first collaboration with McDonald's, we designed and introduced the McDonald's x Crocs Happy Meal with a curated assortment of 17 limited edition classic clog keychains and a sticker pack for personalization. We launched the Happy Meal first in China and saw fantastic results. Within the first 48 hours, over 400,000 Crocs Happy Meals were sold, generating over 10 billion brand impressions. Since then, we have launched our Happy Meal in over 40 countries, driving significant brand momentum and heat. Last week, we celebrated the seventh annual Crock Day on October 23rd, our very own fan-inspired holiday within the month of Crocktober. With a much-awaited debut, we celebrated the release of Pet Crocs, available alongside matching classic lion clogs, allowing dogs and dog parents to coordinate their looks in lockstep. Our pet Crocs designed in partnership with Bark were available globally on our own.com and in select retail stores. The release was a huge success. Fan-inspired festivities did not stop there. This year we released a Crocs costume, which is in the form of a life-size iconic classic clog fully loaded with gibbous charms. And just like your favorite pair of Crocs clogs, this costume is available in both left and right versions, making a perfect pairing opportunity with friends. In September, we achieved another step forward towards our circularity goals with the launch of a limited edition Keep It Going Classic Clog. The new clogs featured 25% post-consumer recycled content from the shoes collected through our All Crofts New Life Consumer Take Back program, with the remaining construction of the shoe containing up to 25% biobased cross-layer material. Now for a review of the cross-brand business by geography. The North American market performed well with revenue growth of 2% versus prior year led by DTC. In North America, the consumer has reverted to pre-pandemic shopping patterns, shopping closer to need and concentrating spend around key shopping events and holidays. We saw a solid back-to-school season, but since Labor Day, we have seen the consumer pull back. We anticipate the consumer environment being relatively muted in the U.S. until Black Friday slash Cyber Monday holiday period. Our overall international revenues grew 17% versus prior year, supported by notable growth in Australia, China, France, and Germany. Our China business grew over 20% on top of more than 90% growth last year in the third quarter, with approximately two-thirds of the growth driven by monobrand partner stores. As we shared during our second quarter call, the industry was more promotional during the mid-season festival. It is clear that the Chinese consumer is being far more conservative in their purchase behavior, and we've seen an even more pronounced pullback within key Tier 1 cities like Shanghai and Beijing. In light of the broader macro environment in China, we're taking a more cautious view for the rest of the year. Despite this backdrop, our brand continues to gain share in China, which we believe is a direct result of our accessible, authentic, and personalizable brand positioning, serving as a meaningful competitive advantage. Turning to Hey Dude, our third quarter results came in slightly below our guidance, with revenues declining 17%. Before I provide further detail on the quarter, I want to start by sharing the progress we've made towards building Hey Dude into a consistent and profitable growth brand. In September of last year, we made a pivot to prioritize brand health, clean up channel inventory, while right-sizing our account base, and began building a fleet of premium outlet stores to showcase the best expression of our brand. Since then, we've elevated ASPs, shuttered more than 50% of our accounts, improved inventory turns to four times a year, and opened 29 premium outlet stores. In addition, we invested in talent across the brand while accelerating our marketing investment as we work towards driving higher awareness and relevance to generate brand heat. We strongly believe these are the right decisions to build a solid foundation for profitable growth at Hey Dude. While we recognize Hey Dude's performance this year has not yet reflected these investments and actions, let me share a little bit more about what has given me confidence. As we spoke about last quarter, We sharpened our strategy to focus on three strategic imperatives, driving youth female culture and creating a hey dude brand community, building the core, our Wally and Wendy, and adding more, then stabilize and accelerate North America. Against these imperatives, we're seeing the following green shoots. First, we believe the female youth culture is a key driver of influence, brand connectivity, and a catalyst to build community. In August, we were thrilled to announce Sydney Sweeney as our global brand ambassador and our director of dudes. This partnership has generated the best performing content HeyDude has seen to date, and we have plans to ignite further content with Sydney Sweeney. During the quarter, we launched TikTok Shop, and we've seen an excellent response, bringing in new, younger consumer. In fact, on select launch days, our brand emerged as the number one global key account on TikTok Shop. Adu's number of TikTok followers surpassed Instagram in the quarter, further underscoring our opportunity to reach a younger audience. We were also named the official comfort shoe of Barstool Sports in time for our refreshed collegiate collection. Second, we're focused on our icons, the Wendy and Wally. Our three core offerings include Stretch Socks, Stretch Canvas, Funk Mama. During the quarter, We iterated on these core offerings through our collaboration engine, successfully introducing Beetlejuice and SpongeBob, to name a few. In October, we announced a long-term partnership with country music singer Jelly Roll. Our initial collab with this famed artist featured a Wally slip, which sold out in minutes. Since the launch, we've seen the product show up on the secondary platforms for up to $6,000. As we discussed in our Q2 call, the conference is a new product innovation that is an extension of our Wendy and Wally DNA with added cushioning and height. In the third quarter, we began scaling this across select global accounts. As we look beyond our call, we're seeing very healthy demand signs in our women's Austin lift and our men's pole silhouette, with plans to scale them in 2025. Third, we're hyper-focused on stabilizing the North American market to drive a sustainable foundation from which to grow. We've streamlined our account base and are focused on building relationships across our strategic retailers, similar to that of Crocs. We've worked to improve our inventory position in channel and improve ASPs across digital. In the third quarter, our digital ASPs were up 10% of last year, and we saw improving weeks of supply across our key strategic accounts. Our premium outlet stores are performing in line with our expectations. While we're encouraged by these early positive indicators, HeyDude's recent performance and the current operating environment are signaling it will take longer than we initially planned for the business to turn the corner. We continue to have confidence about the long-term potential of the brand, and the green shoots we are seeing give us positive reinforcement around our opportunity. I'm incredibly proud of the HeyDude team and the urgency with which they've executed against our sharpened strategy. I will now turn the call over to Susan to walk through our financials for the quarter.