Earnings   //   April 27, 2023

Crocs remains optimistic about 2023 despite warning of an impending slowdown

Crocs says it’s seeing “exceptional” demand for its clogs, sandals and sneakers, even as it warns of a slowdown in the next three months.

On Thursday, the company reported $884.2 million in first-quarter revenue, a 33.9% increase from the same time a year before. A little less than three-quarters of this, or $648.8 million, came from the Crocs brand. Twenty-seven percent of revenue came from Hey Dude, which Crocs acquired in late 2021 for $2.5 billion.

Crocs has enjoyed record-setting revenue for the past three years in a row as shoppers lean into more comfortable and casual footwear. Today, the company is so confident in its 2023 performance that it decided to up its outlook for the year to 11%-14% growth. Overall, the company sold 30.7 million pairs of Crocs in the first quarter, an increase of 19.7% year-over-year.

While its staple clogs enjoyed double-digit growth this last quarter, Crocs is continuing to make gains in the sandals market. Sandal sales jumped 65% in the first quarter “in all regions,” CEO Andrew Rees said on Thursday’s earnings call. Over the past quarter, Crocs has paid particular attention to new sandal silhouettes, including the Mega Crush and Crush. Crocs is testing “dozens of new styles” of sandals this year, Rees remarked, and he expects revenues for the category to top $400 million in 2023.

The Crocs brand saw the most growth internationally, especially in Asia, where revenue grew 54.8% to hit $140 million. There are still some sticking points, however, especially in terms of the company’s core North American market. While Rees acknowledged that “our sell-through for both of our brands continues to be robust,” he did say that “we remain cautious relative to the consumer confidence in Western markets and anticipate declining traffic patterns through the year.” Inflation has seesawed over the past few months, and the entire U.S. Consumer Price Index increased five percent for the 12 months ending March 2023.

With this in mind, Crocs’ guidance for the second quarter ended up falling short of expectations. Investors reacted strongly to this last point, with Crocs’ shares dropping up to 20% on Thursday. Compared to the brand’s overall strong performance, though, “it’s a bit perplexing that the stock is down as much as it is today,” Tom Nikic, svp of equity research at Wedbush Securities, told Modern Retail.

Nikic explained that Hey Dude’s performance, in particular, might have been what spooked the market. The brand’s quarterly revenue steadily increased from $232.4 million in the second quarter of 2022 to $269.4 million in the third quarter and $279.2 million in the fourth quarter. However, its revenue for the first quarter of 2023 dropped to $235.4 million. Most of Hey Dude’s growth this last quarter was from DTC, predominantly e-commerce, CFO Anne Mehlman said on the call. Crocs is currently building a new distribution center for Hey Dude in Las Vegas.

“I think what is holding back the Hey Dude brand is, they’re almost like a victim of their own success,” Nikic said. “Essentially, they outgrew the capacity of their supply chain and their distribution network and the distribution centers. The revenues are slowing this year, but it doesn’t seem like it’s a demand issue. It really seems like it’s a being-able-to-fulfill-the-demand issue.”

While Crocs’ second-quarter guidance fell short, “we may continue to note brands and retailers issuing conservative guidance, despite strong beats,” Jessica Ramírez, senior research analyst at Jane Hali & Associates, told Modern Retail. “Crocs continues to deliver, and there is momentum behind the brand with room for growth,” she said.

“People expect that… people will stop buying Crocs, but you’re seeing the brand just continue to grow quarter after quarter, year after year,” Nikic added. “I think that the more that they continue to grow the brand, the more they’ll be able to put behind them this perception that the brand is just a fad.”