Crocs' stock tumbles 15% after earnings show weakness at high-flying HeyDude brand

By Ciara Linnane

Crocs acquired HeyDude in 2022 and is now lowering full-year sales guidance for the brand

Crocs Inc.'s stock tumbled 15% Thursday after the company's better-than-expected second quarter and raised guidance was overshadowed by a weaker-than-expected performance by its HeyDude brand, driven by weak demand from wholesalers.

Revenue at HeyDude, a casual footwear brand that Crocs acquired in February of 2022 for about $2.5 billion, rose just 3%, as wholesale revenue fell 8.4% to $148.8 million following pipeline fill in the same period in 2022. Direct-to-consumer, or DTC, sales of HeyDude shoes were up about 30%.

The company (CROX) said it now expects full-year revenue at HeyDude to grow 14% to 18%, down from previous guidance of mid-20% growth.

Questions about HeyDude, which had been growing at meteoric rates, dominated the earnings call with analysts, with Chief Executive Andrew Rees saying the company's wholesale partners are "pretty cautious on the back-half of the year.

"I think they're being cautious for kind of three reasons. One is they're just cautious about overall traffic trends and the trajectory of the consumer. They've got some overstock in some other brands, principally some of the big athletic brands that they're going to walk through. And they don't have good history on HeyDude it in the back-half of the year. So we're seeing very cautious bookings," he said.

Crocs has been changing its distribution model for HeyDude to bring it closer to the one it uses for the Crocs brand, with a focus on DTC sales and key retail partners, such as Foot Locker Inc. (FL)

But some of its former distribution partners are offering the product at a discount on Amazon (AMZN), which is putting pressure on the company's efforts to attain full-price sales.

The company is working to clear up the grey market on Amazon and Rees noted that the amount of product is finite and will run out.

The company is also expecting distribution capabilities to be constrained in the second half as it transitions to a new ERP (Enterprise Resource Planning) and warehouse system.

The company posted net income of $212.4 million, or $3.39 a share, for the quarter, up from $160.3 million, or $2.58 a share, in the year-earlier period. Adjusted per-share earnings rose to $3.59, well ahead of the $2.98 FactSet consensus.

Revenue rose 11.2% to $1.072 billion, ahead of the $1.044 billion FactSet consensus.

The company said it expects adjusted EPS to $11.83 to $12.22 for all of 2023. It expects revenue to be up 12.5% to $14.5% to $4.000 billion to $4.065 billion. The FactSet consensus is for EPS of $11.57 and revenue of $4.019 billion.

The company's Barbie collection, which features clogs, sandals and Jibbitz, the shoe "charm" that can be pinned into Crocs, sold out ahead of the release of the new "Barbie" movie last weekend, said Rees.

Read now: Barbie boost: These stocks could be in the pink amid movie buzz

The stock has fallen 4% in the year to date, while the S&P 500 has gained 19%.

-Ciara Linnane

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07-28-23 0655ET

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