Dive Brief:
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Crocs Q3 revenue rose 6.2% to $1.05 billion. Direct-to-consumer revenues in the period grew 17.8%, while wholesale revenues fell 3.6%.
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By brand, Crocs revenue rose 11.6% to $798.8 million, with DTC comps up 15.3% and wholesale up 4.5%. HeyDude continued its declines, as revenue fell 8.3% to $246.9 million, with DTC up 14.6% and wholesale down 19.4%.
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Gross margin expanded to 55.6% from 54.9% last year. Net income rose 4.5% to $177 million, according to a company press release.
Dive Insight:
Crocs remains one of the most popular brands globally. Over the summer, between July and September, Crocs’ physical stores were busy, with overall Q3 footfall up 13.1%, according to traffic analytics firm Placer.ai.
But the poor performance of its HeyDude brand dominated its earnings call with analysts Thursday, leading Wedbush analyst Tom Nikic to conclude, in a client note emailed following the call, “Core Crocs continues to do well (but overshadowed by HeyDude).”
Crocs significantly lowered its own expectations for the brand, saying its sales could drop 20% to 25% in the holiday quarter.
The shoe maker bought Italian DTC brand HeyDude at the end of 2021 for $2 billion in cash and $450 million in Crocs shares. On Thursday CEO Andrew Rees said that despite the brand’s growing pains it’s still expected to ultimately top a billion dollars in sales. To that end, the company has worked to let go of several underperforming wholesale partnerships while signing up more strategic partners, he said.
That hasn’t been a smooth process, but even as some new wholesale partners canceled orders, the brand is seeing strong customer demand, he said.
“We see the HeyDude brand essentially being sold almost everywhere that the Crocs brand is sold,” Rees said. “So think about the primary chains, we're talking about family footwear, we're talking about sporting goods, we're talking about mall-based specialty, and then I would say also some sort of super-regional chains.”
The company remains focused on stoking HeyDude sales and not its profits, Chief Financial Officer Anne Mehlman told analysts.
“We’re maximizing for the long term health of the brand. It's certainly prioritizing profitability from a gross margin standpoint, but not maximizing for profitability overall,” she said. “We think it's really important for us to invest. We made a conscious decision to continue to invest in Q4. We certainly could maximize for short term profitability, but we don't actually think that gets us the best long term outcome.”
