Dive Brief:
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Crocs on Thursday reported overall Q2 revenues rose 3.6% year over year to $1.1 billion, with direct-to-consumer revenue up 8.9% and wholesale down 1.3%.
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Troubles at the HeyDude brand continued, with revenues plunging 17.5% to $198 million; DTC dropped 7.6% to $84 million as wholesale plummeted 23.5% to $114 million. The Crocs brand rose 9.7% to $914 million, with DTC up 12.5% to $479 million and wholesale up 6.9%.
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Gross margin expanded to 61.4% from 57.9% a year ago, per a company press release. Net income rose 7.8% to $228.9 million.
Dive Insight:
Crocs remains a robust brand, in part because its shoes are not only popular but also relatively affordable, at a time when consumers remain cautious. In North America during the first half of the year, for example, the namesake brand rose 6%, compared to flat sales in the overall market, CEO Andrew Rees told analysts Thursday.
HeyDude is a different story. The DTC brand, which is expanding its brick-and-mortar channel via wholesale and its own stores, has consistently posted disappointing results that have led executives to lower expectations.
Rees acknowledged that disappointment again on Thursday, but said the brand is nevertheless “making an extremely solid contribution to our overall financial picture in terms of revenues, margin and profitability.” Executives also said that new stores, wholesale deals and overseas distribution, along with more favorable year-on-year pricing comparisons, will give HeyDude a boost toward the end of the year.
The brand “has a lot of potential,” according to Rees, who described it as “a lightweight, comfortable, easy on-and-off product that is extremely compelling,” and that can be manufactured in a variety of colors and fabrics.
“We are extremely bullish against long-term projections for HeyDude and as bullish as we were when we bought the brand,” he said. Crocs acquired the brand two years ago for $2.5 billion.
However, the company does expect more immediate declines at HeyDude, though they maintained their full-year outlook for the brand, expecting revenues to fall between 8% and 10%.
That may be a tall order. With their estimate that its revenues will fall 14% to 16% in Q3, that would take growth of 12% to 18% in the holiday quarter, according to a research note from Wedbush analysts led by Tom Nikic.
That is “a dramatic re-acceleration for this struggling brand,” Nikic said.
