Crocs, Inc.

Please note that 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. second 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 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 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 Rees, Crofts Inc. Chief Executive Officer.

Thank you, Erin, and good morning, everyone. Thank you for joining us today. Our teams delivered a solid second quarter fueled by top-line growth and a highest-ever quarterly gross profit, which drove strong free cash flow in the midst of what continues to be a volatile marketplace. I will start by highlighting the key metrics of the quarter, and then discuss the strategic rationale behind the decisions we have made to drive profitability and support long-term brand health. And finally, we'll touch on deeper insights on our individual brands. At an enterprise level, second quarter revenues of $1.1 billion grew 3% to prior year. Cross-brand revenues of $960 million grew 4% to prior year, led by 16% international growth. Adud revenues of $190 million, down 4% to prior year, and an improvement from the first quarter. Enterprise adjusted gross margins of 61.7% gained 30 basis points to our prior year. Adjusted operating margin of approximately 27% supported adjusted diluted earnings per share of $4.23, a gain of 5% to prior year. A strong margin profile fueled free cash flow of $269 million, enabling us to repurchase 1.3 million shares and repay $105 million of debt. Our net leverage ended the quarter at the lower end of our target range of 1 to 1.5 times. To remind everyone, over the last decade, we have deployed $2.4 billion to buy back approximately 30% of our total shares outstanding. This, along with continued deleverage of our balance sheet, has been a consistent driver of EPS growth and shareholder returns. Turning now to the current operating environment, we see the US consumer behaving cautiously around discretionary spending. They are faced with current and implied future price increases, which we think has the potential to be a further drag on an already choiceful consumer. Against this backdrop, our retail partners are acting more carefully and reducing their open-to-buy dollars in future seasons. As we have consistently said, we are not trying to manage our business quarter to quarter. We had a solid first half of the year, with our brands fueling strong gross profit and cash flow. The current environment in the second half is concerning, and we see that clearly reflected in retail order books. We strongly believe this is a time to make bold decisions for the future to sustain and advance our durable cash flow model. As a result, we have chosen to amplify certain measures in the second half of the year to protect brand health and profitability. For the cross-brand, in addition to adjusting our forward receipts, we pull back on promotional activity across the direct channels starting in May. While this has and will continue to impact our top line, we see this as an opportunity to drive margin dollars over time, support continued cash flow generation, and tighten brand control. For the Hey Dude brand, we've accelerated our actions in the channel to support a clean and refreshed marketplace. This has resulted in us choosing to take back additional aged inventory and ensure more of our partners are reset with our current product lines. This will create further headwinds to sales volume over the next several quarters. From an expense perspective, we've already actioned $50 million of cost savings and are identifying further cost savings opportunities. As it relates to inventory, we've opted to plan our business conservatively. We're actively pulling back on receipts across both brands for the second half, primarily in the US. Without losing sight of the bigger picture, I want to remind everyone that over the last three years, we have made significant progress in diversifying our business, which will serve as a strong foundation to enable long-term sustainable growth. One, we've moved from one brand to a two brand enterprise, fortifying our leadership within the casual footwear segment. Two, we've diversified our clog offering and have six major franchises that make up the majority of our clogs business. In addition, We've developed strong sandals and personalization pillars that will offer unique wearing occasions and enable self-expression. Three, we've accelerated our international growth business, which has grown from 38% of Crocs brand sales in 2022 to 52% in the second quarter. Collectively, this diversification should fuel durable, long-term growth for years to come. Now turning to performance by brand. For the Crocs brand, all of our key product pillars, clogs, sandals, and gibbets charms grew in the second quarter. Clog iterations and emerging franchises drove growth within the clog category, including Echo, Bay, and InMotion. These results exemplify that when we deliver new innovation with clear storytelling through our marketing channels, the consumer responds with strong engagement. In Asia, clog, personalization, and height continues to resonate well. Outside of clogs, sandals continue to yield strong results, providing new, versatile wear and occasions for our consumer. During the quarter, we saw notable strength across our style franchises, which include the Brooklyn, Getaway, and Miami. As we moved into the summer season, the Miami went viral on TikTok, and we were chasing demand. Our consumer is responding well to neutrals and new materialization, including glitter and patent finishes. As we look forward, the success of these three franchises is translating into shelf space gains, and we're adding new collections, such as a Soho sandal next spring. Within personalization, our Gibbets charms growth continues to be driven by distribution expansion in our international markets, improved in-store presentation, and success around elevated charms. We remain laser focused on our digital-led social first marketing playbook, as this is a key ingredient in sustaining brand heat. In addition to bringing back franchise favorites like cars, Pokemon and Minecraft planterships were also standouts in the quarter. We furthered our connection to sport, growing our NIL athlete roster with first-round NFL draft picks Jackson Dart and Ashton Genting, who notably wore our Swarovski crystal studded Crocs clogs on the red carpet. We continue to lean into social commerce as consumers more frequently start and end their shopping journeys on social platforms. During the quarter, Crocs remained the number one footwear brand on TikTok shop in the U.S., and we recently launched on this platform in the U.K., where results have been strung out of the gate. Our plan is to continue to expand social commerce and live streaming platforms globally, and we expect this to drive new growth opportunities. Turning to performance by regions. Our growth in the quarter was led by our international business, which registered revenue growth of 16%, led by the direct-to-consumer channel. Our international business represented more than half of our Crocs brand revenue mix this quarter. In China, we reported another quarter of strong revenue growth in excess of 30%. During the quarter, Crocs brand outperformed during mid-season festival, placing Crocs among the leading women's footwear brands on both Tmall and Douyin. We're deepening our connections with consumers through our roster of locally relevant celebrities and KOLs, including brand ambassador and actress Bai Lau and actor TJC. India saw double digit revenue growth in the quarter with outsized consumer demand across our classic clog and sandal franchises. We welcomed Reshmika Mandana as our first brand ambassador in India. An inaugural Instagram post garnered over 400 million views. Japan grew nicely during the quarter, and Western Europe continued to perform strongly, led by France and Germany. Our North American business was down 6% the prior year as we pulled back on discounting on our DTC channels, most notably on clogs. We continue to see sandals as a growth vehicle, increasing double digits in the quarter as we further diversify our business. Last week, we held the grand opening of our newest retail concept in Soho, New York. This store houses our largest personalization experience to date with expanded and upgraded Jivit's Charms opportunities. In addition to our mainline product, consumers can find New York exclusive products as well as a dedicated assortment of elevated EXP product line with dynamic digital storytelling. Turning to the HeyDo brand, we've been focused on three core pillars of our strategy. One, igniting the Hey Dude community. Two, driving the core and adding more. And three, prioritizing brand health as we stabilize the North American market. First, we've continued to ignite the Hey Dude community. Over the past 12 months, we've been focused on speaking to a new female consumer while not losing sight of our core consumer. The cumulative impact of our marketing efforts over this period have resulted in an increase in hated awareness to 35% in North America. In addition to an uptick in awareness, we've also seen improvement in consideration and purchase intent. With these advancements, HeyDo is now poised to further engage our core consumer. In June, we launched our latest campaign, HeyDo Country. This campaign is rooted in authenticity and plays into several of our brand affinities, including music, pre and post sport, and travel. We're excited about the future of this campaign and its broad appeal to our existing core consumer, as well as new Hey Dude fans, both him and her. Second, we're building the core and adding more. During the quarter, we iterated on our icons, the Wally and the Wendy, through color, materialization, and partnerships. In June, we leveraged our icon to release the Hey Dude x Pat's Blue Ribbon collection, which sold out on our own .com. We also partnered with Margaritaville to release a collaboration featuring our Hay 2.0 collection, which speaks to the core Hay dude consumer. Lastly, we launched a Paul Pro, an elevated iteration of our best-selling Paul silhouette at an $80 price point. 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 were pleased by continued growth of our direct-to-consumer channel, up 7% in the quarter. This was supported by our new store openings and strong performance on TikTok. While we are pleased with the strategic progress we have made against our three pillars, we have identified further opportunities to more rapidly reset our North American business. We have focused our efforts against two primary actions. One, we pull back on bottom-of-the-funnel performance marketing investment to enable a more profitable digital business. And two, we've initiated incremental returns and markdown allowances to our retailers to improve the health of our imagery in the marketplace. This will simultaneously elevate our brand presentation at wholesale. While these measures will have a meaningful impact to the second half performance across both channels, we feel that they will stabilize the business more quickly. In closing, we believe the HeyDude brand potential and its community are much greater than the size of the business today. And we're confident that the critical steps we're taking will fuel the potential in the future. I will now turn the call over to Susan to provide more detail around our second quarter financial performance and third quarter outlook.