Crocs Q2 2025 Earnings Report

Crocs EPS Results

• Actual EPS: $4.23
• Consensus EPS: $4.01
• Beat/Miss: Beat by +$0.22
• One Year Ago EPS: $4.01

Crocs Revenue Results

• Actual Revenue: $1.15 billion
• Expected Revenue: $1.15 billion
• Beat/Miss: Beat by +$2.44 million
• YoY Revenue Growth: +3.40%

Crocs Announcement Details

• Quarter: Q2 2025
• Date: 8/7/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 8:30AM ET

Crocs (NASDAQ:CROX), together with its subsidiaries, designs, develops, manufactures, markets, distributes, and sells casual lifestyle footwear and accessories for men, women, and children under Crocs and HEYDUDE Brand in the United States and internationally. The company offers various footwear products, including clogs, sandals, slides, flips, wedges, platforms, socks, boots, charms, flip flops, sneakers, and slippers. It sells its products through wholesalers, retail stores, e-commerce sites, third-party marketplaces, and kiosks/store-in-store locations. Crocs, Inc. was founded in 1999 and is headquartered in Broomfield, Colorado.

Crocs Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q2 enterprise revenue grew 3% to $1.1 B with record quarterly gross profit and $269 M in free cash flow, enabling repurchase of 1.3 M shares and $105 M of debt paydown.
• Positive Sentiment: Crocs brand revenue rose 4% to $960 M, driven by 16% international growth, while ADUDE brand narrowed its decline to 4% year-over-year.
• Positive Sentiment: Enterprise adjusted gross margin expanded 30 bps to 61.7% and adjusted operating margin reached ~27%, supporting a 5% increase in adjusted EPS to $4.23.
• Negative Sentiment: For Q3, the company forecasts a 9%–11% revenue decline amid cautious consumer spending and wholesale order reductions, with adjusted operating margin expected at 18%–19%.
• Neutral Sentiment: Management is cutting promotions, tightening second-half inventory receipts and has identified over $50 M of cost savings to protect long-term brand health and profitability.

Presentation

[Operator]

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.

[Erinn Murphy, SVP - IR & Strategy at Crocs]

Good morning and thank you for joining us to discuss Crocs Inc. Second quarter results. With me today are Andrew Reiss, 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.

[Erinn Murphy, SVP - IR & Strategy at Crocs]

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 ks, 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.

[Erinn Murphy, SVP - IR & Strategy at Crocs]

At this time, I'll turn the call over to Andrew Rees, Crocs Inc. Chief Executive Officer.

[Andrew Rees, CEO & Director at Crocs]

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 our 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.

[Andrew Rees, CEO & Director at Crocs]

At an enterprise level, second quarter revenues of $1,100,000,000 grew 3% to prior year. Crocs brand revenues of $960,000,000 grew 4% to prior year led by 16% international growth. ADUDE revenues of $190,000,000 down 4% to prior year, 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.

[Andrew Rees, CEO & Director at Crocs]

Our strong margin profile fueled free cash flow of $269,000,000 enabling us to repurchase 1,300,000.0 shares and repay $105,000,000 of debt. Our net leverage ended the quarter at the lower end of our target range of one to 1.5 times. To remind everyone, over the last decade, we have deployed $2,400,000,000 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.

[Andrew Rees, CEO & Director at Crocs]

We see The U. S. 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.

[Andrew Rees, CEO & Director at Crocs]

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.

[Andrew Rees, CEO & Director at Crocs]

For the Crocs brand, in addition to adjusting our forward receipts, we pulled 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 Heyduke 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.

[Andrew Rees, CEO & Director at Crocs]

From an expense perspective, we've already actioned $50,000,000 of cost savings and are identifying further cost savings opportunities. As it relates to inventory, we've opted to plan our business conservatively proactively pulling back on receipts across both brands for the second half primarily in The U. S. 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.

[Andrew Rees, CEO & Director at Crocs]

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.

[Andrew Rees, CEO & Director at Crocs]

For the Crocs brand, all of our key product pillars clogs, sandals and Jibbitz Charms grew in the second quarter. Clog iterations and emerging franchises drove growth within the clog category, including Echo, Bay and Emotion. These results exemplify that when we deliver new innovation with clear storytelling through our marketing channels, the consumers respond 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 wearing occasions for our consumer.

[Andrew Rees, CEO & Director at Crocs]

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 Jibbitz charms growth continues to be driven by distribution expansion in our international markets, improved in store presentation and success around elevated charms.

[Andrew Rees, CEO & Director at Crocs]

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 partnerships 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 Genti, who notably wore our Swarovski crystal studded Crocs clogs on the red carpet. We continue to lean into social comments 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.

[Andrew Rees, CEO & Director at Crocs]

S. And we recently launched on this platform in The U. K. Where results have been strong 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.

[Andrew Rees, CEO & Director at Crocs]

Turning to performance by region. 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 Douyuan.

[Andrew Rees, CEO & Director at Crocs]

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 Reshmeka Mandana as our first brand ambassador in India, an inaugural Instagram post garnered over 400,000,000 views. Japan grew nicely during the quarter and Western Europe continues to perform strongly led by France and Germany. Our North American business was down 6% to prior year as we pulled back on discounting on our DTC channels, most notably on clogs.

[Andrew Rees, CEO & Director at Crocs]

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 Jibbitz 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 Heydoo brand, we've been focused on three core pillars of our strategy: one, igniting the Heydoo community two, driving the core and adding more and three, prioritizing brand health as we stabilize the North American market.

[Andrew Rees, CEO & Director at Crocs]

First, we've continued to ignite the Hey Dude community. Over the past twelve 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 aided 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, Heidou is now poised to further engage our core consumer.

[Andrew Rees, CEO & Director at Crocs]

In June, we launched our latest campaign, Heidou 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.

[Andrew Rees, CEO & Director at Crocs]

In June, we leveraged our icon to release the Hey Dude x Patch Blue Ribbon collection, which sold out on ourown.com. We also partnered with Margaritaville to release a collaboration featuring our Hey2O collection, which speaks to the core Hey Dude consumer. Lastly, we launched the 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.

[Andrew Rees, CEO & Director at Crocs]

This was supported by our new store openings and strong performance on TikTok. While we are pleased with the strategic progress we've made against our three pillars, we have identified further opportunities to more rapidly reset our North America business. We have focused our efforts against two primary actions. One, we pulled 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 inventory in the marketplace.

[Andrew Rees, CEO & Director at Crocs]

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 Hadoop 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.

[Susan Healy, Executive VP & CFO at Crocs]

Thank you, Andrew, and good morning, everyone. Our second quarter enterprise revenues of $1,100,000,000 were up 3% prior year. Fox brand revenue of $960,000,000 was up 4% to prior year. Growth was led by wholesale up 6%, while DTC was up 3%. North America revenues were down 6% to last year as we pulled back on discounting during the quarter.

[Susan Healy, Executive VP & CFO at Crocs]

These actions in part drove DTC down 8%, while wholesale was down 4%. International revenue was up 16%, aided in part by timing shifts out of Q3 and into Q2 in select markets. China and India led the growth, while Japan and Western Europe also contributed strongly to these results. Asia brand revenue of $190,000,000 was down 4% prior year, an improvement from the prior quarter. DTC was up 7% driven by the contribution of new retail stores and our strong performance on TikTok shop.

[Susan Healy, Executive VP & CFO at Crocs]

Wholesale was down 13% in the quarter. Enterprise adjusted gross margins of 61.7% were up 30 basis points to prior year. Crocs brand adjusted gross margin of 64.1% was approximately flat to prior year. Hated brand adjusted gross margin of 50.2% was up 110 basis points to prior year, primarily due to distribution and logistics efficiencies. Adjusted SG and A dollars for the quarter increased 12% versus prior year.

[Susan Healy, Executive VP & CFO at Crocs]

Adjusted SG and A rate was 34.7%, up two seventy basis points compared to prior year, driven by incremental investments in talent, DTC and marketing. This excludes the non cash impairment charge of $737,000,000 on Heydude's intangible assets. This impairment comes as a result of a longer than expected timeline to stabilize the Heydoo brand and return it to growth due in part to a weaker U. S. Consumer and the disproportionate impact of tariffs on Heydoo product.

[Susan Healy, Executive VP & CFO at Crocs]

Adjusted operating margin of 26.9% was down two forty basis points compared to prior year. Adjusted diluted earnings per share of $4.23 was up 5% to last year. Our non GAAP effective tax rate was 17.7%, which reflects the tax impact of intra entity transactions and excludes the impact of the Haydou impairment. Our inventory balance as of June 30 was $4.00 $5,000,000 up 7% to prior year in part due to the elevated cost of inventory from tariffs. Enterprise inventory turns remained above our goal of four times on an annualized basis.

[Susan Healy, Executive VP & CFO at Crocs]

Our liquidity position remains strong comprised of $2.00 $1,000,000 of cash and cash equivalents and $784,000,000 of borrowing capacity on our revolver. During the quarter, we repurchased approximately 1,300,000.0 shares of our common stock for a total of $133,000,000 at an average cost of approximately $102 per share. In the first half of the year, we repurchased 1,900,000.0 shares or 3% of our outstanding shares. We had $1,100,000,000 remaining on our buyback authorization as of the end of Q2. We ended the quarter with total borrowings of $1,400,000,000 and net leverage at the lower end of our target range of one to 1.5 times.

[Susan Healy, Executive VP & CFO at Crocs]

Before I discuss our outlook, I want to briefly touch on tariffs. Last week, The U. S. Extended the pause period on a series of incremental tariffs on countries in which we source our product. While we can't predict future tariff changes, we are planning our business at the current rates.

[Susan Healy, Executive VP & CFO at Crocs]

The impact from these incremental rates equates to approximately $40,000,000 in the 2025 and approximately $90,000,000 on an annual basis based on our current sourcing mix. Now moving to our outlook. It continues to be difficult to fully project the financial implications of changing global trade policies as well as to predict how consumer sentiment and purchasing patterns will evolve. Therefore, we are not reinstating full year guidance at this time. However, we would like to provide some visibility for the third quarter.

[Susan Healy, Executive VP & CFO at Crocs]

For Q3, we expect consolidated revenues to be in the range of down 9% to 11% at currency rates as of August 4. This revenue range is based on the visibility we have to orders from our wholesale partners, a reduction of discounts in our cross DTC channels, the pullback of performance marketing for Heydude, the incremental cleanup actions we have elected to take for Heydude as well as the potential range of outcomes against a weakening U. S. Consumer backdrop. Within this range, we expect the Crocs brand to be down mid single digits, led by declines in North America, offset in part by growth in international.

[Susan Healy, Executive VP & CFO at Crocs]

This includes our expectation that the second half wholesale environment will be challenging for both brands based on the visibility we have in our current order books. Adjusted operating margin is expected to be in a range of 18% to 19% including an anticipated approximate 170 basis point impact from tariffs and deleverage of expenses tied to our reduced revenue outlook. We plan to continue to buy back stock and pay down debt while remaining within our target net leverage range of one to 1.5 times. Based on the current environment, we are rapidly actioning additional cost saving measures across the enterprise in Q3. I will now turn the call back over to Andrew for his final thoughts. Thank you, Susan.

[Andrew Rees, CEO & Director at Crocs]

While the current environment has created uncertainty for the industry and for our consumers, I'm confident that the increasingly diversified source of growth we are developing and the strategic actions we are taking will position our brands for consistent and profitable long term growth. At this time, we'll open the call for questions.

[Operator]

And our first question today will come from Jonathan Komp with Baird. Please go ahead.

[Jonathan Komp, Senior Research Analyst at Robert W. Baird & Co]

Yes. Hi, good morning. I want to start just by asking about Crocs North America and the outlook for Q3. I'm hoping you might be able to better isolate some of the unique factors impacting Q3 versus what might be lasting? And then as you look forward, especially into 2026, I know you've made some changes at the organization at the Chief Brand Officer level, Chief Strategy position.

[Jonathan Komp, Senior Research Analyst at Robert W. Baird & Co]

So just as you look forward beyond the next couple of quarters, could you give us more sense of the pipeline and the strategy in terms of reinvigorating the excitement for the brand?

[Andrew Rees, CEO & Director at Crocs]

Great. Thank you, John. I think as you look to the back half of the year for the Crocs brand in North America, there's a number of things affecting the business. Some choices that we have made, which we think will be productive in the long term and also some market related factors. Our consumer is an incredibly broad based consumer.

[Andrew Rees, CEO & Director at Crocs]

If you look at our demographics and who we sell to for the Crocs brand, it's essentially the general population. So, as you look at the general population, there is a portion of that consumer base, which we I think is ample evidence that they are super cautious. They're not purchasing. They're not even going to the stores and we see traffic down. So we're certainly affected by that and we see that flowing through into our back half in terms of really our wholesale business and a little bit of our outlet business where we see that lower end consumer.

[Andrew Rees, CEO & Director at Crocs]

So we see our order books down and we see a trajectory for our wholesale business. That is unintended and not necessarily out of our control, but that is what it is. I think the second piece is our decision to pull back on discounting on the Crocs brand in North America in particular and that is effect that is an intentional decision we made. That's a revenue headwind, but a gross margin and ultimately an EBIT potential. We think that's important to do that because as we looked at the trajectory and the discounting over time, we saw it increasing and we think that is detrimental to the long term health of the brand.

[Andrew Rees, CEO & Director at Crocs]

So that's really I think when you kind of look at the North American market. What I would say is we've got consumer innovation coming into the market. We've seen a strong trajectory in the past in the summer season from our sandal business. We think that grows next year. We see new product innovation on clogs and sandal coming clogs coming in the fourth quarter.

[Andrew Rees, CEO & Director at Crocs]

We have, I think, significant product innovation on sandal in the first half of next year and we're continuing to accentuate and grow our personalization business both in Jibbitz and expanding that beyond Jibbitz into a broader personalization offering. I would also add that in Q2, Q2, we saw strong international growth for the Crocs brand and obviously growth overall. And I think we've talked about repeatedly that we see international as a continued important growth driver for the brand. And the other thing you referenced was some personnel changes to strengthen our management team. I think we feel really good about those.

[Andrew Rees, CEO & Director at Crocs]

Terence is getting settled as the Chief Brand Officer of both brands, I think and driving the level of energy and creativity, which we're excited to see come to market. And we've strengthened our sort of growth and transformation with the addition of a strategy and growth officer. So, we feel great about the team. I think it's going to be a difficult period to navigate in the next half year for the Cross brand in North America, but we think we're doing the right things for the long term potential of the brand.

[Jonathan Komp, Senior Research Analyst at Robert W. Baird & Co]

Okay, great. I appreciate all that color. Just two follow ups if I could. Do you think in some of your core family channels are you losing share in the order book at all as larger competitors come back with emphasis on the channel? And then just any more detail on protecting the profitability.

[Jonathan Komp, Senior Research Analyst at Robert W. Baird & Co]

I don't know if you were surprised by the magnitude of the revenue slowdown just given the size of the deleverage that you're implying for Q3. It looks hard to see where you're seeing progress on protecting profitability just based on the Q3 outlook alone? Thank you.

[Andrew Rees, CEO & Director at Crocs]

Got it. Yes, that makes sense. So yes, I think if you look at the, I think what you're referencing, we do see an athletic trend in the marketplace. I think everybody is well aware of that, talked about that. There is a I think a clear athletic trend that consumers migrating back towards athletic.

[Andrew Rees, CEO & Director at Crocs]

We know that is a cyclical trend. And as we look at some key athletic events coming up, we do think that will persist for a while. You've got the World Cup next year. You've the LA Olympics in a couple of years. And I think the athletic brands are building innovation into that, which they typically do.

[Andrew Rees, CEO & Director at Crocs]

So that's a little bit of a headwind. I think we can fight that headwind in the long term. And we also know that our brand is well positioned against pre and post sport. So I think athletic headwind is providing some pressure on open to buy combined with the consumer uncertainty of that very broad consumer base. In terms of protecting profitability, yes, think there's a couple of things.

[Andrew Rees, CEO & Director at Crocs]

If you look at Q3, 170 basis points of the deleverage are tariffs. And obviously that will continue into 2026 and beyond. I think in her prepared remarks, Susan gave you some good color on what that looks like. And in terms of, I think I'm anticipating that Q3 is a bit of a low spot in our EBIT potential. We've taken out $50,000,000 of cost savings already.

[Andrew Rees, CEO & Director at Crocs]

Some of those are spread between gross margin and SG and A. And we will look and we are currently engaged in an extensive process to drive incremental cost savings or incremental SG and A reductions throughout the remainder of the year.

[Jonathan Komp, Senior Research Analyst at Robert W. Baird & Co]

Okay. Thanks again.

[Andrew Rees, CEO & Director at Crocs]

Thank you.

[Operator]

And our next question will come from Chris Nardone with Bank of America. Please go ahead.

[Chris Nardone, Director - Equity Research at Bank of America]

Thanks guys. Good morning. So first, are you seeing anything in your Crocs International business that is implying a material step change for your back half outlook relative to the mid teens growth in the most recent quarter? And then on your global Crocs Direct business, is the slowdown that you're embedding in your 3Q guidance, is that matching what you're seeing? Or are you baking in a scenario where sales continue to sequentially get worse throughout the rest of the quarter?

[Andrew Rees, CEO & Director at Crocs]

Okay. Let me answer the international piece. I'm going to come back to you on the DTC piece. I didn't quite understand what you're asking there. So from an international perspective, there are always a kind of few puts and takes between quarters, particularly around your distributor business and you're probably well aware our distributor business is substantial.

[Andrew Rees, CEO & Director at Crocs]

And so but in the long run, a mid teens growth trajectory for our international business, we feel very good about that. I think we've highlighted in prepared remarks strong growth in China, really successful mid season festival, strong growth in India, another large a very large potential market, good performance in Western Europe, and actually a return to growth in Japan, which we're also excited about. So I think our international business remains really important to us. It is going to be a driver of growth. I would also highlight in Q2, it was the majority of our Crocs business, right?

[Andrew Rees, CEO & Director at Crocs]

We passed the 50% mark in terms of the international business being bigger than our domestic business. I think puts and takes between quarters will be kind of around that longer term trajectory. The second piece, I'm not 100% clear what you were asking there.

[Chris Nardone, Director - Equity Research at Bank of America]

Yes. So I'm just trying to get a sense of I know you're not guiding 3Q by channel, by region per se, but we're a little over a month into the quarter. It sounds like that looks getting a little bit worse. Are you baking in things sequentially getting worse as we move through the quarter? Or are you kind of calling the 3Q guidance based on the trend you're seeing as of today, the first couple of weeks of the quarter?

[Andrew Rees, CEO & Director at Crocs]

Yes. We're not baking in it getting sequentially worse as it goes through the quarter. From now, we do think the back half is worse than the first half, right, based on the things I talked about earlier. So, do we see it sequentially declining from sort of our July trajectory as we go through the year? We're not anticipating that.

[Andrew Rees, CEO & Director at Crocs]

I think there is an element of cautiousness and we recognize the consumer is pretty unpredictable, particularly here in the North America. We do see sort of fairly significant fluctuations week to week. So I think we've got some cautiousness embedded in it, but we haven't embedded a downward trajectory month over month from now.

[Chris Nardone, Director - Equity Research at Bank of America]

Got it. That's very clear. Then just to sneak one more in, just on margins, I just wanted to get a sense of how you're thinking about taking price for both plans for both brands and what's included in your margin guidance in terms of mitigation strategies around tariffs. It sounds like you're pulling back on promos and DTC, which is leading to lower volumes. So I'm just wondering if that's making you rethink whether you think you can take price across both brands?

[Andrew Rees, CEO & Director at Crocs]

Yes. I mean, this is a so I think we can over the medium term mitigate the impact of tariffs. That will come from cost savings in our supply chain, both negotiations with factories, which I don't think is a huge amount, but is there's some there, but also just efficiency drive within our supply chain. It will come from some price and it will come also from some reduction in SG and A through again looking much harder and driving to efficiency. In terms of your specific question around price, we have selective actions planned, some in the back end of this year for Hey Dude.

[Andrew Rees, CEO & Director at Crocs]

We are getting some net price as you pointed out through reduction in discounting and we have we will be announcing some price increases on Crocs both in select styles and also in some of our international markets where we think we have opportunities. So we're going to, I think, be very strategic about where we get price. We don't think this is a market that we can be taking all of our prices up by a certain amount to simply mitigate the tariffs. I don't think that's realistic given where our brands sell and the very broad base of our consumer base.

[Chris Nardone, Director - Equity Research at Bank of America]

Very clear. Good luck.

[Andrew Rees, CEO & Director at Crocs]

Thank you.

[Operator]

And our next question will come from Adrienne Yih with Barclays. Please go ahead.

[Adrienne Yih, MD & Consumer Discretionary Analyst at Barclays]

Great. Good morning, and thank you very much for taking my question. Andrew, I guess my question is given the down 9% to 11%, how much of that is due to kind of the wholesale pullback? Is that a reaction to the front order book or is that more of a proactive management given kind of everything that you know about what's happening and potentially with the consumer kind of demand environment? And how do you think about philosophically balancing that with the risk of losing shelf space in the marketplace?

[Andrew Rees, CEO & Director at Crocs]

Right. So I would say the guide embeds the order book for both brands, right? So we've been it's not we're not anticipating an erosion of order book. It embeds the order book where it sits today. And I would say it also embeds conservative assumptions around returns or cancellations, right? So we're definitely I think being very cautious about how we're anticipating the market flowing out over the next six months and how the consumer is going to react. In terms of shelf space, I think in response to John's question, I think in some channels of wholesale distribution, we are losing shelf space relative to other brands, relative to the athletic brands.

[Andrew Rees, CEO & Director at Crocs]

And I think we are working to make sure that we drive incremental shelf space with sandals. We certainly picked up shelf space in the summer with sandals. We think we will pick up more shelf space in sandals next year. But a significant part of our clogs business is done through our DTC channels, right? It's done through our retail stores and our digital channels.

[Andrew Rees, CEO & Director at Crocs]

And obviously, think we're maintaining market share through those channels.

[Adrienne Yih, MD & Consumer Discretionary Analyst at Barclays]

Okay, great. And then just clarifying question, you said that within that guidance of down 9% to 11%, if I heard correctly, would be down mid single digits.

[Andrew Rees, CEO & Director at Crocs]

Correct.

[Adrienne Yih, MD & Consumer Discretionary Analyst at Barclays]

So Hey Dude! Will then kind of go kind of the trajectory of Hey Dude! Will worsen pretty significantly. Is that are you seeing more of this wholesale kind of pullback and more of the actions, the reset actions at the wholesale brand?

[Andrew Rees, CEO & Director at Crocs]

Yes. I think the principal driver of that leg down for Hey Dude is the actions that we decided to take, right? The first is the reset of some inventory in the wholesale and that's pretty significant and that will be done essentially in Q3. So that's a meaningful amount. And the second is the reduction of marketing, so performance marketing on our digital channels where we've seen that creep up over a number of quarters and we've got to a point where the marginal profitability was really not bad.

[Andrew Rees, CEO & Director at Crocs]

So we took an opportunity to we took a tough decision to reset that. So it's principally due to those two things. I wouldn't say the wholesale trajectory, an order book trajectory is dramatically worse than Crocs is a little bit below, but those are the two biggest things.

[Adrienne Yih, MD & Consumer Discretionary Analyst at Barclays]

Okay. Thank you. And then two clarifying questions for Susan. When you say the current tariff environment, you mean the August 1, right? All that whole litany of kind of new numbers for all the different separate countries, is that kind of the new $90,000,000 annual growth unmitigated?

[Adrienne Yih, MD & Consumer Discretionary Analyst at Barclays]

And then secondarily, the inventory up 7%, how much of that is now due to the cost of tariff? Thank you very much.

[Susan Healy, Executive VP & CFO at Crocs]

Yes. So on the first part of your question, yes, that is an up to date number, I think, as of hot off the presses. That includes everything that we heard as of August plus I think there was a there's a 50% tariff on India that we have incorporated in that number. India is a meaningful but not the largest country from which we source exports to The U. S.

[Susan Healy, Executive VP & CFO at Crocs]

And then your second part of your question was about inventory, up 7%. We don't break that out, but a meaningful portion of that is the cost of the tariffs and we capitalize that in our inventory and recognize that as we sell the product.

[Adrienne Yih, MD & Consumer Discretionary Analyst at Barclays]

Okay. Thank you very much and best of luck. Thanks for all the information.

[Operator]

And our next question will come from Ana Andreeva with Piper Sandler. Please go ahead.

[Anna Andreeva, MD & Senior Research Analyst at Piper Sandler Companies]

Great. Thanks so much. Good morning, guys. Just a follow-up on the pullback in promotional activity at Crocs in North America. Did you quantify that impact in the second quarter or how we should think about that for 3Q?

[Anna Andreeva, MD & Senior Research Analyst at Piper Sandler Companies]

And we still see Crocs around promotions around big events, whether it was Memorial Day or July 4 weekend. So just trying to understand how we should think about the magnitude of that pullback manifesting? And then secondly to Andrew, on the shelf space losses to athletic, just trying to understand athletic space has been strong for some time now. Why do you think your losses are accelerating now?

[Andrew Rees, CEO & Director at Crocs]

Got it. So, we haven't quantified in dollars the amount of the pullback relative to the reduction in discounts. But what I could say, if you look at Q2, is a down essentially almost 6%, right, for North America for Crocs. If we had, I think not made that decision, it would have been down slightly. So it was a pretty meaningful impact.

[Andrew Rees, CEO & Director at Crocs]

And yes, think to your question, will we still run, I would say competitive discounts and promotional events around key events? Absolutely, we will. But we are being careful about the depth and the breadth of those events and also making sure that we do not running significant events between those time periods. So it is a very meaningful change in terms of dollars that we are foregoing in North America for future health of the brand. And the second point, I'm not sure I agree with you, right, in terms of the athletic trend.

[Andrew Rees, CEO & Director at Crocs]

I think there are some high end athletic brands that have been performing very strongly in North America for some time, but they are selling at high prices and are principally selling to an elevated consumer. I think the broader athletic trend that hits the broad consumer base that we service has accelerated. And that is I think principally due to some of the big players re embracing a broader distribution strategy.

[Anna Andreeva, MD & Senior Research Analyst at Piper Sandler Companies]

Okay. Okay. No, that's fair enough. And just as a quick follow-up to Susan, did you guys quantify the timing shift in international? You said benefit 2Q and third 3Q, I believe?

[Susan Healy, Executive VP & CFO at Crocs]

Yes. We didn't actually quantify the shift. It's a part of the difference in the growth rate between international and international between Q2 and Q3, but we still would have been it still would have been positive. As Andrew said, we have these shifts based on our distributor business from quarter to quarter on a regular basis both this year and last year. All right. Understood. Thank you so much and best of luck.

[Operator]

And our next question will come from Jay Sole with UBS. Please go ahead.

[Jay Sole, Managing Director at UBS Group]

Great. Thank you so much. Andrew, can you just elaborate a little bit on what you're seeing in China? I think you talked about China was up over 30% versus last year. Talk about what's driving the strength and maybe the outlook that you have for China in the third quarter and beyond? Thank you.

[Andrew Rees, CEO & Director at Crocs]

Yes. So I think what's driving our business in China is I think strong consumer engagement, right? So, the overall China business and you look at it across many different brands is not strong from a consumer perspective. Consumer purchasing is certainly not strong in the Chinese market. We're bucking that trend, because we're driving, I think brand heat for the Crocs brand in China.

[Andrew Rees, CEO & Director at Crocs]

That brand heat has been driven by a set of socially social first digital marketing tactics using key Chinese celebrities. We have a very large digital business in China, which has performed particularly well during mid season festival. And we're very familiar with how to operate during these festival time periods and maximize the business. We have also extended significantly our mono brand stores through our distribution partners in China with significant store openings both last year and this year. And I think our personalization aspect to our brand, the use of Jibbitz and the ability to personalize the shoes have also been particularly effective in engaging that consumer.

[Andrew Rees, CEO & Director at Crocs]

And I think that's also effective in engaging sort of the broader Asian consumer. We see our personalization business strong in Southeast Asia, in Korea and in Japan as well.

[Jay Sole, Managing Director at UBS Group]

Got it. Thank you so much.

[Operator]

And our next question will come from Rick Patel with Raymond James. Please go ahead.

[Rick Patel, Managing Director at Raymond James Financial]

Thank you. Good morning. Can you unpack the disparity in performance between Hey Dude in direct to consumer versus wholesale? Direct to consumer has performed well now for three quarters in a row. So I guess what would you attribute the softer performance to at wholesale?

[Rick Patel, Managing Director at Raymond James Financial]

And as we think about the wholesale channel in particular, how long do you envision it will take to right size inventory so that sell in and sell through are in better alignment?

[Andrew Rees, CEO & Director at Crocs]

Yes. Great question, Rick. So, look, direct to consumer has performed well, but there are new points of distribution there, right? So that's for I would say for two principal reasons. We continue to open outlet stores for the Hey Dude brand, which we're very pleased with both the performance of those stores and also the role they play in terms of extending the Hey Dude brand to new consumers, right?

[Andrew Rees, CEO & Director at Crocs]

So the Hey Dude brand, while the awareness has improved, it has improved to 35%. That is a relatively low number compared to the 60% plus awareness, aided awareness for the Crocs brand. So we've made progress on awareness, but it's still low. And so there's new points of distribution from an outlet store perspective embedded within that DTC growth. There is also TikTok shop.

[Andrew Rees, CEO & Director at Crocs]

So, you are aware that with both of our brands, we've been at the forefront of selling on TikTok Shop. Crocs is the number one footwear brand on TikTok Shop. And I think Hey Dude is the number three. So that is number two, sorry, I've been told. I know it's two or three.

[Andrew Rees, CEO & Director at Crocs]

And that is an outsized performance relative to the size of the Hey Dude brand in The U. S. Marketplace. So it's I would say it's new points of distribution is a big driver there.

[Rick Patel, Managing Director at Raymond James Financial]

Thanks very much.

[Andrew Rees, CEO & Director at Crocs]

Thank you.

[Operator]

And our next question will come from Aubrey Tianello with BNP Paribas. Please go ahead.

[Aubrey Tianello, Equity Research Analyst at BNP Paribas]

Hey, good morning. Thanks for taking the questions. I wanted to ask on Heydude. I think it's been a few quarters now since you changed the approach to marketing going more top of funnel. How are you feeling about the benefits you're seeing from that?

[Aubrey Tianello, Equity Research Analyst at BNP Paribas]

And then how are you thinking about investment in the brand going forward? And then any update on new leadership for Heydude? Thanks.

[Andrew Rees, CEO & Director at Crocs]

Yes. So, I'll do your last question first. So, the current leadership for Heydude is myself. So, I'm really enjoying being able to dig into the brand and work with the team. While we have not yet appointed a brand president for Hey Dude, I would say that we have appointed some key team members and I'm really excited about the strength of our leadership team for the Hadoop brand.

[Andrew Rees, CEO & Director at Crocs]

I think they are doing a really great job and really grappling with some difficult situations, but doing it in an extremely proactive and productive way for the future. In terms of shifting the marketing, we have seen I think positive signs from that. We have been we continue to invest in marketing. We have been experimenting with some different messages and different approaches. We have seen an increase of aided brand awareness as I mentioned in the prior question to a 35%, which we think is a very productive trend.

[Andrew Rees, CEO & Director at Crocs]

I would say our latest campaign around Hey Dude Country has been really well received by the industry as we talk to our wholesale partners. And I think we are seeing some clear evidence it's resonating with consumers. We have also spent a good amount of time as we've talked about in the past, speaking to her and bringing a younger female consumer to the brand. I think that has been productive. I would say that as we look forward, we are shifting more of our dollars and focus back to our core consumer and assuring that we really resonate and capture and get the most productive purchasing from our core consumer.

[Andrew Rees, CEO & Director at Crocs]

So, I think we're doing all of the right things. We plan to continue to invest in the Hadoop brand and we see a trajectory that we think we will be pleased with and ultimately shareholders will be pleased with over time.

[Aubrey Tianello, Equity Research Analyst at BNP Paribas]

Thanks. And if I could just sneak in a follow-up on capital allocation. In the first half, you're ahead of where you were last year in terms of share repurchases. Does that continue into the back half or is that different now with the new revenue trajectory?

[Susan Healy, Executive VP & CFO at Crocs]

Yes. So let me try to address that. Consistent with our past practice, we really don't commit ahead of time to our capital allocation, how we're going to allocate our free cash flow. But as you can see from what we did in the first half of the year, we really believe our stock is an excellent value and consistent with our one to 1.5 times target range, we're going to continue to allocate free cash flow to buy back stock and pay down debt as we see the opportunities.

[Operator]

And our next question will come from Brook Roach with Goldman Sachs. Please go ahead.

[Brooke Roach, VP - Equity Research at Goldman Sachs]

Good morning and thank you for taking our question. Susan, I was hoping you could elaborate on the cost savings actions that you've taken that you're planning on taking. What additional areas of opportunity have you identified outside of the SG and A savings in the $50,000,000 that was previously discussed? And can you provide any color on the magnitude or timing of these savings for the second half and into 2026? Thank you.

[Susan Healy, Executive VP & CFO at Crocs]

Sure, Brooke. So when we talk about the $50,000,000 of cost savings, these are things that we've already identified and taken action on for the year. We realized $15,000,000 of that in Q2 and that was really balanced across SG and A and gross margin. And you can think about the remaining $35,000,000 as being kind of evenly spread across Q3 and Q4 with a similar weighting on SG and A and gross margin. As we look to the further opportunities that Andrew mentioned, we're particularly focused on SG and A and steps that we can take to further simplify the business.

[Susan Healy, Executive VP & CFO at Crocs]

We spoke a little bit about the marketing spend for Hey Dude and being able to pull back on performance marketing where we don't feel there's an adequate return. We're looking at our entire expense base with that lens to make sure that where we're investing the dollars are the ones where we're seeing the return for the long term.

[Brooke Roach, VP - Equity Research at Goldman Sachs]

Great. Thanks so much. I'll pass it on.

[Operator]

And our next question will come from Ashley Owens with KeyBanc Capital Markets. Please go ahead.

[Ashley Owens, VP & Senior Equity Research Analyst at KeyBanc Capital Markets]

Hi, good morning. Maybe just to start on Hey Dude, the further pressure on the wholesale channel is the assumption that this will come as incremental margin headwinds on the brand through the balance of the year? Then additionally, I know you mentioned pulling back on some of the inventory receipts domestically for the back half. But can you help us understand how this shapes the product cadence? You've been strong in newness in collaboration for several years now, but should we expect a pullback in some of these efforts in SKU count until conditions normalize?

[Ashley Owens, VP & Senior Equity Research Analyst at KeyBanc Capital Markets]

Or how are you thinking about balancing tighter buys with the need to maintain freshness? Thank you.

[Andrew Rees, CEO & Director at Crocs]

Yes. Good. Thank you. Actually, things are clearly connected. So yes, from a HAYED perspective, there will be incremental pressure on margins in the back half based on the actions we're taking, right?

[Andrew Rees, CEO & Director at Crocs]

So the cleanup the continued cleanup of wholesale inventory is costly, right? And that is a significant investment that we're making. In terms of inventory receipts, we're planning our receipts cautiously in terms of where we've purchasing and or bringing in units that we think satisfies what we anticipate will be the future demand. We're not planning. I think one of the comments we've heard from wholesale partners is look, we're going to plan our inventories down and if things perform, we will chase.

[Andrew Rees, CEO & Director at Crocs]

We're not planning significant receipts for chase because that would be inventory risk that we think is not merited at this point. In terms of SKU count and new product introductions, we think the wholesale returns and cleanup that we'll do will significantly refresh and reset the floors to current new inventory and where we've done that, we've seen some nice improvements. So, it's about making sure that we do have newness and we do have new inventory and new styles within at the point of sale for our consumers. And I would say we're seeing some really nice trajectory in Hey Dude against stretch socks, which has been completely refreshed. So we started that refresh at the beginning of this year as we look at wholesale and DTC inventory.

[Andrew Rees, CEO & Director at Crocs]

That's been a significant effort and we're very pleased with the performance of stretch stocks going forward. The PUL franchise has been a franchise that's performed well. We recently added the Pole Pro, which is an elevated version of the pole with additional cushioning and a better footbed. That's performing well. Our H2O performed well through the summer, which is our drain shoe for fishing or for those who are in and around the water.

[Andrew Rees, CEO & Director at Crocs]

And I would say also our work business for Haiti, particularly the Compto is also performing well. So the newness is performing and the reason we're prepared to make what is a significant investment to refresh is we want more newness in front of more people.

[Ashley Owens, VP & Senior Equity Research Analyst at KeyBanc Capital Markets]

Okay. Got it. That's super helpful. Thank you.

[Andrew Rees, CEO & Director at Crocs]

Great.

[Operator]

And our next question will come from Sam Poser with Williams Trading. Please go ahead.

[Sam poser, Equity Analyst at Williams Trading LLC]

Thank you for taking my question. So Andrew, in the prepared remarks, talked about I just want to clarify, you talked about the weakness the uncertainty and the potential weakness of your broad based consumer, which I assume you're speaking both to Crocs and to Hey Dude?

[Andrew Rees, CEO & Director at Crocs]

Yes. Yes. I think what is different about us is the we sell a very democratic price points on both brands, right? So, and that democratic price point means that we appeal to a particularly broad consumer base. There are other brands that are absolutely performing much better in this marketplace because they are focused exclusively on a high end consumer.

[Andrew Rees, CEO & Director at Crocs]

The low end consumer is a consumer that we believe is most sensitive to price increases, is most nervous, and in some cases is not leaving the house.

[Sam poser, Equity Analyst at Williams Trading LLC]

Well, let me ask you this though. You did also talk about how well you've been doing with Sandals. Is this and you're sort of implying it and what you're working on with Hey Dude, is this an issue basically of you, for the sake of argument don't have the right product for the broad base of consumer, it isn't innovative enough, they just aren't going to it and you talked about athletic getting better, so there may be more innovation there and that may take some from you. So how much of this is sort of macro consumer versus we need to make better stuff for our customers for our constituencies?

[Andrew Rees, CEO & Director at Crocs]

Yes. I think we believe we are making very good stuff for our consumers, right? So, we look at where our brands are positioned, particularly on Hey! Joo! I just talked about it.

[Andrew Rees, CEO & Director at Crocs]

Refreshing the product line and refreshing the product that we're putting in front of consumers is proving to be very positive, right? So, I think the incremental improvements that we're making are strong. In terms of Crocs business, we also see strong trajectory on new product introductions, right? A lot of the growth we saw in sandals and the very successful sandal season and the increase in market share sandals was based on new styles that we think are meeting consumers' needs and we're very confident that sandal business will grow nicely into next year as we kind of think about next season. So I think the macro is a very important factor for our business.

[Andrew Rees, CEO & Director at Crocs]

We're definitely seeing that or our brands. And then I think we're making some tough decisions in the back half of this year, which I know given your kind of long term understanding, I think you recognize are impactful to the business, but also costly.

[Sam poser, Equity Analyst at Williams Trading LLC]

And then I guess the question is what last thing, what percent of your business of your Crocs business was sandals this year? What was the penetration versus last year?

[Andrew Rees, CEO & Director at Crocs]

Yes. We typically break that out at the end of the year. I would say it grew in penetration. I can tell you that. I think kind of once a year we try and give you visibility to that.

[Andrew Rees, CEO & Director at Crocs]

But it was we said it was 13% last year in terms of penetration. It was up double digits in the first half of the year. So it will be it will grow.

[Operator]

And ladies and gentlemen, this will conclude our question and answer session. I'd like to turn the conference back over to Andrew Rees for any closing remarks.

[Andrew Rees, CEO & Director at Crocs]

Thank you everybody for joining us today and your continued interest and support of our company. Thank you.

[Operator]

The conference is now concluded. Thank you for attending today's presentation and you may now disconnect your lines at this time.

Participants

Executives

• Erinn Murphy, SVP - IR & Strategy
• Andrew Rees, CEO & Director
• Susan Healy, Executive VP & CFO

Analysts

• Jonathan Komp, Senior Research Analyst at Robert W. Baird & Co
• Chris Nardone, Director - Equity Research at Bank of America
• Adrienne Yih, MD & Consumer Discretionary Analyst at Barclays
• Anna Andreeva, MD & Senior Research Analyst at Piper Sandler Companies
• Jay Sole, Managing Director at UBS Group
• Rick Patel, Managing Director at Raymond James Financial
• Aubrey Tianello, Equity Research Analyst at BNP Paribas
• Brooke Roach, VP - Equity Research at Goldman Sachs
• Ashley Owens, VP & Senior Equity Research Analyst at KeyBanc Capital Markets
• Sam poser, Equity Analyst at Williams Trading LLC