Crocs, Inc.

Good day and welcome to the Crocs Third Quarter 2026 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. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star and then two. Also, please note this event is being recorded. I would now like to turn the conference over to Elizabeth Bucard-Peasy, Vice President and Investor Relations. Please go ahead.

Good morning, and thank you for joining us to discuss Cross, Inc.'s third quarter 2026 results. With me today are Andrew Rees, Chief Executive Officer, and Patraic Reagan, Executive Vice President and 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 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, CROPS Chief Executive Officer.

Thank you, Elizabeth, and good morning, everyone. Thank you for joining us today. Before I share our results for the third quarter, I'd like to welcome Elizabeth in her new role as Vice President of Investor Relations. We're excited to welcome her as part of our Crocs team. Now moving to our third quarter results. We delivered a strong quarter of growth across brands, channels, and geographies. Both Crocs and Hey Dude deliver growth driven by execution of our brand strategies while expanding margins year over year through sustained operational discipline. This quarter marks an important inflection for the Hey Dude brand with revenue growth of 6%, which is a direct result of our clear consumer focus and execution against our three pillar growth strategy. The Crocs brand had a record third quarter up 4% Driven by our international business, including growth in all of our Tier 1 international markets and continued momentum across our product diversification strategy. As we stated at the beginning of the year, returning to growth for both brands is a strategic goal we set out to achieve through our disciplined execution and laser focus on the consumer. As a result, we're raising our full year 2026 revenue guidance from up 1% to 2% to up approximately 3%. We remain confident in the long-term trajectory of both of our brands and are committed to executing against our strategic pillars to drive diversified growth. Additionally, we remain confident in our ability to generate significant free cash flow, which we continue to return to shareholders in the form of meaningful share repurchases and debt paydown. While Patrick will discuss our quarterly performance in more detail later, I will start by sharing several financial highlights and then review our progress by brand. During the third quarter, we delivered enterprise revenues of more than $1 billion, up 5% to prior year, driven by both of our brands, with Crocs up 4% and Hey Dude up 6%. Hey Dude returned to growth led by wholesale revenues of 14%, and DTC revenues up slightly. Crossbrand delivered a better than expected Q3 led by international revenue up double digits, including our international direct-to-consumer channel growing 24%. Another quarter of best-in-class profitability with adjusted operating margins expanding 150 basis points to reach 22.3%. Meaningful return of cash to shareholders with approximately 2 million shares repurchased for 250 million and debt pay down of $21 million. Importantly, over the last decade, we have taken our powerful value creation engine and returned meaningful cash to shareholders with approximately $3 billion of share repurchases and 37% reduction in share count. We view this as a true differentiator versus our peers. Now let's move to performance by brand, starting with Crocs. This quarter was another great quarter for the Crocs brand, reflecting strong execution against our five pillar growth strategy. Direct to consumer revenues grew 8% versus prior year, led by our international business, while our diversification strategy continued to gain traction with consumers. We built on the momentum established in the first half of the year driven by strong consumer response to a new product innovation, impactful partnerships, and a differentiated, digitally led approach to commerce and marketing. Turning to our five pillar growth strategy, starting with our first pillar, driving brand relevance globally as the clog market share leader. During the quarter, we broadened our relevance across fashion and sport through both new and existing franchises enabling us to serve a broader range of wearing occasions. Growth in clog iterations such as the Crafted, Crocband, Mellow, and Echo franchises reinforces our conviction that innovation within clogs remains an important lever for future growth. Within Crafted, we saw further momentum as new materializations and seasonally relevant product resonated with consumers, including our vegan suede stitch clog. CrocBand continues to gain momentum globally as we expanded our color options, band innovations, and broadened appeal across both male and female consumers with the addition of our CrocBand Runner. Within Mellow, as we spoke about last quarter, we launched our Recovery Club, which brings Crocs innovation to the recovery category. Lastly, we expanded the Echo franchise with the launch of Echo 2.0, which delivered strong international performance and broadens our brand's reach to a more athletic, sport-inspired consumer. Collectively, the momentum in these clog iterations illustrates how the consumer is increasingly embracing a broader range of clog silhouettes beyond our iconic classic franchise. Within our classic clog, we remain focused on strengthening and protecting the long-term health of our icon. We continue to invest in compelling brand storytelling, innovation, personalization, and partnerships to drive relevance and keep the classic clog at the center of the Crocs ecosystem. Within our kids' business, we had strong classic clog momentum during the back-to-school season and will build on this assortment going forward. Next, our second strategic pillar focuses on scaling outside of clogs through category expansion. We have made tremendous progress against our broader diversification strategy, starting with our Sandals category. The Sandals market represents an estimated $30 billion global addressable market, where we have gained substantial market share and today represent a leading player in this category. Our Sandals business continues to grow double digits, led by our Miami and Saturday franchises, where we attract new consumers, increase purchase frequency, and gain market share. Sandals represents a year-round business for us as we benefit from warmer weather extending beyond summer and internationally we're able to capture demand in counter-seasonal markets. This momentum reinforces our confidence that Sandals continues to represent a significant multi-year growth opportunity for the Crocs brand. Next, within our lifestyle franchise, we have seen strong response globally to new innovations, starting with the ballet flat. Consumer's strong response to our ballet flat demonstrates our ability to capture relevant fashion trends while maintaining the iconic Crocs DNA. Looking ahead, we're testing into line versions of the ballet flat starting in Asia. As we mentioned earlier from a sports lens, we have introduced a closed heel version of our Mellow franchise, giving us another offering within the growing recovery and lifestyle space. As we head into the fourth quarter, and Key Holiday Selling Season, we believe we are well-positioned to capture demand across a broader range of wearing occasions, led by our slippers and line clogs. More specifically, we're building our unforgettable franchise after a successful test season last year, introducing new products such as a platform, the chalet and the outbreak clog. Another key focus of our product diversification strategy is personalization. which is one of our most powerful drivers of consumer engagement and a key differentiator. For many of our consumers, purchasing Crocs shoes is not a one-time transaction, but the beginning of an ongoing journey of personalization and self-expression. As leaders within the personalization space, we're committed to finding new ways for consumers to express themselves. Following the strong response to our sandal charms test we shared in Q2, we're accelerating plans to expand that offering in 2027. To gain further insights into consumers' personalization journey, we opened a new test and learn store, Crocs by You, in Wuhan, China, that is a destination centered around personalization, where we can see firsthand how consumer loyalty and engagement around personalization can evolve. Next, our third pillar for the Crocs brand focuses on fueling consumer engagement through disruptive social and digital marketing. This quarter, our partnerships business continued to reach a wide range of consumer demographics. Key partnerships in the quarter included Dinoco Cars, Yu-Gi-Oh!, and Pendleton. First, our Dinoco Cars program, which celebrated the 20th anniversary of the Cars franchise, featured our Croc band, as well as a Dinoco Cars collectible. The launch of this partnership was initiated at Disney's D23, which drove significant fan engagement. Dynaco Cars was a top-selling global partnership for our business, based on our long history of success with the Cars franchise. Next, we partnered with Yu-Gi-Oh!, a Japanese multimedia franchise centered on a popular trading card game and anime series, which unlocked broad fan engagement. The partnership was led by iterations on our classic clog, paired with an exclusive trading card. And third, we launched a limited edition collaboration with the iconic brand Pendleton. Blending Croc's comfort proposition with vibrant wool colors from Pendleton's woolen mills, this collaboration sold out quickly across both our channels as well as Pendleton's, and more importantly, hailed demand on our new Crafty Clog franchise. Turning to our fourth pillar, we are creating compelling consumer experiences across channels. Social commerce remains one of our strongest competitive advantages and is a meaningful growth driver across regions. Our performance in North America across key partners in the space continues to outperform our expectations, building our leadership position and our ability to integrate content, creators, and commerce in a differentiated way. Internationally, momentum also remains strong with Asia and Europe delivered strong upside during our key shopping events. Notably, this quarter, we maintain our number one footwear brand ranking on TikTok shop in the US, UK, Japan, and most recently, Malaysia. During the quarter, we furthered our testing of AI-enabled shopping experiences across platforms. While early days for agentic shopping, we see it as a critical to be actively involved with all major platforms. We've also leaned into the emergence of AI-powered shopping agents and launched Rivet, Crocs' proprietary AI-powered shopping agent, on our own website to help consumers discover and evaluate products. We're further experimenting and investing early with emerging shopping experiences, including third-party shopper agents, to ensure Crocs is highly discoverable while gaining a deeper understanding of evolving consumer behavior. And finally, our fifth pillar for the Crocs brand focuses on gaining market share internationally. During the third quarter, we saw strong growth across all of our tier one international markets. Starting with China, we launched a global marketing campaign around the Echo 2.0 collection, featuring Olympic table tennis gold medalist Fang Zedong as our brand ambassador. This generated substantial traction in Asia, culminating in 40 billion impressions, further accelerating brand awareness while highlighting the power of authentic ambassadors to engage core consumers. In India, growth was broad-based across both direct and wholesale channels as we capitalized on the virality of our Let Them Talk campaign with local cricketer and celebrity KL Raoul. driving demand across both our mainline Echo product as well as our newly introduced Echo 2.0. As we look ahead, we remain confident in this significant international opportunity for the Crocs brand and our ability to leverage product innovation, personalization, and digital leadership to continue to gain market share across key markets. Now turning to HeyDude. As we communicated earlier this year, we expected HeyDude to return to growth in the second half of the year. I am pleased to report that we achieved this goal with revenues growing 6% this quarter compared to last year. Over the past year, we've consistently improved the trajectory of the HeyDude business, progressing from double-digit declines to now returning to growth. At the same time, we have re-engineered our cost structure and built a stronger financial foundation through higher ASPs, better inventory management and a focus cost efficiencies across the organization. Compared to last year, gross margin increased 350 basis points while SG&A decreased 9%. This performance reinforces our confidence that our three pillar growth strategy is working and we believe that this positions Hey Dude on a stronger financial foundation to unlock sustainable growth. Turning to our first strategic pillar for Hey Dude, We are laser focused on our core consumer. During the quarter, we saw clear signs of positive engagement of our core consumer. We launched the campaign Hooked on Hey Dude, which outperformed prior campaigns and drove meaningful consumer engagement with the brand. Another way we drove engagement during the quarter was through partnerships. During Q3, we launched eight unique collaborations, each one selling out and in turn reinforcing our ability to deliver culturally relevant product to targeted consumers. Starting with Burlabo, an innovative outdoor lifestyle brand, we built upon the success of our viral Q2 Camo collaboration to launch an extended partnership featuring our American flag H2O. This brought Burlabo's distinctive outdoor aesthetic to one of our top silhouettes. Next, we partnered with Buc-ee's, iconic Southern travel destination known for its highly engaged and loyal following. This collaboration sold out in just 24 hours and brought Bucky's distinctive brand identity and passionate fan base to Hey Dude in an authentic, regionally relevant way. Collectively, these launches accelerated awareness, amplified consumer demand, and further solidified our go-to-market partnership model. Next, our second pillar focuses on building the core and thoughtfully adding more. We remain focused on optimizing our core assortment while introducing new product innovation to drive growth and broaden consumer reach. Within our core collection, we are growing key iterations of our icons, the Wally and Wendy, through our stretch socks and jersey programs. Most notably, our braided Wally, which features elevated upper materials, is growing nicely, while our H2O, the water-friendly slip-on evolution of the Wally, continues to perform strongly. Beyond our core collection, our sandals business has outperformed our expectations, as well as also diversifying our product offering. Going forward, we see sandals as a strategic growth driver for our business into 2027. Additionally, we have seen success in our work category through leading silhouettes, the Wally CE and the Bradley Compto boot. For our core consumer, this category is a natural add-on, and we believe we can keep taking meaningful market share in the work segment. As we move into the fourth quarter, we'll focus on our seasonal newness across our Easy Boot collection. Our boots franchise has been led by our new Bradley II silhouette that gives the consumer an easy on-and-off boot at a compelling value. Our boots for our female consumer has also driven excitement, led by the Remy. Both of the examples I have just shared were redesigned for comfort and durability, featuring lightweight construction and new tooling. And lastly, heading into the holiday, we're building on our success with seasonal products such as slippers. Moving to our third and last strategic pillar, we are focused on stabilizing the North American marketplace while planting seeds internationally. Our return to growth during the quarter, coupled with international momentum, reflects the meaningful progress we've made against this strategic pillar. Our return to growth in North America was driven by wholesale, which grew 14%, reflecting our progress in building deeper wholesale relationships and driving increased order volumes as partners expand their commitment to our brand. At-once demand was stronger than anticipated as retailers reordered key products and sold through faster than expected. Within our direct-to-consumer business, we're focused on driving higher full price selling and seeing ETVs as well as conversion improve within our retail stores year-to-date. We're encouraged by the trajectory of HeyDude and the way the team is executing across our prioritized strategies. The work we did over the past 12 months to clean up the marketplace, focus on our core consumer and sharpen our marketing created short-term pressure but is now translating into a broader base growth opportunity. Building the success of the quarter, we're excited about what lies ahead for HeyDude In many ways, we're just getting started. To conclude my remarks, we remain focused on finishing the year strong by executing the strategies that drive diversified, sustainable growth across our brands, channels, and geographies. These efforts are underpinned by consumer-led innovation, scalable global platforms, and a disciplined financial model. We remain confident in the long-term trajectory of both brands and our ability to generate significant free cash flow and ultimately Shareholder Value. I will now turn the call over to Patrick.