Crocs, Inc. (CROX) Q3 2026 Earnings Call Transcript

Operator: Good day, and welcome to the Crocs Third Quarter 2026 Earnings Call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star and then two. Also, please note this event is being recorded. I would now like to turn the conference over to Elizabeth Bouquard Pizzi, Vice President in Investor Relations. Please go ahead.

Elizabeth Bouquard Pizzi: Good morning, and thank you for joining us to discuss Crocs, Inc.'s third quarter 2026 results. With me today are Andrew Rees, Chief Executive Officer, and Patraic Reagan, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions, which we ask that you limit to one per caller. Before we begin, I would like to remind you that some of the information provided on this call is forward-looking and accordingly is subject to the safe harbor provisions of the federal securities laws. These statements involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or achievements to differ materially. Please refer to our most recent annual report on Form 10-K, quarterly report on Form 10-Q, and other reports filed with the SEC for more information on these risks and uncertainties. Certain financial metrics that we refer to as adjusted or non-GAAP are non-GAAP measures. A reconciliation of these amounts to their GAAP counterparts is contained in the press release we issued earlier this morning. All revenue growth rates will be cited on a constant currency basis unless otherwise stated. At this time, I'll turn the call over to Andrew Rees, Crocs' Chief Executive Officer.

Andrew Rees: Thank you, Elizabeth, and good morning, everyone. Thank you for joining us today. Before I share our results for the third quarter, I'd like to welcome Elizabeth in her new role as Vice President of Investor Relations. We're excited to welcome her as part of our Crocs team. Now moving to our third quarter results. We delivered a strong quarter of growth across brands, channels, and geographies. Both Crocs and HEYDUDE delivered growth driven by execution of our brand strategies while expanding margins year over year through sustained operational discipline. This quarter marks an important inflection for the HEYDUDE brand, with revenue growth of 6%, which is a direct result of our clear consumer focus and execution against our three-pillar growth strategy. The Crocs brand had a record third quarter up 4%, driven by our international business, including growth in all of our tier 1 international markets and continued momentum across our product diversification strategy. As we stated at the beginning of the year, returning to growth for both brands is a strategic goal we set out to achieve through our disciplined execution and laser focus on the consumer. As a result, we are raising our full year 2026 revenue guidance from up 1%-2% to up approximately 3%. We remain confident in the long-term trajectory of both of our brands and are committed to executing against our strategic pillars to drive diversified growth. Additionally, we remain confident in our ability to generate significant free cash flow, which we continue to return to shareholders in the form of meaningful share repurchases and debt paydown. While Patraic will discuss our quarterly performance in more detail later, I will start by sharing several financial highlights and then review our progress by brand. During the third quarter, we delivered enterprise revenues of more than $1 billion, up 5% to prior year, driven by both of our brands, with Crocs up 4% and HEYDUDE up 6%. HEYDUDE returned to growth led by wholesale revenues up 14% and DTC revenues up slightly. Crocs brand delivered a better-than-expected Q3 led by international revenue up double digits, including our international direct-to-consumer channel growing 24%. Another quarter of best-in-class profitability with adjusted operating margins expanding 150 basis points to reach 22.3%. Meaningful return of cash to shareholders with approximately 2 million shares repurchased for $250 million and debt paydown of $21 million. Importantly, over the last decade, we have taken our powerful value creation engine and returned meaningful cash to shareholders with approximately $3 billion of share repurchases and 37% reduction in share count. We view this as a true differentiator versus our peers. Now let's move to performance by brand, starting with Crocs. This quarter was another great quarter for the Crocs brand, reflecting strong execution against our five-pillar growth strategy. Direct-to-consumer revenues grew 8% versus prior year, led by our international business, while our diversification strategy continued to gain traction with consumers. We built on the momentum established in the first half of the year, driven by strong consumer response to our new product innovation, impactful partnerships, and our differentiated digitally led approach to commerce and marketing. Turning to our five-pillar growth strategy, starting with our first pillar, driving brand relevance globally as the clog market share leader. During the quarter, we broadened our relevance across fashion and sport through both new and existing franchises, enabling us to serve a broader range of wearing occasions. Growth in clog iterations such as the Crafted, Crocband, Mellow, and Echo franchises reinforces our conviction that innovation within clogs remains an important lever for future growth. Within Crafted, we saw further momentum as new materializations and seasonally relevant product resonated with consumers, including our Vegan Suede Stitch Clog. Crocband continues to gain momentum globally as we expanded our color options, band innovations, and broadened appeal across both male and female consumers with the addition of our Crocband Runner. Within Mellow, as we spoke about last quarter, we launched our recovery clog, which brings Crocs innovation to the recovery category. Lastly, we expanded the Echo franchise with the launch of Echo 2.0, which delivers strong international performance and broadens our brand's reach to a more athletic, sport-inspired consumer. Collectively, the momentum in these clog iterations illustrates how the consumer is increasingly embracing a broader range of clog silhouettes beyond our iconic Classic Clog franchise. Within our Classic Clog, we remain focused on strengthening and protecting the long-term health of our icon. We continue to invest in compelling brand storytelling, innovation, personalization, and partnerships to drive relevance and keep the Classic Clog at the center of the Crocs ecosystem. Within our kids business, we had strong Classic Clog momentum during the back-to-school season, and will build on this assortment going forward. Next, our second strategic pillar focuses on scaling outside of clogs through category expansion. We have made tremendous progress against our broader diversification strategy, starting with our sandals category. The sandals market represents an estimated $30 billion global addressable market, where we have gained substantial market share, and to date, represent a leading player in this category. Our sandals business continues to grow double digits led by our Miami and Saturday franchises, where we attract new consumers, increase purchase frequency, and gain market share. Sandals represents a year-round business for us as we benefit from warmer weather extending beyond summer, and internationally, we are able to capture demand in counter-seasonal markets. This momentum reinforces our confidence that sandals continues to represent a significant multi-year growth opportunity for the Crocs brand. Next, within our lifestyle franchise, we have seen strong response globally to new innovations, starting with the Ballet Flat. Consumers' strong response to our Ballet Flat demonstrates our ability to capture relevant fashion trends while maintaining the iconic Crocs DNA. Looking ahead, we are testing into lined versions of the Ballet Flat starting in Asia. As we mentioned earlier from a sports lens, we have introduced a closed heel version of our Mellow franchise, giving us another offering within the growing recovery and lifestyle space. As we head into the fourth quarter and key holiday selling season, we believe we are well-positioned to capture demand across a broader range of wearing occasions led by our slippers and lined clogs. More specifically, we are building our Unfurgettable franchise after a successful test season last year, introducing new products such as a platform, the Chalet, and the Après Clog. Another key focus of our product diversification strategy is personalization, which is one of our most powerful drivers of consumer engagement and a key differentiator. For many of our consumers, purchasing Crocs shoes is not a one-time transaction, but the beginning of an ongoing journey of personalization and self-expression. As leaders within the personalization space, we are committed to finding new ways for consumers to express themselves. Following the strong response to our sandal charms test we shared in Q2, we are accelerating plans to expand that offering in 2027. To gain further insights into consumers' personalization journey, we opened a new test and learn store, Crocs by You, in Wuhan, China, that is a destination centered around personalization, where we can see firsthand how consumer loyalty and engagement around personalization can evolve. Next, our third pillar for the Crocs brand focuses on fueling consumer engagement through disruptive social and digital marketing. This quarter, our partnerships business continued to reach a wide range of consumer demographics. Key partnerships in the quarter included Dinoco Cars, Yu-Gi-Oh!, and Pendleton. First, our Dinoco Cars program, which celebrated the 20th anniversary of the Cars franchise, featured our Crocband, as well as a Dinoco Cars collectible. The launch of this partnership was initiated at Disney's D23, which drove significant fan engagement. Dinoco Cars was a top-selling global partnership for our business, based on a long history of success with the Cars franchise. Next, we partnered with Yu-Gi-Oh!, a Japanese multimedia franchise centered on a popular trading card game and anime series, which unlocked broad fan engagement. The partnership was led by iterations on our Classic Clog, paired with an exclusive trading card. Third, we launched a limited edition collaboration with the iconic brand Pendleton. Blending Crocs comfort proposition with vibrant wool colors from Pendleton's Woolen Mills, this collaboration sold out quickly across both our channels as well as Pendleton's, and more importantly, haloed demand on our new Crafted Clog franchise. Turning to our fourth pillar, we are creating compelling consumer experiences across channels. Social commerce remains one of our strongest competitive advantages and is a meaningful growth driver across regions. Our performance in North America across key partners in the space continues to outperform our expectations, building our leadership position and our ability to integrate content creators and commerce in a differentiated way. Internationally, momentum also remains strong with Asia and Europe delivered strong upside during our key shopping events. Notably, this quarter, we maintained our number 1 footwear brand ranking on TikTok Shop in the U.S., U.K., Japan, and most recently, Malaysia. During the quarter, we furthered our testing of AI-enabled shopping experiences across platforms. While early days for agentic shopping, we see it as critical to be actively involved with all major platforms. We have also leaned into the emergence of AI-powered shopping agents and launched Rivet, Crocs proprietary AI-powered shopping agent, on our own website to help consumers discover and evaluate products. We're further experimenting and investing early with emerging shopping experiences, including third-party shopper agents to ensure Crocs is highly discoverable while gaining a deeper understanding of evolving consumer behavior. Finally, our fifth pillar for the Crocs brand focuses on gaining market share internationally. During the third quarter, we saw strong growth across all of our tier 1 international markets. Starting with China, we launched a global marketing campaign around the Echo 2.0 collection, featuring Olympic table tennis gold medalist Fan Zhendong as our brand ambassador. This generated substantial traction in Asia, culminating 40 billion impressions, further accelerating brand awareness while highlighting the power of authentic ambassadors to engage core consumers. In India, growth was broad-based across both direct and wholesale channels as we capitalized on the virality of our Let Them Talk campaign with local cricketer and celebrity KL Rahul, driving demand across both our mainline Echo product as well as our newly introduced Echo 2.0. As we look ahead, we remain confident in the significant international opportunity for the Crocs brand and our ability to leverage product innovation, personalization, and digital leadership to continue to gain market share across key markets. Now turning to HEYDUDE. As we have communicated earlier this year, we expected HEYDUDE to return to growth in the second half of the year. I am pleased to report that we achieved this goal with revenues growing 6% this quarter compared to last year. Over the past year, we've consistently improved the trajectory of the HEYDUDE business, progressing from double-digit declines to now returning to growth. At the same time, we have re-engineered our cost structure and built a stronger financial foundation through higher ASPs, better inventory management, and focused cost efficiencies across the organization. Compared to last year, gross margin increased 350 basis points while SG&A decreased 9%. This performance reinforces our confidence that our three-pillar growth strategy is working, and we believe that this positions HEYDUDE on a stronger financial foundation to unlock sustainable growth. Turning to our first strategic pillar for HEYDUDE. We are laser-focused on our core consumer. During the quarter, we saw clear signs of positive engagement of our core consumer. We launched the campaign Hooked on HEYDUDE, which outperformed prior campaigns and drove meaningful consumer engagement with the brand. Another way we drove engagement during the quarter was through partnerships. During Q3, we launched eight unique collaborations, each one selling out and in turn, reinforcing our ability to deliver culturally relevant product to targeted consumers. Starting with Burlebo, an innovative outdoor lifestyle brand, we built upon the success of our viral Q2 camo collaboration to launch an extended partnership featuring our American Flag Hey2O. This brought Burlebo's distinctive outdoor aesthetic to one of our top silhouettes. Next, we partnered with Buc-ee's, iconic southern travel destination known for its highly engaged and loyal following. This collaboration sold out in just 24 hours and brought Buc-ee's distinctive brand identity and passionate fan base to HEYDUDE in an authentic, regionally relevant way. Collectively, these launches accelerated awareness, amplified consumer demand, and further solidified our go-to-market partnership model. Next, our second pillar focuses on building the core and thoughtfully adding more. We remain focused on optimizing our core assortment while introducing new product innovation to drive growth and broaden consumer reach. Within our core collection, we are growing key iterations of our icons, the Wally and Wendy, through our stretch socks and jersey programs. Most notably, our Wally Braided, which features elevated upper materials, is growing nicely, while our Hey2O, the water-friendly slip-on evolution of the Wally, continues to perform strongly. Beyond our core collection, our sandals business has outperformed our expectations, as well as also diversifying our product offering. Going forward, we see sandals as a strategic growth driver for our business into 2027. Additionally, we have seen success in our work category through leading silhouettes, the Wally CE and the Bradley comp toe boot. For our core consumer, this category is a natural add-on, and we believe we can keep taking meaningful market share in the work segment. As we move into the fourth quarter, we're focused on our seasonal newness across our Easy Boot collection. Our boots franchise has been led by our new Bradley 2 silhouette that gives the consumer an easy on and off boot at a compelling value. Our boots for our female consumer has also driven excitement, led by the Remy. Both of the examples I have just shared were redesigned for comfort and durability, featuring lightweight construction and new tooling. Lastly, heading into the holiday, we're building on our success with seasonal products such as slippers. Moving to our third and last strategic pillar, we are focused on stabilizing the North America marketplace while planting seeds internationally. Our return to growth during the quarter, coupled with international momentum, reflects the meaningful progress we've made against this strategic pillar. Our return to growth in North America was driven by wholesale, which grew 14%, reflecting our progress in building deeper wholesale relationships and driving increased order volumes as partners expand their commitment to our brand. At once, demand was stronger than anticipated as retailers reordered key products and sold through faster than expected. Within our direct-to-consumer business, we are focused on driving higher full price selling and seeing ETVs as well as conversion improve within our retail stores year to date. We are encouraged by the trajectory of HEYDUDE and the way the team is executing across our prioritized strategies. The work we did over the past 12 months to clean up the marketplace, focus on our core consumer, and sharpen our marketing created short-term pressure, but is now translating into a broader base growth opportunity. Building the success of the quarter, we are excited about what lies ahead for HEYDUDE. In many ways, we are just getting started. To conclude my remarks, we remain focused on finishing the year strong by executing the strategies that drive diversified, sustainable growth across our brands, channels, and geographies. These efforts are underpinned by consumer-led innovation, scalable global platforms, and a disciplined financial model. We remain confident in the long-term trajectory of both brands and our ability to generate significant free cash flow and ultimately shareholder value. I will now turn the call over to Patraic.

Patraic Reagan: Thank you, Andrew, and good morning, everyone. We are very pleased with our third quarter performance, which reflects continued progress across both brands and disciplined execution against our strategic priorities. During the quarter, we delivered revenue growth at both Crocs and HEYDUDE brands, with both brands exceeding our expectations. We also expanded adjusted operating margin by 150 basis points compared to last year, as we recognized the benefit from our cost savings initiatives while maintaining disciplined promotional activity. Importantly, as Andrew discussed, the HEYDUDE brand returned to growth. The Crocs brand delivered a record third quarter supported by strong international results and momentum across an increasingly diversified product portfolio. Around the globe, we are playing to win each and every day, running our business with a mindset of ambition, decisiveness, and agility. We are aggressively actioning our strategic priorities, which are focused on innovating on behalf of our consumers around the world, and we are making measurable progress. Now let's move to our results. For the third quarter, we delivered enterprise revenue of just over $1 billion, up 5%, with Crocs brand revenue increasing 4% and HEYDUDE brand revenue increasing 6%. Results were supported by continued strength in direct-to-consumer, particularly international DTC for the Crocs brand, as well as better than expected wholesale performance at HEYDUDE. For the quarter, Crocs brand revenue was $873 million, up 4% year-over-year. International revenue increased approximately 12%, including growth in all of our tier 1 markets. Our international performance was led by the direct-to-consumer channel, up 24%, which included broad-based growth across marketplaces, retail, and our own .com. North America revenue declined approximately 2%, in part driven by the previously communicated impact of our business model shift from the direct-to-consumer to wholesale segment. This shift represents a 270 basis point headwind to the North America DTC channel, reflecting approximately one month of impact to the quarter as we began implementing. Excluding this business model shift, North America DTC is anticipated to be positive for the year. It is important to note that we are increasingly confident in the underlying health of our North America business across all channels and the steps we have taken this year to set the stage for return to growth as we look forward. As Andrew spoke to earlier, growth in the Crocs brand was driven by strong consumer response to our product diversification strategy. This included outperformance within sandals, new clog iterations such as Crafted with new materials, and seasonally relevant product resonating with consumers and new innovations, including the on-trend Ballet Flat. We have built a broad, diverse and durable portfolio of products and will continue to innovate on behalf of the consumer. Moving to HEYDUDE. The HEYDUDE brand delivered revenue of $170 million, up 6% to prior year, exceeding our expectations and marking the brand's return to growth. This represents a significant milestone in the brand's turnaround journey, evidenced by sequential improvement from the trends over the last several quarters. By channel, wholesale was ahead of our expectations, up 14%, supported by higher at once and replenishment orders. D2C was up slightly to prior year, driven by continued marketplace strength despite our planned pullback in promotions. Now, I want to take a moment to highlight HEYDUDE's improvement in inventory composition and full price selling, both of which have improved significantly year to date. Throughout the year, we have been aggressively working to bring inventory levels in channel to be in line with sell-through, and we have made dramatic progress. Within D2C, we have pulled back on discounting across our own.com and marketplaces. Taken together, these are important indicators of the progress we are making to build a healthier, more profitable HEYDUDE business, giving us confidence in the sustainability of our long-term growth moving forward. Now moving to adjusted gross margins. Enterprise adjusted gross margin of 60.3% was up 180 basis points to prior year as we saw gross margin expansion across both Crocs and HEYDUDE brands, driven by disciplined execution of our cost savings initiatives and lower tariffs. We continue to benefit from the cost savings initiatives we implemented during 2025 that focus on supply chain efficiencies, such as simplification of our distribution and negotiations with factories to drive lower product costs. Gross margin expansion was partially offset by planned product mix headwinds resulting from our diversification strategy. Notably, adjusted gross margin excludes $64 million of tariff refunds, which we received during the quarter. Please reference our non-GAAP gross profit and gross margin reconciliation bridge in our earnings press release for more information. Turning to Crocs brand. Adjusted gross margin was 63.4%, up 160 basis points to prior year, driven by lower tariffs, favorable channel mix, and lower product costs, partially offset by product mix as we continue to execute on our diversification strategy. HEYDUDE brand adjusted gross margin was 45.8%, up 350 basis points to prior year, driven by lower tariffs, improved ASPs and product mix. Moving to expenses, adjusted SG&A dollars were $397 million, up 6% to prior year, driven by choiceful DTC channel investments to support revenue growth, in part offset by the benefit from our cost savings initiatives. Adjusted operating margin of 22.3% was up 150 basis points to prior year. Adjusted diluted earnings per share of $3.69 was up 26% to prior year and ahead of our guidance of $3.20-$3.30 per share. Finally, our non-GAAP effective tax rate was 17%. Now turning to a discussion of our strong balance sheet and exceptional cash flow. We ended the quarter with just over $163 million of cash and cash equivalents and approximately $890 million of borrowing capacity on our revolver. Our inventory balance as of September 30th was $413 million, up 4% to prior year, and notably enterprise inventory turns were above our goal of four times on an annualized basis. The power of our business model drives exceptional free cash flow, which provides us with significant flexibility in how we allocate capital and generate shareholder value. During the quarter, we repurchased approximately 2 million shares for $250 million. Another proof point of our commitment to returning capital to shareholders. At the same time, we strengthened our balance sheet. During the quarter, we paid down an additional $21 million of debt and ended the quarter with net leverage at the low end of our target range of 1x-1.5x. Now moving to the full year 2026 outlook versus prior year. We now expect enterprise revenues to grow approximately 3%, up from our prior guidance range of up 1%-2%, assuming currency rates as of October 26th. Moving on to revenue guidance by brand. For the Crocs brand, we now expect revenue to be up approximately 4% versus our previous guidance range of up 2%-3%, led by international growth. We expect North America revenue to continue to improve versus prior year as we execute our return to growth strategy. Turning to HEYDUDE, we now expect revenue to be approximately flat, an improvement from our previous guidance range of down 2% to down 4%, which reflects our confidence in HEYDUDE's return to growth. We are also raising our bottom line expectations for adjusted diluted earnings per share to now be in the range of $14.45-$14.65, up significantly from our previous guidance range of $13.70-$14. Consistent with our previous guidance, this range does not assume any impact from future share repurchases. Moving to margin guidance. We continue to expect adjusted gross margin for the year to be up slightly versus last year, driven by our cost-saving efforts, primarily in our supply chain, offset in part by product mix. Adjusted SG&A dollars are implied slightly up to prior year, reflecting investments we are making into growth drivers for the enterprise, offset in part by benefits from our previously announced cost savings programs. Taken together, we are raising our expectations for adjusted operating margin to expand modestly from 22.5%. This excludes a non-GAAP net benefit of approximately $40 million associated with tariff refunds and our cost reduction initiatives. Our GAAP tax, non-GAAP tax, as well as capital expenditure guidance are unchanged for the full year. Now, turning to our fourth quarter outlook versus prior year. For the fourth quarter, we expect enterprise revenue to be up 7%-9%. For the Crocs brand, we expect revenues to be up 6%-8%, and for HEYDUDE, we expect revenues to be up 10%-12%. As Andrew had mentioned, we are quite pleased with the growth trajectories for both of our brands. As a reminder, our year-over-year compares do include anniversarying prior year inventory cleanup actions taken in the North America marketplace. Adjusted operating margin is expected to be approximately 20.5%, which embeds adjusted gross margin up approximately 200 basis points to prior year. Finally, adjusted diluted earnings per share is planned to be in the range of $3.25-$3.45. To close, we are pleased with our continued outperformance this year and the momentum we continue to see across the business. The results we delivered reflect the strength of our brands, broad-based consumer demand, focus on product innovation, and disciplined execution by our teams around the world. As always, we remain focused on driving long-term profitable growth and generating and deploying our exceptional free cash flow to return value to shareholders. At this time, Andrew and I are happy to take your questions. Operator?

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Jonathan Komp with Baird. Please go ahead.

Jonathan Komp: Yeah. Hi, great. Good morning. I want to start on Crocs North America. Could you maybe talk more about the underlying health you're seeing for the North America D2C business and what you're expecting going into the fourth quarter for the underlying trend as well as the business model shift impact? And maybe just more broadly, how are you thinking about maintaining positive growth in D2C and really the path to North America growth overall for Crocs looking forward here?

Andrew Rees: Thanks, Jonathan. I will kick us off and then pass it over to Patraic. First, congratulations to your Brewers winning their first ever World Series last night. Brief recognition of that. Patraic will do the numbers and get all of the business model shifts squared away so everybody clearly understands that, and I will talk more broadly about the strength of the business.

Patraic Reagan: Jonathan, great question. I know this has been a hot topic, so let me just get context base for everyone on the call. Number one, for the business model shift, we announced this in Q3 on our last call. What it is really focused on is, and what we are focused on is the upside for us from a Crocs standpoint. Essentially, it is a more efficient and it is a more profitable model. That does mean that there is less revenue in the D2C channel, more revenue in the wholesale channel. But overall, from a profitability standpoint and efficiency standpoint, we feel great about it. I do think it is exceptionally important to underline that there is no change to units in the market or market share. It is purely just a business model shift. Just a few of the numbers, a little bit more specific, and we can be a little bit more specific now because we have got some time under our belt. We effectuated the change during the quarter. It was in effect partially through the quarter. You can think about it roughly in effect for about roughly a month or so. Within the quarter, we had about 270 basis points of headwinds in the D2C channel. To be clear, D2C would have been up roughly about 2% in North America excluding this shift. What does that mean then for Q4, Q1, Q2, until we anniversary the change in Q3 of next year? What it roughly means from a modeling standpoint is that you can think of in the neighborhood of 700-800 basis points of headwinds for the D2C channel as we make our way through the next several quarters. Then as we get to a year from now, this will be in the base and will no longer be an item. Hopefully that paints a little bit of a perspective from just what the numbers say, and Andrew can give it a little bit more context on where we're going strategically and what we're excited about from North America.

Andrew Rees: Yeah, great. I think, look, we acknowledge that everybody's super focused on this because they're really trying to get a sense of the strength of the Crocs brand in our critical and important North American market. Although I would highlight our international business is actually bigger than our North American business today. I would say looking forward, we are increasingly confident in the underlying health of the Crocs brand in North America and its performance across all channels. So if you normalize for this business model shift, as Patraic said, we do see North America Crocs growing for the year. Really the drivers of our confidence come from three critical areas. The first is just a strong pipeline of product innovation. I think in our prepared remarks, hopefully we elucidated lots of different ways that we see new products performing strongly. We acknowledge there are some headwinds from a consumer perspective, but as we deliver innovation at incredible value, we see the consumers responding. Second layer is really go-to-market innovation. As we lean into social selling, we're seeing it as a very productive way to both sell products to consumers, but also engage consumers so that they shop in other channels. So leaning into social selling and innovating how we go to market. We see the next layer of innovation associated with go-to-market likely coming around agentic shopping. As we talked about, again, in our prepared remarks, we are actively engaged in working with all of the key platforms around social shopping. It's still incredibly small today. Not social shopping, agentic shopping. It's incredibly small today. I just think it's a question of when it starts to accelerate, because it will accelerate extremely rapidly. Really the third thing, I just want to reiterate our wholesale business is super important to us. We work very carefully and in great collaboration with all of our wholesale partners. It's important to be able to have that breadth of reach to reach what is a very democratic consumer base. So building those relationships and making sure we maintain strong relationships is very important to us. I hope that gets all of your question, Jonathan.

Jonathan Komp: Yeah. That is really clear and thanks for the congrats on the Brewers. Hopefully, you have stocked up on the Milwaukee Brewers Jibbitz online, in terms of the units there. That is great. Maybe if I could just one more on HEYDUDE. Given the stronger at-once and reorders you cited, how are you viewing the channel dynamics for there looking forward since the brand is back to growth here? More broadly, if we look back a few years, this was a brand that was generating over $900 million of revenue and over $200 million of profit at one point. How are you thinking about kind of the broader context of where you are in the journey and what the potential might be here?

Andrew Rees: Yeah. Thank you, Jonathan. Look, we are excited that HEYDUDE returned to growth this last quarter, up 6% for the quarter. Positive in both channels, but the strongest growth in the wholesale channel. I think the critical thing to kind of bear in mind from a wholesale channel perspective is we are up against a weak compare. We did do significant returns and significant work on wholesale inventories in Q3 and Q4 of last year, so we acknowledge that. I would say, even without that, we are very encouraged by the health of our business, both on DTC and wholesale. Let me hit DTC quickly. I think from a DTC perspective, the growth was smaller. But we see tremendous health in that growth. We see high conversion rates, larger baskets, and lower discounting. You can see that coming through in greater profitability. From a wholesale channel perspective, as we look at our inventories in the channel, we look at the performance of those inventories, we are outselling our inventory in the channel. So, we are excited about the future of HEYDUDE. I would say, as we kind of think about Q3 and Q4 together, and we remove the cleanup that we did last year, we are looking at about a low single to mid-single sustainable growth rate for the brand, and we think that is where it will be in the short term. Longer term, to your kind of question around $900 million and $200 million of profit, we are very optimistic about the growth of this brand. It resonates extremely well with consumers. It gives the consumer incredible value. We see we have, I would say, penetration opportunities here within the United States. We still have pockets in the United States where the brand is much weaker than in its heartland, and we are actively working on penetrating those areas and have discrete initiatives in place to do that. We really still have international in front of us. We are making, I would say, careful, cautious investments in our international growth, seeing some modest signs of success, but we will build and lean into international, and that provides a long runway for growth. Our experience from our Crocs brand does elucidate to us that could be very big.

Jonathan Komp: That's great. Thanks again.

Andrew Rees: Thank you.

Operator: The next question comes from Adrienne Yih with Barclays. Please go ahead.

Adrienne Yih: Great. Thank you very much, and congratulations on the inflections that we're seeing in the business. Andrew, I wanted to start kind of higher level. We're hearing a lot within the footwear realm of leisure lifestyle, the athletic shifting into this brown shoe. You're sort of epitomized both from the clogs and the boat shoe aspect of it. Wondering if you can tell us how you think that evolves over the next one to three years. It seems like it has some legs here, but you're actually building a foundational business in each of these businesses, so a little help on that front. Then number two, within international, can you give a little bit more color on the performance by countries and where you see the biggest opportunities there? Thank you so much.

Andrew Rees: Right. All right. Let me take your questions in reverse. From an international perspective, incredibly important part of our business as you are well aware, particularly for Crocs, nascent for HEYDUDE. I think what we are really pleased about this quarter, and it has been consistently through the year, the international business is performing strongly. The biggest drivers of that growth are actually the big markets. Number one, China, number two, India, and also Japan. If I think about the rank ordering of footwear markets outside the U.S., it is essentially number two China, number three Japan. We are really pleased that that is driving our growth. It has been where we have been focused for a number of years, and where we see a long runway of continued growth. As we adapt our brand into those markets, we have programs around China for China, where we make products specifically for the China market. There are programs where we adapt for the specific channels of distribution that are relevant in those markets. Importantly, also the growth was DTC led with 24% growth in DTC in international for the Crocs brand. Coming back to your broader question around lifestyle and industry trends. I guess the way we think about it is actually a little bit different. I have done this for a long time and seen many of these trends come and go, and I think they are often quite exaggerated in terms of their impact. What we think about is how do we deliver value to our consumers? How do we bring new products, innovation that are trend right? How do we deliver go-to-market innovation to our consumers so that we can excite them and drive traction? I think we have got a good formula there. We look at HEYDUDE, they are up 14% in the quarter, for the North American wholesale channel. A lot of that was really driven by two things. One was greater restock or greater at one selling during the quarter, because of sell out. I would also acknowledge, probably they were a little bit weaker order base by some of our wholesale partners. So they saw selling ahead of what they planned for and restocked. That was pleasing to see. Then from a Crocs perspective, it was really innovation that drove our success in the channel. It was the sandal season, which we talked about now a couple of quarters, was particularly strong. It was also clog innovation. It was diversifying our clog platform, not away from the Classic to a broader set of clogs that have slightly different wear and occasions, Crafted, Crocband, Mellow, Echo, et cetera. So it was really product innovation. I think as we look forward, it's just critical we maintain a very high cadence of innovation and a very astute and carefully listening to the consumer so that we can move in sync with them.

Adrienne Yih: That's super helpful. Thank you very much. Best of luck.

Andrew Rees: Thank you.

Operator: The next question comes from Tom Nikic with Needham. Please go ahead.

Tom Nikic: Hey, good morning. Thanks for taking my question. Wanted to follow up on some of the HEYDUDE questions. Where do you think HEYDUDE is right now from an awareness perspective? I guess what do you have to do to bring HEYDUDE into the limelight?

Andrew Rees: Yeah, great question, Tom. As we look at HEYDUDE, I kind of alluded to it in my answer to Jon's question. HEYDUDE is still what I would describe as a super regional brand in North America. Now we sell it nationally, but we see very distinct patterns, geographical patterns of higher awareness, higher brand relevance, and higher conversion rates. We call it kind of the lowercase h, right? It comes down through the center of the Unite States down into Texas. It goes up through the Carolinas and down into Florida, right? That is HEYDUDE heartland. We see growing but weaker awareness in the Northeast. We definitely see awareness creeping up the Eastern Seaboard, and we see growing but weaker awareness on the West Coast. So we're very focused on building out those weaker areas. What does it take? I think what it takes is time and money, right? Building brand awareness is not an immediate thing. It requires, I would say, creative programs. It requires creative approaches. It requires a bit of patience, and it requires sustained investment, so that you can build that brand awareness. We've been doing that for some time, and we see progress on that, but it's not where we would like it to be ultimately. You've got also the whole overseas component, where we've been focusing mainly on Western Europe and mainly on the Mediterranean countries where we see actually really nice traction for the brand, but we've got to build beyond that.

Tom Nikic: Understood. If I could just follow up on the DTC side. You built a bunch of stores, predominantly outlet stores the last couple of years. Do you feel like the footprint you have now is sort of appropriate for where the brand is? Or would you expect to do more store build-out in the near term?

Andrew Rees: Yeah. At this stage, we don't see a lot more store build-out. We like the portfolio that we have. It performs all the roles that we are looking for it to perform, which is some helped in terms of building brand awareness and showing the consumers a broader range of HEYDUDE product than they would actually typically see in their local wholesale environment. It also is an important cleanup and liquidation vehicle for aged or excess inventory. So we like that portfolio. We don't intend to significantly add to it over the next 12-24 months. We're mainly focused on building out our digital business and building out our wholesale business. We see that as a more cost-effective way to reach our intended consumer.

Tom Nikic: All right. Sounds good. Thanks very much, Andrew and team, and best of luck this holiday season.

Andrew Rees: Thank you.

Operator: The next question comes from Rick Patel with Raymond James. Please go ahead.

Rick Patel: Thank you. Good morning, and congrats as well on the strong execution. I appreciate you quantifying the impact of this shift in the D2C channel. Curious if there's a rule of thumb we should be using for how much it's benefiting North America wholesale. Can we assume it's roughly half the implied dollar value, or is it something different? As a follow-up, with the progress you're making with D2C in North America and new products, what kind of feedback are you hearing from wholesale accounts on their willingness to take on more inventory going forward?

Patraic Reagan: Yeah. Thanks, Rick, and thanks for the congrats on the quarter. As you think about the guidance that we're putting forward as it relates to the business model shift, you'd probably feel comfortable in terms of modeling that as roughly about half dollars moving from D2C to the wholesale channel. So at about a 50% rate, that's generally a good rule of thumb as you think about direct-to-consumer to wholesale, and that's part of the work that we did over the quarter, to understand that at a more granular level of detail, and that's what led us to be able to quantify the 270 basis points in the quarter and roughly 700 to 800 going forward.

Andrew Rees: Yep. I would say from your broader question on wholesale partners and the amount of inventory that they're purchasing, et cetera, I would say, as you would expect, they are still acting pretty cautiously, right? I think they see an uncertain consumer environment in front of them, and they are planning cautiously to be able to manage their own cost base. We are quite able to react to that, in terms of where we have particular conviction in some key products, to be able to take inventory positions and drive at once. That has been very successful both in the quarter for both brands, Crocs and HEYDUDE, and we will likely need to continue to do that in the foreseeable future. I would say even with that, we have very strong control of our inventory and turn incredibly quickly. We can leverage that strength to try and maximize the sales opportunity.

Rick Patel: Great. Thanks very much.

Operator: The next question comes from Brooke Roach with Goldman Sachs. Please go ahead.

Brooke Roach: Good morning, and thank you for taking our question. Andrew, I was hoping you could provide a little bit more context on the implied acceleration that you expect to see in Crocs brand North America in the fourth quarter, excluding the wholesale partner shift. I am hoping that you can give us a little bit more detail on what is driving that, how much of that is the easy compares in North America wholesale versus DTC. Are you seeing a step function change in consumer resonance with your products or your categories, or is there something else that we should be contemplating?

Andrew Rees: Good question. So there is probably three things, Brooke, one of which you mentioned in your question, which was, there are easier compares in the fourth quarter for the Crocs brand, particularly around wholesale sell-in, where we saw the need to reduce sell-in at this point last year and had lower pre-books, and that actually continues into the first part of next year. The two other things that I would highlight are product innovation. So I think we have had some really encouraging success with our diversification of our clog portfolio here in North America with the introduction of a Crafted Crocband Echo and Mellow. So we are excited for those to continue to get traction in the North American marketplace. I think strategically it allows us to segment better across our wholesale partners, so create less intrinsic competition. That's pretty important to us. That's very important to us. I would say the sandal season actually extends a little bit further than you would think it would with hot market selling in some parts of North America. That is an underlying driver as well. The third thing is the go-to-market innovation with the opening of new channels. With the opening of particularly our TikTok Shop business and our social selling, that's really an incremental channel and an incremental way to reach the consumer. We do anticipate the fourth quarter marketplace to be very competitive. We've anticipated that in our guidance. We're excited about our new innovation. We're excited about our go-to-market innovation, and we are seeing slightly weaker compares.

Patraic Reagan: Yeah. Brooke, if I could add, just want to provide a bit more context as well as in terms of the actions that we've been taking since really 2025, as we start to effectuate some of the changes for both brands. If you remember back to 2025, we kind of set the stage for a lot of work to be done in terms of inventory cleanup. We knew that we had a strong product pipeline in both brands coming, and so we felt like it was extremely important to take the short-term pain back in late 2025 to set up this year for a return to growth. That's what we said at the beginning of the year, and that's what we've seen happen. I think as we think about Q4 and even going into 2027, we're not providing guidance on 2027 today, but I also don't want the story around Q4 to be easy compares and that sort of thing, because we see quite a bit of positivity and green shoots in both businesses. What I could say to you is, earlier Andrew had mentioned that kind of in the shorter term, we see HEYDUDE from a growth standpoint, kind of the low single digit, mid single digit range. We see that continuing into 2027. From a Crocs brand standpoint, again, we're confident in the growth, and as we go into 2027, we feel confident that it's going to be a growth year for Crocs, likely roughly about what we grew at overall this year. Just to kind of reiterate and provide a little bit more proof point and confidence, we do very much see all the indicators that we're on firm footing in terms of our return to growth strategy. We're excited about it.

Brooke Roach: That's so helpful, Patraic. Maybe a quick follow-up. I wanted to get your latest thoughts on gross margin. You're exiting the year with 200 bps of expansion in the fourth quarter. Can you contextualize how large each of the contributors are in Q4 between tariffs, supply chain, and mix? Is this underlying expansion pace sustainable as you move into FY 2027? Are they large enough to offset the rising cost pressures from raw materials and oil as you turn the year into next year?

Patraic Reagan: Yeah. There's a lot in that question, Brooke. I could probably go on for about 30 minutes. Let me start with probably the biggest one that's on top of people's minds is from a tariff standpoint. How we would contextualize both Q3 and Q4 is tariff rates were slightly favorable to us on a year-over-year comparison standpoint versus 2025, slightly. That starts to get into a little bit of country mix, et cetera, in a more granular level. China was just slightly more favorable this year than a year ago. That's kind of number one. The second component I think is most important in terms of your question is just as we look at 2027, and how we're thinking about where we are from an input cost standpoint, and I think we can all recognize that we're in an elevated inflationary environment, right? Let's just acknowledge that. What I would say is that, for us, how we're looking at this is just, it's just another evolution in terms of our business. The great thing is, whether it's through how we reacted through the pandemic, how we've reacted through the last couple of years, we've got a strong playbook for both brands in terms of levers that we can pull to ensure that we're keeping our profitability. If you think about who we are as a company, we're a large global, very well-diversified company. We've got plenty of levers that are available to us in terms of how we keep our profitability, whether that's through pricing, whether that's through efficiencies in our supply chain, whether it's through the $150 million of cost savings that we put through our P&L over the last couple of years. We feel very confident that even in an inflationary environment, that we'll be able to protect our profitability as we go forward. Hopefully that gives you a little bit more context without getting into specifics on the numbers as we go into 2027.

Brooke Roach: Great. Thanks so much.

Operator: The next question comes from Peter McGoldrick with Stifel. Please go ahead.

Peter McGoldrick: Hey, guys. Thanks for taking my question. Andrew, I wanted to get your perspective on the health of the consumer as you enter holiday this quarter. Particularly in North America, can you share some of your assumptions underpinning the willingness to spend and transact at full price? As we think about the increased outlook, are there regions in which you're seeing favorability in consumer desire to spend?

Andrew Rees: Yeah. I think, probably what I would say is I would go back to what you probably already know, right? Which is definitely a K-shaped economy. I know there has been a lot written, a lot talked about that. I am not probably the biggest expert. But we see weakness at the low-end consumer, and we see strength at the high-end consumer. Both of our brands do sell to both consumers. So, we have opportunities. But what I would say, we do not see dramatic regional trends. We do see some trends relative to channel type, right? There is definitely ongoing shifts to more digital and social selling environments and a little bit less in bricks and mortar or a little bit less in stores that require more effort to get to or maybe more time and effort based on sort of higher gas prices. I think we just focus super hard on trying to give the consumer great value, trying to give them new products that are trend-right, that are in sync with what they are looking for, at a good price and a strong value. I think we do benefit from selling in the $50 $60 range, really across both of our brands. We do have products higher than that, but a lot of our volume is done at that price point. So I think we do benefit by giving the consumer great value.

Peter McGoldrick: Excellent. Another direction. On the HEYDUDE brand, you pointed to sort of a low- to mid-single-digit growth rate normalized near term, and then sort of an international kicker in the future. Can you help us think about the timeframe for international becoming a more meaningful driver of the business?

Andrew Rees: Yeah, I think, Peter, that is super hard to put a timeframe on. I would say we are making measured investments in our international business. As we announced, as we talked about all through the year, our first priority is strengthening our North American market. So that is where the majority of time, effort, and money has been going. We are making measured investments of time, and a small amount of money in building international business. We think it will grow strongly off a very small base. But in terms of having a meaningful impact, it is some time out.

Peter McGoldrick: Understood. Good luck.

Andrew Rees: Thank you. Appreciate it.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Andrew Rees for any closing remarks.

Andrew Rees: I am sorry we are out of time and not being able to get to everybody's questions, but I did want to thank everybody for their thoughtful discussion and their interest in the Crocs company. So appreciate everybody joining us today.

Operator: The conference has concluded. Thank you for attending today's presentation. You may now disconnect.