Crocs, Inc.

Good day and welcome to the Crocs, Inc. First Quarter 2025 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, Investor Relations and Strategy for Crocs. Please go ahead.

Good morning, and thank you for joining us to discuss Crocs, Inc. first quarter results. With me today are Andrew Reese, Chief Executive Officer, and Susan Healy, Chief Financial Officer. Follow 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 laws. 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 most recent annual report on Form 10-K, quarterly report on Form 10Q, 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 will 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. We're incredibly pleased with the performance we delivered during the first quarter, despite what has been an increasingly volatile macroeconomic backdrop since the start of the year. At the enterprise level, revenues of $937 million grew 1% prior year, and came in ahead of our guidance, which called for a revenue decline of approximately 1.5% on a constant currency basis. Importantly, both of our brands contributed to this outperformance. Crocs brand revenues of $762 million grew 4% to prior year, led by double-digit growth in international, and the North American business performed ahead of plan. PayDuda revenues of $176 million down 10% to prior year, including direct-to-consumer growth of 8%, an acceleration from the fourth quarter. Enterprise adjusted gross margins of 57.8% gained 180 basis points to prior year. Adjusted operating margins of 23.8% came in more than 200 basis points above our guidance. While we continue to make strategic investments to extend our competitive advantages in the future. All in, we delivered $3 in adjusted diluted earnings per share, nearly 20% above the high end of our guidance range. During the quarter, we repurchased 607,000 shares, while at the same time, we remained well within our net leverage range of between one and one and a half times at quarter end. Before I share more insights from the quarter, I want to take a moment to discuss the dynamic landscape we're operating in. the actions we have taken to best position ourselves to win despite evolving global trade policies and our resulting decisions to withdraw guidance. Since joining Crocs over 10 years ago, I have witnessed some extraordinary times, from charting our turnaround to the emergence of the Crocs brand as an icon of popular culture, to the global COVID-19 pandemic where retailers shuttered their doors for months, to the acquisition of Hey Dude, and to today where many companies are grappling with and trying to understand our new global trade environment. Business and consumer uncertainty is extremely high. However, we're being prudent in the face of this uncertainty and are focused on what we can control, leaning into our clear competitive advantages and applying an agile mindset to how we adapt. Since we last reported mid-February, the US has implemented a series of incremental tariffs on countries where we source our product. In addition, the daily uncertainty as to the level of these tariffs makes it incredibly hard to plan and predict both short and long-term impacts to our business. As we sit here today, we have a well-diversified sourcing mix. To provide some context, our anticipated sourcing mix into the US in 2025 stands at approximately 47% from Vietnam, 17% from Indonesia, 13% each for China and India, and 5% each for Mexico and Cambodia. We are mindful that we're in the midst of a 90-day pause from certain reciprocal tariffs which could further escalate and impact on our sourcing in the countries previously mentioned. One of the primary reasons we've suspended guidance for 2025 is our ability to predict the financial impact of future tariffs. To provide you with a framework, if we assume 10% incremental tariff on all sourcing destinations into the US, this would translate to a cost of approximately $45 million on an annualized cash basis. If the incremental 145% tariff on China remains in place, along with the 10% on all other sourcing destinations, This would imply a cost of approximately $130 million on an analyzed cash basis based on our current sourcing mix. Given the broad range of outcomes that we're facing as a company and as an industry, we're focused on what we can control and on driving long-term value for our brands. In light of the current macroeconomic environment, we have taken swift action to proactively reduce our cost base. Since we last reported, we've identified approximately $50 million of additional savings to be realized in 2025. And we are continuing to evaluate potential actions for future savings, as well as closely managing our inventory levels. While we are encouraged by the performance of our overall business in April, it is challenging to predict how consumers may respond to prolonged uncertainty. It is possible that in the future, we could see softer demand for footwear and other consumer goods, particularly given the potential for increased costs and higher prices across the industry that could further burden an already choiceful consumer. Despite withdrawing our guidance, one thing is certain. We believe our industry-leading gross margins, low unit cost, well-diversified supply chain, global business model, and strong free cash flow position us well to take market share. We are and expect to continue to be very profitable while generating significant free cash flow. We're committed to being transparent with all of our stakeholders as we navigate this current environment. Now turning to the performance by brand, starting with Crocs. First, we're continuing to drive global brand relevance through our icon and icon iterations in addition to introducing new clock franchises. During the quarter, clog growth was led by our classic clog, in addition to growth within established franchises, such as Echo, as well as new franchises, such as InMotion. Hype resonated well with notable success in Asia, led by the classic platform, Bay, and Crush. In China, the Bay, a Hype variation of our clog, was relaunched in partnership with global brand ambassador and Chinese celebrity, TJC. This campaign delivered very strong engagement across our key social and digital channels and an influx of traffic to our stores. Second, we are making clear progress towards introducing product for new wearing occasions outside of clocks. Sandals gained notable share of our business in the quarter, led by Style Sandals, and outperformed the overall Crocs brand. The strength was broad-based across our Style Sandal franchises, including Getaway, our number one franchise, Brooklyn, and Miami. Year-to-date, we are seeing very strong sell-throughs across these core-style franchises, and our strategic accounts are chasing receipts. Into 2025, we tightened our sandal assortment, which has resulted in higher productivity per franchise. As a reminder, we see sandals as an avenue for attracting new consumers to our brands. Over the last 12 months, 54% of consumers who purchased sandals on our own .com channels were new to brand. This performance has translated into incremental shelf space with our retail customers. We're building on these franchises into the summer and through fresh new colors and styles. Third, we remain laser focused on our digitally led social first marketing playbook. as this is a key ingredient to sustaining brand heat. During the quarter, we announced some exciting influences, including our Spring Break Activation with Alex Cooper, top-tier podcast host and Style Maven. This campaign featured our key influences sporting neon classics all over Miami, driving more than 2.5 million social impressions over the weekend. While we introduced a number of partnerships during the quarter, Perhaps the most anticipated drop was our limited release collaboration with Tokyo-based streetwear brand Bape. This release amassed a substantial waitlist ahead of the launch. This release drove an exceptional level of traffic to our websites and app, while garnering nearly 70% new customer acquisition. Turning to social commerce, we are continuing to lead into this phenomenon, as consumers are more frequently starting and completing their shopping journeys on social platforms. TikTok Shop scaled nicely in the quarter and we see it as a halo to our other channels. During the quarter, Croc's brand remained the number one footwear brand on TikTok Shop. And finally, our fourth strategic pillar is to gain market share around the world. In Q1, we achieved 12% revenue growth in international with balanced growth across wholesale and direct-to-consumer channels. China accelerated in the quarter, growing more than 30% as compared to the prior year. The growth in China was well-balanced across channels, including the addition of 40 new partner doors. In April, we secured our second-ever Superbrand Day on Tmall. During the multi-day event, nine of the top 10 footwear styles on the platform were Crocs brand. Our successful activation was complemented by a celebrity and influencer-led livestream, In the quarter, we also saw robust growth in Western Europe, led by France and Germany. Our North American business came in ahead of expectations and was down 3% to prior year. Turning to the Hey Dude brand, we continue to make progress on stabilizing the brand in North America, and I'm very pleased with how the team has executed to deliver a better than expected first quarter. First, starting with the Hey Dude community, we're building a passionate fan base. In February, Hey Dude has its first ever TikTok Shop Superbrand Day, during which Hey Dude ranked as the number one footwear brand across the platform, with particular success in our Austin Lift and Hey 2.0 styles. With an emphasis on her, in March, we activated our Sydney Sweeney Times Office in the Lift Fashion Crisis Hotline campaign under the Beauty is Comfort tagline. The campaign content reached a staggering 8 million consumers, surpassing all internal benchmarks. We also were front and center at the Houston Rodeo, talking to the core HeyDude consumer, and were recognized as the number one brand, dubbed the grand champion of the rodeo for best brand experience. Second, we are building the core and adding more. We iterate on our icons, the Wendy and the Wally, through color, materialization, and partnerships. The three major platforms include Stretch Socks, Stretch Canvas, and Funk Mono. During the quarter, we successfully transitioned out of our legacy Wally Socks program, and the retailer reception of our updated Wally Stretch Socks has been strong. In addition, we released two iterations of our Jelly Roll times Hey Dude Wally. The second Jelly Roll launch started as an early access exclusive release on TikTok Shop, where it sold out completely within the day. When we launched the collab on our own DTC the next day, we saw very high levels of traffic, well above expectations. We also leveraged Travis Hunter, Heisman Trophy winner, and number two 2025 NFL draft pick to launch an improved Hey2O to update an already successful franchise. And finally, against our third strategic pillar, we continue to prioritize brand health as we stabilize the North American market while laying the groundwork for future international growth. We're pleased by the acceleration of our direct-to-consumer channel, up 8% in the quarter. This was supported by a significant improvement versus prior year in our own .com, growing traction of the TikTok shop, and new retail expansion. During the quarter, we opened two premium outlet stores and converted two temporary stores, helping to drive brand awareness and connect consumers with the full expression of our brand. We plan to open approximately 10 stores during the year. ASP for the Hey Jude brand were up low single digits to last year, our seventh consecutive quarter of positive ASP growth. We also saw full price sales in our own .com improve nicely in the quarter fueled by product newness, including the Austin lift and the pool. I will now turn the call over to Susan to provide more detail around our financial performance and how we are approaching the remainder of the year.