Some consumers have become super cautious, but that’s not stopping Crocs Inc. CEO from taking some bold steps to ensure sustainable growth on a going-forward basis.
“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,” Crocs CEO Andrews Rees said. “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.”
Rees told investors in a conference call on Thursday after the company posted second quarter results that a portion of the consumer base is no longer going to stores, and that has impacted the shoe firm’s wholesale business. Not only are order books down for the start of the second half, but the lower-end consumer is also making fewer trips to the firm’s outlet stores, he said. The decline in orders has the company, in part, expecting a 9 percent to 11 percent decrease in third quarter revenue. Rees emphasized that the projection “embeds conservative assumptions around returns of cancelations.” He also said the company is losing some shelf space to athletic brands, but is also working on picking up shelf space in the summer with sandals.
Despite that early trend, he said there’s also been strong trajectory in the sandal business, which is expected to grow next year, helped by new product innovation on clogs slated for the fourth quarter. And the firm is growing its personalization business, “both in Jibbitz and expanding that beyond Jibbitz into a broader personalization offer,” Rees said.
Crocs last week opened its new Icon store at 543 Broadway in the SoHo neighborhood in Manhattan. The concept, which allows for hosting shopping events, also incorporates two areas for personalization options.
For the Crocs brand, he said the company, in addition to adjusting its forward receipts, has pulled back on promotional activity across the direct channels since 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 tightened brand control,” Rees said.
For the Hey Dude brand, the company accelerated its 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,” he said.
Those actions will create further headwinds to sales volume over the next several quarters. Rees said the company has taken additional measures that has resulted in $50 million of cost savings as it continues to identify further cost-saving opportunities. The company is also planning its business conservatively by “proactively pulling back on receipts across both brands for the second half, primarily in the U.S. without losing sight of the bigger picture,” he said.
Rees said the company has also accelerated its international business, which has grown from 38 percent of Crocs brand sales in 2022 to 52 percent in the second quarter ended June 30. Other initiatives include diversification in its clog offerings, the development of a strong sandals business and the growth of its personalization category, one that includes its Jibbitz charms.
“Collectively, this diversification should fuel durable long-term growth for years to come,” Rees said.
Rees also said the company remains “laser-focused on its digital-led social-first marketing playbook as this is a key ingredient in sustaining brand heat.” In addition to bringing back franchise favorites, he said the company continues to lean into social commerce as consumers are starting and ending their shopping journeys on social media platforms.
“During the quarter, Crocs remained the No. 1 footwear brand on TikTok shop in the U.S.,” Rees said, adding that a TikTok U.K. platform was recently launched, “where results have been strong out of the gate.”
Looking ahead, Rees said the plan is to “continue to expand social commerce and live streaming platforms globally, and we expect this to drive new growth opportunities.”
As for tariffs and its impact, Rees said the company can “over the medium term mitigate” the impact of tariffs. That will come from cost savings in the supply chain, negotiations with factories and some price adjustments, he said.
For the second quarter the net loss was $492.3 million, or $8.82 a diluted share, against net income of $228.9 million, or $3.77, in the same year-ago quarter. Revenues rose 3.4 percent to $1.15 billion from $1.11 billion. Inventories were higher at $405 million, or up 7.4 percent, versus $377 million last year. That increase reflects in part higher tariff costs.
Still a drag on operations is the Hey Dude brand, which continues to show signs of struggle. Rees said over the past 12 months the company has been focused on speaking to a new female consumer, while not losing sight of its core customers. The company is also working on stabilizing the North American market as it lays the groundwork for international growth. “We believe the Hey dude potential and its community are much greater than the size of the business today, and we’re confident that the critical steps we are taking will fuel the potential in the future,” Rees said.
Needham analyst Tom Nikic said on Thursday that while there was second quarter improvement for the Hey Dude brand, he isn’t so sure the brand will be profitable in either the second half or in 2026. That’s due in part to tariffs and an accelerated cleanup of the wholesale channel, while a pullback in performance marketing could hurt direct-to-consumer revenues, the analyst said.
Crocs said in December 2021 that it was acquiring the privately owned Hey Dude footwear brand, which had a deal value of $2.5 billion. The transaction was completed in February 2022.
