Dive Brief:
- Marking a record for the company, Crocs Inc. on Thursday reported consolidated revenue increased 11.2% year over year to $1.07 billion in the second quarter, according to a company press release. Net income jumped about 32% to $212.4 million, with direct-to-consumer revenue up 26% while wholesale increased by just 0.2%.
- For the Crocs brand, revenue increased 13.8% to $833 million with direct-to-consumer comparable sales up by 19.5%. The HeyDude brand saw revenue jump 3% to $239.4 million with a nearly 30% increase in DTC revenue.
- The company lowered its full-year revenue expectations for HeyDude, now anticipating growth between 14% and 18% instead of in the mid-20% range it forecast. However, it raised revenue expectations for the Crocs brand to now be between 12% and 13% as opposed to 7% to 9%.
Dive Insight:
HeyDude's lowered guidance doesn't necessarily bode well for the company despite some positive numbers overall.
"To address the elephant in the room: it's disappointing that they're cutting HeyDude guidance and seeing revenues are already declining," Wedbush analysts led by Tom Nikic said in emailed comments. "This probably won't do much to alleviate investor concerns over the brand's potential over-distribution. But our disappointment is somewhat tempered by the solid sell-through growth, as well as medium-term growth drivers."
The company in 2022 began to open strategic wholesale accounts in the U.S. for its HeyDude brand while eliminating non-strategic accounts. As such, Crocs said in its earnings presentation that this creates challenging wholesale comparables in 2023, though HeyDude’s brand growth remains strong.
Crocs announced it would acquire HeyDude for about $2.5 billion in December 2021. The company then relaunched the brand with a new identity, which included new logos and color schemes, in July 2022.
On a call with analysts Thursday, CEO Andrew Rees said the company has rapidly expanded HeyDude’s distribution and is following a similar pricing approach to Crocs, though Amazon presents somewhat of a challenge.
“I would say we are seeing quite a lot of pressure in terms of Amazon's grey market and we're working really hard to close that down,” Rees said. “We've highlighted that we think a lot of that product is coming from the distributors that we closed internationally. So the amount of product that they have available is finite and will run out and we believe is running out ... It’s a temporary disruption to the business, but I think we're very clear about what it is and how we deal with it.”
The executive confirmed that there has been a change to its policies with wholesale partners as it relates to Amazon, and the company will make further changes to rein in digital sales through partners.
In 2022, the company terminated some relationships with customers who were buying goods principally to sell them on Amazon stores they operated. Crocs is making it clear in its terms of sale to all partners that they’re not allowed to sell on Amazon, though Rees acknowledges that some might still be doing that.
“We will further, as we go through the back end of this year, constrict our wholesale customers’ rights to sell on their own dot-coms as well,” Rees said. “So this is essentially moving HeyDude to the same policy we have for Crocs which is that our large wholesale customers ... absolutely have the rights to sell on their own dot-com. But the mom-and-pop retailers will not have the rights to sell on any web presence that they have.”
